U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





x
            ANNUAL
      REPORT UNDER PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE TRANSITION PERIOD FROM ______________ TO
      ______________





Commission
File Number: 0-16397





BENDA
PHARMACEUTICAL, INC.


(Exact
name of small business issuer as specified in its charter)





Delaware
            
            41-2185030(State
      or other jurisdiction of incorporation or
              organization)
            
            (IRS
      Employer Identification No.)





Taibei
Mingju, 4th
Floor,


6 Taibei
Road, Wuhan, Hubei Province, 430015, PRC


(Address
of principal executive offices)





+86
(27) 85494916


(Issuer’s
telephone number)





SECURITIES
REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:NONE





SECURITIES
REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:


Common
Stock, Par Value $.001 Per Share


(Title of
Class)




Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES x    NO
o




Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES oNO x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large
      accelerated filer
            o
            
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            
            Smaller
      reporting company
            x





Issuer's
revenues for its most recent fiscal year: $25,037,427




As of
April 9, 2009, 105,155,355 shares of the registrant's Common Stock were
outstanding. The aggregate market value of the voting common equity held by
non-affiliates (based on the closing bid price of such stock as reported on
April 8, 2009 by the NASD Over-the-Counter Bulletin Board) was approximately
$2,628,884.








TABLE
OF CONTENTS





Item
      Number and Caption
            
            PagePART
      IItem
      1.
            
            Description
      of Business
            
            1Item
      2.
            
            Description
      of Properties
            
            50Item
      3.
            
            Legal
      Proceedings
            
            52Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            55PART
      IIItem
      5.
            
            Market
      for Common Equity and Related Stockholder Matters
            
            55Item
      6.
            
            Selected
      Financial Data
            
            57Item
      7.
            
            Management's
      Discussion and Analysis or Plan of Operations
            
            57Item
      8.
            
            Financial
      Statements
            
            71Item
      9.
            
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            
            72Item 9A(T).
            
            Controls
      and Procedures
            
            73PART
      IIIItem
      10.
            
            Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act
            
            73Item
      11.
            
            Executive
      Compensation
            
            77Item
      12.
            
            Security
      Ownership of Certain Beneficial Owners and Management
            
            78Item
      13.
            
            Certain
      Relationships and Related Transactions and Director
      Independence
            
            80Item
      14.
            
            Exhibits
      and Reports on Form 8-K
            
            85Item
      15.
            
            Principal
      Accountant Fees and Services
            
            88











PART I





ITEM 1. DESCRIPTION OF
BUSINESS.





Summary





Benda
Pharmaceutical, Inc. (“we”, “us”, “our”, “Benda” or the “Company”), through our
wholly owned subsidiary Ever Leader Holdings Limited (“Ever Leader”), is a
pharmaceutical company that identifies, discovers, develops and manufactures
both conventional medications and Traditional Chinese Medicines (“TCMs”) for the
treatment of some of the largest common ailments and diseases (e.g., common
cold, diabetes, cancer). We are also dedicated to the development, manufacturing
and commercialization of gene therapy products.





Benda
owns all of the capital stock of Ever Leader Holdings Limited, a holding company
incorporated under the laws of Hong Kong SAR on October 29, 2005. Ever Leader
owns 95% of the issued and outstanding capital stock of Hubei Tongji Benda Ebei
Pharmaceutical Co., Ltd. (“Benda Ebei”), a Sino-Foreign Equity Joint Venture
company incorporated under the laws of the PRC. Benda Ebei owns: (i) 95% of the
issued and outstanding capital stock of Jiangling Benda Pharmaceutical Co., Ltd.
(“Jiangling Benda”), a company formed under the laws of the PRC; (ii) 95% of the
issued and outstanding capital stock of Yidu Benda Chemical Co., Ltd. (“Yidu
Benda”), a company incorporated under the laws of the PRC; (iii) 75% of the
issued and outstanding capital stock of Beijing Shusai Pharyngitis Research Co.,
Ltd. (“BJ Shusai”), a company incorporated under the laws of the PRC; and (iv)
60.13% of the issued and outstanding capital stock of Shenzhen SiBiono Gene
Technology Co., Ltd. (“SiBiono”), a company incorporated under the laws of the
PRC.





We
distribute our high value, branded medicines, through agents who sell them to
hospitals that administer them to patients. We sell generics to medical
wholesalers for resale to hospitals. The company sells its Over the Counter
(“OTC”) medicines to wholesalers specializing in selling to retail chain drug
stores. Our “Active Pharmaceutical Ingredients” (“APIs”) are typically sold to
large drug manufacturers under long-term supply contracts. The bulk chemicals
are purchased by other Chinese drug companies.





History and Recent
Developments





We were
organized as a Minnesota corporation on February 17, 1982. The technology on
which our original products were based, including Spread Spectrum Technology,
permit data and telemetry to be transmitted simultaneously over telephone wire
without interfering with normal voice service. Our products were known as
data/voice multiplexing (“DVM”) equipment and were aimed at operating telephone
companies in the telecommunications market. Our lack of financial resources
caused us to pursue a plan of dissolution as approved by our Board of Directors
and approved by our shareholders on November 30, 1993.




During
fiscal 1994, we began implementing a plan of voluntary dissolution pursuant to
Minnesota law that was approved by our shareholders at a Special Shareholders’
Meeting held on November 30, 1993. Under our plan of dissolution, most of our
assets were sold during 1994 with some payments deferred into 1995 and beyond.
The recovery period ran through 1997. During fiscal 1995, most of the tangible
asset sales were collected and only technology licenses remained to be
collected. During fiscal 1996, we continued to collect license fees and payments
on one equipment lease. The results of the plan of dissolution were successful
and all liabilities and expenses were either paid or were covered in
reserves.





1




On
November 17, 2000, a Special Meeting of the shareholders of the Company was held
at which time the plan of dissolution was revoked. Pursuant to the proposal for
revocation, a liquidating dividend of approximately $212,000 was paid pro-rata
to our shareholders in August 2001. We have been inactive since
1994.




On
October 7, 2005, we and Applied Spectrum Technologies, Inc., a Delaware
corporation (“Applied - Delaware”) entered into a certain Agreement and Plan of
Merger (“Plan of Merger”). Pursuant to the Plan of Merger, subject to
stockholder approval, we were to merge with and into Applied - Delaware for the
purposes of the redomestication from the State of Minnesota to the State of
Delaware (the “Merger”). On October 24, 2005, we filed a Definitive Proxy
Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended, with the Securities and Exchange Commission for the purpose of voting
on the Merger.





On
November 14, 2005, the holders of a majority of our outstanding shares of common
stock approved the Merger. The Merger was completed on November 17, 2005, and
the Articles of Merger were filed with the States of Minnesota and Delaware on
November 17, 2005.





On
December 14, 2005, Norwood Venture Corp. (“Norwood”), a former shareholder of
the Company and KI Equity Partners III, LLC (“KI Equity”) entered into a certain
securities purchase agreement, as amended, under which KI Equity agreed to
purchase and Norwood agreed to sell an aggregate of 2,281,302 shares of common
stock of the Company, representing approximately 77.2% of the Company’s
outstanding shares of common stock, to KI Equity at a price of $175,000. The
closing of the transactions under the Purchase Agreement occurred on December
29, 2005.




Kevin R.
Keating, our former President and sole officer and director who resigned on
November 15, 2006, is the father of Timothy J. Keating, the majority member of
Keating Investments, LLC. Keating Investments, LLC is the managing member of KI
Equity Partners III, LLC, which is the party acquiring the controlling interest
in us pursuant to the Purchase Agreement. Keating Investments, LLC is also the
managing member and 90% owner of Keating Securities, LLC, a registered
broker-dealer. Kevin R. Keating is not affiliated with and has no equity
interest in Keating Investments, LLC, KI Equity Partners III, LLC or Keating
Securities, LLC and disclaims any beneficial interest in the shares of Applied
Spectrum’s common stock to be acquired by KI Equity Partners III,
LLC.





We did
not become engaged in the pharmaceutical business until November of 2006. Before
closing our recent share exchange transaction in November 2006, we were a shell
company with nominal assets and operations, whose sole business was to identify,
evaluate and investigate various companies with the intent that, if such
investigation warrants, a business combination be negotiated and completed
pursuant to which we (formerly known as Applied Spectrum Technologies, Inc.)
would acquire a target company with an operating business with the intent of
continuing the acquired company's business as a publicly held entity. We entered
in an Exchange Agreement dated September 7, 2006 (the “Exchange Agreement”) with
KI Equity Partners II, LLC (“KI Equity”), Ever Leader, a company incorporated
under the laws of Hong Kong, and the owners of 100% of the capital shares
of Ever Leader. The closing of the Exchange Agreement occurred on November 15,
2006. At the closing of the Exchange Agreement, we acquired all of Ever Leader's
capital shares (the “Ever Leader Shares”) from the Ever Leader Shareholders, and
the Ever Leader Shareholders transferred and contributed all of their Ever
Leader Shares to us. In exchange, we issued 64,942,360 shares of our Common
Stock to the Ever Leader Shareholders.




As a
result of the closing of the Exchange Agreement, Ever Leader became our wholly
owned subsidiary and we adopted Ever Leader’s main operational business. The
Exchange transaction, for accounting and financial reporting purposes, is deemed
to be a reverse acquisition, where we (the legal acquirer) are considered the
accounting acquiree and Ever Leader (the legal acquiree) is considered the
accounting acquirer, and thus the historical financial statements of Ever Leader
are the financial statements of Benda.




2




Recent Financing




The
closing of the Exchange Agreement described above was contingent on a minimum of
$10,000,000 (or such lesser amount as mutually agreed to by Ever Leader and the
placement agent) being subscribed for, and funded into escrow, by certain
accredited and institutional investors ("Investors") in a private placement
offering for the purchase of Units, each Unit consisting of 54,087 shares of our
Common Stock ("Common Stock") and 54,087 common stock purchase warrants promptly
after the closing of the Exchange transaction under terms and conditions
approved by our board of directors immediately following the Exchange (the
“Financing”). The closing of the Financing was contingent on the closing of the
Exchange transaction, and the Exchange transaction was contingent on the closing
of the Financing. On November 15, 2006, we completed this private placement
offering. We received gross proceeds of approximately $12 million in connection
with the Financing from the Investors. Pursuant to Subscription Agreements
entered into with these Investors, we sold 480 Units for a total of 25,961,760
shares of its Common Stock and warrants to purchase an additional 25,961,760
shares of our common stock to the Investors. The price per Unit in the Financing
was $25,000.




Keating
Securities, LLC (“Placement Agent”), an affiliate of Keating Investments, LLC,
acted as placement agent in connection with the Financing. For their services,
the Placement Agents received a commission equal to 7.5% of the gross proceeds
from the offering and a non-accountable expense allowance equal to 1.5% of the
gross proceeds. In addition, the Placement Agents received, for nominal
consideration, warrants to purchase 10% of the number of shares of common stock
sold in connection with the Financing, which in the aggregate totaled 2,596,176
shares of our common stock at an exercise price of $0.555 per share. The
warrants are fully vested and have a term of five years. The Placement Agent
warrants will have registration rights similar to the registration rights
afforded to the holders of Common Stock and Warrants subscribed for in the
Financing. We also paid for the out-of-pocket expenses incurred by the Placement
Agent and all purchasers in the amount of $100,000.




In order
to finance the acquisition of a majority of the shares of Shenzhen SiBiono
GeneTech Co., Ltd. (“SiBiono”), on April 5, 2007, we entered into an Investment
Agreement (“April Financing”) with certain accredited and institutional
investors (“Investors”) who had also participated in the subscription for
$12,000,000 of our common stock pursuant to certain Securities Purchase
Agreements dated November 15, 2006 (“November Financing”). Pursuant to the
Investment Agreement, the Investors purchased a total of 252 Units for
$7,560,000 with each Unit consisting of (i) a convertible promissory note in the
principal amount of Thirty Thousand Dollars ($30,000) which shall be convertible
into 54,087 shares of the Company's common stock, par value $0.001 per share,
and (ii) a warrant to acquire 54,087 shares of Common Stock at an exercise
price of $0.555 per share. The Notes bear an interest rate of four percent per
annum until the Buyer elects to exercise the right to convert, and matured on
March 28, 2009.  The Notes have reached the Maturity
Date.  We have not repaid the principal amounts of the Notes as of the
date of this annual report.





In March
2007 the Company and the Investors entered into a Modification Agreement
amending the November Financing Documents to allow for certain issuances of the
Company's securities, including additional purchases of the Company's equity
securities pursuant to the Investment Agreement; shares issuances required under
the Equity Transfer Agreements; and issuances of options pursuant to an approved
Qualified Employment Stock Option Plan. All of the investors in the November
Financing had the right to participate in the purchase of additional units under
the Investment Agreement and all of such investors either participated in the
Investment Agreement or have waived their right to participate in such. In
addition, those investors that did not participate in the Investment Agreement
also waived their right to object to the changes to the Warrants, Registration
Rights Agreement and Make Good Agreement which were set forth in the
Modification Agreement.




On or
prior to forty five (45) days from the Closing Date of the Investment Agreement,
we were required to deliver to the Buyers our financial statements for the
years ending December 31, 2005 and December 31, 2006, audited by Kempisty &
Company Certified Public Accountants, P.C., prepared in accordance with GAAP,
during each year involved and fairly presenting in all material respects our
financial position as of the dates thereof and the results of our operations and
cash flows for each such year then ended. Such financial statements for the
years ending December 31, 2005 and December 31, 2006 were filed with our Form
10KSB for the year ending December 31, 2006 filed with the Securities and
Exchange Commission on May 4, 2007. In addition, on or prior to seventy five
(75) days from the Closing Date, we are also required to deliver to the Buyers
audited financial statements for SiBiono for the required time periods for the
Form 8-K filing required by the Securities and Exchange Commission. Such
financial statements were filed with our Amendment No. 1 to Form 8K filed June
15, 2007.





Shenzhen
SiBiono GeneTech Co., Ltd.





On April
5, 2007, Hubei Tongji Benda Ebei Pharmaceutical Co., Ltd., a Sino-Foreign Equity
Joint Venture company incorporated under the laws of the PRC (“Benda Ebei”), of
which Ever Leader Holdings Limited, a company incorporated under the laws of
Hong Kong SAR ("Ever Leader") and a wholly owned subsidiary of Benda
Pharmaceutical, Inc. (the “Company”), owns 95% of the outstanding common stock,
has entered into Equity Transfer Agreements with certain shareholders of
Shenzhen SiBiono Gene Technology Co., Ltd. (“SiBiono”), a corporation
established and validly existing under the law of the PRC, to purchase a total
of approximately 57.57% of the shares of SiBiono's common stock for total
consideration of RMB60,000,000 due and payable on or before April 30,
2007.





In
connection with the Equity Transfer Agreements, we entered into a Financial
Consultancy Agreement with Super Pioneer International Limited (“Super Pioneer”)
for financial consultancy services rendered by Super Pioneer. Pursuant to the
Financial Consultancy Agreement, we agreed to issue 2,100,000 shares of our
common stock to Super Pioneer within three months from the date of the
agreement. Super Pioneer agreed to lock up the shares for a period of twelve
months from the date of the issuance of the shares (the “Lock-up Period”).
Within three months from the Lock-up Period, in the event that the public
trading price of our shares did not reach $3.6 per share and we are not
listed in the capital market of NASDAQ or AMEX, Super Pioneer shall have the
option to require us to redeem 1,960,000 shares of the stock owned by Super
Pioneer at a price of $3.6 per share. Such option shall expire within one month
from the last date of the three month period.




3





On June
11, 2007, Benda Ebei entered into Equity Transfer Agreements with Yaojin Wang
and Huimin Zhang, shareholders of SiBiono, for the purchase of an additional
2.56% of the shares of SiBiono's common stock for total consideration of
RMB2,560,000 due and payable on or before June 30, 2007. Accordingly, Benda Ebei
holds a total of 60.13% of the shares of SiBiono's common stock.





In
connection with the Equity Transfer Agreements, we entered into Technical
Consultancy Agreements with Yaojin Wang and Huimin Zhang for technical
consultancy services rendered by Yaojin Wang and Huimin Zhang. Pursuant to the
Technical Consultancy Agreements, we agreed to issue 33,585 shares of our
common stock to Yaojin Wang and 55,975 shares of our common stock to Huimin
Zhang within three months from the date of the agreement. Yaojin Wang and Huimin
Zhang agreed to lock up their shares for a period of twelve months from the date
of the issuance of the shares (the “Lock-up Period”). Within three months from
the Lock-up Period, in the event that the public trading price of our shares did
not reach $3.6 per share and we are not listed in the capital market of NASDAQ
or AMEX, Yaojin Wang and Huimin Zhang shall have the option to require us to
redeem the shares of the stock owned by Yaojin Wang and Huimin Zhang at a price
of $3.6 per share. Such option shall expire within one month from the last date
of the three month period.  According to the signed agreements, the
redemption would have been required to be performed in September 2008. However,
we have obtained an oral consent from Super Pioneer, Wang and Zhang that the
redemption shall be deferred to the end of 2009.





Business




Our
operations are headquartered in Wuhan, Hubei Province, China. We are a mid-sized
Chinese pharmaceutical company that identifies, discovers, develops and
manufactures both conventional medications, Traditional Chinese Medicines
(“TCMs”) for the treatment of some of the largest common ailments and diseases
(e.g., common cold, diabetes, cancer), gene therapy product for the treatment of
cancer and Herbal TCM Oral Liquid for the treatment of anti-respiratory tract
infections.




We
currently have five core operating companies:


·
              Yidu
      Benda develops, manufactures and sells bulk chemicals (or
      pharmaceutical intermediated), which are the raw materials used to make
      “Active Pharmaceutical Ingredients”
(“APIs”).
 
 ·
              Jiangling
      Bendadevelops,
      manufactures and sells APIs, which are one of the two components of any
      capsules, tablets and fluids that are pharmaceutically active. An API is
      the substance in a drug that produces the desired medicinal effect. The
      “excipient” is the inert material that holds the API (such as gelatin or
      water).


·
              Benda Ebeidevelops, manufactures and sells (a) conventional finished
      medicines, which are non-patented, branded, proprietary small volume
      injection solutions (vials) used for a variety of treatments including
      hepatitis; and (b) Traditional Chinese Medicines (“TCMs”), which are
      herb-based and natural medicines used in TCM therapies (via our newly
      formed subsidiary Beijing Shusai). Some of the medicines we produce are of
      our own origination and protected from competition by certificates issued
      by China’s State Food and Drug Administration (“SFDA”).
      There are no differences between the regulatory processes for conventional
      medicines and Traditional Chinese Medicines. Traditional Chinese Medicines
      are ready-make medicines, which are produced according certain curing
      principles and prescriptions and can be used immediately, such as pills,
      medicinal granules and capsules.·
              BJShusai
      develops, manufactures and sell herbal TCM oral liquid for the treatment
      of anti-respiration tract infections. However due to the fact that the
      SFDA experienced an overhaul in its policies and regulatory systems in an
      effort to fight against corruption in Chinese pharmaceutical industry,
      thus BJ Shusai’s operation has been adversely affected by this recent
      policy changes which prohibits some state-owned hospitals from forming
      alliances with private companies. The management could not estimate that
      such situation could be resolved in the coming
  future.
 
 ·
              SiBiono
      develops, manufactures and sells gene therapy products.  As a
      pioneer in gene therapy in China, SiBiono's mission is to develop
      innovative gene therapy products for the improvement of human health and
      life quality. The Company has developed two core technology platforms:
      Viral Vector Gene Delivery System and Non-Viral Vector Gene Delivery
      System focusing on development of gene therapy product for cancer and
      cardiovascular diseases. SiBiono’s flagship product, Gendicine is the
      commercialized gene therapy for the treatment of
  cancer.


The Chinese government agency, SFDA, provides approval for
drugs released into the market in China. Unlike the Food and Drug Administration
(“FDA”) in the United States, however, the SFDA provides intellectual property
and competitive protection to certain classes of approved
drugs.




Each core
Benda operating company has its own manufacturing facility located near Wuhan,
in Hubei Province and Shenzhen, in Guangdong Province. Good
Manufacturing Practices (“GMP”) certification was first issued to Benda Ebei on
November 11, 2003 and renew on December 3, 2008 for the production of injection
vials. On November 26, 2007, Benda Ebei received a GMP certificate for the
production of tablets. Benda Ebei was designated a High and New Technology
Enterprise by the Science and Technology Bureau of Hubei Province on July 6,
2005 for a period of two years. This designation represents formal recognition
by the provincial government that a company has developed or acquired new
technology of significance, and triggers a number of government support and
incentive policies, including availability of land for expansion, research
grants and discounts on bank loan interest. The designation expired on July 6,
2007; however, we have passed the re-examination and the new designation was
received on August 2007. Although we have not received any support from the
government to date, such a designation may be useful in obtaining incentives in
the future.




4





Our Yidu
Benda facility produces bulk chemical intermediates for raw material medicine
and does not require GMP certification. Yidu Benda was temporarily closed mid
January to upgrade its waste water treatment system to comply with new
environmental standards enforced by PRC local government. Yidu Benda has
completed its upgrading of the waste water system and passed the government’s
verification and testing of equipments in October 2007. It is now permitted for
the testing on actual production process. Once the actual products are produced,
then the environmental government bodies will re-test the production results.
The management could not estimate the exact timing for obtaining the final
approval on the actual production process. Furthermore, the management is
searching for new products to be produced in Yidu Benda which with higher profit
margin.





Our
Jiangling Benda facility was closed for renovation in July 2004 to comply with
GMP standards. The Jiangling Benda plant reopened on August 10, 2007 and has
been producing Ribose, the only product that does not require GMP approval.
Jiangling Benda also plans to produce three other types of active pharmaceutical
ingredients and they are Ribavirin, Asarin and Levofloxacin which need to have
GMP Certificate.  On April 9, 2008, Jiangling Benda received the
approved GMP Certificate which authorizing the production of
Ribavrin.  The other two products, Asarin and Levolfozacin, are still
under the stage of GMP certificate approving process. The management could not
estimate the exact timing for obtaining those certificates.





On
October 16, 2003, SiBiono successfully obtained a New Drug License from the
State Food & Drug Administration of China (SFDA), and then, in April 4,
2004, SiBiono obtained “Manufacture Certificate” and “Certificate of GMP for
Pharmaceutical Product”, so far being fully qualified for the market launch of
Recombinant Human Ad-p53 Injection, trademarked as Gendicine®  in China. Gendicine® is the
commercialized gene therapy product approved in the PRC government
agency.  On May 19, 2008, SiBiono received an official notice from the
PRC State of SFDA in which it mentioned that during the random inspection
performed by the PRC State of SFDA on April 8 to April 10, 2008, the PRC State
of SFDA discovered there were several production procedures that did not meet
the requirement stated in GMP, thus it required SiBiono to perform necessary
improvements in order to fulfill the GMP requirements and the PRC State of SFDA
collected back the distributed GMP certificate until the necessary improvements
being carried out and passed the examination that conducted by
SFDA.  On June 10, 2008, SiBiono received another official notice from
Guangdong Province SFDA and they demanded the same requirements as stated in the
official notice which issued by the PRC State of SFDA dated on May 19,
2008.  On November 24, 2008, SiBiono received another official notice
from Guangdong Province SFDA which mentioned that after the examination
conducted by Shenzhen City SFDA, the Guangdong Province SFDA consent SiBiono to
carry out production on a trial basis.  It further required SiBiono
strictly to follow the requirements of GMP to organize trail production and
follow the procedures to apply for GMP Certificate verification.  The
management could not estimate the exact timing for obtaining the final approval
on the GMP Certificate.




5




Good
Manufacturing Practices (“GMP”) is an internationally-recognized standard for
pharmaceutical plant design and construction. GMP has been defined as “that part
of quality assurance which ensures that products are consistently produced and
controlled to the quality standards appropriate for their intended use and as
required by the marketing authorization” (World Health Organization). GMP covers
all aspects of the manufacturing process: defined manufacturing process;
validated critical manufacturing steps; suitable premises, storage, transport;
qualified and trained production and quality control personnel; adequate
laboratory facilities; approved written procedures and instructions; records to
show all steps of defined procedures taken; full traceability of a product
through batch processing records and distribution records; and systems for
recall and investigation of complaints. The validity of the GMP approval lasts
for five years upon the issuing date and when the expiration date is
approaching, the manufacturing company needs to make an application for the
renewal.





We
distribute our high value, branded medicines, through agents who sell them to
hospitals that administer them to patients. We sell generics to medical
wholesalers for resale to hospitals. We sell our Over the Counter (“OTC”)
medicines to wholesalers specializing in selling to retail chain drug stores.
Our APIs are typically sold to large drug manufacturers under long-term supply
contracts. Our bulk chemicals are purchased by other Chinese drug
companies.




History
and Corporate Organization




Ever
Leader was incorporated in Hong Kong on October 29, 2005 for the purpose of
functioning as an off-shore holding company to obtain ownership interests in
various entities (collectively “Benda”) that were previously owned, either
directly or indirectly, by Mr. Yiqing Wan (“Wan”) and his wife, Ms. Wei Xu
(“Xu”).




The
following paragraphs summarize the original ownership structure of various
entities owned by Wan and Xu and the subsequent reorganization and transfer of
ownership interests in these entities, either directly or indirectly, to Ever
Leader.




Ownership
Structure Prior to Reorganization




Hubei
Benda Science and Technology Development Co., Ltd. (“Benda Science”) was
incorporated in the Province of Hubei, PRC in October of 2002, primarily
functioning as a holding company with ownership interests in various entities
operated by Wan and Xu. Wan and Xu are the sole owners of Benda Science, with
ownership interests of 10% and 90%, respectively.




Benda
Ebei was incorporated in the Province of Hubei, PRC in April of 2001. Benda Ebei
has registered capital of $2,419,404 which is fully paid up. Prior to the
reorganization of Benda as further described in the paragraphs below, Benda
Science, Wan, and Xu were the sole owners of Benda Ebei, with ownership
interests of 60%, 20%, and 20%, respectively. Benda Ebei develops, manufactures,
and sells small volume injection solutions (vials) and other conventional
medicines.




Jiangling
Benda was incorporated in the Province of Hubei, PRC in October of 2001.
Jiangling Benda has registered capital of $967,738 which is fully paid. Prior to
the reorganization of Benda, Benda Science and Wan were the sole owners of
Jiangling Benda, with ownership interests of 90% and 10%, respectively.
Jiangling Benda develops, manufactures and sells active pharmaceutical
ingredients (“APIs”). Jiangling Benda’s primary production facility was closed
for upgrades and renovations in July 2004 in order to secure a GMP certification
from the Chinese SFDA. This facility is expected to reopen and resume production
in August of 2007.




6




Yidu
Benda was incorporated in the Province of Hubei, PRC in March of 2002. Yidu
Benda has registered capital of $4,233,854 which is fully paid. Prior to the
reorganization of Benda, Benda Science and Wan were the sole owners of Yidu
Benda, with ownership interests of 90% and 10%, respectively. Yidu Benda
develops, manufactures and sells bulk chemicals (or pharmaceutical
intermediates) for use in the production of APIs. The organization and ownership
structure of Benda prior to reorganization is as follows:










Reorganization
and Revised Ownership Structure




As
previously stated in the paragraphs above, Ever Leader was incorporated in Hong
Kong on October 29, 2005 for the purpose of functioning as an off-shore holding
company to obtain ownership interests in various Benda entities that were
previously owned, either directly or indirectly, by Wan and Xu. Ms. Mo Mo Hon
(“Hon”), a Hong Kong SAR resident, was the sole registered shareholder of Ever
Leader, holding the single issued and outstanding share of Ever Leader in trust
for Xu.




Pursuant
to three separate Equity Transfer Agreements entered into in November of 2005
among Ever Leader, Benda Science, Xu, and Wan, Ever Leader obtained a 95%
ownership interest in Benda Ebei in exchange for a commitment to pay $2,298,434
in aggregate consideration to Benda Science, Wan, and Xu. The $2,298,434
acquisition price represented 95% of the $2,419,404 of registered capital of
Benda Ebei, but was not representative of the fair value of the assets acquired
or liabilities assumed. Specifically, as transfers of ownership interests in PRC
entities to offshore holding companies for zero or nominal consideration is
prohibited by the Chinese Government (regardless of whether these PRC
entities and offshore holding companies are directly or indirectly owned and
controlled by the same individual or individuals), an amount equal to 95% of the
value of the registered capital of Benda Ebei was established for purposes of
the transfer of the 95% ownership interest in Benda Ebei (directly and
indirectly 100% owned and controlled by Wan and Xu) to Ever Leader (beneficially
100% owned and controlled by Xu). As a result of each of these entities being
100% directly and indirectly controlled by Wan and Xu, this transaction has been
accounted for as a combination of entities under common control (see additional
discussion of accounting treatment in the paragraphs that follow), with Ever
Leader’s commitment to pay $2,298,434 in aggregate consideration to Benda
Science, Wan and Xu being reflected as a current liability at both December
31,2005 and 2004, with corresponding reductions to paid-in capital.




7




Pursuant
to an Equity Transfer Agreement entered into on December 3, 2005 among Benda
Ebei, Benda Science, and Wan, Benda Science transferred and assigned its 90%
ownership interest in Jiangling Benda to Benda Ebei and Wan transferred and
assigned a 5% ownership interest in Jiangling Benda to Benda Ebei (for zero
consideration as Benda Ebei and Jiangling Benda were both directly and
indirectly 100% owned and controlled by Wan and Xu).





Pursuant
to a second Equity Transfer Agreement entered into on December 4, 2005 among
Benda Ebei, Benda Science, and Wan, Benda Science transferred and assigned its
90% ownership interest in Yidu Benda to Benda Ebei and Wan transferred and
assigned a 5% ownership interest in Yidu Benda to Benda Ebei (for zero
consideration as Benda Ebei and Yidu Benda were both directly
and indirectly 100% owned and controlled by Wan and Xu).




The
organization and ownership structure of the Company subsequent to the
consummation of the reorganization as summarized in the paragraphs above is as
follows:









In July
of 2006, Benda Ebei invested approximately $112,500 for a 75% ownership interest
in Beijing Shusai, with the remaining 25% owned by an unrelated PRC individual.
Beijing Shusai, a PRC limited liability company, was incorporated on June 15,
2006 and commenced primary operations in July 2006. Benda Ebei is setting up
self-operated and franchised Pharyngitis Clinics in leading hospitals throughout
major cities in China. It is currently operating two clinics for the Pharyngitis
Killer therapy in Beijing, PRC.




8




On
September 5, 2006, Ever Leader increased its number of authorized shares of
common stock from 10,000 to 1,000,000 and effected a 100 to 1 stock split,
resulting in Hon (the original sole registered shareholder of Ever Leader
holding one share in trust for Xu) receiving 99 additional shares in the
Company.




On
September 5, 2006, Ever Leader transferred and assigned 711,202 shares of common
stock to Xia Pharmaceutical, Inc. (“XIA”), an offshore holding company
incorporated in the British Virgin Islands (“BVI”) that is 100% owned and
controlled by Wan and Xu.




On
September 5, 2006, Ever Leader issued 288,698 shares of common stock to 19
entities (some of whom are considered related parties) at par value.
Additionally, Hon transferred and assigned her ownership interest in her 100
shares of Ever Leader to one of these entities.




The
organization and ownership structure of the Company subsequent to the
consummation of the reorganization as summarized in the paragraphs above is as
follows:









9




The
organizational chart after the acquisition of SiBiono would be stated as
follows:









PRINCIPAL
PRODUCTS




In 2008,
our revenues were principally derived from sales of products listed in Figure 1.
We have SFDA approval for all medicines and active pharmaceutical ingredients
that we market. Sales of herbal TCM’s and bulk chemicals do not require SFDA
approval. Our medicines have undergone pharmacological experiments in order to
research the medicines’ effect and mechanism on organisms. On the other side,
the experiments also research the organisms’ effect on the medicine. It
includes pharmacodynamics and pharmacokinetics. Pharmacological experiments and
clinical trials have similarities. Clinical trials are part of pharmacological
experiments. However, pharmacological experiments mainly use animals as research
subjects, while clinical trials generally utilize patients as research subjects.
Pharmacological experiments are carried out by regulations of non-clinical
medicine research and quality control issued by SFDA.




Main
Products





Manufacturer
            
            Product
            
            Type
            
            FunctionBenda
      Ebei
            
            Jixuening
      injection vial
            
            Generic
            
            Haemostatic
      (stops bleeding)Benda
      Ebei
            
            Xujing
      injection vial
            
            Generic
            
            HaemostaticBenda
      Ebei
            
            Nokeqing
      injection vial
            
            Generic
            
            Used
      to treat hepatitisBenda
      Ebei
            
            Yidingshu
      injection vial
            
            Generic
            
            Vitamin
      to treat lack of RiboflavinBenda
      Ebei
            
            Shusai-A
      injection vial
            
            Generic
            
            Anti-inflammatory
      analgesicBenda
      Ebei
            
            Suzheng-B
      injection vial
            
            Generic
            
            Vitamin;
      complementary medicine used to treat hepatitisBenda
      Ebei
            
            Ribavirin
      injection vial
            
            Generic
            
            Anti-virus,
      to treat acute upper respiratory tract infectionBenda
      Ebei
            
            Gentamycin
      Sulfate Injection vial
            
            Generic
            
            Broad
      spectrum antibioticBenda
      Ebei
            
            Vitamin
      B6 injection vial
            
            Generic
            
            Vitamin;
      complementary medicine used to treat hepatitisBenda
      Ebei
            
            Inosine
      injection vial
            
            Generic
            
            Nutrition,
      complementary medicine used to treat hepatitisBenda
      Ebei
            
            Vitamin
      C injection vial
            
            Generic
            
            To
      treat deficiency of vitamin CJiangling
      Benda
            
            Ribavirin
      API (1)
            
            API
            
            Ribavirin
      drug manufacture.Jiangling
      Benda
            
            Asarin
      API (1)
            
            API
            
            Asarin
      manufacture to treat acute upper respiratory system
    infectionJiangling
      Benda
            
            Levofloxacin
      Mesylate API (1)
            
            API
            
            Broad
      spectrum antibiotic drug manufactureJiangling
      Benda
            
            Ribose
            
            API
            
            Used
      to manufacture antibiotic drugYidu
      Benda
            
            Triazol
      carboxylic acid methyl ester (“TCA”)
            
            Bulk chemical
            
            Ribavirin
      manufacture, anti-virusSiBiono
            
            Gendicine
            
            Gene
      Therapy
            
            Treatment
      of cancer




(1)
            Jiangling
      Benda facility was closed for renovation in July 2004 to comply with GMP
      standards. The Jiangling Benda plant reopened on August 10, 2007 and has
      been producing Ribose, the only product that does not require GMP
      approval. Jiangling Benda also plans to produce three other types of
      active pharmaceutical ingredients and they are Ribavirin, Asarin and
      Levofloxacin which need to have GMP Certificate.  On April 9,
      2008, Jiangling Benda received the approved GMP Certificate which
      authorizes the production of Ribavrin.  The other two products,
      Asarin and Levolfozacin, are still undergoing the GMP certificate
      approving process. The management cannot estimate the exact timing for
      obtaining those certificates.


10




SFDA
Compared to the FDA





The SFDA
approval process is similar to the FDA approval process. They both require three
phases of clinical trials.




·
            Phase
      I: Test the safety of drugs. 20-80 cases are required by FDA, while 20-30
      cases are required by SFDA.




·
            Phase
      II: Test the efficacy of drugs. Several hundred cases are required by FDA,
      while 100 cases are required by
SFDA.





11




·
            Phase
      III: Expand the sample group and further test the safety and effectiveness
      of drugs. Several hundreds, even thousands are required by FDA, while 300
      hundred cases are required by SFDA.




Before a
drug can be sold in China, the drug needs to undergo the above three phases,
namely pre-clinical trial, clinical trial and finally, GMP approval. The
approval of a drug by SFDA does not guarantee the approval by FDA. However,
drugs approved by SFDA can be exempted from certain steps in US clinical trials
before applying for FDA.





Benda Ebei
Products




Of our
branded medicines, the Shusai-A Nefopam Hydrochloride solution, sold in
injection vials, is particularly noteworthy. According to a pharmacological
experiment, Nefopam Hydrochloride has an analgesic effect 10.4 times greater
than that of aspirin. Furthermore, it is not addictive and causes no known side
effects.




Pharmacological
experiments research the medicines’ effect and mechanism on organisms. On the
other side, the experiments also research the organisms’ effect on the medicine.
It includes pharmacodynamics and pharmacokinetics. Pharmacological experiments
and clinical trials have similarities. Clinical trials are part of
pharmacological experiments. However, pharmacological experiments mainly use
animals as research subjects, while clinical trials generally utilize patients
as research subjects. Pharmacological experiments are carried out by
regulations of non-clinical medicine research and quality control issued by
SFDA.





The
chemical name of this product is Nefopam hydrochloride. It mainly contains:
5-Methyl-1-Phenyl-3,4,5,6-Tetrahydrocannabinol-1H-2,5-benzoxazocine, fenazoxine
hydrochloride. It is a new type of Non-narcotic analgesics which has the
function of low-grade Antipyretic and muscle relaxants. Its chemical structure
belongs to O-methyl benzene ring of diphenhydramine, so it does not have the
attribute of Non-steroidal anti-inflammatory drugs, nor Opioid receptor agonist.
It is effective for middle-grade and heavy-grade pain. Intramuscular injecting
20mg of Nefopam hydrochloride equals to intramuscular injecting 12mg morphine.
It has light effectiveness on respiration inhibition. It has no inhibition
on circulatory system. It has no tolerance or dependence. It can be rapidly oral
absorbed, Tmax 1-3 hours, and it has obvious effect while first pass. T1/2 4-8
hours, the binding rate of plasma protein is 71%-76%. It is metabolized by liver
to lose its pharmacological activities. Most of it will be excreted through
kidney. The prototype drug will be less than 5% and only a little will be
excreted along with excretion. It is used for pain-killing after operation,
cancer pain, and acute pain. It is also used for visceral smooth muscle cramps
such as acute gastritis, in-biliary ascariasis, ureterolithiasis.





The
clinical trials were conducted in 1993, instructed by Doctor Guozhong, Peng.
Ebei plant paid for all clinical trial expenses. It passed the clinical trials
in 6 clinical institutes including the provincial hospital of Hebei, the second
and the forth hospital attached Hebei School of Medicine, Bethune international
peace hospital and etc. The efficacy rate is around 80% for all 374 cases
examined. There is no follow up results.





Generics
are common, low-cost, medicines used by doctors in hospitals nationwide. Our
generics have been marketed for more than 10 years and are generally used by
low-income patients in rural and country districts. The profit margins for our
generics, which constitute about 3 per cent of Benda Ebei’s current sales
volume, are lower than those of our branded products. However, our generic
products are an effective means for promoting our corporate name, image and
brands nationwide.




Jiangling Benda
Products




Jiangling
Benda produces and plans to produce four types of active pharmaceutical
ingredients and they are Ribavirin, Asarin, Levofloxacin and Ribose whereas the
production of Ribose does not require the GMP certificate, but the production of
the other three products do require the GMP certificate.




·
            Ribavirin
      has been used to produce antivirus medicine to treat SARS and SARS-like
      illnesses. Ribavirin is also used to treat severe virus pneumonia in
      infants and young children and a viral liver infection known as hepatitis
      C. It can be used in patients who have hepatitis C or human
      immunodeficiency virus (“HIV”) infection. Alliance Pharm, Inc. is advising
      us on modifications to our production processes in our effort to achieve
      U.S. FDA certification. Currently, there is only one other pharmaceutical
      company in PRC that has received U.S. FDA certification to produce
      Ribavirin API. On April 9, 2008, Jiangling Benda received the
      approved GMP Certificate from the SFDA which authorizing the production of
      Ribavrin.





12




·
            Asarin
      is used to treat infections of the upper respiratory system. Our Asarin
      API is synthesized chemically rather than being extracted from natural raw
      materials, making it a cost effective and price competitive product.
      Benda’s Asarin received SFDA approval as a new API on December 27, 2005.
      We plan to extend our reach further down the value chain and manufacture
      consumer-ready Asarin medicines, in injection, vial and pill form, from
      our Asarin API. We have already filed for SFDA approval for these three
      types of finished Asarin products.





·
            Levofloxacin
      Mesylate is a synthetic broad spectrum antibacterial agent for oral and
      intravenous administration. Benda’s Levofloxacin received SFDA approval as
      new drug ingredient on March 5,
2006.





·
            Ribose
      is a kind of active pharmaceutical ingredient and which is used to
      manufacture antibiotic drug and which does not the approval from
      SFDA.




Yidu Benda
Product




Yidu
plans to produce one type of bulk chemicals:


·
              Triazol
      carboxylic acid methyl ester (“TCA”). This is our main bulk chemical
      product.


Due to a
government order issued by the local government on January 10, 2007, our Yidu
Benda plant has been shut down since the middle of January 2007 for improvement
of our waste water treatment systems. The order requires us to finish the
improvement and be compliant by June 30, 2007. On September 25, and October 1,
2007, Yidu Benda had passed the environmental assessment and safety assessment
by the Yichang Environmental Protection Bureau and Yichang Safety Supervision
Bureau These two bureaus have issued “Environmental Influence Report” and
“Safety Assessment Report” in November and December of 2007, respectively.
Yichang Environmental Protection Bureau issued an approval document, (Document
Number: Yichang Environmental Audit [2007] No. 111) and permitted the trial
production of Yidu Benda on December 28, 2007, at which time Yidu Benda resumed
full production. The related government agencies through trial production
physically inspect the products produced by the newly installed production
facilities. The main purpose for doing so is to ensure that the quality of the
products is such that there will be no harm to the environment. In addition,
Yidu Benda had also passed the examinations conducted by Yichang Public Security
Bureau, Yichang Lightning Protection Institute and Yichang Special Equipment
Inspection and Test Institute, in terms of the fire apparatus and facilities,
lightning protection and static proof facilities etc. It is now permitted for
the testing on actual production process. Once the actual products are produced,
then the environmental government bodies will re-test the production results.
The management could not estimate the exact timing for obtaining the final
approval on the actual production process. Furthermore, the management is
searching for new products to be produced in Yidu Benda which with higher profit
margin.





SiBiono
Product





SiBiono
is a gene therapy company dedicated to the development, manufacturing and
commercialization of gene therapy products. As a pioneer in gene therapy in
China, SiBiono's mission is to develop innovative gene therapy products for the
improvement of human health and life quality. The Company has developed two
core technology platforms: Viral Vector Gene Delivery System and Non-Viral
Vector Gene Delivery System focusing on development of gene therapy product for
cancer and cardiovascular diseases.





On
October 16, 2003, SiBiono successfully obtained a New Drug License from the
State Food & Drug Administration of China (SFDA), and then, in April 4,
2004, SiBiono obtained “Manufacture Certificate” and “Certificate of GMP for
Pharmaceutical Product”, so far being fully qualified for the market launch of
Recombinant Human Ad-p53 Injection, trademarked as Gendicine®  in China. Gendicine® is the
first ever commercialized gene therapy product approved in the world by a
government agency. Gendicine is recognized by the world's first class journals
as a major milestone in the field of gene research and biotechnology and is
expect to make important contribution to mankind's endeavor for improving human
health.




13





MARKETING
AND DISTRIBUTION METHODS OF PRODUCTS AND SERVICES




Prescription
Medicines




Two types
of distribution channels exist in the Chinese medicine industry.




For high
value branded medicines: Pharmaceutical Manufacturers à Agents à Sub Agentsà Medicine
Representativesà
Hospitals or Pharmaciesà  Patients




For low
value generics: Pharmaceutical Manufacturersà Wholesalersà Secondary
Wholesalersà
Hospitals or Pharmaciesà  Patients




The major
difference between an agent and a wholesaler is that the agent has exclusive
product sales rights from each manufacturer in each region, which is generally a
province. Sometimes manufacturers have several wholesalers in a
region.




The table
below illustrates price markups along the distribution channel for a typical
Benda Ebei branded drug, Shusai-A.




Shusai-A
Price Markup Pattern




Purchase
              Price per
              piece in
              RMB
            
            Price
              MarkupPatients
            
            
            40.00
            
            54%Retail/Hospitals
            
            
            26.00
            
            622%Medicine
      Reps
            
            
            3.60
            
            29%Sub-agents
            
            
            2.80
            
            56%Agents
            
            
            1.80Benda
      Ebei
            
            
            n/a





The
highest price markup along the distribution channel is on sales by medicine reps
to hospitals because such markups finance kick-backs paid by the reps to
doctors. This unfortunate, but common, practice is condemned by PRC’s patients
and medical industry regulators, but no effective method has been found to stamp
it out. In reality, there are “kick-backs” phenomena which are paid by the reps
to doctors, not by our company to doctors. However, in the normal course of
business, sales commission would be incurred between our company and clients,
such as agents or wholesalers etc., in order to have a sense of incentive to
them. This sales commission scheme is fully disclosed in the sales contracts and
is also allowed by the relevant PRC regulations.





Benda
Ebei sells its products to agents or wholesalers. This method minimizes the need
for a direct sales force and distances Benda Ebei from questionable kick-backs
and potential legal consequences.





Active
Pharmaceutical Ingredients (“APIs”)





Our APIs
are purchased by other Chinese drug companies on an order-by-order basis. The
domestic industry is tight-knit and API marketing still relies on word-of-mouth,
reputation, and personal contacts. Although we have temporarily closed the
Jiangling plant to complete renovation and obtain GMP certification, we have
maintained relationships with all our former clients and expect to bring on
other drug companies as new customers.





Jiangling
Plant is primarily engaged in producing Ribose, a bulk chemical which does not
require GMP approval and Active Pharmaceutical Ingredients (API) which need GMP
approval.




Jiangling
Benda was re-opened in August 2007. The products that are planned to be produced
in Jiangling Benda are as follows:




a) Ribavirin
API (Anti-virus)


b) Asarin
API (Antibiotic)


c) Levofloxacin
(Antibiotic)


d) Ribose




These
four products are classified as API whereas the production of Ribavirin, Asarin
and Levofloxacin need to obtain GMP approval, however the production of Ribose
does not need the GMP approval. Currently, Jiangling Benda only produces Ribose
and which is a kind of API.




14





Bulk
chemicals




We market
our bulk chemicals by cultivating strong, long-term relationships with loyal
customers. We usually supply customers pursuant to annual renewable contracts.
Customers usually start by buying small quantities and gradually increasing
order sizes. We also enjoy long-standing relationships with a number of
important exporters. These sales contracts are signed annually.




Beijing
Shusai Pharyngitis Research Co., Ltd.




Beijing
Shusai Pharyngitis Research Co., Ltd, a recently established subsidiary of Benda
Ebei, handles our Pharyngitis Killer therapy operation, promotion, and
distribution. Key functional departments are as follows:





·
            Training.
      Trains doctors, doctor assistants, and medical workers.·
            Advisory.
      Advises each clinic on how best to apply the Pharyngitis Killer
      treatment.




·
            Business
      Development. Extend the footprint of Pharyngitis clinics and implement
      patient outreach programs.·
            Marketing.
      Formulate and execute marketing
plans.





·
            Finance.
      Provide internal financial services to support business
      operations.




·
            Logistics.
      Ensure no bottlenecks or shortages in product supply to the
      clinics.




Special
Marketing Initiatives




(1)
            Qiweiben Capsule
      Initiative. Benda Ebei intends to develop a series of products
      based on the Qiweiben Capsule and designed to treat diabetes. They will be
      sold through diabetes recovery centers and regional
      distributors.




(2)
            Jixuening Initiative.
      We plan to develop a group of haemostatic medicines based on our core
      Jixuening brand. Benda Ebei’s Jixuening has been listed in theCatalogof Basic Medicines Covered
      bySocial MedicalSecurity.




(3)
            Analgesic Initiative.
      The treatment of pain attracts more attention from PRC’s medical community
      and hospitals around the country that are setting up pain clinics. Our
      Shusai-A and Lappaconitine Hydrobromide products are uniquely powerful
      pain killers and are not addictive. We plan to leverage their popularity
      to promote our other pain killers and thereby build a series of pain
      killer medicines.





15




(4)
            Asarin Initiative. We
      intend to form a group of medicines, based on Asarin, which will be
      designed to cure upper respiratory tract
  infection.




STATUS
OF PUBLICLY ANNOUNCED NEW PRODUCTS/SERVICES




We expect
that the following products in our development pipeline will generate growth in
our revenues in the next few years. We expect to begin mass production for
products once we receive SFDA’s approval.





The
registration of a medicine must first be undertaken at the provincial level.
First, you need to make an application in the provincial Food and Drug
administration, then you must pass the on-the-spot examination of the provincial
registration office and the initial inspection of information experts. After
that, you can apply for the experts’ technological evaluation of National
Medicine Analysis and Judgment center. Only after you received the technological
evaluation, your registration can be transferred to SFDA to have administrative
ratification. After the ratification, you will be issued new license and
ratification number. In most situations, after the application and record of
provincial Food and Drug administration, the company’s products will not be
examined again by National Medicine Analysis and Judgment center, which is
similar to the first step of technological check.





Due to
the restructuring of SFDA, the process of approval new drug has been on hold
since the beginning of 2007. We do not know how long it will take to resume the
approval process.





The
Company can only obtain the license for the new medicine and the production
license after the completion of the clinical experiments. The procedures of
obtaining new drug certificate with the SFDA are as follows:




1. Submit
the application to the Province SFDA;




2. Then
the Province SFDA will perform the physical inspection;




3. If we
pass the physical inspection, the related application would be transferred to
the State SFDA;




4. After
ratification, the new drug license and ratification number would be
issued.





Development
Status of Key Products in Our Pipeline




Name
      of Product
            
            Type
            
            Main
      Function
            
            StatusPharyngitis
      Killer
            
            Herbal
      TCM Oral Liquid and Treatment
            
            Anti-respiratory
      tract infections
            
            Market
      launch underway; SFDA Certificate not necessaryQiweiben
      Capsule
            
            Branded
      TCM
            
            Diabetes
      treatment
            
            New
      Medicine Application is accepted by SFDA; awaiting for SFDA approval and
      production permitYan
      Long Anti-cancer Oral Liquid
            
            Branded
      TCM
            
            Treatment
      of cancers of the digestive tract
            
            Awaiting
      for SFDA approval (1)500mg:5ml
      Tranexamic Acid Injection vial
            
            Generic
            
            Haemostatic
            
            SFDA
      production approval H20044601 received; Put in production
      line.200mg:2ml
      Ribavirin Injection vial
            
            Generic
            
            Antibiotic
            
            SFDA
      production approval H42021048 received; Put in production
      line.





16




1000mg:2.5mlVitamin
      C Injection vial
            
            Generic
            
            Vitamin
            
            Achieved
      State acceptance and hearing Y0405945; SFDA production approval H20067577
      received; Put in production line.0.1g:2ml
      Lomefloxacin Aspartate Injection vial
            
            Generic
            
            Antibiotic
            
            SFDA
      production approval H20056701 received; Put in production
      line.0.2g:5ml
      Lomefloxacin Aspartate Injection vial
            
            Generic
            
            Antibiotic
            
            SFDA
      production approval H20056702 received; Put in production
      line.Lappaconitine
      Hydrobromide Injection vial
            
            Branded
      Medicine
            
            Analgesic
            
            SFDA
      production approval H20055966 received; Put in production
      line.Asarin
      Injection vial
            
            Generic
            
            Treatment
      of upper respiratory infection
            
            Filing
      completed at provincial bureau level; filed with SFDA in May
      2006Asarin
      pill
            
            Generic
            
            Treatment
      of upper respiratory infection
            
            Filing
      completed at provincial bureau level; filed with SFDA in August 2006; Need
      further bio-clinical trial.Asarin
      granular medicine
            
            Generic
            
            Treatment
      of upper respiratory infection
            
            Filing
      completed at provincial bureau level; filing with SFDA in September
      2006Asarin
      oral liquid
            
            Generic
            
            Treatment
      of upper respiratory infection
            
            Filing
      completed at provincial bureau level; filing with SFDA in September 2006;
      Need further bio-clinical trial.Lysine
      Hydrochloride Injection vial
            
            Generic
            
            Amino
      acid
            
            Filing
      completed at provincial bureau level; filed with SFDA in July 2006; Need
      further bio-clinical trial.Arginine
      Monohydrochloride Injection vial
            
            Generic
            
            Amino
      acid
            
            Filing
      completed at provincial bureau level; filed with SFDA in July 2006; Need
      further bio-clinical trial.100mg:5ml
      Levofloxacin Hydrochloride Injection vial
            
            Generic
            
            Antibiotic
            
            Filing
      completed at provincial bureau level; filed with SFDA in July 2006; Need
      further bio-clinical trial.500mg:5ml
      Levofloxacin Hydrochloride Injection vial
            
            Generic
            
            Antibiotic
            
            Filing
      completed at provincial bureau level; filed with SFDA in July 2006; Need
      further bio-clinical trial.a-Asarin raw
      medicines
            
            API
            
            Upper
      respiratory infection
            
            SFDA
      production approval H20059540 received; prepare for
      production.Levofloxacin
      mesylate API
            
            API
            
            Antivirus
            
            Filing
      completed at provincial bureau level; SFDA approval received; prepare for
      production.GCLE
            
            Bulk
      chemical
            
            Production
      of Antibiotics
            
            As
      it is a chemical product, it does not need SFDA
  approval.




(1)
Yanlong oral solution has finished its earlier stage of research, and the
Company is in the process of applying for SFDA’s permission of clinical trials.
The new drug certificate will only be issued after the clinical
trials.


17


New
Branded Medicines




Our
upcoming branded medicines include Qiweiben capsule and Yanlong anti-cancer oral
liquid, which are proprietary traditional Chinese medicines, and Pharyngitis
Killer Therapy, which is a combination of herb-based traditional Chinese
medicine and treatments. We expect these products to have a significant positive
impact on our future operational results.




Our New
Branded Traditional Chinese Medicines




Features
            
            Pharyngitis Killer
              Therapy
            
            Qiweiben Capsule
            
            Yanlong Anti-cancer
              oral liquidTargeted IP/ Formula Protection Period (1)
            
            Not
      Applicable (2)
            
            7+7
      years (7)
            
            7+7
      years (7)Our
      Ownership
            
            75%
      (3)
            
            100%
            
            100%
      with reservation (4)Completion
      Date Of Clinical Tests
            
            Not
      Applicable
            
            Pening
      (6)
            
            Pending
      (6)New
      Medicine Certification Date
            
            Not
      Applicable
            
            Pening
      (6)
            
            Pending
      (6)Expected
      installation of GMP quality production line (5)
            
            Not
      Applicable
            
            Pending
      (6)
            
            Pending
      (6)Expected
      SFDA Production Certification
            
            Not
      Applicable
            
            Pending
      (6)
            
            Pending
      (6)Expected
      Commencement of Production
            
            Launched
      June 2006
            
            Pending
      (6)
            
            Pending
      (6)




(1) The
first protection period will commence when the proprietary TCM protection
application is approved. The second protection period can be applied for when
the first protection period is expired.




(2) TCM
therapies do not require SFDA approval. We chose not to apply for patent
protection for this product’s formula due to our concerns about disclosures
required in the patent application process.




(3) Benda
owns 75% of Beijing Shusai Pharyngitis Research Co., Ltd., a company that owns
all product and market exploitation rights to Pharyngitis Killer
Therapy.





(4) The
inventor of Yanlong Anti-cancer oral liquid, Mr. Yan Li, has reserved the right
to sell the product to one hospital in Hong Kong, one hospital in Taiwan and one
hospital in Shenzhen province.




(5) GMP
certification is expected once the facility installation for the products below
referenced products and examination by the related local government agency is
completed.




18




In order
to produceQiwweiben, the following table shows the production facilities are
purchased and installed, and they are all located in Benda Ebei and waiting for
the government agency for inspection:





No.
            
            Equipment
            
            Model
      No.
            
            Quantity1
            
            Muller
            
            300A
            
            22
            
            powder
      shifter
            
            ZS-350
            
            23
            
            powder
      shifter
            
            XS-650
            
            14
            
            3D
      mixer blender
            
            HD-1000
            
            15
            
            Ultrasonic
      spray drier
            
            FL-120
            
            16
            
            Wet
      mixer granulator
            
            GHL-250
            
            17
            
            Slot
      shape Mixer
            
            CHL-150
            
            28
            
            granule
      drier
            
            TC-Z-II
            
            19
            
            Capsule
      filling machine
            
            NJP-1200
            
            110
            
            Capsule
      polishing machine
            
            YPJ-II
            
            111
            
            fast
      packing machine
            
            DPH-250D
            
            1




In order
to produce Yanlong Anti-cancer Oral Liquid, the following table shows the
production facilities are purchased and installed, and they are all located in
Benda Ebei and waiting for the government agency for inspection:




No.
            
            Equipment
            
            Model
      No.
            
            Category1
            
            Solution
      Preparation Reservoir
            
            PLG-1.02
            
            Fluid
      Storage Reservoir
            
            ZYG-1.03
            
            High
      Level Reservoir
            
            N/A,
      general machinery
            
            Liquefy4
            
            Micro-filters
            
            N/A,
      general machinery
            
            System5
            
            Filters
      for Sugar Syrup
            
            N/A,
      general machinery6
            
            Sugar
      Dissolving Reservoir
            
            HTG-0.57
            
            Bottle
      Filling Machine
            
            QCX608
            
            Sterilization
      System
            
            AQS1.2
            
            Bottling9
            
            Labeling
      Machine
            
            TWJA
            
            System10
            
            Light
      Examine Workstations
            
            N/A





(6) Due
to recent restructuring within SFDA, the approval process for new medicines has
been ceased since November 2006, except for the first class new medicines which
are drugs that have never been sold or appeared in the market in China. The
management expects that such situation would still last for an indefinite
period.





(7)
According to the relevant Chinese patent drug policies of SFDA, all national
protective Chinese patent drugs can apply for a seven-year protective period.
During the period, other pharmaceutical enterprises cannot produce imitation
products. After the first seven years, the company can apply for another seven
years’ protective period.





Pharyngitis Killer Therapy
(Anti-Respiratory Tract Infections)




Product Description: This is
an entirely natural Chinese medicine and treatment containing no hormones or
antibiotics, which cures a wide range of upper respiratory tract infections,
ranging from the common cough to more advanced respiratory illnesses, such as
acute and chronic pharyngitis, tracheitis and bronchitis which has already been
proven by clinical trails which are conducted by the company together with the
co-operated hospitals.





The
clinical trials were conducted by the company together with co-operated
hospitals which was based on the sample size 50 chronic respiratory patients who
either had the symptom pharyngoxerosis throat itch, chest distress and feeling
suffocated or oppressed, throat swelling and sore or vocal cord weary and
hoarseness. The medical products used as a comparison were Pharyngitis Killer
Therapy (in form of herb drink) alone and chronic comprehensive
therapy.





We
believe the oral liquid taken alone has a success rate of up to 80% in treating
chronic pharyngitis; however, if accompanied by further treatment, success rates
of up to 98% can be achieved.




19





This
medicine, in the form of herbal drink, was developed and kept secret over many
generations by the Wang family of Beijing. The formula and treatment was
initially invented in 682 A.D. by Wang Zhaojing, a famous doctor in Chinese
medical history. We believe the oral liquid taken alone has a success rate of up
to 80% in treating chronic pharyngitis; however, if accompanied by further
treatment, success rates of up to 98% can be achieved.





However,
the above data was only conducted by the company together with co-operated
hospitals which was based on the sample size 50 chronic respiratory patients. In
order words, such clinical trials were not performed by the formal requirement
of SFDA.





Our
Pharyngitis Killer therapy:





·
            Swiftly
      smoothes away throat itching and
coughing




·
            Controls
      the development of disease in the mucus of the
  mouth




·
            Rebuilds
      the immune function of the throat area·
            Provides
      a natural therapy, which is without side effects and free of
      antibiotics




Market Outlook: With the
recent urbanization and industrialization of PRC, pollution has become a big
problem. Air pollution in particular causes several diseases of the pharynx.
Researchers believe that approximately 10% of the people who live in cities
suffer from pharynx disease, while in some rural areas, the ratio is a lower,
though still significant, 5.5%. Until now treatments for upper respiratory
tract infections have relied on antibiotics to control acute pharyngitis
temporarily. However, no medicine in the market has thus far been effective at
treating chronic pharyngitis. Pharyngitis Killer therapy overcomes the
deficiencies of other treatments and eradicates the disease.




Purchase: The operating
company for the Pharyngitis Killer therapy is Beijing Shusai. The total
registered capital is 1.2 million RMB. As part of the joint venture, Mr. Wang
contributed the Pharyngitis Killer formula and treatment as intangible assets,
valued at 300,000 RMB, in return for 25% of Benda Shusai’s equity. Benda Ebei
invested 900,000 RMB in cash for 75% equity.




IP protection/ technology
confidentiality: Pharyngitis Killer is a traditional Chinese medicine and
as such does not require SFDA approval. Benda Ebei has chosen not to file for
patent protection on the formula in order to avoid disclosing the product
formula. It believes that the formula and treatment are effectively protected
by: (a) the separation of auxiliary ingredients with a proprietary catalyst
powder called Yao Yin; (b) a proprietary production method for the oral liquid;
and (3) by proprietary treatment techniques. We plan to apply for patent
protection for both the processing method used to make the oral liquid and
the treatment method applied on patients.




Promotion: We plan to market
Pharyngitis Killer as a stand alone oral liquid medicine that can be combined
with surgery-like treatment to achieve results. In August 2006, the PRC State
Administration of Traditional Chinese Medicine (“SATCM”) issued an official
promotional document to provincial SATCM’s, in which Pharyngitis Killer therapy
is categorized as a recommended TCM and treatment. This official promotional
document was issued on August 18, 2006 based on an expert panel review of
Pharyngitis Killer conducted in August 2006.




Marketing and Distribution:
We are setting up self-operated and franchised Pharyngitis Clinics. Benda Ebei
currently has two clinics in full operation in Beijing. Benda Ebei has prepared
advertising and marketing campaigns to support the rapid expansion of the
franchise, which will begin after the closing of this offering. Our
self-operated clinics will be located inside hospitals. A proportion of the
gross revenues will be paid to the host hospitals in lieu of rent and as
compensation for any marketing efforts made on our behalf. Franchised
Pharyngitis Killer clinics will be operated by franchisees, which will buy the
medicine from us and pay us a franchising fee. We plan to open franchising
clinics only at the beginning of the roll-out period in order to accelerate the
revenue growth and minimize start-up costs. At a later stage, we plan to open
self operated clinics only because we expect that they will be
comparatively more profitable and easier to manage.




20




Status of
Planned Pharyngitis Clinics




Due to
the restructuring of SFDA, the related policies of SFDA have changed such that
the local hospitals are not allowed to co-operate with third parties. These
changes have caused us to discontinue our plans of setting of Pharyngitis
Clinics. The management of the company is seeking and considering other
alternatives to launch this particular drug, however up to now there is no
definite plan yet.




Qiweiben Capsule (alleviates
symptoms of diabetes)




Product Description: Benda
Ebei has the exclusive right to produce a new, effective, herbal medicine
against diabetes, which was developed in cooperation with Shandong Haiyang
Biotech Co., Ltd. (“Haiyang”). Qiweiben capsule is a medicine used to reduce
symptoms of patients suffering from type II diabetes and improve their sexual
ability. It contains 7 active pharmaceutical ingredients (“APIs”) extracted from
animals and plants; its major API is an extract from virgin male silk moths.
This medicine has the following key benefits:




(1)
            Reduces
      blood glucose.




(2)
            Cures
      erectile dysfunction and reduces sexual dysfunction caused by diabetes.
      The Qiweiben capsule is unique amongst diabetic medicines in this
      regard.




(3)
            As
      it is a complementary medicine based on natural ingredients, the patient
      reduces intake of chemical
medicines.




Market Outlook: Diabetes has
become a common and frequently occurring disease that threatens the health of an
increasing portion of the population. According to the 5th
International Diabetes Union conference held in Beijing in 2002, there are 130
million type II diabetes patients around the world, over 40 million of which are
in PRC. In the 21st
century, type II diabetes is expected to be epidemic in developing countries
such as PRC and India. Such a large patient group provides a significant market
opportunity for Qiweiben Capsule. Artificial insulin is currently the most
widely used medicine for the treatment of diabetes. Patients using artificial
insulin can become addicted to it and also suffer the discomfort of needle
injections. These disadvantages can be reduced by using our Qiweiben capsule as
a complement to artificial insulin. Pilot studies conducted by Haiyang in 2001
have shown that the Qiweiben capsule significantly reduces one or more symptoms
of diabetes in 88% of cases.




Rights Purchase: Qiweiben is
the brand name of this medicine. The registered drug name is Qiwei Xiaoke
capsule. The SFDA production permit (SFDA Z200110150) was held by Shandong Leaf
Pharmaceutical Co., Ltd. On March 14, 2004, Benda Ebei agreed to pay Haiyang RMB
5 million ($625,000) for the technology required for the extraction of virgin
male silk moth essence, the SFDA production permit (SFDA Z200110150) and the New
Medicine Certificate (SFDA Z20010134). The purchase agreement provided for the
immediate transfer of the production permit and the deferred payment of the RMB
5 million ($625,000) within three years after Benda Ebei begins to sell the
product.




IP protection/ technology
confidentiality: Benda Ebei will apply for TCM protection for Qiweiben
and expects a reply from the SFDA no later than 6 months thereafter. According
to new regulations, protected TCM status is granted for 7 years from the
registration date, during which period no other party may produce it.
Thereafter, a further 7 year protection may be granted to the right holder
depending on factors such as the effectiveness, production standards,
quality and safety of the product. Benda Ebei also has pending patents for
the protection of technological and manufacturing processes used to produce this
medicine.




21


Production: We have been
building Qiweiben production facilities. In order to produce qiwweiben, the
following table shows the production facilities or equipment which have been
purchased and installed. The equipment are all located in Benda Ebei and waiting
for the government agency for inspection:





No.
            
            Equipment
            
            Model
      No.
            
            Quantity1
            
            Muller
            
            300A
            
            22
            
            powder
      shifter
            
            ZS-350
            
            23
            
            powder
      shifter
            
            XS-650
            
            14
            
            3D
      mixer blender
            
            HD-1000
            
            15
            
            Ultrasonic
      spray drier
            
            FL-120
            
            16
            
            Wet
      mixer granulator
            
            GHL-250
            
            17
            
            Slot
      shape Mixer
            
            CHL-150
            
            28
            
            granule
      drier
            
            TC-Z-II
            
            19
            
            Capsule
      filling machine
            
            NJP-1200
            
            110
            
            Capsule
      polishing machine
            
            YPJ-II
            
            111
            
            fast
      packing machine
            
            DPH-250D
            
            1





We intend
to start manufacturing and marketing the product immediately after receiving GMP
certification. However, due to recent restructuring within SFDA, the approval
process for new medicines has been ceased since November 2006, except for the
first class new medicines. The management expects that such situation would
still last for an indefinite period.





Clinical
Experiments:




Qi Wei
Xiao Ke capsule is a Chinese traditional medicine capsule whose main raw
material is male Sangcan moth of no copulation. Biochemistry engineering
technique is used to extract its useful components, which are produced to
traditional Chinese medicine capsule preparation by adding six additional kinds
of traditional Chinese medicinal materials.





Experiments
with animals have shown that it can lower the blood glucose of streptozotocin
diabetes big mouse and ALX diabetes little mouse and can increase the big
mouse’s glucose tolerance content of ALX and prolong the submerged weight
swimming time of ALX diabetes little mouse.





The male
Sangcan moth is rich in brain hormone, ecdysone, male hormone, etc. and contains
many amino acid, vitamins and microelement that are needed by the human body.
The biological extracts of the male Sangcan moth which are added with milk
veteh, the extracts of root of yellow kudzuvine and sealwort, and the extracts
of medlar, and then mixed with trichosanthes and rhubarb micro mist, are
adequate for traditional medicine’s curing for deficiency of both yin and yang,
II diabetes of Qi deficiency and blood silt. It is tested for 420 clinical
researches in Beijing Guang An Men Hospital-a subordinate hospital of China
Academy of Chinese Medical Sciences and Shandong traditional Chinese
medicine hospital, Liaoning traditional Chinese medicine hospital, and Jiangsu
traditional Chinese medicine hospital which are four clinical experiment base of
new drug. The total effective rate is 88.67% regardless of whether the
disease history is long or short, and it has no poisonous side effect to human
body.





The
medicine was conferred patent of invention by National Patent Bureau in 1996
(patent No. Z96105259·7). Qi Wei Xiao Ke capsule received the new drug license
(SFDA No.: Z20010134) and production approval license (SFDA No.: Z200110150)
issued by SFDA in October, 2001.





Up to
date, we have already submitted the related documents and awaiting for the
approval of SFDA.




22


Yan Long Anti-cancer Oral
Liquid




Product Description: The Yan
Long Anti-Cancer Oral Liquid (“Yan Long”) is a conventional Chinese patent drug
effective against cancers of the digestive tract such as anal, bile duct, colon,
esophageal, gallbladder, liver, pancreatic, rectal, and gastric cancers. It is
especially effective in helping patients withstand chemotherapy treatment. Yan
Long has successfully completed first and second phase clinical trials and Benda
Ebei plans to begin the third phase.





Yanlong
Anti-cancer Oral Liquid is a kind of pure mixture contains Chinese traditional
medicine such as: Baiying, Morel, Salvia, Gentiana, Angelica, etc.




Starting
in 1989, Yanlong anti-cancer oral liquid was given to 30 patients with primary
liver cancer for the clinical trails. The number of the survivals for the year
of 1990, 1991, 1992 and 1993 were 23, 17, 11 and 8 respectively. By March 2004,
among the eight surviving patients, two do not have any signs of recurrence,
three take care of themselves but are still physically weak, three regressed and
returned to the hospital for treatment. I n this clinical research, the survival
rate of the patients observed for over 14 years reached 26.67%.





Inventor: The development of
Yan Long has been the life work of Dr. Yan Li, one of the nation’s most
well-recognized experts in cancer studies. Dr. Li has been an oncology
specialist for over 40 years and has held various prestigious positions in the
cancer research field in PRC. He was born in 1931. In 1956, he went to study in
Beijing College of TCM and graduated in 1962. After that, he worked in the
Beijing TCM Hospital Oncology Department for 12 years. In 1970, he was promoted
to physician in charge. In 1974, he transferred to the institute of oncology of
Beijing Medical University. In 1984, he was appointed as vice
president of Beijing Sino-Japan Friendship Hospital. He developed
an anti-cancer oral liquid based on his decades of research and experience and
named it Yan Long Anti-Cancer Oral Liquid.




Rights Purchase: Benda Ebei
and Dr. Yan Li (“Li”) signed an agreement regarding the production, marketing,
and sales of Yan Long. Benda Ebei signed agreement to buy all rights to Yan Long
from Mr. Li for RMB 5 million ($625,000). Once sales of Yan Long commence a
monthly payment of RMB 150,000 ($18,750) per month for the first six months
and RMB 300,000 ($37,500) thereafter will be paid. Benda Ebei will cease payment
when the accumulated monthly payments reach the RMB 5 million ($625,000) agreed
purchase price. Li and Benda Ebei are obliged to keep the Yan Long formula
secret. Li retains the right to produce and sell Yan Long in his own clinic.
Benda Ebei management believes that this will not significantly impact Benda
Ebei’s revenue from Yan Long.




IP protection/ technology
confidentiality:
Benda Ebei has applied for patent protection for Yan Long and expects to receive
a 10 year patent when the registration process is completed




Production: The production
facilities and equipment for Yan Long were installed and implemented in July
2007. We intend to start manufacturing and marketing the product immediately
after receiving GMP certification. Due to recent restructuring within SFDA, the
approval process for new medicines has been ceased since November 2006, except
for the first class new medicines. The management expects that such situation
would still last for an indefinite period. The process of third phase clinic
trail of Yang Long, application for IP protection and the application of
certificate are pending.




New Bulk
Chemicals




We are in
the process of developing and bringing to market
7-Phenylacetamido-3-chloromethyl cephalosporanic acid P-Metoxy Benzyl Ester
(“GCLE”), which is a medicine intermediate, chemical name which is used for
cephalotin antibiotics. Japan Otsuka Chemical Industry Company originally
developed the process to produce GCLE and held the worldwide patent on the GCLE
production process. The PRC patent protection period expired in 2005. Since then
Benda’s research center and the Wuhan Institute of Chemical Technology have
jointly mastered this process of GCLE production. We have completed small-scale
and mid-scale trial productions, and expect to be able to produce 200 tons of
GCLE in 2007 and 500 tons in 2008. Domestic demand for this product is expected
to increase by 28% in 2006 to 1,200 metric tons3. This
demand is currently met by imports.




23






This new
product will be produced in our Yidu plant. Due to a government order issued by
the local government on January 10, 2007, our Yidu Benda plant has been shut
down since the middle of January 2007 for improvement of our waste water
treatment systems. The order requires us to finish the improvement and be
compliant by June 30, 2007.





Yidu
Benda has completed its upgrading of the waster water system and passed the
government’s verification and testing of equipments in October 2007. It is now
permitted for the testing on actual production process. Once the actual products
are produced, then the environmental government bodies will re-test the
production results. The management could not estimate the exact timing for
obtaining the final approval on the actual production process.




3
            Source:
      China National Medical Information Center Southern Sub
    center






INDUSTRY
AND COMPETITIVE FACTORS




There is
certain industry and competitive factors which we believe will be critical to
achieving our growth:




·
            Rapidly
      growing Chinese pharmaceutical market.In 2005, China was
      the 9th
      largest and fastest growing pharmaceutical market in the world. The
      Chinese currently spend about $12 per capita on pharmaceuticals compared
      to $340 per capital in the U.S. As the Chinese population ages and becomes
      wealthier, the already large Chinese pharmaceutical market is poised for
      continued explosive growth. According to IMS Health, Inc., a research
      firm, the Chinese pharmaceutical market grew by over 28% and 20% in 2004
      and 2005, respectively. According to Boston Consulting Group, China’s
      pharmaceutical market will become the 5th
      largest in the world by 2010. Further, a recent report by McKinsey &
      Co. reported that Chinese healthcare spending will grow from $21 billion
      in 2000 to approximately $323 billion by 2025, or at a compounded growth
      rate of 11.6%. (Farrell D., Gersch U., Stephenson E., (2006)The Value ofChina’s Emerging Middle
      Class, McKinsey
      Quarterly)·
            Benda is
      uniquely positioned to capture market share. Our growth potential
      will be largely driven by the gene therapy product which is known as
      Gendicine and used for the treatment of cancer. On October 16, 2003,
      SiBiono successfully obtained a New Drug License from the State Food &
      Drug Administration of China (SFDA), and then, in April 4, 2004, SiBiono
      obtained “Manufacture Certificate” and “Certificate of GMP for
      Pharmaceutical Product”, so far being fully qualified for the market
      launch of Recombinant Human Ad-p53 Injection, trademarked as
      Gendicine®  in China. Gendicine®
      is the first ever commercialized gene therapy product approved in the
      world by a government agency. Gendicine is recognized by the world's first
      class journals as a major milestone in the field of gene research and
      biotechnology and is expect to make important contribution to mankind's
      endeavor for improving human health.·
            Low cost
      producer.Our continuing
      success in optimizing our manufacturing processes and minimizing our
      production costs provides us with a competitive advantage. For example, we
      have recently developed innovative processes that achieve Ribavirin (an
      API in common anti-viral injections) yield rates 4.5 per cent higher than
      the competition, while at the same time reducing Ribavirin manufacturing
      costs by 9 per cent.·
            Government
      sponsored industry consolidation presents opportunities for
      acquisitions. According toBusiness China
      magazine, China’s thousands of domestic companies account for 70 percent
      of the pharmaceutical market. Anticipating the effects of WTO entry and in
      an effort to compete with foreign firms, the Chinese government has
      decided to nurture its own large pharmaceutical companies, by encouraging
      the consolidation of its government-owned companies. To this end, the
      Chinese State Economic and Trade Commission (SETC) announced plans to
      consolidate the industry and support the development of 10 to 15 largest
      pharmaceutical firms. According to government statistics China currently
      has about 3,500 drug companies, down from over 5,000 in 2004. The number
      is expected to drop further. As the industry undergoes further
      consolidation, Benda will have the opportunity to grow by
      acquisition.





24




·
            Benda’s GMP
      compliant manufacturing processes provide us with a strong competitive
      advantage in the Chinese healthcare market.  The
      government has formulated an Action Plan for the Modernization of Chinese
      Medicine to boost the quality of Chinese medicine and enhance China's
      ability to compete in world markets. As such, all domestic producers of
      APIs were required to be GMP compliant by the end of 2004. Since the end of June 2004, the SFDA has been closing down
      manufacturers that do not meet the new GMP standards. In contrast to many
      of its competitors, Benda has made significant investments in refitting
      our manufacturing systems to comply with GMP standards. Our Benda Ebei
      plant received GMP certificate from SFDA on November 11, 2003 and
      renew on December 3, 2008 for the production of injection vials; while on
      November 26, 2007, Benda Ebei received a GMP for the production of
      tablets. Our Jiangling Benda plants received GMP certificate on April 9,
      2008 which authorizing the production of Ribavrin. Our SiBiono received
      GMP certificate on October 16, 2003. Our Yidu Benda facilities, which
      produce bulk chemicals, are not subject to GMP certification
      requirement.




RAW
MATERIALS AND PRINCIPAL SUPPLIERS




Benda
Ebei Suppliers




Benda
Ebei plant manufactures injection vials from APIs. Benda Ebei’s largest supplier
of APIs was Hubei Fourth Ring Pharmaceutical Co., Ltd. In 2007, Benda Ebei
purchased approximately $4.32 million, worth of Tranexamic Acid from this
supplier, equivalent to 14 per cent of Benda Ebei’s raw materials purchases by
value. In 2008, Benda Ebei’s largest supplier of APIs was Nan Yang Re Gong Co.
Ltd and Benda Ebei purchased approximately $2.9 MM worth of Tranexamic Acid from
this supplier, equivalent to 28 per cent of Benda Ebei’s raw materials purchases
by value.




Jiangling
Benda Suppliers




Our
Jiangling Benda plant manufactures APIs from bulk chemicals. Jiangling Benda’s
largest supplier of bulk chemicals is Wuhan Zhongnan Supplying Co., Ltd. In
2004, Jiangling Benda purchased $400,000 worth of Acetic Anhydride from this
supplier, equivalent to 26.2 per cent of Jiangling Benda’s raw materials
purchases by value. The Jiangling Benda plant has made no further raw materials
purchases since its closure for renovation.




25


Jiangling
Benda re-opened on August 10, 2007 and started producing Ribose. In year of
2008, the largest supplier was Hubei Zhijiang Shanyau Chemical Co. Ltd., and
approximately $74 K worth of raw materials was purchased from this suppliers,
equivalent to 13.16% of total the raw materials purchases by value.





Yidu
Benda Suppliers




Our Yidu
Benda plant manufactures bulk chemicals from other bulk chemicals.





Due to an
government order issued by the local government on January 10, 2007, our Yidu
Benda plant has been shut down since the middle of January 2007 for improvement
of our waste water treatment systems. The order requires us to finish the
improvement and be compliant by June 30, 2007.





Yidu
Benda has completed its upgrading of the waste water system and passed the
government’s verification and testing of equipments in October 2007. It is now
permitted for the testing on actual production process. Therefore, there was no
supplier incurred in the year of 2007 and 2008.





Packaging
Material Suppliers




Our
packaging materials are purchased from two main suppliers. In 2007, we purchased
approximately $0.9 MM worth of plastic packaging material from Anlu ZhongYa
Plastics Package Factory, equivalent to 11 per cent of our packaging supplies by
value. In 2008, we purchased approximately $0.62 MM worth of plastic packaging
material from Anlu ZhongYa Plastics Package Factory and Anlu Zhong’Ao Printing
Factory, equivalent to 20 per cent of our packaging supplies by
value.





The
standardized purchasing contract, which is designed by the PRC government
agency, is being adopted. The major terms (or components) of the purchasing
contracts are stated are as follows:




1.
            payment
      schedule which is based on the
negotiation;




2.
            the
      goods are inspected and received according to the PRC regulations for
      materials of producing drug;




3.
            breach
      contract, then parties have the right to sue in the PRC local civil
      courts;





As there
were many transaction contracts during the years, since the company formed
purchasing contract with the suppliers for lots of material purchased, therefore
we just listed three of those and shown as a sample for reference.





However,
our company does not depend on any sole source suppliers, since the raw
materials market is opened in the sense that we could have plenty of choices of
the suppliers (each category of materials purchased may have three to five
suppliers in the market). We only choose those suppliers who could offer better
terms to us and having a long term co-operation relationship.




26




OUR
INTELLECTUAL PROPERTY




We regard
our service marks, trademarks, trade secrets, patents and similar intellectual
property as critical factors to our success. We rely on patent, trademark and
trade secret law, as well as confidentiality and license agreements with certain
of our employees, customers and others to protect our proprietary
rights.




Pursuant
to the PRC TCM Protection Regulation, certain ready-made TCM products which have
received SFDA approval have automatic protected intellectual property rights for
a seven-year period from the date of grant of such approval. An application can
subsequently be made to extend such protection for up to three consecutive
seven-year periods. Once this protection period has expired, a company may apply
for patent protection.




To a
large extent, we rely on such protection regulation to protect our intellectual
property rights with respect to such products. In addition, as of December 31,
2005, we filed four patents for manufacturing technologies, primarily relating
to our medicine products and manufacturing techniques and the applications are
still in the approval process




Our
Patents




Two types
of medicine-related patents exist in PRC: the medicine production technique
patent and medicine invention formula patent. In PRC, illegal infringements of
production technique patents are widespread. A tiny modification to a filed
medicine production technique might be construed as a new one and argued as not
violating the patent laws. Therefore, Benda Ebei has historically tried to avoid
applying for this kind of patent in order to protect its technological
secrets.




Invention
formula patents are as easily imitated as production technique patents. However,
since only one SFDA production certificate can be issued on new branded medicine
based on the major pharmaceutical ingredients used, a minor modification to the
formula would not warrant a new SFDA production certificate. This means that,
even if another manufacturer gets to know a patented formula, it won’t be able
to produce it, at least in PRC, without the proper SFDA production
certificate.




27




SiBiono
patents




Our
company has already applied for 6 patents and they are shown in the following
table:




Item
            
            Patent name
            
            Countries
              / Date
            
            Application
              Number (1)
            
            Publication
              Number (2)
            
            Approved Patent
              Number (3)
            
            Name of
              Patent
              Inventor
              (6)
            
            Name of
              Applicant
              (6)
            
            Patent
              Assignees1
            
            A
      new method for manufacturing recombinant adenovirusA
            
            China
            
            98123346.5
            
            CN1228474A
            
            ZL98123346.5
            
            Peng
            
            Peng
            
            SiBionoDate
            
            12/14/1998
            
            9/15/1999
            
            7/3/20022
            
            A
      recombinant constructed by a virus vector and a human tumor suppressor
      gene and its useA
            
            China
            
            02115228.4
            
            CN1401778A
            
            ZL02115228.4
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            5/8/2002
            
            3/12/2003
            
            11/24/2004B
            
            PCT
      (4)
            
            
            
            WO2004/078987A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            3/8/2004
            
            9/16/2004
            
            N/A3
            
            Recombinant
      gene medicine of adenovirus vector and and gene p54 for treating
      proloferative diseasesA
            
            China
            
            03125129.3
            
            CN1471977A
            
            ZL03125129.3
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            5/10/2003
            
            2/4/2004
            
            7/25/2007B
            
            PCT
      (4)
            
            
            
            WO2004/104204A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            5/9/2004
            
            12/2/2004
            
            N/A4
            
            The
      application of recombinant adenoviral p53 as cancer vaccine (tentative
      title)A
            
            China
            
            200510002779.1
            
            CN1679641A
            
            ZL200510002779.1
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            1/26/2005
            
            10/12/2005
            
            8/29/2007B
            
            PCT
      (4)
            
            
            
            WO2006/079244A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            1/26/2005
            
            8/3/2006
            
            N/AC
            
            US
      (5)
            
            11/075035
            
            2005/0281785A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Unidentified
      Yet
            
            N/ADate
            
            3/7/2005
            
            12/22/2005
            
            N/A5
            
            Human
      Embryonic Kidney (HEK) sub-clone cell lineA
            
            China
            
            03126889.7
            
            CN1513985A
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            6/13/2003
            
            7/21/2004
            
            N/AB
            
            PCT
      (4)
            
            
            
            WO2004/111239
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            5/9/2004
            
            12/23/2004
            
            N/A


6
            
            The
      complex of polypeptide liposome and human VGEF gene, and its use and human
      VGEF gene, and its useA
            
            China
            
            02134321.7
            
            CN1389269A
            
            Not
      Approved
            
            Peng
      / Zhang / Zhu
            
            Peng
      / Zhang / Zhu
            
            N/ADate
            
            7/4/2002
            
            1/8/2003
            
            N/A




Note:




(1) Application
number is obtained when application is submitted;


28


(2) Publication
number is obtained after the first phase examination;




(3) Approved
patent number is obtained after the final examination;




(4) PCT
is referred to an International Patent Organization in Paris;




(5) US
is referred to the application is made in United States of America
alone;




(6) Peng
is referred to Zhaohui Peng; Zhang is referred to Xiaozhi Zhang; Zhu is referred
to Jinya Zhu.





The
validity of the patent is 20 years since the application date.





On
January 29, 2008, SiBiono entrusted Grandall Legal Group Shenzhen Law Firm to
issue a legal letter to Zhaohui Peng, one of the shareholders of Sibiono and the
inventor of Gendicine, demanding that he transfer all the title of patents to
SiBiono, as SiBiono is the rightful owner of the patents.





On June
18, 1999, during the formation of SiBiono, Zhaohui Peng transferred the rights
to the patent “A new method for manufacturing recombinant adenovirus” and
related research results to SiBiono as a payment for the registered capital. In
return, Zhaohui Peng was granted 32.03% of the common stock of
SiBiono.




From 1999
to 2007, SiBiono successfully obtained various technology funds from various
government technology agencies to support the further research and development
activities of Gendicine. Due to this significant funding obtained by SiBiono,
Sibiono developed five additional patents which are summarized in the above
table.




As
indicated in the above table, Item 1, the patent “A new method for manufacturing
recombinant adenovirus” had been assigned to SiBiono; however, the other
approved patents (item 2 through item 4) in PRC still have not been assigned to
SiBiono. The Group believes that all the above mentioned patents should be
rightfully transferred to SiBiono, a subsidiary of the Group. Accordingly, the
above mentioned legal letter was issued on this ground.




29




On August 27, 2008, the Group through
its subsidiary, SiBiono filed an application to the Guongdong Province Shenzhen
City (Middle) Peoples’ Court to demand Zhaozhu Peng to transfer back all the
above mentioned patents to SiBiono. The case has been accepted by the Court and
is waiting for its further investigation.





Our
Trademarks




Benda
currently owns four trademarks: Jixuening, Benda, Suzheng-B, and Shusai-A. Benda
has filed trademark applications, the approvals of which are pending, for other
13 medicine names or general trademarks and the applications are still in
the approval process.




WORK
SAFETY ISSUES




On
November 10, 2005, there was a small explosion in the Yidu plant resulting in
the deaths of two of our workers. This tragic accident resulted from the
violation of our operating procedures by one of the workers killed in the
explosion. We paid RMB 260,000 ($32,000) to each of the victims’ families in
settlement of any compensation issues. On November 11, 2005, there was another
explosion in the same factory resulting from a chemical reaction triggered by
the prior explosion. Fortunately management had anticipated this incident and
the plant had already been temporally sealed so nobody was killed.




Following
the events of November 10 and 11, 2005 we have put in place very strict work
safety procedures and revised the design of the relevant production process in
order to avoid similar incidents in the future. We believe Benda is not liable
for any further material liabilities arising from these explosions.




RESEARCH
AND DEVELOPMENT ACTIVITIES DURING THE PRIOR TWO FISCAL YEARS




We spent
$1,461,951 and $553,962 on direct research and development (“R&D”) efforts
in 2008 and 2007, respectively. Rather than spend considerable sums internally
on R&D in a market where we cannot easily protect our results of
development, we prefer to leverage our management team’s extensive industrial
network and knowledge in finding new drugs and treatments that may be
potentially very successful but which have not yet been brought to market. We
carefully evaluate each of these drugs before making a purchase decision. We
believe each of our new products will enjoy considerable success in the
market.




We also
leverage our network of leading research institutions and universities to
optimize the effectiveness of our investment in production R&D. We allocate
and fund research projects to these institutions. Our in-house scientists
coordinate and supervise the outsourced R&D processes. We have the rights to
all results of the R&D efforts including IP rights. In order to protect our
interests we usually divide each project into several sections and assign each
section to a different research institution. Each research ally therefore only
works on a limited part of each project. Some universities and institutes that
work with us are:


·
              Life Science College
      of Wuhan University.
  ·
              Biochemical College
      of Sanxia University
  ·
              Jilin Medical University·
              Shanghai
      Institute of Pharmacy of Chinese Academy of
      Sciences.
  ·
                Wuhan University
      of Chemical Technology.


The
science and technology cooperation agreement between College of Chemistry and
Life Science of China Three Gorges University and Yidu
Benda:





Party A:
China Three Gorges University (Party A for short in the
following)




30




Party B:
Yidu Benda Chemical Co.Ltd. (Party B for short in the following)





To
increase the science and technology progress of Yidu Benda Chemical Engineering,
Inc. (“Yidu Benda”), to improve the quality of its products and its production
efficiency, and to fully make use of scientific intelligence, technologies and
experimental equipments of College of Chemistry and Life Science of China Three
Gorges University (“University”), after negotiation, the two parties decided to
cooperatively build a “drug raw material research and development group”. The
concrete agreements are as follows:





1.
            The
      “drug raw material research and development group” is consist of members
      of both parties, including one group leader, two assistant group leaders
      and five science and technology workers. The group leader is assigned by
      University, while the two assistant leaders are assigned by the two
      parties, one for each party. The remaining five workers are decided by
      negotiation according to the demands of project
  research.




2.
            The
      research and development projects are put forward by Yidu Benda, and are
      decided after the demonstration of the two
  parties.




3.
            The
      research funds are supported by Yidu Benda, and University shall supply
      all the experimental equipment and the related condition according to
      needs, in which including: University provide certain number of chemistry
      and chemical engineering apparatus and equipment for common usage and help
      Yidu Benda to build a basic laboratory and assist Yidu Benda to build
      a pilot laboratory.




4.
            The
      expense of the research and development projects includes: drug reagent,
      low priced and easily worn detecting fees, the transportation fees between
      school and company and allowance of research
  workers.




5.
            University
      can directly send relative researchers to Yidu Benda to organize and guide
      project task research according to
needs.




6.
            The
      property rights and interests of the project achievements will be
      appointed by Project Contract.




COMPLIANCE
WITH ENVIRONMENTAL LAW




We comply
with the Environmental Protection Law of PRC as well as applicable local
regulations. In addition to statutory and regulatory compliance, we actively
ensure the environmental sustainability of our operations. Penalties would be
levied upon us if we fail to adhere to and maintain certain standards. Such
failure has not occurred in the past, and we generally do not anticipate that it
will occur in the future, but no assurance can be given in this
regard.




Our Yidu
Benda facility produces bulk chemical intermediates for raw material medicine
and does not require GMP certification. Yidu Benda was temporarily closed since
mid January to upgrade its waste water treatment system to comply with new
environmental standards enforced by PRC local government.





Due to an
government order issued by the local government on January 10, 2007, our Yidu
Benda plant has been shut down since the mid of January 2007 for improvement of
our waste water treatment systems. The order requires us to finish the
improvement and be compliant by June 30, 2007. Up to date, the company had spent
approximately $0.2 MM to re-design and improve the existing system. Nowadays,
Yidu Benda has completed its upgrading of the waste water system and passed the
government’s verification and testing of equipments in October 2007. It is now
permitted for the testing on actual production process. Once the actual products
are produced, then the environmental government bodies will re-test the
production results. The management could not estimate the exact timing for
obtaining the final approval on the actual production process. Furthermore, the
management is searching for new products to be produced in Yidu Benda which with
higher profit margin.





SHENZHEN
SIBIONO GENE TECHNOLOGY CO., LTD.





On April
5, 2007, Hubei Tongji Benda Ebei Pharmaceutical Co., Ltd., a Sino-Foreign Equity
Joint Venture company incorporated under the laws of the PRC (“Benda Ebei”), of
which Ever Leader Holdings Limited, a company incorporated under the laws of
Hong Kong SAR ("Ever Leader") and a wholly owned subsidiary of Benda
Pharmaceutical, Inc. (the “Company”), owns 95% of the outstanding common stock,
has entered into Equity Transfer Agreements with certain shareholders of
Shenzhen SiBiono Gene Technology Co., Ltd. (“SiBiono”), a corporation
established and validly existing under the law of the PRC, to purchase a total
of approximately 57.57% of the shares of SiBiono’s common stock for total
consideration of RMB60,000,000 due and payable on or before April 30,
2007.




31




In
connection with the Equity Transfer Agreements, we entered into a Financial
Consultancy Agreement with Super Pioneer International Limited (“Super Pioneer”)
for financial consultancy services rendered by Super Pioneer. Pursuant to the
Financial Consultancy Agreement, we agreed to issue 2,100,000 shares of our
common stock to Super Pioneer within three months from the date of the
agreement. Super Pioneer agreed to lock up the shares for a period of twelve
months from the date of the issuance of the shares (the “Lock-up Period”).
Within three months from the Lock-up Period, in the event that the public
trading price of our shares did not reach $3.6 per share and we are not listed
in the capital market of NASDAQ or AMEX, Super Pioneer shall have the option to
require us to redeem 1,960,000 shares of the stock owned by Super Pioneer at a
price of $3.6 per share. Such option shall expire within one month from the last
date of the three month period.




On June
11, 2007, Benda Ebei entered into Equity Transfer Agreements with Yaojin Wang
and Huimin Zhang, shareholders of SiBiono, for the purchase of an additional
2.56% of the shares of SiBiono’s common stock for total consideration of
RMB2,560,000 due and payable on or before June 30, 2007. Accordingly, Benda Ebei
holds a total of 60.13% of the shares of SiBiono’s common stock.





In
connection with the Equity Transfer Agreements, we entered into Technical
Consultancy Agreements with Yaojin Wang and Huimin Zhang for technical
consultancy services rendered by Yaojin Wang and Huimin Zhang. Pursuant to the
Technical Consultancy Agreements, we agreed to issue 33,585 shares of our common
stock to Yaojin Wang and 55,975 shares of our common stock to Huimin
Zhang within three months from the date of the agreement. Yaojin Wang and
Huimin Zhang agreed to lock up their shares for a period of twelve months from
the date of the issuance of the shares (the “Lock-up Period”). Within three
months from the Lock-up Period, in the event that the public trading price of
our shares did not reach $3.6 per share and we are not listed in the capital
market of NASDAQ or AMEX, Yaojin Wang and Huimin Zhang shall have the option to
require us to redeem the shares of the stock owned by Yaojin Wang and
Huimin Zhang at a price of $3.6 per share. Such option shall expire within one
month from the last date of the three month period.





Business of
SiBiono





Shenzhen
SiBiono GeneTech Co., Ltd. (hereinafter referred to as SiBiono) is a gene
therapy company dedicated to the development, manufacturing and
commercialization of gene therapy products. The Company was founded in early
1998 and is located in Shenzhen Hi-Tech Industrial Park, Shenzhen, China. As a
pioneer in gene therapy in China, SiBiono’s mission is to develop innovative
gene therapy products for the improvement of human health and life quality. The
Company has developed two core technology platforms: Viral Vector Gene Delivery
System and Non-Viral Vector Gene Delivery System focusing on development of gene
therapy product for cancer and cardiovascular diseases.





On
October 16, 2003, SiBiono successfully obtained a New Drug License from the
State Food & Drug Administration of China (SFDA), and then, in April 2004,
SiBiono obtained “Manufacture Certificate” and “Certificate of GMP for
Pharmaceutical Product”, so far being fully qualified for the market launch of
Recombinant Human Ad-p53 Injection, trademarked as Gendicine®  in China. Gendicine®  is the first ever commercialized gene therapy product
approved in the world by a government agency. It is only approved and
commercialized in PRC alone; however there is no other gene therapy product like
Gendicine has been approved and commercialized in other countries. One of the
factor causing this situation may be due to the fact that China’s lack of
regulatory obstacles in conducting gene therapy trails.




32


SiBiono
has established the validated GMP manufacturing plant for the production of gene
therapy drugs. A complete set of quality-control assays and large-scale
production processes were implemented in SiBiono in accordance with
international regulations and standards for consistent manufacture of high
quality gene therapy products. Based on SiBiono’s QC procedures and standards,
the SFDA constituted and issued the national technological guideline -
“Points to Consider for Human Gene Therapy and Product Quality Control” in May
2004. This document was also published in the magazine of Biopharm International
for reference and peer review.




SiBiono
has undertaken a number of national and provincial research and development
projects, including biotechnology projects of “National 863 Plan”, projects of
“National 973 Plan”, key research project of “National Tenth Five-Year-Plan”,
projects funded by “National Innovation Fund”, projects of “National Key
Scientific Development Plan”, National Hi-tech Industrialization Projects, Key
Platform Technology Development Projects in Guangdong Province, as well as
Hi-Tech Industrialization Projects of Shenzhen Municipality. By participating in
those national projects, the reputation of SiBiono could be raised in China and
also it allows us to apply for the funding from the local government agencies to
support our gene therapy research activities.





The
Company has 60.19 million RMB as its registered capital and currently has about
80 full-time employees.




Milestones of
SiBiono





Since its
establishment in March of 1998, SiBiono has evolved from a small start-up
company to an internationally recognized gene therapy company with its
successful launch of the world’s first approved gene therapy product
“Gendicine”. The Company has achieved the following major milestones in the past
(Table 1):




Table
1. Milestones of SiBiono’s Development





Time
            
            EventsOctober
      2006
            
            SiBiono
      was awarded with “Global Entrepolis @ Singapore” Innovation Award. The GES
      Award, honoring the “Technopreneur of the Year” in the Asia-Pacific
      region, was presented by the President of Singapore, SR Nathan at the
      Opening Ceremony of Global Entrepolis@Singapore 2006. A record-breaking
      224 entries from applicants in 14 countries and territories in the
      Asia-Pacific region submitted the application for
competition.
              
              Wall
      Street Journal Asia presented the story of SiBiono in 2 separate
      issues.December
      2005
            
            Dr.
      Zhaohui Peng was awarded a Special Recognition Award by ISCGT
      (International Society for Cell and Gene Therapy of Cancer) in recognition
      for SiBiono GeneTech, Co., Ltd.'s great contribution to the gene therapy
      field.June
      2005
            
            Recombinant
      Human Ad-p53 Injection (Gendicine) was granted the “State Key-New product
      Certificate” issued jointly by the Ministry of Science and Technology, the
      Ministry of Commerce, the General Administration of Quality Supervision,
      Inspection and Quarantine and the State Environmental Protection
      Administration of the People’s Republic of China.April
      2004
            
            Gendicine
      was launched into marketMarch
      2004
            
            SiBiono’s
      Gendicine manufacturing facility is granted with “Certificate of GMP for
      Pharmaceutical Product” by SFDA.





33


January
      20, 2004
            
            SiBiono
      was granted “Manufacture Certificate” for Gendicine by the
      SFDAOctober
      16, 2003
            
            Gendicine
      was granted “New Drug License” by the SFDA, and became the first gene
      therapy product ever approved by a government agency in the
      world.September
      2003
            
            Mr.
      Zeng Qinghong, Vice President of P.R.China, visited SiBiono GeneTech and
      gave the Chinese Brand name (今又生) for
      Gendicine.September
      2003
            
            Completion
      of the clinical trials, defense and assessment of “recombinant human p53
      adenoviral injection” productJuly
      2003
            
            Corporate
      restructuring was finished, the registration capital increased to be 48.19
      million RMBNovember
      2002
            
            SiBiono
      was granted the Pharmaceutical Manufacture Permission by the Guangdong
      Drug Administration.September
      1998
            
            SiBiono
      obtained SFDA’s permission to initiate Gendicine clinical
      trials.March
      1998
            
            Shenzhen
      SiBiono GeneTech Co., Ltd. was
established.





Dr.
Zhaohui Peng is the founder and Chairman of SiBiono. He graduated from a medical
university in China, served as director of a research institute at the
South Medical University in Guangzhou and as a visiting professor at
both the University of Chiba in Japan and the University of California. He also
conducted research at two US biotech companies. Dr. Peng has devoted more than
fifteen years to gene therapy research, development and commercialization. He
led the research, development, industrialization and commercialization of
Gendicine. He is also the main inventor of all patents in SiBiono.





Attribute
to his great contribution to the gene therapy field by developing and launching
the world's first gene medicine product - Gendicine®, Dr. Peng was honored with
the “Gene Therapy Achievement Award” at the 2005 ISCGT Annual Conference in
December 2005, the person of cover story on Forbes (Chinese Edition) entitled
with the “Technology Pioneer in China” in October 2006, the “Certificate of
Recognition” for outstanding achievement and innovative contribution to
bioscience research and development by California State Assembly in November
2006, and the nominee of “CCTV 2006 People of the Year in China’s Economy” in
November 2006.





On
September 9, 2007, Benda achieved a great success in the national forum on "Gene
Therapy for Tumors" sponsored by the Chinese Academy of Medical Sciences and the
China Pharmaceutical Biotechnology Association. The forum is China’s large
annual medical biotechnology conference run from September 7 - 10 in Qing Dao,
Shandong Province. In conjunction with the national conference, SiBiono
held a national forum discussing “Gene Therapy for Tumors”. Approximately 600
leading Chinese doctors attended SiBiono’s forum, representing 26 different
provinces and over 200 Tier I Chinese hospitals (Tier I hospitals offer the best
medical services in China; there are currently 775 Tier I hospitals in
China).




The main
purpose of the forum was to allow 15 national renowned medical experts to share
their experiences in the effective application of Gendicine®  to maximize its treatment efficacy.




As of
December 31, 2007, SiBiono shipped 10,652 of the 16,000 vials ordered. From
January 1 to February 25, 2008, another 733 vials out of the 16,000 vials order
had shipped. From February 26 to July 10, 2008, an additional 2,412 vials
shipped. Accordingly, we have shipped and received payment for a total of 13,797
vials of the 16,000 vial order. The 16,000 vial order for Gendicine was
ordered by various selling agents with average selling price RMB2,500 per
vial.




In
January 2008, our quality control department recognized that during the process
of purification, one of the components of Gendicine did not fulfill the
requirements of the internal quality control; therefore further purification was
necessary. Gendicine is a gene therapy product which needs to undergo a series
of internal quality control processes. Once the problem was located, our quality
control and production department solved the issue immediately.





On May
19, 2008, SiBiono received an official notice from the PRC State of SFDA in
which it mentioned that during the random inspection performed by the PRC State
of SFDA on April 8 to April 10, 2008, the PRC State of SFDA discovered there
were several production procedures that did not meet the requirement stated in
GMP, thus it required SiBiono to perform necessary improvements in order to
fulfill the GMP requirements and the PRC State of SFDA collected back the
distributed GMP certificate until the necessary improvements being carried out
and passed the examination that conducted by SFDA.  On June 10, 2008,
SiBiono received another official notice from Guangdong Province SFDA and they
demanded the same requirements as stated in the official notice which issued by
the PRC State of SFDA dated on May 19, 2008.  On November 24, 2008,
SiBiono received another official notice from Guangdong Province SFDA which
mentioned that after the examination conducted by Shenzhen City SFDA, the
Guangdong Province SFDA consent SiBiono to carry out production on a trial
basis.  It further required SiBiono to strictly follow the
requirements of GMP to organize trail production and follow the procedures to
apply for GMP Certificate verification.  The management could not
estimate the exact timing for obtaining the final approval on the GMP
Certificate.




34




Commercial Bank
Note





On August
14, 2007, Benda Ebei entered into a three year non-interest bearing commercial
bank note issuable agreement with Shanghai Pudong Development Bank. The total
commercial note issuable limit is Rmb 60 million; however 50% of the deposit has
to be made to the bank in order to secure the issuance of the commercial bank
note, thus the net available amount is Rmb 30 million. The repayment period of
each commercial note payable is six months. If the net amount of each commercial
bank note payable is not settled on the due date, the penalty will be the
penalty rate of the PRC bank loan on a daily and compound basis.





The
credit facility was originally guaranteed by SiBiono and secured by the
buildings, machinery and equipment of Benda Ebei. The Sibiono guarantee may have
been a violation of the terms of the convertible promissory notes entered into
with certain accredited and institutional investors on April 5, 2007. However,
on December 15, 2007, Benda Ebei received a consent letter from Pudong Bank that
Pudong Bank agreed to cancel SiBiono’s guarantee toward this credit
facility.





On
January 21, 2008, Benda Ebei entered into a supplementary agreement with
Shanghai Pudong Development Bank, to supplement the commercial bank note
issuance agreement dated on August 14, 2007. According to this supplementary
agreement, the credit facility is further secured by the buildings, machinery
and equipment of Jiangling Benda.





As of
December 31, 2008, Benda Ebei and Jiangling Benda deposited an amount of
$4,859,346 in Shanghai Pudong Development Bank as deposit for the issuance of
commercial bank notes. Such deposits will be released when the commercial bank
notes are cleared. As of December 31, 2008, the balance of the
commercial bank notes payable was $9,297,169. Thus the net commercial bank
notes payable was $4,437,823 as of December 31, 2008.




35




On
January 21, 2008, Benda Ebei entered into a supplementary agreement with
Shanghai Pudong Development Bank, to supplement the commercial bank note
issuance agreement dated on August 14, 2007. According to this supplementary
agreement, the credit facility is further secured by the buildings, machinery
and equipment of Jiangling Benda. As of December 31, 2008, the net book value of
secured property and equipment was approximately Rmb132.19 million (or $19.39
million) in total.




EMPLOYEES





As of
December 31, 2008, we had approximately 400 full-time employees, including 48
sales people, 19 technology and R&D staff, and 333 production staff and no
part-time employees. Among our current employees are two Ph.D.s and 17 holders
of master’s degrees. All executives have received master-degree level executive
training and all members of our staff have undertaken GMP training.




We have a
sales office in each of three cities that promote our branded medicines. As of
December 31, 2008, approximately 18 people in our Central China Sales Office
were located in Wuhan, and 16 people were in our Southern China Sales Office
located in Shenzhen.




RISK
FACTORS




An
investment in our common stock involves investment risks and the possibility of
the loss of an investor’s entire investment. A prospective investor should
evaluate all information about us and the risk factors discussed below in
relation to his financial circumstances before investing in us.




Risks
Relating to Our Business





·
            WE
      NEED TO MANAGE GROWTH IN OPERATIONS TO MAXIMIZE OUR POTENTIAL GROWTH AND
      ACHIEVE OUR EXPECTED REVENUES AND OUR FAILURE TO MANAGE GROWTH WILL CAUSE
      A DISRUPTION OF OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE
      REVENUE.




In order
to maximize potential growth in our current and potential markets, we believe
that we must expand our manufacturing and marketing operations. This expansion
will place a significant strain on our management and our operational,
accounting, and information systems. We expect that we will need to continue to
improve our financial controls, operating procedures, and management information
systems. We will also need to effectively train, motivate, and manage our
employees. Our failure to manage our growth could disrupt our operations and
ultimately prevent us from generating the revenues we expect.





In order
to achieve the above mentioned targets, the general strategies of our company
are to maintain and search for hard-working employees who have innovative
initiatives; on the other hands, our company will also keep a close eye on
expanding opportunities, for example, acquisition of state-owned
enterprises.




·
            WE
      CANNOT ASSURE YOU THAT OUR ORGANIC GROWTH STRATEGY WILL BE SUCCESSFUL
      WHICH MAY RESULT IN A NEGATIVE IMPACT ON OUR GROWTH, FINANCIAL CONDITION,
      RESULTS OF OPERATIONS AND CASH
FLOW.




36




One of
our strategies is to grow organically through increasing the distribution and
sales of our products by penetrating existing markets in PRC and entering new
geographic markets in PRC as well as other parts of Asia and the United States.
However, many obstacles to entering such new markets exist, including, but not
limited to, international trade and tariff barriers, shipping and delivery
costs, costs associated with marketing efforts abroad and maintaining attractive
foreign exchange ratios. We cannot, therefore, assure you that we will be able
to successfully overcome such obstacles and establish our products in any
additional markets. Our inability to implement this organic growth strategy
successfully may have a negative impact on our growth, future financial
condition, results of operations or cash flows.




·
            WE
      CANNOT ASSURE YOU THAT OUR ACQUISITION GROWTH STRATEGY WILL BE SUCCESSFUL
      RESULTING IN OUR FAILURE TO MEET GROWTH AND REVENUE
      EXPECTATIONS.




In
addition to our organic growth strategy, we also expect to grow through
strategic acquisitions. We intend to pursue opportunities to acquire businesses
in PRC that are complementary or related in product lines and business structure
to us. We may not be able to locate suitable acquisition candidates at prices
that we consider appropriate or to finance acquisitions on terms that are
satisfactory to us. If we do identify an appropriate acquisition candidate, we
may not be able to negotiate successfully the terms of an acquisition, or, if
the acquisition occurs, integrate the acquired business into our existing
business. Acquisitions of businesses or other material operations may require
debt financing or additional equity financing, resulting in leverage or dilution
of ownership. Integration of acquired business operations could disrupt our
business by diverting management away from day-to-day operations. The
difficulties of integration may be increased by the necessity of coordinating
geographically dispersed organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. We also may not
be able to maintain key employees or customers of an acquired business or
realize cost efficiencies or synergies or other benefits we anticipated
when selecting our acquisition candidates. In addition, we may need to record
write-downs from future impairments of intangible assets, which could reduce our
future reported earnings. At times, acquisition candidates may have liabilities
or adverse operating issues that we fail to discover through due diligence prior
to the acquisition. In addition to the above, acquisitions in PRC, including of
state owned businesses, will be required to comply with laws of the People's
Republic of China ("PRC"), to the extent applicable. There can be no assurance
that any given proposed acquisition will be able to comply with PRC
requirements, rules and/or regulations, or that we will successfully obtain
governmental approvals which are necessary to consummate such acquisitions, to
the extent required. If our acquisition strategy is unsuccessful, we will not
grow our operations and revenues at the rate that we anticipate. If our
acquisition strategy is not successful, our revenues and profit will be solely
dependent upon our organic growth.




·
            WE
      HAVE PREVIOUSLY HAD AN EXPLOSION AT OUR YIDU PLANT THAT RESULTED IN TWO
      DEATHS AND ANY SUCH OCURRENCE IN THE FUTURE CAN EXPOSE US TO LIABILITY FOR
      SUCH AN EVENT




On
November 10, 2005, there was a small explosion in the Yidu plant resulting in
the deaths of two of our workers. This tragic accident resulted from the
violation of our operating procedures by one of the workers killed in the
explosion. We paid RMB 260,000 (or $32,500) to each of the
victims’ families in settlement of any compensation issues. On November 11,
2005, there was another explosion in the same factory resulting from a chemical
reaction triggered by the prior explosion. Fortunately management had
anticipated this incident and the plant had already been temporarily sealed so
that no further injury occurred.




Following
the events of November 10 and 11, 2005, Yidu plant was temporarily closed for
approximately one month; during the one month plant shut down, we put in place
very strict work safety procedures and revised the design of the relevant
production process in order to avoid similar incidents in the future. We believe
Benda is not liable for any further material liabilities arising from these
explosions. Notwithstanding this fact, there can be a future explosion that
may result in death or serious injury. If this occurs and in light of the fact
that it previously occurred, may result in exposure to extensive liability to
us.




37




Currently,
we do not have any insurance policy for Yidu Benda due to the fact that it has
been closed since January 2007 for improvement of our waste water treatment
systems. However, once Yidu Benda resumes to its production, we will deploy
appropriate insurance policy for the workers.




·
            IF
      WE NEED ADDITIONAL CAPITAL TO FUND OUR GROWING OPERATIONS, WE MAY NOT BE
      ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF
      OUR OPERATIONS.




If
adequate additional financing is not available on reasonable terms, we may not
be able to undertake plant expansion, purchase additional machinery and purchase
equipment for our operations and we would have to modify our business plans
accordingly. There is no assurance that additional financing will be available
to us.




In
connection with our growth strategies, we may experience increased capital needs
and accordingly, we may not have sufficient capital to fund our future
operations without additional capital investments. Our capital needs will depend
on numerous factors, including (i) our profitability; (ii) the release of
competitive products by our competition; (iii) the level of our investment in
research and development; and (iv) the amount of our capital expenditures,
including acquisitions. We cannot assure you that we will be able to obtain
capital in the future to meet our needs.





In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects of
such companies. For these reasons, our shares of common stock can also be
expected to be subject to volatility resulting from purely market forces over
which we will have no control. If we need additional funding, the market
fluctuations affect on our stock price could limit our ability to obtain equity
financing.




If we
cannot obtain additional funding, we may be required to: (i) limit our
investments in research and development; (ii) limit our marketing efforts; and
(iii) decrease or eliminate capital expenditures.




Such
reductions could materially adversely affect our business and our ability to
compete.





Even if
we do find a source of additional capital, we may not be able to negotiate terms
and conditions for receiving the additional capital that are acceptable to us.
Any future capital investments could dilute or otherwise materially and
adversely affect the holdings or rights of our existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to our common
stock. We cannot give you any assurance that any additional financing will be
available to us, or if available, will be on terms favorable to us.




·
            WE
      MAY BE REQUIRED TO REPURCHASE SHARES OF OUR COMMON STOCK IN CONNECTION
      WITH THE FINANCIAL CONSULTANCY AGREEMENT AND TECHNICAL CONSULTANCY
      AGREEMENTS. THE REPURCHASE OF THESE SHARES MAY HAVE A NEGATIVE IMPACT ON
      OUR PROFITABILITY.




In
connection with the Equity Transfer Agreements, we entered into a Financial
Consultancy Agreement on April 5, 2007 with Super Pioneer for financial
consultancy services rendered by Super Pioneer, and Technical Consultancy
Agreements on June 11, 2007 with Yaojin Wang and Huimin Zhang for technical
consultancy services rendered. Pursuant to these Agreements, we agreed to issue
2,100,000 shares of our common stock to Super Pioneer, 33,585 shares of our
common stock to Yaojin Wang, and 55,975 shares of our common stock to Huimin
Zhang within three months from the date of the agreements. The parties to the
agreements agreed to lock up the shares for a period of twelve months from the
date of the issuance of the shares (the “Lock-up Period”). Within three months
from the Lock-up Period, in the event that the public trading price of our
shares did not reach $3.60 per share and we are not listed in the capital market
of NASDAQ or AMEX, Super Pioneer shall have the option to require us to redeem
1,960,000 shares of the stock owned by Super Pioneer and Yaojin Wang and Huimin
Zhang shall have the option to require us to redeem the shares of the stock
owned by Yaojin Wang and Huimin Zhang at a price of $3.60 per share. Such option
shall expire within one month from the last date of the three month period.
Therefore, as of July 5, 2008, we may be required to redeem 1,960,000 shares of
common stock held by Super Pioneer at a price of $3.60 per share for a total of
$7,560,000. As of September 11, 2008, we may be required to redeem the
33,585 shares of our common stock held by Yaojin Wang at $3.60 per share for a
total of $120,906 and the 55,975 shares held by Huimin Zhang at $3.60 per share
for a total of $201,510.. According to the signed agreements, the redemption
would have been required to be performed in September 2008. However, we have
obtained an oral consent from Super Pioneer, Wang and Zhang that the redemption
shall be deferred to the end of 2009.  As of April 14, 2009, the last
closing bid price of our common stock was $.025.  If we would be
required to redeem the shares of our common stock a price of $3.60 per share, we
will not have these funds to devote to our operations and could have a negative
impact on our profitability.




38




·
            JIANGLING
      BENDA AND YIDU BENDA CURRENTLY ARE ENTITLED TO A BENEFICIAL TAX EXEMPTION
      FOR A FIVE YEAR PERIOD; HOWEVER, SUCH TAX EXEMPTION MAY BE INTERPRETED TO
      BE NOT IN COMPLIANCE WITH PRC TAX LAWS IN THE FUTURE CAUSING US TO SET
      ASIDE CERTAIN CONTINGENCY FUNDS FOR DEALING WITH POTENTIAL RETROSPECTIVE
      TAX LIABILITIES.





Jiangling
Benda and Yidu Benda are entitled to enjoy the “Two exemption Three half” tax
holiday based on the local government’s policy to encourage outside investment
into the locality. However, the definition of the “Two exemption Three half”
policy defined by Yidu City and Jiangling County’s governments is
different from the usual understanding of the term. According to PRC tax laws,
“Two exemption Three half” policy means foreign investment enterprises including
Benda Ebei may enjoy an exemption from corporate income tax for 2 years starting
from its first profitable year, followed by 3 years at a rate that is one half
of the regular rate for corporate income tax. However, in the documents issued
by Yidu City and Jiangling County’s governments, the term means that an outside
enterprise can enjoy the “two exemption three half” privilege treatmentonly with respect to the
part allotted to the local government . According to our Chinese legal
counsel, under current PRC tax laws, most enterprises are required to pay
corporate income tax at a rate of 33% of its income before tax, of which, about
90.91% (30% of the corporate income) is paid over to the Central
government, only about 9.09% (3% of the corporate incomes) is reserved for
the local government. Accordingly, there is a risk that the local government may
only be able to dispose of the “9.09% (3%)” reserved for the local government
and Jiangling Benda and Yidu Benda actually would receive much less preferential
treatment than a foreign investment enterprise could enjoy.




The
beneficial tax exemption of Jiangling Benda and Yidu Benda was started in the
year of 2005, and they would subject to corporate income tax rate 18% starting
from the year of 2007 and they would subject to corporate income tax at 25%,
full income tax rate, according to the new PRC corporate income tax with the
effective date January 1, 2008.




If
Jiangling Benda and Yidu Benda could not have any beneficial tax exemption, the
tax contingency, at full rate 25%, would be as follows:


a)
              For
      the year of 2008: Jiangling Benda: Nil; Yidu Benda:
    Nil;
 b)
                For
      the year of 2007: Jiangling Benda: Nil; Yidu Benda:
    Nil.




As to the
tax treatment promised by local governments to purely domestic enterprises,
i.e., Jiangling Benda and Yidu Benda, invested by non-local (but not foreign)
investors under the so called preferential policy announced by local
governments, our consultation with PRC certified public accountants and lawyers,
is that the above policy is not compliant with the PRC laws. Even though such
practice exists in many areas across the country, the policy faces the risk of
being ruled illegal at any time for non-compliance with relevant laws. In this
event, there is a risk that we might be assessed retrospective tax
liabilities.




39




·
            WE
      MAY HAVE DIFFICULTY DEFENDING OUR INTELLECTUAL PROPERTY RIGHTS FROM
      INFRINGEMENT RESULTING IN LAWSUITS REQUIRING US TO DEVOTE FINANCIAL AND
      MANAGEMENT RESOURCES THAT WOULD HAVE A NEGATIVE IMPACT ON OUR OPERATING
      RESULTS.




We regard
our service marks, trademarks, trade secrets, patents and similar intellectual
property as critical to our success. We rely on trademark, patent and trade
secret law, as well as confidentiality and license agreements with certain of
our employees, customers and others to protect our proprietary rights. We have
received trademark and patent protection for certain of our products in the
People's Republic of China. No assurance can be given that our patents and
licenses will not be challenged, invalidated, infringed or circumvented, or that
our intellectual property rights will provide competitive advantages to us.
There can be no assurance that we will be able to obtain a license from a
third-party technology that we may need to conduct our business or that such
technology can be licensed at a reasonable cost.




Presently,
all of our products are sold to clients in PRC. To date, no trademark or patent
filings have been made other than in PRC. To the extent that we market our
products in other countries, we may have to take additional action to protect
our intellectual property. The measures we take to protect our proprietary
rights may be inadequate and we cannot give you any assurance that our
competitors will not independently develop formulations and processes that are
substantially equivalent or superior to our own or copy our
products.




Currently,
the State Food and Drug Administration (“SFDA”) does not automatically stay drug
registration approval upon initiation of an infringement lawsuit by a third
party. At present, we must wait until a copycat manufacturer has received
marketing approval from SFDA before we can bring an infringement lawsuit.
Furthermore, Chinese courts have been hesitant to issue preliminary injunctions
to suspend sales until a final judgment is issued in the lawsuit. Our sales
could be lowered were a competitor to infringe our intellectual property rights
by marketing one or more versions of SFDA-approved drugs proprietary to us,
such as the Qiweiben capsule, until we can curtail such infringement through
legal action. Pursuing infringement lawsuits would require us to devote
financial and management resources that could impact the results of our
operations.




·
            WE
      DEPEND ON THE SUPPLY OF RAW MATERIALS, AND ANY ADVERSE CHANGES IN SUCH
      INTENSE COMPETITION FROM EXISTING AND NEW ENTITIES MAY ADVERSELY AFFECT
      OUR REVENUES AND PROFITABILITY.




We
compete with other companies, many of whom are developing or can be expected to
develop products similar to ours. Our markets are large with many competitors.
The market for pharmaceutical raw materials manufacturing is particularly
competitive. In this market, our competitors include a number of contract
manufacturers and, from time to time, demand for particular products may be
greatly exceeded by production capacity. Many of our competitors are more
established than we are, and have significantly greater financial, technical,
marketing and other resources than us. Some of our competitors may have greater
name recognition and a larger customer base. These competitors may be able to
respond more quickly to new or changing opportunities and customer requirements
and may be able to undertake more extensive promotional activities, offer more
attractive terms to customers, and adopt more aggressive pricing policies. We
intend to create greater brand awareness for our brand name so that we can
successfully compete with our competitors. We cannot assure you that we will be
able to compete effectively with current or future competitors or that the
competitive pressures we face will not harm our business.




40




Our
company does not depend on any sole source suppliers, since the raw materials
market is opened in the sense that we could have plenty of choices of the
suppliers. We only choose those suppliers who could offer better terms to us and
having a long term co-operation relationship.





·
            OUR
      PRODUCTS AND THE PROCESSES COULD EXPOSE US TO SUBSTANTIAL PRODUCT
      LIABILITY CLAIMS WHICH WILL NEGATIVELY IMPACT OUR
      PROFITABILITY.




We face
an inherent business risk of exposure to product liability claims in the event
that the use of our products is alleged to have resulted in adverse side
effects. Side effects or marketing or manufacturing problems pertaining to any
of our products could result in product liability claims or adverse publicity.
These risks will exist for those products in clinical development and with
respect to those products that have received regulatory approval for commercial
sale. We do not have insurance to cover any potential product liability claims.
To date, we have not experienced any product liability claims. However, that
does not mean that we will not have any such claims with respect to our products
in the future which will negatively impact our profitability.




·
            WE
      DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES
      COULD ADVERSELY AFFECT OUR
BUSINESS.




We place
substantial reliance upon the efforts and abilities of our executive officers,
Yiqing Wan, our Chairman and Chief Executive Officer, Wei Xu, our Vice President
of Operations, Hui Long, our Vice President of Technology. We have entered into
a five year employment contract with Mr. Wan and three year contracts with Ms.
Xu. As per his contract, Mr. Wan is to receive salary of $160,000 per year, Ms.
Xu is to receive $100,000, with the possibility of a discretionary bonus as
determined by the Board of Directors. Each employment contract immediately
terminates upon death or disability, and may be terminated by the Company either
with or without cause after 30 days notice, or terminated by the officer for
good reason with 60 days notice. We are not currently aware of the plans of any
key employees to retire or leave the Company. However, the loss of the services
of any of our executive officers could have a material adverse effect on our
business, operations, revenues or prospects. We do not maintain key man life
insurance on the lives of these individuals.




·
            MR.
      YIQING WAN AND MS. WEI XU ARE HUSBAND AND WIFE. THE SEPARATION OR DIVORCE
      OF THE COUPLE IN THE FUTURE COULD ADVERSELY AFFECT OUR
      BUSINESS.




Mr.
Yiqing Wan, our Chairman and Chief Executive Officer, and Ms. Wei Xu, Vice
President of Operations, are married. They are two of our principal executives
and are a vital part of our operations. If they were to become separated or
divorced and could not amicably work with each other, one of them may decide to
cease his or her employment with us. Alternatively, their work performance may
not be satisfactory if they become preoccupied with such negative situation. In
both cases, our operations could be negatively affected by our production
resulting in a decrease in revenues.




·
            MANAGEMENT
      EXERCISES SIGNIFICANT CONTROL OVER MATTERS REQUIRING SHAREHOLDER APPROVAL
      WHICH MAY RESULT IN THE DELAY OR PREVENTION OF A CHANGE IN OUR
      CONTROL.




Mr.
Yiqing Wan, our Chairman and Chief Executive Officer, and Ms. Wei Xu, our Vice
President of Operations, each have a 50% equity ownership in XIA Pharmaceutical
Inc. Through their joint ownership in XIA Pharmaceutical, Inc., Mr. Wan and Ms.
Xu currently share voting power equal to approximately 27.91% of our voting
securities. When combined with the common stock ownership of our other officers
and directors, management has combined voting power in our Company equal to
approximately 29.45% of our voting securities. As a result, management through
such stock ownership exercises significant control over all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership in
management may also have the effect of delaying or preventing a change in
control of us that may be otherwise viewed as beneficial by shareholders other
than management.




41


·
            INTERNATIONAL
      OPERATIONS REQUIRE US TO COMPLY WITH A NUMBER OF UNITED STATES AND
      INTERNATIONAL REGULATIONS WHICH MAY HAVE A NEGATIVE IMPACT ON OUR
      GROWTH.




We are
required to comply with a number of international regulations in countries
outside of the United States. In addition, we must comply with the Foreign
Corrupt Practices Act, or FCPA, which prohibits U.S. companies or their agents
and employees from providing anything of value to a foreign official for the
purposes of influencing any act or decision of these individuals in their
official capacity to help obtain or retain business, direct business to any
person or corporate entity or obtain any unfair advantage. Any failure by us to
adopt appropriate compliance procedures and ensure that our employees and agents
comply with the FCPA and applicable laws and regulations in foreign
jurisdictions could result in substantial penalties and/or restrictions in our
ability to conduct business in certain foreign jurisdictions. We believe we are
currently in compliance with such regulations. The U.S. Department of The
Treasury's Office of Foreign Asset Control, or OFAC, administers and enforces
economic and trade sanctions against targeted foreign countries, entities and
individuals based on U.S. foreign policy and national security goals. As a
result, we are restricted from entering into transactions with certain targeted
foreign countries, entities and individuals except as permitted by OFAC which
may reduce our future growth.




·
            WE
      MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES
      CORPORATE GOVERNANCE AND ACCOUNTING
  REQUIREMENTS.




We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the Securities and Exchange Commission. We expect all
of these applicable rules and regulations to significantly increase our legal
and financial compliance costs and to make some activities more time consuming
and costly. We also expect that these applicable rules and regulations may make
it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to attract and retain
qualified individuals to serve on our board of directors or as executive
officers. We are currently evaluating and monitoring developments with respect
to these newly applicable rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.




·
            WE
      MAY NOT BE ABLE TO MEET THE ACCELERATED FILING AND INTERNAL CONTROL
      REPORTING REQUIREMENTS IMPOSED BY THE SECURITIES AND EXCHANGE COMMISSION
      RESULTING IN A POSSIBLE DECLINE IN THE PRICE OF OUR COMMON STOCK AND OUR
      INABILITY TO OBTAIN FUTURE
FINANCING.




As
directed by Section 404 of the Sarbanes-Oxley Act, the Securities and Exchange
Commission adopted rules requiring each public company to include a report of
management on the company's internal controls over financial reporting in its
annual reports. In addition, the independent registered public accounting firm
auditing a company's financial statements must also attest to and report on
management's assessment of the effectiveness of the company's internal controls
over financial reporting as well as the operating effectiveness of the company's
internal controls. We will not be subject to these requirements for the fiscal
year ended December 31, 2007.




While we
expect to expend significant resources in developing the necessary documentation
and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there
is a risk that we may not be able to comply timely with all of the requirements
imposed by this rule. In the event that we are unable to receive a positive
attestation from our independent registered public accounting firm with respect
to our internal controls, investors and others may lose confidence in the
reliability of our financial statements and our stock price and ability to
obtain equity or debt financing as needed could suffer.




42
 
  In
addition, in the event that our independent registered public accounting firm is
unable to rely on our internal controls in connection with its audit of our
financial statements, and in the further event that it is unable to devise
alternative procedures in order to satisfy itself as to the material accuracy of
our financial statements and related disclosures, it is possible that we would
be unable to file our Annual Report on Form 10-K with the Securities and
Exchange Commission, which could also adversely affect the market price of our
common stock and our ability to secure additional financing as
needed.




Risks
Relating to the People's Republic of China




·
            THE
      SALES PRICES OF SOME MEDICINES ARE CURRENTLY CONTROLLED BY THE CHINESE
      GOVERNMENT AND THAT MAY ADVERSELY AFFECT OUR
  BUSINESS.




Prices
paid by end consumers for many of our medicines are regulated by PRC's State
Development and Reform Commission. PRC justifies its need to control the drug
prices on the basis that, at present, only workers at state or private companies
have health insurance. About 900 million rural Chinese people and 35 million
urban unemployed Chinese people lack insurance coverage and cannot afford
expensive drugs. Our future profitability might suffer if a significant portion
of our revenues were to be derived from products whose final selling prices were
state-controlled and if those prices were held at levels close to or below our
cost of sales.




·
            SALES
      OF OUR PRODUCTS COULD BE HARMED BY THE WIDESPREAD PRESENCE OF COUNTERFEIT
      MEDICATION IN PRC NEGATIVELY IMPACTING OUR
  PROFITABILITY.




Chinese
counterfeiting of pharmaceuticals and other products affecting public health has
grown in tandem with counterfeiting and piracy of goods such as brand-name
clothing, compact discs and computer software. Exact data are impossible to
collect, but the FBI believes that more than half of the pharmaceuticals sold in
PRC are counterfeit. Examples of the seriousness of the problem include: six
months after Viagra was introduced in 2002, state media reported that some
90 percent of little blue pills sold in Shanghai were counterfeit; and 192,000
Chinese patients were reported to have died in 2001 from fake drugs. Counterfeit
products shrink markets for legitimate goods. This situation affects Benda and
other major domestic and foreign drug manufacturers in PRC, especially for
products marketed through the OTC rather than hospital channel. However, we
believe the Chinese authorities are becoming increasingly vigilant against
counterfeiting because in 2001 the authorities closed 1,300 factories while
investigating 480,000 cases of counterfeit drugs. Currently, active
pharmaceutical ingredients are governed only by chemical regulations. We believe
that a major step towards controlling the problem would be taken should the SFDA
be given oversight over PRC’s bulk chemicals producers. However, our ability to
increase sales as rapidly as we would like, and our profitability, could be
affected if this problem persists or worsens.




·
            THERE
      COULD BE CHANGES IN GOVERNMENT REGULATIONS TOWARDS THE PHARMACEUTICAL AND
      HEALTH SUPPLEMENT INDUSTRIES THAT MAY ADVERSELY AFFECT OUR GROWTH AND
      PROFITABILITY.




The
manufacture and sale of APIs in the PRC is heavily regulated by many state,
provincial and local authorities. These regulations have significantly increased
the difficulty and costs involved in obtaining and maintaining regulatory
approvals for marketing new and existing products. Our future growth and
profitability depend to a large extent on our ability to obtain regulatory
approvals.




The SFDA
of PRC recently implemented new guidelines for licensing of APIs. All existing
manufacturers with licenses were required to apply for GMP certifications by
June 30, 2004, and to receive approvals by December 31, 2004. We have received
certification for our Benda Ebei injection vial production facilities and expect
to receive certifications for the remaining plant that require such
certification in 2008. However, should we fail to receive or maintain the
GMP certifications under the new guidelines in the future; our businesses would
be materially and adversely affected.




43




Moreover,
the laws and regulations regarding acquisitions of the pharmaceutical industry
in the PRC may also change and may significantly impact our ability to grow
through acquisitions.




·
            CERTAIN
      POLITICAL AND ECONOMIC CONSIDERATIONS RELATING TO THE PRC COULD ADVERSELY
      AFFECT OUR COMPANY.




The PRC
is transitioning from a planned economy to a market economy. While the PRC
government has pursued economic reforms since its adoption of the open-door
policy in 1978, a large portion of the PRC economy is still operating under
five-year plans and annual state plans. Through these plans and other economic
measures, such as control on foreign exchange, taxation and restrictions on
foreign participation in the domestic market of various industries, the PRC
government exerts considerable direct and indirect influence on the economy.
Many of the economic reforms carried out by the PRC government are
unprecedented or experimental, and are expected to be refined and improved.
Other political, economic and social factors can also lead to further
readjustment of such reforms. This refining and readjustment process may not
necessarily have a positive effect on our operations or future business
development. Our operating results may be adversely affected by changes in the
PRC's economic and social conditions as well as by changes in the policies of
the PRC government, such as changes in laws and regulations (or the official
interpretation thereof), measures which may be introduced to control inflation,
changes in the interest rate or method of taxation, and the imposition of
additional restrictions on currency conversion.




·
            THE
      RECENT NATURE AND UNCERTAIN APPLICATION OF MANY PRC LAWS APPLICABLE TO US
      CREATE AN UNCERTAIN ENVIRONMENT FOR BUSINESS OPERATIONS AND THEY COULD
      HAVE A NEGATIVE EFFECT ON US.




The PRC
legal system is a civil law system. Unlike the common law system, the civil law
system is based on written statutes in which decided legal cases have little
value as precedents. In 1979, the PRC began to promulgate a comprehensive system
of laws and has since introduced many laws and regulations to provide general
guidance on economic and business practices in the PRC and to regulate foreign
investment. Progress has been made in the promulgation of laws and regulations
dealing with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. The promulgation of new laws,
changes of existing laws and the abrogation of local regulations by national
laws could have a negative impact on our business and business
prospects.




Since all
the Company’s operation plants are all located in China, therefore we have to
comply with those relevant PRC laws and regulations. The changes of those
relevant PRC laws and regulations do affect our operation, for example, due to
the changes of the relevant regulations of SFDA in PRC, it may take more time to
approve the application of new drug certificate so that the forecasted operation
plan for such particular drug product would be delayed and thus the potential
earning of revenue and net profit would be affectee. In this aspect, the new
drug certificate application progresses of Qiweiben Capsule and Yan Long
Anti-cancer Oral Liquid are delayed. Furthermore, due to the changes of the
requirements of the Environmental PRC agencies, Yidu Benda’s operation was
ceased since January 2007, therefore the company needs to re-design the
production facilities so the process of re-opening is also delayed. As these
laws, regulations and legal requirements are relatively recent, their
interpretation and enforcement involve significant uncertainty.




·
            THE
      APPROVAL OF THE CHINESE SECURITIES REGULATORY COMMISSION (“CRSC”) MAY BE
      REQUIRED IN CONNECTION WITH THIS OFFERING UNDER A RECENTLY ADOPTED PRC
      REGULATION; SINCE THIS OFFERING DID NOT COMMENCE PRIOR TO THE EFFECTIVE
      DATE OF THE REGULATION, WE MAY BE REQUIRED TO OBTAIN CRSC APPROVAL FOR
      THIS OFFERING AND WE CAN NOT CURRENTLY PREDICT THE CONSEQUENCES OF ANY
      FAILURE TO OBTAIN SUCH APPROVAL.




44




On August
8, 2006, six PRC regulatory agencies, including the Chinese Securities
Regulatory Commission, or CSRC, promulgated a regulation that became effective
on September 8, 2006. This regulation, among other things, purports to require
offshore special purpose vehicles, or SPVs, formed for listing purposes through
acquisitions of PRC domestic companies and controlled by PRC individuals, such
as our company, to obtain the approval of the CSRC prior to publicly listing
their securities on an overseas stock exchange. While the application of this
new regulation is not yet clear, we believe, based on the advice of our PRC
counsel, that CSRC approval is not required if trading of our shares of common
stock commenced prior to the effective date of the regulation. Although the CSRC
is expected to promulgate formal implementing rules and/or regulations and
possibly other clarifications, the procedures, criteria and timing for obtaining
any required CSRC approval have not been established and it is unclear when
these will be established. Therefore, since this offering did not commence prior
to the effective date of the regulation and our shares of common stock did not
commence trading prior to the effective date of the regulation, we may be
required to obtain CSRC approval for this offering and we cannot currently
predict the criteria, timing or procedures for obtaining the CSRC approval or
the consequences of any failure to obtain such approval.




·
            RECENT
      PRC REGULATIONS RELATING TO THE ESTABLISHMENT OF OFFSHORE SPECIAL PURPOSE
      COMPANIES BY PRC RESIDENTS MAY SUBJECT OUR PRC RESIDENT SHAREHOLDERS TO
      PERSONAL LIABILITY AND LIMIT OUR ABILITY TO INJECT CAPITAL INTO OUR PRC
      SUBSIDIARIES, LIMIT OUR PRC SUBSIDIARIES’ ABILITY TO DISTRIBUTE PROFITS TO
      US, OR OTHERWISE ADVERSELY AFFECT
US.




The State
Administration of Foreign Exchange (“SAFE”) was one of six PRC regulatory
agencies promulgating a regulation that became effective on September 8, 2006
requiring PRC residents to register with the local SAFE branch before
establishing or controlling any company outside of China for the purpose of
capital financing with assets or equities of PRC companies, referred to in the
notice as an “offshore special purpose company.” PRC residents that are
shareholders of offshore special purpose companies established before November
1, 2005 were required to register with the local SAFE branch before March 31,
2006. Our current beneficial owners who are PRC residents have registered with
the local SAFE branch as required under the SAFE notice. The failure of these
beneficial owners to timely amend their SAFE registrations pursuant to the SAFE
notice or the failure of future beneficial owners of our company who are
PRC residents to comply with the registration procedures set forth in the SAFE
notice may subject such beneficial owners to fines and legal sanctions and may
also limit our ability to contribute additional capital into our PRC
subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to our
company or otherwise adversely affect our business.





Other
Risks




·
            CURRENCY
      CONVERSION AND EXCHANGE RATE VOLATILITY COULD ADVERSELY AFFECT OUR
      FINANCIAL CONDITION.




The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People's Bank of China publishes an exchange rate, which we refer to as the PBOC
exchange rate, based on the previous day's dealings in the inter-bank foreign
exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an
authorized range above or below the PBOC exchange rate according to market
conditions.




Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs,
for use on current account items, including the distribution of dividends and
profits to foreign investors, is permissible. FIEs are permitted to convert
their after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in the PRC. Conversion of
Renminbi into foreign currencies for capital account items, including direct
investment, loans, and security investment, is still under certain restrictions.
On January 14, 1997, the State Council amended the Foreign Exchange Control
Regulations and added, among other things, an important provision, which
provides that the PRC government shall not impose restrictions on recurring
international payments and transfers under current account items.




45




Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by
providing valid receipts and proofs.




Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.





Furthermore,
the Renminbi is not freely convertible into foreign currencies nor can freely
remitted abroad. Under the PRC’s Foreign Exchange Control Regulations and the
Administration of Settlement, Sales and Payment of Foreign Exchange Regulations,
foreign invested enterprises are permitted either to repatriate or distribute
its profits or dividends in foreign currencies out of its foreign exchange
accounts, or exchange Renminbi for foreign currencies through banks authorized
to conduct foreign exchange business. The conversion of Renminbi into foreign
exchange by foreign invested enterprises for recurring items, including the
distribution of dividends to foreign investors, is permissible. The conversion
of Reminbi into foreign currencies for capital items, such as direct investment,
loans and security investment, is subject, however, to more stringent
controls.





Since
1994, the exchange rate for Renminbi against the United States dollar has
remained relatively stable, most of the time in the region of approximately
RMB8.28 to $1.00. However, in 2005, the Chinese government announced that it
would begin pegging the exchange rate of the Chinese Renminbi against a number
of currencies, rather than just the U.S. dollar and, the exchange rate for the
Renminbi against the U.S. dollar became RMB8.02 to $1.00. As our operations are
primarily in PRC, any significant revaluation or devaluation of the Chinese
Renminbi may materially and adversely affect our cash flows, revenues and
financial condition. We may not be able to hedge effectively against in any such
case. For example, to the extent that we need to convert United States dollars
into Chinese Renminbi for our operations, appreciation of this currency against
the United States dollar could have a material adverse effect on our business,
financial condition and results of operations. Conversely, if we decide to
convert Chinese Renminbi into United States dollars for other business purposes
and the United States dollar appreciates against this currency, the United
States dollar equivalent of the Chinese Renminbi we convert would be reduced.
There can be no assurance that future movements in the exchange rate of Renminbi
and other currencies will not have an adverse effect on our financial condition.
Benda’s operating companies are FIEs to which the Foreign Exchange Control
Regulations are applicable. There can be no assurance that we will be able to
obtain sufficient foreign exchange to pay dividends or satisfy other foreign
exchange requirements in the future.




·
            IT
      MAY BE DIFFICULT TO AFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL
      JUDGMENTS UPON OUR COMPANY AND OUR OFFICERS AND DIRECTORS BECAUSE THEY
      RESIDE OUTSIDE THE UNITED STATES.




As our
operations are presently based in PRC and a majority of our directors and all of
our officers reside in PRC, service of process on our company and such directors
and officers may be difficult to effect within the United States. Also, our main
assets are located in PRC and any judgment obtained in the United States against
us may not be enforceable outside the United States.




46




·
            ANY
      FUTURE OUTBREAK OF AVIAN INFLUENZA, OR THE ASIAN BIRD FLU, OR ANY OTHER
      EPIDEMIC IN PRC COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
      OPERATIONS, FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS.




Since
mid-December 2003, a number of Asian countries have reported outbreaks of highly
pathogenic avian influenza in chickens and ducks. Since all of our operations
are in PRC, an outbreak of the Asian Bird Flu in PRC in the future may disrupt
our business operations and have a material adverse effect on our financial
condition and results of operations. For example, a new outbreak of Asian Bird
Flu, or any other epidemic, may reduce the level of economic activity in
affected areas, which may lead to a reduction in our revenue if our clients
cancel existing contracts or defer future expenditures. In addition, health or
other government regulations may require temporary closure of our offices, or
the offices of our customers or partners, which will severely disrupt our
business operations and have a material adverse effect on our financial
condition and results of operations.




·
            OUR
      BUSINESS MAY BE AFFECTED BY UNEXPECTED CHANGES IN REGULATORY REQUIREMENTS
      IN THE JURISDICTIONS IN WHICH WE
OPERATE.




We are
subject to many general regulations governing business entities and their
behavior in PRC and in other jurisdictions in which we have, or plan to have,
operations and market our products. In particular, we are subject to laws and
regulations covering food, dietary supplements and APIs. Such regulations
typically deal with licensing, approvals and permits. Any change in product
licensing may make our products more or less available on the market. Such
changes may have a positive or negative impact on the sale of our products and
may directly impact the associated costs in compliance and our operational and
financial viability. Such regulatory environment also covers any existing or
potential trade barriers in the form of import tariff and taxes that may make it
difficult for us to import our products to certain countries and regions, such
as Hong Kong, which would limit our international expansion.




·
            WE
      MAY EXPERIENCE CURRENCY FLUCTUATION AND LONGER EXCHANGE RATE PAYMENT
      CYCLES WHICH WILL NEGATIVELY AFFECT THE COSTS OF OUR PRODUCTS SOLD AND THE
      VALUE OF OUR LOCAL CURRENCY
PROFITS.




The local
currencies in the countries in which we sell our products may fluctuate in value
in relation to other currencies. Such fluctuations may affect the costs of our
products sold and the value of our local currency profits. While we are not
conducting any meaningful operations in countries other than PRC at the present
time, we may expand to other countries and may then have an increased risk of
exposure of our business to currency fluctuation.




·
            SINCE
      MOST OF OUR ASSETS ARE LOCATED IN PRC, ANY DIVIDENDS OF PROCEEDS FROM
      LIQUIDATION IS SUBJECT TO THE APPROVAL OF THE RELEVANT CHINESE GOVERNMENT
      AGENCIES.




Our
assets are predominantly located inside PRC. Under the laws governing foreign
invested enterprises in PRC, dividend distribution and liquidation are allowed
but subject to special procedures under the relevant laws and rules. Any
dividend payment will be subject to the decision of the board of directors and
subject to foreign exchange rules governing such repatriation. Any liquidation
is subject to the relevant government agency's approval and supervision as well
as the foreign exchange control. This may generate additional risk for our
investors in case of dividend payment and liquidation.




Risks
Associated with Our Shares of Common Stock




·
            OUR
      SHARES OF COMMON STOCK ARE VERY THINLY TRADED, AND THE PRICE MAY NOT
      REFLECT OUR VALUE AND THERE CAN BE NO ASSURANCE THAT THERE WILL BE AN
      ACTIVE MARKET FOR OUR SHARES OF COMMON STOCK EITHER NOW OR IN THE
      FUTURE.




47




Our
shares of common stock are very thinly traded, and the price if traded may not
reflect our value. There can be no assurance that there will be an active market
for our shares of common stock either now or in the future. The market liquidity
will be dependent on the perception of our operating business and any steps that
our management might take to bring us to the awareness of investors. There can
be no assurance given that there will be any awareness generated. Consequently,
investors may not be able to liquidate their investment or liquidate it at a
price that reflects the value of the business. If a more active market should
develop, the price may be highly volatile. Because there may be a low price for
our shares of common stock, many brokerage firms may not be willing to effect
transactions in the securities. Even if an investor finds a broker willing to
effect a transaction in the shares of our common stock, the combination of
brokerage commissions, transfer fees, taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of such shares of common stock as collateral for any loans.





Certain
of our stockholders have been granted registration rights which entitle them to
require us to register their shares of our common stock at the same time that
the shares of our common stock are being registered. The inclusion of this
additional stock in the registration may negatively affect the resale price that
may be obtained for the shares of our common stock when they are
registered.




·
            WE
      ARE SUBJECT TO THE PENNY STOCK RULES WHICH WILL MAKE THE SHARES OF OUR
      COMMON STOCK MORE DIFFICULT TO
SELL.




We are
subject to the SEC’s “penny stock” rules as our shares of common stock sell
below $5.00 per share. Penny stocks generally are equity securitieswith a price of less than $5.00. The penny stock rules
require broker-dealers to deliver a standardized risk disclosure document
prepared by the SEC which provides information about penny stocks and the nature
and levelof risks in the penny stock market. The
broker-dealer must also provide thecustomer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson, and monthly accountstatements showing the market value of each penny stock
held in the customer's account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information must be given to the
customer orally or in writing prior to completing the transaction and must be
given to the customer in writing before or with the customer's
confirmation.




In
addition, the penny stock rules require that prior to a transaction, the broker
dealer must make a special written determination that the penny stockis a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction.The penny
stock rules are burdensome and may reduce purchases of any offerings and
reduce the trading activity for shares of our common stock. As long as our
shares of common stockare subject to the penny
stock rules, the holders of such shares of common stock may find it more
difficult to sell their securities.




·
            SALES
      OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADABLE
      PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES AND HAVE A
      DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON
      STOCK.




A
substantial majority of our outstanding shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act. As
restricted shares, these shares may be resold only pursuant to an effective
registration statement or under the requirements of Rule 144 or other applicable
exemptions from registration under the Act and as required under applicable
state securities laws. Rule 144 provides in essence that a non-affiliate person
who has held restricted securities for a period of at least six months may,
under certain conditions, sell, in brokerage transactions, their shares of
common stock. A sale under Rule 144 or under any other exemption from the Act,
if available, or pursuant to subsequent registrations of our shares of common
stock, may have a depressive effect upon the price of our shares of common stock
in any active market that may develop.




48




·
            THERE
      CAN BE NO ASSURANCE THAT THE PRICE OF OUR SHARES OF COMMON STOCK WILL MEET
      OR EXCEED THE EXERCISE PRICE OF THE WARRANTS DURING THE EXERCISE PERIOD OR
      AT ANY TIME THEREAFTER.





Unless
the price of our shares of Common Stock equals or exceeds the exercise price of
the Warrants at the time of such exercise, an Investor may not be able to
exercise his Warrants profitably. There can be no assurance that the price of
our shares of Common Stock will meet or exceed the exercise price of the
Warrants during the exercise period or at any time thereafter. Accordingly,
should an Investor choose to exercise the Warrants, the value of our shares of
Common Stock purchased upon such exercise may be less than the Warrant exercise
price the Investor pays. The Warrant may be worthless and expire unexercised if
the price of our shares of Common Stock does not exceed the
Warrant exercise price. Please see “Description of Securities - Warrants”
for additional information as to the terms of the Warrants.




·
            MANAGEMENT
      EXERCISES SIGNIFICANT CONTROL OVER MATTERS REQUIRING SHAREHOLDER APPROVAL
      AND INVESTORS WILL HAVE CONTROL OVER COMPANY
  ACTIONS.




As a
practical matter, our officers and directors will have control of us and will be
able to assert significant influence over the election of directors and other
matters presented for a vote of stockholders. Even after the Offering is
complete, a majority of our shares of Common Stock will be owned by Mr. Yiqing
Wan and Ms. Wei Xu, husband and wife. Through their concentration of voting
power, they could delay, deter or prevent a change in our control or other
business combinations that might otherwise be beneficial to the other
stockholders. In deciding how to vote on such matters, Mr. Yiqing Wan and Ms.
Wei Xu may be influenced by interests that conflict with other stockholders’
interests. Investors will not have a voice in management decisions and will
exercise very little control. In the event that the requisite approval of
stockholders is obtained, dissenting or non-participating stockholders generally
would be bound by such vote. Accordingly, Offerees should not subscribe for
Units in this Offering unless they are willing to entrust all aspects of
operational control to our current management team. Further, Investors in the
Offering will rely on our management team to use the proceeds as they determine
to be in our best interest. Although management has indicated its current
intended uses, those may be changed upon their decision.





In
addition, our existing officers, directors, affiliates and other insiders are
permitted to purchase Units in the Offering. If they do so, their interest in us
after the acquisition may be even greater.




·
            INVESTORS
      MAY EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK
      VALUE PER SHARE OF OUR COMMON STOCK IF THEY ELECT TO EXERCISE THE
      WARRANTS.




Investors
may experience immediate and substantial dilution in net tangible book value per
share of our common stock if they elect to exercise the Warrants. The exercise
price of the Warrants may be substantially higher than the net tangible book
value per share. Accordingly, if Investors exercise the Warrants, they will
likely experience immediate and substantial dilution in the net tangible book
value per share and further dilution if we issue shares of our common stock in
the future. As a result of this dilution, in the event of our
subsequent liquidation, Investors exercising their Warrants may receive
significantly less than the full exercise price that they paid for the shares of
our Common Stock.




·
            INVESTORS
      MAY EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK
      VALUE PER SHARE OF OUR COMMON STOCK IN THE EVENT WE ISSUE SHARES OF OUR
      COMMON STOCK IN THE FUTURE.




There are
additional authorized but unissued shares of our Common Stock that may be later
issued by our management for any purpose without the consent or vote of the
stockholders. Investors purchasing in this Offering may be further diluted in
their percentage ownership on an as-converted basis in the event additional
shares are issued by us in the future.




49




·
            OUR
      ARTICLES OF INCORPORATION AUTHORIZE THE ISSUANCE OF SHARES OF PREFERRED
      STOCK WHICH, IF ISSUED, THE RIGHTS, PREFERENCES, DESIGNATIONS AND
      LIMITATIONS OF SUCH PREFERRED STOCK COULD OPERATE TO THE DISADVANTAGE OF
      THE SHARES OF OUR OUTSTANDING COMMON
STOCK.




Our
articles of incorporation authorize the issuance of shares of preferred stock,
the rights, preferences, designations and limitations of which may be set by the
board of directors. While no preferred stock is currently outstanding or subject
to be issued, the articles of incorporation have authorized issuance of up
to 5,000,000 shares of preferred stock (“Preferred Stock”) in the discretion of
the board of directors. Such Preferred Stock may be issued upon filing of
amended Articles of Incorporation and the payment of required fees; no further
shareholder action is required. If issued, the rights, preferences, designations
and limitations of such Preferred Stock would be set by our board of directors
and could operate to the disadvantage of the shares of our outstanding Common
Stock. Such terms could include, among others, preferences as to dividends and
distributions on liquidation.






ITEM 2. DESCRIPTION OF
PROPERTIES.




Production
Facilities and Equipment




Locations




Our head
office is located in Wuhan, the capital city of Hubei Province. Wuhan is
the biggest hub city in Central China. Divided by the Yangtze River, Wuhan has
come to be known as the Three Towns of Wuhan, with Hankou and Hanyang on the
west bank, and Wuchang on the east. Hubei borders with Henan to the north, Anhui
to the east, Jiangxi to the southeast, Hunan to the south, Chongqing to the
west, and Shanxi to the northwest. The high-profile Three Gorges Dam is located
in Yichang, in western Hubei. Hubei's economy ranks 10th in the country and its
GDP in 2004, adjusted for purchasing power parity, was approximately 330 billion
RMB ($4,600 per capita).




50










Addresses
of Benda Offices and Plants




Address
            
            Function
            
            SizeHubei
      Tongji Benda Ebei Pharmaceutical Co. Ltd., Taibei Mingju, 4th
      Floor, 6 Taibei Road, Wuhan, Hubei Province, PRC
            
            Headquarters/
      administration office
            
            800
      sq feet (Leased)Hubei
      Tongji Benda Ebei Pharmaceutical Co. Ltd. Shanlihe,Yingshan District,
      Guangshui City, Hubei Province, PRC
            
            GMP
      certified injection vial production plant
            
            121,110
      sq feetJiangling
      Benda Pharmaceuticals Co., Ltd., 84 South Street, Tanqiao Town, Jiangling
      County, Hubei Province, PRC
            
            API
      production plant under renovation/ awaiting GMP
    certification
            
            182,750
      sq feetYidu
      Chemical Industry Co., Ltd., Chayuansi Village, Yidu City, Hubei Province,
      PRC
            
            Bulk
      chemicals production plant
            
            172,000
      sq feetShenzhen
      SiBiono Gene Technology Co., Ltd.  No.19, Science &
      Technology Middle Road, Shenzhen Hi-Tech Industrial Park(Middle),
      Shenzhen, PRC
            
            Gene
      therapy production plant
            
            140,000
      sq feetBeijing
      Shusai Pharyngitis Research Co., Ltd., 6-3-601, Yangguang Xinganxian,
      Yiyuan, Anhuibeili, Chaoyang District, Beijing, PRC
            
            Operating,
      promoting, and distributing Pharyngitis Killer
            
            2,000
      sq feet (leased) office space in
Beijing





Finished
Medicines - The Benda Ebei Plant




The Benda
Ebei plant produces and packages Benda’s finished medicines. The plant employs
about 200 personnel and has six world-class production lines and 11 stand-alone
machinery for injection vials, with an annual aggregate production capacity of
approximately 900 million units. In PRC, based on management estimate, there are
about 197 factories with similar manufacturing facilities for injection vials.
Benda Ebei’s capacity is sixth in PRC and first in Hubei province. In 2008 and
2007, Benda Ebei produced approximately 420 million and 418 million units of
injection vials respectively, equivalent to 46% capacity. The production
processes and equipment at Benda Ebei meets international quality and control
standards and have been GMP certified by the SFDA since November 2003 and renew
on December 3, 2008 for the production of injection vials; while on November 26,
2008, Benda Ebei received a GMP for the production of tables.




51




Benda
Ebei’s plant will produce lozenges, capsules, granules, oral liquid and pills.
Benda Ebei has invested approximately $5 million on its oral medicine production
facilities. To date, we have already completed the equipment and facilities
installation We expect the production of oral liquid medicines in second quarter
of 2008. The Yanlong Anti-cancer Oral Liquid, Qiweiben Capsule will be produced
in this section of the plant. (Please refer to the section of New Branded
Medicines for the status of progress of these two new drugs.)




Active
Pharmaceutical Ingredients - The Jiangling Benda Plant




We
manufacture APIs at our Jiangling Benda plant. We closed the plant in July 2004
in order to renovate the buildings, equipment and processes and secure GMP
certification by the SFDA. Upon completion, the new plant will be comprised of
three large facilities on a total land area of 68 acres. The total expense of
these renovations will be approximately $3 million. All the equipment has been
ordered.





Our
Jiangling Benda facility was closed for renovation in July 2004 to comply with
GMP standards. The Jiangling Benda plant reopened on August 10, 2007 and has
been producing Ribose, the only product that does not require GMP approval.
Jiangling Benda also plans to produce three other types of active pharmaceutical
ingredients and they are Ribavirin, Asarin and Levofloxacin which need to have
GMP Certificate.  On April 9, 2008, Jiangling Benda received the
approved GMP Certificate which authorizing the production of
Ribavrin.  The other two products, Asarin and Levolfozacin, are still
under the stage of GMP certificate approving process. The management could not
estimate the exact timing for obtaining those certificates.





Bulk
chemicals - The Yidu Benda Plant




Yidu
Benda was temporarily closed since mid January 2007 to upgrade its waste water
treatment system to comply with new environmental standards enforced by PRC
local government.





Yidu
Benda has completed its upgrading of the waste water system and passed the
government’s verification and testing of equipments in October 2007. It is now
permitted for the testing on actual production process. Once the actual products
are produced, then the environmental government bodies will re-test the
production results. The management could not estimate the exact timing for
obtaining the final approval on the actual production process.





Gene
therapy – SiBiono Plant




On
October 16, 2003, SiBiono successfully obtained a New Drug License from SFDA,
and then, in April 4, 2004, SiBiono obtained “Manufacture Certificate” and
“Certificate of GMP for Pharmaceutical Product”, so far being fully qualified
for the market launch of Recombinant Human Ad-p53 Injection, trademarked as
Gendicine®  in China. Gendicine® is the
commercialized gene therapy product approved in the PRC government
agency.  On May 19, 2008, SiBiono received an official notice from the
PRC State of SFDA in which it mentioned that during the random inspection
performed by the PRC State of SFDA on April 8 to April 10, 2008, the PRC State
of SFDA discovered there were several production procedures that did not meet
the requirement stated in GMP, thus it required SiBiono to perform necessary
improvements in order to fulfill the GMP requirements and the PRC State of SFDA
collected back the distributed GMP certificate until the necessary improvements
being carried out and passed the examination that conducted by
SFDA.  On June 10, 2008, SiBiono received another official notice from
Guangdong Province SFDA and they demanded the same requirements as
stated in the official notice which issued by the PRC State of SFDA dated
on May 19, 2008.  On November 24, 2008, SiBiono received another
official notice from Guangdong Province SFDA which mentioned that after the
examination conducted by Shenzhen City SFDA, the Guangdong Province SFDA consent
SiBiono to carry out production on a trial basis.  It further required
SiBiono strictly to follow the requirements of GMP to organize trail production
and follow the procedures to apply for GMP Certificate verification. The
management could not estimate the exact timing for obtaining the final approval
on the GMP Certificate.




ITEM
3. LEGAL PROCEEDINGS


1.
            The
      Company has become aware that Excalibur Limited Partnership and Excalibur
      Limited Partnership II (the "Plaintiffs") filed a motion for summary
      judgment in lieu of a complaint pursuant to CPLR § 3213 (the "Motion")
      with the Supreme Court of the State of New York (the "Court"), alleging
      that the Company has been delinquent on the payment of an aggregate sum of
      $600,000 and accrued interest and costs arising from the Convertible
      Promissory Notes that were issued to the Plaintiffs in April 2007 in
      connection with a $7,560,000 private placement. Pursuant to the motion,
      the Plaintiffs requested that the Court (1) enter summary judgment in
      favor of Excalibur Limited Partnership (“Excalibur Limited”) in the amount
      of $390,000 plus all accrued interest and costs, and, (2) enter summary
      judgment in favor of Excalibur Small Cap Opportunities LP (“Excalibur
      Small Cap”) in the amount of $210,000 and accrued interest and costs. As
      of the date hereof, the Company has not received service of such notice,
      and therefore, the Company does not have details regarding the content of
      the complaint made by the
Plaintiffs





On March
4, 2009, the Company received a Notice and Default and Payment Demand letter
(the "Default Letter") from Pope Investments LLC ("Pope") in connection with its
convertible promissory note in the amount of $5,520,000 (the "Note") purchased
in our April 2007 private placement offering. The Default Letter provided notice
of default based on the Company's failure to make a required interest payment on
the Note by February 20, 2009. The Default Letter further demanded full payment
of all interest, liquidated damages and accrued interest thereon in the amount
of $130,364.37 by March 14, 2009, or Pope will accelerate the maturity date of
the full principal amount of the Note.  On April 7, 2009, the Company
received further Default Letters and Payment Demand from Pope, Excalibur Limited
and Excalibur Small Cap demanding payment in full of the balance of the Notes,
which matured on March 28, 2009.




52








2.
            On
      November 23, 2006, Benda Ebei entered into an Equity Transfer Agreement
      with Xiaozhi Zhang (“Zhang”), to purchase approximately 6.24% of SiBiono’s
      common stock for a total consideration of Rmb12.48 million (Rmb6.24
      million in cash and shares of our common stock equal to Rmb6.24 million)
      (or $1.71 million) which was due and payable on or before March 31,
      2007.





Due to
the fact that the signed agreement on November 23, 2006 was not practically
executable according to the PRC regulations, Benda Ebei asked Zhang to terminate
the signed agreement and sign a new agreement that was feasible under PRC
regulations with essentially the same terms.





However,
Zhang refused to sign the new agreement and applied to the Shenzhen Arbitration
Commission (the “Commission”) in April 2007 for enforcement of the original
agreement. Zhang requested the Commission to require Benda Ebei to pay for the
total consideration, penalty for late payment and the related legal and
arbitration expenses.





On
November 27, 2007, Shenzhen Arbitration Commission determined that:





1.
            Benda
      Ebei should pay for the consideration of Rmb 6.24 million, equal to 50% of
      the total consideration set forth in the Equity Transfer Agreement. For
      the other 50% of the total consideration which was supposed to be settled
      in the form of issuing common stock, since Zhang did not make an
      arbitration request on how to execute the arrangement,
      the Arbitration Commission did not make an award on this particular
      part.2.
            Benda
      Ebei should pay for the penalty of Rmb 46,800;3.
            Benda
      Eebi should pay for legal and arbitration expenses of Rmb
      268,971.





On May
22, 2008, Benda Ebei applied to Shenzhen People Court to terminate above
mentioned arbitration. The termination is based on the ground that Xiaozhi Zhang
does not own all 6.24% of SiBiono’s common stock. In fact, he only owns 3.28% of
SiBiono’s stock. The application has been accepted by Shenzhen People Court and
is waiting for its further investigation..








3.
            SiBiono
      patents - on January 29, 2008, SiBiono entrusted Grandall Legal Group
      Shenzhen Law Firm to issue a legal letter to Zhaohui Peng, one of the
      shareholders of Sibiono and the inventor of Gendicine, demanding that he
      transfer all the title of patents to
SiBiono.




On June
18, 1999, during the formation of SiBiono, Zhaohui Peng transferred the rights
to the patent “A new method for manufacturing recombinant adenovirus” and
related research results to SiBiono as a payment for the registered capital. In
return, Zhaohui Peng was granted 32.03% of the common stock of
SiBiono.




53




From 1999
to 2007, SiBiono successfully obtained various technology funds from various
government technology agencies to support the further research and development
activities of Gendicine. Due to this significant funding obtained by SiBiono,
Sibiono developed five additional patents which are summarized as
follows:




Item
            
            Patent
      name
            
            Countries
      / Date
            
            Application
              Number
      (1)
            
            Publication
              Number
      (2)
            
            Approved
      Patent Number (3)
            
            Name
      of Patent Inventor (6)
            
            Name
      of
              Applicant
      (6)
            
            Patent
              Assignees1
            
            A
      new method for manufacturing recombinant adenovirusA
            
            China
            
            98123346.5
            
            CN1228474A
            
            ZL98123346.5
            
            Peng
            
            Peng
            
            SiBionoDate
            
            1998/12/14
            
            1999/9/15
            
            2002/7/32
            
            A
      recombinant constructed by a virus vector and a  human
      tumor suppressor gene and its useA
            
            China
            
            02115228.4
            
            CN1401778A
            
            ZL02115228.4
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            2002/5/8
            
            2003/3/12
            
            2004/11/24B
            
            PCT
      (4)
            
            5
            
            WO2004/078987A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            2004/3/8
            
            2004/9/16
            
            N/A3
            
            Recombinant
      gene medicine of adenovirus vector and and gene p54 for
      treating proloferative diseasesA
            
            China
            
            03125129.3
            
            CN1471977A
            
            ZL03125129.3
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            2003/5/10
            
            2004/2/4
            
            2007/7/25B
            
            PCT
      (4)
            
            8
            
            WO2004/104204A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            2004/5/9
            
            2004/12/2
            
            N/A4
            
            The
      application of recombinant adenoviral p53   as
      cancer vaccine (tentative title)A
            
            China
            
            200510002779.1
            
            CN1679641A
            
            ZL200510002779.1
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            2005/1/26
            
            2005/10/12
            
            2007/8/29B
            
            PCT
      (4)
            
            1
            
            WO2006/079244A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            2005/1/26
            
            2006/8/3
            
            N/AC
            
            US
      (5)
            
            11/075035
            
            2005/0281785A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Unidentified
      Yet
            
            N/ADate
            
            2005/3/7
            
            2005/12/22
            
            N/A5
            
            Human
      Embryonic Kidney (HEK) sub-clone cell lineA
            
            China
            
            03126889.7
            
            CN1513985A
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            2003/6/13
            
            2004/7/21
            
            N/AB
            
            PCT
      (4)
            
            7
            
            WO2004/111239
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            2004/5/9
            
            2004/12/23
            
            N/A6
            
            The
      complex of polypeptide liposome and human
      VGEF   gene, and its use and human VGEF gene, and
      its useA
            
            China
            
            02134321.7
            
            CN1389269A
            
            Not
      Approved
            
            Peng
      / Zhang / Zhu
            
            Peng
      / Zhang / Zhu
            
            N/ADate
            
            2002/7/4
            
            2003/1/8
            
            N/A




Note:




(1)
            Application
      number is obtained when application is submitted;


(2)
            Publication
      number is obtained after the first phase examination;


(3)
            Approved
      patent number is obtained after the final examination;


(4)
            PCT
      is referred to an International Patent Organization in
    Paris;


(5)
            US
      is referred to the application is made in United States of America
      alone;


(6)
            Peng
      is referred to Zhaohui Peng; Zhang is referred to Xiaozhi Zhang; Zhu is
      referred to Jinya Zhu.




As
indicated in the above table, Item 1, the patent “A new method for manufacturing
recombinant adenovirus” had been assigned to SiBiono; however, the other
approved patents (item 2 through item 4) in PRC still have not been
assigned to SiBiono. The Group believes that all the above mentioned patents
should be rightfully transferred to SiBiono, a subsidiary of the Group.
Accordingly, the above mentioned legal letter was issued on this
ground.





On August
27, 2008, the Group through its subsidiary, SiBiono filed an application to the
Guongdong Province Shenzhen City (Middle) Peoples’ Court and
demand Zhaozhu Peng to transfer back all the mentioned patents that mentioned in
above to SiBiono. The case has been accepted by the Court and is waiting for its
further investigation.




54


Except as
disclosed above, we are not aware of any pending or threatened legal proceedings
in which we are involved.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.




None.




PART
II




ITEM 5. MARKET FOR COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.




Our
common stock was traded on the national, over-the-counter market under the
symbol ASTI after our initial public offering in January 1988. However, we were
notified by NASD that, due to low trading volume, it would not report
transactions in our common stock after October 13, 1989.





On
September 16, 2005, our common stock commenced quotation on the Over-the-Counter
Bulletin Board (“OTC BB”) maintained by the NASD. Our common stock, having $.001
par value per share ("Common Stock"), is traded on the Over-The-Counter Bulletin
Board ("OTCBB") under the symbol "BPMA". As of April 9, 2009, there were
approximately 844 holders of record of our common stock.





The
following table sets forth, for the periods indicated, the reported high and low
closing bid quotations for our common stock as reported on the OTCBB. The bid
prices reflect inter-dealer quotations, do not include retail markups, markdowns
or commissions and do not necessarily reflect actual transactions.




Quarter
      Ended
              
              High
      Bid
              
              
              Low
      BidDecember
      31, 2008
              
              $
              .19
              
              
              $
              .04September
      30, 2008
              
              $
              .26
              
              
              $
              .13June
      30, 2008
              
              $
              .34
              
              
              $
              .25March
      31, 2008
              
              $
              .77
              
              
              $
              .30December
      31, 2007
              
              $
              2.69
              
              
              $
              .65September
      30, 2007
              
              $
              2.60
              
              
              $
              1.90June
      30, 2007
              
              $
              3.00
              
              
              $
              1.15March
      31, 2007
              
              $
              1.65
              
              
              $
              .85December
      29, 2006
              
              $
              1.05
              
              
              $
              .76September
      30, 2006
              
              $
              .55
              
              
              $
              .40June
      30, 2006
              
              $
              .55
              
              
              $
              .40March
      31, 2006
              
              $
              .75
              
              
              $
              .40December
      31, 2005
              
              $
              .50
              
              
              $
              .15September
      30, 2005
              
              $
              .10
              
              
              $
              .05




Transfer
Agent and Registrar




Computershare
Trust Company, Inc. is currently the transfer agent and registrar for our Common
Stock. Its address is 350 Indiana Street, Suite 800, Golden,
Colorado 80401. Its phone number is (303) 262-0600.




55




Dividend
Policy




Any
future determination as to the declaration and payment of dividends on shares of
our Common Stock will be made at the discretion of our board of directors out of
funds legally available for such purpose. We are under no contractual
obligations or restrictions to declare or pay dividends on our shares of
Common Stock. In addition, we currently have no plans to pay such dividends.
However, even if we wish to pay dividends, because our cash flow is dependent on
dividend distributions from our affiliated entities in PRC, we may be
restricted from distributing dividends to our holders of shares of our
common stock in the future if at the time we are unable to obtain sufficient
dividend distributions from Ebei, Jiangling, Yudi or Shusai. Our board of
directors currently intends to retain all earnings for use in the business for
the foreseeable future. See “Risk Factors.”




Recent
Sales of Unregistered Securities.





On August
25, 2008, 3,810,976 shares were issued to the April 2007 PIPE investors as make
good shares pursuant to the Make Good and Escrow Agreement. The above shares of
common stock were issued under an exemption from registration under Section 4(2)
of the Securities Act of 1933, as amended ("Securities Act"). As such, the above
shares of common stock will be restricted shares, and the holder thereof may not
sell, transfer or otherwise dispose of such shares without registration under
the Securities Act or an exemption therefrom.





On July
10, 2008, 540,870 shares were issued to Jayhawk Private Equity Fund upon
conversion of certain promissory notes. The above shares of common stock
were issued under an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended ("Securities Act"). As such, the above shares
of common stock will be restricted shares, and the holder thereof may not sell,
transfer or otherwise dispose of such shares without registration under the
Securities Act or an exemption therefrom.





On May 1,
2008, 523,438 shares were issued to PIPE investors as penalty for registration
delay expenses. The above shares of common stock were issued under an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended ("Securities Act"). As such, the above shares of common stock will be
restricted shares, and the holder thereof may not sell, transfer or otherwise
dispose of such shares without registration under the Securities Act or an
exemption therefrom.





On
January 3, 2008, 110,000 shares were issued to the independent directors in lieu
of their remuneration. The above shares of common stock were issued under
an exemption from registration under Section 4(2) of the Securities Act of 1933,
as amended ("Securities Act"). As such, the above shares of common stock will be
restricted shares, and the holder thereof may not sell, transfer or otherwise
dispose of such shares without registration under the Securities Act or an
exemption therefrom.





On
October 12, 2007, we issued 166,898 shares of our common stock pro rata to the
investors in our November 2006 offering as a penalty payment for failing to meet
the filing date of the registration statement. The above shares of common stock
were issued under an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended ("Securities Act"). As such, the above shares
of common stock will be restricted shares, and the holder thereof may not sell,
transfer or otherwise dispose of such shares without registration under the
Securities Act or an exemption therefrom.





On
October 4, 2007, we issued 236,813 shares of our common stock in connection with
the exercise of warrants issued to our placement agent. The above shares of
common stock were issued under an exemption from registration under Section 4(2)
of the Securities Act of 1933, as amended ("Securities Act"). As such, the above
shares of common stock will be restricted shares, and the holder thereof may not
sell, transfer or otherwise dispose of such shares without registration under
the Securities Act or an exemption therefrom.





On August
16, 2007, we issued 65,200 shares of our common stock in connection with the
exercise of warrants issued to our placement agent. The above shares of common
stock were issued under an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended ("Securities Act"). As such, the above shares
of common stock will be restricted shares, and the holder thereof may not sell,
transfer or otherwise dispose of such shares without registration under the
Securities Act or an exemption therefrom.





On July
31, 2007, we issued 546,994 shares of our common stock in connection with the
exercise of warrants issued to our placement agent. The above shares of common
stock were issued under an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended ("Securities Act"). As such, the above shares
of common stock will be restricted shares, and the holder thereof may not sell,
transfer or otherwise dispose of such shares without registration under the
Securities Act or an exemption therefrom.





On June
11, 2007, we issued 33,585 shares of our common stock to Yaojin Wang and 55,975
shares of our common stock to Huimin Zhang in exchange for 2.56% of the
outstanding shares of Shenzhen SiBiono Gene Technology Co., Ltd. The above
shares of common stock were issued under an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended ("Securities Act"). As
such, the above shares of common stock will be restricted shares, and the holder
thereof may not sell, transfer or otherwise dispose of such shares without
registration under the Securities Act or an exemption therefrom.





On April
5, 2007, we issued 2,100,000 shares of our common stock to Super Pioneer
International Limited in exchange for 57.57% of the outstanding shares of
Shenzhen SiBiono Gene Technology Co., Ltd. The above shares of common stock were
issued under an exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended ("Securities Act"). As such, the above shares of common
stock will be restricted shares, and the holder thereof may not sell, transfer
or otherwise dispose of such shares without registration under the Securities
Act or an exemption therefrom.




56




Pursuant
to the Investment Agreement, on April 5, 2007, we issued to the Investors a
total of 252 Units for $7,560,000 with each Unit consisting of (1) a convertible
promissory note (the “Note”) in the principal amount of Thirty Thousand Dollars
($30,000) which shall be convertible into 54,087 shares of the Company's common
stock, par value $0.001 per share (the "Common Stock "), and (ii) a
warrant (a “Warrant ”)
to acquire 54,087 shares of Common Stock at an exercise price of $0.555 per
share. Such securities were not registered under the Securities Act of 1933. The
issuance of these shares was exempt from registration, in part pursuant to
Regulation S and Regulation D under the Securities Act of 1933 and in part
pursuant to Section 4(2) of the Securities Act of 1933. We made this
determination based on the representations of Benda which included, in pertinent
part, that such shareholders were either (a) "accredited investors" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act, or (b)
not a "U.S. person" as that term is defined in Rule 902(k) of Regulation S under
the Act, and that such shareholders were acquiring our common stock, for
investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to the resale or distribution thereof, and that the
Ever Leader Shareholders understood that the shares of our common stock may not
be sold or otherwise disposed of without registration under the Securities Act
or an applicable exemption therefrom.





In
February 2007, we issued 706,195 shares of our common stock to the various
consultants who rendered services related to the reverse merger. The above
shares of common stock were issued under an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended ("Securities Act"). As
such, the above shares of common stock will be restricted shares, and the holder
thereof may not sell, transfer or otherwise dispose of such shares without
registration under the Securities Act or an exemption therefrom.




ITEM 6. SELECTED FINANCIAL
DATA





Not
applicable to a smaller reporting company.





ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION.




Forward-Looking
Statements




The
following discussion may contain certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements are intended to be covered by
the safe harbors created by such provisions. These statements include the plans
and objectives of management for future growth of the Company, including plans
and objectives related to the consummation of acquisitions and future private
and public issuances of the Company's equity and debt securities. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other
person that the objectives and plans of the Company will be
achieved.




The words
“we,” “us” and “our” refer to the Company. The words or phrases “would be,”
“will allow,” “intends to,” “will likely result,” “are expected to,” “will
continue,” “is anticipated,” “estimate,” “project,” or similar expressions are
intended to identify “forward-looking statements.” Actual results could differ
materially from those projected in the forward looking statements as a
result of a number of risks and uncertainties, including but not limited
to: (a) limited amount of resources devoted to achieving our business plan; (b)
our failure to implement our business plan within the time period we originally
planned to accomplish; (c) because we are seeking to merge with an operating
business which has not yet been identified, you will be unable to determine
whether we will ever become profitable; and (d) other risks that are discussed
in this Form 10-K or included in our previous filings with the Securities
and Exchange Commission.




57


Critical Accounting
Policies
 
 Accounting
policies discussed in this section are those that we consider to be most
critical to an understanding of our financial statements because they inherently
involve significant judgment and uncertainties.  For all of these
estimates, we caution that future events rarely develop exactly as forecast, and
the best estimates routinely require adjustment. Also see Note 4, Summary of
Significant Accounting Policies.
 
 Revenue
Recognition
 Among the
most important accounting policies affecting our consolidated financial
statements is our policy of recognizing revenue in accordance with the SEC's
Staff Accounting Bulletin ("SAB") No. 104. Under this policy, all of the
following criteria must be met in order for us 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; and
 4.       Collectibility is reasonably
assured.
 The
majority of the Company's revenue results from sales contracts with distributors
and revenue is recorded upon the shipment of goods. Management conducts credit
background checks for new customers as a means to reduce the subjectivity of
assuring collectibility. Based on these factors, the Company believes that it
can apply the provisions of SAB 104 with minimal subjectivity.
  Estimates
Affecting Accounts Receivable and Inventories
 
 The
preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect our reporting of assets and liabilities
(and contingent assets and liabilities). However, it is explicated that the
changes in estimation were not material in the preparation of our consolidation
financial statements.
 
 As of
December 31, 2008 and 2007, the Company provided a $3,786,459 and $943,647
respectively for the allowance of doubtful accounts against trade receivables,
other receivables and prepaid and deposits. Management's estimate of the
appropriate allowance on those accounts receivable for the reporting periods was
based on the aged nature of these accounts. In making its judgment, management
assessed its customers' ability to continue to pay their outstanding invoices
and the collectibility of those accounts on a timely basis, and whether their
financial position might deteriorate significantly in the future, which would
result in their inability to pay their debts to the Company.
 
 Inventories,
which are primarily comprised of raw materials, packaging materials, and
finished goods, are stated at the lower of cost or net realizable value. Cost
being determined on the basis of a moving average. The Group evaluates the need
for reserves associated with obsolete, slow-moving and non-salable inventory by
reviewing net realizable values on a periodic basis.
 
 For the
year ended December 31, 2008 and 2007, the Company provided for a reserve
against its work-in-progress amounting to $4,941,372 and $4,422,014
respectively.
  58
  The
provision of reserve was resulted from the manufacturing process of Gendicine,
SiBiono’s sole product and SiBiono was acquired by the company in April
2007.


The
following chart shows the manufacturing process of Gendicine
(Ad-p53):










In the
production process of finished goods, Gendicine, several working steps are
needed: (i) large-scale culturing of adenovirus from master adenovirus bank;
(ii) culturing of cell from master cell bank; (iii) purification. The whole
process including step (i) to step (iii) takes approximately twenty-four days to
make reagent (“original liquid”). This particular liquid can only be stored for
approximately five years. It takes approximately another seven days for mixing
and bottling original liquid to finished goods which is known as
Gendicine.


Therefore,
up to the stage of reagent, all the related production costs are treated as
work-in-progress. The major components of those production costs are: (i) direct
labor; (ii) direct materials; (iii) power; (iv) supplies and other materials;
and (v) manufacturing overheads.
  Before
acquisition, as of March 31, 2007, the accumulated units of original liquid
produced was 198,075 and which could be converted to approximately 226,736 vials
of Gendicine. However, the accumulated vials of Gendicine sold throughout the
years 2004 to three-month period ended March 31, 2007 were only approximately
18,424 vials. Thus the accumulated production costs of $4,080,644 were remained
as work-in-process as of March 31, 2007.
  Furthermore,
due to the special feature of the original liquid which can only be stored for
five years, and most of the original liquid was produced in the year of 2004,
and the provision of reserves against its inventories was $3,696,083 as of
March 31, 2007.
  59
  After the
acquisition with the effective date April 1, 2007, the same accounting treatment
was adopted for the treatment of the provision of reserve on work-in-progress.
As of December 31, 2008, the provision of reserve on work-in-progress was
$4,941,372.
  A reserve
for obsolete, slow-moving or non-salable inventory was made on raw materials,
packing materials, finished goods and work-in-progress at the amount of
$122,433, $7,118, $269,749 and $4,542,072 respectively as of December 31,
2008.
  Management
determination of this allowance was based on potential impairments to the
current carrying value of the inventories due to potential obsolescence of aged
inventories. In making its estimate, management considered the probable demand
for our products in the future and historical trends in the turnover of our
inventories. While the Company currently believes that there is little
likelihood that actual results will differ materially from these current
estimates.
  Operational
Results
  Year
ended December 31, 2008 Compared to Year ended December 31, 2007
  The
following table provides key components of our operational results for the year
ended December 31, 2008 and 2007 for Benda Pharmaceutical, Inc.
  YEAR
      ENDED DECEMBER 312008
                                                    
                                                    
                                                    2007Revenue
                                                    
                                                    $
                                                    25,041,986
                                                    
                                                    
                                                    $
                                                    26,384,608Cost
      of goods sold
                                                    
                                                    
                                                    (15,740,107
                                                    )
                                                    
                                                    
                                                    (13,421,697
                                                    )Gross
      profit
                                                    
                                                    
                                                    9,301,879
                                                    
                                                    
                                                    
                                                    12,962,911Selling
      expenses
                                                    
                                                    
                                                    (2,708,968
                                                    )
                                                    
                                                    
                                                    (1,581,655
                                                    )General
      and administrative expensesGains
      / (losses) on disposals of fixed assets
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (30,027
                                                    )Research
      and development expenses
                                                    
                                                    
                                                    (1,461,951
                                                    )
                                                    
                                                    
                                                    (553,962
                                                    )Total
      operating expenses
                                                    
                                                    
                                                    (20,323,507
                                                    )
                                                    
                                                    
                                                    (15,044,946
                                                    )Operating
      income / (loss)
                                                    
                                                    
                                                    (11,021,628
                                                    )
                                                    
                                                    
                                                    (2,082,035
                                                    )Interest
      income / (expenses) (Note 24)
                                                    
                                                    
                                                    (4,961,430
                                                    )
                                                    
                                                    
                                                    (3,389,676
                                                    )Other
      income / (expenses) (Note 20)
                                                    
                                                    
                                                    (1,311,140
                                                    )
                                                    
                                                    
                                                    (966,311
                                                    )Government
      subsidies / grants (Note 22)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,276,574Income
      / (loss) before minority interest and income taxes
                                                    
                                                    
                                                    (17,294,198
                                                    )
                                                    
                                                    
                                                    (4,161,448
                                                    )Income
      taxes (Note 23)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (965,183
                                                    )Minority
      interest (Note 28)
                                                    
                                                    
                                                    1,478,278
                                                    
                                                    
                                                    
                                                    (2,236,194
                                                    )Net
      income / (loss)
                                                    
                                                    $
                                                    (15,815,920
                                                    )
                                                    
                                                    $
                                                    (7,362,825
                                                    )Earnings
      / (loss) per share - basic
                                                    
                                                    $
                                                    (0.16
                                                    )
                                                    
                                                    $
                                                    (0.07
                                                    )Weighted
      average shares outstanding - basic
                                                    
                                                    
                                                    101,965,464
                                                    
                                                    
                                                    
                                                    98,181,685Earnings
      / (loss) per share - diluted
                                                    
                                                    $
                                                    (0.16
                                                    )
                                                    
                                                    $
                                                    (0.07
                                                    )Weighted
      average shares outstanding - diluted (Note 26)
                                                    
                                                    
                                                    101,965,464
                                                    
                                                    
                                                    
                                                    98,181,685
  Net
Revenue:
 The
Company has five core operating segments: Benda Ebei, Jiangling Benda, Yidu
Benda, Beijing Shusai and SiBiono. Benda Ebei manufactures branded/generic
medicines; Jiangling Benda manufactures active pharmaceutical ingredients (API);
Yidu Benda manufactures bulk chemicals; Beijing Shusai operates and distributes
Pharyngitis Killer Therapy; and SiBiono is a gene therapy company dedicated to
the development, manufacturing and commercialization of gene therapy product,
Gedicine.
  60
  Net
revenue decreased by $1.35 million (or 26%) to $25.04 million for the year ended
December 31, 2008, from $26.38 million for the year ended December 31, 2007.
Decrease in revenue is principally attributed by the following
factors:
 
 1.
                One
      of the Benda’s subsidiaries, Benda Ebei’s net revenue increased $2.67
      million (or 13.78%) to $22.02 million for the year ended December 31, 2008
      from $19.35 million for the year ended December 31, 2007. It was mainly
      due to the increase sales of the existing major products and they are
      shown in the table below:
 
 Products
      (Million)
                          
                          December
      31,
                          
                          
                          December
      31,2008
                          
                          
                          2007
                          
                          
                          Variance
                          
                          
                          Variance
    %Ribavirin
      injection
                          
                          $
                          0.59
                          
                          
                          $
                          0.54
                          
                          
                          $
                          0.04
                          
                          
                          
                          8
                          %Jixuening
                          
                          $
                          2.11
                          
                          
                          $
                          2.00
                          
                          
                          $
                          0.11
                          
                          
                          
                          5
                          %Huitening
                          
                          $
                          1.44
                          
                          
                          $
                          0.70
                          
                          
                          $
                          0.74
                          
                          
                          
                          105
                          %VB1
      Methiouine and Vitamin B1 Injection
                          
                          $
                          0.13
                          
                          
                          $
                          0.08
                          
                          
                          $
                          0.05
                          
                          
                          
                          65
                          %Vitamin
      Injection
                          
                          $
                          0.96
                          
                          
                          $
                          0.83
                          
                          
                          $
                          0.13
                          
                          
                          
                          16
                          %
  2.
                One
      of the Benda’s subsidiaries, Jiangling Benda which resumed its production
      in October 2007 and achieved $0.69 million for the year ended December 31,
      2008.Jiangling
      Benda plans to produce four types of active pharmaceutical ingredients and
      they are Ribavirin, Asarin, Levofloxacin and Ribose whereas the production
      of Ribose does not require the GMP certificate, but the production of the
      other three products do require the GMP certificate.On
      April 9, 2008, Jiangling Benda received the approved GMP Certificate from
      the Chinese State Food and Drug Administration ("SFDA") which authorizing
      the production of Ribavrin.  The other two products, Asarin and
      Levolfozacin, are still under the stage of GMP certificate approving
      process. The management could not estimate the exact timing for obtaining
      those certificates.
  3.
                    One
      of the Benda’s subsidiaries, Yidu Benda’s net revenue dropped $0.7 million
      (or 100%) to zero for the year ended December 31, 2008 from $0.7 million
      for the year ended December 31, 2007 due to the fact that the plant was
      temporarily closed since mid January to upgrade its waster water treatment
      system to comply with new environmental standards enforced by PRC local
      government.Yidu
      Benda has completed its upgrading of the waster water system and passed
      the government’s verification and testing of equipments in October 2007.
      It is now permitted for the testing on actual production process. Once the
      actual products are produced, then the environmental government bodies
      will re-test the production results. The management could not estimate the
      exact timing for obtaining the final approval on the actual production
      process. Furthermore, the management is searching for new products to be
      produced in Yidu Benda which with higher profit
  margin.
  61
  4.
                  One
      of the Benda’s subsidiaries, Beijing Shusai which incorporated on July 15,
      2006. China’s State Food and Drug Administration (SFDA) recently
      experienced an overhaul in its policies and regulatory systems in an
      effort to fight against corruption in Chinese pharmaceutical industry.
      Beijing Shusai’s operation has been adversely affected by this recent
      policy changes which prohibits some state-owned hospitals from forming
      alliances with private companies. The management could not estimate that
      such situation could be resolved in the coming future.5.
                  One
      of the Benda’s subsidiaries, SiBiono, acquired and effective since April
      1, 2007, net revenue decreased $3.43 million (or 59.58%) to $2.33 million
      for the year ended December 31, 2008 from $5.76 million for the year ended
      December 31, 2007.  The reason for the dropped in net revenue is
      mainly due to the fact that SiBiono was underwent a process of
      re-engineering of the production department during the reporting period.
      With such re-engineering, the management believes that there would be
      rapid growth in the following quarters.SiBiono
      GMP - On October 16, 2003, SiBiono successfully obtained a New Drug
      License from the State Food & Drug Administration of China (SFDA), and
      then, in April 4, 2004, SiBiono obtained “Manufacture Certificate” and
      “Certificate of GMP for Pharmaceutical Product”, so far being fully
      qualified for the market launch of Recombinant Human Ad-p53 Injection,
      trademarked as Gendicine®  in China. Gendicine®
      is the commercialized gene therapy product approved in the PRC government
      agency.  On May 19, 2008, SiBiono received an official notice
      from the PRC State of SFDA in which it mentioned that during the random
      inspection performed by the PRC State of SFDA on April 8 to April 10,
      2008, the PRC State of SFDA discovered there were several production
      procedures that did not meet the requirement stated in GMP, thus it
      required SiBiono to perform necessary improvements in order to fulfill the
      GMP requirements and the PRC State of SFDA collected back the distributed
      GMP certificate until the necessary improvements being carried out and
      passed the examination that conducted by SFDA.  On June 10,
      2008, SiBiono received another official notice from Guangdong Province
      SFDA and they demanded the same requirements as stated in the official
      notice which issued by the PRC State of SFDA dated on May 19,
      2008.  On November 24, 2008, SiBiono received another official
      notice from Guangdong Province SFDA which mentioned that after the
      examination conducted by Shenzhen City SFDA, the Guangdong Province
      SFDA consent SiBiono to carry out production on a trial
      basis.  It further required SiBiono strictly to follow the
      requirements of GMP to organize trail production and follow the procedures
      to apply for GMP Certificate verification.  The management could
      not estimate the exact timing for obtaining the final approval on the GMP
      Certificate.
  Cost
of Goods Sold
 Cost of
goods sold increased $2.32 million (or 17.27%) to $15.74 million for the year
ended December 31, 2008 from $13.42 million for the year ended December 31,
2007, primarily due to the corresponding increase in net revenue in Benda Ebei.
Even though there was a significant drop in the net revenue generated by
SiBiono, however since its cost of goods sold was relatively low, thus the
overall cost of goods sold still increased in year 2008.
  62
  Gross
Profit
 Gross
profit decreased $3.66 million (or 28.24%) to $9.3 million for the year ended
December 31, 2008 from $12.96 million for the year ended December 31, 2007,
which was mainly due to the decrease in the sales volume of Gendicine which
associated with high gross profit margin.
 
 Selling
Expenses:
 Selling
expenses increased $1.13 million (or 71.27%) to $2.71 million for the year ended
December 31, 2008 from $1.58 million for the year ended December 31, 2007,
primarily due to the promotional fees for Gendicine in SiBiono and Benda
Ebei.
 
 General
and Administrative Expenses:
 General
and administrative expenses increased $3.27 million (or 25.42%) to $16.15
million for the year ended December 31, 2008 from $12.88 million for the year
ended December 31, 2007. The difference was mainly due to the fact
that:
  (1)
                A
      consulting and professional fee, $7.88 million was incurred for the
      SiBiono’s acquisition which happened in the six month ended June 30, 2007
      (please refer to Note 19 of Consolidated Financial
      Statements);
  (2)
                Bad
      debts provided for the year ended December 31, 2008 was $2.73 million
      while this figure for year ended December 31, 2007 was $0.29 million. This
      was mainly affected by the global finance crisis; the customers of the
      Group slowed payment which caused the ageing of the receivables
      deteriorate significantly;
 
 (3)
                During
      the year ended December 31, 2008, the Group made an impairment charge at
      full amount, $7.8 million on the goodwill which incurred when Benda Ebei
      acquired SiBiono and effective on April 1, 2007. The reasons for the
      impairment charge are as follows:
 
 a.
                SiBiono
      has a bank loan matured and was in default, which has been sued and the
      court has issued a judgment on November 23, 2008 to SiBiono which required
      SiBiono to  repay all loan balance plus penalty and interest
      approximately  Rmb 24 million immediately. As SiBiono has not
      paid anything yet,  thus the land use right of SiBiono on its new
      production plant may be foreclosed for sales by the lender bank has been
      frozen unless the amount has been settled between the lender bank and
      SiBiono;b.
                SiBiono
      has serious working capital deficit situation and has reported loss of
      $2.08 million for the year ended December 31,
  2008;
 
 c.
                The
      management has not yet located or confirmed any feasible re-financing plan
      and / or equity placement as of the report date. The follow up action is
      still under the discussion with the lender bank. Please refer to Note 10
      of the Notes to Consolidated Financial
  Statements.
  63
  Operating
Income/ (Loss):
 The
Company experienced an operating loss of $11.02 million for the year ended
December 31, 2008 while the operating loss from comparative period for 2007 was
$2.08 million which was mainly due to significant increase in G&A
expenses.
 
 Interest
Expenses:
 Interest
expenses increased to $4.96 million for the year ended December 31, 2008 from
$3.39 million for the year ended December 31, 2007 primarily because of the
financing cost associated with the issuance of convertible promissory note. For
the year ended December 31, 2008, $0.69 million was incurred for the interest of
the notes and $3.52 million in interest expense related to the amortization of
the debt discount associated with the Warrants and the debt discount associated
with the beneficial conversion feature. (Please refer to Note 24 of the Notes to
Consolidation Financial Statements for details).
  Other
Income/Expenses:
 
 A
penalty, $1.38 million, to investors as for registration delay expenses and
non-achievement of the Performance Threshold according to the Make Good
Agreement signed in November 2006 incurred in the year ended December 31, 2008;
while the penalty to investors was about $1 million in the year ended December
31. 2007.
  Income
Taxes:
 Benda is
subject to Delaware, United State of America tax, but no provision for income
taxes were made for the year ended December 31, 2008 and 2007 as Benda did not
have reportable taxable income for the period.
 
 Ever
Leader, a wholly owned subsidiary of Benda, is subject to Hong Kong tax, but no
provisions for income taxes were made for the year ended December 31, 2008 and
2007 as Ever Leader did not have reportable taxable income for the
periods.
 
 Benda
Ebei was registered as a Sino-Foreign Equity Joint Venture on May 26, 2004 and
is subject to the tax laws applicable to Sino-Foreign Equity Joint Ventures in
the PRC.  Benda Ebei, starting from 2005, is fully exempt from PRC
enterprise income tax for two years starting from the first profit-making year,
followed by a 50% reduction in the state income taxes, for the following three
years, commencing from the first profitable year.
 
 Jiangling
Benda and Yidu Benda are cross-municipal investment entities and enjoy the same
tax treatment as Sino-Foreign Joint Ventures, starting from 2005, and were
therefore exempt from PRC enterprise income tax for two years starting from the
first profit-making year, followed by a 50% reduction in the state income taxes,
for the following three years, commencing from the first profitable year.
Cross-municipal investments entities refer to entities that are incorporated in
one municipal region but have investments in another municipal
region.
 
 The
exemption periods for Benda Ebei, Jiangling Benda and Yidu Benda expired in the
year of 2006, after which they are subject to a 50% reduction in state income
taxes, at 18%; whereas the full income tax rate is 33%. The remaining tax
holidays will be expired in 2010.
 
 However,
starting and effective from January 1, 2008, the full income tax rate would be
changed from 33% to 25% according to the new PRC taxation regulations. Therefore
these subsidiaries will be subject to the regular full income tax rate at 25%
after the tax holidays expire in 2010.
 
 According
to the new taxation regulations starting and effective from January 1, 2008,
Beijing Shusai is subject to the full income tax rate of 25%.
 
 According
to the new taxation regulations starting and effective from January 1, 2008,
SiBiono, which is located in Shenzhen, a Special Economic District of PRC, is
subject to the full income tax rate of 25% gradually in five years as
following:
 
 Year
                      Tax
      rate2008
                      18%2009
                      20%2010
                      22%2011
                      24%2012
      and thereafter
                      25%
 
 There was
no income tax of the Group for the years ended December 31, 2008. The prepaid
income tax by the Group during the year ended December 31, 2008 at amount of
$0.71 million was recorded as prepaid tax.
  64


Year ended December 31, 2007
Compared to Year ended December 31, 2006




The
following table provides key components of our operational results for the year
ended December 31 for Benda Pharmaceutical, Inc.





December 31,
            
            
            December 31,2007
            
            
            2006(Restated)
            
            
            (Restated)Revenue
            
            $
            26,384,608
            
            
            $
            15,932,075Other
      Sales
            
            
            -
            
            
            
            2,937Cost
      of goods sold
            
            
            (13,421,697
            )
            
            
            (9,103,515
            )Gross
      profit
            
            
            12,962,911
            
            
            
            6,831,497Selling
      expenses
            
            
            (1,581,655
            )
            
            
            (599,571
            )General
      and administravive expenses
            
            
            (13,901,577
            )
            
            
            (2,453,604
            )Gains
      / (losses) on disposals of fixed assets
            
            
            (30,027
            )
            
            
            (249,381
            )Research
      and development expenses
            
            
            (553,962
            )
            
            
            (30,821
            )Total
      operating expenses
            
            
            (16,067,221
            )
            
            
            (3,333,377
            )Operating
      income / (loss)
            
            
            (3,104,310
            )
            
            
            3,498,120Interest
      expenses
            
            
            (3,389,676
            )
            
            
            (108,811
            )Other
      income (expenses)
            
            
            55,964
            
            
            
            (281,190
            )Government
      subsidies / grants
            
            
            2,276,574
            
            
            
            -Income
      / (loss) before minority interest and income taxes
            
            
            (4,161,448
            )
            
            
            3,108,119Income
      taxes
            
            
            (965,183
            )
            
            
            -Minority
      interest
            
            
            (2,236,194
            )
            
            
            (322,590
            )Net
      Income / (loss)
            
            $
            (7,362,825
            )
            
            $
            2,785,529Earnings
      / (loss) per share - basic
            
            $
            (0.07
            )
            
            $
            0.04Weighted
      average shares outstanding - basic
            
            
            98,181,685
            
            
            
            73,414,057Earnings
      / (loss) per share - diluted
            
            $
            (0.06
            )
            
            $
            0.04Weighted
      average shares outstanding - diluted
            
            
            127,534,003
            
            
            
            74,864,283




Restatement




The
Company restated its previously recognized Depreciation expense by($1,446,185)
and ($718,387) for the year ended December 31, 2007 and 2006 due to incorrect
calculation of depreciation expense previously reported.




65




The
Company restated its previously recognized Amortization expense by ($572,491)
and ($254,990) for the year ended December 31, 2007 and 2006 due to incorrect
calculation of amortization expense previously reported.




Net
Revenue:




The
Company has five core operating segments: Benda Ebei, Jiangling Benda, Yidu
Benda, Beijing Shusai and SiBiono. Benda Ebei manufactures branded/generic
medicines; Jiangling Benda manufactures active pharmaceutical ingredients (API);
Yidu Benda manufactures bulk chemicals; Beijing Shusai operates and distributes
Pharyngitis Killer Therapy; and SiBiono is a gene therapy company dedicated to
the development, manufacturing and commercialization of gene therapy product,
Gedicine.




Net
revenue increased by $10.46 million (or 66%) to $26.38 million for the year
ended December 31, 2007, from $15.93 million for the year ended December 31,
2006. Increase in revenue is principally attributed by the following
factors:




1.
              One
      of the Benda’s subsidiary, Benda Ebei’s net revenue increased $9.7 million
      (or 101%) to $19.3 million for the year ended December 31, 2007 from $9.6
      million for the year ended December 31, 2006. It was mainly due to the
      increase sales of the existing major products and the introduction of new
      products and they are shown in the table
below:




December 31,
            
            
            December 31,
            
            
            Variance
            
            
            VarianceProducts
            
            2007
            
            
            2006
            
            
            
            +
      /(-)
            
            
            
            +
      /(-) %Suzheng-B
            
            $
            3.38
            
            
            $
            1.93
            
            
            $
            1.45
            
            
            
            75
            %Shusai-A
            
            
            2.13
            
            
            
            0.95
            
            
            
            1.18
            
            
            
            125
            %Xujing
            
            
            2.90
            
            
            
            2.45
            
            
            
            0.45
            
            
            
            19
            %Vitamin
      B6 and B1
            
            
            0.79
            
            
            
            0.21
            
            
            
            0.58
            
            
            
            284
            %Gentamycin
      80 Thousand
            
            
            0.59
            
            
            
            -
            
            
            
            0.59
            
            
            
            100
            %Anagin
            
            
            0.56
            
            
            
            -
            
            
            
            0.56
            
            
            
            100
            %Lincomycin
            
            
            1.33
            
            
            
            -
            
            
            
            1.33
            
            
            
            100
            %Kanamycin
            
            $
            0.33
            
            
            $
            -
            
            
            $
            0.33
            
            
            
            100
            %




2.
                One
      of the Benda’s subsidiary, Jiangling Benda’s net revenue increased $0.51
      million (or 3,315%) to $0.53 million for the year ended December 31, 2007
      from $0.02 million for the year ended December 31, 2006. It was mainly due
      to Jiangling Benda resumed its production in October 2007. The sole
      product that being sold in the reporting period of the year 2007 was
      Ribose which does not required the GMP certificate. Furthermore, the
      upgrade process of Jiangling Benda had been completed and is now waiting
      for the China’s State Food and Drug Administration (SFDA)’s approval for
      GMP certificate. However, due to the overhaul and restructuring of SFDA,
      the management could not estimate the exact timing for obtaining GMP
      certificate.


Jiangling
Benda plans to produce four types of active pharmaceutical ingredients and they
are Ribavirin, Asarin, Levofloxacin and Ribose whereas the production of Ribose
does not require the GMP certificate, but the production of the other three
products do require the GMP certificate.


3.
                One
      of the Benda’s subsidiary, Yidu Benda’s net revenue dropped $5.54 million
      (or 89%) to about $700,000 for the year ended December 31, 2007 from $6.2
      million for the year ended December 31, 2006 due to the fact that the
      plant was temporarily closed since mid January to upgrade its waster water
      treatment system to comply with new environmental standards enforced by
      PRC local government.


Yidu
Benda has completed its upgrading of the waster water system and passed the
government’s verification and testing of equipments in October 2007. It is now
permitted for the testing on actual production process. Once the actual products
are produced, then the environmental government bodies will re-test the
production results. The management could not estimate the exact timing for
obtaining the final approval on the actual production process.




66




4.
                  One
      of the Benda’s subsidiary, Beijing Shusai which incorporated on July 15,
      2006 realized net revenue of about $44,000 for the year ended December 31,
      2007. China’s State Food and Drug Administration (SFDA) recently
      experienced an overhaul in its policies and regulatory systems in an
      effort to fight against corruption in Chinese pharmaceutical industry.
      Beijing Shusai’s operation has been adversely affected by this recent
      policy changes which prohibits some state-owned hospitals from forming
      alliances with private companies. The management could not estimate that
      such situation could be resolved in the coming
      future.


5.
                  Benda’s
      newly acquired entity SiBiono (acquired and effective on April 1, 2007)
      realized net revenue of $5.76 million for the year ended December 31,
      2007. SiBiono’s flagship product, Gendicine is the commercialized gene
      therapy product for the treatment of cancer. While only 1,869 vials of
      Gendicine were sold in the first quarter in 2007 by SiBiono, sales ramped
      to 21,020 vials in the nine months ended December 31, 2007 after Benda
      took over SiBiono in April
2007.




Cost
of Goods Sold




Cost of
goods sold increased $4.32 million (or 45%) to 13.42 million for the year ended
December 31, 2007 from $9.1 million for the year ended December 31, 2006,
primarily due to the corresponding increase in net revenue.




Gross
Profit




Gross
profit increased $6.13 million (or 96%) to $12.96 million for the year ended
December 31, 2007 from $6.83 million for the year ended December 31, 2006, which
was mainly due to the contribution of the gross profit of SiBiono, at about
$5.27 million, which was acquired and effective on April 1, 2007.




Selling
Expenses:




Selling
expenses increased $982K (or 164%) to $1.58 million for the year ended December
31, 2007 from $600K for the year ended December 31, 2006, primarily due to the
promotional fees for Gendicine.




67




General
and Administrative Expenses:




General
and administrative expenses increased $11.4 million (or 456%) to $13.9 million
for the year ended December 31, 2007 from $2.5 million for the year ended
December 31, 2006. The following table shows the major expenses that
significantly increase the G&A expenses during the reporting
periods:




December 31,
            
            
            December 31,Note
            
            Major
      general & administrative expenses
            
            2007
            
            
            2006
            
            
            Variance1
            
            Amortization
      on debt issue cost
            
            $
            201,255
            
            
            $
            -
            
            
            $
            201,2552
            
            Finder
      fees to China Hi-Tech Funds Co. Ltd.
            
            
            243,590
            
            
            
            -
            
            
            
            243,5903
            
            Consulting
      and professional fees
            
            
            8,353,615
            
            
            
            326,403
            
            
            
            8,027,2124
            
            Penalty
      to investors
            
            
            1,022,275
            
            
            
            -
            
            
            
            1,022,2755
            
            Advertising
            
            
            93,747
            
            
            
            3,942
            
            
            
            89,8056
            
            Legal
      fees
            
            
            304,649
            
            
            
            114,993
            
            
            
            189,6567
            
            Office
      expenses
            
            
            478,383
            
            
            
            210,696
            
            
            
            267,6878
            
            Salaries
      and wages
            
            
            961,797
            
            
            
            221,174
            
            
            
            740,6239
            
            Conference
            
            
            79,754
            
            
            
            18,495
            
            
            
            61,25910
            
            Consulting
            
            
            221,044
            
            
            
            191,248
            
            
            
            29,79611
            
            Investor
      relation, transfer agent and filing fees
            
            
            109,540
            
            
            
            9,828
            
            
            
            99,71212
            
            Director
      Remuneration
            
            
            94,247
            
            
            
            -
            
            
            
            94,24713
            
            Travel
      and transportation
            
            
            239,316
            
            
            
            87,264
            
            
            
            152,052$
            12,403,212
            
            
            $
            1,184,043
            
            
            $
            11,219,169




Note:




1.
                See
      Note 23 of Notes to Consolidated Financial Statements for
      details;
  2.
              Finder
      fee to China Hi-Tech Funds Co. Ltd;
  3.
              See
      Note 18 of Notes to Consolidated Financial Statements for
      details;
  4.
              Being
      the penalty for late filing 10K-SB and registration statement, see Note 19
      of Notes to Consolidated Financial Statements for
  details;
  5.
              The
      increment mainly incurred for the investor relationship
      activities;
  6.
              The
      increment mainly incurred in SiBiono and the other subsidiaries of the
      Group;
  7.
              The
      increment mainly incurred for the re-opening of Jiangling Benda and the
      expenses incurred in the newly acquired subsidiary,
    SiBiono;
  8.
              The
      increment mainly due to the involvement of CEO, COO and CFO salaries
      starting in the Year of 2007 and the salary expenses incurred in the newly
      acquired subsidiary, SiBiono.
  9.
              The
      increment mainly incurred for the events including road shows and gene
      therapy conferences;
  10.
              The
      increment mainly due to the expenses incurred in the newly acquired
      subsidiary, SiBiono;
  11.
              The
      increment mainly incurred for the investor relationship
      activities;
  12.
              It
      is only incurred starting from the year of
2007;
  13.
              The
      increment mainly incurred for the investor relationship
      activities.




Operating
Income/ (Loss):




The
Company experienced an operating loss of $3.1 million for the year ended
December 31, 2007, slipping $6.6 million from comparative period for 2006, which
was mainly due to significant increase in G&A expenses.




Interest
Expenses:




Interest
expenses increased to $3.4 million for the year ended December 31, 2007 from
$109,000 for the year ended December 31, 2006 primarily because of the financing
cost associated with the issuance of convertible promissory note (please refer
to Note 24 of the Notes to Consolidation Financial Statements for
details).




Government
Subsidies / Grants:




The
Company recognized $2.3 million as government subsidies / grant for the year
ended December 31, 2007 (please refer to Note 22 of the Note to Consolidated
Financial Statements for details).




68




Income
Taxes:




Benda is
subject to Delaware, United State of America tax, but no provision for
income taxes were made for the years ended December 31, 2007 and 2006 as Benda
did not have reportable taxable income for the period in the United States
of America.




Ever
Leader, a wholly owned subsidiary of Benda, is subject to Hong Kong tax, but no
provisions for income taxes were made for the years ended December 31, 2007 and
2006 as Ever Leader did not have reportable taxable income for the
periods.




Benda
Ebei was registered as a Sino-Foreign Equity Joint Venture on May 26, 2004 and
is subject to the tax laws applicable to Sino-Foreign Equity Joint Ventures in
the PRC. Benda Ebei, starting from 2005, is fully exempt from PRC enterprise
income tax for two years starting from the first profit-making year, followed by
a 50% reduction in income taxes, at 18%, for the following three years,
commencing from the first profitable year. In 2007, Ebei Benda reported
corporate income taxes of $965,183 with a corporate taxes payable of $246,460 as
of December 31, 2007.




Jiangling
Benda and Yidu Benda are cross-municipal investment entities and enjoy the same
tax treatment as Sino-Foreign Joint Ventures, starting from 2005, and were
therefore exempt from PRC enterprise income tax for two years starting from the
first profit-making year, followed by a 50% reduction in income taxes, at 18%,
for the following three years, commencing from the first profitable year.
Cross-municipal investments entities refer to entities that are incorporated in
one municipal region but have investments in another municipal
region.




The
exemption periods for Benda Ebei, Jiangling Benda and Yidu Benda expired in the
year of 2006, after which they are subject to 50% reduction in income taxes;
whereas the full income tax rate is 33%. The remaining tax holidays will be
expired in 2010.




However,
starting and effective from January 1, 2008, the full income tax rate is changed
from 33% to 25% according to the new PRC Taxation Regulations. Thereafter these
subsidiaries will be subject to the regular 25%.




Beijing
Shusai did not have taxable income for the years ended December 31, 2007 and
2006.




According
to the taxation regulations of Shenzhen, a Special Economic District of PRC,
SiBiono is subject to the full income tax rate of 15% on taxable income. The net
losses for the previous year can be carried forward for a maximum period of five
years. If the company is approved and recognized as high-tech company, the
company can enjoy three years of 50% of the full tax rate with an extension for
the coming next three years. Therefore, there was no provision for income taxes
made for the year ended December 31, 2007. SiBiono also plans to apply for the
PRC enterprise tax exemption for two years starting from the first
profit-making year, followed by a 50% reduction in income taxes for the
following three years.




As a
result, Benda reported corporate income tax expense of $965,183 and $0, as well
as corporate income taxes payable of $246,460 and $0, for the years ended
December 31, 2007 and 2006, respectively.




LIQUIDITY
AND CAPITAL RESOURCES
  Net cash
provided by the operating activities was negative $0.8 million for the year
ended December 31, 2008 while for the year ended December 31, 2007 was $2.21
million
 
 a)
              Non-cash
      operating activities, reconciliation items to the net
    incomeFor
      the year ended December 31, 2007, an amount about $13.35 million non-cash
      operating activities was reconciled back to the net income and which
      mainly included consulting and professional fee related to SiBiono’s
      acquisition, bad debt provision, amortization of intangible assets,
      depreciation, minority interest, amortization of debt discount and debt
      issue cost and government subsidies.However,
      for the year ended December 31, 2008, about $16.5 million of non-cash
      operating activities was reconciled back to the net income and summarized
      as follows:
  1.
              $3.52
      million that incurred as interest expenses related to the amortization of
      discount on long-term debt and issuance cost associated with the warrants
      and the beneficial conversion features (please refer to Note 24 of the
      Notes to Consolidated Financial Statements for
  details);
 2.
              $7.78
      million that incurred as the goodwill impairment provision (please refer
      to Note 10 of the Notes to Consolidated Financial Statements for
      details);
 3.
              $0.5
      million that incurred as the penalty payment made in form of shares
      issuance to PIPE investors due to the late effective of the registered
      statement; and
 4.
              Other
      factors: $2.73 million incurred on bad debt provision; $2.1 million
      incurred on depreciation; $0.7 million incurred on amortization of
      intangible assets; and $0.26 million incurred on amortization of debt
      issue cost.
  69
  b)
              Trade
      receivablesThe
      net change of trade receivable was increased by $2.2 million for year
      ended December 31, 2008. The management also noticed that the net balance
      of the trade receivable, as of December 31, 2008, was a significant asset
      to the company. However, the management believes that the above situation
      is temporarily due to the following
reasons:
  Trade
receivables
 a)
              Customers
      whom have sales relationship with our company are all relatively big
      business wholesale enterprises and they have all passed the examination of
      GMP Certificate so that the collectibility from those is out of
      question;
 b)
              Due
      to the fact that there was a big natural disaster, earthquake that
      happened in the second quarter and the global financial crisis happened
      since the fourth quarter, they did affect the collection of trade
      receivables to certain extend; and
 c)
              The
      management realized that it did affect the cash flow situation of the
      company; therefore the company will put more efforts to reduce the balance
      of trade receivables.
 
 For the
year ended December 31, 2007, an amount approximately $11.08 million was spent
in the investing activities which were mainly used in the acquisition of SiBiono
and purchase of property and equipment and the payment of
construction-in-progress. However, since most of the settlements were made in
the year of 2007, thus the investing activities were relatively small in the
year ended December 31, 2008, only about $1.54 million.
 
 Financing
cash inflow was $8.21 million for the reporting period year ended December
31, 2007. The major event of it was a net amount $7.03 million was received from
the issuance of convertible promissory notes.  For the reporting
period year ended December 31, 2008, the financing cash inflow was
$1.09 million.  The major of it was a net amount $1.93 million
was received from the commercial bank notes. (Please refer to the Note 11 of the
Notes to Consolidated Financial Statements for the details)
  70


ITEM8.  FINANCIAL
STATEMENTS





The
following financial statements required by this item are filed herewith
following the signature page to this report:





PageReport
      of Independent Registered Public Accounting Firm
            
            F-1Consolidated
      Balance Sheet - As of December 31, 2008 and 2007
            
            F-2Consolidated
      Statements of Operations - For the years ended December 31, 2008 and
      2007
            
            F-3Consolidated
      Statement of Stockholders’ Equity - For the years ended December 31, 2008
      and 2007
            
            F-4Consolidated
      Statements of Cash Flows - For the years ended December 31, 2008 and
      2007
            
            F-5Notes
      to Consolidated Financial Statements
            
            F-6
      to F-35




71




KEMPISTY
      & COMPANYCERTIFIED
      PUBLIC ACCOUNTANTS, P.C.15
      MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 - FAX
      (212) 513-1930REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard
      of DirectorsBenda
      Pharmaceutical, Inc.We
      have audited the accompanying consolidated balance sheets of Benda
      Pharmaceutical, Inc. and subsidiaries (the "Company") as of December 31,
      2008 and 2007 and the related consolidated statements of operations,
      changes in stockholders’ equity and cash flows for each of the years in
      the two year period ended December 31, 2008. These financial statements
      are the responsibility of the Company's management. Our responsibility is
      to express an opinion on these financial statements based on our
      audits.
                      
                      We
      conducted our audits in accordance with the standards of the Public
      Company Accounting Oversight Board (United States). Those standards
      require that we plan and perform the audit to obtain reasonable assurance
      about whether the financial statements are free of material misstatement.
      The Company is not required at this time, to have, nor were we engaged to
      perform, an audit of its internal control over financial reporting. Our
      audit included consideration of internal control over financial reporting
      as a basis for designing audit procedures that are appropriate in the
      circumstances, but not for the purpose of expressing an opinion on the
      effectiveness of the Company's internal control over financial reporting.
      Accordingly, we express no such opinion. An audit includes examining, on a
      test basis, evidence supporting the amounts and disclosures in the
      financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that
      our audit provides a reasonable basis for our opinion.
                      
                      In
      our opinion, the financial statements referred to above present fairly, in
      all material respects, the financial position of Benda Pharmaceutical,
      Inc. and subsidiaries at December 31, 2008 and 2007 and the results of its
      operations and its cash flows for each of the years in the two year period
      ended December 31, 2008 in conformity with accounting principles generally
      accepted in the in the United States of America.
                      
                      The
      accompanying consolidated financial statements have been prepared assuming
      the Company will continue as a going concern. As discussed in Note 1 to
      the financial statements, the Company has an accumulated deficit of
      $16,047,561 and a working capital deficiency of $18,857,330 at December
      31, 2008, a net loss of $15,815,920 and net cash used in operations of
      $810,116 for the year ended December 31, 2008, respectively. The
      consolidated financial statements do not include any adjustments that
      might result from the outcome of this uncertainty.Kempisty
      & CompanyCertified
      Public Accountants PCNew
      York, New YorkApril
      15, 2009





F-1




Benda
Pharmaceutical, Inc.
 Consolidated
Balance Sheets
 (Amounts
expressed in U.S. Dollars)
  December
      31
                      
                      
                      December
      312008
                      
                      
                      2007AssetsCurrent
      AssetsCash
      and cash equivalents
                      
                      $
                      569,019
                      
                      
                      $
                      1,266,240Trade
      receivables, net (Note 5)
                      
                      
                      9,336,915
                      
                      
                      
                      10,472,233Other
      receivables (Note 5)
                      
                      
                      504,349
                      
                      
                      
                      453,595Short-term
      loan receivables (Note 5)
                      
                      
                      146,685
                      
                      
                      
                      -Prepaid
      tax (Note 23)
                      
                      
                      771,549
                      
                      
                      
                      -Due
      from related parties (Note 18)
                      
                      
                      11,000
                      
                      
                      
                      -Inventories
      (Note 7)
                      
                      
                      2,344,562
                      
                      
                      
                      1,952,348Prepaid
      expenses and deposits (Note 5)
                      
                      
                      918,209
                      
                      
                      
                      933,299Total
      current assets
                      
                      
                      14,602,288
                      
                      
                      
                      15,077,715Due
      from related parties (Note 18)
                      
                      
                      2,961,744
                      
                      
                      
                      2,630,019Property
      and equipments, net (Note 8)
                      
                      
                      29,057,225
                      
                      
                      
                      27,123,035Intangible
      assets, net (Note 9)
                      
                      
                      6,003,102
                      
                      
                      
                      6,494,510Goodwill
      (Note 10)
                      
                      
                      -
                      
                      
                      
                      7,395,752Restricted
      cash (Note 11)
                      
                      
                      6,162,849
                      
                      
                      
                      3,957,624Refundable
      purchase price paid (Note 6)
                      
                      
                      1,200,000
                      
                      
                      
                      1,200,000Other
      assets (Note 12)
                      
                      
                      1,830,634
                      
                      
                      
                      1,710,972Debt
      issue costs (Note 24)
                      
                      
                      55,485
                      
                      
                      
                      327,945Total
      Assets
                      
                      $
                      61,873,327
                      
                      
                      
                      65,917,572Liabilities
      & Shareholders' EquityCurrent
      LiabilitiesBank
      indebtedness (Note 11)
                      
                      $
                      1,288,257
                      
                      
                      $
                      874,490Bank
      loans payable (current portion) (Note 13)
                      
                      
                      2,984,560
                      
                      
                      
                      2,867,004Long
      term debt payable (current portion) (Note 14)
                      
                      
                      2,234,210
                      
                      
                      
                      1,787,239Accounts
      payable and accrued liabilities (Note 15)
                      
                      
                      7,228,400
                      
                      
                      
                      4,665,984Commercial
      notes payable (Note 11)
                      
                      
                      9,297,169
                      
                      
                      
                      5,118,758VAT
      taxes payable
                      
                      
                      516,302
                      
                      
                      
                      1,279,385Acquisition
      cost payable (Note 10)
                      
                      
                      1,426,491
                      
                      
                      
                      1,333,246Long-term
      convertible promissory notes (current portion) (Note 24)
                      
                      
                      6,395,951
                      
                      
                      
                      -Wages
      payable
                      
                      
                      630,475
                      
                      
                      
                      664,785Due
      to related parties (Note 18)
                      
                      
                      1,457,803
                      
                      
                      
                      -Total
      current liabilities
                      
                      
                      33,459,618
                      
                      
                      
                      18,590,891Long
      term debt payable (long term portion) (Note 14)
                      
                      
                      -
                      
                      
                      
                      425,001Long-term
      convertible promissory notes (Note 24)
                      
                      
                      -
                      
                      
                      
                      2,875,075Due
      to related parties (long-term) (Note 18)
                      
                      
                      997,593
                      
                      
                      
                      3,193,618Total
      liabilities
                      
                      
                      34,457,211
                      
                      
                      
                      25,084,585Minority
      interest
                      
                      
                      4,379,547
                      
                      
                      
                      5,502,755Redeemable
      common stock, 2,049,560 shares at $3.6 per share (Note 19)
                      
                      
                      7,376,366
                      
                      
                      
                      7,376,366Shareholders'
      EquityPreferred
      stock, $0.001 par value; 5,000,000 shares authorized;None
      issued and outstanding (Note 25)
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $0.001 par value; 150,000,000 shares authorized;105,155,355
      shares issued and outstanding as of 12/31/2008;100,170,071
      shares issued and outstanding as of 12/31/2007 (Note 25)
                      
                      
                      105,155
                      
                      
                      
                      100,170Additional
      paid in capital (Note 25)
                      
                      
                      22,108,427
                      
                      
                      
                      21,547,929Retained
      earnings (unrestricted)
                      
                      
                      (16,047,561
                      )
                      
                      
                      100,452Statutory
      surplus reserve fund (Note 17)
                      
                      
                      2,642,775
                      
                      
                      
                      2,310,681Accumulative
      other comprehensive income
                      
                      
                      6,347,547
                      
                      
                      
                      3,390,774Shares
      issuable for acquisition and services
                      
                      
                      503,860
                      
                      
                      
                      503,860Total
      Shareholders' Equity
                      
                      
                      15,660,203
                      
                      
                      
                      27,953,866Total
      Liabilities & Shareholders' Equity
                      
                      $
                      61,873,327
                      
                      
                      $
                      65,917,572
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-2
  Benda
Pharmaceutical, Inc.
 Consolidated
Statements of Operations
 (Amounts
expressed in U.S. Dollars)
  YEAR
      ENDED DECEMBER 312008
                        
                        
                        2007Revenue
                        
                        $
                        25,041,986
                        
                        
                        $
                        26,384,608Cost
      of goods sold
                        
                        
                        (15,740,107
                        )
                        
                        
                        (13,421,697
                        )Gross
      profit
                        
                        
                        9,301,879
                        
                        
                        
                        12,962,911Selling
      expenses
                        
                        
                        (2,708,968
                        )
                        
                        
                        (1,581,655
                        )General
      and administrative expensesAmortization
      of intangible assets
                        
                        
                        (153,303
                        )
                        
                        
                        (141,681
                        )Amortization
      of debt issue costs (Note 24)
                        
                        
                        (264,962
                        )
                        
                        
                        (201,255
                        )Depreciation
                        
                        
                        (861,979
                        )
                        
                        
                        (333,964
                        )Bad
      debts
                        
                        
                        (2,730,434
                        )
                        
                        
                        (287,482
                        )Director
      remuneration
                        
                        
                        (185,468
                        )
                        
                        
                        (94,247
                        )Brokerage
      fee
                        
                        
                        -
                        
                        
                        
                        (293,751
                        )Inventory
      written down to net realizable value (recovery)
                        
                        
                        (392,535
                        )
                        
                        
                        -Consulting
      and professional fees (Note 19)
                        
                        
                        -
                        
                        
                        
                        (8,353,615
                        )Goodwill
      impairment (Note 10)
                        
                        
                        (7,776,223
                        )
                        
                        
                        -Other
      general and administrative expenses (Note 21)
                        
                        
                        (3,787,684
                        )
                        
                        
                        (3,173,307
                        )Total
      general and administrative expenses
                        
                        
                        (16,152,588
                        )
                        
                        
                        (12,879,302
                        )Gains
      / (losses) on disposals of fixed assets
                        
                        
                        -
                        
                        
                        
                        (30,027
                        )Research
      and development expenses
                        
                        
                        (1,461,951
                        )
                        
                        
                        (553,962
                        )Total
      operating expenses
                        
                        
                        (20,323,507
                        )
                        
                        
                        (15,044,946
                        )Operating
      income / (loss)
                        
                        
                        (11,021,628
                        )
                        
                        
                        (2,082,035
                        )Interest
      income / (expenses) (Note 24)
                        
                        
                        (4,961,430
                        )
                        
                        
                        (3,389,676
                        )Other
      income / (expenses) (Note 20)
                        
                        
                        (1,311,140
                        )
                        
                        
                        (966,311
                        )Government
      subsidies / grants (Note 22)
                        
                        
                        -
                        
                        
                        
                        2,276,574Income
      / (loss) before minority interest and income taxes
                        
                        
                        (17,294,198
                        )
                        
                        
                        (4,161,448
                        )Income
      taxes (Note 23)
                        
                        
                        -
                        
                        
                        
                        (965,183
                        )Minority
      interest (Note 28)
                        
                        
                        1,478,278
                        
                        
                        
                        (2,236,194
                        )Net
      income / (loss)
                        
                        $
                        (15,815,920
                        )
                        
                        $
                        (7,362,825
                        )Earnings
      / (loss) per share - basic
                        
                        $
                        (0.16
                        )
                        
                        $
                        (0.07
                        )Weighted
      average shares outstanding - basic
                        
                        
                        101,965,464
                        
                        
                        
                        98,181,685Earnings
      / (loss) per share - diluted
                        
                        $
                        (0.16
                        )
                        
                        $
                        (0.07
                        )Weighted
      average shares outstanding - diluted (Note 26)
                        
                        
                        101,965,464
                        
                        
                        
                        98,181,685
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
  Benda
Pharmaceutical, Inc.
 Consolidated
Statements of Changes in Stockholders’ Equity
 (Amounts
expressed in U.S. Dollars)
 Statutory
                      
                      
                      Accumulated
                      
                      
                      Shares
      IssuableAdditional
                      
                      
                      Retained
                      
                      
                      Surplus
                      
                      
                      Other
                      
                      
                      for
                      
                      
                      TotalCommon
      Stock
                      
                      
                      Paid-in
                      
                      
                      Earnings
                      
                      
                      Reserve
                      
                      
                      Comprehensive
                      
                      
                      Acquisition
                      
                      
                      Stockholder'sShares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      (Unrestricted)
                      
                      
                      Fund
                      
                      
                      Income
                      
                      
                      and
      Services
                      
                      
                      EquityBalance
      at December 31, 2006
                      
                      
                      96,258,411
                      
                      
                      
                      96,258
                      
                      
                      
                      13,099,424
                      
                      
                      
                      7,904,434
                      
                      
                      
                      1,869,523
                      
                      
                      
                      1,090,408
                      
                      
                      
                      326,403
                      
                      
                      
                      24,386,451Issuance
      of common stock to various consultants, $0.001 par value; 706,195 shares,
      services valued at $0.4622 per share;
                      
                      
                      706,195
                      
                      
                      
                      706
                      
                      
                      
                      325,697
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (326,403
                      )
                      
                      
                      -Debt
      discount - beneficial conversion feature on convertible promissory notes
      (Note 24)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,385,089
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,385,089Debt
      discount - warrants issued with convertible promissory notes (Note
      24)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,174,911
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,174,911Issuance
      of common stock for financial and technical services rendered 7/12/07,
      2,189,560 shares at $3.6 per share
                      
                      
                      2,189,560
                      
                      
                      
                      2,190
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      503,860
                      
                      
                      
                      506,050Issuance
      of common stock being placement agent exercised warrants 7/31/07, 546,994
      shares at $0.555 per share
                      
                      
                      546,994
                      
                      
                      
                      547
                      
                      
                      
                      303,032
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      303,579Issuance
      of common stock being placement agent exercised warrants 8/16/07, 65,200
      shares at $0.555 per share
                      
                      
                      65,200
                      
                      
                      
                      65
                      
                      
                      
                      36,121
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      36,186Issuance
      of common stock being placement agent exercised warrants 10/04/07,236,813
      shares @ $0.555 per share
                      
                      
                      236,813
                      
                      
                      
                      237
                      
                      
                      
                      131,194
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      131,431Issuance
      of common stock for pernalty - late effective of registration registration
      10/12/07, 166,898 shares @ $0.555 each
                      
                      
                      166,898
                      
                      
                      
                      167
                      
                      
                      
                      92,461
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      92,628Allocation
      of retained earnings to statutory reserve fund
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (441,158
                      )
                      
                      
                      441,158
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss for the year, 12/31/07
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (7,362,825
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (7,362,825
                      )Foreign
      currency translation adjustment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,300,365
                      
                      
                      
                      -
                      
                      
                      
                      2,300,365Balance
      at December 31, 2007
                      
                      
                      100,170,071
                      
                      
                      $
                      100,170
                      
                      
                      $
                      21,547,929
                      
                      
                      $
                      100,452
                      
                      
                      $
                      2,310,681
                      
                      
                      $
                      3,390,774
                      
                      
                      $
                      503,860
                      
                      
                      $
                      27,953,866Shares
      issued in lieu of director renumeration 02/18/08, 110,000 shares @$0.69
      each
                      
                      
                      110,000
                      
                      
                      
                      110
                      
                      
                      
                      75,790
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      75,900Shares
      issued in lieu of penalty for late filing on SB-2 on March 15,
      200803/15/08, 523,438 shares @ $0.440 each (Note 20)
                      
                      
                      523,438
                      
                      
                      
                      523
                      
                      
                      
                      229,789
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      230,312Shares
      issued for conversion of convertible notes on July 10,200807/10/2008,
      540,870 shares @$0.554662 each (Note 24)
                      
                      
                      540,870
                      
                      
                      
                      541
                      
                      
                      
                      (8,039
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (7,498
                      )-Shares
      issued for "Make good agreeement"08/25/2008 3,810,976 shares @$0.07 (Note
      20)
                      
                      
                      3,810,976
                      
                      
                      
                      3,811
                      
                      
                      
                      262,958
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      266,769Foreign
      currency translation adjustment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,956,773
                      
                      
                      
                      
                      
                      
                      
                      2,956,773Net
      loss for the year ended 12/31/08
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (15,815,920
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (15,815,920
                      )Statutory
      capital reserve
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (332,093
                      )
                      
                      
                      332,093
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Balance
      at December 31, 2008
                      
                      
                      105,155,355
                      
                      
                      
                      105,155
                      
                      
                      
                      22,108,427
                      
                      
                      
                      (16,047,561
                      )
                      
                      
                      2,642,776
                      
                      
                      
                      6,347,547
                      
                      
                      
                      503,860
                      
                      
                      
                      15,660,204
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-4
  Benda
Pharmaceutical, Inc.
 Consolidated
Statements of Cash Flows
 (Amounts
expressed in U.S. Dollars)
  YEARS
      ENDED DECEMBER 31,2008
                          
                          
                          2007Cash
      Flows From Operating ActivitiesNet
      income / (loss)
                          
                          $
                          (15,815,920
                          )
                          
                          $
                          (7,362,825
                          )Adjustments
      to reconcile net income / (loss) to net cash provided by operating
      activities:Consulting
      and professional fees (Note 19)
                          
                          
                          -
                          
                          
                          
                          8,353,615Bad
      Debt provision
                          
                          
                          2,730,434
                          
                          
                          
                          287,482Inventory
      written down to net realizable value (recovery)
                          
                          
                          392,535
                          
                          
                          
                          -Goodwill
      impairment provision
                          
                          
                          7,776,223
                          
                          
                          
                          -Minority
      interest
                          
                          
                          (1,478,278
                          )
                          
                          
                          2,236,194Loss
      on disposals of fixed assets
                          
                          
                          -
                          
                          
                          
                          30,027.00Depreciation
                          
                          
                          2,086,178
                          
                          
                          
                          1,022,603Amortization
      of intangible assets
                          
                          
                          705,259
                          
                          
                          
                          504,736Amortization
      of debt issue costs (Note 24)
                          
                          
                          264,962
                          
                          
                          
                          201,255Interest
      expense (amortization of debt discount) (Note 24)
                          
                          
                          3,520,876
                          
                          
                          
                          2,875,075Penalty
      to investors settled by issuance of common stock
                          
                          
                          497,081
                          
                          
                          
                          92,628Government
      subsidies/grants, (Note 22)
                          
                          
                          -
                          
                          
                          
                          (2,250,240
                          )Directors
      remuneration settled by issuance of common stock
                          
                          
                          75,900
                          
                          
                          
                          -Changes
      in operating assets and liabilities:Trade
      receivables
                          
                          
                          (2,213,453
                          )
                          
                          
                          (4,351,652
                          )Other
      receivables
                          
                          
                          195,547
                          
                          
                          
                          196,755Short-term
      loan receivable
                          
                          
                          (146,685
                          )
                          
                          
                          (560,751
                          )Prepaid
      expenses and deposits
                          
                          
                          359,673
                          
                          
                          
                          (523,131
                          )Inventories
                          
                          
                          (784,749
                          )
                          
                          
                          597,600Accounts
      payable and accrued liabilities
                          
                          
                          2,528,101
                          
                          
                          
                          -Taxes
      payable
                          
                          
                          (1,503,800
                          )
                          
                          
                          862,074Net
      cash provided by operating activities
                          
                          
                          (810,116
                          )
                          
                          
                          2,211,445Cash
      Flows From Investing ActivitiesAcquisition
      cost paid
                          
                          
                          -
                          
                          
                          
                          (2,664,244
                          )Purchases
      of property and equipment and construction-in-progress
                          
                          
                          (1,708,213
                          )
                          
                          
                          (5,319,037
                          )Disposal
      of intangible assets
                          
                          
                          172,548
                          
                          
                          
                          (3,094,245
                          )Net
      cash used in investing activities
                          
                          
                          (1,535,665
                          )
                          
                          
                          (11,077,526
                          )Cash
      Flows From Financing ActivesProceeds
      from issuance of convertible promissory note (Note 24)
                          
                          
                          -
                          
                          
                          
                          7,030,800Proceeds
      and repayments of borrowings under related parties, net
                          
                          
                          (1,080,947
                          )
                          
                          
                          (592,893
                          )Proceeds
      and repayments of borrowings under government debts payable,
      net
                          
                          
                          322,884
                          
                          
                          
                          19,210Proceeds
      and repayments of borrowings under commercial bank notes, net (Note
      11)
                          
                          
                          1,934,319
                          
                          
                          
                          2,503,504Proceeds
      and repayments of borrowings under bank loans, net
                          
                          
                          (81,523
                          )
                          
                          
                          (748,367
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          1,094,733
                          
                          
                          
                          8,212,254Effect
      of exchange rate changes on cash
                          
                          
                          553,827
                          
                          
                          
                          243,948Net
      increase in cash and cash equivalents
                          
                          
                          (697,221
                          )
                          
                          
                          (409,879
                          )Cash
      and cash equivalents, beginning of period
                          
                          
                          1,266,240
                          
                          
                          
                          1,676,119Cash
      and cash equivalents, end of period
                          
                          $
                          569,019
                          
                          
                          $
                          1,266,240Supplemental
      Disclosure of Cash Flow InformationCash
      paid for interest
                          
                          $
                          984,621
                          
                          
                          $
                          213,113Cash
      paid for income taxes
                          
                          $
                          740,717
                          
                          
                          $
                          718,723
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-5
  Benda
Pharmaceutical, Inc.
 Notes
to Consolidated Financial Statements
 (Amounts
expressed in U.S. Dollars)
 1.
                Organization
 Benda
Pharmaceutical, Inc. (“Benda”) is a corporation organized under the Florida Laws
and headquartered in Hubei Province, the People’s Republic of China
(“PRC”).
 
 Ever
Leader Holdings Limited (“Ever Leader”), a wholly owned subsidiary of Benda, is
a company incorporated under the laws of Hong Kong SAR.
 
 Ever
Leader owns 95% of the issued and outstanding capital of Hubei Tongi Benda Ebei
Pharmaceutical Co. Ltd. (“Benda Ebei”), a Sino-Foreign Equity Joint Venture
company incorporated under the laws of PRC. Mr. Yiqing Wan owns 5% of the issued
and outstanding capital stock of Benda Ebei. Benda Ebei owns: (i) 95% of the
issued and outstanding capital stock of Jiangling Benda Pharmaceutical Co. Ltd.,
(“Jiangling Benda”) a company formed under the laws of PRC; (ii) 95% of the
issued and outstanding capital stock of Yidu Benda Chemical Co. Ltd., (“Yidu
Benda”) a company incorporated under the laws of PRC; and (iii) 75% of the
issued and outstanding capital stock of Beijing Shusai Pharyngitis Research Co.
Ltd., (“Beijing Shusai”) a company incorporated under the laws of PRC. Mr.
Yiqing Wan owns: (i) 5% of the issued and outstanding capital stock of Jingling
Benda; and (ii) 5% of the issued and outstanding capital stock of Yidu Benda.
Mr. Feng Wang owns 25% of the issued and outstanding capital stock of Beijing
Shusai.
 
 On April
5, 2007, Benda Ebei entered into an Equity Transfer Agreements with Shenzhen
Yuanzheng Investment Development Co., Ltd. and Shenzhen Yuanxing Gene City
Development Co., Ltd., the then shareholders of Shenzhen SiBiono GeneTech Co.,
Ltd (“SiBiono”), to purchase 27.57% and 30% respectively of the shares of
SiBiono’s common stock for total consideration of Rmb 60 million (or $7.88
million) due and payable on or before April 30, 2007. On June 11, 2007, Benda
Ebei entered into an Equity Transfer Agreements with Huimin Zhang and
Yaojin Wang, the individual shareholders of SiBiono, and to purchase 1.6% and
0.96% respectively of the shares of SiBiono’s common stock for total
consideration of Rmb 2.56 million (or $0.34 million) due and payable on or
before June 30, 2007. Altogether, the total consideration for 60.13% shares of
SiBiono’s common stock was Rmb62.56 million or $9.18 million. As of December 31,
2008, an accumulated amount, approximately Rmb52. 83million or $7.75 million was
paid and leaving a balance of Rmb 9.73 million or $1.43 million (please refer to
Note 10 for the details).
 
 Benda,
Ever Leader, Benda Ebei, Jingling Benda, Yidu Benda, Beijing Shusai and SiBiono
shall be referred to herein collectively as the “Group”. The Group is engaged
principally in the business of identifying, discovering, developing, and
manufacturing conventional medicines, active pharmaceuticals, bulk chemicals (or
pharmaceutical immediates), and Traditional Chinese Medicines (“TCM”) for the
treatment of some of the most widespread common ailments and diseases (e.g.
common cold, diabetes, and cancer).
 F-6
  As of
December 31, 2008, the organization and ownership structure of the Group is as
follows:
 
 
 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 $16,047,561 and a working capital deficiency of $18,857,330 at
December 31, 2008, a net loss of $15,815,920 and net cash used in operations
$810,116 for the year ended December 31, 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 taking
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 assurance 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 it the Company is unable to continue as a
going concern.
  2.
                Basis
      of Preparation
  The
accompanying consolidated financial statements of Benda and its
subsidiaries have been prepared in accordance with the accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for
consolidated financial information
 
 These
consolidated financial statements include the accounts of Benda, Ever
Leader, Benda Ebei, Jiangling Benda, Yidu Benda, Beijing Shusai and
Sibiono for the full year.. All significant inter-company balances and
transactions have been eliminated in consolidation.
 3.
                Use
      of Estimates
  The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
when ultimately realized could differ from those estimates.
  F-7
  4.
                Significant
      Accounting Policies
 Cash
and Cash Equivalents
 Cash and cash equivalents include cash
on hand, cash on deposit with various financial institutions, and all highly-liquid
investments with original maturities of three months or less at the time of
purchase.
  Estimates
Affecting Trade Receivables, Other Receivables, Prepaid and Deposits and
Inventories
 The
preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect our reporting of assets and liabilities
(and contingent assets and liabilities). However, it is explicated that the
changes in estimation were not material in the preparation of our consolidation
financial statements.
 
 As of
December 31, 2008 and 2007, the Group provided a $3,786,459 and $943,647
respectively for the allowance of doubtful accounts against trade receivables,
other receivables and prepaid and deposits (please refer to Note 5 for details).
Management's estimate of the appropriate allowance on those accounts receivable
for the reporting periods was based on the aged nature of these accounts. In
making its judgment, management assessed its customers' ability to continue to
pay their outstanding invoices and the collectibility of those accounts on a
timely basis, and whether their financial position might deteriorate
significantly in the future, which would result in their inability to pay their
debts to the Company.
 
 Inventories,
which are primarily comprised of raw materials, packaging materials, and
finished goods, are stated at the lower of cost or net realizable value. Cost
being determined on the basis of a moving average. The Group evaluates the need
for reserves associated with obsolete, slow-moving and non-salable
inventory by reviewing net realizable values on a periodic basis.
  For the
year ended December 31, 2008 and 2007, the Group provided a reserve against
its obsolete, slow-moving or non-salable inventory amounting to
$4,941,372 and $4,422,014 respectively (please refer to Note 7 for
details)
  Property
and Equipment
 Property
and equipment are recorded at cost and depreciated using the straight-line
method, with an estimated 5% salvage value of original cost, over the estimated
useful lives of the assets as follows:
  Buildings
                      20-30yearsMachinery
      and equipment
                      10-15
      yearsMotor
      Vehicles
                      5
      yearsElectronics
      and office equipment
                      5
      years
 
 Expenditures
for repairs and maintenance, which do not improve or extend the expected useful
lives of the assets, are expensed as incurred while major replacements and
improvements are capitalized.
  When
property or equipment is retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, with any resulting gains or losses
being included in net income or loss in the year of disposition.
  F-8
 Impairment
of Long-Lived Assets
 The Group
evaluates potential impairment of long-lived assets, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires the Group to (a) recognize
an impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure an impairment loss
as the difference between the carrying amount and fair value of the
asset.  As of December 31, 2008 and 2007, the Group provided a
reserve against its Goodwill amounting to $7,776,223 and none, respectively
(please refer to Note 10 for details).
  Intangible
Assets
 The
Group’s intangible assets are stated at cost less accumulated amortization and
are comprised of land-use rights, drug permits and licenses, patent and
technology formulas know-how.  Land-use rights are related to land the
Group occupies in Hubei and Guangdong Province, PRC and are being amortized on a
straight-line basis over a period of 40 years.  Other intangible
assets are being amortized on a straight-line basis over a period of 10
years.
  Revenue
Recognition
 Among the
most important accounting policies affecting our consolidated financial
statements is our policy of recognizing revenue in accordance with the SEC's
Staff Accounting Bulletin ("SAB") No. 104. Under this policy, all of the
following criteria must be met in order for us 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; and
 4.       Collectibility is reasonably
assured.
 The
majority of the Group's revenue results from sales contracts
with distributors and revenue is recorded upon the shipment of goods.
Management conducts credit background checks for new customers as a means
to reduce the subjectivity of assuring collectibility. Based on these
factors, the Group believes that it can apply the provisions of SAB 104
with minimal subjectivity.
 
 Research
and Development
 Research
and development costs are expensed as incurred and consist primarily of salaries
and related expenses of personnel engaged in research and development
activities. The Group spent $1,461,951 and $553,962 on direct research and
development (“R&D”) efforts in 2008 and 2007, respectively.
 
 Income
Taxes
 The Group
accounts for income taxes under the liability method in accordance with SFAS No.
109, Accounting for Income
Taxes.  Deferred tax assets and liabilities are recorded for
the estimated future tax effects of temporary differences between the tax basis
of assets and liabilities and amounts reported in the accompanying consolidated
balance sheets.  Deferred tax assets are reduced by a valuation
allowance if current evidence indicates that it is considered more likely than
not that these benefits will not be realized.
  Comprehensive
Income
 The Group
has adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and displaying
comprehensive income, its components, and accumulated balances in a full-set of
general-purpose financial statements.  Accumulated other comprehensive
income represents the accumulated balance of foreign currency translation
adjustments.
  F-9
  Concentration
of Credit Risk
 A
significant portion of the Group's cash at December 31, 2008 and 2007 is
maintained at various financial institutions in the PRC which do not provide
insurance for amounts on deposit.
 
 The Group
has not experienced any losses in such accounts and believes it is not exposed
to significant credit risk in this area.
  The Group
operates principally in the PRC and grants credit to its customers in this
geographic region.  Although the PRC is economically stable, it is
always possible that unanticipated events in foreign countries could disrupt the
Group’s operations.
  The
following table shows the individual customer’s revenue and account receivable
balance which was higher than 5% of total revenue and total account
receivables for the years ended December 31, 2008 and 2007:
  YEAR
      ENDED DECEMBER 312008
                                                
                                                
                                                2007Revenue
                                                
                                                $
                                                25,041,986
                                                
                                                %
                                                
                                                
                                                $
                                                26,384,608
                                                
                                                %Individual customer's
    revenue1
                                                Zhuhai
      Gongbei Pharmaceutical Co, Ltd.
                                                
                                                
                                                4,861,888
                                                
                                                
                                                19%
                                                
                                                
                                                
                                                5,034,917
                                                
                                                
                                                19%2
                                                Hubei
      Hengchuan Health Products Co.,Ltd.
                                                
                                                
                                                2,746,580
                                                
                                                
                                                11%
                                                
                                                
                                                
                                                -
                                                
                                                
                                                0%3
                                                Shenzhen
      Huihua Pharmaceutical Co. Ltd.
                                                
                                                
                                                2,788,933
                                                
                                                
                                                11%
                                                
                                                
                                                
                                                3,264,033
                                                
                                                
                                                21%4
                                                Shenyang
      Pharmaceutical Co. Ltd.
                                                
                                                
                                                2,620,888
                                                
                                                
                                                10%
                                                
                                                
                                                
                                                2,784,912
                                                
                                                
                                                18%5
                                                Jiangxi
      Huiren Pharmaceutical Co. Ltd.
                                                
                                                
                                                2,073,862
                                                
                                                
                                                8%
                                                
                                                
                                                
                                                2,360,264
                                                
                                                
                                                15%Account
      receivable, gross
                                                
                                                $
                                                13,123,374
                                                
                                                %
                                                
                                                
                                                $
                                                10,909,921
                                                
                                                %Individual customer's account receivable gross
      balance1
                                                Zhuhai
      Gongbei Pharmaceutical Co, Ltd.
                                                
                                                
                                                1,742,158
                                                
                                                
                                                13%
                                                
                                                
                                                
                                                1,658,203
                                                
                                                
                                                15%2
                                                Hubei
      Hengchuan Health Products Co.,Ltd.
                                                
                                                
                                                1,269,568
                                                
                                                
                                                10%
                                                
                                                
                                                
                                                -
                                                
                                                
                                                0%3
                                                Shenzhen
      Huihua Pharmaceutical Co. Ltd.
                                                
                                                
                                                1,238,820
                                                
                                                
                                                9%
                                                
                                                
                                                
                                                1,111,545
                                                
                                                
                                                10%4
                                                Shenyang
      Pharmaceutical Co. Ltd.
                                                
                                                
                                                1,087,027
                                                
                                                
                                                8%
                                                
                                                
                                                
                                                903,202
                                                
                                                
                                                8%5
                                                Jiangxi
      Huiren Pharmaceutical Co. Ltd.
                                                
                                                
                                                990,665
                                                
                                                
                                                8%
                                                
                                                
                                                
                                                486,843
                                                
                                                
                                                4%
  Basic
and Diluted Earnings Per Share
 The Group
adopted Statement of Financial Accounting Standards No. 128, “Earnings Per
Share” (SFAS128). SFAS 128 requires the presentation of earnings per share (EPS)
as Basic and Diluted EPS. Basic earnings per share are calculated by taking net
income divided by the weighted average shares of common stock outstanding during
the period. Diluted earnings per share is calculated by taking basic weighted
average shares of common stock and increasing it for dilutive common stock
equivalents such as warrants that are in the money.
 
 Foreign
Currency Translation
 The
functional currency of the Group is the Renminbi (“RMB”), the PRC’s
currency.  The Group maintains its financial statements using the
functional currency.  Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional
currency at rates of exchange prevailing at the balance sheet
dates.  Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchange
rates prevailing at the dates of the transaction.  Exchange gains or
losses arising from foreign currency transactions are included in the
determination of net income (loss) for the respective periods.
  F-10
  For
financial reporting purposes, the financial statements of the Group, which are
prepared using the RMB, are translated into the Group’s reporting currency,
United States Dollars.  Balance sheet accounts are translated using
the closing exchange rate in effect at the balance sheet date and income and
expense accounts are translated using the average exchange rate prevailing
during the reporting period.  Adjustments resulting from the
translation, if any, are included in accumulated other comprehensive income
(loss) in stockholder’s equity.
  The
exchange rates in effect at December 31, 2008 and 2007 were stated as follows:
(for RMB 1.00):
  December
      31,
                        
                        
                        December
      31,2008
                        
                        
                        2007Fixed
      rate
                        
                        $
                        0.1467
                        
                        
                        $
                        0.1371Average
      rate
                        
                        $
                        0.1442
                        
                        
                        $
                        0.1317
 For the
year ended December 31, 2008, the foreign exchange loss was $11,347; and for the
year ended December 31, 2007, the foreign exchange gain was
$2,302.
  Fair
Value of Financial Instruments
 The
Group's financial instruments include cash equivalents, accounts receivable,
other receivables, accounts payable, accrued expenses, value-added taxes,
short-term and long-term bank loans, and loans payable to related
parties.  The carrying amounts of financial instruments other than
long-term obligations approximate fair value due to their short
maturities.  Long-term obligations approximate fair value based upon
rates currently available for similar instruments.
 
 Recent
Accounting Pronouncements
 In
September 2006, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 157, "Fair Value Measurements", which establishes a framework for
reporting fair value and expands disclosures about fair value measurements. 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 Group
is currently assessing the impact of the adoption of this standard on its
financial statements.
  In
February 2007, the Financial Accounting Standards Board ("FASB") issued FASB 159
"The Fair Value Option for Financial Assets and Financial Liabilities" ("FASB
159"). FASB 159 permits entities to measure financial instruments and certain
other items at fair value that are not currently measured at fair value. The
Group is currently evaluating the impact of the adoption of SFAS 159 will have,
if any, on our financial statements.
  Recently
Adopted Accounting Pronouncements
 SFAS
No. 123R, Share-Based
Payment, an Amendment of SFAS No. 123, was issued in December 2004
and was effective as of the beginning of the Group’s 2006 fiscal
year.  SFAS No. 123R requires all share-based payments to
qualified individuals, including grants of employee stock options, to be
recognized as compensation expense in the financial statements based on their
grant date fair values.
 
 On
December 4, 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 160, Noncontrolling
interest in Consolidated Financial Statements(SFAS No. 160). 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.
  F-11
  On
December 4, 2007, the FASB issued SFAS No.141R, Business Combinations (SFAS
No. 141R). 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.
  Reclassification
 Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation. The reclassification had no effect
on reported losses.
 
 5.
                Trade
      Receivables, Other Receivables, Short-term Loan Receivable and
      Prepaid expenses and Deposits
  (1)
                Allowance
      for doubtful debts
  As
mentioned in Note 4 that the company estimates of the appropriate allowance on
those accounts receivable for the reporting periods was based on the aged nature
of these accounts. The table below shows the allowance for doubtful debts of the
Group’s trade receivables, other receivables and prepaid expenses and
deposits as of December 31, 2008 and 2007:
  December
      31,
                                      
                                      
                                      December
      31,2008
                                      
                                      
                                      2007Trade
      receivables, gross
                                      
                                      $
                                      13,123,374
                                      
                                      
                                      $
                                      10,909,921Allowance
      for doubtful debts
                                      
                                      
                                      (3,786,459
                                      )
                                      
                                      
                                      (437,688
                                      )Trade
      receivables, net
                                      
                                      $
                                      9,336,915
                                      
                                      
                                      $
                                      10,472,233December
      31,
                                      
                                      
                                      December
      31,2008
                                      
                                      
                                      2007Other  receivables,
      gross
                                      
                                      $
                                      504,349
                                      
                                      
                                      $
                                      614,971Allowance
      for doubtful debts
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (161,376
                                      )Other  receivables,
      net
                                      
                                      $
                                      504,349
                                      
                                      
                                      $
                                      453,595December
      31,
                                      
                                      
                                      December
      31,2008
                                      
                                      
                                      2007Prepaid
      and deposits, gross
                                      
                                      $
                                      918,209
                                      
                                      
                                      $
                                      1,277,882Allowance
      for doubtful debts
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (344,583
                                      )Prepaid
      and deposits, net
                                      
                                      $
                                      918,209
                                      
                                      
                                      $
                                      933,299
 F-12
  The
change of the allowance for doubtful debts between the reporting periods, as of
December 31, 2008 and 2007, is displayed as follows:
  2008
                                    
                                    
                                    2007Balance
      at beginning of period
                                    
                                    $
                                    (943,647
                                    )
                                    
                                    $
                                    (467,015
                                    )Provision/Reversal
      during the period
                                    
                                    
                                    (2,730,434
                                    )
                                    
                                    
                                    (287,482
                                    )Addition
      in lieu of acquisition of SiBiono
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (121,912
                                    )Foreign
      exchange difference
                                    
                                    
                                    (112,378
                                    )
                                    
                                    
                                    (67,238
                                    )Balance
      at end of period
                                    
                                    $
                                    (3,786,459
                                    )
                                    
                                    $
                                    (943,647
                                    )
 The Group
set full allowance for trade receivables aged over 120 days which is general
credit term granted to the customers. After deducting those allowances from the
gross trade receivable, based on the management’s past experience, there would
be no collectability issue on the net amount.
 
 For the
year ended December 31, 2008, the allowance for trade receivables increased by $
3,348,771. This was mainly affected by the global finance crisis; the customers
of the Group slowed payment which caused the ageing of the receivables
deteriorate significantly.
 
 (2)           Short-term
loan receivable
  The
short-term receivable is due on June 30, 2009, has no collateral or security and
bears annual interest rate of 7.2%.
 
 6.
                Refundable
      Purchase Price Paid
  On,
December 7, 2006, Benda Ebei paid $1.2 million to SECO (Shenzhen) Biotech Co.,
Ltd. (“SECO”) pursuant to a purchase agreement signed between SECO and Benda
Ebei on December 3, 2006 to acquire a technology know-how and drug
specifications / technical parameters in producing a Gastropathy drug owned by
SECO.  According to the signed contract:
  ·
                The
      amount paid is refundable only if SECO fails to pass the examination
      conducted by Benda Ebei;
 ·
                Altogether,
      there are three phases for the examination; however there is no specific
      time-table for the examination;
 ·
                The
      contract is valid for 10 years upon the contract
  signed.
 
 As at
December 31, 2008, the deal has not been closed as the product is still under
the process of development. As the date when could SECO pass the examination
conducted by Benda Ebei cannot be determined, thus the amount paid is
reclassified as non-current assets as of December 31, 2008.
  F-13
  7.
                Inventories
  The
Group’s inventories at December 31, 2008 and December 31, 2007 were
comprised as follows:
  December
      31,
                      
                      
                      December
      31,2008
                      
                      
                      2007Raw
      materials
                      
                      $
                      874,180
                      
                      
                      $
                      1,078,438Packing
      materials
                      
                      
                      481,724
                      
                      
                      
                      155,101Other
      materials / supplies
                      
                      
                      88,412
                      
                      
                      
                      93,206Finished
      goods
                      
                      
                      754,838
                      
                      
                      
                      415,627Work-in-process
                      
                      
                      5,086,780
                      
                      
                      
                      4,631,990Total
      inventories at cost
                      
                      
                      7,285,934
                      
                      
                      
                      6,374,362Less:
      Reserves on inventories
                      
                      
                      (4,941,372
                      )
                      
                      
                      (4,422,014
                      )Total
      inventories, net
                      
                      $
                      2,344,562
                      
                      
                      $
                      1,952,348
  A reserve
for obsolete, slow-moving or non-salable inventory was made on raw materials,
packing materials, finished goods and work-in-process at the amount of $122,433,
$7,118, $269,749 and $4,542,072 respectively as of December 31, 2008. As of
December 31, 2007, there was a reserve made on work-in-process at the amount of
$4,422,014 only.
 
 The
provision of reserve on work-in-process was resulted from the manufacturing
process of Gendicine, SiBiono’s sole product and SiBiono was acquired by the
company in April 2007.
 
 The
following chart shows the manufacturing process of Gendicine
(Ad-p53):
 
 
 In the
production process of finished goods, Gendicine, several working steps are
needed: (i) large-scale culturing of adenovirus from master adenovirus bank;
(ii) culturing of cell from master cell bank; (iii) purification.  The
whole process including step (i) to step (iii) takes approximately twenty-four
days to make reagent (“original liquid”).  This particular liquid can
only be stored for approximately five years.  It takes approximately
another seven days for mixing and bottling original liquid to finished goods
which is known as Gendicine.
 
 Therefore,
up to the stage of reagent, all the related production costs are treated as
work-in-process. The major components of those production costs are: (i) direct
labor; (ii) direct materials; (iii) power; (iv) supplies and other materials and
(v) manufacturing overheads.
  F-14
 Before
acquisition, as of March 31, 2007, the accumulated units of original liquid
produced was 198,075 and which could be converted to approximately 226,736 vials
of Gendicine. However, the accumulated vials of Gendicine sold throughout the
years 2004 to three-months period ended March 31, 2007 were only approximately
18,424 vials. The accumulated production costs of $4,080,644 were remained as
work-in-process as of three-month period ended March 31, 2007.
 
 Furthermore,
due to the special feature of the original liquid which can only be stored for
five years, and most of the original liquid was produced in the year of 2004,
and the provision of reserve on work in process was $3,696,083 as of three-month
period ended March 31, 2007.
 
 After the
acquisition with the effective date April 1, 2007, the same accounting treatment
was adopted for the treatment of the provision of reserve on work-in-process. As
of December 31, 2008, the provision of reserve on work in process was
$4,542,072.
 
 8.
                Property
      and Equipments
  The Group’s property and equipment at
December 31, 2008 and December 31, 2007 were comprised as
follows:
  December
      31, 2007
                            
                            
                            Addition
                            
                            
                            Foreign
      Currency Translation Difference
                            
                            
                            December
      31, 2008Buildings
                            
                            $
                            8,858,126
                            
                            
                            
                            43,877
                            
                            
                            
                            790,438
                            
                            
                            $
                            9,692,441Machinery
      and equipment
                            
                            
                            15,260,167
                            
                            
                            
                            139,810
                            
                            
                            
                            1,369,351
                            
                            
                            
                            16,769,328Office
      equipment
                            
                            
                            28,762
                            
                            
                            
                            6,501
                            
                            
                            
                            5,465
                            
                            
                            
                            40,728Motor
      Vehicles
                            
                            
                            206,252
                            
                            
                            
                            25,976
                            
                            
                            
                            19,935
                            
                            
                            
                            252,163Cost
                            
                            
                            24,353,307
                            
                            
                            
                            216,164
                            
                            
                            
                            2,185,188
                            
                            
                            
                            26,754,660Less:
      Accumulated DepreciationBuildings
                            
                            $
                            (981,116
                            )
                            
                            
                            (485,939
                            )
                            
                            
                            (92,456
                            )
                            
                            $
                            (1,559,511
                            )Machinery
      and equipment
                            
                            
                            (2,423,002
                            )
                            
                            
                            (1,533,417
                            )
                            
                            
                            (204,248
                            )
                            
                            
                            (4,160,667
                            )Office
      equipment
                            
                            
                            (4,281
                            )
                            
                            
                            (28,058
                            )
                            
                            
                            1,500
                            
                            
                            
                            (30,839
                            )Motor
      Vehicles
                            
                            
                            (46,447
                            )
                            
                            
                            (38,764
                            )
                            
                            
                            (4,652
                            )
                            
                            
                            (89,863
                            )Accumulated
      Depreciation
                            
                            
                            (3,454,846
                            )
                            
                            
                            (2,086,178
                            )
                            
                            
                            (299,856
                            )
                            
                            
                            (5,840,880
                            )Construction
      in progress
                            
                            $
                            6,224,575
                            
                            
                            
                            1,492,049
                            
                            
                            
                            426,821
                            
                            
                            $
                            8,143,445Total
      property and equipment, net
                            
                            $
                            27,123,035
                            
                            
                            
                            (377,965
                            )
                            
                            
                            2,312,153
                            
                            
                            $
                            29,057,225
 As
mentioned in Note 11, Benda Ebei entered into a commercial bank note issuance
agreement with Shanghai Pudong Development Bank on August 14, 2007 and a
supplementary agreement on January 21, 2008.  Under the agreement s the
credit facility is secured by the buildings, machinery and equipment of Benda
Ebei and Jiangling Benda. As of December 31, 2008, the net book value of pledged
property and equipment was approximately Rmb132.19 million (or $19.39 million)
in total.
  F-15
  The
deprecation expense for the year ended December 31, 2008 was calculated as
follows:
  Original
      CostDecember
      31,
                                                                                                                                          
                                                                                                                                          December
      31,
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Salvage
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Estimate
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Depreciation
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Deprecation2007
                                                                                                                                          
                                                                                                                                          2008
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Average
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Value
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Useful
      Lives
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Calculated
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Reported
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          DifferenceBuilding
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          8,858,126
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          9,692,441
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          9,275,284
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          20
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          440,576
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          485,939
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (45,363
                                                                                                                                          )Property
      and equipment
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          15,260,167
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          16,769,328
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          16,014,748
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          10
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,521,401
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,533,417
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (12,016
                                                                                                                                          )Office
      equipment
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          28,762
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          40,728
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          34,745
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          6,602
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          28,058
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (21,456
                                                                                                                                          )Motor
      vehicle
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          206,252
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          252,163
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          229,208
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5
                                                                                                                                          %
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          43,549
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          38,764
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          4,785Total
      property and equipments
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          24,353,307
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          26,754,660
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          25,553,984
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,012,128
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,086,178
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (74,050
                                                                                                                                          )
  he above
table shows the calculation of depreciation expenses for the year ended December
31, 2008. The difference between the depreciation calculated and depreciation
reported was due to the changes of foreign exchange translation.
  The
estimated useful lives for buildings and property and equipments vary from 20 to
30 years and 10 to 15 years, respectively. For the year ended December 31, 2008,
the majority of the building subjected to depreciation had useful lives of 20
years and property and equipment had useful lives of 10 years.
 
 The total
depreciation expense was $2,086,178 and $1,022,603 for the years ended December
31, 2008 and 2007, respectively, and is broken down as
follows:
 YEAR
      ENDED DECEMBER 31,2008
                      
                      
                      2007Cost
      of sales
                      
                      $
                      1,224,199
                      
                      
                      $
                      688,639Operating
      expenses
                      
                      
                      861,979
                      
                      
                      
                      333,964Balance
      at end of period
                      
                      $
                      2,086,178
                      
                      
                      $
                      1,022,603
  9.
                Intangible
      Assets
  The
Group’s intangible assets at December 31, 2008 and December 31, 2007 were
comprised as follows:
 December
      31, 2007
                        
                        
                        Addition
                        
                        
                        Disposal
                        
                        
                        Foreign
      Currency Translation Difference
                        
                        
                        December
      31, 2008Land-use
      rights
                        
                        $
                        2,875,796
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        241,340
                        
                        
                        $
                        3,117,136Drugs
      permits and licenses
                        
                        
                        2,564,996
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        215,258
                        
                        
                        
                        2,780,254Technology
      formulas
                        
                        
                        1,220,164
                        
                        
                        
                        -
                        
                        
                        
                        (288,300
                        )
                        
                        
                        80,265
                        
                        
                        
                        1,012,129Patent
                        
                        
                        
                        1,685,919
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        117,910
                        
                        
                        
                        1,803,829Cost
                        
                        
                        8,346,875
                        
                        
                        
                        -
                        
                        
                        
                        (288,300
                        )
                        
                        
                        654,773
                        
                        
                        
                        8,713,348Land-use
      rights
                        
                        $
                        (201,030
                        )
                        
                        
                        (60,814
                        )
                        
                        
                        -
                        
                        
                        
                        (17,283
                        )
                        
                        $
                        (279,127
                        )Drugs
      permits and licenses
                        
                        
                        (1,291,425
                        )
                        
                        
                        (269,538
                        )
                        
                        
                        -
                        
                        
                        
                        (103,578
                        )
                        
                        
                        (1,664,541
                        )Technology
      formulas
                        
                        
                        (154,863
                        )
                        
                        
                        (121,085
                        )
                        
                        
                        33,635
                        
                        
                        
                        (12,370
                        )
                        
                        
                        (254,683
                        )Patent
                        
                        
                        
                        (205,048
                        )
                        
                        
                        (287,457
                        )
                        
                        
                        -
                        
                        
                        
                        (19,393
                        )
                        
                        
                        (511,898
                        )Accumulated
      amortization
                        
                        
                        (1,852,366
                        )
                        
                        
                        (738,894
                        )
                        
                        
                        33,635
                        
                        
                        
                        (152,624
                        )
                        
                        
                        (2,710,247
                        )Total
      intangible assets, net
                        
                        $
                        6,494,510
                        
                        
                        
                        (738,894
                        )
                        
                        
                        (254,665
                        )
                        
                        
                        502,149
                        
                        
                        $
                        6,003,102
 In May
2007, SiBiono enter into a co-operation agreement with DNAVEC, a Japanese gene
therapy research institute. Under the terms of the agreement, DNAVEC will
leverage SiBiono’s proven gene therapy manufacturing platform and will transfer
the exclusive development and distribution rights of SeV-Gag in China to
SiBiono. The total purchase cost was Rmb2 million or $ 0.28 milllion and
recorded as intantigle assets. In November 2008 this project was ceased and the
whole cost was recoverable. Therefore the whole cost was removed from intangible
assets and related amortization was reversed. As of December 31, 2008, Rmb 1.19
million or $0.17 million was received, leaving a balance of Rmb 0.81 million or
$0.11 million receivable.
  F-16
  The
amortization expense for the year ended December 31, 2008 was calculated as
follows:
  Original
      CostDecember
      31,
                                                                                                        
                                                                                                        
                                                                                                        December
      31,
                                                                                                        
                                                                                                        
                                                                                                        Estimated
                                                                                                        
                                                                                                        
                                                                                                        Amortization
                                                                                                        
                                                                                                        
                                                                                                        Amortization2007
                                                                                                        
                                                                                                        
                                                                                                        2008
                                                                                                        
                                                                                                        
                                                                                                        Average
                                                                                                        
                                                                                                        
                                                                                                        Useful
      lives
                                                                                                        
                                                                                                        
                                                                                                        Calculated
                                                                                                        
                                                                                                        
                                                                                                        Reported
                                                                                                        
                                                                                                        
                                                                                                        DifferenceLand-use
      rights
                                                                                                        
                                                                                                        $
                                                                                                        2,875,796
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,117,136
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2,996,466
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        40
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        74,912
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        60,814
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        14,098Drugs
      permits and licenses
                                                                                                        
                                                                                                        
                                                                                                        2,564,996
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2,780,254
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2,672,625
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        10
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        267,263
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        269,538
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (2,275
                                                                                                        )Technology
      formulas
                                                                                                        
                                                                                                        
                                                                                                        1,220,164
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,012,129
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,116,147
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        10
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        111,615
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        87,450
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        24,165Patent
                                                                                                        
                                                                                                        
                                                                                                        1,685,919
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,803,829
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,803,829
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        6
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        300,638
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        287,457
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        13,181Total
      Intangible assets
                                                                                                        
                                                                                                        $
                                                                                                        8,346,875
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        8,713,348
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        8,589,067
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        754,428
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        705,259
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        49,169
  The above
table shows the calculation of amortization expenses for the year ended December
31, 2008. The difference between the amortization calculated and amortization
reported was due to the changes of foreign exchange translation.
  The total
amortization expense was $705,259 and $504,736 for the years ended December
31, 2008 and 2007, respectively, and is broken down as follows:
 December
      31,2008
                      
                      
                      2007Cost
      of sales
                      
                      $
                      551,956
                      
                      
                      $
                      363,055Operating
      expenses
                      
                      
                      153,303
                      
                      
                      
                      141,681Balance
      at end of period
                      
                      $
                      705,259
                      
                      
                      $
                      504,736
  10.
                Goodwill
      and Acquisition Cost Payable
  FASB 141
requires all acquisitions must be accounted for by allocating the acquisition
consideration to the assets acquired based upon the fair market value of those
assets. Consideration value that cannot be allocated to the acquired assets must
be assigned to goodwill. In addition, it also requires eliminating the pooling
treatment and eliminating the amortization of goodwill.  FASB 142
requires that a company carrying goodwill on its books must revalue the assets
acquired in a business combination. If there is an overall decline in the value
of the acquired assets, then earlier booked goodwill is deemed “impaired” and
must be written down. FASB 142 requires a two step impairment test. The fair
value of a reporting unit is first compared to its carrying value, including
goodwill. Then the implied fair value of the goodwill is compared to the
carrying value of the goodwill. If the fair value is lower, it is considered to
be impaired.
  As of
December 31, 2008, there was an amount approximately $7.8 million was recorded
as goodwill.  Meanwhile, the Group made an impairment charge at full
amount on the goodwill due to the following facts (please read in conjunction
with Note 13):
  a.
                SiBiono
      has a bank loan matured and was in default, which has been sued and the
      court has issued a judgment on November 23, 2008 to SiBiono which required
      SiBiono to  repay all loan balance plus penalty and interest
      approximately  Rmb 24 million immediately. As SiBiono has
      not paid anything yet,  thus the land use right of SiBiono on its new
      production plant may be foreclosed for sales by the lender bank has been
      frozen unless the amount has been settled between the lender bank and
      SiBiono;
 b.
                SiBiono
      has serious working capital deficit situation and has reported loss of
      $2.08 million for the year ended December 31,
  2008;
 c.
                The
      management has not yet located or confirmed any feasible re-financing plan
      and / or equity placement as of the report date. The follow up action is
      still under the discussion with the lender
bank.
  F-17
  As of
December 31, 2008, out of the total acquisition cost Rmb62.56 million (or $9.18
million), the following payments were made:
  In the
year of 2006, Benda, through its subsidiaries Everleader and Benda Ebei, paid
Rmb19.52 million and Rmb13.03 million or totaling Rmb32.55 million to the
selling shareholders of SiBiono and reported in the consolidated balance sheet
and cash flow statement as “refundable purchase price paid”. It was recorded as
refundable assets due to the fact that the deal was not concluded as of December
31, 2006. The acquisition was closed on April 5, 2007, and thus the total
refundable amount of Rmb32.55 or $4.17 million was reclassified as investment
cost.
 
 In the
year of 2007, an additional amount Rmb20.28 million was paid. The remaining
balance was reported as “acquisition cost payable” on the balance sheet. As of
December 31, 2008, the total amount paid was Rmb52.83 million (or $7.75 million)
and the outstanding balance was Rmb9.73 million (or $1.43 million).
 
 The Group
has already obtained the oral consent from the selling shareholders of SiBiono
that the remaining balance could be settled within the year of 2009.
  11.
                Restricted
      Cash, Bank Indebtedness and Commercial Notes
  Payable
  The
Group’s restricted cash at December 31, 2008 and December 31,
2007 was comprised as follows:
  December
      31,
                          
                          
                          December
      31,2008
                          
                          
                          2007Deposits
      for issuance of commercial notes
                          
                          $
                          4,859,346
                          
                          
                          $
                          2,615,254Funds
      from government technolgy agencies
                          
                          
                          1,303,503
                          
                          
                          
                          1,342,370Total
      restricted cash
                          
                          $
                          6,162,849
                          
                          
                          $
                          3,957,624
  A)
                On
      August 14, 2007, Benda Ebei entered into a commercial bank note issuable
      agreement with Shanghai Pudong Development Bank. Pursuant to this
      agreement, the following terms are
included:
  a)
                Duration
      of the agreement is three years;
  b)
                It
      is non-interest bearing;
  c)
                The
      repayment period of each commercial note payable is six
      months;
  F-18
  d)
                The
      total commercial note issuable limit is Rmb 60 million; however 50%
      of deposit should be made into the bank in order to secure the issuance of
      commercial bank note, thus the net available amount is Rmb 30
      million;
  e)
                  If
      the net amount of each commercial bank note payable is not settled on the
      due date, the penalty will be the penalty rate of the PRC bank loan on
      daily and compound basis.
 f)
                As
      mentioned in Note 8, this credit facility is guaranteed by SiBiono and
      secured by the buildings, machinery and equipment of Benda Ebei. On
      December 15, 2007, Benda Ebei received a consent letter from Pudong Bank
      that Pudong Bank agreed to cancel SiBiono’s guarantee toward this credit
      facility.
 
 On
January 21, 2008, Benda Ebei entered into a supplementary agreement with
Shanghai Pudong Development Bank, to supplement the commercial bank note
issuance agreement dated on August 14, 2007. According to this supplementary
agreement, the credit facility is further secured by the buildings, machinery
and equipment of Jiangling Benda.
  As of
December 31, 2008, Benda Ebei and Jiangling Benda deposited an amount
$4,859,346 in Shanghai Pudong Development Bank as deposit for the issuance
of commercial bank notes. Such deposits will be released when the commercial
bank notes are cleared. As of December 31, 2008, the balance of the
commercial bank notes payable was $9,297,169. Thus the net commercial bank
notes payable was $4,437,823 as of December 31, 2008.
  B)
                The
      bank indebtedness was resulted from the acquisition of SiBiono with the
      effective date April 1, 2007. The reasons for causing bank indebtedness
      were stated as follows:
  a)
                Among
      the cash and cash equivalents balances of SiBiono were composed of two
      parts; (i) unrestricted cash, which were generated from either operations,
      or loans from bank and financial institutions, or invested capital;
      (ii) restricted cash, which were obtained from the various government
      technology agencies as long term debt payable (see note 14 for the related
      details).
  b)
                The
      cash obtained from the various government technology agencies as long term
      debt payable could only be dedicated to the related project’s research and
      development activities and purchase of fixed assets and construction in
      progress, therefore the cash balances for that part will be classified as
      restricted cash.
  c)
                Due
      to the above reasons, SiBiono relocated the balances of restricted cash
      from the cash and cash equivalents balances for the reporting
      periods.
  d)
                However,
      since the balance of the restricted cash was larger than the balance of
      cash and cash equivalents balances, thus bank indebtedness were resulted
      for the reporting periods.
  Due to
the above reasons, SiBiono relocated the balances of restricted cash from the
cash and cash equivalents balances with an amount $1,303,503 as of December 31,
2008. However, since the balances of the restricted cash were larger than the
balance of cash and cash equivalents balances, bank indebtedness were resulted
with an amount $1,288,257 as of December 31, 2008.
  F-19
  12.
                Other
      assets
  On
November 23, 2006, Benda Ebei entered into an Equity Transfer Agreement with
Xiaozhi Zhang (“Zhang”), to purchase approximately 6.24% of SiBiono’s common
stock for a total consideration of Rmb12.48 million (Rmb6.24 million in cash and
shares of our common stock equal to Rmb6.24 million) (or $1.71 million) which
was due and payable on or before March 31, 2007.
 
 Due to
the fact that the signed agreement on November 23, 2006 was not practically
executable according to the PRC regulations, Benda Ebei asked Zhang to terminate
the signed agreement and sign a new agreement that was feasible under PRC
regulations with essentially the same terms.
 
 However,
Zhang refused to sign the new agreement and applied to the Shenzhen Arbitration
Commission (the “Commission”) in April 2007 for enforcement of the original
agreement. Zhang requested the Commission to require Benda Ebei to pay for the
total consideration, penalty for late payment and the related legal and
arbitration expenses.
 
 On
November 27, 2007, Shenzhen Arbitration Commission determined that:
 1.
                Benda
      Ebei should pay for the consideration of Rmb 6.24 million, equal to 50% of
      the total consideration set forth in the Equity Transfer Agreement. For
      the other 50% of the total consideration which was supposed to be settled
      in the form of issuing common stock, since Zhang did not make an
      arbitration request on how to execute the arrangement, the Arbitration
      Commission did not make an award on this particular
  part.
 2.
                Benda
      Ebei should pay for the penalty of Rmb
46,800;
 3.
                Benda
      Eebi should pay for legal and arbitration expenses of Rmb
      268,971.
 
 Following
this arbitration decision, Benda Ebei recognized the liability as total
acquisition cost payable of Rmb 12.48 million, plus the penalty and related
legal and arbitration expenses, totaling approximately Rmb 12.80 million or
($1.88 million) (Note 15). Accordingly Benda Eebi recognized the right to
purchase the 6.24% equity shares in SiBiono and recorded as other assets at Rmb
12.48 million or $1.83 million.
 
 On May
22, 2008, Benda Ebei applied to Shenzhen People Court to terminate above
mentioned arbitration. The termination is based on the ground that Xiaozhi Zhang
does not own all 6.24% of SiBiono’s common stock. In fact, he only owns 3.28% of
SiBiono’s stock. The application has been accepted by Shenzhen People Court and
is waiting for its further investigation. Please also see the note descriptions
in Note 29, Subsequent Events.
  F-20
  13.
                Bank
      Loans Payable
  As of
December 31, 2008 and 2007, Sibiono, had one outstanding bank loan with an
amount of $2,984,560 and $2,867,004, respectively, which was used primarily to
fund construction in progress projects and for general working capital
purposes.  This loan carries annual interest rate of 6.34% and matures
on April 29, 2008.  This loan is personal guaranteed by Zhaohui Peng,
the former Chairman and a shareholder of SiBiono.
 
 For the
year ended December 31, 2008, SiBiono has been sued for default on the bank
loans and judgment has been made as follows:
 a.
                On
      or before November 23,2008 (10 days after the judgment date of November
      13, 2008), SiBiono needs to repay the bank for the principal of
      Rmb20,346,672, accrued interest and penalty up to August 15, 2008 for
      Rmb1,506,994 and accrued interest from August 16, 2008 through repayment
      date. However, as SiBiono has not yet repaid anything yet, the accrued
      interest for the later period will be estimated at Rmb531,780, or total
      accrued interest as of December 31, 2008 was
  Rmb2,038,774;
 b.
                Should
      SiBiono did not make the full repayment; the lender bank can apply for
      selling the land use rights owned by SiBiono (as the collateral of the
      loan). Any balance after full repayment of the bank loan principal and
      accrued interest and penalty from the net proceeds will be returned to
      SiBiono;
 c.
                Zhaohui
      Peng should have liability to repay any insufficient amount should the net
      proceeds of selling the above land use rights are insufficient to
      repay the bank debts and then reclaimed from
  SiBiono;
 d.
                SiBiono and
      Zhaohui Peng have the obligation to repay the legal fees for this
      lawsuit of Rmb156,068 immediately.
  Total
interest expense paid related to the Group’s outstanding bank loans was $380,840
and $214,113 for the years ended December 31, 2008 and 2007,
respectively.
  14.
                Long
      Term Debt Payable
  As
of December 31, 2008, long term debt payable was raised due to the fact
that various technology funds were obtained from various government technology
agencies to support its gene therapy research and development activities during
the past years and recorded as long term debt payable.
  The long
term debt payable at December 31, 2008 and December 31, 2007 were comprised
as follows:
  December
      31,
                        
                        
                        December
      31,2008
                        
                        
                        2007Long-term
      debt payable due within one year
                        
                        $
                        2,234,210
                        
                        
                        $
                        1,787,239Long-term
      debt payable due after one year
                        
                        
                        -
                        
                        
                        
                        425,001Total
      long-term debt payable
                        
                        $
                        2,234,210
                        
                        
                        $
                        2,212,240
  The
obligations will be discharged once the examination by the various government
technology agencies is conducted and most of the examination will be carried out
and completed.
  During
the year ended December 31, 2008, there was no long term debt payable discharged
and recorded as government subsidies (see Note 22 for the related
details).
  F-21
  15.
                Accounts
      Payable and Accrued Liabilities
  The
Group’s accounts payable and accrued liabilities as of December 31, 2008
and December 31, 2007 were comprised as follows:
  December
      31,
                              
                              
                              December
      31,2008
                              
                              
                              2007Trade
      payable
                              
                              $
                              605,316
                              
                              
                              $
                              305,443Deposits
      paid by customer
                              
                              
                              1,055
                              
                              
                              
                              160,818Acquistion
      cost payable following the arbitration (Note 12)
                              
                              
                              1,876,953
                              
                              
                              
                              1,754,263Accrued
      liabilities
                              
                              
                              3,999,155
                              
                              
                              
                              2,162,455Miscellaneous
      payables
                              
                              
                              745,921
                              
                              
                              
                              283,005Total
      account payables and accurred liabilities
                              
                              $
                              7,228,400
                              
                              
                              $
                              4,665,984
  16.
                Welfare
      and Employment Liabilities
  As
stipulated by the relevant laws and regulations for enterprises operating in the
PRC, the Group’s PRC entities are required to maintain a welfare plan for all of
its employees who are residents of the PRC.  Based on the wages
payable and according to the labor law of the PRC, the Group accrued 14% on a
monthly basis, for employees’ welfare, labor union fees, and education and
training programs, respectively. As of December 31, 2008 and 2007, the Group
accrued approximately $486,000 and $345,000 for the employees’ welfare
respectively.
 
 17.
                Statutory
      Reserves
  As
stipulated by the relevant laws and regulations for enterprises operating in the
PRC, the Group is required to make annual appropriations to a statutory surplus
reserve fund for each of its PRC subsidiaries.  Specifically, the
Group is required to allocate 15% its profits after taxes at the fiscal year
end, as determined in accordance with the PRC accounting standards applicable to
the Group’s PRC subsidiaries, to a statutory surplus reserve until such reserve
reaches 50% of the registered capital of the Group’s PRC subsidiaries. As of
December 31, 2008 and 2007, the registered capital of the Group’s PRC
subsidiaries was $21,719,896 and $20,026,617, respectively.
 
 F-22
  1.
                18.                Related
      Party Transactions
  Due from
related parties at December 31, 2008 and 2007 were comprised as
follows:
  December
      31,
                                                                                        
                                                                                        
                                                                                        December
      31,Relationship
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        
                                                                                        2007CurrentQin
      Yu
                                                                                        Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        $
                                                                                        4,314
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -Hua
      Shen
                                                                                        Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        137,097Pong
      Tsaiohuei
                                                                                        Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,257Xiaozhi
      Zhang
                                                                                        Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        5,439
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,083Rong
      He
                                                                                        ManagerDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        1,247
                                                                                        
                                                                                        
                                                                                        
                                                                                        -$
                                                                                        11,000
                                                                                        
                                                                                        
                                                                                        $
                                                                                        145,437Non
      currentHua
      Shen
                                                                                        Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        137,097Pong
      Tsaiohuei
                                                                                        Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,257Xiaozhi
      Zhang
                                                                                        Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,083Yiqing
      Wan
                                                                                        CEO
      & DirectorDue
      to Ever Leader Holdings Co. Ltd.
                                                                                        
                                                                                        $
                                                                                        650,791
                                                                                        
                                                                                        
                                                                                        $
                                                                                        646,429Due
      to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                                                        
                                                                                        
                                                                                        439,719
                                                                                        
                                                                                        
                                                                                        
                                                                                        72,949Due
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,608Hubei
      Benda Science and Technology Co. Ltd
                                                                                        Controlled
      by CEODue
      to Yidu Benda Chemicals Co. Ltd.
                                                                                        
                                                                                        
                                                                                        1,607,173
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,502,118Due
      to Ever Leader Holdings Co. Ltd.
                                                                                        
                                                                                        
                                                                                        231,713
                                                                                        
                                                                                        
                                                                                        
                                                                                        230,160Feng
      Wang
                                                                                        Minority
      shareholderDue
      to Beijing Shusai Pharyngitis Research Co. Ltd.
                                                                                        
                                                                                        
                                                                                        32,348
                                                                                        
                                                                                        
                                                                                        
                                                                                        29,318Total
      due from related parties
                                                                                        
                                                                                        
                                                                                        $
                                                                                        2,961,744
                                                                                        
                                                                                        
                                                                                        $
                                                                                        2,630,019
   Due to
related parties at December 31, 2008 and, 2007 were comprised as
follows:
 December
      31,
                                  
                                  December
      31,Relationship
                                  
                                  2008
                                  
                                  
                                  2007CurrentWei
      Xu
                                  Vice
      President, CEO's Spouse & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                  
                                  $
                                  188,065
                                  
                                  
                                  $
                                  -
 Due
      from Everleader Holding Ltd.
                                            
                                            
                                            
                                            967,999Hua
      Xu
                                            General
      Manager's Sister
 Due
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                    
                                                                    
                                                                    25,523
                                                                    
                                                                    
                                                                    
                                                                    -Yiqing,
      Wan
                                                                    CEO
      & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                    
                                                                    
                                                                    237,780
                                                                    
                                                                    
                                                                    
                                                                    -Hua
      Shen
                                                                    Vice
      presidentDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                    
                                                                    
                                                                    33,253
                                                                    
                                                                    
                                                                    
                                                                    -Tongyi
      Tien
                                                                    ManagerDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                    
                                                                    
                                                                    364
                                                                    
                                                                    
                                                                    
                                                                    -Pong
      Tsaiohuei
                                                                    Minority
      shareholderDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                    
                                                                    
                                                                    4,818
                                                                    
                                                                    
                                                                    
                                                                    -Total
      due to related parties
                                                                    
                                                                    
                                                                    $
                                                                    1,457,803
                                                                    
                                                                    
                                                                    $
                                                                    -Non
      currentHubei
      Benda Science and Technology Co. Ltd
                                                                    Controlled
      by CEODue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                                    
                                                                    $
                                                                    28,602
                                                                    
                                                                    
                                                                    $
                                                                    49,056Due
      from Jiangliang Benda Pharamaceutical Co. Ltd.
                                                                    
                                                                    
                                                                    811,073
                                                                    
                                                                    
                                                                    
                                                                    1,872,374Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                                                                    
                                                                    
                                                                    14,262
                                                                    
                                                                    
                                                                    
                                                                    6,846Wei
      Xu
                                                                    Vice
      President, CEO's Spouse & DirectorDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                                    
                                                                    
                                                                    48,922
                                                                    
                                                                    
                                                                    
                                                                    -Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                                                                    
                                                                    
                                                                    65,691
                                                                    
                                                                    
                                                                    
                                                                    -Hua
      Shen
                                                                    Vice
      presidentDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    26,597Hua
      Xu
                                                                    ManagerDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    1,009,792Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    61,491Yiqing,
      Wan
                                                                    CEO
      & DirectorDue
      from Yidu Benda Chemicals Co. Ltd.
                                                                    
                                                                    
                                                                    560
                                                                    
                                                                    
                                                                    
                                                                    -Due
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    137,687Hui
      Xu
                                                                    ManagerDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                                    
                                                                    
                                                                    28,483
                                                                    
                                                                    
                                                                    
                                                                    26,622Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    3,153$
                                                                    997,593
                                                                    
                                                                    
                                                                    $
                                                                    3,193,618
  F-23
  Except
for the loans from the shareholder Wei Xu by Everleader which bears interest
rate at 12% per annum, unsecure and matures within six months, the above
advances bear no interest and the above loans due to related parties are
unsecured, non-interest bearing and are not convertible into equity. Proceeds
from the above loans were used primarily for general working capital purposes,
among whichthe current portion does not have definitive terms and for those
portions which are long-term debts in nature, due on December 31,
2012.
  19.
                Redeemable
      Common Stock Issuable For Services
  On April
5, 2007, Benda Ebei entered into Equity Transfer Agreements with certain
shareholders of SiBiono to purchase a total of approximately 57.57% of the
shares of SiBiono’s common stock for total consideration of RMB 60,000,000 due
and payable on or before April 30, 2007.
 
 On June
11, 2007, Benda Ebei entered into additional Equity Transfer Agreements with
Yaojin Wang (“Wang”) and Huimin Zhang “(Zhang”), also shareholders of SiBiono,
for the purchase of an additional 2.56% of the shares of SiBiono’s common stock
for total consideration of RMB 2,560,000 due and payable on or before June 30,
2007.
 
 In
connection with the above Equity Transfer Agreements, Benda entered into a
Financial Consultancy Agreement with Super Pioneer International Limited (“Super
Pioneer”) and Technical Consultancy Agreements with Wang and Zhang for financial
and technical consultancy services to be rendered.  Pursuant to the
Financial and Technical Consultancy Agreements (the “Agreements”), Benda agreed
to issue an aggregate of 2,189,560 shares of its common stock to Super Pioneer
(2.1 million shares, out of which 1.96 million shares is redeemable), Wang
(33,585 shares, redeemable) and Zhang (55,975 share, redeemable) within three
months from the date of the Agreements. Since the issuance of common shares to
Super Pioneer, Wang and Zhang was in the form of financial and technical
consultancy services to be rendered, thus the corresponding amount $7,882,416
was recorded as consulting and professional fees.
 
 Super
Pioneer, Wang and Zang also agreed to refrain from selling shares of Benda’s
common stock for a period of twelve months from the date of the issuance of the
shares (the “Lock-up Period”).  Within three months from expiration of
the Lock-up Period, in the event that the public trading price of Benda’s common
stock has not reach $3.60 per share and Benda’s common stock has not been listed
on either the NASDAQ or AMEX stock exchanges, Super Pioneer, Wang, and Zang will
have the option to require Benda to redeem an aggregate 2,049,560 shares of
Benda’s common stock owned by Super Pioneer, Wang, and Zhang at a price of $3.60
per share.
 
 In
accordance EITF Topic D-98, “Classification and Measurement of Redeemable
Securities” (“EITF Topic D-98”), as the Agreements governing the issuance of the
2,189,560 shares of common stock to Super Pioneer, Wang, and Zang contain
provisions requiring Benda to repurchase 2,049,560 of these shares at a
redemption price of $3.60 per share at the option of the holders (if certain
events outside of control of the Group do not occur), these 2,049,560 shares
have been classified as redeemable common stock, at their redemption price of
$3.60 per share or totaling $7,376,366, outside of permanent equity at December
31, 2008.
  F-24
  According
to the signed agreements mentioned in above, the redemption would be required to
perform in September 2008. However the company has already obtained an oral
consent from Super Pioneer, Wang and Zhang that the redemption would be deferred
to the year of 2009.
 
 20.
                Other
      Income / (Expenses)
 
 Among the
other income / (expenses), there was an amount incurred for the penalty to
investors. For the years ended December 31, 2008 and 2007, the amount of penalty
to investors mainly composed of the following events:
  YEAR
      ENDED DECEMBER 31,2008
                        
                        
                        2007Registeration
      delay expense
                        
                        $
                        1,113,405
                        
                        
                        $
                        1,022,275Make
      Good Agreement
                        
                        
                        266,768
                        
                        
                        
                        -$
                        1,380,173
                        
                        
                        $
                        1,022,275
  a)
                In
      accordance with FASB staff position No. EITF00-19-2 the Group recorded
      $1,113,405 in Registration Delay Expense, for the year ended December 31,
      2008. Out of the total penalty, $230,312 was settled by issuance of
      523,438 shares of common stock. According to the signed agreement, the
      penalty would be capped 10% of the total fund raised and such cap was
      reached in June 2008, thus there would be no more penalties incurred
      onwards. Furthermore, the Registration Statement had been effective in
      August 2008.
 b)
                According
      to the Investment Agreements (issuance of convertible promissory notes) in
      March 2007, the securities underlying the Notes and Warrants issued to the
      Investors are also subject to the terms of a Make Good Agreement entered
      into in connection with a financing the Group executed in November of 2006
      (the “Make Good Agreement”). The Group further represented to the
      Investors that its target net income for fiscal year 2007 (“FY07 Net
      Income”) will be greater than or equal to $10.0 million (adjusted for a
      variety of non-cash charges) (the “Performance Threshold”).  In
      the event the Performance Threshold is not attained, the Group is required
      to issue to the Investors a pro rata portion of 1,000,000 shares of the
      Group’s common stock for every one (1) cent by which the Group’s earnings
      per share, determined on a fully diluted basis, is less than $0.07. On Aug
      25, 2008, the Group issued 3,810,976 shares of common stock in lieu of the
      non-achievement of the Performance Threshold at $0.07 per share, totaling
      to $266,768 and booked as penalty.
  F-25
 
 21.
                Other
      general and administrative
 
 For the
years ended December 31, 2008 and 2007, the amount of other general and
administrative expenses mainly composed of the following events:
  YEAR
      ENDED DECEMBER 31,2008
                          
                          
                          2007Audit
      and accounting
                          
                          $
                          420,724
                          
                          
                          $
                          405,364Legal
      fees
                          
                          
                          240,247
                          
                          
                          
                          304,649Office
      expenses
                          
                          
                          231,373
                          
                          
                          
                          428,219Salaries
      and wages
                          
                          
                          950,023
                          
                          
                          
                          961,797Consulting
      fee
                          
                          
                          982,460
                          
                          
                          
                          221,044Rent
      & Utilities
                          
                          
                          106,611
                          
                          
                          
                          77,132Investor
      relation, Transfer agent and filing fees
                          
                          
                          33,563
                          
                          
                          
                          109,540Travel
      and transportation
                          
                          
                          249,364
                          
                          
                          
                          239,316Repair
      and maintanence
                          
                          
                          296,822
                          
                          
                          
                          -Miscellaneous
                          
                          
                          276,496
                          
                          
                          
                          426,246Total
      other general & administrative
                          
                          $
                          3,787,684
                          
                          
                          $
                          3,173,307
  
 22.
                  Government
      Subsidies / Grants
  As
mentioned in the Note 14, long term debt payable, various technology funds were
obtained from various government technology agencies to support its gene therapy
research and development activities during the past years and recorded as long
term debt payable.  According to the technology fund agreements, the
various government technology agencies will examine the results of research and
development according to the status of the projects. Once the examination takes
place, the obligation of a particular debt payable is discharged
accordingly.
 
 According
to US GAAP, once the obligation of a particular debt payable is discharged, the
amount of this particular debt payable should be treated as government subsidies
/ grants.  During the year ended December 31, 2008, there were no
government subsidies / grants recognized as revenue
 
 23.
                  Income
      Taxes
  Benda is
subject to Delaware, United State of America tax, but no provision for income
taxes were made for the years ended December 31, 2008 and 2007 as Benda did not
have reportable taxable income for the periods.
 
 Ever
Leader, a wholly owned subsidiary of Benda, is subject to Hong Kong tax, but no
provisions for income taxes were made for the years ended December 31, 2008 and
2007 as Ever Leader did not have reportable taxable income for the
periods.
 
 Benda
Ebei was registered as a Sino-Foreign Equity Joint Venture on May 26, 2004 and
is subject to the tax laws applicable to Sino-Foreign Equity Joint Ventures in
the PRC.  Benda Ebei, starting from 2005, is fully exempt from PRC
enterprise income tax for two years starting from the first profit-making year,
followed by a 50% reduction in income taxes, for the following three
years.
 
 Jiangling
Benda and Yidu Benda are cross-municipal investment entities and enjoy the same
tax treatment as Sino-Foreign Joint Ventures, starting from 2005, and were
therefore exempt from PRC enterprise income tax for two years starting from the
first profit-making year, followed by a 50% reduction in income taxes, for the
following three years. Cross-municipal investments entities refer to entities
that are incorporated in one municipal region but have investments in another
municipal region.
  F-26
  The
exemption periods for Benda Ebei, Jiangling Benda and Yidu Benda expired in the
year of 2006, after which they are subject to 50% reduction in income taxes;
whereas the full income tax rate is 33%. The remaining tax holidays will be
expired in 2009.
 
 However,
starting and effective from January 1, 2008, the full income tax rate would be
changed from 33% to 25% according to the new PRC taxation regulations. Therefore
these subsidiaries will be subject to the regular full income tax rate at 25%
after the tax holidays expire.
 
 According
to the new taxation regulations starting and effective from January 1, 2008,
Beijing Shuhai is subject to the full income tax rate of 25%.
 
 According
to the new taxation regulations starting and effective from January 1, 2008,
SiBiono, which is located in Shenzhen, a Special Economic District of PRC, is
subject to the full income tax rate of 25% gradually in five years as
following:
 
 Year
                      Tax
      rate2008
                      18%2009
                      20%2010
                      22%2011
                      24%2012
      and thereafter
                      25%
 
 There was
no income tax of the Group for the years ended December 31, 2008. The prepaid
income tax by the Group during the year ended December 31, 2008 at amount of
$0.71 million was recorded as prepaid tax.
 
 The
provision for taxes on earnings consisted of:
  YEAR
      ENDED DECEMBER 31,2008
                              
                              
                              2007Crurrent  income
      taxes expenses:PRC
      Enterprise Income
                              
                              $
                              -
                              
                              
                              $
                              965,183United
      States Federal Income Tax
                              
                              
                              -
                              
                              
                              
                              -$
                              -
                              
                              
                              $
                              965,183  A
reconciliation between the income tax computed at the U.S statutory rate and the
Groups provision for Income tax for the years of 2008 and 2007 are as
follows:
 YEAR
      ENDED DECEMBER 31,2008
                              
                              
                              2007U.S
      Statutory rate
                              
                              
                              34.0
                              %
                              
                              
                              34.0
                              %Foreign
      income not recognized in the U.S
                              
                              
                              -34.0
                              %
                              
                              
                              -34.0
                              %PRC
      statuory rate
                              
                              
                              25.0
                              %
                              
                              
                              33.0
                              %Tax
      relief and holidy granted to the Subsidary
                              
                              
                              -12.5
                              %
                              
                              
                              -15.0
                              %Provision
      for income tax
                              
                              
                              -12.5
                              %
                              
                              
                              18.0
                              %
  F-27
  24.
                  Long
      Term Convertible Promissory Note
 
 Our
financial statements include enhanced note disclosure addressing the fair value
of the convertible promissory notes and warrants and the appropriate accounting
treatment for the overall transaction.
 
 Additionally,
the enhanced note disclosure includes a detailed discussion of the accounting
for the debt discount resulting from the relative fair value of the warrants
issued in conjunction with the convertible promissory notes (calculated in
accordance with APB 14) and the debt discount resulting from the beneficial
conversion feature / conversion discount associated with the convertible
promissory notes (calculated in accordance with EITF 98-5 and EITF 00-27) as
follows:
 
 In March
and April of 2007, the Group entered into Investment Agreements (“Agreements”)
with certain accredited and institutional investors (“Investors”) pursuant to
which the Investors purchased from the Group a total of 252 Units (“Units”),
resulting in aggregate gross proceeds to the Group $7,560,000, with each Unit
consisting of: (i) a Convertible Promissory Note (“Note”) in the principal
amount of $30,000 and convertible into 54,087 shares of the Group's common
stock; and (ii) a Common Stock Warrant (“Warrant”) to acquire 54,087 shares
of the Group’s common stock at an exercise price of $0.555 per share and
expiring on November 14, 2011.  The Notes are immediately convertible
at the option of each Investor, bear interest at a rate of 4% per annum, and
mature on March 28, 2009.
 
 The Group
has accounted for the Warrants issued in conjunction with the Notes in
accordance with the provisions of APB No. 14, “Accounting for Convertible Debt
and Debt Issued with Stock Purchase Warrants” (“APB
14”).  Accordingly, the Warrants were valued using a Black-Scholes
option pricing model with the following assumptions: (i) a risk free interest
rate of 4.63%, (ii) a contractual life of 4.6 years, (iii) an expected
volatility of 25%, and (iv) a dividend yield of zero.  The relative
fair value of the Warrants, based on an allocation of the value of the Notes and
the value of the Warrants issued in conjunction with the Notes, was recorded as
a debt discount (with a corresponding increase to additional paid-in capital) in
the amount of $5,174,911, and is being amortized to interest expense over the
expected term of the Notes.
 
 Additionally,
the difference between the effective conversion price of the Notes into shares
of the Group’s common stock, and the fair value of the Group’s common stock on
the date of issuance of the Notes, resulted in a beneficial conversion feature
of $2,385,089 (capped at the $7,560,000 of gross proceeds raised less the
previously calculated $5,174,911 debt discount associated with Warrants issued
in conjunction with the Notes) and was calculated in accordance with EITF 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios” and EITF 00-27, “Application of Issue
No. 98-5 to Certain Convertible Instruments”.  This beneficial
conversion feature was recorded as an additional debt discount (with a
corresponding increase to additional paid-in capital) and is being amortized to
interest expense over the expected term of the Notes.
 
 On July
10, 2008, 10 units of were converted to shares of 540,870. Therefore, as of
December 31, 2008, the aggregate $7,260,000 principal balance of the notes
remained outstanding and for the year ended December 31, 2008, the Group
recorded $695,286 of interest expense related to the Notes.
  F-28
  During
the year ended December 31, 2008, the Group recorded $3,520,876 in interest
expense related to the amortization of the debt discount associated with the
Warrants and the debt discount associated with the beneficial conversion
feature.
 
 The Group
also incurred $529,200 in placement agent commissions related to the issuance of
the Notes and Warrants.  This amount was recorded by the Group as debt
issue costs and is being amortized over expected term of the
Notes.  For the year ended December 31, 2008, the Group recorded
$264,962 in amortization expense related to debt issue costs.
 
 The
securities underlying the Notes and Warrants issued to the Investors are also
subject to the terms of a Make Good Agreement entered into in connection with a
financing the Group executed in November of 2006 (the “Make Good Agreement”).
The Group further represented to the Investors that its target net income for
fiscal year 2007 (“FY07 Net Income”) will be greater than or equal to $10.0
million (adjusted for a variety of non-cash charges) (the “Performance
Threshold”).  In the event the Performance Threshold is not attained,
the Group is required to issue to the Investors a pro rata portion of 1,000,000
shares of the Group’s common stock for every one (1) cent by which the Group’s
earnings per share, determined on a fully diluted basis, is less than $0.065.
During the year ended December 31, 2008 the Group issued shares 3,810,976 shares
of common stock in lieu of the non-achievement of the Performance Threshold at
$0.07 per share, totaling to $266,768.
 
 In the
accounting for the Long Term Converible Promissory Note, the Group’s analysis of
the Performance Threshold had no effect because of the cap of the debt
discounted and beneficial conversion feature as calculated in accordance with
EITF 98-5.
 
 The Group
is also required to register for resale: (i) the shares of common stock
underlying the Notes; and (ii) 150% of the shares of common stock underlying the
Warrants, on a registration statement to be filed with the Securities and
Exchange Commission (“Registration Statement”) and such Registration Statement
is required to be declared effective by August 15, 2007 (the “Effectiveness
Deadline”). If the Registration Statement does not become effective by the
Effectiveness Deadline, or if the Group fails to maintain the effectiveness of
the Registration Statement, for any reason, the Group is required to pay the
Investors in cash an amount equal to 1% of the purchase price of each Unit held
by the Investors on such Effectiveness Deadline or the first day of such failure
to maintain the Registration Period, as applicable, and for every 30 day period
(or part) thereafter, in each case until cured (“Registration Delay Payments”),
provided that the Registration Delay Payments will not exceed 10% of the
purchase price of the Units. In the event that the Registration Delay Payments
are not made in a timely manner, such Registration Delay Payments will bear
interest at a rate of 1.5% per month until paid in full.
 
 The
calculated fair value of the warrants (issued in conjunction with the
convertible promissory notes) was recorded as a debt discount (reduction to the
carrying value of the convertible promissory notes) with a corresponding
increase (credit) to additional paid in capital.
 
 In
accordance with the registration rights granted to investors who purchased the
convertible promissory notes and warrants, we are required to file a
registration statement with the Securities and Exchange Commission
(“Registration Statement”) attempting to register the potentially issuable
shares of common stock underlying the convertible promissory
notes  and warrants. There is no cash settlement requirement, in the
event the Company cannot deliver Registered Shares.
  F-29
  Specifically,
in the event the Registration Statement is not declared effective by August 15,
2007 (“Effectiveness Deadline”), we are required to pay to the investors in cash
an amount equal to 1% of the purchase price paid by each investor for the
convertible promissory notes and warrants (“Registration Delay
Payments”).  Additionally, for every 30 day period (or part)
thereafter that the Registration Statement is not declared effective, we are
required to continue to make Registration Delay Payments, provided that such
Registration Delay Payments shall not exceed 10% of the purchase price paid by
each investor for the convertible promissory notes and warrants.
 
 In the
event the Registration Statement is never declared effective, the Registration
Delay Payments are capped at 10% (of the purchase price paid by each investor
for the convertible promissory notes and warrants).  As a result, the
initial requirement for the Company to deliver registered shares upon conversion
of the convertible promissory notes or exercise of the warrants is negated and
paragraphs 14 – 18 of EITF 00-19 are not applicable (for purposes of classifying
the fair value of the warrants issued in conjunction with the convertible
promissory notes as a liability with changes in fair value recorded in
earnings).
 
 In
accordance with FASB staff position No. EITF00-19-2, as of December 31, 2008 the
Group recorded $1,113,405 for Registration Delay Expense or penalty to
investors. According to the signed agreement, the penalty would be capped 10% of
the total fund raised and such cap was reached in June 2008, thus there would be
no more penalties incurred onwards. Furthermore, the Registration Statement had
been effective in August 2008.
 25.
                Common
      Stock, Preferred Stock, Additional Paid-in Capital, Warrants and
      Options
 As of
December 31, 2008, and 2007, the Group had an aggregate of:
 
 (a)
                None
      shares of preferred stock issued and
  outstanding;
  (b)
                As
      of December 31, 2007, 100,170,071 shares of common stock were issued and
      outstanding, par value $0.001 each; During the reporting period of the
      year 2008: (i) 523,438 shares were issued to PIPE investors as penalty for
      registeration delay expenses (see Note 20); (ii) 110,000 shares were
      issued to the independent directors in lieu of their remuneration; (iii)
      540,870 shares were issued upon conversion of 10 units of convertible
      promissory notes; and (iv) 3,810,976 shares were issued to the investors
      under the Make Good Agreement . Thus, the share of common stock issued and
      outstanding was 105,155,355 as of December 31,
  2008.
  (c)
                The
      following tables shows the events occurred in additional paid-in
      capital:
  F-30
  Events
      occurredDecember
      31,
                        
                        
                        during
      the
                        
                        
                        December
      31,Events
                        
                        2007
                        
                        
                        reporting
      period
                        
                        
                        2008To
      record the changes of par value from $0.01 to $0.001of
      the outstanding common stock as of 11/17/2005
                        
                        $
                        584,481
                        
                        
                        
                        -
                        
                        
                        $
                        584,481To
      adjust the par value of outstanding common stock as of
      3/31/2006
                        
                        
                        (5,354
                        )
                        
                        
                        -
                        
                        
                        
                        (5,354
                        )Waiver
      of shareholder loan on 9/5/2006
                        
                        
                        2,298,434
                        
                        
                        
                        -
                        
                        
                        
                        2,298,434To
      eliminate the common stock and additional paid-in capital of the former
      shellcompany
      "Applied Spectrum Technologies, Inc." on 11/15/2006
                        
                        
                        16,215,770
                        
                        
                        
                        -
                        
                        
                        
                        16,215,770To
      eliminate the accumulated deficit of the former shell
    company"Applied
      Spectrum Technologies, Inc." on 11/15/2006
                        
                        
                        (16,209,962
                        )
                        
                        
                        -
                        
                        
                        
                        (16,209,962
                        )Issuance
      of common stock, 25,961,760 shares at $0.4622 per share, on
      11/15/2006
                        
                        
                        11,974,038
                        
                        
                        
                        -
                        
                        
                        
                        11,974,038Issuance
      of common stock, 64,942,369 shares at $0.001 per share on
      11/15/2006
                        
                        
                        (64,942
                        )
                        
                        
                        -
                        
                        
                        
                        (64,942
                        )To
      relocate the original common stock of Ever Leader on
      11/15/2006
                        
                        
                        1,285
                        
                        
                        
                        -
                        
                        
                        
                        1,285To
      record the placement agent commission and transaction related
      feeof
      reverse merger on 11/15/2006
                        
                        
                        (1,694,326
                        )
                        
                        
                        -
                        
                        
                        
                        (1,694,326
                        )Issuance
      of common stock 706,195 at $0.4622 per share
                        
                        
                        325,697
                        
                        
                        
                        -
                        
                        
                        
                        325,697Debt
      discount on beneficial conversion feature on convertible promissory
      notes
                        
                        
                        2,385,089
                        
                        
                        
                        -
                        
                        
                        
                        2,385,089Debt
      discount on warrants issued with convertible promissory
    notes
                        
                        
                        5,174,911
                        
                        
                        
                        -
                        
                        
                        
                        5,174,911Placement
      agent exercised 849,007 warrants at strike price through cashless
      arrangement
                        
                        
                        470,347
                        
                        
                        
                        -
                        
                        
                        
                        470,347Issuance
      of common stock to PIPE investors as penalty for late submission of
      10KSB
                        
                        
                        92,461
                        
                        
                        
                        -
                        
                        
                        
                        92,461Issuance
      of common stock to directors in lieu of their remuneration
                        
                        
                        -
                        
                        
                        
                        75,790
                        
                        
                        
                        75,790Issuance
      of common stock to PIPE investors as penalty for registeration delay
      expenses
                        
                        
                        -
                        
                        
                        
                        229,789
                        
                        
                        
                        229,789Conversion
      of convertible promissory notes
                        
                        
                        -
                        
                        
                        
                        (8,039
                        )
                        
                        
                        (8,039
                        )Issuance
      of common stock to investors under "Make Good Agreement"
                        
                        
                        -
                        
                        
                        
                        262,957
                        
                        
                        
                        262,957Additional
      paid-in capital, balance for the period ended
                        
                        $
                        21,547,929
                        
                        
                        
                        560,498
                        
                        
                        $
                        22,108,427
 
 (d)
                As
      of December 31, 2007, 27,708,929 Warrants, each convertible into one (1)
      share of the Group’s Common Stock, issued and outstanding, During the year
      ended December 31, 2008, 1,597,075 warrants were issuable to CRT Capital
      Group, LLC and 958,245 warrants were issuable to EastGate Financial, Inc.
      in lieu of their consultancy service. Thus the remaining balance as
      December 31, 2008 was 30,264,249
 (e)
                None
      options issued and outstanding.
   26.
                Weighted
      average shares outstanding –
diluted
  Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted-average number of shares outstanding during the period.
  Diluted
net income (loss) per share is computed by using the weighted-average number of
shares of common stock outstanding and, when dilutive, potential shares from
stock options and warrants to purchase common stock, using the treasury stock
method.
  F-31
  The
following table illustrates the computation of basic and dilutive net income
(loss) per share and provides a reconciliation of the number of weighted-average
basic and diluted shares outstanding:
  YEAR
      ENDED DECEMBER 31,2008
                                
                                
                                2007Numerator:Net
      income (loss)
                                
                                $
                                (15,815,920
                                )
                                
                                $
                                (7,362,825
                                )Denominator:Basic
      weighted-average shares outstanding
                                
                                
                                101,965,464
                                
                                
                                
                                98,181,685Effect
      of dilutive stock options & warrants
                                
                                
                                -
                                
                                
                                
                                -Diluted
      weighted-average shares outstanding
                                
                                
                                101,965,464
                                
                                
                                
                                98,181,685Net
      income (loss) per share:Basic
                                
                                $
                                (0.16
                                )
                                
                                $
                                (0.07
                                )Diluted
                                
                                $
                                (0.16
                                )
                                
                                $
                                (0.07
                                )
  27.
                Commitments
      and Contingencies
  As of
December 31 2008, there was an operating lease commitment and the amounts are
stated as follows;
  YEAR
      ENDED DECEMBER 31,2008
                        
                        
                        2007Rental
      and Property Management FeeWithin
      one year
                        
                        $
                        70,203
                        
                        
                        $
                        107,600One
      to two year
                        
                        
                        -
                        
                        
                        
                        73,691Total
      commitments payable
                        
                        $
                        70,203
                        
                        
                        $
                        181,291
 
 28.
                Segment
      Information
  The Group
states the segment information according to the requirement stated in paragraph
37 of SFAS 131. The Group produces five different categories of products and
each category of product is produced in different subsidiaries or operation
plants. The details are stated as follows:
 1.
                  Benda
      Ebei produces conventional medicines which including banded and generic
      medicines;
 2.
                  Jiangling
      Benda produces active pharmaceutical ingredients,
  APIs;
 3.
                  Yidu
      Benda produces bulk
chemicals;
 4.
                  Beijing
      Shusai produces pharyngitis killer therapy;
and
 5.
                SiBiono
      produces gene therapy medicines,
Gendicine.
 
 Since
each subsidiary produces the corresponding products by using the same production
facilities of each subsidiary, therefore according to the requirement stated in
paragraph of SFAS 131, the Group reports the segment information according to
the un-identical products that produced in each subsidiary.
  F-32
  Selected
financial information for each of these segments for the years ended December
31, 2008 and 2007 were as follows:
  YEAR
      ENDED DECEMBER 31,Branded/Generic
      medicine segment
                                                    
                                                    2008
                                                    
                                                    
                                                    2007Revenue
      from external customers
                                                    
                                                    $
                                                    22,021,248
                                                    
                                                    
                                                    $
                                                    19,353,654Cost
      of sales
                                                    
                                                    
                                                    (14,761,544
                                                    )
                                                    
                                                    
                                                    (12,046,687
                                                    )Gross
      profit
                                                    
                                                    
                                                    7,259,704
                                                    
                                                    
                                                    
                                                    7,306,967Gross
      margin
                                                    
                                                    
                                                    33
                                                    %
                                                    
                                                    
                                                    38
                                                    %Research
      and development
                                                    
                                                    
                                                    (19,541
                                                    )
                                                    
                                                    
                                                    (2,963
                                                    )Selling
      expense
                                                    
                                                    
                                                    (1,329,197
                                                    )
                                                    
                                                    
                                                    (715,588
                                                    )General
      and administrative expense
                                                    
                                                    
                                                    (10,126,419
                                                    )
                                                    
                                                    
                                                    (628,426
                                                    )Segment
      contribution
                                                    
                                                    $
                                                    (4,215,453
                                                    )
                                                    
                                                    $
                                                    5,959,990Contribution
      margin
                                                    
                                                    
                                                    -19
                                                    %
                                                    
                                                    
                                                    31
                                                    %Total
      assets, segment
                                                    
                                                    $
                                                    28,964,374
                                                    
                                                    
                                                    $
                                                    32,296,895Active
      pharmaceutical ingredients segment
                                                    
                                                    2008
                                                    
                                                    
                                                    2007Revenue
      from external customers
                                                    
                                                    $
                                                    689,481
                                                    
                                                    
                                                    $
                                                    531,531Cost
      of sales
                                                    
                                                    
                                                    (778,212
                                                    )
                                                    
                                                    
                                                    (528,473
                                                    )Gross
      profit
                                                    
                                                    
                                                    (88,731
                                                    )
                                                    
                                                    
                                                    3,058Gross
      margin
                                                    
                                                    
                                                    -13
                                                    %
                                                    
                                                    
                                                    0
                                                    %Research
      and development
                                                    
                                                    
                                                    (5,776
                                                    )
                                                    
                                                    
                                                    (359
                                                    )Selling
      expense
                                                    
                                                    
                                                    (5,581
                                                    )
                                                    
                                                    
                                                    (505
                                                    )General
      and administrative expense
                                                    
                                                    
                                                    (1,726,546
                                                    )
                                                    
                                                    
                                                    (224,754
                                                    )Segment
      contribution
                                                    
                                                    $
                                                    (1,826,634
                                                    )
                                                    
                                                    $
                                                    (222,560
                                                    )Contribution
      margin
                                                    
                                                    
                                                    -265
                                                    %
                                                    
                                                    
                                                    0
                                                    %Total
      assets, segment
                                                    
                                                    $
                                                    9,772,782
                                                    
                                                    
                                                    $
                                                    8,852,806Bulk
      chemicals segment
                                                    
                                                    2008
                                                    
                                                    
                                                    2007Revenue
      from external customers
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    698,578Cost
      of sales
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (425,529
                                                    )Gross
      profit
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    273,049Gross
      margin
                                                    
                                                    
                                                    0
                                                    %
                                                    
                                                    
                                                    39
                                                    %Research
      and development
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Selling
      expense
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (27,309
                                                    )General
      and administrative expense
                                                    
                                                    
                                                    (628,182
                                                    )
                                                    
                                                    
                                                    (590,759
                                                    )Segment
      contribution
                                                    
                                                    $
                                                    (628,182
                                                    )
                                                    
                                                    $
                                                    (345,019
                                                    )Contribution
      margin
                                                    
                                                    
                                                    0
                                                    %
                                                    
                                                    
                                                    -49
                                                    %Total
      assets, segment
                                                    
                                                    $
                                                    7,472,081
                                                    
                                                    
                                                    $
                                                    7,668,725Pharynigitis
      killer therapy segment
                                                    
                                                    2008
                                                    
                                                    
                                                    2007Revenue
      from external customers
                                                    
                                                    $
                                                    4,565
                                                    
                                                    
                                                    $
                                                    43,890Cost
      of sales
                                                    
                                                    
                                                    (251
                                                    )
                                                    
                                                    
                                                    (2,341
                                                    )Gross
      profit
                                                    
                                                    
                                                    4,314
                                                    
                                                    
                                                    
                                                    41,549Gross
      margin
                                                    
                                                    
                                                    95
                                                    %
                                                    
                                                    
                                                    95
                                                    %Research
      and development
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Selling
      expense
                                                    
                                                    
                                                    (4,370
                                                    )
                                                    
                                                    
                                                    (43,680
                                                    )General
      and administrative expense
                                                    
                                                    
                                                    (38,049
                                                    )
                                                    
                                                    
                                                    (116,825
                                                    )Segment
      contribution
                                                    
                                                    $
                                                    (38,105
                                                    )
                                                    
                                                    $
                                                    (118,956
                                                    )Contribution
      margin
                                                    
                                                    
                                                    -835
                                                    %
                                                    
                                                    
                                                    -271
                                                    %Total
      assets, segment
                                                    
                                                    $
                                                    92,255
                                                    
                                                    
                                                    $
                                                    106,345Gendicine
      (Ad-p53) segment
                                                    
                                                    2008
                                                    
                                                    
                                                    2007Revenue
      from external customers
                                                    
                                                    $
                                                    2,326,692
                                                    
                                                    
                                                    $
                                                    5,756,955Cost
      of sales
                                                    
                                                    
                                                    (200,100
                                                    )
                                                    
                                                    
                                                    (418,667
                                                    )Gross
      profit
                                                    
                                                    
                                                    2,126,592
                                                    
                                                    
                                                    
                                                    5,338,288Gross
      margin
                                                    
                                                    
                                                    91
                                                    %
                                                    
                                                    
                                                    93
                                                    %Research
      and development
                                                    
                                                    
                                                    (1,436,635
                                                    )
                                                    
                                                    
                                                    (550,640
                                                    )Selling
      expense
                                                    
                                                    
                                                    (1,369,820
                                                    )
                                                    
                                                    
                                                    (794,573
                                                    )General
      and administrative expense
                                                    
                                                    
                                                    (1,400,002
                                                    )
                                                    
                                                    
                                                    (1,295,906
                                                    )Segment
      contribution
                                                    
                                                    $
                                                    (2,079,864
                                                    )
                                                    
                                                    $
                                                    2,697,169Contribution
      margin
                                                    
                                                    
                                                    -89
                                                    %
                                                    
                                                    
                                                    47
                                                    %Total
      assets, segment
                                                    
                                                    $
                                                    12,333,971
                                                    
                                                    
                                                    $
                                                    13,632,634
  F-33
  YEAR
      ENDED DECEMBER 31,TOTAL2008
                                                                  
                                                                  
                                                                  2007Total
      revenue from external customers
                                                                  
                                                                  $
                                                                  25,041,986
                                                                  
                                                                  
                                                                  $
                                                                  26,384,608Cost
      of sales
                                                                  
                                                                  
                                                                  (15,740,107
                                                                  )
                                                                  
                                                                  
                                                                  (13,421,697
                                                                  )Gross
      profit
                                                                  
                                                                  
                                                                  9,301,879
                                                                  
                                                                  
                                                                  
                                                                  12,962,911Gross
      margin
                                                                  
                                                                  
                                                                  37
                                                                  %
                                                                  
                                                                  
                                                                  49
                                                                  %Research
      and development
                                                                  
                                                                  
                                                                  (1,461,951
                                                                  )
                                                                  
                                                                  
                                                                  (553,962
                                                                  )Selling
      expense
                                                                  
                                                                  
                                                                  (2,708,968
                                                                  )
                                                                  
                                                                  
                                                                  (1,581,655
                                                                  )General
      and administrative expense
                                                                  
                                                                  
                                                                  (13,919,196
                                                                  )
                                                                  
                                                                  
                                                                  (2,856,670
                                                                  )Segment
      contribution
                                                                  
                                                                  $
                                                                  (8,788,237
                                                                  )
                                                                  
                                                                  $
                                                                  7,970,624Contribution
      margin
                                                                  
                                                                  
                                                                  -35
                                                                  %
                                                                  
                                                                  
                                                                  30
                                                                  %Total
      assets, segment
                                                                  
                                                                  $
                                                                  58,635,463
                                                                  
                                                                  
                                                                  $
                                                                  62,557,407
 The
results of the total consolidated net profit before income taxes for the
reporting periods are as follows:
  YEAR ENDED DECEMBER 31,2008
                                                                        
                                                                        
                                                                        2007Total
      segment contribution
                                                                        
                                                                        $
                                                                        (8,788,237
                                                                        )
                                                                        
                                                                        $
                                                                        7,970,624Unallocated
      amounts:Loss
      on disposal of fixed assets
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (30,027
                                                                        )Government
      subsidy
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        2,276,574Other
      income/(expenses)
                                                                        
                                                                        
                                                                        (1,311,140
                                                                        )
                                                                        
                                                                        
                                                                        (966,311
                                                                        )Other
      corporate expenses
                                                                        
                                                                        
                                                                        (7,194,822
                                                                        )
                                                                        
                                                                        
                                                                        (13,412,308
                                                                        )Total
      income / (loss) before minority interest and income taxes
                                                                        
                                                                        $
                                                                        (17,294,198
                                                                        )
                                                                        
                                                                        $
                                                                        (4,161,448
                                                                        )
  The other
corporate expenses for the year ended December 31, 2008 and 2007 composed of the
following events:
 YEAR
      ENDED DECEMBER 31,2008
                                                                          
                                                                          
                                                                          2007Consulting
      and professional fee
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          8,353,615Wages
      and salaries
                                                                          
                                                                          
                                                                          417,276
                                                                          
                                                                          
                                                                          
                                                                          347,949Audit
      and accounting
                                                                          
                                                                          
                                                                          330,919
                                                                          
                                                                          
                                                                          
                                                                          334,106Amortization
      of debt issue cost
                                                                          
                                                                          
                                                                          264,962
                                                                          
                                                                          
                                                                          
                                                                          201,255Consulting
      fee
                                                                          
                                                                          
                                                                          747,937
                                                                          
                                                                          
                                                                          
                                                                          157,619Investor
      relation, transfer agent and filing fees
                                                                          
                                                                          
                                                                          33,563
                                                                          
                                                                          
                                                                          
                                                                          109,540Director
      renumeration
                                                                          
                                                                          
                                                                          185,468
                                                                          
                                                                          
                                                                          
                                                                          94,247Legal
      fee
                                                                          
                                                                          
                                                                          137,805
                                                                          
                                                                          
                                                                          
                                                                          102,544Brokerage
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          50,161Travel
      and transportation
                                                                          
                                                                          
                                                                          4,844
                                                                          
                                                                          
                                                                          
                                                                          51,071Office
      expense
                                                                          
                                                                          
                                                                          1,120
                                                                          
                                                                          
                                                                          
                                                                          53,597Interest
      expense
                                                                          
                                                                          
                                                                          4,961,430
                                                                          
                                                                          
                                                                          
                                                                          3,090,952Miscellaneous
                                                                          
                                                                          
                                                                          109,499
                                                                          
                                                                          
                                                                          
                                                                          465,652Total
                                                                          
                                                                          $
                                                                          7,194,822
                                                                          
                                                                          
                                                                          $
                                                                          13,412,308
  For the
details of information of this particular, it should be read in conjunction with
the management discussion and analysis section.
  F-34
  The
following table shows the reconciliation between the segments assets and the
total assets for the years ended December 31, 2008 and 2007:
 YEAR
      ENDED DECEMBER 31,2008
                          
                          
                          2007Total
      assets, segment
                          
                          $
                          58,635,463
                          
                          
                          $
                          62,557,407Total
      assets of corporate:Cash
      and cash equivalent
                          
                          
                          31,070
                          
                          
                          
                          80,291Bank
      indebtedness
                          
                          
                          1,288,257
                          
                          
                          
                          874,490Prepaid
      expesnes and deposit
                          
                          
                          2,952
                          
                          
                          
                          851Refundable
      purchase price paid
                          
                          
                          1,200,000
                          
                          
                          
                          1,200,000Due
      from related parties
                          
                          
                          660,102
                          
                          
                          
                          876,589Debit
      issue costs:placement
      agent commission
                          
                          
                          55,485
                          
                          
                          
                          327,945Accumulative
      other comprehensive incomeTotal
      assets
                          
                          $
                          61,873,327
                          
                          
                          $
                          65,917,572
 The
following table shows how the minority interest for year ended December 31, 2008
and 2007 was derived:
  Year
      Ended December 31, 2008Benda
                              
                              
                              Jiangling
                              
                              
                              Yidu
                              
                              
                              BeijingEbei
                              
                              
                              Benda
                              
                              
                              Benda
                              
                              
                              Shusai
                              
                              
                              SiBiono
                              
                              
                              TotalSegment
      operating profit / (loss)
                              
                              $
                              (4,215,453
                              )
                              
                              
                              (1,826,634
                              )
                              
                              
                              (628,182
                              )
                              
                              
                              (38,105
                              )
                              
                              
                              (2,079,864
                              )
                              
                              $
                              (8,788,237
                              )Interest
      income/ (expenses)
                              
                              
                              (506,997
                              )
                              
                              
                              1,610
                              
                              
                              
                              52
                              
                              
                              
                              -
                              
                              
                              
                              (317,975
                              )
                              
                              
                              (823,309
                              )Other
      income / (expenses)
                              
                              
                              118,065
                              
                              
                              
                              182
                              
                              
                              
                              3,943
                              
                              
                              
                              6,829
                              
                              
                              
                              64,888
                              
                              
                              
                              193,906Income
      taxes
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Income
      / (loss) before minority interest
                              
                              $
                              (4,604,384
                              )
                              
                              
                              (1,824,842
                              )
                              
                              
                              (624,187
                              )
                              
                              
                              (31,276
                              )
                              
                              
                              (2,332,950
                              )
                              
                              $
                              (9,417,640
                              )MI
      percentage
                              
                              
                              5.00
                              %
                              
                              
                              9.75
                              %
                              
                              
                              9.75
                              %
                              
                              
                              28.75
                              %
                              
                              
                              42.88
                              %MI
      interest
                              
                              $
                              (230,219
                              )
                              
                              
                              (177,922
                              )
                              
                              
                              (60,858
                              )
                              
                              
                              (8,992
                              )
                              
                              
                              (1,000,287
                              )
                              
                              $
                              (1,478,278
                              )Year
      Ended December 31, 2007Benda
                              
                              
                              Jiangling
                              
                              
                              Yidu
                              
                              
                              BeijingEbei
                              
                              
                              Benda
                              
                              
                              Benda
                              
                              
                              Shusai
                              
                              
                              SiBiono
                              
                              
                              TotalSegment
      operating profit / (loss)
                              
                              $
                              5,959,990
                              
                              
                              
                              (222,560
                              )
                              
                              
                              (345,019
                              )
                              
                              
                              (118,956
                              )
                              
                              
                              2,697,169
                              
                              
                              $
                              7,970,624Loss
      on disposal of assets
                              
                              
                              -
                              
                              
                              
                              (24,852
                              )
                              
                              
                              (5,175
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (30,027
                              )Interest
      income/ (expenses)
                              
                              
                              (88,077
                              )
                              
                              
                              2,547
                              
                              
                              
                              (23,748
                              )
                              
                              
                              (23
                              )
                              
                              
                              (189,423
                              )
                              
                              
                              (298,724
                              )Government
      subsidy
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,276,574
                              
                              
                              
                              2,276,574Other
      income / (expenses)
                              
                              
                              (18,449
                              )
                              
                              
                              (12,273
                              )
                              
                              
                              3,555
                              
                              
                              
                              (1,251
                              )
                              
                              
                              84,382
                              
                              
                              
                              55,964Income
      taxes
                              
                              
                              (965,183
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (965,183
                              )Income
      / (loss) before minority interest
                              
                              $
                              4,888,281
                              
                              
                              
                              (257,138
                              )
                              
                              
                              (370,387
                              )
                              
                              
                              (120,230
                              )
                              
                              
                              4,868,702
                              
                              
                              $
                              9,009,228MI
      percentage
                              
                              
                              5.00
                              %
                              
                              
                              9.75
                              %
                              
                              
                              9.75
                              %
                              
                              
                              28.75
                              %
                              
                              
                              42.88
                              %MI
      interest
                              
                              $
                              244,414
                              
                              
                              
                              (25,071
                              )
                              
                              
                              (36,112
                              )
                              
                              
                              (34,566
                              )
                              
                              
                              2,087,529
                              
                              
                              $
                              2,236,194
  29.
                Subsequent
      Events
  (a)
                SiBiono
      patents - on January 29, 2007, SiBiono entrusted Grandall Legal Group
      Shenzhen Law Firm to issue a legal letter to Zhaohui Peng, one of the
      shareholders of Sibiono and the inventor of Gendicine, requesting him to
      transfer all the title of patents to
SiBiono.
  On June
18, 1999, during the formation of SiBiono, Zhaohui Peng transferred the rights
to the patent “A new method for manufacturing recombinant adenovirus” and
related research results to SiBiono as a payment for the registered capital. In
return, Zhaohui Peng was granted 32.03% of the common stock of
SiBiono.
  From 1999
to 2007, SiBiono successfully obtained various technology funds from
various government technology agencies to support the further research and
development activities of Gendicine. Due to this significant funding obtained by
SiBiono, Sibiono developed five additional patents which are summarized as
follows:
  F-35
  Item
                                                                                                                
                                                                                                                Patent
      name
                                                                                                                
                                                                                                                Countries
      / Date
                                                                                                                
                                                                                                                Application
      Number (1)
                                                                                                                
                                                                                                                
                                                                                                                Publication
      Number (2)
                                                                                                                
                                                                                                                
                                                                                                                Approved
      Patent Number (3)
                                                                                                                
                                                                                                                Name
      of Patent Inventor (6)
                                                                                                                Name
      of Applicant (6)
                                                                                                                
                                                                                                                Patent
      Assignees1
                                                                                                                
                                                                                                                A
      new method for manufacturing recombinant adenovirusA
                                                                                                                
                                                                                                                China
                                                                                                                
                                                                                                                
                                                                                                                98123346.5
                                                                                                                
                                                                                                                
                                                                                                                CN1228474A
                                                                                                                
                                                                                                                
                                                                                                                ZL98123346.5
                                                                                                                
                                                                                                                Peng
                                                                                                                Peng
                                                                                                                
                                                                                                                SiBionoDate
                                                                                                                
                                                                                                                12/14/1998
                                                                                                                
                                                                                                                
                                                                                                                9/15/1999
                                                                                                                
                                                                                                                
                                                                                                                7/3/20022
                                                                                                                
                                                                                                                A
      recombinant constructed by a virus vector and a human
      tumor suppressor gene and its useA
                                                                                                                
                                                                                                                China
                                                                                                                
                                                                                                                
                                                                                                                02115228.4
                                                                                                                
                                                                                                                
                                                                                                                CN1401778A
                                                                                                                
                                                                                                                
                                                                                                                ZL02115228.4
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                Peng
      / ZhangDate
                                                                                                                
                                                                                                                5/8/2002
                                                                                                                
                                                                                                                
                                                                                                                3/12/2003
                                                                                                                
                                                                                                                
                                                                                                                11/24/2004B
                                                                                                                
                                                                                                                PCT
      (4)
                                                                                                                
                                                                                                                PCT/CN/2004/000465
                                                                                                                
                                                                                                                
                                                                                                                WO2004/078987A1
                                                                                                                
                                                                                                                
                                                                                                                Not
      Approved
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                
                                                                                                                N/ADate
                                                                                                                
                                                                                                                3/8/2004
                                                                                                                
                                                                                                                
                                                                                                                9/16/2004
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                N/A3
                                                                                                                
                                                                                                                Recombinant
      gene medicine of adenovirus vector and and
      gene p54 for treating proloferative diseasesA
                                                                                                                
                                                                                                                China
                                                                                                                
                                                                                                                
                                                                                                                03125129.3
                                                                                                                
                                                                                                                
                                                                                                                CN1471977A
                                                                                                                
                                                                                                                
                                                                                                                ZL03125129.3
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                Peng
      / ZhangDate
                                                                                                                
                                                                                                                5/10/2003
                                                                                                                
                                                                                                                
                                                                                                                2/4/2004
                                                                                                                
                                                                                                                
                                                                                                                7/25/2007B
                                                                                                                
                                                                                                                PCT
      (4)
                                                                                                                
                                                                                                                PCT/CN/2004/000458
                                                                                                                
                                                                                                                
                                                                                                                WO2004/104204A1
                                                                                                                
                                                                                                                
                                                                                                                Not
      Approved
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                
                                                                                                                N/ADate
                                                                                                                
                                                                                                                5/9/2004
                                                                                                                
                                                                                                                
                                                                                                                12/2/2004
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                N/A4
                                                                                                                
                                                                                                                The
      application of recombinant adenoviral p53as
      cancer vaccine (tentative title)A
                                                                                                                
                                                                                                                China
                                                                                                                
                                                                                                                
                                                                                                                200510002779.1
                                                                                                                
                                                                                                                
                                                                                                                CN1679641A
                                                                                                                
                                                                                                                
                                                                                                                ZL200510002779.1
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                Peng
      / ZhangDate
                                                                                                                
                                                                                                                1/26/2005
                                                                                                                
                                                                                                                
                                                                                                                10/12/2005
                                                                                                                
                                                                                                                
                                                                                                                8/29/2007B
                                                                                                                
                                                                                                                PCT
      (4)
                                                                                                                
                                                                                                                PCT/CN/2005/000111
                                                                                                                
                                                                                                                
                                                                                                                WO2006/079244A1
                                                                                                                
                                                                                                                
                                                                                                                Not
      Approved
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                
                                                                                                                N/ADate
                                                                                                                
                                                                                                                1/26/2005
                                                                                                                
                                                                                                                
                                                                                                                8/3/2006
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                N/AC
                                                                                                                
                                                                                                                US
      (5)
                                                                                                                
                                                                                                                
                                                                                                                11/075035
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2005/0281785A1
                                                                                                                
                                                                                                                
                                                                                                                Not
      Approved
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Unidentified
      Yet
                                                                                                                
                                                                                                                
                                                                                                                N/ADate
                                                                                                                
                                                                                                                3/7/2005
                                                                                                                
                                                                                                                
                                                                                                                12/22/2005
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                N/A5
                                                                                                                
                                                                                                                Human
      Embryonic Kidney (HEK) sub-clone cell lineA
                                                                                                                
                                                                                                                China
                                                                                                                
                                                                                                                
                                                                                                                03126889.7
                                                                                                                
                                                                                                                
                                                                                                                CN1513985A
                                                                                                                
                                                                                                                
                                                                                                                Not
      Approved
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                
                                                                                                                N/ADate
                                                                                                                
                                                                                                                6/13/2003
                                                                                                                
                                                                                                                
                                                                                                                7/21/2004
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                N/AB
                                                                                                                
                                                                                                                PCT
      (4)
                                                                                                                
                                                                                                                PCT/CN/2004/000457
                                                                                                                
                                                                                                                
                                                                                                                WO2004/111239
                                                                                                                
                                                                                                                
                                                                                                                Not
      Approved
                                                                                                                
                                                                                                                Peng
      / Zhang
                                                                                                                Peng
      / Zhang
                                                                                                                
                                                                                                                
                                                                                                                N/ADate
                                                                                                                
                                                                                                                5/9/2004
                                                                                                                
                                                                                                                
                                                                                                                12/23/2004
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                N/A6
                                                                                                                
                                                                                                                The
      complex of polypeptide liposome and human VGEFgene,
      and its use and human VGEF gene, and its useA
                                                                                                                
                                                                                                                China
                                                                                                                
                                                                                                                
                                                                                                                02134321.7
                                                                                                                
                                                                                                                
                                                                                                                CN1389269A
                                                                                                                
                                                                                                                
                                                                                                                Not
      Approved
                                                                                                                
                                                                                                                Peng
      / Zhang / Zhu
                                                                                                                Peng
      / Zhang / Zhu
                                                                                                                
                                                                                                                
                                                                                                                N/ADate
                                                                                                                
                                                                                                                7/4/2002
                                                                                                                
                                                                                                                
                                                                                                                1/8/2003
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                N/A
  Note:
 (1)
                Application
      number is obtained when application is
  submitted;
 (2)
                Publication
      number is obtained after the first phase
  examination;
 (3)
                Approved
      patent number is obtained after the final
  examination;
 (4)
                PCT
      is referred to an International Patent Organization in
    Paris;
 (5)
                US
      is referred to the application is made in United States of America
      alone;
 (6)
                Peng
      is referred to Zhaohui Peng; Zhang is referred to Xiaozhi Zhang; Zhu is
      referred to Jinya Zhu.
 
  As
indicated in the above table, Item 1, the patent “A new method for
manufacturing recombinant adenovirus” had been assigned to SiBiono; however, the
other approved patents (item 2 through item 4) in PRC still have not been
assigned to SiBiono. The Group believes that all the above mentioned
patents should be rightfully transferred to SiBiono, a subsidiary of the
Group. Accordingly, the above mentioned legal letter was issued on this
ground.
 
 On August
27, 2008, the Group through its subsidiary, SiBiono filed an application to the
Guongdong Province Shenzhen City (Middle) Peoples’ Court to demand Zhaozhu Peng
to transfer back all the above mentioned patents to SiBiono. The case has been
accepted by the Court and is waiting for its further investigation.
 
 (b)
                As
      mentioned in Note 12, following this arbitration decision, Benda Ebei has
      the obligation to pay the total acquisition cost payable of Rmb12.48
      million, plus the penalty and related legal and arbitration expenses,
      totaling approximately Rmb12.80 million (or $1.88
  million).
 
 On May
22, 2008, Benda Ebei applied to Shenzhen People Court to terminate above
mentioned arbitration. The termination is based on the ground that Xiaozhi Zhang
does not own all 6.24% of SiBiono’s common stock. In fact, he only owns 3.28% of
SiBiono’s stock. The application has been accepted by Shenzhen People Court and
is waiting for its further investigation.
 
 F-36
  (c)
                The
      Company has become aware that Excalibur Limited Partnership and Excalibur
      Limited Partnership II (the "Plaintiffs") filed a motion for summary
      judgment in lieu of a complaint pursuant to CPLR § 3213 (the "Motion")
      with the Supreme Court of the State of New York (the "Court"), alleging
      that the Company has been delinquent on the payment of an aggregate sum of
      $600,000 and accrued interest and costs arising from the Convertible
      Promissory Notes that were issued to the Plaintiffs in April 2007 in
      connection with a $7,560,000 private placement. Pursuant to the motion,
      the Plaintiffs requested that the Court (1) enter summary judgment in
      favor of Excalibur Limited Partnership (“Excalibur Limited”) in the amount
      of $390,000 plus all accrued interest and costs, and, (2) enter summary
      judgment in favor of Excalibur Small Cap Opportunities LP (“Excalibur
      Small Cap”) in the amount of $210,000 and accrued interest and costs. As
      of the date hereof, the Company has not received service of such notice,
      and therefore, the Company does not have details regarding the content of
      the complaint made by the
Plaintiffs.
 
 (d)
                On
      March 4, 2009, the Company received a Notice and Default and Payment
      Demand letter (the "Default Letter") from Pope Investments LLC ("Pope") in
      connection with its convertible promissory note in the amount of
      $5,520,000 (the "Note") purchased in our April 2007 private placement
      offering. The Default Letter provided notice of default based on the
      Company's failure to make a required interest payment on the Note by
      February 20, 2009. The Default Letter further demanded full payment of all
      interest, liquidated damages and accrued interest thereon in the amount of
      $130,364.37 by March 14, 2009, or Pope will accelerate the maturity date
      of the full principal amount of the Note.  On April 7, 2009, the
      Company received further Default Letters and Payment Demand from Pope,
      Excalibur Limited and Excalibur Small Cap demanding payment in full of the
      balance of the Notes, which matured on March 28,
  2009.
  F-37




ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE


Commencing
January 2007, Rotenberg has decided to no longer undertake audits of Chinese
based companies. Therefore, Schwartz Levitsky Feldman LLP, as Rotenberg's
sub-contractor on the Company's audit shall be the Company's independent
registered public accounting firm.





On
February 8, 2007, we dismissed Schwartz Levitsky Feldman LLP (“SLF”) as our
independent registered public accounting firm. SLF was previously appointed on
January 9, 2007 as our independent auditors for the fiscal year ended September
30, 2006 on whose financial statements they rendered an unqualified opinion on
January 11, 2007. On November 17, 2006, SLF was also engaged to audit the
financial statements of Everleader for the fiscal years ended December 31, 2005
and 2004. Benda and SLF did not have any disagreements with regard to any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure during the year ended September 30, 2006 for which
SLF issued an audit report, and the subsequent interim period through February
8, 2007. As required by applicable Securities legislation, Benda engaged
SLF to audit the financial statements of Everleader for the fiscal years ended
December 31, 2005 and 2004. During the period of the engagement with SLF,
neither Benda nor Everleader had retained a qualified Chief Financial Officer.
Accordingly, neither Benda nor Everleader had the technical expertise and as a
result was unable to provide sufficient audit documentation and/or information
to allow SLF to complete the audit of Everleader for the years ended December
31, 2005 and 2004.




On March
7, 2007, we engaged Kempisty and Company Certified Public Accountants, P.C.
(“Kempisty”) to be our new independent registered public accounting firm. Prior
to engaging Kempisty, the Company had not consulted Kempisty regarding the
application of accounting principles to a specified transaction, completed or
proposed, the type of audit opinion that might be rendered on the Company’s
financial statements or a reportable event, nor did the Company consult with
Kempisty regarding any disagreements with its prior auditor on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
the prior auditor, would have caused it to make a reference to the subject
matter of the disagreements in connection with its report.




72





ITEM9A(T). CONTROLS AND
PROCEDURES




Evaluation of Disclosure
Controls and Procedures





Management
of the Company is responsible for establishing and maintaining effective
internal control over financial reporting as defined in Rule 13a-15(f) under the
Exchange Act.  The Company’s internal control over financial reporting is
designed to provide reasonable assurance to the Company’s management and Board
of Directors regarding the preparation and fair presentation of published
financial statements in accordance with United State’s generally accepted
accounting principles (US GAAP), including those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with US GAAP and that receipts and expenditures are being made only
in accordance with authorizations of management and directors of the company,
and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Management
conducted an evaluation of the effectiveness of internal control over financial
reporting based on the framework in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. 
Management’s assessment included an evaluation of the design of our internal
control over financial reporting and testing of the operational effectiveness of
our internal control over financial reporting.  Based on this assessment,
Management concluded the Company maintained effective internal control over
financial reporting as of December 31, 2008.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.




This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
Annual Report.




PART
III




ITEM10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT




The
following table sets forth the names, positions and ages of our executive
officers and directors. All of our directors serve until the next annual meeting
of stockholders or until their successors are elected and qualify. Officers are
elected by the board of directors and their terms of office are, except to the
extent governed by employment contract, at the discretion of the board of
directors.




Name
            
            Age
            
            Position
            
            Date of AppointmentYiqing Wan
            
            46
            
            Chief Executive Officer and Chairman
            
            November 10, 2006Wei Xu
            
            45
            
            Vice President of Operations
            
            November 15, 2006Jun Tang
            
            42
            
            Director
            
            April 25, 2008Hui Long
            
            47
            
            Vice President of Technology
            
            November 15, 2006Jingbo Wu
            
            46
            
            Vice President
            
            November 15, 2006Dr. Q.Y. Ma
            
            51
            
            Chairman of Compensation Committee and Director
            
            March 20, 2007Eric Yu
            
            40
            
            Chief Financial Officer and Director
            
            February 9, 2007Dr.
      George
              (Guoqing)
      Zhou,Ph.D.
            
            
            
            Chief
      Operating Officer
            
            August
      13, 2008





73




Business Experience
Descriptions:




Mr.
Yiqing Wan, Chairman, and Chief Executive Officer




Mr. Wan
was appointed as Chairman and Chief Executive Officer on November 10, 2006. Mr.
Wan founded Benda Ebei in April 2001and has served as its president and general
manager overseeing the day to day operations of the Company since such time.
Before founding Benda Ebei, Mr. Wan was Chairman of Zhanjiang Jinhui
Pharmaceutical Corp. (from 1995 to 1998), Chairman of Shandong Jinhai Real
Estate Development Co. (from 1992 to 1995), Manager of Hainan Pharmaceutical Co.
Ltd Guangzhou Division (from 1990 to 1992), and Director of Yichang No.4 Drug
Plant (from 1982 to 1990). Mr. Wan has held a range of operational and executive
positions in a number of pharmaceutical enterprises for more than two decades
and has developed significant management experience in production planning and
implementation and in product marketing. Mr. Wan earned B.S. degree in
Biological Engineering from Sanxia University in 1982.




Ms.
Wei Xu, Vice President of Operations




Ms. Xu
was appointed as Vice President of Operations on November 15, 2006. In April,
2007, she was appointed as the General Manger of Shenzhen SiBiono Gene Tech Co.,
Ltd., a subsidiary of the company. From 2002 to present, she serves as
Chairperson of a related company, Hubei Benda Science and Technology Co., Ltd.
Prior to such time, she was the Chairman at Hubei Tongji Benda Pharmaceutical
Co., Ltd. (from 1999 to 2004), General Manager at the Zhanjiang Jinhui
Pharmaceutical Co., Ltd (from 1995 to 1998) and Manager at the Hainan
Pharmaceutical Co., Ltd., Guangzhou Division (from 1991 to 1995).





Jun
Tang, Director




Jun Tang
is now serving as president and Chief Executive Officer in Xin Hua Du Industrial
Group Co., a group company incorporated in the PRC covering retail, real estate,
mining, high-tech and tourism industries with a subsidiary already listed both
in Hong Kong Stock Exchange and in PRC A-shares market and a subsidiary to be
listed in PRC A-shares market in the year of 2008.




Prior to
joining Xin Hua Du Industrial Group Co. this April of 2008, Mr. Tang served as
the president and director of Shanda Interactive Entrainment Limited, a company
listed in NASDAQ, and now remain as a member of Shanda's board of directors and
serve as an advisor to the CEO of Shanda.




Prior to
joining Shanda in 2004, Mr. Tang served as the president of Microsoft China Co.,
Ltd. from March 2002 to January 2004 and the general manager of Microsoft Asia
product support and service and Microsoft Global Technical Engineering Center
from January 1998 to March 2002. He received the Microsoft Chairman Bill
Gates Award in 1998 and the Microsoft Top Honor Award in 2002 from Microsoft
Corporation, and remains the honorary president of Microsoft China Co. Ltd.
Prior to joining Microsoft, Dr. Tang founded Intertex Company, a software and
entertainment company, in Los Angeles, California in 1993.




Mr. Tang
received his doctorate degree, master’s degree and bachelor’s degree in the
U.S., Japan and China, respectively. Mr. Tang was honoured as PRC Top 10
Economic Person, PRC Top 10 IT Person, PRC Top 10 Valuable CEO etc.




Mr.
Hui Long, Vice President of Technology




Mr. Long
was appointed as Vice President of Technology on November 15, 2006. Mr. Long has
held senior technical and production management positions with pharmaceutical
enterprises for approximately 20 years. From 2001 to present, he is the General
Manager of Jiangling Benda Pharmaceutical Co., Ltd. Prior to such time, he was
he deputy general manager of Zhanjiang Jinhui Pharmaceuticals Co. Ltd (from 1995
to 2000), the Chief of Technical Division of Sanxia Pharmaceutical Co., Ltd
(from 1993 to 1995) and t. Mr. Long earned a B.S. in Biological Engineering from
Sanxia University in 1982 and an M.S. in Biological Engineering from Sanxia
University in 1988.




74




Mr.
Jingbo Wu, Vice President




Mr. Wu
was appointed as Vice President on November 15, 2006. Since 2002, Mr. Wu has
been the general manager of North Hubei Tongji Benda Pharmaceutical Company
Ltd., overseeing the company’s daily activities and GMP authentication. Prior to
this position, he was the deputy general manager of Ebei Pharmaceutical
Corp. (from 2000 to 2001) and the deputy general manager of Zhejiang Jinhui
Pharmaceutical Co. Ltd. (from 1999 to 2000). Mr. Wu received his certification
of graduation in Business Administration from Wuhan University in
1995.




Dr.
Q.Y. Ma, Director




Dr. Ma
was appointed as a Director on March 20, 2007. Dr. Ma has over 20 years of
R&D and managerial experience in US. Dr. Ma has been the managing director
of Time Innovation Ventures, a venture capital firm focused on funding
technology start-ups and joint ventures in China, since 2000. He has also been a
director of ComTech, a Chinese semiconductor company, since 2004. He served as
an Associate Professor of electrical engineering at the University of Hong Kong
from 1998 to 2005. Dr. Ma also served as an Associate Professor at the
Department of Electrical Engineering at Columbia University and in the
Department of Radiology at Harvard Medical School from 1994 to 2005.
He has served as a consultant to IBM, General Electric, TRW Inc. and DuPont. Dr.
Ma is a co-founder of and advisor to Semiconductor Manufacturing International
Corp., and the Chairman of TiMed. He has served as an adviser to the Ministry of
Information Industry, Beijing Government, and as senior advisor to Zhangjiang
Hi-Tech Park in Shanghai. He has published over 160 papers and obtained 7
patents. Dr. Ma received his PhD from Columbia University, and attended the
Executive Program of Stanford University's School of Business.




Eric
Yu Tak Shing, Chief Financial Officer and Director





Mr. Yu is
a Certified Public Accountant with thirteen years of experience in public and
corporate accounting and finance. In February of 2007, Mr. Yu was appointed as
the Chief Financial Officer of the Company. Mr. Yu has served as the Financial
Controller for Beijing Teletron Telecom Engineering Co. Ltd. from March of 2006
to January of 2007 and was in charge of the company’s issuance of private
placements and Pre-IPO issues. From March of 2005 to March of 2006, Mr.
Yu served as the Financial Controller for Payease Inc., where he was in
charge of merger and acquisition fund raising and arranging bridge loans. From
June of 2001 to February of 2005, Mr. Yu served as the Financial Controller for
several companies including Dynegy Network Technology Services (BJ) Ltd.,
an internet data center, China Gas Holdings, Ltd. and Tianjin East Ocean Gas Co.
Ltd., manufacturers in natural gas. From May of 2000 to February of 2005, Mr. Yu
also served as the Financial Controller of the project companies of AsiaVest
Investment Advisory Limited. His responsibilities included managing the
accounting and listing department, and planning for an IPO with a fund raising
target of HK$150 million.





Mr. Yu
received a Bachelor of Commerce degree with a Accountancy and Legal Studies
major in 1993 from University of Wollongong, Australia. Mr. Yu has worked
closely with investment bankers for Pre-IPO and Private Placements, and in
constructing financial and accounting systems and practice according to the high
standards required for public listing.





Mr. Yu
has served as a professional accountant to a widespread range of clients in
China, Hong Kong, and the United States, and has worked in several different
industries including Natural Gas, Telecom, Manufacturing, Infrastructure
Construction, Hospitality, and Auditing.





Dr. George (Guoqing) Zhou,
Ph.D.




Dr.
George Zhou was appointed as our Chief Operating Officer on August 13, 2008.
Prior to joining the Company, from June 2007 to July 2008, Mr. Zhou served as
Partner and managing director of Eos Funds, a consulting and direct investment
for Chinese companies to list in the US and Canadian public.




From June
2004 to May 2007, Mr. Zhou served as Co-founder, President, CEO, and Board
Director of Red Mountain Pharmaceuticals Ltd., currently called Abepharma Ltd.,
a British Virgin Island Company with 19 subsidiaries, 1800 employees and has
pharmaceutical manufacture, wholesale and retail (about 300 pharmacy chain
stores) operations in Chifeng city, Inner Mongolia, China.




From June
2004 to December 2006, Mr. Zhou also served as Co-founder, CEO and Chairman of
Board of Red Mountain Pharmaceutical (China), Inc., the subsidiary of Abepharma
Ltd.




From June
2004 to December 2006, Mr. Zhou served as Co-founder, CEO, and then Chairman of
the Board of Kangjian Pharmaceutical Co. Ltd. which acquired Chifeng Medical
Group, the state owned enterprise (SOE) with about 3000 employees, 50
subsidiaries, including pharmaceutical manufacture, wholesales and over 300
retail stores, medical devices, hospitals and clinics, hotels, real estates,
farms, restaurants. Mr. Zhou helped to successfully transform the company into a
private corporation; re-structured part of its assets and businesses as Red
Mountain Pharmaceuticals (China). Inc.; introduced US investors to the
corporation; and set Western standard management schedules, including US GAAP
Audit.




Prior to
entering the pharmaceutical industry, Mr. Zhou was a post-doctoral fellow
in molecular biology at the University of Victoria, Canada, and received a Ph.D.
in molecular biology from Umea University, Sweden. He received his Masters
degree in Genetics at Southwest University, China. He was an associate professor
from August of 1996 to 1998 at Chongqing University, China.




75




Employment
Agreements




On
November 15, 2006, we executed employment agreements with each of our executive
officers, specifically, Yiqing Wan, our Chief Executive Officer; Wei Xu, our
Vice President of Operations; Hui Long, our Vice President of Technology; Daping Gu, our Vice
President of Marketing; and Jingbo Wu, our Vice President. The employment agreements are
for terms of three years, except for Yiqing Wan, whose term is for five years.
The employment agreements provide for annual salaries and annual bonuses in
amounts as set forth in the table herein entitled “Executive Compensation
Summary.”





Audit Committee and Audit
Committee Financial Expert




The Audit
Committee assists the Board of Directors in its oversight of the quality and
integrity of the accounting, auditing and reporting practices of the Company.
The Audit Committee has the authority and responsibility to hire one or more
independent auditors to audit the Company’s books, records and financial
statements and to review the Company’s systems of accounting (including its
systems of internal control), to discuss with such independent auditors the
results of such audit and review, to conduct periodic independent reviews of the
systems of accounting (including systems of internal control), and to make
reports periodically to the Board of Directors with respect to its findings. The
Board of Directors has determined that each Audit Committee member has
sufficient knowledge in financial and auditing matters to serve on the
Committee. The committee is also responsible for making recommendations to the
Board of Directors or otherwise acting with respect to corporate governance
matters, including board size and membership qualifications, new director
orientation, committee structure and membership, communications with
shareholders, and board and committee self-evaluations. The Audit Committee
operates under a written charter adopted by our Board of Directors.




The
members of the Audit Committee are independent of the Company (as defined under
Rule 4200(a)(15) of the NASDAQ Marketplace Rules). We currently do not have a
member of the Audit Committee that is a “financial expert” as defined under Item
407 of Regulation S-B.




Code of
Ethics




A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:




·
            Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;·
            Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that are filed with, or submitted to, the SEC and in other
      public communications made by an
issuer;




76




·
            Compliance
      with applicable governmental laws, rules and
  regulations;·
            The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code; and·
            Accountability
      for adherence to the code.




Due to
the limited scope of our current operations, we have not adopted a corporate
code of ethics that applies to its principal executive officer, principal
accounting officer, or persons performing similar functions.




Indemnification




Under
Delaware law and pursuant to our articles of incorporation and bylaws, we may
indemnify our officers and directors for various expenses and damages resulting
from their acting in these capacities. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to our
officers or directors pursuant to those provisions, our counsel has informed us
that, in the opinion of the SEC, this indemnification is against public policy
as expressed in the Securities Act, and is therefore unenforceable.




Section 16(a) Beneficial
Ownership Reporting





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires that
directors, executive officers and persons who own more than 10% of the
outstanding common stock of certain reporting companies file initial reports of
ownership and reports of changes in ownership in such common stock with the
Securities and Exchange Commission ("SEC"). Officers, directors and stockholders
who own more than 10% of the outstanding common stock of certain reporting
companies are required by the SEC to furnish such companies with copies of all
Section 16(a) reports they file. We are required to comply with Section 16(a).
Accordingly, stock ownership information contained in this report is based on
what is known to us.




ITEM 11. EXECUTIVE
COMPENSATION




The
following table shows the compensation paid over the past three fiscal years
with respect to: (i) the Company’s President as of the end of the 2008 and 2007
fiscal year; (ii) the two other most highly compensated executive officers (in
terms of salary and bonus) serving at the end of the 2008 and 2007 fiscal year
whose annual salary and bonus exceeded $100,000; and (iii) up to two additional
individuals who would be in category (ii) but for the fact that the individual
was not serving as an executive officer of the Company at the end of the last
completed fiscal year (the “named executive officers”):




SUMMARY COMPENSATION TABLE


Name and
              principal position
            
            Year
            
            Salary ($)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
            
            Nonqualified
              Deferred
              Compensation
              Earnings ($)
            
            All Other
              Compensation
              ($)
            
            Total ($)Yiqing
      Wan, CEO and President
            
            2008
              2007
            
            $
              $
            160,000
              160,000
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            —
            
            $
              $
            160,000
              160,000Wei
      Xu, Vice President
            
            2008
              2007
            
            $
              $
            100,000
              100,000
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            —
            
            $
              $
            100,000
              100,000Hui
      Long, Vice President
            
            2008
              2007
            
            $
              $
            6,170
              6,170
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            —
            
            $
              $
            6,170
              6,170Daping
      Gu, Vice President
            
            2008
              2007
            
            $
              $
            6,000
              6,000
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            —
            
            $
              $
            6,000
              6,000Jingbo
      Wu, Vice President
            
            2008
              2007
            
            $
              $
            6,000
              6,000
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            —
            
            $
              $
            6,000
              6,000Eric
      Yu, CFO
            
            2008
              2007
            
            $
              $
            100,000
              89,000
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            —
            
            $
              $
            100,000
              89,000




77




No stock
options were granted or exercised by any executive officer during the fiscal
year ended December 31, 2008.





For the
year ended December 31, 2008, we paid $94,247 as the director remuneration to
our independent directors.




We have
entered into a five year employment contract with Mr. Wan and three year
contracts with Ms. Xu, Mr. Yu, and Mr. Long. Pursuant to the Employment
Agreements entered into with the executive officers, starting from January 1,
2007, the compensation of CEO, CFO and Vice President, Wei Xu would be as
follows:




1.
            CEO,
      Yiqing Wan’s yearly salary would be
$160,000;




2.
            CFO,
      Eric Yu’s yearly salary would be
$100,000;




3.
            Vice
      President, Wei Xu’s salary would be
$100,000.




4.
            The
      other Vice Presidents’ yearly salary would remain the same as the fiscal
      year of 2006.




There
would be no specific salary increment and bonus scheme for the above mentioned
key managements for the next three years; it all depends on the profitability of
the company and subject to the Board of Directors’ approval.




Each
employment contract immediately terminates upon death or disability, and may be
terminated by the Company either with or without cause after 30 days notice, or
terminated by the officer for good reason with 60 days notice. We are not
currently aware of the plans of any key employees to retire or leave the
Company.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.




The
following table sets forth information as of April 13, 2009 with respect to the
beneficial ownership of the outstanding shares of the Company’s capital stock by
(i) each person known by the Company who will beneficially own five percent (5%)
or more of the outstanding shares; (ii) the officers and directors of the
Company; and (iii) all the aforementioned officers and directors as a
group.




Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options, warrants or
convertible securities exercisable or convertible within 60 days of April 13,
2009 are deemed outstanding for computing the percentage of the person or entity
holding such options, warrants or convertible securities but are not deemed
outstanding for computing the percentage of any other person, and is based on
160,125,557 common shares issued and outstanding on a fully converted basis as
of April 13, 2009.




78





Name of Beneficial Owner
            
            Amount
              of Beneficial
              Ownership
            
            
            Percent
              of Beneficial
              Ownership
              (5)XIA Pharmaceutical
      Inc. (1)
            
            
            44,687,136
            (2)
            
            27.91%Hui
      Long (1)
            
            
            0
            
            
            0.00%Yiqing
      Wan (1)
            
            
            44,687,136
            (2)
            
            27.91%Wei
      Xu (1)
            
            
            44,687,136
            (2)
            
            27.91%John
      Micek, III (1)
            
            
            973,566
            (4)
            
            0.61%Dr.
      Q.Y. Ma (1)
            
            
            0
            
            
            0.00%Eric
      Yu (1)
            
            
            1,500,000
            (6)
            
            0.94%Daping
      Gu (1)
            
            
            0
            
            
            0.00%Ruilu
      Song (1)
            
            
            0
            
            
            0.00%Jingbo
      Wu (1)
            
            
            0
            
            
            0.00%Pope
      Investments, LLC (3)
              5100
      Poplar Ave., Suite 805
              Memphis,
      TN 38137
            
            
            51,108,458
            
            
            31.92%All
      Executive Officers and Directors as a group (7 persons)
            
            
            47,160,702
            
            
            29.45%




(1)
                Address
      is c/o Room 13, Floor 25, Sunny New World Tower, No. 231 Xin Hua
      Road, Jianghan District, Wuhan, Hubei, PRC.(2)
                Yiqing
      Wan and Wei Xu each have a 50% equity ownership in XIA Pharmaceutical Inc.
      They are both our executive officers and Yiqing Wan is a director. In
      addition, they are husband and wife.(3)
                William
      P. Wells is the manager of Pope Investments, LLC (“Pope”) and exercises
      sole voting and investment control over such shares. In addition to the
      22,337,998 shares of common stock, Pope also holds warrants for the right
      to purchase a total of 21,818,452 additional shares, and a Convertible
      Promissory Note convertible into 9,952,008 additional
    shares.(4)
                John
      Micek was a member of our Board of Directors. He is the beneficial owner
      of 216,348 shares of common stock held in the name of Silicon Prairie
      Partners LLC, of which he is the Managing Member; 54,087 shares of common
      stock held in the name of Mr. Micek’s son Jordan Micek; 54,087 shares of
      common stock held in the name of Mr. Micek’s son Peter Micek; and 54,087
      shares of common stock held in the name of Mr. Micek’s daughter Gabriel
      Micek. He is also the beneficial owner of warrants to purchase 216,348
      shares of common stock held in the name of Silicon Prairie Partners LLC,
      of which he is the Managing Member; 54,087 shares of common stock held in
      the name of Mr. Micek’s son Jordan Micek; 54,087 shares of common stock
      held in the name of Mr. Micek’s son Peter Micek; and 54,087 shares of
      common stock held in the name of Mr. Micek’s daughter Gabriel
      Micek.(5)
                Applicable
      percentage of ownership is based on 105,155,355 shares of common stock
      outstanding as of April 13, 2009 together with securities exercisable or
      convertible into shares of common stock within sixty (60) days of April
      13, 2009 for each stockholder. Beneficial ownership is determined in
      accordance with the rules of the SEC and generally includes voting or
      investment power with respect to securities. Shares of common stock
      subject to securities exercisable or convertible into shares of common
      stock that are currently exercisable or exercisable within 60 days of
      April 13, 2009 are deemed to be beneficially owned by the person holding
      such options for the purpose of computing the percentage of ownership of
      such person, but are not treated as outstanding for the purpose of
      computing the percentage ownership of any other person.(6)
                Eric
      Yu is a member or our Board of Directors and our Chief Financial Officer.
      XIA Pharmaceutical, Inc. transferred 1,500,000 shares to Mr.
      Yu.




79




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.




Described
below are certain transactions or series of transactions since inception between
Benda and our subsidiaries and our executive officers, directors and the
beneficial owners of 5% or more of our common stock, on an as converted basis,
and certain persons affiliated with or related to these persons, including
family members, in which they had or will have a direct or indirect material
interest in an amount that exceeds $60,000 other than compensation arrangements
that are otherwise required to be described under "Executive
Compensation."




80




Kevin R.
Keating




Keating
Securities, LLC (the “Placement Agent”) acted as placement agent in connection
with the Financing. For their services, the Placement Agent received a
commission equal to 7.5% of the gross proceeds or approximately $900,000 from
the offering and a non-accountable expense allowance equal to 1.5% of the gross
proceeds or approximately $180,000. In addition, the Placement Agent received,
for nominal consideration, five-year warrants to purchase 2,596,176 shares of
our common stock, or 10% of the number of shares of Common Stock sold in the
offering, at an exercise price of $0.555 (“Placement Agent Warrants”). We also
paid for the out-of-pocket expenses incurred by the Placement Agent and all
purchasers in the amount of approximately $100,000. As additional compensation
for the Placement Agent's services, we will also pay the Placement Agent the
Warrant Solicitation Fee with respect to the exercise, in whole or in part, of
any Warrant equal to 3.0% of the total exercise price of the Common Stock issued in such
exercise of such Warrant. Such cash Warrant Solicitation Fees shall be paid to
the Placement Agent, in immediately available funds, within three (3) business
days following receipt, directly or indirectly, by us, of any cash or other
proceeds from the exercise of such Warrant.




At or
prior to the Closing, pursuant to the terms of the Exchange Agreement, we will
enter into a certain financial advisory agreement with Keating Securities, LLC
("Keating Securities"), a registered broker-dealer, under which Keating
Securities will be compensated by us for its advisory services rendered to us in
connection with the Exchange Agreement. The transaction advisory fee will be
$395,000. This fee shall be paid upon the Closing of the Exchange
Agreement.




Kevin R.
Keating, our former President and sole officer and director who resigned on
November 15, 2006, is the father of Timothy J. Keating, the principal member of
Keating Investments, LLC. Keating Investments, LLC is the managing member of KI
Equity, which is our majority stockholder. Keating Investments, LLC is also the
managing member and 100% owner of Keating Securities, LLC, a registered
broker-dealer. Kevin R. Keating is not affiliated with and has no equity
interest in Keating Investments, LLC, KI Equity, or Keating Securities, LLC and
disclaims any beneficial interest in the shares of our common stock owned by KI
Equity. Similarly, Keating Investments, LLC, KI Equity and Keating Securities,
LLC disclaim any beneficial interest in the shares of our common stock currently
owned by Kevin R. Keating.




Effective
January 1, 2006, we entered into a contract with Vero Management, L.L.C.
("Vero") for managerial and administrative services. Vero has not been engaged
to provide, and Vero does not render, legal, accounting, auditing, investment
banking or capital formation services. Kevin R. Keating, our former officer and
director, is the manager of Vero. The term of the contract is for one year, but
the contract may be terminated at any time. In consideration of the services
provided, Vero is paid $2,500 for each month in which services are
rendered.




Mark R. Littell andNorwood




On
December 14, 2005, KI Equity entered into a Purchase Agreement with Norwood
Venture Corp. (“Norwood”) for 2,281,302 shares of our common stock, representing
77.2% of the common shares then outstanding. Mark R. Little, our former
Chairman, Chief Executive Officer, President and Chief Financial Officer who
resigned on December 30, 2005, is the President and controlling shareholder of
Norwood. In connection with the Purchase Agreement, Mark R. Littell and Norwood
entered into an agreement releasing Applied from any and all claims they have
against us.




During
2006, Norwood paid an accrued legal expense on behalf of Applied in the amount
of $1,568, which was recorded as additional paid-in capital.




In
connection with the Purchase Agreement, we paid Norwood approximately $18,936
for consulting services rendered by it to Applied Spectrum.




81




Related Party Transactions
and Long Term
Loan Receivable





Due from
related parties at December 31, 2008 and 2007 were comprised as
follows:




December
      31,
              
              
              December
      31,Relationship
              
              2008
              
              
              2007CurrentQin
      Yu
              
              Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              $
              4,314
              
              
              $
              -Hua
      Shen
              
              Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              137,097Pong
      Tsaiohuei
              
              Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              3,257Xiaozhi
      Zhang
              
              Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              5,439
              
              
              
              5,083Rong
      He
              
              ManagerDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              1,247
              
              
              
              -$
              11,000
              
              
              $
              145,437Non
      currentHua
      Shen
              
              Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              137,097Pong
      Tsaiohuei
              
              Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              3,257Xiaozhi
      Zhang
              
              Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              5,083Yiqing
      Wan
              
              CEO
      & DirectorDue
      to Ever Leader Holdings Co. Ltd.
              
              
              
              $
              650,791
              
              
              $
              646,429Due
      to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              
              
              439,719
              
              
              
              72,949Due
      to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              3,608Hubei
      Benda Science and Technology Co. Ltd
              
              Controlled
      by CEODue
      to Yidu Benda Chemicals Co. Ltd.
              
              
              
              
              1,607,173
              
              
              
              1,502,118Due
      to Ever Leader Holdings Co. Ltd.
              
              
              
              
              231,713
              
              
              
              230,160Feng
      Wang
              
              Minority
      shareholderDue
      to Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              
              
              32,348
              
              
              
              29,318Total
      due from related parties
              
              
              
              $
              2,961,744
              
              
              $
              2,630,019




Due to
related parties at December 31, 2008 and, 2007 were comprised as
follows:





December
      31,
              
              
              December
      31,Relationship
              
              2008
              
              
              2007CurrentWei
      Xu
              
              Vice
      President, CEO's Spouse & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              $
              188,065
              
              
              $
              -Due
      from Everleader Holding Ltd.
              
              
              
              
              967,999
              
              
              
              -Hua
      Xu
              
              General
      Manager's SisterDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              25,523
              
              
              
              -Yiqing,
      Wan
              
              CEO
      & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              237,780
              
              
              
              -Hua
      Shen
              
              Vice
      presidentDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              33,253
              
              
              
              -Tongyi
      Tien
              
              ManagerDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              364
              
              
              
              -Pong
      Tsaiohuei
              
              Minority
      shareholderDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              4,818
              
              
              
              -Total
      due to related parties
              
              
              
              $
              1,457,803
              
              
              $
              -Non
      currentHubei
      Benda Science and Technology Co. Ltd
              
              Controlled
      by CEODue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              
              $
              28,602
              
              
              $
              49,056Due
      from Jiangliang Benda Pharamaceutical Co. Ltd.
              
              
              
              
              811,073
              
              
              
              1,872,374Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              
              
              14,262
              
              
              
              6,846Wei
      Xu
              
              Vice
      President, CEO's Spouse & DirectorDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              
              
              48,922
              
              
              
              -Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              
              
              65,691
              
              
              
              -Hua
      Shen
              
              Vice
      presidentDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              26,597Hua
      Xu
              
              ManagerDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              
              
              -
              
              
              
              1,009,792Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              
              
              -
              
              
              
              61,491Yiqing,
      Wan
              
              CEO
      & DirectorDue
      from Yidu Benda Chemicals Co. Ltd.
              
              
              
              
              560
              
              
              
              -Due
      from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              
              
              -
              
              
              
              137,687Hui
      Xu
              
              ManagerDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              
              
              28,483
              
              
              
              26,622Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              
              
              -
              
              
              
              3,153$
              997,593
              
              
              $
              3,193,618




Except
for the loans from the shareholder Wei Xu by Everleader which bears interest
rate at 12% per annum, unsecure and matures within six months, the above
advances bear no interest and the above loans due to related parties are
unsecured, non-interest bearing and are not convertible into equity. Proceeds
from the above loans were used primarily for general working capital purposes
and are also long-term debts in nature, due on December 31, 2012.




Reorganization
Related Transactions





Ever
Leader was incorporated in Hong Kong on October 29, 2005 for the purpose of
functioning as an off-shore holding company to obtain ownership interests in
various Benda entities that were previously owned, either directly or
indirectly, by Wan and Xu. Ms. Mo Mo Hon (“Hon”), a Hong Kong SAR resident, is
the sole registered shareholder of Ever Leader, holding the single issued and
outstanding share of Ever Leader in trust for Xu.




82




Pursuant
to three separate Equity Transfer Agreements entered into in November of 2005
among Ever Leader, Benda Science, Xu, and Wan, Ever Leader obtained a 95%
ownership interest in Benda Ebei in exchange for a commitment to pay $2,298,434
in aggregate consideration to Benda Science, Wan, and Xu. The $2,298,434
acquisition price represented 95% of the $2,419,404 of registered capital of
Benda Ebei, but was not representative of the fair value of the assets acquired
or liabilities assumed. Specifically, as transfers of ownership interests in PRC
entities to offshore holding companies for zero or nominal consideration is
prohibited by the Chinese Government (regardless of whether these PRC entities
and offshore holding companies are directly or indirectly owned and
controlled by the same individual or individuals), an amount equal to 95% of the
value of the registered capital of Benda Ebei was established for purposes of
the transfer of the 95% ownership interest in Benda Ebei (directly and
indirectly 100% owned and controlled by Wan and Xu) to Ever Leader (beneficially
100% owned and controlled by Xu).




Pursuant
to an Equity Transfer Agreement entered into on December 3, 2005 among Benda
Ebei, Benda Science, and Wan, Benda Science transferred and assigned its 90%
ownership interest in Jiangling Benda to Benda Ebei and Wan transferred and
assigned a 5% ownership interest in Jiangling Benda to Benda Ebei (for zero
consideration as Benda Ebei and Jiangling Benda were both directly and
indirectly 100% owned and controlled by Wan and Xu).




Pursuant
to a second Equity Transfer Agreement entered into on December 4, 2005 among
Benda Ebei, Benda Science, and Wan, Benda Science transferred and assigned its
90% ownership interest in Yidu Benda to Benda Ebei and Wan transferred and
assigned a 5% ownership interest in Yidu Benda to Benda Ebei (for zero
consideration as Benda Ebei and Yidu Benda were both directly and indirectly
100% owned and controlled by Wan and Xu).




83




The
organization and ownership structure of the Company subsequent to the
consummation of the reorganization as summarized in the paragraphs above is as
follows:









In July
of 2006, Benda Ebei invested approximately $112,500 for a 75% ownership interest
in Beijing Shusai, with the remaining 25% owned by an unrelated PRC individual.
Beijing Shusai, a PRC limited liability company, was incorporated on June 15,
2006 and commenced primary operations in July 2006, operating two clinics in
Beijing, PRC.




On
September 5, 2006, Ever Leader increased its number of authorized shares of
common stock from 10,000 to 1,000,000 and effected a 100 to 1 stock split,
resulting in Hon (the original sole registered shareholder of Ever Leader
holding one share in trust for Xu) receiving 99 additional shares in the
Company.




On
September 5, 2006, Ever Leader transferred and assigned 711,202 shares of common
stock to Xia Pharmaceutical, Inc. (“XIA”), an offshore holding company
incorporated in the British Virgin Islands (“BVI”) that is 100% owned and
controlled by Wan and Xu.




84




On
September 5, 2006, Ever Leader issued 288,698 shares of common stock to 19
entities (some of whom are considered related parties) at par value.
Additionally, Hon transferred and assigned her ownership interest in her 100
shares of Ever Leader to one of these entities.




The
organization and ownership structure of the Company subsequent to the
consummation of the reorganization as summarized in the paragraphs above is as
follows:









ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K.




(a) Exhibits.
  85




EXHIBIT
INDEX




The
following exhibits are incorporated by reference or included as part of this
report:




Exhibit
              Number
            
            Description2.1
            
            Articles
      of Merger between Applied Spectrum Technologies, Inc., a Minnesota
      corporation, and Applied Spectrum Technologies, Inc., a Delaware
      corporation, together with the Agreement and Plan of Merger
      (1)2.2
            
            Exchange
      Agreement by and among Applied Spectrum Technologies, Inc. (“Applied
      Spectrum”); KI Equity Partners, III, LLC (“KI Equity”); Ever Leader
      Holdings Limited (“Ever Leader”); and each of the equity owners of Ever
      Leader Shareholders, dated September 7, 2006 *(2)2.3
            
            Voting
      Agreement by and among the Ever Leader Shareholders and KI Equity, dated
      November 15, 2006 (4)2.4
            
            Escrow
      Agreement by and among Applied Spectrum, Ever Leader, Keating Securities,
      LLC and Steele Street State Bank, the escrow agent, dated November 15,
      2006 (4)2.5
            
            Make
      Good Agreement by and among Keating Securities, LLC, Applied Spectrum,
      Ever Leader, Mr. Yiqing Wan and Ms. Wei Xu, and Moveup Investments
      Limited, dated November 15, 2006
(4)




2.6
            
            Make
      Good Escrow Agreement by and among Keating Securities, LLC, Applied
      Spectrum, Ever Leader, Mr. Yiqing Wan and Ms. Wei Xu, and Moveup
      Investments Limited, dated November 15, 2006 (4)3.1
            
            Certificate
      of Incorporation of Applied Spectrum Technologies, Inc., a Delaware
      corporation. (1)3.2
            
            Bylaws
      of Applied Spectrum Technologies, Inc., a Delaware corporation.
      (1)4.1
            
            Lock-Up
      Agreement amongst Applied Spectrum, Keating Securities, LLC, Yiqing Wan,
      Wei Xu and Moveup Investments Limited (4)4.2
            
            Specimen
      Stock Certificate for Shares of Common Stock of the Company
      (3)10.1
            
            Placement
      Agent Agreement dated October 17, 2006 between Applied Spectrum and
      Keating Securities,
              LLC
      (4)10.2
            
            Securities
      Purchase Agreement by and among Applied Spectrum, Ever Leader and the
      Investor listed on the attached Schedule of Buyers
  (4)




10.3
            
            Registration
      Rights Agreement (4)10.4
            
            Form
      of Common Stock Purchase Warrant (4)10.5
            
            Form
      of Placement Agent Stock Purchase Warrant (4)10.6
            
            Employment
      Agreement with Yiqing Wan (4)




10.7
            
            Employment
      Agreement with Wei Xu (4)10.8
            
            Employment
      Agreement with Hui Long (4)10.9
            
            Employment
      Agreement with Daping Gu (4)10.10
            
            Employment
      Agreement with Ruilu Song (4)





86




10.11
            
            Employment
      Agreement with Jingbo Wu (4)10.12
            
            Form
      Investment Agreement between the Company and Buyers (5)10.13
            
            Equity
      Transfer Agreement with Shenzhen Yuanzheng Investment Development Co., Ltd
      (5)10.14
            
            Financial
      Consultancy Agreement (5)




10.15
            
            Equity
      Transfer Agreement with Shenzhen Yuanxing Gene City Development Co., Ltd.
      (5)10.16
            
            Modification
      and Amendment Agreement dated April 5, 2007 (5)10.17
            
            Technical
      Consultancy Agreement with Huimin Zhang (6)10.18
            
            Equity
      Transfer Agreement with Huimin Zhang (6)10.19
            
            Technical
      Consultancy Agreement with Yaojin Wang (6)10.20
            
            Equity
      Transfer Agreement with Yaojin Wang (6)10.21
            
            Interview
      by Eric Yu for WallSt.net dated July 26, 2007 (7)10.22
            
            Rights
      Purchase Agreement with Dr. Yan Li (7)10.23
            
            The
      Science and Technology Cooperation Agreement between College of Chemistry
      and Life Science of China Three Gorges University and Yidu Benda
      (7)




31.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. Included as Exhibit in this Form 10-K.31.2
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. Included as Exhibit in this Form 10-K.32.1
            
            Certification
      of Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. Included as Exhibit in this Form 10-K.32.2
            
            Certification
      of Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. Included as Exhibit in this Form
10-K.




(1)
            Incorporated
      by reference to the Company's Current Report on Form 8-K dated November
      17, 2005 and filed on November 22, 2005 (SEC File No.
      000-16397).(2)
            Incorporated
      by reference to the Company's Current Report on Form 8-K dated September
      7, 2006 and filed on September 7, 2006 (SEC File No.
      000-16397).(3)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-1 (SEC File
      No. 33-17959).




(4)
            Incorporated
      by reference to the Company's Current Report on Form 8-K dated November
      15, 2006 and filed on November 17, 2006 (SEC File No.
      000-16397).(5)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K dated April 5,
      2007 and filed on April 6, 2007 (SEC File No.
  000-16397).





87




(6)
            Incorporated
      by reference to the Company’s Current Report on Amendment No. 1 to Form
      8-K dated April 5, 2007 and filed on June 15, 2007 (SEC File No.
      000-16397).(7)
            Incorporated
      by reference to the Company’s Amendment No. 2 to Registration Statement on
      Form SB-2 (SEC File No. 33-17959).




(b)   Reports
on Form 8-K.




On March
4, 2009, the Company filed a Form 8K disclosing the acceleration of a debt
obligation and the filing of a lawsuit against the Company.




ITEM 15.  PRINCIPAL ACCOUNTANT FEES AND
SERVICES




(1) AUDIT
FEES




The
aggregate fees paid for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the Company's
annual financial statements and review of financial statements included in the
Company's Form 10-K (17 CFR 249.308a) or 10-Q (17 CFR 249.308b) or services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years was $334,106for the fiscal year
ended December 31, 2007 and $420,734for the fiscal year
ended December 31, 2008.




(2) AUDIT-RELATED
FEES




There
were no fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit or review of the Company's financial
statements.




(3) TAX
FEES




There
were no fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning.




(4) ALL OTHER
FEES




There
were no other fees billed in each of the last two fiscal years for products and
services provided by the principal accountant, other than the services reported
above.




RE-APPROVAL
POLICIES AND PROCEDURES




Before
the accountant is engaged by the issuer to render audit or non-audit services,
the engagement is approved by the Company's the board of directors acting as the
audit committee.




88




SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




BENDA
      PHARMACEUTICAL, INC.Date:
      April 15, 2009
              By:
              /s/
      Yiqing WanYiqing
      WanChief
      Executive Officer and President, and Director




Date:
      April 15, 2009
              By:
              /s/
      Eric YuEric
      YuChief
      Financial OfficerPrincipal
      Accounting OfficerDirector




In
accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on August 1, 2008.






Name
            
            Title
            
            Date/s/
      Yiqing Wan
            
            Chief
      Executive Officer and
            
            April
      15, 2009Yiqing
      Wan
            
            President
      / Director/s/
      Jun Tang
            
            Director
            
            April
      15, 2009Jun
      Tang/s/
      Dr. Q.Y. Ma
            
            Director
            
            April
      15, 2009Dr.
      Q.Y. Ma/s/
      Eric Yu
            
            Chief
      Financial Officer, Principal
            
            April
      15, 2009Eric
      Yu
            
            Accounting
      Officer, and Director




89