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 September 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
o
 
 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 o No o
 
 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 o     Accelerated
Filer o     Non-Accelerated
Filer o     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 o  No
x
  State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of November 23, 2009: 105,155,355 shares of common stock.
  
 
  BENDA
PHARMACEUTICAL, INC.
  FORM
10-Q
  September
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
                    
                    12Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    
                    13Item
      5.
                    Other
      Information
                    
                    13Item
      6.
                    Exhibits
                    
                    13SIGNATURE
                    
                    14
  2
  Item 1. Financial
Information
 
 BENDA
PHARMACEUTICAL, INC.
 (an
exploration stage company)
  FINANCIAL
STATEMENTS
  AS
OF SEPTEMBER 30, 2009
 
 CONTENTS
 
 F1
              
              CONDENSED
      BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND AS OF DECEMBER 31,
      2008 (AUDITED).F2
              
              CONDENSED
      STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND
      2008 AND FOR THE PERIOD FROM DECEMBER 17, 1999 (INCEPTION) TO SEPTEMBER
      30, 2009 (UNAUDITED).F5
              
              CONDENSED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIENCY) FOR THE PERIOD
      FROM DECEMBER 17, 1999 (INCEPTION) TO SEPTEMBER 30, 2009
      (UNAUDITED).F3
      - F4
              
              CONDENSED
      STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND
      2008 AND FOR THE PERIOD FROM DECEMBER 17, 1999 (INCEPTION) TO SEPTEMBER
      30, 2009 (UNAUDITED).F6
      - F39
              
              NOTES
      TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED).
  3
  Benda
Pharmaceutical, Inc.
 Consolidated
Balance Sheets
 (Amounts
expressed in U.S. Dollars)
  September
      30
                  
                  
                  December
      312009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Audited)AssetsCurrent
      AssetsCash
      and cash equivalents
                  
                  $
                  1,378,053
                  
                  
                  $
                  569,019Trade
      receivables, net (Note 5)
                  
                  
                  8,683,364
                  
                  
                  
                  9,336,915Other
      receivables  (Note 5)
                  
                  
                  678,528
                  
                  
                  
                  504,349Short-term
      loan receivables
                  
                  
                  -
                  
                  
                  
                  146,685Prepaid
      tax (Note 23)
                  
                  
                  1,509,892
                  
                  
                  
                  771,549Due
      from related parties  (Note 18)
                  
                  
                  7,634
                  
                  
                  
                  11,000Inventories
      (Note 7)
                  
                  
                  2,343,783
                  
                  
                  
                  2,344,562Prepaid
      expenses and deposits  (Note 5)
                  
                  
                  2,540,267
                  
                  
                  
                  918,209Total
      current assets
                  
                  
                  17,141,521
                  
                  
                  
                  14,602,288Due
      from related parties  (Note 18)
                  
                  
                  3,063,153
                  
                  
                  
                  2,961,744Property
      and equipments, net (Note 8)
                  
                  
                  27,901,030
                  
                  
                  
                  29,057,225Intangible
      assets, net  (Note 9)
                  
                  
                  5,454,525
                  
                  
                  
                  6,003,102Restricted
      cash (Note 11)
                  
                  
                  5,847,894
                  
                  
                  
                  6,162,849Refundable
      purchase price paid (Note 6)
                  
                  
                  1,200,000
                  
                  
                  
                  1,200,000Other
      assets (Note 12)
                  
                  
                  1,830,556
                  
                  
                  
                  1,830,634Debt
      issue costs (Note 24)
                  
                  
                  -
                  
                  
                  
                  55,485Total
      Assets
                  
                  $
                  62,438,679
                  
                  
                  $
                  61,873,327Liabilities
      & Shareholders' EquityCurrent
      LiabilitiesBank
      indebtedness (Note 11)
                  
                  $
                  1,199,965
                  
                  
                  $
                  1,288,257Bank
      loans payable (current portion) (Note 13)
                  
                  
                  2,984,433
                  
                  
                  
                  2,984,560Short-term
      loans payable
                  
                  
                  1,042,955
                  
                  
                  
                  -Long
      term debt payable (current portion) (Note 14)
                  
                  
                  2,234,115
                  
                  
                  
                  2,234,210Accounts
      payable and accrued liabilities (Note 15)
                  
                  
                  9,757,230
                  
                  
                  
                  7,228,400Commercial
      notes payable (Note 11)
                  
                  
                  9,075,536
                  
                  
                  
                  9,297,169Taxes
      payable
                  
                  
                  262,761
                  
                  
                  
                  516,302Acquisition
      cost payable (Note 10)
                  
                  
                  1,426,430
                  
                  
                  
                  1,426,491Long-term
      convertible promissory notes (current portion) (Note 24)
                  
                  
                  7,260,000
                  
                  
                  
                  6,395,951Wages
      payable
                  
                  
                  1,180,027
                  
                  
                  
                  630,475Payable
      under redeemable common stock (Note 19)
                  
                  
                  7,376,366
                  
                  
                  
                  7,376,366Due
      to related parties (Note 18)
                  
                  
                  467,842
                  
                  
                  
                  1,457,803Total
      current liabilities
                  
                  
                  44,267,660
                  
                  
                  
                  40,835,984Due
      to related parties (Note 18)
                  
                  
                  960,406
                  
                  
                  
                  997,593Total
      Liabilities
                  
                  
                  45,228,066
                  
                  
                  
                  41,833,577EquityPreferred
      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 9/30/2009and
      12/31/2008 respectively;
                  
                  
                  105,155
                  
                  
                  
                  105,155Additional
      paid in capital (Note 25)
                  
                  
                  22,108,427
                  
                  
                  
                  22,108,427Retained
      earnings (unrestricted)
                  
                  
                  (18,736,213
                  )
                  
                  
                  (16,047,561
                  )Statutory
      surplus reserve fund (Note 17)
                  
                  
                  2,642,775
                  
                  
                  
                  2,642,775Accumulative
      other comprehensive income
                  
                  
                  6,344,117
                  
                  
                  
                  6,347,547Shares
      issuable for acquisition and services
                  
                  
                  503,860
                  
                  
                  
                  503,860Total
      Benda Pharmaceutical, Inc. Shareholders' Equity
                  
                  
                  12,968,121
                  
                  
                  
                  15,660,203Noncontrolling
      interest
                  
                  
                  4,242,492
                  
                  
                  
                  4,379,547Total
      Equity
                  
                  
                  17,210,613
                  
                  
                  
                  20,039,750Total
      Liabilities & Equity
                  
                  $
                  62,438,679
                  
                  
                  $
                  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)
  Nine
      Months Ended September 30
                
                
                Three
      Months Ended September 302009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Revenue
                
                $
                17,345,065
                
                
                $
                19,860,057
                
                
                $
                5,904,653
                
                
                $
                6,634,434Cost
      of goods sold
                
                
                (9,770,370
                )
                
                
                (12,610,394
                )
                
                
                (3,071,291
                )
                
                
                (4,213,540
                )Gross
      profit
                
                
                7,574,695
                
                
                
                7,249,663
                
                
                
                2,833,362
                
                
                
                2,420,894Selling
      expenses
                
                
                (1,868,482
                )
                
                
                (2,122,689
                )
                
                
                (852,116
                )
                
                
                (691,477
                )General
      and administrative expensesAmortization
      of intangible assets
                
                
                (119,118
                )
                
                
                (148,591
                )
                
                
                (39,718
                )
                
                
                (50,643
                )Amortization
      of debt issue costs (Note 24)
                
                
                (55,485
                )
                
                
                (198,360
                )
                
                
                -
                
                
                
                (66,603
                )Depreciation
                
                
                (707,622
                )
                
                
                (373,639
                )
                
                
                (328,327
                )
                
                
                (130,144
                )Bad
      debts
                
                
                (3,080,334
                )
                
                
                (534,124
                )
                
                
                (271,472
                )
                
                
                239,769Write-down
      of inventory to net realizable value (recovery)
                
                
                (196,628
                )
                
                
                -
                
                
                
                (72,389
                )
                
                
                -Director
      remuneration
                
                
                (67,500
                )
                
                
                (162,968
                )
                
                
                (22,500
                )
                
                
                (22,500
                )Penalty
      to investors
                
                
                -
                
                
                
                (1,380,173
                )
                
                
                -
                
                
                
                (266,768
                )Other
      general and administrative expenses (Note 21)
                
                
                (1,885,994
                )
                
                
                (2,764,256
                )
                
                
                (898,062
                )
                
                
                (743,982
                )Total
      general and administrative expenses
                
                
                (6,112,681
                )
                
                
                (5,562,111
                )
                
                
                (1,632,468
                )
                
                
                (1,040,871
                )Research
      and development expenses
                
                
                (283,473
                )
                
                
                (249,357
                )
                
                
                (165,390
                )
                
                
                (79,576
                )Total
      operating expenses
                
                
                (8,264,636
                )
                
                
                (7,934,157
                )
                
                
                (2,649,974
                )
                
                
                (1,811,924
                )Operating
      income / (loss)
                
                
                (689,941
                )
                
                
                (684,494
                )
                
                
                183,388
                
                
                
                608,970Interest
      income / (expenses) (Note 24)
                
                
                (2,104,510
                )
                
                
                (3,339,457
                )
                
                
                (471,263
                )
                
                
                (998,877
                )Other
      income / (expenses) (Note 20)
                
                
                106,161
                
                
                
                10,140
                
                
                
                60,388
                
                
                
                (237,918
                )Government
      subsidies / grants (Note 22)
                
                
                26,386
                
                
                
                -
                
                
                
                -
                
                
                
                -Loss
      before provision for income taxes and noncontrolling
    interest
                
                
                (2,661,904
                )
                
                
                (4,013,811
                )
                
                
                (227,487
                )
                
                
                (627,825
                )Income
      taxes (Note 23)
                
                
                (163,803
                )
                
                
                (907,176
                )
                
                
                (79,391
                )
                
                
                (382,368
                )Net
      loss
                
                
                (2,825,707
                )
                
                
                (4,920,987
                )
                
                
                (306,878
                )
                
                
                (1,010,193
                )Net
      loss attributable to the noncontrolling interest
                
                
                137,055
                
                
                
                256,486
                
                
                
                (65,519
                )
                
                
                168,270Net
      loss attributable to Benda Pharmaceutical, Inc.
                
                $
                (2,688,652
                )
                
                
                (4,664,501
                )
                
                $
                (372,397
                )
                
                $
                (841,923
                )Basic
      and fully diluted loss per shareNet
      loss attributable to Benda Pharmaceutical, Inc. common
      shareholders
                
                $
                (0.03
                )
                
                
                (0.05
                )
                
                $
                (0.00
                )
                
                $
                (0.01
                )Weighted
      average shares outstanding (Note 26)
                
                
                105,155,355
                
                
                
                100,887,853
                
                
                
                105,155,355
                
                
                
                101,556,376







F-2




Benda
Pharmaceutical, Inc.
 Consolidated
Statements of Cash Flows
 (Amounts
expressed in U.S. Dollars)
  Nine
      Months Ended September 30,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Cash
      Flows From Operating ActivitiesNet
      loss
                  
                  $
                  (2,825,707
                  )
                  
                  $
                  (4,920,987
                  )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Bad
      Debt provision
                  
                  
                  3,080,334
                  
                  
                  
                  534,125Inventory
      written down to net realizable value (recovery)
                  
                  
                  196,628
                  
                  
                  
                  -Depreciation
                  
                  
                  1,609,314
                  
                  
                  
                  1,414,763Amortization
      of intangible assets
                  
                  
                  547,919
                  
                  
                  
                  567,016Amortization
      of debt issue costs (Note 24)
                  
                  
                  55,485
                  
                  
                  
                  198,360Interest
      expense (amortization of debt discount) (Note 24)
                  
                  
                  864,049
                  
                  
                  
                  2,614,667Penalty
      to investors settled by issuance of common stock
                  
                  
                  -
                  
                  
                  
                  497,081Directors
      remuneration settled by issuance of common stock
                  
                  
                  -
                  
                  
                  
                  75,900Changes
      in operating assets and liabilities:Trade
      receivables
                  
                  
                  (2,427,968
                  )
                  
                  
                  (2,312,392
                  )Other
      receivables
                  
                  
                  (174,180
                  )
                  
                  
                  239,155Prepaid
      expenses and deposits
                  
                  
                  (1,622,058
                  )
                  
                  
                  (85,211
                  )Inventories
                  
                  
                  (195,849
                  )
                  
                  
                  (835,895
                  )Accounts
      payable and accrued liabilities
                  
                  
                  3,078,386
                  
                  
                  
                  1,856,143Taxes
      payable
                  
                  
                  (991,888
                  )
                  
                  
                  (281,668
                  )Net
      cash provided by operating activities
                  
                  
                  1,194,465
                  
                  
                  
                  (438,943
                  )Cash
      Flows From Investing ActivitiesPurchases
      of property and equipment and construction-in-progress
                  
                  
                  (455,488
                  )
                  
                  
                  (210,254
                  )Proceeds
      and repayments of borrowings under short-term loan
    receivables
                  
                  
                  146,685
                  
                  
                  
                  (146,304
                  )Net
      cash used in investing activities
                  
                  
                  (308,803
                  )
                  
                  
                  (356,558
                  )Cash
      Flows From Financing ActivesProceeds
      and repayments of borrowings under related parties, net
                  
                  
                  (1,125,192
                  )
                  
                  
                  (1,247,617
                  )Proceeds
      and repayments of borrowings under government debts payable,
      net
                  
                  
                  (88,236
                  )
                  
                  
                  297,545Proceeds
      and repayments of borrowings under commercial bank notes, net (Note
      11)
                  
                  
                  93,266
                  
                  
                  
                  1,876,424Proceeds
      and repayments of borrowings under bank loans, net
                  
                  
                  1,042,955
                  
                  
                  
                  (81,082
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  (77,207
                  )
                  
                  
                  845,270Effect
      of exchange rate changes on cash
                  
                  
                  579
                  
                  
                  
                  369,366Net
      increase in cash and cash equivalents
                  
                  
                  809,034
                  
                  
                  
                  419,135Cash
      and cash equivalents, beginning of period
                  
                  
                  569,019
                  
                  
                  
                  1,266,240Cash
      and cash equivalents, end of period
                  
                  $
                  1,378,053
                  
                  
                  $
                  1,685,375Supplemental
      Disclosure of Cash Flow InformationCash
      paid for interest
                  
                  $
                  298,139
                  
                  
                  $
                  823,037Cash
      paid for income taxes
                  
                  $
                  935,208
                  
                  
                  $
                  954,431
  
 F-3




Benda
Pharmaceutical, Inc.
 Statements
of Consolidated Comprehensive Income
 (Amounts
expressed in U.S. Dollars)
  Nine
      Months Ended June 30,2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)Net
      loss
                
                $
                (2,825,707
                )
                
                $
                (4,920,987
                )Other
      comprehensive income (loss)Foreign
      currency translation adjustment
                
                
                (3,430
                )
                
                
                2,997,021Comprehensive
      loss
                
                
                (2,829,137
                )
                
                
                (1,923,966
                )Comprehensive
      loss attributable to the noncontrolling interest
                
                
                137,055
                
                
                
                256,486Comprehensive
      loss attributable to Benda Pharmaceutical, Inc.
                
                $
                (2,692,082
                )
                
                $
                (1,667,480
                )








F-4




Benda
Pharmaceutical, Inc.
 Consolidated
Statement of Changes in Equity
 (Amounts
expressed in U.S. Dollars)
  SharesIssuableCommon
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                Statutory
                
                
                Accumulated
                
                
                forShares
                
                
                
                
                
                
                
                
                
                
                
                Additional
                
                
                Retained
                
                
                Surplus
                
                
                Other
                
                
                Acquisition
                
                
                Non-Issued
      and
                
                
                
                
                
                Comprehensive
                
                
                Common
                
                
                Paid-in
                
                
                Earnings
                
                
                Reserve
                
                
                Comprehensive
                
                
                and
                
                
                ControllingOutstanding
                
                
                Total
                
                
                Income
                
                
                Stock
                
                
                Capital
                
                
                (Unrestricted)
                
                
                Fund
                
                
                Income
                
                
                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
                
                
                $
                4,176,973Comprehensive
      loss:Net
      loss
                
                
                
                
                
                
                (306,878
                )
                
                
                (306,878
                )
                
                
                
                
                
                
                
                
                
                
                (372,397
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                65,519Other
      comprehensive income (loss)Foreign
      currency translation adjustment
                
                
                
                
                
                
                43,721
                
                
                
                43,721
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                43,721Comprehensive
      loss
                
                
                
                
                
                
                (263,157
                )
                
                
                (263,157
                )Dividend
      paid
                
                
                
                
                
                
                -Balance
      at September 30, 2009 (unaudited)
                
                
                105,155,355
                
                
                $
                16,947,456
                
                
                
                
                
                
                $
                105,155
                
                
                $
                22,108,427
                
                
                $
                (18,736,213
                )
                
                $
                2,642,775
                
                
                $
                6,344,117
                
                
                $
                503,860
                
                
                $
                4,242,492
    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 September 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
September 30, 2009, the organization and ownership structure of the Group is as
follows:




note1_chart logo





2. Basis
of Preparation, Consolidation and Going Concern




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 Group’s Annual
Report on Form 10-K. These interim financial statements should be read in
conjunction with that report. We have reclassified amounts previously reported
in the Group’s financial statements to conform to the current
presentation related to redeemable common stock. The Group has
evaluated subsequent events through the date that the financial statements
were issued which was November 22, 2009, the date immediately preceding the
date of the Group’s Quarterly Report on Form 10-Q for the period ended September
30, 2009.




In the
Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008,
the Report of the Independent Registered Public Accounting Firm includes an
explanatory paragraph that describes substantial doubt about the Group’s ability
to continue as a going concern. The Group’s interim financial statements for the
three and nine months ended September 30, 2009 have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business.  The
Group reported a net loss of $2,825,707 for the nine months ended September 30,
2009 and has a working capital deficit of approximately $27,126,139 and
accumulated deficit of approximately $18,736,213 as of September 30,
2009.
 
 Currently,
the Group does not have the ability to substantially increase its loan
indebtedness with any financial institution , nor can the Group provide any
assurance it will be able to enter into any loan agreements in the future, or be
able to raise funds through further issuance of debt or equity in the
Group.  Moreover, the Group presently has little additional resources
with which to obtain or develop new operations.
 
 These
factors raise substantial doubt about the Group’s ability to continue as a going
concern.  The financial statements do not contain any adjustments
relating to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Group be unable
to continue as a going concern.
 
 While the
Group is attempting to produce sufficient revenues, the Group’s cash position
may not be enough to support the Group’s daily operations.  Management
intends to raise additional funds by way of a public or private
offering.  Management believes that the actions presently being taking
to further implement its business plan and generate sufficient revenues provide
the opportunity for the Group to continue as a going concern.  While
the Group believes in the viability of its strategy to increase revenues and in
its ability to raise additional funds, there can be no assurance to that
effect.  The ability of the Group to continue as a going concern is
dependent upon the Group’s ability to further implement its business plan and
generate sufficient revenues.  The financial statements do not include
any adjustments that might be necessary it the Group is unable to continue as a
going concern.


F-7





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.





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
September 30, 2009 and 2008, the Group provided a $6,867,978 and $1,552,068,
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
September 30, 2009 and 2008, the Group provided a reserve against its obsolete,
slow-moving or non-salable inventory amounting to $ 4,925,299 and $4,191,726,
respectively (please refer to Note 7 for details).




F-8




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.




The Group
evaluates potential impairment of long-lived assets, in accordance with
Statement of FASB Accounting Standards Codification (“ASC”) 360, Propoerty, Plant and
Equipment, 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 September 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 ASC 650,
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 ASC 650
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.




F-9





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 $283,473 and $249,357 on R&D efforts
for the nine month ended September 30, 2009 and 2008, respectively.





Income
Taxes




The Group
accounts for income taxes under the liability method in accordance with
ASC 740, 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 ASC 220, Comprehensive Income, which establishes standards
for reporting and displaying comprehensive income, its components, and
accumulated balances in a full-set of general-purpose financial statements.
Accumulated other comprehensive income represents the accumulated balance of
foreign currency translation adjustments.




Concentration
of Credit Risk




A
significant portion of the Group's cash at September 30, 2009 and 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 nine months and three months ended September 30, 2009 and
2008:




NINE
      MONTHS ENDED
                  SEPTEMBER
      30,
                
                
                THREE
      MONTH ENDED
                  SEPTEMBER
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Revenue
                
                $
                17,345,065
                
                
                %
                
                
                $
                19,860,057
                
                
                %
                
                
                $
                5,904,653
                
                
                %
                
                
                $
                6,634,434
                
                
                %Individual customer's
      revenue1
                
                Zhuhai
      Gongbei Pharmaceutical  Co, Ltd.
                
                
                4,195,255
                
                
                
                24
                %
                
                
                3,711,204
                
                
                
                19
                %
                
                
                1,234,516
                
                
                
                21
                %
                
                
                784,911
                
                
                
                12
                %2
                
                Shenyang
      Pharmaceutical  Co. Ltd.
                
                
                2,234,332
                
                
                
                13
                %
                
                
                1,985,584
                
                
                
                10
                %
                
                
                661,749
                
                
                
                11
                %
                
                
                711,963
                
                
                
                11
                %3
                
                Shenzhen
      Huihua Pharmaceutical Co. Ltd.
                
                
                2,005,451
                
                
                
                12
                %
                
                
                2,191,049
                
                
                
                11
                %
                
                
                565,257
                
                
                
                10
                %
                
                
                800,653
                
                
                
                12
                %4
                
                Jiangxi
      Huiren Pharmaceutical Co. Ltd.
                
                
                1,149,220
                
                
                
                7
                %
                
                
                1,602,885
                
                
                
                8
                %
                
                
                263,982
                
                
                
                4
                %
                
                
                647,020
                
                
                
                10
                %5
                
                Hubei
      Hengchuan Health Products Co.,Ltd.
                
                
                1,388,420
                
                
                
                8
                %
                
                
                2,221,744
                
                
                
                11
                %
                
                
                687,044
                
                
                
                12
                %
                
                
                578,655
                
                
                
                9
                %6
                
                Huhan
      Jiuding Pharmaceutical Co, Ltd.
                
                
                1,106,645
                
                
                
                6
                %
                
                
                -
                
                
                
                -
                
                
                
                676,870
                
                
                
                11
                %
                
                
                -
                
                
                
                -Account
      receivable, gross
                
                $
                15,551,342
                
                
                %
                
                
                $
                13,222,313
                
                
                %
                
                
                
                15,551,342
                
                
                %
                
                
                
                13,222,313
                
                
                %Individual customer's
      account receivable gross balance1
                
                Zhuhai
      Gongbei Pharmaceutical  Co, Ltd.
                
                
                2,326,483
                
                
                
                15
                %
                
                
                1,769,557
                
                
                
                13
                %
                
                
                2,326,483
                
                
                
                15
                %
                
                
                1,769,557
                
                
                
                13
                %3
                
                Shenzhen
      Huihua Pharmaceutical Co. Ltd.
                
                
                1,593,203
                
                
                
                10
                %
                
                
                1,186,189
                
                
                
                9
                %
                
                
                1,593,203
                
                
                
                10
                %
                
                
                1,186,189
                
                
                
                9
                %4
                
                Shenyang
      Pharmaceutical  Co. Ltd.
                
                
                1,429,213
                
                
                
                9
                %
                
                
                963,855
                
                
                
                7
                %
                
                
                1,429,213
                
                
                
                9
                %
                
                
                963,855
                
                
                
                7
                %5
                
                Hubei
      Hengchuan Health Products Co.,Ltd.
                
                
                1,276,973
                
                
                
                8
                %
                
                
                1,232,435
                
                
                
                9
                %
                
                
                1,276,973
                
                
                
                8
                %
                
                
                1,232,435
                
                
                
                9
                %2
                
                Jiangxi
      Huiren Pharmaceutical Co. Ltd.
                
                
                923,509
                
                
                
                6
                %
                
                
                519,536
                
                
                
                4
                %
                
                
                923,509
                
                
                
                6
                %
                
                
                519,536
                
                
                
                4
                %6
                
                Huhan
      Jiuding Pharmaceutical Co, Ltd.
                
                
                944,909
                
                
                
                6
                %
                
                
                -
                
                
                
                -
                
                
                
                944,909
                
                
                
                6
                %
                
                
                -
                
                
                
                -


F-10




Basic
and Diluted Earnings Per Share




The Group
adopted ASC 260, Earnings Per
Share. ASC 260 requires the presentation of earnings per share (EPS) as
Basic and Diluted EPS. Basic earnings per share are calculated by taking net
income divided by the weighted average shares of common stock outstanding during
the period. Diluted earnings per share is calculated by taking basic weighted
average shares of common stock and increasing it for dilutive common stock
equivalents such as warrants that are in the money.




Foreign
Currency Translation




The
functional currency of the Group is the Renminbi (“RMB”), the PRC’s currency.
The Group maintains its financial statements using the functional
currency.  Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet dates. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Exchange gains or losses arising from foreign currency transactions
are included in the determination of net income (loss) for the respective
periods.




For
financial reporting purposes, the financial statements of the Group, which are
prepared using the RMB, are translated into the Group’s reporting currency,
United States Dollars. Balance sheet accounts are translated using the closing
exchange rate in effect at the balance sheet date and income and expense
accounts are translated using the average exchange rate prevailing during the
reporting period.  Adjustments resulting from the translation, if any,
are included in accumulated other comprehensive income (loss) in stockholder’s
equity.




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




September
      30,
            
            
            September
      30,2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)Fixed
      rate
            
            $
            0.1467
            
            
            $
            0.1463Average
      rate
            
            $
            0.1466
            
            
            $
            0.1434




For the
nine months ended September 30, 2009 and 2008, the foreign exchange loss was
$6,594 and $7,060 respectively; for the three months ended September 30, 2009
and 2008, the foreign exchange loss was $4,360 and $4,904,
respectively.




Fair
Value of Financial Instruments




ASC 825,
Financial Instruments,
defines financial instruments and requires fair value disclosures of those
financial instruments. On January 1, 2008, the Group adopted ASC 820, Fair Value Measurements and
Disclosures, 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.




F-11




·
            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.





Recent
Issued Accounting Pronouncements




In
June 2009, the Financial Accounting Standards Board (FASB) issued a
standard that established the FASB Accounting Standards Codification(ASC) and amended the
hierarchy of generally accepted accounting principles (ASC) and amended the
hierarchy of generally accepted accounting principles (GAAP) such that the ASC
became the single source of authoritative nongovernmental U.S. GAAP. The ASC did
not change current U.S. GAAP, but was intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. All previously existing accounting standard
documents were superseded and all other accounting literature not included in
the ASC is considered non-authoritative. New accounting standards issued
subsequent to June 30, 2009 are communicated by the FASB through Accounting
Standards Updates (ASUs). The Company adopted the ASC on July 1, 2009. This
standard did not have an impact on the Company’s consolidated results of
operations or financial condition. However, throughout the notes to the
consolidated financial statements references that were previously made to
various former authoritative U.S. GAAP pronouncements have been changed to
coincide with the appropriate section of the ASC.




In
September 2006, the FASB issued an accounting standard codified in ASC 820,
Fair Value Measurements and
Disclosures. This standard established a single definition of fair value
and a framework for measuring fair value, set out a fair value hierarchy to be
used to classify the source of information used in fair value measurements, and
required disclosures of assets and liabilities measured at fair value based on
their level in the hierarchy. This standard applies under other accounting
standards that require or permit fair value measurements. One of the amendments
deferred the effective date for one year relative to nonfinancial assets and
liabilities that are measured at fair value, but are recognized or disclosed at
fair value on a nonrecurring basis. This deferral applied to such items as
nonfinancial assets and liabilities initially measured at fair value in a
business combination (but not measured at fair value in subsequent periods) or
nonfinancial long-lived asset groups measured at fair value for an impairment
assessment.  The adoption of the fair value measurement standard did not
have a material impact on the Company’s consolidated results of operations or
financial condition.




F-12




In
December 2007, the FASB issued and, in April 2009, amended a new
business combinations standard codified within ASC 805, which changed the
accounting for business acquisitions. Accounting for business combinations under
this standard requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
transaction and establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed in a business
combination. Certain provisions of this standard impact the determination of
acquisition-date fair value of consideration paid in a business combination
(including contingent consideration); exclude transaction costs from acquisition
accounting; and change accounting practices for acquisition-related
restructuring costs, in-process research and development, indemnification
assets, and tax benefits. The Company adopted the standard for business
combinations and adjustments to an acquired entity’s deferred tax asset and
liability balances and it had no immediate impact on the Company’s consolidated
financial position or results of operations.




In
December 2007, the FASB issued a new standard which established the
accounting for and reporting of noncontrolling interests (NCIs) in partially
owned consolidated subsidiaries and the loss of control of subsidiaries. Certain
provisions of this standard indicate, among other things, that NCIs (previously
referred to as minority interests) be treated as a separate component of equity,
not as a liability (as was previously the case); that increases and decreases in
the parent’s ownership interest that leave control intact be treated as equity
transactions, rather than as step acquisitions or dilution gains or losses; and
that losses of a partially owned consolidated subsidiary be allocated to the NCI
even when such allocation might result in a deficit balance. This standard also
required changes to certain presentation and disclosure requirements. The
Company adopted the standard beginning January 1, 2009. The provisions of
the standard were applied to all NCIs prospectively, except for the presentation
and disclosure requirements, which were applied retrospectively to all periods
presented. As a result, upon adoption, the Company retroactively reclassified
the “Minority interest in subsidiaries” balance previously included in the
“Other liabilities” section of the consolidated balance sheet to a new component
of equity with respect to NCIs in consolidated subsidiaries. The adoption also
impacted certain captions previously used on the consolidated statement of
income, largely identifying net income including NCI and net income attributable
to the Company.  The adoption of this standard did not have a material
impact on the Company’s consolidated financial position or results of
operations.




In
April 2009, the FASB issued an accounting standard which provides guidance
on (1) estimating the fair value of an asset or liability when the volume
and level of activity for the asset or liability have significantly declined and
(2) identifying transactions that are not orderly. The standard also
amended certain disclosure provisions for fair value measurements and
disclosures in ASC 820 to require, among other things, disclosures in interim
periods of the inputs and valuation techniques used to measure fair value as
well as disclosure of the hierarchy of the source of underlying fair value
information on a disaggregated basis by specific major category of investment.
For 3M, this standard was effective prospectively beginning April 1, 2009.
The adoption of this standard did not have a material impact on the Company’s
consolidated results of operations or financial condition.




In
April 2009, the FASB issued an accounting standard which modifies the
requirements for recognizing other-than-temporarily impaired debt securities and
changes the existing impairment model for such securities. The standard also
requires additional disclosures for both annual and interim periods with respect
to both debt and equity securities. Under the standard, impairment of debt
securities will be considered other-than-temporary if an entity (1) intends
to sell the security, (2) more likely than not will be required to sell the
security before recovering its cost, or (3) does not expect to recover the
security’s entire amortized cost basis (even if the entity does not intend to
sell). The standard further indicates that, depending on which of the above
factor(s) causes the impairment to be considered other-than-temporary,
(1) the entire shortfall of the security’s fair value versus its amortized
cost basis or (2) only the credit loss portion would be recognized in
earnings while the remaining shortfall (if any) would be recorded in other
comprehensive income. The standard requires entities to initially apply its
provisions to previously other-than-temporarily impaired debt securities
existing as of the date of initial adoption by making a cumulative-effect
adjustment to the opening balance of retained earnings in the period of
adoption. The cumulative-effect adjustment potentially reclassifies the
noncredit portion of a previously other-than-temporarily impaired debt security
held as of the date of initial adoption from retained earnings to accumulated
other comprehensive income. The adoption of this standard did not have a
material impact on the Company’s consolidated results of operations or financial
condition.




F-13




In
April 2009, the FASB issued an accounting standard regarding interim
disclosures about fair value of financial instruments. The standard essentially
expands the disclosure about fair value of financial instruments that were
previously required only annually to also be required for interim period
reporting. In addition, the standard requires certain additional disclosures
regarding the methods and significant assumptions used to estimate the fair
value of financial instruments. The adoption of this standard did not have a
material impact on the Company’s consolidated results of operations or financial
condition.




In
May 2009, the FASB issued a new accounting standard regarding subsequent
events. This standard incorporates into authoritative accounting literature
certain guidance that already existed within generally accepted auditing
standards, with the requirements concerning recognition and disclosure of
subsequent events remaining essentially unchanged. This guidance addresses
events which occur after the balance sheet date but before the issuance of
financial statements. Under the new standard, as under previous practice, an
entity must record the effects of subsequent events that provide evidence about
conditions that existed at the balance sheet date and must disclose but not
record the effects of subsequent events which provide evidence about conditions
that did not exist at the balance sheet date. This standard added an additional
required disclosure relative to the date through which subsequent events have
been evaluated and whether that is the date on which the financial statements
were issued. For the Company,this standard was effective beginning April 1, 2009.





In
June 2009, the FASB issued a new standard regarding the accounting for
transfers of financial assets amending the existing guidance on transfers of
financial assets to, among other things, eliminate the qualifying
special-purpose entity concept, include a new unit of account definition that
must be met for transfers of portions of financial assets to be eligible for
sale accounting, clarify and change the derecognition criteria for a transfer to
be accounted for as a sale, and require significant additional disclosure. The
standard is effective for new transfers of financial assets beginning
January 1, 2010. The adoption of this standard is not expected to have a
material impact on the Company’s consolidated results of operations or financial
condition.




In
June 2009, the FASB issued an accounting standard that 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. The 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.




F-14




In
August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair
Value, which provides additional guidance on how companies should measure
liabilities at fair value under ASC 820. The ASU clarifies that the quoted price
for an identical liability should be used. However, if such information is not
available, a entity may use, the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). The ASU also indicates that the fair value of a liability is not
adjusted to reflect the impact of contractual restrictions that prevent its
transfer and indicates circumstances in which quoted prices for an identical
liability or quoted price for an identical liability traded as an asset may be
considered level 1 fair value. This ASU is effective October 1, 2009. 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
September 2009, the FASB issued ASU No. 2009-12, Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent), that amends ASC
820 to provide guidance on measuring the fair value of certain alternative
investments such as hedge funds, private equity funds and venture capital funds.
The ASU indicates that, under certain circumstance, the fair value of such
investments may be determined using net asset value (NAV) as a practical
expedient, unless it is probable the investment will be sold at something other
than NAV. In those situations, the practical expedient cannot be used and
disclosure of the remaining actions necessary to complete the sale is required.
The ASU also requires additional disclosures of the attributes of all
investments within the scope of the new guidance, regardless of whether an
entity used the practical expedient to measure the fair value of any of its
investments. This ASU is effective October 1, 2009. 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
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements—a consensus of the FASB Emerging Issues Task Force, that
provides amendments to the criteria for separating consideration in
multiple-deliverable arrangements. As a result of these amendments,
multiple-deliverable revenue arrangements will be separated in more
circumstances than under existing U.S. GAAP. The ASU does this by establishing a
selling price hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based on vendor-specific
objective evidence if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. A
vendor will be required to determine its best estimate of selling price in a
manner that is consistent with that used to determine the price to sell the
deliverable on a standalone basis. This ASU also eliminates the residual method
of allocation and will require that arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling
price method, which allocates any discount in the overall arrangement
proportionally to each deliverable based on its relative selling price. Expanded
disclosures of qualitative and quantitative information regarding application of
the multiple-deliverable revenue arrangement guidance are also required under
the ASU. The ASU does not apply to arrangements for which industry specific
allocation and measurement guidance exists, such as long-term construction
contracts and software transactions.  The ASU is effective beginning
January 1, 2011. The Company is currently evaluating the impact of this
standard on 3M’s consolidated results of operations and financial
condition.




F-15




In
October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That
Include Software Elements—a consensus of the FASB Emerging Issues Task
Force, that reduces the types of transactions that fall within the
current scope of software revenue recognition guidance. Existing software
revenue recognition guidance requires that its provisions be applied to an
entire arrangement when the sale of any products or services containing or
utilizing software when the software is considered more than incidental to the
product or service. As a result of the amendments included in ASU
No. 2009-14, many tangible products and services that rely on software will
be accounted for under the multiple-element arrangements revenue recognition
guidance rather than under the software revenue recognition guidance. Under the
ASU, the following components would be excluded from the scope of software
revenue recognition guidance:  the tangible element of the product,
software products bundled with tangible products where the software components
and non-software components function together to deliver the product’s essential
functionality, and undelivered components that relate to software that is
essential to the tangible product’s functionality. The ASU also provides
guidance on how to allocate transaction consideration when an arrangement
contains both deliverables within the scope of software revenue guidance
(software deliverables) and deliverables not within the scope of that guidance
(non-software deliverables). The ASU is effective beginning January 1,
2011. The Company is currently evaluating the impact of this standard on the
Company’s consolidated results of operations and financial
condition.





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 September 30, 2009 and December 31, 2008:





September
      30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)Trade
      receivables, gross
            
            
            15,551,342
            
            
            $
            13,123,374Allowance
      for doubtful debts
            
            
            (6,867,978
            )
            
            
            (3,786,459
            )Trade
      receivables, net
            
            
            8,683,364
            
            
            $
            9,336,915September
      30,
            
            
            December
      31,2009
            
            
            2008Other  receivables,
      gross
            
            
            678,528
            
            
            $
            504,349Allowance
      for doubtful debts
            
            
            -
            
            
            
            -Other  receivables,
      net
            
            
            678,528
            
            
            $
            504,349September
      30,
            
            
            December
      31,2009
            
            
            2008Prepaid
      and deposits, gross
            
            
            2,540,267
            
            
            $
            918,209Allowance
      for doubtful debts
            
            
            
            
            
            
            -Prepaid
      and deposits, net
            
            
            2,540,267
            
            
            $
            918,209





F-16





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





NINE
      MONTHS ENDED
              SEPTEMBER
      30,2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)Balance
      at beginning of period
            
            $
            (3,786,459
            )
            
            $
            (943,647
            )Provision
      during the period
            
            
            (3,080,334
            )
            
            
            (534,124
            )Foreign
      exchange difference
            
            
            (1,185
            )
            
            
            (74,297
            )Balance
      at end of period
            
            $
            (6,867,978
            )
            
            $
            (1,552,068
            )








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
September 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 September 30, 2009.





7. Inventories,
Net




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





September
      30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)Raw
      materials
            
            $
            899,885
            
            
            $
            874,180Packing
      materials
            
            
            161,938
            
            
            
            481,724Other
      materials / supplies
            
            
            83,510
            
            
            
            88,412Finished
      goods
            
            
            626,561
            
            
            
            754,838Work-in-process
            
            
            5,497,187
            
            
            
            5,086,780Total
      inventories at cost
            
            
            7,269,082
            
            
            
            7,285,934Less:
      Reserves on inventories
            
            
            (4,925,299
            )
            
            
            (4,941,372
            )Total
      inventories, net
            
            $
            2,343,783
            
            
            $
            2,344,562





F-17




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 $82,026, $39,786, $54,563, $6,507 and
$4,742,417 respectively as of September 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):





note7_chart logo





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.




F-18





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 September 30, 2009, the provision of reserve on work in process was
$4,742,417.





8. Property
and Equipment, Net




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




December
      31, 2008
            
            
            Addition
            
            
            Disposal
            
            
            Foreign
      Currency Translation Difference
            
            
            September
      30,
              2009(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Buildings
            
            $
            9,692,441
            
            
            
            -
            
            
            
            -
            
            
            
            3,261
            
            
            
            9,695,702Machinery
      and equipment
            
            
            16,769,328
            
            
            
            10,444
            
            
            
            -
            
            
            
            (890
            )
            
            
            16,778,882Office
      equipment
            
            
            40,728
            
            
            
            3,356
            
            
            
            -
            
            
            
            (3,779
            )
            
            
            40,305Motor
      Vehicles
            
            
            252,163
            
            
            
            -
            
            
            
            -
            
            
            
            (14
            )
            
            
            252,149Cost
            
            
            26,754,660
            
            
            
            13,800
            
            
            
            -
            
            
            
            (1,421
            )
            
            
            26,767,039Less:
      Accumulated DepreciationBuildings
            
            $
            (1,559,511
            )
            
            
            (341,070
            )
            
            
            -
            
            
            
            (367
            )
            
            
            (1,900,948
            )Machinery
      and equipment
            
            
            (4,160,667
            )
            
            
            (1,221,246
            )
            
            
            -
            
            
            
            (480
            )
            
            
            (5,382,393
            )Office
      equipment
            
            
            (30,839
            )
            
            
            (17,970
            )
            
            
            -
            
            
            
            (9
            )
            
            
            (48,818
            )Motor
      Vehicles
            
            
            (89,863
            )
            
            
            (29,028
            )
            
            
            -
            
            
            
            (14
            )
            
            
            (118,905
            )Accumulated
      Depreciation
            
            
            (5,840,880
            )
            
            
            (1,609,314
            )
            
            
            -
            
            
            
            (870
            )
            
            
            (7,451,064
            )Construction
      in progress
            
            $
            8,143,445
            
            
            
            441,765
            
            
            
            77
            
            
            
            (78
            )
            
            
            8,585,055Total
      property and equipment, net
            
            $
            29,057,225
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,901,030




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 September 30, 2009, the net book value of pledged
property and equipment was approximately Rmb123.40 million (or $18.1 million) in
total.




The
depreciation expense for the nine months ended September 30, 2009 was calculated
as follows:





Original
      CostDecember
      31,
            
            
            September
      30
            
            
            
            
            
            
            
            
            
            
            
            Depreciation
            
            
            Deprecation2008
            
            
            2009
            
            
            Average
            
            
            Salvage
            
            
            Estimate
            
            
            Calculated
            
            
            Reported
            
            
            Difference(Unaduited)
            
            
            (Unaduited)
            
            
            Value
            
            
            Useful
      Lives
            
            
            (Unaduited)
            
            
            (Unaduited)
            
            
            (Unaduited)Building
            
            $
            9,692,441
            
            
            
            9,695,702
            
            
            
            9,694,071
            
            
            
            5
            %
            
            
            20
            
            
            
            345,351
            
            
            
            341,070
            
            
            
            4,281Property
      and equipment
            
            
            16,769,328
            
            
            
            16,778,882
            
            
            
            16,774,105
            
            
            
            5
            %
            
            
            11
            
            
            
            1,138,243
            
            
            
            1,221,246
            
            
            
            (83,003
            )Office
      equipment
            
            
            40,728
            
            
            
            40,305
            
            
            
            40,517
            
            
            
            5
            %
            
            
            5
            
            
            
            5,774
            
            
            
            17,970
            
            
            
            (12,196
            )Motor
      vehicle
            
            
            252,163
            
            
            
            252,149
            
            
            
            252,156
            
            
            
            5
            %
            
            
            5
            
            
            
            35,932
            
            
            
            29,028
            
            
            
            6,904Total
      property and equipments
            
            $
            26,754,660
            
            
            
            26,767,039
            
            
            
            26,760,849
            
            
            
            
            
            
            
            
            
            
            
            1,525,300
            
            
            
            1,609,314
            
            
            
            (84,014
            )





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




F-19





The
estimated useful lives for buildings and property and equipments vary from 20 to
30 years and 10 to 15 years, respectively. For the nine months ended September
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 $1,609,314 and $490,915 for the nine months and three
months ended September 30, 2009, respectively, and is broken down as
follows:





NINE
      MONTHS ENDED
              SEPTEMBER
      30,
            
            
            THREE
      MONTHS ENDED
              SEPTEMBER
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Cost
      of sales
            
            $
            901,692
            
            
            $
            1,041,124
            
            
            $
            300,598
            
            
            $
            381,947Operating
      expenses
            
            
            707,622
            
            
            
            373,639
            
            
            
            328,327
            
            
            
            130,144Balance
      at end of period
            
            $
            1,609,314
            
            
            $
            1,414,763
            
            
            $
            628,925
            
            
            $
            512,091




9. Intangible
Assets, Net




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




December
      31,
              2008
            
            
            Addition
            
            
            Foreign
      Currency Translation Difference
            
            
            September
      30,
              2009(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Land-use
      rights
            
            $
            3,117,135
            
            
            
            -
            
            
            
            (157
            )
            
            $
            3,116,978Drugs
      permits and licenses
            
            
            2,780,254
            
            
            
            -
            
            
            
            (140
            )
            
            
            2,780,114Technology
      formulas
            
            
            1,012,129
            
            
            
            -
            
            
            
            (43
            )
            
            
            1,012,086Patent
            
            
            1,803,829
            
            
            
            -
            
            
            
            (77
            )
            
            
            1,803,752Cost
            
            
            8,713,347
            
            
            
            -
            
            
            
            (417
            )
            
            
            8,712,930Land-use
      rights
            
            $
            (279,127
            )
            
            
            (46,556
            )
            
            
            (20
            )
            
            $
            (325,703
            )Drugs
      permits and licenses
            
            
            (1,664,541
            )
            
            
            (206,261
            )
            
            
            (72
            )
            
            
            (1,870,874
            )Technology
      formulas
            
            
            (254,681
            )
            
            
            (75,860
            )
            
            
            (38
            )
            
            
            (330,579
            )Patent
            
            
            (511,896
            )
            
            
            (219,242
            )
            
            
            (111
            )
            
            
            (731,249
            )Accumulated
      amortization
            
            
            (2,710,245
            )
            
            
            (547,919
            )
            
            
            (241
            )
            
            
            (3,258,405
            )Total
      intangible assets, net
            
            $
            6,003,102
            
            
            
            (547,919
            )
            
            
            (658
            )
            
            $
            5,454,525




The
amortization expense for the nine months ended September 30, 2009 was calculated
as follows:




Original
      CostDecember
      31,
            
            
            September
      30
            
            
            
            
            
            
            
            
            Amortization
            
            
            Amortization2008
            
            
            2009
            
            
            Average
            
            
            Estimated
            
            
            Calculated
            
            
            Reported
            
            
            Difference(Unaudited)
            
            
            (Unaudited)
            
            
            Useful
      lives
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Land-use
      rights
            
            $
            3,117,136
            
            
            
            3,116,978
            
            
            
            3,117,057
            
            
            
            40
            
            
            $
            58,445
            
            
            
            46,556
            
            
            
            11,889Drugs
      permits and licenses
            
            
            2,780,254
            
            
            
            2,780,114
            
            
            
            2,780,184
            
            
            
            10
            
            
            
            208,514
            
            
            
            206,261
            
            
            
            2,253Technology
      formulas
            
            
            1,012,129
            
            
            
            1,012,086
            
            
            
            1,012,108
            
            
            
            10
            
            
            
            75,908
            
            
            
            75,860
            
            
            
            48Patent
            
            
            1,803,829
            
            
            
            1,803,752
            
            
            
            1,803,791
            
            
            
            6
            
            
            
            225,474
            
            
            
            219,242
            
            
            
            6,232Total
      Intangible assets
            
            $
            8,713,348
            
            
            
            8,712,930
            
            
            
            8,713,139
            
            
            
            
            
            
            $
            568,341
            
            
            
            547,919
            
            
            
            20,422




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




F-20




The total
amortization expense for the nine months and the three months ended September
30, 2009, and 2008 are broken down as follows:
  NINE
      MONTHS ENDED
                  SEPTEMBER
      30,
                
                
                THREE MONTHS
      ENDED
                  SEPTEMBER
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                
                
                (Unaudited)Cost
      of sales
                
                $
                428,801
                
                
                $
                418,425
                
                
                $
                142,976
                
                
                $
                142,758Operating
      expenses
                
                
                119,118
                
                
                
                148,591
                
                
                
                39,718
                
                
                
                50,643Balance
      at end of period
                
                $
                547,919
                
                
                $
                567,016
                
                
                $
                182,694
                
                
                $
                193,401
  10. Goodwill
and Acquisition Cost Payable
  ASC 805,
Business Combinations,
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. ASC 350, Intangibles –
Goodwill and Others, 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. ASC 350 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
September 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 $3.4 million as of September 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.
 
 As of
September 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.
  F-21
 
 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
September 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 September 30, 2009 and December 31, 2008 was
comprised as follows:
  September
      30,
                
                
                December
      31,2009
                
                
                2008(Unaudited)Deposits
      for issuance of commercial notes
                
                $
                4,544,447
                
                
                $
                4,859,346Funds
      from government technolgy agencies
                
                
                1,303,447
                
                
                
                1,303,503Total
      restricted cash
                
                $
                5,847,894
                
                
                $
                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.
  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
September 30, 2009, Benda Ebei and Jiangling Benda deposited an amount $
4,544,447 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 September 30, 2009, the balance of the commercial bank
notes payable was $9,075,536. Thus the net
commercial bank notes payable was $4,531,089 as of September 30,
2009.
  F-22
  B)
              The
      bank indebtedness was resulted from the acquisition of SiBiono with the
      effective date April 1, 2007. The reasons for causing bank indebtedness
      were stated as follows:
  a)
              Among
      the cash and cash equivalents balances of SiBiono were composed of two
      parts; (i) unrestricted cash, which were generated from either operations,
      or loans from bank and financial institutions, or invested capital; (ii)
      restricted cash, which were obtained from the various government
      technology agencies as long term debt payable (see note 14 for the related
      details).
  b)
              The
      cash obtained from the various government technology agencies as long term
      debt payable could only be dedicated to the related project’s research and
      development activities and purchase of fixed assets and construction in
      progress, therefore the cash balances for that part will be classified as
      restricted cash.
  c)
              Due
      to the above reasons, SiBiono relocated the balances of restricted cash
      from the cash and cash equivalents balances for the reporting
      periods.
  d)
              However,
      since the balance of the restricted cash was larger than the balance of
      cash and cash equivalents balances, thus bank indebtedness were resulted
      for the reporting periods.
  Due to
the above reasons, SiBiono relocated the balances of restricted cash from the
cash and cash equivalents balances with an amount $1,303,447 as of September 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 $1,199,965 as of September 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.
 
 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.
  F-23
  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
September 30, 2009 and December 31, 2008, SiBiono, had one outstanding bank loan
with an amount of $2,984,433 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
nine months ended September 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 Rmb1,176,362, or
      total accrued interest as of September 30, 2009 was
      Rmb2,683,358;
 b.
              Should
      SiBiono did not make the full repayment; the lender bank can apply for
      selling the land use rights owned by SiBiono (as the collateral of the
      loan). Any balance after full repayment of the bank loan principal and
      accrued interest and penalty from the net proceeds will be returned to
      SiBiono;
 c.
              Zhaohui
      Peng should have liability to repay any insufficient amount should the net
      proceeds of selling the above land use rights are insufficient to
      repay the bank debts and then reclaimed from SiBiono;
 d.
              SiBiono
      and Zhaohui Peng have the obligation to repay the legal fees for this
      lawsuit of Rmb156,068 immediately.
 
 As of
November 15, 2009, the Group is still under the negotiation with the bank on
arranging the settlement of the bank loan. Furthermore, as of November 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 $157,482
and $140,547 for the nine months ended September 30, 2009 and 2008,
respectively.
  F-24
  14. Long
Term Debt Payable
  As of
September 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 nine months ended September 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 September 30, 2009
and December 31, 2008 were comprised as follows:
  September
      30,
                
                
                December
      31,2009
                
                
                2008(Unaudited)Trade
      payable
                
                
                2,402,254
                
                
                $
                605,316Deposits
      paid by customer
                
                
                218,453
                
                
                
                1,055Acquisition
      cost payable following the arbitration (Note 12)
                
                
                1,876,873
                
                
                
                1,876,953Accrued
      liabilities
                
                
                4,908,004
                
                
                
                3,999,155Miscellaneous
      payables
                
                
                351,646
                
                
                
                745,921Total
      account payables and accrued liabilities
                
                
                9,757,230
                
                
                $
                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 September 30, 2009 and December 31, 2008,
the Group accrued approximately $387,360 and $486,000 for the employees’ welfare
respectively.
 
 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
September 30, 2009 and December 31, 2008, the registered capital of the Group’s
PRC subsidiaries was $22,108,427.
  F-25
 
 18. Related
Party Transactions
  Due from
related parties at September 30, 2009 and December 31, 2008 were comprised as
follows:
  September
      30,2009
                
                
                December
      31,Relationship
                
                (Unaudited)
                
                
                2008CurrentQin
      Yu
                
                Vice
      presidentDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                
                
                
                
                1,736
                
                
                $
                4,314Xiaoji
      Zhang
                
                Minority
      shareholderDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                
                
                
                
                5,438
                
                
                
                5,439Hsieh,
      Chang
                
                Supervisor,
      VP, HR & Admin.Due
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                
                
                
                
                5
                
                
                
                -Rong
      He
                
                ManagerDue
      to Shenzhen SiBiono Gene Tech Co. Ltd.
                
                
                
                
                455
                
                
                
                1,247$
                7,634
                
                
                $
                11,000Non
      currentYiqing
      Wan
                
                CEO
      & DirectorDue
      to Ever Leader Holdings Co. Ltd.
                
                
                
                $
                650,760
                
                
                $
                650,791Due
      to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                
                
                
                
                491,767
                
                
                
                439,719Hubei
      Benda Science and Technology Co. Ltd
                
                Controlled
      by CEODue
      to Yidu Benda Chemicals Co. Ltd.
                
                
                
                
                1,607,105
                
                
                
                1,607,173Due
      to Ever Leader Holdings Co. Ltd.
                
                
                
                
                231,701
                
                
                
                231,713Feng
      Wang
                
                Minority
      shareholderDue
      to Beijing Shusai Pharyngitis Research Co. Ltd.
                
                
                
                
                32,345
                
                
                
                32,348Hua
      XuDue
      to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                
                
                
                
                49,475
                
                
                
                -$
                3,063,153
                
                
                $
                2,961,744
 Due to
related parties at September 30, 2009 and December 31, 2008 were comprised as
follows:
  September
      30,2009
                  
                  
                  December
      31,Current
                  
                  Relationship
                  
                  (Unaudited)
                  
                  
                  2008Wei
      Xu
                  
                  Vice
      President, CEO's Spouse & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                  
                  
                  
                  $
                  230,378
                  
                  
                  $
                  188,065Due
      from Everleader Holding Ltd.
                  
                  
                  
                  
                  
                  
                  
                  
                  967,999Hua
      Xu
                  
                  General
      Manager's SisterDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                  
                  
                  
                  
                  21,219
                  
                  
                  
                  25,523Yiqing,
      Wan
                  
                  CEO
      & DirectorDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                  
                  
                  
                  
                  211,426
                  
                  
                  
                  237,780Hua
      Shen
                  
                  Vice
      presidentDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                  
                  
                  
                  
                  -
                  
                  
                  
                  33,253Dongyi
      Tien
                  
                  ManagerDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                  
                  
                  
                  
                  -
                  
                  
                  
                  364Pong
      Tsaiohuei
                  
                  Minority
      shareholderDue
      from Shenzhen SiBiono Gene Tech Co. Ltd.
                  
                  
                  
                  
                  4,819
                  
                  
                  
                  4,818Total
      due to related parties
                  
                  
                  
                  $
                  467,842
                  
                  
                  $
                  1,457,803Non
      currentHubei
      Benda Science and Technology Co. Ltd
                  
                  Controlled
      by CEODue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                  
                  
                  
                  $
                  28,602
                  
                  
                  $
                  28,602Due
      from Jiangliang Benda Pharamaceutical Co. Ltd.
                  
                  
                  
                  
                  795,923
                  
                  
                  
                  811,073Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                  
                  
                  
                  
                  14,148
                  
                  
                  
                  14,262Wei
      XuDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                  
                  Vice
      President, CEO's Spouse & Director
                  
                  
                  27,183
                  
                  
                  
                  48,922Due
      from Beijing Shusai Pharyngitis Research Co. Ltd.
                  
                  
                  
                  
                  65,508
                  
                  
                  
                  65,691Yiqing,
      Wan
                  
                  CEO
      & DirectorDue
      from Yidu Benda Chemicals Co. Ltd.
                  
                  
                  
                  
                  560
                  
                  
                  
                  560Hui
      Xu
                  
                  ManagerDue
      from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.
                  
                  
                  
                  
                  28,483
                  
                  
                  
                  28,483$
                  960,406
                  
                  
                  $
                  997,593
  Except
for the loans from the shareholder Wei Xu by Everleader which bears interest
rate at 12% per annum, unsecure and matures within six months, the above
advances bear no interest and the above loans due to related parties are
unsecured, non-interest bearing and are not convertible into equity. Proceeds
from the above loans were used primarily for general working capital purposes,
among 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.
  F-26
  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.
 
 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 ASC 480, Distinguishing Liabilities from
Equity,, as the Agreements governing the issuance of the 2,189,560 shares
of common stock to Super Pioneer, Wang, and Zang contain provisions requiring
Benda to repurchase 2,049,560 of these shares at a redemption price of $3.60 per
share at the option of the holders (if certain events outside of control of the
Group do not occur), these 2,049,560 shares have been classified as redeemable
common stock, at their redemption price of $3.60 per share or totaling
$7,376,366, outside of permanent equity at December 31, 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. Therefore, the redeemable common stock was reclassified as
current liability as of September 30, 2009.
  F-27
 
 20. Other
Income (expenses)
 
 In
accordance with ASC 825, Financial Instruments,, the
Group recorded $1,113,405 in Registration Delay Expense, for the nine month
ended September 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 nine months ended September 30, 2009.
 
 21. Other
General and Administrative Expenses
 
 For the
nine months and three months ended September 30, 2009 and 2008, the amount of
other general and administrative expenses mainly composed of the following
events:
  NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE MONTHS
      ENDED SEPTEMBER 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                
                
                
                (Unaudited)Audit
      and accounting
                
                $
                102,013
                
                
                $
                232,509
                
                
                $
                32,330
                
                
                $
                30,680Legal
      fees
                
                
                194,084
                
                
                
                166,800
                
                
                
                56,860
                
                
                
                52,096Office
      expenses
                
                
                174,122
                
                
                
                451,979
                
                
                
                109,735
                
                
                
                159,449Salaries
      and wages
                
                
                646,570
                
                
                
                712,810
                
                
                
                207,431
                
                
                
                197,817Consulting
      fee
                
                
                320,421
                
                
                
                637,409
                
                
                
                245,619
                
                
                
                202,636Rent
      & Utilities
                
                
                38,036
                
                
                
                75,848
                
                
                
                35,343
                
                
                
                20,018Investor
      relation, Transfer agent and filing fees
                
                
                2,720
                
                
                
                30,843
                
                
                
                -
                
                
                
                2,720Travel
      and transportation
                
                
                149,228
                
                
                
                185,379
                
                
                
                102,071
                
                
                
                25,045Repair
      and maintanence
                
                
                21,131
                
                
                
                136,890
                
                
                
                9,774
                
                
                
                17,791Miscellaneous
                
                
                237,669
                
                
                
                133,789
                
                
                
                98,901
                
                
                
                35,730Total
      other general & administrative
                
                $
                1,885,994
                
                
                $
                2,764,256
                
                
                $
                898,062
                
                
                $
                743,982
  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 nine months ended September 30, 2009, there were
no long term debt payable discharged and government subsidies / grants
recognized as revenue
 
 Besides,
during the nine months ended September 30, 2009, there was Rmb180,000 or $26,386
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 nine months ended September 30, 2009 and 2008 as Benda
did not have reportable taxable income for the period.
  F-28
 
 Ever
Leader, a wholly owned subsidiary of Benda, is subject to Hong Kong tax, but no
provisions for income taxes were made for the nine months ended September 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.
 
 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 $163,803 income tax for the nine months ended September 30, 2009.
The prepaid income tax by the Group as of September 30, 2009 at amount of $1.66
million was recorded as taxes recoverable.
  F-29
 
 The
provision for taxes on earnings consisted of:
 
 NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE
      MONTHS ENDED SEPTEMBER 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                
                
                
                (Unaudited)Crurrent  income
      taxes expenses:PRC
      Enterprise Income
                
                $
                163,803
                
                
                $
                907,176
                
                
                $
                79,391
                
                
                $
                382,368United
      States Federal Income Tax
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                163,803
                
                
                $
                907,176
                
                
                $
                79,391
                
                
                $
                382,368
  A
reconciliation between the income tax computed at the U.S statutory rate and the
Groups provision for Income tax for the nine month ended September 30, 2009 and
2008 are as follows:
  NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE
      MONTHS ENDED SEPTEMBER 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 ASC 470, Debt) and the debt discount resulting from the
beneficial conversion feature / conversion discount associated with the
convertible promissory notes (calculated in accordance with ASC 470) as
follows:
 
 In March
and April of 2007, the Group entered into Investment Agreements (“Agreements”)
with certain accredited and institutional investors (“Investors”) pursuant to
which the Investors purchased from the Group a total of 252 Units (“Units”),
resulting in aggregate gross proceeds to the Group $7,560,000, with each Unit
consisting of: (i) a Convertible Promissory Note (“Note”) in the principal
amount of $30,000 and convertible into 54,087 shares of the Group's common
stock; and (ii) a Common Stock Warrant (“Warrant”) to acquire 54,087 shares
of the Group’s common stock at an exercise price of $0.555 per share and
expiring on November 14, 2011. The Notes are immediately convertible at the
option of each Investor, bear interest at a rate of 4% per annum and mature on
March 28, 2009.
 
 The Group
has accounted for the Warrants issued in conjunction with the Notes in
accordance with the provisions of ASC 470, Debt. 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.
  F-30
 
 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 ASC 470.
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
September 30, 2009, the aggregate $7,260,000 principal balance of the notes
remained outstanding and for the nine months ended September 30, 2009, the Group
recorded $ 816,750 of interest expense related to the Notes.
 
 During
the nine months ended September 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
nine months ended September 30, 2009, the Group recorded $55,485 in amortization
expense related to debt issue costs.
 
 The
securities underlying the Notes and Warrants issued to the Investors are also
subject to the terms of a Make Good Agreement entered into in connection with a
financing the Group executed in November of 2006 (the “Make Good Agreement”).
The Group further represented to the Investors that its target net income for
fiscal year 2007 (“FY07 Net Income”) will be greater than or equal to $10.0
million (adjusted for a variety of non-cash charges) (the “Performance
Threshold”).  In the event the Performance Threshold is not attained,
the Group is required to issue to the Investors a pro rata portion of 1,000,000
shares of the Group’s common stock for every one (1) cent by which the Group’s
earnings per share, determined on a fully diluted basis, is less than $0.065.
During the year ended December 31, 2008 the Group issued shares 3,810,976 shares
of common stock in lieu of the non-achievement of the Performance Threshold at
$0.07 per share, totaling to $266,768 and none for the nine months ended
September 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
ASC 470.
 
 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.
  F-31
 
 The
calculated fair value of the warrants (issued in conjunction with the
convertible promissory notes) was recorded as a debt discount (reduction to the
carrying value of the convertible promissory notes) with a corresponding
increase (credit) to additional paid in capital.
 
 In
accordance with the registration rights granted to investors who purchased the
convertible promissory notes and warrants, we are required to file a
registration statement with the Securities and Exchange Commission
(“Registration Statement”) attempting to register the potentially issuable
shares of common stock underlying the convertible promissory
notes  and warrants. There is no cash settlement requirement, in the
event the Company cannot deliver Registered Shares.
 
 Specifically,
in the event the Registration Statement is not declared effective by August 15,
2007 (“Effectiveness Deadline”), we are required to pay to the investors in cash
an amount equal to 1% of the purchase price paid by each investor for the
convertible promissory notes and warrants (“Registration Delay
Payments”).  Additionally, for every 30 day period (or part)
thereafter that the Registration Statement is not declared effective, we are
required to continue to make Registration Delay Payments, provided that such
Registration Delay Payments shall not exceed 10% of the purchase price paid by
each investor for the convertible promissory notes and warrants.
 
 In the
event the Registration Statement is never declared effective, the Registration
Delay Payments are capped at 10% (of the purchase price paid by each investor
for the convertible promissory notes and warrants).  As a result, the
initial requirement for the Company to deliver registered shares upon conversion
of the convertible promissory notes or exercise of the warrants is negated and
paragraphs 14 – 18 of EITF 00-19 are not applicable (for purposes of classifying
the fair value of the warrants issued in conjunction with the convertible
promissory notes as a liability with changes in fair value recorded in
earnings).
 
 25. Common
Stock, Preferred Stock, Additional Paid-in Capital, Warrants and
Options
  As of
September 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
      September 30, 2009 and December 31, 2008
  respectively.
  F-32
  (c)
              The
      following tables shows the events occurred in additional paid-in
      capital:
  Eventsoccurredduring
      thereporting
                
                
                Septebmer
      30,December
      31,
                
                
                period
                
                
                2009Events
                
                2008
                
                
                (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
      shellcompany
      "Applied Spectrum Technologies, Inc." on 11/15/2006
                
                
                16,215,770
                
                
                
                -
                
                
                
                16,215,770To
      eliminate the accumulated deficit of the former shell
    company"Applied
      Spectrum Technologies, Inc." on 11/15/2006
                
                
                (16,209,962
                )
                
                
                -
                
                
                
                (16,209,962
                )Issuance
      of common stock, 25,961,760 shares at $0.4622 per share, on
      11/15/2006
                
                
                11,974,038
                
                
                
                -
                
                
                
                11,974,038Issuance
      of common stock, 64,942,369 shares at $0.001 per share on
      11/15/2006
                
                
                (64,942
                )
                
                
                -
                
                
                
                (64,942
                )To
      relocate the original common stock of Ever Leader on
      11/15/2006
                
                
                1,285
                
                
                
                -
                
                
                
                1,285To
      record the placement agent commission and transaction related
      feeof
      reverse merger on 11/15/2006
                
                
                (1,694,326
                )
                
                
                -
                
                
                
                (1,694,326
                )Issuance
      of common stock 706,195 at $0.4622 per share
                
                
                325,697
                
                
                
                -
                
                
                
                325,697Debt
      discount on beneficial conversion feature on convertible promissory
      notes
                
                
                2,385,089
                
                
                
                -
                
                
                
                2,385,089Debt
      discount on warrants issued with convertible promissory
    notes
                
                
                5,174,911
                
                
                
                -
                
                
                
                5,174,911Placement
      agent exercised 849,007 warrants at strike price through cashless
      arrangement
                
                
                470,347
                
                
                
                -
                
                
                
                470,347Issuance
      of common stock to PIPE investors as penalty for late submission of
      10KSB
                
                
                92,461
                
                
                
                -
                
                
                
                92,461Issuance
      of common stock to directors in lieu of their remuneration
                
                
                75,790
                
                
                
                -
                
                
                
                75,790Issuance
      of common stock to PIPE investors as penalty for registeration delay
      expenses
                
                
                229,789
                
                
                
                -
                
                
                
                229,789Conversion
      of convertible promissory notes
                
                
                (8,039
                )
                
                
                -
                
                
                
                (8,039
                )Issuance
      of common stock to investors under "Make Good Agreement"
                
                
                262,957
                
                
                
                -
                
                
                
                262,957Additional
      paid-in capital, balance for the period ended
                
                $
                22,108,427
                
                
                $
                -
                
                
                $
                22,108,427
  (d)
              As
      of September 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-33
  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:
  NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE MONTHS
      ENDED SEPTEMBER 30,20082009
                
                
                2008
                
                
                2009
                
                
                Restated(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Numerator:Net
      income (loss)
                
                $
                (2,688,652
                )
                
                $
                (4,664,501
                )
                
                $
                (372,397
                )
                
                $
                (841,923
                )Denominator:Basic
      weighted-average shares outstanding
                
                
                105,155,355
                
                
                
                100,887,853
                
                
                
                105,155,355
                
                
                
                101,556,376Effect
      of dilutive stock options & warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Diluted
      weighted-average shares outstanding
                
                
                105,155,355
                
                
                
                100,887,853
                
                
                
                105,155,355
                
                
                
                100,803,509Net
      income (loss) per share:Basic
                
                $
                (0.03
                )
                
                $
                (0.05
                )
                
                $
                (0.00
                )
                
                $
                (0.01
                )Diluted
                
                $
                (0.03
                )
                
                $
                (0.05
                )
                
                $
                (0.00
                )
                
                $
                (0.01
                )
 27. Commitments
and Contingencies
  As of
September 30, 2009, there was an operating lease commitment and the amounts are
stated as follows;
  September
      302009(Unaudited)Rental
      and Property Management FeeWithin
      one year
                  
                  $
                  50,764One
      to two year
                  
                  
                  35,203Two
      to three year
                  
                  
                  35,203Over
      three years
                  
                  
                  52,805Total
      commitments payable
                  
                  $
                  173,975
 
 28. Segment
Information
 The Group
states the segment information according to the requirement stated in ASC 280,
Segment Reporting. 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
ASC 280, the Group reports the segment information according to the un-identical
products that produced in each subsidiary.
  F-34
 
 Selected
financial information for each of these segments for the nine months and three
months ended September 30, 2009 and 2008 were as follows:
  NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE
      MONTHS ENDED SEPTEMBER 30,(Unaudited)
                
                
                
                
                
                (Unaudited)Branded/Generic
      medicine segment
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
      from external customers
                
                $
                13,617,252
                
                
                
                17,439,205
                
                
                $
                4,887,566
                
                
                $
                5,973,012Cost
      of sales
                
                
                (8,600,569
                )
                
                
                (11,479,479
                )
                
                
                (3,051,518
                )
                
                
                (3,831,922
                )Gross
      profit
                
                
                5,016,683
                
                
                
                5,959,726
                
                
                
                1,836,047
                
                
                
                2,141,090Gross
      margin
                
                
                37
                %
                
                
                34
                %
                
                
                38
                %
                
                
                36
                %Research
      and development
                
                
                -
                
                
                
                -
                
                
                
                2,301
                
                
                
                -Selling
      expense
                
                
                (942,604
                )
                
                
                (1,093,119
                )
                
                
                (529,292
                )
                
                
                (319,636
                )General
      and administrative expense
                
                
                (2,848,745
                )
                
                
                (516,513
                )
                
                
                (762,307
                )
                
                
                (29,908
                )Segment
      contribution
                
                $
                1,225,334
                
                
                
                4,350,094
                
                
                $
                546,750
                
                
                $
                1,791,546Contribution
      margin
                
                
                9
                %
                
                
                25
                %
                
                
                11
                %
                
                
                30
                %Total
      assets, segment
                
                $
                30,252,879
                
                
                
                39,164,262
                
                
                $
                39,164,262
                
                
                $
                38,243,467
  Active
      pharmaceutical ingredients segment
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
      from external customers
                
                $
                817,137
                
                
                
                609,139
                
                
                $
                27,075
                
                
                $
                28,807Cost
      of sales
                
                
                (901,431
                )
                
                
                (669,313
                )
                
                
                66,164
                
                
                
                (30,784
                )Gross
      profit
                
                
                (84,294
                )
                
                
                (60,174
                )
                
                
                93,238
                
                
                
                (1,977
                )Gross
      margin
                
                
                -10
                %
                
                
                -10
                %
                
                
                344
                %
                
                
                -7
                %Research
      and development
                
                
                (143
                )
                
                
                -
                
                
                
                (70
                )
                
                
                -Selling
      expense
                
                
                (16,576
                )
                
                
                (3,716
                )
                
                
                (1,851
                )
                
                
                -3,359General
      and administrative expense
                
                
                (526,094
                )
                
                
                (1,154,333
                )
                
                
                (205,085
                )
                
                
                (127,767
                )Segment
      contribution
                
                $
                (627,107
                )
                
                
                (1,218,223
                )
                
                $
                (113,768
                )
                
                $
                (133,103
                )Contribution
      margin
                
                
                -77
                %
                
                
                -200
                %
                
                
                -420
                %
                
                
                -462
                %Total
      assets, segment
                
                $
                9,654,558
                
                
                
                8,545,875
                
                
                $
                8,545,875
                
                
                $
                8,436,445
  Bulk
      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
                
                
                (469,567
                )
                
                
                (438,355
                )
                
                
                (249,393
                )
                
                
                (132,387
                )Segment
      contribution
                
                $
                (469,567
                )
                
                
                (438,355
                )
                
                $
                (249,393
                )
                
                $
                (132,387
                )Contribution
      margin
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      assets, segment
                
                $
                6,990,800
                
                
                
                7,553,516
                
                
                $
                7,553,516
                
                
                $
                7,694,510
  Pharynigitis
      killer therapy segment
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
      from external customers
                
                $
                -
                
                
                
                3,106
                
                
                $
                -
                
                
                $
                978Cost
      of sales
                
                
                -
                
                
                
                (3,397
                )
                
                
                -
                
                
                
                (3,280
                )Gross
      profit
                
                
                -
                
                
                
                (291
                )
                
                
                -
                
                
                
                (2,302
                )Gross
      margin
                
                
                -
                
                
                
                (0
                )
                
                
                -
                
                
                
                -235
                %Research
      and development
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Selling
      expense
                
                
                (733
                )
                
                
                (4,346
                )
                
                
                (733
                )
                
                
                (1,692
                )General
      and administrative expense
                
                
                (19,609
                )
                
                
                (24,548
                )
                
                
                (5,134
                )
                
                
                (4,321
                )Segment
      contribution
                
                $
                (20,342
                )
                
                
                (29,185
                )
                
                $
                (5,867
                )
                
                $
                (8,315
                )Contribution
      margin
                
                
                -
                
                
                
                (9
                )
                
                
                -
                
                
                
                -850
                %Total
      assets, segment
                
                $
                76,653
                
                
                
                99,744
                
                
                $
                99,744
                
                
                $
                108,332
  Gendicine
      (Ad-p53) segment
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
      from external customers
                
                $
                2,910,676
                
                
                
                1,808,607
                
                
                $
                990,013
                
                
                $
                631,637Cost
      of sales
                
                
                (268,370
                )
                
                
                (458,205
                )
                
                
                (85,937
                )
                
                
                (347,554
                )Gross
      profit
                
                
                2,642,306
                
                
                
                1,350,402
                
                
                
                904,076
                
                
                
                284,083Gross
      margin
                
                
                91
                %
                
                
                75
                %
                
                
                91
                %
                
                
                45
                %Research
      and development
                
                
                (283,330
                )
                
                
                (249,357
                )
                
                
                (167,621
                )
                
                
                (79,576
                )Selling
      expense
                
                
                (908,569
                )
                
                
                (1,021,508
                )
                
                
                (320,240
                )
                
                
                (366,790
                )General
      and administrative expense
                
                
                (1,582,201
                )
                
                
                (518,651
                )
                
                
                (216,189
                )
                
                
                (33,311
                )Segment
      contribution
                
                $
                (131,794
                )
                
                
                (439,114
                )
                
                $
                200,026
                
                
                $
                (195,594
                )Contribution
      margin
                
                
                -5
                %
                
                
                -24
                %
                
                
                20
                %
                
                
                -31
                %Total
      assets, segment
                
                $
                12,169,195
                
                
                
                13,808,709
                
                
                $
                13,808,709
                
                
                $
                14,048,551
  NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE
      MONTHS ENDED SEPTEMBER 30,2009
                
                
                
                
                
                2009
                
                
                2008(Unaudited)
                
                
                
                
                
                (Unaudited)
                
                
                (Unaudited)Total
      revenue from external customers
                
                $
                17,345,065
                
                
                
                19,860,057
                
                
                $
                5,904,653
                
                
                $
                6,634,434Cost
      of sales
                
                
                (9,770,370
                )
                
                
                (12,610,394
                )
                
                
                (3,071,291
                )
                
                
                (4,213,540
                )Gross
      profit
                
                
                7,574,695
                
                
                
                7,249,663
                
                
                
                2,833,362
                
                
                
                2,420,894Gross
      margin
                
                
                44
                %
                
                
                37
                %
                
                
                48
                %
                
                
                36
                %Research
      and development
                
                
                (283,473
                )
                
                
                (249,357
                )
                
                
                (165,390
                )
                
                
                (79,576
                )Selling
      expense
                
                
                (1,868,482
                )
                
                
                (2,122,689
                )
                
                
                (852,116
                )
                
                
                (691,477
                )General
      and administrative expense
                
                
                (5,446,216
                )
                
                
                (2,652,400
                )
                
                
                (1,438,108
                )
                
                
                (327,694
                )Segment
      contribution
                
                $
                (23,476
                )
                
                
                2,225,217
                
                
                $
                377,748
                
                
                $
                1,322,147Contribution
      margin
                
                
                0
                %
                
                
                11
                %
                
                
                6
                %
                
                
                20
                %Total
      assets, segment
                
                $
                59,144,085
                
                
                
                69,172,106
                
                
                $
                69,172,106
                
                
                $
                68,531,305
  F-35
 
 The
results of the total consolidated net profit before income taxes for the
reporting periods are as follows:
  NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE
      MONTHS ENDED SEPTEMBER 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Total
      segment contribution
                
                $
                (23,476
                )
                
                
                2,225,217
                
                
                $
                377,748
                
                
                $
                1,322,147Unallocated
      amounts:Interest
      income/(expenses)
                
                
                (2,104,510
                )
                
                
                
                
                
                
                (471,263
                )
                
                
                -Government
      subsidy
                
                
                26,386
                
                
                
                
                
                
                
                -
                
                
                
                (237,918
                )Other
      income/(expenses)
                
                
                106,161
                
                
                
                10,140
                
                
                
                60,388
                
                
                
                -Other
      corporate expenses
                
                
                (666,465
                )
                
                
                (6,249,168
                )
                
                
                (194,360
                )
                
                
                (1,712,054
                )Total
      income / (loss) before noncontrolling interest and income
      taxes
                
                $
                (2,661,904
                )
                
                
                (4,013,811
                )
                
                $
                (227,487
                )
                
                $
                (627,825
                )
  The other
corporate expenses for the nine months and three months ended September 30, 2009
and 2008 composed of the following events:
  NINE
      MONTHS ENDED SEPTEMBER 30,
                
                
                THREE
      MONTHS ENDED SEPTEMBER 30,2009
                
                
                
                
                
                2009
                
                
                2008(Unaudited)
                
                
                
                
                
                (Unaudited)
                
                
                (Unaudited)Penalty
      to investor
                
                $
                -
                
                
                
                1,380,173
                
                
                $
                -
                
                
                $
                266,768Wages
      and salaries
                
                
                283,817
                
                
                
                295,421
                
                
                
                88,801
                
                
                
                102,746Audit
      and accounting
                
                
                74,995
                
                
                
                130,735
                
                
                
                24,998
                
                
                
                24,672Amortization
      of debt issue cost
                
                
                55,485
                
                
                
                198,360
                
                
                
                -
                
                
                
                66,603Consulting
      fee
                
                
                9,336
                
                
                
                560,040
                
                
                
                3,120
                
                
                
                188,080Investor
      relation, transfer agent and filing fees
                
                
                2,720
                
                
                
                30,843
                
                
                
                -
                
                
                
                2,720Director
      renumeration
                
                
                67,500
                
                
                
                162,968
                
                
                
                22,500
                
                
                
                22,500Legal
      fee
                
                
                158,134
                
                
                
                107,315
                
                
                
                53,567
                
                
                
                30,640Travel
      and transportation
                
                
                2,446
                
                
                
                4,844
                
                
                
                303
                
                
                
                -Office
      expense
                
                
                -
                
                
                
                1,120
                
                
                
                -
                
                
                
                -Interest
      expense
                
                
                -
                
                
                
                3,339,457
                
                
                
                -
                
                
                
                998,877Miscellaneous
                
                
                12,029
                
                
                
                37,892
                
                
                
                1,070
                
                
                
                8,448Total
                
                $
                666,465
                
                
                
                6,249,168
                
                
                $
                194,360
                
                
                $
                1,712,054
 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 September 30, 2009 and 2008:
  F-36


September
      30,
            
            
            September
      30,2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)Total
      assets, segment
            
            $
            59,144,085
            
            
            
            69,172,106Total
      assets of corporate:Cash
      and cash equivalent
            
            
            12,168
            
            
            
            39,615Bank
      indebtedness
            
            
            1,199,965
            
            
            
            1,259,525Prepaid
      expesnes and deposit
            
            
            -
            
            
            
            5,672Refundable
      purchase price paid
            
            
            1,200,000
            
            
            
            1,200,000Due
      from related parties
            
            
            882,461
            
            
            
            670,541Debit
      issue costs:placement
      agent commission
            
            
            -
            
            
            
            129,585Total
      assets
            
            $
            62,438,679
            
            
            
            72,477,044




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




Nine
      Months Ended September 30, 2009 (Unaudited)Benda
            
            
            Jiangling
            
            
            Yidu
            
            
            BeijingEbei
            
            
            Benda
            
            
            Benda
            
            
            Shusai
            
            
            SiBiono
            
            
            TotalSegment
      operating profit / (loss)
            
            $
            1,225,334
            
            
            
            (627,107
            )
            
            
            (469,567
            )
            
            
            (20,342
            )
            
            
            (131,794
            )
            
            $
            (23,476
            )Interest
      income/ (expenses)
            
            
            (186,293
            )
            
            
            (253
            )
            
            
            4
            
            
            
            -
            
            
            
            (150,390
            )
            
            
            (336,932
            )Other
      income / (expenses)
            
            
            (15,329
            )
            
            
            (175
            )
            
            
            2,968
            
            
            
            -
            
            
            
            118,697
            
            
            
            106,161Government
      subsidy
            
            
            -
            
            
            
            26,386
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            26,386Income
      taxes
            
            
            (163,803
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (163,803
            )Income
      / (loss) before minority interest
            
            $
            859,909
            
            
            
            (601,149
            )
            
            
            (466,595
            )
            
            
            (20,342
            )
            
            
            (163,487
            )
            
            $
            (391,664
            )Noncontrolling
      interest percentage
            
            
            5.00
            %
            
            
            9.75
            %
            
            
            9.75
            %
            
            
            28.75
            %
            
            
            42.88
            %Noncontrolling
      interest
            
            $
            42,995
            
            
            
            (58,612
            )
            
            
            (45,493
            )
            
            
            (5,848
            )
            
            
            (70,097
            )
            
            $
            (137,055
            )







Nine
      Months Ended September 30, 2008 (Unaudited)Benda
            
            
            Jiangling
            
            
            Yidu
            
            
            BeijingEbei
            
            
            Benda
            
            
            Benda
            
            
            Shusai
            
            
            SiBiono
            
            
            TotalSegment
      operating profit / (loss)
            
            $
            4,350,094
            
            
            
            (1,218,223
            )
            
            
            (438,355
            )
            
            
            (29,185
            )
            
            
            (439,114
            )
            
            $
            2,225,217Interest
      income/ (expenses)
            
            
            (339,014
            )
            
            
            1,010
            
            
            
            6
            
            
            
            (8
            )
            
            
            (142,689
            )
            
            
            (480,695
            )Other
      income / (expenses)
            
            
            (13,874
            )
            
            
            228
            
            
            
            2,953
            
            
            
            6,820
            
            
            
            14,013
            
            
            
            10,140Income
      taxes
            
            
            (907,176
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (907,176
            )Income
      / (loss) before minority interest
            
            $
            3,090,030
            
            
            
            (1,216,985
            )
            
            
            (435,396
            )
            
            
            (22,373
            )
            
            
            (567,790
            )
            
            $
            847,486MI
      percentage
            
            
            5.00
            %
            
            
            9.75
            %
            
            
            9.75
            %
            
            
            28.75
            %
            
            
            42.88
            %MI
      interest
            
            $
            154,502
            
            
            
            (118,656
            )
            
            
            (42,451
            )
            
            
            (6,432
            )
            
            
            (243,448
            )
            
            $
            (256,486
            )




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-37




Item
            
            Patent
      name
            
            Countries
      / Date
            
            Application
              Number
      (1)
            
            Publication
              Number
      (2)
            
            Approved
              Patent
      Number (3)
            
            Name
      of Patent Inventor (6)
            
            Name
      of Applicant (6)
            
            Patent
      Assignees1
            
            A
      new method for manufacturing recombinant adenovirusA
            
            China
            
            98123346.5
            
            CN1228474A
            
            ZL98123346.5
            
            Peng
            
            Peng
            
            SiBionoDate
            
            12/14/1998
            
            9/15/1999
            
            7/3/20022
            
            A
      recombinant constructed by a virus vector and a human tumor
      suppressor gene and its useA
            
            China
            
            02115228.4
            
            CN1401778A
            
            ZL02115228.4
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            5/8/2002
            
            3/12/2003
            
            11/24/2004B
            
            PCT
      (4)
            
            PCT/CN/2004/000465
            
            WO2004/078987A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            3/8/2004
            
            9/16/2004
            
            N/A3
            
            Recombinant
      gene medicine of adenovirus vector and and gene p54 for treating
      proloferative diseasesA
            
            China
            
            03125129.3
            
            CN1471977A
            
            ZL03125129.3
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            Peng
      / ZhangDate
            
            5/10/2003
            
            2/4/2004
            
            7/25/2007B
            
            PCT
      (4)
            
            PCT/CN/2004/000458
            
            WO2004/104204A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            5/9/2004
            
            12/2/2004
            
            N/A4
            
            The
      application of recombinant adenoviral 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)
            
            PCT/CN/2005/000111
            
            WO2006/079244A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            1/26/2005
            
            8/3/2006
            
            N/AC
            
            US
      (5)
            
            11/075035
            
            2005/0281785A1
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Unidentified
      Yet
            
            N/ADate
            
            3/7/2005
            
            12/22/2005
            
            N/A5
            
            Human
      Embryonic Kidney (HEK) sub-clone cell lineA
            
            China
            
            03126889.7
            
            CN1513985A
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            6/13/2003
            
            7/21/2004
            
            N/AB
            
            PCT
      (4)
            
            PCT/CN/2004/000457
            
            WO2004/111239
            
            Not
      Approved
            
            Peng
      / Zhang
            
            Peng
      / Zhang
            
            N/ADate
            
            5/9/2004
            
            12/23/2004
            
            N/A6
            
            The
      complex of polypeptide liposome and human 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


F-38


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
September 30, 2009, no further progress has occurred.





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





On May
22, 2008, Benda Ebei applied to Shenzhen People Court to terminate above
mentioned arbitration. The termination is based on the ground that Xiaozhi Zhang
does not own all 6.24% of SiBiono’s common stock. In fact, he only owns 3.28% of
SiBiono’s stock. The application has been accepted by Shenzhen People Court and
is waiting for its further investigation. As of September 30, 2009, no further
progress has occurred.





(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 September 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.





(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 September 30,
      2009.




F-39




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.





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
September 30, 2009 and 2008, the Group provided a $6,867,978 and $1,552,068,
respectively for the allowance of doubtful accounts against trade receivables.
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
nine months ended September 30, 2009 and 2008, the Group provided a reserve
against its obsolete, slow-moving or non-salable inventory amounting to
$4,925,299 and $4,191,726, 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 September 30, 2009, the provision of reserve on work-in-process
was$4,742,417.





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 $82,026, $39,786, $54,563, $6,507 and
$4,742,417 respectively as of September 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





Nine months and three months
ended September 30, 2009 Compared to Nine months and three months ended
September 30, 2008





The
following table provides key components of our operational results for the nine
months and three months ended September 30, 2009 and 2008 for Benda
Pharmaceutical, Inc.





Error! Not a valid
link.




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




5




Benda
manufactures bulk chemicals; Beijing Shusai operates and distributes Pharyngitis
Killer Therapy; and SiBiono is a gene therapy company dedicated to the
development, manufacturing and commercialization of gene therapy product,
Gedicine.





Net
revenue decreased by $2.51 million (or 12.6%) to $17.35 million for the nine
months ended September 30, 2009 from $19.86 million for the nine months ended
September 30, 2008, while the net revenue decreased by $0.73 million (or 11.0%)
to $5.90 million for three months ended September 30, 2009 from $6.63 million
for three months ended September 30, 2008 Decrease in revenue is principally
attributed by the following factors:





1.
              One
      of the Benda’s subsidiaries, Benda Ebei’s net revenue decreased $3.82
      million (or 21.9%) and $1.09 million (or 18.2%) to $13.62 million and
      $4.89 million for the nine months and three months ended September 30,
      2009 respectively from $17.44 million and $5.97 million for the nine
      months and three months ended September 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 and $0.6 million for the nine
      months ended September 30, 2009 and 2008,
  respectively.





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.




5.
              One
      of the Benda’s subsidiaries, SiBiono, acquired and effective since April
      1, 2007, net revenue increased $1.10 million (or 60.9%) and $0.36 million
      (or 56.7%) to $2.91 million and $0.99 million for the nine months and
      three months ended September 30, 2009 respectively from $1.81 million and
      $0.63 million for the nine months and three months ended September 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.





6





Cost
of Goods Sold




Cost of
goods sold decreased $2.84 million (or 22.5%) and $1.14 million (or 27.1%) to
$9.8 million and $3.1 million for the nine months and three months ended
September 30, 2009 respectively from $12.6 million and $4.2 million for the nine
months and three months ended September 30, 2008 respectively, primarily due to
the decreased in the sales volume  in Benda Ebei.





Gross
Profit




Gross
profit increased $0.32 million (or 4.4%) and $0.41 million (or 16.9%) to $7.57
million and $2.83 million for the nine months and three months ended September
30, 2009 respectively from $7.25 million and $2.42 million for the nine months
and three months ended September 30, 2008 respectively, which was mainly due to
improved material management causing a slightly decrease in cost.





Selling
Expenses:




Selling
expenses slightly decreased $0.25 million (or 11.80%) to $1.87 million for the
nine months ended September 30, 2009 from $2.12 million for the nine months
ended September 30, 2008, but increased slightly $0.16 million to $0.85 million
for the three months ended September 30, 2009 from $0.69 million for the three
months ended September 30, 2008, primarily due to the management performed cost
control in the reporting period.





General
and Administrative Expenses:




General
and administrative increased $0.55 million (or 9.9%) and $0.59 million (or 45%)
to $6.11 million and $1.63 million for the nine months and three months ended
September 30, 2009 respectively from $5.56 million and $1.04 million for the
nine months and three months ended September 30, 2008.  It was primary
due to the fact that the company was facing a global financial crisis, thus an
amount approximately $3.08 million and $0.27 million was provided for bad debt
provision, for the nine months and three months ended September 30, 2009,
increase by $2.5 million and $0.5 million respectively, compared with the same
period in 2008. However, the company will put more efforts to improve and manage
the situation onwards.





Operating
Income / (Loss):




The
Company resulted an operating loss  $0.69 million for the nine months
ended September 30, 2009, at the same level as for the nine months ended
September 30, 2008. But the Company reported an operating income $0.18 million
for the three months, ended September 30, 2009, while the operating income from
comparative period for 2008 was $0.61 million. which was mainly due to increase
in net profit during the reporting periods.





Interest
Expenses:




Interest
expenses was $2.1 million and $0.47 million for the nine months and three months
ended September 30, 2009 respectively while the interest expenses was $3.34
million and $1.00 million for the comparative period of 2008 respectively. The
main component of it was the financing cost associated with the issuance of
convertible promissory note.





For the
three months ended September 30, 2009, $0.27 million was incurred for the
interest of the notes





Other
Income / (Expenses)




Due to
the Registration Delay Penalty, the Group incurred an expense for the nine
months ended September 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 nine months ended September 30, 2009.





Income
Taxes:




Benda is
subject to Delaware, United State of America tax, but no provision for income
taxes were made for the nine months and three months ended September 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 nine months and three months ended
September 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% 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.





7




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 $163,803 income tax for the nine months ended September 30, 2009.
The prepaid income tax by the Group as of September 30, 2009 at amount of $1.66
million was recorded as taxes recoverable.





LIQUIDITY
AND CAPITAL RESOURCES




Net cash
provided by the operating activities was $1.19 million for the nine months ended
September 30, 2009, while for the nine months ended September 30, 2008 was
negative $0.44 million





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




For the
nine months ended September 30, 2008, an amount about $4.48 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 nine months ended September 30, 2009, about $4.02 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: $3.08 million incurred on bad debt provision; $1.61 million
      incurred on depreciation; and $0.55 million incurred on amortization of
      intangible assets.





b)
            Trade
      receivables




The net
change of trade receivable was increased by $2.43 million for the nine months
ended September 30, 2009. The management also noticed that the net balance of
the trade receivable, as of September 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
nine months ended September 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 $0.07 million for the reporting period nine months ended
September 30, 2009 while the financing cash inflow was $0.70 million for the
reporting period nine months ended September 30, 2008.  The major of
it was a net amount




8




$1.8
million was received from the commercial bank notes in the nine months ended
September 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 third 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
September 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 third 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.




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 October 14, 2009, this motion was denied, and the court entered a judgment in
favor of Pope in the amount of $5,520,000 plus interest.





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 GEF 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.





Item
3. Defaults Upon Senior Securities.




12




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
October 14, 2009, this motion was denied, and the court entered a judgment in
favor of Pope in the amount of $5,520,000 plus interest.




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)
                                Exhibits31.1
                                Certifications
      pursuant to Section 302 of Sarbanes Oxley Act of 200232.1
                                Certifications
      pursuant to Section 906 of Sarbanes Oxley Act of 2002(b)
                                Reports
      on Form 8-KOn
      July 7, 2009, the Company filed a Form 8-K updating the status of
      litigation.On
      August 19, 2009, the Company filed a Form 8-K disclosing the Company’s new
      address.On
      August 19, 2009, the Company filed a Form 8-K disclosing a judgment
      against the Company.On
      September 22, 2009, the Company filed a Form 8-K disclosing the
      resignation of an
officer.




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:
      November 23, 2009
              By:
              /s/ Yiqing WanYiqing
      WanPresident,
      Chief Executive Officer,

                  Chief
      Financial and Accounting
      OfficerChairman
      of Board of Directors







14