----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

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**FORM      10-Q**

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

**For      the quarterly period ended September 30, 2008**

| **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.)** |

**Room      13, Floor 25, Sunny New World Tower, **

**No.      231 Xin Hua Road, Jianghan District, **

**Wuhan,      Hubei, PRC. Post Code: 430015**

** (Address      of Principal Executive Offices)**

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**+86      (27) 8537-5532**

** (Issuer      Telephone number)**

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

x

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**BENDA      PHARMACEUTICAL, INC.**

**FORM      10-Q**

**September      30, 2008**

**INDEX**

| **PART                I— FINANCIAL INFORMATION** |                                                                             |
|--------------------------------------------------------|----------------------------------------------------------------------------------|
|                                                   |                                                                             |   |
|  Item                1.                           | Financial                Statements                                              |  3 |
| Item                2.                                 | Management’s                Discussion and Analysis of Financial Condition |  4 |
| Item                3.                                 | Quantitative                and Qualitative Disclosures About Market Risk        |  9 |
| Item                4T.                                | Control                and Procedures                                            |  9 |
|                                                   |                                                                             |   |
| **PART                II— OTHER INFORMATION**    |                                                                             |
|                                                   |                                                                             |   |
|  Item                1                            | Legal                Proceedings                                                 |  10 |
|  Item                2.                           | Unregistered                Sales of Equity Securities and Use of Proceeds       |  11 |
|  Item                3.                           | Defaults                Upon Senior Securities                                   |  11 |
|  Item                4.                           | Submission                of Matters to a Vote of Security Holders               |  11 |
|  Item                5.                           | Other                Information                                                 |  11 |
|  Item                6.                           | Exhibits                and Reports on Form 8-K                                  |  11 |
|                                                   |                                                                             |   |
| **SIGNATURE**                                          |  12                                                                         |

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**Item      1. Financial Information**

**BENDA      PHARMACEUTICAL, INC.**

**(an      exploration stage company)**

**FINANCIAL      STATEMENTS**

**AS      OF SEPTEMBER 30, 2008**

**CONTENTS**

| F1                      | CONDENSED                BALANCE SHEETS AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND AS OF DECEMBER                31,                2007 (AUDITED).                                                                                       |   |
|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                    |                                                                                                                                                                                                                                    |   |
| F2                      | CONDENSED                  STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,                  2008 AND                  2007 (UNAUDITED) AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008                  (UNAUDITED). |   |
|                    |                                                                                                                                                                                                                                    |   |
| F3                      | CONDENSED                STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,                2008 AND                2007 (UNAUDITED).                                                                                      |   |
|                    |                                                                                                                                                                                                                                    |   |
| F4                - F34 | NOTES                TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).                                                                                                                                                                     |   |

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**Benda      Pharmaceutical, Inc.**

**Consolidated      Balance Sheets**

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

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|                                                                                                                                                                                                                                                            |   | **September 30** |       | **December 31** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|------------|----------------------|--------|
|                                                                                                                                                                                                                                                            |   | **2008**              |       | **2007**             |   |
|                                                                                                                                                                                                                                                            |   | **(Unaudited)**       |       |            |   |
| **Assets**                                                                                                                                                                                                                                                      |   |                  |       |                 |   |   |   |
| Current                Assets                                                                                                                                                                                                                                   |   |                  |       |                 |   |   |   |
|  Cash                and cash equivalents                                                                                                                                                                                                                  |   | $                     | 1,685,375  |                 | $      | 1,266,240 |   |
|  Trade                receivables, net (Note 5)                                                                                                                                                                                                            |   |                  | 11,895,149 |                 |   | 10,472,233 |   |
|  Other                receivables (Note 5)                                                                                                                                                                                                                 |   |                  | 326,620    |                 |   | 453,595 |   |
|  Refundable                purchase price paid (Note 6)                                                                                                                                                                                                    |   |                  | -          |                 |   | 1,200,000 |   |
|  Short-term                loan receivables (Note 5)                                                                                                                                                                                                       |   |                  | 146,304    |                 |   | - |   |
|  Due                from related parties (Note 18)                                                                                                                                                                                                         |   |                  | 11,559     |                 |   | - |   |
|  Inventories                (Note 7)                                                                                                                                                                                                                       |   |                  | 2,788,243  |                 |   | 1,952,348 |   |
|  Prepaid                expenses and deposits (Note 5)                                                                                                                                                                                                     |   |                  | 1,187,384  |                 |   | 933,299 |   |
| Total                current assets                                                                                                                                                                                                                             |   |                  | 18,040,634 |                 |   | 16,277,715 |   |
| Due                from related parties (Note 18)                                                                                                                                                                                                               |   |                  | 2,767,180  |                 |   | 2,630,019 |   |
| Property                and equipments, net (Note 8)                                                                                                                                                                                                            |   |                  | 28,301,078 |                 |   | 27,123,035 |   |
| Intangible                assets, net (Note 9)                                                                                                                                                                                                                  |   |                  | 6,414,931  |                 |   | 6,494,510 |   |
| Goodwill                (Note 10)                                                                                                                                                                                                                               |   |                  | 7,892,402  |                 |   | 7,395,752 |   |
| Restricted                cash (Note 11)                                                                                                                                                                                                                        |   |                  | 5,905,365  |                 |   | 3,957,624 |   |
| Other                assets (Note 12)                                                                                                                                                                                                                           |   |                  | 1,825,869  |                 |   | 1,710,972 |   |
| Refundable                purchase price paid (Note 6)                                                                                                                                                                                                          |   |                  | 1,200,000  |                 |   | - |   |
| Debt                issue costs (Note 24)                                                                                                                                                                                                                       |   |                  | 129,585    |                 |   | 327,945 |   |
| Total                Assets                                                                                                                                                                                                                                     |   | $                     | 72,477,044 |                 | $      | 65,917,572 |   |
|                                                                                                                                                                                                                                                            |   |                  |       |                 |   |   |   |
| **Liabilities                & Shareholders' Equity**                                                                                                                                                                                                       |   |                  |       |                 |   |   |   |
| Current                Liabilities                                                                                                                                                                                                                              |   |                  |       |                 |   |   |   |
|  Bank                indebtedness (Note 11)                                                                                                                                                                                                                |   | $                     | 1,259,525  |                 | $      | 874,490 |   |
|  Bank                loans payable (current portion) (Note 13)                                                                                                                                                                                             |   |                  | 2,976,792  |                 |   | 2,867,004 |   |
|  Long                term debt payable (current portion) (Note 14)                                                                                                                                                                                         |   |                  | 2,228,395  |                 |   | 1,787,239 |   |
|  Accounts                payable and accrued liabilities (Note 15)                                                                                                                                                                                         |   |                  | 6,244,768  |                 |   | 4,665,984 |   |
|  Commercial                notes payable (Note 11)                                                                                                                                                                                                         |   |                  | 8,985,183  |                 |   | 5,118,758 |   |
|  Taxes                payable                                                                                                                                                                                                                              |   |                  | 997,717    |                 |   | 1,279,385 |   |
|  Acquisition                price payable (Note 10)                                                                                                                                                                                                        |   |                  | 1,422,778  |                 |   | 1,333,246 |   |
|  Wages                payable                                                                                                                                                                                                                              |   |                  | 942,144    |                 |   | 664,785 |   |
|  Due                to related parties (Note 18)                                                                                                                                                                                                           |   |                  | 1,097,171  |                 |   | - |   |
| Total                current liabilities                                                                                                                                                                                                                        |   |                  | 26,154,473 |                 |   | 18,590,891 |   |
| Long                term debt payable (long term portion) (Note 14)                                                                                                                                                                                             |   |                  | -          |                 |   | 425,001 |   |
| Long-term                convertible promissory notes (Note 24)                                                                                                                                                                                                 |   |                  | 5,489,742  |                 |   | 2,875,075 |   |
| Due                to related parties (Long-term) (Note 18)                                                                                                                                                                                                     |   |                  | 997,550    |                 |   | 3,193,618 |   |
| Total                liabilities                                                                                                                                                                                                                                |   |                  | 32,641,765 |                 |   | 25,084,585 |   |
|                                                                                                                                                                                                                                                            |   |                  |       |                 |   |   |   |
| Minority                interest                                                                                                                                                                                                                                |   |                  | 5,607,044  |                 |   | 5,502,755 |   |
|                                                                                                                                                                                                                                                            |   |                  |       |                 |   |   |   |
| Redeemable                common stock, 2,049,560 shares at $3.6 per share (Note 19)                                                                                                                                                                            |   |                  | 7,376,366  |                 |   | 7,376,366 |   |
|                                                                                                                                                                                                                                                            |   |                  |       |                 |   |   |   |
| Shareholders'                Equity                                                                                                                                                                                                                             |   |                  |       |                 |   |   |   |
|                                                                                                                                                                                                                                                            |   |                  |       |                 |   |   |   |
| Preferred                stock, $0.001 par value; 5,000,000 shares authorized; None issued and                outstanding (Note 25)                                                                                                                        |   |                  | -          |                 |   | - |   |
| Common                stock, $0.001 par value; 150,000,000 shares authorized; 105,155,355                shares                issued and outstanding as of 9/30/2008; 100,170,071 shares issued and                outstanding as of 12/31/2007 (Note 25) |   |                  | 105,155    |                 |   | 100,170 |   |
| Additional                paid in capital (Note 25)                                                                                                                                                                                                             |   |                  | 22,108,427 |                 |   | 21,547,929 |   |
| Retained                earnings (unrestricted)                                                                                                                                                                                                                 |   |                  | (4,564,049 | )                    |   | 100,452 |   |
| Statutory                surplus reserve fund (Note 17)                                                                                                                                                                                                         |   |                  | 2,310,681  |                 |   | 2,310,681 |   |
| Accumulative                other comprehensive income                                                                                                                                                                                                          |   |                  | 6,387,795  |                 |   | 3,390,774 |   |
| Shares                issuable for acquisition and services                                                                                                                                                                                                     |   |                  | 503,860    |                 |   | 503,860 |   |
| Total                Shareholders' Equity                                                                                                                                                                                                                       |   |                  | 26,851,869 |                 |   | 27,953,866 |   |
| Total                Liabilities & Shareholders' Equity                                                                                                                                                                                                     |   | $                     | 72,477,044 |                 | $      | 65,917,572 |   |

----

**Benda      Pharmaceutical, Inc.**

**Consolidated      Statements of Operations**

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

----

|                                                                      |   | **NINE MONTHS ENDED SEPTEMBER 30,** |        | **THREE MONTHS ENDED SEPTEMBER 30,** |   |
|---------------------------------------------------------------------------|--------|---------------------------------------------------------|-------------|----------------------------------------------------------|--------|
|                                                                      |   | **2008**                                                |        | **2007**                                                 |   | **2008** |   | **2007** |   |
|                                                                      |   | **(Unaudited)**                                         |        | **(Unaudited)**                                          |   | **(Unaudited)** |   | **(Unaudited)** |   |
| Revenue                                                                   |   | $                                                       | 19,860,057  |                                                     | $      | 15,796,295 |   | $ | 6,634,434 |   | $ | 7,559,443 |   |
| Cost                of goods sold                                         |   |                                                    | (12,610,394 | )                                                        |   | (8,106,393 | ) |   | (4,213,540 | ) |   | (3,770,279 | ) |
| Gross                profit                                               |   |                                                    | 7,249,663   |                                                     |   | 7,689,902 |   |   | 2,420,894 |   |   | 3,789,164 |   |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Selling                expenses                                           |   |                                                    | (2,122,689  | )                                                        |   | (675,013 | ) |   | (691,477 | ) |   | (330,127 | ) |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| General                and administrative expenses                        |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Amortization                of intangible assets                          |   |                                                    | (148,591    | )                                                        |   | (89,107 | ) |   | (50,643 | ) |   | (33,888 | ) |
| Amortization                of debt issue costs (Note 24)                 |   |                                                    | (198,360    | )                                                        |   | (134,653 | ) |   | (66,603 | ) |   | (67,384 | ) |
| Depreciation                                                              |   |                                                    | (373,639    | )                                                        |   | (223,418 | ) |   | (130,144 | ) |   | (9,162 | ) |
| Bad                debts                                                  |   |                                                    | (534,124    | )                                                        |   | (502,273 | ) |   | 239,769 |   |   | 274,586 |   |
| Director                remuneration                                      |   |                                                    | (162,968    | )                                                        |   | (58,959 | ) |   | (22,500 | ) |   | (25,014 | ) |
| Penalty                to investors (Note 20)                             |   |                                                    | (1,380,173  | )                                                        |   | (540,000 | ) |   | (266,768 | ) |   | (420,000 | ) |
| Brokerage                fee                                              |   |                                                    | -           |                                                     |   | (291,124 | ) |   | - |   |   | (51,161 | ) |
| Cash                bonus                                                 |   |                                                    | -           |                                                     |   | (173,400 | ) |   | - |   |   | - |   |
| Consulting                and professional fees (Note 19)                 |   |                                                    | -           |                                                     |   | (8,222,184 | ) |   | - |   |   | (339,768 | ) |
| Other                general and administrative expenses (Note 21)        |   |                                                    | (2,764,256  | )                                                        |   | (1,801,814 | ) |   | (743,982 | ) |   | (827,675 | ) |
| Total                general and administrative expenses                  |   |                                                    | (5,562,111  | )                                                        |   | (12,036,932 | ) |   | (1,040,871 | ) |   | (1,499,466 | ) |
| Gains                / (losses) on disposals of fixed assets              |   |                                                    | -           |                                                     |   | (8,398 | ) |   | - |   |   | (8,398 | ) |
| Research                and development expenses                          |   |                                                    | (249,357    | )                                                        |   | (310,084 | ) |   | (79,576 | ) |   | (212,965 | ) |
| Total                operating expenses                                   |   |                                                    | (7,934,157  | )                                                        |   | (13,030,427 | ) |   | (1,811,924 | ) |   | (2,050,956 | ) |
| Operating                income / (loss)                                  |   |                                                    | (684,494    | )                                                        |   | (5,340,525 | ) |   | 608,970 |   |   | 1,738,208 |   |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Interest                income / (expenses) (Note 24)                     |   |                                                    | (3,339,457  | )                                                        |   | (2,207,878 | ) |   | (998,877 | ) |   | (1,141,472 | ) |
| Other                income (expenses )                                   |   |                                                    | 10,140      |                                                     |   | 113,364 |   |   | (237,918 | ) |   | 23,206 |   |
| Government                subsidies / grants (Note 22)                    |   |                                                    | -           |                                                     |   | 1,690,974 |   |   | - |   |   | 1,417,859 |   |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Income                / (loss ) before minority interest and income taxes |   |                                                    | (4,013,811  | )                                                        |   | (5,744,065 | ) |   | (627,825 | ) |   | 2,037,801 |   |
| Income                taxes (Note 23)                                     |   |                                                    | (907,176    | )                                                        |   | - |   |   | (382,368 | ) |   | - |   |
| Minority                interest (Note 28)                                |   |                                                    | 256,486     |                                                     |   | (1,525,486 | ) |   | 168,270 |   |   | (1,058,870 | ) |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Net                income / (loss )                                       |   | $                                                       | (4,664,501  | )                                                        | $      | (7,269,551 | ) | $ | (841,923 | ) | $ | 978,931 |   |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Earnings                / (loss) per share - basic                        |   | $                                                       | (0.05       | )                                                        | $      | (0.08 | ) | $ | (0.01 | ) | $ | 0.01 |   |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Weighted                average s hares outstanding - basic               |   |                                                    | 100,887,853 |                                                     |   | 96,872,524 |   |   | 101,556,376 |   |   | 97,359,178 |   |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Earnings                / (loss) per share - diluted                      |   | $                                                       | (0.05       | )                                                        | $      | (0.06 | ) | $ | (0.01 | ) | $ | 0.01 |   |
|                                                                      |   |                                                    |        |                                                     |   |   |   |   |   |   |   |   |   |
| Weighted                average s hares outstanding - diluted (Note 26)   |   |                                                    | 100,887,853 |                                                     |   | 125,103,425 |   |   | 101,556,376 |   |   | 131,377,347 |   |

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**Benda      Pharmaceutical, Inc.**

**Consolidated      Statements of Cash Flows**

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

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|                                                                                                                     |   | **NINE MONTHS ENDED SEPTEMBER 30,** |       |
|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|------------|
|                                                                                                                     |   | **2008**                                                |       | **2007** |   |
|                                                                                                                     |   | **(Unaudited)**                                         |       | **(Unaudited)** |   |
| **Cash                Flows From Operating Activities**                                                                  |   |                                                    |       |   |   |   |   |
| Net                income / (loss)                                                                                       |   | $                                                       | (4,664,501 | ) | $ | (7,269,551 | ) |
| Adjustments                to reconcile net income / (loss) to net cash provided by operating                activities: |   |                                                    |       |   |   |   |   |
| Consulting                and professional fees (Note 19)                                                                |   |                                                    | -          |   |   | 8,222,184 |   |
| Bad                Debt provision                                                                                        |   |                                                    | 534,125    |   |   | 502,273 |   |
| Minority                interest                                                                                         |   |                                                    | (256,486   | ) |   | 1,525,486 |   |
| Loss                on disposals of fixed assets                                                                         |   |                                                    | -          |   |   | 8,398 |   |
| Depreciation                                                                                                             |   |                                                    | 1,414,763  |   |   | 608,108 |   |
| Amortization                of intangible assets                                                                         |   |                                                    | 567,016    |   |   | 291,855 |   |
| Amortization                of debt issue costs (Note 24)                                                                |   |                                                    | 198,360    |   |   | 134,653 |   |
| Interest                expense (amortization of debt discount) (Note 24)                                                |   |                                                    | 2,614,667  |   |   | 1,923,611 |   |
| Penalty                to investors settled by issuance of common stock                                                  |   |                                                    | 497,081    |   |   | - |   |
| Government                subsidies/grants, (Note 22)                                                                    |   |                                                    | -          |   |   | (1,690,974 | ) |
| Directors                remuneration settled by issuance of common stock                                                |   |                                                    | 75,900     |   |   | - |   |
| Changes                in operating assets and liabilities:                                                              |   |                                                    |       |   |   |   |   |
| Trade                receivables                                                                                         |   |                                                    | (2,312,392 | ) |   | (1,547,577 | ) |
| Other                receivables                                                                                         |   |                                                    | 239,155    |   |   | 126,535 |   |
| Short-term                loan receivable                                                                                |   |                                                    | (146,304   | ) |   | - |   |
| Prepaid                expenses and deposits                                                                             |   |                                                    | (85,211    | ) |   | (208,455 | ) |
| Inventories                                                                                                              |   |                                                    | (835,895   | ) |   | (797,918 | ) |
| Accounts                payable and accrued liabilities                                                                  |   |                                                    | 1,856,143  |   |   | (442,978 | ) |
| Taxes                payable                                                                                             |   |                                                    | (281,668   | ) |   | 404,427 |   |
| **Net                cash provided by operating activities**                                                             |   |                                                    | (585,247   | ) |   | 1,790,077 |   |
|                                                                                                                     |   |                                                    |       |   |   |   |   |
| **Cash                Flows From Investing Activities**                                                                  |   |                                                    |       |   |   |   |   |
| Acquisition                cost paid                                                                                     |   |                                                    | -          |   |   | (2,471,568 | ) |
| Purchases                of property and equipment and construction-in-progress                                          |   |                                                    | (210,254   | ) |   | (4,886,889 | ) |
| Purchases                of intangible assets                                                                            |   |                                                    | -          |   |   | (2,173,711 | ) |
| Loans                to related parties, net                                                                             |   |                                                    | -          |   |   | (629,960 | ) |
| **Net                cash used in investing activities**                                                                 |   |                                                    | (210,254   | ) |   | (10,162,128 | ) |
|                                                                                                                     |   |                                                    |       |   |   |   |   |
| **Cash                Flows From Financing Actives**                                                                     |   |                                                    |       |   |   |   |   |
| Proceeds                from issuance of convertible promissory note (Note 24)                                           |   |                                                    | -          |   |   | 7,030,800 |   |
| Proceeds                and repayments of borrowings under related parties, net                                          |   |                                                    | (1,247,617 | ) |   | (222,198 | ) |
| Proceeds                and repayments of borrowings under government debts payable,                net                  |   |                                                    | 297,545    |   |   | 484,708 |   |
| Proceeds                and repayments of borrowings under commercial bank notes, net (Note                11)           |   |                                                    | 1,876,424  |   |   | 1,378,451 |   |
| Proceeds                and repayments of borrowings under bank loans, net                                               |   |                                                    | (81,082    | ) |   | (596,760 | ) |
| **Net                cash provided by (used in) financing activities**                                                   |   |                                                    | 845,270    |   |   | 8,075,001 |   |
| Effect                of exchange rate changes on cash                                                                   |   |                                                    | 369,366    |   |   | (27,177 | ) |
| **Net                increase in cash and cash equivalents**                                                             |   |                                                    | 419,135    |   |   | (324,227 | ) |
|                                                                                                                     |   |                                                    |       |   |   |   |   |
| **Cash                and cash equivalents, beginning of period**                                                        |   |                                                    | 1,266,240  |   |   | 1,676,119 |   |
|                                                                                                                     |   |                                                    |       |   |   |   |   |
| **Cash                and cash equivalents, end of period**                                                              |   | **$**                                                   | 1,685,375  |   | **$** | 1,351,892 |   |
|                                                                                                                     |   |                                                    |       |   |   |   |   |
| **Supplemental                Disclosure of Cash Flow Information**                                                      |   |                                                    |       |   |   |   |   |
| **Cash                paid for interest**                                                                                |   | **$**                                                   | 823,037    |   | **$** | 98,430 |   |
| **Cash                paid for income taxes**                                                                            |   | **$**                                                   | 954,431    |   | **$** | - |   |

----

**Benda      Pharmaceutical, Inc.**

**Notes      to Consolidated Financial Statements**

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

----

| **1.** | **Organization** |
|--------|------------------|

----

| **2.** | **Significant                Accounting Policies** |
|--------|----------------------------------------------------|

**Cash      and Cash Equivalents**

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

----

**Property      and Equipment**

| Buildings                                       | 20-30years                 |
|-------------------------------------------------|----------------------------|
| Machinery                and equipment          | 10-15                years |
| Motor                Vehicles                   | 5                years     |
| Electronics                and office equipment | 5                years     |

**Impairment      of Long-Lived Assets**

*      Accounting for the Impairment or Disposal of Long-Lived Assets*

**Intangible      Assets**

**Revenue      Recognition**

----

**Research      and Development**

**Income      Taxes**

*      Accounting for Income Taxes*

**Comprehensive      Income**

*      Reporting Comprehensive Income,*

**Concentration      of Credit Risk **

----

|   |   |                                                                  |   | NINE MONTH ENDED SEPTEMBER 30,  |       | THREE MONTH ENDED SEPTEMBER 30,    |   |
|--------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------|------------|-----------------------------------------------------------------------|--------|
|   |   |                                                                  |   | 2008                                                     |       | 2007                                                                  |   | 2008   |   | 2007 |   |
|   |   |                                                                  |   | (Unaudited)                                         |       | (Unaudited)                                                 |   | (Unaudited) |   | (Unaudited) |   |
|   |   | Revenue                                                               |   | $                                                        | 19,860,057 |                                                                  |   | % |   | $ | 15,796,295 |   |   | % |   | $ | 6,634,434 |   |   | % |   | $ | 7,559,443 |   |   | % |   |
|   |   |                                                             |   |                                                     |       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   |   | *Individual              customer's revenue*                          |   |                                                     |       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1      |   | Zhuhai              Gongbei Pharmaceutical Co, Ltd.                   |   |                                                     | 3,711,204  |                                                                  |   | 19 | % |   | 2,926,070 |   |   | 19 | % |   | 784,911 |   |   | 12 | % |   | 1,081,848 |   |   | 14 | % |
| 2      |   | Hubei              Hengchuan Health Products Co.,Ltd.                 |   |                                                     | 2,221,744  |                                                                  |   | 11 | % |   | - |   |   | 0 | % |   | 578,655 |   |   | 9 | % |   | - |   |   | 0 | % |
| 3      |   | Shenzhen              Huihua Pharmaceutical Co. Ltd.                  |   |                                                     | 2,191,049  |                                                                  |   | 11 | % |   | 1,983,733 |   |   | 13 | % |   | 800,653 |   |   | 12 | % |   | 759,093 |   |   | 10 | % |
| 4      |   | Sheny              ang Pharmaceutical Co. Ltd.                        |   |                                                     | 1,985,584  |                                                                  |   | 10 | % |   | 1,758,171 |   |   | 11 | % |   | 711,963 |   |   | 11 | % |   | 635,121 |   |   | 8 | % |
| 5      |   | Jiangxi              Huiren Pharmaceutical Co. Ltd.                   |   |                                                     | 1,602,885  |                                                                  |   | 8 | % |   | 1,831,311 |   |   | 12 | % |   | 647,020 |   |   | 10 | % |   | 484,160 |   |   | 6 | % |
|   |   |                                                             |   |                                                     |       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   |   | Account              receivable, gross                                |   | $                                                        | 13,222,313 |                                                                  |   | %  |   | $ | 7,079,790 |   |   | %  |   | $ | 13,222,313 |   |   | %  |   | $ | 7,079,790 |   |   | %  |   |
|   |   |                                                                  |   |                                                     |       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   |   | *Individual              customer's account receivable gross balance* |   |                                                     |       |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 1      |   | Zhuhai              Gongbei Pharmaceutical Co, Ltd.                   |   |                                                     | 1,769,557  |                                                                  |   | 13 | % |   | 762,854 |   |   | 11 | % |   | 1,769,557 |   |   | 13 | % |   | 762,854 |   |   | 11 | % |
| 2      |   | Hubei              Hengchuan Health Products Co.,Ltd.                 |   |                                                     | 1,232,435  |                                                                  |   | 9 | % |   | - |   |   | 0 | % |   | 1,232,435 |   |   | 9 | % |   | - |   |   | 0 | % |
| 3      |   | Shenzhen              Huihua Pharmaceutical Co. Ltd.                  |   |                                                     | 1,186,189  |                                                                  |   | 9 | % |   | 1,084,825 |   |   | 15 | % |   | 1,186,189 |   |   | 9 | % |   | 1,084,825 |   |   | 15 | % |
| 4      |   | Sheny              ang Pharmaceutical Co. Ltd.                        |   |                                                     | 963,855    |                                                                  |   | 7 | % |   | 856,113 |   |   | 12 | % |   | 963,855 |   |   | 7 | % |   | 856,113 |   |   | 12 | % |
| 5      |   | Jiangxi              Huiren Pharmaceutical Co. Ltd.                   |   |                                                     | 519,536    |                                                                  |   | 4 | % |   | 675,836 |   |   | 10 | % |   | 519,536 |   |   | 4 | % |   | 675,836 |   |   | 10 | % |

**Basic      and Diluted Earnings Per Share**

**Foreign      Currency Translation**

|                        |   | September 30, |   | September 30, |   |
|-----------------------------|--------|--------------------|--------|--------------------|--------|
|                        |   | 2008               |   | 2007               |   |
| Fixed                rate   |   | $                  | 0.1463 |               | $      | 0.1330 |   |
| Average                rate |   | $                  | 0.1434 |               | $      | 0.1303 |   |

----

**Fair      Value of Financial Instruments**

**Recent      Accounting Pronouncements**

*Determining      Whether Instruments Granted in Share-Based Payment Transactions Are      Participating Securities*

*Determination      of the Useful Life of Intangible Assets*
*Goodwill      and Other Intangible Assets*

*Disclosures      about Derivative Instruments and Hedging Activities*
*.*

*      Noncontrolling interest in Consolidated Financial Statements*

----

*      Business Combinations (*

**Recently      Adopted Accounting Pronouncements**

*      Share-Based Payment, an Amendment of SFAS No. 123*

| **3.** | **Basis                of Preparation** |
|--------|-----------------------------------------|

----

| **4.** | **Use                of Estimates** |
|--------|-------------------------------------|

| **5.** | **Trade                Receivables, Other Receivables, Prepaid and Deposits and Short-term                Loan                Receivable** |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|                                        |   | September                30, |       | December                31,                      |   |
|---------------------------------------------|--------|------------------------------|------------|--------------------------------------------------|--------|
|                                        |   | 2008                         |       | 2007                                             |   |
|                                        |   | (Unaudited)                  |       |          |   |
| Trade                receivables, gross     |   | $                            | 13,222,313 |                                             | $      | 10,909,921 |   |
| Allowance                for doubtful debts |   |                         | (1,327,164 | )                                                |   | (437,688 | ) |
| Trade                receivables, net       |   | $                            | 11,895,149 |                                             | $      | 10,472,233 |   |

|                                        |   | September                30, |    | December                31, |   |
|---------------------------------------------|--------|------------------------------|---------|-----------------------------|--------|
|                                        |   | 2008                         |    | 2007                        |   |
|                                        |   | (Unaudited)                  |    |         |   |
| Other                receivables, gross     |   | $                            | 375,815 |                        | $      | 614,971 |   |
| Allowance                for doubtful debts |   |                         | (49,195 | )                           |   | (161,376 | ) |
| Other                receivables, net       |   | $                            | 326,620 |                        | $      | 453,595 |   |

|                                        |   | September                30, |      | December                31, |   |
|---------------------------------------------|--------|------------------------------|-----------|-----------------------------|--------|
|                                        |   | 2008                         |      | 2007                        |   |
|                                        |   | (Unaudited)                  |      |                        |   |
| Prepaid                and deposits, gross  |   | $                            | 1,363,093 |                        | $      | 1,277,882 |   |
| Allowance                for doubtful debts |   |                         | (175,709  | )                           |   | (344,583 | ) |
| Prepaid                and deposits, net    |   | $                            | 1,187,384 |                        | $      | 933,299 |   |

----

|                                                      |   | NINE MONTHS ENDED SEPTEMBER 30 |       |
|-----------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                      |   | 2008                                          |       | 2007  |   |
|                                                      |   | (Unaudited)                                   |       | (Unaudited)  |   |
| Balance                at beginning of period             |   | $                                                  | (943,647   | ) | $ | (467,015 | ) |
| Provision/Reversal                during the period       |   |                                               | (534,124   | ) |   | (502,273 | ) |
| Addition                in lieu of acquisition of SiBiono |   |                                               | -          |   |   | (118,288 | ) |
| Foreign                exchange difference                |   |                                               | (74,297    | ) |   | (50,927 | ) |
| Balance                at end of period                   |   | $                                                  | (1,552,068 | ) | $ | (1,138,503 | ) |

| **6.** | **Refundable                Purchase Price Paid** |
|--------|---------------------------------------------------|

| **7.** | **Inventories** |
|--------|-----------------|

----

|                                              |   | September                30, |       | December                31, |   |
|---------------------------------------------------|--------|------------------------------|------------|-----------------------------|--------|
|                                              |   | 2008                         |       | 2007                        |   |
|                                              |   | (Unaudited)                  |       |         |   |
| Raw                materials                      |   | $                            | 1,382,836  |                        | $      | 1,078,438 |   |
| Packing                materials                  |   |                         | 99,323     |                        |   | 155,101 |   |
| Other                materials / supplies         |   |                         | 87,697     |                        |   | 93,206 |   |
| Finished                goods                     |   |                         | 615,904    |                        |   | 415,627 |   |
| Work-in-progress                                  |   |                         | 4,794,209  |                        |   | 4,631,990 |   |
| Total                inventories at cost          |   |                         | 6,979,969  |                        |   | 6,374,362 |   |
|                                              |   |                         |       |                        |   |   |   |
| Less:                Reserves on work-in-progress |   |                         | (4,191,726 | )                           |   | (4,422,014 | ) |
|                                              |   |                         |       |                        |   |   |   |
| Total                inventories, net             |   | $                            | 2,788,243  |                        | $      | 1,952,348 |   |

----

**8.         **
**Property        and Equipment**

|                                   |   | December 31,2007 |       | Addition |   | ForeignCurrencyTranslationDifference |   | September 30,2008 |      |
|--------------------------------------------------|--------|-----------------------|------------|----------|--------|--------------------------------------|--------|------------------------|-----------|
|                                             |   |                  |       |     |   |                                 |   | (Unaudited)            |      |
| Buildings                                        |   | $                     | 8,858,126  |     |   | 48,945                               |   |                   | 759,084   |   | $ | 9,666,155 |   |
| Machinery                and equipment           |   |                  | 15,260,167 |     |   | 129,008                              |   |                   | 1,315,106 |   |   | 16,704,281 |   |
| Office                equipment                  |   |                  | 28,762     |     |   | 6,466                                |   |                   | 6,375     |   |   | 41,603 |   |
| Motor                Vehicles                    |   |                  | 206,252    |     |   | 25,835                               |   |                   | 18,266    |   |   | 250,353 |   |
| Cost                                             |   |                  | 24,353,307 |     |   | 210,254                              |   |                   | 2,098,831 |   |   | 26,662,392 |   |
|                                             |   |                  |       |     |   |                                 |   |                   |      |   |   |   |   |
| Less:                Accumulated Depreciation    |   |                  |       |     |   |                                 |   |                   |      |   |   |   |   |
|                                             |   |                  |       |     |   |                                 |   |                   |      |   |   |   |   |
| Buildings                                        |   | $                     | (981,116   | )        |   | (327,537                             | )      |                   | (87,120   | ) | $ | (1,395,773 | ) |
| Machinery                and equipment           |   |                  | (2,423,002 | )        |   | (1,056,535                           | )      |                   | (234,681  | ) |   | (3,714,218 | ) |
| Office                equipment                  |   |                  | (4,281     | )        |   | (1,860                               | )      |                   | 1,803     |   |   | (4,338 | ) |
| Motor                Vehicles                    |   |                  | (46,447    | )        |   | (28,831                              | )      |                   | (4,343    | ) |   | (79,621 | ) |
| Accumulated                Depreciation          |   |                  | (3,454,846 | )        |   | (1,414,763                           | )      |                   | (324,341  | ) |   | (5,193,950 | ) |
|                                             |   |                  |       |     |   |                                 |   |                   |      |   |   |   |   |
| Construction                in progress          |   | $                     | 6,224,573  |     |   | 186,252                              |   |                   | 421,812   |   | $ | 6,832,637 |   |
|                                             |   |                  |       |     |   |                                 |   |                   |      |   |   |   |   |
| Total                property and equipment, net |   | $                     | 27,123,035 |     |   | (1,018,257                           | )      |                   | 2,196,302 |   | $ | 28,301,078 |   |

----

|                               |   | Original Cost    |       |                   |   |       |   |         |       |                      |   |                   |   |
|----------------------------------------------|--------|-----------------------|------------|------------------------|--------|------------|--------|--------------|------------|---------------------------|--------|------------------------|--------|
|                                         |   | December 31,2007 |       | September 30,2008 |   | Average    |   | SalvageValue |       | EstimateUseful Lives |   | DepreciationCalculated |   | DeprecationReported |   | Difference |   |
| Building                                     |   | $                     | 8,858,126  |                   |   | 9,666,155  |   |         | 9,262,141  |                      |   | 5                      | %      |   | 25 |   |   | 263,971 |   |   | 327,537 |   |   | (63,566 | ) |
| Property                and equipment        |   |                  | 15,260,167 |                   |   | 16,704,281 |   |         | 15,982,224 |                      |   | 5                      | %      |   | 13 |   |   | 910,987 |   |   | 1,056,535 |   |   | (145,548 | ) |
| Office                equipment              |   |                  | 28,762     |                   |   | 41,603     |   |         | 35,183     |                      |   | 5                      | %      |   | 5 |   |   | 5,014 |   |   | 1,860 |   |   | 3,154 |   |
| Motor                vehicle                 |   |                  | 206,252    |                   |   | 250,353    |   |         | 228,303    |                      |   | 5                      | %      |   | 5 |   |   | 32,533 |   |   | 28,831 |   |   | 3,702 |   |
| Total                property and equipments |   | $                     | 24,353,307 |                   |   | 26,662,392 |   |         | 25,507,850 |                      |   |                   |   |   |   |   |   | 1,212,505 |   |   | 1,414,763 |   |   | (202,258 | ) |

|                                    |   | NINE MONTHS ENDED SEPTEMBER 30, |      | THREE MONTHS ENDED SEPTEMBER 30, |   |
|-----------------------------------------|--------|-----------------------------------------------------|-----------|------------------------------------------------------|--------|
|                                    |   | 2008                                                |      | 2007                                                 |   | 2008 |   | 2007 |   |
|                                    |   | (Unaudited)                                         |      | (Unaudited)                                          |   | (Unaudited) |   | (Unaudited) |   |
| Cost                of sales            |   | $                                                   | 1,041,124 |                                                 | $      | 384,690 |   | $ | 381,947 |   | $ | 298,368 |   |
| Operating                expenses       |   |                                                | 373,639   |                                                 |   | 223,418 |   |   | 130,144 |   |   | 9,162 |   |
| Balance                at end of period |   | $                                                   | 1,414,763 |                                                 | $      | 608,108 |   | $ | 512,091 |   | $ | 307,529 |   |

**9.         **
**Intangible        Assets**

|                              |   | December 31,2007 |       | Addition |   | ForeignCurrencyTranslationDifference |   | September 30,2008 |     |
|---------------------------------------------|--------|-----------------------|------------|----------|--------|--------------------------------------|--------|------------------------|----------|
|                                        |   |                  |       |     |   |                                 |   | (Unaudited)            |     |
| Land-use                rights              |   | $                     | 2,875,796  |     |   | -                                    |   |                   | 231,730  |   | $ | 3,107,526 |   |
| Drugs                permits and licenses   |   |                  | 2,564,996  |     |   | -                                    |   |                   | 206,687  |   |   | 2,771,683 |   |
| Technology                formulas          |   |                  | 1,220,164  |     |   | -                                    |   |                   | 81,938   |   |   | 1,302,102 |   |
| Patent                                      |   |                  | 1,685,919  |     |   | -                                    |   |                   | 113,215  |   |   | 1,799,134 |   |
| Cost                                        |   |                  | 8,346,875  |     |   | -                                    |   |                   | 633,570  |   |   | 8,980,445 |   |
|                                        |   |                  |       |     |   |                                 |   |                   |     |   |   |   |   |
| Land-use                rights              |   | $                     | (201,030   | )        |   | (56,052                              | )      |                   | (16,694  | ) | $ | (273,776 | ) |
| Drugs                permits and licenses   |   |                  | (1,291,425 | )        |   | (200,840                             | )      |                   | (98,926  | ) |   | (1,591,191 | ) |
| Technology                formulas          |   |                  | (154,863   | )        |   | (95,698                              | )      |                   | (12,359  | ) |   | (262,920 | ) |
| Patent                                      |   |                  | (205,047   | )        |   | (214,426                             | )      |                   | (18,154  | ) |   | (437,627 | ) |
| Accumulated                amortization     |   |                  | (1,852,364 | )        |   | (567,016                             | )      |                   | (146,133 | ) |   | (2,565,514 | ) |
|                                        |   |                  |       |     |   |                                 |   |                   |     |   |   |   |   |
| Total                intangible assets, net |   | $                     | 6,494,510  |     |   | (567,016                             | )      |                   | 487,437  |   | $ | 6,414,931 |   |

----

|                            |   | December 31,2007 |      | September 30,2008 |   | Average   |   | EstimatedUseful lives |      | AmortizationCalculated |   | AmortizationReported |   | Difference |    |
|-------------------------------------------|--------|-----------------------|-----------|------------------------|--------|-----------|--------|----------------------------|-----------|------------------------|--------|----------------------|--------|------------|---------|
| Land-use                rights            |   | $                     | 2,875,796 |                   |   | 3,107,526 |   |                       | 2,991,661 |                   |   | 40                   |   | $          | 56,094  |   |   | 56,052 |   |   | 42 |   |
| Drugs                permits and licenses |   |                  | 2,564,996 |                   |   | 2,771,683 |   |                       | 2,668,340 |                   |   | 10                   |   |       | 200,125 |   |   | 200,840 |   |   | (715 | ) |
| Technology                formulas        |   |                  | 1,220,164 |                   |   | 1,302,102 |   |                       | 1,261,133 |                   |   | 10                   |   |       | 94,585  |   |   | 95,698 |   |   | (1,113 | ) |
| Patent                                    |   |                  | 1,685,919 |                   |   | 1,799,134 |   |                       | 1,799,134 |                   |   | 6                    |   |       | 224,892 |   |   | 214,426 |   |   | 10,466 |   |
| Total                Intangible assets    |   | $                     | 8,346,875 |                   |   | 8,980,445 |   |                       | 8,720,268 |                   |   |            |   | $          | 575,696 |   |   | 567,016 |   |   | 8,680 |   |

|                          |   | NINE MONTHS ENDED SEPTEMBER 30, |    | THREE MONTHS ENDED SEPTEMBER 30, |   |
|-----------------------------------------|--------|-----------------------------------------------------|---------|------------------------------------------------------|--------|
|                                    |   | 2008                                                |    | 2007                                                 |   | 2008 |   | 2007 |   |
|                                    |   | (Unaudited)                                         |    | (Unaudited)                                          |   | (Unaudited) |   | (Unaudited) |   |
| Cost of                sales       |   | $                                                   | 418,425 |                                                 | $      | 202,748 |   | $ | 142,758 |   | $ | 89,098 |   |
| Operating                expenses       |   |                                                | 148,591 |                                                 |   | 89,107 |   |   | 50,643 |   |   | 33,888 |   |
| Balance                at end of period |   | $                                                   | 567,016 |                                                 | $      | 291,855 |   | $ | 193,401 |   | $ | 122,986 |   |

**10.  **
**Goodwill      and Acquisition Cost Payable**

----

| Condensed Balance Sheet of SiBiono, as of March 31, 2007 |   | In '000 |       |
|-------------------------------------------------------------------------------------------------------|--------|--------------|------------|
| **Current                Assets**                                                                     |   |         |       |
| Cash                and cash equivalents                                                              |   | $            | 590        |   |
| Receivables,                prepaid expenses and deposits                                             |   |         | 969        |   |
| Inventories                                                                                           |   |         | 688        |   |
| **Total                current assets**                                                               |   |         | **2,247**  |   |
| **Non-current                Assets**                                                                 |   |         |       |   |
| Property                and equipments, net                                                           |   |         | 6,789      |   |
| Intangible                assets, net                                                                 |   |         | 1,939      |   |
| **Total                non-current assets**                                                           |   |         | **8,728**  |   |
| **Total                Assets**                                                                       |   | $            | **10,975** |   |
| **Current                Liabilities**                                                                |   |         |       |   |
| Trade                payables and miscellaneous payables                                              |   | $            | 1,175      |   |
| Current                portion of long term loans payable                                             |   |         | 1,813      |   |
| Current                portion of long term government debts payable                                  |   |         | 2,710      |   |
| **Total                current liabilities**                                                          |   |         | **5,698**  |   |
| **Non-current                Liabilities**                                                            |   |         |       |   |
| Long                term loans payable                                                                |   |         | 1,360      |   |
| Long                term government debts payable                                                     |   |         | 1,723      |   |
| Due                to related parties (long term)                                                     |   |         | 338        |   |
| **Total                non-current liabilities**                                                      |   |         | **3,421**  |   |
| **Total                liabilities**                                                                  |   | $            | **9,119**  |   |
| **Net                assets**                                                                         |   | $            | **1,856**  |   |
| %                of equity interest acquired                                                          |   |         | 60.13      | % |
| **Net                assets acquired**                                                                |   | $            | **1,116**  | Note a |

----

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

|                                                       |   | September 30, |      | December 31, |   |
|------------------------------------------------------------|--------|--------------------|-----------|-------------------|--------|
|                                                       |   | 2008               |      | 2007              |   |
|                                                       |   | (Unaudited)        |      |              |   |
| Deposits                  for issuance of commercial notes |   | $                  | 4,605,255 |              | $      | 2,615,254 |   |
| Funds                  from government technolgy agencies  |   |               | 1,300,110 |              |   | 1,342,370 |   |
| Total                  restricted cash                     |   | $                  | 5,905,365 |              | $      | 3,957,624 |   |

| A) | On                  August 14, 2007, Benda Ebei entered into a commercial bank note                  issuable                  agreement with Shanghai Pudong Development Bank. Pursuant to this                  agreement, the following terms are                  included: |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a) | Duration                  of the agreement is three years; |
|--------|----|------------------------------------------------------------|

|   | b) | It                  is non-interest bearing; |
|--------|----|----------------------------------------------|

|   | c) | The                  repayment period of each commercial note payable is six                  months; |
|--------|----|-------------------------------------------------------------------------------------------------------|

|   | d) | The                  total commercial note issuable limit is Rmb 60 million; however                  50% of                  deposit should be made into the bank in order to secure the issuance                  of                  commercial bank note, thus the net available amount is Rmb 30                  million; |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | If                  the net amount of each commercial bank note payable is not settled                  on the                  due date, the penalty will be the penalty rate of the PRC bank                  loan on                  daily and compound basis. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 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. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | a) | Among                  the cash and cash equivalents balances of SiBiono were composed                  of two                  parts; (i) unrestricted cash, which were generated from either                  operations,                  or loans from bank and financial institutions, or invested capital;                  (ii)                  restricted cash, which were obtained from the various government                  technology agencies as long term debt payable (see note 13 for                  the related                  details). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | 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. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **12.** | **Other                  assets** |
|---------|-----------------------------------|

| 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. |
|----|------------------------------------------------------------------------------------------------------------|

----

| **13.** | **Bank                  Loans Payable** |
|---------|-----------------------------------------|

|                                            |   | September 30, |      | December 31, |   |
|-------------------------------------------------|--------|--------------------|-----------|-------------------|--------|
|                                            |   | 2008               |      | 2007              |   |
|                                            |   | (Unaudited)        |      |              |   |
| Bank                  loans due within one year |   | $                  | 2,976,792 |              | $      | 2,867,004 |   |
| Bank                  loans due after one year  |   |               | -         |              |   | - |   |
| Total                  bank loans               |   | $                  | 2,976,792 |              | $      | 2,867,004 |   |

| **14.** | **Long                  Term Debt Payable** |
|---------|---------------------------------------------|

|                                                        |   | September 30, |      | December 31, |   |
|-------------------------------------------------------------|--------|--------------------|-----------|-------------------|--------|
|                                                        |   | 2008               |      | 2007              |   |
|                                                        |   | (Unaudited)        |      |              |   |
| Long-term                  debt payable due within one year |   | $                  | 2,228,395 |              | $      | 1,787,239 |   |
| Long-term                  debt payable due after one year  |   |               | -         |              |   | 425,001 |   |
| Total                  long-term debt payable               |   | $                  | 2,228,395 |              | $      | 2,212,240 |   |

----

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

|                                                                         |   | September 30, |      | December 31, |   |
|------------------------------------------------------------------------------|--------|--------------------|-----------|-------------------|--------|
|                                                                         |   | 2008               |      | 2007              |   |
|                                                                         |   | (Unaudited)        |      |              |   |
| Trade                  payable                                               |   | $                  | 660,602   |              | $      | 305,443 |   |
| Deposits                  paid by customer                                   |   |               | 267,676   |              |   | 160,818 |   |
| Acquistion                  cost payable following the arbitration (Note 12) |   |               | 1,872,068 |              |   | 1,754,263 |   |
| Accrued                  liabilities                                         |   |               | 3,038,114 |              |   | 2,162,455 |   |
| Miscellaneous                  payables                                      |   |               | 406,307   |              |   | 283,005 |   |
| Total                  account payables and accurred liabilities             |   | $                  | 6,244,768 |              | $      | 4,665,984 |   |

| **16.** | **Welfare                  and Employment Liabilities** |
|---------|---------------------------------------------------------|

| **17.** | **Statutory                  Reserves** |
|---------|-----------------------------------------|

----

| **18.** | **Related                  Party Transactions** |
|---------|-------------------------------------------------|

|                                                                   |   | September 30, |      | December 31, |   |
|------------------------------------------------------------------------|--------|--------------------|-----------|-------------------|--------|
|                                                                   |   | 2008               |      | 2007              |   |
|                                                                   |   | (Unaudited)        |      |              |   |
| Yiqing                  Wan                                            |   |               |      |              |   |   |   |
| Due                  to Ever Leader Holdings Co. Ltd.                  |   | $                  | 649,161   |              | $      | 646,429 |   |
| Due                  to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd. |   |               | 253,098   |              |   | 72,949 |   |
| Due                  to Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | -         |              |   | 3,608 |   |
| Hubei                  Benda Science and Technology Co. Ltd            |   |               |      |              |   |   |   |
| Due                  to Yidu Benda Chemicals Co. Ltd.                  |   |               | 1,602,990 |              |   | 1,502,118 |   |
| Due                  to Ever Leader Holdings Co. Ltd.                  |   |               | 231,132   |              |   | 230,160 |   |
| Feng                  Wang                                             |   |               |      |              |   |   |   |
| Due                  to Beijing Shusai Pharyngitis Research Co. Ltd.   |   |               | 30,800    |              |   | 29,318 |   |
| Qin                  Yu                                                |   |               |      |              |   |   |   |
| Due                  to Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 5,311     |              |   | - |   |
| Hua                  Shen                                              |   |               |      |              |   |   |   |
| Due                  to Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | -         |              |   | 137,097 |   |
| Pong                  Tsaiohuei                                        |   |               |      |              |   |   |   |
| Due                  to Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | -         |              |   | 3,257 |   |
| Xiaozhi                  Zhang                                         |   |               |      |              |   |   |   |
| Due                  to Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 5,424     |              |   | 5,083 |   |
| Yiaojing                  Wang                                         |   |               |      |              |   |   |   |
| Due                  to Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 289       |              |   | - |   |
| Rong                  He                                               |   |               |      |              |   |   |   |
| Due                  to Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 534       |              |   | - |   |
| Total                  due from related parties                        |   | $                  | 2,778,739 |              | $      | 2,630,019 |   |

|                                                                     |   | September 30, |         | December 31, |   |
|--------------------------------------------------------------------------|--------|--------------------|--------------|-------------------|--------|
|                                                                     |   | 2008               |         | 2007              |   |
|                                                                     |   | (Unaudited)        |         |              |   |
| Hubei                  Benda Science and Technology Co. Ltd              |   |               |         |              |   |   |   |
| Due                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd. |   | $                  | 28,527       |              | $      | 49,056 |   |
| Due                  from Jiangliang Benda Pharamaceutical Co. Ltd.      |   |               | 808,954      |              |   | 1,872,374 |   |
| Due                  from Beijing Shusai Pharyngitis Research Co. Ltd.   |   |               | 14,781       |              |   | 6,846 |   |
| Wei                  Xu                                                  |   |               |         |              |   |   |   |
| Due                  from Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 182,742      |              |   | - |   |
| Due                  from Everleader Holding Ltd.                        |   |               | 737,255      |              |   | - |   |
| Due                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd. |   |               | 50,698       |              |   | - |   |
| Hua                  Xu                                                  |   |               |         |              |   |   |   |
| Due                  from Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 25,457       |              |   | - |   |
| Due                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd. |   |               | -            |              |   | 1,009,792 |   |
| Due                  from Beijing Shusai Pharyngitis Research Co. Ltd.   |   |               | -            |              |   | 61,491 |   |
| Xu,                  Huei                                                |   |               |         |              |   |   |   |
| Due                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd. |   |               | 28,410       |              |   | - |   |
| Yiqing,                  Wan                                             |   |               |         |              |   |   |   |
| Due                  from Yidu Benda Chemicals Co. Ltd.                  |   |               | 559          |              |   | - |   |
| Due                  from Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 139,133      |              |   | 137,687 |   |
| Hui                  Xu                                                  |   |               |         |              |   |   |   |
| Due                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd. |   |               | -            |              |   | 26,622 |   |
| Due                  from Beijing Shusai Pharyngitis Research Co. Ltd.   |   |               | -            |              |   | 3,153 |   |
| Xue                  Wei                                                 |   |               |         |              |   |   |   |
| Due                  from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd. |   |               |         |              |   |   |   |
| Due                  from Beijing Shusai Pharyngitis Research Co. Ltd.   |   |               | 65,620       |              |   | - |   |
| Hua                  Shen                                                |   |               |         |              |   |   |   |
| Due                  from Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 9,251        |              |   | 26,597 |   |
| Tongyi                  Tien                                             |   |               |         |              |   |   |   |
| Due                  from Sibiono                                        |   |               | 364          |              |   | - |   |
| Pong                  Tsaiohuei                                          |   |               |         |              |   |   |   |
| Due                  from Shenzhen SiBiono Gene Tech Co. Ltd.            |   |               | 2,970        |              |   | - |   |
| Total                  due to related parties                            |   |               |    |              |   |    |   |
|                                                                     |   | $                  | 2,094,721    |              | $      | 3,193,618 |   |

----

| **19.** | **Redeemable                  Common Stock Issuable For Services** |
|---------|--------------------------------------------------------------------|

| **20.** | **Penalty                  to investors** |
|---------|-------------------------------------------|

----

|                                         |   | NINE MONTHS ENDED SEPTEMBER 30, |      |
|----------------------------------------------|--------|-----------------------------------------------------|-----------|
|                                         |   | 2008                                                |      | 2007 |   |
|                                         |   | (Unaudited)                                         |      | (Unaudited) |   |
| Registeration                  delay expense |   | $                                                   | 1,113,405 |   | $ | 540,000 |   |
| Make                  Good Agreement         |   |                                                | 266,768   |   |   | - |   |
|                                         |   | $                                                   | 1,380,173 |   | $ | 540,000 |   |

|   | (A) | In                  accordance with FASB staff position No. EITF00-19-2 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. According to the signed                  agreement, the penalty would be capped 10% of the total fund raised                  and                  such cap was reached in June 2008, thus there would be no more                  penalties                  incurred onwards. Furthermore, the Registration Statement had been                  effective in August 2008. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (B) | According                  to the Investment Agreements (issuance of convertible promissory                  notes) in                  March 2007, the securities underlying the Notes and Warrants issued                  to the                  Investors are also subject to the terms of a Make Good Agreement                  entered                  into in connection with a financing the Group executed in November                  of 2006                  (the “Make Good Agreement”). The Group further represented to the                  Investors that its target net income for fiscal year 2007 (“FY07 Net                  Income”) will be greater than or equal to $10.0 million (adjusted for                  a                  variety of non-cash charges) (the “Performance Threshold”). In the event                  the Performance Threshold is not attained, the Group is required                  to issue                  to the Investors a pro rata portion of 1,000,000 shares of the                  Group’s                  common stock for every one (1) cent by which the Group’s earnings per                  share, determined on a fully diluted basis, is less than $0.07.                  On Aug 25,                  2008, the Group issued 3,810,976 shares of common stock in lieu                  of the                  non-achievement of the Performance Threshold at $0.07 per share,                  totaling                  to $266,768 and booked as penalty. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **21.** | **Other                  general and administrative                  expenses** |
|---------|---------------------------------------------------------------------------------|

|                                                               |   | NINE MONTHS ENDED SEPTEMBER 30, |      | THREE MONTHS ENDED SEPTEMBER 30, |   |
|--------------------------------------------------------------------|--------|-----------------------------------------------------|-----------|------------------------------------------------------|--------|
|                                                               |   | 2008                                                |      | 2007                                                 |   | 2008 |   | 2007 |   |
|                                                               |   | (Unaudited)                                         |      | (Unaudited)                                          |   | (Unaudited) |   | (Unaudited) |   |
| Audit                  and accounting                              |   | $                                                   | 232,509   |                                                 | $      | 265,608 |   | $ | 30,680 |   | $ | 57,670 |   |
| Legal                  fees                                        |   |                                                | 166,800   |                                                 |   | 199,034 |   |   | 52,096 |   |   | 118,357 |   |
| Office                  expenses                                   |   |                                                | 451,979   |                                                 |   | 258,047 |   |   | 159,449 |   |   | 115,968 |   |
| Salaries                  and wages                                |   |                                                | 712,810   |                                                 |   | 482,316 |   |   | 197,817 |   |   | 257,716 |   |
| Consulting                  fee                                    |   |                                                | 637,409   |                                                 |   | 47,054 |   |   | 202,636 |   |   | 8,063 |   |
| Rent                  & Utilities                              |   |                                                | 75,848    |                                                 |   | 43,510 |   |   | 20,018 |   |   | 14,736 |   |
| Investor                  relation, Transfer agent and filing fees |   |                                                | 30,843    |                                                 |   | 92,641 |   |   | 2,720 |   |   | 26,788 |   |
| Travel                  and transportation                         |   |                                                | 185,379   |                                                 |   | 205,159 |   |   | 25,045 |   |   | 121,402 |   |
| Repair                  and maintanence                            |   |                                                | 136,890   |                                                 |   | 11,443 |   |   | 17,791 |   |   | 5,744 |   |
| Miscellaneous                                                      |   |                                                | 133,789   |                                                 |   | 197,002 |   |   | 35,730 |   |   | 101,231 |   |
| Total                  other general & administrative          |   | $                                                   | 2,764,256 |                                                 | $      | 1,801,814 |   | $ | 743,982 |   | $ | 827,675 |   |

----

| **22.** | **Government                Subsidies / Grants** |
|---------|--------------------------------------------------|

| **23.** | **Income                Taxes** |
|---------|---------------------------------|

----

| Year                          |   | Tax rate |   |
|-------------------------------|--------|---------------|--------|
| 2008                          |   |          | 18     | % |
| 2009                          |   |          | 20     | % |
| 2010                          |   |          | 22     | % |
| 2011                          |   |          | 24     | % |
| 2012 and thereafter |   |          | 25     | % |

| **24.** | **Long                Term Convertible Promissory                Note** |
|---------|-------------------------------------------------------------------------|

----

----

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

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

|  | (b) | As                of December 31, 2007, 100,170,071 shares of common stock were issued                and                outstanding, par value $0.001 each; During the nine month ended September                30, 2008:; (i) 523,438 shares were issued to PIPE investors as penalty                for                registeration delay expenses (see Note 20); (ii) 110,000 shares were                issued to the independent directors in lieu of their remuneration;                (iii)                540,870 shares were issued upon conversion of 10 units of convertible                promissory notes; and (iv) 3,810,976 shares were issued to the investors                under the Make Good Agreement . Thus, the share of common stock issued                and                outstanding was 105,155,355 as of September 30,                2008. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

|                                                                                                                                                                                      |   | December 31,  |         | Events occurred during |   | September 30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------------|----------------------------------|--------|--------------------|--------|
|                                                                                                                                                                                      |   | 2007               |         | the reporting period   |   | 2008               |   |
| Events                                                                                                                                                                                    |   |     |         |                   |   | (Unaudited)        |   |
| To                record the changes of par value from $0.01 to $0.001 of the outstanding                common stock as of 11/17/2005                                                    |   | $                  | 584,481      |                             |   | -                  |   | $ | 584,481 |   |
| To                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    |                             |   | -                  |   |   | 2,298,434 |   |
| To                eliminate the common stock and additional paid-in capital of the                former                shell company "Applied Spectrum Technologies, Inc." on 11/15/2006 |   |               | 16,215,770   |                             |   | -                  |   |   | 16,215,770 |   |
| To                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   |                             |   | -                  |   |   | 11,974,038 |   |
| Issuance                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        |                             |   | -                  |   |   | 1,285 |   |
| To                record the placement agent commission and transaction related fee                of                reverse merger on 11/15/2006                                         |   |               | (1,694,326   | )                                |   | -                  |   |   | (1,694,326 | ) |
| Issuance                of common stock 706,195 at $0.4622 per share                                                                                                                      |   |               | 325,697.00   |                             |   | -                  |   |   | 325,697 |   |
| Debt                discount on beneficial conversion feature on convertible promissory                notes                                                                              |   |               | 2,385,089.00 |                             |   | -                  |   |   | 2,385,089 |   |
| Debt                discount on warrants issued with convertible promissory notes                                                                                                         |   |               | 5,174,911.00 |                             |   | -                  |   |   | 5,174,911 |   |
| Placement                agent exercised 849,007 warrants at strike price through cashless                arrangement                                                                     |   |               | 470,347.00   |                             |   | -                  |   |   | 470,347 |   |
| Issuance                of common stock to PIPE investors as penalty for late submission                of 10KSB                                                                          |   |               | 92,461.00    |                             |   | -                  |   |   | 92,461 |   |
| Issuance                of common stock to directors in lieu of their remuneration                                                                                                        |   |               | -            |                             |   | 75,790             |   |   | 75,790 |   |
| Issuance                of common stock to PIPE investors as penalty for registeration delay                expenses                                                                      |   |               | -            |                             |   | 229,789            |   |   | 229,789 |   |
| Conversion                of convertible promissory notes                                                                                                                                 |   |               | -            |                             |   | (8,039             | )      |   | (8,039 | ) |
| Issuance                of common stock to investors under "Make Good Agreement"                                                                                                          |   |               | -            |                             |   | 262,957            |   |   | 262,957 |   |
| Additional                paid-in capital, balance for the period ended                                                                                                                   |   | $                  | 21,547,929   |                             |   | 560,498            |   | $ | 22,108,427 |   |

|  | (d) | As                of December 31, 2007, 27,708,929 Warrants, each convertible into                one (1)                share of the Group’s Common Stock, issued and outstanding. During the nine                month ended September 30, 2008, 1,597,075 warrants were issuable                to CRT                Capital Group, LLC and 958,245 warrants were issuable to EastGate                Financial, Inc. in lieu of their consultancy service. Thus the remaining                balance as September 30, 2008 was                30,262,249 |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (e) | None                options issued and outstanding. |
|--|-----|-----------------------------------------------------|

| **26.** | **Weighted                average shares outstanding **–**diluted** |
|---------|--------------------------------------------------------------------------------|

|                                                           |   | NINE MONTHS ENDED SEPTEMBER 30, |        | THREE MONTHS ENDED SEMTEMBER 30, |   |
|----------------------------------------------------------------|--------|-----------------------------------------------------|-------------|------------------------------------------------------|--------|
|                                                           |   | 2008                                                |        | 2007                                                 |   | 2008 |   | 2007 |   |
|                                                           |   | (Unaudited)                                         |        | (Unaudited)                                          |   | (Unaudited) |   | (Unaudited) |   |
| Numerator:                                                     |   |                                                |        |                                                 |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                               |   | $                                                   | (4,664,501  | )                                                    | $      | (7,269,551 | ) | $ | (841,923 | ) | $ | 978,931 |   |
|                                                           |   |                                                |        |                                                 |   |   |   |   |   |   |   |   |   |
| Denominator:                                                   |   |                                                |        |                                                 |   |   |   |   |   |   |   |   |   |
| Basic                weighted-average shares outstanding       |   |                                                | 100,887,853 |                                                 |   | 96,872,524 |   |   | 101,556,376 |   |   | 97,359,178 |   |
| Effect                of dilutive stock options & warrants |   |                                                | -           |                                                 |   | 28,230,901 |   |   | - |   |   | 34,018,169 |   |
| Diluted                weighted-average shares outstanding     |   |                                                | 100,887,853 |                                                 |   | 125,103,425 |   |   | 101,556,376 |   |   | 131,377,347 |   |
|                                                           |   |                                                |        |                                                 |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share:                    |   |                                                |        |                                                 |   |   |   |   |   |   |   |   |   |
| Basic                                                          |   | $                                                   | (0.05       | )                                                    | $      | (0.08 | ) | $ | (0.01 | ) | $ | 0.01 |   |
| Diluted                                                        |   | $                                                   | (0.05       | )                                                    | $      | (0.06 | ) | $ | (0.01 | ) | $ | 0.01 |   |

----

| **27.** | **Commitments                and Contingencies** |
|---------|--------------------------------------------------|

|                                              |   | September                30, |    |
|---------------------------------------------------|--------|------------------------------|---------|
|                                              |   | 2008                         |    |
|                                              |   | (Unaudited)                  |    |
| Rental                and Property Management Fee |   |                         |    |   |
| Within                one year                    |   | $                            | 98,986  |   |
| One                to two year                    |   |                         | 78,639  |   |
| Total                commitments payable          |   | $                            | 177,625 |   |

| **28.** | **Segment                Information** |
|---------|----------------------------------------|

|   | 1. | Benda                Ebei produces branded 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. |
|--------|----|--------------------------------------------------------------------|

----

|                                               |   | NINE MONTHS ENDED SEPTEMBER 30, |        | THREE MONTHS ENDED SEPTEMBER 30 |   |
|----------------------------------------------------|--------|-----------------------------------------------------|-------------|-----------------------------------------------------|--------|
|                                               |   | 2008                                                |        | 2007                                                |   | 2008 |   | 2007 |   |
|                                               |   | (Unaudited)                                         |        | (Unaudited)                                         |   | (Unaudited) |   | (Unaudited) |   |
| *Branded/Generic medicine segment * |   | 2008                                                |        | 2007                                                |   | 2008 |   | 2007 |   |
| Revenue from external customers     |   | $                                                   | 17,439,205  |                                                | $      | 11,780,412 |   | $ | 5,973,012 |   | $ | 5,749,690 |   |
| Cost                of sales                       |   |                                                | (11,479,479 | )                                                   |   | (7,325,194 | ) |   | (3,831,922 | ) |   | (3,552,328 | ) |
| Gross                profit                        |   |                                                | 5,959,726   |                                                |   | 4,455,218 |   |   | 2,141,090 |   |   | 2,197,362 |   |
| Gross                margin                        |   |                                                | 34          | %                                                   |   | 38 | % |   | 36 | % |   | 38 | % |
| Research                and development            |   |                                                | -           |                                                |   | - |   |   | - |   |   | - |   |
| Selling                expense                     |   |                                                | (1,093,119  | )                                                   |   | (154,359 | ) |   | (319,636 | ) |   | (60,925 | ) |
| General                and administrative expense  |   |                                                | (516,513    | )                                                   |   | (829,340 | ) |   | (29,908 | ) |   | (92,252 | ) |
| Segment                contribution                |   | $                                                   | 4,350,094   |                                                | $      | 3,471,519 |   | $ | 1,791,546 |   | $ | 2,044,185 |   |
| Contribution                margin                 |   |                                                | 25          | %                                                   |   | 29 | % |   | 30 | % |   | 36 | % |
|                                               |   |                                                |        |                                                |   |   |   |   |   |   |   |   |   |
| Total                assets, segment               |   | $                                                   | 39,164,262  |                                                | $      | 27,406,710 |   | $ | 38,243,467 |   | $ | 27,406,710 |   |

| *Active                pharmaceutical ingredients segment* |   | 2008   |       | 2007   |   | 2008      |   | 2007   |      |
|------------------------------------------------------------|--------|--------|------------|--------|--------|-----------|--------|--------|-----------|
| Revenue                from external customers             |   | $      | 609,139    |   | $      | -         |   | $      | 28,807    |   | $ | - |   |
| Cost                of sales                               |   |   | (669,313   | )      |   | (5,863    | )      |   | (30,784   | ) |   | (26 | ) |
| Gross                profit                                |   |   | (60,174    | )      |   | (5,863    | )      |   | (1,977    | ) |   | (26 | ) |
| Gross                margin                                |   |   | -10        | %      |   | -         |   |   | -7        | % |   | - |   |
| Research                and development                    |   |   | -          |   |   | (355      | )      |   | -         |   |   | (355 | ) |
| Selling                expense                             |   |   | (3,716     | )      |   | -         |   |   | (3,359    | ) |   | - |   |
| General                and administrative expense          |   |   | (1,154,333 | )      |   | (55,568   | )      |   | (127,767  | ) |   | (39,794 | ) |
| Segment                contribution                        |   | $      | (1,218,223 | )      | $      | (61,786   | )      | $      | (133,103  | ) | $ | (40,175 | ) |
| Contribution                margin                         |   |   | -200       | %      |   | -         |   |   | -462      | % |   | - |   |
|                                                       |   |   |       |   |   |      |   |   |      |   |   |   |   |
| Total                assets, segment                       |   | $      | 8,545,875  |   | $      | 7,678,034 |   | $      | 8,436,445 |   | $ | 7,678,034 |   |

| *Bulk                chemicals segment*           |   | 2008   |      | 2007   |   | 2008      |   | 2007   |      |
|---------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|
| Revenue                from external customers    |   | $      | -         |   | $      | 701,590   |   | $      | -         |   | $ | 3,071 |   |
| Cost                of sales                      |   |   | -         |   |   | (388,657  | )      |   | -         |   |   | (1,701 | ) |
| Gross                profit                       |   |   | -         |   |   | 312,933   |   |   | -         |   |   | 1,370 |   |
| Gross                margin                       |   |   | -         |   |   | 45        | %      |   | -         |   |   | 45 | % |
| Research                and development           |   |   | -         |   |   | -         |   |   | -         |   |   | - |   |
| Selling                expense                    |   |   | -         |   |   | (26,669   | )      |   | -         |   |   | (116 | ) |
| General                and administrative expense |   |   | (438,355  | )      |   | (828,357  | )      |   | (132,387  | ) |   | (68,111 | ) |
| Segment                contribution               |   | $      | (438,355  | )      | $      | (542,093  | )      | $      | (132,387  | ) | $ | (66,857 | ) |
| Contribution                margin                |   |   | -         |   |   | -77       | %      |   | -         |   |   | -2177 | % |
|                                              |   |   |      |   |   |      |   |   |      |   |   |   |   |
| Total                assets, segment              |   | $      | 7,553,516 |   | $      | 6,943,868 |   | $      | 7,694,510 |   | $ | 6,943,868 |   |

| *Pharynigitis                killer therapy segment* |   | 2008   |    | 2007   |   | 2008    |   | 2007   |    |
|------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|---------|
| Revenue                from external customers       |   | $      | 3,106   |   | $      | 35,791  |   | $      | 978     |   | $ | 12,738 |   |
| Cost                of sales                         |   |   | (3,397  | )      |   | (4,843  | )      |   | (3,280  | ) |   | (3,656 | ) |
| Gross                profit                          |   |   | -291    |   |   | 30,948  |   |   | (2,302  | ) |   | 9,082 |   |
| Gross                margin                          |   |   | -9      | %      |   | 86      | %      |   | -235    | % |   | 71 | % |
| Research                and development              |   |   | -       |   |   | -       |   |   | -       |   |   | - |   |
| Selling                expense                       |   |   | (4,346  | )      |   | (34,526 | )      |   | (1,692  | ) |   | (11,999 | ) |
| General                and administrative expense    |   |   | (24,548 | )      |   | (81,814 | )      |   | (4,321  | ) |   | (30,211 | ) |
| Segment                contribution                  |   | $      | (29,185 | )      | $      | (85,392 | )      | $      | (8,315  | ) | $ | (33,128 | ) |
| Contribution                margin                   |   |   | -940    | %      |   | -239    | %      |   | -850    | % |   | -260 | % |
|                                                 |   |   |    |   |   |    |   |   |    |   |   |   |   |
| Total                assets, segment                 |   | $      | 99,744  |   | $      | 115,588 |   | $      | 108,332 |   | $ | 115,588 |   |

| *Gendicine                (Ad-p53) segment*       |   | 2008   |       | 2007   |   | 2008       |   | 2007   |       |
|---------------------------------------------------|--------|--------|------------|--------|--------|------------|--------|--------|------------|
| Revenue                from external customers    |   | $      | 1,808,607  |   | $      | 3,278,502  |   | $      | 631,637    |   | $ | 1,793,944 |   |
| Cost                of sales                      |   |   | (458,205   | )      |   | (381,836   | )      |   | (347,554   | ) |   | (212,568 | ) |
| Gross                profit                       |   |   | 1,350,402  |   |   | 2,896,666  |   |   | 284,083    |   |   | 1,581,376 |   |
| Gross                margin                       |   |   | 75         | %      |   | 88         | %      |   | 45         | % |   | 88 | % |
| Research                and development           |   |   | (249,357   | )      |   | (309,729   | )      |   | (79,576    | ) |   | (212,610 | ) |
| Selling                expense                    |   |   | (1,021,508 | )      |   | (459,459   | )      |   | (366,790   | ) |   | (257,087 | ) |
| General                and administrative expense |   |   | (518,651   | )      |   | (492,063   | )      |   | (33,311    | ) |   | (159,643 | ) |
| Segment                contribution               |   | $      | (439,114   | )      | $      | 1,635,415  |   | $      | (195,594   | ) | $ | 952,036 |   |
| Contribution                margin                |   |   | -24        | %      |   | 50         | %      |   | -31        | % |   | 53 | % |
|                                              |   |   |       |   |   |       |   |   |       |   |   |   |   |
| Total                assets, segment              |   | $      | 13,808,709 |   | $      | 12,449,840 |   | $      | 14,048,551 |   | $ | 12,449,840 |   |

|                                                 |   | TOTAL  |        | TOTAL  |   |
|------------------------------------------------------|--------|--------|-------------|--------|--------|
|                                                 |   | 2008   |        | 2007   |   | 2008 |   | 2007 |   |
| Total                revenue from external customers |   | $      | 19,860,057  |   | $      | 15,796,295 |   | $ | 6,634,434 |   | $ | 7,559,443 |   |
| Cost                of sales                         |   |   | (12,610,394 | )      |   | (8,106,393 | ) |   | (4,213,540 | ) |   | (3,770,279 | ) |
| Gross                profit                          |   |   | 7,249,663   |   |   | 7,689,902 |   |   | 2,420,894 |   |   | 3,789,164 |   |
| Gross                margin                          |   |   | 37          | %      |   | 49 | % |   | 36 | % |   | 50 | % |
| Research                and development              |   |   | (249,357    | )      |   | (310,084 | ) |   | (79,576 | ) |   | (212,965 | ) |
| Selling                expense                       |   |   | (2,122,689  | )      |   | (675,013 | ) |   | (691,477 | ) |   | (330,127 | ) |
| General                and administrative expense    |   |   | (2,652,400  | )      |   | (2,287,142 | ) |   | (327,694 | ) |   | (390,011 | ) |
| Segment                contribution                  |   | $      | 2,225,217   |   | $      | 4,417,663 |   | $ | 1,322,147 |   | $ | 2,856,061 |   |
| Contribution                margin                   |   |   | 11          | %      |   | 28 | % |   | 20 | % |   | 38 | % |
|                                                 |   |   |        |   |   |   |   |   |   |   |   |   |   |
| Total                assets, segment                 |   | $      | 69,172,106  |   | $      | 54,594,041 |   | $ | 68,531,305 |   | $ | 54,594,041 |   |

----

|                                                                           |   | NINE MONTHS ENDED SEPTEMBER 30, |       | THREE MONTHS ENDED SEPTEMBER 30 |   |
|--------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|-----------------------------------------------------|--------|
|                                                                           |   | 2008                                                |       | 2007                                                |   | 2008 |   | 2007 |   |
|                                                                           |   | (Unaudited)                                         |       | (Unaudited)                                         |   | (Unaudited) |   | (Unaudited) |   |
| Total                segment contribution                                      |   | $                                                   | 2,225,217  |                                                | $      | 4,417,663 |   | $ | 1,322,147 |   | $ | 2,856,061 |   |
| Unallocated                amounts:                                            |   |                                                |       |                                                |   |   |   |   |   |   |   |   |   |
| Loss                on disposal of fixed assets                                |   |                                                | -          |                                                |   | (8,398 | ) |   | - |   |   | 6,533 |   |
| Other                income                                                    |   |                                                | 10,140     |                                                |   | 113,364 |   |   | (237,918 | ) |   | 23,206 |   |
| Government                subsidy                                              |   |                                                | -          |                                                |   | 1,690,974 |   |   | - |   |   | 1,417,859 |   |
| Other                corporate expenses                                        |   |                                                | (6,249,168 | )                                                   |   | (11,957,668 | ) |   | (1,712,054 | ) |   | (2,265,858 | ) |
|                                                                           |   |                                                |       |                                                |   |   |   |   |   |   |   |   |   |
| Total                income / (loss) before minority interest and income taxes |   | $                                                   | (4,013,811 | )                                                   | $      | (5,744,065 | ) | $ | (627,825 | ) | $ | 2,037,801 |   |

|                                                             |   | NINE MONTHS ENDED SEPTEMBER 30 |      | THREE MONTHS ENDED SEPTEMBER 30 |   |
|------------------------------------------------------------------|--------|----------------------------------------------------|-----------|-----------------------------------------------------|--------|
|                                                             |   | 2008                                               |      | 2007                                                |   | 2008 |   | 2007 |   |
|                                                             |   | (Unaudited)                                        |      | (Unaudited)                                         |   | (Unaudited) |   | (Unaudited) |   |
| Consulting and                professional fee              |   | $                                                  | -         |                                                | $      | 8,222,184 |   | $ | - |   | $ | 339,768 |   |
| Penalty                to investor                               |   |                                               | 1,380,173 |                                                |   | 540,000 |   |   | 266,768 |   |   | 420,000 |   |
| Wages                and salaries                                |   |                                               | 295,421   |                                                |   | 66,199 |   |   | 102,746 |   |   | 65,000 |   |
| Audit                and accounting                              |   |                                               | 130,735   |                                                |   | 208,692 |   |   | 24,672 |   |   | 9,982 |   |
| Amortization                of debt issue cost                   |   |                                               | 198,360   |                                                |   | 134,653 |   |   | 66,603 |   |   | 67,384 |   |
| Consulting                fee                                    |   |                                               | 560,040   |                                                |   | 35,000 |   |   | 188,080 |   |   | 35,000 |   |
| Investor                relation, transfer agent and filing fees |   |                                               | 30,843    |                                                |   | 92,641 |   |   | 2,720 |   |   | 26,788 |   |
| Director                renumeration                             |   |                                               | 162,968   |                                                |   | 58,959 |   |   | 22,500 |   |   | 25,014 |   |
| Legal                fee                                         |   |                                               | 107,315   |                                                |   | 39,708 |   |   | 30,640 |   |   | 329 |   |
| Cash                bonus                                        |   |                                               | -         |                                                |   | 173,400 |   |   | - |   |   | - |   |
| Travel                and transportation                         |   |                                               | 4,844     |                                                |   | 32,448 |   |   | - |   |   | 22,779 |   |
| Office                expense                                    |   |                                               | 1,120     |                                                |   | 20,191 |   |   | - |   |   | 17,894 |   |
| Interest                expense                                  |   |                                               | 3,339,457 |                                                |   | 2,207,878 |   |   | 998,877 |   |   | 1,141,472 |   |
| Miscellaneous                                                    |   |                                               | 37,892    |                                                |   | 125,715 |   |   | 8,448 |   |   | 94,448 |   |
| Total                                                            |   | $                                                  | 6,249,168 |                                                | $      | 11,957,668 |   | $ | 1,712,054 |   | $ | 2,265,858 |   |

|                                                   |   | September 30,  |       | September 30,  |   |
|--------------------------------------------------------|--------|--------------------------|------------|--------------------------|--------|
|                                                   |   | 2008                |       | 2007                |   |
|                                                   |   | (Unaudited)         |       | (Unaudited)         |   |
| Total assets, segment                   |   | $                        | 69,172,106 |                     | $      | 54,594,041 |   |
|                                                   |   |                     |       |                     |   |   |   |
| Total                assets of corporate:              |   |                     |       |                     |   |   |   |
| Cash                and cash equivalent                |   |                     | 39,615     |                     |   | 221,298 |   |
| Bank                indebtedness                       |   |                     | 1,259,525  |                     |   | 1,218,240 |   |
| Prepaid                expesnes and deposit            |   |                     | 5,672      |                     |   | 9,983 |   |
| Refundable                purchase price paid          |   |                     | 1,200,000  |                     |   | 1,200,000 |   |
| Due                from related parties                |   |                     | 670,541    |                     |   | 1,099,345 |   |
| Debit                issue costs:                      |   |                     |       |                     |   |   |   |
| placement                agent commission              |   |                     | 129,585    |                     |   | 394,547 |   |
| Accumulative                other comprehensive income |   |                     |       |                     |   |   |   |
|                                                   |   |                     |       |                     |   |   |   |
| Total                assets                            |   | $                        | 72,477,044 |                     | $      | 58,737,454 |   |

----

|                                                           |   | **Nine Months Ended September 30, 2008** |      |
|----------------------------------------------------------------|--------|-------------------------------------------------------------------|-----------|
|                                                           |   | Benda                                                        |      | Jiangling  |   | Yidu  |   | Beijing  |   |   |   |   |   |
|                                                           |   | Ebei                                                         |      | Benda  |   | Benda  |   | Shusai  |   | SiBiono  |   | Total  |   |
| **Segment operating profit                / (loss)** |   | $                                                                 | 4,350,094 |   |   | (1,218,223 | ) |   | (438,355 | ) |   | (29,185 | ) |   | (439,114 | ) | $ | 2,225,217 |   |
| Interest                income/ (expenses)                     |   |                                                              | (339,014  | ) |   | 1,010 |   |   | 6 |   |   | (8 | ) |   | (142,689 | ) |   | (480,695 | ) |
| Other                income / (expenses)                       |   |                                                              | (13,874   | ) |   | 228 |   |   | 2,953 |   |   | 6,820 |   |   | 14,013 |   |   | 10,140 |   |
| Income                taxes                                    |   |                                                              | (907,176  | ) |   | - |   |   | - |   |   | - |   |   | - |   |   | (907,176 | ) |
| **Income                / (loss) before minority interest**    |   | $                                                                 | 3,090,030 |   |   | (1,216,985 | ) |   | (435,396 | ) |   | (22,373 | ) |   | (567,790 | ) | $ | 847,486 |   |
|                                                           |   |                                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MI                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 | ) |

|                                                        |   | **Nine Months Ended September 30, 2007** |      |
|-------------------------------------------------------------|--------|-------------------------------------------------------------------|-----------|
|                                                        |   | Benda                                                        |      | Jiangling  |   | Yidu  |   | Beijing  |   |   |   |   |   |
|                                                        |   | Ebei                                                         |      | Benda  |   | Benda  |   | Shusai  |   | SiBiono  |   | Total  |   |
| **Segment                operating profit / (loss)**        |   | $                                                                 | 3,471,519 |   |   | (61,786 | ) |   | (542,093 | ) |   | (85,392 | ) |   | 1,635,415 |   | $ | 4,417,663 |   |
| Loss                on disposal of assets                   |   |                                                              | -         |   |   | (3,278 | ) |   | (5,120 | ) |   | - |   |   | - |   |   | (8,398 | ) |
| Interest                income/ (expenses)                  |   |                                                              | (45,895   | ) |   | 90 |   |   | (2,620 | ) |   | (21 | ) |   | (96,247 | ) |   | (144,693 | ) |
| Government                subsidy                           |   |                                                              | -         |   |   | - |   |   | - |   |   | - |   |   | 1,690,974 |   |   | 1,690,974 |   |
| Other                income / (expenses)                    |   |                                                              | (2,879    | ) |   | (14,268 | ) |   | 2,638 |   |   | (1,303 | ) |   | 129,176 |   |   | 113,364 |   |
| **Income                / (loss) before minority interest** |   | $                                                                 | 3,422,745 |   |   | (79,242 | ) |   | (547,195 | ) |   | (86,716 | ) |   | 3,359,318 |   | $ | 6,068,910 |   |
|                                                        |   |                                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MI                percentage                                |   |                                                              | 5.00      | % |   | 9.75 | % |   | 9.75 | % |   | 28.75 | % |   | 42.88 | % |   |   |   |
| MI                interest                                  |   | $                                                                 | 171,137   |   |   | (7,726 | ) |   | (53,352 | ) |   | (24,931 | ) |   | 1,440,358 |   | $ | 1,525,486 |   |

| **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. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **Item** |   | **Patent name**                                                                                                                                           |   | **Countries****/ Date** |   | **Application****Number (1)** |   | **Publication****Number (2)** |   | **Approved Patent****Number (3)** |    | **Name of Patent****Inventor (6)** |   | **Name of****Applicant (6)** |   | **Patent****Assignees**       |
|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|------------------------------------|--------|------------------------------------|--------|---------------------------------------------|--------------|---------------------------------------------------|--------|----------------------------------------|--------|-------------------------------|
| 1   |   | A new method for manufacturing                  recombinant adenovirus                                                                     |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | A                                                                                                                                                              |   | China                        |   | 98123346.5                         |   | CN1228474A                         |   | ZL98123346.5                                |         | Peng                                              |   | Peng                                   |   | SiBiono                       |
|     |   |                                                                                                                                                           |   | Date                         |   | 1998/12/14                         |   | 1999/9/15                          |   | 2002/7/3                                    |         |                                              |   |                                   |   |                          |
| 2        |   | A                      recombinant constructed by a virus vector and a human tumor                      suppressor gene and its use                       |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | A                                                                                                                                                              |   | China                        |   | 02115228.4                         |   | CN1401778A                         |   | ZL02115228.4                                |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | Peng                  / Zhang |
|     |   |                                                                                                                                                           |   | Date                         |   | 2002/5/8                           |   | 2003/3/12                          |   | 2004/11/24                                  |         |                                              |   |                                   |   |                          |
|     |   |                                                                                                                                                           |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | B                                                                                                                                                              |   | PCT                  (4)     |   | 65                                 |   | WO2004/078987A1                    |   | Not                  Approved               |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | N/A                           |
|     |   |                                                                                                                                                           |   | Date                         |   | 2004/3/8                           |   | 2004/9/16                          |   | N/A                                         |         |                                              |   |                                   |   |                          |
| 3        |   | Recombinant                    gene medicine of adenovirus vector and and gene p54 for treating                    proloferative diseases                      |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | A                                                                                                                                                              |   | China                        |   | 03125129.3                         |   | CN1471977A                         |   | ZL03125129.3                                |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | Peng                  / Zhang |
|     |   |                                                                                                                                                           |   | Date                         |   | 2003/5/10                          |   | 2004/2/4                           |   | 2007/7/25                                   |         |                                              |   |                                   |   |                          |
|     |   |                                                                                                                                                           |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | B                                                                                                                                                              |   | PCT                  (4)     |   | 58                                 |   | WO2004/104204A1                    |   | Not                  Approved               |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | N/A                           |
|     |   |                                                                                                                                                           |   | Date                         |   | 2004/5/9                           |   | 2004/12/2                          |   | N/A                                         |         |                                              |   |                                   |   |                          |
| 4        |   | The                    application of recombinant adenoviral p53 as cancer vaccine (tentative                    title)                                        |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | A                                                                                                                                                              |   | China                        |   | 200510002779.1                     |   | CN1679641A                         |   | ZL200510002779.1                            |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | Peng                  / Zhang |
|     |   |                                                                                                                                                           |   | Date                         |   | 2005/1/26                          |   | 2005/10/12                         |   | 2007/8/29                                   |         |                                              |   |                                   |   |                          |
|     |   |                                                                                                                                                           |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | B                                                                                                                                                              |   | PCT                  (4)     |   | 11                                 |   | WO2006/079244A1                    |   | Not                  Approved               |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | N/A                           |
|     |   |                                                                                                                                                           |   | Date                         |   | 2005/1/26                          |   | 2006/8/3                           |   | N/A                                         |         |                                              |   |                                   |   |                          |
|     |   |                                                                                                                                                           |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | C                                                                                                                                                              |   | US                  (5)      |   | 11/075035                          |   | 2005/0281785A1                     |   | Not                  Approved               |         | Peng                  / Zhang                     |   | Unidentified                  Yet      |   | N/A                           |
|     |   |                                                                                                                                                           |   | Date                         |   | 2005/3/7                           |   | 2005/12/22                         |   | N/A                                         |         |                                              |   |                                   |   |                          |
| 5        |   | Human                  Embryonic Kidney (HEK) sub-clone cell line                                                                                              |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | A                                                                                                                                                              |   | China                        |   | 03126889.7                         |   | CN1513985A                         |   | Not                  Approved               |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | N/A                           |
|     |   |                                                                                                                                                           |   | Date                         |   | 2003/6/13                          |   | 2004/7/21                          |   | N/A                                         |         |                                              |   |                                   |   |                          |
|     |   |                                                                                                                                                           |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | B                                                                                                                                                              |   | PCT                  (4)     |   | 57                                 |   | WO2004/111239                      |   | Not                  Approved               |         | Peng                  / Zhang                     |   | Peng                  / Zhang          |   | N/A                           |
|     |   |                                                                                                                                                           |   | Date                         |   | 2004/5/9                           |   | 2004/12/23                         |   | N/A                                         |         |                                              |   |                                   |   |                          |
| 6        |   | The                    complex of polypeptide liposome and human VGEF gene, and its                    use and human                    VGEF gene, and its use |   |                         |   |                               |   |                               |   |                                        |         |                                              |   |                                   |   |                          |
|     |   | A                                                                                                                                                              |   | China                        |   | 02134321.7                         |   | CN1389269A                         |   | Not                  Approved               |         | Peng                  / Zhang / Zhu               |   | Peng                  / Zhang / Zhu    |   | N/A                           |
|     |   |                                                                                                                                                           |   | Date                         |   | 2002/7/4                           |   | 2003/1/8                           |   | N/A                                         |         |                                              |   |                                   |   |                          |

|  | (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. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | As                mentioned in Note 12, following this arbitration decision, Benda                Ebei has                the obligation to pay the total acquisition cost payable of Rmb 12.48                million, plus the penalty and related legal and arbitration expenses,                totaling approximately Rmb 12.80 million (or $1.87 million). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**Critical      Accounting Policies**

**Revenue      Recognition**

----

**Operational      Results **

----

|                                                                       |   | **September**   |        | **September**   |   |
|----------------------------------------------------------------------------|--------|-----------------|-------------|-----------------|--------|
|                                                                       |   | **2008**        |        | **2007**        |   |
|                                                                       |   | **(Unaudited)** |        | **(Unaudited)** |   |
| Revenue                                                                    |   | $               | 19,860,057  |            | $      | 15,796,295 |   |
| Cost                  of goods sold                                        |   |            | (12,610,394 | )               |   | (8,106,393 | ) |
| Gross                  profit                                              |   |            | 7,249,663   |            |   | 7,689,902 |   |
|                                                                       |   |            |        |            |   |   |   |
| Selling                  expenses                                          |   |            | (2,122,689  | )               |   | (675,013 | ) |
|                                                                       |   |            |        |            |   |   |   |
| General                  and administravive expenses                       |   |            | (5,562,111  | )               |   | (12,036,932 | ) |
| Gains                  / (losses) on disposals of fixed assets             |   |            | -           |            |   | (8,398 | ) |
| Research                  and development expenses                         |   |            | (249,357    | )               |   | (310,084 | ) |
| Total                  operating expenses                                  |   |            | (7,934,157  | )               |   | (13,030,427 | ) |
| Operating                  income / (loss)                                 |   |            | (684,494    | )               |   | (5,340,525 | ) |
|                                                                       |   |            |        |            |   |   |   |
| Interest                  expenses                                         |   |            | (3,339,457  | )               |   | (2,207,878 | ) |
| Other                  income (expenses)                                   |   |            | 10,140      |            |   | 113,364 |   |
| Government                  subsidies / grants                             |   |            | -           |            |   | 1,690,974 |   |
|                                                                       |   |            |        |            |   |   |   |
| Income                  / (loss) before minority interest and income taxes |   |            | (4,013,811  | )               |   | (5,744,065 | ) |
| Income                  taxes                                              |   |            | (907,176    | )               |   | - |   |
| Minority                  interest                                         |   |            | 256,486     |            |   | (1,525,486 | ) |
|                                                                       |   |            |        |            |   |   |   |
| Net                  Income / (loss)                                       |   | $               | (4,664,501  | )               | $      | (7,269,551 | ) |
|                                                                       |   |            |        |            |   |   |   |
| Earnings                  / (loss) per share - basic                       |   | $               | (0.05       | )               | $      | (0.08 | ) |
|                                                                       |   |            |        |            |   |   |   |
| Weighted                  average shares outstanding - basic               |   |            | 100,887,853 |            |   | 96,872,524 |   |
|                                                                       |   |            |        |            |   |   |   |
| Earnings                  / (loss) per share - diluted                     |   | $               | (0.05       | )               | $      | (0.06 | ) |
|                                                                       |   |            |        |            |   |   |   |
| Weighted                  average shares outstanding - diluted             |   |            | 100,312,873 |            |   | 125,103,425 |   |

*Net      Revenue:*

| 1. | One                of the Benda’s subsidiary, Benda Ebei’s net revenue increased $5.6 million                (or 47.5%) to $17.4 million for the nine months ended September 30,                2008                from $11.8 million for the nine months ended September 30, 2007.                It was                mainly due to the increase sales of the existing major products and                they                are shown in the table below: |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | Nine months ended September 30, |   | Variance |   | Variance          |   |
|------------------------------------|--------|-----------------------------------------------------|--------|----------|--------|-------------------|--------|
| Products (Million)            |   | 2008                                                |   | 2007     |   | + / (-) |   | + / (-) % |   |
| Lincomycin                         |   | $                                                   | 0.90   |     | $      | 0.80              |   | $ | 0.10 |   |   | 13 | % |
| Kanamycin                          |   | $                                                   | 0.30   |     | $      | 0.11              |   | $ | 0.18 |   |   | 161 | % |
| Suzheng-B                          |   | $                                                   | 2.19   |     | $      | 1.91              |   | $ | 0.28 |   |   | 15 | % |
| Jixuening                          |   | $                                                   | 1.64   |     | $      | 1.31              |   | $ | 0.34 |   |   | 26 | % |
| Shusai-A                           |   | $                                                   | 1.40   |     | $      | 0.90              |   | $ | 0.50 |   |   | 55 | % |
| Huitening                          |   | $                                                   | 1.43   |     | $      | 0.63              |   | $ | 0.80 |   |   | 126 | % |
| Vitamin                  Injection |   | $                                                   | 1.05   |     | $      | 0.85              |   | $ | 0.20 |   |   | 24 | % |

| 2. | One                of the Benda’s subsidiary, Jiangling Benda which resumed its production in                October 2007 and achieved $0.6 million for nine month ended September                30,                2008. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | One                of the Benda’s subsidiary, Yidu Benda’s net revenue dropped $0.7 million                (or 100%) to zero for the nine months ended September 30, 2008 from                $0.7                million for the nine months ended September 30, 2007 due to the fact                that                the plant was temporarily closed since mid January to upgrade its                waster                water treatment system to comply with new environmental standards                enforced                by PRC local government. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 4. | One                of the Benda’s subsidiary, 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 subsidiary, SiBiono, acquired and effective since April 1,                2007, net revenue decreased $1.5 million (or 42.8%) to $1.8 million                for                the nine months ended September 30, 2008 from $3.3 million for the                nine                months ended September 30, 2007. The reason for the dropped in net                revenue                is mainly due to the fact that SiBiono was underwent a process of                re-engineering of the production department during the reporting                period.                With such re-engineering, the management believes that there would                be                rapid growth in the following quarters. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Cost      of Goods Sold*

*Gross      Profit *

*Selling      Expenses:*

*General      and Administrative Expenses:*

*Operating      Income/ (Loss):*

*Interest      Expenses:*

*Income      Taxes:*

----

| Year                               |   |   | Tax                rate |   |
|------------------------------------|--------|--------|-------------------------|--------|
| 2008                               |   |   | 18                      | %      |
| 2009                               |   |   | 20                      | %      |
| 2010                               |   |   | 22                      | %      |
| 2011                               |   |   | 24                      | %      |
| 2012                and thereafter |   |   | 25                      | %      |

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

|   | 1. | $2.61                million that incurred as interest expenses related to the amortization                of                discount on long-term debt and issuance cost associated with the                warrants                and the beneficial conversion features (please refer to Note 24 of                the                Notes to Consolidated Financial Statements for                details); |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | $0.5                million that incurred as the penalty payment made in form of shares                issuance to PIPE investors due to the late effective of the registered                statement; and |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Other                factors: $534K incurred on bad debt provision; $1.4 million incurred                on                depreciation; $567K incurred on amortization of intangible assets;                and                $198K incurred on amortization of debt issue cost. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b) | Trade                receivables |
|----|----------------------------------|

----

*Trade      receivables*

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

|   | b) | Due                to the fact that there was a big natural disaster, earthquake that                happened in the second quarter, it did affect the collection of trade                receivables to certain extend; and |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Item      3.**
**Quantitative      and Qualitative Disclosures About Market Risk**

**Item      4T.  Evaluation of Disclosure Controls and Procedures**

*Evaluation      of Disclosure Controls.*

*Changes      in internal control over financial reporting.*

----

**PART      II - OTHER INFORMATION**

**Item      1. Legal Proceedings.**

| 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. |
|----|--------------------------------------------------------------------------------------------------------|

|     |                                                                                                                                | **Countries**          | **Application**     | **Publication**     | **Approved Patent**    | ** Name of Patent** | **Name of**                  | **Patent**                  |
|----------|-------------------------------------------------------------------------------------------------------------------------------------|------------------------|---------------------|---------------------|-----------------------------|------------------------------------|-----------------------------------|-----------------------------|
| **Item** | **Patent name**                                                                                                                | **/ Date**        | **Number (1)** | **Number (2)** | **Number (3)**         | **Inventor (6)**              | **Applicant (6) **      | ** Assignees**         |
| 1        | A                new method for manufacturing recombinant adenovirus                                                                |                   |                |                |                        |                               |                              |                        |
|     |  A                                                                                                                             | China                  | 98123346.5          | CN1228474A          | ZL98123346.5                | Peng                               | Peng                              | SiBiono                     |
|     |                                                                                                                                | Date                   | 1998/12/14          | 1999/9/15           | 2002/7/3                    |                               |                              |                        |
| 2        | A                recombinant constructed by a virus vector and a human tumor suppressor                gene and its use             |                   |                |                |                        |                               |                              |                        |
|     |  A                                                                                                                             | China                  | 02115228.4          | CN1401778A          | ZL02115228.4                | Peng                / Zhang        | Peng                / Zhang       | Peng                / Zhang |
|     |                                                                                                                                | Date                   | 2002/5/8            | 2003/3/12           | 2004/11/24                  |                               |                              |                        |
|     | B                                                                                                                                   | PCT                (4) | 65                  | WO2004/078987A1     | Not                Approved | Peng                / Zhang        | Peng                / Zhang       | N/A                         |
|     |                                                                                                                                | Date                   | 2004/3/8            | 2004/9/16           | N/A                         |                               |                              |                        |
| 3        | Recombinant                gene medicine of adenovirus vector and and                gene p54 for treating proloferative diseases   |                   |                |                |                        |                               |                              |                        |
|     | A                                                                                                                                   | China                  | 03125129.3          | CN1471977A          | ZL03125129.3                | Peng                / Zhang        | Peng                / Zhang       | Peng                / Zhang |
|     |                                                                                                                                | Date                   | 2003/5/10           | 2004/2/4            | 2007/7/25                   |                               |                              |                        |
|     | B                                                                                                                                   | PCT                (4) | 58                  | WO2004/104204A1     | Not                Approved | Peng                / Zhang        | Peng                / Zhang       | N/A                         |
|     |                                                                                                                                | Date                   | 2004/5/9            | 2004/12/2           | N/A                         |                               |                              |                        |
| 4        | The                application of recombinant adenoviral p53 as                cancer vaccine (tentative title)                     |                   |                |                |                        |                               |                              |                        |
|     | A                                                                                                                                   | China                  | 200510002779.1      | CN1679641A          | ZL200510002779.1            | Peng                / Zhang        | Peng                / Zhang       | Peng                / Zhang |
|     |                                                                                                                                | Date                   | 2005/1/26           | 2005/10/12          | 2007/8/29                   |                               |                              |                        |
|     | B                                                                                                                                   | PCT                (4) | 11                  | WO2006/079244A1     | Not                Approved | Peng                / Zhang        | Peng                / Zhang       | N/A                         |
|     |                                                                                                                                | Date                   | 2005/1/26           | 2006/8/3            | N/A                         |                               |                              |                        |
|          | C                                                                                                                                   | US                (5)  | 11/075035           | 2005/0281785A1      | Not                Approved | Peng                / Zhang        | Unidentified                Yet   | N/A                         |
|     |                                                                                                                                | Date                   | 2005/3/7            | 2005/12/22          | N/A                         |                               |                              |                        |
| 5        | Human                Embryonic Kidney (HEK) sub-clone cell line                                                                     |                   |                |                |                        |                               |                              |                        |
|     |  A                                                                                                                             | China                  | 03126889.7          | CN1513985A          | Not                Approved | Peng                / Zhang        | Peng                / Zhang       | N/A                         |
|     |                                                                                                                                | Date                   | 2003/6/13           | 2004/7/21           | N/A                         |                               |                              |                        |
|     |  B                                                                                                                             | PCT                (4) | 57                  | WO2004/111239       | Not                Approved | Peng                / Zhang        | Peng                / Zhang       | N/A                         |
|     |                                                                                                                                | Date                   | 2004/5/9            | 2004/12/23          | N/A                         |                               |                              |                        |
| 6        | The                complex of polypeptide liposome and human VGEF gene,                and its use and human VGEF gene, and its use |                   |                |                |                        |                               |                              |                        |
|     |  A                                                                                                                             | China                  | 02134321.7          | CN1389269A          | Not                Approved | Peng                / Zhang / Zhu  | Peng                / Zhang / Zhu | N/A                         |
|     |                                                                                                                                | Date                   | 2002/7/4            | 2003/1/8            | N/A                         |                               |                              |                        |

----

| (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. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Item      3. Defaults Upon Senior Securities.**

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

**Item      5. Other Information.**

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

----

**SIGNATURES**

|                                   | **BENDA                PHARMACEUTICAL, INC.**     |
|----------------------------------------|---------------------------------------------------|
|                                   | Registrant                                        |
|                                   |                                              |   |
| Date:                November 18, 2008 | By:                                          | */s/                Yiqing Wan* |
|                                   | Yiqing                Wan                         |
|                                   | President,                Chief Executive Officer |
|                                   | Chairman                of Board of Directors     |

----