UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


_______________




FORM
10-Q


_______________




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended June 30, 2009




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the transition period from
______to______.




BENDA PHARMACEUTICAL, INC.


(Exact
name of registrant as specified in Charter




Delaware
              
              000-16397
              
              41-2185030(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (Commission
      File No.)
              
              (IRS
      Employee Identification No.)





Taibei
Mingju, 4th
Floor,


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


(Address
of Principal Executive Offices)


_______________





+86
(27) 85494916


(Issuer
Telephone number)


_______________




(Former
Name or Former Address if Changed Since Last Report)




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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every


Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).


Yes  ̈ No  ̈





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




Large
Accelerated Filer  ̈     Accelerated
Filer  ̈     Non-Accelerated
Filer  ̈     Smaller
Reporting Company x





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


Yes  ̈  No
x




State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of August 19, 2009: 105,155,355 shares of common stock.







BENDA
PHARMACEUTICAL, INC.




FORM
10-Q




June
30, 2009




INDEX





PART
      I— FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements
              3Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition
              4Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              9Item
      4T.
              Control
      and Procedures
              9PART
      II— OTHER INFORMATIONItem
      1
              Legal
      Proceedings
              10Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              12Item
      3.
              Defaults
      Upon Senior Securities
              13Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              13Item
      5.
              Other
      Information
              13Item
      6.
              Exhibits
      and Reports on Form 8-K
              13SIGNATURE
              14


2




Item 1. Financial
Information





BENDA
PHARMACEUTICAL, INC.


(an
exploration stage company)




FINANCIAL
STATEMENTS




AS
OF JUNE 30, 2009





CONTENTS





F1
                    CONSOLIDATED
      BALANCE SHEETS AS OF JUNE 30, 2009 (UNAUDITED) AND AS OF DECEMEBR 31, 2008
      (AUDITED).F2
                    CONSOLIDATED
      STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
      (UNAUDITED).F5
                    CONSOLIDATED
      STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2009
      (UNAUDITED).F3
                    CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
      (UNAUDITED).F4
                    CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2009
      AND 2008 (UNAUDITED).F6
      - F37
                    NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED).


3





Benda
Pharmaceutical, Inc.


Consolidated
Balance Sheets


(Amounts
expressed in U.S. Dollars)





June
      30
                        
                        
                        December
      312009
                        
                        
                        2008(Unaudited)AssetsCurrent
      AssetsCash
      and cash equivalents
                        
                        $
                        1,453,145
                        
                        
                        $
                        569,019Trade
      receivables, net (Note 5)
                        
                        
                        8,026,051
                        
                        
                        
                        9,336,915Other
      receivables  (Note 5)
                        
                        
                        506,683
                        
                        
                        
                        504,349Short-term
      loan receivables
                        
                        
                        -
                        
                        
                        
                        146,685VAT
      Prepaid
                        
                        
                        1,585,289
                        
                        
                        
                        771,549Due
      from related parties  (Note 18)
                        
                        
                        16,426
                        
                        
                        
                        11,000Inventories
      (Note 7)
                        
                        
                        2,720,500
                        
                        
                        
                        2,344,562Prepaid
      expenses and deposits  (Note 5)
                        
                        
                        1,371,362
                        
                        
                        
                        918,209Total
      current assets
                        
                        
                        15,679,456
                        
                        
                        
                        14,602,288Due
      from related parties  (Note 18)
                        
                        
                        2,984,561
                        
                        
                        
                        2,961,744Property
      and equipments, net (Note 8)
                        
                        
                        28,495,340
                        
                        
                        
                        29,057,225Intangible
      assets, net  (Note 9)
                        
                        
                        5,630,480
                        
                        
                        
                        6,003,102Restricted
      cash (Note 11)
                        
                        
                        5,732,390
                        
                        
                        
                        6,162,849Refundable
      purchase price paid (Note 6)
                        
                        
                        1,200,000
                        
                        
                        
                        1,200,000Other
      assets (Note 12)
                        
                        
                        1,828,636
                        
                        
                        
                        1,830,634Debt
      issue costs (Note 24)
                        
                        
                        -
                        
                        
                        
                        55,485Total
      Assets
                        
                        $
                        61,550,863
                        
                        
                        $
                        61,873,327Liabilities
      & Shareholders' EquityCurrent
      LiabilitiesBank
      indebtedness (Note 11)
                        
                        $
                        1,192,385
                        
                        
                        $
                        1,288,257Bank
      loans payable (current portion) (Note 13)
                        
                        
                        2,981,302
                        
                        
                        
                        2,984,560Long
      term debt payable (current portion) (Note 14)
                        
                        
                        2,231,771
                        
                        
                        
                        2,234,210Accounts
      payable and accrued liabilities (Note 15)
                        
                        
                        8,581,611
                        
                        
                        
                        7,228,400Commercial
      notes payable (Note 11)
                        
                        
                        8,847,692
                        
                        
                        
                        9,297,169VAT
      Taxes payable
                        
                        
                        701,443
                        
                        
                        
                        516,302Acquisition
      cost payable (Note 10)
                        
                        
                        1,424,934
                        
                        
                        
                        1,426,491Long-term
      convertible promissory notes (current portion) (Note 24)
                        
                        
                        7,260,000
                        
                        
                        
                        6,395,951Wages
      payable
                        
                        
                        1,095,315
                        
                        
                        
                        630,475Due
      to related parties (Note 18)
                        
                        
                        1,410,075
                        
                        
                        
                        1,457,803Total
      current liabilities
                        
                        
                        35,726,528
                        
                        
                        
                        33,459,618Due
      to related parties (Note 18)
                        
                        
                        974,199
                        
                        
                        
                        997,593Total
      Liabilities
                        
                        
                        36,700,727
                        
                        
                        
                        34,457,211Redeemable
      common stock, 2,049,560 shares at $3.6 per share (Note 19)
                        
                        
                        7,376,366
                        
                        
                        
                        7,376,366EquityPreferred
      stock, $0.001 par value; 5,000,000 shares authorized;None
      issued and outstanding
                        
                        
                        -
                        
                        
                        
                        -Common
      stock, $0.001 par value; 150,000,000 shares authorized; 105,155,355 shares
      issued and outstanding as of 6/30/2009 and 12/31/2008
      respectively;
                        
                        
                        105,155
                        
                        
                        
                        105,155Additional
      paid in capital (Note 25)
                        
                        
                        22,108,427
                        
                        
                        
                        22,108,427Retained
      earnings (unrestricted)
                        
                        
                        (18,363,816
                        )
                        
                        
                        (16,047,561
                        )Statutory
      surplus reserve fund (Note 17)
                        
                        
                        2,642,775
                        
                        
                        
                        2,642,775Accumulative
      other comprehensive income
                        
                        
                        6,300,396
                        
                        
                        
                        6,347,547Shares
      issuable for acquisition and services
                        
                        
                        503,860
                        
                        
                        
                        503,860Total
      Benda Pharmaceutical, Inc. Shareholders' Equity
                        
                        
                        13,296,797
                        
                        
                        
                        15,660,203Noncontrolling
      interest
                        
                        
                        4,176,973
                        
                        
                        
                        4,379,547Total
      Equity
                        
                        
                        17,473,770
                        
                        
                        
                        20,039,750Total
      Liabilities & Equity
                        
                        $
                        61,550,863
                        
                        
                        $
                        61,873,327





The
accompanying notes are an integral part of these consolidated financial
statements.





F-1





Benda
Pharmaceutical, Inc.


Consolidated
Statements of Operations


(Amounts
expressed in U.S. Dollars)





Six
      Months Ended June 30
                        
                        
                        Three
      Months Ended June 302009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)Revenue
                        
                        $
                        11,440,412
                        
                        
                        $
                        13,225,623
                        
                        
                        
                        5,924,609
                        
                        
                        
                        7,278,253Cost
      of goods sold
                        
                        
                        (6,699,079
                        )
                        
                        
                        (8,396,854
                        )
                        
                        
                        (3,556,288
                        )
                        
                        
                        (4,579,608
                        )Gross
      profit
                        
                        
                        4,741,333
                        
                        
                        
                        4,828,769
                        
                        
                        
                        2,368,321
                        
                        
                        
                        2,698,645Selling
      expenses
                        
                        
                        (1,016,366
                        )
                        
                        
                        (1,431,212
                        )
                        
                        
                        (622,173
                        )
                        
                        
                        (994,841
                        )General
      and administrative expensesAmortization
      of intangible assets
                        
                        
                        (79,400
                        )
                        
                        
                        (97,948
                        )
                        
                        
                        (39,718
                        )
                        
                        
                        (46,373
                        )Amortization
      of debt issue costs (Note 24)
                        
                        
                        (55,485
                        )
                        
                        
                        (131,757
                        )
                        
                        
                        -
                        
                        
                        
                        (65,878
                        )Depreciation
                        
                        
                        (379,295
                        )
                        
                        
                        (243,495
                        )
                        
                        
                        (189,661
                        )
                        
                        
                        (120,275
                        )Bad
      debts
                        
                        
                        (2,808,862
                        )
                        
                        
                        (773,893
                        )
                        
                        
                        (2,552,524
                        )
                        
                        
                        (302,596
                        )Write-down
      of inventory to net realizable value (recovery)
                        
                        
                        (124,239
                        )
                        
                        
                        -
                        
                        
                        
                        123,240
                        
                        
                        
                        -Director
      remuneration
                        
                        
                        (45,000
                        )
                        
                        
                        (140,468
                        )
                        
                        
                        (22,500
                        )
                        
                        
                        (29,595
                        )Penalty
      to investors
                        
                        
                        -
                        
                        
                        
                        (1,113,405
                        )
                        
                        
                        -
                        
                        
                        
                        (391,200
                        )Other
      general and administrative expenses (Note 21)
                        
                        
                        (987,932
                        )
                        
                        
                        (2,020,274
                        )
                        
                        
                        (448,928
                        )
                        
                        
                        (922,405
                        )Total
      general and administrative expenses
                        
                        
                        (4,480,213
                        )
                        
                        
                        (4,521,240
                        )
                        
                        
                        (3,130,091
                        )
                        
                        
                        (1,878,322
                        )Research
      and development expenses
                        
                        
                        (118,083
                        )
                        
                        
                        (169,781
                        )
                        
                        
                        183,601
                        
                        
                        
                        (147,717
                        )Total
      operating expenses
                        
                        
                        (5,614,662
                        )
                        
                        
                        (6,122,233
                        )
                        
                        
                        (3,568,663
                        )
                        
                        
                        (3,020,880
                        )Operating
      income / (loss)
                        
                        
                        (873,329
                        )
                        
                        
                        (1,293,464
                        )
                        
                        
                        (1,200,342
                        )
                        
                        
                        (322,235
                        )Interest
      income / (expenses) (Note 24)
                        
                        
                        (1,633,247
                        )
                        
                        
                        (2,340,580
                        )
                        
                        
                        (362,866
                        )
                        
                        
                        (1,128,298
                        )Other
      income / (expenses) (Note 20)
                        
                        
                        45,776
                        
                        
                        
                        248,058
                        
                        
                        
                        62,976
                        
                        
                        
                        (53,635
                        )Government
      subsidies / grants (Note 22)
                        
                        
                        26,383
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Loss
      before provision for income taxes and noncontrolling
    interest
                        
                        
                        (2,434,417
                        )
                        
                        
                        (3,385,986
                        )
                        
                        
                        (1,500,232
                        )
                        
                        
                        (1,504,168
                        )Income
      taxes (Note 23)
                        
                        
                        (84,412
                        )
                        
                        
                        (524,808
                        )
                        
                        
                        217,966
                        
                        
                        
                        (391,611
                        )Net
      loss
                        
                        
                        (2,518,829
                        )
                        
                        
                        (3,910,794
                        )
                        
                        
                        (1,282,266
                        )
                        
                        
                        (1,895,779
                        )Net
      loss attributable to the noncontrolling interest
                        
                        
                        202,574
                        
                        
                        
                        88,216
                        
                        
                        
                        6,568
                        
                        
                        
                        110,614Net
      loss attributable to Benda Pharmaceutical, Inc.
                        
                        $
                        (2,316,255
                        )
                        
                        $
                        (3,822,578
                        )
                        
                        
                        (1,275,698
                        )
                        
                        
                        (1,785,165
                        )Basic
      and fully diluted loss per shareNet
      loss attributable to Benda Pharmaceutical, Inc. common
      shareholders
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.04
                        )
                        
                        
                        (0.01
                        )
                        
                        
                        (0.02
                        )Weighted
      average shares outstanding (Note 26)
                        
                        
                        105,155,355
                        
                        
                        
                        100,558,191
                        
                        
                        
                        105,155,355
                        
                        
                        
                        100,803,509





The
accompanying notes are an integral part of these consolidated financial
statements.





F-2





Benda
Pharmaceutical, Inc.


Consolidated
Statements of Cash Flows


(Amounts
expressed in U.S. Dollars)


Six
      Months Ended June 30,2009
                          
                          
                          2008(Unaudited)
                          
                          
                          (Unaudited)Cash
      Flows From Operating ActivitiesNet
      loss
                          
                          $
                          (2,518,829
                          )
                          
                          $
                          (3,910,794
                          )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Bad
      Debt provision
                          
                          
                          2,808,862
                          
                          
                          
                          773,893Inventory
      written down to net realizable value (recovery)
                          
                          
                          124,239
                          
                          
                          
                          -Depreciation
                          
                          
                          980,389
                          
                          
                          
                          902,672Amortization
      of intangible assets
                          
                          
                          365,225
                          
                          
                          
                          373,615Amortization
      of debt issue costs (Note 24)
                          
                          
                          55,485
                          
                          
                          
                          131,757Interest
      expense (amortization of debt discount) (Note 24)
                          
                          
                          864,049
                          
                          
                          
                          1,882,244Penalty
      to investors settled by issuance of common stock
                          
                          
                          -
                          
                          
                          
                          230,312Directors
      remuneration settled by issuance of common stock
                          
                          
                          -
                          
                          
                          
                          75,900Changes
      in operating assets and liabilities:Trade
      receivables
                          
                          
                          (1,494,650
                          )
                          
                          
                          (1,855,382
                          )Other
      receivables
                          
                          
                          (2,335
                          )
                          
                          
                          229,758Prepaid
      expenses and deposits
                          
                          
                          (453,153
                          )
                          
                          
                          (406,623
                          )Inventories
                          
                          
                          (500,177
                          )
                          
                          
                          (1,298,277
                          )Accounts
      payable and accrued liabilities
                          
                          
                          1,818,056
                          
                          
                          
                          1,226,126Taxes
      payable
                          
                          
                          (628,603
                          )
                          
                          
                          (111,647
                          )Net
      cash provided by operating activities
                          
                          
                          1,418,558
                          
                          
                          
                          (1,756,446
                          )Cash
      Flows From Investing ActivitiesPurchases
      of property and equipment and construction-in-progress
                          
                          
                          (456,065
                          )
                          
                          
                          (213,176
                          )Net
      cash used in investing activities
                          
                          
                          (456,065
                          )
                          
                          
                          (213,176
                          )Cash
      Flows From Financing ActivesProceeds
      and repayments of borrowings under short-term loan
    receivables
                          
                          
                          146,685
                          
                          
                          
                          (145,947
                          )Proceeds
      and repayments of borrowings under related parties, net
                          
                          
                          (99,366
                          )
                          
                          
                          (734,205
                          )Proceeds
      and repayments of borrowings under government debts payable,
      net
                          
                          
                          (94,450
                          )
                          
                          
                          314,677Proceeds
      and repayments of borrowings under commercial bank notes, net (Note
      11)
                          
                          
                          (20,441
                          )
                          
                          
                          1,846,510Proceeds
      and repayments of borrowings under bank loans, net
                          
                          
                          -
                          
                          
                          
                          (80,217
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          (67,572
                          )
                          
                          
                          1,200,818Effect
      of exchange rate changes on cash
                          
                          
                          (10,795
                          )
                          
                          
                          538,495Net
      increase in cash and cash equivalents
                          
                          
                          884,126
                          
                          
                          
                          (230,309
                          )Cash
      and cash equivalents, beginning of period
                          
                          
                          569,019
                          
                          
                          
                          1,266,240Cash
      and cash equivalents, end of period
                          
                          $
                          1,453,145
                          
                          
                          $
                          1,035,931Supplemental
      Disclosure of Cash Flow InformationCash
      paid for interest
                          
                          $
                          253,139
                          
                          
                          $
                          346,682Cash
      paid for income taxes
                          
                          $
                          788,511
                          
                          
                          $
                          636,375




The
accompanying notes are an integral part of these consolidated financial
statements.





F-3





Benda
Pharmaceutical, Inc.


Statements
of Consolidated Comprehensive Income


(Amounts
expressed in U.S. Dollars)


Six
      Months Ended June 30,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Net
      loss
                  
                  $
                  (2,518,829
                  )
                  
                  $
                  (3,910,794
                  )Other
      comprehensive income (loss)Foreign
      currency translation adjustment
                  
                  
                  (47,151
                  )
                  
                  
                  2,866,157Comprehensive
      loss
                  
                  
                  (2,565,980
                  )
                  
                  
                  (1,044,637
                  )Comprehensive
      loss attributable to the noncontrolling interest
                  
                  
                  202,574
                  
                  
                  
                  88,216Comprehensive
      loss attributable to Benda Pharmaceutical, Inc.
                  
                  $
                  (2,363,406
                  )
                  
                  $
                  (956,421
                  )





The
accompanying notes are an integral part of these consolidated financial
statements.





F-4





Benda
Pharmaceutical, Inc.


Consolidated
Statement of Changes in Equity


(Amounts
expressed in U.S. Dollars)


Common
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          Statutory
                          
                          
                          Accumulated
                          
                          
                          Shares
      IssuableShares
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          Additional
                          
                          
                          Retained
                          
                          
                          Surplus
                          
                          
                          Other
                          
                          
                          for
                          
                          
                          Non-Issued
      and
                          
                          
                          
                          
                          
                          Comprehensive
                          
                          
                          Common
                          
                          
                          Paid-in
                          
                          
                          Earnings
                          
                          
                          Reserve
                          
                          
                          Comprehensive
                          
                          
                          Acquisition
                          
                          
                          ControllingOutstanding
                          
                          
                          Total
                          
                          
                          Income
                          
                          
                          Stock
                          
                          
                          Capital
                          
                          
                          (Unrestricted)
                          
                          
                          Fund
                          
                          
                          Income
                          
                          
                          and
      Services
                          
                          
                          InterestBalance
      at December 31, 2008
                          
                          
                          105,155,355
                          
                          
                          $
                          20,039,750
                          
                          
                          $
                          -
                          
                          
                          $
                          105,155
                          
                          
                          $
                          22,108,427
                          
                          
                          $
                          (16,047,561
                          )
                          
                          $
                          2,642,775
                          
                          
                          $
                          6,347,547
                          
                          
                          $
                          503,860
                          
                          
                          $
                          4,379,547Comprehensive
      loss:Net
      loss
                          
                          
                          
                          
                          
                          
                          (1,236,563
                          )
                          
                          
                          (1,236,563
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,040,557
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (196,006
                          )Other
      comprehensive income (loss)Foreign
      currency translation adjustment
                          
                          
                          
                          
                          
                          
                          (52,320
                          )
                          
                          
                          (52,320
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (52,320
                          )
                          
                          
                          -
                          
                          
                          
                          -Comprehensive
      loss
                          
                          
                          
                          
                          
                          
                          (1,288,883
                          )
                          
                          $
                          (1,288,883
                          )Dividend
      paid
                          
                          
                          
                          
                          
                          
                          -Balance
      at March 31, 2009 (unaudited)
                          
                          
                          105,155,355
                          
                          
                          $
                          18,750,868
                          
                          
                          
                          
                          
                          
                          $
                          105,155
                          
                          
                          $
                          22,108,427
                          
                          
                          $
                          (17,088,117
                          )
                          
                          $
                          2,642,775
                          
                          
                          $
                          6,295,227
                          
                          
                          $
                          503,860
                          
                          
                          $
                          4,183,541Comprehensive
      loss:Net
      loss
                          
                          
                          
                          
                          
                          
                          (1,282,266
                          )
                          
                          
                          (1,282,266
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,275,698
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (6,568
                          )Other
      comprehensive income (loss)Foreign
      currency translation adjustment
                          
                          
                          
                          
                          
                          
                          5,169
                          
                          
                          
                          5,169
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,169
                          
                          
                          
                          -
                          
                          
                          
                          -Comprehensive
      loss
                          
                          
                          
                          
                          
                          
                          (1,277,098
                          )
                          
                          $
                          (1,277,097
                          )Dividend
      paid
                          
                          
                          
                          
                          
                          
                          -Balance
      at June 30, 2009 (unaudited)
                          
                          
                          105,155,355
                          
                          
                          $
                          17,473,770
                          
                          
                          
                          
                          
                          
                          $
                          105,155
                          
                          
                          $
                          22,108,427
                          
                          
                          $
                          (18,363,816
                          )
                          
                          $
                          2,642,775
                          
                          
                          $
                          6,300,396
                          
                          
                          $
                          503,860
                          
                          
                          $
                          4,176,973





The
accompanying notes are an integral part of these consolidated financial
statements.





F-5





Benda
Pharmaceutical, Inc.


Notes
to Consolidated Financial Statements


(Amounts
expressed in U.S. Dollars)


1.
            Organization


Benda
Pharmaceutical, Inc. (“Benda”) is a corporation organized under the Florida Laws
and headquartered in Hubei Province, the People’s Republic of China
(“PRC”).





Ever
Leader Holdings Limited (“Ever Leader”), a wholly owned subsidiary of Benda, is
a company incorporated under the laws of Hong Kong SAR.





Ever
Leader owns 95% of the issued and outstanding capital of Hubei Tongi Benda Ebei
Pharmaceutical Co. Ltd. (“Benda Ebei”), a Sino-Foreign Equity Joint Venture
company incorporated under the laws of PRC. Mr. Yiqing Wan owns 5% of the issued
and outstanding capital stock of Benda Ebei. Benda Ebei owns: (i) 95% of the
issued and outstanding capital stock of Jiangling Benda Pharmaceutical Co. Ltd.,
(“Jiangling Benda”) a company formed under the laws of PRC; (ii) 95% of the
issued and outstanding capital stock of Yidu Benda Chemical Co. Ltd., (“Yidu
Benda”) a company incorporated under the laws of PRC; and (iii) 75% of the
issued and outstanding capital stock of Beijing Shusai Pharyngitis Research Co.
Ltd., (“Beijing Shusai”) a company incorporated under the laws of PRC. Mr.
Yiqing Wan owns: (i) 5% of the issued and outstanding capital stock of Jingling
Benda; and (ii) 5% of the issued and outstanding capital stock of Yidu Benda.
Mr. Feng Wang owns 25% of the issued and outstanding capital stock of Beijing
Shusai.





On April
5, 2007, Benda Ebei entered into an Equity Transfer Agreements with Shenzhen
Yuanzheng Investment Development Co., Ltd. and Shenzhen Yuanxing Gene City
Development Co., Ltd., the then shareholders of Shenzhen SiBiono GeneTech Co.,
Ltd (“SiBiono”), to purchase 27.57% and 30% respectively of the shares of
SiBiono’s common stock for total consideration of Rmb60 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 Rmb2.56 million (or $0.34 million) due and payable on or before
June 30, 2007. Altogether, the total consideration for 60.13% shares of
SiBiono’s common stock was Rmb62.56 million or $9.18 million. As of June 30,
2009, an accumulated amount, approximately Rmb52.84 million or $7.76 million was
paid and leaving a balance of Rmb 9.72 million or $1.42 million (please refer to
Note 10 for the details).





Benda,
Ever Leader, Benda Ebei, Jingling Benda, Yidu Benda, Beijing Shusai and SiBiono
shall be referred to herein collectively as the “Group”. The Group is engaged
principally in the business of identifying, discovering, developing, and
manufacturing conventional medicines, active pharmaceuticals, bulk chemicals (or
pharmaceutical immediates), and Traditional Chinese Medicines (“TCM”) for the
treatment of some of the most widespread common ailments and diseases (e.g.
common cold, diabetes, and cancer).





F-6





As of
June 30, 2009, the organization and ownership structure of the Group is as
follows:











2.
            Basis
      of Preparation and Consolidation


The
unaudited consolidated financial statements of Benda and its subsidiaries have
been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information and pursuant to the
requirements for reporting on Form 10-Q. Accordingly, they do not include
all the information and footnotes required by accounting principles
generally accepted in the United States of America for annual financial
statements. However, the information included in these interim financial
statements reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for
the fair presentation of the consolidated financial position and the
consolidated results of operations. Results shown for interim periods
are not necessarily indicative of the results to be obtained for a full
year. The consolidated balance sheet information as of December 31, 2008
was derived from the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K. These interim financial
statements should be read in conjunction with that report.





3.
            Use
      of Estimates


The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
when ultimately realized could differ from those estimates.





F-7





4.
            Significant
      Accounting Policies





Cash
and Cash Equivalents


Cash and cash equivalents include cash
on hand, cash on deposit with various financial institutions, and all
highly-liquid investments with original maturities of three months or less at
the time of purchase.




Estimates
Affecting Trade Receivables, Other Receivables, Prepaid and Deposits and
Inventories


The
preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect our reporting of assets and liabilities
(and contingent assets and liabilities). However, it is explicated that the
changes in estimation were not material in the preparation of our consolidation
financial statements.





As of
June 30, 2009 and December 31, 2008, the Group provided a $6,591,973 and
$3,786,459, respectively for the allowance of doubtful accounts against trade
receivables (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.




As of
June 30, 2009 and December 31, 2008, the Group provided a reserve against its
obsolete, slow-moving or non-salable inventory amounting to $4,687,738 and
$4,941,372, respectively (please refer to Note 7 for details).




Property
and Equipment


Property
and equipment are recorded at cost and depreciated using the straight-line
method, with an estimated 5% salvage value of original cost, over the estimated
useful lives of the assets as follows:




Buildings
              20-30yearsMachinery
      and equipment
              10-15
      yearsMotor Vehicles
              5
      yearsElectronics
      and office equipment
              5
      years





Expenditures
for repairs and maintenance, which do not improve or extend the expected useful
lives of the assets, are expensed as incurred while major replacements and
improvements are capitalized.




When
property or equipment is retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, with any resulting gains or losses
being included in net income or loss in the year of disposition.Impairment of
Long-Lived Assets





F-8





The Group
evaluates potential impairment of long-lived assets, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires the Group to (a) recognize
an impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and (b) measure an impairment loss
as the difference between the carrying amount and fair value of the asset. As of
June 30, 2009, the Group has provided a full reserve against its Goodwill in the
amount of $7,904,613 (Please refer to Note 10 for details).




Intangible
Assets


The
Group’s intangible assets are stated at cost less accumulated amortization and
are comprised of land-use rights, drug permits and licenses, patent and
technology formulas know-how. Land-use rights are related to land the Group
occupies in Hubei and Guangdong Province, PRC and are being amortized on a
straight-line basis over a period of 40 years. Other intangible assets are being
amortized on a straight-line basis over a period of 10 years.




Revenue
Recognition


Among the
most important accounting policies affecting the Group’s consolidated financial
statements is its 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. Sales are presented net of value added tax (VAT). No
return allowance is made as products returns are insignificant based on
historical experience.





Research
and Development


Research
and development (“R&D”) costs are expensed as incurred and consist primarily
of salaries and related expenses of personnel engaged in research and
development activities. The Group spent $118,083 and $169,781 on R&D efforts
for the six months ended June 30, 2009 and 2008, 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.




Going
Concern
 
 These
consolidated financial statements have been prepared on a going concern basis in
accordance with USGAAP. The going concern basis of presentation assumes that the Group will
continue in operation for the foreseeable future and be able to realize its
assets and discharge its liabilities and commitments in the normal course of
business. The Group (i) has incurred consecutive losses for several years, (ii)
has been in serious working capital deficit situation for an extended
period of time, and (iii) has several significant loans or debts in default
and without solid action plan by the Management, all that raise substantial
doubt about its ability to continue as a going concern. These consolidated
financial statements do not reflect adjustments that would be necessary if
the going concern assumption was not appropriate. If the going concern basis was
not appropriate for these consolidated financial statements, then adjustments
would be necessary in the carrying value of assets and liabilities, the reported
revenue and expenses and the balance sheet classifications
used.





F-9




Concentration
of Credit Risk


A
significant portion of the Group's cash at June 30, 2009 and December
31, 2008 is maintained at various financial institutions in the PRC which
do not provide insurance for amounts on deposit.





The Group
has not experienced any losses in such accounts and believes it is not exposed
to significant credit risk in this area.




The Group
operates principally in the PRC and grants credit to its customers in this
geographic region.  Although the PRC is economically stable, it is
always possible that unanticipated events in foreign countries could disrupt the
Group’s operations.




The
following table shows the individual customer’s revenue and account receivable
balance which was higher than 5% of total revenue and total account
receivables for the six months and three months ended June 30, 2009 and
2008:




SIX
      MONTHS ENDED JUNE 30,
                                                                
                                                                
                                                                THREE
      MONTH ENDED JUNE 30,2009
                                                                
                                                                
                                                                2008
                                                                
                                                                
                                                                2009
                                                                
                                                                
                                                                2008(Unaudited)
                                                                
                                                                
                                                                (Unaudited)
                                                                
                                                                
                                                                (Unaudited)
                                                                
                                                                
                                                                (Unaudited)Revenue
                                                                
                                                                $
                                                                11,440,412
                                                                
                                                                
                                                                
                                                                %
                                                                
                                                                $
                                                                13,225,623
                                                                
                                                                
                                                                
                                                                %
                                                                
                                                                $
                                                                5,924,609
                                                                
                                                                
                                                                
                                                                %
                                                                
                                                                $
                                                                7,278,253
                                                                
                                                                
                                                                
                                                                %Individual
      customer's revenue1
                                                                Zhuhai
      Gongbei Pharmaceutical Co,
Ltd.
                                                                
                                                                
                                                                2,960,739
                                                                
                                                                
                                                                
                                                                26
                                                                %
                                                                
                                                                
                                                                2,926,293
                                                                
                                                                
                                                                
                                                                22
                                                                %
                                                                
                                                                
                                                                1,176,598
                                                                
                                                                
                                                                
                                                                20
                                                                %
                                                                
                                                                
                                                                1,399,001
                                                                
                                                                
                                                                
                                                                19
                                                                %2
                                                                Shenyang
      Pharmaceutical Co. Ltd.
                                                                
                                                                
                                                                1,572,583
                                                                
                                                                
                                                                
                                                                14
                                                                %
                                                                
                                                                
                                                                1,273,621
                                                                
                                                                
                                                                
                                                                10
                                                                %
                                                                
                                                                
                                                                785,787
                                                                
                                                                
                                                                
                                                                13
                                                                %
                                                                
                                                                
                                                                561,439
                                                                
                                                                
                                                                
                                                                8
                                                                %3
                                                                Shenzhen
      Huihua Pharmaceutical Co. Ltd.
                                                                
                                                                
                                                                1,440,194
                                                                
                                                                
                                                                
                                                                13
                                                                %
                                                                
                                                                
                                                                1,390,396
                                                                
                                                                
                                                                
                                                                11
                                                                %
                                                                
                                                                
                                                                770,706
                                                                
                                                                
                                                                
                                                                13
                                                                %
                                                                
                                                                
                                                                515,221
                                                                
                                                                
                                                                
                                                                7
                                                                %4
                                                                Jiangxi
      Huiren Pharmaceutical Co. Ltd.
                                                                
                                                                
                                                                885,238
                                                                
                                                                
                                                                
                                                                8
                                                                %
                                                                
                                                                
                                                                955,865
                                                                
                                                                
                                                                
                                                                7
                                                                %
                                                                
                                                                
                                                                406,083
                                                                
                                                                
                                                                
                                                                7
                                                                %
                                                                
                                                                
                                                                603,023
                                                                
                                                                
                                                                
                                                                8
                                                                %5
                                                                Hubei
      Hengchuan Health Products
    Co.,Ltd.
                                                                
                                                                
                                                                701,376
                                                                
                                                                
                                                                
                                                                6
                                                                %
                                                                
                                                                
                                                                1,643,089
                                                                
                                                                
                                                                
                                                                12
                                                                %
                                                                
                                                                
                                                                420,665
                                                                
                                                                
                                                                
                                                                7
                                                                %
                                                                
                                                                
                                                                672,941
                                                                
                                                                
                                                                
                                                                9
                                                                %Account
      receivable, gross
                                                                
                                                                $
                                                                14,618,024
                                                                
                                                                
                                                                
                                                                %
                                                                
                                                                $
                                                                12,765,302
                                                                
                                                                
                                                                
                                                                %
                                                                
                                                                
                                                                14,618,024
                                                                
                                                                
                                                                
                                                                %
                                                                
                                                                
                                                                12,765,302
                                                                
                                                                
                                                                
                                                                %Individual
      customer's account receivable gross
      balance1
                                                                Zhuhai
      Gongbei Pharmaceutical Co,
Ltd.
                                                                
                                                                
                                                                2,785,597
                                                                
                                                                
                                                                
                                                                19
                                                                %
                                                                
                                                                
                                                                2,267,039
                                                                
                                                                
                                                                
                                                                18
                                                                %
                                                                
                                                                
                                                                2,785,597
                                                                
                                                                
                                                                
                                                                19
                                                                %
                                                                
                                                                
                                                                2,267,039
                                                                
                                                                
                                                                
                                                                18
                                                                %2
                                                                Jiangxi
      Huiren Pharmaceutical Co. Ltd.
                                                                
                                                                
                                                                1,200,059
                                                                
                                                                
                                                                
                                                                8
                                                                %
                                                                
                                                                
                                                                844,413
                                                                
                                                                
                                                                
                                                                7
                                                                %
                                                                
                                                                
                                                                1,200,059
                                                                
                                                                
                                                                
                                                                8
                                                                %
                                                                
                                                                
                                                                844,413
                                                                
                                                                
                                                                
                                                                7
                                                                %3
                                                                Shenzhen
      Huihua Pharmaceutical Co. Ltd.
                                                                
                                                                
                                                                1,456,728
                                                                
                                                                
                                                                
                                                                10
                                                                %
                                                                
                                                                
                                                                986,123
                                                                
                                                                
                                                                
                                                                8
                                                                %
                                                                
                                                                
                                                                1,456,728
                                                                
                                                                
                                                                
                                                                10
                                                                %
                                                                
                                                                
                                                                986,123
                                                                
                                                                
                                                                
                                                                8
                                                                %4
                                                                Shenyang
      Pharmaceutical Co. Ltd.
                                                                
                                                                
                                                                1,459,949
                                                                
                                                                
                                                                
                                                                10
                                                                %
                                                                
                                                                
                                                                969,643
                                                                
                                                                
                                                                
                                                                8
                                                                %
                                                                
                                                                
                                                                1,459,949
                                                                
                                                                
                                                                
                                                                10
                                                                %
                                                                
                                                                
                                                                969,643
                                                                
                                                                
                                                                
                                                                8
                                                                %5
                                                                Hubei
      Hengchuan Health Products
    Co.,Ltd.
                                                                
                                                                
                                                                911,834
                                                                
                                                                
                                                                
                                                                6
                                                                %
                                                                
                                                                
                                                                1,162,570
                                                                
                                                                
                                                                
                                                                9
                                                                %
                                                                
                                                                
                                                                911,834
                                                                
                                                                
                                                                
                                                                6
                                                                %
                                                                
                                                                
                                                                1,162,570
                                                                
                                                                
                                                                
                                                                9
                                                                %


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.





F-10




The
exchange rates in effect at June 30, 2009 and 2008 were stated as follows: (for
RMB 1.00):




June
      30,
                    
                    
                    June
      30,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Unaudited)Fixed
      rate
                    
                    $
                    0.1465
                    
                    
                    $
                    0.1459Average
      rate
                    
                    $
                    0.1466
                    
                    
                    $
                    0.1418




For the
six months ended June 30, 2009 and 2008, the foreign exchange loss was $2,234
and $2,156 respectively; for the three months ended June 30, 2009 and
2008, the foreign exchange gain was $359 and $1,040,
respectively.




Fair
Value of Financial Instruments


Statement
of Financial Accounting Standards (“SFAS”) No. 107, “Disclosures About Fair
Value of Financial Instruments,” defines financial instruments and requires fair
value disclosures of those financial instruments. On January 1, 2008, the Group
adopted SFAS No. 157, “Fair Value Measurements,” which defines fair value,
establishes a three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosures requirements for fair value measures.
Current assets and current liabilities qualified as financial instruments and
management believes their carrying amounts are a reasonable estimate of fair
value because of the short period of time between the origination of such
instruments and their expected realization and if applicable, their current
interest rate is equivalent to interest rates currently available. The three
levels are defined as follow:





·
            Level
      1 — inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.


·
            Level
      2 — inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the assets or liability, either directly or indirectly, for
      substantially the full term of the financial
  instruments.


·
            Level
      3 — inputs to the valuation methodology are unobservable and significant
      to the fair value.





As of the
balance sheet date, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented due to the
short maturities of these instruments and that the interest rates on the
borrowings approximate those that would have been available for loans of similar
remaining maturity and risk profile at respective period-ends. Determining which
category an asset or liability falls within the hierarchy requires significant
judgment. The Group evaluates the hierarchy disclosures each
quarter.





F-11





Recent
Issued Accounting Pronouncements




In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4
amends SFAS 157 and provides additional guidance for estimating fair value in
accordance with SFAS 157 when the volume and level of activity for the asset or
liability have significantly decreased and also includes guidance on identifying
circumstances that indicate a transaction is not orderly for fair value
measurements. This FSP shall be applied prospectively with retrospective
application not permitted. This FSP shall be effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity early adopting this FSP must
also early adopt FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). Additionally,
if an entity elects to early adopt either FSP FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1
and APB 28-1) or FSP FAS 115-2 and FAS 124-2, it must also elect to early adopt
this FSP. The Group is currently evaluating this new FSP but do not believe that
it will have a significant impact on the determination or reporting of the
Group’s financial results.




In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairment” (FSP 115-2/124-2). FSP 115-2/124-2 amends
the requirements for the recognition and measurement of other-than-temporary
impairment for debt securities by modifying the pre-existing “intent and
ability” indicator. Under FSP 115-2/124-2, an
other-than-temporary impairment is triggered when there is an intent to
sell the security, it is more likely then not that the security will be required
to be sold before recovery, or the security is not expected to recover the
entire amortized cost basis of the security. Additionally, FSP 115-2/124-2
changes the presentation of an other-than-temporary impairment in the income
statement for those impairments involving credit losses. The credit loss
component will be recognized in earnings and the remainder of the impairment
will be recorded in other comprehensive income. FSP 115-2/124-2 is effective for
the Group beginning in the second quarter of fiscal year 2009. Upon
implementation at the beginning of the second quarter of 2009, FSP 115-2/124-2
is not expected to have a significant impact on the Group’s consolidated
financial statements.





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosure about Fair
Value of Financial Instruments” (“FSP 107-1/APB 28-1”). FSP 107-1/APB 28-1
requires interim disclosures regarding the fair values of financial instruments
that are within the scope of FAS 107, “Disclosures about the Fair Value of
Financial Instruments,” Additionally, FSP 107-1/APB 28-1 requires disclosures of
the methods and significant assumptions used to estimate the fair value of
financial instruments on an interim basis as well as changes in the methods and
significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change
the accounting treatment for these financial instruments and is effective for
the Group beginning in the second quarter of fiscal year 2009.





Recently
Adopted Accounting Pronouncements




In the
first quarter of 2009, the Group adopted Statement of Financial Accounting
Standards (SFAS) No. 141 (revised 2007), “Business Combinations” (SFAS No.
141(R)) as mended by FASB staff position FSP 141(R)-1, “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination.” SFAS No. 141(R)
generally requires an entity to recognize the assets acquired, liabilities
assumed, contingencies, and contingent consideration at their fair value on the
acquisition date. In circumstances where the acquisition-date fair value for a
contingency cannot be determined during the measurement period and it is
concluded that it is probable that an asset or liability exists as of the
acquisition date and the amount can be reasonably estimated, a contingency is
recognized as of the acquisition date based on the estimated amount. It further
requires that acquisition related costs be recognized separately from the
acquisition and expensed as incurred, restructuring costs generally be expensed
in periods subsequent to the acquisition date, and changes in accounting for
deferred tax asset valuation allowances and acquired income tax uncertainties
after the measurement period impact income tax expenses. In addition, acquired
in-process research and development is capitalized as an intangibles asset and
amortized over its estimated useful life. SFAS No. 141(R) is applicable to
business combinations on a prospective basis beginning in the first quarter
of 2009. The Group does not complete any business combination in the first and
second quarter of 2009.




In June
2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No.
46(R)," which revised the consolidation guidance for variable-interest entities.
The modifications include the elimination of the exemption for qualifying
special purpose entities, a new approach for determining who should consolidate
a variable-interest entity, and changes to when it is necessary to reassess who
should consolidate a variable-interest entity. For the Company, this standard is
effective January 1, 2010. The Company is currently evaluating the impact of
this standard, but would not expect it to have a material impact on the
Company's consolidated results of operations or financial
condition.
 
 In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
CodificationTM and the
Hierarchy of Generally Accepted Accounting Principles a replacement of FASB
Statement No. 162," and approved--the FASB Accounting Standards
CodificationTM
(Codification) as the single source of authoritative nongovernmental US GAAP.
The Codification does not change current US GAAP, but is intended to simplify
user access to all authoritative US GAAP by providing all the authoritative
literature related to a particular topic in one place. All existing accounting
standard documents will be superseded and all other accounting literature not
included in the Codification will be considered non-authoritative. For the
Company, the Codification is effective July 1, 2009 and will require future
references to authoritative US GAAP to coincide with the appropriate section of
the Codification. Accordingly, this standard will not have an impact on the
Company's consolidated results of operations or financial
condition.




F-12




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework and gives guidance
regarding the methods used for measuring fair value, and expands disclosures
about fair value measurements. In February 2008, the FASB issued FASB Staff
Position 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13
and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13 (“FSP 157-1”)
and FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (“FSP
157-2”). FSP 157-1 amends SFAS 157 to remove certain leasing transactions from
its scope. FSP 157-2 delays the effective date of SFAS 157 for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until fiscal years beginning after November 15, 2008. SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Group
adopted SFAS 157 effective January 1, 2008 for all financial assets and
liabilities as required. The adoption of SFAS 157 was not material to the
Group’s financial statements or results of operations.




Effective
January 1, 2009, the Group adopted the provisions of EITF 07-5,"Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-5”). EITF 07-5 applies to any freestanding financial instruments or embedded
features that have the characteristics of a derivative, as defined by SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
and to any freestanding financial instruments that are potentially settled in an
entity’s own common stock. The adoption of EITF 07-5 was not material to
the Group's financial statements or results of operations.





In July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take
on a tax return (including a decision whether to file or not to file a return in
a particular jurisdiction). The accounting provisions of FIN No. 48 are
effective for fiscal years beginning after December 15, 2006. The adoption of
this Interpretation had no impact on the Group’s financial position or results
of operations.





In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). SFAS 157 defines fair value, establishes a framework and gives guidance
regarding the methods used for measuring fair value, and expands disclosures
about fair value measurements. In February 2008, the FASB issued FASB Staff
Position 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13
and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13" ("FSP
157-1") and FASB Staff Position 157-2, "Effective Date of FASB Statement No.
157" ("FSP 157-2"). FSP 157-1 amends SFAS 157 to remove certain leasing
transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until fiscal years beginning after November
15, 2008. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years.  The Group adopted SFAS 157 effective January 1, 2008 for all
financial assets and liabilities as required. The adoption of SFAS 157 was not
material to the Group's financial statements or results of
operations.





F-13





Reclassification


Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation. The reclassification had no effect
on reported losses.





5.
            Trade
      Receivables, Other Receivables, Prepaid expenses and
    Deposits




As
mentioned in Note 4 that the company estimates of the appropriate allowance on
those accounts receivable for the reporting periods was based on the aged nature
of these accounts. The table below shows the allowance for doubtful debts of the
Group’s trade receivables, other receivables and prepaid expenses and
deposits as of June 30, 2009 and December 31, 2008:





June
      30,
                                                  
                                                  
                                                  December
      31,2009
                                                  
                                                  
                                                  2008(Unaudited)Trade
      receivables, gross
                                                  
                                                  $
                                                  14,618,024
                                                  
                                                  
                                                  $
                                                  13,123,374Allowance
      for doubtful debts
                                                  
                                                  
                                                  (6,591,973
                                                  )
                                                  
                                                  
                                                  (3,786,459
                                                  )Trade
      receivables, net
                                                  
                                                  $
                                                  8,026,051
                                                  
                                                  
                                                  $
                                                  9,336,915June
      30,
                                                  
                                                  
                                                  December
      31,2009
                                                  
                                                  
                                                  2008Other  receivables,
      gross
                                                  
                                                  $
                                                  506,683
                                                  
                                                  
                                                  $
                                                  504,349Allowance
      for doubtful debts
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Other  receivables,
      net
                                                  
                                                  $
                                                  506,683
                                                  
                                                  
                                                  $
                                                  504,349June
      30,
                                                  
                                                  
                                                  December
      31,2009
                                                  
                                                  
                                                  2008Prepaid
      and deposits, gross
                                                  
                                                  $
                                                  1,371,362
                                                  
                                                  
                                                  $
                                                  918,209Allowance
      for doubtful debts
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Prepaid
      and deposits, net
                                                  
                                                  $
                                                  1,371,362
                                                  
                                                  
                                                  $
                                                  918,209





The
change of the allowance for doubtful debts between the reporting periods, as of
June 30, 2009 and 2008, is displayed as follows:





SIX
      MONTHS ENDED JUNE 30,2009
                            
                            
                            2008(Unaudited)
                            
                            
                            (Unaudited)Balance
      at beginning of period
                            
                            $
                            (3,786,459
                            )
                            
                            $
                            (943,647
                            )Provision
      during the period
                            
                            
                            (2,808,862
                            )
                            
                            
                            (773,893
                            )Foreign
      exchange difference
                            
                            
                            3,348
                            
                            
                            
                            (83,323
                            )Balance
      at end of period
                            
                            $
                            (6,591,973
                            )
                            
                            $
                            (1,800,863
                            )





F-14





The Group
set full allowance for trade receivables aged over 120 days which is general
credit term granted to the customers. After deducting those allowances from the
gross trade receivable, based on the management’s past experience, there would
be no collectability issue on the net amount.





6.
            Refundable
      Purchase Price Paid




On,
December 7, 2006, Benda Ebei paid $1.2 million to SECO (Shenzhen) Biotech Co.,
Ltd. (“SECO”) pursuant to a purchase agreement signed between SECO and Benda
Ebei on December 3, 2006 to acquire a technology know-how and drug
specifications and technical parameters in producing a Gastropathy drug owned by
SECO. According to the signed contract:


·
            The
      amount paid is refundable only if SECO fails to pass the examination
      conducted by Benda Ebei;


·
            Altogether,
      there are three phases for the examination; however there is no specific
      time-table for the examination;


·
            The
      contract is valid for 10 years upon the contract
  signed.





As at
June 30, 2009, the deal has not been closed as the product is still under the
process of development. As the date when could SECO pass the examination
conducted by Benda Ebei cannot be determined, thus the amount paid is reported
as non-current assets as of June 30, 2009.





7.
            Inventories,
      Net




The
Group’s inventories at June 30, 2009 and December 31, 2008 comprised as
follows:





June
      30,
                                                
                                                
                                                December
      31,2009
                                                
                                                
                                                2008(Unaudited)Raw
      materials
                                                
                                                $
                                                1,431,580
                                                
                                                
                                                $
                                                874,180Packing
      materials
                                                
                                                
                                                280,094
                                                
                                                
                                                
                                                481,724Other
      materials / supplies
                                                
                                                
                                                83,562
                                                
                                                
                                                
                                                88,412Finished
      goods
                                                
                                                
                                                373,920
                                                
                                                
                                                
                                                754,838Work-in-process
                                                
                                                
                                                5,239,082
                                                
                                                
                                                
                                                5,086,780Total
      inventories at cost
                                                
                                                
                                                7,408,238
                                                
                                                
                                                
                                                7,285,934Less:
      Reserves on inventories
                                                
                                                
                                                (4,687,738
                                                )
                                                
                                                
                                                (4,941,372
                                                )Total
      inventories, net
                                                
                                                $
                                                2,720,500
                                                
                                                
                                                $
                                                2,344,562





A reserve
for obsolete, slow-moving or non-salable inventory was made on raw materials,
packing materials, other material and suppliers, finished goods and
work-in-process at the amount of $11,078, $54,120, $57,651, $13,552 and
$4,551,337 respectively as of June 30, 2009. As of December 31, 2008, there was
a reserve made on raw materials, packing materials, finished goods and
work-in-process at the amount of $122,433, $7,118, $269,749 and $4,542,072
respectively.





The
provision of reserve on work-in-process was resulted from the manufacturing
process of Gendicine, SiBiono’s sole product and SiBiono was acquired by the
company in April 2007.





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





F-15











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





Therefore,
up to the stage of reagent, all the related production costs are treated as
work-in-process. The major components of those production costs are: (i) direct
labor; (ii) direct materials; (iii) power; (iv) supplies and other materials and
(v) manufacturing overheads.





Before
acquisition, as of March 31, 2007, the accumulated units of original liquid
produced was 198,075 and which could be converted to approximately 226,736 vials
of Gendicine. However, the accumulated vials of Gendicine sold throughout the
years 2004 to three-months period ended March 31, 2007 were only approximately
18,424 vials. The accumulated production costs of $4,080,644 were remained as
work-in-process as of three-month period ended March 31, 2007.





Furthermore,
due to the special feature of the original liquid which can only be stored for
five years, and most of the original liquid was produced in the year of 2004,
and the provision of reserve on work in process was $3,696,083 as of three-month
period ended March 31, 2007.





After the
acquisition with the effective date April 1, 2007, the same accounting treatment
was adopted for the treatment of the provision of reserve on work-in-process. As
of June 30, 2009, the provision of reserve on work in process was
$4,551,337.





F-16





8.
            Property
      and Equipment, Net




The Group’s property and equipment atJune 30, 2009and December 31,2008werecomprised as follows:




December
      31,
                                        2008
                                      
                                      
                                      Addition
                                      
                                      
                                      Foreign
                                        Currency
                                        Translation
                                        Difference
                                      
                                      
                                      June
      30,
                                        2009(Unaudited)
                                      
                                      
                                      (Unaudited)
                                      
                                      
                                      (Unaudited)Buildings
                                      
                                      $
                                      9,692,441
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (9,521
                                      )
                                      
                                      $
                                      9,682,920Machinery
      and equipment
                                      
                                      
                                      16,769,328
                                      
                                      
                                      
                                      9,835
                                      
                                      
                                      
                                      (22,985
                                      )
                                      
                                      
                                      16,756,179Office
      equipment
                                      
                                      
                                      40,728
                                      
                                      
                                      
                                      1,099
                                      
                                      
                                      
                                      (3,829
                                      )
                                      
                                      
                                      37,998Motor
      Vehicles
                                      
                                      
                                      252,163
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (338
                                      )
                                      
                                      
                                      251,824Cost
                                      
                                      
                                      26,754,660
                                      
                                      
                                      
                                      10,934
                                      
                                      
                                      
                                      (36,673
                                      )
                                      
                                      
                                      26,728,921Less:
      Accumulated DepreciationBuildings
                                      
                                      $
                                      (1,559,511
                                      )
                                      
                                      
                                      (227,342
                                      )
                                      
                                      
                                      2,585
                                      
                                      
                                      $
                                      (1,784,268
                                      )Machinery
      and equipment
                                      
                                      
                                      (4,160,667
                                      )
                                      
                                      
                                      (722,043
                                      )
                                      
                                      
                                      5,407
                                      
                                      
                                      
                                      (4,877,303
                                      )Office
      equipment
                                      
                                      
                                      (30,839
                                      )
                                      
                                      
                                      (12,128
                                      )
                                      
                                      
                                      44
                                      
                                      
                                      
                                      (42,923
                                      )Motor
      Vehicles
                                      
                                      
                                      (89,863
                                      )
                                      
                                      
                                      (18,876
                                      )
                                      
                                      
                                      102
                                      
                                      
                                      
                                      (108,637
                                      )Accumulated
      Depreciation
                                      
                                      
                                      (5,840,880
                                      )
                                      
                                      
                                      (980,389
                                      )
                                      
                                      
                                      8,138
                                      
                                      
                                      
                                      (6,813,131
                                      )Construction
      in progress
                                      
                                      $
                                      8,143,445
                                      
                                      
                                      
                                      445,131
                                      
                                      
                                      
                                      (9,026
                                      )
                                      
                                      $
                                      8,579,550Total
      property and equipment, net
                                      
                                      $
                                      29,057,225
                                      
                                      
                                      
                                      (524,324
                                      )
                                      
                                      
                                      (37,561
                                      )
                                      
                                      $
                                      28,495,340




As
mentioned in Note 11, Benda Ebei entered into a commercial bank note issuance
agreement with Shanghai Pudong Development Bank on August 14, 2007 and a
supplementary agreement on January 21, 2008. Under the agreements the credit
facility is secured by the buildings, machinery and equipment of Benda Ebei and
Jiangling Benda. As of June 30, 2009, the net book value of pledged property and
equipment was approximately Rmb126.40 million (or $18.52 million) in
total.




The
depreciation expense for the six months ended June 30, 2009 was calculated as
follows:




Original
      CostDecember
      31,
                                      
                                      
                                      June
      30,
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      Depreciation
                                      
                                      
                                      Deprecation2008
                                      
                                      
                                      2009
                                      
                                      
                                      Average
                                      
                                      
                                      Salvage
                                      
                                      
                                      Estimate
                                      
                                      
                                      Calculated
                                      
                                      
                                      Reported
                                      
                                      
                                      Difference(Unaduited)
                                      
                                      
                                      (Unaduited)
                                      
                                      
                                      Value
                                      
                                      
                                      Useful
      Lives
                                      
                                      
                                      (Unaduited)
                                      
                                      
                                      (Unaduited)
                                      
                                      
                                      (Unaduited)Building
                                      
                                      $
                                      9,692,441
                                      
                                      
                                      
                                      9,682,920
                                      
                                      
                                      
                                      9,687,681
                                      
                                      
                                      
                                      5
                                      %
                                      
                                      
                                      20
                                      
                                      
                                      
                                      230,082
                                      
                                      
                                      
                                      227,342
                                      
                                      
                                      
                                      2,740Property
      and equipment
                                      
                                      
                                      16,769,328
                                      
                                      
                                      
                                      16,756,179
                                      
                                      
                                      
                                      16,762,754
                                      
                                      
                                      
                                      5
                                      %
                                      
                                      
                                      11
                                      
                                      
                                      
                                      723,846
                                      
                                      
                                      
                                      722,043
                                      
                                      
                                      
                                      1,803Office
      equipment
                                      
                                      
                                      40,728
                                      
                                      
                                      
                                      37,998
                                      
                                      
                                      
                                      39,363
                                      
                                      
                                      
                                      5
                                      %
                                      
                                      
                                      5
                                      
                                      
                                      
                                      3,739
                                      
                                      
                                      
                                      12,128
                                      
                                      
                                      
                                      (8,389
                                      )Motor
      vehicle
                                      
                                      
                                      252,163
                                      
                                      
                                      
                                      251,824
                                      
                                      
                                      
                                      251,994
                                      
                                      
                                      
                                      5
                                      %
                                      
                                      
                                      5
                                      
                                      
                                      
                                      23,939
                                      
                                      
                                      
                                      18,876
                                      
                                      
                                      
                                      5,063Total
      property and equipments
                                      
                                      $
                                      26,754,660
                                      
                                      
                                      
                                      26,728,921
                                      
                                      
                                      
                                      26,741,791
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      981,606
                                      
                                      
                                      
                                      980,389
                                      
                                      
                                      
                                      1,217





F-17





The above
table shows the calculation of depreciation expenses for the six months
ended June 30, 2009. The difference between the depreciation calculated and
depreciation reported was due to the changes of foreign exchange
translation.





The
estimated useful lives for buildings and property and equipments vary from 20 to
30 years and 10 to 15 years, respectively. For the six months ended June 30,
2009, the majority of the building subjected to depreciation had useful lives of
20 years and property and equipment had useful lives of 11 years.





The total
depreciation expense was $980,389 and $490,324 for the six months and three
months ended June 30, 2009, respectively, and is broken down as
follows:





SIX
      MONTHS ENDED JUNE 30,
                        
                        
                        THREE
      MONTHS ENDED JUNE 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)Cost
      of sales
                        
                        $
                        601,094
                        
                        
                        $
                        659,177
                        
                        
                        $
                        300,663
                        
                        
                        $
                        329,162Operating
      expenses
                        
                        
                        379,295
                        
                        
                        
                        243,495
                        
                        
                        
                        189,661
                        
                        
                        
                        120,275Balance
      at end of period
                        
                        $
                        980,389
                        
                        
                        $
                        902,672
                        
                        
                        $
                        490,324
                        
                        
                        $
                        449,437





9.
            Intangible
      Assets, Net




The
Group’s intangible assets at June 30, 2009 and December 31, 2008 were
comprised as follows:




December
      31,
                                            2008
                                          
                                          
                                          Addition
                                          
                                          
                                          Foreign
      Currency
                                            Translation
                                            Difference
                                          
                                          
                                          June
      30,
                                            2009(Unaudited)
                                          
                                          
                                          (Unaudited)
                                          
                                          
                                          (Unaudited)Land-use
      rights
                                          
                                          $
                                          3,117,136
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (4,030
                                          )
                                          
                                          $
                                          3,113,106Drugs
      permits and licenses
                                          
                                          
                                          2,780,254
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,595
                                          )
                                          
                                          
                                          2,776,659Technology
      formulas
                                          
                                          
                                          1,012,129
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,105
                                          )
                                          
                                          
                                          1,011,024Patent
                                          
                                          
                                          1,803,829
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,969
                                          )
                                          
                                          
                                          1,801,860Cost
                                          
                                          
                                          8,713,348
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (10,699
                                          )
                                          
                                          
                                          8,702,649Land-use
      rights
                                          
                                          $
                                          (279,127
                                          )
                                          
                                          
                                          (31,032
                                          )
                                          
                                          
                                          363
                                          
                                          
                                          $
                                          (309,796
                                          )Drugs
      permits and licenses
                                          
                                          
                                          (1,664,540
                                          )
                                          
                                          
                                          (137,485
                                          )
                                          
                                          
                                          2,043
                                          
                                          
                                          
                                          (1,799,982
                                          )Technology
      formulas
                                          
                                          
                                          (254,683
                                          )
                                          
                                          
                                          (50,567
                                          )
                                          
                                          
                                          294
                                          
                                          
                                          
                                          (304,956
                                          )Patent
                                          
                                          
                                          (511,896
                                          )
                                          
                                          
                                          (146,141
                                          )
                                          
                                          
                                          602
                                          
                                          
                                          
                                          (657,435
                                          )Accumulated
      amortization
                                          
                                          
                                          (2,710,246
                                          )
                                          
                                          
                                          (365,225
                                          )
                                          
                                          
                                          3,302
                                          
                                          
                                          
                                          (3,072,169
                                          )Total
      intangible assets, net
                                          
                                          $
                                          6,003,102
                                          
                                          
                                          
                                          (365,225
                                          )
                                          
                                          
                                          (7,397
                                          )
                                          
                                          $
                                          5,630,480





In May
2007, SiBiono enter into a co-operation agreement with DNAVEC, a Japanese gene
therapy research institute. Under the terms of the agreement, DNAVEC will
leverage SiBiono’s proven gene therapy manufacturing platform and will transfer
the exclusive development and distribution rights of SeV-Gag in China to
SiBiono. The total purchase cost was Rmb2 million or $ 0.28 million and recorded
as intangible assets. In November 2008 this project was ceased and the whole
cost was recoverable. Therefore the whole cost was removed from intangible
assets and related amortization was reversed. As of June 30, 2009, the whole
cost was received.




The
amortization expense for the six months ended June 30, 2009 was calculated as
follows:





F-18




Original
      CostDecember
      31,
                              
                              
                              June
      30,
                              
                              
                              
                              
                              
                              
                              
                              
                              Amortization
                              
                              
                              Amortization2008
                              
                              
                              2009
                              
                              
                              Average
                              
                              
                              Estimated
                              
                              
                              Calculated
                              
                              
                              Reported
                              
                              
                              Difference(Unaudited)
                              
                              
                              (Unaudited)
                              
                              
                              Useful
      lives
                              
                              
                              (Unaudited)
                              
                              
                              (Unaudited)
                              
                              
                              (Unaudited)Land-use
      rights
                              
                              $
                              3,117,136
                              
                              
                              
                              3,113,106
                              
                              
                              
                              3,115,121
                              
                              
                              
                              40
                              
                              
                              $
                              38,939
                              
                              
                              
                              31,032
                              
                              
                              
                              7,907Drugs
      permits and licenses
                              
                              
                              2,780,254
                              
                              
                              
                              2,776,659
                              
                              
                              
                              2,778,457
                              
                              
                              
                              10
                              
                              
                              
                              138,923
                              
                              
                              
                              137,485
                              
                              
                              
                              1,438Technology
      formulas
                              
                              
                              1,012,129
                              
                              
                              
                              1,011,024
                              
                              
                              
                              1,011,577
                              
                              
                              
                              10
                              
                              
                              
                              50,579
                              
                              
                              
                              50,567
                              
                              
                              
                              12Patent
                              
                              
                              1,803,829
                              
                              
                              
                              1,801,860
                              
                              
                              
                              1,801,860
                              
                              
                              
                              6
                              
                              
                              
                              150,155
                              
                              
                              
                              146,141
                              
                              
                              
                              4,014Total
      Intangible assets
                              
                              $
                              8,713,348
                              
                              
                              
                              8,702,649
                              
                              
                              
                              8,707,015
                              
                              
                              
                              
                              
                              
                              $
                              378,596
                              
                              
                              
                              365,225
                              
                              
                              
                              13,371




The above
table shows the calculation of amortization expenses for the six months ended
June 30, 2009. The difference between the amortization calculated and
amortization reported was due to the changes of foreign exchange
translation.
  The total
amortization expense for the six months and the three months ended June 30,
2009, and 2008 are broken down as follows:
  SIX
      MONTHS ENDED JUNE 30,
                          
                          
                          THREE
      MONTHS ENDED JUNE 30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          (Unaudited)Cost
      of sales
                          
                          $
                          285,825
                          
                          
                          $
                          275,667
                          
                          
                          $
                          142,976
                          
                          
                          $
                          143,127Operating
      expenses
                          
                          
                          79,400
                          
                          
                          
                          97,948
                          
                          
                          
                          39,718
                          
                          
                          
                          46,373Balance
      at end of period
                          
                          $
                          365,225
                          
                          
                          $
                          373,615
                          
                          
                          $
                          182,694
                          
                          
                          $
                          189,500
 
 10.
              Goodwill
      and Acquisition Cost Payable
  FASB 141
requires all acquisitions must be accounted for by allocating the acquisition
consideration to the assets acquired based upon the fair market value of those
assets. Consideration value that cannot be allocated to the acquired assets must
be assigned to goodwill. In addition, it also requires eliminating the pooling
treatment and eliminating the amortization of goodwill. FASB 142 requires that a
company carrying goodwill on its books must revalue the assets acquired in a
business combination. If there is an overall decline in the value of the
acquired assets, then earlier booked goodwill is deemed “impaired” and must be
written down. FASB 142 requires a two step impairment test. The fair value of a
reporting unit is first compared to its carrying value, including goodwill. Then
the implied fair value of the goodwill is compared to the carrying value of the
goodwill. If the fair value is lower, it is considered to be
impaired.
  As of
June 30, 2009, there was an amount approximately $7.9 million was recorded as
goodwill.  Meanwhile, the Group made an impairment charge at full
amount on the goodwill due to the following facts (please read in conjunction
with Note 13):
  a.
              SiBiono
      has a bank loan matured and was in default, which has been sued and the
      court has issued a judgment on November 23, 2008 to SiBiono which required
      SiBiono to repay all loan balance plus penalty and interest
      approximately Rmb24 million immediately. As SiBiono has not paid
      anything yet,  thus the land use right of SiBiono on its new
      production plant may be foreclosed for sales by the lender bank has been
      frozen unless the amount has been settled between the lender bank and
      SiBiono;
 b.
              SiBiono
      has serious working capital deficit situation and has reported accumulated
      loss of $3.6 million as of June 30,
2009;
 c.
              The
      management has not yet located or confirmed any feasible re-financing plan
      and / or equity placement as of the report date. The follow up action is
      still under the discussion with the lender
bank.
 
 F-19


As of
June 30, 2009, out of the total acquisition cost Rmb62.56 million (or $9.18
million), the following payments were made:




In the
year of 2006, Benda, through its subsidiaries Everleader and Benda Ebei, paid
Rmb19.52 million and Rmb13.03 million or totaling Rmb32.55 million to the
selling shareholders of SiBiono and reported in the consolidated balance sheet
and cash flow statement as “refundable purchase price paid”. It was recorded as
refundable assets due to the fact that the deal was not concluded as of December
31, 2006. The acquisition was closed on April 5, 2007, and thus the total
refundable amount of Rmb32.55 or $4.17 million was reclassified as investment
cost.





In the
year of 2007, an additional amount Rmb20.28 million was paid. The remaining
balance was reported as “acquisition cost payable” on the balance sheet. As of
June 30, 2009, the total amount paid was Rmb52.83 million (or $7.76 million) and
the outstanding balance was Rmb9.72 million (or $1.42 million).





The Group
has already obtained the oral consent from the selling shareholders of SiBiono
that the remaining balance could be settled within the year of 2009.





11.
            Restricted
      Cash, Bank Indebtedness and Commercial Notes
  Payable




The
Group’s restricted cash at June 30, 2009 and December 31,
2008 was comprised as follows:




June 30,
                  
                  
                  December 31,2009
                  
                  
                  2008(Unaudited)Deposits
      for issuance of commercial notes
                  
                  $
                  4,430,310
                  
                  
                  $
                  4,859,346Funds
      from government technolgy agencies
                  
                  
                  1,302,080
                  
                  
                  
                  1,303,503Total
      restricted cash
                  
                  $
                  5,732,390
                  
                  
                  $
                  6,162,849





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.


f)
              As
      mentioned in Note 8, this credit facility is guaranteed by SiBiono and
      secured by the buildings, machinery and equipment of Benda Ebei. On
      December 15, 2007, Benda Ebei received a consent letter from Pudong Bank
      that Pudong Bank agreed to cancel SiBiono’s guarantee toward this credit
      facility.





F-20





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
June 30, 2009, Benda Ebei and Jiangling Benda deposited an amount $4,430,310 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 June 30, 2009, the balance of the commercial bank notes
payable was $8,847,692. Thus the net commercial bank notes payable was
$4,417,382 as of June 30, 2009.




B)
            The
      bank indebtedness was resulted from the acquisition of SiBiono with the
      effective date April 1, 2007. The reasons for causing bank indebtedness
      were stated as follows:




a)
            Among
      the cash and cash equivalents balances of SiBiono were composed of two
      parts; (i) unrestricted cash, which were generated from either operations,
      or loans from bank and financial institutions, or invested capital;
      (ii) restricted cash, which were obtained from the various government
      technology agencies as long term debt payable (see note 14 for the related
      details).




b)
            The
      cash obtained from the various government technology agencies as long term
      debt payable could only be dedicated to the related project’s research and
      development activities and purchase of fixed assets and construction in
      progress, therefore the cash balances for that part will be classified as
      restricted cash.




c)
            Due
      to the above reasons, SiBiono relocated the balances of restricted cash
      from the cash and cash equivalents balances for the reporting
      periods.




d)
            However,
      since the balance of the restricted cash was larger than the balance of
      cash and cash equivalents balances, thus bank indebtedness were resulted
      for the reporting periods.




Due to
the above reasons, SiBiono relocated the balances of restricted cash from the
cash and cash equivalents balances with an amount $1,302,080 as of June 30,
2009. However, since the balances of the restricted cash were larger than the
balance of cash and cash equivalents balances, bank indebtedness were resulted
with an amount $1,192,385 as of June 30, 2009.




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.





F-21





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


1.
            Benda
      Ebei should pay for the consideration of Rmb6.24 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
Rmb46,800;


3.
            Benda
      Eebi should pay for legal and arbitration expenses of
      Rmb268,971.





Following
this arbitration decision, Benda Ebei recognized the liability as total
acquisition cost payable of Rmb12.48 million, plus the penalty and related legal
and arbitration expenses, totaling approximately Rmb12.80 million or ($1.87
million) (Note 15). Accordingly Benda Eebi recognized the right to purchase the
6.24% equity shares in SiBiono and recorded as other assets at Rmb12.48 million
or $1.83 million.





On May
22, 2008, Benda Ebei applied to Shenzhen People Court to terminate above
mentioned arbitration. The termination is based on the ground that Xiaozhi Zhang
does not own all 6.24% of SiBiono’s common stock. In fact, he only owns 3.28% of
SiBiono’s stock. The application has been accepted by Shenzhen People Court and
is waiting for its further investigation. Please also see the note descriptions
in Note 29, Subsequent Events.





13.
            Bank
      Loans Payable




As of
June 30, 2009 and December 31, 2008, SiBiono, had one outstanding bank loan with
an amount of $2,981,302 and $2,984,560, respectively, which was used primarily
to fund construction in progress projects and for general working capital
purposes.  This loan carries annual interest rate of 6.34% and matures
on April 29, 2008.  This loan is personal guaranteed by Zhaohui Peng,
the former Chairman and a shareholder of SiBiono.





For the
six months ended June 30, 2009, SiBiono has been sued for default on the bank
loans and judgment has been made as follows:


a.
            On
      or before November 23, 2008 (10 days after the judgment date of
      November 13, 2008), SiBiono needs to repay the bank for the principal of
      Rmb20,346,672, accrued interest and penalty up to August 15, 2008 for
      Rmb1,506,994 and accrued interest from August 16, 2008 through repayment
      date. However, as SiBiono has not yet repaid anything yet, the accrued
      interest for the later period will be estimated at Rmb531,780, or total
      accrued interest as of June 30, 2009 was
  Rmb2,038,775;


b.
            Should
      SiBiono did not make the full repayment; the lender bank can apply for
      selling the land use rights owned by SiBiono (as the collateral of the
      loan). Any balance after full repayment of the bank loan principal and
      accrued interest and penalty from the net proceeds will be returned to
      SiBiono;


c.
            Zhaohui
      Peng should have liability to repay any insufficient amount should the net
      proceeds of selling the above land use rights are insufficient to
      repay the bank debts and then reclaimed from
  SiBiono;





F-22





d.
            SiBiono and
      Zhaohui Peng have the obligation to repay the legal fees for this
      lawsuit of Rmb156,068 immediately.





As of
August 15, 2009, the Group is still under the negotiation with the bank on
arranging the settlement of the bank loan. Furthermore, as of August 15, 2009,
the bank has not taken any further actions to against SiBiono.





Total
interest expense paid related to the Group’s outstanding bank loans was $94,476
and $92,698 for the six months ended June 30, 2009 and 2008,
respectively.




14.
            Long
      Term Debt Payable




As
of June 30, 2009, 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
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 six months ended June 30, 2009, there was no long term debt payable
discharged and recorded as government subsidies (see Note 22 for the related
details).




15.
            Accounts
      Payable and Accrued Liabilities




The
Group’s accounts payable and accrued liabilities as of June 30, 2009 and
December 31, 2008 were comprised as follows:





June 30,
                
                
                December 31,2009
                
                
                2008(Unaudited)Trade
      payable
                
                $
                1,292,367
                
                
                $
                605,316Deposits
      paid by customer
                
                
                43,852
                
                
                
                1,055Acquisition
      cost payable following the arbitration (Note 12)
                
                
                1,874,904
                
                
                
                1,876,953Accrued
      liabilities
                
                
                4,601,406
                
                
                
                3,999,155Miscellaneous
      payables
                
                
                769,082
                
                
                
                745,921Total
      account payables and accrued liabilities
                
                $
                8,581,611
                
                
                $
                7,228,400





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 June 30, 2009 and December 31, 2008, the
Group accrued approximately $403,000 and $486,000 for the employees’ welfare
respectively.





F-23





17.
            Statutory
      Surplus Reserve Fund




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
June 30, 2009 and December 31, 2008, the registered capital of the Group’s PRC
subsidiaries was $21,719,896.





18.
            Related
      Party Transactions




Due from
related parties at June 30, 2009 and December 31, 2008 were comprised
as follows:




June 30,
                            
                            
                            December 31,2009
                            
                            
                            2008Relationship
                            
                            (Unaudited)CurrentQin
      Yu
                            
                            Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                            
                            
                            
                            $
                            10,890
                            
                            
                            $
                            4,314Xiaoji
      Zhang
                            
                            Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                            
                            
                            
                            
                            5,433
                            
                            
                            
                            5,439Rong
      He
                            
                            ManagerDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                            
                            
                            
                            
                            103
                            
                            
                            
                            1,247$
                            16,426
                            
                            
                            $
                            11,000-
                            
                            
                            
                            -Non
      currentYiqing
      Wan
                            
                            CEO
      & DirectorDue
      to Ever Leader Holdings Co. Ltd.
                            
                            
                            
                            $
                            650,775
                            
                            
                            $
                            650,791Due
      to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                            
                            
                            
                            
                            458,927
                            
                            
                            
                            439,719Hubei
      Benda Science Development Co., Ltd.Due
      to Ever Leader Holdings Co. Ltd.
                            
                            
                            
                            
                            -
                            
                            
                            
                            -Hubei
      Benda Science and Technology Co. Ltd
                            
                            Controlled
      by CEODue
      to Yidu Benda Chemicals Co. Ltd.
                            
                            
                            
                            
                            1,605,419
                            
                            
                            
                            1,607,173Due
      to Ever Leader Holdings Co. Ltd.
                            
                            
                            
                            
                            231,707
                            
                            
                            
                            231,713Feng
      Wang
                            
                            Minority
      shareholderDue
      to Beijing Shusai Pharyngitis Research Co. Ltd.
                            
                            
                            
                            
                            32,311
                            
                            
                            
                            32,348Hua
      XuDue
      to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                            
                            
                            
                            
                            5,422
                            
                            
                            
                            -Total
      due from related parties
                            
                            
                            
                            $
                            2,984,561
                            
                            
                            $
                            2,961,744




F-24





Due to
related parties at June 30, 2009 and December 31, 2008 were comprised as
follows:




June 30,
                                                
                                                
                                                December 31,2009
                                                
                                                
                                                2008Current
                                                
                                                Relationship
                                                
                                                (Unaudited)Wei
      Xu
                                                
                                                Vice
      President, CEO's Spouse & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                
                                                
                                                
                                                $
                                                195,061
                                                
                                                
                                                $
                                                188,065Due
      from Everleader Holding Ltd.
                                                
                                                
                                                
                                                
                                                967,975
                                                
                                                
                                                
                                                967,999Hua
      Xu
                                                
                                                General
      Manager's SisterDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                
                                                
                                                
                                                
                                                21,196
                                                
                                                
                                                
                                                25,523Yiqing,
      Wan
                                                
                                                CEO
      & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                
                                                
                                                
                                                
                                                220,665
                                                
                                                
                                                
                                                237,781Hua
      Shen
                                                
                                                Vice
      presidentDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                33,253Dongyi
      Tien
                                                
                                                ManagerDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                
                                                
                                                
                                                
                                                364
                                                
                                                
                                                
                                                364Pong
      Tsaiohuei
                                                
                                                Minority
      shareholderDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                                                
                                                
                                                
                                                
                                                4,814
                                                
                                                
                                                
                                                4,818Total
      due to related parties
                                                
                                                
                                                
                                                $
                                                1,410,075
                                                
                                                
                                                $
                                                1,457,803Non
      current
                                                
                                                
                                                
                                                
                                                -Hubei
      Benda Science and Technology Co. Ltd
                                                
                                                Controlled
      by CEODue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                
                                                
                                                
                                                $
                                                28,572
                                                
                                                
                                                $
                                                28,602Due
      from Jiangliang Benda Pharamaceutical Co. Ltd.
                                                
                                                
                                                
                                                
                                                795,088
                                                
                                                
                                                
                                                811,073Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                                                
                                                
                                                
                                                
                                                14,133
                                                
                                                
                                                
                                                14,262Wei
      Xu
                                                
                                                Vice
      President, CEO's Spouse & DirectorDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                
                                                
                                                
                                                
                                                41,954
                                                
                                                
                                                
                                                48,922Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                                                
                                                
                                                
                                                
                                                65,439
                                                
                                                
                                                
                                                65,691Yiqing,
      Wan
                                                
                                                CEO
      & DirectorDue
      from Yidu Benda Chemicals Co. Ltd.
                                                
                                                
                                                
                                                
                                                560
                                                
                                                
                                                
                                                560Hui
      Xu
                                                
                                                ManagerDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                                                
                                                
                                                
                                                
                                                28,453
                                                
                                                
                                                
                                                28,483$
                                                974,199
                                                
                                                
                                                $
                                                997,593




Except
for the loans, $967,975, from the shareholder Wei Xu by Everleader which bears
interest rate at 12% per annum, unsecure and matures within six months, the
above advances bear no interest and the above loans due to related parties are
unsecured, non-interest bearing and are not convertible into equity. Proceeds
from the above loans were used primarily for general working capital purposes,
among which the current portion does not have definitive terms and for
those portions which are long-term debts in nature, due on December 31,
2012.




19.
            Redeemable
      Common Stock




On April
5, 2007, Benda Ebei entered into Equity Transfer Agreements with certain
shareholders of SiBiono to purchase a total of approximately 57.57% of the
shares of SiBiono’s common stock for total consideration of RMB 60,000,000 due
and payable on or before April 30, 2007.





On June
11, 2007, Benda Ebei entered into additional Equity Transfer Agreements with
Yaojin Wang (“Wang”) and Huimin Zhang “(Zhang”), also shareholders of SiBiono,
for the purchase of an additional 2.56% of the shares of SiBiono’s common stock
for total consideration of RMB 2,560,000 due and payable on or before June 30,
2007.





In
connection with the above Equity Transfer Agreements, Benda entered into a
Financial Consultancy Agreement with Super Pioneer International Limited (“Super
Pioneer”) and Technical Consultancy Agreements with Wang and Zhang for financial
and technical consultancy services to be rendered.  Pursuant to the
Financial and Technical Consultancy Agreements (the “Agreements”), Benda agreed
to issue an aggregate of 2,189,560 shares of its common stock to Super Pioneer
(2.1 million shares, out of which 1.96 million shares is redeemable), Wang
(33,585 shares, redeemable) and Zhang (55,975 share, redeemable) within three
months from the date of the Agreements. Since the issuance of common shares to
Super Pioneer, Wang and Zhang was in the form of financial and technical
consultancy services to be rendered, thus the corresponding amount $7,882,416
was recorded as consulting and professional fees.





F-25





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 June 30,
2009.





According
to the signed agreements mentioned in above, the redemption would be required to
perform in September 2008. However the company has already obtained an oral
consent from Super Pioneer, Wang and Zhang that the redemption would be deferred
to the year of 2009.





20.
            Other
      Income (expenses)





In
accordance with FASB staff position No. EITF00-19-2 the Group recorded $722,205
in Registration Delay Expense, for the six month ended June 30, 2008. Out of the
total penalty, $230,312 was settled by issuance of 523,438 shares of common
stock. There was no penalty to investors incurred for the six months ended June
30, 2009.





21.
            Other
      General and Administrative Expenses





For the
six months and three months ended June 30, 2009 and 2008, the amount of other
general and administrative expenses mainly composed of the following
events:





SIX MONTHS ENDED JUNE 30,
                
                
                THREE MONTHS ENDED JUNE 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Audit
      and accounting
                
                $
                69,684
                
                
                $
                201,829
                
                
                
                28,122
                
                
                
                72,495Legal
      fees
                
                
                137,224
                
                
                
                114,704
                
                
                
                82,842
                
                
                
                106,651Office
      expenses
                
                
                64,387
                
                
                
                292,530
                
                
                
                20,385
                
                
                
                153,559Salaries
      and wages
                
                
                439,140
                
                
                
                514,993
                
                
                
                207,275
                
                
                
                165,723Consulting
      fee
                
                
                74,802
                
                
                
                434,773
                
                
                
                49,302
                
                
                
                201,859Rent
      & Utilities
                
                
                2,693
                
                
                
                55,830
                
                
                
                -6,708
                
                
                
                20,290Investor
      relation, Transfer agent and filing fees
                
                
                2,720
                
                
                
                28,123
                
                
                
                -
                
                
                
                9,277Travel
      and transportation
                
                
                47,158
                
                
                
                160,334
                
                
                
                18,932
                
                
                
                89,771Repair
      and maintanence
                
                
                11,357
                
                
                
                119,099
                
                
                
                4,982
                
                
                
                42,445Miscellaneous
                
                
                138,767
                
                
                
                98,059
                
                
                
                43,796
                
                
                
                60,335Total
      other general & administrative
                
                $
                987,932
                
                
                $
                2,020,274
                
                
                
                448,928
                
                
                $
                922,405




F-26





22.
            Government
      Subsidies and Grants




As
mentioned in the Note 14, long term debt payable, various technology funds were
obtained from various government technology agencies to support its gene therapy
research and development activities during the past years and recorded as long
term debt payable.  According to the technology fund agreements, the
various government technology agencies will examine the results of research and
development according to the status of the projects. Once the examination takes
place, the obligation of a particular debt payable is discharged
accordingly.





According
to US GAAP, once the obligation of a particular debt payable is discharged, the
amount of this particular debt payable should be treated as government subsidies
/ grants.  During the six months ended June 30, 2009, there were no
long term debt payable discharged and government subsidies / grants recognized
as revenue





Besides,
during the six months ended June 30, 2009, there was Rmb180, 000 or $26,383
received by Jiangling Benda from the local financial bureau as subsidy for
support of the enterprise with small and medium size.





23.
            Income
      Taxes




Benda is
subject to Delaware, United State of America tax, but no provision for income
taxes were made for the six months ended June 30, 2009 and 2008 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 six months ended June 30, 2009 and
2008 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% redsuction in income taxes, for the following three
years.





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





The
exemption periods for Benda Ebei, Jiangling Benda and Yidu Benda expired in the
year of 2006, after which they are subject to 50% reduction in income taxes;
whereas the full income tax rate is 33%. The remaining tax holidays will be
expired in 2009.





However,
starting and effective from January 1, 2008, the full income tax rate would be
changed from 33% to 25% according to the new PRC taxation regulations. Therefore
these subsidiaries will be subject to the regular full income tax rate at 25%
after the tax holidays expire.





F-27





According
to the new taxation regulations starting and effective from January 1, 2008,
Beijing Shuhai is subject to the full income tax rate of 25%.





According
to the new taxation regulations starting and effective from January 1, 2008,
SiBiono, which is located in Shenzhen, a Special Economic District of PRC, is
subject to the full income tax rate of 25% gradually in five years as
following:





Year
                  
                  Tax
      rate2008
                  
                  
                  18
                  %2009
                  
                  
                  20
                  %2010
                  
                  
                  22
                  %2011
                  
                  
                  24
                  %2012
      and thereafter
                  
                  
                  25
                  %





Benda
Ebei recorded $84,412 income tax for the six months ended June 30,
2009.




The
provision for taxes on earnings consisted of:





SIX MONTHS ENDED JUNE 30,
                
                
                THREE MONTHS ENDED JUNE 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Crurrent  income
      taxes expenses:PRC
      Enterprise Income
                
                $
                84,412
                
                
                $
                524,808
                
                
                $
                -217,966
                
                
                $
                391,611United
      States Federal Income Tax
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                84,412
                
                
                $
                524,808
                
                
                $
                -217,966
                
                
                $
                391,611





A
reconciliation between the income tax computed at the U.S statutory rate and the
Groups provision for Income tax for the six month ended June 30, 2009 and 2008
are as follows:





SIX MONTHS ENDED JUNE 30,
                
                
                THREE MONTHS ENDED JUNE 30,2009
                
                
                2008
                
                
                2009
                
                
                2008U.S
      Statutory rate
                
                
                34.0
                %
                
                
                34.0
                %
                
                
                34.0
                %
                
                
                34.0
                %Foreign
      income not recognized in the U.S
                
                
                -34.0
                %
                
                
                -34.0
                %
                
                
                -34.0
                %
                
                
                -34.0
                %PRC
      statuory rate
                
                
                25.0
                %
                
                
                25.0
                %
                
                
                25.0
                %
                
                
                25.0
                %Tax
      relief and holidy granted to the Subsidary
                
                
                0.0
                %
                
                
                -12.5
                %
                
                
                0.0
                %
                
                
                -12.5
                %Provision
      for income tax
                
                
                25.0
                %
                
                
                12.5
                %
                
                
                25.0
                %
                
                
                12.5
                %





24.
            Long
      Term Convertible Promissory Notes





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-28





In March
and April of 2007, the Group entered into Investment Agreements (“Agreements”)
with certain accredited and institutional investors (“Investors”) pursuant to
which the Investors purchased from the Group a total of 252 Units (“Units”),
resulting in aggregate gross proceeds to the Group $7,560,000, with each Unit
consisting of: (i) a Convertible Promissory Note (“Note”) in the principal
amount of $30,000 and convertible into 54,087 shares of the Group's common
stock; and (ii) a Common Stock Warrant (“Warrant”) to acquire 54,087 shares
of the Group’s common stock at an exercise price of $0.555 per share and
expiring on November 14, 2011. The Notes are immediately convertible at the
option of each Investor, bear interest at a rate of 4% per annum and mature on
March 28, 2009.





The Group
has accounted for the Warrants issued in conjunction with the Notes in
accordance with the provisions of APB No. 14, “Accounting for Convertible Debt
and Debt Issued with Stock Purchase Warrants” (“APB 14”). Accordingly, the
Warrants were valued using a Black-Scholes option pricing model with the
following assumptions: (i) a risk free interest rate of 4.63%, (ii) a
contractual life of 4.6 years, (iii) an expected volatility of 25%, and (iv) a
dividend yield of zero. The relative fair value of the Warrants, based on an
allocation of the value of the Notes and the value of the Warrants issued in
conjunction with the Notes, was recorded as a debt discount (with a
corresponding increase to additional paid-in capital) in the amount of
$5,174,911, and is being amortized to interest expense over the expected term of
the Notes.





Additionally,
the difference between the effective conversion price of the Notes into shares
of the Group’s common stock, and the fair value of the Group’s common stock on
the date of issuance of the Notes, resulted in a beneficial conversion feature
of $2,385,089 (capped at the $7,560,000 of gross proceeds raised less the
previously calculated $5,174,911 debt discount associated with Warrants issued
in conjunction with the Notes) and was calculated in accordance with EITF 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios” and EITF 00-27, “Application of Issue
No. 98-5 to Certain Convertible Instruments”. This beneficial conversion feature
was recorded as an additional debt discount (with a corresponding increase to
additional paid-in capital) and is being amortized to interest expense over the
expected term of the Notes.





On July
10, 2008, 10 units of were converted to shares of 540,870. Therefore, as of June
30, 2009, the aggregate $7,260,000 principal balance of the notes remained
outstanding and for the six months ended June 30, 2009, the Group recorded
$544,500 of interest expense related to the Notes.





During
the six months ended June 30, 2009, the Group recorded $864,049 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
six months ended June 30, 2009, the Group recorded $55,485 in amortization
expense related to debt issue costs.





F-29





The
securities underlying the Notes and Warrants issued to the Investors are also
subject to the terms of a Make Good Agreement entered into in connection with a
financing the Group executed in November of 2006 (the “Make Good Agreement”).
The Group further represented to the Investors that its target net income for
fiscal year 2007 (“FY07 Net Income”) will be greater than or equal to $10.0
million (adjusted for a variety of non-cash charges) (the “Performance
Threshold”).  In the event the Performance Threshold is not attained,
the Group is required to issue to the Investors a pro rata portion of 1,000,000
shares of the Group’s common stock for every one (1) cent by which the Group’s
earnings per share, determined on a fully diluted basis, is less than $0.065.
During the year ended December 31, 2008 the Group issued shares 3,810,976 shares
of common stock in lieu of the non-achievement of the Performance Threshold at
$0.07 per share, totaling to $266,768 and none for the six months ended June 30,
2009.





In the
accounting for the Long Term Convertible Promissory Note, the Group’s analysis
of the Performance Threshold had no effect because of the cap of the debt
discounted and beneficial conversion feature as calculated in accordance with
EITF 98-5.





The Group
is also required to register for resale: (i) the shares of common stock
underlying the Notes; and (ii) 150% of the shares of common stock underlying the
Warrants, on a registration statement to be filed with the Securities and
Exchange Commission (“Registration Statement”) and such Registration Statement
is required to be declared effective by August 15, 2007 (the “Effectiveness
Deadline”). If the Registration Statement does not become effective by the
Effectiveness Deadline, or if the Group fails to maintain the effectiveness of
the Registration Statement, for any reason, the Group is required to pay the
Investors in cash an amount equal to 1% of the purchase price of each Unit held
by the Investors on such Effectiveness Deadline or the first day of such failure
to maintain the Registration Period, as applicable, and for every 30 day period
(or part) thereafter, in each case until cured (“Registration Delay Payments”),
provided that the Registration Delay Payments will not exceed 10% of the
purchase price of the Units. In the event that the Registration Delay Payments
are not made in a timely manner, such Registration Delay Payments will bear
interest at a rate of 1.5% per month until paid in full.





The
calculated fair value of the warrants (issued in conjunction with the
convertible promissory notes) was recorded as a debt discount (reduction to the
carrying value of the convertible promissory notes) with a corresponding
increase (credit) to additional paid in capital.





In
accordance with the registration rights granted to investors who purchased the
convertible promissory notes and warrants, we are required to file a
registration statement with the Securities and Exchange Commission
(“Registration Statement”) attempting to register the potentially issuable
shares of common stock underlying the convertible promissory
notes  and warrants. There is no cash settlement requirement, in the
event the Company cannot deliver Registered Shares.





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.





F-30





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).





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




As of
June 30, 2009, and December 31, 2008, the Group had an aggregate
of:





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




(b)
            The
      share of common stock issued and outstanding was 105,155,355 as of June
      30, 2009 and December 31, 2008
respectively.




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




Events occurredDecember 31,
                              
                              
                              during the
                              
                              
                              June 30,2008
                              
                              
                              reporting period
                              
                              
                              2009Events
                              
                              
                              
                              
                              (Unaudited)
                              
                              
                              (Unaudited)To
      record the changes of par value from $0.01 to $0.001of
      the outstanding common stock as of 11/17/2005
                              
                              $
                              584,481
                              
                              
                              $
                              -
                              
                              
                              $
                              584,481To
      adjust the par value of outstanding common stock as of
      3/31/2006
                              
                              
                              (5,354
                              )
                              
                              
                              -
                              
                              
                              
                              (5,354
                              )Waiver
      of shareholder loan on 9/5/2006
                              
                              
                              2,298,434
                              
                              
                              
                              -
                              
                              
                              
                              2,298,434To
      eliminate the common stock and additional paid-in capital of the former
      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
      feeof
      reverse merger on 11/15/2006
                              
                              
                              (1,694,326
                              )
                              
                              
                              -
                              
                              
                              
                              (1,694,326
                              )Issuance
      of common stock 706,195 at $0.4622 per share
                              
                              
                              325,696
                              
                              
                              
                              -
                              
                              
                              
                              325,696Debt
      discount on beneficial conversion feature on convertible promissory
      notes
                              
                              
                              2,385,089
                              
                              
                              
                              -
                              
                              
                              
                              2,385,089Debt
      discount on warrants issued with convertible promissory
    notes
                              
                              
                              5,174,911
                              
                              
                              
                              -
                              
                              
                              
                              5,174,911Placement
      agent exercised 849,007 warrants at strike price through cashless
      arrangement
                              
                              
                              470,347
                              
                              
                              
                              -
                              
                              
                              
                              470,347Issuance
      of common stock to PIPE investors as penalty for late submission of
      10KSB
                              
                              
                              92,461
                              
                              
                              
                              -
                              
                              
                              
                              92,461Issuance
      of common stock to directors in lieu of their remuneration
                              
                              
                              75,790
                              
                              
                              
                              -
                              
                              
                              
                              75,790Issuance
      of common stock to PIPE investors as penalty for registeration delay
      expenses
                              
                              
                              229,789
                              
                              
                              
                              -
                              
                              
                              
                              229,789Conversion
      of convertible promissory notes
                              
                              
                              (8,039
                              )
                              
                              
                              -
                              
                              
                              
                              (8,039
                              )Issuance
      of common stock to investors under "Make Good Agreement"
                              
                              
                              262,957
                              
                              
                              
                              -
                              
                              
                              
                              262,957Additional
      paid-in capital, balance for the period ended
                              
                              $
                              22,108,427
                              
                              
                              $
                              -
                              
                              
                              $
                              22,108,427





(d)
            As
      of June 30, 2009 and December 31, 2008, 30,264,249 Warrants, each
      convertible into one (1) share of the Group’s Common Stock, issued and
      outstanding.


(e)
            None
      options issued and outstanding.





26.
            Weighted
      Average Shares Outstanding




Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted-average number of shares outstanding during the period.




Diluted
net income (loss) per share is computed by using the weighted-average number of
shares of common stock outstanding and, when dilutive, potential shares from
stock options and warrants to purchase common stock, using the treasury stock
method.





F-31





The
following table illustrates the computation of basic and dilutive net income
(loss) per share and provides a reconciliation of the number of weighted-average
basic and diluted shares outstanding:


SIX MONTHS ENDED JUNE 30,
                
                
                THREE MONTHS ENDED JUNE 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Restated(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Numerator:Net
      income (loss)
                
                $
                (2,316,255
                )
                
                $
                (3,822,578
                )
                
                $
                (1,275,698
                )
                
                $
                (1,785,165
                )Denominator:Basic
      weighted-average shares outstanding
                
                
                105,155,355
                
                
                
                100,558,191
                
                
                
                105,155,355
                
                
                
                100,803,509Effect
      of dilutive stock options & warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Diluted
      weighted-average shares outstanding
                
                
                105,155,355
                
                
                
                100,558,191
                
                
                
                105,155,355
                
                
                
                100,803,509Net
      income (loss) per share:Basic
                
                $
                (0.02
                )
                
                $
                (0.04
                )
                
                $
                (0.01
                )
                
                $
                (0.02
                )Diluted
                
                $
                (0.02
                )
                
                $
                (0.04
                )
                
                $
                (0.01
                )
                
                $
                (0.02
                )




27.
            Commitments
      and Contingencies




As of
June 30, 2009, there was an operating lease commitment and the amounts are
stated as follows;





June 30,2009(Unaudited)Rental
      and Property Management FeeWithin
      one year
                  
                  $
                  66,256One
      to two year
                  
                  
                  35,166Two
      to three year
                  
                  
                  35,166Over
      three years
                  
                  
                  61,541Total
      commitments payable
                  
                  $
                  198,129





28.
            Segment
      Information




The Group
states the segment information according to the requirement stated in paragraph
37 of SFAS 131. The Group produces five different categories of products and
each category of product is produced in different subsidiaries or operation
plants. The details are stated as follows:


1.
              Benda
      Ebei produces conventional medicines which including banded and generic
      medicines;


2.
              Jiangling
      Benda produces active pharmaceutical ingredients,
  APIs;


3.
              Yidu
      Benda produces bulk
chemicals;


4.
              Beijing
      Shusai produces pharyngitis killer therapy;
and


5.
              SiBiono
      produces gene therapy medicines,
Gendicine.





Since
each subsidiary produces the corresponding products by using the same production
facilities of each subsidiary, therefore according to the requirement stated in
paragraph of SFAS 131, the Group reports the segment information according to
the un-identical products that produced in each subsidiary.





Selected
financial information for each of these segments for the six months and three
months ended June 30, 2009 and 2008 were as follows:





F-32





SIX MONTHS ENDED JUNE 30,
                                          
                                          
                                          THREE MONTHS ENDED JUNE 30,(Unaudited)
                                          
                                          
                                          (Unaudited)
                                          
                                          
                                          (Unaudited)
                                          
                                          
                                          (Unaudited)Branded/Generic medicine segment
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Revenue
      from external customers
                                          
                                          $
                                          8,729,686
                                          
                                          
                                          $
                                          11,466,193
                                          
                                          
                                          $
                                          4,369,227
                                          
                                          
                                          $
                                          5,945,084Cost
      of sales
                                          
                                          
                                          (5,549,051
                                          )
                                          
                                          
                                          (7,647,567
                                          )
                                          
                                          
                                          (2,889,269
                                          )
                                          
                                          
                                          (3,866,403
                                          )Gross
      profit
                                          
                                          
                                          3,180,636
                                          
                                          
                                          
                                          3,818,626
                                          
                                          
                                          
                                          1,479,958
                                          
                                          
                                          
                                          2,078,681Gross
      margin
                                          
                                          
                                          36
                                          %
                                          
                                          
                                          33
                                          %
                                          
                                          
                                          34
                                          %
                                          
                                          
                                          35
                                          %Research
      and development
                                          
                                          
                                          (2,301
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2,155
                                          )
                                          
                                          
                                          0Selling
      expense
                                          
                                          
                                          (413,312
                                          )
                                          
                                          
                                          (773,483
                                          )
                                          
                                          
                                          (210,843
                                          )
                                          
                                          
                                          (558,832
                                          )General
      and administrative expense
                                          
                                          
                                          (2,086,438
                                          )
                                          
                                          
                                          (486,593
                                          )
                                          
                                          
                                          (2,005,398
                                          )
                                          
                                          
                                          (44,770
                                          )Segment
      contribution
                                          
                                          $
                                          678,584
                                          
                                          
                                          $
                                          2,558,550
                                          
                                          
                                          $
                                          (738,438
                                          )
                                          
                                          $
                                          1,475,079Contribution
      margin
                                          
                                          
                                          8
                                          %
                                          
                                          
                                          22
                                          %
                                          
                                          
                                          -17
                                          %
                                          
                                          
                                          25
                                          %Total
      assets, segment
                                          
                                          $
                                          28,928,585
                                          
                                          
                                          $
                                          38,243,467
                                          
                                          
                                          $
                                          28,928,585
                                          
                                          
                                          $
                                          38,243,467Active
      pharmaceutical ingredients segment
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Revenue
      from external customers
                                          
                                          $
                                          790,062
                                          
                                          
                                          $
                                          580,332
                                          
                                          
                                          $
                                          367,801
                                          
                                          
                                          $
                                          579,984Cost
      of sales
                                          
                                          
                                          (967,595
                                          )
                                          
                                          
                                          (638,529
                                          )
                                          
                                          
                                          (545,989
                                          )
                                          
                                          
                                          (638,529
                                          )Gross
      profit
                                          
                                          
                                          (177,532
                                          )
                                          
                                          
                                          (58,197
                                          )
                                          
                                          
                                          (178,188
                                          )
                                          
                                          
                                          (58,545
                                          )Gross
      margin
                                          
                                          
                                          -22
                                          %
                                          
                                          
                                          -10
                                          %
                                          
                                          
                                          -48
                                          %
                                          
                                          
                                          -10
                                          %Research
      and development
                                          
                                          
                                          (73
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (73
                                          )
                                          
                                          
                                          -Selling
      expense
                                          
                                          
                                          (14,725
                                          )
                                          
                                          
                                          (357
                                          )
                                          
                                          
                                          (10,810
                                          )
                                          
                                          
                                          -357General
      and administrative expense
                                          
                                          
                                          (321,009
                                          )
                                          
                                          
                                          (1,026,566
                                          )
                                          
                                          
                                          (59,826
                                          )
                                          
                                          
                                          (782,997
                                          )Segment
      contribution
                                          
                                          $
                                          (513,339
                                          )
                                          
                                          $
                                          (1,085,120
                                          )
                                          
                                          $
                                          (248,898
                                          )
                                          
                                          $
                                          (841,899
                                          )Contribution
      margin
                                          
                                          
                                          -65
                                          %
                                          
                                          
                                          -187
                                          %
                                          
                                          
                                          -68
                                          %
                                          
                                          
                                          -145
                                          %Total
      assets, segment
                                          
                                          $
                                          9,936,644
                                          
                                          
                                          $
                                          8,436,445
                                          
                                          
                                          $
                                          9,936,644
                                          
                                          
                                          $
                                          8,436,445Bulk
      chemicals segment
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Revenue
      from external customers
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Cost
      of sales
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Gross
      profit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Gross
      margin
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Research
      and development
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Selling
      expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -General
      and administrative expense
                                          
                                          
                                          (220,174
                                          )
                                          
                                          
                                          (305,968
                                          )
                                          
                                          
                                          (107,999
                                          )
                                          
                                          
                                          (7,991
                                          )Segment
      contribution
                                          
                                          $
                                          (220,174
                                          )
                                          
                                          $
                                          (305,968
                                          )
                                          
                                          $
                                          (107,999
                                          )
                                          
                                          $
                                          (7,991
                                          )Contribution
      margin
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
      assets, segment
                                          
                                          $
                                          7,218,326
                                          
                                          
                                          $
                                          7,694,510
                                          
                                          
                                          $
                                          7,218,326
                                          
                                          
                                          $
                                          7,694,510Pharynigitis
      killer therapy segment
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Revenue
      from external customers
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          2,128
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          31Cost
      of sales
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (117
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2
                                          )Gross
      profit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,011
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          29Gross
      margin
                                          
                                          
                                          -
                                          
                                          
                                          
                                          95
                                          %
                                          
                                          
                                          -
                                          
                                          
                                          
                                          94
                                          %Research
      and development
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Selling
      expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2,654
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,955
                                          )General
      and administrative expense
                                          
                                          
                                          (14,475
                                          )
                                          
                                          
                                          (20,227
                                          )
                                          
                                          
                                          (7,229
                                          )
                                          
                                          
                                          (7,910
                                          )Segment
      contribution
                                          
                                          $
                                          (14,475
                                          )
                                          
                                          $
                                          (20,870
                                          )
                                          
                                          $
                                          (7,229
                                          )
                                          
                                          $
                                          (9,836
                                          )Contribution
      margin
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -981
                                          %
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -31729
                                          %Total
      assets, segment
                                          
                                          $
                                          81,597
                                          
                                          
                                          $
                                          108,332
                                          
                                          
                                          $
                                          81,597
                                          
                                          
                                          $
                                          108,332Gendicine
      (Ad-p53) segment
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Revenue
      from external customers
                                          
                                          $
                                          1,920,663
                                          
                                          
                                          $
                                          1,176,970
                                          
                                          
                                          $
                                          1,187,580
                                          
                                          
                                          $
                                          753,154Cost
      of sales
                                          
                                          
                                          (182,433
                                          )
                                          
                                          
                                          (110,651
                                          )
                                          
                                          
                                          (121,030
                                          )
                                          
                                          
                                          (74,674
                                          )Gross
      profit
                                          
                                          
                                          1,738,230
                                          
                                          
                                          
                                          1,066,319
                                          
                                          
                                          
                                          1,066,551
                                          
                                          
                                          
                                          678,480Gross
      margin
                                          
                                          
                                          91
                                          %
                                          
                                          
                                          91
                                          %
                                          
                                          
                                          90
                                          %
                                          
                                          
                                          90
                                          %Research
      and development
                                          
                                          
                                          (115,709
                                          )
                                          
                                          
                                          (169,781
                                          )
                                          
                                          
                                          185,828
                                          
                                          
                                          
                                          (147,717
                                          )Selling
      expense
                                          
                                          
                                          (588,329
                                          )
                                          
                                          
                                          (654,718
                                          )
                                          
                                          
                                          (400,520
                                          )
                                          
                                          
                                          (433,697
                                          )General
      and administrative expense
                                          
                                          
                                          (1,366,012
                                          )
                                          
                                          
                                          (485,340
                                          )
                                          
                                          
                                          (737,235
                                          )
                                          
                                          
                                          (175,183
                                          )Segment
      contribution
                                          
                                          $
                                          (331,820
                                          )
                                          
                                          $
                                          (243,520
                                          )
                                          
                                          $
                                          114,624
                                          
                                          
                                          $
                                          (78,117
                                          )Contribution
      margin
                                          
                                          
                                          -17
                                          %
                                          
                                          
                                          -21
                                          %
                                          
                                          
                                          10
                                          %
                                          
                                          
                                          -10
                                          %Total
      assets, segment
                                          
                                          $
                                          12,094,467
                                          
                                          
                                          $
                                          14,048,551
                                          
                                          
                                          $
                                          12,094,467
                                          
                                          
                                          $
                                          14,048,551




F-33





SIX MONTHS ENDED JUNE 30,
                
                
                THREE MONTHS ENDED JUNE 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Total
      revenue from external customers
                
                $
                11,440,412
                
                
                $
                13,225,623
                
                
                $
                5,924,608
                
                
                $
                7,278,253Cost
      of sales
                
                
                (6,699,079
                )
                
                
                (8,396,864
                )
                
                
                (3,556,288
                )
                
                
                (4,579,608
                )Gross
      profit
                
                
                4,741,333
                
                
                
                4,828,759
                
                
                
                2,368,321
                
                
                
                2,698,645Gross
      margin
                
                
                41
                %
                
                
                37
                %
                
                
                40
                %
                
                
                37
                %Research
      and development
                
                
                (118,083
                )
                
                
                (169,781
                )
                
                
                183,600
                
                
                
                (147,717
                )Selling
      expense
                
                
                (1,016,366
                )
                
                
                (1,431,212
                )
                
                
                (622,173
                )
                
                
                (994,841
                )General
      and administrative expense
                
                
                (4,008,108
                )
                
                
                (2,324,694
                )
                
                
                (2,917,687
                )
                
                
                (1,018,851
                )Segment
      contribution
                
                $
                (401,224
                )
                
                $
                903,072
                
                
                $
                (987,940
                )
                
                $
                537,236Contribution
      margin
                
                
                -4
                %
                
                
                7
                %
                
                
                -17
                %
                
                
                7
                %Total
      assets, segment
                
                $
                58,259,618
                
                
                $
                68,531,305
                
                
                $
                58,259,618
                
                
                $
                68,531,305





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





2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)Total
      segment contribution
                    
                    $
                    (401,224
                    )
                    
                    $
                    903,072
                    
                    
                    $
                    (987,940
                    )
                    
                    $
                    537,236Unallocated
      amounts:Interest
      income/(expenses)
                    
                    
                    (1,633,247
                    )
                    
                    
                    (2,340,580
                    )
                    
                    
                    (362,866
                    )
                    
                    
                    (1,128,298
                    )Government
      subsidy
                    
                    
                    26,383
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      income/(expenses)
                    
                    
                    45,776
                    
                    
                    
                    248,058
                    
                    
                    
                    62,976
                    
                    
                    
                    (53,635
                    )Other
      corporate expenses
                    
                    
                    (472,105
                    )
                    
                    
                    (2,196,536
                    )
                    
                    
                    (212,403
                    )
                    
                    
                    (859,471
                    )Total
      income / (loss) before noncontrolling interest and income
      taxes
                    
                    $
                    (2,434,417
                    )
                    
                    $
                    (3,385,986
                    )
                    
                    $
                    (1,500,232
                    )
                    
                    $
                    (1,504,168
                    )





The other
corporate expenses for the six months and three months ended June 30, 2009 and
2008 composed of the following events:


SIX MONTHS ENDED JUNE 30,
                
                
                THREE MONTHS ENDED JUNE 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Penalty
      to investor
                
                $
                -
                
                
                $
                1,113,405
                
                
                $
                
                
                
                $
                391,200Wages
      and salaries
                
                
                195,016
                
                
                
                192,675
                
                
                
                96,683
                
                
                
                40,910Audit
      and accounting
                
                
                49,997
                
                
                
                106,063
                
                
                
                24,997
                
                
                
                60,757Amortization
      of debt issue cost
                
                
                55,485
                
                
                
                131,757
                
                
                
                -
                
                
                
                65,878Consulting
      fee
                
                
                6,216
                
                
                
                371,960
                
                
                
                3,124
                
                
                
                191,460Investor
      relation, transfer agent and filing fees
                
                
                2,720
                
                
                
                28,123
                
                
                
                -
                
                
                
                9,277Director
      renumeration
                
                
                45,000
                
                
                
                140,468
                
                
                
                22,500
                
                
                
                29,595Legal
      fee
                
                
                104,567
                
                
                
                76,675
                
                
                
                61,048
                
                
                
                45,051Travel
      and transportation
                
                
                2,143
                
                
                
                4,844
                
                
                
                333
                
                
                
                -Office
      expense
                
                
                -
                
                
                
                1,120
                
                
                
                -
                
                
                
                -Miscellaneous
                
                
                10,959
                
                
                
                29,446
                
                
                
                3,719
                
                
                
                25,343Total
                
                $
                472,105
                
                
                $
                2,196,536
                
                
                $
                212,403
                
                
                $
                859,471





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 as of June 30, 2009 and 2008:





F-34





June
      30,
                    
                    
                    June
      30,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Unaudited)Total
      assets, segment
                    
                    $
                    58,259,618
                    
                    
                    $
                    68,531,305Total
      assets of corporate:Cash
      and cash equivalent
                    
                    
                    16,148
                    
                    
                    
                    14,823Bank
      indebtedness
                    
                    
                    1,192,385
                    
                    
                    
                    1,296,941Prepaid
      expesnes and deposit
                    
                    
                    230
                    
                    
                    
                    8,391Refundable
      purchase price paid
                    
                    
                    1,200,000
                    
                    
                    
                    1,200,000Due
      from related parties
                    
                    
                    882,482
                    
                    
                    
                    876,729Debit
      issue costs:placement
      agent commission
                    
                    
                    -
                    
                    
                    
                    196,188Total
      assets
                    
                    $
                    61,550,863
                    
                    
                    $
                    72,124,377




The
following table shows how the noncontrolling interest for six months ended June
30, 2009 and 2008 was derived:


Six
      Months Ended June 30, 2009 (Unaudited)Benda
                
                
                Jiangling
                
                
                Yidu
                
                
                BeijingEbei
                
                
                Benda
                
                
                Benda
                
                
                Shusai
                
                
                SiBiono
                
                
                TotalSegment
      operating profit / (loss)
                
                $
                678,584
                
                
                
                (513,339
                )
                
                
                (220,174
                )
                
                
                (14,475
                )
                
                
                (331,820
                )
                
                $
                (401,224
                )Interest
      income/ (expenses)
                
                
                (80,272
                )
                
                
                (258
                )
                
                
                3
                
                
                
                -
                
                
                
                (87,419
                )
                
                
                (167,946
                )Other
      income / (expenses)
                
                
                (14,997
                )
                
                
                99
                
                
                
                1,979
                
                
                
                -
                
                
                
                58,695
                
                
                
                45,776Government
      subsidy
                
                
                -
                
                
                
                26,383
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                26,383Income
      taxes
                
                
                (84,412
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (84,412
                )Income
      / (loss) before minority interest
                
                $
                498,903
                
                
                
                (487,115
                )
                
                
                (218,192
                )
                
                
                (14,475
                )
                
                
                (360,544
                )
                
                $
                (581,423
                )Noncontrolling
      interest percentage
                
                
                5.00
                %
                
                
                9.75
                %
                
                
                9.75
                %
                
                
                28.75
                %
                
                
                42.88
                %Noncontrolling
      interest
                
                $
                24,945
                
                
                
                (47,494
                )
                
                
                (21,274
                )
                
                
                (4,162
                )
                
                
                (154,589
                )
                
                $
                (202,574
                )




Six Months Ended June 30, 2008 (Unaudited)Benda
                
                
                Jiangling
                
                
                Yidu
                
                
                BeijingEbei
                
                
                Benda
                
                
                Benda
                
                
                Shusai
                
                
                SiBiono
                
                
                TotalSegment
      operating profit / (loss)
                
                $
                2,558,550
                
                
                
                (1,085,120
                )
                
                
                (305,968
                )
                
                
                (20,870
                )
                
                
                (243,520
                )
                
                $
                903,072Interest
      income/ (expenses)
                
                
                (207,747
                )
                
                
                1,059
                
                
                
                3
                
                
                
                (8
                )
                
                
                (94,762
                )
                
                
                (301,455
                )Other
      income / (expenses)
                
                
                (5,901
                )
                
                
                (207
                )
                
                
                1,964
                
                
                
                6,748
                
                
                
                245,454
                
                
                
                248,058Income
      taxes
                
                
                (524,808
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (524,808
                )Income
      / (loss) before minority interest
                
                $
                1,820,094
                
                
                
                (1,084,268
                )
                
                
                (304,001
                )
                
                
                (14,130
                )
                
                
                (92,828
                )
                
                $
                324,867Noncontrolling
      interest percentage
                
                
                5.00
                %
                
                
                9.75
                %
                
                
                9.75
                %
                
                
                28.75
                %
                
                
                42.88
                %Noncontrolling
      interest
                
                $
                91,005
                
                
                
                (105,716
                )
                
                
                (29,640
                )
                
                
                (4,062
                )
                
                
                (39,801
                )
                
                $
                (88,216
                )




29.
            Subsequent
      Events




(a)
            SiBiono
      patents - on January 29, 2007, SiBiono entrusted Grandall Legal Group
      Shenzhen Law Firm to issue a legal letter to Zhaohui Peng, one of the
      shareholders of Sibiono and the inventor of Gendicine, requesting him to
      transfer all the title of patents to
SiBiono.




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




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





F-35




Item
                              
                              Patent
      name
                              
                              Countries
      /
                                Date
                              
                              ApplicationNumber
      (1)
                              
                              Publication
                                Number
      (2)
                              
                              Approved
      Patent
                                Number
      (3)
                              
                              Name
      of Patent
                                Inventor
      (6)
                              
                              Name
      of
                                Applicant
      (6)
                              
                              Patent
                                Assignees1
                              
                              A
      new method for manufacturing recombinant adenovirusA
                              
                              China
                              
                              98123346.5
                              
                              CN1228474A
                              
                              ZL98123346.5
                              
                              Peng
                              
                              Peng
                              
                              SiBionoDate
                              
                              12/14/1998
                              
                              9/15/1999
                              
                              7/3/20022
                              
                              A
      recombinant constructed by a virus vector and ahuman
      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)
                              
                              65
                              
                              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)
                              
                              58
                              
                              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)
                              
                              11
                              
                              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)
                              
                              57
                              
                              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.




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





On August
27, 2008, the Group through its subsidiary, SiBiono filed an application to the
Guongdong Province Shenzhen City (Middle) Peoples’ Court to demand Zhaozhu Peng
to transfer back all the above mentioned patents to SiBiono. The case has been
accepted by the Court and is waiting for its further investigation as of August
15, 2009.





(b)
            As
      mentioned in Note 12, following this arbitration decision, Benda Ebei has
      the obligation to pay the total acquisition cost payable of Rmb12.48
      million, plus the penalty and related legal and arbitration expenses,
      totaling approximately Rmb12.80 million (or $1.88
  million).




F-36





On May
22, 2008, Benda Ebei applied to Shenzhen People Court to terminate above
mentioned arbitration. The termination is based on the ground that Xiaozhi Zhang
does not own all 6.24% of SiBiono’s common stock. In fact, he only owns 3.28% of
SiBiono’s stock. The application has been accepted by Shenzhen People Court and
is waiting for its further investigation as of August 15, 2009.





(c)
            The
      Company has become aware that Excalibur Limited Partnership and Excalibur
      Limited Partnership II (the "Plaintiffs") filed a motion for summary
      judgment in lieu of a complaint pursuant to CPLR § 3213 (the "Motion")
      with the Supreme Court of the State of New York (the "Court"), alleging
      that the Company has been delinquent on the payment of an aggregate sum of
      $600,000 and accrued interest and costs arising from the Convertible
      Promissory Notes that were issued to the Plaintiffs in April 2007 in
      connection with a $7,560,000 private placement. Pursuant to the motion,
      the Plaintiffs requested that the Court (1) enter summary judgment in
      favor of Excalibur Limited Partnership (“Excalibur Limited”) in the amount
      of $390,000 plus all accrued interest and costs, and, (2) enter summary
      judgment in favor of Excalibur Small Cap Opportunities LP (“Excalibur
      Small Cap”) in the amount of $210,000 and accrued interest and costs. As
      of June 30, 2009, the Company has not received service of such notice, and
      therefore, the Company does not have details regarding the content of the
      complaint made by the Plaintiffs.





On July
29, 2009, the Supreme Court of the State of New York, New York County entered a
judgment against the Company in favor of Excalibur Limited Partnership and
Excalibur Limited Partnership II (the “Plaintiffs”) in the amount of $674,251.65
in connection with the Convertible Promissory Notes issued to the Plaintiffs in
April 2007 in a $7,560,000 private placement.





(d)
            On
      March 4, 2009, the Company received a Notice and Default and Payment
      Demand letter (the "Default Letter") from Pope Investments LLC ("Pope") in
      connection with its convertible promissory note in the amount of
      $5,520,000 (the "Note") purchased in our April 2007 private placement
      offering. The Default Letter provided notice of default based on the
      Company's failure to make a required interest payment on the Note by
      February 20, 2009. The Default Letter further demanded full payment of all
      interest, liquidated damages and accrued interest thereon in the amount of
      $130,364.37 by March 14, 2009, or Pope will accelerate the maturity date
      of the full principal amount of the Note. On April 7, 2009, the Company
      received further Default Letters and Payment Demand from Pope, Excalibur
      Limited and Excalibur Small Cap demanding payment in full of the balance
      of the Notes, which matured on March 28, 2009. The Group has been
      negotiating with Pope and all of the other noteholders listed above since
      then and no conclusions have been reached as of June 30,
    2009.




F-37




Benda
Pharmaceutical, Inc.,
 Management’s
Discussion and Analysis or Plan of Operations
 For the Six
Months and Three Months Ended June 30, 2009 and 2008
 (Amount
Expressed in U.S. Dollars)


Item
2.     Management’s Discussion and Analysis
or Plan of Operation





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 the Group’s consolidated financial
statements is its 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. Sales are presented net of value added tax (VAT). No
return allowance is made as products returns are insignificant based on
historical experience.





Estimates
Affecting Accounts Receivable and Inventories





The
preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect our reporting of assets and liabilities
(and contingent assets and liabilities). However, it is explicated that the
changes in estimation were not material in the preparation of our consolidation
financial statements.





As of
June 30, 2009 and 2008, the Group provided a $6,591,973 and $1,277,336,
respectively for the allowance of doubtful accounts against trade receivables
(please refer to Note 5 for details). Management's estimate of the appropriate
allowance on those accounts receivable for the reporting periods was based on
the aged nature of these accounts. In making its judgment, management assessed
its customers' ability to continue to pay their outstanding invoices and the
collectibility of those accounts on a timely basis, and whether their financial
position might deteriorate significantly in the future, which would result in
their inability to pay their debts to the Company.





Inventories,
which are primarily comprised of raw materials, packaging materials, and
finished goods, are stated at the lower of cost or net realizable value. Cost
being determined on the basis of a moving average. The Group evaluates the need
for reserves associated with obsolete, slow-moving and non-salable inventory by
reviewing net realizable values on a periodic basis.




For the
six months ended June 30, 2009 and 2008, the Group provided a reserve against
its obsolete, slow-moving or non-salable inventory amounting to $4,687,738 and
$3,994,628, respectively.





The
provision of reserve was mainly 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):


4








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





Therefore,
up to the stage of reagent, all the related production costs are treated as
work-in-progress. The major components of those production costs are: (i) direct
labor; (ii) direct materials; (iii) power; (iv) supplies and other materials;
and (v) manufacturing overheads.





Before
acquisition, as of March 31, 2007, the accumulated units of original liquid
produced was 198,075 and which could be converted to approximately 226,736 vials
of Gendicine. However, the accumulated vials of Gendicine sold throughout the
years 2004 to three-month period ended March 31, 2007 were only approximately
18,424 vials. Thus the accumulated production costs of $4,080,644 were remained
as work-in-process as of March 31, 2007.





Furthermore,
due to the special feature of the original liquid which can only be stored for
five years, and most of the original liquid was produced in the year of 2004,
and the provision of reserve on work- in-progress was $3,696,083 as of 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 June 30, 2009, the provision of reserve on work-in-process was
$4,551,337.





A reserve
for obsolete, slow-moving or non-salable inventory was made on raw materials,
packing materials, other material and suppliers, finished goods and
work-in-process at the amount of $11,078, $54,120, $57,651, $13,552 and
$4,551,337 respectively as of June 30, 2009.





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





Six months and
three months ended June 30, 2009 Compared to Six months and three months ended
June 30, 2008









5




SIX
      MONTHS ENDED JUNE 30,
                                                                                  
                                                                                  
                                                                                  THREE
      MONTHS ENDED JUNE 30,2009
                                                                                  
                                                                                  
                                                                                  2008
                                                                                  
                                                                                  
                                                                                  2009
                                                                                  
                                                                                  
                                                                                  2008(Unaudited)
                                                                                  
                                                                                  
                                                                                  (Unaudited)
                                                                                  
                                                                                  
                                                                                  (Unaudited)
                                                                                  
                                                                                  
                                                                                  (Unaudited)Revenue
                                                                                  
                                                                                  $
                                                                                  11,440,412
                                                                                  
                                                                                  
                                                                                  $
                                                                                  13,225,623
                                                                                  
                                                                                  
                                                                                  $
                                                                                  5,924,609
                                                                                  
                                                                                  
                                                                                  $
                                                                                  7,278,253Cost
      of goods sold
                                                                                  
                                                                                  
                                                                                  (6,699,079
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (8,396,854
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,556,288
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (4,579,608
                                                                                  )Gross
      profit
                                                                                  
                                                                                  
                                                                                  4,741,333
                                                                                  
                                                                                  
                                                                                  
                                                                                  4,828,769
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,368,321
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,698,645Selling
      expenses
                                                                                  
                                                                                  
                                                                                  (1,016,366
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,431,212
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (622,173
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (994,841
                                                                                  )General
      and administravive expenses
                                                                                  
                                                                                  
                                                                                  (4,480,213
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (4,521,240
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,130,091
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,878,322
                                                                                  )Research
      and development expenses
                                                                                  
                                                                                  
                                                                                  (118,083
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (169,781
                                                                                  )
                                                                                  
                                                                                  
                                                                                  183,601
                                                                                  
                                                                                  
                                                                                  
                                                                                  (147,717
                                                                                  )Total
      operating expenses
                                                                                  
                                                                                  
                                                                                  (5,614,662
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (6,122,233
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,568,663
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,020,880
                                                                                  )Operating
      income / (loss)
                                                                                  
                                                                                  
                                                                                  (873,329
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,293,464
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,200,342
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (322,235
                                                                                  )Interest
      expenses
                                                                                  
                                                                                  
                                                                                  (1,633,247
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (2,340,580
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (362,866
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,128,298
                                                                                  )Other
      income (expenses)
                                                                                  
                                                                                  
                                                                                  45,776
                                                                                  
                                                                                  
                                                                                  
                                                                                  248,058
                                                                                  
                                                                                  
                                                                                  
                                                                                  62,976
                                                                                  
                                                                                  
                                                                                  
                                                                                  (53,635
                                                                                  )Government
      subsidies / grants
                                                                                  
                                                                                  
                                                                                  26,383
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Loss
      before provision for income taxes and noncontrolling
    interest
                                                                                  
                                                                                  
                                                                                  (2,434,417
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,385,986
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,500,232
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,504,168
                                                                                  )Income
      taxes
                                                                                  
                                                                                  
                                                                                  (84,412
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (524,808
                                                                                  
                                                                                  
                                                                                  
                                                                                  217,966
                                                                                  
                                                                                  
                                                                                  
                                                                                  (391,611
                                                                                  )Net
      loss
                                                                                  
                                                                                  
                                                                                  (2,518,829
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,910,794
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,282,266
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,895,779
                                                                                  )Net
      loss attributable to the noncontrolling interest
                                                                                  
                                                                                  
                                                                                  202,574
                                                                                  
                                                                                  
                                                                                  
                                                                                  88,216
                                                                                  
                                                                                  
                                                                                  
                                                                                  6,568
                                                                                  
                                                                                  
                                                                                  
                                                                                  110,614Net
      loss attributable to Benda Pharmaceutical, Inc.
                                                                                  
                                                                                  $
                                                                                  (2,316,255
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (3,822,578
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (1,275,698
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (1,785,165
                                                                                  )Basic
      and fully diluted loss per shareNet
      loss attributable to Benda Pharmaceutical, Inc. common
      shareholders
                                                                                  
                                                                                  $
                                                                                  (0.02
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (0.04
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (0.01
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (0.02
                                                                                  )Weighted
      average shares outstanding, basic and fully diluted
                                                                                  
                                                                                  
                                                                                  105,155,355
                                                                                  
                                                                                  
                                                                                  
                                                                                  100,558,191
                                                                                  
                                                                                  
                                                                                  
                                                                                  105,155,355
                                                                                  
                                                                                  
                                                                                  
                                                                                  100,803,509


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.







1.
            One of the Benda’s
      subsidiaries, Benda Ebei’s net revenue decreased $2.74 million (or 23.88%)
      and $1.57 million (or 26.43%) to $8.73 million and $4.37 million for the
      six months and three months ended June 30, 2009 respectively from $11.47
      million and $5.94 million for the six months and three months ended June
      30, 2008 respectively. It was mainly due to the keen competition in
      generic medicine and the seasonal factors; however the management believes
      that the overall year revenue of 2009 will remain the same level as year
      2008.





2.
            One
      of the Benda’s subsidiaries, Jiangling Benda which resumed its production
      in October 2007 and achieved $0.8 million for the six months ended June
      30, 2009.





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





On April 9, 2008, Jiangling Benda
received the approved GMP Certificate from theChinese State Food and
Drug Administration ("SFDA") which authorizing the production of
Ribavrin.  The other two products, Asarin and Levolfozacin, are still
under the stage of GMP certificate approving process. The management could not
estimate the exact timing for obtaining those certificates.





3.
            One
      of the Benda’s subsidiaries, Yidu Benda ceased operation due to the fact
      that the plant was closed since mid January of 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. Furthermore, the
management is searching for new products to be produced in Yidu Benda which with
higher profit margin.





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


6





5.
              One of the Benda’s
      subsidiaries, SiBiono, acquired and effective since April 1, 2007, net
      revenue increased $0.74 million (or 62.71%) and $0.44 million (or 58.67%)
      to $1.92 million and $1.19 million for the six months ended and three
      months ended June 30, 2009 respectively from $1.18 million and $0.75
      million for the six months and three months ended June 30, 2008
      respectively.  The main reason for the increase in net revenue is
      mainly due to the fact that SiBiono was previously underwent a process of
      re-engineering of the production department during the year of 2008 which
      improved its production process and also the company put more effort in
      the marketing





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





On July
14, 2009, SiBiono obtained the final approved GMP Certificate, in order words,
the SFDA allows SiBiono to resume its production and sales.





Cost
of Goods Sold







Gross
Profit





Selling
Expenses:





General
and Administrative Expenses:





Operating
Income / (Loss):





Interest
Expenses:





For the
three months ended June 30, 2009, $0.54 million was incurred for the interest of
the notes and $0.86 million in interest expense related to the amortization of
the debt discount associated with the Warrants and the debt discount associated
with the beneficial conversion feature. (Please refer to Note 24 of the Notes to
Consolidation Financial Statements for details).





Other
Income / (Expenses)


Due to
the Registration Delay Penalty, the Group incurred an expense for the six months
ended June 30, 2008. Out of the total penalty, $230,312 was settled by issuance
of 523,438 shares of common stock. There was no penalty to investors incurred
for the six months ended June 30, 2009.


7


Income
Taxes:








Benda
Ebei was registered as a Sino-Foreign Equity Joint Venture on May 26, 2004 and
is subject to the tax laws applicable to Sino-Foreign Equity Joint Ventures in
the PRC.  Benda Ebei, starting from 2005, is fully exempt from PRC
enterprise income tax for two years starting from the first profit-making year,
followed by a 50% reduction in the state income taxes, for the following three
years, commencing from the first profitable year.





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





The
exemption periods for Benda Ebei, Jiangling Benda and Yidu Benda expired in the
year of 2006, after which they are subject to a 50% reduction in state income
taxes, at 18%; whereas the full income tax rate is 33%. The remaining tax
holidays will be expired in 2010.





However,
starting and effective from January 1, 2008, the full income tax rate would be
changed from 33% to 25% according to the new PRC taxation regulations. Therefore
these subsidiaries will be subject to the regular full income tax rate at 25%
after the tax holidays expire in 2010.





According
to the new taxation regulations starting and effective from January 1, 2008,
Beijing Shusai is subject to the full income tax rate of 25%.





According
to the new taxation regulations starting and effective from January 1, 2008,
SiBiono, which is located in Shenzhen, a Special Economic District of PRC, is
subject to the full income tax rate of 25% gradually in five years as
following:





Year
                                
                                Tax
      rate2008
                                
                                
                                18
                                %2009
                                
                                
                                20
                                %2010
                                
                                
                                22
                                %2011
                                
                                
                                24
                                %2012
      and thereafter
                                
                                
                                25
                                %





Benda
Ebei recorded $84,412 income tax for the six months ended June 30, 2009. The
prepaid income tax by the Group as of June 30, 2009 at amount of $1.59 million
was recorded as taxes recoverable.





LIQUIDITY
AND CAPITAL RESOURCES





Net cash
provided by the operating activities was $1.42 million for the six months ended
June 30, 2009, while for the six months ended June 30, 2008 was negative $1.76
million





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


For the
six months ended June 30, 2008, an amount about $4.37 million non-cash operating
activities was reconciled back to the net income and which mainly included
amortization of debt discount and debt issue cost, penalty payment made in form
of share issuance, bad debt provision, amortization of intangible assets, and
depreciation.





However,
for the six months ended June 30, 2009, about $5.2 million of non-cash operating
activities was reconciled back to the net income and summarized as
follows:


1.
              $0.86
      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);
    and


2.
            Other
      factors: $2.8 million incurred on bad debt provision; $0.98 million
      incurred on depreciation; and $0.36 million incurred on amortization of
      intangible assets.


8


b)
            Trade
      receivables


The net
change of trade receivable was increased by $1.49 million for the six months
ended June 30, 2009. The management also noticed that the net balance of the
trade receivable, as of June 30, 2009, was a significant asset to the company.
However, the management believes that the above situation is temporarily due to
the following reasons:





Trade
receivables


a)
              Customers
      whom have sales relationship with our company are all relatively big
      business wholesale enterprises and they have all passed the examination of
      GMP Certificate so that the collectibility from those is out of
      question;


b)
            The
      management realized that it did affect the cash flow situation of the
      company; therefore the company will put more efforts to reduce the balance
      of trade receivables.





For the
six months ended June 30, 2009 and 2008, the amount spent in investing
activities were $0.46 million and $0.21 million respectively. It was mainly
because most of the settlements were made in the year of 2007, thus the
investing activities were relatively small for the reporting
periods.





Financing
cash outflow was $0.06 million for the reporting period six months ended June
30, 2009 while the financing cash inflow was $1.2 million for the reporting
period six months ended June 30, 2008.  The major of it was a net
amount $1.8 million was received from the commercial bank notes in the six
months ended June 30, 2008. (Please refer to the Note 11 of the Notes to
Consolidated Financial Statements for the details)





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk





The
Company is subject to certain market risks, including changes in interest rates
and currency exchange rates.  The Company does not undertake any specific
actions to limit those exposures.





Item
4T.  Evaluation of Disclosure Controls and Procedures





a)  
Evaluation of Disclosure
Controls. Our Chief Executive Officer and Chief Accounting Officer
evaluated the effectiveness of our disclosure controls and procedures as of the
end of our second fiscal quarter 2009 pursuant to Rule 13a-15(b) of the
Securities and Exchange Act.  Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
as appropriate to allow timely decisions regarding required disclosure. Based on
his evaluation, our Chief Executive Officer and Chief Accounting Officer
concluded that our disclosure controls and procedures were effective as of June
30, 2009.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions





(b)
  Changes in internal
control over financial reporting. There have been no changes in our
internal control over financial reporting that occurred during the first fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. Our management team will
continue to evaluate our internal control over financial reporting in 2009 as we
implement our Sarbanes Oxley Act testing.


9





PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.




1.  The
Company has become aware that Excalibur Limited Partnership and Excalibur
Limited Partnership II (the "Plaintiffs") filed a motion for summary judgment in
lieu of a complaint pursuant to CPLR § 3213 (the "Motion") with the Supreme
Court of the State of New York (the "Court"), alleging that the Company has been
delinquent on the payment of an aggregate sum of $600,000 and accrued interest
and costs arising from the Convertible Promissory Notes that were issued to the
Plaintiffs in April 2007 in connection with a $7,560,000 private placement.
Pursuant to the motion, the Plaintiffs requested that the Court (1) enter
summary judgment in favor of Excalibur Limited Partnership (“Excalibur Limited”)
in the amount of $390,000 plus all accrued interest and costs, and, (2) enter
summary judgment in favor of Excalibur Small Cap Opportunities LP (“Excalibur
Small Cap”) in the amount of $210,000 and accrued interest and
costs.  On July 29, 2009, the Court entered a judgment against the
Company in favor of the Plaintiffs in the amount of $674,251.65 in connection
with the Convertible Promissory Notes issued to the Plaintiffs in April 2007 in
a private placement.





On March
4, 2009, the Company received a Notice and Default and Payment Demand letter
(the "Default Letter") from Pope Investments LLC ("Pope") in connection with its
convertible promissory note in the amount of $5,520,000 (the "Note") purchased
in our April 2007 private placement offering. The Default Letter provided notice
of default based on the Company's failure to make a required interest payment on
the Note by February 20, 2009. The Default Letter further demanded full payment
of all interest, liquidated damages and accrued interest thereon in the amount
of $130,364.37 by March 14, 2009, or Pope will accelerate the maturity date of
the full principal amount of the Note.  On April 7, 2009, the Company
received further Default Letters and Payment Demand from Pope, Excalibur Limited
and Excalibur Small Cap demanding payment in full of the balance of the Notes,
which matured on March 28, 2009.  We were notified on June 15, 2009,
that on May 11, 2009 Pope filed a motion for summary judgment in lieu of a
complaint against us pursuant to CPLR § 3213 (the “Motion”) with the Supreme
Court of the State of New York (the “Court”), alleging that we have been
delinquent on the payment of an aggregate sum of $5,520,000 and accrued interest
and costs arising from the Note that we issued to the Pope in April
2007.  Pursuant to the motion, the Plaintiffs requested that the Court
enter summary judgment in favor of Plaintiff in the amount of $5,994,617.53
constituting principal and interest, plus costs.





On
June 23, 2009, we filed an Affidavit in Opposition to Motion for Summary
Judgment in Lieu of Complaint with the Court requesting that Plaintiff’s Motion
be denied.





On July
30, 2009, we received a Notice of Default from three additional investors in the
April 2007 private placement offering holding Notes totaling
$90,000.




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





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





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





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





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





2.
            Benda Ebei should pay for the
      penalty of Rmb 46,800;





3.
            Benda Eebi should pay for legal
      and arbitration expenses of Rmb
268,971.


10





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





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




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




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




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


11


Note:




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





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





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





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





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





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




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





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




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




Item
2. Unregistered Sales of Equity Securities and Use of Proceeds




None.


12


Item
3. Defaults Upon Senior Securities.




The
Company has become aware that Excalibur Limited Partnership and Excalibur
Limited Partnership II (the "Plaintiffs") filed a motion for summary judgment in
lieu of a complaint pursuant to CPLR § 3213 (the "Motion") with the Supreme
Court of the State of New York (the "Court"), alleging that the Company has been
delinquent on the payment of an aggregate sum of $600,000 and accrued interest
and costs arising from the Convertible Promissory Notes that were issued to the
Plaintiffs in April 2007 in connection with a $7,560,000 private placement.
Pursuant to the motion, the Plaintiffs requested that the Court (1) enter
summary judgment in favor of Excalibur Limited Partnership (“Excalibur Limited”)
in the amount of $390,000 plus all accrued interest and costs, and, (2) enter
summary judgment in favor of Excalibur Small Cap Opportunities LP (“Excalibur
Small Cap”) in the amount of $210,000 and accrued interest and
costs.  On July 29, 2009, the Court entered a judgment against the
Company in favor of the Plaintiffs in the amount of $674,251.65 in connection
with the Convertible Promissory Notes issued to the Plaintiffs in April 2007 in
a private placement.





On March
4, 2009, the Company received a Notice and Default and Payment Demand letter
(the "Default Letter") from Pope Investments LLC ("Pope") in connection with its
convertible promissory note in the amount of $5,520,000 (the "Note") purchased
in our April 2007 private placement offering. The Default Letter provided notice
of default based on the Company's failure to make a required interest payment on
the Note by February 20, 2009. The Default Letter further demanded full payment
of all interest, liquidated damages and accrued interest thereon in the amount
of $130,364.37 by March 14, 2009, or Pope will accelerate the maturity date of
the full principal amount of the Note.  On April 7, 2009, the Company
received further Default Letters and Payment Demand from Pope, Excalibur Limited
and Excalibur Small Cap demanding payment in full of the balance of the Notes,
which matured on March 28, 2009.  We were notified on June 15, 2009,
that on May 11, 2009 Pope filed a motion for summary judgment in lieu of a
complaint against us pursuant to CPLR § 3213 (the “Motion”) with the Supreme
Court of the State of New York (the “Court”), alleging that we have been
delinquent on the payment of an aggregate sum of $5,520,000 and accrued interest
and costs arising from the Note that we issued to the Pope in April
2007.  Pursuant to the motion, the Plaintiffs requested that the Court
enter summary judgment in favor of Plaintiff in the amount of $5,994,617.53
constituting principal and interest, plus costs.





On
June 23, 2009, we filed an Affidavit in Opposition to Motion for Summary
Judgment in Lieu of Complaint with the Court requesting that Plaintiff’s Motion
be denied.





On July
30, 2009, we received a Notice of Default from three additional investors in the
April 2007 private placement offering holding Notes totaling
$90,000.





Item
4. Submission of Matters to a Vote of Security Holders.




None.




Item
5. Other Information.




None




Item
6. Exhibits and Reports of Form 8-K.




(a)       Exhibits




31.1
Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002




32.1
Certifications pursuant to Section 906 of Sarbanes Oxley Act of
2002




(b)       Reports
of Form 8-K




On May
13, 2009, the Company filed a Form 8-K with the SEC disclosing the resignation
of a director.




On June
1, 2009, the Company filed a Form 8-K with the SEC disclosing that a summary
judgment motion was granted against the Company.




13




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, there unto duly
authorized.




BENDA
      PHARMACEUTICAL, INC.RegistrantDate:
      August 19, 2009
              
              By:/s/ Yiqing
      WanYiqing
      WanPresident,
      Chief Executive OfficerChairman
      of Board of Directors




Date:
      August 19, 2009
              By:
              /s/ Eric YuEric YuChief Financial OfficerPrincipal Accounting
      OfficerDirector


14