Bohai Pharmaceuticals 10Q/A 2010 Q3 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 2)

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

For the quarterly period ended March 31, 2010

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: 000-53401

Bohai Pharmaceuticals Group, Inc.

(Exact name of registrant as specified in its charter)

Nevada	98-0588402
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

c/o Yantai Bohai Pharmaceuticals Group Co. Ltd.
No. 9 Daxin Road, Zhifu District
Yantai, Shandong Province, China	264000
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number (including area code): +86(535)-685-7928

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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 11, 2010, there were 16,500,000 shares of company common stock issued and outstanding.

EXPLANATORY NOTE

Bohai Pharmaceuticals Group, Inc. (the “Company”) is filing this Amendment No. 2 (“Amendment No. 2”) to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2010, which was originally filed with the Securities and Exchange Commission (the “SEC”) on May 17, 2010 and amended on June 24, 2010 (“Amendment No. 1”), in order to further restate its financial statements and related Management’s Discussion and Analysis of Financial Conditions of Operations based on the Company’s review of and responses to certain comments from the staff of the SEC.

Specifically, the Company is filing Amendment No. 2 primarily to make further adjustments to its financial statements and related disclosures in order to properly: (i) account for the fair value for its outstanding 8% convertible notes and common stock purchase warrants issued on January 5, 2010, (ii) disclose the Company’s valuation assumptions related thereto and (iii) reflect the amortization of the costs associated with the issuance of the Notes and Warrants. See, in particular, Footnote 12 and Footnote 23 to the accompanying financial statements.

Bohai Pharmaceuticals Group, Inc.

Quarterly Report on Form 10-Q/A

(Amendment No. 2)

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2009 (audited) and March 31, 2010 (restated)	1

	Condensed Consolidated Statements of Income for three months ended March 31, 2009 and 2010, and for the nine months ended March 31, 2009 and 2010 (restated)	2

	Condensed Consolidated Statements of Cash Flows for three months ended March 31, 2009 and 2010, and for the nine months ended March 31, 2009 and 2010 (restated)	3

	Notes to Condensed and Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4(T).	Controls and Procedures	32

PART II – OTHER INFORMATION

Item 6.	Exhibits	34

SIGNATURES

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q/A contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The statements herein which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our management’s interpretation of what is believed to be significant factors affecting the businesses, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

our ability to generate commercial viability and acceptance of our products;

our anticipated future sales and profitability;

our future financing plans;

our anticipated needs for working capital;

our growth strategies, including future product offerings;

the anticipated trends in our industry;

our ability to expand our marketing capability;

acquisitions of other companies or assets that we might undertake in the future;

our operations in China and the regulatory, economic and political conditions in China;

competition existing today or that will likely arise in the future;

our implementation of required financial, accounting and disclosure controls and procedures and related corporate governance policies.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue our operations. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Current Report on Form 8-K generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained herein will in fact occur.

Potential purchasers of our common stock or other securities should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason

BOHAI PHARMACEUTICALS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2010 AND JUNE 30, 2009

		As of		As of
		March 31,		June 30,
	Notes	2010		2009
		(Unaudited)		(Audited)
		RESTATED
ASSETS
Current assets
Cash and cash equivalents		$	15,574,909	$	2,493,510
Accounts receivable			11,530,595		11,096,866
Other receivables and prepayments	4		6,969,569		12,993,800
Amount due from equity holder	5		-		1,465,000
Inventories	6		970,664		307,834

Total current assets			35,045,737		28,357,010

Non-current assets
Property, plant and equipment, net	8		7,946,215		8,149,279
Intangible assets	7		17,273,007		17,298,720
Deferred fees on convertible notes	13		1,898,877		-

Total non-current assets			27,118,099		25,447,999

TOTAL ASSETS		$	62,163,836	$	53,805,009

LIABILITES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	9	$	4,381,153	$	5,860,000
Notes payable	10		-		400,000
Accounts payable			842,350		971,208
Other accrued liabilities	11		1,941,088		12,339,355
Income taxes payable	17		1,389,733		677,666

Total current liabilities			8,554,324		20,248,229

Derivative liabilities – investor warrants	12		4,839,673		-
Derivative liabilities – agent warrants	12		483,967		-
Convertible notes, net of amortization (6,000,000 units with 8% interest)	12		121,127		-

TOTAL LIABILITIES			13,999,091		20,248,229

STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 150,000,000 shares authorized, 16,250,000 shares issued and outstanding as of March 31, 2010, 3,450,000 shares issued and outstanding as of June 30, 2009	19		16,250		3,450
Additional paid-in capital	19		9,553,666		2,974,520
Capital reserve			5,836,000		5,836,000
Accumulated other comprehensive income			382,108		490,931
Statutory reserves			2,974,137		2,201,811
Retained earnings			29,402,584		22,050,068
Total stockholders’ equity			48,164,745		33,556,780

TOTAL LIABILITIES AND STOCKOLDERS’ EQUITY		$	62,163,836	$	53,805,009

See accompanying notes to the financial statements

BOHAI PHARMACEUTICALS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2010 AND 2009

		Three months			Three months			Nine months			Nine months
		ended			ended			ended			ended
		March 31,			March 31,			March 31,			March 31,
	Notes	2010			2009			2010			2009
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
		RESTATED						RESTATED

Sales		$	15,323,878		$	12,476,400		$	46,072,455		$	35,833,215

Less: Sales Tax			(231,870	)		(200,622	)		(729,975	)		(580,207	)

Net sales			15,092,008			12,275,778			45,342,480			35,253,008

Cost of sales			(2,609,515	)		(2,019,864	)		(7,475,740	)		(5,966,876	)

Gross profit			12,482,493			10,255,914			37,866,740			29,286,132

Selling, general and administrative expenses	14		(9,202,873	)		(7,670,130	)		(28,208,753	)		(21,675,279	)

Interest expenses	15		(381,700	)		(52,921	)		(538,008	)		(168,422	)

Operating income			2,897,920			2,532,863			9,119,979			7,442,431

Other income			-			158			18,864			158

Finance and non-operating incomes (expenses)	16		829,773			(4,618	)		807,681			(4,682	)

Income before taxes			3,727,693			2,528,403			9,946,524			7,437,907

Income taxes	17		(585,135	)		(423,569	)		(2,193,931	)		(1,224,833	)

Net income		$	3,142,558		$	2,104,834		$	7,752,593		$	6,213,074

See accompanying notes to the financial statements

BOHAI PHARMACEUTICALS GROUP CO., LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2010 AND 2009

	Three months			Three months			Nine months			Nine months
	ended			ended			ended			ended
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
	RESTATED						RESTATED

Cash flows from operating activities
Net income	$	3,142,558		$	2,104,834		$	7,752,593		$	6,213,074
Adjustments to reconcile net income to net cash (used in)/ provided by operating activities
Depreciation		84,518			213,912			224,656			284,387
Loss on disposals of property, plant and equipment		-			-			10,942			-
Amortization of deferred fees on convertible notes		253,577			-			253,577			-
Interest expense on convertible notes		121,126			-			121,126			-
Change in fair value of warrants		(1,083,350	)		-			(1,083,350	)		-

Changes in assets and liabilities
Decrease/ (increase) in accounts receivable		250,769			(1,383,561	)		(433,728	)		(1,119,683	)
Decrease in other receivables and prepayments		6,504,589			546,973			4,127,297			8,311,379
Decrease/ (increase) in amount due from equity holder		-			-			1,465,000			(108,426	)
(Increase)/ decrease in inventories		(198,160	)		206,841			(662,830	)		138,503
Decrease/ (increase) in accounts payable		87,292			(257,958	)		(128,858	)		(1,923,974	)
(Decrease)/ increase in accrued liabilities		(11,338,820	)		783,952			(10,407,917	)		(12,430,148	)
(Decrease)/ increase in income taxes payable		(273,202	)		288,939			2,905,998			1,453,411

Net cash (used in)/ provided by operating activities		(2,449,103	)		2,503,932			4,144,506			818,523

Cash flows from investing activities
Purchases of property, plant and equipment		(84,518	)		(191,977	)		(280,804	)		(505,153	)
Proceeds from disposals of property, plant and equipment		-			-			-			-

Net cash used in investing activities		(84,518	)		(191,977	)		(280,804	)		(505,153	)

Cash flows from financing activities

Cash fees on placement agent and other financing costs		(1,570,000	)		-			(1,570,000	)		-
Proceeds of convertible promissory notes		12,000,000			-			12,000,000			-
Proceeds of borrowings		4,381,153			1,314,713			4,381,153			4,382,377
Repayment of borrowings		(4,393,665	)		(1,896,700	)		(5,860,000	)		(3,271,413	)

Net cash provided by/ (used in) financing activities		10,417,488			(581,987	)		8,951,153			1,110,964

Net increase in cash and cash equivalents		7,883,867			1,729,968			12,814,855			1,424,334

Effect of foreign currency translation on cash and cash equivalents		(201,866	)		(26,482	)		266,544			227,015

Cash and cash equivalents at beginning of period		7,892,908			776,913			2,493,510			829,050

Cash and cash equivalents at end of period	$	15,574,909		$	2,480,399		$	15,574,909		$	2,480,399

Supplemental cash flow information:
Interest paid on convertible notes	$	226,667		$	-		$	226,667		$	-

Placement agent warrants issued	$	582,454		$	-		$	582,454		$	-

See accompanying notes to the financial statements

BOHAI PHARMACEUTICALS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2010

(UNAUDITED)

(Stated in US Dollars)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

Bohai Pharmaceuticals Group, Inc. (formerly known as Link Resources, Inc.) was incorporated under the laws of the State of Nevada on January 9, 2008. Until January 5, 2010, its principal office was located in Calgary, Alberta, Canada. The Company was a public “shell” company in the exploration stage since its formation and had not yet realized any revenues from its planned operations. The Company entered into a Mineral Lease Agreement on April 1, 2008 for two mining claims in Pershing County, Nevada, in an area known as the Goldbanks East Prospect. The Company terminated the lease on July 7, 2009.

Pursuant to a Share Exchange Agreement, dated January 5, 2010 (the “Share Exchange Agreement” and the transactions contemplated thereby, the “Share Exchange”), the Company acquired Chance High International Limited, a British Virgin Islands company (“Chance High”) from Chance High’s shareholders (the “Chance High Shareholders”) and, as a result, acquired Chance High’s indirect, controlled subsidiary, Yantai Bohai Pharmaceuticals Group Co., Ltd. (“Bohai”), a Chinese company engaged the production, manufacturing and distribution in the People’s Republic of China (“China” or the “PRC”) of herbal medicines, including capsules and other products, based on traditional Chinese medicine. The closing of the Share Exchange (the “Closing”) took place on January 5, 2010 (the “Closing Date”).

On the Closing Date, pursuant to the terms of the Share Exchange Agreement, the Company acquired all of the outstanding equity securities (the “Chance High Shares”) of Chance High from the Chance High Shareholders, and the Chance High Shareholders transferred and contributed all of their Chance High Shares to the Company. In exchange, the Company issued to Chance High Shareholders an aggregate of 13,162,500 newly issued shares of common stock, par value $0.001 per share (the “Common Stock”). In addition, pursuant to the terms of the Share Exchange Agreement, Anthony Zaradic, the former President and Chief Executive Officer of the Company, cancelled a total of 1,500,000 shares of Common Stock.

Chance High owns 100% of the issued and outstanding capital stock of the Yantai Shencaojishi Pharmaceuticals Co., Ltd. (“WFOE”). On December 7, 2009, the WFOE entered into a series of variable interest entity contractual agreements (the “VIE Agreements”) with Bohai and its three shareholders, including Mr. Hongwei Qu, currently the Company’s Chairman, Chief Executive Officer and President (“Qu”), pursuant to which WFOE effectively assumed management of the business activities of Bohai and has the right to appoint all executives and senior management and the members of the board of directors of Bohai. The Company, Chance High, WFOE and Bohai are referred to herein collectively as the “Group”.

The VIE Agreements are comprised of a series of agreements, including a Consulting Services Agreement, Operating Agreement and Proxy Agreement, through which WFOE has the right to advise, consult, manage and operate Bohai for an annual fee in the amount of Bohai’s yearly net profits after tax. Additionally, Bohai’s shareholders pledged their rights, titles and equity interest in Bohai as security for WFOE to collect consulting and services fees provided to Bohai through an Equity Pledge Agreement. In order to further reinforce WFOE’s rights to control and operate Bohai, Bohai’s shareholders granted WFOE an exclusive right and option to acquire all of their equity interests in Bohai through an Option Agreement.

2.	BASIS OF PRESENTATION

The Group maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. Accounting policies adopted by the Group conform to generally accepted accounting principles in the United States of America (“US GAAP”) and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Group, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC (“PRC GAAP”), the accounting standards used in the places of their domicile. The accompanying financial statements reflect necessary adjustments not recorded in the books of account of the Group to present them in conformity with US GAAP.

The interim financial statements as of and for the three months and nine moths ended March 31, 2010 reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the period presented in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.

The Share Exchange is being accounted for as a reverse recapitalization presumed to be effected on January 1, 2010 instead of January 5, 2010. The operating results, financial position and cash flows of the Group are consolidated since January 2010. The operating results, financial position and cash flows for Chance High and its subsidiaries for the three and nine month periods ended March 31 2009, as at June 30, 2009 and for period July 2009 to March 2010 nine-month period are being presented for comparative figures illustration purpose only.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Consolidation

Pursuant to the Share Exchange Agreement, Link Resources, Inc. accounted for the transaction as reverse recapitalization according to ASC 805-40-25-1 so that the Share Exchange was considered a reverse recapitalization with Chance High as the accounting acquirer and Link Resources, Inc. as the accounting acquiree. As the transaction between Link Resource Inc. and Chance High Limited is treated as reverse acquisition, no goodwill was recorded. The historical financial statements of the Company therefore include those of Chance High and its subsidiaries (WFOE and Bohai) prior to the consummation of the Share Exchange and those of Link Resources, Chance High and its subsidiaries after the consummation of the Share Exchange. Intercompany transactions and balances are eliminated in consolidation. Pursuant to an Agreement and Plan of Merger that Link Resources, Inc. entered into on January 29, 2010, Link Resources Inc. changed its corporate name to “Bohai Pharmaceuticals Group, Inc.” The sole purpose of such merger was to effect a change of the Company’s corporate name.

The Company has adopted FAS ASC 810-10-15-14 and also FIN 46R, which requires that a Variable Interest Entity (“VIE”) to be consolidated by a company if that company is entitled to receive a majority of the VIE’s residual returns and have direct ability to made decision on all operation activities of the voting right of the VIE.

The Operating Agreement indicated that Bohai, as operating company, which is wholly foreign owned under control of Chance High that empowers to WFOE the direct ability to made decision on all the operation activities of the voting right of Bohai.

Under Consultant Service Agreement entered between WFOE and Bohai on December 7, 2009, Bohai agreed to pay all of net income to WOFE quarterly as consultant fee. Accordingly, WOFE has the right to receive the expected residual returns of Bohai.

Under above mentioned contractual arrangement, the Company, Bohai Pharmaceuticals Group, Inc. qualifies as the primary beneficiaries such a controlling financial interest of Bohai as operating under FASB ASC230-10-45 and FASB Interpretation No. 46R “Consolidation of Variable Interest Entities” (“FIN 46R”), an Interpretation of Accounting Research Bulletin No. 51. The result of subsidiaries or variable interest entities acquired prior to date of Share Exchange Agreement on January 5, 2010 entered are included in the condensed consolidated financial statement.

As of March 31, 2010, the particulars of the Company’s subsidiaries are as follows:

Name of Company	Place of incorporation	Date of incorporation	Attributable equity interest			Issued capital

Chance High International Limited	British Virgin Islands	July 2, 2009		100	%	USD50,000

Yantai Shencaojishi Pharmaceuticals Co., Ltd.	People’s Republic of China	November 25, 2009		100	%	USD9,500,000

Yantai Bohai Pharmaceuticals Group Co., Ltd.	People’s Republic of China	July 8, 2004		*		USD2,918,000 (RMB20,000,000)

* The Group has indirect controlling interest of Bohai under the VIE Agreements entered on December 7, 2009, which are described in Note 1 above.

Initial measurement of VIE - The Company initially measures the assets, liabilities, and non-controlling interests of the VIEs at their carrying amount at the date of the acquisitions.

Accounting after initial measurement of VIE - Subsequent accounting for the assets, liabilities, and non-controlling interest of a consolidated variable interest entity are accounted for as if the entity were consolidated based on voting interests and the usual accounting rules for which the VIE operates are applied as they would to a consolidated subsidiary as follows:

·

Carrying amounts of the VIE are consolidated into the financial statements of the Company as the primary beneficiary (referred as “Primary Beneficiary” or “PB”); and

·

Inter-company transactions and balances, such as revenues and costs, receivables and payables between or among the Primary Beneficiary and the VIE(s) are eliminated in their entirety.

(b)	Economic and Political Risks

The Group’s operations are conducted solely in the PRC. There are significant risks associated with doing business in the PRC, among others, political, economic, legal and foreign currency exchange risks. The Group’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

(c)	Use of Estimates

In preparing the condensed consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes, derivative liabilities, and the estimation on useful lives of plant and machinery. Actual results could differ from those estimates.

(d)	Cash and Cash Equivalents

The Group considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Group maintains bank accounts only in the PRC. The Company does not maintain any bank accounts in the United States of America. As of March 31, 2010 and June 30, 2009, there were cash and cash equivalents of $15,574,909 and $2,493,510 respectively.

(e)	Accounts Receivable

Accounts receivable consists of amounts due from customers. The Group extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on management’s assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment.

(f)	Inventories

Inventories are valued at the lower of cost or market with cost is determined on the weighted average method. Finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. In assessing the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels. The Group’s reserve requirements generally increase/decrease due to management projected demand requirements, market conditions and product life cycle changes. As of March 31, 2010 and June 30, 2009, the Group did not make any allowance for slow-moving or defective inventories.

(g)	Fair value of Financial Instruments

The carrying values of the Group’s financial instruments, including cash and cash equivalents, accounts receivables, other receivables and prepayments, short-term borrowings, accounts payables, derivative instruments, and other accrued liabilities are at their fair values due to the maturity of such instruments.

(h)	Intangible Assets

Intangible assets consist of “Pharmaceutical Formulas”, acquired with indefinite useful live are measured initially at cost and not subject to amortization shall be tested for impairment annually or more frequently if there is indication of impairment. If the carrying amount exceeds fair value, an impairment loss should be recognized. Subsequently reversal of a recognized impairment loss is prohibited.

(i)	Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less depreciation and amortization and accumulated impairment loss. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.

Depreciation of property, plant and equipment is calculated to written off the cost, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. The principal annual rates are as follows:

Leasehold land and buildings	30 to 40 years
Motor vehicles	10 years
Plant and machinery	10 years
Office equipment	5 years

Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.

Construction in progress primarily represents costs incurred to construct the Group’s corporate campus and machinery under construction. The corporate campus was completed and at began production in 2009. Assets under construction are not depreciated until the construction is completed and the assets are ready for their intended use.

(j)	Accounting for the Impairment of Long-Lived Assets

The Group uses ASC Topic 360, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Group periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC Topic 360. ASC Topic 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Group believes that, as of March 31, 2010 and June 30, 2009, there were no significant impairments of its long-lived assets.

(k)	Foreign Currency Translation

The Group maintains its condensed consolidated financial statements in the functional currency. The functional currency of the Group is the Chinese Renminbi (RMB). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Group which are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

	Three months ended March 31, 2010		Three months ended March 31, 2009		Nine months ended March 31, 2010		Nine months ended March 31, 2009
Year end US$: RMB exchange rate		6.83610		6.84560		6.83610		6.84560
Average periodic US$: RMB exchange rate		6.83603		6.84658		6.83773		6.85094

RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(l)	Revenue Recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met:

Persuasive evidence of an arrangement exists;

Delivery has occurred or services have been rendered;

The seller’s price to the buyer is fixed or determinable; and

Collectability is reasonably assured. Payments have been established.

The return policy of goods is recognized in actual basis when the goods sold were being returned by customer then the closing balance of the period/year is actually deducted by the increment of relevant cost of sales. As the sales return rate is low and immaterial, no such provision is required to be made.

(m)	Cost of Revenue

Regarding the trading of medicine, the respective cost of revenue consists primarily of material cost, labor cost, overhead associated with the manufacturing process and related expenses which are directly attributable to the trading.

(n)	Research and Development Costs

Research and development costs are charged as expense when incurred and included in operating expenses.

(o)	Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income and comprehensive income in the periods that includes the enactment date.

(p)	Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a condensed consolidated financial statement that is presented with the same prominence as other financial statements. The Group’s current components of other comprehensive income are the foreign currency translation adjustment.

(q)	Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

(r)	Earning per Shares

The Group reports basic earnings per share in accordance with ASC Topic 260, “Earnings Per Share”. Basic earnings/(loss) per share is computed by dividing net income/(loss) by weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Common equivalent shares are excluded from the computation in periods for which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation. At March 31, 2010, the Group had no common stock equivalents that could potentially dilute future earnings per share

(s)	Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (an amendment to SFAS No. 133). This statement is effective for condensed consolidated financial statements issued for fiscal year and interim periods beginning after November 15, 2008 and requires enhanced disclosures with respect to derivative and hedging activities. The Group will comply with the disclosure requirements of this statement if it utilizes derivative instruments or engages in hedging activities upon its effectiveness.

In April 2008, the FASB issued FASB Staff Position No. 142-3, DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS (“FSP No. 142-3”) to improve the consistency between the useful life of a recognized intangible asset (under SFAS No. 142) and the period of expected cash flows used to measure the fair value of the intangible asset (under SFAS No. 141(R)). FSP No. 142-3 amends the factors to be considered when developing renewal or extension assumptions that are used to estimate an intangible asset’s useful life under SFAS No. 142. The guidance in the new staff position is to be applied prospectively to intangible assets acquired after December 31, 2008. In addition, FSP No.142-3 increases the disclosure requirements related to renewal or extension assumptions. The Company does not believe implementation of FSP No. 142-3 have a material impact on its condensed consolidated financial statements.

In May 2008, the FASB issued statement No. 162, THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “the Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”.

In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting for Convertible Debt instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. As we do not have convertible debt at this time, we currently believe the adoption of FSP APB 14-1 will have no effect on our combined results of operations and financial condition.

In May 2008, the FASB issued Statement No. 163, ACCOUNTING FOR FINANCE GUARANTEE INSURANCE CONTRACTS - AN INTERPRETATION OF FASB STATEMENT NO. 60. The premium revenue recognition approach for a financial guarantee insurance contract links premium revenue recognition to the amount of insurance protection and the period in which it is provided. For purposes of this statement, the amount of insurance protection provided is assumed to be a function of the insured principal amount outstanding, since the premium received requires the insurance enterprise to stand ready to protect holders of an insured financial obligation from loss due to default over the period of the insured financial obligation. This Statement is effective for condensed consolidated financial statements issued for fiscal years beginning after December 15, 2008.

In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES (“FSP EITF No. 03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on the Company’s condensed consolidated financial statements.

In April 2009, the FASB issued FSP 157-4, DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP 157-4 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP 157-4 requires comparative disclosures only for periods ending after initial adoption. The adoption of the provisions of FSP 157-4 is not anticipated to materially impact on the Company’s results of operations or the fair values of its assets and liabilities.

In May 2009, the FASB issued SFAS No. 165, SUBSEQUENT EVENTS (“SFAS 165”). SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued and was effective for interim and annual periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have an impact on the Company’s results of operations or financial condition. The Company evaluated all subsequent events that occurred from January 1, 2010 through January 30, 2010, inclusive, and does not found any material subsequent events are required to disclose.

In June 2009, the FASB issued SFAS No. 166 ACCOUNTING FOR TRANSFERS OF FINANCIAL ASSETS (“SFAS 166). This statement is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, and is required to be adopted by the Company in the first quarter of fiscal year 2011. Earlier application is prohibited. This Statement must be applied to transfers occurring on or after the effective date. The Company does not expect the adoption of SFAS 166 to have a material impact on the Company’s financial position, results of operations and cash flows.

In June 2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation No.46(R)”, which is codified as ASC 810. ASC 810 amends FASB Interpretation No.46(R), “Variable Interest Entities” for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under ASC 810, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. ASC 810 also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. ASC 810 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. ASC 810 shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. ASC 810 is effective for the Company in the first quarter of fiscal 2011. The Company is currently evaluating the effect of ASC 810 on its condensed consolidated financial statements and results of operation and is currently not yet in a position to determine such effects.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Measuring Liabilities at Fair Value”, which is codified as ASC 820, “Fair Value Measurements and Disclosures”. This Update provides amendments to ASC 820-10, Fair Value Measurements and Disclosures –Overall, for the fair value measurement of liabilities. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or that is consistent with the principles of ASC 820. The amendments in this Update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents transfer of the liability. The amendments in this Update also clarify that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the assets are required are Level 1 fair value measurements. ASC 820 is effective for the first reporting period (including interim periods) beginning after August 28, 2009. The adoption of this Update did not have a significant impact to the Company’s condensed consolidated financial statements.

In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”)”. ASU 2009-17 amends the variable-interest entity guidance in FASB ASC 810-10-05-8 to clarify the accounting treatment for legal entities in which equity investors do not have sufficient equity at risk for the entity to finance its activities without financial support. ASU 2009-17 shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. ASU 2009-17 is effective for the Company in the first quarter of fiscal 2011. The Company is currently evaluating the effect of ASU 2009-17 on its condensed consolidated financial statements and results of operation and is currently not yet in a position to determine such effects.

None of the above new pronouncements has current application to the Group, but may be applicable to the Company’s future financial reporting.

4.	OTHER RECEIVABLES AND PREPAYMENTS

Other receivables and prepayments consist of the following:

	As of March 31, 2010		As of June 30, 2009
	(Unaudited)		(Audited)

Prepayment for advertising and promotion	$	2,925,645	$	1,736,025
Loan to a third party		-		1,465,000
Other receivables		3,312,433		9,792,775
Deposit for closing of private placement		731,491		-

Total other receivables and prepayments	$	6,969,569	$	12,993,800

Loan to a third party is unsecured, interest bearing at 5.31% per annum and repayable on June 8, 2010.

5.	AMOUNT DUE FROM EQUITY HOLDER

Amount due from an equity holder consists of the following:

	As of March 31, 2010		As of June 30, 2009
	(Unaudited)		(Audited)

Amount due from a equity holder	$	-	$	1,465,000

The amount due from an equity holder is unsecured, interest bearing at 3.93% per annum and has no fixed term of repayment.

6.	INVENTORIES

Inventories consist of the following:

	As of		As of
	March 31,		June 30,
	2010		2009
	(Unaudited)		(Audited)

Raw materials	$	393,475	$	250,405
Finished goods		577,189		57,429

Total inventories	$	970,664	$	307,834

7.	INTANGIBLE ASSETS

Intangible assets consist of the following:

	As of		As of
	March 31,		June 30,
	2010		2009
	(Unaudited)		(Audited)

Pharmaceuticals formulas, at cost	$	17,273,007	$	17,298,720

8.	PROPERTY, PLANT AND EQUIPMENT, NET

The following is a summary of property, plant and equipment:

	As of March 31, 2010		As of June 30, 2009
	(Unaudited)		(Audited)
Cost
Leasehold land and buildings	$	7,598,806	$	7,447,211
Plant and equipment		1,235,146		1,156,557
Office equipment		77,597		74,700
Motor vehicles		412,954		389,075

Total		9,324,503		9,067,543

Accumulated depreciation
Leasehold land and buildings		553,961		414,133
Plant and equipment		671,032		617,279
Office equipment		20,660		10,681
Motor vehicles		132,635		112,768

Total		1,378,287		1,154,861

Construction in progress		-		236,597

Net
Leasehold land and buildings		7,044,845		7,033,078
Plant and equipment		564,114		539,278
Office equipment		56,936		64,019
Motor vehicles		280,320		276,307

Property, plant and equipment, net	$	7,946,215	$	8,149,279

Depreciation expenses for the three months and nine months ended March 31, 2010 were $84,518 and $224,656 respectively.

As of March 31, 2010 and June 30, 2009, Bohai had pledged plant and machinery having a carrying amount of $552,710 and $562,331 to secure a bank loan to Bohai.

9.	SHORT-TERM BORROWINGS

Bohai obtained several short-term loan facilities from financial institution in the PRC. Short-term borrowings as of March 31, 2010 consist of the following:

Loan from financial institution	Loan period	Annual Interest rate			Secured by	Amount (unaudited)
China Construction Bank	From Feb 24, 2010 to Feb 23, 2011		5.8410	%	Personal guarantee by equity holder	$	3,510,773
Rural Credit Union	From Sep 28, 2009 to Sep 26, 2010		5.7525	%	Yantai Ka Wah Medical Equipment Co. Ltd		285,990
Yantai Laishan Rural Credit Union	From Sep 28, 2009 to Sep 26, 2010		7.5225	%	Bohai’s machinery and vehicle		584,390
Total						$	4,381,153

Short-term borrowings as of June 30, 2009 consist of the following:

Loan from financial institution	Loan period	Annual Interest rate			Secured by	Amount (Audited)
Shanghai Pudong Development Limited	From Dec 12, 2008 to Dec 11, 2009		6.6960	%	Haiyang Construction Industry Training Centre and personal guarantee by equity holders	$	2,197,500
Yantai City Commercial Bank	From Jan 20, 2009 to Jan 20, 2010		6.9030	%	Yantai Hai Pu Can End Making Co. Ltd		1,318,500
Yantai Laishan Rural Credit Union	From Sep 27, 2008 to Sep 26, 2009		9.3600	%	Yantai Ka Wah Medical Equipment Co. Ltd		293,000
Yantai Laishan Rural Credit Union	From Sep 27, 2008 to Sep 26, 2009		12.2400	%	Company’s machinery and vehicle		586,000
China Construction Bank	From May 12, 2009 to Nov 11, 2009		0.0000	%	Personal guarantee by equity holders		1,465,000
Total						$	5,860,000

10.	NOTES PAYABLE

In June 2009, the Company issued four promissory notes for an aggregate of $400,000. The funds had been raised previously on the Company’s behalf by counsel in a private placement and held in trust accounts. Funds were expended from the trusts for professional fees and due diligence related to an ongoing search for suitable business opportunities, anticipating merger. In June 2009, the Company assumed responsibility for the fees and due diligence costs. On January 5, 2010, the notes converted pursuant to their terms into shares of Common Stock as a result of the Share Exchange transaction.

11.	OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

	As of		As of
	March 31,		June 30,
	2010		2009
	(Unaudited)		(Audited)

Accrued selling expenses	$	579,545	$	1,677,026
Accrued staff costs		212,198		173,130
Value added tax payable		716,822		709,688
Other accrued expenses		206,865		77,374
Others payable		225,658		9,702,137

Total other accrued liabilities	$	1,941,088	$	12,339,355

12. CONVERTIBLE PROMISSORY NOTES AND WARRANTS

On January 5, 2010, pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) with 128 accredited investors (the “Investors”), the Company sold 6,000,000 units for aggregate gross proceeds of $12,000,000, each unit consisting of an 8% senior convertible promissory note in the principal amount of $2 and one common stock purchase warrant (each, an “Investor Warrant” and collectively, the “Investor Warrants”). By agreement with the Investors, each investor received: (i) a single Note representing the aggregate number of Notes purchased by them as part of the units (each, a “Note” and collectively, the “Notes”) and (ii) a single Investor Warrant representing the aggregate number of Investor Warrants purchased by them as part of the units.

The Notes bear interest at 8% per annum, payable quarterly in arrears on the last day of each fiscal quarter of the Company. No principal payments are required until maturity of the Notes on January 5, 2012. Each Note, plus all accrued but unpaid interest thereon, is convertible, in whole but not in part, at any time at the option of the holder, into shares of the Company’s common stock, par value $0.001 per share, at a conversion price of $2.00 per share, subject to adjustment as set forth in the Note. The 128 Notes issued have face amounts that range from $43,200 to $500,000.

The conversion price of the Notes is subject to standard anti-dilution adjustments for stock splits and similar events. In addition, in the event the Company issue or sells any additional shares of Common Stock or instruments convertible or exchangeable for Common Stock at a price per share less than the conversion price then in effect or without consideration, then the conversion price upon each such issuance will be adjusted to that price determined by multiplying the conversion price then in effect by a fraction: (1) the numerator of which is the sum of (x) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus (y) the number of shares of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued would purchase at a price per share equal to the conversion price then in effect, and (2) the denominator of which is the number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. Notwithstanding any provision of the Note to the contrary, no adjustment will cause the conversion price to be less than $1.00, as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction.

The Notes contain certain Events of Default, including non-payment of interest or principal when due, bankruptcy, failure to maintain a listing of the Common Stock or to make required filings on a timely basis. No premium is payable by the Company if an Event of Default occurs. However, upon an Event of Default, and provided no more than 50% of the aggregate face amount of the Notes have been converted, the Investors holding Notes have the right to receive a portion, based on their pro-rata participation in the transaction, of 1,000,000 shares of the Company’s Common Stock that have been placed in escrow by the Company’s principal stockholder. The shares in escrow will be returned to the principal stockholder when 50% of the aggregate face amount of the Notes has been converted or, if later, when the Notes are repaid.

The Investor Warrants expire on January 5, 2013 and may be exercised by the holder at any time to purchase one share of Common Stock at an exercise price of $2.40 per share (subject to adjustment as set forth in the Investor Warrants). The exercise price of the Investor Warrants is subject to adjustment in the same manner as the conversion price of the Notes described above, except that the exercise price will not be adjusted to less than $1.20, as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction. The Investor Warrants may only be exercised for cash and do not permit the holder to perform a cashless exercise.

In connection with the sale of the units, the Company paid its placement agents a cash fee of $1,200,000. In addition, the placement agents received warrants (the “Placement Agent Warrants” and, together with the Investor Warrants, the “Warrants”) to purchase 600,000 shares of Common Stock, which warrants are substantially identical to the Investor Warrants, except that, pursuant to separate lock-up agreements executed by the holders of the Placement Agent Warrants, the Placement Agent Warrants are not exercisable until the six month anniversary of the later of: (i) the date of effectiveness of the registration statement registering the resale of the Common Stock underlying the Notes and Warrants or (ii) the date of commencement of sales in connection with such registration statement.

In addition to the placement agent fee, the Company paid $370,000 of legal and other expenses. As required by the Securities Purchase Agreement, $500,000 of the proceeds from the sale of the units were placed in escrow to pay investor relations expenses to be incurred by the Company and $240,000, equivalent to one quarter’s interest expense on the Notes, was also placed in escrow. The interest escrow will be released to the Company at such time as 75% of all shares underlying the Notes have been issued upon conversion of Notes. After payment of the placement agent fees and other expenses and the amounts required to be placed in escrow, the Company received net proceeds of $9,690,000. At March 31, 2010, $731,491 remained in escrow and is included in Other Receivables and Prepayments (see Note 4).

The Company also entered into a Registration Rights Agreement with the Investors. The Company agreed to file, no later than March 6, 2010, a registration statement to register the shares underlying the Notes and the Warrants and to have such registration statement effective no later than August 13, 2010. The required registration statement was filed on March 2, 2010 but has not become effective as of March 31, 2010. If the registration statement is not effective by the due date or if, after the effective date, sales of securities included in the registration statement cannot be made (including, without limitation, because of a failure to keep the registration statement effective, to disclose such information as is necessary for sales to be made pursuant to the registration statement, to register a sufficient number of shares of Common Stock or to maintain the listing of the Common Stock) then, as liquidated damages (and in complete satisfaction and to the exclusion of any claims or remedies inuring to any holder of the securities) the Company is required to pay an amount in cash equal to 1% of the aggregate purchase price paid by the Investors on each of the following dates: (i) 20 days following the date of a Filing Failure; (ii) 20 days following the date of an Effectiveness Failure; (iii) 30 days following the initial day of a Maintenance Failure; (iv) on every thirtieth day thereafter (pro-rated for periods totaling less than thirty days) until such failure is cured. The payments to be made by the Company are limited to a maximum of 6% of the aggregate amount paid by the Investors ($720,000). As of March 31, 2010, the Company does not expect to incur any registration delay payments and has not accrued any such payments.

On and effective as of June 30, 2010, the Company entered into an Amendment and Agreement with the Investors, pursuant to which the Company and the Investors agreed to make certain amendments to the Notes and the Warrants. Pursuant to the Amendment, except for the standard anti-dilution adjustments for stock splits and similar events, the anti-dilution protection provisions in the Notes and the Warrants were eliminated and a provision specifically precluding net cash settlement by the Company of the Notes and the Warrants was added. In return, and subject to certain non-financing exceptions, the Company agreed not to issue any new equity securities at a price per share below $2.20 until the earlier of (i) January 5, 2013 or (ii) the date on which, collectively with any prior conversions or exercises of Notes and Warrants, 75% of the principal face value of the Notes in the aggregate has been converted into shares of Common Stock and Warrants representing, in the aggregate, 75% of the aggregate shares of Common Stock underlying the Warrants have been exercised. This Amendment will not change the Company’s accounting for the Notes and the Warrants described below.

Valuation

At the time the Notes and Warrants were issued, there had not been any market activity for the Common Stock. Accordingly, determining the fair value of the Common Stock required the Company to make complex and subjective judgments. The Company estimated the value of its enterprise as of January 5, 2010 based on a review of the enterprise value derived from the use of market and income valuation approaches. The Company also reviewed an asset-based approach to assess whether the result of such an approach was consistent with the value derived from the market and income valuation approaches. The market approach was based on the market price to earnings multiple for companies considered by management to be comparable to the Company. The income approach was based on applying discount rates to estimated future net income. The estimated enterprise value was then allocated to the Company’s existing outstanding Common Stock, the Notes and the Warrants using the option pricing method. The option pricing method was based on the two year period to maturity of the Notes and the three year period to expiration of the Warrants, risk-free interest rates commensurate with those periods and the expected volatility used was based on a review of the historical volatility of companies considered by management to be comparable to the Company.

Based on the allocation of the estimated enterprise value, the Company estimated the fair value of the Common Stock at $2.28 per share, as of January 5, 2010. The Investor Warrants and the Placement Agent Warrants were valued at $5,824,538 and $582,454, respectively, based on the estimated fair value of the Common Stock of $2.28, a term equal to the remaining life of the Warrants, an expected dividend yield of 0%, a risk-free interest rate of 1.57% based on constant maturity rates published by the U.S. Federal Reserve applicable to the remaining life of the Warrants and estimated volatility of 65%, based on a review of the historical volatility of companies considered by management to be comparable to the Company. As noted above, prior to the June 30, 2010 Amendment described above, the Warrants contained a down-round anti-dilution protection feature. As of January 5, 2010, the value of this feature was not considered to be material and no adjustment was made for it in the estimated fair value of the Warrants.

Accounting for Convertible Notes

At January 5, 2010 and March 31, 2010, the conversion options embedded in the Notes are not derivative instruments as defined in FASB ASC 815-10-15-83 because the Notes do not permit or require net settlement, there is no market mechanism outside the contracts that permits net settlement and the shares to be received on conversion of the Notes are not readily convertible to cash. At the time the Notes were issued, there had not been any market activity for the Common Stock. On March 31, 2010, an initial trade of 500 shares of the Common Stock occurred in the market, the only trading activity during that period. The Notes can be exercised only in whole but not in part and through March 31, 2010 and continuing, there has been insufficient trading volume to permit the shares to be received on conversion of each Note to be readily sold in the market, thus precluding the shares to be received by the holder of each Note from being readily convertible to cash.

In future periods, whether or not the embedded conversion option in each Note is considered to be a derivative instrument will depend on whether or not the aggregate number of shares to be received on exercise of each of the 128 Notes, which Notes can be exercised only in whole but not in part, could be readily sold in the market without significantly affecting the market price of the Common Stock, thus permitting the shares received by the holder of each Note to be readily convertible to cash. At each reporting date, the Company will re-evaluate each Note, based on the level of activity in the market for the Common Stock at that time, to determine whether or not the embedded conversion option in each Note is a derivative instrument. Depending on the trading volume for the Common Stock that develops in the future and the face amount of each Note, the embedded conversion option may be considered a derivative instrument for some Notes but not for others and its status as a derivative instrument may vary from period to period.

FASB ASC 815-10-15-74 provides that a contract which would otherwise meet the definition of a derivative instrument but that is both (a) indexed to a company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. FASB ASC 815-40-15 and 815-40-25 provide guidance for determining whether those two criteria are met. Because the Company’s functional currency is the Renminbi but the Notes are denominated in U.S. Dollars, FASB ASC 815-40-15-7I provides that the embedded conversion options are not considered to be indexed only to the Common Stock. Furthermore, prior to the June 30, 2010 Amendment described above, the criteria that the instruments be indexed only to the Common Stock was also not met because the conversion price of the Notes would be reduced if the Company issued securities at a lower exercise or conversion price. Because the requirement that the instruments be indexed only to the Common Stock is not met, the exemption in FASB ASC 815-10-15-74 will not be available and the Company will account for the embedded conversion options in the Notes as derivative instrument liabilities, if and when the shares to be issued on conversion are considered to be readily convertible to cash..

Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. If and when the embedded conversion option in any of the Notes first qualifies as a derivative instrument, the fair value at that time of the embedded derivative instrument will be re-classified and separately recognized and subsequently marked-to-market each reporting period, as long as the embedded conversion option continues to qualify as a derivative instrument. If the embedded conversion option ceases to be a derivative instrument, it will be marked-to-market as of the date of re-classification but thereafter will no longer be marked-to-market.

Warrants

Because the Company’s functional currency is the Renminbi but the Warrants are denominated in U.S. Dollars, the Warrants are not considered to be indexed only to the Common Stock. Furthermore, prior to the June 30, 2010 Amendment described above, the criteria that the instruments be indexed only to the Common Stock was also not met because the exercise price of the Warrants would be reduced if the Company issued securities at a lower exercise or conversion price. In accordance with ASC 815-10-S99-4, the Warrants (including the Placement Agent Warrants) are accounted for at fair value, with changes in their fair value charged or credited to income each period.

At January 5, 2010, the Investor Warrants were valued at $5,824,538, as described above. At March 31, 2010, the Investor Warrants were re-valued at $4,839,673 using a binomial model, based on the closing market price on that date of $2.10, a term equal to the remaining life of the Warrants, an expected dividend yield of 0%, a risk-free interest rate of 1.47% based on constant maturity rates published by the U.S. Federal Reserve applicable to the remaining life of the Warrants and estimated volatility of 65%, based on a review of the historical volatility of companies considered by management to be comparable to the Company. The effect of the down-round anti-dilution protection was not considered to be material and no adjustment was made for it in the estimated fair value of the Investor Warrants.

The Placement Agent Warrants were initially valued at $582,454, as described above.. The cost of these instruments, together with the cash fees paid to the placement agents and the other fees and expenses paid by the Company, as described above, in the aggregate amount of $2,152,454, have been deferred and are being amortized on a straight-line basis over the two year period to maturity of the Notes. At March 31, 2010, the Placement Agent Warrants were re-valued at $483,967, based on the closing market price on that date of $2.10, a term equal to the remaining life of the Warrants, an expected dividend yield of 0%, a risk-free interest rate of 1.47% and estimated volatility of 65%. The effect of the down-round anti-dilution protection was not considered to be material and no adjustment was made for it in the estimated fair value of the Placement Agent Warrants.

The aggregate change in the value of the Investor and Placement Agent Warrants between January 5, 2010 and March 31, 2010 of $1,083,350 has been credited to income.

Convertible Notes

The Investor Warrants were initially recorded at their fair value of $5,824,538 and the remainder of the $12,000,000 gross proceeds received from the Investors of $6,175,463 was allocated to the Notes. Based on the proceeds allocated to the Notes, the Notes are convertible into Common Stock at an effective conversion price of approximately $1.03 per share. Because the effective conversion price is less than the fair value of the Common Stock at the time the Notes were issued, the Company recognized a beneficial conversion feature, which was limited to the amount of proceeds allocated to the Notes of $6,175,463. The Notes were initially recorded at a carrying value of zero and are being amortized, together with interest accruing on the Notes, to their maturity value over the period to maturity, at an effective interest rate of approximately 540% per annum. Interest expense for the period ended March 31, 2010 was $347,793. After payment of cash interest due on March 31, 2010 of $226,667, the amortized cost carrying value of the Notes at March 31, 2010 was $121,127.

Escrowed Shares

As of January 5, 2010 and at March 31, 2010, the Company’s principal stockholder is obligated to deliver 1,000,000 shares of Common Stock to the Investors if certain Events of Default occur (as defined in the Notes). The fair value of this obligation is not considered to be material as the probability of such events occurring is currently considered to be minimal. Accordingly, at January 5, 2010 and March 31, 2010, no liability for this obligation has been recognized.

Subsequent Conversions

On April 1, 2010, Notes with an aggregate face amount of $500,000 were converted into 250,000 shares of Common Stock.

13.	DEFERRED FEES ON CONVERTIBLE NOTES

The Company incurred total placement fees of $2,152,454 in connection with our private placement of Convertible Notes (see Note 12) that occurred on January 5, 2010. The placement fees are being amortized on a straight line basis over the two year expected life of the Convertible Notes, starting on the date of closing, January 5, 2010.

	As of		As of
	March 31,		June 30,
	2010		2009
	(Unaudited)		(Audited)
	RESTATED

Deferred fees, beginning balance on January 5, 2010	$	2,152,454	$	-
Amortization of deferred fees		(253,577)		-
Deferred fees, ending balance	$	1,898,877	$	-

14.	SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses consist of the following:

	Three months		Three months		Nine months		Nine months
	ended		ended		ended		ended
	March 31,		March 31,		March 31,		March 31,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	RESTATED				RESTATED

Accommodation	$	1,106,984	$	565,205	$	2,880,151	$	2,724,140
Advertising and promotion		2,767,549		2,251,404		8,732,252		5,834,757
Commission		1,060,462		1,503,000		3,464,415		4,726,934
Conference		738,898		3,106		3,070,497		10,159
Depreciation		9,397		118		27,872		353
Staff costs		608,263		566,413		1,571,400		1,256,934
Travelling		717,766		1,132,551		2,000,775		1,933,017
Research and development cost		146,640		147,972		442,046		38,492
Other operating expenses		2,046,914		1,500,361		6,019,345		5,150,493

Total selling, general and administrative expenses	$	9,202,873	$	7,670,130	$	28,208,753	$	21,675,279

15.	INTEREST EXPENSES

Interest expenses consist of the following:

	Three months		Three months		Nine months		Nine months
	ended		ended		ended		ended
	March 31,		March 31,		March 31,		March 31,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Interest on short-term borrowings wholly repayable within 1 year	$	33,907	$	52,921	$	190,215	$	168,422
Effective interest charge on Convertible Notes		347,793		-		347,793		-

Total interest expenses	$	381,700	$	52,921	$	538,008	$	168,422

16.	FINANCE AND NON-OPERATING (INCOMES) EXPENSES

Finance and non-operating expense consists of the following:

	Three months		Three months		Nine months		Nine months
	ended		ended		ended		ended
	March 31,		March 31,		March 31,		March 31,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	RESTATED				RESTATED

Amortization of deferred fee – Convertible Notes	$	253,577	$	-	$	253,577	$	-

Change in fair value of warrants (credit)		(1,083,350)		-		(1,083,350)		-
Non-operating expense		-		4,618		22,092		4,682

Total finance and non-operating (incomes) expenses	$	(829,773)	$	4,618	$	(807,681)	$	4,682

17.	INCOME TAXES

	Three months		Three months		Nine months		Nine months
	ended		ended		ended		ended
	March 31,		March 31,		March 31,		March 31,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Income before taxes	$	3,727,693	$	2,528,403	$	9,946,524	$	7,437,907

Income tax expenses	$	585,135	$	423,569	$	2,193,931	$	1,224,833

PRC Tax

The PRC’s legislative body, the National People’s Congress, adopted the unified Enterprise Income Tax (“EIT”) Law on March 16, 2007. This new tax law replaces the existing separate income tax laws for domestic enterprises and foreign-invested enterprises and became effective on January 1, 2008. Under the new tax law, a unified income tax rate is set at 25% for both domestic enterprises and foreign-invested enterprises. However, there will be a transition period for enterprises, whether foreign-invested or domestic, that are currently receiving preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and will transit into the new rate over a five year period beginning on the effective date of the EIT Law. Enterprises that are currently entitled to exemptions for a fixed term may continue to enjoy such treatment until the exemption term expires. Preferential tax treatments may continue to be granted to industries and projects that qualify for such preferential treatments under the new law.

United States Tax

The Company is subject to income tax in the United States. No provision for income tax in the United States has been made as the Company had no taxable income for the three months and nine months ended March 31, 2010. The statutory tax rate is 34%.

A reconciliation of the effective income tax rate to the US federal rate is as follows:

	March 31, 2010			June 30, 2009

United States Tax at statutory rate	$	3,381,818		$	2,528,889
Foreign tax rate difference		(1,187,887)			(1,384,301	)
Exemption in taxation		(2,193,931	)		(1,144,588	)

	$	-		$	-

Certain of the Group’s revenue (including sales revenue) are subject to output VAT generally calculated at 6%, 7%, 13% and 17% of the selling price. Input credit relating to input VAT paid on purchase can be used to offset the output VAT.

The net amount of VAT expense for the 9 months ended are shown as follows:

	March 31, 2010		March 31, 2009

Net value added tax expense	$	6,627,557	$	5,274,607

18.	COMMITMENTS AND CONTINGENCIES

There are no foreseeable material commitments or contingencies as of March 31, 2010 and June 30, 2009.

19.	COMMON EQUITY

Common stock - $0.001 par value

	Note	Common Shares

Common shares outstanding - June 30, 2009			3,450,000

Shares issued for consulting services	a		1,137,500

Shares outstanding prior to January 5, 2010 reverse re-capitalization			4,587,500

Shares cancelled	b		(1,500,000	)

Issued to shareholders of Chance High Limited under Share Exchange Agreement date January 5, 2010 (see Note 2)	b		13,162,500


As of March 31, 2010			16,250,000

(a) Prior to the reverse re-capitalization, on December 17, 2009, the Company issued 687,500 shares to Cawston Enterprises Limited and 450,000 shares to Regeneration Capital Group, LLC and its affiliates for consulting services fees rendered to the Company. As described in Note 2, for accounting purposes, Chance High is deemed to have acquired the Company as of January 5, 2010. The fair value of these shares was accounted for by the Company prior to its acquisition by Chance High and is not reflected in these consolidated financial statements.

(b) On the Closing Date, pursuant to the terms of the Share Exchange Agreement date January 5, 2010 (see Note 2), the Company acquired all of the outstanding equity securities (the “Chance High Shares”) of Chance High from the Chance High Shareholders, and the Chance High Shareholders transferred and contributed all of their Chance High Shares to the Company. In exchange, the Company issued to Chance High Shareholders an aggregate of 13,162,500 newly issued shares of common stock, par value $0.001 per share (the “Common Stock”). In addition, pursuant to the terms of the Share Exchange Agreement, Anthony Zaradic, the former President and Chief Executive Officer of the Company, cancelled a total of 1,500,000 shares of Common Stock.

As of March 31, 2010, the Company has 150,000,000 shares of common stock authorized and 16,250,000 shares of common stock issued and outstanding.

20.	STATUTORY RESERVES

According to the laws and regulations in the PRC, Bohai is required to provide for certain statutory funds, namely, reserve fund by an appropriation from net profit after taxes but before dividend distribution based on the local statutory financial statements of the PRC company prepared in accordance with the accounting principles and relevant financial regulations.

Bohai in PRC is required to allocate at least 10% of its net profit to the reserve fund until the balance of such fund has reached 50% of its registered capital. Appropriation of enterprise expansion fund are determined at the discretion of it directors.

The reserve fund can only be used, upon approval by the relevant authority, to offset accumulated losses or increase capital. The enterprise expansion fund can only be used to increase capital upon approval by the relevant authority.

21.	FINANCIAL INSTRUMENTS

(a)	Credit Risk

The potential credit risk of the company is mainly attributable to its debtors and bank balances. In respect of debtors, the Group has policies in place to ensure that it will only accept customers from countries which are politically stable and customers with an appropriate credit history. In addition, all the bank balances were made with financial institutions with high-credit quality. Thus, the Group is not considered to be subject to significant credit risk.

(b)	Interest Rate Risk

The Group’s interest rate risk is primarily attributable to its short-term borrowings, loan to a third party and loan to equity holders. The Group’s borrowings carry interest at fixed rate. The management has not used any interest rate swaps to hedge its exposure to interest rate risk.

(c)	Fair Value Estimation

All of the carrying amounts of the Group’s financial assets and liabilities of short term maturities approximate their fair values.

22.	SUBSEQUENT EVENTS

On and effective as of June 30, 2010, Bohai Pharmaceuticals Group, Inc. (the "Company") entered into an Amendment and Agreement (the “Agreement”) with Euro Pacific Capital, Inc., as investor representative (the “Investor Representative”), pursuant to which the Company and the Investor Representative agreed to make certain amendments to the Company's 8% subordinated, unsecured Convertible Promissory Notes, issued on January 5, 2010. The Amendment will not result in any changes to the Company’s accounting for the Notes and Warrants.

Effective July 12, 2010, the board of directors (consisting of Hongwei Qu, the sole director) of Bohai Pharmaceuticals Group, Inc. (the "Company"), by written consent to action and pursuant to the Company's Amended and Restated Bylaws (which provides for a classified board of directors of the Company), appointed three persons to serve on the board of directors of the Company.

23.	RESTATEMENT

Based on comments received by the Company from the staff of the U.S. Securities and Exchange Commission, the Company recently identified certain errors in its previously issued financial statements for the three months and nine months ended March 31, 2010, which financial statements were originally issued on May 17, 2010 and were initially restated by the Company on June 24, 2010. These errors, which have been corrected, resulting in the restated financial statements appearing herein, include the following items. The accounting for these items is more fully described in Note 12.

(i) the Warrants and the Investor Warrants (each as defined in Note 12) should be valued at fair market value and classified as a liability.

(ii) the Notes (as defined in Note 12) should be stated net of a beneficial conversion feature.

(iii) the costs associated with the issuance of the Notes and Warrants have been deferred and are being amortized over the two year period to maturity of the Notes.

The Warrants are not afforded equity treatment and, as such, all future changes in the fair value of these Warrants will be recognized through earnings until such time as the Warrants are exercised or expire.

The Notes are accounted for net of a beneficial conversion feature and the beneficial conversion feature will be amortized as a component of interest expense over the term of the Notes.

The tables below reflect the resulting changes to the financial statements (with the numbers set forth under “As Previously Reported” being the results as disclosed in the Company’s initially restated financial statements filed on June 24, 2010):

	Three Months Ended March 31, 2010					Nine Months Ended March 31, 2010
	As Previously Reported			As Restated		As Previously Reported			As Restated

Statement of Income Data:
Net sales	$	15,092,008		$	15,092,008	$	45,342,480		$	45,342,480
Cost of sales		2,609,515			2,609,515		7,475,740			7,475,740
Gross profit		12,482,493			12,482,493		37,866,740			37,866,740

Selling, general and administrative expenses		9,465,589			9,202,873		28,471,469			28,208,753
Interest expense		260,574			381,700		416,882			538,008

Operating income		2,756,330			2,897,920		8,978,389			9,119,979

Other income		-			-		18,864			18,864
Finance and non-operating income (expense)		(1,973,702	)		829,773		(1,995,794	)		807,681

Income before taxes		782,628			3,727,693		7,001,459			9,946,524
Income taxes		585,135			585,135		2,193,931			2,193,931
Net income	$	197,493		$	3,142,558	$	4,807,528		$	7,752,593

Balance Sheet Data:

	March 31, 2010					June 30, 2009
	As Previously Reported			As Restated		As Previously Reported			As Restated

Current assets	$	35,045,737		$	35,045,737	$	28,357,010		$	28,357,010
Other non-current assets		25,219,222			25,219,222		25,447,999			25,447,999
Deferred fees on convertible notes		-			1,898,877		-			-
Total assets		60,264,959			62,163,836		53,805,009			53,805,009

Current liabilities		9,240,124			8,554,324		20,248,229			20,248,229
Derivative liabilities – warrants		-			5,323,640		-			-
Convertible notes, net		11,863,217			121,127		-			-
Total liabilities		21,103,341			13,999,091		20,248.229			20,248.229

Stockholders’ Equity
Additional paid-in capital		3,378,203			9,553,666		2,974,520			2,974,520
Retained earnings		26,457,519			29,402,584		22,050,068			22,050,068
Accumulated other comprehensive income		499,509			382,108		490,931			490,931
Other capital accounts		8,826,387			8,826,387		8,041,261			8,041,261
Total stockholders’ equity		39,161,618			48,164,745		33,556,780			33,556,780

Total liabilities and stockholders’ equity	$	60,264,959		$	62,163,836	$	53,805,009		$	53,805,009

The table below summarizes the effects of the changes made to the Company’s financial statements:

Statement of Income Data:

	Three Months Ended March 31, 2010			Nine Months Ended March 31, 2010

Net income, as previously reported	$	197,493		$	4,807,528
Adjustments:
Deferred fees		1,297,041			1,297,041
Interest expense on convertible notes		(121,126	)		(121,126	)
Change in warrant liabilities		1,769,150			1,769,150
Total net income adjustment		2,945,065			2,945,065

Net income, as restated	$	3,142,558		$	7,752,593

Balance Sheet Data:

	March 31, 2010			June 30, 2009

Total assets, as previously reported	$	60,264,959		$	53,805,009
Deferred fees on convertible notes, restated		1,898,877			—
Total assets, as restated		62,163,836			53,805,009

Total liabilities, as previously reported		21,103,341			20,248,229
Adjustments:
Convertible notes		(11,742,090	)		—
Warrant liabilities, reclassified		685,800			—
Warrant liabilities, restated		4,637,840			—
Total liabilities adjustment		(7,104,250	)		—

Total liabilities, as restated		13,999,091			20,248,229

Shareholders’ equity, as previously reported		39,161,618			33,556,780
Adjustments
Accumulated other comprehensive income, restated		(117,401	)		—
Additional paid-in capital - beneficial conversion feature, restated		6,175,463			—
Net income adjustment, restated		2,945,065			—
Net Shareholders equity adjustment		9,003,127			—

Shareholders’ equity, as restated	$	48,164,745		$	33,556,780

Item 2. Management’s Discussion and Analysis of Financial Conditions of Operations.

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the unaudited condensed consolidated financial statements of the Company for the three months ended March 31, 2010 and 2009, and should be read in conjunction with such financial statements and related notes included in this report. Those statements in the following discussion that are not historical in nature should be considered to be forward looking statements that are inherently uncertain. Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “Cautionary Note on Forward Looking Statements” set forth elsewhere in this Report.

Overview

We were incorporated under the laws of the State of Nevada on January 9, 2008. Since January 5, 2010, our business consists of the production, manufacturing and distribution of herbal pharmaceuticals in the PRC which are based on traditional Chinese medicine. We are based in the city of Yantai, Shandong Province, China.

Our medicines are intended to address rheumatoid arthritis, viral infections, gynecological diseases, cardio vascular issues and respiratory diseases. We have obtained Drug Approval Numbers in China for 29 varieties of traditional Chinese herbal medicines in 2004 and we currently produce 10 varieties of approved traditional Chinese herbal medicines in seven delivery systems: tablets, granules, capsules, syrup, concentrated powder, tincture and medicinal wine. Of these 10 products, 5 are prescription drugs and 5 are over-the-counter products.

Prior to January 5, 2010, we were a public “shell” company operating under the name “Link Resources, Inc.” On January 5, 2010, we consummated a share exchange transaction (the “Share Exchange”) pursuant to which we acquired Chance High, the parent company of Yantai Bohai Pharmaceuticals Group Co. Ltd., our principal operating subsidiary, which is a Chinese variable interest entity that we (through a Chinese wholly-owned foreign enterprise subsidiary) control through certain contractual arrangements.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes, derivative liabilities, and the estimation of useful lives of property, plant and equipment. Actual results could differ from those estimates.

Accounts Receivable

Accounts receivable consists of amounts due from customers. We extend unsecured credit to our customers in the ordinary course of business but mitigate the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on management’s assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment.

Revenue recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met:

Persuasive evidence of an arrangement exists;

Delivery has occurred or services have been rendered;

The seller’s price to the buyer is fixed or determinable; and

Collectability is reasonably assured. Payments have been established.

Inventories

Inventories are valued at the lower of cost or market with cost is determined on the weighted average method. Finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. In assessing the ultimate realization of inventories, management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase or decrease due to management’s projected demand requirements, market conditions and product life cycle changes. As of March 31, 2010 and June 30, 2009, we did not make any allowance for slow-moving or defective inventories.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost, less depreciation and amortization and accumulated impairment loss. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.

Leasehold land and buildings	30 to 40 years
Motor vehicles	10 years
Plant and machinery	10 years
Office equipment	5 years

Income Taxes

Operating Results

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

	Three Months Ended March 31,
	2010			2009
	(unaudited) RESTATED			(unaudited)

Sales	$	15,323,878		$	12,476,400
Less: Sales Tax		(231,870	)		(200,622	)
Net sales		15,092,008			12,275,778
Cost of sales		(2,609,515	)		(2,019,864	)
Gross profit		12,482,493			10,255,914
Selling, general and administrative expenses		(9,202,873	)		(7,670,130	)
Interest expenses		(381,700	)		(52,921	)
Operating income		2,897,920			2,532,863
Other income		-			158
Finance and non-operating incomes (expenses)		829,773			(4,618	)
Income before taxes		3,727,693			2,528,403
Income taxes		(585,135	)		(423,569	)
Net income	$	3,142,558		$	2,104,834

Sales

Net sales for the three months ended March 31, 2010 increased by approximately $2,816,230, or 22.94%, to $15,092,008 as compared to $12,275,778 for the three months ended March 31, 2009. This increase was primarily due to the significant increase of our revenue on all the products as a result of the marketing strategy we implemented during the three months ended March 31, 2010.

Cost of Sales

Our cost of sales for the three months ended March 31, 2010 was $ 2,609,515 as compared to $2,019,864 for the three months ended March 31, 2009, representing an increase of 29.19%. The increase was mainly attributable to the increase in cost of raw material by $265,960 as a result of the increase of sales.

Gross Profit

We achieved gross profit of $12,482,493 for the three months ended March 31, 2010, compared to $10,255,914 for the same quarter of the previous year, representing a 21.71 % quarter to quarter increase. Our overall gross profit margin as a percentage of revenue are 82.71% and 83.30% for the three months ended March 31, 2010 and 2009, respectively.

Selling, General and Administrative Expenses

Our operating expenses, consisting of selling, general and administrative expenses, increased by approximately $1,532,743, to $9,202,873, for the three months ended March 31, 2010, from $7,670,130 for the same quarter of the previous year. This increase was mainly attributable to an increase of advertising expense and sales conferences this quarter compared to the same quarter last year. We increased product promotion activities through various media, especially through television advertising in different provinces within the PRC during the quarter compared to the same quarter last year.

Interest Expense

Interest expense was $381,700 for the three months ended March 31, 2010, compared to $52,921 for the three months ended March 31, 2009, an increase of $328,779. The increase was principally due to effective interest charge of $347,793 on convertible notes issued in connection with a private placement on January 5, 2010.

Finance and Non-Operating Income (Expenses)

Finance and non-operating income was $829,773 for the period ended March 31, 2010 compared to non-operating expenses of $4,618 from the same quarter last year, an increase of income of $834,391. The increase was principally due to non-cash income of $1,083,350 associated with a change in fair value of warrants, and amortization of deferred fees of $253,577 in connection with our private placement on January 5, 2010.

Income Tax

Our provisions for income taxes for the three months ended March 31, 2010 and 2009 were $585,135 and $423,569, an increase of $161,566 or 38.14% from period to period. Certain corporate expenses such as amortization of financing cost, changes in derivative liabilities, and effective interest charges on convertible note were permanently excluded from Chinese income tax calculations. If such non-taxable expenses were excluded, the ratios between provisions for income taxes and income before tax solely generated from Bohai, our operating company in China, would be 18.03% and 16.75%, respectively for the three months ended March 31, 2010 and 2009.

Net Income

We had a net income of $3,142,558 for the three months ended March 31, 2010, as compared to net income of $2,104,834 for the three months ended March 31, 2009, an increase in net income of $1,037,724. The increase in net income was primarily attributable to incomes from non-operating incomes related to non-cash activities on fair value measurement of $1,083,350 for our warrants offset by effective interest charge of $347,793 and amortization of deferred fees of $253,577 in connection with our private placement and share exchange transactions that occurred in the quarter ended March 31, 2010. The increase was also attributed by increase in total gross profit and offset by increase in advertising expenses this quarter compared to the same quarter last year.

Nine Months Ended March 31, 2010 Compared to the Nine Months Ended March 31, 2009

The following table sets forth our statement of operations for the period indicated:

	Nine Months Ended March 31,
	2010			2009
	(unaudited) RESTATED			(unaudited)

Sales	$	46,072,455		$	35,833,215
Less: Sales Tax		(729,975	)		(580,207	)
Net sales		45,342,480			35,253,008
Cost of sales		(7,475,740	)		(5,966,876	)
Gross profit		37,866,740			29,286,132
Selling, general and administrative expenses		(28,208,753	)		(21,675,279	)
Interest expenses		(538,008	)		(168,422	)
Operating income		9,119,979			7,442,431
Non-operating income		18,864			158
Finance and non-operating incomes (expenses)		807,681			(4,682	)
Income before taxes		9,946,524			7,437,907
Income taxes		(2,193,931	)		(1,224,833	)
Net income	$	7,752,593		$	6,213,074

Sales

Net sales for the nine months ended March 31, 2010 was $45,342,480, an increase of approximately $10,089,472, or 28.62%, from $35,253,008 in the nine months ended March 31, 2009. This increase was primarily due to the significant increase of our revenue on all the products as a result of the marketing strategy we have implemented since the calendar year ended December 31, 2009.

Cost of Sales

Our cost of sales for the nine months ended March 31, 2010 was $7,475,740 as compared to $5,966,876 for the nine months ended March 31, 2009, representing an increase of $1,508,864, or 25.28%. The increase was mainly attributable to the increase of raw materials cost by $1,033,246 as a result of the increase of sales.

Gross Profit

For the nine months ended March 31, 2010 as compared to the nine months ended March 31, 2009, we generated gross profit of $37,866,740 and $29,286,132, respectively, reflecting an increase of approximately $8,580,608, or 29.30%. The increase in our gross profit was mainly due to significantly increase of sales income.

Selling, General and Administrative Expenses

We incurred general and administrative expenses of $28,208,753 for the nine months ended March 31, 2010, representing an increase of $6,533,474, or 30.14%, compared to $21,675,279 for the nine months ended March 31, 2009. This increase was mainly due to the increase of costs of advertising and sales conferences throughout China.

Interest Expense

Interest expense was $538,008 for the nine months ended March 31, 2010, compared to $168,422 for the nine months ended March 31, 2009, an increase of $369,586. The increase was principally due to effective interest charge of $347,793 on convertible notes issued in connection with a private placement on January 5, 2010.

Finance and Non-Operating Income (Expenses)

Finance and non-operating income was $807,681 for the nine months ended March 31, 2010 compared to non-operating expenses of $4,682 for the nine months ended March 31, 2009, an increase of non-operating income of $812,363. The increase was principally due to non-cash income of $1,083,350 associated with a change in fair value of warrants and amortization of deferred fees of $253,577 in connection with our private placement on January 5, 2010.

Income Tax

For the nine months ended March 31, 2010 and 2009, income tax expenses were $2,193,931 and $1,224,833 respectively, representing an increase of $969,098, or 79.12%. Certain corporate expenses such as amortization of financing cost, changes in fair value of warrants, and effective interest charges on convertible note were permanently excluded from Chinese income tax calculations. If such non-taxable expenses were excluded, the income tax expenses would represent 23.04% and 16.46% of the operating income before taxes generated from our major operating subsidiary, Bohai, for the nine months ended March 31, 2010 and 2009, respectively. The increase was mainly due to an increase of income before tax generated from our Bohai subsidiary for the period ended March 31, 2010 compared to the period ended March 31, 2009, as well as an under estimate of tax expenses for the nine months ended on March 31, 2009 compared to the same periods in 2010.

Net Income

We had net income of $7,752,593, or 17.10% of net revenue, for the nine months ended March 31, 2010, as compared to net income $6,213,074, or 17.62% of net revenue, for the nine months ended March 31, 2009, representing an increase of $1,539,519. The increase was attributed by increase in total gross profit offset by increase in advertising expenses, certain non-cash charges related to effective interest of $347,793, non-cash incomes of changes in fair value of warrants of $1,083,350, and amortization of deferred fees of $253,577 in connection with our private placement and share exchange transactions that occurred in the quarter ended March 31, 2010.

Liquidity and Capital Resources

We have historically funded our operation primarily through paid-in capital, sales of goods and short term loans from financial institutions in China. Net increase in cash for the three months ended March 31, 2010 was $7,883,867 compared to net increase in cash of $1,729,968 for the three months ended March 31, 2009. During the three months ended March 31, 2010, net cash used from operating activities was $2,449,103. Cash payments to placement agent and other financing costs were $1,570,000. Cash borrowed from bank and investors amounted to $4,381,153 and $12,000,000 respectively and repayment of borrowing from previous period amounted to $4,393,665, which resulted in a net cash inflow from financing activities of $10,417,488 and a total net increase in cash of $7,883,867. We may seek to raise additional capital through sales of common stock, as well as seeking financing from third parties.

Operating activities

For the three months ended March 31, 2010, cash used in operating activities totaled $2,449,103 compared to cash provided by operating activities of $2,503,932 for the three months ended March 31, 2009. The decrease on net cash provided in operating activities was primarily attributable to cash used in prepayment for other payable and accrued liabilities during the three month ended March 31, 2010.

Investing activities

For the three months ended March 31, 2010, net cash outflow for investing activities was approximately $84,518 compared to net cash used by investing activities of $191,977 in the three months ended March 31, 2009. This decrease on net cash used by investing activities was primarily attributable to decrease on cash used for purchase of property plant and equipment during the period.

Financing activities

Financing activities provided net cash inflow of $10,417,488 during the three months ended March 31, 2010. The net cash inflow was primarily as a result of issue of convertible promissory notes during the period. As of March 31, 2010, cash payments to placement agent and other financing costs were $1,570,000. The proceeds from short-term borrowings and convertible promissory notes amounted to $4,381,153 and $12,000,000 respectively and the repayment of borrowings amounted to $4,393,665 resulted in a net cash inflow by financing activities of $10,417,488.

Off-Balance Sheet Arrangements

We did not engage in any “off-balance sheet arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) during the three months ended March 31, 2010. We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our condensed consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk, or credit support to us or engages in leasing, hedging, or research and development services with us.

Inflation

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. During the past ten years, the rate of inflation in China has been as high as 20.7% and as low as -2.2%. These factors have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. While inflation has been more moderate since 1995, high inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item 4T.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, the Company’s sole executive officer (the “Certifying Officer”), conducted evaluations of the Company’s disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

Based on this evaluation, the Certifying Officer has concluded that the Company’s disclosure controls and procedures were not effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.

Notwithstanding the foregoing, subsequent to March 31, 2010, and in response to comments received by the Company from the staff of the U.S. Securities and Exchange Commission, the Company restated its financial statements and related Management’s Discussion and Analysis of Financial Conditions of Operations for the period ended March 31, 2010, which restatements are more fully described in this Quarterly Report on Form 10-Q/A.

In light of such restatements, the Company’s executive officers and the Board of Directors are assessing the effect of such restatements on the Company’s internal control over financial reporting and its disclosure controls and procedures.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.

Our management assessed the effectiveness of our internal control over financial reporting as of July 23, 2010. Management identified a significant deficiency related to the following:

1. Lack of internal audit functions – Although we maintain certain internal audit functions, the scope and effectiveness goals of internal audit function have not been identified. Due to this weakness, we may be ineffective in timely prevention or detection of errors in the recording of accounting transactions, which may have a material impact on our financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of July 23, 2010. Management identified a material weakness related to the following:

2. Equity instruments – There was a material weakness in the process related to evaluating certain debt and equity transactions and the accounting treatment for these non-frequent transactions. We have restated our consolidated financial statements for the period ended March 31, 2010 and for the year ended March 31, 2010 as a result of accounting treatments on Convertible Promissory Notes, which was issued in a private placement on January 5, 2010.

In order to correct the foregoing deficiencies, we have taken the following remediation measures:

The Company will establish its internal audit department functions by providing audit staffs and internal audit trainings. The company has recently appointed three independent directors and believed the roles of the independent directors and their respective functions will continue to strengthen our internal control oversight.


	2.	The Company has retained an independent consultant to evaluate our debt / equity transactions.


	3.	The Company has retained an outside accounting and consulting firm to assist the Company with its Sarbanes-Oxley implementation program,

We believe that the foregoing steps will remediate the significant deficiency and material weakness identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

Changes in Internal Control over Financial Reporting

Subject to the foregoing disclosure, there were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter March 31, 2010 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION

Item 6.

Exhibits

(a) Exhibits

Exhibit Number		Description of Exhibit
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (President and Chief Executive Officer).

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

SIGNATURES

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

	Bohai Pharmaceuticals Group, Inc.

Dated: August 12, 2010	By:	/s/ Hongwei Qu
		Name: Hongwei Qu
		Title: President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Gene Hsiao
		Name: Gene Hsiao
		Title: Chief Financial Officer
		(Principal Accounting Officer)

Bohai Pharmaceuticals (BOPH) Inactive 10-Q/A2010 Q3 Quarterly report (amended)