BMP Sunstone (BJGP) 10-Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2007

OR

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

FOR THE TRANSITION PERIOD FROM                    TO                    

Commission file number 000-51409

BEIJING MED-PHARM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	20-0434726
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
600 W. Germantown Pike, Suite 400
Plymouth Meeting, Pennsylvania	19462
(Address of principal executive offices)	(Zip Code)

(610) 940-1675
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ     Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filero           Accelerated filero           Non-accelerated filerþ

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

The number of shares of common stock of Beijing Med-Pharm Corporation outstanding as of November 10, 2007 was 30,536,508.

BEIJING MED-PHARM CORPORATION
INDEX

	Page
	No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006		3
Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2007 and 2006		4
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2007		5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2007 and 2006		6
Notes to Condensed Consolidated Financial Statements (Unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations		13
Item 3. Quantitative and Qualitative Disclosures About Market Risk		23
Item 4. Controls and Procedures		23
Part II OTHER INFORMATION
Item 1A. Risk Factors		24
Item 6. Exhibits		38
SIGNATURES
Certificate of the Chief Executive Officer
Certificate of the Chief Financial Officer
Certificate of the Chief Executive Officer required by Rule 13a-14(a)
Certificate of the Chief Financial Officer required by Rule 13a-14(a)

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BEIJING MED-PHARM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30,			December 31,
	2007			2006
Assets
Current Assets:
Cash and Cash Equivalents	$	34,417,280		$	15,330,606
Restricted Cash		516,144			108,000
Accounts Receivable, net of allowance for doubtful accounts of $0		10,138,905			7,237,167
Inventory, net of allowance for obsolescence of $0		2,403,913			1,969,547
Note Receivable from Rongheng		659,000			—
Other Receivables		418,485			350,151
Deposit on Acquisition		4,800,100			—
VAT Receivable		565,815			597,119
Prepaid Expenses and Other Current Assets		1,361,588			597,439
Total Current Assets		55,281,230			26,190,029
Restricted Cash		157,000			157,000
Property and Equipment, net		418,572			312,594
Investments, at Cost		132,971			128,205
Intangible Assets, net of accumulated amortization		536,972			728,722
Total Assets	$	56,526,745		$	27,516,550
Liabilities and Stockholders’ Equity
Current Liabilities:
Notes Payable	$	117,378		$	117,378
Related Party Notes Payable		26,696			548,422
Accounts Payable		7,534,109			6,063,956
Accounts Payable Wanhui Group		—			214,227
Deferred Revenue		162,441			18,159
Accrued Payroll		536,558			533,290
Accrued Professional Fees		308,360			140,349
Accrued Taxes and related expenses		86,605			85,603
Accrued Social Welfare and related expenses		211,803			204,134
Accrued Contract Allowance		463,524			462,581
Accrued Other		785,767			442,172
Total Current Liabilities		10,233,241			8,830,271
Notes Payable, long term		29,469			126,495
Total Liabilities	$	10,262,710		$	8,956,766
Stockholders’ Equity:
Common Stock, $.001 Par Value; 50,000,000 Shares Authorized; 30,397,522 and 26,522,868 Shares Issued and Outstanding as of September 30, 2007 and December 31, 2006, respectively	$	30,398		$	26,523
Additional Paid in Capital		57,113,362			28,039,112
Common Stock Warrants		9,866,707			6,371,332
Accumulated Deficit		(21,009,044	)		(15,964,418	)
Accumulated Other Comprehensive Income		262,612			87,235
Total Stockholders’ Equity		46,264,035			18,559,784
Total Liabilities and Stockholders’ Equity	$	56,526,745		$	27,516,550

See notes to condensed consolidated financial statements.

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BEIJING MED-PHARM CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Net Revenues	$	8,979,197		$	6,898,886		$	21,844,512		$	17,020,467
Cost of Sales		8,474,137			6,683,601			20,329,696			16,457,460
Gross Margin		505,060			215,285			1,514,816			563,007
Sales and Marketing Expenses		407,405			295,593			1,134,341			885,198
General & Administration Expenses		2,072,857			1,116,760			5,827,608			4,055,413
Loss on Disposal of Asset		19,586			407,348			19,586			407,348
Total Operating Expenses		2,499,848			1,819,701			6,981,535			5,347,959
Loss From Operations		(1,994,788	)		(1,604,416	)		(5,466,719	)		(4,784,952	)
Other Income (Expense):
Interest Income		171,877			31,763			441,453			123,985
Interest Expense		(46,564	)		(27,519	)		(90,188	)		(51,108	)
Other Income		70,829			45,706			70,829			42,291
Total Other Income		196,142			49,950			422,094			115,168
Loss Before Provision For Income Taxes		(1,798,646	)		(1,554,466	)		(5,044,625	)		(4,669,784	)
Provision For Income Taxes		—			—			—			33,863
Net Loss	$	(1,798,646	)	$	(1,554,466	)	$	(5,044,625	)	$	(4,703,647	)
Basic and Diluted Loss Per Share	$	(0.06	)	$	(0.07	)	$	(0.19	)	$	(0.21	)
Basic and Diluted Weighted-average Shares Outstanding		28,394,329			23,154,067			27,247,195			22,612,327

See notes to condensed consolidated financial statements.

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BEIJING MED-PHARM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (Unaudited)

														Accumulated
														Other
														Comprehensive
	Common Stock													Income
			$.001		Additional			Common						Foreign		Total
	Number		Par		Paid-in			Stock			Accumulated			Currency		Stockholder’s
	of Shares		Value		Capital			Warrants			Deficit			Translation		Equity
Balance as of December 31, 2006		26,522,868	$	26,523	$	28,039,112		$	6,371,332		$	(15,964,418	)	$	87,235	$	18,559,784
Stock-Based Compensation						316,028											316,028
Warrant Exercise		118,323		118		1,013,526			(479,833	)							533,811
Net Loss												(1,687,571	)				(1,687,571	)
Other Comprehensive Loss
Foreign Currency Translation															39,597		39,597
Total Comprehensive Loss																	(1,647,974	)
Balance as of March 31, 2007		26,641,191	$	26,641	$	29,368,666		$	5,891,499		$	(17,651,989	)	$	126,832	$	17,761,649
Stock-Based Compensation						356,396											356,396
Warrant and Option Exercises		213,752		214		663,893			(397,000	)							267,107
Net Loss												(1,558,408	)				(1,558,408	)
Other Comprehensive Loss
Foreign Currency Translation															71,746		71,746
Other Comprehensive Loss																	(1,486,662	)
Balance as of June 30, 2007		26,854,943	$	26,855	$	30,388,955		$	5,494,499		$	(19,210,397	)	$	198,578	$	16,898,490
Common Stock Issuance		3,531,454		3,532		32,602,358											32,605,890
Cost in Connection with Common Stock Issuance						(2,003,215	)										(2,003,215	)
Stock-Based Compensation						460,396											460,396
Common Stock Warrants Issuance						(4,378,898	)		4,378,898
Warrant and Option Exercises		11,125		11		43,766			(6,690	)							37,087
Net Loss												(1,798,647	)				(1,798,647	)
Other Comprehensive Loss
Foreign Currency Translation															64,034		64,034
Other Comprehensive Loss																	(1,734,613	)
Balance as of September 30, 2007		30,397,522	$	30,398	$	57,113,362		$	9,866,707		$	(21,009,044	)	$	262,612	$	46,264,035

See notes to condensed consolidated financial statements.

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BEIJING MED-PHARM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		For the nine months ended
		September 30,
		2007			2006
Cash Flows from Operating Activities:
Net Loss		$	(5,044,625	)	$	(4,703,647	)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities:
Depreciation and amortization of Property and Equipment			84,600			65,851
Amortization of Intangible Assets			191,750			196,794
Stock-Based Compensation			1,132,820			660,110
Loss on Disposal of Asset			19,586			407,348
Increase in Accounts Receivable			(2,901,738	)		(1,914,995	)
Increase in Inventory			(434,365	)		(195,100	)
Increase in Other Receivables			(68,334	)		(4,972	)
Decrease (Increase) in Value Added Tax Receivable			31,304			(124,611	)
Increase in Prepaid Expenses and Other Current Assets			(764,150	)		(8,986	)
Increase in Accounts Payable			1,470,153			649,232
Increase in Deferred Revenue			144,282			378
Increase (Decrease) in Accrued Payroll			3,268			(24,284	)
Increase (Decrease) in Accrued Professional Fees			168,011			(164,650	)
Increase in Accrued Taxes and related expenses			1,002			—
Increase in Accrued Social Welfare and related expenses			7,668			—
Increase in Contract Allowances			943			9,621
Increase in Accrued Other			343,596			129,096
Net Cash Used in Operating Activities			(5,614,229	)		(5,022,815	)
Cash Flows from Investing Activities:
Acquisition payment due to Wanhui Group			(214,227	)		(412,089	)
Acquisition of Property and Equipment			(210,165	)		(209,414	)
Cash Paid for Acquisition			(4,800,100	)
Note Receivable from Rongheng			(659,000	)		—
Net Cash Used In Investing Activities			(5,883,492	)		(621,503	)
Cash Flows from Financing Activities:
Net Proceeds from Exercise of Common Stock Warrants and Options			838,005			2,594,228
Net Proceeds from Common Stock Issuance			30,602,675			—
Payments on Note Payable			(618,752	)		(83,419	)
Increase in restricted cash			(408,144	)		—
Net Cash Provided by Financing Activities			30,413,784			2,510,809
Effect of exchange rate changes on cash			170,611			22,094
	��
Net Increase (Decrease) in Cash and Equivalents			19,086,674			(3,111,415	)
Cash and Cash Equivalents, Beginning			15,330,606			6,905,911
Cash and Cash Equivalents, Ending		$	34,417,280		$	3,794,496
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Years for:
Income Taxes		$	0		$	50,290
Interest			57,963			51,793

See notes to condensed consolidated financial statements.

6

BEIJING MED-PHARM CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation:

     The accompanying unaudited condensed consolidated financial statements as of September 30, 2007 and for the three and nine months ended September 30, 2007 and 2006 of Beijing Med-Pharm Corporation and subsidiaries (collectively, “the Company” ) include the accounts of Beijing Med-Pharm Corporation (the “Parent”) and its wholly-owned subsidiaries, Beijing MedPharm Co. Ltd. (“BMP China”), Beijing Wanwei Pharmaceutical Co., Ltd. (“Wanwei”) and Beijing Med-Pharm Hong Kong Co., Ltd. (“Hong Kong”) should be read in conjunction with the audited consolidated financial statements and accompanying footnotes of the Company as of December 31, 2006 and 2005, and for each of the three years for the period ended December 31, 2006, included in the Company’s Annual Report on form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2007. In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments, consisting principally of normal recurring adjustments, necessary for a fair presentation of the Company’s interim results. Certain information and footnote disclosures required for complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to applicable rules and regulations. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year.

     Earnings Per Share:The Company calculates basic earnings per share based on the weighted-average number of outstanding common shares. The Company calculates diluted earnings per share based on the weighted-average number of outstanding common shares plus the effect of dilutive stock options and warrants. Common stock equivalents have been excluded from the diluted per share calculations as of September 30, 2007 and 2006, as the Company has incurred a net loss during the three month period then ended, and their inclusion would have been anti-dilutive.

     New Accounting Policy:The Company adopted the provisions of FASB Interpretation 48,Accounting for Uncertainty in Income Taxes, on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards 5,Accounting for Contingencies. As required by Interpretation 48, which clarifies Statement 109,Accounting for Income Taxes, the Company recognizes the financial statement benefits of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of FIN 48, the Company did not recognize an increase in tax liability for the unrecognized tax benefits because the Company has a full valuation allowance against any related deferred tax assets.

     The amount of unrecognized tax benefits as of January 1, 2007 was $215,000. The amount includes $77,000 of unrecognized tax benefits which, if ultimately recognized, will reduce the Company’s annual effective tax rate. There has been no material changes in unrecognized tax benefits during the nine months ended September 30, 2007.

     At September 30, 2007, the balance of unrecognized tax benefits was $265,000, which has increased $0 and $50,000 for the three and nine months ended September 30, 2007. The increase from the beginning of the year is the result of a $50,000 first quarter increase in unrecognized tax benefits for positions related to the current period. The September 30, 2007 balance of unrecognized tax benefits includes $77,000 of unrecognized tax benefits which, if ultimately recognized, will reduce the Company’s annual effective tax rate.

     The Company is subject to income taxes in the U.S. Federal jurisdiction, and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. This evaluation in accordance with FIN 48 was performed for

7

tax years ended December 31, 2004, 2005 and 2006, the tax years which remain subject to examination by major tax jurisdictions. The Company is not currently under examination by U.S. Federal and state tax authorities. The routine tax inspection by China’s Tax Authority is closed in September, 2007. No material adjustments are made as a result of this inspection.

     The Company recognizes interest accrued related to unrecognized tax benefits as interest expense and penalties accrued in operating expenses, if any, for all periods presented. The Company has not accrued interest and penalties related to unrecognized tax benefits as of September 30, 2007.

     New Accounting Pronouncement:In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at faire value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company expects to adopt this statement effective January 1, 2008 and the Company has not yet determined the impact, if any, that the implementation of SFAS No. 159 will have on our financial statements.

     In September 2006, the FASB issued SFAS No.157, “Fair Value Measures” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No.157 is effective the first quarter of our 2008 fiscal year with early adoption permitted. The Company has not yet determined the impact, if any, that the implementation of SFAS No.157 will have on our financial statements.

     In June 2006, the Financial Accounting Standards Board (FASB) ratified the Emerging Issues Task Force (EITF)Issue 06-3, “How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement,” (EITF 06-3). The scope of EITF 06-3 includes any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, including but not limited to sales and value-added taxes. In EITF 06-3 a consensus was reached that entities may adopt a policy of presenting these taxes in the income statement on either a gross or net basis. If these taxes are significant, an entity should disclose its policy of presenting taxes and the amount of taxes if reflected on a gross basis in the income statement. EITF 06-3 was effective for interim and annual reporting periods beginning after December 15, 2006. The Company presents revenues net of sales and value-added taxes in its consolidated statement of operations and has not changed its policy as a result of the adoption of EITF 06-3.

     Reclassifications:Certain reclassifications have been made to prior year balances in the note on segment information in order to conform to the current year’s presentation.

2. Acquisitions:

     On June 29, 2006, the Company paid Wanhui Group RMB 3,290,300, or $412,100 for the estimated tax obligation related to the Wanwei acquisition. On January 10, 2007, the Company paid $214,227 to the Chinese Tax Authority as the final payment related to the acquisition of Wanwei.

     The Company entered into a Sale and Purchase Agreement on July 14, 2007 and a Supplementary Agreement on September 28, 2007, with Han Zhiqiang and Tong Zhijun, to acquire a minority interest in Sunstone Pharmaceutical Co., Ltd. (“Sunstone”). Sunstone is a privately held manufacturer of primarily over-the-counter medicines, with operations in Tangshan, Hebei Province, People’s Republic of China. On October 31, 2007, the Company completed the acquisition of 49% of the issued share capital of Hong Kong Fly International Health Care Limited (“Hong Kong Health Care”), a Hong Kong corporation that holds a 100% equity interest in Sunstone, for an aggregate purchase price of $32 million. Following the closing, the Sellers agreed to indemnify the Company for breaches of the Sellers’ representations and warranties contained in the Purchase Agreement.

8

     Payment of the purchase price was made in three parts, with the first payment of $4.8 million was made on July 16, 2007, the second payment of $13.6 million was made on October 2, 2007 and the final payment of $13.6 million was made on October 31, 2007.

     On September 28, 2007, the Company entered into a Sale and Purchase agreement for the acquisition of the remaining 51% of the issued share capital of Hong Kong Health Care for a purchase price of 8 million shares of the Company’s unregistered common stock. The transaction to acquire 51% of the issued share capital of Hong Kong Health Care is expected to close in the first quarter of 2008.

3. Segment Information:

     The Company has two reportable segments: (i) the Pharmaceutical Distribution reportable segment which includes the operations of Wanwei and (ii) the Sales and Marketing reportable segment which includes the operations of BMP China.

     The chief operating decision maker for the Pharmaceutical Distribution segment is the General Manager of Wanwei whose function is to allocate resources to, and assess the performance of Wanwei. This segment services both pharmaceutical manufacturers and healthcare providers in the pharmaceutical supply channel. The warehousing and distribution of pharmaceutical drugs, which are purchased from the same suppliers, is the primary business activity of Wanwei. Pharmaceutical Distribution operates in a high volume and low margin environment.

     Wanwei distributes brand name and generic pharmaceuticals, over-the-counter healthcare products, and home healthcare supplies and equipment to a variety of healthcare providers.

     The following tables present reportable segment information for the periods indicated:

	Three months ended September 30,						Nine months ended September 30,
	2007			2006			2007			2006
Pharmaceutical Distribution	$	8,978,169			6,869,119		$	21,822,879			16,933,989
Sales and Marketing		1,028			29,767			21,633			86,478
Sales and Marketing intersegment		43,880			30,041			284,650			393,974
Eliminations		(43,880	)		(30,041	)		(284,650	)		(393,974	)
Total Revenue	$	8,979,197			6,898,886		$	21,844,512			17,020,467
Pharmaceutical Distribution	$	44,286			(28,739	)	$	(106,358	)		(252,846	)
Sales and Marketing		(818,456	)		(553,421	)		(1,918,341	)		(1,398,397	)
Corporate		(1,081,496	)		(1,059,454	)		(3,727,470	)		(3,098,746	)
Eliminations		(139,122	)		37,198			285,450			(34,963	)
Total Operating Loss	$	(1,994,788	)		(1,604,416	)	$	(5,466,719	)		(4,784,952	)

4. Shareholders’ Equity

     The following table shows weighted average basic shares for the respective periods:

	Three months ended September 30,				Nine months ended September 30,
	2007		2006		2007		2006
Weighted average basic shares		28,394,329		23,154,067		27,247,195		22,612,327

     The following table shows potential common stock equivalents outstanding to purchase shares of common stock that were excluded in the computation of diluted loss per share. All common stock

9

equivalents have been excluded from the diluted per share calculations in the three and nine months ended September 30, 2007 and 2006 because their inclusion would have been anti-dilutive.

	Three months ended September 30,				Nine months ended September 30,
	2007		2006		2007		2006
Number of shares		2,185,997		1,240,764		2,052,482		1,543,259
Range of exercise price	$	1.15 – $10.90	$	1.15-$4.20	$	1.15 – $10.90	$	1.15-$4.20

5. Stock-Based Compensation:

     The Company’s 2007 Omnibus Equity Compensation Plan (the “Plan”) which merged with the Company’s 2004 Plan as of April 26, 2007 provides for grants of stock options (incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, other stock grants and other stock-based awards to all employees (including employees who are directors and officers), non-employee directors, consultants and independent contractors of the Company and its affiliates. The Plan authorizes the issuance of up to 5,000,000 shares of the Company’s common stock, subject to adjustment, and provides that no more than 400,000 shares of common stock, subject to adjustment, may be awarded to any one individual in any calendar year if the value of the award is based solely on an increase in the value of shares of the Company’s common stock after the date of grant of the award. The Plan also provides that no more than 100,000 shares of common stock, subject to adjustment, may be awarded to any one individual in any calendar year if the value of the award is not based solely on an increase in the value of shares of the Company’s common stock after the date of grant of the award. Options are granted for a term of ten years and vest over a four year period. Options granted under the Plan from 2005 through September 30, 2007 vest 25% after the first year of the date of grant and ratably each month over the remaining 36 month period. Options granted in 2004 under the Stock Plan vest 50% after the first two years of the date of hire and ratably each month over the remaining 24 month period. The Plan is administered by the Company’s Compensation Committee. The Compensation Committee has the authority to determine the individuals who will receive grants, the type of grant, the number of shares subject to the grant, the terms of the grant, the time the grants will be made, the duration of any exercise or restriction period, and to deal with any other matters arising under the Plan. Options granted under the Plan may be “incentive stock options,” which are intended to qualify with the requirements of section 422 of the Code, and “nonqualified stock options,” which are not intended to so qualify. The Company’s board of directors may amend or terminate the Plan at any time if required under the Plan, subject to stockholder approval. Unless terminated earlier by the board of directors or extended by the board of directors, with the approval of the Company’s stockholders, no awards may be granted under the Plan after February 10, 2009.

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Three months ended
	September 30,						Nine months ended September 30,
	2007			2006			2007			2006
Expected life (years)		5.0			5.0			5.0			5.0
Risk-free interest rate		5.23	%		4.77-5.11	%		5.15%-5.23	%		4.32-5.19	%
Expected Volatility		80	%		109.70	%		78.8-80	%		93.6-109.7	%
Expected Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%

     The expected volatility in our stock for the three and nine months ended September 30, 2007 has decreased from the three and nine months ended September 30, 2006 as the Company has refined its estimation of volatility based upon daily volatility as compared to 2006 when volatility was based on a trade by trade basis. The weighted average estimated fair value of the options granted for each of the three months ending September 30, 2007 and 2006 was $6.67 and $3.57, and for the nine months ended September 30, 2007 and 2006 was $6.36 and $2.91.

     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models

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require the input of highly subjective assumptions including the expected stock volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Compensation cost which is based on the fair value of options granted is recognized on a straight line basis over the service period.

     A summary of the options issued by the Company for the 9 months ended September 30, 2007 is as follows:

							Weighted-
				Weighted-		��	Average
				Average			Remaining
				Exercise			Contractual		Aggregate
				Price			Term		Intrinsic
	Options			per Share			(in years)		Value
Outstanding on January 1, 2007		2,103,000		$	2.08					—
Granted		40,000			7.95					—
Outstanding on March 31, 2007		2,143,000		$	2.18			7.78	$	4,682,150
Granted		460,000			9.23					—
Exercised		(35,728	)		1.75					—
Outstanding on June 30, 2007		2,567,272		$	3.45			7.94	$	8,865,022
Granted		317,000			9.87					—
Exercised		(8,125	)		4.14					—
Outstanding on September 30, 2007		2,876,147		$	4.16			7.94	$	11,960,025
Exercisable on September 30, 2007		1,376,436		$	1.69			6.92	$	2,322,551

     There were 43,853 and 20,000 options exercised in the nine month periods ended September 30, 2007 and September 30, 2006. Total intrinsic value of the options exercised for the three and nine months ended September 30, 2007 were $46,719, and $339,911, and for the three months and nine months ended September 30, 2006 were $0 and $75,000, respectively. The total fair value of shares vested during the three months ended September 30, 2007 and 2006 was $325,238 and $267,085.

     A summary of the status of the Company’s non-vested shares as of September 30, 2007 is presented below:

				Weighted-Average
				Grant-Date Fair
Nonvested Shares	Shares			Value
Nonvested at January 1, 2007		1,147,175		$	1.89
Granted		817,000			6.36
Vested		(464,464	)		2.16
Non-vested at September 30, 2007		1,499,711		$	4.52

     The unrecognized share-based compensation cost related to stock option expense at September 30, 2007 is $5,345,205 and will be recognized over a weighted average of 3.28 years.

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6. Note Receivable:

     On June 25, 2007, Wanwei entered into a $659,000 or 5.0 million RMB loan with an annualized rate of 5.67% with Shanghai Rongheng Pharmaceutical Company Limited , or Rongheng. The note is for six months with a maturity date of December 25, 2007. Interest is to be paid at each quarter end with the principal due at maturity. The proceeds of the loan are to be used by Rongheng as working capital.

7. Common Stock:

     In August 2007 pursuant to a registered direct public offering, the Company issued 3,470,557 units, consisting of (i) one share of the Company’s common stock and (ii) warrants to purchase two-tenths of a share of the Company’s common stock at an exercise price of $9.37 per share, for a purchase price of $9.395 per unit. The warrants have a term of five years and are immediately exercisable. The issuance resulted in the issuance of an aggregate of 3,470,557 shares of the Company’s common stock and warrants to purchase 694,111 shares of the Company’s common stock. Gross proceeds from the private placement amounted to approximately $32,602,000, less associated costs of approximately $2,003,000. In August 2007, the Company also issued 60,897 shares of the Company’s common stock as compensation for placement agent services provided in connection with this registered direct public offering.

     The fair value of these warrants, totaled $4,378,898 and was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2007: risk-free interest rate was 5.23%, an expected dividend yield of 0%, the volatility factor of the expected market price of the Company’s common stock was 80%, and a weighted average expected life of the warrants of 5 years.

8. Subsequent events:

     On October 31, 2007, the Company completed the acquisition of 49% of the issued share capital of Hong Kong Health Care, a Hong Kong corporation that holds a 100% equity interest in Sunstone, for an aggregate purchase price of $32 million U.S. dollars.

     On November 2, 2007, the Company completed a private placement of $23 million principal amount of 10.0% senior secured promissory notes due on May 1, 2009, to qualified institutional and accredited investors. The offering, which raised gross proceeds of $23.1 million, includes warrants with a five year term to purchase an aggregate of 575,000 shares of the Company’s common stock and warrants with an eighteen month term to purchase an aggregate of 462,580 shares of the Company’s common stock. The net proceeds from the offering were approximately $21.9 million, which the Company will utilize in the previously announced Guangzhou Pharmaceutical Corporation acquisition, as well as for certain interest payments and the acquisition of rights to sell certain drugs in China.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained herein and in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC on March 26, 2007.

Forward-Looking Statements

     Certain of the statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and elsewhere in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. The forward-looking statements herein include, among others, statements addressing management’s views with respect to future financial and operating results, our ability to obtain an increased market share in the Chinese pharmaceutical marketing and distribution markets, the dependence of our future success on obtaining additional promotional and market research agreements and licensing rights for China and on acquiring additional distribution companies, the significance of our acquisition of Wanwei and Sunstone, our cash and cash equivalents investments, our anticipated use of cash resources, our ability to fund our current level of operations through our cash and cash equivalents, our hiring goals for the next twelve months, our capital requirements and the possible impact on us if we are unable to satisfy these requirements, our approaches to raise additional funds, our expectation to continue to pursue strategic acquisitions in the near future. Various factors, including competitive pressures, success of integration, market interest rates, changes in customer mix, changes in pharmaceutical manufacturers’ pricing and distribution policies or practices, regulatory changes, changes in the People’s Republic of China’s policies, customer defaults or insolvencies, acquisition of businesses that do not perform as we expect or that are difficult for us to integrate or control, adverse resolution of any contract or other disputes with customers and suppliers, or the loss of one or more key customer or supplier relationships, could cause actual outcomes and results to differ materially from those described in forward-looking statements. Certain additional factors that management believes could cause actual outcomes and results to differ materially from those described in forward-looking statements are set forth in this report in Part II, Item 1A. “Risk Factors” and in Part I, Item 1A. “Risk Factors – Risks Relating to Our Business” in our Annual Report on Form 10-K for the year ended December 31, 2006.

Overview

     Beijing Med-Pharm Corporation, a Delaware corporation, is a pharmaceutical marketing and distribution company based in China. Our corporate headquarters are in suburban Philadelphia, Pennsylvania and our Chinese operations are based in Beijing, China. Our services, which we offer through Beijing Med-Pharm Market Calculating Co, Ltd., or BMP China, Beijing Wanwei Pharmaceutical Co., Ltd., or Wanwei, which we acquired on December 6, 2005, and Sunstone Pharmaceutical Co., Ltd., or Sunstone, which we acquired a 49% indirect interest on October 31, 2007, to foreign and domestic pharmaceutical manufacturers in China, focus primarily on marketing and promotional services and distribution. These services include:

• pre-market entry analysis;

• clinical trial management;

• product registration;

• market research;

• pharmaceutical marketing to physicians, hospitals and other healthcare providers; and

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• Pharmaceutical distribution.

     Through Wanwei, we have distribution relationships with over 120 distributors located throughout China and access to most major hospitals in Beijing. Wanwei distributes over 900 products to more than 340 customers. These distribution services include the distribution of:

• western medicines;

• traditional Chinese medicines;

• bio-chemical medicines; and

• medical applications.

Rongheng

     On August 31, 2005, we entered into a non-binding letter of intent with Orient International Holding Shanghai Rongheng International Trading Co., Ltd. or Orient International, and Shanghai CAS Shenglongda Biotech (Group) Co., Ltd., or Shanghai CAS, to purchase a majority interest in Shanghai Rongheng Pharmaceutical Company Limited, or Rongheng. Orient International and Shanghai CAS currently own approximately 90% of the equity interests in Rongheng. Rongheng is a pharmaceutical distribution enterprise with operations in Shanghai, China, a municipality of more than 17 million permanent residents. Rongheng was established in 1999 and distributes to over 250 hospitals in Shanghai, including all of the Class A hospitals in Shanghai.

     Under Chinese law, a proposed sale of state-owned assets, such as the proposed sale of the equity interests of Rongheng, must be posted on a regional property exchange, in this case the Shanghai United Assets and Equity Exchange, or the Shanghai Exchange, whereupon the assets are sold to the highest qualified bidder. On May 11, 2006, we entered into an agreement with Shanghai CAS and Orient International. Under the terms of the agreement, the parties agreed that, if we are the winning bidder following the posting of the proposed sale on the Shanghai Exchange, the parties will enter into definitive transactional documents regarding the proposed acquisition promptly thereafter. On December 14, 2006, the proposed sale of Rongheng was posted on the Shanghai Exchange. On January 16, 2007, we were notified that we were the winning bidder of the proposed sale. On March 15, 2007, the parties executed definitive documents and the transaction was submitted to the Chinese government for approval. The transaction is subject to a number of conditions, including the receipt of Chinese regulatory approval and is expected to close during the 1^st quarter of 2008.

GPC Joint Venture

     Alliance BMP Limited is a joint venture between us and Alliance Boots PLC. On January 18, 2007, the Company, Alliance Boots PLC and Alliance BMP Limited entered into a Shareholders’ Agreement that sets forth the terms and purpose of the joint venture. Alliance BMP Limited is a newly-formed United Kingdom-based investment vehicle.

     GPC Acquisition. The primary purpose of Alliance BMP Limited is to acquire a 50% interest in Guangzhou Pharmaceuticals Corporation, or GPC, currently a Chinese limited liability company (but which will be converted to a Sino-foreign equity joint venture limited liability company as part of the transactions described below), and to manage its investment in GPC.

     On January 27, 2007, Alliance BMP Limited entered into (i) the Joint Venture Contract with Guangzhou Pharmaceutical Limited Company, or GP Limited, (ii) the Contract for the Transfer of Capital Contribution of Guangzhou Pharmaceuticals Corporation with several shareholders of GPC, and (iii) the Contract for the Increase of Registered Capital of Guangzhou Pharmaceuticals Corporation with GP Limited. Following the transactions contemplated by these agreements, Alliance BMP Limited will purchase 50% of GPC’s total registered capital at a purchase price of approximately $69 million. GP Limited will own the remaining 50% of GPC’s total registered capital. The completion of these transactions is subject to approval by the Chinese authorities and certain other conditions, and is expected to occur in the fourth quarter of 2007.

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     It is expected that GPC will have eight directors. Each of GP Limited and Alliance BMP Limited will have the right to appoint four directors. Alliance BMP Limited is also entitled to designate (i) the Chairman of the Board of Directors and (ii) the Financial Director of GPC. GP Limited will have the right to designate (i) the Deputy Chairman of the Board of Directors and (ii) the General Manager of GPC. It is expected that David Gao will initially serve as the Chairman of GPC.

     Alliance BMP Limited Governance. Alliance BMP Limited is jointly managed by us and Alliance Boots PLC. Until the parties agree otherwise, the Board of Directors of Alliance BMP Limited will have no more than four directors within two years of closing of the GPC acquisition and thereafter for so long as we are the holder of not less than 10% of the total issued shares of Alliance BMP Limited. During such time we will have the right to appoint and remove one director. Alliance Boots PLC will have right to appoint and remove three directors provided that it holds between 50% and 90% of the total issued shares of Alliance BMP Limited. Our initial designated director of Alliance BMP Limited is David Gao (our Chief Executive Officer and a director of the Company).

     In addition, under the Shareholders’ Agreement, for so long as David Gao remains an employee of the Company and for the period in which we are entitled to appoint directors as described above, we will cause David Gao to provide services from time to time to Alliance BMP Limited as its Board of Directors may reasonably request. The provisions of such services will be at no charge to Alliance BMP Limited. If we cease to invest in Alliance BMP Limited, we will continue to cause David Gao to provide such services to Alliance BMP Limited for twelve months thereafter. If David Gao ceases to be involved with the Company in any capacity, we agreed not to prevent David Gao’s continuing involvement with Alliance BMP Limited.

Sunstone

     Completion of 49% Acquisition of Sunstone. On October 31, 2007, we completed the acquisition of 49% of the issued share capital of Hong Kong Health Care of Hong Kong Fly International Health Care Limited (“Hong Kong Health Care”), a Hong Kong corporation that holds a 100% equity interest in Sunstone, for an aggregate purchase price of $32 million U.S. dollars. Sunstone is a privately held manufacturer of primarily over-the-counter medicines, with operations in Tangshan, Hebei Province, People’s Republic of China.

     Pursuant to the transactions to acquire 49% of the issued share capital of Hong Kong Health Care, the sellers, the Company, Hong Kong Health Care and Sunstone entered into a Shareholders’ Agreement, or the Shareholders Agreement. The Shareholders Agreement establishes the composition and responsibilities of the board of directors of Sunstone and Hong Kong Health Care, including permitting us to appoint two of the five members of each board of directors, and sets forth the responsibilities and appointment of the management of Sunstone. The Shareholders Agreement also provides a preemptive right to the non-transferring shareholders of Hong Kong Health Care (pro rata in proportion to their share ownership) to purchase any shares of Hong Kong Health Care being transferred, pro rata in proportion to the non-transferring persons share ownership of Hong Kong Health Care.

     Agreement to Purchase 51% of Sunstone. On September 28, 2007, we entered into a definitive agreement for the acquisition of the remaining 51% of the issued share capital of Hong Kong Health Care for a purchase price of 8 million shares of our unregistered common stock. The transaction to acquire 51% of the issued share capital of Hong Kong Health Care is expected to close in the first quarter of 2008. Although Hong Kong Health Care and Sunstone are privately owned and Chinese government approval is not required, the transaction to acquire 51% of the issued share capital of Hong Kong Health Care is subject to certain conditions, including completion of U.S. GAAP financial statements and shareholder and NASDAQ approval.

     Pursuant to the transactions to acquire 51% of the issued share capital of Hong Kong Health Care, we will enter into an employment agreement with Han Zhiqiang, one of the sellers in the transaction, pursuant to which he will assume the role of President and Chief Operating Officer, China, of the Company and work with our current Chief Executive Officer to manage operations in China. In addition, Han Zhiqiang and Tong Zhijun (the sellers in the transaction) will be nominated for election to our Board of Directors.

     We expect to schedule a special meeting of shareholders in the first quarter of 2008 to seek approval for the issuance of the 8 million shares of our unregistered common stock, to increase the authorized shares of our common stock and to change our name to BMP Sunstone Corporation.

Registered Direct Financing

     On August 17, 2007 pursuant to a registered direct public offering, we issued 3,470,557 units, consisting of (i) one share of our common stock and (ii) warrants to purchase two-tenths of a share of our common stock at an

15

exercise price of $9.37 per share, for a purchase price of $9.395 per unit. The warrants have a term of five years and are immediately exercisable. The issuance resulted in the issuance of an aggregate of 3,470,557 shares of our common stock and warrants to purchase 694,111 shares of our common stock. Gross proceeds from the private placement amounted to approximately $32,602,000, less associated costs of approximately $2,003,000. In August 2007, we also issued 60,897 shares of our common stock as compensation for placement agent services provided in connection with this registered direct public offering.

Secured Promissory Notes

     On November 2, 2007, we completed a private placement of $23 million principal amount of 10.0% senior secured promissory notes due on May 1, 2009, to qualified institutional and accredited investors. The offering, which raised gross proceeds of $23.1 million, includes warrants with a five year term to purchase an aggregate of 575,000 shares of our common stock and warrants with an eighteen month term to purchase an aggregate of 462,580 shares of our common stock. The net proceeds from the offering were approximately $21.9 million, which we will utilize in the previously announced Guangzhou Pharmaceutical Corporation acquisition, as well as for certain interest payments and the acquisition of rights to sell certain drugs in China.

Our Opportunity

     We believe that a significant opportunity exists to obtain an increased market share in the Chinese pharmaceutical marketing and distribution markets by offering a distribution chain solution that combines our market development services with market fulfillment services. We believe that our acquisition of Wanwei was an important step in the implementation of this solution.

     We believe that our acquisition of Wanwei has enabled us to differentiate ourselves from many of our competitors in China’s highly fragmented pharmaceutical distribution market by combining the marketing services that we offer with the distribution of pharmaceutical products to hospitals and other authorized healthcare providers. Our opportunity to establish a strong presence in China’s pharmaceutical distribution market is largely due to the highly fragmented nature of this market. China’s pharmaceutical distribution market is in an early developmental stage. In addition, the Chinese government passed legislation that required pharmaceutical wholesale and retail enterprises to obtain Good Supply Practices, or GSP, certification. We believe that the pharmaceutical distribution permit and GSP certificate that we acquired from the acquisition of Wanwei provides us with a strategic advantage over many of our competitors in China’s pharmaceutical distribution market.

Our Strategy and Solution

     Our strategy is to become a complete solutions provider for foreign and domestic pharmaceutical manufacturers in China. The key elements of our strategy and solution include the following:

• combine our market development sources with market fulfillment services;

• use our marketing arm to create demand for products that we offer exclusively through our distribution arm on a national basis in China;

• grow both internally and through strategic acquisitions of product marketing and distribution rights and of other distributors; and

• provide an experienced management team and transparent financial reporting through the reports that we are required to file as a reporting company under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Our Product Portfolio

     We provide clinical and/or market development services with respect to the following products:

• Propess. Propess vaginal insert, or Propess, is a vaginal insert used to ripen the cervix in preparation for childbirth when labor is induced. The manufacturer of Propess is Cytokine PharmaSciences, Inc., or Cytokine. We entered into an agreement with Cytokine in August 2005 to market and distribute Propess in China. We began marketing Propess and recorded revenues with respect to this product during the first nine months of 2006.

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• Anpo. Anpo, or ritodrine hydrochloride, is a muscle relaxant available in both injectable and oral forms, and is used for managing pre-term labor. In July 2006, we entered into an agreement with Taiwan Biotech Co. Ltd. to serve as the exclusive distributor of Anpo in mainland China. We began marketing Anpo and recorded revenues with respect to this product during the last nine months of 2006.

• Misopess. Misopess vaginal insert, or Misopess, is a vaginal insert under investigation in several countries for cervical ripening and induction of labor. The manufacturer of Misopess is Cytokine. We entered into an agreement with Cytokine in November 2006 to conduct late-stage clinical development, registration, sales, marketing and distribution in China. Under terms of the agreement, we will initiate a Chinese registration trial of Misopess, with the expectation that, once Mispoess receives US FDA approval, data from this single trial will permit a regulatory application with the SFDA in late 2008 or 2009.

• Fentora. Fentora, or fentanyl buccal tablet, received US FDA approval in September 2006 for the management of breakthrough pain in patients with cancer. The manufacturer of Fentora is Cephalon, Inc, or Cephalon. We entered into a service agreement with Cephalon in December 2006 under which we will complete the clinical development and registration process for Fentora in China.

• Clindesse. Clindesse™, or clindamycin phosphate vaginal cream, is indicated for the treatment of bacterial vaginosis in non-pregnant women. The manufacturer of Clindesse is KV Pharmaceutical Company (KV). Under the terms of the agreement we entered into with KV in July 2007, we will complete late stage clinical development and registration of Clindesse(TM) with the SFDA prior to assuming responsibilities for sales, marketing and distribution in China.

• Ondansetron. Ondansetron Flashtab ®, is a generic form of Zofran ®, a 5-HT(3) antagonist used to reduce nausea and vomiting induced by cytotoxic chemotherapy and radiotherapy and to prevent post-operative nausea and vomiting. The manufacturer of Orndestron is Shanghai Ethypharm (Ethypharm). Under the terms of the agreement we entered into with Ethypharm in July 2007, Ethypharm will pursue registration of Orndansetron and we will then be responsible for sales, marketing, distribution and supply in China.

• Galake.Galake is currently approved for marketing in China and is indicated for the relief of pain associated with conditions including trauma, surgery, cancer, lower back pain, arthritis and headache. The manufacturer of Galake is Lotus Healthcare, Inc. (Lotus). Under the terms of the agreement we entered into with Lotus, we will promote and sell Galake in China.

• Ferriprox.Ferriprox is currently approved for marketing in China and treats iron overload in the bloodstream which is often associated with thalassemia, a disease that can lead to organ damage and heart failure. The manufacturer of Ferriprox is Apotex, Inc. (Apotex). Under the terms of the agreement we entered into with Apotex, we will be responsible for sales, marketing, distribution and supply in China

     There are numerous risks to our business plan and obstacles that we will face in implementing it. We have highlighted these risks under “Risk Factors” as described in this report in Part II, Item 1A. “Risk Factors” and in Part I, Item 1A. “Risk Factors – Risks Relating to Our Business” in our Annual Report on Form 10-K filed as of March 26, 2007. In particular, we have a history of operating losses and anticipate that we will continue to incur significant operating losses. As of September 30, 2007, our accumulated deficit since our inception was approximately $21.0 million. We may be unable to effectively implement our business strategy of becoming a provider of both market development and market fulfillment services. Even if we are successful in becoming a provider of these services, we may never generate sufficient sales revenue to achieve and then maintain profitability. We expect to incur operating losses for the foreseeable future.

Critical Accounting Policies

Uncertainty in Income Taxes

     The Company adopted the provisions of FASB Interpretation 48,Accounting for Uncertainty in Income Taxes, on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of

17

Financial Accounting Standards 5,Accounting for Contingencies. As required by Interpretation 48, which clarifies Statement 109,Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of FIN 48, the Company did not recognize an adjustment to both beginning retained earnings and the tax liability for the unrecognized tax benefits because the Company has a full valuation allowance against the related deferred tax assets.

     The amount of unrecognized tax benefits as of January 1, 2007, was $215,000. The amount includes $77,000 of unrecognized tax benefits which, if ultimately recognized, will reduce the Company’s annual effective tax rate. There have been no material changes in unrecognized tax benefits since January 1, 2007.

     At September 30, 2007, the balance of unrecognized tax benefits had increased to approximately $265,000. The increase from the beginning of the year is the result of a $50,000 first quarter increase in unrecognized tax benefit for positions related to the current period. The September 30, 2007 balance of unrecognized tax benefits includes $77,000 of unrecognized tax benefits which, if ultimately recognized, will reduce the Company’s annual effective tax rate.

     The Company is subject to U.S. Federal income taxes, and income taxes in various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. This evaluation in accordance with FIN 48 was performed for tax years ended December 31, 2004, 2005 and 2006, the tax years which remain subject to examination by major tax jurisdictions. The Company is not currently under examination by U.S. Federal and state tax authorities. The Company is currently under a routine tax inspection by China’s Tax Authority. No material adjustments are expected as a result of this inspection.

     The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses for all periods presented. The Company has not accrued interest and penalties related to unrecognized tax benefits as of September 30, 2007.

Revenue Recognition

     We recognize distribution revenues and related cost of sales at the later of (a) the time of shipment or (b) when title passes to the customers, provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, collectability is probable and the price is fixed. Revenues consist of gross sales less provisions for estimated customer returns, discounts, vendor payments and volume rebates. Amounts billed to a customer for shipping and handling are reported as revenue. We recognize commission revenue, net of returns, on products delivered by the distribution provider at the time of delivery, provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, collectability is probable and the price is fixed. Under the terms of these agreements payments are due from customers within 60 to 90 days of delivery. We estimate the reserve for product returns at the time revenue is recognized based on historical trends and information from customers.

Results of Operations

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

Net Revenue:

     Net revenue was approximately $8,979,000 for the three months ended September 30, 2007 as compared to approximately $6,899,000 for the three months ended September 30, 2006. The principal component of net revenues is distribution revenues. Distribution revenue for the three months ended September 30, 2007, excluding Propess and Anpo, was $8,019,000 as compared to $6,656,000 for the three months ended September 30, 2006. The increase was attributable to Wanwei significantly increasing sales of three of its major products, Xingnaojing, Ferrous Tablet and Xuebijing accounting for $913,000 of the total increase. The Company provides sales and marketing and distribution services for Propess and Anpo with revenue of $959,000 for the three months ended

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September 30, 2007 as compared to $214,000 for the three months ended September 30, 2006. This increase was the result of continued sales and marketing efforts promoting Propess and our initiating sales of Anpo during the third quarter of 2006. As of September 30, 2007 there were 385 hospitals selling Propess versus 224 as of September 30, 2006. As of September 30, 2007 there were 356 hospitals selling Anpo whereas the Company initially began promoting Anpo in September 2006. The remaining revenue represents registration fees and commission sales generated by sales and marketing for products not distributed by Wanwei.

Cost of Sales:

     Cost of sales was approximately $8,474,000 for the three months ended September 30, 2007 as compared with $6,684,000 for the three months ended September 30, 2006. The combined gross margin for distribution and sales and marketing was 5.6% for the three months ended September 30, 2007 as compared to 3.1% for the three months ended September 30, 2006. This increase in cost of sales is primarily attributable to Wanwei’s revenue growth during the three months ended September 30, 2007 and the increase in Propess and Anpo promotional activities during the same period. The cost of sales component consists of inventory cost of sales for distribution services and sales and marketing efforts to promote Propess and Anpo. The gross margin increase for the period ended September 30, 2007 as compared to September 30, 2006 was primarily due to increased Propess and Anpo sales which have a higher gross margin than those which we only provide distribution service and reduction in promotion costs on a per unit basis.

Sales and Marketing Expenses:

     Sales and marketing expenses were approximately $407,000 for the three months ended September 30, 2007 as compared with $296,000, for the three months ended September 30, 2006. The increase resulted from salary, benefit and commission in support of increased distribution sales.

General and Administrative Expenses:

     General and administrative expenses were approximately $2,073,000 for the three months ended September 30, 2007 as compared to $1,117,000 for the three months ended September 30, 2006. SFAS 123R stock-based compensation increased $361,000 for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006. Accounting and related Sarbanes Oxley consulting fees increased $225,000 for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006 which reflects our Sarbanes Oxley implementation which begun in 2007 as well as the financial due diligence of Sunstone. Salaries and related benefits increased $163,000 for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006 which was primarily the result of hiring of senior management during 2007 and 2006, salary increases and an expansion of our administrative and corporate staff in China. Legal fees increased $117,000 for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006 which was the result of due diligence, contract review and negotiation for Sunstone. Franchise and capital stock taxes increased $51,000 for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006 primarily as the result of additional shares being issued for the Company’s equity financings.

Interest Income:

     Our interest income primarily consists of income earned on our cash and cash equivalents. In August 2007, we completed a registered direct public offering of our shares of common stock to investors of $30,603,000, net of issuance costs. In October 2005, we completed a private placement of our shares of common stock to investors of $14,088,000, net of issuance costs. We received interest income, of approximately $172,000 during the three months ended September 30, 2007 and $32,000 for the three months ended September 30, 2006.

Nine months Ended September 30, 2007 Compared to Nine months Ended September 30, 2006

Net Revenue

     Net revenue was approximately $21,845 ,000 for the nine months ended September 30, 2007, an increase of $4,825,000 as compared with approximately $17,020,000 for the nine months ended September 30, 2006. The principal component of net revenues is distribution revenues. Distribution revenue for the nine months ended September 30, 2007, excluding Propess and Anpo, was $19,801,000 as compared to $16,548,000 for the nine

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months ended September 30, 2006. The Company provides sales and marketing and distribution services for Propess and Anpo with revenue of $2,022,000 for the nine months ended September 30, 2007 as compared $386,000 for the three months ended September 30, 2006. This increase was the result of continued sales and marketing efforts promoting Propess and our initiating sales of Anpo during the third quarter of 2006. As of September 30, 2007 there were 385 hospitals selling Propess versus 224 as of September 30, 2006. As of September 30, 2007 there were 356 hospitals selling Anpo whereas the Company initially began promoting Anpo in September 2006. The remaining revenue represents registration fees and commission sales generated by sales and marketing for products not distributed by Wanwei.

Cost of Sales:

     Cost of sales was $20,330,000 for the nine months ended September 30, 2007, an increase of $3,873,000, as compared with $16,457,000 for the nine months ended September 30, 2006. The combined gross margin for distribution and sales and marketing was 6.9% for the nine months ended September 30, 2007 as compared to 3.3% for the nine months ended September 30, 2006. This cost of sales increase is primarily attributable to Wanwei’s revenue growth during the nine months ended September 30, 2007 and the increase in Propess and Anpo promotional activities during the same period. The cost of sales component consists of inventory cost of sales for distribution services and sales and marketing efforts to promote Propess and Anpo. The gross margin increase for the period ended September 30, 2007 as compared to September 30, 2006 was primarily due to increased Propess and Anpo sales which have a higher gross margin than those which we only provide distribution service and reduction in promotion costs on a per unit basis.

Sales and Marketing Expenses:

     Sales and marketing expenses were $1,134,000 for the nine months ended September 30, 2007, an increase of $249,000, as compared with $885,000 for the nine months ended September 30, 2006. The increase was the result of from salaries, benefits and commissions to support revenue growth and additional products being distributed.

General and Administrative Expenses:

     General and administrative expenses were $5,828,000 for the nine months ended September 30, 2007 an increase of $1,773,000, as compared to $4,055,000 for the nine months ended September 30, 2006. Salaries and related benefits increased $520,000 for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 which was primarily the result of hiring of senior management during 2007 and 2006, salary increases and an expansion of our administrative and corporate staff in China. SFAS 123R stock-based compensation for the nine months ended September 30, 2007 was $1,133,000 as compared to $667,000 for the nine months ended September 30, 2006. Accounting and related Sarbanes Oxley consulting fees increased $474,000 for the nine months ended September 30, 2007 as compared to the three months ended September 30, 2006 which reflects our Sarbanes Oxley implementation which begun in 2007 as well as the financial due diligence of Sunstone. Corporate communications related to investor relations was initiated in 2006 and expanded in 2007 with an increase of $80,000 for the nine months ended September 30, 2007 as compared to nine months ended September 30, 2006. Franchise and capital stock taxes increased $76,000 for the nine months ended September 30, 2007 as compared to the three months ended September 30, 2006 primarily as the result of additional shares being issued for the Company’s equity financings.

Interest Income and Expense:

     Our interest income primarily consists of income earned on our cash and cash equivalents. In August 2007, we completed a registered direct public offering of shares of our common stock to investors of $30,603,000, net of issuance costs. In December 2006, we completed a private placement of our shares of common stock to investors of $14,088,000, net of issuance costs. We received interest income of approximately $441,000 for the nine months ended September 30, 2007 and 124,000 for the nine months ended September 30, 2006.

Liquidity and Capital Resources

     As of September 30, 2007, we had unrestricted cash and cash equivalents of approximately $34.4 million, which represented 60.9% of our total assets. Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at the time of purchase and are primarily invested in short-term money market instruments and

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investments. However, we do not anticipate any losses with respect to such cash balances because the balances are invested in highly-rated securities.

     Since we acquired BMP China in February 2004, we have funded our operations primarily through the issuance of shares of our common stock and most recently the issuance of secured promissory notes. In March 2004, we completed a private placement of 8,695,652 shares of our common stock at a purchase price of $1.15 per share, which yielded gross proceeds to us of approximately $10.0 million and net proceeds to us of approximately $8.8 million. On October 19, 2005, we completed a private placement of 4,199,981 shares of our common stock to a group of institutional and individual accredited investors, for gross proceeds of $6.3 million and net proceeds of approximately $5.9 million. The investors also received warrants to purchase an aggregate of 1,049,828 shares of common stock, half of which had an exercise price equal to $1.875 and the balance of which had an exercise price equal to $2.25. On December 20, 2006, we completed a private placement of 3,333,306 shares of our common stock to a group of institutional and individual accredited investors, for gross proceeds to us of $15.0 million and net proceeds to us of approximately $14.1 million. The investors also received warrants to purchase an aggregate of 1,116,611 shares of common stock, which have an exercise price equal to $5.625. On August 17, 2007, we completed a registered direct public offering of 3,531,454 shares of our common stock to a group of institutional and accredited investors, for gross proceeds to us of $32.6 million and net proceeds of approximately $30.6 million. The investors also received warrants to purchase an aggregate of 694,111 shares of common stock, which have an exercise price equal to $9.37.

     On November 2, 2007, the Company completed a private placement of $23 million principal amount of 10.0% senior secured promissory notes due on May 1, 2009, to qualified institutional and accredited investors. The offering, which raised gross proceeds of $23.1 million, includes warrants with a five year term to purchase an aggregate of 575,000 shares of common stock and warrants with an eighteen month term to purchase an aggregate of 462,580 shares of common stock. The net proceeds from the offering were approximately $21.9 million. An amount equal to one interest payment on the outstanding principal amount of the $23 million principal amount of 10.0% senior secured promissory notes, which equaled $1.2 million as of November 2, 2007, is held by a third party escrow agent for payment under the notes.

     The use of our cash flows has primarily consisted of salaries and wages for our employees, professional fees, fees related to sales and promotion of our current products and the acquisition of Wanwei and Suntone.

     We currently plan to use available cash primarily to fund:

• Our operating expenses and general working capital;

• The marketing of our current and future products;

• The licensing of additional products for marketing and distribution;

• Our pursuit of internal growth and the strategic acquisition of Shanghai Rongheng Pharmaceutical Company Limited (Rongheng); and

• The expenses necessary to maintain our status as an Exchange Act reporting company.

     We anticipate that our September 30, 2007 balance of approximately $34.4 million in unrestricted cash and cash equivalents in addition to the private placement of $23 million completed on November 2, 2007 will be sufficient to fund our current level of operations for at least the next 12 months. Our future capital requirements will depend on many factors, including those factors described in this report in Part II, Item 1A. “Risk Factors,” in Part I, Item 1A. “Risk Factors – Risks Relating to Our Business” in our Annual Report on Form 10-K filed March 26, 2007 and elsewhere in this report as well as our ability to maintain our existing cost structure and return on sales, fund obligations for additional capital that will occur on additional product licenses and acquisitions and execution of our business and strategic plans as currently conceived.

     To date, we have had negative cash flows from operations.

     Net cash used in operating activities was $5,614,000 for the nine months ended September 30, 2007. This amount principally reflected our net loss of $5,045,000, partially offset by $1,429,000 in non-cash charges including stock-based compensation expense of $1,133,000, intangible amortization of $192,000, depreciation of $85,000 and loss on disposal of assets of $20,000. In addition, we generated $2,170,000 of operating cash as a result of changes in certain of our operating assets and liabilities during the nine months ended September 30, 2007. The most significant changes were the increase in accounts payable of $1,470,000, accrued other expenses of $344,000, accrued professional fees of $168,000 and deferred revenues of $144,000. Offsetting these changes were increases in accounts receivable of $2,902,000, prepaid expenses and other current assets of $764,000, inventory of $434,000

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and other receivables of $68,000. Cash used in investing activities was $5,883,000 of which $4,800,000 was the initial payment for the Sunstone acquisition, $659,000 was provided as a loan to Rongheng, $214,000 was paid to the Chinese Taxing Authority for taxes related to the Wanwei acquisition and $210,000 was for the acquisition of equipment. Cash generated from financing activities was $30,414,000 and reflects $30,603,000 net proceeds from sale of common stock in August 2007, $838,000 from the exercise of common stock warrants and options, and is offset by $619,000 in reduction of notes payable and $408,000 increase in restricted cash.

     Our capital requirements are likely to increase, particularly as we pursue internal growth, fund inventory purchases, support increased levels of accounts receivables prior to receiving collections from our customers and proposed acquisitions. There is no assurance that such funding will be available on favorable terms or at all to the Company. If we are not able to raise additional capital through fund raising activities we could be forced to curtail some of the currently anticipated expenditures in the above mentioned areas and our anticipated future growth will be adversely affected.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Rate Sensitivity

     We are exposed to cash flow and earnings fluctuations resulting from foreign exchange rate variation because our operations are in China. This exposure arises from the translation of financial statements of our foreign subsidiaries, including BMP China and Wanwei, from RMB, the functional currency of China, into United States dollars, or USD, the functional currency of our parent entity. Any devaluation of the RMB could adversely affect the value of our common stock in foreign currency terms because we will receive substantially all of our revenues in RMB. Fluctuations in exchange rates also could adversely affect the value, translated or converted into United States dollars, of our net assets, earnings and any declared dividends. In addition, a devaluation of the RMB is likely to increase the portion of our cash flow required to satisfy any foreign currency denominated obligations.

Interest Rate Sensitivity

     We invest in high-quality financial instruments, primarily money market funds, federal agency notes, corporate debt securities, bank certificates of deposit, commercial paper and United States treasury notes, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. Due to the short-term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments.

ITEM 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in Internal Control Over Financial Reporting

     No change in our internal control over financial reporting occurred during our third fiscal quarter that materially affected, or is reasonably likely to material affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1A. Risk Factors

     You should carefully consider the risks described below, in addition to the other information contained in this report, and risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described herein and in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

RISKS RELATING TO OUR BUSINESS

We have a history of operating losses and anticipate that we will continue to incur losses for the foreseeable future.

     We are an early stage company with a limited operating history. Since our inception, we have incurred significant operating losses. As of September 30, 2007, we had an accumulated deficit of approximately $21.0 million. We expect to continue to incur significant and increasing operating expenses and capital expenditures, including operating expenses relating to attracting and retaining a larger employee workforce. In the next 24 months, our capital requirements are likely to increase, particularly as we pursue internal growth, add personnel, fund inventory purchases and support increased levels of accounts receivables prior to receiving collections from our customers and expend additional funds to maintain our status as a reporting company under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our future capital requirements will depend on many factors, such as the risk factors described in this section, including our ability to maintain our existing cost structure and return on sales and to execute our business and strategic plans as currently conceived.

     As a result, we will need to generate significant revenues to achieve profitability. Even if we achieve profitability, we may be unable to maintain or increase profitability on a quarterly or annual basis. If we are unable to achieve and then maintain profitability, the market value of our common stock may decline.

We may be unsuccessful in our strategy of expanding our product portfolio, acquiring complementary businesses or integrating acquired businesses.

     Our business strategy includes expanding our business capabilities through both internal growth and the acquisition of complementary businesses and licensing pharmaceutical products for marketing and distribution in China. We may be unable to find additional complementary businesses to acquire or we may be unable to enter into additional agreements to market and distribute pharmaceutical products.

     Future acquisitions or joint ventures, including our potential transactions with Rongheng, Sunstone and Biaodian, may result in substantial per share financial dilution of our common stock from the issuance of equity securities. Completion of future acquisitions also would expose us to potential risks, including risks associated with:

• the assimilation of new operations, technologies and personnel;

• unforeseen or hidden liabilities;

• the diversion of resources from our existing businesses;

• the inability to generate sufficient revenue to offset the costs and expenses of acquisitions; and

• the potential loss of, or harm to relationships with, employees, customers and suppliers as a result of the integration of new businesses.

The commercial success of our products depends upon the degree of market acceptance among the medical community. Failure to attain market acceptance among the medical community would have an adverse impact on our operations and profitability.

     The commercial success of our products depends upon the degree of market acceptance they achieve among the PRC medical community, particularly physicians and hospitals. Physicians might not prescribe or recommend our

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products to patients, and procurement departments of hospitals might not purchase our products. The acceptance of any of our products among the medical community will depend upon several factors, including:

• the safety and effectiveness of the product;

• the effectiveness of our efforts to market our products to hospitals and physicians;

• the product’s cost effectiveness;

• the product’s perceived advantages and disadvantages relative to competing products or treatments; and

• the prevalence and severity of side effects.

     If our products fail to attain market acceptance among the medical community, our operations and profitability would be adversely affected.

We may continue to experience delays in product introduction and marketing or interruptions in supply.

     We have experienced, and are continuing to experience, longer than expected periods of product introduction and delays in marketing certain products in our product portfolio. Our revenues are dependent on the ability of the manufacturers and distributors with which we associate to supply and distribute product to our customers.

     If delays continue to occur, or manufacturers and distributors are unable to supply and distribute product to our customers in a timely manner, our operating results and financial condition will suffer. In addition, our contracts with pharmaceutical owners and manufacturers relating to some of the products in our product portfolio have a limited duration and have minimum sales requirements that, if not met, could lead to termination or non-renewal of the contract, or the ability of the manufacturer to render the contract non-exclusive, which could harm our revenues.

We may be unable to compete successfully against new and existing competitors.

     We operate in a highly competitive market with few barriers to entry. We expect that competition will continue to intensify. As we expand our operations in the pharmaceutical distribution business, we will encounter competition from other companies in the distribution business, and we may face future competition from new foreign and domestic competitors entering the pharmaceutical promotion and distribution market in China. Some of our competitors are more established than we are, and have significantly greater financial, technical, marketing, and other resources than we do. Many of our competitors, including China National Pharmaceutical Group Corporation, Shanghai Pharmaceutical Group Company Ltd., Guangzhou Pharmaceutical Company Ltd., Shanghai Leiyunshang Company Ltd. and Anhui Huayuan Pharmaceutical Company Ltd., have greater name recognition and a larger customer base than we do. These competitors may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake more extensive promotional and distribution activities, offer more attractive terms to customers, and adopt more aggressive pricing policies. Competition could reduce our market share or force us to lower our prices to unprofitable levels.

If we fail to increase our brand recognition, we may face difficulty in obtaining new customers and business partners.

     We believe that establishing, maintaining and enhancing our brand in a cost-effective manner is critical to achieving widespread acceptance of our current and future services and is an important element in our effort to increase our customer base and obtain new business partners. We believe that the importance of brand recognition will increase as competition in our market develops. Some of our potential competitors already have well-established brands in the pharmaceutical promotion and distribution industry. Successful promotion of our brand will depend largely on our ability to maintain a sizeable and active customer base, our marketing efforts and our ability to provide reliable and useful services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, in which case our business, operating results and financial condition would be materially adversely affected.

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Our operating results may fluctuate as a result of factors beyond our control.

     Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond our control. These factors include:

• the costs of pharmaceutical products and development;

• the relative speed and success with which we can obtain and maintain customers, merchants and vendors for our services and manufacturers and suppliers of products to market to our customers;

• capital expenditures for equipment;

• marketing and promotional activities and other costs;

• changes in our pricing policies, suppliers and competitors;

• the ability of our suppliers to provide products in a timely manner to our customers;

• changes in operating expenses;

• increased competition in our markets; and

• other general economic and seasonal factors.

We may be unable to obtain additional capital when necessary and on terms that are acceptable to us.

     We anticipate that our September 30, 2007 cash and cash equivalents in unrestricted cash and cash equivalents will be sufficient to fund our current level of operations for at least the next twelve months. Our future capital requirements will depend on many factors, including our ability to maintain our existing cost structure and return on sales and execute our business and strategic plans as currently conceived. We expect that we will need significant additional cash resources to operate and expand our business in the future and we may attempt to raise additional funds through public or private equity financing or from other sources. The sale of additional equity securities could result in additional dilution to our stockholders. Additional indebtedness would result in additional debt service obligations and could result in operating and financing covenants that would restrict our operations. In addition, financing may not be available in amounts or on terms acceptable to us, if at all. If we are not able to raise additional capital through fund raising activities we could be forced to curtail some of the currently anticipated expenditures in the above mentioned areas. Should we be forced to do this it could have an impact on our anticipated future growth.

We may be unsuccessful in attracting or retaining key sales, marketing and other personnel.

     The success of our business is dependent on our ability to attract and retain highly skilled managers and sales and marketing personnel. BMP China’s and Wanwei’s sales personnel carry out critical promotional and sales activities of BMP China and Wanwei. We depend, and will continue to depend in the foreseeable future, on the personal efforts and abilities of David Gao, our president and chief executive officer, Fred M. Powell, our chief financial officer, and other officers and key employees. The loss of either of these officers or our other key management persons could harm our business and prospects for growth. There is intense competition for qualified sales and marketing personnel, and we may be unable to attract, assimilate or retain additional qualified sales and marketing personnel on a timely basis. Our inability to retain key personnel or the failure to attract additional qualified personnel could harm our development and results of operations. In addition, as we plan to expand in China, we will need to attract additional qualified managerial staff and other personnel. We may have difficulty in hiring and retaining a sufficient number of qualified personnel to work in China. This may impede the development of our distribution business and the expansion of our business in China.

We may be unable to manage our growth effectively.

     Our business strategy is based on the assumption that we will acquire additional distribution channels in the future and that the number of our customers and the extent of our operations will grow. Our ability to compete effectively and to manage our future growth, if any, requires us to:

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• continue to improve our financial and management controls and reporting systems and procedures to support the proposed expansion of our business operations as a result of our acquisition of Wanwei, the 49% of the issued share capital of Hong Kong Fly International Health Care Limited (“Hong Kong Health Care”), a Hong Kong corporation that holds a 100% equity interest in Sunstone Pharmaceutical Co., Ltd. (“Sunstone”) and the acquisition of any additional distribution channels in the future; and

• locate or hire, at reasonable compensation rates, qualified personnel and other employees necessary to expand our capacity in order to accommodate the proposed expansion of our business operations.

     If we are unable to accomplish any of these objectives, we will be unsuccessful in effectively managing our growth, which could harm our business, operating results, and financial condition.

We only offer products and services related to pharmaceuticals and, if demand for these products and services decreases, or if competition increases, we will have no other ways to generate revenue.

     Our future results depend on continued market acceptance of pharmaceutical products and services in China and our ability to continue to adapt to the changing needs of our customers. Any reduction in demand or increase in competition in the market for pharmaceutical products and services could have a material adverse effect on our business, operating results and financial condition.

Our business strategy to use our marketing arm to create demand for products that we will offer exclusively through a distribution arm may fail.

     Our business strategy depends in large part on our ability to establish exclusive distribution and marketing relationships with pharmaceutical and medical device manufacturers and to leverage our marketing arm to create demand for products that we will distribute exclusively through a distribution arm. A number of factors could hinder the success of this strategy, including, among other things, our failure to:

• obtain a sufficient number of effective distribution channels, whether through internal growth or strategic acquisition;

• create sufficient demand for products that we will distribute exclusively; and

• enter into and maintain exclusive distribution and marketing relationships with pharmaceutical manufacturers on profitable terms.

     If we are unable to implement this strategy effectively, our business, operating results and financial condition could suffer.

Because we only recently became subject to the reporting requirements of the Exchange Act, we have limited experience in complying with public company obligations. Attempting to comply with these requirements will increase our costs and require additional management resources and we still may fail to comply.

     As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K. In addition, the public accounting firm auditing the company’s financial statements must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting and must separately report on the effectiveness of our control over financial reporting. Under the current SEC regulations, as a non-accelerated filer, we expect that management will be required to issue a report on managements assessment on the Company’s internal control over financial reporting effective for the year ending December 31, 2007. Additionally, the Company will begin to require an independent auditor attestation report on management’s assessment on internal controls over financial reporting effective for the year ending December 31, 2008. Our ability to maintain effective internal control over financial reporting may be limited by, among other things, differences between generally accepted accounting principles in China and generally accepted accounting principles in the United States and difficulties in implementing proper segregation of duties due to the lack of available qualified accounting personnel in the China marketplace. If we are unable to conclude that we have effective internal controls over financial reporting or if our independent auditors are unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as of December 31, 2007

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when management assessment is required or as of December 31, 2008 when our independent auditor attestation is required, and future year ends as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our securities.

     We are a small company with limited resources. While we plan to expand our staff to respond to Exchange Act reporting requirements, we may encounter substantial difficulty attracting qualified staff with requisite experience due to the high level of competition for experienced financial professionals. Furthermore, we will have to improve internal controls as they relate to the matters described in the next risk factor. Given the status of our efforts, coupled with the fact that guidance from regulatory authorities in the area of internal controls continues to evolve and that our operations are primarily in China, where the regulatory environment is different from that of the United States, we may be unable to comply with applicable deadlines.

If we are unable to satisfy the regulatory requirements relating to internal controls, or if our internal controls over financial reporting are not effective, our stock price could decline.

     The existence of any significant deficiencies in our internal control over financial reporting could, and the existence of material weaknesses in our internal control over financial reporting would, preclude management from concluding that our internal control over financial reporting in the relevant time period is effective. In connection with the audit of our financial statements for the year ended December 31, 2006, our independent registered public accounting firm noted significant deficiencies in our internal control over financial reporting principally related to our need to improve our accounting information technology systems and our oversight over our PRC reporting functions. We are in the process of remediating these deficiencies; however, these efforts may not be sufficient to avoid future findings of significant deficiencies or material weaknesses in our internal control over financial reporting. If management or our independent auditors ultimately determine that our internal control over financial reporting is not effective in future periods, our stock price could decline and we could be subject to investigations or sanctions by regulatory authorities, which could have a negative impact on our business.

We may not achieve our projected development goals in the time frames we announce and expect.

     We set goals for timing of the accomplishment of objectives material to our success, such as the receipt of regulatory approval for our acquisitions, commencement and completion of clinical trials, anticipated regulatory submission and approval dates and timing of product launches. The actual timing of these events can vary dramatically due to factors beyond our control, such as delays or failures in our clinical trials, the uncertainties inherent in the regulatory approval process and delays in achieving manufacturing or marketing arrangements sufficient to commercialize our products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive regulatory approvals as planned or that we will be able to adhere to our current schedule for the launch of any of our products. If we fail to achieve one or more of these milestones as planned, the price of our shares could decline.

We are a holding company with no operations of our own and depend on our subsidiaries for revenue.

     We are a holding company with no significant assets other than our equity interests in BMP China, Wanwei and Hong Kong Health Care. We rely on dividends, loans and other payments to us by BMP China, Wanwei, Hong Kong Health Care and any other future acquired entities in China. As of September 30, 2007, we had an accumulated deficit of approximately $21.0 million. Accordingly, our ability to make payments on indebtedness we may incur and to distribute dividends to our stockholders is dependent on the earnings, and the distribution of funds from, our subsidiaries. However, BMP China and Wanwei have incurred significant operating losses since their inceptions. If these losses continue, we will not be able to pay dividends or service any debt that we may incur. In addition, if BMP China, Wanwei, Hong Kong Health Care or any future subsidiaries incur indebtedness of their own in the future, the instruments governing such indebtedness could restrict their ability to pay dividends or make other distributions to us, which in turn would limit our ability to make payments on indebtedness we may incur and to distribute dividends to our stockholders.

     In addition, our corporate structure may restrict the distribution of dividends to our stockholders since Chinese regulations permit payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. According to these standards and regulations, BMP China, Wanwei and Hong Kong Health Care are, and any future subsidiaries will be, required to set aside a portion of their after-tax profits to maintain certain reserve funds that may not be distributed as cash dividends.

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RISKS RELATING TO OUR ACQUISITIONS

We may be unable to acquire, or may be delayed in acquiring, Shanghai Rongheng Pharmaceutical Company Limited, or Rongheng.

     On March 15, 2007, we entered into a definitive agreement for the acquisition of Rongheng with Orient International Holding Shanghai Rongheng International Trading Co., Ltd. and Shanghai CAS Shenglongda Biotech (Group) Co., Ltd. to purchase a 63% equity interest in Rongheng. In May 2007, we submitted the transaction to the Chinese government for approval. The transaction is subject to a number of conditions, including the receipt of Chinese regulatory approval, and is expected to close during the first quarter of 2008. The completion of the proposed acquisition of Rongheng is subject to closing conditions that are outside of our control, such as review and approval by the relevant examination and approval authorities in China. As a result, we can provide no assurance that our proposed acquisition of Rongheng will be completed in the expected time frame or at all. In addition, our proposed acquisition of Rongheng involves industries in which foreign investment has been limited, and clear guidance on foreign investment in the pharmaceutical distribution business in China does not exist. As a result, we cannot predict how the examination and approval authorities would exercise their discretion in examining this proposed acquisition. Our inability to acquire, or delays in acquiring, Rongheng also would impact adversely our ability to execute our business strategy and, consequently, the marketability and market price of our common stock.

We may be unable to complete the joint venture transaction Alliance BMP Limited and Guangzhou Pharmaceuticals Corporation, or GPC.

     In January 2007, we entered into the Shareholders’ Agreement with Alliance Boots PLC to form Alliance BMP Limited, of which we will own 20% interest and Alliance Boots PLC will own an 80% interest and Alliance BMP Limited executed the GPC JV Contract and related agreements with Guangzhou Pharmaceuticals Limited Company, or GP Limited, to form the reorganized GPC joint venture. Under these agreements, if the transaction is completed, Alliance BMP Limited and GP Limited will each own 50% interest in the reorganized Guangzhou Pharmaceuticals Corporation, or GPC. The consummation of the joint venture transaction contemplated by these agreements is conditioned upon, among other things, satisfaction of all closing conditions, including the lack of adverse regulatory actions that will materially prohibit, restrict, or delay the completion of the joint venture transaction. There can be no assurance that we will obtain approvals from the Chinese authorities, that there will be no materially adverse regulatory actions or that we will be able to complete the joint venture transaction as contemplated by the agreements. Our inability to complete the joint venture transaction may impact adversely our ability to execute our business strategy and, consequently, the marketability and market price of our common stock.

We may not be able to complete the joint venture transaction contemplated by our non-binding letter of intent with Biaodian Medical Information Co., Ltd., or Biaodian.

     In March 2007, we entered into a non-binding letter of intent with respect to a proposed joint venture transaction with Biaodian. Pursuant to the proposed joint venture, we will purchase a 49% interest in Biaodian. This transaction is subject to execution of definitive agreements and, even if we and Biaodian do enter into definitive transaction documents, the consummation of the joint venture transaction may depend on various factors, such as obtaining approvals from the Chinese government and our raising sufficient funds to pay for the equity purchase price. There is no assurance that the proposed joint venture transaction with Biaodian will be completed as contemplated by the letter of intent.

We may be unable to acquire, or may be delayed in acquiring, the remaining 51% interest in Sunstone.

     On October 31, 2007, we completed the acquisition of 49% of the issued share capital of Hong Kong Health Care which holds a 100% equity interest in Sunstone. On September 28, 2007, we entered into a definitive agreement for the acquisition of 51% of the issued share capital of Hong Kong Health Care.

     Sunstone is a privately held manufacturer of primarily over-the-counter medicines, with operations in Tangshan, Hebei Province, People’s Republic of China. Because Sunstone is privately owned, the transaction to purchase 51% of the issued share capital of Hong Kong Health Care does not require the approval of the Chinese central government and is expected to close during the first quarter of 2008. Although Sunstone is privately owned and Chinese government approval is not required, the transaction is subject to certain conditions, including completion of U.S. GAAP financial statements and shareholder and NASDAQ approval. As a result, we can provide no assurance that our proposed acquisition of Sunstone will be completed in the expected time frame or at all. In addition, our proposed acquisition of Sunstone involves industries to which foreign investment has had limited

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access, and clear guidance on foreign investment in the pharmaceutical distribution business does not exist. As a result, we cannot predict how the examination and approval authorities would exercise their discretion in examining this proposed acquisition. Our inability to acquire, or delays in acquiring, 51% of the issued share capital of Hong Kong Health Care also would impact adversely our ability to execute our business strategy and, consequently, the marketability and market price of our common stock.

As a holder of an indirect minority interest in Sunstone, we may be exposed to liability from Sunstone’s historical operations.

     Prior to our acquisition of 49% of the issued share capital of Hong Kong Health Care, Sunstone has been operated as a closely held corporation. In advance of entering into a definitive agreement for the acquisition of a minority interest in Sunstone, we conducted extensive due diligence into Sunstone’s historical operations. We identified several historical practices, including issues regarding internal controls, tax irregularities and unauthorized payments to physicians, which have been discontinued or changed prior to completion of the acquisition of 49% of the issued share capital of Hong Kong Health Care. It is our policy to implement safeguards to discourage these practices by our employees. Sunstone has implemented similar safeguards to discourage these practices by its employees. However, these safeguards and any future improvements may prove to be less than effective, and our or Sunstone’s employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Sunstone may be subject to litigation or regulatory review for its pre-acquisition activities. In addition, the action of Sunstone employees could expose us to liability under the U.S. Foreign Corrupt Practices Act, or FCPA, lead to a government investigation or otherwise expose us to liability as an affiliate of Sunstone, including successor FCPA liability. To the extent Sunstone may be subject to civil or criminal penalties as a result of its historical practices or activities prior to closing, Sunstone and our investment in it will be negatively impacted which may impact our financial performance. These penalties may be material to Sunstone and us. Pursuant to the Sunstone purchase agreement, we may seek indemnification for any losses relating to pre-acquisition liabilities of Sunstone from the Sunstone selling shareholders, namely, Han Zhiqiang and Tong Zhijun; however, for a number of reasons, we may not be able to enforce these indemnification rights, including an inability to proceed against assets of the sellers, the existence of liabilities in excess of the sellers’ ability to provide indemnity payments or technical and legal problems of enforcing indemnity agreements in China. Moreover, even the sellers’ indemnification may not be meaningful in the event of criminal sanctions against Sunstone or its employees and would adversely affect Sunstone’s ability to conduct its business and operations in the future.

Remedial measures undertaken by Sunstone may not prevent recurrences of certain of its historical business practices.

     In the course of our due diligence activities in connection with the acquisition of 49% of the issued share capital of Hong Kong Health Care, we learned that certain Sunstone employees made unauthorized payments to hospitals and physicians in order to promote Sunstone’s products. Prior to the completion of our acquisition of the 49% interest in Sunstone, we required Sunstone to supplement existing remedial measures with the necessary elements of a compliance program in order to provide us with reasonable assurance that no such practices will occur at Sunstone after we acquire our 49% interest. If these practices continue at Sunstone, in addition to any liabilities Sunstone may face under Chinese law, to the extent that Sunstone employees make any illicit payments to government-owned hospitals or government-employed physicians, we may be exposed to liabilities under the FCPA. Any determination that we violated the FCPA could subject us to civil and criminal penalties, including fines and debarment from certain United States government programs and licenses, any or all of which could have a material adverse effect on our business, financial condition and results of operations.

Because we purchased a minority interest in Sunstone, we will not have control over Sunstone’s operations or financial reporting function.

     We have acquired a minority stake in Sunstone. Pursuant to the Sunstone purchase agreement with respect to our acquisition of 49% of the issued share capital of Hong Kong Health Care, at the closing of the transaction, we are entitled to nominate two of the five members of Sunstone’s board of directors. We are not able to exercise control over the day to day operations of Sunstone. Sunstone may not be operated in a manner in which we always agree.

Sunstone has not yet generated US GAAP financial statements or been subject to an audit. In addition, Sunstone has not yet been subject to disclosure controls or internal controls. Following our acquisition of the 49% minority interest in Sunstone, Sunstone is required to develop effective financial reporting and compliance functions. If

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Sunstone is unable to prepare US GAAP compliant financial statements in a timely manner, we may not be able to comply with our SEC reporting obligations, which will adversely affect our operations and financial condition.

Because we do not or will not initially have majority control of a number of our subsidiaries and joint ventures, we are dependent on the majority owners of these subsidiaries and joint ventures to operate these enterprises in a manner consistent with our plans and requirements.

     Although our agreements with the other owners of these subsidiaries and joint ventures give us certain rights to influence their management and operations, ultimately these enterprises may not be operated in a manner with which we agree or consistent with our own business plans and goals. The other owners might not take sufficient action to prevent the occurrences of illicit activities by their employees and agents, and they may not maintain financial controls and reporting functions and compliance functions sufficient to meet our requirements as a publicly-traded company in the United States. Any of these activities, or failures to take action, by the majority owners of these enterprises that is inconsistent with our plans or requirements could have a material adverse effect on our operations and financial condition. Moreover, under certain circumstances we could be forced to dispose of our minority interests in these subsidiaries and joint ventures, and there can be no assurance that we would be able to dispose of these interests on terms favorable to us or at all.

RISKS RELATING TO DOING BUSINESS IN CHINA

We face increased risks of doing business due to the extent of our operations in China.

     Our operating subsidiaries, BMP China, Wanwei and Hong Kong Health Care, are organized and located in China. China currently is transitioning to a market-developed socialist economy. There are significant political and economic tensions resulting from this transition that could affect the business environment in China. Our efforts to expand into China pose special risks that could adversely affect our business. Doing business in China also will subject us to the customary risks of doing business in foreign countries. These risks include, among others, the effects of:

• fluctuations in foreign currency exchange rates and controls;

• competitive disadvantages to established foreign businesses with significant current market share and business and customer relationships;

• nationalization;

• tax and regulatory policies of local governments and the possibility of trade embargoes;

• political instability, war or other hostilities; and

• laws and policies of the United States and China affecting foreign trade and investment.

     Any of these risks could cause significant interruptions in our distribution and other operations, which would adversely affect our ability to conduct business in China and our financial condition, results of operations and business.

Fluctuations in the Chinese Renminbi could adversely affect our results of operations.

     Substantially all of our revenues, profits, cash flows and assets have been, and we expect will continue to be, derived in China and be denominated in Chinese currency, or RMB. The value of the RMB, which is controlled and adjusted periodically by the Chinese government, fluctuates and is subject to changes in the political and economic conditions in China. On September 30, 2007, the exchange rate of United States dollar to RMB is approximately 1 to 7.52. Any devaluation of the RMB could adversely affect the value of our common stock in foreign currency terms because we will receive substantially all of our revenues in RMB. Fluctuations in exchange rates also could adversely affect the value, translated or converted into United States dollars, of our net assets, earnings and any declared dividends. In addition, a

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devaluation of the RMB is likely to increase the portion of our cash flow required to satisfy any foreign currency denominated obligations.

Government control of currency conversion could adversely affect our operations and financial results.

     Substantially all of our revenues are in RMB, which currently is not a freely convertible currency. Any restrictions on currency exchange may limit our ability to use revenue generated in RMB to fund our business activities outside of China or to make dividend payments in United States dollars. Under China’s existing foreign exchange regulations, the RMB is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loan or investment in securities outside of China without the prior approval of China’s State Administration of Foreign Exchange. Foreign exchange transactions under our capital account, including foreign currency-denominated borrowings from Chinese or foreign banks and principal payments with respect to foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange for capital expenditures. In the future, the Chinese government may take measures at its discretion to restrict access to foreign currencies for current account transactions if foreign currencies become scarce in China. We may be unable to pay dividends in United States dollars or other foreign currencies to our stockholders if the Chinese government restricts access to foreign currencies for current account transactions.

The ability of our Chinese operating subsidiaries to pay dividends may be restricted due to our corporate structure.

     Substantially all of our operations are conducted in China and substantially all of our revenues are generated in China. As wholly foreign-owned enterprises, BMP China and Wanwei are required to establish reserve funds and staff and workers’ bonus and welfare funds, each of which is appropriated from net profit after taxation but before dividend distributions in accordance with Chinese law. BMP China is required to allocate at least 10% of their net profits to the reserve fund until the balance of this fund has reached 50% of BMP China’s or Wanwei’s registered capital, which, as of September 30, 2007, was approximately $3.5 million and $2.4 million.

     In addition, the profit available for distribution from our Chinese subsidiaries is determined in accordance with generally accepted accounting principles in China. This calculation may differ from the one performed under generally accepted accounting principles in the United States, or GAAP. As a result, we may not receive sufficient distributions from our Chinese subsidiaries to enable us to make dividend distributions to our stockholders in the future and limitations on distributions of the profits of BMP China, Wanwei and Hong Kong Health Care could negatively affect our financial condition and assets, even if our GAAP financial statements indicate that our operations have been profitable.

We may be restricted in our ability to transfer funds to our Chinese operating subsidiaries, which may restrict our ability to act in response to changing market conditions.

     Any transfer by us of funds to our Chinese subsidiaries through a stockholder loan and the capacity for our Chinese subsidiaries to obtain an RMB loan secured by us or other foreign institutions are subject to registration with China’s State Administration of Foreign Exchange. If the sum of the aggregated medium-term and long-term external debts, the outstanding short-term external debts and RMB loans secured by foreign institution(s) of a Chinese subsidiary is less than the difference between its total investment amount and its registered capital, the Chinese subsidiary is required to apply to the appropriate examination and approval authority to increase its total investment amount. Accordingly, any transfer of funds from us, directly or indirectly, to any of our Chinese subsidiaries by means of increasing its registered capital is subject to approval by the appropriate examination and approval authorities in China. This limitation on the free flow of funds between us and our Chinese subsidiaries may restrict our ability to react to changing market conditions.

China’s economic, political and social conditions, and its government policies, could adversely affect our business.

     Substantially all of our operations are conducted in China and substantially all of our revenues are derived in China. Accordingly, our results of operations, financial condition and prospects are subject, to a significant degree, to economic, political and legal developments in China. The economy of China differs from the economies of most developed countries in many respects, including:

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• level of government involvement;

• economic structure;

• allocation of resources;

• level of development;

• inflation rates;

• growth rate; and

• control of foreign exchange.

     The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industrial development. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

A slow-down of the Chinese economy could adversely affect our growth and profitability.

     Our financial results have been, and are expected to continue to be, affected by conditions in the Chinese economy and pharmaceutical industry. Although the Chinese economy has grown significantly in the past decade, there can be no assurance that this growth will continue or that any slow-down will not have a negative impact on our business.

The legal system in China has inherent uncertainties that could limit the legal protections available to us.

     We currently conduct our business primarily through our wholly-owned operating subsidiaries, BMP China and Wanwei, and through our 49% interest in Hong Kong Health Care and expect in the future to conduct our business through BMP China, Wanwei, Hong Kong Health Care and other subsidiaries organized in China that we acquire, which are and will be organized in China. These subsidiaries generally are subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises. In addition, we depend on several affiliated entities in China to honor their service agreements with us. Chinese law governs almost all of these agreements, and disputes arising out of these agreements are expected to be decided by arbitration in China. The Chinese legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, Chinese legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the Chinese legal system continues to evolve, the interpretations of many laws, regulations and rules are not always uniform, and enforcement of these laws, regulations, and rules involves uncertainties that may limit remedies available to us. Any litigation in China may be protracted and may result in substantial costs and diversion of resources and management attention. In addition, China may enact new laws or amend current laws that may be detrimental to us, which may have a material adverse effect on our business operations.

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

     We are subject to the FCPA and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We have operations, agreements with third parties and make sales in China, which is known to experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants, sales agents or distributors of our Company or the companies in which we invest may engage that could be in violation of various laws including the FCPA, even

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though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company or the companies in which we invest may engage may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

We have limited business insurance coverage in China.

     The insurance industry in China is still in an early stage of development. Insurance companies in China offer limited business insurance options. As a result, we have not maintained, and currently do not maintain, any liability, hazard or other insurance covering our services, business, operations, errors, acts or omissions, personnel or properties. To the extent that we are unable to recover from others for any uninsured losses, such losses could result in a loss of capital and significant harm to our business. If any action, suit and/or proceeding is brought against us and we are unable to pay a judgment rendered against us and/or defend ourselves against such action, suit and/or proceeding, our business, financial condition and operations could be negatively affected.

Any future outbreak of health epidemics, such as Severe Acute Respiratory Syndrome, or SARS, Asian Influenza, or Asian Bird Flu, or any other epidemic in China could have a material adverse effect on our business operations, financial condition and results of operations.

     From December 2002 to June 2003, China and certain other Asian countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as SARS. In addition, recent outbreaks of the Asian Bird Flu have occurred throughout Asia. Outbreaks of SARS, Asian Bird Flu or any other epidemic in the future may disrupt our business operations and have a material adverse effect on our financial condition and results of operations. For example, a new outbreak of SARS, Asian Bird Flu or any other epidemic likely would reduce the level of economic activity in affected areas, which may lead to a reduction in our revenue if our clients cancel existing contracts or defer future expenditures. In addition, health or other government regulations may require temporary closing of our offices, or the offices of our customers or partners, which would severely disrupt our business operations and have a material adverse effect on our financial condition and results of operations.

RISKS RELATING TO PHARMACEUTICAL DISTRIBUTION IN CHINA AND WANWEI

The absence of express laws and regulations in China regarding foreign investment in China’s pharmaceutical distribution sector may cause uncertainty.

     Pursuant to China’s Administrative Measures on the Foreign Investment in Commercial Sector, as of December 11, 2004, foreign enterprises are permitted to establish or invest in wholly foreign-owned enterprises or joint ventures that engage in wholesale or retail sales of pharmaceuticals in China subject to the implementation of relevant regulations. However, no specific regulation in this regard has been promulgated to date. If specific regulations are not promulgated, or if any promulgated regulations contain clauses that will cause an adverse impact to our current and future acquisitions in China, our operations and business strategy will be adversely affected.

Wanwei may be unable to obtain renewals of necessary pharmaceutical distribution permits.

     Under Chinese law, all pharmaceutical wholesale and retail enterprises engaging in the pharmaceutical distribution business must obtain a pharmaceutical distribution permit, and must comply with China’s Good Supply Practices, or GSP, standards and obtain a GSP certificate. Both the permit and certificate are valid for five years and are subject to renewal and reassessment by the relevant Chinese authorities, and the standards of compliance required in relation thereto may from time to time be subject to change. Any changes in compliance standards, or any new laws or regulations that prohibit or render it more restrictive for Wanwei or other pharmaceutical distribution enterprises we may acquire in the future to conduct their business or that increase their compliance costs may adversely affect their or our operations and profitability.

     Wanwei has previously obtained a GSP certificate and pharmaceutical distribution permit. Wanwei’s GSP certificate will expire on April 3, 2008 and its pharmaceutical distribution permit will expire on February 2, 2010. Although we do not believe that Wanwei will be unable to obtain renewals of its GSP certificate and pharmaceutical distribution permit in the future, its ability to do so is primarily outside of its or our control. Any failure by Wanwei

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to obtain renewals of its GSP certificate or pharmaceutical distribution permit may have a material adverse effect on its operations by restricting its ability to carry out its pharmaceutical distribution business, among other things.

Anti-corruption measures taken by the PRC government to correct improper sales practices in the pharmaceutical industry could adversely affect our revenue and reputation.

     The PRC government has recently taken anti-corruption measures to correct corrupt practices. In the pharmaceutical industry, such practices include, among others, acceptance of kickbacks, bribery or other illegal gains or benefits by the hospitals and medical practitioners from pharmaceutical distributors in connection with the prescription of a certain drug. While we maintain strict anti-corruption policies, these policies may not be effective. We are aware of past violations of these anti-corruption measures by employees of companies we have acquired or are in the process of acquiring. If the PRC government takes enforcement action against us as a result of improper sales practices, our inventory may be seized and our practices may be investigated. If this occurs, our sales and reputation may be materially and adversely affected.

     In addition, PRC government-sponsored anti-corruption campaigns from time to time could have a chilling effect on our efforts to reach new hospital customers. Our sales representatives primarily rely on hospital visits to better educate physicians on our products and promote our brand awareness. Recently, there have been occasions on which our sales representatives were denied access to hospitals in order to avoid the perception of corruption. If this attitude becomes widespread among our potential customers, our ability to promote our products will be adversely affected.

Price control regulations may decrease our profitability.

     The prices of certain medicines Wanwei distributes, including those listed in the Chinese government’s catalogue of medications that are reimbursable under China’s social insurance program, or the Insurance Catalogue, are subject to control by the relevant state or provincial price administration authorities. In practice, price control with respect to these medicines sets a ceiling on their retail price. The actual price of such medicines set by manufacturers, wholesalers and retailers cannot historically exceed the price ceiling imposed by applicable government price control regulations. Although, as a general matter, government price control regulations have resulted in drug prices tending to decline over time, there has been no predictable pattern for such decreases.

     Revenues from products distributed by Wanwei that are subject to price controls accounted for a total of approximately 86% and 66% of Wanwei’s total revenues in the years ended December 31, 2006 and 2005. Hence, the prices of these medicines could not be increased at Wanwei’s discretion above the price ceiling without prior government approval. It is uncertain whether Wanwei would be able to obtain the necessary approvals to increase the prices of these medicines. This could affect Wanwei’s ability to maximize its profits or to profitably sell these products.

The bidding process with respect to the purchase of pharmaceutical products may lead to reduced revenue.

     Chinese regulations require non-profit medical organizations established in China to implement bidding procedures for the purchase of drugs. It is intended that the implementation of a bidding purchase system will be extended gradually and will cover, among other drugs, those drugs consumed in large volume and commonly used for clinical uses. Pharmaceutical wholesalers must have the due authorization of the pharmaceutical manufacturers in order to participate in the bidding process. If, for the purpose of reducing the bidding price, pharmaceutical manufacturers participate in the bidding process on their own and enter into purchase and sales contracts with medical organizations directly without authorizing a pharmaceutical distributor, the revenue of Wanwei or any other subsidiaries that we may acquire in the future, whose main business is pharmaceutical distribution, may be adversely affected.

     Even though Wanwei has established long-term business relationships with many medical organizations, if a pharmaceutical manufacturer whose products we do not distribute is awarded a contract under the bidding process, the medical organization that initiated the bidding process will be restricted under its agreement with the winning bidder from purchasing similar products from Wanwei.

If the medicines Wanwei distributes are replaced by other medicines or are removed from China’s Insurance Catalogue in the future, Wanwei’s revenue may suffer.

     Under Chinese regulations, patients purchasing medicines listed by China’s state and/or provincial governments in the Insurance Catalogue may be reimbursed, in part or in whole, by a social medicine fund. Accordingly,

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pharmaceutical distributors prefer to engage in the distribution of medicines listed in the Insurance Catalogue. Currently, the main products that Wanwei distributes are listed in the Insurance Catalogue. The content of the Insurance Catalogue is subject to change by the Ministry of Labor and Social Security of China, and new medicines may be added to the Insurance Catalogue by provincial level authorities as part of their limited ability to change certain medicines listed in the Insurance Catalogue. If the medicines Wanwei distributes are replaced by other medicines or removed from the Insurance Catalogue in the future, Wanwei’s revenue may suffer.

RISKS RELATING TO OUR COMMON STOCK

Sales of substantial amounts of our common stock in the public market could depress the market price of our common stock.

     Since June 7, 2007, our common stock has been traded on The NASDAQ Global Market. From August 10, 2006 to June 6, 2007, our common stock was traded on The NASDAQ Capital Market. If our stockholders sell substantial amounts of common stock in the public market, including common stock issuable upon the exercise of outstanding warrants and options, or the market perceives that such sales may occur, the market price of our common stock could fall and we may be unable to sell our common stock in the future. We had 30,536,508 shares of common stock outstanding as of November 10, 2007. 8,640,834 of these outstanding shares are held by Abacus, who may be deemed to be our “affiliate” as that term is defined under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and would be subject to Rule 144. Sales of substantial amounts of our common stock over limited time periods would likely materially decrease the market price of our common stock.

If the ownership of our common stock continues to be highly concentrated, it may prevent you and other stockholders from influencing corporate decisions, such as significant corporate transactions and the election and replacement or removal of directors and management, and may also result in conflicts of interest that could cause our stock price to decline.

     As of November 10, 2007, Abacus beneficially owned or controlled approximately 28.3% of our outstanding shares of common stock. If Abacus were to act on its own, it likely could control the outcome of corporate actions requiring stockholder approval, including the election, replacement or removal of directors, any merger, consolidation or sale of all or substantially all of our assets, or any other significant corporate transactions, and by virtue of its ability to control the board of directors could control and influence management composition. Abacus may have different interests than other stockholders. For example, Abacus could act to delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders, could prevent or frustrate attempts to replace or remove current management, or Abacus could pursue strategies that are different from the wishes of other investors. This significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

Our common stock may experience extreme price and volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.

     The market price of our common stock may fluctuate substantially due to a variety of factors, including:

• announcements concerning our competitors or the pharmaceutical distribution industry in general;

• rate of sales and customer acceptance;

• changing factors related to doing business in China;

• interruption of supply or changes in our agreements with manufacturers or distributors;

• new regulatory pronouncements and changes in regulatory guidelines and timing of regulatory approvals;

• general and industry-specific economic conditions;

• additions to or departures of our key personnel;

• variations in our quarterly financial and operating results;

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• changes in market valuations of other companies that operate in our business segments or in our industry;

• lack of adequate trading liquidity;

• announcements about our business partners;

• changes in accounting principles; and

• general market conditions.

     The market prices of the securities of early-stage companies, particularly companies like ours without consistent product revenues and earnings, could be highly volatile. In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management’s attention and resources and harm our financial condition and results of operations.

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ITEM 6. Exhibits

2.1	Sale and Purchase Agreement, dated as of September 28, 2007, by and among Beijing Med-Pharm Corporation, Han Zhiqiang and Tong Zhijun (Filed as Exhibit 4.1 to our report on Form 8-K dated September 28, 2007 and filed with the Securities and Exchange Commission on October 4, 2007 (“September Form 8-K”) and incorporated herein by reference).
2.2	Supplementary Agreement, dated as of September 28, 2007, by and among Beijing Med-Pharm Corporation, Han Zhiqiang and Tong Zhijun (Filed as Exhibit 2.1 to the September Form 8-K and incorporated herein by reference).
4.1	Form of Warrant to purchase shares of Common Stock (Filed as Exhibit 4.1 to our report on Form 8-K dated August 17, 2007 and filed with the Securities and Exchange Commission on August 23, 2007 (“August Form 8-K”) and incorporated herein by reference).
4.2	Form of Subscription Agreement (Filed as Exhibit 10.2 to the August Form 8-K and incorporated herein by reference).
4.3	Form of Subscription Agreement (Filed as Exhibit 4.1 to our report on Form 8-K dated October 31, 2007 and filed with the Securities and Exchange Commission on November 6, 2007 (“October Form 8-K”) and incorporated herein by reference).
4.4	Form of Five Year Warrant (Filed as Exhibit 4.2 to the October Form 8-K and incorporated herein by reference).
4.5	Form of 18 Month Warrant (Filed as Exhibit 4.3 to the October Form 8-K and incorporated herein by reference).
4.6	Form of Note (Filed as Exhibit 4.4 to the October Form 8-K and incorporated herein by reference).
10.1	Placement Agent Agreement, dated August 17, 2007, between Beijing Med-Pharm Corporation and Philadelphia Brokerage Corporation (Filed as Exhibit 10.1 to the August Form 8-K and incorporated herein by reference).
31.1	Certificate of the Chief Executive Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(a) under the Exchange Act.
31.2	Certificate of the Chief Financial Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(a) under the Exchange Act
32.1	Certificate of the Chief Executive Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(b) under the Exchange Act
32.2	Certificate of the Chief Financial Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(b) under the Exchange Act

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Beijing Med-Pharm Corporation
Date: November 14, 2007	/s/ DAVID GAO
	David Gao
	Chief Executive Officer (Principal Executive Officer)
Date: November 14, 2007	/s/ FRED M. POWELL
	Fred M. Powell
	Chief Financial Officer (Principal Financial and Accounting Officer)

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