Benda Pharmaceutical, Inc. - FORM 10-Q

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EX-31.1 - Benda Pharmaceutical, Inc.	v203300_ex31-1.htm
EX-32.1 - Benda Pharmaceutical, Inc.	v203300_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

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

For the transition period from ______to______.

BENDA PHARMACEUTICAL, INC.

(Exact name of registrant as specified in Charter

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

Taibei Mingju, 4th Floor,

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

(Address of Principal Executive Offices)

+86 (27) 85494916

(Issuer Telephone number)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

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

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

Yes ¨ No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 19, 2010: 105,155,355 shares of common stock.

BENDA PHARMACEUTICAL, INC.

FORM 10-Q

September 30, 2010

INDEX

PART I— FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4T.	Control and Procedures	22

PART II— OTHER INFORMATION

Item 1	Legal Proceedings	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	(Removed and Reserved)	26
Item 5.	Other Information	26
Item 6.	Exhibits	27

SIGNATURE		28

PART I—FINANCIAL INFORMATION

Item 1. Financial Information

Benda Pharmaceutical, Inc.

Consolidated Balance Sheets

	September 30, 2010			December 31, 2009
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	1,398,815		$	191,095
Trade receivables, net of allowance of doubtful accounts of $5,318,313 and $5,202,311, respectively		13,975,083			12,405,018
Advance for inventory purchase		2,149,960			2,110,857
Note receivables		-			81,426
Inventories		4,355,908			2,038,987
Due from related parties, short term		305,271			30,861
Prepaid expenses and other current assets		1,082,665			1,720,237
Total current assets		23,267,702			18,578,481

Due from related parties, long term		3,120,477			3,032,726
Property and equipments, net		28,645,233			28,658,131
Investment		119,760			-
Intangible assets, net		6,307,780			6,629,501
Restricted cash		4,762,897			4,409,334
Other assets		2,338,697			2,285,581
Total Assets	$	68,562,546		$	63,593,754

Liabilities & Shareholders' Equity
Current Liabilities
Accounts payable	$	1,672,332		$	902,079
Customer deposit		1,341,377			1,507,147
Other payable		4,453,474			4,547,558
Accrued liabilities		7,681,574			6,175,538
Convertible notes		7,260,000			7,260,000
Short-term debt		14,132,787			11,598,066
Accrued VAT and other taxes		709,132			795,013
Acquisition price payable		1,455,807			1,422,743
Wages payable		432,338			1,187,075
Due to related parties, short term		2,857,055			2,791,447
Redeemable common stock, 2,049,560 shares at $3.6 per share		7,376,366			7,376,366
Total current liabilities		49,372,242			45,563,032
Government grant payable		1,831,026			1,789,439
Due to related parties, long-term		120,949			118,202
Deferred tax liability		754,483			778,026
Total liabilities		52,078,700			48,248,699

Shareholders' Equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
None issued and outstanding		-			-
Common stock, $0.001 par value; 150,000,000 shares authorized; 105,155,355 shares issued and outstanding		105,155			105,155
Additional paid in capital		22,108,427			22,108,427
Accumulated deficit		(18,346,146	)		(17,481,559	)
Statutory surplus reserve fund		2,642,775			2,642,775
Accumulative other comprehensive income		8,218,466			6,268,111
Shares issuable for services		503,860			503,860
Total Benda Pharmaceutical, Inc.'s Shareholders' Equity		15,232,537			14,146,769
Noncontrolling Interest		1,251,309			1,198,286
Total Shareholders' Equity		16,483,846			15,345,055
Total Liabilities & Shareholders' Equity	$	68,562,546		$	63,593,754

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

Benda Pharmaceutical, Inc.

Consolidated Statements of Operations

(Unaudited)

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
				(Restated)						(Restated)
	2010			2009			2010			2009
Revenue	$	16,857,713		$	17,345,065		$	6,697,864		$	5,904,653
Cost of goods sold		(9,499,325	)		(9,770,370	)		(3,734,008	)		(3,071,291	)
Gross profit		7,358,388			7,574,695			2,963,856			2,833,362
Selling expenses		(1,786,412	)		(1,868,482	)		(421,395	)		(852,116	)
General and administrative expenses		(2,061,356	)		(5,230,595	)		(618,268	)		(1,208,938	)
Depreciation and amortization expenses		(1,268,299	)		(724,749	)		(451,329	)		(278,967	)
Research and development expenses		(1,154,203	)		(283,473	)		(388,921	)		(165,390	)
Total operating expenses		(6,270,270	)		(8,107,299	)		(1,879,913	)		(2,505,411	)
Operating income / (loss)		1,088,118			(532,604	)		1,083,943			327,951

Interest expense		(1,187,545	)		(2,104,510	)		(458,777	)		(471,263	)
Other income (expense)		(14,813	)		106,161			(3,248	)		60,385
Government subsidies		-			26,386			-			3
Net income (loss) before income taxes		(114,240	)		(2,504,567	)		621,918			(82,924	)
Income taxes		(654,921	)		(123,043	)		(338,326	)		(65,808	)
Net Income (Loss)		(769,161	)		(2,627,610	)		283,592			(148,732	)
Less: Net income (loss) attributable to the noncontrolling Interests		95,426			(166,068	)		46,004			64,824
Net income (loss) attributable to Benda Pharmaceutical, Inc.	$	(864,587	)	$	(2,461,542	)	$	237,588		$	(213,556	)

Other Comprehensive Income (Loss)
Foreign currency translation gain		1,907,952			-			1,750,042			461,784
Comprehensive Income (Loss)		1,138,791			(2,627,610	)		2,033,634			313,052
Comprehensive income (loss) attributable to the noncontrolling interest		53,023			(166,068	)		183,512			64,824
Comprehensive income (loss) attributable to Benda Pharmaceutical, Inc.	$	1,085,768		$	(2,461,542	)	$	1,850,122		$	248,228

Net earnings (loss) per share - basic and diluted
Net earnings (loss) attributable to Benda Pharmaceutical, Inc.	$	(0.01	)	$	(0.02	)	$	0.00		$	(0.00	)
Weighted average shares outstanding - basic and diluted		105,155,355			105,155,355			105,155,355			105,155,355

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

Benda Pharmaceutical, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	NINE MONTHS ENDED SEPTEMBER 30,
	2010			2009
				(Restated)
Cash Flows From Operating Activities
Net loss	$	(769,161	)	$	(2,627,610	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Loss on disposals of fixed assets		4,551			-
Bad debt provision		243,929			3,080,334
Inventory written down to net realizable value		-			196,628
Depreciation, including amounts in cost of sales		1,737,563			1,471,304
Amortization of intangible assets		442,467			528,501
Amortization of debt issuance costs		-			55,485
Amortization of convertible notes discount		-			864,049
Changes in operating assets and liabilities:
Trade receivables		(1,813,993	)		(2,435,969	)
Advance for inventory purchase		(39,103	)		(2,294,717	)
Prepaid expenses and other current assets		637,572			(1,015,785	)
Inventories		(2,316,921	)		(195,850	)
Accounts payable		2,276,288			2,860,986
Customer deposit		(165,770	)		-
Other payable		(116,029	)		-
Wages payable		(754,737	)		-
Accrued taxes		(109,424	)		396,142
Net cash provided by (used in) operating activities		(742,768	)		883,498

Cash Flows From Investing Activities
Investment in joint venture		(119,760	)		-
Purchases of property and equipment and construction-in-progress		(688,892	)		(455,488	)
Restricted cash		(353,563	)		-
Collection of notes receivable		81,426			154,691
Net cash used in investing activities		(1,080,789	)		(300,797	)

Cash Flows From Financing Actives
Proceeds and repayments of borrowings under related parties, net		(293,806	)		-
Proceeds and repayments of borrowings under short term debt		2,556,666			10,807
Net cash provided by (used in) financing activities		2,262,860			10,807
Effect of exchange rate changes on cash		768,417			303,761
Net increase in cash and cash equivalents		1,207,720			897,269

Cash and cash equivalents, beginning of period		191,095			584,266

Cash and cash equivalents, end of period	$	1,398,815		$	1,481,535

Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	99,312		$	298,139
Cash paid for income taxes	$	344,214		$	935,208

The accompany notes are an integral part of these consolidated financial statements

Benda Pharmaceutical, Inc.

Notes to Consolidated Financial Statements

1. Organization

Benda Pharmaceutical, Inc. (“Benda”) is a corporation organized under Delaware Law 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 Tongji 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 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 due and payable on or before April 30, 2007. On June 11, 2007, Benda Ebei entered into an Equity Transfer Agreement with Huimin Zhang and Yaojin Wang, the individual shareholders of SiBiono, to purchase 1.6% and 0.96% respectively of the shares of SiBiono’s common stock for total consideration of RMB 2.56 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 $8.58 million. As of Sep 30, 2010 an accumulated amount, approximately RMB 52.83 million or $7.16 million was paid leaving a balance of RMB 9.73 million or $1.42 million.

Benda, Ever Leader, Benda Ebei, Jiangling Benda, Yidu Benda, Beijing Shusai and SiBiono shall be referred to herein collectively as the “Company”. The Company 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).

The organization and ownership structure of the Company is as follows:

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company has recurring losses and has a working capital deficiency at September 30, 2010. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern.

While the Company is attempting to produce sufficient revenues, the Company’s cash position may not be enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taking to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurance to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

2. Basis of Preparation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2009 filed with the SEC on May 18, 2010. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the 2009 annual report on Form 10-K have been omitted.

These consolidated financial statements include the accounts of Benda, Ever Leader, Benda Ebei, Jiangling Benda, Yidu Benda, Beijing Shusai and Sibiono. All significant inter-company balances and transactions have been eliminated in the consolidation.

Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the presentation of the current year.

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.

3. Earnings per share

Basic earnings per share is computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially diluting securities outstanding during each period. At September 30, 2010, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted earnings per share.

4. Restatement

On May 12, 2010, the Company discovered that its financial statements for the year ended December 31, 2008 and 2007, and the quarterly periods within the year 2007 to 2009 should not be relied upon due to multiple errors found in the accounting treatment of a business combination transaction completed in March 2007 resulting in adjustment of assets and liabilities to fair market value. The Company also adjusted certain other assets and intangible assets due to errors in the accounting treatment of these assets resulting in additional expenses for the prior periods. To correct the above noted errors, the Company has restated the accompanying Consolidated Statements of Operations and Cash Flows for the three and nine months period ended September 30, 2009, and the notes to the consolidated financial statements. The impact to the September 30, 2009 Balance Sheet is not presented here. The following is a summary items affected by the corrections described above:

	NINE MONTHS ENDED SEPTEMBER 30, 2009
	As previously reported			Adjustments			As Restated

Revenue	$	17,345,065		$	-		$	17,345,065
Cost of goods sold		(9,770,370	)		-			(9,770,370	)
Gross profit		7,574,695			-			7,574,695
Selling expenses		(1,868,482	)		-			(1,868,482	)
General and administrative expenses
Bad debts		(3,080,334	)		-			(3,080,334	)
Depreciation and amortization expense		(688,730	)		(36,019	)		(724,749	)b
Inventory wirtten down to net realizable value		(196,628	)		-			(196,628	)
Other general and administrative expenses		(2,008,979	)		55,346			(1,953,633	)a
Research and development expenses		(283,473	)		-			(283,473	)
Total operating expenses		(8,126,626	)		19,327			(8,107,299	)
Operating loss		(551,931	)		19,327			(532,604	)
Other income (expenses)
Government subsidies / grants		26,386			-			26,386
Interest income		-			-			-
Interest expenses		(2,104,510	)		-			(2,104,510	)
Other income		106,161			-			106,161
Net loss before income taxes		(2,523,894	)		19,327			(2,504,567	)
Income taxes		(163,803	)		40,760			(123,043	)c
Net loss		(2,687,697	)		60,087			(2,627,610	)c
Less: Net loss attributable to the noncontrolling interests		(123,599	)		(42,469	)		(166,068	)c
Net loss attributable to Benda Pharmaceutical, Inc.	$	(2,564,098	)	$	102,556		$	(2,461,542	)
Other Comprehensive Loss
Foreign currency translation loss		-			-			-
Comprehensive Loss		(2,687,697	)		60,087			(2,627,610	)
Comprehensive loss attributable to the noncontrolling interest		(123,599	)		(42,469	)		(166,068	)c
Comprehensive loss attributable to Benda Pharmaceutical, Inc.	$	(2,564,098	)	$	(102,556	)	$	(2,461,542	)

Net loss per share - basic and diluted
Net loss attributable to Benda Pharmaceutical, Inc.	$	(0.02	)				$	(0.02	)
Weighted average shares outstanding - basic and diluted		105,155,355						105,155,355

Benda Pharmaceutical, Inc.

Consolidated Statements of Cash Flows

(unaudited)

	NINE MONTHS ENDED SEPTEMBER 30, 2009
	As previously reported			Adjustments			As Restated
Cash Flows From Operating Activities
Net loss	$	(2,687,697	)	$	60,087		$	(2,627,610	)c
Adjustments to reconcile net loss to net cash provided by operating activities:					-
Bad debt provision		3,080,334			-			3,080,334
Inventory written down to net realizable value		196,628			-			196,628
Depreciation, including amounts in cost of sales		1,471,304			-			1,471,304
Amortization of intangible assets		547,919			(19,418	)		528,501	b
Amortization of debt issuance costs		55,485			-			55,485
Amortization of convertible notes discount		864,049			-			864,049
Changes in operating assets and liabilities:
Trade receivables		(2,427,968	)		(8,001	)		(2,435,969	)d
Advance for inventory purchase		-			(2,294,717	)		(2,294,717	)d
Inventories		(195,850	)		-			(195,850	)
Prepaid expenses and other current assets		(1,578,837	)		563,052			(1,015,785	)d
Accounts payable		2,860,986			-			2,860,986
Accrued taxes		(991,582	)		1,387,724			396,142	d
Net cash provided by operating activities		1,194,771			(311,273	)		883,498
Cash Flows From Investing Activities					-
Collection of notes receivable					154,691			154,691	d
Purchases of property and equipment and construction-in-progress		(455,488	)		-			(455,488	)
Net cash used in investing activities		(455,488	)		154,691			(300,797	)
Cash Flows From Financing Actives
Proceeds and repayments of borrowings under short term debt		69,172			(58,365	)		10,807	d
Net cash used in financing activities		69,172			(58,365	)		10,807
Effect of exchange rate changes on cash		579			303,182			303,761	c
Net increase in cash and cash equivalents		809,034			88,235			897,269
Cash and cash equivalents, beginning of period		569,019			15,247			584,266	c
Cash and cash equivalents, end of period	$	1,378,053		$	103,482		$	1,481,535

a – These are minor reclassifications between G&A expense items.

b - When SiBiono was acquired at March 31, 2007, the assets and liabilities of SiBiono were not fair valued at March 31, 2007. The differences in these items are due to the difference between the fair value per valuation and book value at March 31, 2007.

c – The combination of other adjustments above.

d – Due to minor reclassifications between asset and liability items.

5. Inventories

The Company’s inventories were comprised as follows:

	September 30, 2010			December 31, 2009
Raw materials	$	2,685,169		$	489,348
Packing materials		294,151			290,601
Other materials / supplies		69,123			83,247
Finished goods		1,258,283			588,604
Work-in-process		58,659			596,449
Total inventories at cost		4,365,385			2,048,249

Less: Reserves on inventories		(9,477	)		(9,262	)

Total inventories, net	$	4,355,908		$	2,038,987

6. Short-term debt

The Company’s short term debt was comprised as follows:

	September 30, 2010		December 31, 2009
Ebei - one year bank loan due in October 2010 but paid off in September 2010, bear interest at 9% per annum, secured by Ebei Benda’s Machinery.	$	-	$	438,900

Ebei - one year bank loan due in September 2011, bear interest at 9% per annum, secured by Ebei Benda’s Machinery.	$	299,400	$	-

Ebei- bank acceptance notes from SHPudong Development Bank with redemption dates various from one to six months subsequent to period end, secured by buildings, machinery and equipment of Benda Ebei and Jiangling Benda.		9,112,538		8,160,503

Ebei - Five-month loan from Shenzhen Shourenben Enterprise Consulting (SZ) Co., Ltd. matured in May 2010, bearing monthly interest at 1% and unsecured. Loan is currently in default.		394,519		-

Sibiono - Three loans from Shourenben Enterprise Consulting (SZ) Co., Ltd. due in June 2011, bearing monthly interest at 1.5% and unsecured.		284,430		21,945

Sibiono- three-year bank loan due in April 2008 bearing annual interest at 6.366%. The loan was paid off in August 2010. See (a) below for more detail.		-		2,976,718	(a)

Sibiono- three-month loan from Yichang Shengshitongda Enterprises Ltd. due on November 20, 2010 bearing annual interest at 60% and unsecured.		3,742,500		-

Jiangling- One-year bank loan from Hubei Province Rural Credit due in April 2011, bearing annual interest at 7.2% and secured by a third party commercial loan guarantee company.		299,400		-
	$	14,132,787	$	11,598,066

(a) SiBiono – Bank Loan in default

At December 31, 2009, Sibiono, had an outstanding bank loan for the amount of $2,976,718, which was used primarily to fund construction in progress projects and for general working capital purposes. The loan carries annual interest rate of 6.366% and matured in April 2008. The loan is personally guaranteed by Zhaohui Peng, the former Chairman and a shareholder of SiBiono and is collateralized by Sibiono’s land use rights.

The loan is in default since the maturity date until August 2010 when the Company borrowed funds from Yichang Shengshitongda Enterprises, Ltd. and paid off the loan.

7. Related Party Transactions

Due from related parties at September 30, 2010 and December 31, 2009 were comprised as follows:

	Relationship	September 30, 2010		December 31, 2009
Current
Qin Yu	Vice president
Shenzhen SiBiono		$	1,517	$	2,024
Xiaoji Zhang	Minority shareholder
Shenzhen SiBiono			5,550		5,423
Hua Xu	General Manager's Sister
Shenzhen SiBiono			23,254		22,726
Rong He	Manager
Shenzhen SiBiono			-		688
Wei Xu	VP, CEO's Spouse & Director
Benda Ebei			274,950		-
		$	305,271	$	30,861
Non current
Yiqing Wan	CEO & Director
Ever Leader		$	650,091	$	646,586
Benda Ebei			565,707		520,712
Hubei Benda Science and Technology Co. Ltd	Controlled by CEO
Yidu Benda			1,640,204		1,602,950
Ever Leader			231,464		230,216
Feng Wang	Minority shareholder
Beijing Shusai			33,011		32,262
		$	3,120,477	$	3,032,726

The balance owned by the Yiqing Wan, CEO & Director, and the Company under his control, totaled $ 3,087,466 and $3,000,464 as of September 30, 2010 and December 31, 2009, respectively. This is a violation of Section 402 of the Sarbanes-Oxley Act of 2002 which prohibits personal loans to executives.

Due to related parties at September 30, 2010 and December 31, 2009 were comprised as follows:

	Relationship	September 30, 2010		December 31, 2009
Current
Wei Xu	VP, CEO's Spouse & Director
Shenzhen SiBiono		$	301,596	$	234,569
Everleader			1,434,205		1,356,172
BPMA			36,184		36,184
Hubei Benda Science and Technology Co. Ltd	Controlled by CEO
Benda Ebei			29,191		28,528
Jiangliang Benda			795,801		793,864
Beijing Shusai			14,439		14,111
SiBiono Zhongjia Gene Tech (SZ) Co., Ltd.	Associate company
Shenzhen SiBiono			-		103,948
Yiqing, Wan	CEO & Director
Shenzhen SiBiono			240,721		224,071
Pong, Tsiaohuei	Shareholder & Chairman
Shenzhen SiBiono			4,918		-
		$	2,857, 055	$	2,791,447
Non current
Wei Xu	VP, CEO's Spouse & Director
Benda Ebei		$	24,450	$	23,894
Beijing Shusai			66,857		65,339
Yiqing, Wan	CEO & Director
Yidu Benda			572		559
Hui Xu	Manager
Benda Ebei			29,070		28,410
		$	120,949	$	118,202

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

8. Equity Investment

Sibiono and North American Gene Diagnostics and Therapeutics Ltd. (HK) entered into a business agreement to set up Shenzhen Sibiono Zhongjia Gene Technology Ltd. (Zhongjia) during June 2009. The business license of the new joint entity was obtained in January 2010 and Sibiono made the capital contribution of approximately $119,000 (RMB 800,000) in February 2010. The new entity's legal representative is Mr. Wan, Yiqing. The registered capital is approximately $292,500 (RMB 2 million). Sibiono's share of the registered capital is 40% (RMB 800,000), the other party’s share is 60% (RMB 1.2 million).

Zhongjia did not have significant operations during the nine months period ended September 30, 2010.

9. Segment Information

The Company states the segment information according to the requirement stated in ASC 280-10-50. 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:

Benda Ebei produces conventional medicines which including branded and generic medicines;

Jiangling Benda produces active pharmaceutical ingredients, APIs;

Yidu Benda produces bulk chemicals;

Beijing Shusai produces pharyngitis killer therapy; and

SiBiono produces gene therapy medicines, Gendicine.

Since each subsidiary produces the corresponding products by using the production facilities of each subsidiary, therefore according to the requirement stated ASC 280-10-50, the Company reports the segment information according to the un-identical products that produced in each subsidiary.

Selected financial information for each of these segments for the nine and three months ended September 30, 2010 and 2009 were as follows:

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Branded/Generic medicine segment	2010			2009			2010			2009
Revenue from external customers	$	13,047,872		$	13,617,252		$	5,536,515		$	4,887,566
Cost of sales		(8,317,348	)		(8,600,569	)		(3,509,332	)		(3,051,518	)
Gross profit		4,730,524			5,016,683			2,027,183			1,836,047
Gross margin		36	%		37	%		37	%		38	%
Research and development		(1,026,023	)		-			(343,914	)		2,301
Selling expense		(1,028,714	)		(942,604	)		(194,692	)		(529,292	)
General and administrative expense		(727,140	)		(2,683,831	)		(210,913	)		(707,287	)
Segment contribution	$	1,948,647		$	1,390,248		$	1,277,664		$	601,770
Contribution margin		15	%		10	%		23	%		12	%
Total assets, segment	$	29,460,319		$	24,091,492		$	29,460,319		$	24,091,492

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Active pharmaceutical ingredients segment	2010			2009			2010			2009
Revenue from external customers	$	1,109,268		$	817,137		$	98,020		$	27,075
Cost of sales		(898,934	)		(901,431	)		(97,425	)		66,164
Gross profit		210,334			(84,294	)		595			93,238
Gross margin		19	%		-10	%		1	%		344	%
Research and development		-			(143	)		-			(70	)
Selling expense		(27,719	)		(16,576	)		(7,431	)		(1,851	)
General and administrative expense		(402,470	)		(526,094	)		(143,850	)		(205,085	)
Segment contribution	$	(219,855	)	$	(627,107	)	$	(150,686	)	$	(113,768	)
Contribution margin		-20	%		-77	%		-154	%		-420	%
Total assets, segment	$	13,530,958		$	12,541,258		$	13,530,958		$	12,541,258

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Bulk chemicals segment	2010			2009			2010			2009
Revenue from external customers	$	3,273		$	-		$	999		$	-
Cost of sales		-			-			-			-
Gross profit		3,273			-			999			-
Gross margin		100	%		0	%		100	%		0	%
Research and development		-			-			-			-
Selling expense		-			-			-			-
General and administrative expense		(438,336	)		(313,966	)		(146,455	)		(105,518	)
Segment contribution	$	(435,063	)	$	(313,966	)	$	(145,456	)	$	(105,518	)
Contribution margin		0	%		0	%		-14560	%		0	%
Total assets, segment	$	8,269,131		$	8,820,946		$	8,269,131		$	8,820,946

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Pharynigitis killer therapy segment	2010			2009			2010			2009
Revenue from external customers	$	147		$	-		$	147		$	-
Cost of sales		(8	)		-			(8	)		-
Gross profit		139			-			139			-
Gross margin		95	%		0	%		95	%		0	%
Research and development		-			-			-			-
Selling expense		-			(733	)		-			(733	)
General and administrative expense		(15,156	)		(19,609	)		(5,077	)		(5,134	)
Segment contribution	$	(15,017	)	$	(20,342	)	$	(4,938	)	$	(5,867	)
Contribution margin		0	%		0	%		0	%		0	%
Total assets, segment	$	74,648		$	92,931		$	74,648		$	92,931

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
Gendicine (Ad-p53) segment	2010			2009			2010			2009
Revenue from external customers	$	2,697,153		$	2,910,676		$	1,062,183		$	990,013
Cost of sales		(283,035	)		(268,370	)		(127,243	)		(85,937	)
Gross profit		2,414,118			2,642,306			934,940			904,076
Gross margin		90	%		91	%		88	%		91	%
Research and development		(128,180	)		(283,330	)		(45,007	)		(167,621	)
Selling expense		(729,979	)		(908,569	)		(219,272	)		(320,238	)
General and administrative expense		(926,274	)		(1,745,240	)		(329,993	)		(270,520	)
Segment contribution	$	629,685		$	(294,833	)	$	340,668		$	145,697
Contribution margin		23	%		0	%		32	%		15	%
Total assets, segment	$	15,751,458		$	15,193,562		$	15,751,458		$	15,193,562

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2010			2009			2010			2009
Total revenue from external customers	$	16,857,713		$	17,345,065		$	6,697,864		$	5,904,653
Cost of sales		(9,499,325	)		(9,770,370	)		(3,734,008	)		(3,071,291	)
Gross profit		7,358,388			7,574,695			2,963,856			2,833,362
Gross margin		44	%		44	%		44	%		48	%
Research and development		(1,154,203	)		(283,473	)		(388,921	)		(165,390	)
Selling expense		(1,786,412	)		(1,868,482	)		(421,395	)		(852,114	)
General and administrative expense		(2,509,376	)		(5,288,740	)		(836,288	)		(1,293,544	)
Segment contribution	$	1,908,397		$	134,000		$	1,317,252		$	522,314
Contribution margin		11	%		1	%		20	%		9	%
Total assets, segment	$	67,086,204		$	60,740,188		$	67,086,204		$	60,740,188

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

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2010			2009			2010			2009
Total segment contribution	$	1,908,397		$	134,000		$	1,317,252		$	522,314
Unallocated amounts:
Government subsidies / grants		-			26,386			-			4
Other income/(expenses)		(726,769	)		(230,771	)		(395,808	)		(108,601	)
Other corporate expenses		(1,295,868	)		(2,434,182	)		(299,526	)		(496,641	)
Total net loss before noncontrolling interest and income taxes	$	(114,240	)	$	(2,504,567	)	$	621,918		$	(82,924	)

The other corporate expenses per the above table for the nine and three months ended September 30, 2010 and 2009 composed of the following events:

	NINE MONTHS ENDED				THREE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2010		2009		2010		2009
Wages and salaries	$	195,000	$	283,817	$	65,000	$	88,802
Audit and accounting		62,997		74,995		27,091		24,999
Consulting fee		14,517		9,336		4,775		3,120
Investor relation, transfer agent and filing fees		-		2,720		-		-
Director renumeration		67,500		67,500		22,500		22,500
Legal fee		479,846		158,134		113,844		53,567
Taxes and levies		-		-		-		-
Interest expense		475,589		1,767,578		66,217		302,277
Miscellaneous		419		70,102		99		1,376
Total	$	1,295,868	$	2,434,182	$	299,526	$	496,641

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 for the nine and three months ended September 30, 2010 and 2009:

	NINE MONTHS ENDED				THREE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2010		2009		2010		2009
Total assets, segment	$	67,086,204	$	60,740,188	$	67,086,204	$	60,740,188

Total assets of corporate:
Cash and cash equivalent		11,662		12,168		11,662		12,168
Prepaid expense and deposit		232		-		232		-
Due from related parties		638,650		660,067		638,650		660,067
Construction-in-progress capitalized interest		825,798		-		825,798		-
Total assets	$	68,562,546	$	61,412,423	$	68,562,546	$	61,412,423

The following table shows how the non-controlling interest for the nine months ended September 30, 2010 and 2009 was derived:

	Nine Months Ended September 30, 2010
	Benda			Jiangling			Yidu			Beijing			Shenzhen
	Ebei			Benda			Benda			Shusai			SiBiono			Total
Segment operating profit / (loss)	$	1,948,647			(219,855	)		(435,063	)		(15,017	)		629,685		$	1,908,397
Interest income/ (expenses)		(304,197	)		(24,781	)		1			-			(382,979	)		(711,956	)
Other income / (expenses)		(73,037	)		(4,531	)		-			-			(9,972	)		(87,540	)
Income taxes		(695,820	)		-			-			(3	)		40,902			(654,921	)
Income / (loss) before non-controlling interest	$	875,593			(249,167	)		(435,062	)		(15,020	)		277,636		$	453,980

Non-controlling interest percentage		5.00	%		5.00	%		5.00	%		25.00	%		39.87	%
Non-controlling interest	$	22,699			(12,458	)		(21,753	)		(3,755	)		110,693		$	95,426

	Nine Months Ended September 30, 2009
	Benda			Jiangling			Yidu			Beijing			Shenzhen
	Ebei			Benda			Benda			Shusai			SiBiono			Total
Segment operating profit / (loss)	$	1,390,248			(627,107	)		(313,966	)		(20,342	)		(294,833	)	$	134,000
Interest income/ (expenses)		(186,293	)		(253	)		4			-			(150,390	)		(336,932	)
Other income / (expenses)		149,299			(175	)		2,968			-			118,697			270,789
Government subsidy		-			26,386			-			-			-			26,386
Income taxes		(163,803	)		-			-			-			40,760			(123,043	)
Income / (loss) before non-controlling interest	$	1,189,451			(601,149	)		(310,994	)		(20,342	)		(285,766	)	$	(28,800	)

Non-controlling interest percentage		5.00	%		5.00	%		5.00	%		25.00	%		39.87	%
Non-controlling interest	$	(1,440	)		(30,057	)		(15,550	)		(5,086	)		(113,935	)	$	(166,068	)

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

The following discussion and analysis should be read in conjunction with the information contained in the unaudited condensed consolidated financial statements of the Company and the related notes thereto, appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (“SEC”).

Forward Looking Information

This Quarterly Report on Form 10-Q (the “Report”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may”, " will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties, as noted in the Company’s Report on Form 10-K, filed with the SEC, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

Critical Accounting Policies

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

Revenue Recognition

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

Results of Operations

The Nine Months and Three Months Ended September 30, 2010 and 2009.

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.

Revenue decreased by $0.49 million (or 2.81%) to $16.86 million for the nine months ended September 30, 2010 from $17.35 million for the nine months ended September 30, 2009 and increased by $0.80 million (or 13.43%) to $6.70 million for the three months ended September 30, 2010 from $5.90 million for the three months ended September 30, 2009. Decrease in revenue principally attributed to the following factors:

One of Benda’s subsidiaries, Benda Ebei’s revenue decreased $0.57 million (or 4.19%) to $13.05 million for the nine months ended September 30, 2010 from $13.62 million for the nine months ended September 30, 2009 and increased by $0.65 million (or 13.29%) to $5.54 million for the three months ended September 30, 2010 from $4.89 million for the three months ended September 30, 2009. It was mainly due to maintenance activity during the three months ended September 30, 2010, no such activity in the same period during 2009.

2.	One of Benda’s subsidiaries, Jiangling Benda, achieved $1.11 million and $0.82 million for the nine months ended September 30, 2010 and 2009, and $0.098 million and $0.027 million for the three months ended September 30, 2010 and 2009, respectively.

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

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

3.	One of Benda’s subsidiaries, Yidu Benda ceased operations due to the plant closing in mid January 2007 to upgrade its waste water treatment system to comply with new environmental standards enforced by PRC local government.

Yidu Benda completed its upgrading of the waste water system and passed the government’s verification and testing of equipment 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. Management cannot estimate the exact timing for obtaining the final approval on the actual production process. Furthermore, management is searching for new products to be produced in Yidu Benda with higher profit margins.

One of Benda’s subsidiaries, Beijing Shusai was 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. Management cannot estimate that such situation could be resolved in the coming future.

One of Benda’s subsidiaries, SiBiono, net revenue decreased $0.21 million (or 7.34%) to $2.70 million for the nine months ended September 30, 2010 from $2.91 million the nine months ended September 30, 2009 and increased by $0.07 million (or 7.29%) to $1.06 million for the three months ended September 30, 2010 from $0.99 million for the three months ended September 30, 2009. The decrease in net revenue is mainly due to the fact that SiBiono previously underwent a process of re-engineering of the production department during the year of 2010.

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

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

Cost of Goods Sold

Cost of goods sold decreased $0.27 million (or 2.77%) to $9.50 million for the nine months ended September 30, 2010 from $9.77 million for the nine months ended September 30, 2009 and increased by $0.66 million (or 21.58%) to $3.73 million for the three months ended September 30, 2010 from $3.07 million for the three months ended September 30, 2009, primarily due to the decrease in sales volume and increase in raw material costs in Benda Ebei.

Gross Profit

Gross profit decreased $0.22 million (or 2.86%) to $7.36million for the nine months ended September 30, 2010 from $7.57 million for the nine months ended September 30, 2009 and increased by $0.13 million (or 4.61%) to $2.96 million for the three months ended September 30, 2010 from $2.83 million for the three months ended September 30, 2009, which was mainly due to the decrease in sales volume of Gendicine which has a high gross profit margin.

Selling Expenses:

Selling expenses decreased $0.08 million (or 4.39%) to $1.79 million for the nine months ended September 30, 2010 from $1.87 million the nine months ended September 30, 2010 and decreased by $0.43 million (or 50.55%) to $0.42 million for the three months ended September 30, 2010 from $0.85 million for the three months ended September 30, 2009, primarily due to the increased promotion efforts made by the management.

General and Administrative Expenses:

General and administrative decreased $3.17 million (or 60.59%) to $2.06 million for the nine months ended September 30, 2010 from $5.23 million for the nine months ended September 30, 2009 and decreased by $0.59 million (or 48.86%) to $0.62 million for the three months ended September 30, 2010 from $1.21 million for the three months ended September 30, 2009, primarily due to less bad debt expense incurred in 2010.

Operating Income / (Loss):

The Company had an operating income of $1.09 million for the nine months ended September 30, 2010 and $1.08 million for the three months ended September 30, 2010, while the operating loss from comparative period was $0.53 million for the nine months ended September 30, 2009 and an operating income of $0.33 million for the three months ended September 30, 2009.

Interest Expense:

Interest expense was $1.19 million and $2.10 million for the nine months ended September 30, 2010 and 2009 respectively, while interest expense was $0.46 million and $0.47 million for the three months ended September 30, 2010 and 2009 respectively. The decrease is mainly due to the amortization of debt discount related to the convertible note during the first quarter of 2009 while there was no such expense in the same period of 2010.

Income Taxes:

Benda is subject to Delaware, United State of America tax, but no provision for income taxes was made for the nine months ended September 30, 2010 and 2009 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 was made for the nine months ended September 30, 2010 and 2009 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.

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. 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 expire in 2010.

However, starting and effective from January 1, 2008, the full income tax rate changed from 33% to 25% according to the new PRC taxation regulations. Therefore these subsidiaries are 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	%

Benda Ebei recorded $695,820 income tax for the nine months ended September 30, 2010 and $352,033 income tax for the three months ended September 30, 2010.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by the operating activities was $0.74 million for the nine months ended September 30, 2010, while for the nine months ended September 30, 2009 was positive $0.88 million.

Non-cash operating activities, reconciliation items to net loss

For the nine months ended September 30, 2009, an amount about $6.20 million non-cash operating activities was reconciled back to the net loss and which mainly included amortization of debt discount and debt issue cost, bad debt provision, amortization of intangible assets, and depreciation.

However, for the nine months ended September 30, 2010, about $2.43 million of non-cash operating activities was reconciled back to the net loss and summarized as follows: $1.74 million incurred on depreciation; $0.24 million incurred on bad debt provision; and $0.44 million incurred on amortization of intangible assets.

Trade receivables

The net amount of trade receivable was increased by $1.81 million for the nine months ended September 30, 2010. Management acknowledges that the net balance of the trade receivable, as of September 30, 2010, was a significant asset to the company. However, management believes that the above situation is temporarily due to the following reasons:

Customers who have sales relationships with our company are all relatively big business wholesale enterprises and they have all passed the examination of GMP Certificate so that collectability from those is out of question;

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

For the nine months ended September 30, 2010 and 2009, the amount spent in investing activities were $1.08 million and $0.30 million respectively. The investing activities were relatively small for the reporting periods.

Financing cash inflow was $2.26 million for the nine months ended September 30, 2010, while the financing cash outflow was $0.01 million for the nine months ended September 30, 2009.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4T. Evaluation of Disclosure Controls and Procedures

a) Evaluation of Disclosure Controls. Our Chief Executive Officer and Chief Accounting Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of our first fiscal quarter 2010 pursuant to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on his evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2010 due the following factors:

1. There is a risk of management override given that our officers have a high degree of involvement in our day to day operations.

2. Significant errors were found in our prior years accounting treatments that require restatements of our prior years filed financial statements.

3. There is personal loan to executives which is a violation of Section 402 of the Sarbanes-Oxley Act of 2002

Management is currently evaluating remediation plans for the above control deficiencies.

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

(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting in 2010 as we implement our Sarbanes Oxley Act testing.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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:

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.

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

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

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.

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

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

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

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

A new method for manufacturing recombinant adenovirus

China

98123346.5

CN1228474A

ZL98123346.5

Peng

SiBiono

Date

1998/12/14

1999/9/15

2002/7/3

A recombinant constructed by a virus vector and a human tumor suppressor gene and its use

China

02115228.4

CN1401778A

ZL02115228.4

Peng / Zhang

Date

2002/5/8

2003/3/12

2004/11/24

PCT

(4)

WO2004/078987A1

Not Approved

Peng / Zhang

N/A

Date

2004/3/8

2004/9/16

N/A

Recombinant gene medicine of adenovirus vector and and gene p54 for treating proloferative diseases

China

03125129.3

CN1471977A

ZL03125129.3

Peng / Zhang

Date

2003/5/10

2004/2/4

2007/7/25

PCT

(4)

WO2004/104204A1

Not Approved

Peng / Zhang

N/A

Date

2004/5/9

2004/12/2

N/A

The application of recombinant adenoviral p53 as cancer vaccine (tentative title)

China

200510002779.1

CN1679641A

ZL200510002779.1

Peng / Zhang

Date

2005/1/26

2005/10/12

2007/8/29

PCT

(4)

WO2006/079244A1

Not Approved

Peng / Zhang

N/A

Date

2005/1/26

2006/8/3

N/A

(5)

11/075035

2005/0281785A1

Not Approved

Peng / Zhang

Unidentified Yet

N/A

Date

2005/3/7

2005/12/22

N/A

Human Embryonic Kidney (HEK) sub-clone cell line

China

03126889.7

CN1513985A

Not Approved

Peng / Zhang

N/A

Date

2003/6/13

2004/7/21

N/A

PCT

(4)

WO2004/111239

Not Approved

Peng / Zhang

N/A

Date

2004/5/9

2004/12/23

N/A

The complex of polypeptide liposome and human VGEF gene, and its use and human VGEF gene, and its use

China

02134321.7

CN1389269A

Not Approved

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.

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

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

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

On June 23, 2009, the Company filed an Affidavit in Opposition to Motion for Summary Judgment in Lieu of Complaint with the Court requesting that Plaintiff’s Motion be denied. On October 14, 2009, this motion was denied, and the court entered a judgment in favor of Pope in the amount of $5,520,000 plus interest.

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

On December 30, 2009, the Company was served with a Summons and Complaint filed by Pope Investments, LLC (“Pope”) in the Court of Chancery of the State of Delaware (the “Court”) against the Company and our officers and directors. Pope filed the Summons and Complaint as a judgment creditor and as a shareholder of the Company. Pope alleges that the assets and profits of our subsidiary company have been wrongfully diverted by our officers and directors and requests the appointment of a receiver to liquidate and wind down the business affairs of the Company. In connection with the filing of the Summons and Complaint, Pope has also filed a motion for a Preliminary Injunction Motion seeking to enjoin the Company and our officers and directors from taking any further actions to divert the corporate assets and profits of our subsidiary company and for expedited discovery proceedings. Pope further requests the imposition of a constructive trust, an accounting, damages for an alleged breach of fiduciary duty by the Company’s officers and directors, and attorney fees.

A hearing on the application of Pope Investments, LLC ("Pope") seeking the appointment of a receiver was held on March 29, 2010. The parties filed post-trial briefs on April 7, 2010. As of this date, the Court has not yet ruled on Pope's application. Since the hearing, the remaining defendants, including the Benda directors and officers named as defendants, have filed a motion to dismiss Pope's complaint against them. No date has yet been set for Pope's response to the motion or the parties' arguments to the Court on the motion.

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

None.

Item 3. Defaults Upon Senior Securities.

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

On June 23, 2009, we filed an Affidavit in Opposition to Motion for Summary Judgment in Lieu of Complaint with the Court requesting that Plaintiff’s Motion be denied. On October 14, 2009, this motion was denied, and the court entered a judgment in favor of Pope in the amount of $5,520,000 plus interest.

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

Item 4. (Removed and Reserved)

Item 5. Other Information.

On September 26, 2010, Jun Tang submitted a letter of resignation notifying us that he resigned from the position of Director of the Company, effective September 26, 2010. We accepted Mr. Tang’s resignation on Thursday, October 28, 2010. Mr. Tang’s resignation was due to personal reasons, and not the result of any disagreement with the Company or any officers or directors of the Company. Our Board of Directors has not yet appointed another individual to fill the position of Director.

Item 6. Exhibits

(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

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: November 22, 2010	By:	/s/ Yiqing Wan
		Yiqing Wan
		President, Chief Executive Officer, Chief Financial and Accounting Officer
		Chairman of Board of Directors

Attached files

Benda Pharmaceutical, Inc. Reports

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