x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES
|
|
EXCHANGE
ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES
|
|
EXCHANGE
ACT OF 1934
|
Nevada
(State
or other jurisdiction of
incorporation
or organization)
|
98-0588402
(I.R.S.
Employer Identification No.)
|
c/o
Yantai Bohai Pharmaceuticals Group Co. Ltd.
No.
9 Daxin Road, Zhifu District
Yantai,
Shandong Province, China
|
264000
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
|
(Do
not check if a smaller reporting company)
|
PART
I – FINANCIAL INFORMATION
|
|||
Cautionary
Note Regarding Forward-Looking Statements
|
|||
Item
1.
|
Financial
Statements (unaudited)
|
||
Condensed
Consolidated Balance Sheets as of June 30, 2010 (audited) and September
30, 2010
|
1
|
||
Condensed
Consolidated Statements of Income and Comprehensive Income for three
months ended September 30, 2009 and 2010
|
2
|
||
Condensed
Consolidated Statements of Changes in Stockholders’ Equity for the
three months ended
September 30, 2010
|
3
|
||
Condensed
Consolidated Statements of Cash Flows for three months ended September 30,
2009 and 2010
|
4
|
||
Notes
to Condensed and Consolidated Financial Statements
|
5
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
29
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
41
|
|
Item
4(T).
|
Controls
and Procedures
|
41
|
|
PART
II – OTHER INFORMATION
|
|||
Item
1.
|
Legal
Proceedings
|
43
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
43
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
43
|
|
Item
4.
|
Removed
and Reserved
|
43
|
|
Item
5.
|
Other
Information
|
43
|
|
Item
6.
|
Exhibits
|
44
|
|
SIGNATURES
|
45
|
·
|
our
ability to obtain sufficient working capital to support our business
plans;
|
·
|
our ability to expand our product offerings and maintain the quality of our products; |
·
|
the availability of Chinese government granted rights to exclusively manufacture or co-manufacture our products; |
·
|
the availability of Chinese national healthcare reimbursement of our products; |
·
|
our ability to manage our expanding operations and continue to fill customers’ orders on time; |
·
|
our ability to maintain adequate control of our expenses allowing us to realize anticipated revenue growth; |
·
|
our ability to maintain or protect our intellectual property; |
·
|
our ability to maintain our proprietary technology; |
·
|
the impact of government regulation in China and elsewhere, including the support provided by the Chinese government to the Traditional Chinese Medicine and healthcare sectors in China; |
·
|
our ability to implement product development, marketing, sales and acquisition strategies and adapt and modify them as needed; |
·
|
our ability to integrate any future acquisitions; |
·
|
our implementation of required financial, accounting and disclosure controls and procedures and related corporate governance policies; and |
·
|
our ability to anticipate and adapt to changing conditions in the Traditional Chinese Medicine and healthcare industries resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics. |
As of
|
As of
|
||||||||
September 30,
|
June 30,
|
||||||||
Notes
|
2010
|
2010
|
|||||||
(unaudited)
|
|||||||||
ASSETS
|
|||||||||
Current
assets
|
|||||||||
Cash
and cash equivalents
|
$ | 15,540,245 | $ | 17,149,082 | |||||
Restricted
cash
|
188,528 | 576,019 | |||||||
Accounts
receivable
|
12,029,884 | 10,409,527 | |||||||
Other
receivables and prepayments
|
4
|
2,049,433 | 1,449,590 | ||||||
Amount
due from equity holder
|
5
|
- | 40,160 | ||||||
Inventories
|
6
|
1,696,434 | 748,422 | ||||||
Total
current assets
|
31,504,524 | 30,372,801 | |||||||
Non-current
assets
|
|||||||||
Property,
plant and equipment, net
|
8
|
7,936,156 | 7,895,042 | ||||||
Prepayment
for land use right
|
12,266,165 | 7,343,654 | |||||||
Intangible
assets
|
7
|
17,628,880 | 17,342,772 | ||||||
Deferred
fees on convertible notes
|
14
|
1,286,369 | 1,562,617 | ||||||
Total
non-current assets
|
39,117,570 | 34,144,085 | |||||||
TOTAL
ASSETS
|
$ | 70,622,094 | $ | 64,516,886 | |||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||||
Current
liabilities
|
|||||||||
Short-term
borrowings
|
9
|
$ | 4,471,417 | $ | 4,398,849 | ||||
Accounts
payable
|
1,766,965 | 741,621 | |||||||
Other
accrued liabilities
|
12
|
3,419,558 | 2,984,988 | ||||||
Amount
due to equity holder
|
11,980 | - | |||||||
Income
taxes payable
|
17
|
1,101,718 | 700,326 | ||||||
Total
current liabilities
|
10,771,638 | 8,825,784 | |||||||
Non-current
liabilities
|
|||||||||
Derivative
liabilities - investor and agent warrants
|
13
|
5,512,482 | 5,481,928 | ||||||
Convertible
note, net of discount
|
13
|
149,560 | 124,820 | ||||||
Total
non-current liabilities
|
5,662,042 | 5,606,748 | |||||||
TOTAL
LIABILITIES
|
16,433,680 | 14,432,532 | |||||||
STOCKHOLDERS’
EQUITY
|
|||||||||
Common
stock, $0.001 par value, 150,000,000 shares authorized, 16,576,200 and
16,500,000 shares issued and outstanding as of September 30, 2010 and June
30, 2010, respectively
|
10
|
16,576 | 16,500 | ||||||
Additional
paid-in capital
|
10
|
15,482,662 | 15,317,621 | ||||||
Accumulated
other comprehensive income
|
1,553,052 | 626,584 | |||||||
Statutory
reserves
|
20
|
2,201,817 | 2,201,817 | ||||||
Retained
earnings
|
34,934,307 | 31,921,832 | |||||||
Total
stockholders’ equity
|
54,188,414 | 50,084,354 | |||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 70,622,094 | $ | 64,516,886 |
For The Three
Months Ended
|
||||||||||
September 30,
|
||||||||||
Notes
|
2010
|
2009
|
||||||||
Net
revenues
|
$ | 17,029,648 | $ | 13,954,604 | ||||||
Cost
of revenues
|
(3,447,266 | ) | (2,217,604 | ) | ||||||
Gross
profit
|
13,582,382 | 11,737,000 | ||||||||
Selling,
general and administrative expenses
|
15
|
(8,614,758 | ) | (9,174,693 | ) | |||||
Income
from operations
|
4,967,624 | 2,562,307 | ||||||||
Other
incomes (expenses)
|
||||||||||
Other
income
|
14,208 | 69,072 | ||||||||
Amortization
of deferred financing fees
|
(259,965 | ) | - | |||||||
Interest
expense
|
16
|
(494,039 | ) | (148,395 | ) | |||||
Other
expense
|
(3,115 | ) | (5,269 | ) | ||||||
Change
in fair value of derivative liabilities
|
(30,554 | ) | - | |||||||
Total
other income (expenses)
|
(773,465 | ) | (84,592 | ) | ||||||
Income
before provision for income taxes
|
4,194,159 | 2,477,715 | ||||||||
Provision
for income taxes
|
17
|
(1,181,684 | ) | (555,474 | ) | |||||
Net
income
|
$ | 3,012,475 | $ | 1,922,241 | ||||||
Comprehensive
income:
|
||||||||||
Net
income
|
$ | 3,012,475 | $ | 1,922,241 | ||||||
Other
comprehensive income
|
||||||||||
Unrealized
foreign currency translation gain (loss)
|
926,468 | (47,583 | ) | |||||||
Comprehensive
income
|
$ | 3,938,943 | $ | 1,874,658 | ||||||
Earnings
per common share
|
||||||||||
Basic
|
11
|
$ | 0.18 | $ | 0.15 | |||||
Diluted
|
$ | 0.15 | $ | 0.15 | ||||||
Weighted
average common shares outstanding
|
||||||||||
Basic
|
11
|
16,506,626 | 13,162,500 | |||||||
Diluted
|
22,250,104 | 13,162,500 |
Accumulated
|
||||||||||||||||||||||||||||
Common Stock
|
Additional
|
other
|
||||||||||||||||||||||||||
Shares
|
Paid-in
|
comprehensive
|
Statutory
|
Retained
|
||||||||||||||||||||||||
outstanding
|
Amount
|
Capital
|
income
|
reserves
|
earnings
|
Total
|
||||||||||||||||||||||
Balance,
June 30, 2010
|
16,500,000 | $ | 16,500 | $ | 15,317,621 | $ | 626,584 | $ | 2,201,817 | $ | 31,921,832 | $ | 50,084,354 | |||||||||||||||
Stock
based compensation
|
- | - | 29,000 | - | - | - | 29,000 | |||||||||||||||||||||
Conversion
of convertible notes
|
76,200 | 76 | 136,041 | - | - | - | 136,117 | |||||||||||||||||||||
Net
income for the period
|
- | - | - | - | - | 3,012,475 | 3,012,475 | |||||||||||||||||||||
Foreign
currency translation
|
- | - | - | 926,468 | - | - | 926,468 | |||||||||||||||||||||
Balance,
September 30, 2010
|
16,576,200 | $ | 16,576 | $ | 15,482,662 | $ | 1,553,052 | $ | 2,201,817 | $ | 34,934,307 | $ | 54,188,414 |
For The Three
Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 3,012,475 | $ | 1,922,241 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||
Depreciation
|
85,701 | 83,723 | ||||||
Loss
on disposals of property, plant and equipment
|
1,879 | 6,602 | ||||||
Accretion
of beneficial conversion feature
|
147,423 | - | ||||||
Amortization
of deferred fees on convertible notes
|
259,965 | - | ||||||
Interest
expense on convertible notes
|
29,717 | - | ||||||
Change
in fair value of warrants
|
30,554 | - | ||||||
Stock
based compensation
|
29,000 | - | ||||||
Changes
in assets and liabilities
|
||||||||
(Increase)/decrease
in accounts receivable
|
(1,431,498 | ) | 131,768 | |||||
(Increase)/decrease
in other receivables and prepayments
|
(589,373 | ) | 460,384 | |||||
(Increase)/decrease
in inventories
|
(924,319 | ) | (130,794 | ) | ||||
(Decrease)/increase
in accounts payable
|
1,000,823 | (123,643 | ) | |||||
Increase
in accrued liabilities
|
402,743 | 412,107 | ||||||
(Decrease)/increase
in income taxes payable
|
385,112 | (121,851 | ) | |||||
Increase
in restricted cash
|
387,492 | - | ||||||
Net
cash provided by operating activities
|
2,827,694 | 2,640,537 | ||||||
Cash
flows from investing activities
|
||||||||
Purchases
of property, plant and equipment
|
(3,953 | ) | (6,033 | ) | ||||
Proceeds
from disposals of property, plant and equipment
|
4,425 | - | ||||||
Purchase
of leased land use rights
|
(4,743,139 | ) | - | |||||
Net
cash used in investing activities
|
(4,742,667 | ) | (6,033 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
of borrowings
|
877,540 | 872,865 | ||||||
Repayment
of borrowings
|
(877,540 | ) | (880,200 | ) | ||||
Repayment
from related party
|
52,357 | - | ||||||
Net
cash provided by (used in) financing activities
|
52,357 | (7,335 | ) | |||||
Effect
of foreign currency translation on cash and cash
equivalents
|
253,779 | 13,493 | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(1,608,837 | ) | 2,640,662 | |||||
Cash
and cash equivalents at beginning of period
|
17,149,082 | 2,491,726 | ||||||
Cash
and cash equivalents at end of period
|
$ | 15,540,245 | $ | 5,132,388 | ||||
Cash
paid during the year for
|
||||||||
Interest
paid
|
$ | 298,316 | $ | 141,433 | ||||
Income
taxes paid
|
$ | 796,572 | $ | 678,174 | ||||
Non-cash
investing and financing activities::
|
||||||||
Common
stock issued upon conversion of convertible notes and accrued
interest
|
$ | 136,117 | $ | - |
Name of Company
|
Place of
incorporation
|
Date of
incorporation
|
Attributable
equity interest
|
Issued Capital
(US Dollars)
|
|||||||
Chance
High International Limited
|
British
Virgin Islands
|
July
2, 2009
|
100
|
% |
$
|
50,000
|
|||||
Yantai
Shencaojishi Pharmaceuticals Co., Ltd.
|
People’s
Republic of
China
|
November
25, 2009
|
100
|
% |
$
|
9,500,000
|
|||||
Yantai
Bohai Pharmaceuticals Group Co., Ltd.
|
People’s
Republic of
China
|
July
8, 2004
|
*
|
$
|
2,918,000
(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.
|
Liabilities:
|
||||
Balance
of derivative liabilities as of June 30, 2010
|
$ | 5,481,928 | ||
Change
in the fair value of derivative liabilities
|
30,554 | |||
Balance
of derivative liabilities as of September 30, 2010
|
$ | 5,512,482 |
September 30, 2010
|
June 30, 2010
|
|||||||||||||||
(unaudited)
|
||||||||||||||||
Country:
|
||||||||||||||||
United
States
|
$ | 230,628 | 1.0 | % | $ | - | - | % | ||||||||
China
|
15,309,617 | 99.0 | % | 17,149,082 | 100.0 | % | ||||||||||
Total
cash and cash equivalents
|
$ | 15,540,245 | 100.0 | % | $ | 17,149,082 | 100.0 | % |
Leasehold
land and buildings
|
30
to 40 years
|
|
Motor
vehicles
|
10
years
|
|
Plant
and machinery
|
10
years
|
|
Office
equipment
|
5
years
|
September 30,
2010
|
June 30,
2010
|
September 30,
2009
|
||||||||||
Period
end US$: RMB exchange rate
|
6.69810 | 6.80860 | 6.81663 | |||||||||
Average
periodic US$: RMB exchange rate
|
6.78032 | 6.83667 | 6.82082 |
·
|
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.
|
4.
|
OTHER RECEIVABLES AND
PREPAYMENTS
|
As of
September 30,
2010
|
As of
June 30,
2010
|
|||||||
(unaudited)
|
||||||||
Prepayment for advertising and
promotion
|
$ | 1,786,925 | $ | 1,198,484 | ||||
Prepayment for director and
officer insurance
|
21,667 | 29,792 | ||||||
Other
receivables
|
240,841 | 221,314 | ||||||
Total other receivables and
prepayments
|
$ | 2,049,433 | $ | 1,449,590 |
5.
|
AMOUNT DUE FROM EQUITY
HOLDER
|
As of
|
As of
|
|||||||
|
September 30,
|
June 30,
|
||||||
|
2010
|
2010
|
||||||
(unaudited)
|
||||||||
Mr. Hongwei
Qu
|
$ | - | $ | 40,160 |
6.
|
INVENTORIES
|
As of
September 30, 2010
|
As of
June 30, 2010
|
|||||||
(unaudited)
|
||||||||
Raw
materials
|
$ | 1,149,130 | $ | 445,693 | ||||
Finished
goods
|
547,304 | 302,729 | ||||||
Total
inventories
|
$ | 1,696,434 | $ | 748,422 |
7.
|
INTANGIBLE
ASSETS
|
As of
September 30,
2010
|
As of
June 30,
2010
|
|||||||
(unaudited)
|
||||||||
Pharmaceuticals formulas,
at cost
|
$ | 17,628,880 | $ | 17,342,772 |
8.
|
PROPERTY, PLANT AND EQUIPMENT,
NET
|
As of
September 30, 2010
|
As of
June 30, 2010
|
|||||||
(unaudited)
|
||||||||
Cost
|
||||||||
Leasehold land and
buildings
|
$ | 7,755,363 | $ | 7,629,498 | ||||
Plant and
equipment
|
1,258,773 | 1,234,994 | ||||||
Office
equipment
|
87,150 | 85,174 | ||||||
Motor
vehicles
|
413,910 | 414,622 | ||||||
Total
|
9,515,196 | 9,364,288 | ||||||
Less: accumulated
depreciation
|
1,579,040 | 1,469,246 | ||||||
Property, plant and equipment,
net
|
$ | 7,936,156 | $ | 7,895,042 |
9.
|
SHORT-TERM
BORROWINGS
|
Loan from financial
institution
|
Loan period
|
Annual
interest rate
|
Secured by
|
Amount
|
|||||||
China
Construction Bank
|
February
24, 2010 to February 23, 2011
|
5.8410%
|
Shandong
Dai Xin Heavy Industries
Co. Ltd.
|
$
|
3,583,106
|
||||||
Yantai
Laishan Rural Credit
Union
|
September
21, 2010 to September 20, 2011
|
9.0270%
|
Yantai
Ka Wah Medical Equipment Co.
Ltd
|
597,184
|
|||||||
Yantai
Laishan Rural Credit
Union
|
September
21, 2010 to September 20, 2011
|
6.9030%
|
Bohai’s
machinery and vehicle
|
291,127
|
|||||||
TOTAL
|
$
|
4,471,417
|
Loan from financial
institution
|
Loan period
|
Annual
interest rate
|
Secured by
|
Amount
|
|||||||
China
Construction Bank
|
February
24, 2010 to February 23, 2011
|
5.8410%
|
Shandong
Dai Xin Heavy Industries Co.
Ltd.
|
$
|
3,524,954
|
||||||
Yantai
Laishan Rural Credit
Union
|
September
28, 2009 to September 26, 2010
|
9.0270%
|
Yantai
Ka Wah Medical Equipment Co. Ltd
|
587,492
|
|||||||
Yantai
Laishan Rural Credit
Union
|
September
28, 2009 to September 26, 2010
|
6.9030%
|
Bohai’s
machinery and vehicle
|
286,403
|
|||||||
TOTAL
|
$
|
4,398,849
|
10.
|
COMMON
STOCK
|
11.
|
EARNINGS PER
SHARE
|
Three months
ended
|
Three months
ended
|
|||||||
September 30,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Net income available
to common
stockholders
|
$ | 3,012,475 | $ | 1,922,241 | ||||
Effective interest charge on convertible
note
|
256,717 | - | ||||||
Net income for diluted
earnings per common share
|
$ | 3,269,192 | $ | 1,922,241 |
Three months
ended
|
Three months
ended
|
|||||||
September 30,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Basic weighted average common
stocks
outstanding
|
16,506,626 | 13,162,500 | ||||||
Effect of dilutive
securities:
|
||||||||
Warrants - incremental shares
based on assumed proceeds &
repurchases
|
- | - | ||||||
Common shares if converted
from Convertible
Debt
|
5,743,478 | - | ||||||
Diluted weighted average for common stocks
outstanding
|
22,250,104 | 13,162,500 |
12.
|
OTHER ACCRUED
LIABILITIES
|
As of
|
As of
|
|||||||
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
(unaudited)
|
||||||||
Accrued selling
expenses
|
$ | 1,849,108 | $ | 1,542,280 | ||||
Accrued staff
costs
|
214,237 | 221,810 | ||||||
Value added tax
payable
|
792,053 | 686,478 | ||||||
Other taxes
payable
|
102,778 | 78,370 | ||||||
Other accrued
expenses
|
461,382 | 456,050 | ||||||
Total Other accrued
liabilities
|
$ | 3,419,558 | $ | 2,984,988 |
13.
|
CONVERTIBLE PROMISSORY NOTES
AND WARRANTS
|
Warrant
Shares
|
Exercisable
Shares
|
Exercise Price per
Common Stock Range
|
||||||||||
Balance, June 30,
2010
|
6,600,000 | 6,000,000 | $ | 2.40 | ||||||||
Granted or vested
during the three months ended September 30,
2010
|
- | - | - | |||||||||
Exercised during the three
months ended September 30, 2010
|
- | - | - | |||||||||
Expired during the three
months ended September 30, 2010
|
- | - | - | |||||||||
Balance, September 30, 2010
(unaudited)
|
6,600,000 | 6,000,000 | $ | 2.40 |
Warrants Outstanding
|
|||||||||||||||||
Number
|
|||||||||||||||||
Outstanding
|
Weighted
|
Weighted Average
|
|||||||||||||||
Number
|
Currently
|
Average
|
Exercise Price of
|
||||||||||||||
Outstanding
|
Exercisable
|
Remaining
|
Warrants
|
||||||||||||||
Exercise
Price
|
at September
30, 2010
|
at
September 30, 2010
|
Contractual Life
(Years)
|
currently
exercisable
|
|||||||||||||
$ | 2.40 | 6,600,000 | 6,000,000 | 2.27 | $ | 2.40 |
September 30, 2010
(Unaudited)
|
June 30, 2010
(Audited)
|
|||||||
Convertible
notes payable, at face value
|
$ | 11,350,000 | $ | 11,500,000 | ||||
Less:
unamortized beneficial conversion feature and warrants discount on
convertible notes
|
(11,200,440 | ) | (11,375,180 | ) | ||||
Convertible
notes, net
|
$ | 149,560 | $ | 124,820 |
14.
|
DEFERRED FEES ON CONVERTIBLE
NOTES
|
As of
|
As of
|
|||||||
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
(unaudited)
|
||||||||
Deferred fees, beginning
balance
|
$ | 1,562,617 | $ | 2,152,454 | ||||
Transferred to equity on
conversion
|
(16,283 | ) | (79,120 | ) | ||||
Amortization of deferred
fees
|
(259,965 | ) | (510,717 | ) | ||||
Deferred fee, ending
balance
|
$ | 1,286,369 | $ | 1,562,617 |
15.
|
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE
|
Three months ended
|
Three months ended
|
|||||||
September 30,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Travel and accommodation
|
$ | 1,550,958 | $ | 1,266,522 | ||||
Advertising and
promotion
|
2,827,712 | 3,307,323 | ||||||
Audit fee
|
18,838 | - | ||||||
Conferences
|
1,445,857 | 1,051,418 | ||||||
Depreciation
|
9,959 | 8,614 | ||||||
Staff costs
|
581,512 | 576,091 | ||||||
Research and development
cost
|
184,357 | 293,220 | ||||||
Other operating
expenses
|
1,995,565 | 2,671,505 | ||||||
Total selling, general and
administrative expense
|
$ | 8,614,758 | $ | 9,174,693 |
16.
|
INTEREST EXPENSE
|
Three months ended
|
Three months ended
|
|||||||
September 30,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Interest on short-term bank
borrowings wholly repayable within one year
|
$ | 89,899 | $ | 148,395 | ||||
Amortization of beneficial conversion feature and
warrants discount on convertible notes converted
|
147,423 | - | ||||||
Effective interest charge on
Convertible Notes
|
256,717 | - | ||||||
Total interest
expenses
|
$ | 494,039 | $ | 148,395 |
17.
|
INCOME
TAXES
|
Three months ended
|
Three months ended
|
|||||||
September 30,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Current
taxes
|
||||||||
United
States
|
$ | - | $ | - | ||||
PRC
|
1,181,684 | 555,474 | ||||||
Deferred
taxes
|
||||||||
United
States
|
(326,783 | ) | - | |||||
PRC
|
- | - | ||||||
Change in valuation
allowance
|
326,783 | - | ||||||
Total income tax
expenses
|
$ | 1,181,684 | $ | 555,474 |
Three months
ended
|
Three months ended
|
|||||||
September 30,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
United States Tax at statutory
rate
|
$ | 1,426,012 | $ | 842,423 | ||||
Foreign tax rate
difference
|
(463,686 | ) | (222,994 | ) | ||||
Net operating loss carry
forward
|
326,783 | - | ||||||
Permanent
difference
|
(107,425 | ) | (63,955 | ) | ||||
Income tax
expense
|
$ | 1,181,684 | $ | 555,474 |
As of
|
As of
|
|||||||
September 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
(unaudited)
|
||||||||
Deferred tax
asset:
|
||||||||
Net operating loss carry
forward
|
$ | 635,189 | $ | 308,406 | ||||
Total gross deferred tax
asset
|
635,189 | 308,406 | ||||||
Less: valuation
allowance
|
(635,189 | ) | (308,406 | ) | ||||
Net deferred tax
asset
|
$ | - | $ | - |
Three months ended
September 30, 2010
|
Three months ended
September 30, 2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Net value added tax
expenses
|
$ | 2,236,415 | $ | 2,065,162 |
18.
|
COMMITMENTS AND
CONTINGENCIES
|
19.
|
SIGNIFICANT
CONCENTRATIONS
|
(a)
|
Customer Concentrations
|
(b)
|
Supplier Concentrations
|
Three months
ended September
30, 2010
|
Three months ended
September 30, 2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Shandong Yantai Medicine
Procurement and Supply Station
|
18.0 | % | 14.1 | % | ||||
Anguo Jinkangdi Chinese Herbal
Medicine Co.
Ltd
|
12.8 | % | * | |||||
Anhui DeChang Pharmaceutical Co.
Ltd.
|
* | 13.6 | % | |||||
* Constitutes less than 10%
of the Company’s purchase.
|
20.
|
STATUTORY
RESERVES
|
21.
|
SUBSEQUENT
EVENTS
|
Three Months
Ended
|
||||||||||||
September
30,
|
||||||||||||
2010
|
2009
|
Increase
(Decrease)
|
||||||||||
Net Income available to Common
shareholders -GAAP
|
$ | 3,012,475 | $ | 1,922,241 | $ | 1,228,502 | ||||||
Add Back
(Subtract):
|
||||||||||||
Change in fair value of
warrants
|
30,554 | (a) | - | 30,554 | ||||||||
Amortization of beneficial
conversion features on convertible notes converted
|
147,423 | (a) | - | 147,423 | ||||||||
Adjusted Net Income available to
Common shareholders -non-GAAP
|
$ | 3,190,452 | $ | 1,922,241 | $ | 1,406,479 | ||||||
Add Back
(Subtract):
|
||||||||||||
Effective interest charges on
convertible notes
|
256,717 | - | 256,717 | |||||||||
Adjusted Net Income for diluted
earnings per common shares -non-GAAP
|
$ | 3,447,169 | $ | 1,922,241 | $ | 1,663,196 | ||||||
Basic earnings per share
– GAAP
|
$ | 0.18 | $ | 0.15 | $ | 0.04 | ||||||
Add back
(Subtract):
|
||||||||||||
Change in fair value of
warrants
|
- | (a) | - | - | ||||||||
Unamortized beneficial conversion
features on convertible notes converted
|
0.01 | (a) | - | 0.01 | ||||||||
Adjusted basic earnings per share
non-GAAP
|
$ | 0.19 | $ | 0.15 | $ | 0.05 | ||||||
Diluted earnings per
share-GAAP
|
$ | 0.15 | $ | 0.15 | $ | - | ||||||
Add back
(Subtract):
|
||||||||||||
Change in fair value of
warrants
|
- | (a) | - | - | ||||||||
Amortization of beneficial
conversion features on convertible notes converted
|
- | (a) | - | - | ||||||||
Adjusted diluted earnings per
share non-GAAP
|
$ | 0.15 | $ | 0.15 | $ | - | ||||||
Weighted average number of
shares
|
||||||||||||
Basic
|
16,506,626 | 13,162,500 | ||||||||||
Diluted
|
22,250,104 | 13,162,500 |
|
·
|
Net revenues for the period ended September 30,
2010 increased 22% to
$17.0 million
compared to the same period in 2009.
|
|
o
|
Net revenues for the five new
products introduced in April increased
160% from the quarter ended June 30,
2010.
|
|
o
|
Sales were mostly derived from our lead products, Lung Nourishing Cream, Tongbi
Capsules and Tongbi Tablets, which together represented over 70% of our
total net revenues.
|
|
o
|
62% of net revenue was derived
from sales of prescription products and 38% was from Over-the-Counter
products.
|
|
·
|
Net income for the period ended September 30,
2010 increased
57% to $3.0
million compared to
the same period in 2009.
|
|
o
|
Net income from operations
increased 94% to $5.0
million.
|
|
o
|
Net income margin increased to
18% compared to 14%
from the same quarter last
year.
|
|
o
|
Selling, general and
administrative expenses decreased 8% to 8.6 million due to cost reduction
in advertisement and other operating
expenses.
|
|
·
|
Basic earnings per share increased
to $0.18 and diluted earnings per share remained at
$0.15.
|
|
o
|
Diluted earnings per share
remained at $0.15 despite an increase in average shares outstanding by 9
million shares.
|
|
o
|
Basic earnings per share increased
20% over the comparable year period
to $0.18.
|
|
·
|
Cash flow from
operating activities
for the period ended
September 30, 2010 was $2.8
million.
|
|
o
|
Total cash decreased by
$1.6
million.
|
|
o
|
Cash payment of $4.7 million for deposits on the
purchase of prepaid land use rights from the Shandong provincial
government for future factory expansion.
|
For
The Three Months Ended
|
||||||||||||||||
September 30,
|
||||||||||||||||
Increase
|
|
|||||||||||||||
2010
|
2009
|
(decrease)
|
Percentages
|
|||||||||||||
Net
revenues
|
$ | 17,029,648 | $ | 13,954,604 | $ | 3,075,044 | 22.0 | % | ||||||||
Cost
of revenue
|
3,447,266 | 2,217,604 | 1,229,662 | 55.5 | % | |||||||||||
Gross
profit
|
13,582,382 | 11,737,000 | 1,845,382 | 15.7 | % | |||||||||||
Selling,
general, and administrative expenses
|
8,614,758 | 9,174,693 | (559,935 | ) | (8.1 | )% | ||||||||||
Income
from operations
|
4,967,624 | 2,562,307 | 2,405,317 | 93.9 | % | |||||||||||
Total
other expenses
|
773,465 | 84,592 | 688,873 | 814.3 | % | |||||||||||
Income
before provision for income taxes
|
4,194,159 | 2,477,715 | 1,716,444 | 69.3 | % | |||||||||||
Provision
for income taxes
|
1,181,684 | 555,474 | 626,210 | 112.7 | % | |||||||||||
Net
income
|
$ | 3,012,475 | $ | 1,922,241 | $ | 1,090,234 | 56.7 | % |
For
The Three Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
Net
revenues
|
100.0 | % | 100.0 | % | ||||
Cost
of revenue
|
20.2 | % | 15.9 | % | ||||
Gross
profit
|
79.8 | % | 84.1 | % | ||||
Selling,
general, and administrative expenses
|
50.6 | % | 65.7 | % | ||||
Income
from operations
|
29.2 | % | 18.4 | % | ||||
Total
other expenses
|
4.6 | % | 0.6 | % | ||||
Income
before provision for income taxes
|
24.6 | % | 17.8 | % | ||||
Provision
for income taxes
|
6.9 | % | 4.0 | % | ||||
Net
income
|
17.7 | % | 13.8 | % |
For the three months ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
Net cash provided by operating
activities
|
$ | 2,827,694 | $ | 2,640,537 | ||||
Net cash used in investing
activities
|
(4,742,667 | ) | (6,033 | ) | ||||
Net cash provided by (used in)
financing activities
|
52,357 | (7,335 | ) | |||||
Effect of foreign currency
translation on cash and cash equivalents
|
253,779 | 13,493 | ||||||
Net (decrease) increase in cash
and cash equivalent
|
$ | (1,608,837 | ) | $ | 2,640,662 |
|
·
|
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.
|
Leasehold land and
buildings
|
30 to 40
years
|
|
Motor
vehicles
|
10 years
|
|
Plant and
machinery
|
10 years
|
|
Office equipment
|
5
years
|
Payments Due by Period
|
||||||||||||||||||||
Total
|
Less than
1 year
|
1-3 Years
|
4-5 Years
|
5 Years +
|
||||||||||||||||
Contractual
Obligations :
|
||||||||||||||||||||
Purchase
of land use rights
|
$ | 2,290,235 | $ | 2,290,235 | $ | - | $ | - | $ | - | ||||||||||
Bank
loans
|
4,417,417 | 4,417,417 | - | - | - | |||||||||||||||
Research
and Development
|
1,492,900 | 746,450 | 746,450 | - | - | |||||||||||||||
Convertible
notes
|
11,350,000 | - | 11,350,000 | - | - | |||||||||||||||
Total
Contractual Obligations:
|
$ | 19,550,552 | $ | 7,454,102 | $ | 12,096,450 | $ | - | $ | - |
Item 3.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
Item 4T.
|
Controls
and Procedures
|
Item
1.
|
Legal
Proceedings
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Item
3.
|
Defaults
Upon Senior Securities
|
Item
4.
|
Removed
and Reserved
|
Item
5.
|
Other
Information
|
Item 6.
|
Exhibits
|
Exhibit
Number
|
Description of Exhibit
|
|
31.1*
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
|
31.2*
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
|
32.1*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
|
|
32.2*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
|
Bohai
Pharmaceuticals Group, Inc.
|
||
November
12, 2010
|
By:
|
/s/ Hongwei Qu
|
Hongwei
Qu
Chief
Executive Officer
(Principal
Executive Officer)
|
||
November
12, 2010
|
By:
|
/s/ Gene Hsiao
|
Gene
Hsiao
Chief
Financial Officer
(Principal
Accounting Officer)
|