Page
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Number
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About
This Prospectus
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-i-
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Prospectus
Summary
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1
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Risk
Factors
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6
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Cautionary
Note Regarding Forward-Looking Statements
|
30
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Use
of Proceeds
|
31
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Determination
of Offering Price
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31
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Management’s
Discussion and Analysis of Financial Conditions and Results of Operations
|
32
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Business
|
42
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Management
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59
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Executive
Compensation
|
62
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Certain
Relationships and Related Transactions
|
63
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Security
Ownership of Certain Beneficial Owners and Management
|
65
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Description
of Securities
|
66
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Selling
Stockholders
|
68
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Plan
of Distribution
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76
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Market
for Common Equity and Related Stockholder Matters
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79
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Legal
Matters
|
79
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Experts
|
79
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
|
80
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Where
You Can Find More Information
|
80
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Index
to Financial Statements
|
F-1
|
Common
stock outstanding before the offering
|
16,500,000
|
|
Common
stock offered by selling stockholders
|
Up
to 20,322,529 shares of common stock held by the selling stockholders or
underlying securities held by the selling stockholders.
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|
Common
stock to be outstanding after the offering
|
Up
to 28,850,000 shares, assuming full conversion or exercise of the Notes,
Warrants and Placement Agent Warrants.
|
|
OTBCC
Symbol
|
BOPH. No
active market for our common stock presently exists.
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|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the common stock offered
hereby. However, we may receive up to a maximum of $15.84
million of proceeds from the exercise of the warrants held by certain
selling stockholders, which proceeds we would expect to use for general
working capital. No assurances can be given, however, that all
or any portion of such warrants will ever be
exercised.
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·
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obtain
sufficient working capital to support our
expansion;
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|
·
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maintain
or protect our intellectual
property;
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·
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maintain
our proprietary technology;
|
|
·
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expand
our product offerings and maintain the quality of our
products;
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·
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manage
our expanding operations and continue to fill customers’ orders on
time;
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|
·
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maintain
adequate control of our expenses allowing us to realize anticipated
revenue growth;
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·
|
implement
our product development, marketing, sales and acquisition strategies and
adapt and modify them as
needed;
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·
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integrate
any future acquisitions; and
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|
·
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anticipate
and adapt to changing conditions in the Chinese herbal medicines industry
resulting from changes in government regulations, mergers and acquisitions
involving our competitors, technological developments and other
significant competitive and market
dynamics.
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|
·
|
We
cannot be certain that additional capital will be available on favorable
terms, if at all;
|
|
·
|
Any
available additional financing may not be adequate to meet our goals;
and
|
|
·
|
Any
equity financing would result in dilution to our
stockholders.
|
|
·
|
the
commercialization of our products could be adversely
affected;
|
|
·
|
any
competitive advantages of the products could be diminished;
and
|
|
·
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revenues
or collaborative milestones from the products could be reduced or
delayed.
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·
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imposing
economic penalties;
|
|
·
|
discontinuing
or restricting the operations of WFOE or
Bohai;
|
|
·
|
imposing
conditions or requirements in respect of the VIE Agreements with which
WFOE may not be able to comply;
|
|
·
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requiring
us to restructure the relevant ownership structure or
operations;
|
|
·
|
taking
other regulatory or enforcement actions that could adversely affect our
business; and
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|
·
|
revoking
the business license and/or the licenses or certificates of WFOE, and/or
voiding the VIE Agreements.
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|
·
|
Investors
may have difficulty buying and selling or obtaining market
quotations;
|
|
·
|
Market
visibility for our common stock may be limited;
and
|
|
·
|
A
lack of visibility for our common stock may have a depressive effect on
the market price for our common
stock.
|
|
·
|
actual
or anticipated fluctuations in our quarterly operating
results;
|
|
·
|
changes
in financial estimates by securities research
analysts;
|
|
·
|
conditions
in pharmaceutical markets;
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|
·
|
changes
in the economic performance or market valuations of other pharmaceutical
companies;
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|
·
|
announcements
by us or our competitors of new products, acquisitions, strategic
partnerships, joint ventures or capital
commitments;
|
|
·
|
addition
or departure of key personnel;
|
|
·
|
fluctuations
of exchange rates between RMB and the U.S.
dollar;
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·
|
intellectual
property or other litigation; and
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|
·
|
general
economic or political conditions in
China.
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|
·
|
our
financial position, business strategy and other plans and objectives for
future operations;
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|
·
|
the
ability of our management team to execute its plans to meet its
goals;
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|
·
|
our
ability to attract and retain qualified management
personnel;
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|
·
|
our
growth strategies;
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|
·
|
anticipated
trends in our business;
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|
·
|
our
ability to consummate or integrate
acquisitions;
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·
|
our
liquidity and ability to finance our operations and acquisition and
development activities;
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|
·
|
the
timing, cost and procedure for proposed
acquisitions;
|
|
·
|
the
impact of government regulation in China and
elsewhere;
|
|
·
|
estimates
regarding future net revenues or
profits;
|
|
·
|
planned
capital expenditures (including the amount and nature
thereof);
|
|
·
|
estimates,
plans and projections relating to acquired properties or
businesses;
|
|
·
|
the
possibility that our acquisitions may involve unexpected
costs;
|
|
·
|
the
impact of competition;
|
|
·
|
general
economic conditions, whether internationally, nationally or in the
regional and local market areas in which we are doing business, that may
be less favorable than
expected;
|
|
·
|
other
economic, competitive, governmental, legislative, regulatory, geopolitical
and technological factors that may negatively impact our businesses,
operations and pricing; and
|
|
·
|
our
implementation of required financial, accounting and disclosure controls
and procedures and related corporate governance
policies.
|
|
·
|
Persuasive
evidence of an arrangement exists;
|
|
·
|
Delivery
has occurred or services have been rendered;
|
|
·
|
The
seller’s price to the buyer is fixed or determinable; and
|
|
·
|
Collectability
is reasonably assured. Payments have been established.
|
Leasehold
land and buildings
|
30
to 40 years
|
Motor
vehicles
|
10
years
|
Plant
and machinery
|
10
years
|
Office
equipment
|
5
years
|
Three Months Ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
(unaudited)
RESTATED
|
(unaudited)
|
|||||||
Sales
|
$ | 15,323,878 | $ | 12,476,400 | ||||
Less:
Sales Tax
|
(231,870 | ) | (200,622 | ) | ||||
Net
sales
|
15,092,008 | 12,275,778 | ||||||
Cost
of sales
|
(2,609,515 | ) | (2,019,864 | ) | ||||
Gross
profit
|
12,482,493 | 10,255,914 | ||||||
Selling,
general and administrative expenses
|
(9,202,873 | ) | (7,670,130 | ) | ||||
Interest
expenses
|
(381,700 | ) | (52,921 | ) | ||||
Operating
income
|
2,897,920 | 2,532,863 | ||||||
Other
income
|
- | 158 | ||||||
Finance
and non-operating incomes (expenses)
|
829,773 | (4,618 | ) | |||||
Income
before taxes
|
3,727,693 | 2,528,403 | ||||||
Income
taxes
|
(585,135 | ) | (423,569 | ) | ||||
Net
income
|
$ | 3,142,558 | $ | 2,104,834 |
Nine Months Ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
(unaudited)
RESTATED
|
(unaudited)
|
|||||||
Sales
|
$ | 46,072,455 | $ | 35,833,215 | ||||
Less:
Sales Tax
|
(729,975 | ) | (580,207 | ) | ||||
Net
sales
|
45,342,480 | 35,253,008 | ||||||
Cost
of sales
|
(7,475,740 | ) | (5,966,876 | ) | ||||
Gross
profit
|
37,866,740 | 29,286,132 | ||||||
Selling,
general and administrative expenses
|
(28,208,753 | ) | (21,675,279 | ) | ||||
Interest
expenses
|
(538,008 | ) | (168,422 | ) | ||||
Operating
income
|
9,119,979 | 7,442,431 | ||||||
Non-operating
income
|
18,864 | 158 | ||||||
Finance
and non-operating incomes (expenses)
|
807,681 | (4,682 | ) | |||||
Income
before taxes
|
9,946,524 | 7,437,907 | ||||||
Income
taxes
|
(2,193,931 | ) | (1,224,833 | ) | ||||
Net
income
|
$ | 7,752,593 | $ | 6,213,074 |
Year Ended
June 30, 2009
|
Year Ended
June 30, 2008
|
|||||||
Sales
|
$ | 50,170,014 | $ | 38,172,513 | ||||
Less:
Sales Tax
|
(821,400 | ) | (629,489 | ) | ||||
Net
sales
|
49,348,614 | 37,543,024 | ||||||
Cost
of sales
|
(7,975,267 | ) | (5,950,680 | ) | ||||
Gross
profit
|
41,373,347 | 31,592,344 | ||||||
Selling,
general and administrative expenses
|
(31,347,139 | ) | (22,608,164 | ) | ||||
Interest
expenses
|
(184,404 | ) | (234,101 | ) | ||||
Operating
income
|
9,841,804 | 8,750,079 | ||||||
Non-operating
income
|
49,447 | 8 | ||||||
Non-operating
costs
|
(36,366 | ) | (835 | ) | ||||
Income
before taxes
|
9,854,885 | 8,749,252 | ||||||
Income
taxes
|
(1,906,985 | ) | (2,303,712 | ) | ||||
Net
income
|
$ | 7,947,900 | $ | 6,445,540 |
|
·
|
1.35
billion tablets and capsules;
|
|
·
|
30
million bags granules (370 million
granules);
|
|
·
|
15
million bottles/units of concentrated
decoctions;
|
|
·
|
10
million bottles/units of syrup;
|
|
·
|
1
million bottles/units of tinctures;
and
|
|
·
|
1
million bottles/units medical wine
|
|
·
|
The
total population of China was 1.32 billion at the end of 2007, according
to official government estimates.
|
|
·
|
Due
to improved healthcare, the elderly population of China is
growing.
|
|
·
|
The
health/medical costs associated with care for elderly in China are
approximately five (5x) times that of younger
people.
|
|
·
|
China
had 170 million elderly people in 2007 but will have an expected 230
million elderly by 2015 according to “Consumer Lifestyles in China:
Consumer Trends, China’s Grey Population,” by Euromonitor,
2009.
|
|
·
|
The
proportion of the China’s population aged 65 and over will rise from just
10% of the overall population in 1995 to 22% by 2030, according to the
World Bank.
|
|
·
|
From
1995 to 2030 it is estimated that the ratio of working-age people to
pensioners will decrease from 9.7:1 to 4.2:1. China’s national
estimates vary slightly from World Bank figures, but still show in
increase in the proportion of the population over 65 years from 7% in 2000
to 9.4% in 2007, according to China Country Profile 2009, The Economist
Intelligence Unit Ltd.
|
Cities
|
Number of Hospitals
|
|
Zhejiang
|
100
|
|
Jiangsu
|
80
|
|
Anhui
|
150
|
|
Shandong
|
200
|
|
Sichuan
|
20
|
|
Hubei
|
100
|
TV Station Location
|
Shandong
|
Anhui
|
Hubei
|
Sichuan
|
Chongqing
|
Shanxi
|
Jiangsu
|
Liaoning
|
|
·
|
“Protected” Status of Bohai
Products. One of our 10 products currently enjoys
protected status by the PRC government. We have submitted an
application for extending the protection period for this
product. This status regulates competition, granting us
exclusive or near-exclusive rights to manufacture and sell the protected
products.
|
|
·
|
Insurance Coverage for Lead
Bohai Products. Two of our lead products, Lung
Nourishing Cream and Tongbi Capsules and Tablets, are listed in the
Catalogue Eligible for Medicine Reimbursement as of December 1,
2009. This means that these medicines are eligible for
reimbursement under the national health insurance.
|
|
·
|
Relatively
low research and development (including acquisition) costs of TCM,
compared with western pharmaceutical companies.
|
|
·
|
Highly
trained sales force of approximately 300 people as of August 2010.
|
Name
|
Age
|
Position/Director Class
|
||
Hongwei
Qu
|
35
|
President,
Chief Executive Officer and Chairman of the Board of Directors (Class 1)
|
||
Gene
Hsiao
|
47
|
Chief
Financial Officer
|
||
Ning
Tang
|
50
|
Vice
President – Operations
|
||
Hongbin
Shan
|
41
|
Vice
President – Sales and Marketing
|
||
Chunhong
Jiang
|
45
|
Secretary
and Treasurer
|
||
Chengde
Wang
|
62
|
Director
(Class 1)
|
||
Louis
A. Bevilacqua, Esq.
|
41
|
Director
(Class 2)
|
||
Adam
Wasserman
|
|
46
|
|
Director
(Class 3)
|
Name and
Principal
Position
|
Fiscal Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
Hongwei
Qu,
|
2008
|
(1) | $ | 14,480.5 | $ | 5,321.79 | — | — | — | — | — | $ | 19,802.25 | |||||||||||||||||||||
President
and
|
2009
|
(2) | $ | 14,644.5 | $ | 4,910.78 | $ | 19,555.28 | ||||||||||||||||||||||||||
Chief
Executive Officer
|
Name of Beneficial Owner
|
Shares of Common
Stock Owned
|
Percent of Class
Beneficially Owned (1)
|
||||||
Glory
Period Limited (2)(3)(4)
|
8,942,471 | 54.19 | % | |||||
Hongwei
Qu (4)
|
8,942,471 | 54.19 | % | |||||
Gene
Hsiao (5)
|
— | — | ||||||
All
Executive Officers and Directors as a group
|
8,942,471 | 54.19 | % |
(1)
|
Based
on 16,500,000 shares of common stock issued and outstanding as of the date
of this prospectus.
|
(2)
|
Joshua
Tan is the sole shareholder of Glory Period, but pursuant to a Call Option
Agreement, he has no right to sell any shares without prior written
consent by Hongwei Qu.
|
(3)
|
Hongwei
Qu is the executive director of Glory
Period.
|
(4)
|
On
December 7, 2009, Mr. Qu, who is a PRC citizen, entered into the Call
Option Agreement with Mr. Tan, a Singapore passport holder and the sole
shareholder of Glory Period. Under the Call Option Agreement,
Mr. Qu shall have right and option to acquire up to 100% shares of Glory
Period for nominal consideration within the next 3 years. The
Call Option Agreement also provides that Mr. Tan shall not dispose any of
the shares of Glory Period without Mr. Qu’s
consent.
|
(5)
|
Mr.
Hsiao is our Chief Financial Officer. Pursuant to his
employment agreement with us, Mr. Hsiao is entitled to be granted up to an
aggregate of 120,000 shares of our common stock, vesting in three annual
installments of 40,000 beginning June 4, 2011, provided he is then
employed by our company.
|
|
●
|
the
name of the selling stockholders;
|
|
●
|
the
number of shares of our common stock that may be offered for resale for
the account of the selling stockholder under this
prospectus;
|
|
●
|
the
number and percentage of shares of our common stock that the selling
stockholder beneficially owned prior to the offering for resale of the
shares under this prospectus; and
|
|
●
|
the
number and percentage of shares of our common stock to be beneficially
owned by the selling stockholder after the offering of the resale shares
(assuming all of the offered resale shares are sold by the selling
stockholders).
|
|
(i)
|
7,032,529
shares that were: (i) issued on January 5, 2010 in connection with the
Share Exchange or (ii) held by holders of “restricted” shares under
applicable law, in each case as described in the footnotes to the table
below;
|
|
(ii)
|
Up
to 12,690,000 shares issuable upon conversion or exercise of Notes
(including principal and, potentially, interest) and Warrants that were
issued in our January 2010 private placement; and
|
|
(iii)
|
600,000
shares issuable upon exercise of the Placement Agent
Warrants.
|
Name of Selling Stockholders
|
Shares of
Common
Stock
Included In
Prospectus
|
Shares
Beneficially
Owned Prior
To Offering (1)
|
Percentage
of Shares
Before
Offering (1)
|
Shares
Beneficially
Owned After
Offering (2)
|
Percentage of
Shares After
Offering (2)
|
|||||||||||||||
IRA
FBO Robert Stephen Adams Pershing LLC As Custodian (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Selwyn
Adelson (3)
|
60,000 | 60,000 | * | 0 | 0 | % | ||||||||||||||
Syed
Hasnat Ahmed & Mirian F Ahmed JT TEN (3)
|
110,000 | 110,000 | * | 0 | 0 | % | ||||||||||||||
Am-Per
Enterprises Inc. (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
David
Arita Tod Dtd 05/10/2009 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
William
C Arthur By Pass Trust Dated 10/18/1990 UAD 10/18/90 (3)
|
43,200 | 43,200 | * | 0 | 0 | % | ||||||||||||||
James
V. Bacon Trust Dtd 09/14/1995 UAD 03/26/09 (3)
|
250,000 | 250,000 | 1.52 | % | 0 | 0 | % | |||||||||||||
IRA
FBO Jeffrey P Baker Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Michael
Baldwin (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Balfour
Hollow LLC (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
The
Sarah J. Basler Living Trust UAD 07/02/98 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Richard
E Benamy (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Middlesex
Ortho Surgeons 401k FBO Lawrence Berson (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Jeff
Blackburn (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Ronald
Bovasso & Linda Bovasso JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Bradley
Anesthesiology PC Proft Sharing Plan & Tst (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Ten
Brink Trust Dated 10/02/1986 UAD 10/02/86 (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
White
Pine Productions Defined Benefit Pension Plan (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
SEP
FBO James Brown, Pershing LLC as Custodian (3)
|
90,000 | 90,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Pat Browne Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Scott
Burns (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Robert
Carlson & Michelle Carlson JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Brad
K Carr & Roxane Carr JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % |
Lowell
Cerise (3)
|
75,000 | 75,000 | * | 0 | 0 | % | ||||||||||||||
SRC
Corporation Defined Benefit Pension Plan (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Donald
T Clemetson (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Roland
Cram Tod Dtd 06/03/2009 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Integrity
Funds LP (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
The
2000 Jorge &Elena Echeverria Family Trust UAD 11/09/00
(3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Hy Echt Pershing LLC As Custodian (3)
|
60,000 | 60,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Ralph Dale Edson Pershing LLC as Custodian (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Jonathan
Edwards & Virginia C Adams JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
The
Arthur Eklund & Janet Eklund 1998 Inter Vivos Trust
(3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Steven
Jay Epstein (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Donald Fagen Pershing LLC as Custodian (3)
|
250,000 | 250,000 | 1.52 | % | 0 | 0 | % | |||||||||||||
Sep
FBO Vic Ferrer Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Walter
Friesen (3)
|
150,000 | 150,000 | * | 0 | 0 | % | ||||||||||||||
The
Alexander Galuz and Yana Galuz Jt Living Tst UAD 08/24/05
(3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Andrew
Garnock (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Richard
Glaser MDDBPP and Trust (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
The
Goldschlager Family Trust UAD 06/24/04 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Richard
Griff & Jackie Griff JT TEN (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Richard
D Helppie Jr Trust UAD 04/02/92 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Howard
J Hickingbotham Jr & Sandra B Hickingbotham JT TEN(3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
The
Robert K Heimann Living Trust UAD 07/24/01 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Hoke
Living Trust UAD 04/19/02 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Ulrich
Honighausen & Amanda Honighausen JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Herschel
Hunter Trust UAD 11/30/88 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Bert Huntsinger Pershing LLC as Custodian (3)
|
199,000 | 199,000 | 1.2 | % | 0 | 0 | % | |||||||||||||
Ingram
Living Trust Dated 11/02/2005 UAD 11/02/05 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Ajay
Kalra (3)
|
80,000 | 80,000 | * | 0 | 0 | % | ||||||||||||||
Karges
Revocable Intervivos Trust UAD 04/29/85 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Jon Murray Karkow Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Patrick
Kirk & Gloria Kirk JTWROS (3)
|
50,000 | 50,000 | * | 0 | 0 | % |
Darrel
Lee Kloeckner (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Norman
S Kramer & Linda L Kramer JT TEN (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Thomas A Ladner Pershing LLC as Custodian (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Scott
and Lori Langmack Family Trust UAD 06/22/02 (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Sep
FBO Carter Laren Pershing LLC as Custodian (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
David
W Larson & Jennifer L Larson JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Scott
R. Lennes IRA LLC (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Gregg Linhoff Pershing LLC as Custodian (3)
|
110,000 | 110,000 | * | 0 | 0 | % | ||||||||||||||
Sep
FBO George Madaraz Pershing LLC as Custodian (3)
|
70,000 | 70,000 | * | 0 | 0 | % | ||||||||||||||
Sep
FBO Gerald E Manwill Pershing LLC as Custodian (3)
|
75,000 | 75,000 | * | 0 | 0 | % | ||||||||||||||
David
Marble (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Northern
Star Growth Trust Dtd 10/20/1998 UAD 10/20/98 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Mitchell
Martin & Deborah Martin JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Brent
May PS Plan FBO F Brent May, Francis Brent TTWW; Dr. May
DMD
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Stephen
P Mccarron PSP-Pershing LLC as Custodian (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Joseph McCarthy Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Rod
Mcintyre Trust UA Dated 5/1/01 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Jerry Mcwilliams Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
The
Meister Non-Exempt Marital Trust UAD 11/17/83 (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Carlos
Alfonso Merino Rev Living Trust UAD 12/04/96 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Mark Mitchell Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Mark
R Mitchell M.D., a Medical Corporation (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
MMH
Group, LLC (3)
|
95,800 | 95,800 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Gerald Mona Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Kevin
Moore (3)
|
75,000 | 75,000 | * | 0 | 0 | % | ||||||||||||||
Deepak
Munjal (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Kenneth Henry Nass Pershing LLC as Custodian (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Tim Nass Pershing LLC as Custodian (3)
|
62,000 | 62,000 | * | 0 | 0 | % | ||||||||||||||
Mary
Neiberg (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Kevin
P O'neill & Suzanne Odell Oneill JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % |
Joseph
A & Pamela M Panella Living Trust 1 UAD 05/11/04 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Brent
Paulger and Sharissa Paulger JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Tina
C Peterson & Hendrikus M Schraven JT TEN (3)
|
200,000 | 200,000 | * | 0 | 0 | % | ||||||||||||||
E.A.
Pickering Painting Inc. (3)
|
60,000 | 60,000 | * | 0 | 0 | % | ||||||||||||||
POM
Investments LLC (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Bruce
Walker Ravenel III (3)
|
250,000 | 250,000 | 1.52 | % | 0 | 0 | % | |||||||||||||
M.
Carl Rice Self Employed Retirement Plan #1 (3)
|
250,000 | 250,000 | 1.52 | % | 0 | 0 | % | |||||||||||||
John
Russell Riedmueller & Nicole Cameron Riedmueller Ten Com
(3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
John
A Rupp Trust UAD 03/25/94 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Steven
V Sann Tod Dtd 10/16/2009 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Robert
C Sayson & Alice K Sayson JT TEN (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Peter
Schortmann and Susan Schortmann JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Kimberly
S Schwenke (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Christianna
Seidel Separate Property Trust UAD 11/05/99 (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
James
A Sheahan & Melody K Sheahan JT TEN (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Donald Francis Shoff Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
John
D Smead (3)
|
75,000 | 75,000 | * | 0 | 0 | % | ||||||||||||||
Spielman
and Elkin Revocable Trust UAD 06/14/19(3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Diane Spolum Pershing LLC as Custodian (3)
|
250,000 | 250,000 | 1.52 | % | 0 | 0 | % | |||||||||||||
Spongbob
Ventures II LLC (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Amy
J Stefanik Revocable Trust UAD 02/06/01 (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Lynn Rollins Stull Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Charles Sullivan Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Gerard Surerus Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO James A Tamborello Pershing LLC as Custodian (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Abdolhosayn
Taslimi and Shidan Taslimi JT TEN (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Mehran
M Taslimi (3)
|
500,000 | 500,000 | * | 0 | 0 | % | ||||||||||||||
Ruha
Taslimi and Shidan Taslimi JT TEN (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Shidan
Taslimi (3)
|
500,000 | 500,000 | 3.03 | % | 0 | 0 | % | |||||||||||||
Susanne
A Taslimi (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Trillion
Growth China LP (3)
|
250,000 | 250,000 | 1.54 | % | 0 | 0 | % | |||||||||||||
Robert
Vecchione (3)
|
50,000 | 50,000 | * | 0 | 0 | % |
IRA
FBO Matthew A Walton Pershing LLC as Custodian (3)
|
110,000 | 110,000 | * | 0 | 0 | % | ||||||||||||||
Timothy
M Weaver (3)
|
250,000 | 250,000 | 1.52 | % | 0 | 0 | % | |||||||||||||
Gramercy
87 LLC (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Dipaolo
Worthington Family Trust Dtd 1/31/2008 UAD 01/31/08 (3)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Lambert
Wu & Liying Chu JT TEN (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Wymond
Investments, LLC (3)
|
500,000 | 500,000 | 3.03 | % | 0 | 0 | % | |||||||||||||
Layne
Yoshida (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
IRA
FBO Paul Harper Zink Pershing LLC as Custodian (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Jayhawk
Private Equity II, L.P. (3)
|
500,000 | 500,000 | 3.03 | % | 0 | 0 | % | |||||||||||||
North
Military Ltd. (3)
|
200,000 | 200,000 | 1.2 | % | 0 | 0 | % | |||||||||||||
Chadds
Ford Ltd. (3)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Chardan
SPAC Asset Management (3)
|
150,000 | 150,000 | * | 0 | 0 | % | ||||||||||||||
Cawston
Enterprises, Ltd. (4)
|
812,500 | 812,500 | 4.92 | % | 0 | 0 | % | |||||||||||||
Regeneration
Capital Group, LLC (5)
|
491,875 | 491,875 | 2.98 | % | 0 | 0 | % | |||||||||||||
Perry
A Lerner (5)
|
87,500 | 87,500 | * | 0 | 0 | % | ||||||||||||||
SAI
LLC (5)
|
87,500 | 87,500 | * | 0 | 0 | % | ||||||||||||||
Emanuel
Addington Living Trust (5)
|
62,500 | 62,500 | * | 0 | 0 | % | ||||||||||||||
Joseph
Douek (5)
|
87,500 | 87,500 | * | 0 | 0 | % | ||||||||||||||
IRA
For The Benefit of Barry Fox (5)
|
87,500 | 87,500 | * | 0 | 0 | % | ||||||||||||||
La
Mancha Capital, LLC (5)
|
95,000 | 95,000 | * | 0 | 0 | % | ||||||||||||||
Altbachco,
LLC (5)
|
106,375 | 106,375 | * | 0 | 0 | % | ||||||||||||||
Richard
Kaufman (5)
|
87,000 | 87,000 | * | 0 | 0 | % | ||||||||||||||
Trilogy
Capital Partners, Inc. (5)
|
31,250 | 31,250 | * | 0 | 0 | % | ||||||||||||||
JHVM
Investments LLC (5)
|
25,000 | 25,000 | * | 0 | 0 | % | ||||||||||||||
Genesis
Capital Advisors, LLC (5)
|
125,000 | 125,000 | * | 0 | 0 | % | ||||||||||||||
Michael
Rosenblum (5)
|
31,250 | 31,250 | * | 0 | 0 | % | ||||||||||||||
Norman
Kunin (5)
|
15,625 | 15,625 | * | 0 | 0 | % | ||||||||||||||
Dene
LLC (5)
|
31,250 | 31,250 | * | 0 | 0 | % | ||||||||||||||
Michael
Levitt (5)
|
9,375 | 9,375 | * | 0 | 0 | % | ||||||||||||||
Barry
Cervantes (6)
|
12,500 | 12,500 | * | 0 | 0 | % | ||||||||||||||
Steven
Straub (6)
|
12,500 | 12,500 | * | 0 | 0 | % | ||||||||||||||
SODA
Ventures LLC (6)
|
100,000 | 100,000 | * | 0 | 0 | % | ||||||||||||||
Regeneration
Capital Group, LLC (6)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
Gerald
Altbach (7)
|
152,500 | 152,500 | * | 0 | 0 | % |
Wang
Shulian (8)
|
650,228 | 650,228 | 3.94 | % | 0 | 0 | % | |||||||||||||
Liu
Shaocui (8)
|
487,013 | 487,013 | 2.95 | % | 0 | 0 | % | |||||||||||||
Jia
Peicai (8)
|
161,899 | 161.899 | * | 0 | 0 | % | ||||||||||||||
Zhang
Jingxin (8)
|
161,899 | 161,899 | * | 0 | 0 | % | ||||||||||||||
Liang
Jianxin (8)
|
161,899 | 161,899 | * | 0 | 0 | % | ||||||||||||||
Yu
Bohai (8)
|
325,114 | 325,114 | 1.97 | % | 0 | 0 | % | |||||||||||||
An
Zhongnan (8)
|
161,899 | 161,899 | * | 0 | 0 | % | ||||||||||||||
Xu
Xiaosheng (8)
|
161,899 | 161,899 | * | 0 | 0 | % | ||||||||||||||
Dong
Qin (8)
|
81,213 | 81,213 | * | 0 | 0 | % | ||||||||||||||
Li
Yanzhi (8)
|
406,195 | 406,195 | 2.46 | % | 0 | 0 | % | |||||||||||||
Fu
Wei (8)
|
487,013 | 487,013 | 2.95 | % | 0 | 0 | % | |||||||||||||
Wang
Zhizhen (8)
|
487,013 | 487,013 | 2.95 | % | 0 | 0 | % | |||||||||||||
Portswealth
Holdings Ltd. (8)
|
486,745 | 486,745 | 2.95 | % | 0 | 0 | % | |||||||||||||
Thomas
Z. Tan (9)
|
150,000 | 150,000 | * | 0 | 0 | % | ||||||||||||||
Peter
D. Schiff (9)
|
209,250 | 209,250 | 1.27 | % | 0 | 0 | % | |||||||||||||
William
G. McBean (9)
|
209,250 | 209,250 | 1.27 | % | 0 | 0 | % | |||||||||||||
Chardan
Capital Markets, LLC (10)
|
31,500 | 31,500 | * | 0 | 0 | % | ||||||||||||||
Lawrence
D and Christine I Isen Family
Trust (11)
|
50,000 | 50,000 | * | 0 | 0 | % | ||||||||||||||
TGR
Group, LLC (11)
|
30,000 | 30,000 | * | 0 | 0 | % | ||||||||||||||
Robert
Gleckman (11)
|
10,000 | 10,000 | * | 0 | 0 | % | ||||||||||||||
David
Bahr (11)
|
20,000 | 20,000 | * | 0 | 0 | % | ||||||||||||||
David
S Nagelberg Revocable Trust July 2, 2003 (11)
|
42,500 | 42,500 | * | 0 | 0 | % | ||||||||||||||
Core
Energy Enterprises, Inc. (11)
|
42,500 | 42,500 | * | 0 | 0 | % | ||||||||||||||
Richard
Cohen (11)
|
8,000 | 8,000 | * | 0 | 0 | % | ||||||||||||||
Marc
Levy (11)
|
8,000 | 8,000 | * | 0 | 0 | % |
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as
principal;
|
|
●
|
facilitate
the transaction;
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
●
|
privately-negotiated
transactions;
|
|
●
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
●
|
through
the writing of options on the
shares;
|
|
●
|
a
combination of any such methods of sale;
and
|
|
●
|
any
other method permitted pursuant to applicable
law.
|
Page
|
||
Interim
Financial Statements (unaudited):
|
||
Condensed
Consolidated Balance Sheets as of June 30, 2009 (audited) and March 31,
2010 (restated)
|
F-2
|
|
Condensed
Consolidated Statements of Income for three months ended March 31, 2009
and 2010, and for the nine months ended March 31, 2009 and 2010
(restated)
|
F-3
|
|
Condensed
Consolidated Statements of Cash Flows for three months ended March 31,
2009 and 2010 (restated), and for the nine months ended March 31, 2009 and
2010 (restated)
|
F-4
|
|
Notes
to Condensed and Consolidated Financial Statements
|
F-5
|
|
Consolidated
Financial Statements:
|
||
Report
of Independent Registered Public Accounting Firm
|
F-27
|
|
Consolidated
Balance Sheets as of June 30, 2009 and 2008
|
F-28
|
|
Consolidated
Statement of Income for the years ended June 2009 and 2008
|
F-29
|
|
Consolidated
Statement of Stockholders’ Equity for the years ended June 2009 and
2008
|
F-30
|
|
Consolidated
Statement of Cash Flows as of June 30, 2009 and 2008
|
F-31
|
|
Notes
to the Consolidated Financial Statements
|
F-32
|
As of
|
As of
|
|||||||||
March 31,
|
June 30,
|
|||||||||
Notes
|
2010
|
2009
|
||||||||
(Unaudited)
|
(Audited)
|
|||||||||
RESTATED
|
||||||||||
ASSETS
|
||||||||||
Current
assets
|
||||||||||
Cash
and cash equivalents
|
$
|
15,574,909
|
$
|
2,493,510
|
||||||
Accounts
receivable
|
11,530,595
|
11,096,866
|
||||||||
Other
receivables and prepayments
|
4
|
6,969,569
|
12,993,800
|
|||||||
Amount
due from equity holder
|
5
|
-
|
1,465,000
|
|||||||
Inventories
|
6
|
970,664
|
307,834
|
|||||||
Total
current assets
|
35,045,737
|
28,357,010
|
||||||||
Non-current
assets
|
||||||||||
Property,
plant and equipment, net
|
8
|
7,946,215
|
8,149,279
|
|||||||
Intangible
assets
|
7
|
17,273,007
|
17,298,720
|
|||||||
Deferred
fees on convertible notes
|
13
|
1,898,877
|
-
|
|||||||
Total
non-current assets
|
27,118,099
|
25,447,999
|
||||||||
TOTAL
ASSETS
|
$
|
62,163,836
|
$
|
53,805,009
|
||||||
LIABILITES
AND STOCKHOLDERS’ EQUITY
|
||||||||||
Current
liabilities
|
||||||||||
Short-term
borrowings
|
9
|
$
|
4,381,153
|
$
|
5,860,000
|
|||||
Notes
payable
|
10
|
-
|
400,000
|
|||||||
Accounts
payable
|
842,350
|
971,208
|
||||||||
Other
accrued liabilities
|
11
|
1,941,088
|
12,339,355
|
|||||||
Income
taxes payable
|
17
|
1,389,733
|
677,666
|
|||||||
Total
current liabilities
|
8,554,324
|
20,248,229
|
||||||||
Derivative
liabilities – investor warrants
|
12
|
4,839,673
|
-
|
|||||||
Derivative
liabilities – agent warrants
|
12
|
483,967
|
-
|
|||||||
Convertible
notes, net of amortization (6,000,000 units with 8% interest)
|
12
|
121,127
|
-
|
|||||||
TOTAL
LIABILITIES
|
13,999,091
|
20,248,229
|
||||||||
STOCKHOLDERS’
EQUITY
|
||||||||||
Common
stock, $0.001 par value, 150,000,000 shares authorized, 16,250,000 shares
issued and outstanding as of March 31, 2010, 3,450,000 shares issued and
outstanding as of June 30, 2009
|
19
|
16,250
|
3,450
|
|||||||
Additional
paid-in capital
|
19
|
9,553,666
|
2,974,520
|
|||||||
Capital
reserve
|
5,836,000
|
5,836,000
|
||||||||
Accumulated
other comprehensive income
|
382,108
|
490,931
|
||||||||
Statutory
reserves
|
2,974,137
|
2,201,811
|
||||||||
Retained
earnings
|
29,402,584
|
22,050,068
|
||||||||
Total
stockholders’ equity
|
48,164,745
|
33,556,780
|
||||||||
TOTAL
LIABILITIES AND STOCKOLDERS’ EQUITY
|
$
|
62,163,836
|
$
|
53,805,009
|
Three months
|
Three months
|
Nine months
|
Nine months
|
|||||||||||||||
ended
|
ended
|
ended
|
ended
|
|||||||||||||||
March 31,
|
March 31,
|
March 31,
|
March 31,
|
|||||||||||||||
Notes
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
RESTATED
|
RESTATED
|
|||||||||||||||||
Sales
|
$
|
15,323,878
|
$
|
12,476,400
|
$
|
46,072,455
|
$
|
35,833,215
|
||||||||||
Less:
Sales Tax
|
(231,870
|
)
|
(200,622
|
)
|
(729,975
|
)
|
(580,207
|
)
|
||||||||||
Net
sales
|
15,092,008
|
12,275,778
|
45,342,480
|
35,253,008
|
||||||||||||||
Cost
of sales
|
(2,609,515
|
)
|
(2,019,864
|
)
|
(7,475,740
|
)
|
(5,966,876
|
)
|
||||||||||
Gross
profit
|
12,482,493
|
10,255,914
|
37,866,740
|
29,286,132
|
||||||||||||||
Selling,
general and administrative expenses
|
14
|
(9,202,873
|
)
|
(7,670,130
|
)
|
(28,208,753
|
)
|
(21,675,279
|
)
|
|||||||||
Interest
expenses
|
15
|
(381,700
|
)
|
(52,921
|
)
|
(538,008
|
)
|
(168,422
|
)
|
|||||||||
Operating
income
|
2,897,920
|
2,532,863
|
9,119,979
|
7,442,431
|
||||||||||||||
Other
income
|
-
|
158
|
18,864
|
158
|
||||||||||||||
Finance
and non-operating incomes (expenses)
|
16
|
829,773
|
(4,618
|
)
|
807,681
|
(4,682
|
)
|
|||||||||||
Income
before taxes
|
3,727,693
|
2,528,403
|
9,946,524
|
7,437,907
|
||||||||||||||
Income
taxes
|
17
|
(585,135
|
)
|
(423,569
|
)
|
(2,193,931
|
)
|
(1,224,833
|
)
|
|||||||||
Net
income
|
$
|
3,142,558
|
$
|
2,104,834
|
$
|
7,752,593
|
$
|
6,213,074
|
Three
months
|
Three
months
|
Nine
months
|
Nine
months
|
|||||||||||||
ended
|
ended
|
ended
|
ended
|
|||||||||||||
March 31,
2010
|
March 31,
2009
|
March 31,
2010
|
March 31,
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
RESTATED
|
RESTATED
|
|||||||||||||||
Cash
flows from operating activities
|
||||||||||||||||
Net
income
|
$ | 3,142,558 | $ | 2,104,834 | $ | 7,752,593 | $ | 6,213,074 | ||||||||
Adjustments
to reconcile net income to net cash (used in)/ provided by operating
activities
|
||||||||||||||||
Depreciation
|
84,518 | 213,912 | 224,656 | 284,387 | ||||||||||||
Loss
on disposals of property, plant and equipment
|
- | - | 10,942 | - | ||||||||||||
Amortization
of deferred fees on convertible notes
|
253,577 | - | 253,577 | - | ||||||||||||
Interest
expense on convertible notes
|
121,126 | - | 121,126 | - | ||||||||||||
Change
in fair value of warrants
|
(1,083,350 | ) | - | (1,083,350 | ) | - | ||||||||||
Changes
in assets and liabilities
|
||||||||||||||||
Decrease/
(increase) in accounts receivable
|
250,769 | (1,383,561 | ) | (433,728 | ) | (1,119,683 | ) | |||||||||
Decrease
in other receivables and prepayments
|
6,504,589 | 546,973 | 4,127,297 | 8,311,379 | ||||||||||||
Decrease/
(increase) in amount due from equity holder
|
- | - | 1,465,000 | (108,426 | ) | |||||||||||
(Increase)/
decrease in inventories
|
(198,160 | ) | 206,841 | (662,830 | ) | 138,503 | ||||||||||
Decrease/
(increase) in accounts payable
|
87,292 | (257,958 | ) | (128,858 | ) | (1,923,974 | ) | |||||||||
(Decrease)/
increase in accrued liabilities
|
(11,338,820 | ) | 783,952 | (10,407,917 | ) | (12,430,148 | ) | |||||||||
(Decrease)/
increase in income taxes payable
|
(273,202 | ) | 288,939 | 2,905,998 | 1,453,411 | |||||||||||
Net
cash (used in)/ provided by operating activities
|
(2,449,103 | ) | 2,503,932 | 4,144,506 | 818,523 | |||||||||||
Cash
flows from investing activities
|
||||||||||||||||
Purchases
of property, plant and equipment
|
(84,518 | ) | (191,977 | ) | (280,804 | ) | (505,153 | ) | ||||||||
Proceeds
from disposals of property, plant and equipment
|
- | - | - | - | ||||||||||||
Net
cash used in investing activities
|
(84,518 | ) | (191,977 | ) | (280,804 | ) | (505,153 | ) | ||||||||
Cash
flows from financing activities
|
||||||||||||||||
Cash
fees on placement agent and other financing costs
|
(1,570,000 | ) | - | (1,570,000 | ) | - | ||||||||||
Proceeds
of convertible promissory notes
|
12,000,000 | - | 12,000,000 | - | ||||||||||||
Proceeds
of borrowings
|
4,381,153 | 1,314,713 | 4,381,153 | 4,382,377 | ||||||||||||
Repayment
of borrowings
|
(4,393,665 | ) | (1,896,700 | ) | (5,860,000 | ) | (3,271,413 | ) | ||||||||
Net
cash provided by/ (used in) financing activities
|
10,417,488 | (581,987 | ) | 8,951,153 | 1,110,964 | |||||||||||
Net
increase in cash and cash equivalents
|
7,883,867 | 1,729,968 | 12,814,855 | 1,424,334 | ||||||||||||
Effect
of foreign currency translation on cash and cash equivalents
|
(201,866 | ) | (26,482 | ) | 266,544 | 227,015 | ||||||||||
Cash
and cash equivalents at beginning of period
|
7,892,908 | 776,913 | 2,493,510 | 829,050 | ||||||||||||
Cash
and cash equivalents at end of period
|
$ | 15,574,909 | $ | 2,480,399 | $ | 15,574,909 | $ | 2,480,399 | ||||||||
Supplemental
cash flow information:
|
||||||||||||||||
Interest
paid on convertible notes
|
$ | 226,667 | $ | - | $ | 226,667 | $ | - | ||||||||
Placement
agent warrants issued
|
$ | 582,454 | $ | - | $ | 582,454 | $ | - |
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
2.
|
BASIS
OF PRESENTATION
|
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Basis
of Presentation and Consolidation
|
Name of
Company
|
Place of
incorporation
|
Date of
incorporation
|
Attributable
equity
interest
|
Issued capital
|
|||||
Chance
High International Limited
|
British
Virgin Islands
|
July
2, 2009
|
100
|
%
|
USD50,000
|
||||
Yantai
Shencaojishi Pharmaceuticals Co., Ltd.
|
People’s
Republic of China
|
November
25, 2009
|
100
|
%
|
USD9,500,000
|
||||
Yantai
Bohai Pharmaceuticals Group Co., Ltd.
|
People’s
Republic of China
|
July
8, 2004
|
*
|
USD2,918,000
(RMB20,000,000)
|
|
·
|
Carrying
amounts of the VIE are consolidated into the financial statements of the
Company as the primary beneficiary (referred as “Primary Beneficiary” or
“PB”); and
|
|
·
|
Inter-company
transactions and balances, such as revenues and costs, receivables and
payables between or among the Primary Beneficiary and the VIE(s) are
eliminated in their entirety.
|
(b)
|
Economic
and Political Risks
|
(c)
|
Use
of Estimates
|
(d)
|
Cash
and Cash Equivalents
|
(e)
|
Accounts
Receivable
|
(f)
|
Inventories
|
(g)
|
Fair
value of Financial Instruments
|
(h)
|
Intangible
Assets
|
Leasehold
land and buildings
|
30
to 40 years
|
Motor
vehicles
|
10
years
|
Plant
and machinery
|
10
years
|
Office
equipment
|
5
years
|
(j)
|
Accounting
for the Impairment of Long-Lived Assets
|
(k)
|
Foreign
Currency Translation
|
Three months
ended
March 31,
2010
|
Three months
ended
March 31,
2009
|
Nine months
ended
March 31,
2010
|
Nine months
ended
March 31,
2009
|
|||||||||||||
Year
end US$: RMB exchange rate
|
6.83610
|
6.84560
|
6.83610
|
6.84560
|
||||||||||||
Average
periodic US$: RMB exchange rate
|
6.83603
|
6.84658
|
6.83773
|
6.85094
|
(l)
|
Revenue
Recognition
|
|
·
|
Persuasive
evidence of an arrangement exists;
|
|
·
|
Delivery
has occurred or services have been rendered;
|
|
·
|
The
seller’s price to the buyer is fixed or determinable; and
|
|
·
|
Collectability
is reasonably assured. Payments have been established.
|
(m)
|
Cost
of Revenue
|
(n)
|
Research
and Development Costs
|
(o)
|
Income
Taxes
|
(p)
|
Comprehensive
Income
|
(q)
|
Commitments
and Contingencies
|
(r)
|
Earning
per Shares
|
(s)
|
Recent
Accounting Pronouncements
|
4.
|
OTHER
RECEIVABLES AND PREPAYMENTS
|
As of
March 31,
2010
|
As of
June 30,
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Prepayment
for advertising and promotion
|
$
|
2,925,645
|
$
|
1,736,025
|
||||
Loan
to a third party
|
-
|
1,465,000
|
||||||
Other
receivables
|
3,312,433
|
9,792,775
|
||||||
Deposit
for closing of private placement
|
731,491
|
-
|
||||||
Total
other receivables and prepayments
|
$
|
6,969,569
|
$
|
12,993,800
|
5.
|
AMOUNT
DUE FROM EQUITY HOLDER
|
As of
March 31,
2010
|
As of
June 30,
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Amount
due from a equity holder
|
$
|
-
|
$
|
1,465,000
|
6.
|
INVENTORIES
|
As of
|
As of
|
|||||||
|
March 31,
|
June 30,
|
||||||
|
2010
|
2009
|
||||||
(Unaudited)
|
(Audited)
|
|||||||
Raw
materials
|
$
|
393,475
|
$
|
250,405
|
||||
Finished
goods
|
577,189
|
57,429
|
||||||
Total
inventories
|
$
|
970,664
|
$
|
307,834
|
7.
|
INTANGIBLE
ASSETS
|
As of
|
As of
|
|||||||
|
March 31,
|
June 30,
|
||||||
|
2010
|
2009
|
||||||
(Unaudited)
|
(Audited)
|
|||||||
Pharmaceuticals
formulas, at cost
|
$
|
17,273,007
|
$
|
17,298,720
|
8.
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
As of March 31,
2010
|
As of June 30,
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Cost
|
||||||||
Leasehold
land and buildings
|
$
|
7,598,806
|
$
|
7,447,211
|
||||
Plant
and equipment
|
1,235,146
|
1,156,557
|
||||||
Office
equipment
|
77,597
|
74,700
|
||||||
Motor
vehicles
|
412,954
|
389,075
|
||||||
Total
|
9,324,503
|
9,067,543
|
||||||
Accumulated
depreciation
|
||||||||
Leasehold
land and buildings
|
553,961
|
414,133
|
||||||
Plant
and equipment
|
671,032
|
617,279
|
||||||
Office
equipment
|
20,660
|
10,681
|
||||||
Motor
vehicles
|
132,635
|
112,768
|
||||||
Total
|
1,378,287
|
1,154,861
|
||||||
Construction
in progress
|
-
|
236,597
|
||||||
Net
|
||||||||
Leasehold
land and buildings
|
7,044,845
|
7,033,078
|
||||||
Plant
and equipment
|
564,114
|
539,278
|
||||||
Office
equipment
|
56,936
|
64,019
|
||||||
Motor
vehicles
|
280,320
|
276,307
|
||||||
Property,
plant and equipment, net
|
$
|
7,946,215
|
$
|
8,149,279
|
9.
|
SHORT-TERM
BORROWINGS
|
Loan from
financial
institution
|
Loan period
|
Annual
Interest rate
|
Secured by
|
Amount
(unaudited)
|
||||||||
China
Construction Bank
|
From
Feb 24, 2010 to
Feb
23, 2011
|
5.8410
|
%
|
Personal
guarantee by equity holder
|
$
|
3,510,773
|
||||||
Rural
Credit Union
|
From
Sep 28, 2009 to
Sep
26, 2010
|
5.7525
|
%
|
Yantai
Ka Wah Medical Equipment Co. Ltd
|
285,990
|
|||||||
Yantai
Laishan Rural Credit Union
|
From
Sep 28, 2009 to
Sep
26, 2010
|
7.5225
|
%
|
Bohai’s
machinery and vehicle
|
584,390
|
|||||||
Total
|
$
|
4,381,153
|
Loan from
financial
institution
|
Loan period
|
Annual
Interest rate
|
Secured by
|
Amount
(Audited)
|
||||||||
Shanghai
Pudong Development
Limited
|
From
Dec 12, 2008 to
Dec
11, 2009
|
6.6960
|
%
|
Haiyang
Construction Industry Training Centre and personal guarantee by equity
holders
|
$
|
2,197,500
|
||||||
Yantai
City Commercial Bank
|
From
Jan 20, 2009 to
Jan
20, 2010
|
6.9030
|
%
|
Yantai
Hai Pu Can End Making Co. Ltd
|
1,318,500
|
|||||||
Yantai
Laishan Rural Credit Union
|
From
Sep 27, 2008 to
Sep
26, 2009
|
9.3600
|
%
|
Yantai
Ka Wah Medical Equipment Co. Ltd
|
293,000
|
|||||||
Yantai
Laishan Rural Credit Union
|
From
Sep 27, 2008 to
Sep
26, 2009
|
12.2400
|
%
|
Company’s
machinery and vehicle
|
586,000
|
|||||||
China
Construction Bank
|
From
May 12, 2009 to
Nov
11, 2009
|
0.0000
|
%
|
Personal
guarantee by equity holders
|
1,465,000
|
|||||||
Total
|
$
|
5,860,000
|
10.
|
NOTES
PAYABLE
|
11.
|
OTHER
ACCRUED LIABILITIES
|
As of
|
As of
|
|||||||
|
March 31,
|
June 30,
|
||||||
|
2010
|
2009
|
||||||
(Unaudited)
|
(Audited)
|
|||||||
Accrued
selling expenses
|
$
|
579,545
|
$
|
1,677,026
|
||||
Accrued
staff costs
|
212,198
|
173,130
|
||||||
Value
added tax payable
|
716,822
|
709,688
|
||||||
Other
accrued expenses
|
206,865
|
77,374
|
||||||
Others
payable
|
225,658
|
9,702,137
|
||||||
Total
other accrued liabilities
|
$
|
1,941,088
|
$
|
12,339,355
|
12.
|
CONVERTIBLE
PROMISSORY NOTES AND WARRANTS
|
13.
|
DEFERRED
FEES ON CONVERTIBLE NOTES
|
As of
|
As of
|
|||||||
|
March 31,
|
June 30,
|
||||||
|
2010
|
2009
|
||||||
(Unaudited)
|
(Audited)
|
|||||||
RESTATED
|
||||||||
Deferred
fees, beginning balance on January 5, 2010
|
$
|
2,152,454
|
$
|
-
|
||||
Amortization
of deferred fees
|
(253,577
|
) |
-
|
|||||
Deferred
fees, ending balance
|
$
|
1,898,877
|
$
|
-
|
14.
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
Three months
|
Three months
|
Nine months
|
Nine months
|
|||||||||||||
ended
|
ended
|
ended
|
ended
|
|||||||||||||
March 31,
|
March 31,
|
March 31,
|
March 31,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
RESTATED
|
RESTATED
|
|||||||||||||||
Accommodation
|
$
|
1,106,984
|
$
|
565,205
|
$
|
2,880,151
|
$
|
2,724,140
|
||||||||
Advertising
and promotion
|
2,767,549
|
2,251,404
|
8,732,252
|
5,834,757
|
||||||||||||
Commission
|
1,060,462
|
1,503,000
|
3,464,415
|
4,726,934
|
||||||||||||
Conference
|
738,898
|
3,106
|
3,070,497
|
10,159
|
||||||||||||
Depreciation
|
9,397
|
118
|
27,872
|
353
|
||||||||||||
Staff
costs
|
608,263
|
566,413
|
1,571,400
|
1,256,934
|
||||||||||||
Travelling
|
717,766
|
1,132,551
|
2,000,775
|
1,933,017
|
||||||||||||
Research
and development cost
|
146,640
|
147,972
|
442,046
|
38,492
|
||||||||||||
Other
operating expenses
|
2,046,914
|
1,500,361
|
6,019,345
|
5,150,493
|
||||||||||||
Total
selling, general and administrative expenses
|
$
|
9,202,873
|
$
|
7,670,130
|
$
|
28,208,753
|
$
|
21,675,279
|
15.
|
INTEREST
EXPENSES
|
Three months
|
Three months
|
Nine months
|
Nine months
|
|||||||||||||
ended
|
ended
|
ended
|
ended
|
|||||||||||||
March 31,
|
March 31,
|
March 31,
|
March 31,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Interest
on short-term borrowings wholly repayable within 1 year
|
$
|
33,907
|
$
|
52,921
|
$
|
190,215
|
$
|
168,422
|
||||||||
Effective
interest charge on Convertible Notes
|
347,793
|
-
|
347,793
|
-
|
||||||||||||
Total
interest expenses
|
$
|
381,700
|
$
|
52,921
|
$
|
538,008
|
$
|
168,422
|
16.
|
FINANCE
AND NON-OPERATING (INCOMES) EXPENSES
|
Three months
|
Three months
|
Nine months
|
Nine months
|
|||||||||||||
ended
|
ended
|
ended
|
ended
|
|||||||||||||
March 31,
|
March 31,
|
March 31,
|
March 31,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
RESTATED
|
RESTATED
|
|||||||||||||||
Amortization
of deferred fee – Convertible Notes
|
$
|
253,577
|
$
|
-
|
$
|
253,577
|
$
|
-
|
||||||||
Change
in fair value of warrants (credit)
|
(1,083,350
|
) |
-
|
(1,083,350
|
) |
-
|
||||||||||
Non-operating
expense
|
-
|
4,618
|
22,092
|
4,682
|
||||||||||||
Total
finance and non-operating (incomes) expenses
|
$
|
(829,773
|
) |
$
|
4,618
|
$
|
(807,681
|
) |
$
|
4,682
|
17.
|
INCOME
TAXES
|
Three months
|
Three months
|
Nine months
|
Nine months
|
|||||||||||||
ended
|
ended
|
ended
|
ended
|
|||||||||||||
March 31,
|
March 31,
|
March 31,
|
March 31,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Income
before taxes
|
$
|
3,727,693
|
$
|
2,528,403
|
$
|
9,946,524
|
$
|
7,437,907
|
||||||||
Income
tax expenses
|
$
|
585,135
|
$
|
423,569
|
$
|
2,193,931
|
$
|
1,224,833
|
March 31,
2010
|
June 30,
2009
|
|||||||
United
States Tax at statutory rate
|
$
|
3,381,818
|
$
|
2,528,889
|
||||
Foreign
tax rate difference
|
(1,187,887
|
) |
(1,384,301
|
)
|
||||
Exemption
in taxation
|
(2,193,931
|
)
|
(1,144,588
|
)
|
||||
$
|
-
|
$
|
-
|
March 31,
2010
|
March 31,
2009
|
|||||||
Net
value added tax expense
|
$
|
6,627,557
|
$
|
5,274,607
|
18.
|
COMMITMENTS
AND CONTINGENCIES
|
19.
|
COMMON
EQUITY
|
Note
|
Common
Shares
|
|||||
Common
shares outstanding - June 30, 2009
|
3,450,000
|
|||||
Shares
issued for consulting services
|
a
|
1,137,500
|
||||
Shares outstanding prior to January 5, 2010 reverse re-capitalization |
4,587,500
|
|||||
Shares
cancelled
|
b
|
(1,500,000
|
)
|
|||
Issued
to shareholders of Chance High Limited under Share Exchange Agreement date
January 5, 2010 (see Note 2)
|
b
|
13,162,500
|
||||
As
of March 31, 2010
|
16,250,000
|
20.
|
STATUTORY
RESERVES
|
21.
|
FINANCIAL
INSTRUMENTS
|
(a)
|
Credit
Risk
|
(b)
|
Interest
Rate Risk
|
(c)
|
Fair
Value Estimation
|
22.
|
SUBSEQUENT
EVENTS
|
23.
|
RESTATEMENT
|
Three
Months Ended March 31, 2010
|
Nine
Months Ended March 31, 2010
|
|||||||||||||||
As
Previously
Reported
|
As
Restated
|
As
Previously
Reported
|
As
Restated
|
|||||||||||||
Statement
of Income Data:
|
||||||||||||||||
Net
sales
|
$ | 15,092,008 | $ | 15,092,008 | $ | 45,342,480 | $ | 45,342,480 | ||||||||
Cost
of sales
|
2,609,515 | 2,609,515 | 7,475,740 | 7,475,740 | ||||||||||||
Gross
profit
|
12,482,493 | 12,482,493 | 37,866,740 | 37,866,740 | ||||||||||||
Selling,
general and administrative expenses
|
9,465,589 | 9,202,873 | 28,471,469 | 28,208,753 | ||||||||||||
Interest
expense
|
260,574 | 381,700 | 416,882 | 538,008 | ||||||||||||
Operating
income
|
2,756,330 | 2,897,920 | 8,978,389 | 9,119,979 | ||||||||||||
Other
income
|
- | - | 18,864 | 18,864 | ||||||||||||
Finance
and non-operating income (expense)
|
(1,973,702 | ) | 829,773 | (1,995,794 | ) | 807,681 | ||||||||||
Income
before taxes
|
782,628 | 3,727,693 | 7,001,459 | 9,946,524 | ||||||||||||
Income
taxes
|
585,135 | 585,135 | 2,193,931 | 2,193,931 | ||||||||||||
Net
income
|
$ | 197,493 | $ | 3,142,558 | $ | 4,807,528 | $ | 7,752,593 | ||||||||
Balance
Sheet Data:
|
||||||||||||||||
March
31, 2010
|
June
30, 2009
|
|||||||||||||||
As
Previously
Reported
|
As
Restated
|
As
Previously
Reported
|
As
Restated
|
|||||||||||||
Current
assets
|
35,045,737 | 35,045,737 | $ | 28,357,010 | $ | 28,357,010 | ||||||||||
Other
non-current assets
|
25,219,222 | 25,219,222 | 25,447,999 | 25,447,999 | ||||||||||||
Deferred
fees on convertible notes
|
- | 1,898,877 | - | - | ||||||||||||
Total
assets
|
60,264,959 | 62,163,836 | 53,805,009 | 53,805,009 | ||||||||||||
Current
liabilities
|
9,240,124 | 8,554,324 | 20,248,229 | 20,248,229 | ||||||||||||
Derivative
liabilities – warrants
|
- | 5,323,640 | - | - | ||||||||||||
Convertible
notes, net
|
11,863,217 | 121,127 | - | - | ||||||||||||
Total
liabilities
|
21,103,341 | 13,999,091 | 20,248.229 | 20,248.229 | ||||||||||||
Stockholders’
Equity
|
||||||||||||||||
Additional
paid-in capital
|
3,378,203 | 9,553,666 | 2,974,520 | 2,974,520 | ||||||||||||
Retained
earnings
|
26,457,519 | 29,402,584 | 22,050,068 | 22,050,068 | ||||||||||||
Accumulated other comprehensive income | 499,509 | 382,108 | 490,931 | 490,931 | ||||||||||||
Other
capital accounts
|
8,826,387 | 8,826,387 | 8,041,261 | 8,041,261 | ||||||||||||
Total
stockholders’ equity
|
39,161,618 | 48,164,745 | 33,556,780 | 33,556,780 | ||||||||||||
Total
liabilities and stockholders’ equity
|
$ | 60,264,959 | $ | 62,163,836 | $ | 53,805,009 | $ | 53,805,009 |
|
Three
Months
Ended
March
31, 2010
|
Nine
Months
Ended
March
31, 2010
|
||||||
Net
income, as previously reported
|
$ | 197,493 | $ | 4,807,528 | ||||
Adjustments:
|
||||||||
Deferred
fees
|
1,297,041 | 1,297,041 | ||||||
Interest
expense on convertible notes
|
(121,126 | ) | (121,126 | ) | ||||
Change
in warrant liabilities
|
1,769,150 | 1,769,150 | ||||||
Total
net income adjustment
|
2,945,065 | 2,945,065 | ||||||
Net
income, as restated
|
$ | 3,142,558 | $ | 7,752,593 |
March 31, 2010
|
June 30, 2009
|
|||||||
Total
assets, as previously reported
|
$ | 60,264,959 | $ | 53,805,009 | ||||
Deferred
fees on convertible notes, restated
|
1,898,877 | — | ||||||
Total
assets, as restated
|
62,163,836 | 53,805,009 | ||||||
Total
liabilities, as previously reported
|
21,103,341 | 20,248,229 | ||||||
Adjustments:
|
||||||||
Convertible
notes
|
(11,742,090 | ) | — | |||||
Warrant
liabilities, reclassified
|
685,800 | — | ||||||
Warrant
liabilities, restated
|
4,637,840 | — | ||||||
Total
liabilities adjustment
|
(7,104,250 | ) | — | |||||
Total
liabilities, as restated
|
13,999,091 | 20,248,229 | ||||||
Shareholders’
equity, as previously reported
|
39,161,618 | 33,556,780 | ||||||
Adjustments:
|
||||||||
Accumulated
other comprehensive income, restated
|
(117,401 | ) | — | |||||
Additional
paid-in capital - beneficial conversion feature,
restated
|
6,175,463 | — | ||||||
Net
income adjustment, restated
|
2,945,065 | — | ||||||
Net
Shareholders equity adjustment
|
9,003,127 | — | ||||||
Shareholders’
equity, as restated
|
$ | 48,164,745 | $ | 33,556,780 |
s/ Parker Randall CF (H.K.) CPA
Limited
|
Parker
Randall CF (H.K.) CPA Limited
|
Certified
Public Accountants
|
Hong
Kong
|
26
February 2010
|
As
of
|
As
of
|
||||||||||
June
30,
|
June
30,
|
||||||||||
Notes
|
2009
|
2008
|
|||||||||
ASSETS
|
|||||||||||
Current
assets
|
|||||||||||
Cash
and cash equivalents
|
$ | 2,494,166 | $ | 829,050 | |||||||
Accounts
receivable
|
11,070,129 | 8,918,209 | |||||||||
Other
receivables and prepayments
|
4
|
12,993,800 | 10,557,082 | ||||||||
Amount
due from equity holder
|
5
|
1,465,000 | - | ||||||||
Inventories
|
6
|
307,834 | 1,049,191 | ||||||||
Total
current assets
|
28,330,929 | 21,353,532 | |||||||||
Non-current
assets
|
|||||||||||
Property,
plant and equipment, net
|
8
|
8,149,279 | 7,663,164 | ||||||||
Intangible
assets
|
7
|
17,298,720 | 17,227,872 | ||||||||
Total
non-current assets
|
25,447,999 | 24,891,036 | |||||||||
25,447,999 | 24,891,036 | ||||||||||
TOTAL
ASSETS
|
$ | 53,778,928 | $ | 46,244,568 | |||||||
LIABILITES
AND STOCKHOLDERS' EQUITY
|
|||||||||||
Current
liabilities
|
|||||||||||
Short-term
borrowings
|
9
|
$ | 5,860,000 | $ | 1,896,700 | ||||||
Accounts
payable
|
971,208 | 3,065,389 | |||||||||
Other
accrued liabilities
|
10
|
12,335,672 | 14,695,614 | ||||||||
Amount
due to equity holder
|
11
|
- | 108,426 | ||||||||
Income
taxes payable
|
677,666 | 598,190 | |||||||||
Total
current liabilities
|
19,844,546 | 20,364,319 | |||||||||
STOCKHOLDERS'
EQUITY
|
|||||||||||
Common
stock, $0.001 par value, 150,000,000 shares authorized,
|
|||||||||||
3,450,000
shares issued and outstanding
|
14
|
3,450 | 3,450 | ||||||||
Additional
paid-in capital
|
2,968,550 | 2,968,550 | |||||||||
Capital
reserve
|
5,836,000 | 5,836,000 | |||||||||
Accumulated
other comprehensive income
|
490,931 | 384,698 | |||||||||
Statutory
reserves
|
15
|
2,201,811 | 1,464,861 | ||||||||
Retained
earnings
|
22,433,640 | 15,222,690 | |||||||||
Total
stockholders' equity
|
33,934,382 | 25,880,249 | |||||||||
33,934,382 | 25,880,249 | ||||||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 53,778,928 | $ | 46,244,568 |
Notes
|
2009
|
2008
|
|||||||||
Sales
|
$ | 50,170,014 | $ | 38,172,513 | |||||||
Less:
Sales Tax
|
(821,400 | ) | (629,489 | ) | |||||||
Net
sales
|
49,348,614 | 37,543,024 | |||||||||
Cost
of sales
|
(7,975,267 | ) | (5,950,680 | ) | |||||||
Gross
profit
|
41,373,347 | 31,592,344 | |||||||||
Selling,
general and administrative expenses
|
12
|
(31,347,139 | ) | (22,608,164 | ) | ||||||
Interest
expenses
|
13
|
(184,404 | ) | (234,101 | ) | ||||||
Operating
income
|
9,841,804 | 8,750,079 | |||||||||
Non-operating
income
|
49,447 | 8 | |||||||||
Non-operating
costs
|
(36,366 | ) | (835 | ) | |||||||
Income
before taxes
|
9,854,885 | 8,749,252 | |||||||||
Income
taxes
|
13
|
(1,906,985 | ) | (2,303,712 | ) | ||||||
Net
income
|
$ | 7,947,900 | $ | 6,445,540 |
Common
stock
|
Additional
Paid-in
Capital
|
Capital
reserve
|
Accumulated
other
comprehensive
income
|
Statutory
reserves
|
Retained
earnings
|
Total
|
||||||||||||||||||||||
Balance,
July 1, 2007
|
$ | 3,450 | $ | 2,968,550 | $ | 5,836,000 | $ | - | $ | 885,025 | $ | 9,356,986 | $ | 19,050,011 | ||||||||||||||
Net
income for the year
|
- | - | - | - | 579,836 | 5,865,704 | 6,445,540 | |||||||||||||||||||||
Foreign
currency
|
||||||||||||||||||||||||||||
translation
adjustment
|
- | - | - | 384,698 | - | - | 384,698 | |||||||||||||||||||||
Balance,
June 30, 2008
|
$ | 3,450 | $ | 2,968,550 | $ | 5,836,000 | $ | 384,698 | $ | 1,464,861 | $ | 15,222,690 | $ | 25,880,249 | ||||||||||||||
Net
income for the year
|
- | - | - | - | 736,950 | 7,256,278 | 7,947,900 | |||||||||||||||||||||
Foreign
currency
|
||||||||||||||||||||||||||||
translation
adjustment
|
- | - | - | 106,233 | - | - | 106,233 | |||||||||||||||||||||
Balance,
June 30, 2009
|
$ | 3,450 | $ | 2,968,550 | $ | 5,836,000 | $ | 490,931 | $ | 2,201,811 | $ | 22,478,968 | $ | 33,934,382 |
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 7,947,900 | $ | 6,445,540 | ||||
Adjustments
to reconcile net income to net cash provided
|
||||||||
by
operating activities
|
||||||||
Depreciation
|
302,762 | 283,417 | ||||||
Loss
on disposals of property, plant and equipment
|
31,630 | - | ||||||
Changes
in assets and liabilities
|
||||||||
Increase
in accounts receivable
|
(2,151,920 | ) | (1,885,681 | ) | ||||
(Increase)/decrease
in other receivables and prepayments
|
(2,436,718 | ) | 1,244,060 | |||||
Decrease
in inventories
|
741,357 | 655,446 | ||||||
Increase
in amount due from equity holder
|
(1,465,000 | ) | (108,426 | ) | ||||
(Decrease)/increase
in accounts payable
|
(2,094,181 | ) | 242,734 | |||||
Decrease
in accrued liabilities
|
(2,468,368 | ) | (4,678,508 | ) | ||||
Increase
in income taxes payable
|
79,476 | 160,490 | ||||||
Net
cash provided by operating activities
|
(1,513,062 | ) | 2,359,072 | |||||
Cash
flows from investing activities
|
||||||||
Purchases
of property, plant and equipment
|
(803,643 | ) | (80,647 | ) | ||||
Proceeds
from disposals of property, plant and equipment
|
14,650 | - | ||||||
Net
cash used in investing activities
|
(788,993 | ) | (80,647 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
from sales of common stock
|
- | 54,000 | ||||||
Proceeds
of borrowings
|
5,860,000 | 1,896,700 | ||||||
Repayment
of borrowings
|
(1,896,700 | ) | (4,085,200 | ) | ||||
Net
cash provided by/(used in) financing activities
|
3,963,300 | (2,134,500 | ) | |||||
Net
increase in cash and cash equivalents
|
1,661,245 | 143,925 | ||||||
Effect
of foreign currency translation on cash and cash
equivalents
|
3,871 | 384,698 | ||||||
Cash
and cash equivalents at beginning of year
|
829,050 | 300,427 | ||||||
Cash
and cash equivalents at end of year
|
$ | 2,494,166 | $ | 829,050 |
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
2.
|
BASIS
OF PRESENTATION
|
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Basis
of Presentation and consolidation
|
Name of
Company
|
Place of
incorporation
|
Date of
incorporation
|
Attributable
equity
interest
|
Issued capital
|
||||||||
Chance
High International Limited
|
British
Virgin Islands
|
July 02,
2009
|
100 | % |
USD50,000
|
|||||||
Yantai
Shencaojishi Pharmaceuticals Co., Ltd.
|
People’s
Republic of China
|
November
25, 2009
|
100 | % |
USD9,500,000
|
|||||||
Yantai
Bohai Pharmaceuticals Group Co., Ltd.
|
People’s
Republic of China
|
July
8, 2004
|
* |
USD2,918,000
(RMB20,000,000)
|
(b)
|
Economic
and Political Risks
|
(c)
|
Use
of Estimates
|
(d)
|
Cash
and Cash Equivalents
|
(e)
|
Accounts
Receivable
|
(f)
|
Inventories
|
(g)
|
Fair
value of Financial Instruments
|
(h)
|
Intangible
Assets
|
(i)
|
Property,
plant and equipment
|
Leasehold
land and buildings
|
30 to 40 years
|
Motor
vehicles
|
10 years
|
Plant
and machinery
|
10 years
|
Office
equipment
|
5 years
|
(j)
|
Accounting
for the Impairment of Long-Lived
Assets
|
(k)
|
Foreign
Currency Translation
|
6.30.2009 | 6.30.2008 | |||||||
Period
end US$ : RMB exchange rate
|
6.84480 | 6.87180 | ||||||
Average
periodic US$ : RMB exchange rate
|
6.84819 | 7.29062 |
(l)
|
Revenue
Recognition
|
|
·
|
Persuasive
evidence of an arrangement exists;
|
|
·
|
Delivery
has occurred or services have been
rendered;
|
|
·
|
The
seller’s price to the buyer is fixed or determinable;
and
|
|
·
|
Collectability
is reasonably assured. Payments have been
established.
|
(m)
|
Cost
of Revenue
|
(n)
|
Research
and Development Costs
|
(o)
|
Income
Taxes
|
(p)
|
Comprehensive
Income
|
(q)
|
Commitments
and Contingencies
|
(r)
|
Earning
per Shares
|
(s)
|
Recent
Accounting Pronouncements
|
4.
|
OTHER
RECEIVABLES AND PREPAYMENTS
|
As
of
|
As
of
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Prepayment
for advertising and promotion
|
$ | 1,736,025 | $ | 45,958 | ||||
Loan
to a third party
|
1,465,000 | - | ||||||
Loans
interest receivable
|
18,459 | - | ||||||
Other
receivables
|
9,774,316 | 10,511,124 | ||||||
$ | 12,993,800 | $ | 10,557,082 |
5.
|
AMOUNT
DUE FROM EQUITY HOLDER
|
As
of
|
As
of
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Mr.
Qu Hong Wei
|
$ | 1,465,000 | $ | - |
6.
|
INVENTORIES
|
As
of
|
As
of
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Raw
materials
|
$ | 250,405 | $ | 716,303 | ||||
Finished
goods
|
57,429 | 332,888 | ||||||
Total
inventories
|
$ | 307,834 | $ | 1,049,191 |
7.
|
INTANGIBLE
ASSETS
|
As
of
|
As
of
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Pharmaceuticals
formulas, at cost
|
$ | 17,298,720 | $ | 17,227,872 |
8.
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
As
of
|
As
of
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Cost
|
||||||||
Leasehold
land and buildings
|
$ | 7,447,211 | $ | 7,416,710 | ||||
Plant
and equipment
|
1,156,557 | 988,491 | ||||||
Office
equipment
|
74,700 | 15,179 | ||||||
Motor
vehicles
|
389,075 | 277,210 | ||||||
Total
|
9,067,543 | 8,697,590 | ||||||
Accumulated
depreciation
|
||||||||
Leasehold
land and buildings
|
414,133 | 229,132 | ||||||
Plant
and equipment
|
617,279 | 571,539 | ||||||
Office
equipment
|
10,681 | 5,956 | ||||||
Motor
vehicles
|
112,768 | 248,292 | ||||||
Total
|
1,154,861 | 1,054,919 | ||||||
Net
|
||||||||
Leasehold
land and buildings
|
7,033,078 | 7,187,578 | ||||||
Plant
and equipment
|
775,875 | 437,445 | ||||||
Office
equipment
|
64,019 | 9,223 | ||||||
Motor
vehicles
|
276,307 | 28,918 | ||||||
Total
|
8,149,279 | 7,663,164 | ||||||
Construction
in progress
|
236,597 | 20,493 | ||||||
Property,
plant and equipment, net
|
$ | 8,149,279 | $ | 7,663,164 |
9.
|
SHORT-TERM
BORROWINGS
|
Loan
from
|
Annual
|
||||||||||
financial
institution
|
Loan
period
|
Interest
rate
|
Secured
by
|
Amount
|
|||||||
Shanghai
Pudong
|
From
Dec 12, 2008
|
6.6960 | % |
Haiyang
Construction
|
$ | 2,197,500 | |||||
Development
Limited
|
to
Dec 11, 2009
|
Industry
Training Centre
|
|||||||||
and
personal guarantee
|
|||||||||||
by
equity holders
|
|||||||||||
Yantai
City
|
From
Jan 20, 2009
|
6.9030 | % |
Yantai
Hai Pu Can End
|
1,318,500 | ||||||
Commercial
Bank
|
to
Jan 20, 2010
|
Making
Co. Ltd
|
|||||||||
Yantai
Laishan Rural
|
From
Sep 27, 2008
|
9.3600 | % |
Yantai
Ka Wah Medical
|
293,000 | ||||||
Credit
Union
|
to
Sep 26, 2009
|
Equipment
Co. Ltd
|
|||||||||
Yantai
Laishan Rural
|
From
Sep 27, 2008
|
12.2400 | % |
Company's
machinery and
|
586,000 | ||||||
Credit
Union
|
to
Sep 26, 2009
|
vehicle
|
|||||||||
China
Construction
|
From
May 12, 2009
|
0.0000 | % |
Personal
guarantee by
|
1,465,000 | ||||||
Bank
|
to
Nov 11, 2009
|
equity
holders
|
|
||||||||
$ | 5,860,000 |
Loan
from
|
Annual
|
||||||||||
financial
institution
|
Loan
period
|
Interest
rate
|
Secured
by
|
Amount
|
|||||||
Yantai
City
|
From
Jan 31, 2008
|
8.0925 | % |
Yantai
Hai Pu Can End
|
$ | 1,313,100 | |||||
Commercial
Bank
|
to
Jan 20, 2009
|
Making
Co. Ltd
|
|||||||||
Industrial
and Commercial
|
From
Jan 25, 2008
|
7.4700 | % |
Shan
Dong Shui Hong
|
583,600 | ||||||
Bank
of China
|
to
Jan 24, 2009
|
Pharmaceutical
Co. Ltd
|
|
||||||||
$ | 1,896,700 |
10.
|
OTHER
ACCRUED LIABILITIES
|
As
of
|
As
of
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Advanced
from customers
|
$ | - | $ | 735,680 | ||||
Accrued
selling expenses
|
1,677,026 | 321,717 | ||||||
Accrued
staff costs
|
173,130 | 200,135 | ||||||
Value
added tax payable
|
709,688 | 541,152 | ||||||
Other
taxes payable
|
77,374 | 58,863 | ||||||
Payable
to Pharmaceutical formulas vendors
|
- | 2,724,087 | ||||||
Other
accrued expenses
|
9,702,137 | 10,113,980 | ||||||
|
||||||||
$ | 12,339,355 | $ | 14,695,614 |
11.
|
AMOUNT
DUE TO EQUITY HOLDER
|
As
of
|
As
of
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2009
|
|||||||
Mr.
Qu Hong Wei
|
$ | - | $ | 108,426 |
12.
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
Year
ended
|
Year
ended
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Accommodation
|
$ | 5,151,876 | $ | 4,593,639 | ||||
Advertising
and promotion
|
10,959,424 | 8,679,512 | ||||||
Audit
fee
|
8,937 | 1,928 | ||||||
Commission
|
1,419,478 | 135,453 | ||||||
Conference
|
5,089,283 | 3,877,918 | ||||||
Depreciation
|
20,514 | 9,033 | ||||||
Staff
costs
|
1,536,496 | 998,763 | ||||||
Travelling
|
2,755,259 | 1,649,162 | ||||||
Research
and development cost
|
293,000 | 344 | ||||||
Other
operating expenses
|
4,112,872 | 2,662,412 | ||||||
$ | 31,347,139 | $ | 22,608,164 |
13.
|
INTEREST
EXPENSES
|
Year
ended
|
Year
ended
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Interest
on short-term bank borrowings wholly repayable within one
year
|
$ | 184,404 | $ | 234,101 |
14.
|
INCOME
TAXES
|
Year
ended
|
Year
ended
|
|||||||
June
30,
|
June
30,
|
|||||||
2009
|
2008
|
|||||||
Current
taxes
|
||||||||
United
States
|
$ | - | $ | - | ||||
PRC
|
1,906,985 | 2,303,712 | ||||||
$ | 1,906,985 | $ | 2,303,712 |
2009
|
2008
|
|||||||
United
States Tax at statutory rate
|
$ | 3,350,661 | $ | 2,974,746 | ||||
Foreign
tax rate difference
|
(886,940 | ) | (787,433 | ) | ||||
Exemption
in taxation
|
(2,463,721 | ) | (2,187,313 | ) | ||||
$ | - | $ | - |
2009
|
2008
|
|||||||
Net
value added tax expense
|
$ | 7,443,011 | $ | 5,700,705 |
15.
|
COMMITMENTS
AND CONTINGENCIES
|
16.
|
SHARE
CAPITAL
|
17.
|
STATUTORY
RESERVES
|
18.
|
FINANCIAL
INSTRUMENTS
|
(a)
|
Credit
risk
|
(b)
|
Interest
rate risk
|
(c)
|
Fair
value estimation
|
19.
|
SUBSEQUENT
EVENTS
|