UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      DC 20549





Form
      10-KSB




(Mark
      one)





x
            Annual
                Report Under Section 13 or 15(d) of The Securities Exchange Act of
                1934
                for the fiscal year ended June 30,
                2006





o
            Transition
                Report Under Section 13 or 15(d) of The Securities ExchangeAct
                of 1934





For
      the
      transition period from ______________ to _____________







Commission
      file number: 000-51684





**BITECH
                PHARMA, INC.**(Exact
                name of small business issuer as specified in its
                charter)





**Delaware**
            
            **75-2835075**(State
                or Other Jurisdiction
            
            (I.R.S.
                Employer I.D. No.)incorporation
                or organization)





3505
                Cadillac Ave., #F7
              Costa
                Mesa,CA
            
            92626(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer's
                telephone number
            **714-825-0680**





5980
                Horton Street, suite 405, Emeryville, California 94608(Former
                name, former address and former fiscal year, if changed since last
                report)





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:


Common
      stock, $0.001 par value







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





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





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





Registrant’s
      revenues for its most recent fiscal year were US $6,114,000.





There
      were 12,755,102 shares of Common Stock issued and outstanding as of November
      28,
      2006.





DOCUMENT
      INCORPORATED BY REFERENCE





EXHIBITS
      incorporates by reference certain information which has been filed with the
      Securities and Exchange Commission.





Transitional
      Small Business Disclosure Format: Yes  o No þ







**BiTech
      Pharma Inc.**





Table
      of
      Contents





Page
                Number**Part
                I**Item
                1
            Description
                of Business
            1Item
                2
            Description
                of Property
            45Item
                3
            Legal
                Proceedings
            46Item
                4
            Submission
                of Matters to a Vote of Security Holders
            36**Part
                II**Item
                5
            Market
                for Company's Common Stock and Related
            46Stockholders
                MattersItem
                6
            Management's
                Discussion and Analysis or Plan of Operation
            46Item
                7
            Financial
                Statements
            58Item
                8
            Changes
                in and Disagreements with Accountants onAccounting
                and Financial DisclosuresItem
                8A
            Controls
                and Procedures
            58**Part
                III**Item
                9
            Directors,
                Executive Officers, Promoters and Control Persons;
            59Compliance
                with Section 16(a) of the Exchange ActItem
                10
            Executive
                Compensation
            59Item
                11
            Security
                Ownership of Certain Beneficial Owners and
            63Management
                and Related Stockholder MattersItem
                12
            Certain
                Relationships and Related Transactions
            64Item
                13
            Exhibits
            64Item
                14
            Principal
                Accountant Fees and Services
            65FINANCIAL
                STATEMENTS
            F-1EXHIBITS











**PART
      I**





Certain
      statements in this report on Form 10-KSB (the “Report”) constitute
      "forward-looking statements." These forward-looking statements involve known
      and
      unknown risks, uncertainties, and other factors that may cause our actual
      results, performance or achievements to be materially different from any future
      results, performance or achievements expressed or implied by the forward-looking
      statements. The forward-looking statements in this Report are identified by
      words such as "believes", "anticipates", "expects", "intends", "may", "will",
      "estimate", "continue" and other similar expressions regarding our intent,
      belief and current expectations. However, these words are not the exclusive
      means of identifying such statements. In addition, any statements that refer
      to
      expectations, projections or other characterizations of future events or
      circumstances and statements made in the future tense are forward-looking
      statements. Actual results may differ materially from those projected in the
      forward-looking statements as a result of various factors, many of which are
      beyond our control. We undertake no obligation to publicly release the results
      of any revisions to these forward-looking statements that may be made to reflect
      events or circumstances occurring subsequent to the filing of this Report with
      the Securities and Exchange Commission. Readers are urged to carefully review
      and consider the various disclosures made by us in this Report, including those
      set forth under "Risk Factors".





**Item
      1 - Description of Business**





**Overview**





BiTech
      Pharma, Inc. (the “Company” or “BiTech”), formerly known as China RX Holdings,
      Inc., is a holding company with no significant independent operations and no
      significant assets other than the capital stock of its subsidiaries,
      ProteomTech, Inc. (“PTI”) and First Capital Asia Investments Limited (“First
      Capital”). In the following discussion, the words “the Group”, “we”, “our” and
“us” refer to the BiTech and its subsidiaries comprised of PTI, First Capital,
      and Guizhou Baite Pharmaceutical Co., Ltd. (“Baite”).





BiTech,
      which changed its name from China RX Holdings, Inc. to BiTech Pharma, Inc.
      on
      January 18, 2006, was incorporated in the State of Delaware on December 28,
      2004. On December 29, 2004, BTHC I, LLC, a Texas limited liability company
      (“Ballantrae LLC”), merged with and into BiTech.





Commencing
      on March 28, 2003, Ballantrae LLC filed for protection under Chapter 11 of
      the
      Federal Bankruptcy Act in the United States Bankruptcy Court, Northern District
      of Texas-Dallas Division. Prior to filing for bankruptcy protection, Ballantrae
      LLC and its related companies were engaged in the operation and management
      of
      nursing home facilities. The First Amended Joint Plan of Reorganization (the
      “Joint Plan”) was approved by the United States Bankruptcy Court on November 29,
      2004. As a result of Ballantrae LLC’s emergence from bankruptcy, the entity had
      no significant assets, liabilities or operating activities. From November 29,
      2004, the date the Joint Plan was approved by the bankruptcy court, through
      June
      30, 2005, the date that BiTech, the bankruptcy mandated successor to Ballantrae
      LLC, effected the combination transaction with PTI, the post-bankruptcy entity
      did not engage in any business operations other than seeking to satisfy the
      bankruptcy court’s requirement that the entity locate and combine with an
      existing privately-held company. Pursuant to the Joint Plan, the Company issued
      450,000 shares (“Plan Shares”) of common stock to certain of its creditors. The
      Plan Shares were issued pursuant to Section 1145(a)(1)(A) of the United States
      Bankruptcy Code (the “Bankruptcy Code”) and accordingly are not subject to the
      statutory restrictions on transferability, except those set forth in Section
      1145 of the Bankruptcy Code or otherwise applicable federal law.




1


First
      Capital was incorporated in the British Virgin Islands (“BVI”) on July 7, 2003.
      PTI is incorporated in the State of Delaware, and its operations are mainly
      focused on developing and producing therapeutic proteins. Lin’s Investment
      Management Co., Ltd., the only shareholder of First Capital, which held
      27,000,000 shares of common stock of PTI, owns 59.17% of the shares of PTI.
      Baite, as the 100% subsidiary of First Capital, is an affiliated company to
      PTI
      accordingly. In order to expand and develop the business of BiTech, on June
      30,
      2005, the Company acquired all of the equity interests of PTI and First Capital
      in exchange for the issuance of 11,505,102 shares of common stock, which
      represented approximately 90.2% of the issued and outstanding shares of common
      stock at the time of the exchange. As a result of these acquisitions, PTI and
      First Capital became wholly owned subsidiaries of the Company. The only business
      of First Capital is the operation of Baite, a company incorporated in the
      People’s Republic of China (the “PRC”). A chart of the structure of the
      companies, including BiTech, PTI, First Capital, and Baite, is illustrated
      as
      below:





Prior
      to
      the acquisition by BiTech





2








After
      the
      acquisition by BiTech


3





**Business
      of PTI**





PTI
      was
      incorporated in Delaware on April 6, 2001. PTI is a drug development company
      focusing on developing and producing therapeutic proteins.




**Overview
      of PTI**





PTI
      was
      established to commercialize a unique protein refolding technology (“Pt-Fold
      Technology”), which was initially developed by the company’s founder Dr. Henry
      Lin at the Oklahoma Medical Research Foundation (OMRF). When proteins are
      expressed in E. Coli, they tend to aggregate in insoluble inclusion bodies.
      The
      Pt-Fold technology can be used to convert these aggregated and denatured
      proteins to stable and active proteins. This conversion is considered a key
      step
      in protein production from E. Coli.





PTI
      is
      located in the San Francisco Bay Area. PTI’s main business is developing and
      producing therapeutic proteins through refolding E.coli inclusion bodies
      technology. PTI has developed a pipeline of two replacement protein drugs and
      two novel proteins with its potential first Investigational New Drug (IND)
      filing with the Food and Drug Administration of the United States (the “FDA”) at
      the end of 2006.





At
      present, PTI is primarily an R&D company with no marketed products, however,
      the company provides its customers with fee-based protein re-folding contracting
      services. As of June 30, 2006, we have entered into more than 20 contracts
      relating to the fee-based services, the majority of which brought in revenues
      in
      the range of $20,000 - $50,000. In addition to the fee-based service, our
      revenues are also from the licensing agreement and sale, lease of medical
      apparatus. In
      the
      fiscal year ended June 30 of 2005, the operating expense of PTI was $2,372,000,
      and in the fiscal year ended June 30 of 2006, the operating expense of PTI
      was
      $2,505,000. Since PTI is primarily an R&D company, the majority of the
      operating expense is directly or indirectly related to R&D
      activities.





Protein
      therapeutics is among the most successful biotechnology drugs in the past two
      decades. The top 10 biotechnology drugs in 2004 are all protein drugs, with
      $15.6 billion in combined US sales for the year (Standard & Poor Industry
      Surveys: Biotechnology, 12/2005). Currently there are hundreds of biotech and
      pharmaceutical companies engaging in protein drug development and
      commercialization. In our opinion, PTI’s potential competitive advantage is
      two-fold:





1)
      Using
      its proprietary protein refolding technology, PTI is capable of producing proven
      and promising therapeutic proteins that are difficult to produce by other
      methods, thus expanding the candidate pool of protein drugs.





2)
      By
      producing recombinant proteins in E. coli using Pt-Fold, PTI is able to produce
      high quality protein drugs in much shorter development time and at much lower
      cost compared to mammalian cell culture or other recombinant protein expression
      systems.





4


In
      addition, PTI is using its China affiliate’s facility for accelerated drug
      approval and marketing in China, and in turn to validate the clinical
      development investment in the US and global market.





However,
      PTI is a small company and has limited resources, which may prevent us from
      materializing our potential competitive advantage. In addition, we are facing
      fierce competition in both protein refolding and production technology and
      protein drug development. Many of these competing biotech and pharmaceutical
      companies have significantly greater financial resources, and larger research
      and development and marketing staffs than ours. It is also possible that our
      technology may lose its advantage or become obsolete due to continuous and
      substantial technological change in the biotech industry.





**Government
      Regulation**





Currently
      PTI does not have any products, but our future products and product candidates
      will be subject to comprehensive preclinical and clinical testing requirements
      and approval processes by the FDA and by similar authorities in other countries.
      All of PTI’s human therapeutic products will be classified as biologic products.
      The FDA regulatory process is carried out in several phases. Pre-clinical
      studies need to be conducted to test a proposed new biologic product in animal
      and laboratory models prior to human clinical testing. The results of these
      studies and scientific information on the proposed product are included in
      an
      Investigational New Drug Application (the “IND”) filed with the FDA. It also
      includes information on manufacture of the product and studies on toxicity
      in
      animals and a clinical protocol outlining the initial investigation in humans.





After
      IND
      is approved, the drug candidate can be tested in human clinical trials. The
      initial stage of clinical testing, Phase I, usually comprises safety,
      pharmacokinetic and pharmacodynamic evaluations. In Phase II testing, a drug
      candidate is investigated in specific disease states for preliminary efficacy
      data and additional information on safety. Phase III studies are designed to
      further establish clinical safety and efficacy and to provide information
      allowing proper labeling of the product following approval. Phase III studies
      are most commonly multi-center, randomized, placebo-controlled trials in which
      rigorous statistical methodology is applied to clinical results. Other designs
      may also be appropriate in specific circumstances.





Following
      completion of clinical trials, a Biologics License Application (the “BLA”) is
      submitted to the FDA to request marketing approval. Internal FDA committees
      are
      formed to evaluate the application, including scientific background information,
      animal and laboratory efficacy studies, toxicology, manufacturing facility
      and
      clinical data. Also, during the later stages of review, the FDA conducts an
      inspection of the manufacturing facility to establish that the product is made
      in compliance with Good Manufacturing Practice (the “GMP”). If all outstanding
      issues are satisfactorily resolved and labeling established, the FDA issues
      a
      license for the product and for the manufacturing facility, thereby authorizing
      commercial distribution.





5





The
      FDA
      has substantial discretion in both the product approval process and the
      manufacturing approval process. It is not possible to predict at what point,
      or
      whether, the FDA will be satisfied with our submissions or whether the FDA
      will
      raise questions which may delay or preclude product development, product
      approval or manufacturing facility approval. There is no assurance that PTI
      can
      gain the necessary approvals. Failure to do so would have a material adverse
      effect on PTI’s ability to achieve its business goals and implement its business
      strategy.





**Environmental,
      Health, Safety and Other Regulations.**





In
      addition to the laws and regulations that apply to the development, manufacture
      and sale of its products, PTI’s operations are subject to numerous federal,
      state and local laws and regulations. Its R&D activities involve the use,
      storage, handling and disposal of hazardous materials, and chemicals and, as
      a
      result, PTI is required to comply with regulations and standards of the
      Occupational Safety and Health Act (the “OSHA”) and other safety and
      environmental laws. Although we believe that PTI’s activities currently comply
      with all applicable laws and regulations, the risk of accidental contamination
      or injury cannot be completely eliminated. In the event of such an accident,
      PTI
      could be held liable for any damages that result, which could have a material
      adverse effect on its business, financial condition and results of operations.





**Overview
      of the market**





Since
      completion of the Human Genome Project, pharmaceutical and biotech companies
      are
      in need of various human proteins for drug development and healthcare research.
      The issue for all of these companies is how to get sufficient quantities of
      large numbers of proteins at reasonable cost. There is an increasing demand
      for
      recombinant proteins to replace existing protein drugs derived from animal
      products, such as urokinase, alpha-1 anti-trypsin, and thrombin. These products
      have potential concerns of viral contamination and the material sources may
      be
      limited.





PTI
      addresses the above unmet needs by applying its robust protein refolding
      technology to develop and produce (1) recombinant proteins for replacing
      existing animal product derived protein drugs and (2) novel protein therapeutics
      using the inexpensive E .coli system.





6


The
      products in PTI’s pipeline (see “Product Plan,” below) address the following
      market segments:





•
            Angiogenesis
                inhibitor market -- addressed by Vascular Endothelial Growth Factor
                Inhibitor (rVEGI.)


•
            Plasminogen
                activators market -- addressed by Recombinant Prourokinase (rProUK).


•
            Lung
                diseases market (alpha-1 antitrypsin deficiency, or A1AD, and chronic
                obstructive pulmonary diseases, or COPD) -- addressed by Recombinant
                Alpha-1 Antitrypsin (rAAT).


•
            Liver
                diseases market -- addressed by Recombinant Augmenter of Liver
                Regeneration (rALR).





**Product
      Plan**





Currently,
      PTI is focusing on internal development of a diverse portfolio of therapeutic
      proteins. They are in two categories: (1) improved products of existing protein
      drugs, and (2) novel proteins with better indications of clinical utilities.
      These proteins, which are otherwise difficult to recover from E. coli inclusion
      bodies with other technologies, have been successfully refolded with PTI’s
      unique refolding process. Each of the current primary products is described
      in
      detail below.





Category
      1: Replacement Recombinant Protein Drugs





1.  Recombinant
      Prourokinase (rProUK)




l
            Medical:
                for treating cardiovascular diseases, heart attack, stroke, DVT,
                PAO.


l
            Competition:
                Abbott’s urokinase from primary human fetal kidney cells has potential
                human pathogen contamination concerns. Tissue plasminogen activators
                have
                bleeding side effect. Abbott’s proUK is produced in mammalian cell culture
                and not yet approved by FDA.


l
            If
                developed, we expect PTI’s products to be more stable with lower cost of
                producing rProUK from E. coli, and we expect them to have a better
                safety
                profile for replacing existing urokinase and streptokinase.


l
            PTI’s
                research has been funded by Small Business Innovation Research (the
                “SBIR”)grant.


l
            Time
                line: PTI is ready for preclinical studies; expected filing of IND
                application in 2006 and filing of a New Drug Application (NDA) with
                the
                Food and Drug Administration in
                2009.





2.  Recombinant
      Alpha-1 Antitrypsin (rAAT)





l
            Medical:
                for alpha-1 antitrypsin deficiency and chronic obstructive pulmonary
                diseases.




7


l
            Competition:
                The only existing AAT purified from human plasma has viralcontamination
                concerns. Arriva’s rAAT is produced from yeast and in phase II trial.


l
            If
                developed, PTI products will be more stable with lower cost of producing
                rAAT toreplace
                human plasma AAT.


l
            Timeline:
                In PTI’s research stage now; expected IND filing with the FDA in 2007.





Category
      2: Novel Recombinant Protein Drugs





1.  Vascular
      Endothelial Growth Factor Inhibitor (rVEGI)





l
            Medical:
                angiogenesis inhibitor, potential use for various cancers in late
                or early
                stage, and other angiogenesis caused indications such as macular
                degeneration.


l
            Significance:
                Genentech’s Avastin, approved for colon cancer recently, is an antibody
                protein and expecting to become a new blockbuster drug. VEGI is a
                natural
                human antiangiogenesis factor, and is expected to have better therapeutic
                potential than Avastin.


l
            Competition:
                Many other angiogenesis inhibitors and anit-angiogenesis antibodies
                exist.


l
            The
                advantage of PTI is its exclusive license of VEGI patent. Only PTI
                can
                refold VEGI E. coli. PTI’s research has been funded by NIH SBIR II
                grant.


l
            Timeline:
                PTI is currently conducting preclinical studies, and expected IND
                filing
                at the end of 2005.





2.  Recombinant
      Augmenter of Liver Regeneration (rALR)





l
            Medical:
                hepatopoietin, potential use for various liver diseases, hepatitis
                B&C, cancers.


l
            Competition:
                There are several companies in China, however they still have difficulty
                to produce stable proteins. If developed, we expect that PTI will
                be able
                to refold rALR to a more stable and active form with lower cost from
                E.
                coli.


l
            Timeline:
                Currently in PTI’s research stage with an IND filing projected for
                2008.





**Pt-Fold
      technology**





Pt-Fold
      is a technology which can recover proteins from E. coli inclusion bodies. By
      using this technology, PTI has refolded more than 200 proteins in the past
      2-3
      years.





The
      protein refolding technology Pt-Fold was initially developed by the company’s
      founder, Dr. Henry Lin, when he was an adjunct professor at the Oklahoma Medical
      Research Foundation (“OMRF”).





8


**Patent
      Portfolio**





PTI
      owns
      the following U.S. patents or license rights:





PTI
                Patent related PortfolioTechnology
            Title
                of Patent
            Patent
                Status
            Patent
                OwnerRefolding,
              PTI’s
                core technology
            Universal
                Procedure for Refolding Recombinant Proteins
            US/PCTô
              US
                patent #6,583,268
            OMRF,
              (PTI
                has exclusive license)VEGI
                isoforms, genes, proteins and function
            Novel
                Isoforms of Vascular Endothelial Cell Growth Inhibitor
            US/PCT,
              filed
                on
              Nov.
                9, 2001
            Georgetown
                Univ., (PTI has exclusive license)VEGI
                refolding process
            Methods
                for Production of Recombinant VEGI-192a
            US
                provisional, filed on
              Dec
                11, 2003
            PTIVEGI
                for cancer therapeutics
            Methods
                for Treating Cancer Using Vascular Endothelial Cell Growth Inhibitor
                VEGI-192a
            US
                provisional, filed on
              Dec
                11, 2003
            PTI
                and
              University
                of PittsburgPro-UK
                refolding process
            Methods
                for Production of Recombinant Urokinase
            US/PCT,
              filed
                on
              Apr.
                16, 2003
            PTIPTR,
                automated refolding instrument
            Apparatus
                for Refolding Protein and Method of Using Same
            US/PCT,
              Filed
                on
              May
                19, 2003
            PTI/PSS





Note:
      the
      first two items in the above list are process patents, and the rest are drug
      candidate products. The first patent (U.S. patent #6,583,268) expires in 2020,
      and the other patent applications are still pending for approval.





**PTI’s
      Business Model**





We
      expect
      that PTI will generate revenue from the followings business operations:




(1)
            By
                developing a pipeline of protein drugs that are recombinant replacement
                products or novel therapeutics. The replacement products (e.g. rProUK,
                AAT,) will offer lower development risk. PTI is focusing on proteins
                that
                are difficult to recover from E. coli inclusion bodies comparing
                with
                other competing methods. PTI provides protein refolding contract
                service
                to major pharmaceutical companies.




9


(2)
            By
                partnering with other institutes and companies to co-develop internal
                drugs to market or out-license for short or long term royalties at
                different stages.




(3)
            By
                providing access to Pt-Fold technology for other companies to co-develop
                their drugs by using E. coli system, focusing on short-term revenues
                from
                upfront fees and milestone payments. PTI has signed the first
                co-development agreement with a research institute for its IL2 mutant
                drug.




(4)
            By
                accelerating the delivery of our new products through our operations
                in
                China.





Accordingly,
      we expect PTI to generate revenues from:





Out-licensing
      to obtain royalty fees


Contract
      service fees


Partner
      service fees


Government
      grants for research and development





**Investment**





On
      August
      19, 2005, PTI invested approximately US$ 26,785 in ProteoGenesys, a company
      incorporated in Japan. ProteoGenesys is mainly engaged in the research,
      development, manufacturing, sales and lease of machine apparatus for medical
      treatment, precision machine, reagent, and software. The investment in
      ProteoGenesys contributes to the development and commercialization of PTR,
      an
      automatic machinery system which can perform protein refolding and purification.





**Employees**





As
      of
      June 30, 2006, PTI had a total of 12 of employees.





**Business
      of First Capital**








First
      Capital was incorporated in the BVI on July 7, 2003. First Capital is
      a
      holding company with no significant independent operations and no significant
      assets other than the capital stock of
      Baite.
      The following business of First Capital is carried on by Baite.





**Overview
      of Baite**




Baite
      is
      a pharmaceutical company that is principally engaged in manufacturing and
      selling Chinese herbal medicine and chemical medicine, both as prescription
      medications and as over-the-counter medications.




Baite
      is
      a wholly foreign owned enterprise established in Guiyang City of Guizhou
      Province of PRC on July 16, 1994. IST Ventures Limited, a company incorporated
      under the laws of Hong Kong Special Administrative Region (the “IST”), as
      Baite’s sole shareholder, invested USD 210,000 to establish Baite. On May 7,
      1998, the investment capital was increased to USD 310,000.




10


Baite’s
      original name was Guizhou Xingye Pharmaceutical Co., Ltd, which was changed
      to
      Guizhou Yibai Xingye Pharmaceutical Co., Ltd. on November 13, 2003 and changed
      to Guizhou Baite Pharmaceutical Co. Ltd on August 15, 2005.




On
      January 4, 2005, IST entered into a Share Transfer Agreement with First Capital
      to transfer all the equity interests in Baite to First Capital for consideration
      of USD 500,000. Effective as of January 23, 2005, First Capital became the
      sole
      shareholder of Baite, which remains a wholly foreign owned enterprise as defined
      under the Chinese law.




Baite’s
      principal executive office is located at No. 220-2 Baiyun Road, Guiyang, Guizhou
      Province, China.





**The
      Pharmaceutical Industry of the PRC**




*Overview
      of the Pharmaceutical Industry*





The
      pharmaceutical industry in China is one of the 28 industries identified in
      the
“Catalogue of Enterprises, Products and Technologies being Strongly Encouraged
      by the State” (2004 revision). In 2002, the pharmaceutical industry accounts for
      approximately 3.2% of China's GDP (Source: the first paragraph in ‘ *Present
      Situation & Trend of Development of China’s Medicinal Industry’,* Feb.
      24,
      2005, http://blog.fh21.com.cn/post/65/106). The industry's primary categories
      include chemical medicine, Chinese herbal medicinal material, Chinese herbal
      medicinal film, prepared Chinese herbal medicine, antibiotics, biological
      products, biological medicine, radioactive medicine, medical appliances,
      sanitation materials, pharmaceutical machinery, medical packaging, and
      trading.





According
      to statistics reported by PRC’s State Food and Drug Administration (the “SFDA”),
      there were about 5,071 manufacturing pharmaceutical companies (not including
      companies producing all Chinese herbal medicinal film, medical oxygen, reagent
      of in-vitro diagnosis or medical supplementary materials) (Source: the second
      paragraph in ‘ *Policies
      Enacted Frequently, and the Pharmaceutical Industry Grow
      Steadily’* ,
      September 11, 2004, http://www.chinapharm.com.cn/html/scfx/13324920040910 .html)
      total market share of the top 20 biggest companies was less than 42% compared
      to
      66% in USA. (Source: the third paragraph in ‘ *Five
      Characters in Pharmaceutical Industry and Investment Analysis’* ,
      November 23, 2005, http://www.biotech.org.cn/news/news/ show.php?id=28798). In 2004, PRC’s pharmaceutical industry realized sales of
      RMB347.6 billion (approximately US$ 41.98 billion) and net profits of RMB30.64
      billion (approximately US$ 3.70 billion) (Source: the second paragraph and
      third
      paragraph in ‘ *The
      Analysis of Chinese Pharmaceutical Industry in 2004 and the Tendency in 2005’*  http://www.jlthx.gov.cn/
      zsyz/hyzx/200505/3609.html ).
      The
      growth rate of sales in PRC’s pharmaceutical industry in 2005 is expected to be
      17%, as expected sales will amount to RBM376.6 billion (approximately US$ 45.48
      billion) (Source: the second paragraph of section nine in *’Investment
      Strategy Report on China’s pharmaceutical Industry in 2005’,* http://www.chnci.com/Article_Show.asp?ArticleID=1721). In 2005, the projected
      gross profit margin was 34.2%. (Source: the fifth paragraph of the eighth
      section in *“Biological
      Product will increase 27%”* http://tw.netsh.com/eden/bbs/710410/html/table_2403473.html).




11




*Overview
      of the Chinese Herbal Pharmaceutical Industry*




Baite’s
      principal business falls into the Chinese herbal medicine manufacturing
      sub-industry of the pharmaceutical manufacturing industry. As of 2002, there
      are
      1,141 kinds of Chinese herbal medicine which have passed the national
      registration process, including 11.5% Level 1 new drugs, 6.5% Level 2 new drugs,
      40% Level 3 new drugs, 40% Level 4 new drugs and 2% Level 5 new drugs
      (Source: the
      second sub-section of section three in ‘ *Overview
      of the Chinese Herbal Pharmaceutical Industry’,* April
      20,
      2002,  http://www.kangqiaonet.com/newspub/yanxianni.php?tid=27&id=1721).




The
      Chinese herbal medicine sub-industry has grown in China in the past ten years.
      In 1999 there were totally 1,033 Chinese herbal medicine manufactures in China
      which realized RMB 34.6 billion (approximately
      US$ 4.18 billion) revenue
      and RMB3.7 billion (approximately
      US$0.447 billion) profits
      (Source: the 1.4
      section in *‘Researching* *Report
      on the Chinese Herbal Pharmaceutical Industry’,* Feb
      6,
      2002, http://www.tysc.com.cn/news/news_detail.php?id=71560&cat_id=31). From
      1996 to 2000, the Chinese herbal medicine finished products industry grew at
      an
      average rate of 24.6% compared with 18% of the total pharmaceutical industry
      in
      China (Source: the
      second paragraph of section one in ‘ *Overview
      of the Chinese Herbal Pharmaceutical Industry’,* April
      20,
      2002, http://www.kangqiaonet.com/newspub/yanxianni.php?tid=27&id=1721).





A
      company
      wishing to enter into the pharmaceutical industry must comply with the standards
      and regulations set forth by the government. In the PRC, SFDA is the authority
      that monitors and supervises the administration of the pharmaceutical industry
      including pharmaceutical products, medical appliances, and equipment. Firstly,
      pharmaceutical manufacturing enterprises must obtain a Pharmaceutical
      Manufacturing Enterprise Permit (“Permits”) issued by the relevant
      pharmaceutical administrative authorities and relevant health departments at
      the
      provincial level where the enterprise is located (“Relevant Pharmaceutical
      Authorities”). Furthermore, all pharmaceutical products produced in the PRC,
      with the exception of Chinese herbal medicines in soluble form, must bear a
      registered number approved by the appropriate governmental authorities in the
      PRC. Lastly, in accordance with the World Health Organization, the PRC now
      requires compliance with Good Manufacturing Practice (“GMP”) standards in
      pharmaceutical production in order to minimize the risks involved in any
      pharmaceutical production that cannot be eliminated through testing final
      products.




12




The
      weakness of many Chinese herbal medicine manufacturers is their lack of R&D
      capability, and their R&D works are mainly focused on the re-developing of
      herbal products. They rely on research institutes and universities in China
      to
      provide R&D. As a result, in order to produce new medicines, Chinese herbal
      medicine manufacturers must buy new drug certifications from those R&D
      organizations or private individuals in order to be able to produce new
      medicines.




**Baite
      Products & Raw Materials**





We
      have
      been granted the Permit issued by SFDA on January 1 st ,
      2006
      for a period of 5 years. Currently, Baite has nine production lines in Chinese
      herbal medicine and chemical medicine, and all of which have been granted GMP
      for pharmaceutical products by the Chinese State Drug Administration (the
“SDA”), the predecessor of the SFDA. Baite has three GMP certificates, covering
      nine production lines for manufacturing. The scope of the first certificate
      (No.
      B3539), issued on September 29, 2005 and to expire on September 29, 2010, is
      for
      manufacturing small volume parenteral solutions. The scope of the second
      certificate (No.E2727), issued on October 9, 2003 and to expire on October
      8,
      2008, is for manufacturing capsules, lotion and suppositories. The second
      certificate is currently still under the name of Guizhou Yibai Xingye
      Pharmaceutical Co., Ltd., however, we are in the process of changing the name
      to
      Baite through SFDA. The scope of the third certificate (No. QianG0109), issued
      on August 1, 2005 and to expire on August 1, 2010, is for manufacturing troche,
      granule, capsule, syrup and drop pills.




Currently,
      Baite is producing the following medicines, all of which have obtained the
      registration numbers, for the Chinese market:




13





**Number**
            
            **Product
                Name**
            
            **Remedy
                Category**
            
            **Registration
                Number**
            
            **OTC/RX**
            
            **Chemical
                Medicine/Chinese Herbal Medicine****1**
            
            Naolingsu
                Capsule
            
            Cerebrovascular
            
            Z52020482
            
            RX
            
            Chinese
                Herbal Medicine**2**
            
            Danlingxinshu
                Capsule
            
            Heart
                vein
            
            Z52020237
            
            RX
            
            Chinese
                Herbal Medicine**3**
            
            Danshengchuangxiongqing
                Injection
            
            Heart
                vein
            
            H52020959
            
            RX
            
            Chinese
                Herbal Medicine**4**
            
            Lingzhi
                Capsule
            
            Nerve
            
            Z52020484
            
            OTC
            
            Chinese
                Herbal Medicine**5**
            
            Liuweimuxiang
                Capsule
            
            Gastroenterology
            
            Z10940036
            
            OTC
            
            Chinese
                Herbal Medicine**6**
            
            Gengyi
                Capsule
            
            Gastroenterology
            
            Z52020497
            
            RX
            
            Chinese
                Herbal Medicine**7**
            
            Anbianxilin
                Capsule
            
            Antibiotic
            
            H52020542
            
            RX
            
            Chemical
                Medicine**8**
            
            Compoundacetamide
                honeysuckle injection
            
            Antibiotic
            
            H52020958
            
            RX
            
            Chemical
                Medicine**9**
            
            Piles
                Water
            
            Hemorrhoids
            
            Z20025696
            
            OTC
            
            Chinese
                Herbal Medicine**10**
            
            Piles
                Bolt
            
            Hemorrhoids
            
            Z20025706
            
            OTC
            
            Chinese
                Herbal Medicine**11**
            
            Antelope
                Rheum Capsule
            
            Rheumatoid
            
            Z52020240
            
            RX
            
            Chinese
                Herbal Medicine




14


**12**
            
            Asthma
                Capsule
            
            Asthma
            
            Z20050168
            
            RX
            
            Chinese
                Herbal Medicine**13**
            
            QijuDihuang
                Capsule
            
            simulate
                the circulation of qi
            
            Z20053692
            
            OTC
            
            Chinese
                Herbal Medicine**14**
            
            Compound
                Tianma Capsule
            
            Cerebrovascular
            
            Z20050099
            
            OTC
            
            Chinese
                Herbal Medicine**15**
            
            Xintongning
                Drop Pills
            
            simulate
                the circulation of blood
            
            Z20053661
            
            RX
            
            Chinese
                Herbal Medicine**16**
            
            Compound
                Salvia Root Tablet
            
            simulate
                the circulation of blood
            
            Z20053688
            
            RX
            
            Chinese
                Herbal Medicine**17**
            
            Yinhuang
                Pills
            
            Heat-clearing
            
            Z20053929
            
            OTC
            
            Chinese
                Herbal Medicine**18**
            
            Asthma
                Pills
            
            Astham
            
            Z20053929
            
            RX
            
            Chinese
                Herbal Medicine**19**
            
            Weiyangan
                Capsule
            
            Stomachache
            
            Z20054385
            
            OTC
            
            Chinese
                Herbal Medicine**20**
            
            Weiyankang
                Capsule
            
            Stomachache
            
            Z20054387
            
            RX
            
            Chinese
                Herbal Medicine**21**
            
            Cough
                Capsule
            
            Cough
            
            Z20054383
            
            RX
            
            Chinese
                Herbal Medicine**22**
            
            Children’s
                Indigestion Oral Liquid
            
            Indigestion
            
            Z20054543
            
            OTC
            
            Chinese
                Herbal Medicine**23**
            
            Cold
                and Cough syrup
            
            Cough
            
            Z20053685
            
            OTC
            
            Chinese
                Herbal Medicine**24**
            
            Children’s
                Heat-clearing pills
            
            Heat-clearing
            
            Z20054669
            
            RX
            
            Chinese
                Herbal Medicine




15





Among
      the
      above products, Naolingsu Capsule and Liuweimuxiang Capsule have been granted
      Chinese Herbal Medicines Protected Certification by SFDA. The certificate number
      of Naolingsu Capsule is 2001-84, and the protection period is from May 10,
      2001
      to May 10, 2008. The certificate number of Liuweimuxiang Capsule is 1999-204-2,
      and the protection period is from July 20, 2001 to September 28, 2006. In
      addition, Compound Tianma Capsule and Astham Capsule have been granted New
      Medicine Certificate by SFDA in 2005, and the certificate number is Z20050104
      and Z20050178. Both of them are protected during these protection periods,
      which
      is explained below in the paragraph headed “Approval and Protection of New
      Medicine”.





Baite
      purchases raw materials for manufacturing in the open market. Substantially
      all
      such materials are obtainable from numerous sources, and the loss of any one
      source of supply would not likely have a material adverse effect on Baite’s
      manufacturing and operations. As indicated in the chart below, from July 2005
      to
      June 2006, Baite’s three largest suppliers are Anshun Jiujiu Chinese Medicine
      co., Ltd, Guizhou Qianye Plastic Co., Ltd and Guizhou Yijia Yinwu Co, Ltd,
      the
      purchase amount is US$ 541,371.16, US$ 278,550.27 and US$ 142,688.18
      respectively.


**Top
                then suppliers****July
                2005 - June 2006**
            **unit
              : US
              Dollar****Suppliers**
            **Amount**Anshun
                Jiujiu Chinese Medicine co., Ltd
            541,371.16Guizhou
                Qianye Plastic Co., Ltd
            278,550.27Guizhou
                Yijia Yinwu Co., Ltd
            142,688.18Guizhou
                Province Medicine Company
            142,795.95Yueyang
                Tiantian Pharmaceutical Capsule Co., Ltd
            103,355.31Guizhou
                medicine company
            78,951.53Fuzhou
                Development Zone Jundeli Capsule Co., Ltd.
            31,726.30Hebei
                Zhongrun Medicine Co., Ltd.
            31,427.54Guiyang
                Jiuxing printing Co., Ltd.
            28,122.55Guizhou
                Shencai Packing Co., Ltd.
            27,915.15Total
            1,406,903.94




16




***Marketing
      & Distribution***




Baite
      manufactures its pharmaceutical products in Guizhou Province of China, which
      is
      one of the four major herb-growing regions in China. Currently, Baite’s sales
      and marketing activities are limited to the PRC, primarily to hospitals, and
      through over-the-counter sales and sales to pharmaceutical distribution
      companies. Baite has 12 liaison offices in Shanghai, Guangzhou, Hunan, Jilin,
      Liaoning, Fujian, Jiangshu and other cities of China. There are about 36 sales
      persons in its marketing and sales department.




As
      shown
      in the following chart, during the period from July 2005 to June 2006, the
      top
      three largest customers of Baite were Guizhou YiBai Pharmaceutical Co., Ltd.,
      Hainan success medicament co, Ltd. and Shanghai Leiyunshang Beiqu Pharmacy.


**Top
                Ten customers****July
                2005 - June 2006**
            **unit
              : US
              Dollar****Customers**
            **Amount**Guizhou
                Yibai Pharmaceutical Co., Ltd.
            2,245,082.61Hainan
                success medicament co, Ltd
            485,844.14Shanghai
                Leiyunshang Beiqu Pharmacy
            294,404.23Shanghai
                Yunhu Medicine Co., Ltd
            92,954.97Shanghai
                Hongqiao Pharmacy
            88,541.01Shanghai
                Medicine Stock Co., Ltd
            76,933.08Anhui
                Huayuan Medicine Stock Co., Ltd
            66,853.01Foshan
                New and Specific Medicine Co., Ltd
            46,579.46Guizhou
                Xingye Medicine Sales Co., Ltd
            32,469.29Shanghai
                Longwei Medicine Co., Ltd
            27,153.40Total
            3,456,815.20




Baite’s
      target market is focused on cardiovascular and cerebrovascular medicine,
      hemorrhoids medicine, cough medicine, digestive system medicine, health
      strengthening medicine, and antibiotics. According to the industry research
      report, cardiovascular & cerebrovascular medicine is a fast growing sector
      in pharmaceutical industry in China. Approximately RMB 20 billion (approximately
      US$ 2.42 billion) is spent annually on cardiovascular & cerebrovascular
      disease (Source: the second paragraph in ‘ *Communication,
      Cooperation and Improvement—Analysis on Cardiovascular &
Cerebrovascular* *Diseases Control’,* May
      27,
      2005,  http://www.cmednews.com/Share/Show.asp?AutoID=1330 ).
      There
      are many Hemorrhoids sufferers in China, and the market capacity was RMB 1.1
      billion in 2000 (approximately US$ 132.85 million), RMB 1.5 billion
      (approximately US$ 181.16 million) in 2001 and 2 billion (approximately US$
      241.55 million) (Source: the second paragraph in *‘the
      Blue Chip Accelerating to Arise’,* Nov.
      25,
      2004, http://news1.jrj.com.cn/news/2004-11-25/000000951096.html). Cough medicine
      market in China is about RMB 3 billion (approximately US$ 0.36) per year
      (Source: the
      first paragraph in ‘ *Analysis
      on China’s Cough Medicine Market and Predicting of 2004’,* June 10,
      2004,  http://www.fx120.net/ypsj/ypsc/scfx/200406101631184449.htm).




17


***Research
      and Development***





Though
      in
      relatively small amounts, Baite does invest in research and development because
      it believes R&D is critical to its long-term competitiveness. Before
      merging with PTI, the Company did not own an independent R&D team, and it
      acquired new products by partnering with, or buying R&D from, specialized
      institutes or private individuals. Before the fiscal year 2003, Baite had no
      R&D expense, while in the fiscal year ended June 30, 2004 the R&D
      expense of Baite was RMB 123,150.80 (approximately US$ 14,873.29), and in the
      first quarter of 2004-05 fiscal year the R&D expense has grown to RMB
      159,107.62 (approximately US$ 19,215.90. Baite has no R&D expense in the
      fiscal year ended June 30, 2006. Baite’s r esearch
      is concentrated in the following areas: cardiovascular, cerebrovascular,
      hemorrhoids, cough medicine, digestive system medicine, and antibiotics.





**Intellectual
      Property**





Intellectual
      property has substantial value in the pharmaceutical industry in China. Baite
      does not own any patents, but it owns four registered trademarks: “Xingye XY”
(figure and words), “Ganglong Anbixian”, “Xingye” (word) and Hejiesu. “Xingye
      XY” is used in connection with medicine for Chinese herbal medicine; “Ganglong
      Anbixian” is used in Chinese herbal medicine, chemical medicine, pharmaceutical
      capsule, injection, tablet, electuary, aqua, and ointment, “Xingye” is used in
      bee milk, medicine, tablet, pharmaceutical drinks, Chinese herbal medicine,
      chemical medicine, ointment, drop pills, and capsule; and “Hejiesu” is used in
      Chinese herbal medicin, pharmaceutical drinks, capsule, drop pills, injection,
      tincture and electuary. The registration number of the above four trademarks
      is
      892463, 1660445, 3200798 and 3635202 respectively; and their expiration dates
      are November 6, 2006, November 6, 2011, August 27, 2013 and February 6, 2016
      respectively.





18


In
      addition to the above three trademarks, Baite is applying for registration
      of
      four other trademarks -- “Xuetong”, “Xire”, “Ledi” and “Chuanshentong”. The
      registration applications for the above five trademarks have been accepted
      by
      Trademark Office of the State Administration for Industry and Commerce of
      People’s Republic of China (the “Trademark Office”), and the application numbers
      are 4425725, 4375486, 4375487, and 4365424, respectively. Furthermore, Baite
      has
      been authorized by its former related party to use its registered trademark
      “991” (registration number: 1660476). The trademark licensing contract between
      Baite and its former related party has been filed by Trademark Office on
      February 19, 2004, and the licensing period is from November 1, 2003 to
      September 30, 2008.





**Employees**





As
      of
      June 30, 2006, Baite had 46
      regular employees, who have signed an Employment Agreements with Baite. Among
      them, eleven people are in the administration department, twenty are in the
      Manufacturing Department, nine are in R & D Department and six are in the
      Marketing & Sales Service Department. In accordance with the rules and
      regulations in the PRC, we maintain our employees’ social insurance system by
      paying retirement insurance, unemployment insurance, medical insurance and
      on-job injury insurance for these 46 employees, at the rates of 28%, 3%, 9.5%
      and 1.2%, respectively.





In
      addition to the 46 regular employees, we have 112 temporary employees in the
      Manufacturing Department and 51 commission-based sales representatives in the
      Marketing & Sales Service Department. Those employees have not signed any
      employment agreements with Baite, and they do not participate in Baite’s
      employee social insurance plan.




**Competition**




China
      is
      one of the world's major producers of pharmaceuticals. Currently, the Chinese
      pharmaceutical market is highly fragmented and competitive. The Chinese herbal
      medicine industry is relatively easy to enter, and although the requirement
      for
      GMP certification keeps many small companies out of the industry, the
      competition is still fierce. China’s entrance into the World Trade Organization
      (the “WTO”) also enhances the competition. Baite competes on, among other
      things, safety, efficacy and cost. Baite’s long-term competitive position
      depends upon its success in discovering and developing innovative,
      cost-effective products that serve unmet medical needs, together with its
      ability to manufacture the products efficiently and to market them effectively.




Many
      competitors are more established and have significantly greater financial,
      technical, marketing, and other resources, than Baite. Many competitors have
      greater brand recognition with larger customer bases. These competitors may
      be
      able to respond more quickly to new or changing opportunities and customer
      requirements and may be able to undertake more extensive promotional and
      distribution activities, offer more attractive terms to customers, and adopt
      more aggressive pricing policies. These competitors include: Three Nine Group,
      Jilin Mayinglong Parmaceutical Co., Ltd., Tasly Group, Hebei Yiling
      Parmaceutical Group, and the United Laboratories.




19





**Regulatory
      Framework of the Pharmaceutical Industry in the PRC**




The
      pharmaceutical industry in China is subject to extensive regulations.
      Pharmaceutical Administration Law of the People’s Republic of China (the
“Administration Law”), the Implementation Rules on Pharmaceutical Administration
      Law (the “Implementation Rules”), the Implementation Rules and Pharmaceutical
      Registration Administration Law of the People’s Republic of China (the
“Registration Law”) and other regulations by state authorities constitute the
      basic legal framework.





The
      Administration Law was promulgated on September 20, 1984 by the Executive
      Committee of the National People’s Congress and amended on February 28,
      2001, with the amendments taking effect on December 1, 2001. The
      Administration Law sets out the basic legal framework for administration of
      the
      production and sale of pharmaceuticals in China and covers areas including
      the
      manufacture, distribution, packaging, pricing and advertising of pharmaceutical
      products in China. The Implementation Rules, which were promulgated on
      August 4, 2002 and came into effect on September 15, 2002, set out
      detailed implementation rules with respect to the administration of
      pharmaceuticals in China. The Registration Law, which was promulgated on
      February 28, 2005 by the SFDA and came into effect on May 1, 2005, mainly set
      forth the manner for application for new medicine registration, and for the
      declaration, approval and transfer of new medicine registrations.




As
      one of
      the special industries, every step of pharmaceutical production is subject
      to
      government’s stringent supervision, mainly by SFDA. SFDA was established in 1998
      to assume the supervisory and administrative functions previously carried out
      by
      the Ministry of Health, the State Administration Bureau for Pharmaceuticals
      and
      the State Administration Bureau for Chinese herbal medicine. The primary
      responsibilities of the SFDA include:





•
            formulating
                and supervising the implementation of regulations and policies concerning
                drug administration;


•
            promulgating
                standards for pharmaceutical products and medical
                appliances;


•
            categorizing
                drugs and medical appliances for regulation
                purposes;


•
            registering
                and approving new drugs, generic drugs, and imported and Chinese
                medicines;




20


•
            granting
                approvals for the production of pharmaceutical products and medical
                appliances; and


•
            approving
                the manufacture and distribution of pharmaceutical
                products.





*Permits
      for Pharmaceutical Production Enterprises*





In
      accordance with Administration Law and the Implementation Rules, any
      pharmaceutical production enterprise must obtain a Permit, and a business
      license. Before any pharmaceutical production enterprise (the “Enterprise”) can
      produce pharmaceutical products in China, it must obtain a Permit issued by
      Relevant Pharmaceutical Authorities where the Enterprise is located. The Permit
      is valid for five years. Enterprises must apply for renewal of their Permit
      no
      later than six months prior to the date of expiration, subject to assessment
      by
      the relevant authority.





In
      addition to the Permit, Enterprises also must obtain a business license from
      the
      relevant administration bureau for industry and commerce to commence its
      business.





*Good
      Manufacturing Practice (GMP) Standards*




The
      World
      Health Organization encourages the adoption of GMP standards in pharmaceutical
      production in order to minimize the risks involved in any pharmaceutical
      production that cannot be eliminated through testing the final products. In
      1998, the Ministry of Health of the PRC started to issue GMP standards for
      pharmaceutical manufacturing enterprises in the PRC. Any pharmaceutical
      manufacturing enterprise must comply with GMP standards by the end of June
      30th,
      2004. The process of GMP authorization requires about 3 months.





A
      GMP
      certificate is valid for five years, except that the certificate of a newly
      established Enterprise is only valid for one year. Enterprises should apply
      for
      renewal of their GMP certificates no later than six months prior to the date
      of
      expiration of their GMP certificates. Newly established Enterprises should
      apply
      for reassessment no later than three month prior to the expiration of their
      GMP
      certificates and, if eligible, will receive a five-year GMP certificate subject
      to reassessment by the relevant authority. Regarding the GMP certificates of
      Baite, please refer to the paragraph headed "Baite Products & Raw
      Materials".





21





*Approval
      and Protection of New Medicine*





Pursuant
      to Administration Law and the Registration Law, any application and approval
      of
      new medicines must go through two principal phases, namely the clinical research
      stage and commercial production stage. Application for new medicines must be
      submitted together with the new medicine patent to the Food and Drug
      Administration of Province, Autonomous Regions and Municipalities Directly
      under
      the Central Government and the SFDA for preliminary and final approval
      respectively. A certificate of new medicine will be issued by the SFDA if the
      application complies with all the requirements of the SFDA. An enterprise or
      manufacturer, having obtained valid production permit, business license,
      complied with the GMP requirements of the SFDA and obtained the new medicine
      certificate can then commence the production of the new medicine.




Once
      the
      new medicine is authorized for production by the SFDA, it will undergo a
      monitoring period of up to five years. Medicines within their monitoring periods
      are not allowed to be produced or imported by other companies. Currently, Baite
      has been granted two New Medicine Certificates by SFDA in 2005 (see the
      paragraph headed “Baite Products & Raw Materials,” above).





According
      to “Notice in relation to the Protection Period of New Medicines with Production
      Approval and Clinical Research Approval Prior to the Implementation of the
      Implementation Rules” issued by the SFDA in February 2003, the policy for
      granting a protection period to those new medicines which has been approved
      and
      clinically researched prior to the implementation of the Implementation Rules
      is
      set out as follows:




the
      protection periods for those medicines which receive the certificates of new
      medicine before 15 th September, 2002 will remain unchanged;


for
      those
      medicines which had applied clinical research approval before 15 th September, 2002 but did not receive production approvals, a transition period
      of
      5 years, 4 years and 3 years for Class 1, Class 2 and Class 3-5 medicines,
      respectively, will be granted. During the transition period, other manufacturers
      are forbidden to produce the same type of medicines; and


for
      those
      medicines which had received acknowledgement for examination from the SFDA
      before 15 th September,2002 but did not receive clinical research approvals, the applications
      will be approved in accordance with Administration Law, the Implementation
      Rules
      as follows:





( i ) medicines
      which have never been sold in the domestic market would be examined and approved
      as new medicines and a supervision period of not more than 5 years will be
      granted; and





22


( ii ) medicines
      which have never been sold in the domestic market would be examined and approved
      as existing national standard drugs.





*Regulations
      on protection of Chinese herbal medicines*




Pursuant
      to Regulation on Protection of Chinese herbal medicine promulgated by Decree
      No.
      106 of the State Council of the PRC on October 14, 1992 (the “Regulation”), the
      Regulation protects the legal rights and interests of enterprises engaged in
      the
      production of Chinese herbal medicine and the promotion and development of
      activities relating to Chinese herbal medicine. When a company obtains such
      protection (five years), any similar product made by other companies will be
      considered infringement. Currently, Naoningsu
      Capsule and Liuweimuxiang Capsule of Baite
      have been granted the Chinese Herbal Medicine Protected Certification by SFDA
      (see the paragraph headed “Baite Products & Raw Materials,” above).





*Insurance
      Catalogue*





Pursuant
      to the Decision of the State Council on the Establishment of the State Basic
      Medical Insurance System for Urban Employees and the Implementation Measures
      for
      the Administration of the Scope of Medical Insurance Coverage for
      Pharmaceuticals for Urban Employees, the Ministry of Labor and Social Security
      in China established a catalogue listing medicines covered by social insurance,
      or the Insurance Catalogue. The Insurance Catalogue is divided into Parts A
      and
      B. The medicines included in Part A are determined by the Chinese
      governmental authorities for general application. Local governmental authorities
      may not adjust the content of medicines in Part A. Although the medicines
      included in Part B are determined by Chinese governmental authorities in
      the first instance, provincial level authorities may make limited changes to
      the
      medicines included in Part B, resulting in some regional variations in the
      medicines included in Part B.





Patients
      purchasing medicines included in Part A are entitled to reimbursement of
      the costs of such medicines from the social medical fund in accordance with
      relevant regulations in China. Patients purchasing medicines included in
      Part B are required to pay a predetermined proportion of the costs of such
      medicines. The medicines to be included in the Insurance Catalogue are selected
      by the Chinese government authorities based on the factors including treatment
      requirements, frequency of use, effectiveness and price. Medicines included
      in
      the Insurance Catalogue are subject to price control by the Chinese government.
      The Insurance Catalogue is revised every two years.





23





*Centralized
      Tendering System for Drug Purchases by Medical Organizations*





In
      accordance with the Notice on Issuing Certain Regulations on the Trial
      Implementation of Centralized Tender Purchase of Drugs by Medical Organizations,
      promulgated on July 7, 2000, and the Notice on Further Improvement on the
      Implementation of Centralized Tender Purchase of Drugs by Medical Organizations
      promulgated on August 8, 2001, non-profit medical organizations established
      by
      county or higher level government in China are required to implement collective
      tender processes for the purchase of pharmaceuticals. In principle, medical
      organizations are required to join together to organize tenders or authorize
      agencies to purchase pharmaceuticals in bulk volume. The bids are to be assessed
      by a committee formed by pharmaceutical experts who are recognized by the
      relevant authorities, with reference to, most importantly, drug quality, and
      other criteria, including price, service and quality of the drug manufacturers.
      For the same type of drugs, two or three products under different brands may
      be
      selected. Any reduction in drug purchase price by medical organizations as
      a
      result of competitive bidding by suppliers under the tender system is intended
      to bring about a corresponding reduction in the retail price for the benefit
      of
      patients. As indicated in the above notice, it is intended that the
      implementation of such tender purchase system should be extended gradually
      and
      should cover, among other pharmaceuticals, those consumed in large volume and
      commonly used for clinical purposes.





Several
      Provisions on Further Regulating the Centralized Tender Purchase of Drugs by
      Medical Organizations promulgated on September 23, 2004 provides that
      pharmaceutical wholesalers should be duly authorized by the pharmaceutical
      manufacturers in order to participate in the tender. Pharmaceutical
      manufacturers may participate in the tender on their own to cancel the middle
      layer and reduce the bidding price.





*Price
      Controls*





Certain
      medicine products sold in China, primarily those included in the Insurance
      Catalogue and those whose production or trading will constitute monopolies,
      are
      subject to price control by the Chinese government. The maximum prices of such
      medicine products are published by the state and provincial administration
      authorities from time to time. The prices of other medicines that are not
      subject to price control are determined by the pharmaceutical manufacturers,
      subject, in certain cases, to providing notice to the provincial pricing
      authorities.





24


The
      upper
      limit of prices of medicines subject to price control are set by the pricing
      authorities to create a reasonable profit margin for pharmaceutical enterprises,
      after taking into account the type and quality of the products, their production
      costs, the prices of substitute products, and other similar factors. Currently,
      we have five products under price controls -- Anbianxilin Capsule, Antelope
      Rheum Capsule, Compound Salvia Root Tablet, Yinhuang Pills and QijuDihuang
      Capsule.





**Risk
      Factors**




An
      investment in our securities
      involves a high degree of risk. You should carefully consider the following
      risks and the other information set forth elsewhere in this Report, including
      our financial statements and related notes, before you decide to purchase shares
      of our common stock.




**A.
      Risks Related to BiTech**





***We
      are a holding company that depends on our subsidiaries for revenue, and our
      ability to receive dividends from our subsidiaries in China will be restricted
      by Chinese regulations.***





BiTech
      is
      a holding company with no significant assets other than our equity interest
      in
      PTI and First Capital. We will rely on dividends, loans and other payments
      to us
      by PTI and First Capital any other future acquired entities. Accordingly, our
      ability to make payments on indebtedness we may incur and to distribute
      dividends to our stockholders is dependent on the earnings and the distribution
      of funds from our subsidiaries. If our subsidiaries incur indebtedness of their
      own in the future, the instruments governing their indebtedness could restrict
      their ability to pay dividends or make other distributions to us, which in
      turn
      would limit our ability to make payments on indebtedness we may incur and to
      distribute dividends to our stockholders.





In
      addition, our corporate structure may restrict the distribution of dividends
      to
      our stockholders since Chinese regulations permit payment of dividends only
      out
      of accumulated profits as determined in accordance with Chinese accounting
      standards and regulations. According to these standards and regulations, First
      Capital, as the parent company of Baite, will be required to set aside a portion
      of their after-tax profits to maintain certain reserve funds that may not be
      distributed as cash dividends. As a wholly foreign owned enterprise, Baite
      is
      required to establish a reserve fund and a staff and workers’ bonus and welfare
      fund, each of which is appropriated from net profit after taxation but before
      dividend distribution according to the prevailing laws and regulations of China.
      In addition, the profit available for distribution from China subsidiaries
      is
      determined in accordance with generally accepted accounting principles in China.
      This calculation may differ from the one performed under generally accepted
      accounting principles in the United States, or GAAP. As a result, we may not
      receive sufficient distribution from our Chinese subsidiaries to enable us
      to
      make dividend distributions to our stockholders in the future and could
      negatively affect our financial condition and assets, even if our GAAP financial
      statements indicate that our operations have been profitable.





25





***We
      may undertake acquisitions in the future, and any difficulties in integrating
      these acquisitions may damage our profitability***





In
      the
      future, the Company may acquire additional businesses or products that
      complement the existing business and expand the Company’s business scale. The
      integration of new businesses and products may prove to be an expensive and
      time
      consuming procedure. The Company can offer no assurance that it will be able
      to
      successfully integrate the newly acquired businesses and products or operate
      the
      acquired business in a profitable manner. Failure to locate an appropriate
      acquisition target or failure to successfully integrate and operate acquired
      businesses and products may adversely impact the Company’s operations and
      profits.





***We
      may be unable to compete successfully against new and existing
      competitors.***





We
      operate in a highly competitive market with few barriers to entry. We expect
      that competition will continue to intensify. As we expand our operations, we
      will encounter competition from other companies in the business, and we may
      face
      future competition from new foreign and domestic competitors entering the
      pharmaceutical markets. Many of our competitors are more established than we
      are, and have significantly greater financial, technical, marketing, and other
      resources than we do. Many of our competitors have greater name recognition
      and
      a larger customer base than we do. These competitors may be able to respond
      more
      quickly to new or changing opportunities and customer requirements and may
      be
      able to undertake more extensive promotional and distribution activities, offer
      more attractive terms to customers, and adopt more aggressive pricing policies.
      Competition could reduce our market share or force us to lower our prices to
      unprofitable levels.





***We
      will need to raise additional capital to fulfill our business strategies. We
      may
      also incur unforeseen costs. Failure to attract additional capital or obtain
      a
      line of credit would adversely affect our business.***





We
      expect
      that we will need significant additional cash resources to operate and expand
      our business in the future. We need approximately $20 million additional capital
      in the coming three years. Among them, approximately $8 million would be used
      for building up Baite's own production base, $2 million would be used for
      scaling-up Baite's sales network, approximately $2 million would be used for
      Baite's new production research and development, and approximately $8 million
      would be used as PTI's FDA application fund. If these resources are insufficient
      to satisfy our cash requirements, we may seek to sell additional equity or
      debt
      securities or obtain a credit facility.





26





***We
      may seek to raise additional funding through private or public sales of equity
      securities, and our shareholders may suffer significant
      dilution.***





If
      we
      raised additional funding through public or private sales of equity securities,
      the sales may be at prices below the then prevailing market price for our stock,
      and our shareholders may suffer significant dilution.





***We
      may seek to raise additional funding through the incurrence of additional
      indebtedness, which may not be available in sufficient amounts to fund our
      operations or upon favorable terms.***





We
      do not
      currently have any permanent arrangements or credit facilities in place as
      a
      source of funds. We may not be able to borrow sufficient additional funds on
      favorable terms or at all. If we are successful in borrowing additional funds,
      we will incur additional debt service obligations and the new indebtedness
      may
      be subject to operating and financing covenants that will restrict our
      operations. If we fail to obtain sufficient additional capital, we could be
      forced to curtail our growth strategy by reducing or delaying capital
      expenditures, selling assets or downsizing or restructuring our
      operations.





***If
      we are unable to develop new products in response to technological innovations,
      our operations and profitability will be adversely
      affected.***





To
      retain
      competitiveness in the pharmaceutical industry, it is important to continually
      develop new and advanced products, technologies, and processes. There is no
      assurance that the competitors’ new products, technologies, and processes will
      not render our Company’s existing products obsolete or non-competitive. Our
      Company’s competitiveness in the pharmaceutical market therefore relies upon its
      ability to enhance its current products, introduce new products, and develop
      and
      implement new technologies and processes. Our Company’s failure to
      technologically evolve and/or develop new or enhanced products may adversely
      affect our Company’s operation and profitability.





27





***We
      only offer products and services related to pharmaceuticals, and if demand
      for
      these products and services decreases we will have no other ways to generate
      revenue.***





Our
      future results depend on continued market acceptance of pharmaceutical products
      and services in China as well as our ability to continue to adapt to the
      changing needs of our customers. Any reduction in demand or increase in
      competition in the market for pharmaceutical products and services could have
      a
      material adverse effect on our business, operating results and financial
      condition.





***We
      face increased risks of doing business due to the extent of our operations
      in
      China.***





Our
      subsidiary, Baite, is organized and located in China. For the year ended June
      30, 2006, $4,310,000 or 70.49% of our total revenue were generated from Baite,
      and $3,630,000 or 58.49% of our total assets, were attributable to Baite. China
      is currently transitioning to a market-developed socialist economy. There are
      significant political and economic tensions resulting from this transition
      that
      could affect the business environment in China. Our efforts to expand into
      China
      pose special risks that could adversely affect our business. The following
      aspects highlights the material risk related to doing business in China:





***The
      PRC legal system has inherent uncertainties that could limit the legal
      protections available to the Company.***





The
      Chinese legal system is a civil law system based on written statutes. Unlike
      common law systems, it is a system in which decided legal cases have little
      precedential value. In the late 1970s, the Chinese government began to
      promulgate a comprehensive system of laws and regulations governing commercial
      matters. The overall effect of legislation enacted over the past 20 years has
      significantly enhanced the protections afforded to foreign invested enterprises
      in China. However, these laws, regulations, and legal requirements are
      relatively recent and are evolving rapidly, and their interpretation and
      enforcement involve uncertainties. These uncertainties could limit the legal
      protections available to foreign investors.





The
      practical effect of the PRC's legal system on our business operations in China
      can be viewed from two separate but intertwined considerations. First, as a
      matter of substantive law, the Foreign Invested Enterprise laws provide
      significant protection from government interference. In addition, these laws
      guarantee the full enjoyment of the benefits of corporate articles and contracts
      to Foreign Invested Enterprise participants. These laws, however, do impose
      standards concerning corporate formation and governance, which are not
      qualitatively different from the corporation laws found in the United States.
      Similarly, PRC accounting laws mandate accounting practices which may not be
      consistent with US Generally Accepted Accounting Principles. The accounting
      laws
      of China require that an annual "statutory audit” be performed in accordance
      with PRC accounting standards and that the books of account of Foreign Invested
      Enterprises are maintained in accordance with Chinese accounting laws. Article
      14 of the PRC Wholly Foreign-Owned Enterprise Law requires a Wholly
      Foreign-Owned Enterprise to submit certain periodic fiscal reports and
      statements to designated financial and tax authorities, at the risk of business
      license revocation.





28


Second,
      while the enforcement of substantive rights may appear less clear than United
      States procedures, Foreign Invested Enterprises and Wholly Foreign-Owned
      Enterprises are Chinese registered companies that enjoy the same status as
      other
      Chinese registered companies in business-to-business dispute resolution. The
      Chinese legal infrastructure is significantly different in operation from its
      United States counterpart, and may present a significant impediment to the
      operation of Foreign Invested Enterprises.





***PRC
      economic reform policies or nationalization could result in a total investment
      loss in our common stock.***





Since
      1979, the Chinese government has reformed its economic systems. Because many
      reforms are unprecedented or experimental, they are expected to be refined
      and
      improved. Other political, economic and social factors, such as political
      changes, changes in the rates of economic growth, unemployment or inflation,
      or
      in the disparities in per capita wealth between regions within China, could
      lead
      to further readjustment of the reform measures. This refining and readjustment
      process may negatively affect our operations.





Although
      the Chinese government owns the majority of productive assets in China, in
      the
      past several years the government has implemented economic reform measures
      that
      emphasize decentralization and encourage private economic activity. Because
      these economic reform measures may be inconsistent or ineffectual, there are
      no
      assurances that:





We
      will
      be able to capitalize on economic reforms;


The
      Chinese government will continue its pursuit of economic reform
      policies;


The
      economic policies, even if pursued, will be successful;


Economic
      policies will not be significantly altered from time to time; and


Business
      operations in China will not become subject to the risk of
      nationalization.





Over
      the
      past few years, China's economy has registered a high growth rate. Recently,
      there have been indications that rates of inflation have increased. In response,
      the Chinese government recently has taken measures to curb this excessively
      expansive economy. These measures have included restrictions on the availability
      of domestic credit, reducing the purchasing capability of certain of its
      customers, and limited re-centralization of the approval process for purchases
      of some foreign products. These austere measures alone may not succeed in
      slowing down the economy's excessive expansion or control inflation, and may
      result in severe dislocations in the Chinese economy. The Chinese government
      may
      adopt additional measures to further combat inflation, including the
      establishment of freezes or restraints on certain projects or markets. These
      measures may adversely affect our operations.





29
 
  There
        can
        be no assurance that the reforms to China’s economic system will continue or
        that we will not be adversely affected by changes in China's political,
        economic, and social conditions and by changes in policies of the Chinese
        government, such as changes in laws and regulations, measures which may be
        introduced to control inflation, changes in the rate or method of taxation,
        imposition of additional restrictions on currency conversion and remittance
        abroad, and reduction in tariff protection and other import
        restrictions.





***Government
      control of currency conversion and the fluctuation of the renminbi may
      materially and adversely affect our operations and financial results as well
      as
      the value of our securities.***





We
      receive a substantial portion of our revenues in Renminbi, which currently
      is
      not a freely convertible currency. The Chinese government may, at its
      discretion, restrict access in the future to foreign currencies for current
      account transactions. If this was to occur, we may not be able to pay dividends
      in foreign currencies to our shareholders.





The
      value
      of the Renminbi against the U.S. dollar and other currencies fluctuates and
      is
      affected by, among other things, changes in the PRC's political and economic
      conditions. Since 1994, the conversion of Renminbi into foreign currencies,
      including Hong Kong and U.S. dollars, has been based on rates set by the
      People’s Bank of China, which are set daily based on the previous day’s
      inter-bank foreign exchange market rates and current exchange rates on the
      world
      financial markets. Since 1994, the official exchange rate for the conversion
      of
      Renminbi to U.S. Dollars generally has been stable. Any devaluation of the
      Renminbi, however, may materially and adversely affect the value of, and any
      dividends payable on, our shares in foreign currency terms, since we will
      receive substantially all of our revenues, and express our profits, in Renminbi.
      Our financial condition and results of operations also may be affected by
      changes in the value of certain currencies other than the Renminbi. Our results
      may be adversely affected by changes in the political and social conditions
      in
      the PRC, and changes in governmental policies with respect to laws and
      regulations, anti-inflationary measures, currency conversion and remittance
      abroad, and rates and methods of taxation, among other things.





30


***A
      downturn in the Chinese economy may slow down our growth and
      profitability.***





The
      growth of the Chinese economy has been uneven across geographic regions and
      economic sectors. For example, during the years between 1978 and 2000, the
      per
      capital GDP growth rate of Fujian Province in Southeastern China was 12% while
      that of Gansu Province in Northwestern China was 5.3% (Source: New China
      Statistical Materials Compilation for 50 Years and 2001 China Annual
      Statistics). There can be no assurance that the growth of the Chinese economy
      will be steady or that any downturn will not have a negative effect on our
      business. Our profitability may decrease due to a downturn in the Chinese
      economy. More specifically, the expansion of our sales area in the less
      economically developed central and western provinces of China will depend on
      those provinces achieving certain income levels.





***We
      have limited business insurance coverage in China.*** ****





The
      insurance industry in China is still in an early stage of development. Insurance
      companies in China offer limited business insurance options. As a result, we
      have not maintained, and currently do not maintain, any liability, hazard or
      other insurance covering our services, business, operations, errors, acts or
      omissions, personnel or properties, except the auto insurance purchased by
      Baite
      on May 20, 2005. To the extent that we are unable to recover from others for
      any
      uninsured losses, such losses could result in a loss of capital and significant
      harm to our business. In the event that any action, suit and/or proceeding
      is
      brought against us and we are unable to pay a judgment rendered against us
      and/or defend ourselves against such action, suit and/or proceeding, our
      business, financial condition and operations could be negatively affected.





***Any
      occurrence of serious infectious diseases, such as recurrence of severe acute
      respiratory syndrome (SARS) causing widespread public health problems, could
      adversely affect our business and results of
      operations.***





A
      renewed
      outbreak of SARS or other widespread public health problems in China, where
      all
      of our revenue is derived, and in Guizhou, where our operations are
      headquartered, could have a negative effect on our operations. Our operations
      may be impacted by a number of public health-related factors, including the
      following:





quarantines
      or closures of our factories or subsidiaries which would severely disrupt
      itsoperations;


the
      sickness or death of the key officers and employees; and


general
      slowdown in the Chinese economy.





Any
      of
      the foregoing events or other unforeseen consequences of public health problems
      could adversely affect our business and results of operations.





31





***Our
      business may face additional competition or otherwise be adversely affected
      as a
      result of China’s entry into the WTO.***





The
      PRC
      became a member of the WTO on 11th December, 2001. The current tax benefits
      enjoyed by our Company may be regarded as unfair treatment by other members
      of
      the WTO. Accordingly, the preferential tax treatments available to us may be
      discontinued. In such circumstance, our profitability may be adversely affected.
      In addition, we may face additional competition from foreign pharmaceutical
      manufacturers if they set up their production facilities in the PRC or form
      sino-foreign joint ventures with our competitors in the PRC. In the event that
      we fail to maintain our competitiveness against these competitors, our
      profitability may be adversely affected.





***Risks
      Related to Our Common Stock***





***The
      market price for our common stock may be volatile which could result in a
      complete loss of your investment***





The
      market price for our common stock is likely to be highly volatile and subject
      to
      wide fluctuations in response to factors including the following:




l
            actual
                or anticipated fluctuations in our quarterly operating
                results,





l
            announcements
                of new products by us or our
                competitors,





l
            changes
                in financial estimates by securities
                analysts,





l
            conditions
                in the pharmaceutical market,





l
            changes
                in the economic performance or market valuations of other companies
                involved in pharmaceutical
                production,





l
            announcements
                by out competitors of significant acquisitions, strategic partnerships
                joint ventures or capital
                commitments,





l
            additions
                or departures of key personnel, or





l
            Potential
                litigation





In
      addition, the securities markets have from time to time experienced significant
      price and volume fluctuations that are not related to the operating performance
      of particular companies. These market fluctuations may also materially and
      adversely affect the market price of our common stock.





32


***We
      may issue additional shares of our capital stock to raise additional cash for
      Working capital. If we issue additional shares of our capital stock, our
      Stockholders will experience dilution in their respective percentage
      ownership.***





We
      may
      issue additional shares of our capital stock to raise additional cash for
      working capital. If we issue additional shares of our capital stock, our
      stockholders will experience dilution in their respective percentage ownership
      in us.





***A
      larg portion of our common stock is controlled by a small number of stockholders
      and as a result, these stockholders are able to influence the outcome of
      stockholder votes on various matters***





A
      large
      portion of our common stock is held by a small number of stockholders. For
      instance, Lin’s Investment Management Co., Ltd holds 53.32% of the Company's
      common stock after the closing of the Exchange Transaction. As a result, this
      stockholder is able to influence the outcome of stockholder votes on various
      matters, including the election of directors and other corporate transactions
      including business combinations. In addition, the occurrence of sales of a
      large
      number of shares of our common stock, or the perception that these sales could
      occur, may affect our stock price and could impair our ability to obtain capital
      through an offering of equity securities. Furthermore, the current ratios of
      ownership of our common stock reduce the public float and liquidity of our
      common stock which can in turn affect the market price of our common
      stock.





***There
      is currently a limited trading market for our common stock which may make it
      difficult to sell shares of our common stock.***





Our
      common stock is traded in the over-the-counter market through the
      Over-the-Counter Electronic Bulletin Board. While there is an active trading
      market for our common stock, it is small. Further, there can be no assurance
      that an active trading market will be maintained. We cannot assure you that
      our
      common stock will ever be included for trading on any stock exchange or through
      any other quotation system (including, without limitation, the NASDAQ Stock
      Market).





***We
      are likely to remain subject to "penny stock" regulations and as a consequence
      there are additional sales practice requirements and additional warnings issued
      by Securities and Exchange Commission (the “SEC”).***





As
      long
      as the trading price of our common stock is below $5.00 per share, the
      open-market trading of our common stock will be subject to the "penny stock"
      rules. The "penny stock" rules impose additional sales practice requirements
      on
      broker-dealers who sell securities to persons other than established customers
      and accredited investors (generally those with assets in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 together with their spouse). For
      transactions covered by these rules, the broker-dealer must make a special
      suitability determination for the purchase of securities and have received
      the
      purchaser's written consent to the transaction before the purchase.
      Additionally, for any transaction involving a penny stock, unless exempt, the
      broker-dealer must deliver, before the transaction, a disclosure schedule
      prescribed by SEC relating to the penny stock market. The broker-dealer also
      must disclose the commissions payable to both the broker-dealer and the
      registered representative and current quotations for the securities. Finally,
      monthly statements must be sent disclosing recent price information on the
      limited market in penny stocks. These additional burdens imposed on
      broker-dealers may restrict the ability of broker-dealers to sell the common
      stock and may affect a stockholder's ability to resell the common
      stock.





33


Stockholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (i) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (ii)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (iii) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (iv) excessive and undisclosed bid-ask differential and markups
      by selling broker-dealers; and (v)


the
      wholesale dumping of the same securities by promoters and broker-dealers after
      prices have been manipulated to a desired level, along with the resulting
      inevitable collapse of those prices and with consequent investor losses. Our
      management is aware of the abuses that have occurred historically in the penny
      stock market.





***We
      are responsible for the indemnification of our officers and directors which
      could result in substantial expenditures, which we may be unable to
      recoup.***





Our
      bylaws provide for the indemnification of our directors, officers, employees,
      and agents, under certain circumstances, against attorney's fees and other
      expenses incurred by them in any litigation to which they become a party arising
      from their association with or activities on behalf of us. This indemnification
      policy could result in substantial expenditures, which we may be unable to
      recoup.





***Compliance
      with the Sarbanes-Oxley Act could cost hundreds of thousands of dollars, require
      additional personnel and require hundreds of man hours of effort, and there
      can
      be no assurance that we will have the personnel, financial resources or
      expertise to comply with these regulations.***





The
      US
      Public Company Accounting Reform and Investor Protection Act of 2002, better
      known as Sarbanes-Oxley, is the most sweeping legislation to affect publicly
      traded companies in 70 years. Sarbanes-Oxley created a set of complex and
      burdensome regulations. Compliance with such regulations requires hundreds
      of
      thousands of dollars, additional personnel and hundreds of man hours of effort.
      There can be no assurance that we will have the personnel, financial resources
      or expertise to comply with these regulations.





34





**B.
      Risks Related to PTI**





***If
      we do not demonstrate the safety and effectiveness of our products in clinical
      trials, we will not be able to apply for regulatory approval of our
      products.***





Conducting
      clinical trails is a lengthy, time-consuming, uncertain and expensive process.
      We will incur substantial expenses for, and devote significant time and
      resources to, pre-clinical testing and clinical trials of our product
      candidates. Clinical trails are subject to various interpretations. Regulatory
      authorities may not agree with us regarding our trial design, methods of
      analysis and our interpretations of clinical results. If that occurs, regulatory
      authorities may require us to change our trial design or conduct new trials.
      In
      addition, it is possible that we could encounter problems in a clinical trial
      that would significantly delay the completion of the trial, require us to repeat
      the study or cause us to abandon the trail or our product candidates
      altogether.





***Failure
      to obtain regulatory approvals for our products will prevent us from marketing
      them and may significantly and adversely affect our future financial
      performance.***





Both
      before and after approval is obtained, a products and manufacturers are subject
      to comprehensive regulatory oversight. Violations of regulatory requirements
      at
      any stage, including the pre-clinical and clinical testing process, the approval
      process, or thereafter (including after approval), may result in adverse
      consequences, including the FDA’s or foreign regulator’s delay in approving or
      refusal to approve a product, withdrawal of an approved product from the market,
      and/or the imposition of criminal penalties against the manufacturer. In
      addition, later discovery of previously unknown problems relating to a marketed
      product may result in restrictions on such product or manufacturer including
      withdrawal of the product from the market. Also, new government requirements
      may
      be established that could delay or prevent regulatory approval of products
      under
      development.





***If
      cost estimates for clinical trials and research of products are inaccurate,
      we
      will require additional funding.***





Estimates
      of the future sales of products may be substantially higher than the actual
      revenues from this product, and estimates of the costs associated with future
      clinical trials and research of our other products in development may each
      be
      substantially lower than the actual costs of these activities. If revenue or
      cost estimates are incorrect, we will need additional funding for our research
      efforts.





35


***If
      we cannot obtain additional capital, we may have to continue our delay of
      development and research expenditures, which may influence our ability to
      produce future products.***





Clinical
      and other studies necessary to obtain approval of a new drug can be time
      consuming and costly. The different steps necessary to obtain regulatory
      approval, especially that of the FDA, involve significant costs. Accordingly,
      additional capital is needed in order to fund the costs of future clinical
      trials, related research, and general and administrative expenses. We expect
      to
      seek additional funding in the amount of $8 million around mid-2006. This
      funding will be used to cover pre-clinical studies and FDA IND filings, among
      other things.





***There
      can be no assurance that we will achieve or maintain a competitive position
      or
      that other technological developments will not cause our proprietary
      technologies to become uneconomical or obsolete.***





The
      biomedical field in which we are involved is undergoing rapid and significant
      technological change. The successful development of therapeutic agents and
      products will depend on our ability to be in the technological forefront of
      this
      field. There can be no assurance that we will achieve or maintain a competitive
      position or that other technological developments will not cause our proprietary
      technologies to become uneconomical or obsolete.





***Our
      success will depend on our ability to operate without infringement on or
      misappropriating the proprietary rights of others.***





Our
      products may conflict with patents that have been or may be granted to
      competitors, universities or others. In the event someone brings an infringement
      claim against us, we could face legal actions seeking damages and seeking to
      enjoin clinical testing, manufacturing and marking of the affected product.
      This
      type of litigation could consume a substantial portion of our resources, and
      if
      there was an adverse outcome to the litigation, we might not be able to sell
      the
      affected product. If any claims of third-party patents are upheld as valid
      and
      enforceable with respect to a product or process made, used or sold by us,
      we
      could be prevented from producing the subject matter claimed in those patents
      or
      could be required to obtain licenses or redesign our products or processes
      to
      avoid infringement. As a result, we would be liable to pay damages that may
      exceed our resources. We may not be able to obtain necessary licenses on
      commercially reasonable terms, or we may not be successful in attempting to
      redesign our products to avoid infringement.





36


***If
      we are unable to attract and retain key employees, our business will not develop
      or expand.***





Our
      success will depend on our ability to attract and retain key employees and
      scientific advisors. If we fail to acquire such personnel, lose existing
      personnel, specifically current two members of our management team, Mr. Jun
      Bao
      and Dr. Xinli Lin, our success would be hindered. The loss of these officers
      could have a material adverse effect upon our business, financial condition,
      and
      results of operations. We have employment agreements with each of these two
      executive officers. ****** We
      must
      attract, recruit and retain a sizeable workforce of technically competent
      employees. Our ability to effectively implement our business strategy will
      depend upon, among other factors, the successful recruitment and retention
      of
      additional highly skilled and experienced management and other key personnel.
      Because we cannot provide more attractive salary and more advanced R&D
      facilities than other large R&D companies, we cannot assure that we will be
      able to hire or retain such employees.





***We
      are heavily dependent on certain key customers, the loss of which would
      materially adversely affect our sales and revenues.***





The
      loss
      of any of our key customers could materially and adversely affect our business,
      results of operations and financial condition.





***If
      the Company engages in the business of being an investment company, its
      operations will adversely impact by the Company’s need to register under the
      Investment Company Act.***





The
      Company believes that it is primarily engaged in business other than investing,
      reinvesting, owning, holding or trading in securities. The Company invests
      its
      cash in cash equivalents and short-term investments of high quality, following
      the investment guidelines approved by the Board of Directors. If the Company
      were to invest more than 40% of its total assets in “investment securities” as
      defined under the Investment Company Act of 1940, the Company might be required
      to comply with the registration requirements of the Investment Company Act
      of
      1940. Compliance with those registration requirements would have a material
      adverse effect upon the Company.





***If
      we are not able to adequately protect our intellectual property, we may not
      be
      able to compete effectively.***





The
      Company's success will depend, in part, on its ability to obtain patent or
      other
      protection for its technology and product candidates. The Company seeks to
      obtain such protection through patents, maintenance of trade secrets and
      contractual agreements. The success of the Company will also depend in part
      on
      the Company not infringing patents issued to competitors or other proprietary
      rights of third parties.





The
      patent position of biotechnology companies is highly uncertain and involves
      complex legal, scientific and factual questions. There can be no assurance
      that
      patents will issue from any of the Company's pending patent applications or
      that, if patents do issue, the claims allowed will be sufficiently broad to
      protect the Company's technology and product candidates. In addition, there
      can
      be no assurance that any patents previously or subsequently issued to the
      Company will not be challenged, invalidated or circumvented, or that the rights
      granted thereunder will provide any proprietary protection or competitive
      advantage to the Company.





37


Competitors
      may have filed patent applications or may have obtained patents and other
      proprietary rights relating to products or processes similar to and competitive
      with those of the Company. The scope and validity of such patents, the extent
      to
      which the Company may be required to obtain licenses under these patents or
      other proprietary rights, and the cost and availability of such licenses are
      presently unknown. No assurance can be made that any licenses required under
      any
      patents or proprietary rights will be made available to the Company on
      acceptable terms, if at all. Further, the Company may enter into collaborative
      research and development arrangements with strategic partners which may result
      in the development of new technologies or products. There is no assurance that
      disputes will not arise in the future with respect to the ownership of rights
      to
      any technology or products that may be so developed.





The
      Company also seeks to protect its intellectual property in part by
      confidentiality agreements with its employees and consultants. There can be
      no
      assurance that these agreements will not be breached, that the Company will
      have
      an adequate remedy for any breach, or that the Company's trade secrets will
      not
      otherwise become known or independently discovered by competitors.





***Delays
      in clinical testing could result in increased costs to us and delay our ability
      to obtain regulatory approval and commercialize our product candidates.***




Significant
      delays in clinical testing could materially impact our product development
      costs
      and delay regulatory approval of our product candidates. We do not know whether
      planned clinical trials will begin on time, will need to be redesigned or will
      be completed on schedule, if at all. Clinical trials can be delayed for a
      variety of reasons, including delays in:




•
                obtaining
                    regulatory approval to commence a trial;




•
            obtaining
                clinical materials;




•
            reaching
                agreement on acceptable clinical study agreement terms with prospective
                sites;




•
            obtaining
                institutional review board approval to conduct a study at a prospective
                site; and




•
            recruiting
                patients to participate in a study.




38


***Even
      if we obtain regulatory approval, our marketed drugs will be subject to ongoing
      regulatory review. If we fail to comply with continuing United States and
      foreign regulations, we could lose our approvals to market drugs and our
      business would be seriously harmed.***




Following
      initial regulatory approval of any drugs we may develop, we will be subject
      to
      continuing regulatory review, including review of adverse drug experiences
      and
      clinical results that are reported after our drug products become commercially
      available. This would include results from any post-marketing tests or vigilance
      required as a condition of approval. The manufacturer and manufacturing
      facilities we use to make any of our U.S. drug candidates will also be subject
      to periodic review and inspection by the FDA. If a previously unknown problem
      or
      problems with a product or a manufacturing and laboratory facility used by
      us is
      discovered, the FDA or foreign regulatory agency may impose restrictions on
      that
      product or on the manufacturing facility, including requiring us to withdraw
      the
      product from the market. Any changes to an approved product, including the
      way
      it is manufactured or promoted, often require FDA approval before the product,
      as modified, can be marketed. We and our contract manufacturers will be subject
      to ongoing FDA requirements for submission of safety and other post-market
      information. If we and our contract manufacturers fail to comply with applicable
      regulatory requirements, a regulatory agency may:





•
            issue
                warning letters;




•
            impose
                civil or criminal penalties;




•
            suspend
                or withdraw our regulatory approval;




•
            suspend
                any of our ongoing clinical trials;




•
            refuse
                to approve pending applications or supplements to approved applications
                filed by us;




•
            impose
                restrictions on our operations;




•
            close
                the facilities of our contract manufacturers; or




•
            seize
                or detain products or require a product recall.





39


***We
      rely on trade secrets and other forms of non-patented intellectual property
      protection. If we are unable to protect our trade secrets, other companies
      may
      be able to compete more effectively against us.***




We
      rely
      on trade secrets to protect our technology, especially where we do not believe
      patent protection is appropriate or obtainable. However, trade secrets are
      difficult to protect, especially in the pharmaceutical industry, where much
      of
      the information about a product must be made public during the regulatory
      approval process. Although we use reasonable efforts to protect our trade
      secrets, our employees, consultants, contractors, outside scientific
      collaborators and other advisors may unintentionally or willfully disclose
      our
      information to competitors. Enforcing a claim that a third party illegally
      obtained and is using our trade secret is expensive and time consuming, and
      the
      outcome is unpredictable. In addition, courts outside the United States may
      be
      less willing to or may not protect trade secrets. Moreover, our competitors
      may
      independently develop equivalent knowledge, methods and know-how.




***We
      may incur significant costs complying with environmental laws and regulations,
      and failure to comply with these laws and regulations could expose us to
      significant liabilities.***




Our
      research and development activities use biological and hazardous materials
      that
      are dangerous to human health and safety or the environment. We are subject
      to a
      variety of federal, state and local laws and regulations governing the use,
      generation, manufacture, storage, handling and disposal of these materials
      and
      wastes resulting from these materials. We are unable to predict whether any
      agency will adopt any regulations that could have a material adverse effect
      on
      our operations





Although
      we believe our safety procedures for handling and disposing of these materials
      comply with federal, state and local laws and regulations, we cannot entirely
      eliminate the risk of accidental injury or contamination from the use, storage,
      handling or disposal of hazardous materials. In the event of contamination
      or
      injury, we could be held liable for any resulting damages, and any liability
      could significantly exceed our insurance coverage.




**C.
      Risks related to First Capital**





Because
      Baite is the only business operation of First Capital, the following risks
      related to First Capital are related to the operations of Baite.




***Our
      certificates, permits, and licenses are subject to governmental control and
      renewal, and Baite will not be able to operate if they are not
      maintained.***





Baite
      is
      subject to various PRC laws and regulations pertaining to the pharmaceutical
      industry. We have attained the certificates, permits, and licenses required
      for
      the operation of a pharmaceutical enterprise and the manufacturing of
      pharmaceutical products in the PRC. We have renewed our Permit in December
      2005,
      which will be valid through December 31, 2010. In accordance with Administration
      Law and the Implementation Rules of China, any pharmaceutical production
      enterprise must obtain the Permit. Therefore, if the Permit expires, Baite
      will
      not be able to engage in medicine production which will cause its operations
      to
      be terminated. We also obtained three GMP certificates which are effective
      through October 8, 2008, August 1, 2010, and September 29, 2010. The Permits
      and
      the GMP certificates are valid for a term of five years and must be renewed
      before their expiration. During the renewal process, we will be re-evaluated
      by
      the appropriate governmental authorities and must comply with the then
      prevailing standards and regulations which may change from time to time. In
      the
      event that we are not able to renew the certificates, permits and licenses,
      all
      or part of our operations may be terminated. Furthermore, if escalating
      compliance costs associated with governmental standards and regulations restrict
      or prohibit any part of our operations, it may adversely affect our operation
      and profitability.





40


***Our
      profitability will be adversely affected if we lose preferential tax
      treatment.***





Baite
      is
      enjoying several preferential tax concessions resulting in the reduction of
      profit tax liabilities. Pursuant to Income Tax Law of Foreign Investment
      Enterprise and Foreign Enterprise, Baite was exempted the income tax for the
      period between 1998 and 1999, and was granted a 50% reduction in its income
      tax
      liability for the period between 2000 and 2002. As the corporate income tax
      of
      manufacturing foreign investment enterprises in Guiyang is 24%, Baite’s income
      tax liability for the period between 2000 and 2002 is 12%. Pursuant to Notice
      on
      Tax Concession for the Development of the West, as a foreign investment
      enterprise, Baite has been granted an applicable income tax rate of 15% from
      2003 to 2010 since Baite’s products were included on the list of products
      encouraged by the PRC government through tax benefits.





There
      is
      no assurance that the preferential tax treatment mentioned above will remain
      unchanged and effective. Baite’s tax liabilities and profitability will increase
      and its profits may accordingly decline if the reduced income tax rate of 15%
      is
      not applicable anymore.





***We
      cannot guarantee the protection of our intellectual property
      rights***





To
      protect the reputation of our products, we have registered and applied for
      registration of our trademarks in the PRC where we have a major business
      presence. Please refer to the paragraph headed “Intellectual property” in the
      Business section of this Report on page 18.





During
      the last two years, all of our products were sold under those trademarks. During
      the last two years, we have not experienced any infringements of such trademarks
      for sales of pharmaceutical products. However, there is no assurance that there
      will not be any infringement of our brand name or other registered trademarks
      or
      counterfeiting of our products in the future. Should any such infringement
      or
      counterfeiting occurs, our reputation and business may be adversely affected.
      We
      may also incur significant expenses and substantial amount of time and effort
      to
      enforce our intellectual property rights in the future. Such diversion of our
      resources may adversely affect our existing business and future expansion
      plan.





41


***We
      rely on a few suppliers and any disruption with our suppliers could have an
      adverse effect on our business.***




We
      have
      developed relationships with a single or limited number of suppliers for
      materials that are otherwise generally available. Purchases from our largest
      supplier during the period from July 2005 to June 2006, the purchase amount
      of
      Anshun Jiujiu Chinese Medicine co., Ltd, was approximately US$ 541,371.16,
      which
      accounts for approximately 30.79% of the total purchases from the top 10
      suppliers of our company. Purchases from July 2005 to June 2006 by our
      second-largest supplier, the purchase amount of Guizhou Qianye Plastic Co.,
      Ltd
      was approximately US$ 278,550.27, which accounts for 15.84% of our total
      purchase from the top 10 suppliers of our company. Although we believe that
      alternative suppliers are available to supply materials, should any of these
      suppliers terminate its business arrangements with us or increase the prices
      of
      materials supplied by these suppliers, it could delay product shipments and
      adversely affect our business operations and profitability.





***We
      are subject to the environmental protection laws of the PRC, which may result
      in
      restrictions on our operations or liabilities for
      pollution.***





Our
      manufacturing process may produce by-products such as effluent, gases and noise,
      which are harmful to the environment. we are subject to multiple laws governing
      environmental protection, such as “The Law on Environmental Protection in the
      PRC” and “The Law on Prevention of Effluent Pollution in the PRC”, as well as
      standards set by the relevant governmental bodies determining the classification
      of different wastes and proper disposal. We have submitted the Examination
      and
      Acceptance Report on the Device of Sewage Disposal System on August 22, 2000
      and
      the Examination and Acceptance Report on the Environmental Protection Facility
      on December 1, 2000 to relevant authority in Guiyang City. In addition, we
      obtained the Supervisory Reports on sewage, noise, smoke, sulfur dioxide and
      Nitrogen oxides from Guiyang Environmental Supervision Center on October 10,
      2004 and November 30, 2004.





China
      is
      experiencing substantial problems with environmental pollution. Accordingly,
      it
      is likely that the national, provincial and local governmental agencies will
      adopt stricter pollution controls. There can be no assurance that future changes
      in environmental laws and regulations will not impose costly compliance
      requirements on us or otherwise subject us to future liabilities. Our business’s
      profitability may be adversely affected if additional or modified environmental
      control regulations are imposed upon us.





42


***The
      commercial success of our products depend upon the degree of market acceptance,
      and our profitability will be impaired if we are unable to obtain sufficient
      market penetration.***





The
      commercial success of our products depends upon the degree of market acceptance
      among the medical community. Even if our products are approved by the SFDA,
      there is no assurance that physicians will prescribe or recommend our products
      to patients. Furthermore, a product’s prevalence and use at hospitals may be
      contingent upon our relationship with the medical community. The acceptance
      of
      our products among the medical community may depend upon several factors,
      including but not limited to, the product’s acceptance by physicians and
      patients as a safe and effective treatment, cost effectiveness, potential
      advantages over alternative treatments, and the prevalence and severity of
      side
      effects. Failure to attain market acceptance among the medical community may
      have an adverse impact on the Company’s operations and profitability.




***If
      our exiting products reach the end of their life cycle before new we develop
      new
      products, our profitability will be impaired.***




Medicine
      is a special kind of merchandise. Chinese herbal medicine has its own lifecycle,
      which is affected by pharmacological developments and the resultant launch
      of
      substitute products. Improvements in the theoretical basis and technical
      application for herbal medicines could increase the number and speed of new
      product launches which shorten the life cycle of existing products. Naoningsu
      Capsule and Liuweimuxiang Capsule have been given the Chinese Herbal Medicine
      Protected Certification by SFDA. Baite’s products other than those two are not
      subject to the protection as Chinese Herbal Medicines. New launches of medicines
      with similar characteristics would increase the competition on those two
      products. To avoid loss, Baite must speed up its research and development for
      new products.





***We
      are subject to the PRC price control of drugs, which may adversely effect our
      profit margins.***





The
      State
      Development and Reform Commission (“SDRC”) of the PRC and the price
      administration bureaus of the relevant provinces in which our pharmaceutical
      products are manufactured are responsible for the retail price control over
      our
      pharmaceutical products. Currently, we have five products under the price
      control, which are Anbianxilin Capsule, Antelope Rheum Capsule, Compound Salvia
      Root Tablet, Yinhuang Pills and QijuDihuang Capsule. The SDRC sets the price
      ceilings for certain pharmaceutical products in the PRC. Where our products
      are
      subject to a price ceiling, we will adjust the product price to accommodate
      for
      the pricing of competitors in competition for market share. The price ceilings
      set by SDRC may limit our profitability, and in some instances, such as where
      the price ceiling is below the production costs, may cause us to stop
      manufacturing certain products.





43


***We
      may suffer as a result of product liability or defective
      products***





We
      may
      produce products which, despite proper testing, inadvertently have an adverse
      pharmaceutical effect on the health of individuals. The existing PRC laws and
      Regulations do not require us to maintain third party liability insurance to
      cover product liability claims. However, if a product liability claim is brought
      against us, it may, regardless of merit or eventual outcome, result in damage
      to
      our reputation, breach of contract with our customers, decreased demand for
      our
      products, costly litigation, product recalls, loss of revenue, and the inability
      to commercialize our some products. We currently are not aware of any existing
      or anticipated product liability claims with respect to our products.





***Collective
      tendering of pharmaceutical products may lead to reduced
      revenue.***





Chinese
      regulations require non-profit medical organizations established in China to
      implement collective tender processes for the purchase of medicine. Also, it
      is
      intended that the implementation of a tender purchase system will be extended
      gradually and will cover, among other medicines, those consumed in large volume
      and commonly used for clinical purposes. Pharmaceutical wholesalers must be
      duly
      authorized by pharmaceutical manufacturers in order to participate in the
      tender. If, for the purpose of reducing the bidding price, pharmaceutical
      manufacturers participate in the collective tender on their own and enter into
      purchase and sales contracts with medical organizations directly without
      authorizing a pharmaceutical distributor, the revenue of Baite or any other
      subsidiaries that we may acquire in the future, whose main business is
      pharmaceutical distribution, may be adversely affected.





Even
      though Baite has established long-term business relationships with many medical
      organizations, if pharmaceutical manufacturers are awarded contracts under
      the
      tender process, relevant medical organizations would not breach the tender
      agreement in order to purchase similar products from Baite.





***If
      the medicines Baite distributes are replaced by other medicines or removed
      from
      China’s social insurance catalogue in the future, Baite’s revenue may
      suffer.***





Pursuant
      to relevant Chinese social regulations, patients purchasing medicines listed
      by
      China’s state and/or provincial governments in the catalogue covered by social
      insurance, or the insurance catalogue, may be, in part or in whole, reimbursed
      by a social medicine fund. Accordingly, pharmaceutical distributors prefer
      to
      engage in the distribution of medicines listed in this insurance catalogue.
      However, the content of this insurance catalogue is subject to change by the
      Ministry of Labor and Social Security of China, and new medicines may be added
      to this social insurance catalogue by provincial level authorities as part
      of
      their limited ability to change certain medicines listed in the social insurance
      catalogue. Five medicines, Anbianxilin Capsule, Antelope Rheum Capsule, Compound
      Salvia Root Tablet, Yinhuang Pills and QijuDihuang Capsule, are listed in this
      insurance catalogue. If the medicines distributes are replaced by other
      medicines or removed from this insurance catalogue in the future, Baite’s
      revenue may suffer.





44


**Item
      2 - Description of Property**





As
      of
      June 30, 2006, the Company's principal executive offices was located at 5980
      Horton St, Suite 405, Emeryville, California, and include approximately 6,820
      square feet of lab, offices, warehouse and manufacturing space. The Company
      pays
      a base rent of approximately $24,000 per month.





**PTI**





As
      of
      June 30, 2006, PTI’s principal executive offices (which it shares with BiTech)
      was located at 5980 Horton St., Suite 405 Emeryville, California, and include
      approximately 6,820 square feet of lab, offices, warehouse and manufacturing
      space. The Company pays a base rent of approximately $24,000 per month.





Due
      to
      the relocation of PTI, as of July 20, 2006, the Company entered into a new
      lease
      agreement with the Russ Family Trust. As of August 14, 2006, the Company and
      Emery Station Office II LLC mutually agreed to terminate the lease agreement
      for
      Emeryville facility. The principal executive office is moved to new address:
      3505 Cadillac, Unit F-7, Costa Mesa, California.





**First
      Capital**





The
      sole
      subsidiary of First Capital, Baite, entered into a lease agreement (the “Lease
      Agreement”) with its former related party, under which Baite leased the offices
      located at No. 220-2 Baiyun Road, Guiyang, Guizhou Province, China, as its
      principal executive offices which include approximately 15,995 square meter
      of
      offices, warehouse and manufacturing space. The term of the lease is 3 years,
      from January 1, 2003 to December 31, 2005. The rent from January 1, 2003 to
      December 25, 2004 was RMB240, 000 (approximately US $ 29,593) and the water
      and
      electricity fee was RMB 60,000. As of July 13, 2005, Baite and its former
      related party extended the Lease Agreement to December 31, 2010 with the same
      terms and conditions. As of January 4, 2006, Baite modified the Lease Agreement
      to increase the rent to RMB 500,000 (approximately US $ 61,652), by increasing
      the space from 15,995 square meter to 64,380 square meter including capsule
      workshop, suppository and lotion, workshop, injection workshop, syrup workshop
      and executive office. As of January 25, 2006, Baite corrected one clerical
      error
      in the aforesaid Lease Agreement





45





**Item
      3 - Legal Proceedings**





We
      have
      no pending legal proceedings. From time to time, we may be involved in various
      claims, lawsuits, disputes with third parties, actions involving allegations
      of
      discrimination or breach of contract actions incidental to the normal operations
      of the business.





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





None.





**PART
      II**





**Item
      5 - Market for Company's Common Stock and Related Stockholder
      Matters**





There
      is
      no public trading market for the Company’s securities.





**Item
      6 - Management's Discussion and Analysis or Plan of
      Operation**


(All
      amounts indicated are expressed in USD thousands unless otherwise stated)





The
      following discussion of our financial condition and results of operations should
      be read in conjunction with our consolidated financial statements and notes
      thereto included in this Report. In this discussion, the words “the Group”,
“we”, “our” and “us” refer to BiTech Pharma, Inc. and its subsidiaries comprised
      of ProteomTech, Inc. (“PTI), First Capital Asia Investments Limited (“First
      Capital”) and Guizhou Baite Pharmaceutical Co., Ltd. (“Baite”).





**Forward-looking
      Statements**





Some
      of
      the statements contained in this Report are not statements of current or
      historical fact.  As such they are forward-looking statements within the
      meaning of the federal securities laws. These statements relate to our
      expectations concerning future events or our future financial performance.
      Forward-looking statements include statements concerning plans, objectives,
      goals, strategies, future events or performance, expectations, predictions,
      assumptions and other statements that are not statements of historical facts.
      In
      some cases, you can identify forward-looking statements by terminology such
      as
“may”, “might”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”,
“estimate”, “predict”, “intend”, “potential” or “continue”, or the negative of
      these terms, or other comparable terminology. Actual events or results may
      differ materially from those suggested by our forward-looking statements.
 Forward-looking statements rely on a number of assumptions and estimates
      which could be inaccurate and are subject to risks and uncertainties, including
      those identified under “Risk Factors” in Item 1 above and elsewhere in this
      Report. Although we believe that the expectations reflected in our
      forward-looking statements are reasonable, we cannot guarantee future results,
      levels of activity, performance or achievements. We undertake no general
      obligation to update publicly any forward-looking statements for any reason,
      even if new information becomes available or other events occur in the
      future.





46


**Overview**





On
      June
      30, 2005, we completed a stock exchange transaction with the shareholders of
      PTI
      and First Capital. Pursuant to the terms of the exchange, we issued 11,505,102
      shares of our common stock to the shareholders of PTI and First Capital,
      representing approximately 90.2% of our post-exchange issued and outstanding
      common stock, in exchange for 100% of the outstanding common stock of PTI and
      First Capital. As a result of this transaction, we currently operate as a
      holding company of PTI and First Capital. And the business could be separated
      into two business segments including drug research and development contract
      service and production and sale of medicines.


PTI’s
      principal focus is on protein drug research and development. The main source
      of
      its revenues has been from licensing fees and contract services. In 2005, PTI
      granted and licensed exclusive rights to use Pt-Fold Technology to manufacture
      and produce VEGI192 and market the protein drug in China to a former related
      party, and licensing fees from this agreement was the main source of revenues
      in
      2005. In 2006, PTI licensed exclusive rights to use Pt-Fold Technology to
      manufacture AAT, and to market the drug in China to a Chinese pharmaceutical
      company.





The
      acquisition of Baite by First Capital on January 4, 2005 allowed the Group
      to
      develop its business in the production and sale of medicine.  The
      production and sale of medicine have become another main source of our
      income.





We
      review
      various metrics to evaluate our financial performance. For
      the
      year ended June 30, 2006 the Company’s total revenue was $6,114 thousands,
      compared with the total revenue of $3,928 thousands for the year ended June
      30,
      2005. The net profit was $457 thousands for the year ended June 30, 2006,
      compared with a net profit of $886 thousands in 2005. For the detailed
      discussion of our revenue, margins, earnings and other financial results, see
      “Result of Operations” below.





47


**Results
      of Operations**





*Revenue
      Recognition*





We
      recognize revenues from license fee income, research contract services rendered
      and sale of medicines. License fee income represented income from the sale
      of an
      exclusive sublicense, which was recognized when the license agreement was
      executed. Revenue from contract services rendered is recognized when the service
      is billed and has been delivered according to the service contract with
      customers. Revenue from the sale of goods is recognized when significant risks
      and rewards of ownership of the goods are transferred to the buyer, the Group
      retains neither continuing managerial involvement to the degree usually
      associated with ownership nor effective control over the goods sold, and it
      is
      probable that the economic benefit associated with the transaction will flow
      to
      the Group and the relevant revenue and costs can be measured reliably.





48


*Recording
      of Expenses*


We
      recorded our operating expenses among the following categories:


Cost
      of
      sales, and Operating expenses





Cost
      of
      sales consists of direct materials, direct labor and manufacturing overhead.
      Manufacturing overhead was allocated based on normal operating capacity. Cost
      of
      sales, as a percentage of net revenues, tends to and is expected to fluctuate
      from one period to another as a result of changes in product mix, which result
      from different products having different material costs.





Operating
      expenses consist primarily of salary and related benefit charges (“staff cost”),
      depreciation, amortization, rental, provision for doubtful accounts, provision
      for inventories, commission, travelling expense, R&D expenses and other
      costs related to operational and administrative employees. Depreciation
      represented depreciation costs recorded on a straight-line method, based on
      estimated useful lives of 2 to 5 years for electronic equipment, 5 years for
      office furniture and equipment, 5 years for lab furniture and equipment, 5
      years
      for tools, 5 to 10 years for machinery, 5 to 10 years for vehicles and 5 to
      5.75
      years for leasehold improvement with estimated residual rate of 0 to 10%.
      Amortization expenses mainly represented amortization cost recorded on license
      fee as other assets on a straight-line method over a period of 20
      years.





*Year
      Ended June 30, 2006 Versus June 30, 2005*





The
      following table sets forth amounts from our consolidated financial statements
      with dollar amounts expressed in thousands and percentage changes for the year
      ended June 30, 2006 compared to the year ended June 30, 2005.




Years
                ended June 30,
            
            Increased/(Decreased)2006
            
            2005
            
            Amount
            
            %**Revenues,
                net**
            
            
            6,114
            
            
            3,928
            
            
            2,186
            
            
            56
            %Cost
                of sales
            
            
            1,694
            
            
            485
            
            
            1,209
            
            
            249
            %**Gross
                profits**
            
            
            4,420
            
            
            3,443
            
            
            977
            
            
            28
            %**Expenses**Operating
                expenses
            
            
            4,200
            
            
            3,032
            
            
            1,168
            
            
            39
            %**Operating
                income/(loss)**
            
            
            220
            
            
            411
            
            
            (191
            )
            
            (46
            %)Interest
                income/(expense), net
            
            
            (2
            )
            
            (2
            )
            
            -
            
            
            -Dividend
                income
            
            
            51
            
            
            4
            
            
            47
            
            
            1175
            %Grant
                and other income, net
            
            
            383
            
            
            507
            
            
            (124
            )
            
            (24
            %)Investment
                broker fees
            
            
            (9
            )
            
            -
            
            
            (9
            )
            
            -Investment
                loss
            
            
            (28
            )
            
            -
            
            
            (28
            )
            
            -**Income/(loss)
                before income taxes**
            
            
            615
            
            
            920
            
            
            (305
            )
            
            (33
            %)Income
                tax provision
            
            
            158
            
            
            34
            
            
            124
            
            
            365
            %**Net
                income/(loss)**
            
            
            457
            
            
            886
            
            
            (429
            )
            
            (48
            %)





49





Total
      net
      revenue increased favourably from $3,928 thousands to $6,114 thousands. This
      increase resulted from the increased sales of medicines. The gross profit rate
      decreased from 88% in 2005 to 72% in 2006. The decrease was due to the fact
      that
      from August 2005 Baite began to produce a new medicine, antitussive syrup,
      of
      which gross profit margin was less than 50%. Furthermore the antitussive syrup
      sales were 53% of the total sales income in Baite in the year 2006.





As
      mentioned above, First Capital acquired all the capital stock of Baite on
      January 4, 2005. Purchase method accounting was applied in recording this
      transaction. Baite is principally engaged in the manufacture and sales of
      medicines, mainly including Naoningsu Capsule, Danlingxinshu Capsule, Lingzhi
      Capsule, Liuweimuxiang Capsule, Anbianxilin Capsule, Piles Water, Piles Bolt
      and
      Antelope Rheum Capsule. Cost of sales mainly represented cost of sales of
      medicine, which increased along with the increase of revenue from sales of
      medicine.





Operating
      expenses increased by 39% from $3,032 thousands to $4,200 thousands, mainly
      due
      to the acquisition of Baite and the consolidation of its operations, an increase
      in salaries and benefits associated with increased head counts.





Grant
      and
      other income decreased significantly from $507 thousands to $383 thousands. In
      the
      year ended June 30, 2005, PTI was entitled to two grants. One was for VEGI
      with
      total amount of $700 thousands that to be received evenly in two calendar years,
      the other was for Hbx with total amount of $100 thousands that to be received
      evenly in one calendar year. The first phase research on Hbx was completed
      by
      the end of year 2004. In the year ended June 30, 2006, PTI was only entitled
      to
      the grant for VEGI, which resulted in the significant decrease in grant
      income.


Income
      tax provision increased from $34 thousands to $158 thousands which were mainly
      due to increased sales revenue from Baite in China, which was subject to Chinese
      Enterprise Income Tax.





50


**Liquidity
      and Capital Resources**





As
      of
      June 30, 2006, we had $421 thousands of cash and cash equivalents on hand.
      Our
      expected primary cash needs on both short and long-term bases are for expansion
      of capital expenditure, new product development, expansion of services,
      geographic expansion, working capital and other general corporate purposes.
      Historically PTI and Baite funded their operations and growth with cash flows
      from operations and borrowings.





For
      the
      year ended June 30, 2006 cash used by operating activities was $1,326 thousands
      compared to cash provided by operating activities of $911 thousands in the
      same
      period in pervious in 2005. The adverse change was mainly due to two factors:
      the decrease in revenue from licensing fees for protein drugs in the year ended
      June 30, 2006, and the increase in inventories.





For
      the
      year ended June 30, 2006 cash received in investing activities was $1,024
      thousands compared to $1,829 thousands in cash used in the year ended June
      30,
      2005. The favorable change from negative to positive cash flow in investing
      activities was mainly due to the proceeds from PTI’s sale of investment
      securities for $1,464 thousands.





For
      the
      year ended June 30, 2006, cash provided by financing activities was $250
      thousands compared to $1,200 thousands in the year ended June 30, 2005, which
      reflect a reduction in capital insertion by PTI’s former shareholders.





**Contractual
      Obligations**





The
      Group
      entered into several operating leases for its laboratory facility in California,
      USA, and for its plant and machinery in Guiyang, PRC. On August 14, 2006, PTI
      and Emery Station Office II LLC mutually agreed to terminate the lease for
      the
      Emeryville facility before schedule. Starting from September 1, 2006, PTI
      started to operate in a Costa Mesa facility in Souther California and a new
      lease became effective. The plant lease agreement of Baite will expire in 2010.
      Rental payments were calculated on a monthly basis. Total future minimum lease
      payments under these non-cancellable operating leases were as
      follows:





June
                30
            
            June
                30,2006
            
            2005Not
                more than 1 year
            
            
            222
            
            
            282More
                than 1 year but not more than 2 years
            
            
            164
            
            
            282More
                than 2 years but not more than 3 years
            
            
            164
            
            
            56More
                than 3 years but not more than 4 years
            
            
            164
            
            
            36More
                than 4 years but not more than 5 years
            
            
            133
            
            
            36More
                than 5 years
            
            
            8
            
            
            18855
            
            
            710





51


**Off-balance
      Sheet Arrangements**





As
      of
      June 30, 2006, the Company does not have any off-balance sheet
      arrangements.





**Critical
      Accounting Policies and Estimates**





Our
      critical accounting policies are more fully described in the Summary of
      Significant Accounting Policies in the notes to our consolidated financial
      statements. The preparation of financial statements in conformity with
      accounting principles generally accepted in the United States requires
      management to make estimates and assumptions in certain circumstances that
      affect amounts reported in the accompanying financial statements and related
      notes. In preparing these financial statements, our management has made its
      best
      estimates and judgments of certain amounts included in the financial statements,
      giving due consideration to materiality. We believe that the following critical
      accounting policies affect our more significant estimates used in the
      preparation of financial statements. Management has discussed the development
      and selection of the critical accounting estimates discussed below with our
      audit committee, and our audit committee has reviewed our disclosures relating
      to these estimates.





*Revenue
      Recognition*





Revenue
      from the sale of goods is recognized when significant risks and rewards of
      ownership of the goods are transferred to the buyer, the Group retains neither
      continuing managerial involvement to the degree usually associated with
      ownership nor effective control over the goods sold, and it is probable that
      the
      economic benefit associated with the transaction will flow to the Group and
      the
      relevant revenue and costs can be measured reliably.





Revenue
      from service contract rendered is recognized when the service is billed and
      has
      been delivered in accordance with the terms of the service contract with the
      customer.  The average length of a service contract is one month.
 Service contracts generally require a fifty percent non-refundable down
      payment at the beginning of the contract with the balance being due upon
      delivery of services.





52


License
      fee income represented income from a one time sale of an exclusive sublicense,
      which was recognized when the sublicense agreement was executed.  Rights to
      the patent which was sublicensed were acquired in 2001 by PTI.  The company
      has no future obligation to the acquirer under the sublicense
      agreement.





*Grant
      Income*





The
      Group
      received four grant rewards from National Institute of Health in Department
      of
      Health and Human Services to support various projects which last one or two
      years. Award recipients are responsible for reporting inventions derived or
      reduced to practice in the performance of work under each grant. These awards
      are based on the applications submitted by the Group which outlines various
      cost
      calculations teamed up with outside researchers. However, recommended future
      year total cost support is subject to the availability of funds and satisfactory
      progress of each project.  Grant income is recognized on a cost
      reimbursement basis consistent with the performance requirements of the related
      grant.





*Research
      and Development Expense*





Research
      and development expenditures are expensed as incurred.





Advertising
      Costs





Advertising
      costs are charged against operations during the period incurred except for
      direct-response advertising costs, which are capitalized and amortized over
      periods not exceeding one year. The Group did not incur any direct-response
      advertising costs during the reporting periods.





*Concentration
      of Credit Risk and Accounts Receivable*





Financial
      instruments that potentially subject us to credit risk consist principally
      of
      trade receivables. Trade receivables result from sales of products to retail
      customers. We extend credit to a substantial number of customers and perform
      ongoing credit evaluations of those customers' financial condition while,
      generally, requiring no collateral. Customers that have not been extended credit
      by us are on cash in advance basis only.





Receivables
      are carried at original invoice amount less provision for doubtful accounts
      adjusted for write-offs.  The provision for doubtful accounts is based on
      historical experience and any specific customer collection issues the Group
      has
      identified.





53


The
      Group’s clients are primarily pharmaceutical trading companies or clients in
      biotech, medical research and pharmaceutical R&D communities. There were two
      customers accounted for 58% and 13% of the Group’s net revenue respectively in
      twelve months ended June 30, 2006. One is Guizhou Yibai Pharmaceutical Co.
      The
      receivable balances due from this customer as of June 30, 2006 were $1,213
      thousands. The other one is Shandong SAIKESAISI Pharmacy & Science Ltd. The
      receivable balance due from this customer as of June 30, 2006 was nil. Except
      for those two customers, no other customers accounted for more than 10% of
      the
      Group’s net revenue. In
      the
      year ended June 30, 2005, one customer accounted for 64% of the Group’s net
      revenues. The receivable balance due from this customer as of June 30, 2005
      was
      nil. Except for that client, no other clients accounted for more than 10% of
      the
      Group’s net revenues in the 2005 fiscal year.





Concentrations
      of credit risk with respect to accounts receivable are limited to a degree
      due
      to the large number of clients comprising the Group’s client base. The Group
      performs ongoing credit evaluations of each client’s financial condition and,
      generally, does not require collateral. The Group maintains reserves for
      potential credit losses and these losses, in the aggregate, have historically
      not exceeded estimates. Based on the information available to us, we believe
      our
      allowances for doubtful accounts as of June 30, 2006 were adequate.





*Cash
      and cash equivalents*





Cash
      and
      cash equivalents consist of unrestricted cash accounts, which are not subject
      to
      withdrawal restrictions or penalties, and highly-liquid investments with
      original maturities of three months or less. Those are readily convertible
      to
      known amounts of cash with an insignificant risk of changes in
      value.





*Inventories*





Inventories
      include raw materials, work in progress, finished goods and packaging materials,
      and are presented at the lower of cost or net realizable value.





Inventories
      are stated at lower of cost or market using the average cost method. The cost
      of
      finished goods and work in progress is comprised of raw materials, direct labor
      and an allocation of all production overhead expenditures incurred based on
      normal operating capacity.





Cost
      of
      inventories is determined on an item-by-item basis.  When the cost of the
      inventory item is higher than its market (net realizable) value, it is adjusted
      to market. Market value is the estimated selling price in the ordinary course
      of
      business, less the estimated costs to completion and estimated costs necessary
      to make the sale.





54


*Property
      and Equipment*





Property
      and equipment are stated at cost less accumulated depreciation. Depreciation
      is
      recorded using the straight-line method to allocate the cost of the assets
      to
      their estimated residual values over their estimated useful lives. The estimated
      useful lives and estimated residual values expressed as a percentage of cost
      are
      as follows:





Estimated
                useful lives
            
            Estimated
                residual valueElectronic
                equipment
            
            2
                -
                5 years
            
            0
                -
                5%Office
                Furniture & Equipment
            
            5
                years
            
            -Lab
                Furniture and Equipment
            
            5
                years
            
            -Tools
            
            5
                years
            
            -Machinery
            
            5
                -
                10 years
            
            5
                -
                10%Vehicles
            
            5
                -
                10 years
            
            5%Leasehold
                Improvement
            
            5
                -
                5.75 years
            
            -





Where
      the
      carrying amount of an asset is greater than its estimated recoverable amount,
      it
      is written down immediately to its recoverable amount.





Repairs
      and maintenance are charged to the income statement during the financial period
      in which they are incurred. The cost of major renovations is included in the
      carrying amount of the asset when it is probable that future economic benefits
      in excess of the originally assessed standard of performance of the existing
      asset will flow to the Company. Major renovations are depreciated over the
      remaining useful life of the related assets.





*License
      and Patent*





Legal
      costs and the related license fees associated with the process of obtaining
      patent approval are recorded as assets when they are incurred.  The
      approved patent and related patent costs are amortized on a straight line basis
      over the estimated economic lives of the patents, which are generally 20 years
      and commences at the time the patent is awarded.





55


Costs
      related to the development of patentable products are charged to operations
      as
      research and development costs in the period incurred.





Patent
      costs are evaluated for impairment using the methodology set forth in SFAS
      144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets.* Recoverability
      of these assets is assessed only when events have occurred that may give rise
      to
      an impairment.





*Operating
      Leases*





Where
      a
      significant portion of the risks and rewards of ownership are retained by the
      lessor, leases are classified as operating leases. Payments made under operating
      leases are charged to the income statement on a straight-line basis over the
      period of lease.





*Net
      income*





Net
      income does not reflect certain annual appropriation to reserve funds in
      accordance with PRC regulations. These appropriations are reflected in the
      statement of changes in shareholders’ equity as a reduction in the retained
      deficits.





*Income
      taxes*





Income
      taxes are computed using the asset and liability approach, which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been recognized in the Group’s financial
      statements or tax return. In estimating future tax consequence, the Group
      generally considers all expected future events other than enactment of changes
      in tax law or rates. If the future tax situation is uncertain, no deferred
      tax
      assets and liabilities are set up in the financial statements. If it is more
      likely than not that some portion or all of a deferred tax asset will not be
      realized, a valuation allowance is recorded.





*Income
      Tax Provision:* Income
      tax consists of US income tax and PRC enterprise income tax. PRC income is
      provided on the basis of the profit for statutory financial reporting purpose,
      adjusted for income and expenses items, which are assessable or deductible
      for
      income tax purposes.





Details
      of taxation charged to the statement of operations during the reporting periods
      were as follows:





56


Year
                ended June 30,2006
            
            2005Provision
                for enterprise income tax-
                US income tax
            
            
            2
            
            
            1-
                PRC enterprise income tax
            
            
            169
            
            
            82Deferred
                tax (income) resulting from provision for doubtful accounts
            
            
            (43
            )
            
            (12
            )Deferred
                tax expense/(income) resulting from provision for inventories
            
            
            13
            
            
            (20
            )Deferred
                tax (income) resulting from provision for R&D
            
            
            17
            
            
            (17
            )158
            
            
            34





*Employee
      benefits*





Any
      eligible PTI employee can elect to contribute a certain percentage of their
      compensation (maximum of 100%) to a 401(K) account, and PTI’s employer match is
      the lesser of 4% of the employee’s compensation, or the employee’s elected
      contribution amount.





Pursuant
      to the PRC laws and regulations, contributions to the Basic Social Insurance
      including pension for the Baite’s local staff are to be made monthly to a
      government agency based on 60% of the standard salary set by the provincial
      government. Baite is responsible for paying the social insurance at the rate
      of
      30.7%, and the staff is responsible for paying the social insurance at the
      rate
      of 11%. The government agency is responsible for the pension liabilities
      relating to such staff on their retirement. Baite accounts for these
      contributions on an accrual basis and charges expense in the year the related
      payroll is paid.





*Use
      of Estimates*





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results may differ from these estimates under different assumptions
      or
      conditions.





**Taxes**





Because
      we conduct operations in both USA and PRC, our effective tax rate has and will
      continue to depend upon the distribution of our pre-tax earnings among USA
      and
      PRC with varying tax rates. Our profits are also impacted by changes in the
      tax
      rates of the various taxing jurisdictions.





57


**Inflation**





Our
      contracts were all short-term contracts and we expect that inflation generally
      will not have material adverse effect on our operations or financial
      conditions.





**Potential
      Liability and Insurance**





Drug
      development services involve the testing of new drugs on human volunteers
      pursuant to a study protocol. This testing exposes us to the risk of liability
      for personal injury or death to patients resulting from, among other things,
      possible unforeseen adverse side effects or improper administration of the
      new
      drug. Many of these patients are already seriously ill and are at the risk
      of
      further illness or death. We attempt to manage our risk of liability for
      personal injury or death to patients from administration of products under
      study
      through measures such as stringent operating procedures, contractual
      indemnification provisions with clients and insurance. We monitor our clinical
      trials in compliance with government regulations and guidelines. We have adopted
      standard operating procedures intended to satisfy regulatory requirements in
      the
      US and PRC and serve as a tool for controlling and enhancing the quality of
      our
      clinical trials. The contractual indemnifications generally do not protect
      us
      against our own actions. We currently maintain professional liability insurance
      coverage in US with limits we believe are adequate and appropriate. While in
      PRC, we currently do not maintain any liability, hazard or other insurance,
      except the auto insurance purchased by Baite on May 20, 2006, covering our
      services, business, operations, errors, acts or omissions, personnel or
      properties. To the extent that we are unable to recover from others for any
      uninsured losses, such losses could result in a loss of capital and significant
      harm to our business.





**Item
      7 - Financial Statements**





The
      Financial Statements that constitute Item 7 are included at the end of this
      Report beginning on Page F-1.





**Item
      8 - Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosures**





There
      have been no changes or disagreements with the Company’s independent outside
      auditor.





**Item
      8A - Controls and Procedures**





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in Company reports filed or
      submitted under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission's rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in Company reports filed under the Exchange Act is
      accumulated and communicated to management, including the Company's Chief
      Executive and Chief Financial Officer as appropriate, to allow timely decisions
      regarding required disclosure.





Currently,
      we are in the process of revising the internal control and procedures.





58





**Item
      8B - Other Information**





None.




**PART
      III**





**Item
      9 - Directors, Executive Officers, Promoters and Control Persons; Compliance
      with Section 16(a) of the Exchange Act**





The
      directors and executive officers of the Company are as follows:




**Name**
            
            **Age**
            
            **Position**Jun
                Bao
            
            49
            
            Director
                & President & CEO & CFOXinli
                Lin
            
            49
            
            Director
                & CSOJie
                Xue
            
            40
            
            Director





Mr.
      Jun
      Bao is the President, CEO and Director of BiTech. In September 2003, he jointed
      PTI as the President and acting CEO. From 2001 to 2003, Mr. Bao was the
      President and CEO of YB pharmaceutical in China. Mr. Bao has in-depth knowledge
      about evaluation, product management, and process control of pharmaceutical
      drugs. Mr. Bao worked in the China Drug Administrative System and Chinese State
      Drug Administration (the predecessor of SFDA, the “SDA”) for 15 years. He was
      the Deputy Administrator, Administrator, and Director of New Drug Investigation
      and Approval Office of the SDA in Guizhou Province in PRC for 7 years. He was
      also responsible for supervising the investigation, approval, evaluation,
      production, control, and management of pharmaceuticals in SDA of Guizhou
      Province in PRC. Mr. Bao was a supervisor for Chinese National Drug Bureau
      and
      an examiner for Chinese National GMP Bureau. Mr. Bao also has 3 years of
      experience as project chief inspector in several large Chinese pharmaceutical
      companies. Mr. Bao has a BS degree in Pharmacy. He has had MBA training and
      other trainings organized by Chinese SDA for high-grade drug testing, GMP
      management, law, and drug testing management.





59


Dr.
      Xinli
      Lin is the Chief Scientific Officer and Director of BiTech. He is also the
      Founder, Executive Vice President, and Chief Scientific Officer of PTI. He
      is
      serving as a member of the Center for Scientific Review of the National
      Institute of Health. Prior to founding PTI in 2001, Dr. Lin was an adjunct
      member/professor at Oklahoma Medical Research Foundation (OMRF) and University
      of Oklahoma Health Science Center. In his 15 years academic research career,
      Dr.
      Lin has published over 50 scientific papers and was an inventor of 5 issued
      patents, which cover discovery of new enzymes, development of new gene therapy
      method, and invention of the high-pH/pH shift refolding method (Pt-Fold
      technology). Dr. Lin's work was published in the Journal Science for refolding
      of Streptokinase in 1998, and BACE (beta-secretase) in 2000. Dr. Lin received
      the Edward L. and Thelma Gaylord Prize for Scientific Achievement in 2000.
      In
      2002 a special plaque was placed at OMRF, honoring Dr. Lin's contribution in
      Alzheimer's research. Dr. Lin was the sole inventor of the protein refolding
      patent which led to the founding of PTI. Dr. Lin received a BS degree in
      Chemistry from Peking University, China, and was selected for graduate study
      in
      the United States. Dr. Lin received an Outstanding Graduate Student Award
      (Cunningham Fellowship) in 1984, and earned his Ph.D. in Biochemistry from
      Virginia Tech. University in 1987.




Ms.
      Jie
      Xue is the director of BiTech. She also takes the position of the general
      manager of Baite. From 2002 to 2005, Ms Xue acted as the vice general manager
      of
      Baite. From 2001 to 2002, she joined the administration and manufacture
      department of Guizhou Hongjian Pharmaceutical Co., Ltd. From 1994 to 2001,
      Ms.
      Xue was the vice manager of Guizhou Xingye Pharmaceutical Co., Ltd.. From 1986
      to 1990, Ms. Xue acted as a technician in GuiYang Second Pharmaceutical Factory
      and director of working shop at Haifu Pharmaceutical Factory for two years.
      Ms.
      Jie Xue has experience with pharmaceutical industry for more than 19 years.
      She
      graduated from medicine department of Guiyang Medical University with a
      bachelor’s degree. She is also qualified as a Certified Pharmaceutist and
      Chinese Herbal Pharmaceuticalist.





**Board
      Composition and Committees**





The
      board
      of directors is currently composed Jun Bao, Xilin Lin and Jie Xue. All board
      actions require the approval of a majority of the  directors in attendance
      at a meeting at which a quorum is present.





We
      currently have no committees of Audit, Compensation, or any other committees;
      therefore, the board will act in the capacity of the absent
      committees.





60


**Disclosure
      of  Commission   Position  of  Indemnification
 for  Securities and Liabilities**





Our
      Amended and Restated Certificate of Incorporation,  with certain
      exceptions, eliminates  any  personal  liability  of
 directors  or  officers  to us or  our stockholders
      for monetary damages for the breach of such person's fiduciary duty to the
      extent  permitted by law. We have also adopted  by-laws which provide
      for indemnification  to the full extent  permitted  under the law
      which includes all liability,  damages,  costs,  or expenses
 arising  from or in  connection  with service for,
 employment by, or other  affiliation with us to the maximum extent
      and under all circumstances permitted by law.





There
      are
      presently no material pending  legal  proceeding to which a director,
      officer, or employee of ours is a party. There is no pending litigation or
      legal
      proceeding involving one of our directors,  officers,  employees or
      other agents as to which indemnification is being sought, and we are not aware
      of any pending or threatened  litigation that may result in claims for
 indemnification  by any director, officer, employee or other
      agent.





To
       the  extent   provisions  of  our  Amended
 and  Restated   Certificate   of Incorporation
 provide for  indemnification of directors for liabilities arising
      under the  Securities  Act or the Exchange  Act,  those
 provisions  are, in the opinion of the  Securities  and
      Exchange  Commission,  against public policy and therefore are
      unenforceable.





**Code
      of Ethics**





We
      do not
      yet have a Code of Ethics. The board of directors had decided to postpone the
      adoption of a code of ethics until we are able to focus our business plan and
      develop a greater infrastructure. Once we have adopted a Code of Ethics, a
      copy
      may be obtained by sending a written request to our corporate
      Secretary.





**Director
      Compensation**





No
      cash
      compensation was paid to our director for services as a director during the
      fiscal year ended June 30, 2006. We have no standard arrangement pursuant to
      which our board of directors are compensated for their services in their
      capacity as directors. The board of directors may award special remuneration
      to
      any director undertaking any special services on behalf of our company other
      than services ordinarily required of a director. All authorized out-of-pocket
      expenses incurred by a director on our behalf will be subject to reimbursement
      upon our receipt of required supporting document of such expenses. No director
      received and/or accrued any compensation for his services as a director,
      including committee participation and/or special assignments.





61


**Section
      16(a) Beneficial Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
      and directors, and persons who own more than ten percent of a class of our
      capital stock, to file reports of ownership and changes in their ownership
      with
      the Securities and Exchange Commission. These persons are required to furnish
      us
      with copies of all Section 16(a) forms they file. Based solely on a review
      of
      the copies of such forms received by us, we believe that during the year ended
      December 31, 2005, all
      persons subject to Section 16(a) filing requirements have filed on a timely
      basis reports required to be filed by Section 16(a) of the Exchange
      Act.





**Item
      10 - Executive Compensation**





No
      cash compensation was paid to our director for services as a director
      during the fiscal year ended June 31, 2006. We have no standard arrangement
      pursuant to which our board of directors is compensated for their services
      in
      their capacity as directors.  The board of directors may award
      special remuneration to any director undertaking any special services
      on behalf of our Company other than those services ordinarily required of a
      director.  All authorized out-of-pocket expenses incurred by a
      director on our behalf will be subject to reimbursement upon our receipt of
      required supporting document of such expenses.  No director
      received and/or accrued any compensation for
      his services as a director, including committee participation and/or
      special assignments.





The
      following table provides compensation information for the period indicated
      with respect to the person who served as our President for the years ended
      June 30, 2006, 2005 and 2004, and all other of our executive officers receiving
      total salary and bonus in excess of $100,000 during the years ended
      June 30, 2006, 2005 and 2004 (collectively, the "Named Executive
      Officers"):





SUMMARY
      COMPENSATION TABLE


Long
                Term CompensationAnnual
                Compensation
            
            Awards
            
            Payouts(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            *(f)*
            
            (g)
            
            (h)
            
            (i)Name
                and Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Other
                Annual Compensa- tion
            
            Restricted
                Stock Awards ($)
            
            Securities
                Under-lying Options/ SARs ($)
            
            LTIP
                Payouts ($)
            
            All
                Other Compen- sation ($)(1)
                Tim Halter (CEO, President, CFO, Chairman of the Board and
                Secretary)
            
            2004
              2005
            
            0
              0
            
            0
              0
            
            0
              0
            
            0
              0
            
            0
              0
            
            0
              0
            
            0
              0Jun
                Bao (President & CEO)
            
            2005
            
            30,000
            
            0
            
            0
            
            0
            
            0
            
            0
            
            0





62





**Employment,
      Severance and Change of Control Agreements**





Currently,
      BiTech has not signed any employment agreements with its executive officers
      and
      directors. All the full time employees of PTI and Baite have employment
      agreements as offer letter, signed by both the company representative and the
      employees. Mr. Jun Bao and Mr. Xinli Lin have signed an employment agreement
      with PTI, and Ms. Jie Xue has signed an employment agreement with Baite.





The
      employment agreement between Mr. Jun Bao and PTI is an at-will employment
      agreement signed on September 20, 2003. No annual base salary is paid to Mr.
      Bao
      because 6,150,000 shares of PTI common stock has been granted to him as
      compensation instead of cash. A confidentiality agreement and an invention
      disclosure agreement are signed separately as the attachments of the employment
      agreement.





**Item
      11 - Security Ownership of Certain Beneficial Owners and
      Management**





The
      following table sets forth certain information known to us with
      respect to the beneficial  ownership of our common stock as of September
      28, 2006 and (i) all persons who are known to us to be  beneficial
 owners of five percent or more of the common stock,  (ii) each of our
      Directors,  and (iii) all current  Directors and executive officers as
      a group.





63


**Name**
              **and
                Address(1)**
            
            **Amount
                of Common Stock and Nature of beneficial
                Ownership**
            
            **Approximate
                Percent of Ownership of Common Stock**
            
            **Amount
                of Preferred Stock and Nature of Beneficial
                Ownership**
            
            **Approximate
                Percentage of Ownership of Preferred Stock**Xilin
                Lin
            
            
            956,633
            
            
            7.5
            %
            
            0
            
            
            0Jun
                Bao
            
            
            956,633
            
            
            7.5
            %
            
            0
            
            
            0Lin’s
                Investment Management Co., Ltd (2)
            
            
            6,801,016
            
            
            53.32
            %
            
            0
            
            
            0Jie
                Xue
            
            
            127,551
            
            
            1
            %
            
            0
            
            
            0All
                executive officers and directors of the Company as a group (4 persons)
              (four
                persons)
            
            
            2,040,817
            
            
            16
            %
            
            0
            
            
            0





(1)  Unless
      otherwise stated, the address of all persons in the table is 3505
      Cadillac, Unit F-7, costa Mesa, California, 92626


(2)  Xinli
      Lin, as the director of Lin’s Investment Management Co., Ltd, has the power to
      exercise the voting rights of Lin’s Investment Management Co., Ltd.





**Item
      12 - Certain Relationships and Related Transactions**





None.





**Item
      13 - Exhibits**





(1)
      Our audited
      financial statements are included in this Report.





(2)
      EXHIBITS





**Exhibit**
              **Number**
            **Description**10.16*
            Supply
                Agreement, dated as of July 1, 2005, by and between Anshun Jiujiu
                Chinese
                Medicine co., Ltd and Baite.10.17*
            Supply
                Agreement, dated as of July 13, by and between Guizhou Qianye Plastics
                Co., Ltd and Baite.




64


10.18*
            Customer
                Agreement, dated as of November 3, 2004, by and between Hainan Success
                Medicament Co., Ltd and Baite10.19*
            Customer
                Agreement, dated as of September 5, 2005, by and between former related
                party and Baite.10.20*
            Customer
                Agreement, dated as of September 5, 2005, by and between former related
                party and Baite.31*
            Certification
                of Principal Executive Officer and Principal Financial Officer filed
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32*
            Certification
                of Principal Executive Officer and Principal Financial Officer furnished
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.





* filed
      herewith





**Item
      14. Principal Accountant Fees and Services**





For
      each
      of the two fiscal years ended June 30, 2005 and 2006, the fees to our
      independent registered public accounting firm, Rotenberg & Co. LLP, for
      services they rendered to us were as set forth below. A portion of the audit
      fees for the fiscal year June 30, 2005 and 2006 were:





FISCAL
                   2004
            
            FISCAL
                2005Audit
                Fees
            
            $
            140,000
            
            $
            100,000Audit-Related
                Fees
            
            $
            0
            
            $
            2,076Tax
                Fees
            
            $
            0
            
            $
            0All
                Other Fees
            
            $
            0
            
            $
            0Total
            
            $
            140,000
            
            $
            102,076




65




**SIGNATURES**





In
      accord
      with Section 13 or 15(d) of the Securities Act of 1933, as amended, the
      registrant has duly caused this Report to be signed on its behalf by the
      undersigned, thereto duly authorized.


BiTech
                Parma Inc.Dated:
              November
              27, 2006
            By:
            /s/
                Jun BaoJun
                BaoPresident
              Chief
                Executive Officer
              and
                Chief Financial Officer





In
      accordance with the Securities Exchange Act of 1934, as amended, this Report
      has
      been signed below by the following persons on behalf of registrant and in the
      capacities and on the date as indicated.


Dated:
              November
              27, 2006
            By:
            /s/
                Jun BaoJun
                BaoPresident
              Chief
                     Executive Officer
              and
                Chief Financial Officer




66





**BITECH
      PHARMA, INC. (F/K/A CHINA RX HOLDINGS, INC.) & SUBSIDIARIES**








**CONSOLIDATED
      FINANCIAL STATEMENTS**





**For
      Years Ended June 30, 2006 & 2005**











REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors


and
      Stockholders


BiTech
      Pharma, Inc. and Subsidiaries


Emeryville,
      California





We
      have
      audited the accompanying consolidated balance sheets of BiTech Pharma, Inc.
      and
      Subsidiaries as of June 30, 2006 and 2005, and the related consolidated
      statements of operations, changes in shareholders' equity, and cash flows for
      each of the two years in the period ended June 30, 2006. These consolidated
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of the Company as of June
      30,
      2006 and 2005, and the results of its operations and its cash flows for each
      of
      the two years in the period ended June 30, 2006, in conformity with accounting
      principles generally accepted in the United States of America.








/s/
      Rotenberg & Co., LLP





Rotenberg
      & Co., LLP


Rochester,
      New York


September
      22, 2006





F-1




**BITECH
      PHARMA, INC.**  **(F/K/A
      CHINA RX HOLDINGS, INC.) & SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**


**FOR
      YEARS ENDED JUNE 30, 2006 & 2005**


(All
      amounts in USD thousands unless otherwise stated)





Years
                ended June 30,2006
            
            2005**Revenues,
                net**
            
            
            6,114
            
            
            3,928Cost
                of sales
            
            
            1,694
            
            
            485**Gross
                profits**
            
            
            4,420
            
            
            3,443**Expenses**Operating
                expenses
            
            
            4,200
            
            
            3,032**Operating
                income**
            
            
            220
            
            
            411Interest
                expense, net
            
            
            (2
            )
            
            (2
            )Dividend
                income
            
            
            51
            
            
            4Grant
                and other income, net
            
            
            383
            
            
            507Investment
                broker fees
            
            
            (9
            )Investment
                loss
            
            
            (28
            )**Income
                before income taxes**
            
            
            615
            
            
            920Income
                tax provision
            
            
            158
            
            
            34**Net
                income**
            
            
            457
            
            
            886**Unrealized
                loss on marketable securities**
            
            
            (4
            )**Foreign
                currency translation adjustment**
            
            
            68
            
            
            4**Comprehensive
                Income**
            
            
            521
            
            
            890**Net
                income per share - Basic and Diluted**
            
            
            USD
                0.04
            
            
            USD
                0.07**Weighted
                Average Common Shares Outstanding - Basic and
                Diluted**
            
            
            12,755,102
            
            
            12,755,102





The
      accompanying notes are an integral part of financial statements.




F-2


**BITECH
      PHARMA, INC.**  **(F/K/A
      CHINA RX HOLDINGS, INC.) & SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF THE YEARS ENDED JUNE 30, 2006 & 2005**


(All
      amounts in USD thousands unless otherwise stated)





As
                of June 30,2006
            
            2005**Current
                assets**Cash
                and cash equivalents
            
            
            421
            
            
            409Investment
                in securities, net
            
            
            148
            
            
            1,557Accounts
                receivable, net
            
            
            3,283
            
            
            983Advances
                to suppliers
            
            
            101
            
            
            58Other
                receivables, net
            
            
            178
            
            
            267Inventories
            
            
            738
            
            
            425Other
                current assets
            
            
            0
            
            
            48Deferred
                tax asset
            
            
            83
            
            
            70**Total
                current assets**
            
            
            4,952
            
            
            3,817Property,
                Plant and equipment, net
            
            
            737
            
            
            823Other
                assets, net
            
            
            517
            
            
            391**Total
                assets**
            
            
            6,206
            
            
            5,031**Current
                liabilities**Accounts
                payable
            
            
            636
            
            
            317Advances
                from customers
            
            
            72
            
            
            106Loan
                payable to YB VENTURE
            
            
            150Income
                tax payable
            
            
            54
            
            
            87Accrued
                expenses
            
            
            348
            
            
            460Accrued
                salaries
            
            
            39
            
            
            50Other
                current liabilities
            
            
            939
            
            
            664**Total
                current liabilities**
            
            
            2,238
            
            
            1,684**Total
                liabilities**
            
            
            2,238
            
            
            1,684**Shareholders’
                equity**Common
                stock ($0.001 par value; 40,000,000 shares authorized; 12,755,102
                shares
                issued and outstanding)
            
            
            13
            
            
            13Other
                Comprehensive income
            
            
            68
            
            
            4Additional
                Paid In Capital
            
            
            8,987
            
            
            8,887Retained
                deficit
            
            
            -5,100
            
            
            -5,557**Total
                shareholders’ equity**
            
            
            3,968
            
            
            3,347**Total
                liabilities and shareholders’ equity**
            
            
            6,206
            
            
            5,031





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





F-3


**BITECH
      PHARMA, INC.**  **(F/K/A
      CHINA RX HOLDINGS, INC.) & SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN
      SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED JUNE 30, 2006 &
2005**


(All
      amounts in USD thousands unless otherwise stated)





Common
                Stock
            
            Other
                Comprehensive Income
            
            Additional
                Paid In Capital
            
            Retained
                Deficit
            
            TotalShares
            
            Amount
            
            Unrealized
                Gain / (Loss)
            
            Effect
                of exchange rate changesBalance
                at June 30, 2004
            
            
            12,305,102
            
            
            13
            
            
            -
            
            
            
            
            
            7,187
            
            
            -6,443
            
            
            757Unrealized
                gain
            
            
            -
            
            
            -
            
            
            4
            
            
            
            
            
            -
            
            
            
            
            
            4Capital
                insertion
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            1,200
            
            
            
            
            
            1,200Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            886
            
            
            886Acquisition
                of Ballantrae, LLC
            
            
            450,000Acquisition
                of Baite
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            500
            
            
            
            
            
            500Balance
                at June 30, 2005
            
            
            12,755,102
            
            
            13
            
            
            4
            
            
            
            
            
            8,887
            
            
            -5,557
            
            
            3,347Unrealized
                gainCapital
                insertion
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            100
            
            
            
            
            
            100Effect
                of exchange rate changes
            
            
            
            
            
            
            
            
            
            
            
            68
            
            
            
            
            
            
            
            
            68Unrealized
                Gain/(Loss)
            
            
            
            
            
            
            
            
            -4
            
            
            
            
            
            
            
            
            
            
            
            -4Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            457
            
            
            457Balance
                at June 30,2006
            
            
            12,755,102
            
            
            13
            
            
            -
            
            
            68
            
            
            8,987
            
            
            -5,100
            
            
            3,968





(Note:Baite
      company changed its name to Baite on August 15, 2005.)


The
      accompanying notes are the integral part of the financial
      statements.





F-4


**BITECH
      PHARMA, INC.**  **(F/K/A
      CHINA RX HOLDINGS, INC.) & SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED JUNE 30, 2006 & 2005**




Years
                ended June 30,**Cash
                flows from operating activities:**
            
            2006
            
            2005Net
                income
            
            
            457
            
            
            886**Adjustments
                to reconcile net income to net cash provided by operating
                activities:**Depreciation
                and amortization
            
            
            322
            
            
            251Provision
                for doubtful accounts
            
            
            379
            
            
            80Provision
                for inventories
            
            
            (82
            )Deferred
                income taxes
            
            
            (13
            )
            
            (49
            )Gain
                on sales of investment securities
            
            
            (5
            )Investment
                loss
            
            
            28*Changes
                in operating assets and liabilities:*Accounts
                receivables and other receivables
            
            
            (2,590
            )
            
            (561
            )Inventories
            
            
            (231
            )
            
            (92
            )Advances
                to suppliers
            
            
            (43
            )
            
            30Other
                current assets
            
            
            48Accounts
                payables
            
            
            319
            
            
            156Advances
                from customers
            
            
            (34
            )Accrual
                expenses and income tax payables
            
            
            (156
            )Other
                current liabilities
            
            
            275
            
            
            210**Net
                cash provided by/(used in) operating activities**
            
            
            (1,326
            )
            
            911**Cash
                flows from investing activities**Cash
                from Xingye Acquisition
            
            
            
            
            
            127Proceeds
                from sale of investment securities
            
            
            1,464Investment
                in affiliate
            
            
            (28
            )Purchase
                of investment securities
            
            
            (50
            )
            
            (1,553
            )Purchase
                of property, plant and equipment
            
            
            (230
            )
            
            (292
            )Patent
                acquisition process
            
            
            (132
            )
            
            (111
            )**Net
                cash provided by/(used in) investing activities**
            
            
            1,024
            
            
            (1,829
            )**Cash
                flows from financing activities**Capital
                insertion
            
            
            100
            
            
            1,200Proceeds
                from short-term debt
            
            
            213Repayment
                of short-term debt
            
            
            (213
            )Proceeds
                from loan payable to YB-Venture
            
            
            150**Net
                cash provided by financing activities**
            
            
            250
            
            
            1,200Effect
                of exchange rate changes on cash and cash equivalents
            
            
            64**Net
                increase in cash and cash equivalents**
            
            
            12
            
            
            282Cash
                and cash equivalents, beginning of year
            
            
            409
            
            
            127**Cash
                and cash equivalents, end of year**
            
            
            421
            
            
            409**Supplementary
                disclosure of cash flow information:****Cash
                paid for interest**
            
            
            4
            
            
            5**Cash
                paid for income taxes, net**
            
            
            224
            
            
            15**Supplemental
                Schedule of noncash investing and financing
                activities****Purchasing
                of property and equipment by liabilities**
            
            
            30
            
            
            26**Contribution
                to capital of shareholder’s investment in Baite**
            
            
            -
            
            
            500





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





F-5


**1.
      Group Reorganization, Summary of Operations and Basis of Presentation:**





BiTech
      Pharma, Inc. F/K/A China RX Holdings, Inc. (“the Company”) was incorporated in
      the State of Delaware on December 28, 2004. On December 29, 2004, BTHC, LLC,
      a
      Texas limited liability company (“Ballantrae LLC”) merged with and into China
      RX.  Ballantrae LLC emerged from Bankruptcy on November 22, 2004 when the
      United States Bankruptcy Court for the Northern District of Texas Dallas
      Division (“the Bankruptcy Court”) approved and confirmed the terms of the First
      Amended Joint Plan of Reorganization (the “Joint Plan”). Pursuant to the Joint
      Plan, the Company issued 450,000 shares of common stock to certain of Ballantrae
      LLC’s  creditors.





China
      RX
      Holdings, Inc.changed its name to Bitech Pharma, Inc. on January 18,
      2006.





On
      June
      30, 2005, the Company acquired the entire issued share capital in each of
      ProteomTech, Inc. (“PTI”) and First Capital Asia Investments Limited (“First
      Capital”), through a share exchange (“the Reorganization”) and consequently
      became the holding company of the subsidiaries now comprising the Group with
      no
      significant independent operations.




PTI
      is a
      Delaware corporation formed on July 18, 2001, whose principal activity is
      protein drug research & development, protein refolding contract service and
      development of PTR Instrument System, an automated system for high-throughput
      screening of protein refolding conditions in Emeryville, California, USA.





First
      Capital was incorporated in the British Virgin Islands on July 7, 2003, which
      is
      a holding company with no significant independent operations and no significant
      assets other than the capital stock of Guizhou Baite Pharmaceutical Co., Ltd.
      (“Baite”), which is located in Guiyang City of Guizhou Province, the People’s
      Republic of China (“PRC”) and principally engaged in manufacture and sale of
      medicines. First Capital acquired all the capital stock of Baite of $ 500,000 on
      January 4, 2005. Purchasing method was applied in recording this
      transaction.





Baite
      is
      principally engaged in the production and sale of medicines, mainly including
      Naoningsu Capsule, Danlingxinshu Capsule, Lingzhi Capsule, Liuweimuxiang
      Capsule, Gengyi Capsule, Anbianxilin Capsule, Piles Water, Piles Bolt, Antelope
      Rheum Capsule and Huichuanruyi Capsule, which were all approved by PRC State
      Food and Drug Administration (“SFDA”).  The Company also gained the GMP
      certification Issued by SFDA, which was required for pharmaceutical production
      in PRC.  Baite’s revenues have all been generated in the PRC.





The
      Reorganization involved companies under common control, and the Group resulting
      from the Reorganization are regarded as a continuing group. Accordingly, the
      Reorganization has been accounted for on the basis of merger accounting, under
      which the consolidated accounts have been prepared as if the Company had been
      the holding company of the other companies comprising the Group throughout
      the
      year ended June 30, 2005, rather than from the date on which the Reorganization
      was completed. The comparative figures as of June 30, 2006 and the year ended
      June 30, 2005 have been presented on the same basis.


F-6





**2.
      Significant Accounting Policies:**





**Group
      Accounting**


The
      consolidated financial statements include those of the Company and its
      subsidiaries. All significant intercompany balances and transactions, including
      intercompany profits and unrealized gains and losses are eliminated on
      consolidation; unrealized losses are also eliminated unless cost cannot be
      recovered. Consolidated financial statements are prepared in accordance with
      generally accepted accounting principles in the United States of America.





**Subsidiaries**


Subsidiaries,
      which are those entities in which the Company has an interest of more than
      one
      half of the voting rights or otherwise has power to govern the financial and
      operating policies are consolidated.





In
      the
      Company’s consolidated financial statements, the Company’s share of the
      post-acquisition profits or losses of subsidiaries is recognized in the
      statement of operations and its share of post-acquisition movements in reserves
      is recognized in reserves. An assessment of interest in subsidiaries is
      performed when there is an indication that asset has been impaired or the
      impairment losses recognized in prior years no longer exist.





**Foreign
      Currency Translation**


The
      Company maintains its books and records in USD.


The
      functional currency of the Baite is Renminbi (RMB). For financial reporting
      purpose the functional currency is translated into United States dollars (USD)
      at the exchange stipulated by the People’s Bank of China at the balance sheet
      date (June 30, 2006: USD1.00=RMB7.9956, June 30, 2005: USD1.00=RMB8.28), except
      for the paid-in capital, which is at historic rate. The Chinese government
      changed its policy of being fixed against the US$ to a package of currencies
      on
      July 21, 2005. Translation adjustments may occur in the reports.





**Revenue
      Recognition**


Revenue
      from the sale of goods is recognized when significant risks and rewards of
      ownership of the goods are transferred to the buyer, the Group retains neither
      continuing managerial involvement to the degree usually associated with
      ownership nor effective control over the goods sold, and it is probable that
      the
      economic benefit associated with the transaction will flow to the Group and
      the
      relevant revenue and costs can be measured reliably.





Revenue
      and cost of sales are shown net of estimated returns. There is no sales discount
      in revenue. There is no purchase discount in cost of sales either.


Revenue
      from service contracts rendered is recognized when the invoice is issued
      according to the service contract with the customer.


License
      fee income represented income from sale of exclusive sublicense, which was
      recognized when the license agreement was executed.





**Grant
      Income**


The
      Group
      received four grant rewards from National Institute of Health in Department
      of
      Health and Human Services to support various projects which last one or two
      years. Award recipients are responsible for reporting inventions derived or
      reduced to practice in the performance of work under each grant.





F-7


These
      awards are based on the applications submitted by the Group which outlines
      various cost calculations teamed up with outside researchers. However,
      recommended future year total cost support is subject to the availability of
      funds and satisfactory progress of each project. Grant income is recognized
      on a
      cost reimbursement basis consistent with the performance requirements of the
      related grant.





**Research
      and Development Expense**


Research
      and development expenditures are expensed as incurred.





**Advertising
      Costs**


Advertising
      costs are charged against operations during the period incurred except for
      direct-response advertising costs, which are capitalized and amortized over
      periods not exceeding one year. The Group did not incur any direct-response
      advertising costs during the reporting periods.





**Shipping
      and Handling Costs**


Shipping
      and handling costs were recorded on accrual basis and classified as operating
      expenses in the income statement.





**Cash
      and cash equivalents**


Cash
      and
      cash equivalents consist of unrestricted cash accounts, which are not subject
      to
      withdrawal restrictions or penalties, and highly-liquid investments with
      original maturities of three months or less that are readily convertible to
      known amounts of cash and which are subject to an insignificant risk of changes
      in value.





**Accounts
      Receivables**


Accounts
      receivables are carried at original invoice amount less provision made for
      impairment of these receivables. A provision for impairment of receivables
      is
      established when there is objective evidence that the Group will not be able
      to
      collect all amounts due according to the original terms of the receivables.
      The
      amount of the provision is the difference between the carrying amount and the
      recoverable amount, being the present value of expected cash flows, discounted
      at the market rate of interest for similar borrowers.




**Other
      Receivables, net**


Other
      receivables are carried at cost less provision made for impairment of these
      receivables. A provision for impairment of receivables is established when
      there
      is objective evidence that the Group will not be able to collect all amounts
      due
      according to the original terms of receivables, which are normally one year.
      The
      amount of the provision is the difference between the carrying amount and the
      recoverable amount, being the present value of expected cash flows, discounted
      at the market rate of interest for similar borrowers.


F-8





**Accounting
      for bad debts:**


(1)
      Criteria for recognition of bad debts


Bad
      debts
      are recognized in the following circumstances:


The
      irrecoverable amount of a bankrupt debtor exists after pursuing the statutory
      procedures.


The
      irrecoverable amount of a debtor exists who has deceased and has insufficient
      estate to repay.


The
      amount owed by a debtor who is unable to repay the obligations after the debts
      fall due, and the amount is irrecoverable or unlikely to be recovered as
      demonstrated by sufficient evidence.


(2)Accounting
      treatment for bad debt losses


Bad
      debt
      is accounted for using the allowance method and provided according to the
      recoverability of receivables accounts that are determined based on relevant
      information such as past experience, actual financial position and cash flows
      of
      the debtors, as well as other relevant information.





**Inventories**


Inventories
      include raw materials, work in progress, finished goods and packaging materials,
      and are presented at the lower of cost or net realizable value.





Inventories
      are stated at lower of cost or market value using the moving average method.
      The
      cost of finished goods and work in progress are comprised of raw materials,
      direct labor and an allocation of all production overhead expenditures incurred
      based on normal operating capacity.





Provisions
      for declines in the value of inventories are determined on an item-by-item
      basis
      when the carrying value of the inventories is higher than their net realizable
      value. Net realizable value is the estimated selling price in the ordinary
      course of business, less the estimated costs to completion and estimated costs
      necessary to make the sale.




**Investment
      in Securities**


Pursuant
      to Statement of Financial Accounti ng
      Standards No. 115, the Group’s
      securities investments that are bought and held principally for the purpose
      of
      generating profits on short-term differences in price are classified as “trading
      securities”. Securities that the Group has the positive intent and ability to
      hold to maturity are classified as “held-to-maturity securities”. Securities
      investments not classified as either trading securities or held-to-maturity
      securities are classified as available-for-sale securities. Those
      available-for-sale securities are recorded at fair value in investments on
      the
      balance sheet, with the change in fair value during the period excluded from
      earnings and recorded as a component of other comprehensive income, with the
      Group’s cumulative unrealized gain or loss presented as a separate component of
      stockholders’ equity.




As
      of
      June 30, 2006, the Group’s investment in equity securities includes only
      available-for-sale securities and is summarized as follows:





F-9


Years
                ended June 30,2006
            
            2005Investment
                in equity securities at cost
            
            
            148
            
            
            1,553Add:
                unrealized gain
            
            
            -
            
            
            4148
            
            
            1,557




For
      the
      cost method of the securities sold, for mutual fund securities the average
      cost
      method is used, for all other securities the FIFO method is used.





**Property,
      Plant and Equipment**


Property,
      plant and equipment are stated at cost less accumulated depreciation.
      Depreciation is recorded using the straight-line method to allocate the cost
      of
      the assets to their estimated residual values over their estimated useful lives.




The
      estimated useful lives and estimated residual values expressed as a percentage
      of cost are as follows:




Estimated
                useful lives
            
            Estimated
                residual valueElectronic
                equipment
            
            2
                -
                5 years
            
            0
                -
                5%Office
                Furniture & Equipment
            
            5
                years
            
            -Lab
                Furniture and Equipment
            
            5
                years
            
            -Tools
            
            5
                years
            
            -Machinery
            
            5
                -
                10 years
            
            5
                -
                10%Vehicles
            
            5
                -
                10 years
            
            5%Leasehold
                Improvements
            
            5
                -
                5.75 years
            
            -





Where
      the
      carrying amount of an asset is greater than its estimated recoverable amount,
      it
      is written down immediately to its recoverable amount.





Repair
      and maintenance are charged to the income statement during the financial period
      in which they are incurred. The cost of major renovations is included in the
      carrying amount of the asset when it is probable that future economic benefits
      in excess of the originally assessed standard of performance of the existing
      asset will flow to the Group. Major renovations are depreciated over the
      remaining useful life of the related assets.





**License
      and Patent**


Patent
      costs are recorded as an asset when they are incurred. As soon as the patent
      is
      approved, the patent costs are amortized over the remaining life of the patent
      on the approval date. The Group will write off the patent costs when specific
      patent applications fail.





License
      fees associated with the process of getting patents approved are amortized
      over
      20 years.





**Operating
      Leases**


Leases
      where a significant portion of the risks and rewards of ownership are retained
      by the lessor are classified as operating leases. Payments made under operating
      leases are charged to the income statement on a straight-line basis over the
      period of lease.





F-10


**Income
      taxes**


Income
      taxes are computed using the asset and liability approach, which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been recognized in the Group’s financial
      statements or tax return. In estimating future tax consequence, the Group
      generally considers all expected future events other than enactment of changes
      in tax law or rates. If the future tax situation is uncertain, no deferred
      tax
      assets and liabilities are set up in the financial statements. If it is more
      likely than not that some portion or all of a deferred tax asset will not be
      realized, a valuation allowance is recorded.





**Net
      Income per Common Share**


Net
      income per common share is computed in accordance with SFAS No. 128, “Earnings
      Per Share.” Basic Earnings Per Share is calculated by dividing income (loss)
      available to common stockholders by the weighted average number of common shares
      outstanding for each period. Diluted Earnings per share is the same as Basic
      Earnings Per Share since no common stock equivalents were outstanding for the
      years ended June 30, 2006 and 2005.





**Employee
      benefits**


For
      PTI
      employees, each participating employee can elect to contribute a percent of
      his
      compensation (maximum of 100%) to his 401(K) account, and PTI matches it with
      the lesser of the 4% of the employee’s compensation, or the amount he elects to
      contribute. The participant’s contribution is deducted from each paycheck. PTI
      sends a check, including employee’s contribution and PTI’s match, to Charles
      Schwab every month. Charles Schwab then deposits each participant’s own
      contribution and PTI’s match to his personal account.





Pursuant
      to the PRC laws and regulations, contributions to the basic social insurance
      including pension for the Baite’s local staff are to be made monthly to a
      government agency based on 60% of the standard salary set by the provincial
      government .
      Baite
      is responsible for paying the social insurance at the rate of 30.7%, and the
      staff is responsible for paying the social insurance at the rate of
      11%. The
      government agency is responsible for the pension liabilities relating to such
      staff on their retirement. Baite accounts for these contributions on an accrual
      basis and charges the related contributions to income in the year the
      contributions relate.





**Fair
      Value of Financial Instruments**


The
      Group’s financial instruments consist of cash and cash equivalents, investment
      in securities, accounts receivable, prepaid expenses, rental deposit, accounts
      payable and accrued expenses, loan payable to YB Venture, and accrued salaries.
      Unless otherwise noted, it is management’s opinion that the Company is not
      exposed to significant interest, currency or credit risks arising from these
      financial instruments. The fair value of those financial instruments
      approximates their carrying value, unless otherwise noted.





F-11


**Concentration
      of Credit Risk**


Statement
      of Financial Accounting Standards No.105, “Disclosure of Information about
      Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
      with
      Concentrations of Credit Risk”, requires disclosure of information about
      financial instruments with off-balance-sheet risk and financial instruments
      with
      concentrations of credit risk. Financial instruments that subject the Group
      to
      concentrations of credit risk consist principally of accounts receivable,
      advances to suppliers and other receivables.




The
      Group’s clients are primarily pharmaceutical trading companies or clients in
      biotech, medical research and pharmaceutical R&D communities. There were two
      customers accounted for 58% and 13% of the Group’s net revenue respectively in
      twelve months ended June 30, 2006. One is Guizhou YIBAI Pharmaceutical Co.
      a
      former related party. The receivable balance due from this customer as of June
      30, 2006 was $1,213 thousands. The other one is Shandong SAIKESAISI Pharmacy
      & Science Ltd. The receivable balance due from this customer as of June 30,
      2006 was nil. Except for those two customers, no other customers accounted
      for
      more than 10% of the Group’s net revenue. In
      the
      year ended June 30, 2005, one customer accounted for 64% of the Group’s net
      revenues. The receivable balance due from this customer as of June 30, 2005
      was
      nil. Except for that client, no other clients accounted for more than 10% of
      the
      Group’s net revenues in the 2005 fiscal year.





Concentrations
      of credit risk with respect to accounts receivable are limited to a degree
      due
      to the large number of clients comprising the Group’s client base. The Group
      performs ongoing credit evaluations of client’s financial condition and,
      generally, does not require collateral. The Group maintains reserves for
      potential credit losses and these losses, in the aggregate, have historically
      not exceeded estimates.





**Credit
      Risk for Cash Deposits and Cash Equivalents**


The
      Group
      maintains its cash in bank deposit accounts that may exceed federally insured
      limits. The Group has not experienced any losses in such accounts.





The
      Group
      also maintains cash balances in money market funds. Such money market funds
      are
      not federally insured, but they are regulated as to the quality, maturity and
      diversity of the securities in which they invest.





**Use
      of Estimates**


The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





**3.
      Segment Information**


The
      Group
      conducts the majority of its business activities in production and sales of
      medicines and drug research contract services (see Note 1). These segments
      are
      determined primarily because the senior management makes key operating decisions
      and assesses performance of the segments separately. The accounting policies
      of
      the Group’s segments are the same as those described in the accounting policies
      in Note 2. The Group evaluates performance based on profit from operations.
      Segment assets consist primarily of property, plant and equipment, inventories,
      receivables, operating cash and other assets. Segment liabilities comprise
      operating liabilities. Capital expenditure comprises additions to property,
      plant and equipment.


F-12





An
      analysis by business segment is as follows:




US
            
            PRC
            
            Elimination
            
            TotalBusiness
                of Drug Research
            
            Business
                of Sales of MedicineYears
                ended June 30,
            
            Years
                ended June 30,
            
            Years
                June
            
            ended
                30
            
            Years
                ended June 30,2006
            
            2005
            
            2006
            
            2005
            
            2006
            
            2005
            
            2006
            
            2005Revenues-
                External
            
            
            1,804
            
            
            2,607
            
            
            4,310
            
            
            1,321
            
            
            
            
            
            -
            
            
            6,114
            
            
            3,928Segment
                operating income/(loss)
            
            
            -701
            
            
            235
            
            
            1,204
            
            
            176
            
            
            -283
            
            
            -
            
            
            220
            
            
            411Interest
                (income)/expense
            
            
            1
            
            
            -
            
            
            1
            
            
            -2
            
            
            
            
            
            -
            
            
            2
            
            
            -2Dividend
                income
            
            
            51
            
            
            4
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            51
            
            
            4Grant
                and other income, net
            
            
            383
            
            
            486
            
            
            
            
            
            21
            
            
            
            
            
            -
            
            
            383
            
            
            507Tax
                provision
            
            
            2
            
            
            1
            
            
            156
            
            
            33
            
            
            
            
            
            -
            
            
            158
            
            
            34Net
                profit/(loss)
            
            
            -307
            
            
            724
            
            
            1,047
            
            
            162
            
            
            -283
            
            
            -
            
            
            457
            
            
            886Segment
                assets
            
            
            2,745
            
            
            2,912
            
            
            3,630
            
            
            2,169
            
            
            -169
            
            
            -50
            
            
            6,206
            
            
            5,031-
                Segment long-lived assets
            
            
            903
            
            
            962
            
            
            355
            
            
            252
            
            
            -4
            
            
            -
            
            
            1,254
            
            
            1,214Segment
                liabilities
            
            
            272
            
            
            227
            
            
            1,846
            
            
            1,507
            
            
            120
            
            
            -50
            
            
            2,238
            
            
            1,684Capital
                expenditure
            
            
            60
            
            
            245
            
            
            170
            
            
            74
            
            
            
            
            
            -
            
            
            230
            
            
            319Non-cash
                expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            --
                Depreciation
            
            
            253
            
            
            223
            
            
            63
            
            
            22
            
            
            
            
            
            -
            
            
            316
            
            
            245-
                Amortization
            
            
            6
            
            
            6
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            6
            
            
            6-
                Provision for doubtful accounts
            
            
            106
            
            
            -
            
            
            273
            
            
            80
            
            
            
            
            
            -
            
            
            379
            
            
            80





**4.
      Revenue and Foreign Operations**


PTI
      sublicensed another proprietary Technology under an exclusive Technology License
      Agreements to a former related party. The sublicense fees of the Technologies
      were for USD1.5 million and USD2.8 million in 2006 and 2005 respectively. In
      addition, the company is entitled to receive a percentage of future sales by
      the
      Licensee.





The
      License Agreement allows the Licensee to develop, provide, market and sell
      licensed products on processes. The term of the License Agreement will expire
      simultaneously upon the expiration of the underlying patents.





The
      transactions as above were the sole export sales of the Group for the years
      ended June 30, 2006 and 2005.





F-13


**5.
      Operating Expenses:**





Years
                ended June 30,2006
            
            2005Advertising
            
            
            56
            
            
            9Amortization
                of other assets
            
            
            10
            
            
            6Depreciation
            
            
            263
            
            
            245Legal
                and accounting
            
            
            410
            
            
            213Meals
                and entertainment
            
            
            34Provision
                for doubtful accounts
            
            
            379
            
            
            80Provision
                for inventories
            
            
            -83Rental
            
            
            417
            
            
            415Research
                and Development
            
            
            319Shipping
                and handling costs
            
            
            25
            
            
            12Staff
                cost
            
            
            1147
            
            
            916Supplies
            
            
            220
            
            
            162Telecommunication
            
            
            23Traveling
            
            
            419
            
            
            148Insurance
                expense
            
            
            93Property
                loss
            
            
            55Reconstruction
                cost
            
            
            16Others
            
            
            397
            
            
            8264,200
            
            
            3,032





**6.
      Income Tax Provision:**


Income
      tax consists of US income tax and PRC enterprise income tax. PRC income tax
      is
      provided on the basis of the profit for statutory financial reporting purposes,
      adjusted for income and expense items, which are assessable or deductible for
      income tax purposes.




Details
      of taxation charged to the statement of operations during the reporting periods
      were as follows:




Years
                ended June 30,2006
            
            2005Provision
                for enterprise income tax-
                US income tax
            
            
            2
            
            
            1-
                PRC enterprise income tax
            
            
            169
            
            
            82Deferred
                tax (income) resulting from provision for doubtful accounts
            
            
            (43
            )
            
            (12
            )Deferred
                tax expense/(income) resulting from provision for inventories
            
            
            13
            
            
            (20
            )Deferred
                tax (income) resulting from provision for R&D
            
            
            17
            
            
            (17
            )158
            
            
            34





F-14


**7.
      Accounts Receivable, Net:**





June
                30,2006
            
            2005Accounts
                receivable
            
            
            3,788
            
            
            1,162Less:
                provision for doubtful accounts
            
            
            -505
            
            
            -1793,283
            
            
            983





Movement
      of provision for doubtful accounts:




Years
                ended June 30,2006
            
            2005At
                beginning of year
            
            
            179
            
            
            1Acquisition
                of Baite by First Capital
            
            
            
            
            
            115Provision
                provided during the year
            
            
            326
            
            
            63At
                end of year
            
            
            505
            
            
            179





**8.
      Other Accounts Receivable, Net:**




June
                30,2006
            
            2005Other
                Accounts receivable
            
            
            251
            
            
            287Less:
                provision for doubtful accounts
            
            
            -73
            
            
            -20178
            
            
            267








Movement
      of provision for doubtful accounts:




Years
                ended June 30,2006
            
            2005At
                beginning of year
            
            
            20Acquisition
                of Baite by First Capital
            
            
            
            
            
            3Provision
                provided during the year
            
            
            53
            
            
            17At
                end of year
            
            
            73
            
            
            20





F-15





**9.
      Inventories:**




Years
                ended June 30,2006
            
            2005Raw
                materials
            
            
            68
            
            
            63Packaging
                materials
            
            
            61
            
            
            65Work-in-progress
            
            
            114
            
            
            55Finished
                goods
            
            
            569
            
            
            398812
            
            
            581Provision
                for obsolescence
            
            
            -74
            
            
            -156738
            
            
            425





At
      the
      end of each year, inventories were stated at the lower of cost or net realizable
      value.




**10.
      Deferred tax asset:**


Deferred
      taxation is calculated in full on temporary differences under the liability
      method.




Provisions
                forDoubtful
                accounts
            
            Inventories
            
            R&D
            
            TotalAs
                of June 30, 2005
            
            
            29
            
            
            24
            
            
            17
            
            
            70Credit
                to the statement of operations
            
            
            43
            
            
            -13
            
            
            -17
            
            
            13As
                of June 30, 2006
            
            
            72
            
            
            11
            
            
            0
            
            
            83





**11.
      Property, Plant and Equipment:**





Electronic
                Equipment
            
            Office
                Furniture & Equipment
            
            Lab
                Furniture & Equipment
            
            Computer
                Software
            
            Machinery
            
            Tools
            
            Vehicles
            
            Leasehold
                Improvements
            
            Others
            
            **Total****Cost**As
                of June 30,2005
            
            
            259
            
            
            29
            
            
            988
            
            
            -
            
            
            182
            
            
            4
            
            
            145
            
            
            88
            
            
            -
            
            
            **1,695**As
                of June 30,2006
            
            
            167
            
            
            29
            
            
            1,046
            
            
            110
            
            
            212
            
            
            4
            
            
            169
            
            
            90
            
            
            98
            
            
            **1,925****Accumulated
                Depreciation**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **-**As
                of June 30,2005
            
            
            188
            
            
            21
            
            
            492
            
            
            -
            
            
            49
            
            
            3
            
            
            86
            
            
            33
            
            
            -
            
            
            **872**As
                of June 30,2006
            
            
            106
            
            
            26
            
            
            695
            
            
            108
            
            
            53
            
            
            4
            
            
            114
            
            
            50
            
            
            32
            
            
            **1,188****Net
                Book value**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **-**As
                of June 30,2005
            
            
            71
            
            
            8
            
            
            496
            
            
            -
            
            
            133
            
            
            1
            
            
            59
            
            
            55
            
            
            -
            
            
            **823**As
                of June 30,2006
            
            
            61
            
            
            3
            
            
            351
            
            
            2
            
            
            159
            
            
            -
            
            
            55
            
            
            40
            
            
            66
            
            
            **737**





F-16


**12.
      Intangible Assets**


The
      Group
      is entitled to the use of a trademark which it co-developed with a former
      related party in 2004 under a co-branding arrangement. No amounts have been
      imputed by the Group as the costs are impractical to estimate. The term of
      the
      trademark is for a period of four years and will expire in September 2008.





**13.
      Other Assets**


Other
      assets included rental deposit, licenses and patents were as follows:





June
                30,2006
            
            2005Rental
                deposit
            
            
            37
            
            
            37License
            
            
            120
            
            
            120Patent
            
            
            387
            
            
            255544
            
            
            412Accumulated
                amortization
            
            
            -27
            
            
            -21517
            
            
            391





The
      approved patent and related patent costs are amortized on a straight line bases
      over the estimated economic lives of the patents, which is generally 20 years
      and commences at the time the patent is awarded. The estimated aggregate
      amortization expense for each of the five succeeding fiscal years will be as
      follows:





F-17


Fiscal
                year
            
            Amortization
                expense2007
            
            
            62008
            
            
            62009
            
            
            62010
            
            
            62011
            
            
            6Total
            
            
            30





**14** **ò** **Accrued
      Expenses**




June
                30,2006
            
            2005accounting
                fee
            
            
            129
            
            
            38marketing
                expenses
            
            
            103
            
            
            110selling
                expenses
            
            
            45
            
            
            113patent
            
            
            37
            
            
            4research
                expenses
            
            
            26
            
            
            -fixed
                asset
            
            
            -
            
            
            67supplies-lab
            
            
            5
            
            
            8rental
            
            
            -
            
            
            109miscellaneous
            
            
            3
            
            
            11Total
            
            
            348
            
            
            460





**15.
      Advances from customers**





For
      the
      advances from customers, these are not related refundable fees for service
      and
      sales.





**16.
      Other current liabilities**




June
                30,2006
            
            2005Other
                Payables
            
            
            758
            
            
            594Social
                insurances
            
            
            57
            
            
            62VAT
                Payable
            
            
            109
            
            
            -5miscellaneous
            
            
            15
            
            
            13Total
            
            
            939
            
            
            664





F-18





**17.
      Common Stock**


On
      June
      30, 2005, the Company entered into a share exchange agreement with PTI and
      First
      Capital. 11,505,102 shares of common stock were issued as consideration for
      acquisition of subsidiaries of the Group. Total issued and outstanding shares
      as
      at June 30, 2006 and 2005 were 12,755,102 shares of USD0.001 par value each.





**18.
      Related Party Transactions:**


Parties
      are considered to be related if one party has the ability, directly or
      indirectly, to control the other party or exercise significant influence over
      the other party in making financial and operating decisions. Parties are also
      considered to be related if they are subject to common control of common
      significant influence.





The
      Company’s US subsidiary PTI borrowed a short-term loan from YB Venture in the
      amount of $150,000. This loan was unsecured, non-interest bearing and due in
      three months. PTI paid back the loan to YB Venture on August 1, 2006. Mr. John
      Bao, YB Venture’s CEO, is also BiTech Pharma’s CEO and PTI’s acting
      CEO.





**19.
      Commitments and Contingencies:**


(a)
      Capital commitments


As
      of
      June 30, 2006 and 2005, there were no material capital commitments.


(b)
      Operating lease commitments


The
      Group
      entered into operating leases for its laboratory facility in California U.S.
      and
      plant and machineries in Guiyang, P.R.C., which will expire in 2010. Rentals
      were calculated on monthly basis. Total future minimum lease payments under
      these non-cancellable operating leases were as follows:




June
                30,2006
            
            2005Not
                more than 1 year
            
            
            222
            
            
            282More
                than 1 year but not more than 2 years
            
            
            164
            
            
            282More
                than 2 years but not more than 3 years
            
            
            164
            
            
            56More
                than 3 years but not more than 4 years
            
            
            164
            
            
            36More
                than 4 years but not more than 5 years
            
            
            133
            
            
            36More
                than 5 years
            
            
            8
            
            
            18855
            
            
            710





F-19


(c)
      Contingencies





The
      Group
      is liable for obligations in normal course of business. Contingent liabilities
      also include warranty obligations along with lawsuits and disputes arising
      in
      the normal course of business. Management believes that such matters have been
      adequately provided for in the financial statements.





**20.
      Fair Value of Financial Instruments:**


The
      group’s financial instruments consist of cash and cash equivalents, investment
      in securities, accounts receivable, prepaid expense, rental deposit, accounts
      payable and accrued expenses, loan payable to YB Venture, and accrued salaries.
      Unless otherwise noted, it is management’s opinion that the company is not
      exposed to significant interest, currency or credit risks arising from these
      financial instruments. The fair value of those financial instruments
      approximates their carrying value.




**21.
      Recent Accounting Pronouncements**


In
      December 2003, the FASB issued FASB Interpretation No. 46 (Revised) (“FIN 46”),
      Consolidation of Variable Interest Entities (“VIE”). Public entities must apply
      FIN 46 to VIEs that are considered to be special-purpose entities no later
      than
      the end of the first reporting period that ends after December 15, 2003. Public
      entities that are small business issuers shall apply FIN 46 to all other VIEs
      no
      later than the first reporting period that ends after December 15, 2004. The
      adoption of this standard will not have a material impact on the Group’s
      financial statements.





In
      November, 2004, the FASB issued FASB Statement No. 151, “Inventory Costs - an
      amendment of ARB No.43, Chapter 4” (FAS 151), which is the result of its efforts
      to converge U.S. accounting standards for inventories with International
      Financial Reporting Standards. This statement requires abnormal amounts of
      idle
      facility expense, freight, handling costs, and wasted material (spoilage) to
      be
      recognized as current-period charges. It also requires that allocation of fixed
      production overheads to the costs of conversion be based on the normal capacity
      of the production facilities. FAS 141 will be effective for inventory costs
      incurred during fiscal years beginning after June 15, 2005. The adoption of
      this
      standard will not have a material impact on the Group’s financial statements.





In
      December 2004, the FASB issued FASB Statement No. 153, “Exchanges of
      Non-monetary Assets” (FAS 153), which amends APB Opinion No. 29, “Accounting for
      Non-monetary Transactions”, to eliminate the exception for non-monetary
      exchanges of similar productive assets and replaces it with a general exception
      for exchanges of non-monetary assets that do not have commercial substance.
      Under FAS 53, exchange of non-monetary assets, except for exchange of
      non-monetary assets that do not have commercial substance should be measured
      based on the fair value of the assets exchanged. The provisions of this
      Statement shall be effective for non-monetary asset exchanges occurring in
      fiscal periods beginning after June 15, 2005. The Group is currently assessing
      the impact of the standard on its financial statements.





F-20


In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections
      -
      a replacement of APB Opinion No. 20 and FASB Statement No. 3" (“SFAS 154”). SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle. These requirements apply to all voluntary changes and
      changes required by an accounting pronouncement in the unusual instance that
      the
      pronouncement does not include specific transition provisions. SFAS 154 is
      effective for fiscal years beginning after December 15, 2005. As such, the
      Company is required to adopt these provisions at the beginning of the fiscal
      year ended December 31, 2006. The Company is currently evaluating the impact
      of
      SFAS 154 on its consolidated financial statements.




F-21