Benda Pharmaceutical (APSP) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q

_______________

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

For the quarterly period ended June 30, 2008

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

For the transition period from ______to______.

BENDA PHARMACEUTICAL, INC.

(Exact name of registrant as specified in Charter

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

Room 13, Floor 25, Sunny New World Tower,

No. 231 Xin Hua Road, Jianghan District,

Wuhan, Hubei, PRC. Post Code: 430015

 (Address of Principal Executive Offices)

_______________

+86 (27) 8537-5532

 (Issuer Telephone number)

_______________

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

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

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

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

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

Yes o   No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 14, 2008: 101,344,379 shares of common stock.

1

BENDA PHARMACEUTICAL, INC.

FORM 10-Q

June 30, 2008

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4T.	Control and Procedures

PART II-- OTHER INFORMATION

Item 1	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K

SIGNATURE

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Item 1. Financial Information

BENDA PHARMACEUTICAL, INC.

(an exploration stage company)

FINANCIAL STATEMENTS

AS OF JUNE 30, 2008

CONTENTS

PAGE	F1	CONDENSED BALANCE SHEETS AS OF JUNE 30, 2008 (UNAUDITED) AND AS OF DECEMBER 31, 2007 (AUDITED).
PAGE	F2	CONDENSED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 AND FOR THE PERIOD FROM DECEMBER 17, 1999 (INCEPTION) TO JUNE 30, 2008 (UNAUDITED).
PAGES	F3	CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIENCY) FOR THE PERIOD FROM DECEMBER 17, 1999 (INCEPTION) TO JUNE 30, 2008 (UNAUDITED).
PAGE	F4	CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 AND FOR THE PERIOD FROM DECEMBER 17, 1999 (INCEPTION) TO JUNE 30, 2008 (UNAUDITED).
PAGES	F5 - F8	NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).

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Benda Pharmaceutical, Inc.

Consolidated Balance Sheets

(Amounts expressed in U.S. Dollars)

	June 30			December 31
	2008			2007
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	1,035,931		$	1,266,240
Trade receivables, net (Note 5)		11,487,967			10,472,233
Other receivables (Note 5)		346,170			453,595
Refundable purchase price paid (Note 6)		-			1,200,000
Short-term loan receivables (Note 5)		145,947			-
Due from related parties (Note 18)		33,807			-
Inventories (Note 7)		3,250,625			1,952,348
Prepaid expenses and deposits (Note 5)		1,200,021			933,299
Total current assets		17,500,468			16,277,715
Due from related parties (Note 18)		2,722,081			2,630,019
Property and equipments, net (Note 8)		28,544,953			27,123,035
Intangible assets, net (Note 9)		6,589,805			6,494,510
Goodwill (Note 10)		7,873,166			7,395,752
Restricted cash (Note 11)		5,676,297			3,957,624
Other assets (Note 12)		1,821,419			1,710,972
Refundable purchase price paid (Note 6)		1,200,000			-
Debt issue costs (Note 24)		196,188			327,945
Total Assets	$	72,124,377		$	65,917,572
Liabilities & Shareholders' Equity
Current Liabilities
Bank indebtedness (Note 11)	$	1,272,103		$	874,490
Bank loans payable (current portion) (Note 13)		2,969,537			2,867,004
Long term debt payable (current portion) (Note 14)		2,222,963			1,787,239
Accounts payable and accrued liabilities (Note 15)		5,671,108			4,665,984
Commercial notes payable (Note 11)		8,729,370			5,118,758
Taxes payable		1,167,738			1,279,385
Acquisition price payable (Note 10)		1,419,310			1,333,246
Wages payable		885,787			664,785
Due to related parties (Note 18)		566,618			-
Total current liabilities		24,904,534			18,590,891
Long term debt payable (long term portion) (Note 14)		-			425,001
Long-term convertible promissory notes (Note 24)		4,757,319			2,875,075
Due to related parties (Long-term) (Note 18)		2,018,664			3,193,618
Total liabilities		31,680,517			25,084,585
Minority interest		5,763,836			5,502,755
Redeemable common stock, 2,049,560 shares at $3.6 per share (Note 19)		7,376,366			7,376,366
Shareholders' Equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
None issued and outstanding (Note 25)		-			-
Common stock, $0.001 par value; 150,000,000 shares authorized;
100,803,509 shares issued and outstanding as of 6/30/2008;
100,170,071 shares issued and outstanding as of 12/31/2007 (Note 25)		100,803			100,170
Additional paid in capital (Note 25)		21,853,508			21,547,929
Retained earnings (unrestricted)		(3,722,125	)		100,452
Statutory surplus reserve fund (Note 17)		2,310,681			2,310,681
Accumulative other comprehensive income		6,256,931			3,390,774
Shares issuable for acquisition and services		503,860			503,860
Total Shareholders' Equity		27,303,658			27,953,866
Total Liabilities & Shareholders' Equity	$	72,124,377		$	65,917,572

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

4

Benda Pharmaceutical, Inc.

Consolidated Statements of Operations

(Amounts expressed in U.S. Dollars)

	SIX MONTHS ENDED JUNE 30						THREE MONTHS ENDED JUNE 30,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	13,225,623		$	8,236,852			7,278,253		$	5,207,817
Cost of goods sold		(8,396,854	)		(4,336,114	)		(4,579,608	)		(2,488,902	)
Gross profit		4,828,769			3,900,738			2,698,645			2,718,915
Selling expenses		(1,431,212	)		(344,886	)		(994,841	)		(256,703	)
General and administrative expenses
Amortization of intangible assets		(97,948	)		(55,219	)		(46,373	)		(28,935	)
Amortization of debt issue costs (Note 24)		(131,757	)		(67,269	)		(65,878	)		(58,526	)
Depreciation		(243,495	)		(214,256	)		(120,275	)		(137,680	)
Bad debts		(773,893	)		(776,859	)		(302,596	)		(847,845	)
Write-down of Inventory to Net Realizable Value (Recovery)		-			-			-			-
Director remuneration		(140,468	)		(33,945	)		(29,595	)		(33,945	)
Penalty to investors (Note 20)		(1,113,405	)		(120,000	)		(391,200	)		-
Brokerage fee		-			(239,963	)		-			(239,963	)
Cash bonus		-			(173,400	)		-			(173,400	)
Consulting and professional fees (Note 19)		-			(7,882,416	)		-			(7,882,416	)
Other general and administrative expenses (Note 21)		(2,020,274	)		(974,139	)		(922,405	)		(649,426	)
Total general and administrative expenses		(4,521,240	)		(10,537,466	)		(1,878,322	)		(10,052,136	)
Gains / (losses) on disposals of fixed assets		-			-			-			12,025
Research and development expenses		(169,781	)		(97,119	)		(147,717	)		(97,119	)
Total operating expenses		(6,122,233	)		(10,979,471	)		(3,020,880	)		(10,393,933	)
Operating income / (loss)		(1,293,464	)		(7,078,733	)		(322,235	)		(7,675,018	)
Interest income / (expenses) (Note 24)		(2,340,580	)		(1,066,406	)		(1,128,298	)		(1,048,821	)
Other income (expenses)		248,058			90,158			(53,635	)		89,221
Government subsidies / grants (Note 22)		-			273,115			-			273,115
Income / (loss) before minority interest and income taxes		(3,385,986	)		(7,781,866	)		(1,504,168	)		(8,361,503	)
Income taxes (Note 23)		(524,808	)		-			(391,611	)		-
Minority interest (Note 28)		88,216			(466,616	)		110,614			(419,710	)
Net income / (loss)	$	(3,822,578	)	$	(8,248,482	)		(1,785,165	)	$	(8,781,213	)
Earnings / (loss) per share - basic	$	(0.04	)	$	(0.09	)		(0.02	)	$	(0.09	)
Weighted average shares outstanding - basic		100,558,191			96,625,164			100,803,509			96,964,606
Earnings / (loss) per share - diluted	$	(0.04	)	$	(0.09	)		(0.02	)	$	(0.09	)
Weighted average shares outstanding - diluted (Note 26)		100,558,191			96,625,164			100,803,509			96,964,606

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

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Benda Pharmaceutical, Inc.

Consolidated Statements of Cash Flows

(Amounts expressed in U.S. Dollars)

	SIX MONTHS ENDED JUNE 30
	2008			2007
	(Unaudited)			(Unaudited)
Cash Flows From Operating Activities
Net income / (loss)	$	(3,822,578	)	$	(8,248,482	)
Adjustments to reconcile net income / (loss) to net cash provided by operating activities:
Consulting and professional fees (Note 19)		-			7,882,416
Bad Debt provision		773,893			776,859
Minority interest		(88,216	)		466,616
Loss on disposals of fixed assets		-			14,931
Depreciation		902,672			300,579
Amortization of intangible assets		373,615			168,869
Amortization of debt issue costs (Note 24)		131,757			67,269
Interest expense (amortization of debt discount) (Note 24)		1,882,244			960,985
Penalty to investors settled by issuance of common stock		230,312			-
Directors remuneration settled by issuance of common stock		75,900			-
Changes in operating assets and liabilities:
Trade receivables		(1,855,382	)		(451,147	)
Other receivables		229,758			(164,133	)
Prepaid expenses and deposits		(406,623	)		(374,486	)
Inventories		(1,298,277	)		(611,943	)
Accounts payable and accrued liabilities		1,226,126			(377,837	)
Others payable		-			(18,329	)
Taxes payable		(111,647	)		(143,156	)
Net cash provided by operating activities		(1,756,446	)		249,010
Cash Flows From Investing Activities
Acquisition cost paid		-			(1,532,159	)
Purchases of property and equipment and construction-in-progress		(213,176	)		(2,065,117	)
Purchases of intangible assets		-			(1,972,500	)
Loans to related parties, net		-			(646,127	)
Net cash used in investing activities		(213,176	)		(6,215,903	)
Cash Flows From Financing Actives
Proceeds from issuance of convertible promissory note (Note 24)		-			7,030,800
Proceeds and repayments of borrowings under short-term loan receivable		(145,947	)		-
Proceeds and repayments of borrowings under related parties, net		(734,205	)		(63,327	)
Proceeds and repayments of borrowings under government debts payable, net		314,677			(273,115	)
Proceeds and repayments of borrowings under commercial bank notes, net (Note 11)		1,846,510			-
Proceeds and repayments of borrowings under bank loans, net		(80,217	)		(451,574	)
Net cash provided by (used in) financing activities		1,200,818			6,242,784
Effect of exchange rate changes on cash		538,495			34,575
Net increase in cash and cash equivalents		(230,309	)		310,466
Cash and cash equivalents, beginning of period		1,266,240			1,676,119
Cash and cash equivalents, end of period	$	1,035,931		$	1,986,585
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	346,682		$	123,584
Cash paid for income taxes	$	636,375		$	-

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

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Benda Pharmaceutical, Inc.

Notes to Consolidated Financial Statements

(Amounts expressed in U.S. Dollars)

1. Organization

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

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

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

On April 5, 2007, Benda Ebei entered into an Equity Transfer Agreements with Shenzhen Yuanzheng Investment Development Co., Ltd. and Shenzhen Yuanxing Gene City Development Co., Ltd., the then shareholders of Shenzhen SiBiono GeneTech Co., Ltd (“SiBiono”), to purchase 27.57% and 30% respectively of the shares of SiBiono’s common stock for total consideration of Rmb 60 million (or $8.56 million) due and payable on or before April 30, 2007. On June 11, 2007, Benda Ebei entered into an Equity Transfer Agreements with Huimin Zhang and Yaojin Wang, the individual shareholders of SiBiono, and to purchase 1.6% and 0.96% respectively of the shares of SiBiono’s common stock for total consideration of Rmb 2.56 million (or $0.37 million) due and payable on or before June 30, 2007. Altogether, the total consideration for 60.13% shares of SiBiono’s common stock was Rmb 62.56 million or $8.93 million. As of June 30, 2008, an accumulated amount, approximately Rmb 52.83 million or $7.51 million was paid and leaving a balance approximately $1.42 million (please refer to Note 10 for the details).

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

As of June 30, 2008, the organization and ownership structure of the Group is as follows:

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2. Significant Accounting Policies

Cash and Cash Equivalents

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

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

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

As of June 30, 2008 and 2007, the Company provided a $1,800,863 and $1,410,338 respectively for the allowance of doubtful accounts against trade receivables, other receivables and prepaid and deposits (please refer to Note 5 for details). Management's estimate of the appropriate allowance on those accounts receivable for the reporting periods was based on the aged nature of these accounts. In making its judgment, management assessed its customers' ability to continue to pay their outstanding invoices and the collectibility of those accounts on a timely basis, and whether their financial position might deteriorate significantly in the future, which would result in their inability to pay their debts to the Company.

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

As of June 30, 2008 and 2007, the Company provided a reserve against its work-in-progress amounting to $3,994,628 and $3,736,945, respectively. The reserve was raised due to the fact that most of the original liquid, a liquid element o produce Gendicine, was produced in the year of 2004 and this particular liquid can only be stored for approximately five years, therefore a reserve was provide against the work-in-progress (see Note 7). However, no reserve for obsolete, slow-moving or non-salable inventory was required for the reporting periods.

Property and Equipment

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

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

8

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

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

Impairment of Long-Lived Assets

The Group evaluates potential impairment of long-lived assets, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires the Group to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. The Group believes that long-lived assets in the accompanying consolidated balance sheets are appropriately valued as of June 30, 2008 and 2007.

Intangible Assets

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

Revenue Recognition

Among the most important accounting policies affecting our consolidated financial statements is our policy of recognizing revenue in accordance with the SEC's Staff Accounting Bulletin ("SAB") No. 104. Under this policy, all of the following criteria must be met in order for us to recognize revenue:

         1.       Persuasive evidence of an arrangement exists;

         2.       Delivery has occurred or services have been rendered;

         3.       The seller's price to the buyer is fixed or determinable; and

         4.       Collectibility is reasonably assured.

The majority of the Group's revenue results from sales contracts with distributors and revenue is recorded upon the shipment of goods. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectibility. Based on these factors, the Group believes that it can apply the provisions of SAB 104 with minimal subjectivity.

Research and Development

Research and development costs are expensed as incurred and consist primarily of salaries and related expenses of personnel engaged in research and development activities. The Company spent $169,781 and $97,119 on direct research and development (“R&D”) efforts for the six months ended June 30, 2008 and 2007, respectively.

Income Taxes

The Group accounts for income taxes under the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized.

Comprehensive Income

The Group has adopted SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income, its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments.

Concentration of Credit Risk

A significant portion of the Group's cash as of June 30, 2008 and 2007 is maintained at various financial institutions in the PRC which do not provide insurance for amounts on deposit. 

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

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

The following table shows the individual customer’s revenue and account receivable balance which was higher than 5% of total revenue and total account receivables for the six months and three months ended June 30, 2008 and 2007:

9

	SIX MONTH ENDED JUNE 30,						THREE MONTH ENDED JUNE 30,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	13,225,623	%	$	8,236,852		$	7,278,253	%	$	5,207,817	%
Individual customer's revenue
1 Zhuhai Gongbei Pharmaceutical Co, Ltd.		2,926,293	22%		1,844,222	22%		1,399,001	11%		1,159,932	14%
2 Hubei Hengchuan Health Products Co.,Ltd.		1,643,089	12%		-	0%		672,941	5%		-	0%
3 Shenzhen Huihua Pharmaceutical Co. Ltd.		1,390,396	11%		1,224,640	15%		515,221	4%		689,112	8%
4 Shenyang Pharmaceutical Co. Ltd.		1,273,621	10%		1,123,050	14%		561,439	4%		678,314	8%
5 Jiangxi Huiren Pharmaceutical Co. Ltd.		955,865	7%		1,347,151	16%		603,023	5%		1,094,578	13%
Account receivable, gross	$	12,765,302	0%	$	7,847,719	%	$	12,765,302	0%	$	7,847,719	%
Individual customer's account receivable gross balance
1 Zhuhai Gongbei Pharmaceutical Co, Ltd.		2,267,039	18%		1,523,060	19%		2,267,039	18%		1,523,060	19%
2 Hubei Hengchuan Health Products Co.,Ltd.		1,162,570	9%		-	0%		1,162,570	9%		-	0%
3 Shenzhen Huihua Pharmaceutical Co. Ltd.		986,123	8%		603,351	8%		986,123	8%		603,351	8%
4 Shenyang Pharmaceutical Co. Ltd.		969,643	8%		660,668	8%		969,643	8%		660,668	8%
5 Jiangxi Huiren Pharmaceutical Co. Ltd.		844,413	7%		1,721,524	22%		844,413	7%		1,721,524	22%

 

Basic and Diluted Earnings Per Share

The Group adopted Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (SFAS128). SFAS 128 requires the presentation of earnings per share (EPS) as Basic and Diluted EPS. Basic earnings per share are calculated by taking net income divided by the weighted average shares of common stock outstanding during the period. Diluted earnings per share is calculated by taking basic weighted average shares of common stock and increasing it for dilutive common stock equivalents such as warrants that are in the money. 

Foreign Currency Translation

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

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

The exchange rates in effect as of June 30, 2008 and 2007 were stated as follows: (for RMB 1.00):

	June 30,		June 30,
	2008		2007
Fixed rate	$	0.1459	$	0.1315
Average rate	$	0.1418	$	0.1301

For the six months ended June 30, 2008 and 2007, the foreign exchange loss was $2,156 and $13,467, respectively; for the three months ended June 30, 2008,the foreign exchange gain was $1,040, for the three months ended June 30 2007, the foreign exchange loss was $23,327.

Fair Value of Financial Instruments

The Group's financial instruments include cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, value-added taxes, short-term and long-term bank loans, and loans payable to related parties. The carrying amounts of financial instruments other than long-term obligations approximate fair value due to their short maturities. Long-term obligations approximate fair value based upon rates currently available for similar instruments.

Recent Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Early application of EITF 03-6-1 is prohibited. It also requires that all prior-period EPS data be adjusted retrospectively. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.

In April 2008, the FASB issued Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”) which amends the factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets (“FAS No. 142”). FSP FAS 142-3 applies to intangible assets that are acquired individually or with a group of assets and intangible assets acquired in both business combinations and asset acquisitions. It removes a provision under FAS No. 142, requiring an entity to consider whether a contractual renewal or extension clause can be accomplished without substantial cost or material modifications of the existing terms and conditions associated with the asset. Instead, FSP FAS 142-3 requires that an entity consider its own experience in renewing similar arrangements. An entity would consider market participant assumptions regarding renewal if no such relevant experience exists. FSP FAS 142-3 is effective for year ends beginning after December 15, 2008 with early adoption prohibited. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of adopting SFAS 161 on its consolidated financial statements.

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On December 4, 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, Noncontrolling interest in Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. The statement establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and expands disclosures in the consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We have not yet determined the impact of the adoption of SFAS No. 160 on our consolidated financial statements and footnote disclosures.

On December 4, 2007, the FASB issued SFAS No.141R, Business Combinations (SFAS No. 141R). SFAS No. 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to expand disclosures about the nature and financial effect of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have not yet determined the impact of the adoption of SFAS No. 141R on our consolidated financial statements and footnote disclosures.

Recently Adopted Accounting Pronouncements

SFAS No. 123R, Share-Based Payment, an Amendment of SFAS No. 123, was issued in December 2004 and was effective as of the beginning of the Group’s 2006 fiscal year. SFAS No. 123R requires all share-based payments to qualified individuals, including grants of employee stock options, to be recognized as compensation expense in the financial statements based on their grant date fair values.

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

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,” (“SFAS 159”) which is effective for fiscal years beginning after November 15, 2007. SFAS 159 is an elective standard which permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The Company has not elected the fair value option for any assets or liabilities under SFAS 159.

3. Basis of Preparation

The unaudited consolidated financial statements of Benda and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet information as of December 31, 2007 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-KSB. These interim financial statements should be read in conjunction with that report. Certain prior-year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no effect on the results of operations or shareholder’s equity as previously reported.

4. Use of Estimates

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

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

(1)Allowance for doubtful debts

As mentioned in Note 4 that the company estimates of the appropriate allowance on those accounts receivable for the reporting periods was based on the aged nature of these accounts. The table below shows the allowance for doubtful debts of the Group’s trade receivables, other receivables and prepaid and deposit as of June 30, 2008 and December 31, 2007:

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	June 30,			December 31,
	2008			2007
	(Unaudited)
Trade receivables, gross	$	12,765,302		$	10,909,921
Allowance for doubtful debts		(1,277,336	)		(437,688	)
Trade receivables, net	$	11,487,966		$	10,472,233
		June 30,			December 31,
		2008			2007
		(Unaudited)
Other receivables, gross	$	385,213		$	614,971
Allowance for doubtful debts		(39,043	)		(161,376	)
Other receivables, net	$	346,170		$	453,595
		June 30,			December 31,
		2008			2007
		(Unaudited)
Prepaid and deposits, gross	$	1,684,505		$	1,277,882
Allowance for doubtful debts		(484,484	)		(344,583	)
Prepaid and deposits, net	$	1,200,021		$	933,299

The change of the allowance for doubtful debts between the reporting periods, as of June 30, 2008 and 2007, is displayed as follows:

	SIX MONTHS ENDED JUNE 30
	2008			2007
	(Unaudited)			(Unaudited)
Balance at beginning of period	$	(943,647	)	$	(467,015	)
Provision/Reversal during the period		(773,893	)		(776,859	)
Addition in lieu of acquisition of SiBiono					(116,935	)
Foreign exchange difference		(83,323	)		(49,529	)
Balance at end of period	$	(1,800,863	)	$	(1,410,338	)

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

For the six months ended June 30, 2008, the management assessed certain balances aged over 120 days and reviewed customer by customer and specified which did not have collectability issue; then a 100% provision was made against all remaining balances outstanding over 120 days.

For the six months ended June 30, 2008, the net trade receivable turnover day was 138 days which was slightly above the company’s general principle for the allowance which was mainly due to the fact of the big earthquake in the second quarter of 2008, it did affect the collection of trade receivables to certain extend. On the whole, the allowance made during the reporting period still fall in the normal situation.

(2) Short-term loan receivable

The short-term receivable is due on June 30, 2009 and bears annual interest rate at prime rate (currently, as of August 8, 2008, the prime rate is 7.47%) published by People’s Bank of China.

6. Refundable Purchase Price Paid

On, December 7, 2006, Benda Ebei paid $1.2 million to SECO (Shenzhen) Biotech Co., Ltd. (“SECO”) pursuant to a purchase agreement signed between SECO and Benda Ebei on December 3, 2006 to acquire a technology know-how and drug specifications / technical parameters in producing a Gastropathy drug owned by SECO. As at June 30, 2008, the deal has not been closed as the product certificate still not received from FDA of the United States of America and the amount paid is refundable per agreement if such approval is not obtained. As the date when the certificate can be received from FDA of the United States of America cannot be determined, the amount paid is reclassified as non-current assets as of June 30, 2008.

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7. Inventories

The Group’s inventories at June 30, 2008 and December 31, 2007 were comprised as follows:

	June 30,			December 31,
	2008			2007
	(Unaudited)
Raw materials	$	1,550,434		$	1,078,438
Packing materials		201,999			155,101
Other materials / supplies		89,117			93,206
Finished goods		835,970			415,627
Work-in-progress		4,567,732			4,631,990
Total inventories at cost		7,245,253			6,374,362
Less: Reserves on work-in-progress		(3,994,628	)		(4,422,014	)
Total inventories, net	$	3,250,625		$	1,952,348

A reserve for obsolete, slow-moving or non-salable inventory was made on work-in-progress at the amount of $3,994,628 and $4,422,014 as of June 30, 2008 and December 31, 2007, respectively.

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

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

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

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

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

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

After the acquisition with the effective date April 1, 2007, the same accounting treatment was adopted for the treatment of the provision of reserve on work-in-progress. As of June 30, 2008, the provision of reserve on work in progress was $3,994,628..

8. Property and Equipment

The Group’s property and equipment as of June 30, 2008 and December 31, 2007 were comprised as follows:

							Foreign
	December 31,			Addition			Currency			June 30, 2008
	2007						Translation
							Difference
										(Unaudited)
Buildings	$	8,858,126			2,730			728,664		$	9,589,520
Machinery and equipment		15,260,167			70,960			1,263,686			16,594,813
Office equipment		28,762			6,397			6,323			41,482
Motor Vehicles		206,252			25,560			17,790			249,602
Cost		24,353,307			105,647			2,016,463			26,475,417
Less: Accumulated Depreciation
Buildings	$	(981,116	)		(215,497	)		(83,517	)	$	(1,280,130	)
Machinery and equipment		(2,423,002	)		(671,988	)		(224,242	)		(3,319,232	)
Office equipment		(4,281	)		(1,142	)		1,824			(3,599	)
Motor Vehicles		(46,447	)		(14,045	)		(4,037	)		(64,529	)
Accumulated Depreciation		(3,454,846	)		(902,672	)		(309,972	)		(4,667,490	)
Construction in progress	$	6,224,573			107,529			404,924		$	6,737,026
Total property and equipment, net	$	27,123,035			(689,496	)		2,111,415		$	28,544,953

As mentioned in Note 11, Benda Ebei entered into a commercial bank note issuance agreement with the Shanghai Pudong Development Bank (“Pudong Bank’) on August 14, 2007 and a supplementary agreement on January 21, 2008. Under the agreement this credit facility is secured by the buildings, machinery and equipment of Benda Ebei and Jiangling Benda.

As of June 30, 2008, the net book value of secured property and equipment was approximately Rmb138.59 million or $20.2 million.

The depreciation expense for the six months ended June 30, 2008 was calculated as follows:

`			Original Cost
	December 31,		June 30,				Salvage		Estimate		Depreciation		Deprecation
	2007		2008		Average		Value		Useful Lives		Calculated		Reported		Difference
Building	$	8,858,126		9,589,520		9,223,823		5%		25		175,253		215,497		(40,244	)
Property and equipment		15,260,167		16,594,813		15,927,490		5%		13		605,245		671,988		(66,743	)
Office equipment		28,762		41,482		35,122		5%		5		3,337		1,142		2,195
Motor vehicle		206,252		249,602		227,927		5%		5		21,653		14,045		7,608
Total property and equipments	$	24,353,307		26,475,417		25,414,362						805,488		902,672		(97,184	)

The above table shows the calculation of depreciation expenses for the six months ended June 30, 2008. The difference between the depreciation calculated and depreciation reported was due to the changes of foreign exchange translation.

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

The total depreciation expense for the six months and the three months ended June 30, 2008 and 2007 are broken down as follows:

	SIX MONTHS ENDED JUNE 30				THREE MONTHS ENDED JUNE 30
	2008		2007		2008		2007
			Restated				Restated
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Cost of sales	$	659,177	$	86,323	$	329,162	$	63,038
Operating expenses		243,495		214,256		120,275		137,680
Balance at end of period	$	902,672	$	300,579	$	449,437	$	200,718
9. Intangible Assets

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9. Intangible Assets

The Group’s intangible assets as of June 30, 2008 and December 31, 2007 were comprised as follows:

							Foreign
	December 31,			Addition			Currency			June 30, 2008
	2007						Translation
							Difference
										(Unaudited)
Land-use rights	$	2,875,796			-			222,755		$	3,098,551
Drugs permits and licenses		2,564,996			-			198,681			2,763,677
Technology formulas		1,220,164			-			78,765			1,298,929
Patent		1,685,919			-			108,830			1,794,749
Cost		8,346,875			-			609,031			8,955,906
Land-use rights	$	(201,030	)		(36,896	)		(16,009	)	$	(253,935	)
Drugs permits and licenses		(1,291,425	)		(132,176	)		(94,959	)		(1,518,560	)
Technology formulas		(154,863	)		(63,118	)		(11,825	)		(229,806	)
Patent		(205,047	)		(141,425	)		(17,328	)		(363,800	)
Accumulated amortization		(1,852,364	)		(373,615	)		(140,121	)		(2,366,101	)
Total intangible assets, net	$	6,494,510			(373,615	)		468,910		$	6,589,805

The amortization expense for the six months ended June 30, 2008 was calculated as follows:

	December 31,		June 30,				Estimated		Amortization Amortization
	2007		2008		Average		Useful lives		Calculated		Reported		Difference
Land-use rights	$	2,875,796		3,098,551		2,987,174		40	$	37,340		36,896		444
Drugs permits and licenses		2,564,996		2,763,677		2,664,337		10		133,217		132,176		1,041
Technology formulas		1,220,164		1,298,929		1,259,547		10		62,977		63,118		(141	)
Patent		1,685,919		1,794,749		1,794,749		6		149,562		141,425		8,137
Total Intangible assets	$	8,346,875		8,955,906		8,705,806			$	383,096		373,615		9,481

The above table shows the calculation of amortization expenses for the six months ended June 30, 2008. The difference between the amortization calculated and amortization reported was due to the changes of foreign exchange translation.

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

The total amortization expense for the six months and the three months ended June 30, 2008, and 2007 are broken down as follows:

	SIX MONTHS ENDED JUNE 30				THREE MONTHS ENDED JUNE 30
	2008		2007		2008		2007
			Restated				Restated
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Cost of sales	$	275,667	$	113,650	$	143,127	$	89,467
Operating expenses		97,948		55,219		46,373		28,935
Balance at end of period	$	373,615	$	168,869	$	189,500	$	118,402

10. Goodwill and Acquisition Cost Payable

FASB 141 requires all acquisitions must be accounted for by allocating the acquisition consideration to the assets acquired based upon the fair market value of those assets. Consideration value that cannot be allocated to the acquired assets must be assigned to goodwill. In addition, it also requires eliminating the pooling treatment and eliminating the amortization of goodwill. FASB 142 requires that a company carrying goodwill on its books must revalue the assets acquired in a business combination. If there is an overall decline in the value of the acquired assets, then earlier booked goodwill is deemed “impaired” and must be written down. FASB 142 requires a two step impairment test. The fair value of a reporting unit is first compared to its carrying value, including goodwill. Then the implied fair value of the goodwill is compared to the carrying value of the goodwill. If the fair value is lower, it is considered to be impaired.

As of June 30, 2008, there was an amount approximately $7.9 million was recorded as goodwill. Since SiBiono was turned to be profitable from the year of 2007, no impairment would be provided.

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As of June 30, 2008, the total purchase price was Rmb62.56 million (or $8.93 million). Out of which, Rmb53.95 million (or $7.9 million) was recognized as goodwill and the remaining Rmb8.61 million (or $1.03 million) was allocated to identifiable assets and assumed liabilities of SiBiono as following:

Condensed Balance Sheet of SiBiono, as of March 31, 2007	In ' 000
Current Assets
Cash and cash equivalents	$	590
Receivables, prepaid expenses and deposits		969
Inventories		688
Total current assets		2,246
Non-current Assets
Property and equipments, net		6,789
Intangible assets, net		1,939
Total non-current assets		8,728
Total Assets	$	10,975
Current Liabilities
Trade payables and miscellaneous payables	$	1,175
Current portion of long term loans payable		1,813
Current portion of long term government debts payable		2,710
Total current liabilities		5,699
Non-current Liabilities
Long term loans payable		1,360
Long term government debts payable		1,723
Due to related parties (long term)		338
Total non-current liabilities		3,420
Total liabilities	$	9,119
Net assets	$	1,855
% of equity interest acquired		60.13	%
Net assets acquired	$	1,116		Note a
Note a.

Note a. From the above table, the net assets of SiBiono as of March 31, 2007 was Rmb8.61 million, and when translating into US currency upon the time acquired, such net assets amount was translated into $1.12 million (whereas the average exchange rate prevailing on that date was $0.12592). However, when we subtract the total acquisition price against the goodwill, the net assets would be $1.03 million. The slightly difference was occurred, $0.09 million and which was solely due to the foreign currency translation.

As of June 30, 2008, out of the total acquisition cost Rmb62.56 million (or $8.93 million), the following payments were made:

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

In the year of 2007, an additional amount Rmb20.28 million was paid. The remaining balance was reported as “acquisition cost payable” on the balance sheet. As of June 30, 2008, the total amount paid was Rmb52.83 million (or $7.51 million) and the outstanding balance was Rmb9.73 million (or $1.42 million).

The Group has already obtained the oral consent from the selling shareholders of SiBiono that the remaining balance could be settled within the year 2008.

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11. Restricted Cash, Bank Indebtedness and Commercial Notes Payable

The Group’s restricted cash at June 30, 2008 and December 31, 2007 was comprised as follows:

	June 30,		December 31,
	2008		2007
	(Unaudited)
Deposits for issuance of commercial notes	$	4,379,356	$	2,615,254
Funds from government technolgy agencies		1,296,941		1,342,370
Total restricted cash	$	5,676,297	$	3,957,624

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

a) Duration of the agreement is three years;

b) It is non-interest bearing;

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

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

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

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

On January 21, 2008, Benda Ebei entered into a supplementary agreement with Shanghai Pudong Development Bank, to supplement the commercial bank note issuance agreement dated on August 14, 2007 (see Note 8). According to this supplementary agreement, the credit facility is further secured by the buildings, machinery and equipment of Jiangling Benda.

As of June 30, 2008, Benda Ebei and Jiangling Benda deposited an amount $4,379,356 in Shanghai Pudong Development Bank as deposit for the issuance of commercial bank notes. Such deposits will be released when the commercial bank notes are cleared. As of June 30, 2008, the balance of the commercial bank notes payable was $8,729,370. Thus the net commercial bank notes payable was $4,350,014 as of June 30, 2008.

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

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

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

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

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

Due to the above reasons, SiBiono relocated the balances of restricted cash from the cash and cash equivalents balances with an amount $1,296,941 as of June 30, 2008. However, since the balances of the restricted cash were larger than the balance of cash and cash equivalents balances, bank indebtedness were resulted with an amount $1,272,103 as of June 30, 2008.

17

12. Other assets

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

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

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

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

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

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

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

Following this arbitration decision, Benda Ebei recognized the liability as total acquisition cost payable of Rmb12.48 million, plus the penalty and related legal and arbitration expenses, totaling approximately Rmb12.80 million or $1.87 million (Note 15). Accordingly Benda Eebi recognized the right to purchase the 6.24% equity shares in SiBiono and recorded as other assets at Rmb 12.48 million or $1.82 million.

13. Bank Loans Payable

The Group’s bank loans as of June 30, 2008 and December 31, 2007 were comprised as follows:

	June 30,		December 31,
	2008		2007
	(Unaudited)
Bank loans due within one year	$	2,969,537	$	2,867,004
Bank loans due after one year		-		-
Total bank loans	$	2,969,537	$	2,867,004

As of June 30, 2008 and December 31, 2007, Sibiono, had one outstanding bank loan with an amount $2,969,537 and $2,867,004, respectively, which was used primarily to fund construction in progress projects and for general working capital purposes. This loan carries annual interest rate of 6.34% and matures on April 29, 2008. As of June 30, 2008, this loan has matured and SiBiono reached an oral agreement with the bank to extend the loan on a monthly basis. This loan is personal guaranteed by Zhaohui Peng, the former Chairman and a shareholder of SiBiono.

Total interest expense paid related to the Group’s outstanding bank loans was $92,698 and $48,925 for the six months ended June 30, 2008 and 2007, respectively.

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14. Long Term Debt Payable

As of June 30, 2008, long term debt payable was raised due to the fact that various technology funds were obtained from various government technology agencies to support its gene therapy research and development activities during the past years and recorded as long term debt payable.

The long term debt payable as of June 30, 2008, and December 31, 2007 were comprised as follows:

	June 30,		December 31,
	2008		2007
	(Unaudited)
Long-term debt payable due within one year	$	2,222,963	$	1,787,239
Long-term debt payable due after one year		-		425,001
Total long-term debt payable	$	2,222,963	$	2,212,240

Even though there were $2,222,963 long term debt payable due within one year as of June 30, 2008, because of its non-repayable feature, the obligations will be discharged once the examination by the various government technology agencies is conducted and most of the examination will be carried out and completed.

During the six months ended June 30, 2008, there was no long term debt payable discharged and recorded as government subsidies (see Note 22 for the related details).

15. Accounts Payable and Accrued Liabilities

The Group’s accounts payable and accrued liabilities as of June 30, 2008 and December 31, 2007were comprised as follows:

	June 30,		December 31,
	2008		2007
	(Unaudited)
Trade payable	$	559,204	$	305,443
Deposits paid by customer		6,469		160,818
Acquistion cost payable following the arbitration (Note 12)		1,867,505		1,754,263
Accrued liabilities		2,949,400		2,162,455
Miscellaneous payables		288,532		283,005
Total account payables and accurred liabilities	$	5,671,108	$	4,665,984

16. Welfare and Employment Liabilities

As stipulated by the relevant laws and regulations for enterprises operating in the PRC, the Group’s PRC entities are required to maintain a welfare plan for all of its employees who are residents of the PRC. Based on the wages payable and according to the labor law of the PRC, the Group accrued 14% on a monthly basis, for employees’ welfare, labor union fees, and education and training programs, respectively. As of June 30, 2008 and December 31, 2007, the Group accrued approximately $450,713 and $345,000 for the employees’ welfare respectively.

17. Statutory Reserves

As stipulated by the relevant laws and regulations for enterprises operating in the PRC, the Group is required to make annual appropriations to a statutory surplus reserve fund for each of its PRC subsidiaries. Specifically, the Group is required to allocate 15% its profits after taxes at the fiscal year end, as determined in accordance with the PRC accounting standards applicable to the Group’s PRC subsidiaries, to a statutory surplus reserve until such reserve reaches 50% of the registered capital of the Group’s PRC subsidiaries. As of June 30, 2008 and December 31, 2007, the registered capital of the Group’s PRC subsidiaries was $20,026,617.

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18. Related Party Transactions

Due from related parties as of June 30, 2008 and December 31, 2007 were comprised as follows:

	June 30,		December 31,
	2008		2007
	(Unaudited)
Yiqing Wan
Due to Ever Leader Holdings Co. Ltd.	$	646,532	$	646,429
Due to Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.		215,057		72,949
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		4,862		3,608
Hubei Benda Science and Technology Co. Ltd
Due to Yidu Benda Chemicals Co. Ltd.		1,599,083		1,502,118
Due to Ever Leader Holdings Co. Ltd.		230,197		230,160
Feng Wang
Due to Beijing Shusai Pharyngitis Research Co. Ltd.		31,211		29,318
Qin Yu
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		1,460		-
Hua Shen
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		13,394		137,097
Pong Tsaiohuei
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		-		3,257
Xiaozhi Zhang
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		5,411		5,083
Xiaojing Wang
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		289		-
Hsieh, Chang
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		8,027		-
Rong He
Due to Shenzhen SiBiono Gene Tech Co. Ltd.		365		-
Total due from related parties	$	2,755,888	$	2,630,019

Due to related parties as of June 30, 2008 and December 31, 2007 were comprised as follows:

	June 30,		December 31,
	2008		2007
	(Unaudited)
Hubei Benda Science and Technology Co. Ltd
Due from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.	$	28,459	$	49,056
Due from Jiangliang Benda Pharamaceutical Co. Ltd.		806,985		1,872,374
Due from Beijing Shusai Pharyngitis Research Co. Ltd.		14,300		6,846
Wei Xu
Due from Shenzhen SiBiono Gene Tech Co. Ltd.		6,435		-
Due from Everleader Holding Ltd.		379,375
Hua Xu
Due from Shenzhen SiBiono Gene Tech Co. Ltd.		25,395		-
Due from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.		1,073,079		1,009,792
Due from Beijing Shusai Pharyngitis Research Co. Ltd.		65,460		61,491
Yiqing, Wan
Due from Yidu Benda Chemicals Co. Ltd.		873		-
Due from Shenzhen SiBiono Gene Tech Co. Ltd.		146,575		137,687
Hui Xu
Due from Hubei Tongji Benda Ebei Phamacetucial Co. Ltd.		28,341		26,622
Due from Beijing Shusai Pharyngitis Research Co. Ltd.		1,168		3,153
Hua Shen
Due from Shenzhen SiBiono Gene Tech Co. Ltd.		363		26,597
Pong Tsaiohuei
Due from Shenzhen SiBiono Gene Tech Co. Ltd.		8,474		-
Total due to related parties
	$	2,585,282	$	3,193,618

Except for the loans from the shareholder Wei Xu by Everleader which bears interest rate at 12% per annum, unsecure and matures on December 3, 2008, the above advances bear no interest and the above loans due to related parties are unsecured, non-interest bearing and are not convertible into equity. Proceeds from the above loans were used primarily for general working capital purposes and are also long-term debts in nature which are due on December 31, 2012.

20

19. Redeemable Common Stock Issuable For Services

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

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

In connection with the above Equity Transfer Agreements, Benda entered into a Financial Consultancy Agreement with Super Pioneer International Limited (“Super Pioneer”) and Technical Consultancy Agreements with Wang and Zhang for financial and technical consultancy services to be rendered. Pursuant to the Financial and Technical Consultancy Agreements (the “Agreements”), Benda agreed to issue an aggregate of 2,189,560 shares of its common stock to Super Pioneer (2.1 million shares, out of which 1.9 million shares is redeemable), Wang (33,585 shares, redeemable) and Zhang (55,975 share, redeemable) within three months from the date of the Agreements. Super Pioneer, Wang and Zang also agreed to refrain from selling shares of Benda’s common stock for a period of twelve months from the date of the issuance of the shares (the “Lock-up Period”). Within three months from expiration of the Lock-up Period, in the event that the public trading price of Benda’s common stock has not reach $3.60 per share and Benda’s common stock has not been listed on either the NASDAQ or AMEX stock exchanges, Super Pioneer, Wang, and Zang will have the option to require Benda to redeem an aggregate 2,049,560 shares of Benda’s common stock owned by Super Pioneer, Wang, and Zhang at a price of $3.60 per share. 

In accordance EITF Topic D-98, “Classification and Measurement of Redeemable Securities” (“EITF Topic D-98”), as the Agreements governing the issuance of the 2,189,560 shares of common stock to Super Pioneer, Wang, and Zang contain provisions requiring Benda to repurchase 2,049,560 of these shares at a redemption price of $3.60 per share at the option of the holders (if certain events outside of control of the Group do not occur), these 2,049,560 shares have been classified as redeemable common stock, at their redemption price of $3.60 per share or totaling $7,376,366, outside of permanent equity at June 30, 2008.

20. Penalty to investors

In accordance with FASB staff position No. EITF00-19-2 the Group recorded $1,113,405 in Registration Delay Expense, for the six month ended June 30, 2008. Out of the total penalty, $230,312 was settled by issuance of 523,438 shares of common stock.

21. Other general and administrative expenses

For the six months and three months ended June 30, 2008 and 2007, the amount of other general and administrative expenses mainly composed of the following events:

	SIX MONTHS ENDED JUNE 30				THREE MONTHS ENDED JUNE 30
	2008		2007		2008		2007
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Audit and accounting	$	201,829	$	207,938	$	72,495	$	204,438
Legal fees		114,704		80,677		106,651		18,361
Office expenses		292,530		142,079		153,559		74,880
Salaries and wages		514,993		224,600		165,723		93,238
Consulting fee		434,773		38,991		201,859		38,991
Rent & Utilities		55,830		28,774		20,290		24,284
Investor relation, Transfer agent and filing fees		28,123		65,853		9,277		29,923
Travel and transportation		160,334		83,757		89,771		71,712
Repair and maintanence		119,099		5,699		42,445		2,227
Miscellaneous		98,059		95,771		60,335		91,372
Total other general & administrative	$	2,020,274	$	974,139	$	922,405	$	649,426

22. Government Subsidies / Grants

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

According to US GAAP, once the obligation of a particular debt payable is discharged, the amount of this particular debt payable should be treated as government subsidies / grants. During the six months ended June 30, 2008, there were no government subsidies / grants recognized as revenue.

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23. Income Taxes

Benda is subject to Delaware, United State of America tax, but no provision for income taxes were made for the six months ended June 30, 2008 and 2007 as Benda did not have reportable taxable income for the period.

Ever Leader, a wholly owned subsidiary of Benda, is subject to Hong Kong tax, but no provisions for income taxes were made for the six months ended June 30, 2008 and 2007 as Ever Leader did not have reportable taxable income for the periods.

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

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

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

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

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

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

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

For the six months ended June 30, 2008, only Ebei Benda had taxable income and incurred income tax of Rmb 3.70 million or $0.52 million. There was no income tax of the Group for the six months ended June 30, 2007.

24. Long Term Convertible Promissory Note

Our financial statements include enhanced note disclosure addressing the fair value of the convertible promissory notes and warrants and the appropriate accounting treatment for the overall transaction.

Additionally, the enhanced note disclosure includes a detailed discussion of the accounting for the debt discount resulting from the relative fair value of the warrants issued in conjunction with the convertible promissory notes (calculated in accordance with APB 14) and the debt discount resulting from the beneficial conversion feature / conversion discount associated with the convertible promissory notes (calculated in accordance with EITF 98-5 and EITF 00-27) as follows:

In March and April of 2007, the Group entered into Investment Agreements (“Agreements”) with certain accredited and institutional investors (“Investors”) pursuant to which the Investors purchased from the Group a total of 252 Units (“Units”), resulting in aggregate gross proceeds to the Group $7,560,000, with each Unit consisting of: (i) a Convertible Promissory Note (“Note”) in the principal amount of $30,000 and convertible into 54,087 shares of the Group's common stock; and (ii) a Common Stock Warrant (“Warrant”) to acquire 54,087 shares of the Group’s common stock at an exercise price of $0.555 per share and expiring on November 14, 2011. The Notes are immediately convertible at the option of each Investor, bear interest at a rate of 4% per annum, and mature on March 28, 2009. As of March 31, 2007, an amount $5,520,000 was received; while as of June 30, 2008, the aggregate $7,560,000 principal balance of the notes remained outstanding and for the six months ended June 30, 2008, the Group recorded $150,786 of interest expense related to the Notes.

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

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

During the six months ended June 30, 2008, the Group recorded $1,882,244 in interest expense related to the amortization of the debt discount associated with the Warrants and the debt discount associated with the beneficial conversion feature.

The Group also incurred $529,200 in placement agent commissions related to the issuance of the Notes and Warrants. This amount was recorded by the Group as debt issue costs and is being amortized over expected term of the Notes. For the six months ended June 30, 2008, the Group recorded $131,757 in amortization expense related to debt issue costs.

The securities underlying the Notes and Warrants issued to the Investors are also subject to the terms of a Make Good Agreement entered into in connection with a financing the Group executed in November of 2006 (the “Make Good Agreement”). The Group further represented to the Investors that its target net income for fiscal year 2007 (“FY07 Net Income”) will be greater than or equal to $10.0 million (adjusted for a variety of non-cash charges) (the “Performance Threshold”). In the event the Performance Threshold is not attained, the Group is required to issue to the Investors a pro rata portion of 1,000,000 shares of the Group’s common stock for every one (1) cent by which the Group’s earnings per share, determined on a fully diluted basis, is less than $0.065.

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

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

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

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

In the event the Registration Statement is never declared effective, the Registration Delay Payments are capped at 10% of the purchase price paid by each investor for the convertible promissory notes and warrants. As a result, the initial requirement for the Company to deliver registered shares upon conversion of the convertible promissory notes or exercise of the warrants is negated and paragraphs 14 - 18 of EITF 00-19 are not applicable (for purposes of classifying the fair value of the warrants issued in conjunction with the convertible promissory notes as a liability with changes in fair value recorded in earnings).

In accordance with FASB staff position No. EITF00-19-2, during the six months ended June 30, 2008 the Group recorded $1,113,405 for Registration Delay Expense or penalty to investors. EITF 00-19-2 requires the Group to record the expense when it is probable that the liability has been incurred and the amount can be reasonably estimated.

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

As of June 30, 2008 and December 31, 2007, the Group had an aggregate of:

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

(b)As of December 31, 2007, 100,170,071 shares of common stock were issued and outstanding, par value $0.001 each; During the six months ended June 30, 2008:; (i) 523,438 shares were issued to PIPE investors as penalty for registration delay expenses (see Note 20); and (ii) 110,000 shares were issued to the independent directors in lieu of their remuneration. Thus, the share of common stock issued and outstanding was 100,803,509 as of June 30, 2008.

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

	December 31,			Events occurred during		June 30,
	2007			the reporting period		2008
Events						(Unaudited)
To record the changes of par value from $0.01 to $0.001
of the outstanding common stock as of 11/17/2005	$	584,481			-	$	584,481
To adjust the par value of outstanding common stock as of 3/31/2006		(5,354	)		-		(5,354	)
Waiver of shareholder loan on 9/5/2006		2,298,434			-		2,298,434
To eliminate the common stock and additional paid-in capital of the former shell
company "Applied Spectrum Technologies, Inc." on 11/15/2006		16,215,770			-		16,215,770
To eliminate the accumulated deficit of the former shell company
"Applied Spectrum Technologies, Inc." on 11/15/2006		(16,209,962	)		-		(16,209,962	)
Issuance of common stock, 25,961,760 shares at $0.4622 per share, on 11/15/2006		11,974,038			-		11,974,038
Issuance of common stock, 64,942,369 shares at $0.001 per share on 11/15/2006		(64,942	)		-		(64,942	)
To relocate the original common stock of Ever Leader on 11/15/2006		1,285			-		1,285
To record the placement agent commission and transaction related fee
of reverse merger on 11/15/2006		(1,694,326	)		-		(1,694,326	)
Issuance of common stock 706,195 at $0.4622 per share		325,697.00			-		325,697
Debt discount on beneficial conversion feature on convertible promissory notes		2,385,089.00			-		2,385,089
Debt discount on warrants issued with convertible promissory notes		5,174,911.00			-		5,174,911
Placement agent exercised 849,007 warrants at strike price through cashless arrangement		470,347.00			-		470,347
Issuance of common stock to PIPE investors as penalty for late submission of 10KSB		92,461.00			-		92,461
Issuance of common stock to directors in lieu of their remuneration		-			75,790		75,790
Issuance of common stock to PIPE investors as penalty for registeration delay expenses		-			229,789		229,789
Additional paid-in capital, balance for the period ended	$	21,547,929			305,579	$	21,853,508

(d)As of December 31, 2007, 27,708,929 Warrants, each convertible into one (1) share of the Group’s Common Stock, issued and outstanding. During the six months ended June 30, 2008, 1,597,075 warrants were issuable to CRT Capital Group, LLC and 956,245 warrants were issuable to EastGate Financial, Inc. in lieu of their consultancy service. Thus the remaining balance as June 30, 2008 was 30,262,249

(e).None options issued and outstanding.

26. Weighted average shares outstanding - diluted

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

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

24

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

	SIX MONTHS ENDED JUNE 30						THREE MONTHS ENDED JUNE 30
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Numerator:
Net income (loss)	$	(3,822,578	)	$	(8,248,482	)	$	(1,785,165	)	$	(8,781,213)	)
Denominator:
Basic weighted-average shares outstanding		100,558,191			96,625,164			100,803,509			96,964,606
Effect of dilutive stock options & warrants		-			-			-			-
Diluted weighted-average shares outstanding		100,558,191			96,625,164			100,803,509			96,964,606
Net income (loss) per share:
Basic	$	(0.04	)	$	(0.09	)	$	(0.02	)	$	(0.09	)
Diluted	$	(0.04	)	$	(0.09	)	$	(0.02	)	$	(0.09	)

27. Commitments and Contingencies

As of June 30, 2008, there was an operating lease commitment and the amounts are stated as follows;

	June 30,
	2008
	(Unaudited)
Rental and Property Management Fee
Within one year	$	98,745
One to two year		78,448
Total commitments payable	$	177,192

28. Segment Information

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

1. Benda Ebei produces branded and generic medicines;

2. Jiangling Benda produces active pharmaceutical ingredients, APIs;

3. Yidu Benda produces bulk chemicals;

4. Beijing Shusai produces pharyngitis killer therapy; and

5. SiBiono produces gene therapy medicines, Gendicine. 

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

25

Selected financial information for each of these segments for the six months and three months ended June 30, 2008 and 2007 were as follows:

	SIX MONTHS ENDED JUNE 30						THREE MONTHS ENDED JUNE 30
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Branded/Generic medicine segment	2008			2007			2008			2007
Revenue from external customers	$	11,466,193		$	6,030,722		$	5,945,084		$	3,691,259
Cost of sales		(7,613,680	)		(3,772,866	)		(3,832,526	)		(2,316,634	)
Gross profit		3,852,513			2,257,856			2,112,558			1,374,625
Gross margin		34	%		37	%		36	%		37	%
Research and development		-			-			-			-
Selling expense		(773,483	)		(93,434	)		(558,832	)		(37,631	)
General and administrative expense		(520,480	)		(737,088	)		(78,647	)		(602,941	)
Segment contribution	$	2,558,550		$	1,427,334		$	1,475,079		$	734,053
Contribution margin		22	%		24	%		25	%		20	%
Total assets, segment	$	38,243,467		$	24,684,456		$	38,243,467		$	24,684,456

Active pharmaceutical ingredients segment	2008			2007			2008			2007
Revenue from external customers	$	580,332		$	-		$	579,984		$	-
Cost of sales		(638,529	)		(5,837	)		(638,529	)		(32	)
Gross profit		(58,197	)		(5,837			(58,545	)		(32	)
Gross margin		-10	%		-			-10	%		-
Research and development		-			-			-			-
Selling expense		(357	)		-			(357	)		3,011
General and administrative expense		(1,026,566	)		(15,774	)		(782,997	)		(44,541	)
Segment contribution	$	(1,085,120	)	$	(21,611	)	$	(841,899	)	$	(41,562
Contribution margin		-187	%		-			-145	%		-
Total assets, segment	$	8,436,445		$	4,891,813		$	8,436,445		$	4,891,813

Bulk chemicals segment	2008			2007			2008			2007
Revenue from external customers	$	-		$	698,519		$	-		$	14,054
Cost of sales		-			(386,956	)		-			(2,088	)
Gross profit		-			311,563			-			11,966
Gross margin		-			45	%		-			85	%
Research and development		-			-			-			-
Selling expense		-			(26,553	)		-			(144	)
General and administrative expense		(305,968	)		(760,246	)		(7,991	)		(669,682	)
Segment contribution	$	(305,968	)	$	(475,236	)	$	(7,991	)	$	(657,860	)
Contribution margin					-68	%		-			-4681	%
Total assets, segment	$	7,694,510		$	8,424,467		$	7,694,510		$	8,424,467

Pharynigitis killer therapy segment	2008			2007			2008			2007
Revenue from external customers	$	2,128		$	23,053		$	31		$	17,946
Cost of sales		(117	)		(1,187	)		(2	)		(880	)
Gross profit		2,011			21,866			29			17,066
Gross margin		95	%		95	%		94	%		95	%
Research and development		-			-			-			-
Selling expense		(2,654	)		(22,527	)		(1,955	)		(19,567	)
General and administrative expense		(20,227	)		(51,603	)		(7,910	)		(27,522	)
Segment contribution	$	(20,870	)	$	(52,264	)	$	(9,836	)	$	(30,023	)
Contribution margin		-981	%		-227	%		-31729	%		-167	%
Total assets, segment	$	108,332		$	117,492		$	108,332		$	117,492

Gendicine (Ad-p53) segment	2008			2007			2008			2007
Revenue from external customers	$	1,176,970		$	1,484,558		$	753,154		$	1,484,558
Cost of sales		(110,651	)		(169,268	)		(74,674	)		(169,268	)
Gross profit		1,066,319			1,315,290			678,480			1,315,290
Gross margin		91	%		89	%		90	%		89	%
Research and development		(169,781	)		(97,119	)		(147,717	)		(97,119	)
Selling expense		(654,718	)		(202,372	)		(433,697	)		(202,372	)
General and administrative expense		(485,340	)		(332,420	)		(175,183	)		(332,420	)
Segment contribution	$	(243,520	)	$	683,379		$	(78,117	)	$	683,379
Contribution margin		-21	%		-			-10	%		46	%
Total assets, segment	$	14,048,551		$	11,891,466		$	14,048,551		$	11,891,466

	TOTAL						TOTAL
	2008			2007			2008			2007
Total revenue from external customers	$	13,225,623		$	8,236,852		$	7,278,253		$	5,207,817
Cost of sales		(8,362,977	)		(4,336,114	)		(4,545,731	)		(2,488,902	)
Gross profit		4,862,646			3,900,738			2,732,522			2,718,915
Gross margin		37	%		47	%		38	%		52	%
Research and development		(169,781	)		(97,119	)		(147,717	)		(97,119	)
Selling expense		(1,431,212	)		(344,886	)		(994,841	)		(256,703	)
General and administrative expense		(2,358,581	)		(1,897,131	)		(1,052,728	)		(1,677,106	)
Segment contribution	$	903,072		$	1,561,602		$	537,236		$	687,987
Contribution margin		7	%		19	%		7	%		13	%
Total assets, segment	$	68,531,305		$	50,009,694		$	68,531,305		$	50,009,694

26

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

	SIX MONTHS ENDED JUNE 30						THREE MONTHS ENDED JUNE 30
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Total segment contribution	$	903,072		$	1,561,602		$	537,236		$	687,987
Unallocated amounts:
Loss on disposal of fixed assets					(14,931	)		-			(14,931	)
Other income		248,058			105,089			(53,635	)		104,152
Government subsidy		-			273,115			-			273,115
Other corporate expenses		(4,537,116	)		(9,706,741	)		(1,987,769	)		(9,411,826	)
Total income / (loss) before minority interest and income taxes	$	(3,385,986	)	$	(7,781,866	)	$	(1,504,168	)	$	(8,361,503	)

The other corporate expenses for the six months and three months ended June 30, 2008 and 2007 composed of the following events:

	SIX MONTHS ENDED JUNE 30				THREE MONTHS ENDED JUNE 30
	2008		2007		2008		2007
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Penalty to investor	$	1,113,405	$	120,000	$	391,200	$	-
Wages and salaries		192,675		1,199		40,910		-58,801
Audit and accounting		106,063		198,710		60,757		195,210
Amortization of debt issue cost		131,757		67,269		65,878		58,526
Consulting fee		371,960		7,882,416		191,460		7,882,416
Investor relation, transfer agent and filing fees		28,123		65,853		9,277		29,923
Director renumeration		140,468		33,945		29,595		33,945
Legal fee		76,675		39,379		45,051		4,284
Cash bonus		-		173,400		-		173,400
Travel and transportation		4,844		9,669		2		9,669
Office expense		1,120		2,297		-		-
Interest expense		2,340,580		1,066,406		1,128,298		1,048,821
Miscellaneous		29,446		46,198		25,341		34,433
Total	$	4,537,116	$	9,706,741	$	1,987,769	$	9,411,826

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

The following table shows the reconciliation between the segments assets and the total assets as of June 30, 2008 and 2007:

	June 30,		June 30,
	2008		2007
	(Unaudited)		(Unaudited)
Total assets, segment	$	68,531,305	$	50,009,694
Total assets of corporate:
Cash and cash equivalent		14,823		648,313
Bank indebtedness		1,296,941		-
Prepaid expesnes and deposit		8,391		2,716
Refundable purchase price paid		1,200,000		1,195,032
Due from related parties		876,729		-
Debit issue costs:
placement agent commission		196,188		461,931
Accumulative other comprehensive income		-		(45,922	)
Total assets	$	72,124,377	$	52,271,764

The following table shows how the minority interest for the six months ended June 30, 2008 and 2007 was derived:

				Six Months Ended June 30, 2008
	Benda			Jiangling			Yidu			Beijing
	Ebei			Benda			Benda			Shusai			SiBiono			Total
Segment operating profit / (loss)	$	2,558,550			(1,085,120	)		(305,968	)		(20,870	)		(243,520	)	$	903,072
Interest income/ (expenses)		(207,747	)		1,059			3			(8	)		(94,762	)		(301,455	)
Other income / (expenses)		(5,901	)		(207	)		1,964			6,748			245,454			248,058
Income taxes		(524,808	)		-			-			-			-			(524,808	)
Income / (loss) before minority interest	$	1,820,094			(1,084,268	)		(304,001	)		(14,130	)		(92,828	)	$	324,867
MI percentage		5.00	%		9.75	%		9.75	%		28.75	%		42.88	%
MI interest	$	91,005			(105,716	)		(29,640	)		(4,062	)		(39,801	)	$	(88,216	)
				Six Months Ended June 30, 2007
		Benda			Jiangling			Yidu			Beijing
		Ebei			Benda			Benda			Shusai			SiBiono			Total
Segment operating profit / (loss)	$	1,427,334			(21,611	)		(475,236	)		(52,264	)		683,379		$	1,561,602
Loss on disposal of assets		-			(9,833	)		(5,098	)		-			-			(14,931	)
Interest income/ (expenses)		8,626			168			(2,607	)		(22	)		(48,548	)		(42,383	)
Government subsidy														273,115			273,115
Other income / (expenses)		(2,743	)		(19,776	)		1,751			-			125,857			105,089
Income / (loss) before minority interest	$	1,433,217			(51,052	)		(481,190	)		(52,286	)		1,033,803		$	1,882,492
MI percentage		5.00	%		9.75	%		9.75	%		28.75	%		42.88	%
MI interest	$	71,661			(4,978	)		(46,916	)		(15,032	)		443,259		$	466,616

27

29. Subsequent Events

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

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

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

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

Note:

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

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

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

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

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

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

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

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

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

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

28

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

Critical Accounting Policies

Accounting policies discussed in this section are those that we consider to be most critical to an understanding of our financial statements because they inherently involve significant judgment and uncertainties.  For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Also see note 4, Summary of Significant Accounting Policies.

Revenue Recognition

Among the most important accounting policies affecting our consolidated financial statements is our policy of recognizing revenue in accordance with the SEC's Staff Accounting Bulletin ("SAB") No. 104. Under this policy, all of the following criteria must be met in order for us to recognize revenue:

         1.       Persuasive evidence of an arrangement exists;

         2.       Delivery has occurred or services have been rendered;

         3.       The seller's price to the buyer is fixed or determinable; and

         4.       Collectibility is reasonably assured.

The majority of the Company's revenue results from sales contracts with distributors and revenue is recorded upon the shipment of goods. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectibility. Based on these factors, the Company believes that it can apply the provisions of SAB 104 with minimal subjectivity.

Estimates Affecting Accounts Receivable and Inventories

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

As of June 30, 2008 and 2007, the Company provided a $1,800,863 and $1,410,338 respectively for the allowance of doubtful accounts against trade receivables, other receivables and prepaid and deposits. Management's estimate of the appropriate allowance on those accounts receivable for the reporting periods was based on the aged nature of these accounts. In making its judgment, management assessed its customers' ability to continue to pay their outstanding invoices and the collectibility of those accounts on a timely basis, and whether their financial position might deteriorate significantly in the future, which would result in their inability to pay their debts to the Company.

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

For the six months ended June 30, 2008 and 2007, the Company provided for a reserve against its work-in-progress amounting to $3,994,628 and 3,736,945, respectively.

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

29

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

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

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

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

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

After the acquisition with the effective date April 1, 2007, the same accounting treatment was adopted for the treatment of the provision of reserve on work-in-progress. As of June 30, 2008, the provision of reserve on work-in-progress was $3,994,628.

However, no reserve for obsolete, slow-moving or non-salable inventory was required for the reporting periods. Management determination of this allowance was based on potential impairments to the current carrying value of the inventories due to potential obsolescence of aged inventories. In making its estimate, management considered the probable demand for our products in the future and historical trends in the turnover of our inventories.

While the Company currently believes that there is little likelihood that actual results will differ materially from these current estimates.

Operational Results

Six months ended June 30, 2008 Compared to Six months ended June 30, 2007

The following table provides key components of our operational results for the six months ended June 30, 2008 and 2007 for Benda Pharmaceutical, Inc.

30

	June 30			June 30
	2008			2007
	(Unaudited)			(Unaudited)
Revenue	$	13,225,623		$	8,236,852
Cost of goods sold		(8,396,854	)		(4,336,114	)
Gross profit		4,828,769			3,900,738
Selling expenses		(1,431,212	)		(344,886	)
General and administravive expenses		(4,521,240	)		(10,537,466	)
Gains / (losses) on disposals of fixed assets		-			-
Research and development expenses		(169,781	)		(97,119	)
Total operating expenses		(6,122,233	)		(10,979,471	)
Operating income / (loss)		(1,293,464	)		(7,078,733	)
Interest expenses		(2,340,580	)		(1,066,406	)
Other income (expenses)		248,058			90,158
Government subsidies / grants		-			273,115
Income / (loss) before minority interest and income taxes		(3,385,986	)		(7,781,866	)
Income taxes		(524,808	)		-
Minority interest		88,216			(466,616	)
Net Income / (loss)	$	(3,822,578	)	$	(8,248,482	)
Earnings / (loss) per share - basic	$	(0.04	)	$	(0.09	)
Weighted average shares outstanding - basic		100,558,191			96,625,164
Earnings / (loss) per share - diluted	$	(0.04	)	$	(0.09	)
Weighted average shares outstanding - diluted		100,558,191			96,625,164

Net Revenue:

The Company has five core operating segments: Benda Ebei, Jiangling Benda, Yidu Benda, Beijing Shusai and SiBiono. Benda Ebei manufactures branded/generic medicines; Jiangling Benda manufactures active pharmaceutical ingredients (API); Yidu Benda manufactures bulk chemicals; Beijing Shusai operates and distributes Pharyngitis Killer Therapy; and SiBiono is a gene therapy company dedicated to the development, manufacturing and commercialization of gene therapy product, Gedicine.

Net revenue increased by $4.98 million (or 60.57%) to $13.23 million for the six months ended June 30, 2008, from $8.24 million for the six months ended June 30, 2007. Increase in revenue is principally attributed by the following factors:

1. One of the Benda’s subsidiary, Benda Ebei’s net revenue increased $5.44 million (or 90.13%) to $11.47 million for the six months ended June 30, 2008 from $6.03 million for the six months ended June 30, 2007. It was mainly due to the increase sales of the existing major products and the introduction of new products and they are shown in the table below:

	Six months ended June 30,				Variance		Variance
Products (Million)	2008		2007		+ / (-)		+ / (-) %
Ribavirin injection	$	0.22	$	0.08	$	0.14		163	%
Gentamycin 80 thousand unit Injection		0.20		0.03		0.17		637	%
Vatimin C,B1, B6, B12		0.53		0.25		0.29		115	%
Suzheng-B Injection		1.39		1.27		0.12		10	%
Jixuening Injection		0.99		0.88		0.12		13	%
Shusai-A Injection		1.38		0.54		0.84		156	%
Xujing		1.34		1.23		0.10		8	%
Yidingshu Injection		1.64		1.48		0.16		11	%
Huitening Injection		0.83		0.69		0.14		20	%
Anagin		0.13		-		0.13		100	%
Lincomycin Injection		0.49		-		0.49		100	%
Kanamycin Injection		0.26		-		0.26		100	%
Troxerutin Injection	$	0.09	$	-	$	0.09		100	%

31

2. One of the Benda’s subsidiary, Jiangling Benda which resumed its production in October 2007 and achieved $0.58 million for six month ended June 30, 2008.

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

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

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

Yidu Benda has completed its upgrading of the waster water system and passed the government’s verification and testing of equipments in October 2007. It is now permitted for the testing on actual production process. Once the actual products are produced, then the environmental government bodies will re-test the production results. The management could not estimate the exact timing for obtaining the final approval on the actual production process. Furthermore, the management is searching for new products to be produced in Yidu Benda which with higher profit margin.

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

5. One of the Benda’s subsidiary, SiBiono, acquired and effective since April 1, 2007, net revenue decreased $0.3 million (or 20.72%) to $1.18 million for the six months ended June 30, 2008 from $1.48 million for the six months ended June 30, 2007. The reason for the slightly dropped in net revenue is mainly due to the fact that SiBiono was underwent a process of re-engineering of the production department during the reporting period. With such re-engineering, the management believes that there would be rapid growth in the following quarters.

Cost of Goods Sold

Cost of goods sold increased $4.05 million (or 92.87%) to 8.39 million for the six month ended June 30, 2008 from $4.34 million for the six month ended June 30, 2007, primarily due to the corresponding increase in net revenue.

Gross Profit

Gross profit increased $0.93 million (or 24.66%) to $4.83 million for the six month ended June 30, 2008 from $3.9 million for the six month ended June 30, 2007, which was mainly due to the increase the sales volume of Benda Ebei as the net revenue of it increased sharply.

Selling Expenses:

Selling expenses increased $1.09 million (or 314.98%) to $1.43 million for the six month ended June 30, 2008 from $0.34 million for the six month ended June 30, 2007, primarily due to the promotional fees for Gendicine in SiBiono and the introductory new products in Benda Ebei.

General and Administrative Expenses:

General and administrative expenses decreased $6.02 million (or 58.57%) to $4.52 million for the six month ended June 30, 2008 from $10.54 million for the six month ended June 30, 2007. The difference was mainly due to the fact that: (1) a consulting and professional fee, $7.88 million was incurred as for the SiBiono’s acquisition which happened in the six month ended June 30, 2007 (please refer to Note 19 of Consolidated Financial Statements); (2) a penalty, $1.11 million, to investors as for registration delay expenses incurred in the six month ended June 30, 2008; while the penalty to investors was only about $0.12 million in the six month ended June 30, 2007.

Operating Income/ (Loss):

The Company experienced an operating loss of $1.29 million for the six month ended June 30, 2008 while the operating loss from comparative period for 2007 was $7.08 million which was mainly due to significant decrease in G&A expenses.

Interest Expenses:

Interest expenses increased to $2.34 million for the six month ended June 30, 2008 from $1.07 million for the three month ended June 30, 2007 primarily because of the financing cost associated with the issuance of convertible promissory note. In which $150,786 was incurred for the interest of the notes and $1,882,244 in interest expense related to the amortization of the debt discount associated with the Warrants and the debt discount associated with the beneficial conversion feature. (Please refer to Note 24 of the Notes to Consolidation Financial Statements for details).

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Income Taxes:

Benda is subject to Delaware, United State of America tax, but no provision for income taxes were made for the three months ended March 31, 2008 and 2007 as Benda did not have reportable taxable income for the period.

Ever Leader, a wholly owned subsidiary of Benda, is subject to Hong Kong tax, but no provisions for income taxes were made for the three months ended March 31, 2008 and 2007 as Ever Leader did not have reportable taxable income for the periods.

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

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

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

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

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

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

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

For the six month ended June 30, 2008, only Ebei Benda had taxable income and incurred income tax of Rmb 3.7 million or $0.52 million. There was no income tax of the Group for the six month ended June 30, 2007.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by the operating activities was negative $1.64 million for the three months ended March 31, 2008 while for the three months ended March 31, 2007 was negative $215K.

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

For the six month ended June 30, 2007, an amount about $10.64 million non-cash operating activities was reconciled back to the net income and which mainly included consulting and professional fee related to SiBiono’s acquisition, bad debt provision, amortization of intangible assets, depreciation, minority interest and amortization of debt discount and debt issue cost.

However, for the six month ended June 30, 2008, about $4.3 million of non-cash operating activities was reconciled back to the net income and summarized as follows:

1. $1.88 million that incurred as interest expenses related to the amortization of discount on long-term debt and issuance cost associated with the warrants and the beneficial conversion features (please refer to Note 24 of the Notes to Consolidated Financial Statements for details);

2. $230K that incurred as the penalty payment made in form of shares issuance to PIPE investors due to the late effective of the registered statement; and

3. Other factors: $774K incurred on bad debt provision; $903K incurred on depreciation; $374K incurred on amortization of intangible assets; and $132K incurred on amortization of debt issue cost.

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b) Trade receivables

The net changes of trade receivable was increased by $1.85 million as of six month ended June 30, 2008 resulting from the increment in net revenue in the first half of 2008. The management also noticed that the net balance of the trade receivable, as of June 30, 2008, was a significant asset to the company. However, the management believes that the above situation is temporarily due to the following reasons:

Trade receivables

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

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

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

Inventories

During the reporting period six month ended June 30, 2008, the net changes of inventories was about $1.3 million which was due to the increase of the purchase of raw materials in SiBiono and Benda Ebei which was incurred under the normal course of production.

For the six month ended June 30, 2007, an amount approximately $6.22 million was spent in the investing activities which were mainly used in the purchase of property and equipment and the payment of construction-in-progress. However, since most of the settlements were made in the year of 2007, thus the investing activities were relatively small in the six month ended June 30, 2008, only about $213K.

Financing cash inflow was $6.24 million for the reporting period six month ended June 30, 2007. The major event of it was a net amount $7.03 million was received from the issuance of convertible promissory notes. For the reporting period six month ended June 30, 2008, the financing cash inflow was $1.35 million. The major of it was a net amount $1.85 million was received from the commercial bank notes. (Please refer to the Note 11 of the Notes to Consolidated Financial Statements for the details)

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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

Item 4T.  Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Accounting Officer (“CAO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CAO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CAO, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Controls over Financial Reporting

Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of consolidated financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  There has been no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 The Company’s management, including the Company’s CEO and CAO, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of June 30, 2008.

This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this quarterly report. 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Arbitration

On November 23, 2006, Benda Ebei entered into an Equity Transfer Agreement with Xiaozhi Zhang (“Zhang”), to purchase approximately 6.24% of SiBiono’s common stock for a total consideration of Rmb12.48 million (Rmb6.24 million in cash and shares of our common stock equal to Rmb6.24 million) (or $1.71 million) which was due and payable on or before June 30, 2007.

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

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

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

1.

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

2.

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

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

Intellectual Property

On January 29, 2008, SiBiono entrusted Grandall Legal Group Shenzhen Law Firm to issue a legal letter to Zhaohui Peng, one of the shareholders of Sibiono and the inventor of Gendicine, requesting him to transfer all the title of patents to SiBiono.

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

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

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

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

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

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

On January 3, 2008, 110,000 shares were issued to the independent directors in lieu of their remuneration.

On May 1, 2008, 523,438 shares were issued to PIPE investors as penalty for registration delay expenses.

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Item 3. Defaults Upon Senior Securities.

None

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

None.

Item 5. Other Information.

None

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

(a)           Exhibits

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

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

(b)           Reports of Form 8-K  

On May 1, 2008, the Company filed a Form 8-K with the SEC disclosing a change in directors.

On June 19, 2008, the Company filed a Form 8-K with the SEC disclosing a change in directors.

On June 26, 2008, the Company filed a Form 8-K with the SEC disclosing a restatement of the Company’s audited financial statements for the year ended December 31, 2007 and the unaudited financial statements for the quarter ended March 31, 2008.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	BENDA PHARMACEUTICAL, INC.
	Registrant
Date: August 14, 2008	By: /s/ Yiqing Wan
	Yiqing Wan
	President, Chief Executive Officer
	Chairman of Board of Directors

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