CHINA BIOLOGIC PRODUCTS, INC.

(Name of small business issuer in its charter)

	China Biologic and Subsidiaries	China Biologic and Subsidiaries Fiscal Years Ended December 31
	September 30 2007 (unaudited)	2006	2005
		(audited)
	(USD)	(USD)	(USD)
Balance Sheet Data:
Cash and cash equivalents	6,123,713	4,268,220	607,376
Pledged bank deposit	-	-	1,860,000
Accounts receivable, net	2,405,173	3,775,387	2,200,138
Inventories	8,068,122	6,117,361	3,564,482
Other current assets	1,884,508	1,379,532	1,468,028
Total current assets	18,481,516	15,540,500	9,700,024
Property, plant and equipment, net	13,610,736	7,437,768	5,367,691
Intangible assets, net	920,083	718,011	438,237
Other non-current assets	1,445,395	778,364	175,577
Total assets	34,457,730	24,474,643	15,681,529
Short-term bank loans	1,334,000	2,564,000	3,720,000
Other current liabilities	7,544,753	6,235,316	8,388,787
Long term liabilities	400,200	641,000	1,302,001
Total liabilities	9,278,953	9,440,316	13,410,788
Minority Interests	3,977,258	2,308,487	1,693,597
Total shareholders' equity	21,125,926	12,725,840	577,144

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RISK FACTORS

The shares of our common stock being offered for resale by the selling stockholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock.  Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects.  If any of the following risks actually occurs, our business, financial condition or operating results will suffer, the trading price of our common stock could decline, and you may lose all or part of your investment.

RISKS RELATING TO OUR BUSINESS

If the State bans or limits plasma-based biopharmaceutical products, our operations, revenues and profitability would be adversely affected.

The principal raw materials of our existing and planned biopharmaceutical products is human source plasma, which, due to its unique nature, is subject to various quality and safety control issues which include, but are not limited to, contaminations and blood-born diseases.  In addition, limitations of current technology pose biological hazards inherent in plasma that have yet to be discovered which could result in a wide spread epidemic due to blood infusion.  The primary law that regulates plasma products in China is the PRC Pharmaceutical Law, the Implementation Rules on the PRC Pharmaceutical Law and the Regulations on the Administration of Blood Products.  These rules and regulations require entities producing blood products to strictly comply with certain hygienic standards and specifications promulgated by the State.  In the event that human plasma is discovered to be noncompliant with the State’s hygienic standards and specifications, the health department may revoke the registration and/or the approval of the blood product, or otherwise limit the use of such blood product. If the State bans or limits plasma-based biopharmaceutical products, our operations, revenues and profitability would be adversely affected.

If the plasma from Shandong Province are found to be contaminated, or the supply from these plasma stations becomes restricted, our operation, revenues and profitability would be adversely affected.

We currently source plasma mainly from human donations to our plasma stations in Shandong Province and Guangxi Province.  The largest plasma station, Qihe, in Shandong Province, accounted for approximately 39.2% and 60% of our total plasma purchased for the years December 31, 2006 and 2005, respectively.  If any of our human donors is infected with certain diseases, then the plasma from such donor may be infected.  If such contaminated plasma is not appropriately screened out, our entire plasma source may become contaminated.  If the plasma from these collection stations are found to be contaminated or the supply from these plasma stations becomes restricted, our operation, revenues and profitability would be adversely affected.

If we are unable to adequately monitor our plasma stations in Shandong Province and Guangxi Province our plasma supply may be tainted and we will be subject to sanctions by the government which would have a material adverse effect on our business.

As part of the industry reform initiative by the Chinese government, in 2006 we acquired the assets of five of the six existing plasma stations in Shandong and we received the permit to operate them in January 2007.  In April 2007, we acquired the assets of two additional plasma stations, obtained their necessary permits and commenced their operation in July and August 2007, respectively.   While we establish plasma processing procedures through processing agreements with our plasma stations and monitor our blood plasma intake procedures through frequent unscheduled inspections of our stations, there remains a risk that our blood supply may become tainted during the collection process.  Our blood supply may become tainted if we accept blood from donors whose blood do not meet the following criteria: negative HbsAg ⁽¹⁾ ; negative anti-HCV ⁽²⁾ ; negative anti-HIV ⁽³⁾ ; ALT ≤25 units (ALT) ⁽⁴⁾ ; negative reaction of serum to PCR ⁽⁵⁾ ; content of plasma protein ≥55g/l; no virus pollution; no visible erythrolysis ⁽⁶⁾ , no visible lipemia ⁽⁷⁾ , no visible macroscopic red blood cell; or no any other irregular finding.   We pre-screen all donors in order to ensure that this criteria is met. If our blood supply becomes tainted, the consequences for our business could be severe.  We could be subject to civil liability from suits brought by consumers and to criminal liability and loss of our registration if we are found by the government to have been negligent.

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__________________

(1)

HbsAg: A serologic marker on the surface of the hepatitis B virus.

(2)

HCV: Hepatitis C Virus.

(3)

HIV: Human Immunodeficiency Virus

(4)

ALT: Alanine Aminotransferase, an enzyme found primarily in the liver but indicates liver damage if found in the blood stream.

(5)

PCR: Polymerase Chain Reaction, an invitro amplifier of DNA.

(6)

Erythrolysis: Disruption of the integrity of the red cell membrane causing release of hemoglobin.

(7)

Lipemia : Presence of an abnormally high amount of lipid in the bloodstream.

Our operations, sales, profit and cash flow will be adversely affected if our albumin products fail inspection or are delayed by regulators.

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If the distributors who we rely on do not purchase our products, our business and results of operations will be adversely affected.

We sell all of our products in China through our network of about 281 distributors located in about 22 provinces and municipal cities throughout China. While we have established working relationships with many of our distributors and strictly regulate their sales and marketing activities by annual distribution agreements, there are no restrictions in these distribution agreements preventing our distributors from also supplying products produced by our competitors. Our own marketing and sales staff work to develop and maintain relationships with our distributors, but there can be no assurance that we will be able to maintain such relationships.  For the years ended December 31, 2006 and 2005, direct sales to distributors represented approximately 59.6% and 54%, respectively, of our total revenues.  If a number of our distributors cease to purchase our products and we are unable to find suitable replacement, our business and results of operations will be adversely affected.

Our inability to successfully research and develop new biological pharmaceutical products could have an adverse effect on our future growth.

We believe that the successful development of biological pharmaceutical products can be affected by many factors. Products that appear to be promising in the early phases of research and development may fail to be commercialized for various reasons, including the failure to obtain the necessary regulatory approvals.  In addition, the research and development cycles for new medicine for which we must obtain a Certificate of New Medicine from the PRC Ministry of Health, is a relatively lengthy process.  In our experience, the process of conducting research and various tests on new products before obtaining a Certificate of New Medicine and subsequent procedures may take approximately three to five years.  There is no assurance that our future research and development projects will be successful or that they will be completed within the anticipated time frame or budget.  Also, there is no guarantee that we will receive the necessary approvals from relevant authorities for the production of our newly developed products.  Even if such products could be successfully commercialized, there is no assurance that they will be accepted by the market as anticipated.

Our financial position and operations may be materially and adversely affected, if our product liability insurance does not sufficiently cover our liabilities.

Under current PRC laws, manufacturers and vendors of defective products in the PRC may incur liability for loss and injury caused by such products.  Pursuant to the General Principles of the Civil Law of the PRC or the PRC Civil Law, which became effective in 1987, a defective product which causes property damage or physical injury to any person may subject the manufacturer or vendor of such product to civil liability.

In 1993, the PRC promulgated the Product Quality Law of the PRC or the Product Quality Law, which was revised in 2000.  The Product Quality Law was enacted to protect the rights and interests of end-users and consumers and to strengthen the supervision and control of the quality of products.  Under the Product Quality Law, manufacturers who produce defective products may be subject to fines and required to cease production, and in severe cases, be subject to criminal liability and may have their business licenses revoked.

1n 1993, the Law of the PRC on the Protection of the Rights and Interests of Consumers or the Consumers’ Rights Law was promulgated to further protect the legal rights and interests of consumers in connection with the purchase or use of goods and services.  All businesses, including our business, must observe and comply with the Consumers’ Rights Law.

We maintain product liability insurance for sales in the PRC for all of our products in the amount of RMB20 million (approximately $2.7 million).  Although no one has filed any claims in relation to the use of our pharmaceutical products, our financial position and operations may be materially and adversely affected, if our insurance coverage is insufficient to cover a successful claim.  

We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.

Our success, to a certain extent, is attributable to the expertise and experience of our senior management and key research and technical personnel, including Stanley Wong, our Chief Executive Officer, Tung Lam, the Chief Executive Officer of Shandong Taibang, Dian Cong Liu, the Senior Technical Adviser of Shandong Taibang and Ya Wen Liu, the Sales Director of Shandong Taibang, continued growth of the biopharmaceutical market in the PRC, competition and government policies. If continued growth of who carry out key functions in our operation.  If we lose the service of any of our senior management or key research or technical personnel or fail to attract additional personnel with suitable experience and qualification, our business operations and research capability may be adversely affected.

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Our inability to successfully implement our business plans may adversely affect our profitability and prospects.

The successful implementation of our business plans and strategies, which include both organic and acquisition growth, depends on a number of factors including, among others, the biopharmaceutical market in the PRC.  If our business plans and strategies do not succeed as expected, our production capacity may be more than the market requires which would result in a downward pressure on the price of our products and affect our profit margin. On the other hand, if the magnitude of competition from domestic or foreign suppliers becomes more severe, either by relaxation of government policies allowing more competitors to enter into the market or by increased production by our current competitors, our market share could shrink which might exert a downward pressure on the price and volume of our products.   There is no assurance that our business plans and strategies can be implemented successfully as scheduled or at all.  Any failure or delay in the implementation of any or all of our plans may have an adverse effect on our profitability and prospects.

Our senior management and employees have worked together for a short period of time, which may make it difficult for you to evaluate their effectiveness and ability to address challenges.

Due to our limited operating history and recent additions to our management team, certain of our senior management and employees have worked together at our company for only a relatively short period of time.  Specifically, Stanley Wong, joined our Company as Chief Executive Officer in March 2007, Chao Ming Zhao became our Chief Financial Officer in November 2006 and Siu Ling Chan and Lin Ling Li became our directors in July 2006.  In addition, while Mr. Zhao, Ms. Chen and Ms. Lin were employed in various capacities by Logic Express and Shandong Taibang, Mr. Wong is a newcomer to our Company.  As a result of these circumstances, it may be difficult for you to evaluate the effectiveness of our senior management and other key employees and their ability to address future challenges to our business.

Future acquisitions may have an adverse effect on our ability to manage our business.

Selective acquisitions form part of our strategy to further expand our business.  If we are presented with appropriate opportunities, we may acquire additional companies, products or technologies. Future acquisitions and the subsequent integration of new companies into ours would require significant attention from our management. Our company has little experience with integrating newly acquired businesses.  Potential problems encountered by each organization during mergers and acquisitions would be unique, posing additional risks to the company.  The diversion of our management’s attention and any difficulties encountered in any integration process could have an adverse effect on our ability to manage our business.  Future acquisitions would expose us to potential risks, including risks associated with the assimilation of new operations, technologies and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, relationships with employees, customers and suppliers as a result of integration of new businesses.

We may lose our competitive advantage and our operations may suffer if we fail to prevent the loss or misappropriation of, or disputes over, our intellectual property.

None of our products are currently covered by patents, except for the trademark “Lu Yue” that has been licensed to us by the Shandong Institute for our use as in the labeling of human-use medicine, biopreparate and blood products, pursuant to a trademark license agreement, dated February 27, 2007.  We plan to apply for patents for our manufacturing processes.  The patent application will be subject to approval from the relevant PRC authorities. We may not be able to successfully obtain the approval of the PRC authorities for our patent applications.  Furthermore, third parties may assert claims to our proprietary procedures, technologies and systems. These proprietary procedures, technologies and systems are important to our business as they allow us to maintain our competitive edge over our competitors.

While we are not aware of any infringement on our intellectual property and we have not been notified by any third party that we are infringing on their intellectual property, our ability to compete successfully and to achieve future revenue growth will depend, in significant part, on our ability to protect our proprietary technology and operate without infringing upon the intellectual property rights of others.  The legal regime in China for the protection of intellectual property rights is still at its early stage of development. Intellectual property protection became a national effort in China in 1979 when China adopted its first statute on the protection of trademarks.  Since then, China has adopted its Patent Law, Trademark Law and Copyright Law and promulgated related regulations such as Regulation on Computer Software Protection, Regulation on the Protection of Layout Designs of Integrated Circuits and Regulation on Internet Domain Names.  China has also acceded to various international treaties and conventions in this area, such as the Paris Convention for the Protection of Industrial Property, Patent Cooperation Treaty, Madrid Agreement and its Protocol Concerning the International Registration of Marks.  In addition, when China became a party to the World Trade Organization in 2001, China amended many of its laws and regulations to comply with the Agreement on Trade-Related Aspects of Intellectual Property Rights.  Despite many laws and regulations promulgated and other efforts made by China over the years with a view to tightening up its regulation and protection of intellectual property rights, private parties may not enjoy intellectual property rights in China to the same extent as they would in many Western countries, including the United States, and enforcement of such laws and regulations in China have not achieved the levels reached in those countries.  Both the administrative agencies and the court system in China are not well-equipped to deal with violations or handle the nuances and complexities between compliant technological innovation and non-compliant infringement.

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We rely on confidentiality agreements with our management and employees to protect our confidential proprietary information.  However, the protection of our intellectual properties may be compromised as a result of:

• departure of any of our management members or employees in possession of our confidential proprietary information;

• breach by such departing management member or employee of his or her confidentiality and non-disclosure undertaking to us;

• infringement by others of our proprietary information and intellectual property rights; or

• refusal by relevant regulatory authorities to approve our patent or trademark applications.

Any of these events or occurrences may have a material adverse effect on our operations and the measures that we have put into place to protect our intellectual property rights may not be sufficient.  Litigation to enforce our intellectual property rights could result in substantial costs and may not be successful.  If we are not able to successfully defend our intellectual property rights, we might lose rights to technology that we need to conduct and develop our business.  This may seriously harm our business, operating results and financial condition, and enable our competitors to use our intellectual property to compete against us.

Furthermore, if third parties claim that our products infringe their patents or other intellectual property rights, we may be required to devote substantial resources to defend against such claims.  If we are unsuccessful in defending against such infringement claims, we may be required to pay damages, modify our products or suspend the production and sale of such products. We cannot guarantee that we will be able to modify our products on commercially reasonable terms.

A disruption in the supply of utilities, fire or other calamity at our manufacturing plant would disrupt production of our products and adversely affect our sales.

Our products are manufactured solely at our production facility located in Taian City, Shandong Province in the PRC.  While we have not in the past experienced any calamities which disrupted production, any disruption in the supply of utilities, in particular, electricity or power supply, or any outbreak of fire, flood or other calamity resulting in significant damage at our facilities would severely affect our production and have a material adverse effect on our business, financial condition and results of operations.

We maintain insurance policies covering losses with respect to damages to our properties and products. We do not have insurance coverage for machinery and inventories of raw materials. There is no assurance that our insurance would be sufficient to cover all of our potential losses.

15

Investor confidence and market price of our shares may be adversely impacted if we or our independent registered public accountants are unable to attest to the adequacy of the internal controls over our financial reporting as of December 31, 2007, as required by Section 404 of the U.S. Sarbanes-Oxley Act of 2002.

We will be subject to the reporting requirements of the U.S. Securities and Exchange Commission, or SEC, following the completion of this offering.  The SEC, as directed by Section 404 of the U.S. Sarbanes-Oxley Act of 2002, adopted rules requiring public companies, including us following the completion of this offering, to include a report of management of their internal control structure and procedures for financial reporting in their annual reports on Form 10-K that contains an assessment by management of the effectiveness of their internal controls over financial reporting.  In addition, independent registered public accountants of these public companies must attest to and report on management’s assessment of the effectiveness of their internal controls over financial reporting.  These requirements will first apply to our annual report on Form 10-KSB for the fiscal year ended on December 31, 2007, although the auditor attestation will not be required until our annual report on Form 10-KSB for the fiscal year ended on December 31, 2008.  Although we have not yet discovered any material weaknesses or significant deficiencies in our internal controls, our management may conclude that our internal controls over financial reporting are not effective.  Moreover, even if our management concludes otherwise, if our independent registered public accountants are not satisfied with our internal control structure and procedures, the level at which our internal controls are documented, designed, operated or reviewed, or if the independent registered public accountants interpret the requirements, rules or regulations differently from us, they may decline to attest to our management’s assessment or may issue a report that is qualified.  Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which could negatively impact the market price of our shares.  

There is a dispute between the former shareholders of Shandong Taibang that calls into question our ownership of 25% of our primary operating subsidiary, which if not resolved in our favor will adversely affect our business.

Mr. Zu Ying Du was one of the original equity holders in our operating subsidiary, Shandong Taibang.  Pursuant to a joint venture agreement, among the original equity holders, Mr. Du was obligated to make a capital contribution of RMB20 million (or approximately $2.6 million) for a 25% interest in Shandong Taibang.   Mr. Du made this contribution using funds borrowed from the Beijing Chen Da Technology Investment Company, or Beijing Chen Da.  Mr. Du failed to repay Beijing Chen Da for his loan of the capital contribution amount.  A Beijing Court found that Beijing Chen Da had given money to Mr. Du but found that the loan agreement failed to comply with Chinese law.   Subsequently, Beijing Chen Da entered into an equity transfer agreement with Mr. Du, pursuant to which Mr. Du’s 25% equity interest in Shandong Taibang  was transferred to Beijing Chen Da as repayment of the RMB20 million debt.  In June 10, 2005, Beijing Chen Da sold its equity interests in Shandong Taibang to Up-Wing Investments Limited, or Up-Wing, pursuant to a share transfer agreement, which became effective on September 2, 2005, upon approval by the Shandong Provincial Department of Foreign Trade and Economic Cooperation, or the Shandong COFTEC.  In March 2006, Up-Wing sold its equity interests in Shandong Taibang to Logic Express, our subsidiary.  Mr. Du challenges the validity of the equity transfer agreement with Beijing Chen Da and the subsequent share transfer to Up-Wing and sued his brother in Hubei province relating to this equity transfer agreement.  We do not have access to the court documents relating to this case.

In addition, Missile Engineering, another original equity holder wholly controlled by Mr. Du, was obligated to contribute RMB32.8 million (or $4.2 million) for a 41% interest in Shandong Taibang by means of cash, equipment and technical know-how.  It was obligated to obtain a certificate and license of its technical know-how from the State within a stipulated period in order to be recognized as a valid capital contribution, or in the alternative, make a cash payment.  The technical know-how was valued as RMB26.4 million (or approximately $3.4 million).  However, Missile Engineering failed to obtain the certificate and license within the stipulated period.  Pursuant to a stockholders resolution on September 26, 2004, Missile Engineering agreed to sell its 41% interest in Shandong Taibang to Up-Wing and Up-Wing agreed to take up the obligation of Missile Engineering to pay the RMB26.4 million in cash. In 2006, Missile Engineering applied for arbitration before the China International Economic and Trade Arbitration Commission, or CIETAC, to challenge the effectiveness of the transfer to Up-Wing Investments Limited, of the equity interests in Shandong Taibang formerly owned by Missile Engineering.  The equity transfer had been approved by the Shandong Provincial Department of Foreign Trade and Economic Cooperation, or the Shandong COFTEC.  Missile Engineering later voluntarily withdrew this application and instead applied to the Shandong COFTEC for administrative reconsideration of the equity transfer, but this application was rejected.  Thereafter, Missile Engineering commenced an administrative proceeding against the Shandong COFTEC alleging that it wrongfully approved the equity transfer.  However, according to Shandong COFTEC, the application to this administrative proceeding was voluntarily withdrawn by Missile Engineering during September 2007. We were also informed that Missile Engineering is in the process of applying to COFTEC for another administrative reconsideration of equity transfer.  We believe that all necessary approvals and documentation were obtained at the time of transfer and we have initiated legal action in China intending to restrain Missile Engineering from seeking to resolve the equity transfer issue, by means other than by arbitration, the agreed-upon method of conflict resolution at the time of the transfer.  If we are unable to enjoin Missile Engineering from its current course of action, we may be tied up in litigation which could distract our management and our expenses may significantly increase.  See “Legal Proceedings” for more details regarding this risk factor.

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RISKS RELATING TO OUR FINANCIAL CONDITION

Our 2007 actual financial performance could vary from the performance thresholds provided by our controlling stockholders under the make good arrangement with the investors in our private placement.  

Our majority stockholders, Siu Ling Chan and Lin Ling Li entered into a make good escrow agreement with the private placement investors, pursuant to which, Ms. Chan and Ms. Li agreed to deposit in an escrow account a total of 4,280,000 shares of our common stock owned by them, to be held for the benefit of the investors, to be released to the investors, pro rata, if we do not reach a threshold of at least $4,819,500 of after-tax net income or $5,823,465 of after-tax net income before minority interest for the fiscal year ending December 31, 2006 and $8,302,000 of after-tax net income or $10,031,416 of after-tax net income before minority interest for the fiscal year ending December 31, 2007.  The performance thresholds generally represent a current estimate of our financial performance and are forward-looking.   We have met our performance threshold for the fiscal year ending December 31, 2006 and so half of the shares in escrow are to be returned to our controlling stockholders.  However, events beyond our control, including but not limited to the risk factors set out in this section of the Prospectus, changes in the bases or rates of taxation applicable to us in the respective jurisdictions in which we operate, and force majeure events or unforeseeable factors, could adversely affect the results for 2007.  Actual results may be materially different from their estimate and thus the estimate by our controlling stockholders may not be reliable.  Should our 2007 actual performance not meet the revenue estimates and the performance thresholds, our share price will likely decrease due to loss of investor confidence in our management.  In addition, our controlling stockholders would be required to surrender the remaining 2,140,000 escrowed shares, representing 10% of our issued and outstanding shares.  A surrender of these shares would result in a significant decrease in ownership by our two controlling stockholders from 13,725,248 shares combined, or 64% of our issued and outstanding shares, to 11,585,248 shares combined, or 54% of our issued and outstanding shares.  This decrease in the percentage of controlling share ownership may impact our board composition, our management structure, and/or the operation of our business going forward.

There is no assurance that we will be able to maintain or increase historical levels of profitability.

Competing or potential substitute products, produced locally in the PRC or imported by overseas manufacturers, may adversely affect the demand for, and pricing of, our products. Many of our biopharmaceutical products are also subject to pricing controls by the relevant State and provincial pricing authorities, which set the maximum retail sales prices for the relevant medicines in the PRC, and therefore we do not have absolute control to maximize our profits in relation to such products. These factors may at the same time restrict our ability to maintain profitability when faced with fluctuations in supply and prices of key raw materials used for the production of our products.  Investors should be aware that there is no assurance that we will be able to increase or maintain our historical revenue or profit levels.

Our cash flow could be negatively affected as a result of our extension of relatively long payment terms to customers that we believe are credit worthy.

As is customary in our industry, we extend relatively long payment terms (up to six months) to customers that we believe are credit worthy.  The dollar amount of our accounts receivable and the amount of our allowance for doubtful accounts as of September 30, 2007 was $3,582,266 and $1,177,093, respectively.  There are no bad debt expense for the nine months ended September 30, 2007 and fiscal year 2006.  Although we attempt to establish appropriate reserves for our receivables, those reserves may not prove to be adequate in view of actual levels of bad debts. The failure of our customers to pay us timely would negatively affect our working capital, which could in turn adversely affect our cash flow.  

17

Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.

We have a limited operating history.  Shandong Taibang as began its operation in October 2002.  With the rapid growth of the industry, it has experienced a high growth rate since 2002.  Furthermore, we did not acquire a controlling interest in Shandong Taibang until September 2005.  As such, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects.  We may not be able to achieve a similar growth rate in future periods.  Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance.

We face risks associated with debt financing (including exposure to variation in interest rates).

Our total outstanding indebtedness, entirely comprising of short-term loans, as of September 30, 2007 and December 31, 2006 was $1.33 million and $2.56 million, respectively.  The interest rates on these short-term loans are fixed and from 5.85% to 6.14% per annum.  Our obligations under our existing loans have been mainly met through the cash flow from our operations and our financing activities.  We are subject to risks normally associated with debt financing, including the risk of significant increase in interest rates and the risk that our cash flow will be insufficient to meet required payment of principal and interest.  In the past, cash flow from operations had been sufficient to meet payment obligations and/or we have been able to roll over our borrowings.  There is however no assurance that we will be able to do so in the future. We may also underestimate our capital requirements and other expenditures or overestimate our future cash flows.  In such event, additional capital, debt or other forms of financing may be required for our working capital.  If any of the aforesaid events occur and we are unable for any reason to raise additional capital, debt or other financing to meet our working capital requirements, our business, operating results, liquidity and financial position will be adversely affected.

We will incur capital expenditures in the future in connection with our growth plans and therefore may require additional financing.

To grow our sales volume, we need to increase our production capacities and this will require substantial capital expenditures.  We anticipate that our capital expenditure for the next 12 months will be approximately $1.6 million.  Such expenditures are likely to be incurred in advance of any increase in sales.  Our revenue may not increase after these capital expenditures are incurred.  This will depend on, among other factors, on our ability to maintain or achieve high capacity utilization rates.  Any failure to increase our revenue after incurring capital expenditure to expand production capacity will reduce our profitability.

We may need to obtain additional debut or equity financing which may result in dilution to our shareholders and have a material adverse economic effect on our business.

We may need to obtain additional debt or equity financing to fund our capital expenditures.  Additional equity financing may result in dilution to our shareholders.  Additional debt financing may be required, which, if obtained, may:

• limit our ability to pay dividends or require us to seek consents for the payment of dividends;

• increase our vulnerability to general adverse economic and industry conditions;

• limit our ability to pursue our growth plan;

• require us to dedicate a substantial portion of our cash flow from operations as payment for our debt, thereby reducing availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; and/or

• limit our flexibility in planning for, or reacting to, changes in our business and our industry.

We cannot assure you that we will be able to obtain the additional financing on terms that are acceptable to us.

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RISKS RELATING TO OUR INDUSTRY

If our supply of quality plasma is interrupted, our results of operations and profitability will be adversely affected.

The production of plasma-based biopharmaceutical products relies on the supply of plasma of suitable quality.  For the year ended December 31, 2006 and 2005, the cost of plasma used by us for production accounted for approximately 74% and 68%, respectively, of total production cost.  The supply and market prices of plasma may be adversely affected by factors such as regulatory restrictions, weather conditions or outbreak of diseases which would impact our costs of production.  We may not be able to pass on any resulting increase in costs to our customers and therefore any substantial fluctuation in supply or market prices of plasma may adversely affect our results of operations and profitability.

The biopharmaceutical industry in the PRC is strictly regulated and changes in such regulations may have an adverse effect on our business.

The biopharmaceutical industry in the PRC is strictly regulated by the State.  The regulatory regime, such as administrative approval of medicines and production approvals, comprises of series of regulations and administrative rules. The PRC regulatory authorities may amend such regulations and administrative rules and promulgate new regulations and administrative rules from time to time.  Changes in these regulations and administrative rules could have a significant impact on our business.  Such changes may have any adverse impact on our business.

We may not be able to carry on our business if we lose any of the permits and licenses required by the PRC Government in order to carry on our business.

All pharmaceutical manufacturing and distribution enterprises in the PRC are required to obtain from various PRC governmental authorities certain permits and licenses, including, in the case of manufacturing enterprises, a Pharmaceutical Manufacturing Permit and, in the case of distribution enterprises, a Pharmaceutical Distribution Permit.

We have obtained permits and licenses and the GMP certificates, required for the manufacture of our pharmaceutical products.  These permits and licenses held by us are subject to periodic renewal and/or reassessment by the relevant PRC Government authorities and the standards of compliance required in relation thereto may from time to time be subject to changes. We intend to apply for the renewal of such permits and licenses when required by applicable laws and regulations. Any changes in compliance standards, or any new laws or regulations that may prohibit or render it more restrictive for us to conduct our business or increase our compliance costs may adversely affect our operations or profitability.  Any failure by us to obtain such renewals may have a material adverse effect on the operation of our business. In addition, we may not be able to carry on business without such permits and business licenses being renewed.

We may encounter increased competition from both local and overseas pharmaceutical enterprises which could adversely affect our revenues.

There are both local and overseas pharmaceutical enterprises that are engaged in the manufacture and sale of potential substitute or similar biopharmaceutical products as our products in the PRC.  These competitors may have more capital, better research and development resources, manufacturing and marketing capability and experience than us.  Our profitability may be adversely affected if (i) competition intensifies; (ii) competitors drastically reduce prices; or (iii) competitors develop new products or product substitutes having comparable medicinal applications or therapeutic effects which are more effective and /or less costly than those produced by us.  

Other approved biopharmaceutical manufacturers in the PRC are entitled to produce many of the products produced by us.  There are currently about 34 approved manufacturers of plasma-based pharmaceutical products in China.  Many of these manufacturers are essentially producing the same type of products, human albumin and various types of immunoglobulin.  Although we believe that it is difficult for new manufacturers to enter into the industry, if other manufacturers obtain approval from the regulators, we may face competition and our business and profitability may be adversely affected.  We believe that our major competitors in the albumin and immunoglobulin market in China are Hualan Biological Engineering, Shanghai Institute of Biological Products, Shanghai RAAS Blood Products Co. Ltd., Chengdu Ronsheng Pharmaceuticals, and Sichuan Yuanda Shuyang Pharmaceutical Co.

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Competition from imported products and China’s admission as a member of the WTO creates increased competition for us.  The PRC became a member of the WTO in December 2001. Competition in the biopharmaceutical industry in the PRC will intensify generally in two respects.  With lower import tariffs, we anticipate that imported biopharmaceutical products manufactured overseas may become increasingly competitive with domestically produced products in terms of pricing.  We also believe that foreign biopharmaceutical manufacturers with more experience may set up production facilities in the PRC and compete with domestic manufacturers directly.  Accordingly, with the expected increased supply of competitively priced biopharmaceutical products in the PRC we may be faced with increased competition by foreign biopharmaceutical products, including the types of products manufactured by US manufacturers and other manufacturers.

If we do not receive PRC governmental approval to increase the retail prices of certain of our biopharmaceutical products our revenues may be adversely affected.

Retail prices of certain of our biopharmaceutical products in the PRC are subject to the control of the relevant State and provincial price administration authorities. The actual price for any given price-controlled product set by manufacturers, wholesalers and retailers cannot exceed the price ceiling imposed in accordance with the applicable government price control rules. Only those pharmaceutical products which are included in the Insurance Catalogue administered at the State or provincial level are subject to price control.

Our three principal product categories, human albumin, human immunoglobulin for intravenous injections and human tetanus immunoglobulin, which accounted for a total of approximately 83% and 90% of our total revenues for the year ended December 31, 2006 and 2005, respectively, were subject to national price control regulations in the PRC.  Hence, the prices of those products could not be increased at our discretion above the relevant controlled retail price ceiling without prior governmental approval.  This, in turn, may affect the ex-factory prices set by us for our products and we therefore do not have unfettered freedom to maximize our profits.  It is uncertain whether we will be able to obtain necessary approvals to increase the price of any of our products.

RISKS RELATING TO DOING BUSINESS IN CHINA

Substantially all of our assets are located in, and substantially all of our revenue is sourced from the PRC. Accordingly, our results of operations, financial position and prospects are subject to a significant degree to the economic, political and legal developments of the PRC.
 

Changes in China's political or economic situation could harm us and our operating results.

Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time.  This could either benefit or damage our operations and profitability.  Some of the things that could have this effect are:

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Level of government involvement in the economy;

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Control of foreign exchange;

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Methods of allocating resources;

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Balance of payments position;

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International trade restrictions; and

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International conflict.

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways.  For example, state-owned enterprises still constitute a large portion of the Chinese economy and weak corporate governance and a lack of flexible currency exchange policy still prevail in China.  As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy was similar to those of the OECD member countries.

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Our business is largely subject to the uncertain legal environment in China and your legal protection could be limited.

The Chinese legal system is a civil law system based on written statutes.  Unlike common law systems, it is a system in which precedents set in earlier legal cases are not generally used.  The overall effect of legislation enacted over the past 20 years has been to enhance the legal protections afforded to foreign invested enterprises in China.  However, these laws, regulations and legal requirements are relatively recent and are evolving rapidly, and their interpretation and enforcement involve uncertainties.  These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold licenses and permits such as requisite business licenses.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.

China only recently has permitted provincial and local economic autonomy and private economic activities.  The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership.  Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters.  We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements.  However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Future inflation in China may inhibit our ability to conduct business in China.

In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation.  During the past ten years, the rate of inflation in China has been as high as 20.7% and as low as -2.2%.  These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation.  High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

The majority of our revenues will be settled in Renminbi and U.S. dollars, and any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund any future business activities outside China or to make dividend or other payments in U.S. dollars.  Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi.

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Our primary source of funds of dividends and other distributions from our operating subsidiary in China is subject to various legal and contractual restrictions and uncertainties, and our ability to pay dividends or make other distributions to our shareholders are negatively affected by those restrictions and uncertainties.

We are a holding company established in Delaware and conduct our core business operations through our principal operating subsidiary, Shandong Taibang, in China.  As a result, our profits available for distribution to our shareholders are dependent on the profits available for distribution from Shandong Taibang.  If Shandong Taibang incurs debt on its own behalf, the debt instruments may restrict its ability to pay dividends or make other distributions, which in turn would limit our ability to pay dividends on our shares.  Under the current PRC laws, because we are incorporated in the Delaware, our PRC subsidiary, Shandong Taibang, is regarded as a sino-foreign joint venture enterprise in China.  Although dividends paid by foreign invested enterprises, such as wholly foreign-owned enterprises and sino-foreign joint ventures, are not subject to any PRC corporate withholding tax, the PRC laws permit payment of dividends only out of net income as determined in accordance with PRC accounting standards and regulations.  Determination of net income under PRC accounting standards and regulations may differ from determination under U.S. GAAP in significant aspects, such as the use of different principles for recognition of revenues and expenses.  In addition, if we make additional capital contributions to our PRC subsidiary, Shandong Taibang (which may occur through the capitalization of undistributed profits), then additional approval of the PRC government would be required due to an increase in our registered capital and total investment in Shandong Taibang.  Under the PRC laws, Shandong Taibang, a sino-foreign joint venture enterprise, is required to set aside a portion of its net income each year to fund designated statutory reserve funds.  These reserves are not distributable as cash dividends.  As a result, our primary internal source of funds of dividend payments from Shandong Taibang is subject to these and other legal and contractual restrictions and uncertainties, which in turn may limit or impair our ability to pay dividends to our shareholders.  Moreover, any transfer of funds from us to Shandong Taibang, either as a shareholder loan or as an increase in registered capital, is subject to registration with or approval by PRC governmental authorities.  For the nine months ended September 30, 2007 and year ended December 31, 2006, we have set aside $1.1million  and $0.8 million, respectively to fund the statutory reserve by Shandong Taibang.  In addition, as of September 30, 2007, Shandong Taibang could only legally distribute approximately $3.5 million to its parent companies, after taking into account the cost of meeting of its working capital.  These limitations on the flow of funds between us and Shandong Taibang could restrict our ability to act in response to changing market conditions. We currently do not intend on paying any dividends in the future and expect to retain all available funds to support our operations and to finance growth and development of our business. We have never declared dividends or paid cash dividends.  Our board of directors will make any future decisions regarding dividends.  We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the near future.  Therefore, any gains on an investment in our common stock will likely occur through an increase in our stock price, which may or may not occur.

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Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.

In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (1) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; (2) adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity; (i) covering the use of existing offshore entities for offshore financings; (3) purporting to cover situations in which an offshore SPV establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (4) making the domestic affiliate of the SPV responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore SPV jointly responsible for these filings. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

We believe our stockholders who are PRC residents as defined in Circular 75 have registered with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries.  However, we cannot provide any assurances that their existing registrations have fully complied with, and they have made all necessary amendments to their registration to fully comply with, all applicable registrations or approvals required by Circular 75.  Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies.  For example, our present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders.  In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75.  We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures.  A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

The value of our securities will be affected by the currency exchange rate between U.S. dollars and RMB.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and RMB, and between those currencies and other currencies in which our sales may be denominated.  For example, if we need to convert U.S. dollars into RMB for our operational needs and the RMB appreciates against the U.S. dollar at that time, our financial position, our business, and the price of our common stock may be harmed.  Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.

Our procurement strategy is to diversify our suppliers both in the PRC and overseas.  And some of our raw materials and major equipments are currently imported.  These transactions are often settled in U.S. dollars or other foreign currency.  In the event that the U.S. dollars or other foreign currency appreciate against RMB, our costs will increase.  If we cannot pass the resulted cost increase to our customers, our profitability and operating results will suffer.  In addition, because our sales to international customers are growing, we are subject to the risk of foreign currency depreciation.

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If the China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency, determines that CSRC approval is required in connection with this offering, this offering may be delayed or cancelled, or we may become subject to penalties.

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006. This new regulation, among other things, has certain provisions that require SPVs formed for the purpose of acquiring PRC domestic companies and controlled by PRC individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock market.  However, the new regulation does not expressly provide that approval from the CSRC is required for the offshore listing of a SPV which acquires, directly or indirectly, equity interest or shares of domestic PRC entities held by domestic companies or individuals by cash payment, nor does it expressly provide that approval from CSRC is not required for the offshore listing of a SPV which has fully completed its acquisition of equity interest of domestic PRC equity prior to September 8, 2006.  On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval.  It is not clear whether the provisions in the new regulation regarding the offshore listing and trading of the securities of a SPV applies to an offshore company such as us which has acquired the equity interest of PRC domestic entities in cash and has completed the acquisition of the equity interest of PRC domestic entities prior to the effective date of the new regulation.  Since the new regulation has only recently been adopted, there remains some uncertainty as to how this regulation will be interpreted or implemented.  Although the CSRC or another PRC regulatory agency has not determined that CSRC approval is required for this offering, if the CSRC or another PRC regulatory agency subsequently determines that the CSRC’s approval is required, we may face sanctions by the CSRC or another PRC regulatory agency. If this happens, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to delay or cancel this offering before settlement and delivery of the shares being offered by us.

New corporate income tax law could adversely affect our business and our net income.

On March 16, 2007, National People's Congress passed a new corporate income tax law, which will be effective on January 1, 2008.  This new corporate income tax unifies the corporate income tax rate, cost deductions and tax incentive policies for both domestic and foreign-invested enterprises in China.  According to the new corporate income tax law, the applicable corporate income tax rate of our Chinese subsidiaries will incrementally increase to 25% over a five-year period.  We are expecting that the rules for implementation would be enacted by the Chinese government in the coming months.  After the rules are enacted, we can better assess what the impact of the new unified tax law would be over this period.  The discontinuation of any special or preferential tax treatment or other incentives could adversely affect our business and our net income.

We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business.  We have operations, agreements with third parties and we make sales in China.  Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents or distributors of our Company, even though they may not always be subject to our control.  It is our policy to implement safeguards to discourage these practices by our employees.  However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible.  Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

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RISKS RELATING TO OUR COMMON STOCK

There is not now, and there may not ever be, an active market for our common stock.

There currently is no market for our common stock.  Further, although our common stock may be quoted in the over-the-counter market maintained by the Pink Sheets, LLC, trading of our common stock may be extremely sporadic.  For example, several days may pass before any shares may be traded.  A more active market for the common stock may never develop.  

We cannot assure you that the common stock will become liquid or that it will be listed on a securities exchange .

We plan to list our common stock as soon as practicable.  However, we cannot assure you that we will be able to meet the initial listing standards of any stock exchange, or that we will be able to maintain any such listing.  Until the common stock is listed on an exchange, we expect that it would be eligible to be quoted in the “pink sheets.”  In this venue, however, an investor may find it difficult to obtain accurate quotations as to the market value of the common stock.  In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors.  Consequently, such regulations may deter broker-dealers from recommending or selling the common stock, which may further affect its liquidity.  This would also make it more difficult for us to raise additional capital.

We are subject to penny stock regulations and restrictions which may affect our ability to sell our securities on the secondary market.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions.  The market price of our common stock is less than $5.00 per share and therefore is a “penny stock.”  Broker and dealers effecting transactions in “penny stock” must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities.  These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares.  In addition, so long as our common stock is quoted in the “pink sheets” (as is currently the case), investors will find it difficult to obtain accurate quotations of the stock, and may find few buyers to purchase such stock and few market makers to support its price.