**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB/A**




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,
                2007








o
            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.)




**Sunny
      New World Tower, 25th Floor**


**No.
      231 Xinhua Road**


**Wuhan,
      Hubei Province, PRC**


(Address
      of principal executive offices)





**+86
      (27) 5953-8563**


(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-KSB or any
      amendment to this Form 10-KSB. x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES o  NO x




Issuer's
      revenues for its most recent fiscal year: $26,384,608




As
      of
      March 31, 2008, 100,803,509 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
      March 27, 2008 by the NASD Over-the-Counter Bulletin Board) was approximately
      $15,320,549.









DOCUMENTS
      INCORPORATED BY REFERENCE: None




Transitional
      Small Business Disclosure Format (Check One):


Yes o No x








**TABLE
      OF CONTENTS**





Item
                Number and Caption
            PagePART
                IItem
                1.
            Description
                of Business
            1Item
                2.
            Description
                of Properties
            46Item
                3.
            Legal
                Proceedings
            48Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            49PART
                IIItem
                5.
            Market
                for Common Equity and Related Stockholder Matters
            49Item
                6.
            Management's
                Discussion and Analysis or Plan of Operations
            51Item
                7.
            Financial
                Statements
            60Item
                8.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            61Item
                8A.
            Controls
                and Procedures
            62PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act
            62Item
                10.
            Executive
                Compensation
            66Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
            67Item
                12.
            Certain
                Relationships and Related Transactions
            69Item
                13.
            Exhibits
                and Reports on Form 8-K
            74Item
                14.
            Principal
                Accountant Fees and Services
            77









**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., 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.,
      a
      company formed under the laws of the PRC; (ii) 95% of the issued and outstanding
      capital stock of Yidu Benda Chemical Co., Ltd., 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., 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




**Business**




Our
      operations are headquartered in Wuhan, Hubei Province, China. We are a
      profitable, mid-sized Chinese 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
      currently have three core operating companies:




·
            ***Yidu
                Benda***develops,
                manufactures and sells bulk chemicals (or pharmaceutical intermediates),
                which are the raw materials used to make “Active Pharmaceutical
                Ingredients” (“APIs”). About 11.8 per cent of the bulk chemicals that we
                produce in 2004 were used for our own medicines. The remainder was
                sold in
                the market to unrelated parties. We did not sell to related Benda
                companies in 2006 or 2007.




·
            ***JianglingBenda***develops,
                  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). About 3.7 per cent of the APIs that we produce in 2004
                  were used
                  to produce some of our finished medicines. The remainder was sold
                  in the
                  market to unrelated parties. Jiangling Benda did not sell to related
                  Benda
                  companies in 2006 or 2007.




·******
            ***Benda
                Ebei***develops, 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.




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. Good Manufacturing Practices (“GMP”) certification was issued
      to Benda Ebei on November 11, 2003 for the production of injection vials. 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. Our Yidu Benda facility produces
      bulk chemical intermediates for raw material medicine and does not require
      GMP
      certification. Our Jiangling Benda facility was closed for renovation in July
      2004 to comply with GMP standards. The Jiangling plant reopened on August 10,
      2007, and has been producing Ribose, the only product that does not require
      GMP
      approval. We are currently working on obtaining GMP certification so that we
      can
      use the Jiangling plant for our other products. We currently have all of the
      production equipment in place and the new facilities have been installed and
      tested. Jiangling Benda plans to produce four types of active pharmaceutical
      ingredients and they are Ribavirin, Asarin, Levofloxacin Mesylate and Ribose.
      All workshops at the Jiangliing Benda facility need to pass GMP certification
      except for the Ribose shop. However, due to the overhaul and restructuring
      of
      SFDA, the management could not estimate the exact timing for obtaining GMP
      certificate. If we are unable to obtain GMP certification, further delays and
      expenses will result, and we will be unable to operate out of such workshops
      until the GMP certification has been obtained.





3




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.





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.




4




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.




5




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.




6




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:









7




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









**PRINCIPAL
      PRODUCTS**




In
      2007,
      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**
              
              **Function**Benda
                  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 manufactureYidu
                  Benda
              
              Triazol
                  carboxylic acid methyl ester (“TCA”)
              
              Bulk chemical
              
              Ribavirin
                  manufacture, anti-virusYidu
                  Benda
              
              L-methionine
              
              Bulk chemical
                  Nutrition
              
              An
                  essential amino acid for humansYidu
                  Benda
              
              Tricabroxylic
                  acid amide (“TAA”)
              
              Bulk chemical
              
              Ribavirin
                  manufacture, anti-virus drug manufactureYidu
                  Benda
              
              1,2,3,5-Tetraacetyl-β-D-Ribose
              
              Bulk chemical
              
              Ribavirin
                  manufacture, anti-virus drug
                  manufacture




8






(1)
            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.
              
              The
                sole product that being sold in the reporting period of the year
                2007 was
                Ribose which does not required the GMP certificate but the production
                of
                the other three products do require the GMP
                certificate.




**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.





9





·
            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 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.


10






·
            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.·
            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 Products




Yidu
      plans to produce one type of bulk chemicals:




·
            Triazol
                carboxylic acid methyl ester (“TCA”). This is our main bulk chemical
                product. We have an installed capacity of 500 metric tons of TCA
                per year,
                which we believe is the highest in PRC. We expect to increase capacity
                from 500 to at least 700 metric tons per year by the end of 2006.





In
      addition to bulk chemicals, Yidu Benda also produces L-methionine, an amino
      acid
      nutrition ingredient. L-methionine is a precursor in protein synthesis and
      also
      participates in a wide range of biochemical reactions.


While
        products produced by Yidu Benda do not represent a high-growth area for us,
        we
        derive significant cash flow from them. High barriers to entry exist in the
        intermediates sector, providing us with a relatively secure and stable market
        position. These barriers derive from: high capital equipment costs; economies
        of
        scale; high installed capacity of incumbents; reciprocal supply agreements;
        consumer-related advantages in established brands and reputation; proprietary
        production processes; long-term relationships with customers; and extensive
        distribution channels.
  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. 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.
        Therefore, the Company has fulfilled the requirements for full production.


11




**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
      Agents à Medicine
      Representatives à Hospitals or Pharmacies à Patients




For
      low
      value generics: Pharmaceutical Manufacturers à Wholesalers à Secondary Wholesalers à Hospitals or Pharmacies à 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
                Markup**Patients
            
            
            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.


12




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 the*Catalog
                of Basic Medicines Covered by Social Medical Security*.




*(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.




13






*(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 for which we recently received SFDA approval as soon as
      possible.





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**
            
            **Status**Pharyngitis
                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.




14






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.α-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.




15




(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 trails.





**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 liquid**Targeted
                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.




16




In
      order
      to produce Qiwweiben ,
      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.**
            
            **Quantity**1
            
            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.**
              
              **Category**1
              
              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.





17




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.




18




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 5 th 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 21 st 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.




19




*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.**
            
            **Quantity**1
            
            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.





20




Yan
      Long Anti-cancer Oral Liquid




*Product
      Description* :
      The Yan
      Long Anti-Cancer Oral Liquid (“Yan Long”) is a conventional Chinese patent
      drugeffective 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 tons 3 . This
      demand is currently met by imports.




21




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 9thlargest 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 5thlargest 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 of China’s Emerging Middle Class, McKinsey
                Quarterly)*




·****
            ***Benda
                is uniquely positioned to capture market share*****.**Our
                growth potential will be largely driven by our launch of three innovative
                and proprietary Chinese medicines, recently added to our product
                line:
                Pharyngitis Killer Therapy (anti-respiratory infection treatment),
                Qiweiben Capsule (diabetes) and Yanlong Anti-Cancer Oral Liquid.
                Benda
                also currently produces and sell 81 types of medicines certified
                by the
                SFDA, three types of APIs and five types of bulk chemicals. Several
                additional products are in development, at various stages. Our wide
                range
                of certified medicines, APIs and bulk chemicals have historically,
                and
                will continue to provide us with steady growth in revenues and profits.




·****
            ***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. SFDA data reveals that
                we are
                the only Chinese company that currently synthesizes Asarin (an API
                in
                common treatments of the upper respiratory system) chemically; as
                a
                result, our Asarin production costs are 16 per cent below our
                competitors.




·****
            ***Government
                sponsored industry consolidation presents opportunities for
                acquisitions*****.**According to*Business
                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.




22






·****
            ***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. We have completed the
                installation of our Jiangling Benda manufacturing facilities (for
                the
                production APIs) and applied for GMP authentification in December
                2007. We
                expect to receive approval by the end of February 2008. Our Yidu
                Benda
                facilities, which produce bulk chemicals, are not subject to GMP
                certification requirement.




·****
            ***Potential
                for API export sales*****.**We
                have demonstrated some initial success to date in exporting indirectly
                our
                products and increasing our international exposure. Star Lake Bioscience
                Co., Ltd. (“Star Lake”), one of our customers which is located in Zaoqing
                City, Guangdong province, is the only drug manufacturer in China
                to
                receive U.S. FDA approval to export its medicine to the U.S. We have
                an
                established business relationship with Star Lake since 2003. We are
                presently undergoing the FDA certification process for one of our
                APIs,
                which is used to manufacture drugs to alleviate SARS and SARS-like
                diseases. During the SARS period in PRC, one of the API products,
                Ribavirin, was used as a basic element and combined together with
                hormones
                in order to make an effective drug for the treatment of SARS. The
                Company
                will begin exporting the product once it has obtained FDA
                approval.




**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 2006, Benda Ebei’s largest supplier of APIs was Nan Yang Pung Gong Co.
      Ltd and Benda Ebei purchased approximately $994,000 worth of Tranexamic Acid
      from this supplier, equivalent to 16 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.





23




Jiangling
      Benda re-opened on August 10, 2007 and started producing Ribose. The sales
      of
      Ribose began in October 2007 and the largest supplier was Henan Xinxiang Huaxing
      Pharmaceutical Co. Ltd. and approximately $470 K worth of raw materials was
      purchased from this suppliers, equivalent to 70% of total the raw materials
      purchases by value.





Yidu
      Benda Suppliers




Our
      Yidu
      Benda plant manufactures bulk chemicals from other bulk chemicals. Yidu Benda’s
      largest supplier of bulk chemicals is Zaoqing Star Lake Bioscience Co., Ltd.,
      which is based in Guangdong province. In 2005, Yidu Benda purchased $1,600,000
      worth of bulk chemicals from this supplier, equivalent to 27.4 per cent of
      Yidu’s raw materials purchases by value. In 2006, Yidu Benda’s largest supplier
      of bulk chemicals is Shenzhen Xiang Hua Chemistry Co. Ltd., and it purchased
      approximately $,1270,000 worth of bulk chemicals from this supplier, equivalent
      to 36.92 per cent of Yidu’s raw materials purchases by value.





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 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. Therefore, there was
      no
      supplier incurred in the year of 2007.





Packaging
      Material Suppliers




Our
      packaging materials are purchased from two main suppliers. In 2007, we purchased
      approximately $900,000 worth of plastic packaging material from Anlu ZhongYa
      Plastics Package Factory, equivalent to 11 per cent of our packaging supplies
      by
      value. In 2006, we purchased approximately $1,229,000 worth of plastic packaging
      material from Anlu ZhongYa Plastics Package Factory and Anlu Zhong’Ao Printing
      Factory, equivalent to 19 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.





24




**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.




SiBiono
      patents




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





25


**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**
                  **Assignees**
                ****1
                
                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/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
                
                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.





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, 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 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.





26




The
      Group
      and Zhaohui Peng are currently in negotiations regarding the patent transfers.
      However, if Zhaozhui Peng refuses to transfer all the patents’s title to
      SiBiono, the Group will take a legal action against him.





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
      $553,962 and $30,821 on direct research and development (“R&D”) efforts in
      2007 and 2006, respectively. Rather than spend considerable sums internally
      on
      R&D in a market where we can not 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)




27




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.




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 received an oral consent from the local government agencies
      that
      the re-designed production facilities have passed the examinations and the
      related feasibility studies of the product that are going to produced in Yidu
      Benda has also been submitted.




**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.




28




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.





29




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**
            
            **Events**October
                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.




30






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 has already achieved 86% of the 16,000 vials order,
        of which we have already shipped and received payment for about 13,760 vials
        of
        Gendicine. Starting from January 1 to February 25, 2008, another 733 vials
        out
        of the 16,000 vials order had shipped. 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. Accordingly,
        the
        sales volume was held up for a short period of time during the mentioned
        period
        while the inventory was retained at high level.


**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.





31




As
      of
      December 31, 2007, Benda Ebei and Jiangling Benda deposited $2,615,254 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, 2007, the balance if the commercial bank notes
      payable was $5,118,758. Thus the net commercial bank notes payable was
      $2,503,504 as of December 31, 2007.





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, 2007, the net book value
      of
      secured property and equipment was approximately Rmb67.33 million (or $9.2
      million).




**EMPLOYEES**





As
      of
      December 31, 2007, we had approximately 489 full-time employees, including
      48
      sales people, 19 technology and R&D staff, and 408 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, 2007, 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.




32




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.





33




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.





Since
      Jiangling Benda was resumed its production since August 10, 2007, we estimate
      that an additional working capital approximately $4.6 MM is need in order to
      fully utilize its production capacity. Furthermore, when Yidu Benda resumes
      its
      production, the operation cost to maintain the water waste treatment system
      is
      estimated at approximately $0.3 MM per year.




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. As of March 27, 2008, the last closing bid price of our
      common stock was $.38. 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.





34






·****
            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 treatment *only
      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 2007: Jiangling Benda: Nil; Yidu Benda:
                Nil;





b)
            For
                the year of 2006: Jiangling Benda: Nil; Yidu Benda: approximately
                $580,000.





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.





35






·****
            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.




36




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 29.25% 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 31% 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.




37






·****
            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.




38




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.




39




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.




40




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.




41




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.




42






·****
            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.




43




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 securities with 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 level of risks
      in the penny stock market. The broker-dealer must also provide the customer
      with current bid and offer quotations for the penny stock, the compensation
      of
      the broker-dealer and its salesperson, and monthly account statements
      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 stock is 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 stock are
      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.




44






·****
            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.




45






·****
            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.




·****
            MOEN
                AND COMPANY, THE AUDITORS THAT AUDITED EVER LEADER’S FINANCIAL STATEMENTS
                AND NOTES FOR THE YEARS ENDING DECEMBER 31, 2005 LOST ITS STATUS
                AS A
                PARTICIPATING AUDIT FIRM IN THE CANADIAN PUBLIC ACCOUNTABILITY BOARD’S
                (“CPAB”) OVERSIGHT PROGRAM FOR FAILING TO MEET ELIGIBILITY REQUIREMENTS
                FOR PARTICPATING IN THE CPAB’S OVERSIGHT PROGRAM WHICH CAN RESULT IN THE
                PUBLIC PERCEPTION THAT OUR FINANCIAL STATEMENTS FOR THE YEARS AUDITED
                BY
                SUCH AUDITOR ARE NOT RELIABLE. ACCORDINGLY, WE HAVE RE-AUDITED OUR
                FINANCIAL STATEMENTS FOR THE YEAR ENDING DECEMBER 31,
                2005.




On
      September 22, 2006, Moen & Company LLP (“Moen”), the auditors that audited
      Ever Leader’s financial statements and notes for the year ending December 31,
      2005, lost its status as a participating audit firm in the Canadian Public
      Accountability Board’s (“CPAB”) oversight program for failing to implement the
      CPAB’s oversight program set out in paragraph 11.1 of the CPAB’s By-law No. 1.
      As a result of this, Moen is no longer eligible to audit the financial
      statements of entities that are reporting issuers under provincial securities
      legislation in Canada. In addition, the CPAB carried out a quality inspection
      of
      Moen in 2005 and issued its final inspection report on August 25, 2005. The
      report made numerous recommendations to Moen to address weaknesses in the firm’s
      system of quality control of deficiencies in specific audit engagements. The
      CPAB conducted follow up visits to Moen in late November 2005, early March
      2006
      and early May 2006 and concluded that the recommendations in the CPAB report
      to
      Moen had not been implemented. Moen's loss of its status as a participating
      audit firm in the CPAB oversight program has been publicly disclosed, including,
      without limitation, through CPAB's assessment of Moen available on the CPAB
      web
      site. Management has determined that Moen's loss of its status as a
      participating audit firm in the CPAB oversight program may result in a negative
      perception of Ever Leader's financial statements for such years. Accordingly,
      we
      had our financial statements for the year ending December 31, 2005 audited
      by
      Kempisty & Company Certified Public Accountants, P.C.




**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).




46










Addresses
      of Benda Offices and Plants




**Address**
            
            **Function**
            
            **Size**Hubei
                Tongji Benda Ebei Pharmaceutical Co. Ltd., Sunny New World Tower,
                25thFloor, 231 Xinhua 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 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
      197 factories with similar manufacturing facilities for injection vials. Benda
      Ebei’s capacity is sixth in PRC and first in Hubei province. In 2006 and 2007,
      Benda Ebei produced approximately 250 million and 418 million units of injection
      vials respectively, equivalent to 27% capacity and 90% capacity respectively.
      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.




47




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.





The
      upgrade process of Jiangling Benda had been completed and re-opened in August
      2007 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.





The
      sole
      product that being sold in the reporting period of the year 2007 was Ribose
      which does not required the GMP certificate but the production of the other
      three products do require the GMP certificate.





Bulk
      chemicals - The Yidu Benda Plant




The
      Yidu
      Benda plant has four chemical production facilities which produce Benda’s two
      bulk chemicals.




Yidu
      Benda was temporarily closed since mid January 2007 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.




**ITEM
      3.**  **LEGAL
      PROCEEDINGS** .




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.





48




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.





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 March 27, 2008, there were
      approximately 841 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
                Bid**December
                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.




49




**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
      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.




50




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.**  **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-KSB 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-KSB or included in our previous filings with the Securities and Exchange
      Commission.





51




**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.





For
      the
      year ended December 31, 2007 and 2006, the Company provided for the allowance
      for doubtful accounts of $943,667 and $467,015, respectively, against accounts
      receivable. Management's estimate of the appropriate allowance on accounts
      receivable for the reporting periods was based on the aged nature of these
      accounts receivable. In making its judgment, management assessed its customers'
      ability to continue to pay their outstanding invoices 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.




52




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, 2007 and 2006, the Company provided for a reserve
      against its work-in-progress amounting to $4,422,014 and $0, respectively.





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):





Benda





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 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-progress was $3,696,083 as of
      three-month period ended March 31, 2007.




53




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, 2007, the provision of reserve on work-in-progress was
      $4,422,014.





However,
      no reserve for obsolete, slow-moving or non-salable inventory was required
      for
      the reporting periods. 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, 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.




54




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.




55




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.




*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:




56


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).




57




*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




Operating
      cash flow decreased by $0.26 million to $2.21 million for the year ended
      December 31, 2007 from $2.47 million for the year ended December 31, 2006
      primarily due to the following factors:




a)
            Non-cash
                operating activities, reconciliation items to the net
                income


In
      the
      year ended December 31, 2006, an amount $1.74 million of non-cash operating
      activities was reconciled back to the net income and which mainly included
      bad
      debt provision, amortization of intangible assets, depreciation, minority
      interest and consulting and professional fees which was paid in form of common
      shares issuance.




58




However,
      in the year ended December 31, 2007, a significant amount, about $13.8 million
      of non-cash operating activities was reconciled back to the net income and
      summarized as follows:




1.
            $8.4
                million that incurred for the issuance of common shares related to
                the
                acquisition of SiBiono and the exercise of warrant of placement agent
                through the cashless arrangements (please refer to Note 19 of the
                Notes to
                Consolidated Financial Statements for details);


2.
            $2.9
                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);


3.
            During
                the year of 2007, SiBiono recognized an amount $2.3 million as government
                subsidies/grants as other income. This amount was obtained from the
                partial discharge of the long term government debt payable as the
                government agencies had examined the corresponding research and
                development projects. However, this amount should not be included
                in the
                operating activities as there was no actual cash inflow impact (please
                refer to Note 22 of the Notes to Consolidated Financial Statements
                for
                details); and


4.
            Other
                factors: $0.3 million incurred on bad debt provision; $1 million
                incurred
                on depreciation; $0.5 million incurred on amortization of intangible
                assets; $0.2 million incurred on amortization of debt issue cost;
                and $2.2
                million incurred on minority interest.




b)
            Trade
                receivables


In
      the
      year ended December 31, 2006, the net changes of trade receivable was increased
      by $2.2 million, and the changes of trade receivable was increased by $4.4
      million in the year ended December 31, 2007 resulting from the significant
      increase in net revenue in 2007. According to the aging analysis of trade
      receivable as of December 31, 2007, about 90% of the balances were incurred
      less
      than 90 days, thus management expects that there would be no material bad debt
      provision would be incurred in the following year.




Investing
      cash outflow was $11.1 million for the year ended December 31, 2007 due to
      the
      following events:




a)
            $2.67
                million as the partial payment of the total consideration for SiBiono
                acquisition;


b)
            $5.3
                million for fixed asset additions, mainly in equipment and construction
                in
                progress; and


c)
            $3.1
                million for the purchase of new drug license and land use
                right.




Financing
      cash inflow was $8.2 million in the year ended December 31, 2007 caused
      by:




1.
            The
                proceeds from issuance of convertible promissory note, the net proceeds
                was $7.03 million.


2.
            The
                net proceeds from the issuance of commercial bank note. As of December
                31,
                2007, Benda Ebei and Jiangling Benda deposited an amount $2,615,254
                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, 2007, the balance if the commercial
                bank
                notes payable was $5,118,758. Thus the net commercial bank notes
                payable
                was $2,503,504 as of December 31, 2007 (please refer to Note 11 of
                Notes
                to Consolidated Financial Statements for
                details).




59




**ITEM
      7.**  **FINANCIAL
      STATEMENTS**





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





**Page**Report
                of Independent Registered Public Accounting Firm
            
            
            F-1Consolidated
                Balance Sheet - As of December 31, 2007 and 2006
            
            
            F-2Consolidated
                Statements of Operations - For the years ended December 31, 2007
                and
                2006
            
            
            F-3Consolidated
                Statement of Stockholders’ Equity - For the years ended December 31, 2007
                and 2006
            
            
            F-4Consolidated
                Statements of Cash Flows - For the years ended December 31, 2007
                and 2006
            
            
            F-5Notes
                to Consolidated Financial Statements
            
            
            F-6
                to F-34




60




*KEMPISTY
                & COMPANY**CERTIFIED
                PUBLIC ACCOUNTANTS, P.C.**15
                MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272
                - FAX
                (212) 513-1930*




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board
      of
      Directors




Benda
      Pharmaceutical, Inc.




We
      have
      audited the accompanying consolidated balance sheets of Benda Pharmaceutical,
      Inc. and subsidiaries (the "Company") as of December 31, 2007 and 2006 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,
      2007. 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.




As
      discussed in Note 1 to the consolidated financial statements, the accompanying
      consolidated balance sheets as of December 31, 2007 and 2006, and the related
      consolidated statements of operations, changes in stockholders equity and cash
      flows for the years then ended have been restated.




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, 2007 and 2006 and the results of its operations
      and
      its cash flows for each of the years in the two year period ended December
      31,
      2007 in conformity with accounting principles generally accepted in the in
      the
      United States of America.









Kempisty
                & CompanyCertified
                Public Accountants PCNew
                York, New YorkMarch
                18, 2008 (Except for Note 1, June 18,
                2008)





F-1




**Benda
      Pharmaceutical, Inc.**


**Consolidated
      Balance Sheets**


**(Amounts
      expressed in U.S. Dollars)**


**December
                  31**
              
              **December
                  31****2007**
              
              **2006****(Restated)**
              
              **(Restated)****Assets**Current
                  AssetsCash
                  and cash equivalents
              $
              1,266,240
              
              $
              1,676,119Trade
                  receivables, net (Note 5)
              
              10,472,233
              
              
              6,193,585Other
                  receivables (Note 5)
              
              453,595
              
              
              99,733Refundable
                  purchase price paid (Note 6)
              
              1,200,000
              
              
              5,367,801Inventories
                  (Note 7)
              
              1,952,348
              
              
              701,339Prepaid
                  expenses and deposits (Note 5)
              
              933,299
              
              
              372,548Total
                  current assets
              
              16,277,715
              
              
              14,411,125Due
                  from related parties (Note 18)
              
              2,630,019
              
              
              1,976,815Property
                  and equipments, net (Note 8)
              
              27,123,035
              
              
              14,096,649Intangible
                  assets, net (Note 9)
              
              6,494,510
              
              
              1,569,238Goodwill
                  (Note 10)
              
              7,395,752
              
              
              -Restricted
                  cash (Note 11)
              
              3,957,624
              
              
              -Other
                  assets (Note 12)
              
              1,710,972
              
              
              -Debt
                  issue costs (Note 24)
              
              327,945
              
              
              -Total
                  Assets
              $
              65,917,572
              
              $
              32,053,827**Liabilities
                  & Shareholders' Equity**Current
                  LiabilitiesBank
                  indebtedness (Note 11)
              $
              874,490
              
              $
              -Bank
                  loans payable (current portion) (Note 13)
              
              2,867,004
              
              
              256,492Long
                  term debt payable (current portion) (Note 14)
              
              1,787,239
              
              
              -Accounts
                  payable and accrued liabilities (Note 15)
              
              4,665,984
              
              
              1,823,030Commercial
                  notes payable (Note 11)
              
              5,118,758
              
              
              -Taxes
                  payable
              
              1,279,385
              
              
              226,931Acquisition
                  price payable (Note 10)
              
              1,333,246
              
              
              -Wages
                  payable
              
              664,785
              
              
              145,904Deferred
                  revenues
              
              -
              
              
              1,732Total
                  current liabilities
              
              18,590,891
              
              
              2,454,089Long
                  term debt payable (long term portion) (Note 14)
              
              425,001
              
              
              -Long-term
                  convertible promissory notes (Note 24)
              
              2,875,075
              
              
              -Due
                  to related parties (Long-term) (Note 18)
              
              3,193,618
              
              
              3,034,365Total
                  liabilities
              
              25,084,585
              
              
              5,488,454Commitments
                  and contingencies (Note 26)
              
              -
              
              
              -Minority
                  interest
              
              5,502,755
              
              
              2,178,922Redeemable
                  common stock, 2,049,560 shares at $3.6 per share (Note 19)
              
              7,376,366
              
              
              -Shareholders'
                  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;100,170,071
                  shares issued and outstanding as of 12/31/2007;96,258,411
                  shares issued and outstanding as of 12/31/2006 (Note 25)
              
              100,170
              
              
              96,258Additional
                  paid in capital (Note 25)
              
              21,547,929
              
              
              13,099,424Retained
                  earnings (unrestricted)
              
              100,452
              
              
              7,904,434Statutory
                  surplus reserve fund (Note 17)
              
              2,310,681
              
              
              1,869,523Accumulative
                  other comprehensive income
              
              3,390,774
              
              
              1,090,409Shares
                  issuable for acquisition and services
              
              503,860
              
              
              326,403Total
                  Shareholders' Equity
              
              27,953,866
              
              
              24,386,451Total
                  Liabilities & Shareholders' Equity
              $
              65,917,572
              
              $
              32,053,827


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)**


**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 administrative expensesAmortization
                  of intangible assets
              
              
              (141,681
              )
              
              (96,615
              )Amortization
                  of debt issue costs (Note 24)
              
              
              (201,255
              )
              
              -Depreciation
              
              
              (333,964
              )
              
              (132,747
              )Bad
                  debts
              
              
              (287,482
              )
              
              (364,064
              )Director
                  remuneration
              
              
              (94,247
              )
              
              -Penalty
                  to investors (Note 20)
              
              
              (1,022,275
              )
              
              -Finder
                  fee
              
              
              (293,751
              )
              
              -Consulting
                  and professional fees (Note 19)
              
              
              (8,353,615
              )
              
              (326,403
              )Other
                  general and administrative expenses (Note 21)
              
              
              (3,173,307
              )
              
              (1,533,775
              )Total
                  general and administrative 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
                  income / (expenses) (Note 24)
              
              
              (3,389,676
              )
              
              (108,811
              )Other
                  income (expenses)
              
              
              55,964
              
              
              (281,190
              )Government
                  subsidies / grants (Note 22)
              
              
              2,276,574
              
              
              -Income
                  / (loss) before minority interest and income taxes
              
              
              (4,161,448
              )
              
              3,108,119Income
                  taxes (Note 23)
              
              
              (965,183
              )
              
              -Minority
                  interest (Note 27)
              
              
              (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




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)**


**(Restated)**
              
              **Statutory**
              
              **Accumulated**
              
              **Shares
                  Issuable****Additional**
              
              **Retained**
              
              **Surplus**
              
              **Other**
              
              **for**
              
              **Total****Common Stock**
              
              **Paid-in**
              
              **Earnings**
              
              **Reserve**
              
              **Comprehensive**
              
              **Acquisition**
              
              **Stockholder's****Shares**
              
              **Amount**
              
              **Capital**
              
              **(Unrestricted)**
              
              **Fund**
              
              **Income**
              
              **and Services**
              
              **Equity****Balance
                  at December 31, 2005**
              
              
              **64,942,360**
              
              **$**
              **64,942**
              
              **$**
              **584,481**
              
              **$**
              **5,751,566**
              
              **$**
              **1,231,427**
              
              **$**
              **271,555**
              
              **$**
              **-**
              
              **$**
              **7,903,972**Issuance
                  of common stock for cash:to
                  Original Shareholders of Applied Spectrum Technologies, Inc.
              
              
              2,954,141
              
              
              2,954
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,954Issuance
                  of common stock for cash:1/4/06,
                  1,500,000 shares at $0.05 per share
              
              
              1,500,000
              
              
              1,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,500Issuance
                  of common stock for services:1/4/06,
                  200,000 shares at $0.05 per share
              
              
              200,000
              
              
              200
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              200Issuance
                  of common stock for cash:3/10/06,
                  700,000 shares at $0.05 per share
              
              
              700,000
              
              
              700
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              700To
                  adjust par value of common stock outstandingas
                  of 3/31/06 for Applied Spectrum Co. Ltd.
              
              
              -
              
              
              -
              
              
              (5,354
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,354
              )Collective
                  issuance of common stock on 7/21/06
              
              
              50
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Collective
                  issuance of common stock on 8/30/06
              
              
              100
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Waiver
                  of the shareholder loan from Ever Leader on 9/5/06
              
              
              -
              
              
              -
              
              
              2,298,434
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,298,434Issuance
                  of common stock for cash:11/15/06,
                  25,961,760 shares at $0.4622 per share
              
              
              25,961,760
              
              
              25,962
              
              
              11,974,038
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              12,000,000Eliminate
                  the common stock and additional paid-in capitalof
                  Applied Spectrum Technologies, Inc. on 11/15/06
              
              
              -
              
              
              -
              
              
              16,215,770
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              16,215,770Eliminate
                  the accumulated deficit of Applied SpectrumTechnologies,
                  Inc., according to reverse merger on 11/15/06
              
              
              -
              
              
              -
              
              
              (16,209,962
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (16,209,962
              )Reallocate
                  original common stock of Ever Leaderto
                  paid-in capital, on 11/15/06
              
              
              -
              
              
              -
              
              
              1,285
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,285Issuance
                  of common stock to Ever Leader:11/15/06,
                  64,942,369 at par value $0.001
              
              
              -
              
              
              -
              
              
              (64,942
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (64,942
              )Reverse
                  merger on 11/15/06,placement
                  agent commission and transaction related fee
              
              
              -
              
              
              -
              
              
              (1,694,326
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,694,326
              )Allocation
                  of retained earnings to statutory reserve fund
              
              
              -
              
              
              -
              
              
              -
              
              
              (638,096
              )
              
              638,096
              
              
              -
              
              
              -
              
              
              -Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              818,854
              
              
              -
              
              
              818,854Issuance
                  of common stock to be issued for services:11/15/06,
                  706,195 shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              326,403
              
              
              326,403Eliminate
                  the net deficit of Applied Spectrum Technologies, Inc. 11/15/06
              
              
              -
              
              
              -
              
              
              -
              
              
              5,435
              
              
              -
              
              
              -
              
              
              -
              
              
              5,435Net
                  income for the year, 12/31/06
              
              
              -
              
              
              -
              
              
              -
              
              
              2,785,529
              
              
              -
              
              
              -
              
              
              -
              
              
              2,785,529**Balance
                  at December 31, 2006**
              
              
              **96,258,411**
              
              
              **96,258**
              
              
              **13,099,424**
              
              
              **7,904,434**
              
              
              **1,869,523**
              
              
              **1,090,409**
              
              
              **326,403**
              
              
              **24,386,451**Issuance
                  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 featureon
                  convertible promissory notes (Note 24)
              
              
              -
              
              
              -
              
              
              2,385,089
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,385,089Debt
                  discount - warrants issued withconvertible
                  promissory notes (Note 24)
              
              
              -
              
              
              -
              
              
              5,174,911
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5,174,911Issuance
                  of common stock for financial and technical services rendered7/12/07,
                  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 warrants7/31/07,
                  546,994 shares at $0.555 per share
              
              
              546,994
              
              
              547
              
              
              303,032
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              303,579Issuance
                  of common stock being placement agent exercised warrants8/16/07,
                  65,200 shares at $0.555 per share
              
              
              65,200
              
              
              65
              
              
              36,121
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              36,186Issuance
                  of common stock being placement agent exercised warrants10/04/07,236,813
                  shares @ $0.555 per share
              
              
              236,813
              
              
              237
              
              
              131,194
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              131,431Issuance
                  of common stock for pernalty - late effective of registration registration10/12/07,
                  166,898 shares @ $0.555 each
              
              
              166,898
              
              
              167
              
              
              92,461
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              92,628Allocation
                  of retained earnings to statutory reserve fund
              
              
              -
              
              
              -
              
              
              -
              
              
              (441,158
              )
              
              441,158
              
              
              -
              
              
              -
              
              
              0Net
                  loss for the year, 12/31/07
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,362,825
              )
              
              
              
              
              -
              
              
              -
              
              
              (7,362,825
              )Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              2,300,365
              
              
              -
              
              
              2,300,365**Balance
                  at December 31, 2007**
              
              
              **100,170,071**
              
              **$**
              **100,170**
              
              **$**
              **21,547,929**
              
              **$**
              **100,452**
              
              **$**
              **2,310,681**
              
              **$**
              **3,390,774**
              
              **$**
              **503,860**
              
              **$**
              **27,953,866**




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)**


**December 31,**
              
              **December 31,****2007**
              
              **2006****(Restated)**
              
              **(Restated)****Cash
                  Flows From Operating Activities**Net
                  income / (loss)
              
              $
              (7,362,825
              )
              $
              2,785,529Adjustments
                  to reconcile net income / (loss) to net cash provided by
                  operating activities:Consulting
                  and professional fees (Note 19)
              
              
              8,353,615
              
              
              326,403Bad
                  Debt provision
              
              
              287,482
              
              
              364,064Minority
                  interest
              
              
              2,236,194
              
              
              322,590Loss
                  on disposals of fixed assets
              
              
              30,027
              
              
              249,381Depreciation
              
              
              1,022,603
              
              
              294,805Amortization
                  of intangible assets
              
              
              504,736
              
              
              187,235Amortization
                  of debt issue costs (Note 24)
              
              
              201,255
              
              
              -Interest
                  expense (amortization of debt discount) (Note 24)
              
              
              2,875,075
              
              
              -Penalty
                  to investors settled by issuance of common stock
              
              
              92,628
              
              
              -Government
                  subsidies/grants, (Note 22)
              
              
              (2,250,240
              )
              
              -Changes
                  in operating assets and liabilities:Trade
                  receivables
              
              
              (4,351,652
              )
              
              (2,210,832
              )Other
                  receivables
              
              
              196,755
              
              
              12,787Prepaid
                  expenses and deposits
              
              
              (560,751
              )
              
              (20,236
              )Inventories
              
              
              (523,131
              )
              
              (254,257
              )Accounts
                  payable and accrued liabilities
              
              
              597,600
              
              
              526,557Others
                  payable
              
              
              -
              
              
              22,787Taxes
                  payable
              
              
              862,074
              
              
              (131,454
              )**Net
                  cash provided by operating activities**
              
              
              2,211,445
              
              
              2,475,359**Cash
                  Flows From Investing Activities**Acquisition
                  cost paid
              
              
              (2,664,244
              )
              
              -Purchases
                  of property and equipment and construction-in-progress
              
              
              (5,319,037
              )
              
              (3,294,590
              )Purchases
                  of intangible assets
              
              
              (3,094,245
              )
              
              (787,087
              )Refundable
                  purchase price paid (Note 6)
              
              
              -
              
              
              (5,367,801
              )Loans
                  to related parties, net
              
              
              -
              
              
              (532,026
              )**Net
                  cash used in investing activities**
              
              
              (11,077,526
              )
              
              (9,981,503
              )**Cash
                  Flows From Financing Actives**Proceeds
                  of sales unit of common stock, net of financing cost
              
              
              -
              
              
              10,305,674Proceeds
                  from issuance of convertible promissory note (Note 24)
              
              
              7,030,800
              
              
              -Proceeds
                  of shareholder loan from Ever Leader
              
              
              -
              
              
              2,298,434Proceeds
                  and repayments of borrowings under related parties, net
              
              
              (592,893
              )
              
              (2,438,555
              )Proceeds
                  and repayments of borrowings under government debts payable, net
              
              
              19,210
              
              
              -Proceeds
                  and repayments of borrowings under commercial bank notes, net (Note
                  11)
              
              
              2,503,504Proceeds
                  and repayments of borrowings under bank loans, net
              
              
              (748,367
              )
              
              (1,714,492
              )**Net
                  cash provided by (used in) financing activities**
              
              
              8,212,254
              
              
              8,451,061Effect
                  of exchange rate changes on cash
              
              
              243,948
              
              
              423,119**Net
                  increase in cash and cash equivalents**
              
              
              (409,879
              )
              
              1,368,037**Cash
                  and cash equivalents, beginning of period**
              
              
              1,676,119
              
              
              308,082**Cash
                  and cash equivalents, end of period**
              
              **$**
              1,266,240
              
              **$**
              1,676,119**Supplemental
                  Disclosure of Cash Flow Information****Cash
                  paid for interest**
              
              **$**
              213,113
              
              **$**
              113,458**Cash
                  paid for income taxes**
              
              **$**
              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.**
            **Restatement
                of Previously Issued Financial
                Statements**


Benda’s
      previously issued financial statements are being restated as a result of an
      internal review of its previously issued financial statements, which review
      was
      prompted by an SEC comment during its review of the Company’s Form S-1 filing.
      After a review of the comment and further analysis, Benda determined that it
      incorrectly calculated its depreciation and amortization expense. Benda also
      believes such restatements reflect the correction of any errors and omissions
      of
      material disclosures in the financial statements in accordance with SFAS 154:
      Accounting changes and error corrections (as amended).




The
      following are explanations of the restatement adjustments and presentation
      of
      affected accounts in the consolidated balance sheet and statement of operations
      as previously reported and restated.




**Statements
      of Operations for the Year Ended December 31, 2007 and
      2006**




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.




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.




**Balance
      Sheets December 31, 2007 and 2006**




Adjustments
      were made to Property and Equipment, net and Intangible assets, net and Retained
      (deficit) earnings unrestricted to reflect the restatement of the statements
      of
      operations.




The
      consolidated financial statements as of December 31, 2007 and 2006 and for
      the
      ended December 31, 2007 and 2006, and the notes thereto, have been restated
      to
      include the items identified above. The following financial statement line
      items
      were impacted:




**Consolidated
      Balance Sheet**


As PreviouslyReported
              
              RestatedYear Ended
              
              Year EndedDecember 31,
              
              December 31,2007
              
              2007Property
                  and equipments, net
              
              $
              26,275,871
              
              $
              27,123,035Intangible
                  assets, net
              
              
              6,359,000
              
              
              6,494,510Retained
                  (deficit) earnings unrestricted
              
              $
              (833,090
              )
              $
              100,452




F-6




**Consolidated
      Statement of Operations**


As PreviouslyReported
              
              RestatedYear Ended
              
              Year EndedDecember 31,
              
              December 31,2007
              
              2007Cost
                  of goods sold
              
              $
              (13,913,034
              )
              $
              (13,421,697
              )As
                  included in General and administrative expensesDepreciation
                  expense
              
              $
              (333,964
              )
              $
              (333,964
              )Amortization
                  expense
              
              
              (141,681
              )
              
              (141,681
              )Total
                  operating expense
              
              
              (16,067,221
              )
              
              (16,067,221
              )Operating
                  income / (loss)
              
              
              (3,595,647
              )
              
              (3,104,310
              )Income
                  / (loss) before minority interest and income taxes
              
              
              (4,652,785
              )
              
              (4,161,448
              )Net
                  income / (loss)
              
              
              (7,829,595
              )
              
              (7,362,825
              )Earnings
                  / (loss) per share - basic
              
              
              (0.08
              )
              
              (0.07
              )Earnings
                  / (loss) per share - diluted
              
              $
              (0.06
              )
              $
              (0.06
              )




**Consolidated
      Balance Sheet**


As PreviouslyReported
              
              RestatedYear Ended
              
              Year EndedDecember 31,
              
              December 31,2006
              
              2006Property
                  and equipments, net
              
              $
              13,673,067
              
              $
              14,096,649Intangible
                  assets, net
              
              
              1,501,483
              
              
              1,569,238Retained
                  (deficit) earnings unrestricted
              
              $
              7,437,663
              
              $
              7,904,434




**Consolidated
      Statement of Operations**


As PreviouslyReported
              
              RestatedYear Ended
              
              Year EndedDecember 31,
              
              December 31,2006
              
              2006Cost
                  of goods sold
              
              $
              (9,594,852
              )
              $
              (9,103,515
              )As
                  included in General and administrative expensesDepreciation
                  expense
              
              $
              (132,747
              )
              $
              (132,747
              )Amortization
                  expense
              
              
              (96,615
              )
              
              (96,615
              )Total
                  operating expense
              
              
              (3,333,377
              )
              
              (3,333,377
              )Operating
                  income / (loss)
              
              
              3,006,783
              
              
              3,498,120Income
                  / (loss) before minority interest and income taxes
              
              
              2,616,782
              
              
              3,108,119Net
                  income / (loss)
              
              
              2,318,758
              
              
              2,785,529Earnings
                  / (loss) per share - basic
              
              
              0.03
              
              
              0.04Earnings
                  / (loss) per share - diluted
              
              $
              0.03
              
              $
              0.04




**2.**
            **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.




F-7




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 $8.22 million. As of December 31, 2007, an accumulated
      amount, approximately Rmb52.9 million or $6.89 million was paid and leaving
      a
      balance approximately $1.33 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-8




As
      of
      December 31, 2007, the organization and ownership structure of the Group is
      as
      follows:




Benda





**3.**
            **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, 2007 and 2006, the Company provided a $943,667 and $467,015
      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.




F-9




For
      the
      year ended December 31, 2007 and 2006, the Company provided a reserve against
      its work-in-progress amounting to $4,422,014 and none respectively. The reserve
      was raised due to the fact that most of the original liquid, a liquid element
      o
      produce Gendicine, was produced in the year of 2004 and this particular liquid
      can only be stored for approximately five years, therefore a reserve was provide
      against the work-in-progress (see Note 7). However, no reserve for obsolete,
      slow-moving or non-salable inventory was required for the reporting periods.




**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
              
              
              20-30 yearsMachinery
                  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.




**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. The Group believes that long-lived assets in the
      accompanying consolidated balance sheets are appropriately valued at December
      31, 2007 and 2006.




**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.




F-10




**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 Company spent $553,962 and $30,821 on direct research and
      development (“R&D”) efforts in 2007 and 2006, 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.




**Concentration
      of Credit Risk**


A
      significant portion of the Group's cash at December 31, 2007 and 2006 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.




F-11




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, 2007 and 2006:




December 31,
            
            December 31,2007
            
            2006Revenue
            
            $
            26,384,608
            
            
            
            %
            $
            15,935,012
            
            
            
            %*Individual
                customer's revenue*Zhuhai
                Gongbei Pharmaceutical Co, Ltd.
            
            
            5,034,917
            
            
            10
            %
            
            2,691,168
            
            
            17
            %Shenzhen
                Huihua Pharmaceutical Co. Ltd.
            
            
            3,264,033
            
            
            8
            %
            
            2,126,246
            
            
            13
            %Shenyang
                Pharmaceutical Co. Ltd.
            
            
            2,784,912
            
            
            8
            %
            
            2,054,462
            
            
            13
            %Jiangxi
                Huiren Pharmaceutical Co. Ltd.
            
            
            2,360,264
            
            
            7
            %
            
            1,962,436
            
            
            12
            %Hubei
                Jiuzhoutong Pharmaceutical Co. Ltd
            
            
            1,314,444
            
            
            5
            %
            
            128,869
            
            
            1
            %Zhongxin
                Pharmaceutical Co.,Ltd
            
            
            1,263,442
            
            
            5
            %
            
            -
            
            
            0
            %Account
                receivable, gross
            
            $
            10,909,921
            
            
            
            %
            $
            6,650,854
            
            
            
            %*Individual
                customer's account receivable gross balance*Zhuhai
                Gongbei Pharmaceutical Co, Ltd.
            
            
            1,658,203
            
            
            15
            %
            
            2,691,168
            
            
            40
            %Hubei
                Hengzhou Health Products Ltd.
            
            
            1,154,881
            
            
            11
            %
            
            -
            
            
            0
            %Shenzhen
                Huihua Pharmaceutical Co. Ltd.
            
            
            1,111,545
            
            
            10
            %
            
            2,126,246
            
            
            32
            %Shenyang
                Pharmaceutical Co. Ltd.
            
            
            903,202
            
            
            8
            %
            
            2,054,462
            
            
            31
            %Zhongxin
                Pharmaceutical Co.,Ltd
            
            
            694,637
            
            
            6
            %
            
            -
            
            
            0
            %Jiangxi
                Huiren Pharmaceutical Co. Ltd.
            
            
            486,843
            
            
            4
            %
            
            1,962,436
            
            
            30
            %




**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.




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, 2007 and 2006 were stated as follows:
      (for RMB 1.00):


December 31,
              
              December 31,2007
              
              2006Fixed
                  rate
              
              $
              0.1371
              
              $
              0.1283Average
                  rate
              
              $
              0.1317
              
              $
              0.1256




For
      the
      year ended December 31, 2007, the foreign exchange gain was $2,302; and for
      the
      year ended December 31, 2006, the foreign exchange loss was
      $39,377.




F-12




**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.




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.




**4.**
            **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 and Beijing Shusai for the full year
      and
      Sibiono from April 1, 2007 (date of acquisition) All significant inter-company
      balances and transactions have been eliminated in
      consolidation.


F-13


**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.




**5.**
            **Trade
                Receivables, Other Receivables and Prepaid and Deposits - 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 and deposit as of
      December 31, 2007 and 2006:


December 31,
              
              December 31,2007
              
              2006Trade
                  receivables, gross
              
              $
              10,909,921
              
              $
              6,660,600Allowance
                  for doubtful debts
              
              
              (437,688
              )
              
              (467,015
              )Trade
                  receivables, net
              
              $
              10,472,233
              
              $
              6,193,585December 31,
              
              
              December 31,2007
              
              
              2006Other
                  receivables, gross
              
              $
              614,971
              
              $
              99,733Allowance
                  for doubtful debts
              
              
              (161,376
              )
              
              -Other
                  receivables, net
              
              $
              453,595
              
              $
              99,733December 31,
              
              
              December 31,2007
              
              
              2006Prepaid
                  and deposits, gross
              
              $
              1,277,882
              
              $
              372,548Allowance
                  for doubtful debts
              
              
              (344,583
              )
              
              -Prepaid
                  and deposits, net
              
              $
              933,299
              
              $
              372,548




The
      change of the allowance for doubtful debts between the reporting periods, as
      of
      December 31, 2007 and 2006, is displayed as follows:


December 31,
              
              December 31,2007
              
              2006Balance
                  at beginning of year
              
              $
              (467,015
              )
              $
              (92,014
              )Provision
                  during the year
              
              
              (287,482
              )
              
              (364,064
              )Addition
                  in lieu of acquisition of SiBiono
              
              
              (121,912
              )
              
              -Foreign
                  exchange difference
              
              
              (67,238
              )
              
              (10,937
              )Balance
                  at end of year
              
              $
              (943,647
              )
              $
              (467,015
              )




F-14





6.
            Refundable
                Purchase Price Paid


The Group’s
      refundable purchase price at December 31, 2007 and 2006 are comprised as
      follows:





December 31,
            
            December 31,2007
            
            2006Advance
                for acquire intangible assets
            
            $
            1,200,000
            
            $
            1,200,000Advance
                for acquire Sibiono
            
            
            -
            
            
            4,167,801Total
            
            $
            1,200,000
            
            $
            5,367,801




a)
            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. As at December 31, 2007, the deal has not been closed
                as
                the product certificate still not received from FDA of the United
                States
                of America and the amount paid is refundable per agreement if such
                approval is not obtained.




b)
            In
                December 2006, Benda, through its 95% owned subsidiary Benda Ebei,
                plans
                to enter into an agreement with the two controlling shareholders
                of
                Shenzhen Sibiono GeneTech Co. Ltd. (“SiBiono”) to purchase a total of
                approximately 58% of the ownership of Sibiono for total cash consideration
                of approximately Rmb 60 million (or $7.7 million). Due to this possible
                acquisition, Benda, through its subsidiaries Everleader and Benda
                Ebei, as
                of December 31, 2006, advanced approximately RMB 13.03 million (or
                $1.67
                million) to Shenzhen Yuanxing Gene City Development Co., Ltd. and
                approximately HK$19.42 million (or $2.5 million) to Shenzhen Yuanzheng
                Investment Development Co., Ltd. as deposits for the pending acquisition
                of their shares in SiBiono. The acquisition was closed on April 5,
                2007,
                and thus the total advanced amount of $4,167,801 was relcassified
                as
                investment cost.




**7.**
            **Inventories**




The
      Group’s inventories a t
      December 31, 2007 and December 31, 2006 were comprised as follows:





December 31,
            
            December 31,2007
            
            2006Raw
                materials
            
            $
            1,078,438
            
            $
            311,064Packing
                materials
            
            
            155,101
            
            
            80,639Other
                materials / supplies
            
            
            93,206
            
            
            -Finished
                goods
            
            
            415,627
            
            
            309,637Work-in-progress
            
            
            4,631,990
            
            
            -Total
                inventories at cost
            
            
            6,374,362
            
            
            701,339Less:
                Reserves on work-in-progress
            
            
            (4,422,014
            )
            
            -Total
                inventories, net
            
            $
            1,952,348
            
            $
            701,339





No
      reserve for obsolete, slow-moving or non-salable inventory were required at
      the
      year ended December 31, 2006, and an amount $4,422,014 was made a reserve on
      work-in-progress at the year ended December 31, 2007.





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.





F-15





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





Benda





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-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 progress 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-progress.
      As of December 31, 2007, the provision of reserve on work in progress was
      $4,422,014.





F-16





**8.**
            **Property
                and Equipment****(Restated)**




The
      Group’s property and equipment a t
      December 31, 2007 and December 31, 2006 were comprised as follows:





December 31,
              2006
            
            Addition
            
            Disposal
            
            Foreign
              Currency
                Translation Difference
            
            December 31,
              2007Buildings
            
            $
            2,227,710
            
            
            6,108,113
            
            
            (19,835
            )
            
            542,138
            
            $
            8,858,126Machinery
                and equipment
            
            
            3,941,187
            
            
            10,571,781
            
            
            (302,952
            )
            
            1,050,151
            
            
            15,260,167Office
                equipment
            
            
            10,672
            
            
            18,766
            
            
            (491
            )
            
            (185
            )
            
            28,762Motor
                Vehicles
            
            
            32,971
            
            
            182,597
            
            
            -
            
            
            (9,316
            )
            
            206,252Cost
            
            
            6,212,540
            
            
            16,881,257
            
            
            (323,278
            )
            
            1,582,788
            
            
            24,353,307Less:
                Accumulated DepreciationBuildings
            
            $
            (778,238
            )
            
            (137,645
            )
            
            5,098
            
            
            (70,331
            )
            $
            (981,116
            )Machinery
                and equipment
            
            
            (1,512,562
            )
            
            (845,147
            )
            
            106,028
            
            
            (171,321
            )
            
            (2,423,002
            )Office
                equipment
            
            
            (2,748
            )
            
            (2,520
            )
            
            61
            
            
            926
            
            
            (4,281
            )Motor
                Vehicles
            
            
            (7,129
            )
            
            (37,291
            )
            
            -
            
            
            (2,027
            )
            
            (46,447
            )Accumulated
                Depreciation
            
            
            (2,300,678
            )
            
            (1,022,603
            )
            
            111,187
            
            
            (242,753
            )
            
            (3,454,846
            )Construction
                in progress
            
            $
            10,184,787
            
            
            (4,478,528
            )
            
            -
            
            
            518,316
            
            $
            6,224,575Total
                property and equipment, net
            
            $
            14,096,649
            
            
            11,380,126
            
            
            (212,091
            )
            
            1,858,351
            
            $
            27,123,035




The
      table
      above shows the fixed assets movement during the year of 2007. In which, the
      net
      book value of SiBiono’s fixed assets was recorded as the addition in the year of
      2007 when the acquisition was taken place and effective on April 1, 2007. The
      accumulated depreciation from SiBiono as of March 31, 2007 was not carried
      forward. As of March 31, 2007, the net book value of SiBiono’s fixed assets was
      approximately $6.9 million, in which $183K was accounted for buildings; $1.6
      million was accounted for machinery and equipment; $5.7K was accounted for
      office equipment; $18.5K was accounted for motor vehicles; and $5.1 million
      was
      accounted for construction in progress at original cost.




As
      mentioned in Note 11 and Note 28, Benda Ebei entered into a commercial bank
      note
      issuance agreement with Shanghai Pudong Development Bank on August 14, 2007
      and
      this credit facility is guaranteed by SiBiono and secured by the buildings,
      machinery and equipment of Benda Ebei. As of December 31, 2007, the net book
      value of secured property and equipment was approximately Rmb 67.33 million
      (or
      $9.2 million).




The
      deprecation expense for the year ended December 31, 2007 was calculated as
      follows:





CostDecember 31,
            
            December 31,
            
            
            
            Salvage
            
            Estimated
            
            Depreciation
            
            Deprecation2006
            
            2007
            
            Average
            
            Value
            
            Useful lives
            
            Calculated
            
            Reported
            
            DifferenceBuilding
            
            $
            2,227,710
            
            
            8,858,126
            
            
            5,542,918
            
            
            5
            %
            
            25
            
            
            210,625
            
            
            137,645
            
            
            72,980Property
                and equipment
            
            
            3,941,187
            
            
            15,260,167
            
            
            9,600,677
            
            
            5
            %
            
            12.5
            
            
            729,650
            
            
            845,147
            
            
            (115,497
            )Office
                equipment
            
            
            10,672
            
            
            28,762
            
            
            19,717
            
            
            5
            %
            
            5
            
            
            3,746
            
            
            2,520
            
            
            1,226Motor
                vehicle
            
            
            32,971
            
            
            206,252
            
            
            119,611
            
            
            5
            %
            
            5
            
            
            22,726
            
            
            37,291
            
            
            (14,565
            )Total
            
            $
            6,212,540
            
            
            24,353,307
            
            
            15,282,924
            
            
            
            
            
            
            
            
            966,747
            
            
            1,022,603
            
            
            (55,856
            )





The
      above
      table shows the calculation of depreciation expenses for the year ended December
      31, 2007. The difference between the depreciation calculated and depreciation
      reported was due to the changes of foreign exchange translation.




The
      weighted average useful lives are used as the base for the calculation of
      depreciation as the estimated useful lives for buildings and property and
      equipments are varies from 20 to 30 years and 10 to 15 years, respectively.





F-17





The
      total
      depreciation expense was $1,022,603and $294,805 for the years ended December
      31,
      2007 and 2006, respectively, and is broken down as follows:





December 31,
            
            December 31,2007
            
            2006Cost
                of sales
            
            $
            688,639
            
            $
            162,058Operating
                expenses
            
            
            333,964
            
            
            132,747Balance
                at end of period
            
            $
            1,022,603
            
            $
            294,805





**9.**
            **Intangible
                Assets****(Restated)**




The
      Group’s intangible assets a t
      December 31, 2007 and December 31, 2006 were comprised as follows:





December 31,
              2006
            
            Addition
            
            Foreign
              Currency
              Translation
              Difference
            
            December 31,
              2007Land-use
                rights
            
            $
            1,068,036
            
            
            1,656,038
            
            
            151,722
            
            $
            2,875,796Drugs
                permits and licenses
            
            
            1,055,893
            
            
            1,316,700
            
            
            192,403
            
            
            2,564,996Technology
                formulas
            
            
            679,700
            
            
            474,012
            
            
            66,452
            
            
            1,220,164Patent
            
            
            -
            
            
            1,619,180
            
            
            66,739
            
            
            1,685,919Cost
            
            
            2,803,630
            
            
            5,065,930
            
            
            477,316
            
            
            8,346,875Land-use
                rights
            
            $
            (136,790
            )
            
            (51,202
            )
            
            (13,038
            )
            $
            (201,030
            )Drugs
                permits and licenses
            
            
            (1,031,392
            )
            
            (175,685
            )
            
            (84,348
            )
            
            (1,291,425
            )Technology
                formulas
            
            
            (66,210
            )
            
            (80,757
            )
            
            (7,896
            )
            
            (154,863
            )Patent
            
            
            -
            
            
            (197,092
            )
            
            (7,955
            )
            
            (205,047
            )Accumulated
                amortization
            
            
            (1,234,391
            )
            
            (504,736
            )
            
            (113,237
            )
            
            (1,852,364
            )Total
                intangible assets, net
            
            $
            1,569,238
            
            
            4,561,194
            
            
            364,079
            
            $
            6,494,510





The
      table
      above shows the intangible assets movement during the year of 2007. In which,
      the net book value of SiBiono’s intangible assets was recorded as the addition
      in the year of 2007 when the acquisition was taken place and effective on April
      1, 2007. In order words, the accumulated amortization from SiBiono, as of March
      31, 2007 was not carried forward. As of March 31, 2007, the net book value
      of
      SiBiono’s intangible assets was approximately $1.97 million, in which $353K was
      accounted for land use rights; $1.62 million was accounted for
      patents.




As
      of
      December 31, 2007, the cost of intangible assets was increased by $5,065,930
      which was mainly composed of the followings:




a)
            Due
                to the acquisition of SiBiono, two items were included: (1) patent,
                the
                innovation and research results of Genedicine, with cost $1,619,180;
                (2)
                land use right with a total area 20,574 square meters, with cost
                $352,505




b)
            Benda
                Ebei purchased a land use right with total purchase cost Rmb 9.9
                million
                (or $1.3 million). During the year ended December 31, 2007, an amount
                Rmb
                6.71 million (or $0.92 million) was paid.




c)
            Benda
                Ebei purchased a license for a new drug, which is a kind of anti-virus
                product in nature with total purchase cost Rmb 10 million (or $1.30
                million). During the year ended December 31, 2007, an amount Rmb
                9 million
                (or $1.20 million) was paid.




d)
            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 Rmb 2 million and the full amount was paid during year ended
                December
                31, 2007 for obtaining such exclusive right.




F-18




e)
            In
                July 2004, Yidu Benda entered into a co-operation agreement with
                Sanxia
                University Chemical Science Research Institute. Under the terms of
                the
                agreement, Sanxia University Chemical Science Research Institute
                will
                improve the existing product L-Methionine and transfer the exclusive
                development and distribution rights of L-Methionine to Yidu Benda.
                The
                total purchase cost Rmb1.6 million and $0.15 million was paid in
                the Year
                of 2006 for obtaining such exclusive right and recognized as intangible
                assets as of December 31, 2007.




The
      amortization expense for the year ended December 31, 2007 was calculated as
      follows:





CostDecember 31,
            
            December 31,
            
            
            
            Estimated
            
            Amortization
            
            Amortization2006
            
            2007
            
            Average
            
            Useful lives
            
            Calculated
            
            Reported
            
            DifferenceLand-use
                rights
            
            $
            1,068,036
            
            
            2,875,796
            
            
            1,971,916
            
            
            40
            
            
            49,298
            
            
            51,202
            
            
            (1,904
            )Drugs
                permits and licenses
            
            
            1,055,893
            
            
            2,564,996
            
            
            1,810,444
            
            
            10
            
            
            181,044
            
            
            175,685
            
            
            5,359Technology
                formulas
            
            
            679,700
            
            
            1,220,164
            
            
            949,932
            
            
            10
            
            
            94,993
            
            
            80,757
            
            
            14,236Patent
            
            
            -
            
            
            1,685,919
            
            
            1,685,919
            
            
            6
            
            
            210,740
            
            
            197,092
            
            
            13,648Total
            
            $
            2,803,629
            
            
            8,346,875
            
            
            6,418,211
            
            
            
            
            
            536,075
            
            
            504,736
            
            
            31,339




The
      above
      table shows the calculation of amortization expenses for the year ended December
      31, 2007. The difference between the amortization calculated and amortization
      reported was due to the changes of foreign exchange translation.




From
      the
      above calculation table, the patent, $1.68 million, was acquired in during
      the
      acquisition of SiBiono. It is amortized over the remaining useful lives, 6
      years, whereas the original useful lives are 10 years.




The
      total
      depreciation expense was $1,022,603and $294,805 for the years ended December
      31,
      2007 and 2006, respectively, and is broken down as follows:





December 31,
            
            December 31,2007
            
            2006Cost
                of sales
            
            $
            363,055
            
            $
            90,620Operating
                expenses
            
            
            141,681
            
            
            96,615Balance
                at end of period
            
            $
            504,736
            
            $
            187,235




**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.





F-19




As
      of
      December 31, 2007, there was an amount approximately $7.4 million was recorded
      as goodwill. Since SiBiono was turned to be profitable for the year ended
      December 31, 2007, no impairment would be provided.




The
      total
      consideration for the acquisition of SiBiono is Rmb 62.56 million (or $8.22
      million). The form of the consideration payment is by cash. As of December
      31,
      2007, an accumulated amount, approximately Rmb 52.9 million (or $6.89 million)
      was paid and leaving a balance of $1.33 million as acquisition cost payable.
      The
      Group has already obtained the oral consent from the selling shareholders of
      SiBiono that the remaining balance could be settled within the year 2008.





**11.**
            **Restricted
                Cash, Bank Indebtedness and Commercial Notes
                Payable**




The
      Group’s restricted cash at December 31, 2007 and December 31, 2006 was comprised
      as follows:





December 31,
            
            December 31,2007
            
            2006Deposits
                for issuance of commercial notes
            
            $
            2,615,254
            
            $
            -Funds
                from government technolgy agencies
            
            
            1,342,370
            
            
            -Total
                restricted cash
            
            $
            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;


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.




As
      of
      December 31, 2007, Benda Ebei and Jiangling Benda deposited an amount $2,615,254
      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, 2007, the balance if the commercial bank notes
      payable was $5,118,758. Thus the net commercial bank notes payable was
      $2,503,504 as of December 31, 2007.




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 13 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.




F-20





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 $1,342,370 as of December
      31,
      2007. 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 $874,490 as of December 31, 2007.




**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
      ($1.75 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 $1.71 million.





F-21





**13.**
            **Bank
                Loans Payable**




The
      Group’s bank loans as
      of
      December 31, 2007 and December 31, 2006 were comprised as follows:





December 31,
            
            December 31,2007
            
            2006Bank
                loans due within one year
            
            $
            2,867,004
            
            $
            256,492Bank
                loans due after one year
            
            
            -
            
            
            -Total
                bank loans
            
            $
            2,867,004
            
            $
            256,492




As
      of
      December 31, 2006, the Group had one outstanding bank loans with an amount
      $256,492 which was used primarily to fund construction in progress projects
      and
      for general working capital purposes and this loan had been settled as of
      December 31, 2007.




As
      of
      December 31, 2007, Sibiono, had one outstanding bank loan with an amount
      $2,867,004 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 payable monthly on the 20 th day of
      each month with maturity in 3 years, starting from April 30, 2005 and matures
      on
      April 29, 2008. This loan is considered as a term loan and is not revolving
      or
      renewable. This loan is personal guaranteed by Zhaohui Peng, the Chairman and
      a
      shareholder of SiBiono.




Total
      interest expense paid
      related to the Group’s outstanding bank loans was $214,113 and $113,458 for the
      years ended December 31, 2007 and 2006, respectively.




**14.**
            **Long
                Term Debt Payable**




As
      of
      December 31, 2007, 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, 2007 and December 31, 2006 were comprised
      as
      follows:




December 31,
            
            December 31,2007
            
            2006Long-term
                debt payable due within one year
            
            $
            1,787,239
            
            $
            -Long-term
                debt payable due after one year
            
            
            425,001
            
            
            -Total
                long-term debt payable
            
            $
            2,212,240
            
            $
            -





Even
      though there were $1,787,239 long term debt payable due within one year as
      of
      December 31, 2007, because of its non-repayable feature, 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, 2007, an amount of Rmb 17,090,000 (or $2,250,240)
      of
      long term debt payable was discharged and recorded as government subsidies,
      (see
      Note 22 for the related details).





F-22




**15.**
            **Accounts
                Payable and Accrued
                Liabilities**




The
      Group’s accounts
      payable and accrued liabilities as of December 31, 2007 and December 31, 2006
      were comprised as follows:




December 31,
            
            December 31,2007
            
            2006Trade
                payable
            
            $
            305,443
            
            $
            387,073Deposits
                paid by customer
            
            
            160,818
            
            
            2,488Acquistion
                cost payable following the arbitration (Note 12)
            
            
            1,754,263Accrued
                liabilities
            
            
            2,162,455
            
            
            1,165,300Miscellaneous
                payables
            
            
            283,005
            
            
            268,169Total
                account payables and accurred liabilities
            
            $
            4,665,984
            
            $
            1,823,030





**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, 2007 and 2006, the Group accrued approximately
      $345,000 and $146,000 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, 2007 and 2006, the registered capital of the Group’s PRC
      subsidiaries was $20,026,617 and $12,017,575, respectively.




**18.**
            **Related
                Party Transactions**




Due
      from related
      parties at December 31, 2007 and 2006 were comprised as follows:





December 31,
            
            December 31,2007
            
            2006Yiqing,
                WanDue
                to Ever Leader Holdings Co. Ltd.
            
            $
            646,429
            
            $
            455,275Due
                to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
            
            
            72,949
            
            
            -Due
                to Shenzhen SiBiono Gene Tech Co. Ltd.
            
            
            3,608
            
            
            -Hubei
                Benda Science and Technology Co. LtdDue
                to Yidu Benda Chemicals Co. Ltd.
            
            
            1,502,118
            
            
            1,299,479Due
                to Ever Leader Holdings Co. Ltd.
            
            
            230,160
            
            
            210,518Feng
                WangDue
                to Beijing Shusai Pharyngitis Research Co. Ltd.
            
            
            29,318
            
            
            11,543Hua
                ShenDue
                to Shenzhen SiBiono Gene Tech Co. Ltd.
            
            
            137,097
            
            
            -Pong
                TsaiohueiDue
                to Shenzhen SiBiono Gene Tech Co. Ltd.
            
            
            3,257
            
            
            -Xiaozhi
                ZhangDue
                to Shenzhen SiBiono Gene Tech Co. Ltd.
            
            
            5,083
            
            
            -Total
                due from related parties
            
            $
            2,630,019
            
            $
            1,976,815





F-23





Due
      to
      related parties at December 31, 2007 and, 2006 were comprised as
      follows:





December 31,
            
            December 31,2007
            
            2006Hubei
                Benda Science and Technology Co. LtdDue
                fromHubei Tongji Benda Ebei Phamacetucial Co. Ltd.
            
            $
            49,056
            
            $
            236,205Due
                fromJiangliang Benda Pharamaceutical Co. Ltd.
            
            
            1,872,374
            
            
            1,833,358Due
                from Beijing Shusai Pharyngitis Research Co. Ltd.
            
            
            6,846
            
            
            -Wei
                XuDue
                fromHubei Tongji Benda Ebei Phamacetucial Co. Ltd.
            
            
            1,009,792
            
            
            943,865Due
                from Beijing Shusai Pharyngitis Research Co. Ltd.
            
            
            61,491
            
            
            20,937Yiqing,
                WanDue
                fromShenzhen SiBiono Gene Tech Co. Ltd.
            
            
            137,687
            
            
            -Hui
                XuDue
                fromHubei Tongji Benda Ebei Phamacetucial Co. Ltd.
            
            
            26,622.00
            
            
            -Due
                from Beijing Shusai Pharyngitis Research Co. Ltd.
            
            
            3,153.00
            
            
            -Hua
                ShenDue
                fromShenzhen SiBiono Gene Tech Co. Ltd.
            
            
            26,597.00
            
            
            -Total
                due to related parties$
            3,193,618
            
            $
            3,034,365




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.




**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 1.9 million shares is redeemable), Wang (33,585 shares,
      redeemable) and Zhang (55,975 share, redeemable) within three months from the
      date of the Agreements. 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, 2007.





F-24




The
      total
      consulting and professional fees was $8,353,615 and which was composed
      of:




a)
            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.




b)
            As
                of December 31, 2007, the placement agent, Keating Investment, exercised
                it warrants at a strike price $0.555 per share through the cashless
                arrangement. The amount of warrants being exercised was 849,007,
                thus the
                corresponding amount $471,199 was recorded as consulting and professional
                fees.




**20.**
            **Penalty
                to investors**


In
      accordance with FASB staff position No. EITF00-19-2 the Group recorded
      $1,022,275 in Registration Delay Expense, starting from August 15, 2007 till
      December 31, 2007. Out of the total penalty, $143, 225 was paid in cash during
      the year ended December 31, 2007; $92,628 was settled by issuance of 166,898
      shares of common stock at strike price of $0.555 per share.




**21.**
            **Other
                general and administrative**


For
      the
      years ended December 31, 2007 and 2006, the amount of other general and
      administrative expenses mainly composed of the following events:





December 31,
            
            December 31,2007
            
            2006Audit
                and accounting
            
            $
            405,364
            
            $
            521,977Legal
                fees
            
            
            304,649
            
            
            114,993Office
                expenses
            
            
            428,219
            
            
            210,696Salaries
                and wages
            
            
            961,797
            
            
            221,174Consulting
            
            
            221,044
            
            
            191,248Rent
                & Utilities
            
            
            77,132
            
            
            21,313Investor
                relation, Transfer agent and filing fees
            
            
            109,540
            
            
            9,828Travel
                and transportation
            
            
            239,316
            
            
            87,264Miscellaneous
            
            
            426,246
            
            
            155,282Total
                other general & administrative
            
            $
            3,173,307
            
            $
            1,533,775




**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 is
      taken place, the obligation of a particular debt payable is discharge
      accordingly.





F-25





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 reporting period ended December 31, 2007, an amount of
      Rmb
      17,090,000 (or $2,250,240) was recognized as government subsidies / grants
      and
      the corresponding debt payable was discharged. In addition, SiBiono obtained
      government rewards to enterprise holding superior intellectual property rights
      of Rmb 200,000 (or $26,334), which was also recognized as subsidy
      income.




**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, 2007 and 2006 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 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.




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 would
      be
      changed from 33% to 25% according to the new PRC Taxation Regulations.
      Thereafter these subsidiaries will be subject to the regular full income tax
      rate at 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, only Benda Ebei incurred income tax for the year ended December 31,
      2007
      of Rmb 7.3 million (or $0.9 million). There was no income tax of the Group
      for
      the years ended December 31, 2006.




**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:





F-26




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. At December 31, 2007, the aggregate $7,560,000 principal balance
      of the notes remained outstanding and during the year ended December 31, 2007,
      the Group recorded $224,522 of interest expense related to the
      Notes.




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.




During
      the year ended December 31, 2007, the Group recorded $2,875,075 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, 2007, the Group recorded $201,255 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.




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.




F-27




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.




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, 2007
      the
      Group recorded $1,022,275 for Registration Delay Expense or penalty to
      investors. EITF 00-19-2 requires the Group to record the expense when it is
      probable that the liability has been incurred and the amount can be reasonably
      estimated.




**25.**
            **Common
                Stock, Preferred Stock, Additional Paid-in Capital, Warrants and
                Options**




As
      of
      December 31, 2007, and 2006, the Group had an aggregate of:




(a)
            None
                shares of preferred stock issued and
                outstanding;




F-28




(b)
            As
                of December 31, 2006, 96,258,411 shares of common stock were issued
                and
                outstanding, par value $0.001 each; During the reporting period of
                the
                year 2007: (i) 2,189,560 common shares were issued to Super Pioneer,
                Yaojin Wang and Huimin Zhang (see Note 19); (ii) 849,007 common shares
                were issued to placement agent for being exercised their warrants
                (see
                Note 19); (iii) 166,898 shares were issued to PIPE investors for
                being
                late submission of 10K-SB (see Note 20); and (iv) 706,195 shares
                were
                issued to the various consultants who rendered services related to
                the
                reverse merger and were valued at the private placement offering
                price at
                $0.4622 per share on November 15, 2006. Thus, the share of common
                stock
                issued and outstanding was 100,170,071 as of December 31,
                2007.




(c)
            The
                following tables shows the events occurred in additional paid-in
                capital:




December 31,
            
            Events occurred
            
            December 31,Events
            
            2006
            
            during the year
            
            2007To
                record the changes of par value from $0.01 to $0.001 of 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
                shell company "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 fee
                of
                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
            
            
            92,461Additional
                paid-in capital, balance for the period ended
            
            $
            13,099,424
            
            
            8,448,505
            
            $
            21,547,929




(d)
            As
                of December 31, 2006, 28,557,936 Warrants, each convertible into
                one (1)
                share of the Group’s Common Stock, issued and outstanding, and as of
                December 31, 2007, since the placement agent exercised 849,007 warrants
                through the cashless arrangement, thus the remaining balance was
                27,708,929;


(e)
            None
                options issued and outstanding.




**26.**
            **Commitments
                and Contingencie****s**




As
      of
      December 31 2007, there was an operating lease commitment and the amounts are
      stated as follows;


Decemebr 31,2007Rental
                  and Property Management FeeWithin
                  one year
              
              $
              107,600One
                  to two year
              
              
              73,691Total
                  commitments payable
              
              $
              181,291




**27.**
            **Segment
                Information**




The
      company states the segment information according to the requirement stated
      in
      paragraph 37 of SFAS 131. The company 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 including branded and generic
                medicines;


2.
            Jiangling
                Benda produces active pharmaceutical ingredients,
                APIs;


3.
            Yidu
                Benda produces bulk chemicals;




F-29




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.




Selected
      financial information for each of these segments for the years ended December
      31, 2007 and 2006 were as follows:


*Branded/generic
                  medicine segment*
              
              December 31, 2007
              
              December 31, 2006Revenue
                  from external customers
              
              $
              19,353,654
              
              $
              9,635,938Cost
                  of sales
              
              
              (12,046,687
              )
              
              (5,775,634
              )Gross
                  profit
              
              
              7,306,967
              
              
              3,860,304Gross
                  margin
              
              
              38
              %
              
              40
              %Research
                  and development
              
              
              (2,963
              )
              
              -Selling
                  expense
              
              
              (715,588
              )
              
              (359,504
              )General
                  and administrative expense
              
              
              (628,426
              )
              
              (524,762
              )Segment
                  contribution
              
              $
              5,959,990
              
              $
              2,976,038Contribution
                  margin
              
              
              31
              %
              
              31
              %Total
                  assets, segment
              
              $
              32,817,426
              
              $
              12,506,547
  *Active
                  pharmaceutical ingredients segment*
              
              December 31, 2007
              
              December 31, 2006Revenue
                  from external customers
              
              $
              531,531
              
              $
              15,564Cost
                  of sales
              
              
              (528,473
              )
              
              (15,703
              )Gross
                  profit
              
              
              3,058
              
              
              (139
              )Gross
                  margin
              
              
              1
              %
              
              -1
              %Research
                  and development
              
              
              (359
              )
              
              -Selling
                  expense
              
              
              (505
              )
              
              (10,356
              )General
                  and administrative expense
              
              
              (224,754
              )
              
              (159,484
              )Segment
                  contribution
              
              $
              (222,560
              )
              $
              (169,979
              )Contribution
                  margin
              
              
              -42
              %
              
              -1092
              %Total
                  assets, segment
              
              $
              8,515,278
              
              $
              4,079,747
  *Bulk
                  chemicals segment*
              
              December 31, 2007
              
              December 31, 2006Revenue
                  from external customers
              
              $
              698,578
              
              $
              6,237,621Cost
                  of sales
              
              
              (425,529
              )
              
              (3,309,654
              )Gross
                  profit
              
              
              273,049
              
              
              2,927,967Gross
                  margin
              
              
              39
              %
              
              47
              %Research
                  and development
              
              
              -
              
              
              (30,821
              )Selling
                  expense
              
              
              (27,309
              )
              
              (221,955
              )General
                  and administrative expense
              
              
              (590,759
              )
              
              (332,110
              )Segment
                  contribution
              
              $
              (345,019
              )
              $
              2,343,081Contribution
                  margin
              
              
              -49
              %
              
              38
              %Total
                  assets, segment
              
              $
              7,425,241
              
              $
              8,389,477
  *Pharynigitis
                  killer therapy segment*
              
              December 31, 2007
              
              December 31, 2006Revenue
                  from external customers
              
              $
              43,890
              
              $
              42,952Other
                  sales
              
              
              
              
              
              2,937Cost
                  of sales
              
              
              (2,341
              )
              
              (2,524
              )Gross
                  profit
              
              
              41,549
              
              
              43,365Gross
                  margin
              
              
              95
              %
              
              101
              %Research
                  and development
              
              
              -
              
              
              -Selling
                  expense
              
              
              (43,680
              )
              
              (7,756
              )General
                  and administrative expense
              
              
              (116,825
              )
              
              (74,946
              )Segment
                  contribution
              
              $
              (118,956
              )
              $
              (39,337
              )Contribution
                  margin
              
              
              -271
              %
              
              -92
              %Total
                  assets, segment
              
              $
              125,882
              
              $
              130,171
  *Gendicine
                  (Ad-p53) segment*
              
              December 31, 2007
              
              December 31, 2006Revenue
                  from external customers
              
              $
              5,756,955
              
              $
              -Cost
                  of sales
              
              
              (418,667
              )
              
              -Gross
                  profit
              
              
              5,338,288
              
              
              -Gross
                  margin
              
              
              93
              %
              
              -Research
                  and development
              
              
              (550,640
              )
              
              -Selling
                  expense
              
              
              (794,573
              )
              
              -General
                  and administrative expense
              
              
              (1,295,906
              )
              
              -Segment
                  contribution
              
              $
              2,697,169
              
              $
              -Contribution
                  margin
              
              
              47
              %
              
              -Total
                  assets, segment
              
              $
              13,673,580
              
              $
              -
  TOTALDecember 31, 2007
              
              December 31, 2006Total
                  revenue from external customers
              
              $
              26,384,608
              
              $
              15,932,075Other
                  sales
              
              
              -
              
              
              2,937Cost
                  of sales
              
              
              (13,421,697
              )
              
              (9,103,515
              )Gross
                  profit
              
              
              12,962,911
              
              
              6,831,497Gross
                  margin
              
              
              49
              %
              
              43
              %Research
                  and development
              
              
              (553,962
              )
              
              (30,821
              )Selling
                  expense
              
              
              (1,581,655
              )
              
              (599,571
              )General
                  and administrative expense
              
              
              (2,856,670
              )
              
              (1,091,302
              )Segment
                  contribution
              
              $
              7,970,624
              
              $
              5,109,803Contribution
                  margin
              
              
              30
              %
              
              32
              %Total
                  assets, segment
              
              $
              62,557,407
              
              $
              25,105,941




F-30




The
      results of the total consolidated net profit before income taxes for the
      reporting periods are as follows:


December 31, 2007
              
              December 31, 2006Total
                  segment contribution
              
              $
              7,970,624
              
              $
              5,109,803Unallocated
                  amounts:Government
                  subsidies
              
              
              2,276,574
              
              
              -Loss
                  on disposal of assets
              
              
              (30,027
              )
              
              (249,381
              )Other
                  corporate expense
              
              
              (14,378,619
              )
              
              (1,752,303
              )Total
                  income / (loss) before minority interest and income taxes
              
              $
              (4,161,448
              )
              $
              3,108,119




The
      other
      corporate expenses for the year ended December 31, 2007 and 2006 composed of
      the
      following events:


2007
              
              2006Consulting
                  and professional fees (Note 19)
              
              $
              8,353,615
              
              $
              326,403Penalty
                  to investor
              
              
              1,022,275
              
              
              -Wages
                  and salaries
              
              
              347,949
              
              
              37,500Audit
                  and accounting
              
              
              334,106
              
              
              509,839Amortization
                  of debt issue cost
              
              
              201,255
              
              
              -Consulting
                  fee
              
              
              157,619
              
              
              191,248Investor
                  relation, transfer agent and filing fees
              
              
              109,540
              
              
              -Director
                  renumeration
              
              
              94,247
              
              
              -Brokerage
                  fees
              
              
              50,161
              
              
              -Travel
                  and transportation
              
              
              51,071
              
              
              -Office
                  expense
              
              
              53,594
              
              
              -Foreign
                  exchange
              
              
              (7,914
              )
              
              108,811Interest
                  expense
              
              
              3,090,952
              
              
              (5,490
              )Miscellaneous
              
              
              520,149
              
              
              583,992Total
              
              $
              14,378,619
              
              $
              1,752,303




For
      the
      details of information of this particular, it should be read in conjunction
      with
      the management discussion and analysis section.




The
      following table shows the reconciliation between the segments assets and the
      total assets for the years ended December 31, 2007 and 2006:


December 31, 2007
              
              December 31, 2006Total
                  assets, segment
              
              $
              62,557,407
              
              $
              25,105,941Total
                  assets of corporate:Cash
                  and cash equivalent
              
              
              80,291
              
              
              914,261Bank
                  indebtedness
              
              
              874,490
              
              
              -Prepaid
                  expesnes and deposit
              
              
              851
              
              
              -Refundable
                  purchase price paid
              
              
              1,200,000
              
              
              5,367,801Due
                  from related parties
              
              
              876,589
              
              
              665,824Debit
                  issue costs:placement
                  agent commission
              
              
              327,945
              
              
              -Total
                  assets
              
              $
              65,917,572
              
              $
              32,053,827




F-31




The
      following table shows how the minority interest for year ended December 31,
      2007
      and 2006 was derived:


**Year
                  Ended December 31, 2007**Benda
              
              Jiangling
              
              Yidu
              
              BeijingEbei
              
              Benda
              
              Benda
              
              Shusai
              
              SiBiono
              
              Total**Segment
                  profit**
              
              $
              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
              )Other
                  income / (expenses)
              
              
              (18,449
              )
              
              (12,273
              )
              
              3,555
              
              
              (1,251
              )
              
              (5,127
              )
              
              (33,545
              )Prior
                  year adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              89,509
              
              
              89,509Government
                  subsidies
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,276,574
              
              
              2,276,574Income
                  taxes
              
              
              (965,183
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (965,183
              )**Income
                  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
              )
              
              (36,113
              )
              
              (34,566
              )
              
              2,087,529
              
              $
              2,236,194
  **Year
                  Ended December 31, 2006**Benda
              
              Jiangling
              
              Yidu
              
              BeijingEbei
              
              Benda
              
              Benda
              
              Shusai
              
              SiBiono
              
              Total**Segment
                  profit**
              
              $
              2,976,038
              
              
              (169,979
              )
              
              2,343,081
              
              
              (39,337
              )
              
              -
              
              $
              5,109,803Loss
                  on disposal of assets
              
              
              -
              
              
              (249,381
              )
              
              -
              
              
              -
              
              
              -
              
              
              (249,381
              )Interest
                  income/ (expenses)
              
              
              (87,706
              )
              
              (78
              )
              
              (26,527
              )
              
              10
              
              
              -
              
              
              (114,301
              )Other
                  income / (expenses)
              
              
              (3,671
              )
              
              369
              
              
              1,695
              
              
              793
              
              
              -
              
              
              (814
              )Prior
                  year adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Government
                  subsidies
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Income
                  taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Income
                  before minority interest**
              
              $
              2,884,661
              
              
              (419,069
              )
              
              2,318,249
              
              
              (38,534
              )
              
              -
              
              $
              4,745,307MI
                  percentage
              
              
              5.00
              %
              
              9.75
              %
              
              9.75
              %
              
              28.75
              %MI
                  interest
              
              $
              144,233
              
              
              (40,859
              )
              
              226,029
              
              
              (11,079
              )
              
              -
              
              $
              322,590
  Further,
        set forth below is a breakdown of the various product
        segments:




**Manufacturer**
            
            **Product**
            
            **Type**
            
            **Function**Benda
                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 manufactureYidu
                Benda
            
            Triazol
                carboxylic acid methyl ester (“TCA”)
            
            Bulk chemical
            
            Ribavirin
                manufacture, anti-virusYidu
                Benda
            
            L-methionine
            
            Bulk chemical
                Nutrition
            
            An
                essential amino acid for humansYidu
                Benda
            
            Tricabroxylic
                acid amide (“TAA”)
            
            Bulk chemical
            
            Ribavirin
                manufacture, anti-virus drug manufactureYidu
                Benda
            
            1,2,3,5-Tetraacetyl-β-D-Ribose
            
            Bulk chemical
            
            Ribavirin
                manufacture, anti-virus drug
                manufacture




F-32




**28.**
            **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:


**Countries**
              
              **Application**
              
              **Publication**
              
              **Approved Patent**
              
              **Name of Patent**
              
              **Name of**
              
              **Patent****Item**
              ****
              **Patent name**
              ****
              **/ Date**
              ****
              **Number (1)**
              ****
              **Number (2)**
              ****
              **Number (3)**
              ****
              **Inventor (6)**
              ****
              **Applicant (6)**
              ****
              **Assignees**
              ****1
              
              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 ahuman
                  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)
              
              65
              
              WO2004/078987A1
              
              Not
                  Approved
              
              Peng
                  / Zhang
              
              Peng
                  / Zhang
              
              N/ADate
              
              2004/3/8
              
              2004/9/16
              
              N/A3
              
              Recombinant
                  gene medicine of adenovirus vector andand
                  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)
              
              58
              
              WO2004/104204A1
              
              Not
                  Approved
              
              Peng
                  / Zhang
              
              Peng
                  / Zhang
              
              N/ADate
              
              2004/5/9
              
              2004/12/2
              
              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
              
              2005/1/26
              
              2005/10/12
              
              2007/8/29B
              
              PCT
                  (4)
              
              11
              
              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)
              
              57
              
              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 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
              
              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;




F-33




(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.





The
      Group
      and Zhaohui Peng are currently in negotiations regarding the patent transfers.
      However, if Zhaozhui Peng refuses to transfer all the patents’s title to
      SiBiono, the Group will take a legal action against him.





(b)
            As
                mentioned in Note 12, following this arbitration decision, Benda
                Ebei has
                the obligation to pay the 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 $1.75 million). Up to
                now,
                since both parties are still in the process of negotiation about
                the date
                of the payment, no actual equity transfer is made
                yet.


(c)
            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 (see Note 8). According
                to
                this supplementary agreement, the credit facility is further secured
                by
                the buildings, machinery and equipment of Jiangling Benda. As of
                December
                31, 2007, the net book value of secured property and equipment was
                approximately Rmb67.33 million (or $9.2 million).




F-34




**ITEM
                8.**
            **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.




61




**ITEM
        8A.**  **CONTROLS
        AND PROCEDURES**
  Pursuant
        to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
        the Company carried out an evaluation, with the participation of the Company’s
        management, including the Company’s Chief Executive Officer (“CEO”) and Chief
        Accounting Officer (“CAO”) (the Company’s principal financial and accounting
        officer), of the effectiveness of the Company’s disclosure controls and
        procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of
        the
        end of the period covered by this report. Based upon that evaluation, the
        Company’s CEO and CAO could not conclude that as of December 31, 2007, our
        disclosure controls and procedures were effective in timely alerting them
        to
        material information relating to Benda Pharmaceutical, Inc required to be
        included in our Exchange Act filings and ensuring such information is recorded,
        processed, summarized and reported within the time periods specified in
        Securities and Exchange Commission rules and forms. Our CEO and CAO were
        unable
        to affirmatively conclude that our disclosure controls and procedures were
        effective as of December 31, 2007, as the Negative Goodwill that was recorded
        at
        the time of the Benda Ebei acquisition in November 2005 was not properly
        recorded and resulted in the overstatement of depreciation expense, our CEO
        and
        CA concluded that there was a further need to evaluate and implement appropriate
        disclosure controls and procedures to ensure the timely, accurate and
        comprehensive flow of material information, especially in relation to
        depreciation calculations, required to be disclosed in our Exchange Act Filings
        and to ensure that all such information is recorded, processed, summarized
        and
        reported within the time periods required. Our CEO and CAO and other members
        of
        the management team have been working to design and implement such effective
        disclosure controls and procedures.
  ***Management’s
        Report on Internal Controls over Financial
        Reporting***
 
 Internal
        control over financial reporting is a process to provide reasonable assurance
        regarding the reliability of financial reporting and the preparation of
        financial statements for external purposes in accordance with U.S. generally
        accepted accounting principles. There has been no change in the Company’s
        internal control over financial reporting during the year ended December
        31,
        2007 that has materially affected, or is reasonably likely to materially
        affect,
        the Company’s internal control over financial reporting.
 
 Although
        our CEO and CAO are aware of management’s responsibility for establishing and
        maintaining adequate internal control over financial reporting and sought
        to
        evaluate our internal controls as of December 31, 2007, they were unable
        to
        affirmatively conclude that our internal control over financial reporting
        was
        effective as of that date, although they did not identify any specific material
        weaknesses or significant deficiencies at the time. As a result of the
        overstatement in depreciation expense for all periods since November 2005
        our
        CEO and CAO concluded that there was a further need to evaluate our internal
        control over financial reporting, especially in relation to Depreciation
        Calculations. Since the error was discovered, our CEO and CAO and other members
        of the management team have been working to carefully evaluate, and where
        deemed
        necessary improve, our internal control over financial reporting.
  The
        Company’s management, including the Company’s CEO and CAO, does not expect that
        the Company’s disclosure controls and procedures or the Company’s internal
        controls will prevent all errors and all fraud. A control system, no matter
        how
        well conceived and operated, can provide only reasonable, not absolute,
        assurance that the objectives of the control system are met. Further, the
        design
        of a control system must reflect the fact that there are resource constraints,
        and the benefits of controls must be considered relative to their costs.
        Because
        of the inherent limitations in all control systems, no evaluation of the
        controls can provide absolute assurance that all control issues and instances
        of
        fraud, if any, within the Company have been detected.


**PART
      III**




**ITEM
      9.**  **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 Appointment**Yiqing
                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, 2007




62




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.





63




*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.




64




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 consider Mr. Charles
      Mo 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;




65






·
            
            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
      10.**  **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 2007 and 2006
      fiscal year; (ii) the two other most highly compensated executive officers
      (in
      terms of salary and bonus) serving at the end of the 2007 and 2006 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
            
            
            2007
              2006
            
            $
              $
            160,000
              20,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
              $
            160,000
              20,000Wei
                Xu, Vice President
            
            
            2007
              2006
            
            $
              $
            100,000
              17,500
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
              $
            100,000
              17,500Hui
                Long, Vice President
            
            
            2007
              2006
            
            $
              $
            6,170
              6,170
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
              $
            6,170
              6,170Daping
                Gu, Vice President
            
            
            2007
              2006
            
            $
              $
            6,000
              5,553
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
              $
            6,000
              5,553Jingbo
                Wu, Vice President
            
            
            2007
              2006
            
            $
              $
            6,000
              3,085
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
              $
            6,000
              3,085YEric
                Yu,CFO
            
            
            2007
              2006
            
            $
              $
            89,000
              0
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
              $
            89,000
              0





66




No
      stock
      options were granted or exercised by any executive officer during the fiscal
      year ended December 31, 2007.





For
      the
      year ended 31, 2007, 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
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




The
      following table sets forth information as of March 28, 2008 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 March 28,
      2008 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
      155,773,711 common shares issued and outstanding on a fully converted basis
      as
      of March 28, 2008.




67






**Name
                of Beneficial Owner**
            
            **Amount
                of****Beneficial
                Ownership**
            
            **Percent
                of****Beneficial
                Ownership (5)**XIA
                Pharmaceutical Inc. (1)
            
            
            44,687,136
            (2)
            
            28.69
            %Hui
                Long (1)
            
            
            0
            
            
            0Yiqing
                Wan (1)
            
            
            44,687,136
            (2)
            
            28.69
            %Wei
                Xu (1)
            
            
            44,687,136
            (2)
            
            28.69
            %John
                Micek, III (1)
            
            
            973,566
            (4)
            
            0.62
            %Dr.
                Q.Y. Ma (1)
            
            
            0
            
            
            0Eric
                Yu (1)
            
            
            1,500,000
            (6)
            
            1
            %Daping
                Gu (1)
            
            
            0
            
            
            0Ruilu
                Song (1)
            
            
            0
            
            
            0Jingbo
                Wu (1)
            
            
            0
            
            
            0Pope
                Investments, LLC (3)
              5100
                Poplar Ave., Suite 805
              Memphis,
                TN 38137
            
            
            44,230,642
            
            
            28.39
            %All
                Executive Officers and Directors as a group (7 persons)
            
            
            47,160,702
            
            
            30.28
            %





(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
                13,325,574 shares of common stock, Pope also holds warrants for the
                right
                to purchase a total of 20,953,060 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 100,803,509 shares of common
                stock
                outstanding as of March28, 2008 together with securities exercisable
                or
                convertible into shares of common stock within sixty (60) days of
                March
                28, 2008 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
                March 28, 2008 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.




68






(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.




**CHANGE
      OF CONTROL**




The
      Company entered into a Share Exchange Agreement dated September 7, 2006
      (“Exchange Agreement”) with KI Equity Partners III, LLC, a Delaware limited
      liability company (“KI Equity”), Ever Leader Holdings Limited, a company
      incorporated under the laws of Hong Kong SAR ("Ever Leader"), and each of the
      equity owners of Ever Leader (the “Ever Leader Shareholders”), whereby the
      Company acquired all of the equity interest of Ever Leader in exchange for
      issuing 64,942,360 shares of our common stock to the Ever Leader shareholders.
      The Exchange Agreement was contingent upon the Company receiving a minimum
      of
      $10,000,000 in signed subscriptions (the “Subscription Agreements”) to purchase
      Units in a private placement offering (the “Financing”) exempt from registration
      under the Securities Act. On November 15, 2006, the Company received the
      requisite amount of Subscription Agreements and the transactions contemplated
      by
      the Exchange Agreement closed.




In
      connection with the Exchange Agreement and Financing: (i) effective November
      15,
      2006, Mr. Kevin R. Keating resigned as member of the board of directors of
      the
      Company. There were no disagreements between or among Mr. Kevin R. Keating
      and
      any officer or director of the Company; (ii) effective November 15, 2006, Mr.
      Kevin R. Keating resigned as the Chief Executive Officer, President, Chief
      Financial Officer, Secretary and Treasurer of the Company; (iv) effective
      November 15, 2006, Yiqing Wan, Ruilu Song, Jingbo Wu, Hulian Song, and John
      Micek, III were appointed as members of the Company’s Board of Directors (the
“New Board”); and (v) effective November 15, 2006, the New Board appointed
      Yiqing Wan as the Chief Executive Officer and President, Wei Xu as the Vice
      President of Operations, Hui Long as the Vice President of Technology, Daping
      Gu
      as the Vice President of Marketing, Ruilu Song as Vice President, and Jingbo
      Wu
      as Vice President of the Company.




The
      consummation of the Exchange 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 for the purchase of shares of the Common Shares promptly
      after the closing of the Exchange under terms and conditions approved by our
      board of directors immediately following the Exchange.




Upon
      Closing, we received gross proceeds of $12,000,000 in connection with the
      Financing from the Investors. Pursuant to Subscription Agreements entered into
      with these Investors, we sold 480 Units, with each Unit consisting of 54,087
      shares of our Common Stock, and Warrants to purchase 54,087 shares of our Common
      Stock at an exercise price of $0.555 per share. The price of each Unit was
      $25,000. After commissions and expenses, we received net proceeds of
      approximately $10,470,000 from the Financing. Upon completion of the Financing,
      the Investors in the aggregate received 25,961,760 shares of our Common Stock.
      The Investors also received Warrants to purchase an additional 25,961,760 shares
      of Applied Spectrum’s common stock in connection with the
      financing.




**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




Described
      below are certain transactions or series of transactions since inception between
      Applied Spectrum 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."




69




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 and Norwood




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.




70




**Related
      Party Transactions and Long Term Loan Receivable**





Due
      from related
      parties at December 31, 2007 and 2006 were comprised as follows:




December
                  31,
              
              December
                  31,2007
              
              2006Yiqing,
                  WanDue
                  to Ever Leader Holdings Co. Ltd.
              
              $
              646,429
              
              $
              455,275Due
                  to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              72,949
              
              
              -Due
                  to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              3,608
              
              
              -Hubei
                  Benda Science and Technology Co. LtdDue
                  to Yidu Benda Chemicals Co. Ltd.
              
              
              1,502,118
              
              
              1,299,479Due
                  to Ever Leader Holdings Co. Ltd.
              
              
              230,160
              
              
              210,518Feng
                  WangDue
                  to Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              29,318
              
              
              11,543Hua
                  ShenDue
                  to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              137,097
              
              
              -Pong
                  TsaiohueiDue
                  to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              3,257
              
              
              -Xiaozhi
                  ZhangDue
                  to Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              5,083
              
              
              -Total
                  due from related parties
              
              $
              2,630,019
              
              $
              1,976,815




Due
      to
      related parties at December 31, 2007 and, 2006 were comprised as
      follows:




December
                  31,
              
              December
                  31,2007
              
              2006Hubei
                  Benda Science and Technology Co. LtdDue
                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              $
              49,056
              
              $
              236,205Due
                  from Jiangliang Benda Pharamaceutical Co. Ltd.
              
              
              1,872,374
              
              
              1,833,358Due
                  from Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              6,846
              
              
              -Wei
                  XuDue
                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              1,009,792
              
              
              943,865Due
                  from Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              61,491
              
              
              20,937Yiqing,
                  WanDue
                  from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              137,687
              
              
              -Hui
                  XuDue
                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
              
              
              26,622.00
              
              
              -Due
                  from Beijing Shusai Pharyngitis Research Co. Ltd.
              
              
              3,153.00
              
              
              -Hua
                  ShenDue
                  from Shenzhen SiBiono Gene Tech Co. Ltd.
              
              
              26,597.00
              
              
              -Total
                  due to related parties
              
              $
              3,193,618
              
              $
              3,034,365




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.




71




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).




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




72









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.




73




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
      13.**  **EXHIBITS, LIST AND REPORTS ON FORM 8-K**




(a)
            Exhibits.




74




**EXHIBIT
      INDEX**




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




**Exhibit
                Number**
            **Description**2.1
            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)




75






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)




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-KSB/A.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-KSB/A.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-KSB/A.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-KSB/A.




(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).




76






(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).




(b)Reports
        on Form
        8-K.


None.




**ITEM
      14.**  **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-KSB (17 CFR 249.308a) or 10-QSB (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
      $521,997 **** for
      the
      fiscal year ended December 31, 2006 and $334,106 **** for
      the
      fiscal year ended December 31, 2007.




(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.





77




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:
                June
                26, 2008
            By:
            /s/
                Yiqing WanYiqing
                WanChief
                Executive Officer and President, and DirectorDate:
                June
                26, 2008
            By:
            /s/
                Eric YuEric
                YuChief
                Financial Officer
              Principal
                Accounting Officer
              Director




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 June
      24, 2008.




Name
            
            Title
            
            Date/s/
                Yiqing Wan
              
              Yiqing
                Wan
            
            Chief
                Executive Officer and
              President
                / Director
            
            June
                  26, 2008/s/
                Jun
                Tang
              Jun
                  Tang
            
            Director
            
            June
                    26, 2008/s/
                Dr. Q.Y. Ma
              
              Dr.
                Q.Y. Ma
            
            Director
            
            June
                    26, 2008/s/
                Eric Yu
              
              Eric
                Yu
            
            Chief
                Financial Officer, Principal Accounting
              Officer,
                and Director
            
            June
                    26, 2008




78