PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "AIDA believes," "management believes" and similar languages. The forward-looking statements are based on the current expectations of AIDA and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on this report. The actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.

Investors are also advised to refer to the information in our filings with the Securities and Exchange Commission, especially on Forms 10-KSB, 10-QSB and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.

We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No.
104. All of the following criteria must exist 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.

For fixed-priced refundable contracts, the Company recognizes revenue on a completion basis. Progress payments received/receivables are recognized as revenue only if the specified criteria is achieved, accepted by the customer, confirmed not refundable and continued performance of future research and development services related to the criteria are not required.

We have identified one policy area as critical to the understanding of our consolidated financial statements. The preparation of our consolidated financial statements 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 consolidated financial statements and the reported amounts of sales and expenses during the reporting periods. With respect to net realizable value of the Company's accounts receivable, Long-lived assets and inventories, significant estimation judgments are made and actual results could differ materially from these estimates.

At December 31, 2005, the Company had made no impairments for Long-lived assets. Long-lived assets of the Company are reviewed annually as to whether their carrying value has become impaired, pursuant to the guidelines established in SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company also periodically evaluates the amortization periods of its depreciable assets to determine whether subsequent events and circumstances warrant revised estimates of the useful lives.

Management's estimation whether a provision is needed is based on management's analysis of the current facts of whether potential impairments on the current carrying value of the inventories due to potential obsolescence exist as a result of aged inventories. In making their judgments, management made their estimations of the potential impairments based on the demand for their products in the future and the trends of turnover of the inventories. The Company made an allowance of nil and $200,017 against inventories at December 31, 2005 and 2004, respectively.

While the Company's management currently believes that there is little likelihood that the actual results of their current estimates will differ materially from such current estimates, if the financial position of its customers deteriorates, if there is a significant reduction in the carrying value of its Long-lived assets, or if, customer demand for its products decreases significantly in the near future, the Company could realize significant write downs for uncollectible accounts receivable, impairment of Long-lived assets or slow moving inventories.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2005 AS COMPARED TO YEAR ENDED
DECEMBER 31, 2004

The following table sets forth selected statements of income data as a percentage of revenues for the years indicated.

                                          Year Ended Year Ended December 31,
                                        December 31,                    2004
                                                2005

      Revenues                               100.00%                 100.00%
      Cost of goods sold                    (33.98)%                (29.55)%
      Gross margin                            66.02%                  70.45%
      Research and development               (0.16)%                 (1.68)%
      Selling and distribution              (41.10)%                (37.74)%
      General and administrative            (16.12)%                (12.78)%
      Other income (expense)                 (2.49)%                 (2.05)%
      Income taxes                           (0.59)%                 (0.97)%
      Minority interests                     (0.34)%                 (5.36)%
      Gain from discontinued operation         0.76%                   0.57%
      Net income                               5.99%                  10.45%

Revenues, Cost of Goods Sold and Gross Profit

Revenues for the year ended December 31, 2005 were $24,527,379 an increase of $8,882,210 from $15,645,169 for the year ended December 31, 2004. Compared to the year of 2004, the increase in sales revenues from our group of companies engaging in the production of different types of Etimicin for the year ended 2005 and 2004 were as follows:

                                                   Year ended December 31,
  Companies                                  2005           2004         Increase/
                                                                         (Decrease)

  Hangzhou Aida Pharmaceutical Co. Ltd  $  11,702,930  $  9,297,966   $   2,404,964
  ("Hangzhou
  Aida") specializes in the production
  of Etimicin
  powder

  Hainan Aike pharmaceutical Co. Ltd      10,195,250      6,196,758       3,998,492
  ("Aike") specializes
  in the production of Etimicin
  transfusion

  Hangzhou Boda Medical Research and          25,081        150,445        (125,364)
  Development Co., ("Boda")

  Changzhou Fangyuan Pharmaceutical         2,604,118              -      2,604,118
  Ltd. ("Fangyuan") specializes in the
  production of Etimicin injection

  TOTAL                                 $ 24,527,379   $  15,645,169  $   8,882,210

For the year ended December 31, 2005, the sales of Hangzhou Aida increased by $2,404,964 or 25.87% as compared to the year of 2004. Despite the fact that the sales of Hangzhou Aida have remained strong in 2005, there is a slight reduction in the selling price of the Etimicin series by approximately 5%. The reduction has enabled the products of Hangzhou Aida to be more competitive than other major antibiotics in the PRC, which resulted in approximately 25.87% increase in sales volume in aggregation. The increase in sales can also be explained by the fact that Etimicin has been listed in the National Essential Drugs List, which serve as a guideline for more provinces. Accordingly, the provinces have added Etimicin on their local drug list and this has a positive impact on the sales of the Hangzhou Aida.

The sales revenue from Aike increased to $10,195,250 in the year 2005 from $6,196,758 from the year 2004, representing an increase of 64.53%. The increase in sales in 2005 is the result of the intense marketing and promotion programs of a new Etimicin transfusion product, "AIYI" which was put into the market in 2004.

For the year ended December 31, 2005, the Company has experienced a further increase in sales of $2,604,118 from the acquisition on Fangyuan on February 1, 2005. Fangyuan specializes in the production of liquid Etimicin for injection. With the acquisition, the Group is capable of producing a full series of Etimicin, namely, powder, transfusion and liquid.

The cost of goods sold for the year ended December 31, 2005 were $8,333,619 an increase of $3,711,089 from $4,622,530 for the year 2004. The increase in cost of goods sold can be analyzed as follows:

                                                   Year ended December 31,
  Companies                                  2005           2004         Increase/
                                                                         (Decrease)

  Hangzhou Aida Pharmaceutical          $  3,254,748   $  2,409,992   $      844,756
  Co. Ltd ("Hangzhou Aida")
  specializes
  in the production of Etimicin
  powder

  Hainan Aike pharmaceutical               2,785,958      2,212,538          573,420
  Co. Ltd ("Aike") specializes
  in the production of Etimicin
  transfusion

  Hangzhou Boda Medical Research and          10,470              -          10,470
  Development Co., ("Boda")

  Changzhou Fangyuan Pharmaceutical        2,282,443               -      2,282,443
  Ltd. ("Fangyuan") specializes
  in the production of Etimicin
  injection

  TOTAL                                 $   8,333,619  $  4,622,530   $    3,711,089

The cost of goods sold of Hangzhou Aida increased by 35.05% for the year 2005 from $2,409,992 to $3,254,748. The increase in the cost of goods sold can mainly be accounted for by an increase in sales volume of Aida by 25.87% and a general increase in the cost of raw materials.

Despite the increase in sales of 64.53%, the cost of goods sold of Aike increased only by 25.92% for the year 2005 compared to the year 2004. The increase can partially be explained by the increase in sales. Moreover intensive advertising and promotion campaigns have been carried out for Aike's new Etimicin transfusion product, "AiYi" after it was first launched to the market in 2004. "AiYi" is an advance antibiotic with a relatively higher gross margin than the others. This accounted for the fact that the increase in cost of goods sold did not keep pace with the increase in sales. Sales of "AiYi" accounted for approximately $3,932,770 in 2005 or 38.6% of the total revenue of Aike.

The increase in the cost of goods sold as a result of the increase in sales both in Aida and Aike has partially been offset by the effect of the acquisition of Fangyuan in February 2005. Fangyuan is the sole supplier of Etimicin raw material of the Group, and the acquisition has enabled the Group to enjoy the benefit of vertical integration and economies of scale and therefore lead to a lower cost of goods sold. In addition, the steady supply of raw materials for the production of Etimicin products had been safeguarded.

Despite the increase in total sales revenue of 56.77%, the cost of goods sold increased by 80.28% in the year 2005 compared to the year 2004. The Company has suffered a slight decrease in the gross profit margin.

Compared to the year 2004, the percentage gross profit margin for our Company decreased from 70.45% to 66.02% in the year of 2005. The decrease in gross profit margin percentage was mainly attributable to the increase in the cost of raw materials and a slight reduction in the sale price of Aida's product by approximately 5%. However, the effect of which has partially been offset by the acquisition of Fangyuan enabling the Company to enjoy lower cost of sales.

Research and development decreased to $38,625 for the year 2005 from $263,081 for the year 2004. The research and development costs incurred in 2004 represented cost incurred for toxicological tests for the Etimicin product with a view of improving the quality of the drugs. No such cost was incurred in 2005.

Selling and Distribution


Selling and distribution expenses increased from $5,903,916 for the year ended
December 31, 2004 to $10,081,651 for the year 2005, or a 70.76% increase.
Compared to the year 2004, our increase was due to the following:


                                           Year ended December 31,
             Breakdown of Expenses      2005         2004      Increase/
                                                               (Decrease)

             Traveling expenses    $  4,436,680 $ 1,724,345  $  2,712,335
             Sale commissions           551,985            -      551,985
             Office expenses          1,510,658   1,206,021       304,637
             Payroll                    555,339     414,605       140,734
             Conference fees            930,505     786,665       143,840
             Rent                        96,190     233,609     (137,419)
             Promotion fees           1,007,267     873,427       133,840
             Consultancy fees                 -     269,313     (269,313)
             Entertainment              546,727      87,595       459,132
             Other expenses             446,300     308,336       137,964

             TOTAL                 $ 10,081,651 $ 5,903,916  $  4,177,735

For the year ended December 31, 2005 traveling expenses and office expenses increased by $2,712,335 and $304,637 as compared with the year ended December 31, 2004. The increase can mainly be explained by the increase in sales of 56.77%. To meet the increasing demands in diversified regions in the PRC, the Company set up dozens of new offices late 2004 as well as early 2005, which resulted in the increasing traveling costs. Currently management of the Company is consolidating and restructuring the sales forces of various subsidiaries with a view of minimizing the selling and distribution expenses in the coming years. Moreover, the restructuring of Fangyuan had been completed and management is confident that the sales and distribution expenses will fall within a reasonable range in the years to come.

One of the Company's subsidiaries, Fangyuan has introduced a new sales commission structure during 2005 with a view of expanding the market share of the Company's product. This accounted for the increase in sales commissions of $551,985.

The payroll expenses increased from $414,605 for the year ended December 31, 2004 to $555,339 for the year 2005. The increase can be accounted for largely by the increase of sales staff upon the completion of the acquisition of Fangyuan in February 2005.

The conference fee represented expenses incurred in holding conferences in various places and its related outlays for the customers or sales representatives of the Company. The conference fee increased from $786,665 for the year ended December 31, 2004 to $930,505 for the year 2005. The increase was due to the increased number of conferences held for the promotion of the Company's products.

Promotion fees mainly represented advertising expenses for the Company's product. The increase of promotion fees of $133,840 can be explained by the increase in sales. Management has implemented a more intensive advertising campaign to increase the market share of the Company's products.

Entertainment increased from $87,595 from 2004 to $546,727 for 2005. The increase was attributable to the increase in sale. The sales forces of the Company had paid more frequent visits to the customers with a view of improving the customers' relationship and subsequent increase in sales.

General and Administrative


General and administrative expenses increased from $1,999,763 in for the year
ended December 31, 2004 to $3,953,481 in the year 2005, representing a 97.70%
increase. The details of general and administrative expenses for the years ended
2005 and 2004 were as follows:


                                                   Year Ended December 31,
      Breakdown of Expenses                     2005        2004      Increase/
                                                                      (Decrease)
      Payroll expenses                      $   642,435 $  212,143  $    430,292
      Provision for obsolete inventories              -    200,017     (200,017)
      Traveling expenses                        345,231    153,389       191,842
      Bad debts                                 709,690    116,380       593,310
      Staff welfare expenses                    399,536    273,051       126,485
      Depreciation                              197,559    131,833        65,726
      Office expenses                           213,106     85,566       127,540
      Entertainment                             195,526     68,369       127,157
      Professional fees                         334,685    183,250       151,435
      Amortization of intangible assets and     293,399      86,885      206,514
        land use right
      Other expenses                            622,314     488,880      133,434

      TOTAL                                 $ 3,953,481 $ 1,999,763 $  1,953,718

During the year 2005, the Company incurred $642,435 in payroll expenses and $399,536 in staff welfare expenses as compared to $212,143 and $273,051 for the year 2004. This increase resulted from an increase in the total number of employees as a result of the acquisition of Fangyuan in February 2005. Moreover management has reasonably increased the spending on staff welfare aiming to raise the staff welfare to a competitive market level. All other expenses increased in line with the increase in sales and the acquisition of Fangyuan.

The Company has provided $200,017 for obsolete inventories for the year ended December 31, 2004 and no such provision was required in the year 2005.

The bad debt expenses increased from $116,380 for the year ended December 31, 2004 to $709,690 for the year 2005. Tighter credit control procedures have been exercised over those overdue accounts receivable especially those of the newly acquired subsidiary, Fangyuan. An allowance for doubtful accounts amounted to $347,220 had been provided in 2005 and other receivables and prepayments amounting to $362,470 had been written off in 2005.

On April 1, 2005, Aida entered into a disposition agreement with Zhejiang Guobang Veterinary Drug Co. Ltd., a company controlled by the director of the Company. Pursuant to the agreement Aida agreed to sell all of its interest in the branch in Shangyu, PRC to Zhejiang Guobang Veterinary Drug Co. Ltd. in consideration of $1,615,924 resulting in a gain of $26,068. Income from discontinued operation was $161,341 and $89,088 for the years ended December 31, 2005 and 2004 respectively, and the gain from the disposition of the discontinued operation of $26,068 had been included in the consolidated statement of income in 2005.

Other Income (Expense)


Other income (expense) increased from $(321,127) for the year ended December 31,
2004 to $(611,555) for the year 2005 representing an increase of 90.44%. The
other income (expenses) for the years ended December 31, 2005 and 2004 were as
follows:


                                                  Year Ended December 31,
     Breakdown of other income/(expenses)      2005         2004      Increase/
                                                                      (Decrease)

     Interest expense, net                $ (1,102,668) $ (481,019) $  (621,649)
     Government grants                         323,037            -     323,037
     Forgiveness of debt                        52,474            -      52,474
     Gain from nonmonetary transaction         125,097            -     125,097
     Other loss (income), net                   (9,495)    159,892    (169,387)

     TOTAL                                $   (611,555) $ (321,127) $  (290,428)

Interest expense for the year ended December 31, 2005 increased to $1,102,668 from $481,019 for the year 2004. The increase is due to the increase in bank borrowings as a result of more requirements for working capital with the development of the Company and the acquisition of Fangyuan.

Government grants of $323,037 for the year ended December 31, 2005 represented subsidies from the government and no such subsidies were reported in the year 2004.

Forgiveness of debt of $52,474 represented amount due to Sunshine Group (previous shareholders of Fangyuan) not claimed on the completion of the acquisition of Fangyuan.

Gain from nonmonetary transaction of $125,097 results from that the Company transferred equipment with an aggregate net book value of $514,133 for settling a liability to Sunshine Group of $639,230 resulting in a gain of $125,097.

Other income has decreased from $159,892 for the year ended December 31, 2004 to $(9,495) for the year 2005. The decrease is due to the fact that there was a tax refund in 2004.

Income Taxes

Income tax expense was $144,720 for the year ended December 31, 2005, as compared to $150,997 for the year 2004.

In accordance with the relevant taxation laws in the PRC, from the time that a company has its first profitable tax year, a foreign investment company is exempt from corporate income tax for its first two years and is then entitled to a 50% tax reduction for the succeeding three years. Since Hangzhou Aida Pharmaceutical Co., Ltd has been a foreign investment company since 2004, its first profitable year for income tax purposes as a foreign investment company was 2004, so we are still exempted from income tax expenses in 2005.

LIQUIDITY AND CAPITAL RESOURCES

Cash

Our cash balance increased by $319,400 to $3,129,450 as of December 31, 2005, as compared to $2,810,050 as of December 31, 2004. The increase was mainly attributable to a net income of $1,468,335 decrease in inventories of 1,789,527 an increase in accounts receivables and customer deposits by $2,714,437 and $868,087. The increase in cash flow was partially offset by increased cash out flow of investing activities of $4,779,965 for the year ended December 31, 2005.

Our cash flow from operations amounted to $6,120,649 in 2005 compared to $(2,521,628) in 2004. Our accounts receivable increased by $2,714,437 as a result of increase in sales revenues and expanded scale of operations. Tighter inventory control procedures had reduced the inventories by $1,789,527. Moreover, expansion in the scale of operations resulted in increases of other payables and accrued liabilities and customer deposits of $730,378 and $868,087 respectively.

Our cash flow used for investing activities amounted to $4,779,965 of which $936,707 was used for the purchase of a subsidiary, Fangyuan. The Company invested $1,644,682 and $1,840,464 in the restricted cash and notes receivable. A further sum of $700,314 was used for the purchase plant and machinery. The cash used in investing activities was partially offset by a cash inflow from proceed on the disposal of discontinued operation, Shangyu Branch, amounted to $1,581,755.

Our cash flow used for investing activities amounted to $4,879,484 of which $936,707 was used for the purchase of a subsidiary, Fangyuan. The Company invested $1,644,682 and $1,840,464 in the restricted cash and notes receivable. A further sum of $682,240 was used for the purchase plant and machinery. The cash used in investing activities was partially offset by a cash inflow from proceed on the disposal of discontinued operation, Shangyu Branch, amounted to $1,581,755.

The net cash used in financing activities amounted to $1,165,429. An amount of $3,487,421 was used for the repayment of amount due to related parties and $1,666,083 used in financing activities of discontinued operations. The cash used in financing activities was partially offset by increased short-term debts, notes payable and amount due from related parties of $1,081,277, $1,988,955 and $917,843 respectively.

At December 31, 2005, the Company had short-term borrowings of $21,450,710 of which $13,785,285 was short-term bank borrowings and the remaining $7,665,425 represented notes payable to unrelated parties. The interest for the short-term borrowings varied from 4.575% to 6.975% per annum whereas the notes payable to unrelated parties is interest free. The Company has outstanding commitment with respect to non-cancelable patent and land use right transfer amounting to $972,746 at December 31, 2005, which will fall due in 2006. The Company believes that the cash generated from normal operation will be sufficient to pay off its liabilities as the short-term borrowings and commitments fall due.

. . .