10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2013

¨ 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	98-0697405
(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 Website, if any, every Interactive Date 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). x

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. (Check one):

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 February 14, 2014, there were 17,861,085 shares of company common stock issued and outstanding.

Bohai Pharmaceuticals Group, Inc.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of December 31, 2013 (unaudited) and June 30, 2013	1
	Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended December 31, 2013 and 2012 (unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended December 31, 2013 and 2012 (unaudited)	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	39
SIGNATURES		40

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. We cannot give any guarantee that the plans, intentions or expectations described in the forward looking statements will be achieved. All forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those factors described in the “Risk Factors” section of our Annual Report for the fiscal year ended June 30, 2013. Readers should carefully review such risk factors as well as factors described in other documents that we file from time to time with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as “guidance,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control. You should be aware that the occurrence of any of the events described in our risk factors and other disclosures could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, and levels of activity, performance or achievements. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:

· our ability to generate or obtain through financing sufficient working capital to (i) satisfy our obligations under our convertible notes which were past due on April 15, 2013 (currently $8,064,500 due) or (ii) otherwise to support our business plans;

· our abilityto continue to integrate the business of Yantai Tianzheng Pharmaceuticals Company, Ltd. (“Yantai Tianzheng”) and any future acquisitions into our business;

· our ability to improve the cost efficiency of our existing products and maintain their quality;

· the availability of government granted rights to exclusively manufacture or co-manufacture our products;

· the availability of PRC national healthcare reimbursement of our products;

· our ability to manage our expanding operations and continue to fill customers’ orders on time;

· our ability to maintain adequate control of our expenses allowing us to realize anticipated revenue growth;

· our ability to maintain or protect our intellectual property and land use rights;

· our ability to maintain our proprietary technology;

· the impact of government regulation in China and elsewhere, including the support provided by the Chinese government to the Traditional Chinese Medicine (“TCM”) and healthcare sectors in China;

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· our ability to implement product development, marketing, sales and acquisition strategies and adapt and modify them as needed;

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

· our ability to anticipate and adapt to changing conditions in the TCM and healthcare industries resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

We cannot give any guarantee that our plans, intentions or expectations will be achieved. All forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those factors listed above and described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2013. Except as required by applicable law and including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

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BOHAI PHARMACEUTICALS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,		June 30,
	2013		2013
	(UNAUDITED)
ASSETS
Current assets:
Cash	$	6,386,084	$	6,947,972
Restricted cash		12,718,685		12,574,051
Accounts receivable		45,889,957		38,716,023
Inventories		5,042,661		2,781,734
Prepaid expenses and other current assets		437,453		499,231
Total current assets		70,474,840		61,519,011
Non-current assets:
Property, plant and equipment, net		17,660,903		17,678,453
Prepayment for property, plant and equipment		1,276,717		1,112,873
Intangible assets - pharmaceutical formulas		14,271,495		14,109,169
Intangible assets - land use right, net		37,881,530		37,863,464
Other intangible assets, net		26,198,387		28,139,219
Goodwill		5,262,061		5,202,209
Total non-current assets		102,551,093		104,105,387
TOTAL ASSETS	$	173,025,933	$	165,624,398
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	9,819,325	$	9,707,638
Short-term loan		4,909,662		0
Convertible notes, net		8,064,500		8,464,500
Accounts payable		4,684,494		5,081,913
Accrued expenses		11,037,264		12,185,615
Land use right payable		0		6,471,759
Income taxes payable		2,616,924		2,222,476
Due to a related party		43,665		52,830
Total current liabilities		41,175,834		44,186,731
Non-current liabilities:
Acquisition purchase price payable - non-current portion		0		5,000,000
Deferred tax liability		8,098,247		8,048,113
Total non-current liabilities		8,098,247		13,048,113
TOTAL LIABILITIES		49,274,081		57,234,844
COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 150,000,000 shares authorized, 17,861,085 shares issued and outstanding as of December 31, 2013 and June 30, 2013, respectively		17,861		17,861
Additional paid-in capital		24,615,353		24,615,353
Accumulated other comprehensive income		10,265,117		8,999,581
Retained earnings		88,853,521		74,756,759
Total stockholders’ equity		123,751,852		108,389,554
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	173,025,933	$	165,624,398

See accompanying notes to the condensed consolidated financial statements

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BOHAI PHARMACEUTICALS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	For the Three Months Ended December 31,				For the Six Months Ended December 31,
	2013		2012		2013		2012
Net revenues	$	38,673,259	$	40,932,506	$	89,562,319	$	76,281,326
Cost of revenues		9,046,095		9,283,649		20,753,749		18,178,538
Gross profit		29,627,164		31,648,857		68,808,570		58,102,788
Operating expenses:
Selling, general and administrative expenses		20,003,910		22,546,807		47,244,399		39,753,923
Impairment Charge - drug formula		0		1,688,486		0		1,688,486
Depreciation and amortization		718,802		691,816		1,432,362		1,347,921
Total Operating expenses		20,722,712		24,927,109		48,676,761		42,790,330
Income from operations		8,904,452		6,721,748		20,131,809		15,312,458
Other income (expenses):
Interest income		71,930		8,541		74,720		26,326
Interest expenses		(856,642)		(426,323)		(1,218,928)		(939,356)
Other (expenses) income, net		(5,183)		115		(31,300)		(16,591)
Change in fair value of derivative liabilities		0		713,234		0		1,211,236
Total other income (expenses)		(789,895)		295,567		(1,175,508)		281,615
Income before provision for income taxes		8,114,557		7,017,315		18,956,301		15,594,073
Provision for income taxes		(2,105,526)		(1,758,578)		(4,859,539)		(3,939,824)
Net income	$	6,009,031	$	5,258,737	$	14,096,762	$	11,654,249
Comprehensive income:
Net income	$	6,009,031	$	5,258,737	$	14,096,762	$	11,654,249
Unrealized foreign currency translation gain		640,898		453,030		1,265,536		204,083
Comprehensive income	$	6,649,929	$	5,711,767	$	15,362,298	$	11,858,332
Net income per common share
Basic	$	0.34	$	0.29	$	0.79	$	0.65
Diluted	$	0.28	$	0.25	$	0.66	$	0.55
Weighted average common shares outstanding
Basic		17,861,085		17,861,085		17,861,085		17,861,085
Diluted		21,945,509		22,093,335		22,019,422		22,093,335

See accompanying notes to the condensed consolidated financial statements

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BOHAI PHARMACEUTICALS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Six Months Ended
	December 31,
	2013		2012
Cash flows from operating activities:
Net income	$	14,096,762	$	11,654,249
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,223,775		2,553,839
Impairment of intangible assets-pharmaceutical formulas		0		1,688,486
Loss on disposal of property, plant and equipment		9,935		0
Change in fair value of warrants		0		(1,211,236)
Deferred income taxes		(42,239)		(323,476)
Changes in operating assets and liabilities:
Accounts receivable		(6,693,563)		(13,168,118)
Prepaid expenses and other current assets		(73,965)		393,515
Inventories		(2,217,346)		519,251
Accounts payable		(453,519)		275,229
Accrued expenses		(1,272,014)		3,637,723
Income taxes payable		366,963		431,203
Net cash provided by operating activities		6,944,789		6,450,665
Cash flows used in investing activities:
Purchases of property, plant and equipment		(182,117)		(433,131)
Land use rights payments		(6,512,219)		(6,340,048)
Property, plant and equipment deposits		(150,256)		(2,031,361)
Cash paid for acquisition of business		(5,000,000)		(12,472,815)
Net cash used in investing activities		(11,844,592)		(21,277,355)
Cash flows from financing activities:
Proceeds from short-term		4,884,164		0
Proceeds from notes payable		9,768,328		0
Borrowing from related party		0		8,020
Repayment to related party		(9,647)		0
Repayment of notes payable		(9,768,328)		0
Deposit of restricted cash-convertible note escrow deposit		400,000		1,885,695
Release of restricted cash-convertible note escrow deposit		(400,000)		(834,988)
Repayment of convertible notes		(400,000)		(1,571,500)
Net cash flows provided by (used in) financing activities		4,474,517		(512,773)
Effect of foreign currency translation on cash and cash equivalents		(136,602)		107,759
Net decrease in cash and cash equivalents		(561,888)		(15,231,704)
Cash and cash equivalents at beginning of period		6,947,972		18,386,288
Cash and cash equivalents at end of period	$	6,386,084	$	3,154,584
Cash paid during the period for:
Interest	$	638,761	$	282,150
Income taxes	$	4,534,815	$	3,832,103
Supplemental cash flow information
Non-cash investing and financing activities:
Acquisition of property, plant and equipment through assumption of debt	$	1,700,698	$	0

See accompanying notes to the condensed consolidated financial statements

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BOHAI PHARMACEUTICALS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

The Company’s Operations

Bohai Pharmaceuticals Group, Inc. (“BPGI”) was incorporated under the laws of the State of Nevada on January 9, 2008 under the name of Link Resources, Inc. Prior to January 5, 2010; BPGI was a public “shell” company. BPGI became a public operating company on January 5, 2010 pursuant to a Share Exchange Transaction completed on January 5, 2010.

BPGI is engaged in the production, manufacturing and distribution of herbal pharmaceuticals based on traditional Chinese medicine (“TCM”) in the People’s Republic of China (“China” or the “PRC”) through the following two operating subsidiaries:

(i) Yantai Bohai Pharmaceuticals Group Co., Ltd., (“Bohai”) a PRC company and the Company’s original operating subsidiary. BPGI controls Bohai through a variable interest entity arrangement (“VIE”) described below; and

(ii) Yantai Tianzheng Pharmaceuticals Company, Ltd., a PRC company (“Yantai Tianzheng”), which BPGI acquired effective July 1, 2011 through a newly formed PRC wholly-foreign owned enterprise subsidiary, Yantai Nirui Pharmaceuticals, Ltd. (“WOFE II”).

BPGI owns 100% of Chance High International Limited, a British Virgin Islands company (“Chance High”). Chance High owns 100% of the issued and outstanding shares of capital stock of a Chinese wholly-foreign owned enterprise known as Yantai Shencaojishi Pharmaceuticals Co., Ltd. (the “WOFE”). On December 7, 2009 (prior to the date of the Share Exchange Transaction), the WOFE entered into a series of variable interest entity contractual agreements (the “VIE Agreements”) with Bohai and its three shareholders, including Mr. Hongwei Qu, the Company’s current Chairman and Chief Executive Officer (“Mr. Qu”). Mr. Qu currently owns 96.7 % of the outstanding equity interests of Bohai and two other shareholders who collectively own the remaining 3.3 % of Bohai.

The VIE Agreements include (i) a Consulting Services Agreement, (ii) an Operating Agreement, and (iii) a Proxy Agreement, through which the WOFE has the right to advise, consult, manage and operate Bohai for an annual fee equal to all of Bohai’s yearly net profits after tax. Pursuant to these agreements, the WOFE indirectly owns but has 100 % managerial and economic control of the business activities of Bohai including the right to appoint all executives and senior management and members of the board of directors of Bohai. Additionally, Bohai’s shareholders pledged their rights, titles and equity interest in Bohai as security for the WOFE to collect consulting and services fees provided to Bohai pursuant to an equity pledge agreement. In order to further reinforce the WOFE’s rights to control and operate Bohai, Bohai’s shareholders granted the WOFE an exclusive right and option to acquire all of their equity interests in Bohai through an option agreement. The VIE Agreements have perpetual terms unless otherwise determined by PRC law, and can (particularly in the case of the Consulting Services Agreement (which is the principal VIE Agreement) be terminated by the parties under certain circumstances, including material breach, the termination of Bohai’s business or a liquidation of Bohai. The WOFE (which is controlled indirectly by BPGI through Chance High) can also terminate the Consulting Services Agreement at will.

BPGI, its wholly owned subsidiary Chance High, WOFE, WOFE II, Bohai and Yantai Tianzheng are referred to herein collectively and as a consolidated basis as the “Company” or “we”, “us” or “our” or similar terminology. Mr. Qu currently serves the Company’s Chairman, Chief Executive Officer and President. As used herein, the term “Common Stock” means the common stock of BPGI, $0.001 par value per share.

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BPGI is headquartered and maintains its principal operations in the city of Yantai, Shandong Province, China, and conducts business operations exclusively in the PRC.

On January 17, 2014, the Company merged WOFE with and into WOFE II.  In connection with the merger, and in accordance with relevant PRC laws and regulations, all of WOFE’s rights relating to Bohai transferred to WOFE II (See Note 23).

2. LIQUIDITY AND FINANCIAL CONDITION

The Company’s net income amounted to $6,009,031 and $14,096,762 for the three and six-month periods ended December 31, 2013. The Company’s cash flows from operations amounted to $6,944,788 for the six months ended December 31, 2013. The Company had working capital of $29,299,006 as of December 31, 2013. The Company has historically financed its operations principally from cash flows generated from operating activities and external financing through short-term bank loans and notes payable.

On August 8, 2011, the Company, through WOFE II, signed a share transfer agreement with the shareholders of Yantai Tianzheng to acquire 100 % of Yantai Tianzheng for total purchase consideration of US$35,000,000 (of which $5,000,000 was paid on September 24, 2013 and the balance was fully paid as of December 31, 2013).

The Company is gaining the benefits of the economies of scale that is realized by having combined and streamlined the cost structures of the historical Bohai and the acquired Yantai Tianzheng businesses. The Company has committed to a plan of streamlining the combined business around a more focused portfolio of products that include non-prescription drug products acquired as part of the Yantai Tianzheng’s product portfolio.

On June 8, 2010, Yantai Tianzheng signed an agreement with Yantai Huanghai Construction Co. to construct certain portions of a factory. The total contract price amounted to approximately $3.19 million (RMB 19.5 million). Management estimates that construction is 98% completed as of December 31, 2013. The remaining commitment of the contract amounted to approximately $0.8 million (RMB 4.9 million) as of December 31, 2013.

On November 5, 2012, the Company acquired a new land use right of 266,668 square meters located in the high-tech development district of Laishan, Yantai, Shandong Province. The Company was granted the right to use the land for a period of 50 years at a total cost of approximately $19.64 million (RMB 120,000,000). As of December 31, 2013, the Company paid $19.64 million (RMB 120,000,000). (See Note 7).

The Company is also required to repay the remaining $8,064,500 convertible notes balance, which pursuant to four amendments to the original notes, is currently due on an extended maturity date of April 5, 2013. The Company is currently working with Euro Pacific as representative of the Investors on a fifth amendment to the Notes which would further extend the maturity date of the Notes. In October 2013, the Company made a payment amounting to $400,000. As of the date of this report, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.  

As described elsewhere herein, the Company has at times, been in temporary default of its obligation to repay the convertible notes at previously extended maturity dates. The Company is currently in default under the terms of the latest extended note agreement. The Company cannot predict what the implications of the non-payment of the notes would be other than it would continue to experience difficulty converting sufficient currency and will maintain an escrow account of restricted funds intended to secure the Note’s repayment. The non-payment of the notes could have a material adverse effect on the Company should the note holders pursue further action.

Management believes, based on the Company’s historical ability to fund operations using internally generated cash flow and the progress made towards integrating the business of Yantai Tianzheng, and subsequent commitment to focus on a more streamlined higher margin product portfolio, that the Company’s currently available cash and funds it expects to generate from operations and through potential short term loans financing from banks will enable it to operate the business and satisfy short term obligations through at least December 31, 2014. Notwithstanding, the Company still has substantial obligations as described herein and there is no assurance that unforeseen circumstances would not have a material adverse effect on the Company’s financial condition.

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The Company will require significant additional capital in order to fund these obligations and execute its longer term business plan. If the Company is unable to generate sufficient operating cash flows or raise additional capital, or encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity. Such measures could include, but not necessarily be limited to, curtailing the Company’s business development activities (as was done recently when the Company determined to streamline its operations to focus on the continued distribution of a smaller number of key products), suspending the pursuit of one or more elements of its business plan, and controlling overhead expenses. There is a material risk, and management cannot provide any assurances, that the Company will be able to raise additional capital if needed. On August 15, 2013, the Company obtained a short term loan from Yantai Rural Commercial Bank Ltd. (“RCB”) due on August 14, 2014. in the amount of $4,909,662 (RMB 30,000,000), which was guaranteed by a third party, Shandong Guangyuan Group Ltd. (“Guangyuan”) and the principal shareholder of the Company, Hongwei Qu. Guangyuan is an unrelated third party and has no business relationship with the Company (See Note 13). Except for the loan from RCB, the Company has not received any commitments for new financing, and cannot provide any assurance that new financing will be available to the Company on acceptable terms, if at all. The failure of the Company to fund its obligations when needed would have a material adverse effect on its business and results of operations.

 

 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of BPGI, its wholly-owned subsidiary Chance High, WOFE, WOFE II, Yantai Tianzheng and Bohai. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company, in determining whether it is required to consolidate investee businesses, considers both the voting and variable interest models of consolidation as required under applicable GAAP. The Company adopted FAS Accounting Standards Codification (“ASC”) 810-10-15-14 and also ASC 810-10-05-8, which requires that a VIE be consolidated if that company is entitled to receive a majority of the VIE’s residual returns and has direct ability to make decisions on all operating activities of the VIE. The Company controls Bohai through the VIE Agreements described in Note 1, under the following series of agreements entered into on December 7, 2009.

Under the Operating Agreement entered into between WOFE and Bohai, the WOFE has the direct ability to make decisions on all the operating activities and exercise all voting rights of Bohai. Under the Consulting Services Agreement entered into between WOFE and Bohai, Bohai agreed to pay all of its net income to WOFE quarterly as a consulting fee. Accordingly, WOFE has the right to receive the expected residual returns of Bohai. As such, the Company is the primary beneficiary of and maintains controlling managerial and financial interest in, Bohai in accordance with ASC 810-10-15-14. Accordingly, Bohai’s financial position and results of operations are consolidated with those of the Company for all periods presented.

We initially measured the assets, liabilities, and non-controlling interests of Bohai at their carrying amounts as of the date of the Share Exchange. We have subsequently accounted for the assets, liabilities, and non-controlling interest of Bohai as if it was consolidated based on voting interests. 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, or Primary Beneficiary (“PB”); and

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

The carrying amount and classification of Bohai’s assets and liabilities included in the consolidated balance sheets are as follows:

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	December 31,		June 30,
	2013		2013
Total current assets*	$	74,961,160	$	58,857,580
Total assets*		146,772,936		130,683,952
Total current liabilities**		26,075,134		24,065,824
Total liabilities**	$	29,957,188	$	27,729,581

*           Includes intercompany accounts in the amounts of $36,999,000 and $26,417,979 in current assets as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

**         Includes intercompany accounts in the amounts of $9,497,907 and $4,372,634 in current liabilities as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

Business Combinations

The Company uses the acquisition method of accounting for business combinations which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective fair values. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are charged to expense as incurred. The operating results of acquired business are reflected in the acquirer’s consolidated financial statements and results of operations after the date of the acquisition.

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of December 31, 2013 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended December 31, 2013 are not necessarily indicative of the operating results for the full fiscal year or any future period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 30, 2013, filed on September 27, 2013, and updated, as necessary, in this Quarterly Report on Form 10-Q.

Reclassifications

Certain amounts in the December 31, 2012 condensed consolidated financial statement have been reclassified to conform to the December 31, 2013 presentation.

Business Segments

The Company’s operates its business through a single reporting segment.

7

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those results.

Significant estimates and assumptions include allocating purchase consideration issued in business combinations, valuing equity securities and derivative financial instruments issued in financing transactions and in share-based payment arrangements, accounts receivable reserves, inventory reserves, and evaluating the carrying amounts and useful lives of intangible assets. Certain estimates, including accounts receivable and inventory reserves and the carrying amounts of intangible assets (including present value of future cash flow estimates for the Company’s pharmaceutical formulas) could be affected by external conditions including those unique to the Company’s industry and general economic conditions. It is reasonably possible that these external factors could have an effect on management’s estimates that could cause actual results to differ from management’s estimates.

Company management re-evaluates all of the accounting estimates at least quarterly based on these conditions and records adjustments, when necessary.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. We maintain bank accounts in the PRC and a checking account in the United States of America that principally consist of demand deposits. We also have restricted cash accounts in the United States that include funds designated for interest payments due to convertible note holders and for use in investor relations programs pursuant to a securities purchase agreement.

Restricted Cash

Escrow account balances amounted to $12,718,685 and $12,574,051 as of December 31, 2013 and June 30, 2013, respectively.

The Company is required by its Note holders to maintain deposits in escrow accounts to fund the principal and interest payments under the Convertible Notes obligation. As of December 31, 2013 and June 30, 2013, there was $7,809,023 and $7,720,232 of cash restricted for this purpose.

The Company has certain outstanding notes payable in the amount of $9,819,325 and $9,707,638 as of December 31, 2013 and June 30, 2013, respectively, and it is required to maintain a portion of these outstanding draft amounts in its bank as restricted cash. As of December 31, 2013 and June 30, 2013, there was $4,909,662 and $4,853,819 cash restricted for this purpose.

Accounts Receivable

Accounts receivable consists of amounts due from customers. The Company’s credit terms generally range from 90 to 180 days. The Company’s policy with respect to accounts receivable reserves is to establish an allowance for doubtful accounts based on management’s assessment of known requirements, aging of receivables, payment history, specific customer’s current credit worthiness, and the economic environment. The Company has a significantly low history of credit losses and no historical pattern of making any price or collection concessions with respect to its accounts receivable balances. Accordingly, an allowance for doubtful accounts is not considered necessary based on management’s assessment.

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Inventories

Inventories are valued at the lower of cost, determined using the weighted average method, or market. Finished goods inventories include the costs 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/decrease due to management’s projected demand requirements, market conditions and product life cycle changes. As of December 31, 2013 and June 30, 2013, management does not believe that any inventory reserves are necessary.  

Property, Plant and Equipment

Property, plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets that range from 5 to 10 years for office equipment, machinery, and vehicles and 30 to 40 years for buildings. The cost of repairs and maintenance is charged to expense as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. We examine the possibility of impairment in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Intangible Asset – Pharmaceutical Formulas

The Company has purchased pharmaceutical formulas that were approved by the State Food and Drug Administration of China (“SFDA”). These formulas can be renewed every 5 years without limitation for a minimum fee and are subject to certain protections under PRC drug regulations for an indefinite period of time. These regulations mitigate competition and the ability of other suppliers to replicate the Company’s products or produce comparable substitutes. These intangible assets are measured initially at cost not subject to amortization and are tested for impairment annually or in interim reporting periods if events or changes in circumstances indicate that the carrying amounts of these intangible assets might not be recoverable.

During the year ended June 30, 2013, we determined that we would no longer manufacture or seek to develop a market for ten of our products due to a change in our business strategy as more fully described in Note 2. As a result of this decision, we recorded an impairment charge in the amount of $1,668,486 during the year ended June 30, 2013. In addition to the above, we reclassified certain other formulas with an aggregate carrying amount of approximately $10 million (RMB 63,855,371) to other intangible assets. The Company has suspended plans to develop and manufacture products to be derived from these formulas but intends to retain them to mitigate competition and maintain the option of using these formulas should they be useful in the future. Accordingly, the Company has determined these formulas, which are approved by the State Food and Drug Administration, should be held as defensive assets. The Company determined that these formulas have an estimated useful life of 8 years as defensive assets.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company accounts for the issuance of common stock purchase warrants issued as free standing financial instruments in accordance with the applicable provisions ASC 810 “Derivatives and Hedging Activities.” Based on this guidance, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The common stock purchase warrants have expired as of June 30, 2013.  

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Fair Value Measurements and Fair Value of Financial Instruments

We adopted the guidance of ASC 820 for fair value measurements, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, other receivables, short-term borrowings, accounts payable and accrued expenses, customer advances, and amounts due from related parties approximate their fair market value based on the short-term maturity of these instruments.

ASC 825-10 “ Financial Instruments, ” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. We use Level 3 inputs to value the Company’s derivative liabilities.

The following table reflects gains and losses for the six months ended December 31, 2013 and year ended June 30, 2013 for all financial assets and liabilities categorized as Level 3.

Liabilities:

Balance of warrant liabilities as of June 30, 2012	$	1,211,236
Change in the fair value of warrant liabilities		(1,211,236)
Balance of warrant liabilities as of June 30, 2013		-
Change in the fair value of warrant liabilities		-
Balance of warrant liabilities as of December 31, 2013	$	-

Estimating the fair value of derivative financial instruments require the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. The assumptions used to value the Company’s derivatives, which had a direct effect on the fair values. In addition, valuation techniques are sensitive to changes in the trading market price of the our Common Stock and its estimated volatility interest rate changes and other variables or market conditions not within the Company’s control that can significantly affect management’s estimates of fair value and changes in fair value. Because derivative financial instruments are initially and subsequently carried at fair value, the Company’s net income may include significant charges or credits as these estimates and assumptions change.

The warrants expired on January 5, 2013. At the expiration time, the portion of this warrant not exercised prior thereto shall be and become void and of no value and this warrant shall be terminated and shall no longer be outstanding.

10

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s operating business based in the PRC is the RMB. For the Company’s subsidiaries and affiliates whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the exchange rate in effect as of the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the functional currency financial statements into U.S. dollars are included in comprehensive income.

Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods. All of the Company’s revenue transactions are transacted in the functional currency. The Company has not entered into any material transactions that are either originated, or to be settled, in currencies other than the RMB. Accordingly, transaction gains or losses have not had, and are not expected to have a material effect on the Company’s results of operations.

Period end exchange rates used to translate assets and liabilities and average exchange rates used to translate results of operations in each of the reporting periods are as follows:

	Six months ended December 31, 2013	Six months ended December 31, 2012
Period end US$: RMB exchange rate	6.1104	6.3086
Average periodic US$: RMB exchange rate	6.1423	6.3091

The RMB is not freely convertible into any other currencies. In addition, all foreign exchange transactions in the PRC must be conducted through authorized institutions. Accordingly, management cannot provide any assurance that the RMB underlying the condensed consolidated financial statement amounts could have been, or could be, converted into US dollars at the exchange rates used to translate the functional currency into the reporting currency.

Revenue Recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to distributors. Pursuant to the guidance of ASC Topic 605 and ASC Topic 36, 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.

Cost of Revenue

Cost of revenue consists primarily of raw material costs, labor cost, overhead costs associated with the manufacturing process and related expenses which are directly attributable to our revenues.

Stock-based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the employee or director’s requisite service period (presumptively, the vesting period). The FASB Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

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Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Research and Development Costs

Research and development costs are charged to expense as incurred and included in operating expenses. We have only one full-time employee who is engaged in research and development, so the Company is mainly dependent on third-parties to perform the limited amount of research and development that the Company undertakes (see Note16). On March 1, 2013, the Company entered into a series of contracts with Binzhou Medical College to establish an institute named Bohai Pharmaceutical Institute in the following 5 years. On May 31, 2013, these two parties entered into two contracts agreeing on performing researches on two pharmaceutical products, namely Lung Nourishing Cream and Tongbi Capsules, in the following 17 months, respectively. These three contracts amount to $244,154 (RMB 1,500,000), which have been fully paid as of December 31, 2013. Research and development costs amounted to $23,704 and $1,995 for the three months ended December 31, 2013 and 2012, respectively. Research and development costs amounted to $62,751 and $3,990 for the six months ended December 31, 2013 and 2012, respectively.

Shipping costs

Shipping costs are included in selling, general and administrative expense. Shipping costs amounted to $207,181 and $261,338 for the three months ended December 31, 2013 and 2012, respectively. Shipping costs are included in selling, general and administrative expense. Shipping costs amounted to $479,384 and $553,981 for the six months ended December 31, 2013 and 2012, respectively.

Advertising

Advertising and promotion costs are charged to expense as incurred. Advertising expenses included in selling, general and administrative expenses amounted to $563,688 and $1,220 for the three months ended December 31, 2013 and 2012, respectively. Advertising expenses included in selling, general and administrative expenses amounted to $664,968 and $103,525 for the six months ended December 31, 2013 and 2012, respectively.

Income Taxes

We are governed by the PRC’s Income Tax Laws and the Internal Revenue Code of the United States. 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 and income tax base of assets and liabilities and operating loss and tax credit carry-forwards. Deferred tax assets are reduced by a valuation allowance to the extent that management concludes it is more likely than not that the benefit of such tax assets will not be realized in future periods. 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 periods that include the enactment date.

We account for certain tax positions based upon authoritative guidance that prescribes a recognition threshold and measurement processes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on recognition, classification, interest and penalties, accounting in interim periods and related disclosure.

Our policy is to classify assessments, if any, for tax related to interest as interest expense and penalties as general and administrative expense.

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Earnings per Share

We report earnings per share in accordance with ASC Topic 260, “Earnings Per Share”. Basic earnings (loss) per share are computed by dividing net income (loss) by the 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 of diluted shares in periods for which they have an anti-dilutive effect. Diluted shares underlying stock options and common stock purchase warrants are included in the determination of diluted earnings per share using the treasury stock method. Diluted shares underlying convertible debt obligations are included in the determination of diluted loss per share using the “if converted” method (Note 17).

Recent Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. The ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, this ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The guidance is effective prospectively for reporting periods beginning after December 15, 2012 for public entities. The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial position or results of operations upon adoption.

4. INVENTORIES

Inventories consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Raw materials	$	2,781,656	$	1,415,071
Work in progress		838,625		840,954
Finished goods		1,422,380		525,709
Total inventories	$	5,042,661	$	2,781,734

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5. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Buildings	$	9,226,484	$	9,121,541
Plant equipment		8,835,641		8,548,658
Office equipment		284,127		250,339
Motor vehicles		281,075		291,784
Total		18,627,327		18,212,322
Less: accumulated depreciation		(3,405,853)		(2,827,442)
Construction in progress		2,439,429		2,293,573
Property, plant and equipment, net	$	17,660,903	$	17,678,453

Depreciation expense for property, plant and equipment for the three months ended December 31, 2013 and 2012 amounted to $278,830 and $144,367, respectively. Depreciation expense for property, plant and equipment for the six months ended December 31, 2013 and 2012 amounted to $555,578 and $287,490, respectively.

On June 8, 2010, Yantai Tianzheng signed an agreement with Yantai Huanghai Construction Co. to construct certain portions of a factory. The total contract price amounted to approximately $3.19 million (RMB 19.5 million). Management estimates that construction is 98% completed as of December 31, 2013 and that the project has be fully completed by January 31, 2014. The remaining commitment of the contract amounted to approximately $0.8 million (RMB 4.9 million) as of December 31, 2013.

6. INDEFINITE LIVED INTANGIBLE ASSETS – PHARMACEUTICAL FORMULAS

The Company purchased, and currently owns exclusive rights to, a series of pharmaceutical formulas that were approved by the SFDA. This asset includes 12 formulas that are included in the Chinese government’s Essential Drug List (“EDL”) and 25 medicines included in the National Drug Reimbursement List (“NDRL”). The intellectual property underlying these formulas can be renewed every 5 years without limitation for a minimum fee and are subject to certain protections under PRC drug regulations for an indefinite period of time. These regulations mitigate competition and the ability of other suppliers to replicate the Company’s products or produce comparable substitutes. These intangible assets are measured initially at cost not subject to amortization and are tested for impairment annually or in interim reporting periods if events or changes in circumstances indicate that the carrying amounts of these intangible assets might not be recoverable.

Pharmaceutical formulas with indefinite lives consist of the following: 

	December 31,		June 30,
	2013		2013
	(unaudited)
Pharmaceutical formulas, without amortization, at cost	$	14,271,495	$	14,109,169

7. INTANGIBLE ASSETS - LAND USE RIGHTS, NET

	December 31,		June 30,
	2013		2013
	(unaudited)
Land use rights, at cost	$	40,554,688	$	40,093,414
Less: Accumulated amortization		(2,673,158)		(2,229,950)
Intangible assets – land use rights, net	$	37,881,530	$	37,863,464

The Company acquired a new land use right for 266,668 square meters on November 5, 2012. The Company was granted the right to use the land for a period of 50 years at a cost of approximately $19.64 million (RMB 120,000,000). As of September 30, 2013, the Company had paid $13.02 million (RMB 80,000,000) of the purchase price. As of December 31, 2013, the Company has made the remaining installment payment of $6.51 million (RMB 40,000,000) and no amounts remain due to be paid.

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There is no private ownership of land in the PRC. All land is owned by the government, which grants land use rights for specified periods of time. Amortization expense for land use rights amounted to $208,470 and $226,819 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for land use rights amounted to $415,384 and $389,382 for the six months ended December 31, 2013 and 2012, respectively.

Amortization is calculated over a period of 30 - 50 years.

Amortization of land use rights for fiscal years ending subsequent to December 31, 2013 is as follows:

	Amortization
Remainder of FY 2014	$	413,828
2015		827,656
2016		827,656
2017		827,656
2018		827,656
Thereafter		34,157,078
Total	$	37,881,530

8. OTHER INTANGIBLE ASSETS, NET

Other Intangible assets, net include customer relationships and certain prescription drug product formulas. The Company acquired these assets in its business combination with Yantai Tianzheng. Customer relationships are amortized on a straight line basis over periods of 5 and 8 years. Pharmaceutical formulas including those retained as defensive assets are amortized on a straight t line basis over a period of 8 years.

$10,450,277 for the carrying amount of certain other product formulas that the Company will hold as defensive assets have been reclassified from indefinite life drug formulas. According to the Company’s years of industrial experience and R&D knowledge, to get a new drug formula approved from scratch usually take at least 8 years, so the Company is amortizing the pharmaceutical formulas as defensive assets over 8 years.

Other intangible assets at December 31, 2013 (unaudited) consist of the following:

	Customer Relationships		Yantai Tianzheng Drug Formulas		Defensive Drug formulas		Total
Cost	$	14,968,905	$	10,459,381	$	10,450,277	$	35,878,563
Accumulated Amortization		(4,764,009)		(3,283,312)		(1,632,855)		(9,680,176)
Net carrying amount	$	10,204,896	$	7,176,069	$	8,817,422	$	26,198,387

Other intangible assets at June 30, 2013 consist of the following:

	Customer Relationships		Yantai Tianzheng Drug Formulas		Defensive Drug formulas		Total
Cost	$	14,798,647	$	10,340,415	$	10,331,414	$	35,470,476
Accumulated Amortization		(3,767,858)		(2,594,829)		(968,570)		(7,331,257)
Net carrying amount	$	11,030,789	$	7,745,586	$	9,362,844	$	28,139,219

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Amortization expense for customer relationships amounted to $475,702 and $462,608 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for customer relationships amounted to $947,854 and $922,794 for the six months ended December 31, 2013 and 2012, respectively.

Amortization expense for Yantai Tianzheng drug formulas amounted to $328,832 and $319,781 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for YTP drug formulas amounted to $655,209 and $637,887 for the six months ended December 31, 2013 and 2012, respectively.

Amortization expense for defensive drug formulas amounted to $326,092 and $316,286 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for defensive drug formulas amounted to $649,750 and $316,286 for the six months ended December 31, 2013 and 2012, respectively. Amortization expenses are recorded in general and administrative expenses.

Amortization expense for fiscal years ending subsequent to December 31, 2013 is as follows: 

	Amortization
Remainder of FY 2014	$	2,244,372
2015		4,488,744
2016		4,488,744
2017		4,488,744
2018		4,488,744
Thereafter		5,999,039
Total	$	26,198,387

 

9. GOODWILL

On August 8, 2011, the Company acquired 100% of Yantai Tianzheng’s equity interests for total purchase consideration of US$35,000,000 (paid in its RMB equivalent). The Company accounted for its acquisition of Yantai Tianzheng using the acquisition method of accounting.   The fair value of the purchase consideration issued to the sellers of Yantai Tianzheng was allocated to fair value of the net tangible assets acquired, with the resulting excess allocated to separately identifiable intangibles including customer relationships that have a finite life, pharmaceutical formulas that have an indefinite life and the remainder recorded as goodwill. Goodwill recognized from the transactions mainly represented the expected operational synergies upon acquisition of the subsidiary and intangibles not qualifying for separate recognition. Goodwill is nondeductible for income tax purpose in the tax jurisdiction of the acquisition transactions incurred. Goodwill amounted $5,262,061 (RMB 32,153,295) and $5,202,209 (RMB 32,153,295) as of December 31, 2013 and June 30, 2013, respectively. Goodwill is measured initially at cost not subject to amortization and are tested for impairment annually or in interim reporting periods if events or changes in circumstances indicate that the carrying amounts of these intangible assets might not be recoverable. The Company has decided there is no impairment for the six months ended December 31, 2013 and 2012.

10. ACCRUED EXPENSES

Accrued expense consists of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Sales representatives commission and expenses	$	3,806,791	$	4,731,442
Other payable for PPE		1,710,022		2,279,869
Other accrued expense		1,560,741		1,596,636
Other taxes payable		2,011,061		2,185,328
Accrued Interest expenses		1,694,654		1,117,527
Compensation and related cost		253,995		274,813
Total	$	11,037,264	$	12,185,615

   

11. DUE TO RELATED PARTY

Due to related party amounted to $43,665 and $52,830 as of December 31, 2013 and June 30, 2013, respectively. It represents accrued out of pocket expenses of Mr. Qu Hongwei, Chief executive officer of the Company.

 

12. NOTES PAYABLE

The Company borrowed from Weihai City Commercial Bank (“City Bank”) under the facility was obtained by Yantai Tianzheng. The latest outstanding amount of $9,819,325 (RMB 60,000,000) was borrowed on November 11, 2013 and has a term of a period of six months and has a bank charge fee of 0.05%. As of December 31, 2013 and June 30, 2013, the outstanding aggregate amount was $9,819,325 (RMB 60,000,000) and $9,707,638 (RMB 60,000,000), respectively. The Company was required to maintain 50% of the notes amounts, or $4,909,662 (RMB 30,000,000) and $4,853,819 (RMB 30,000,000) as guaranteed funds, which was classified as restricted cash as of December 31, 2013 and June 30, 2013, respectively.

Yantai Tianzheng entered into this credit facility following its execution of third party guaranty arrangements between Yantai Tianzheng, City Bank and Laishan Public Assets Management LLP (“Laishan”) and between Yantai Tianzheng, City Bank, and Bohai in April 2013. Under the terms of the Guaranty, Laishan and Bohai each has agreed to act as guarantor of up to $4,909,662 (RMB 30,000,000) of any credit extended by City Bank to Yantai Tianzheng at any time during the period from April 25, 2013 through April 25, 2014. Laishan is an unrelated third party and has no business relationship with the Company. As a state-owned enterprise, Laishan provides the guarantee to support the development of Bohai, which is a prominent emerging company in the area.

 

13. SHORT-TERM LOAN  

On August 15, 2013, the Company entered into a short term bank loan agreement with RCB. As of December 31, 2013, the loan amounted to $4,909,662 (RMB 30,000,000) with an interest rate of 9% per annum, which is due on August 14, 2014. The Company entered into this credit facility following its execution of third party guaranty arrangements among the Company, RCB, Guangyuan, and the principal shareholder of the Company, Hongwei Qu, on August 15, 2013. Guangyuan is an unrelated third party and has no business relationship with the Company. Guangyuan is a construction company and expected to be a potential constructor for Bohai’s construction on the land purchased in November 2012.

14. CONVERTIBLE PROMISSORY NOTES IN DEFAULT AND DUE ON DEMAND

Convertible Notes

On January 5, 2010, pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) with 128 accredited investors (the “Investors”), BPGI 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 (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 exercisable at $2.40 per share subject to certain anti-dilution provisions. The majority of this debt is guaranteed by third-parties and our CEO, Mr. Qu, and a portion is secured by our inventories and fixed assets.

The Notes originally bore interest at 8% per annum, payable quarterly in arrears on the last day of each fiscal quarter of the Company. Principal was originally due 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 Common Stock at a conversion price of $2.00 per share, subject to adjustments for certain anti-dilution provisions.

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The Convertible Notes were initially recorded at a discounted carrying amount of zero as a result of having allocated a portion of the proceeds to (i) the fair value of the warrants, which were recorded as liabilities stated at fair value, and (ii) a beneficial conversion feature that was not bifurcated as a free standing derivative at the time of issuance or at subsequent reporting dates based on periodic classification assessments. Accretion of the note discount amounted to $0 and $0 for the three months ended December 31, 2013 and 2012, respectively. Accretion of the note discount amounted to $0 and $0 for the six months ended December 31, 2013 and 2012, respectively. Accretion of the discount was recorded as a component of interest expense in the accompanying statements of income and comprehensive income. Contractual interest expense amounted to $241,935 and $268,043 for the three months ended December 31, 2013 and 2012, respectively. Contractual interest expense amounted to $495,870 and $550,193 for the six months ended December 31, 2013 and 2012, respectively.

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 us 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 our Common Stock that have been placed in escrow by our principal shareholder. The shares in escrow will be returned to our principal shareholder when 50% of the aggregate face amount of the Notes has been converted or, if later, when the Notes are repaid.

On December 31, 2011, the Company’s Chinese operating subsidiary determined it was unable to convert a sufficient amount of RMB needed to repay the notes on their original maturity date of January 5, 2012. As a result, the Company entered into a series of amendments to the Notes with Euro Pacific as representative of the Investors to extend to the maturity date and increase the interest rate on the Notes. Pursuant to the most recent amendment, the maturity date of the notes was extended to April 5, 2013 and the interest rate was increased to 12% per annum. The Company is negotiating with Euro Pacific to extend the maturity date. In October 2013, the Company paid $400,000 towards the principal.The outstanding balance of the Notes amounted to $8,064,500 and $8,464,500 as of December 31, 2013 and June 30, 2013, respectively. As of the date the financial statements were issued, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.    

The Company has been and is currently in temporary default of this obligation at the previously extended maturity dates. Should the Company be unable to repay the notes in time and in the absence of a further extension of the maturity date, this circumstance would constitute an event of default under the terms of loan agreement. The Company cannot predict what the implications of the non-payment of the loan would be other than it would continue to experience difficulty converting sufficiency currency and will maintain an escrow account of restricted funds intended to secure their repayment. The non-payment of the notes could have a material adverse effect on the Company should the note holders pursue further action. As of the date of this report, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.

On June 27, 2012, Euro Pacific also agreed to release us from certain restrictions on our ability to incur debt, to incur liens or to make capital expenditures as stipulated in the note agreement. The purpose of the Third Amendment is to provide us with enhanced flexibility to seek potential sources of financing.

The Company has paid $2,385,500 principle in total. The payment dates and amounts are as follows:

Payment date		Amount
May 14, 2012	$	314,000
June 28, 2012		100,000
July 3, 2012		631,000
November 29, 2012		940,500
October 9, 2013		100,000
October 29, 2013		300,000

As of December 31, 2013 and June 30, 2013, the Company’s principal shareholder, Mr. Qu, is obligated to deliver 1,000,000 shares of Common Stock to the Investors if a default occurs.

15. ACQUISITION PURCHASE PRICE PAYABLE

On August 8, 2011, the Company, through WOFE II, acquired 100% of Yantai Tianzheng’s equity interests for total purchase consideration of US$35,000,000 that was fully paid as of December 31, 2013. $5,000,000 was paid on September 24, 2013, and the balance was fully paid as of December 31, 2013. 

17

   

16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

(a) Contract Research and Development Arrangement

On May 2009, the Company entered into a contract with Yantai Tianzheng Medicine Research and Development Co. to perform research and development on two new pharmaceutical products, namely Fern Injection and Forsythia Capsule. The total contract price is approximately $2,426,910 (RMB 15,000,000). Yantai Tianzheng Medicine Research and Development Co. committed to complete all research work required for the clinical trial within 3 years. As of December 31, 2013, the Company has paid $2,143,075 (RMB 13,095,044) and the remaining contract amount will be paid as the research services are performed. All payments of $2,143,075 (RMB 13,095,044) have been charged to expense. The Company extended the term of the contract to May 10, 2017 due to certain changes in government regulations that affected this research project. Research and development costs associated with this contract amounted to $0 and $0 for the six months ended December 31, 2013 and 2012.

(b) Supplier Concentrations

We have the following concentrations of business with each supplier constituting greater than 10% of the Company’s purchases of raw materials or other supplies:

	Three months		Three months		Six months		Six months
	ended		ended		ended		ended
	December 31,		December 31,		December 31,		December 31,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Shandong Yantai Medicine Procurement and Supply Station	25.5	%	25.9	%	24.8	%	26.4	%
Shandong Shuntianyi Chinese Herbal Medicine Co., Ltd	22.9	%	*	%	23.2	%	*	%
Shanxi Guangsheng Capsule Co., Ltd.	*	%	*	%	10.4	%	*	%

* Constitutes less than 10% of the Company’s purchases.

We had a commitment to purchase certain raw materials totaling $2,200,477 as of December 31, 2013 that was fulfilled upon the delivery of the goods in January 2014.

(c) Sales Concentrations

Sales Product Concentrations

Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 31.0%, 20.6%, 16.9%, 9.8% and 19.2%, respectively, of total sales for the three months ended December 31, 2013.

Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 30.2%, 17.8%, 15.5%, 12.7% and 21.2%, respectively, of total sales for the six months ended December 31, 2013.

 Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 37.2%, 14.1%, 17.1%, 11.0% and 15.3%, respectively, of total sales for the three months ended December 31, 2012.

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Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 31.9%, 12.0%, 16.1%, 11.3% and 16.8%, respectively, of total sales for the six months ended December 31, 2012.

Sales Customer Concentrations  

The Company does not have concentrations of business with each customer constituting greater than 10% of the Company’s gross sales for the six months ended December 31, 2013 and 2012.

(d) Economic and Political Risks

The Company’s operations are conducted solely in the PRC. There are significant risks associated with doing business in the PRC, which include, among others, political, economic, legal and foreign currency exchange risks. The Company’s results may be adversely affected by changes in 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.

(e) Concentrations of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is deposited in state-owned banks within the PRC, and no deposits are covered by insurance. We have not experienced any losses in such accounts and believe that the Company’s loss exposure is insignificant due to the fact that banks in the PRC are state owned and are generally high credit quality financial institutions. A significant portion of the Company’s sales are credit sales which are made primarily to customers whose ability to pay are dependent upon the industry economics prevailing in these areas. We continually monitor the credit worthiness of the Company’s customers in an effort to reduce credit risk.

At December 31, 2013 and June 30, 2013, the Company’s cash balances by geographic area were as follows:

	December 31,				June 30,
	2013				2013
	(unaudited)
Country:
United States	$	14,364	0.22	%	$	28,331	0.41	%
China		6,371,720	99.78	%		6,919,641	99.59	%
Total cash and cash equivalents	$	6,386,084	100	%	$	6,947,972	100	%

(f) Certificate of land use right

The Company’s corporate headquarters is located at No. 9 Daxin Road, Zhifu District, Yantai, Shandong Province in China. Under the current PRC laws, land is owned by the state, and parcels of land in rural areas which are known as collective land are owned by the rural collective economic organization. “Land use rights” are granted to an individual or entity after payment of a land use right fee is made to the applicable state or rural collective economic organization. Land use rights allow the holder of the right to use the land for a specified long-term period.

We have 5 land use rights, for a total of approximately 675,364 square meters of land on which the Company maintains its manufacturing facility.

The Company has not obtained a land use right certificate for two parcels of land located in the high-tech development district of Laishan, including an area of 266,668 square meters purchased on November 5, 2012 and an area of 333,335 square meters purchased on February 22, 2010. Registration of the two land use right certifications is still in process.

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We currently have not obtained the land use right certificate for another parcel of land located in Xingfu Twelve Village of Zhifu District. The land is about 11,222 square meters. We maintain our manufacturing facility on this land. In the process of the planning of Yantai City, the usage of the aforesaid land use right has been changed from “industrial use” to “commercial use” and therefore, the approval process for the land use right certificates on five relevant parcels of land including the land occupied by the Company has been suspended until the completion of the planning process.

We cannot provide any assurance that the Company will eventually obtain the land use right certificates for these lands. If the Company is asked by the local government to relocate the Company’s facility, management believes that estimated relocation and other costs will be reimbursed by the local government. The Company does not believe that a requirement to relocate operations would have a material adverse effect on the Company’s financial position or results of operations.

(g) Business insurance

Business insurance is not readily available in the PRC. To the extent that the Company suffers a loss of a type that would normally be covered by insurance in the United States, such as product liability and general liability insurance, the Company would incur significant expenses in both defending any action and in paying any claims that could result from a settlement or judgment.

17. NET INCOME PER SHARE

Basic earnings per share are computed on the basis of the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of Common Stock plus the effect of potentially dilutive common shares outstanding during the period using the if-converted method for the convertible debt and equity securities and the treasury stock method for stock options and common stock purchase warrants. The following table sets forth the computation of basic and diluted net income per common share:

	Three months		Three months		Six months		Six months
	ended		ended		ended		ended
	December 31,		December 31,		December 31,		December 31,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net income available to common stockholders - basic	$	6,009,031	$	5,258,737	$	14,096,762	$	11,654,249
Interest on convertible notes		241,935		268,043		495,870		550,193
Net income available for common shareholders - diluted	$	6,250,966	$	5,526,780	$	14,592,632	$	12,204,442
Weighted average number of common shares outstanding - basic		17,861,085		17,861,085		17,861,085		17,861,085
Common shares if converted from Convertible Debt		4,084,424		4,232,250		4,158,337		4,232,250
Weighted average number of common shares outstanding - diluted		21,945,509		22,093,335		22,019,422		22,093,335
Earnings per share:
Basic	$	0.34	$	0.29	$	0.79	$	0.65
Diluted	$	0.28	$	0.25	$	0.66	$	0.55

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18. STOCK OPTIONS

On October 13, 2010, we granted stock options to two directors for the purchase of 26,000 shares of our Common Stock at an exercise price of $2.00 per share. The options vested immediately and expire five years from the date of issuance. These options have been valued at $23,844. We use a binomial option pricing model to calculate the grant date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 70%, risk free interest rate of 0.3%, expected term of 2.5 years.

On May 2, 2011, we granted stock options to a director for the purchase of 6,000 shares of our Common Stock at an exercise price of $2.00 per share. The options vested immediately and expire five years from the date of issuance. These options have been valued at $3,184. We use a binomial option pricing model to calculate the grant date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 55%, risk free interest rate of 0.3%, expected term of 5 years.

The following table summarizes the weighted average remaining contractual life and exercise price of our outstanding options as of December 31, 2013:

	Options Outstanding
	Number
			Outstanding
		Number	Currently	Weighted	Weighted Average
		Outstanding	Exercisable	Average	Exercise Price of
		at	at	Remaining	Options
Exercise		December 31,	December 31,	Contractual Life	currently
Price		2013	2013	(Years)	exercisable
$	2.00	32,000	32,000	2.14	$	2.00

The Company accounts for share-based payments in accordance with ASC 718. Accordingly, it expenses the fair value of awards granted to the directors. Total compensation expense related to the stock options for the three and six months ended December 31, 2013 were $0 and $0, respectively. Total compensation expense related to the stock options for the three and six months ended December 31, 2012 were $0 and $0, respectively.

A summary of our stock option activity as of December 31, 2013, and changes during the six months ended December 31, 2013 and year ended June 30, 2013 is presented in the following table:

			Exercise Price
	Option	Vested	per Common
	Shares	Shares	Stock Range
Balance, June 30, 2012	-	-	$	-
Granted or vested during the year ended June 30, 2013	32,000	32,000		2.00
Exercised during the year ended June 30, 2013	-	-		-
Expired during the year ended June 30, 2013	-	-		-
Balance, June 30, 2013	32,000	32,000		2.00
Granted or vested during the six months ended December 31, 2013	-	-		-
Exercised during the six months ended December 31, 2013	-	-		-
Expired during the six months ended December 31, 2013	-	-		-
Balance, December 31, 2013	32,000	32,000	$	2.00

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19. STOCKHOLDERS ’ EQUITY

Authorized Capital

The Company is authorized to issue 150 million shares of Common Stock, par value $0.001 per share. Holders of its Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders.

Retained earnings

According to the laws and regulations in the PRC, we are 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.

In the PRC, we are required to allocate at least 10% of our 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 Company allocated $1,569,452 to the reserve fund during the six months ended December 31, 2013 which recorded in retained earnings.

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

20. OPERATING EXPENSES

For the three and six months ended December 31, 2013 and 2012, operating expenses consisted of the following:

	Three months ended		Three months ended		Six months ended		Six months ended
	December 31, 2013 (unaudited)		December 31, 2012 (unaudited)		December 31, 2013 (unaudited)		December 31, 2012 (unaudited)
Sales Commissions	$	17,727,340	$	20,302,737	$	42,763,720	$	36,157,254
Advertising expense		563,688		1,220		664,968		103,525
Audit fees and other professional expenses		461,783		112,683		489,411		182,276
Depreciation and amortization		718,802		691,816		1,432,362		1,347,921
Staff costs (salary & welfare)		514,909		510,156		1,033,930		1,006,526
Research and development cost		23,705		1,995		62,751		3,990
Other operating expenses		712,485		1,618,016		2,229,619		2,300,352
Impairment of drug formula		-		1,688,486		-		1,688,486
Total Operating expenses	$	20,722,712	$	24,927,109	$	48,676,761	$	42,790,330

 

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21. INCOME TAXES

The Company is incorporated under the laws of State of Nevada in the United States of America and has legal subsidiaries in the British Virgin Islands (“BVI”) and the PRC. The Company does not have any employees or assets nor or is it engaged in any income producing activities in the Unites States and in the BVI. The Company is currently filing Federal income tax returns in the United States and applicable franchise tax returns in the state of Nevada. The Company has fully reserved for these and all other deferred tax assets generated in the Company’s US operations since it currently more likely than not that those assets will not be realized in future periods.

The Company’s only income producing activities are in the PRC. The statutory corporation income tax rate in the PRC is 25%, which is approximately equal to the effective income tax rate that the Company expects to use when recording income tax expense for financial reporting purposes for the year ending June 30, 2014. Accordingly, the Company is recording a tax provision at interim reporting dates for taxable income earned in the PRC using the effective rate expected to be in effect for the year ending June 30, 2014.

22. VIE

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through the VIE.

As a result of the VIE Agreements signed between WOFE and Bohai, the Company includes the assets, liabilities, revenues and expenses of Bohai (the “VIE”) in its consolidated financial statements.

Substantially all of the Company’s assets, including those of Bohai which is considered the VIE and Yantai Tianzheng, which is an acquired subsidiary of the Company, are accessible to Bohai through WOFE II creditors irrespective of the VIE arrangement.

The VIE Agreements include:

Equity Interest Pledge Agreement. The WOFE and Bohai’s shareholders have entered into Equity Interest Pledge Agreements, pursuant to which each Bohai shareholder has pledged all of his shares of Bohai to the WOFE in order to guarantee cash-flow payments under the applicable Consulting Services Agreement. The Equity Pledge Agreement further entitles the WOFE to collect dividends from Bohai during the term of the pledge.

Consulting Service Agreement. Bohai and the WOFE has entered into a Consulting Services Agreement, which provides that the WOFE will be the exclusive provider of technology services to Bohai and Bohai will pay all of its net income based on the quarterly financial statements to the WOFE for such services. Any such payment from the WOFE to the Company would need to comply with applicable Chinese laws affecting payments from Chinese companies to non-Chinese companies. See “Risk Factors – Risks Associated With Doing Business in China.”

Operating Agreement. Pursuant to the operating agreement among the WOFE, Bohai and the Bohai shareholders, the WOFE provides guidance and instructions on Bohai’s daily operations and financial affairs. The Bohai shareholders must designate the candidates recommended by the WOFE as their representatives on their respective boards of directors. The WOFE has the right to appoint senior executives of Bohai. In addition, the WOFE agrees to guarantee Bohai’s performance under any agreements or arrangements relating to Bohai’s business arrangements with any third party. Bohai, in return, agrees to pledge its accounts receivable and all of its assets to the WOFE. Moreover, Bohai agrees that without the prior consent of the WOFE, Bohai will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of its assets or intellectual property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party.

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These contractual arrangements may not be as effective in providing the Company with control over the VIE as direct ownership. Due to its VIE structure, the Company has to rely on contract right to effect control and management of the VIE, which exposes it to the risk of potential breach of contract by the shareholders of Bohai. The VIE Agreements are subject to significant risks as set forth in the following risk factors.

¨ The PRC government may determine that the VIE Agreements used to control the Company’s operating subsidiary Bohai are not in compliance with applicable PRC laws, rules and regulations and that they are therefore unenforceable.

¨ There are risks involved with the operation of Bohai under the VIE Agreements. The Company has been advised by PRC legal counsel that if the PRC government determines the VIE Agreement used to control the operating company to be unenforceable as they circumvent the PRC restrictions relating to foreign investment restrictions, the relevant regulatory authorities would have broad discretion in dealing with such breach and could have a material adverse impact on our business, financial condition and results of operations.

¨ The Company depends upon the VIE Agreements in conducting its production, manufacturing, and distribution of traditional Chinese herbal medicines in the PRC, which may not be as effective as direct ownership.

¨ The Company conducts its production, manufacturing and distribution of traditional Chinese herbal medicines in the PRC and generate the revenues from the Bohai business through the VIE Agreements. The VIE Agreements may not be as effective in providing us with control over Bohai as direct ownership. The VIE Agreements are governed by PRC laws and provide for the resolution of disputes through arbitration proceedings pursuant to PRC laws. Accordingly, the VIE Agreements will be interpreted in accordance with PRC laws. If Bohai or its shareholders fail to perform the obligations under the VIE Agreements, the Company may have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, and there is a risk that the Company may be unable to obtain these remedies. The legal environment in China is not as developed as in other jurisdictions. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce the VIE Agreements.

¨ The pricing arrangement under the VIE Agreements may be challenged by the PRC tax authorities.

¨ The Company could face adverse tax consequences if the PRC tax authorities determine that the VIE Agreements were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that the VIE Agreements were not entered into on an arm’s length basis, they may adjust the income and expenses of the Company for PRC tax purposes which could result in higher tax liability.

On January 17, 2014, all rights and obligations of WOFE relating to Bohai, including all of WOFE’s rights and obligations under each of the VIE Agreements, were assigned in full to WOFE II (see Note 23).

23.                    SUBSEQUENT EVENTS

On January 17, 2014, the Company merged WOFE with and into WOFE II. In connection with the merger, and in accordance with relevant PRC laws and regulations, WOFE II entered into an assignment agreement with WOFE and Bohai, pursuant to which all rights and obligations of WOFE relating to Bohai, including all of WOFE’s rights and obligations under each of the VIE Agreements, were assigned in full to WOFE II.

24

 

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 our unaudited condensed consolidated financial statements for the six months ended December 31, 2013, 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 are engaged in the production, manufacturing and distribution in China of herbal pharmaceuticals based on traditional Chinese medicine, which we refer to herein as Traditional Chinese Medicine (“TCM”). We are based in the city of Yantai, Shandong Province, China and our operations are exclusively in China.

Our medicines address rheumatoid arthritis, viral infections, gynecological diseases, cardio vascular issues and respiratory diseases. Our initial operating subsidiary, Yantai Bohai Pharmaceuticals Group Co., Ltd. (“Bohai”) obtained Drug Approval Numbers (“DANs”) for 29 varieties of traditional Chinese herbal medicines in 2005, and an additional 14 varieties in December 2010. Through our acquisition of Yantai Tianzheng in August 2011, we obtained DANs for another 5 varieties in August 2011. We currently produce 7 varieties of approved traditional Chinese herbal medicines in seven delivery systems: tablets, granules, capsules, formulations, concentrated powder, tincture and medicinal wine. Of these 7 products, 4 are prescription drugs and 3 are over the counter (“OTC”) products.

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Three of Bohai’s lead products, Tongbi Capsules and Tablets and Lung Nourishing Syrup, are eligible for reimbursement under China’s National Medical Insurance Program (“NRDL”), which we believe significantly increases the marketability of these products. In addition to these lead products, three of our current products and five of our formulas we acquired in 2010 are eligible for NRDL reimbursement. In addition, Bohai’s Lung Nourishing Syrup was included in the new national Essential Drugs List (“EDL”) issued by the Ministry of Health of China on March 15, 2013. The new EDL superseded its previous version formerly issued in 2009 and became effective on May 1, 2013. In addition to Lung Nourishing Syrup, the Company has another product, Fangfengtongsheng Granule, and four of its previously acquired formulas, which was listed in the 2009 version and is again included in the new EDL. Inclusion on either the EDL or NRDL allows for up to 100% insurance coverage by the Chinese government. Yantai Tianzheng owns five prescription products approved by the State Food and Drug Administration of China (“SFDA”) and currently manufactures four of such products. Among Yantai Tianzheng’s products, Fangfengtongsheng Granule has an exclusive status and is on the EDL and NDRL. Zhengxintai Capsule has renewed its protective status to August 2017 and is currently on the NDRL.

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 International Limited (“Chance High”), the indirect parent company of Bohai, our principal operating subsidiary, which is a Chinese variable interest entity (“VIE”) that we (through a Chinese wholly-owned foreign enterprise subsidiary Yantai Nirui Pharmaceuticals Co., Ltd. (“WOFE II”)) control through certain contractual arrangements (the “VIE Agreements”). On August 8, 2012, WOFE II, a PRC company and a newly formed subsidiary of Chance High, entered into a Share Purchase Agreement pursuant to which we acquired, from the three individual holders thereof, one hundred percent (100%) of the outstanding shares of Yantai Tianzheng, which became our second operating subsidiary effective as of July 1, 2012.  

On January 17, 2014, the Company merged Yantai Shencaojishi Pharmaceuticals Co., Ltd. (“Shencaojishi”) with and into WOFE II.  In connection with the merger, and in accordance with relevant PRC laws and regulations, WOFE II entered into an assignment agreement with Shencaojishi and Bohai, pursuant to which all rights and obligations of Shencaojishi relating to Bohai, including all of WOFE’s rights and obligations under each of the VIE Agreements, were assigned in full to WOFE II. Following the merger, WOFE II is the Company’s only wholly-owned foreign enterprise (“PRC WOFE”).

26

Our current organizational structure is summarized below:

Recent Developments

 

On November 5, 2012, the Company acquired land use right with respect to a 266,668 square meters parcel of land located in high-tech development district of Laishan. The land use right grants to the Company the right to use the land for a period of 50 years at a total cost of approximately $19.64 million (RMB120,000,000). As of December 31, 2013, the Company paid $19.64 million (RMB 120,000,000). The Company plans to build workshops, a logistics system and a R&D centre on the land to better prepare the Company for future development.

On January 17, 2014, the Company merged Shencaojishi with and into WOFE II.  In connection with the merger, and in accordance with relevant PRC laws and regulations, WOFE II entered into an assignment agreement with Shencaojishi and Bohai, pursuant to which all rights and obligations of Shencaojishi relating to Bohai, including all of Shencaojishi’s rights and obligations under each of the VIE Agreements, were assigned in full to WOFE II.

Principal Factors Affecting Our Financial Performance

We believe that the following factors will continue to affect our financial performance:

Sales of Key Products

Our top selling products as a percentage of total net revenue consist of the following:

	For the three months ended					For the six months ended
	December 31,					December 31,
	2013   (unaudited)			2012   (unaudited)		2013   (unaudited)		2012   (unaudited)
Tongbi Capsules		31.0	%	37.2	%	30.2	%	31.9	%
Fangfengtongsheng Granule		19.2	%	15.3	%	21.2	%	16.8	%
Tongbi Tablets		20.6	%	14.1	%	17.8	%	12.0	%
Zhengxintai Capsule		9.8	%	11.0	%	12.7	%	11.3	%
Lung Nourishing Syrup		16.9	%	17.1	%	15.5	%	16.1	%
Bazhen Yimu Cream		1.7	%	2.2	%	1.9	%	2.1	%
Zhuangyuan Shenhailong Medicinal Wine		0.8	%	0.7	%	0.7	%	0.7	%
Other Products		0.0	%	2.4	%	0.0	%	9.1	%
Total Sales		100	%	100	%	100	%	100	%

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We expect that a significant portion of our future revenue will continue to be derived from sales of our top five products.

We held the Certificates of Protected Variety of Traditional Chinese Medicine (Grade Two) issued by the SFDA for Tongbi Capsules and Anti-flu Granules which gave the Company exclusive or near-exclusive rights to manufacture and distribute these two medicines. Tongbi Capsules’ certificates expired in September 2009. We filed an application for extending the protection period on March 12, 2009 and received certification extension until September 13, 2016. Lung Nourishing Syrup received a patent with duration of 20 years from the State Intellectual Property Office of the PRC and the patent will expire on September 12, 2027.

Experienced Management

Management’s marketing strategies and business relationships gives us the ability to expand our product market areas, which provides us with leverage to acquire less sophisticated operators, increase production volumes, and implement quality standards. Our future prospects depend substantially on the continued services of our senior management team, especially our President, Chief Executive Officer and Chairman of the Board, Mr. Qu.

Price Control of Drugs by PRC Government and SDRC

The State Development and Reform Commission of the PRC (“SDRC”) and the price administration bureaus of the relevant provinces of the PRC in which the pharmaceutical products are manufactured are responsible for the retail price control over our pharmaceutical products. The SDRC sets the price ceilings for certain pharmaceutical products in the PRC. All of our products except those under the protection periods are subject to such price controls and could affect our future revenue growth. However, due to the direct support of TCM by the Chinese government, China’s immense market, and our protected drugs, we are optimistic regarding our continuous growth potential for TCM in China.

Operating Results

Comparison of the three months ended December 31, 2013 and 2012

Net Revenues

Net revenues are comprised of sales of 11 traditional Chinese medicines (corresponding to 7 drug formulas) in China during the three months ended December 31, 2013. We previously sold 20 medicines (corresponding to 16 drug formulas) following our acquisition of Yantai Tianzheng on August 8, 2012, but have made the strategic choice to narrow our focus to our top 11 products (corresponding to 7 drug formulas). Net revenues for the three months ended December 31, 2013 decreased by $2,259,247, or 5.5%, to $38,673,259 as compared to $40,932,506 for the three months ended December 31, 2012. Net revenues were $27,441,076 and $11,232,183 for Bohai and Yantai Tianzheng, respectively, for the three months ended December 31, 2013. Net revenues were $29,979,509 and $10,952,997 for Bohai and Yantai Tianzheng, respectively, for the three months ended December 31, 2012.

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The decrease in Bohai’s revenue was primarily due to a net decrease in revenues of 8.3% from three leading drug formulas in Bohai: Lung Nourishing Syrup, Tongbi Capsules, and Tongbi Tablets, which together accounted for over 96.4% of our total net revenues for Bohai for the three months ended December 31, 2013. Lung Nourishing Syrup, Tongbi Capsules, and Tongbi Tablets together accounted for 95.8% of our total net revenues for Bohai for the three months ended December 31, 2012. All of our lead products from Bohai are listed for coverage and reimbursement under national medical insurance program starting in December 2009. Tianzheng’s revenue was consistent for the three months ended December 31, 2013, compared to the same period last year.

The decrease in the Company’s revenue is primarily due to decrease in market demand caused by temporary negative industry news during the period relating to a government investigation into alleged acts of bribery committed in China by GlaxoSmithKline (“GSK”).News of the investigation has not only affected GSK’s own sales in China, but has also had an adverse impact on the sales of other pharmaceutical companies, although such effect may not last long. In reaction to the news, many distributors exercised caution and temporarily decreased their purchase volume during the three months ended December 31, 2013.

The sale of our prescription drug products for the three months ended December 31, 2013 represented 81% of total net revenue compared to 80% for the same period in 2012.

Cost of Revenues

Cost of revenues is comprised of raw material costs, labor cost, overhead costs associated with the manufacturing processes and related expenses which are directly attributable to our revenues. Our cost of revenues for the three months ended December 31, 2013 was $9,046,095 as compared to $9,283,649 for the three months ended December 31, 2012, representing an decrease of $237,554, or 2.6%. Cost of revenues were $6,012,274 and $3,033,821 for Bohai and Yantai Tianzheng, respectively, for the three months ended December 31, 2013. Cost of revenues were $6,323,182 and $2,960,467 for Bohai and Yantai Tianzheng, respectively, for the three months ended December 31, 2012. The decrease in cost of revenues for the three months ended December 31, 2013, compared to the same period in 2012, was mainly due to a decrease in total costs of raw materials, labor, and overhead as a result of a decrease in overall sales.   

Gross Profit

Gross profit represents the difference between net revenues and cost of revenues. We achieved gross profit of $29,627,164 for the three months ended December 31, 2013, as compared to $31,648,857 for the same period in 2012, representing a decrease of $2,021,693, or 6.4%, over the same period in 2012. The decrease of the gross profit is mainly due to decreased revenues.

Our overall gross profit margins as a percentage of net revenues decreased by approximately 0.7% from 77.3% to 76.6% for the three months ended December 31, 2013, as compared to the same period in 2012.

Operating Expenses

Our operating expenses decreased by $4,204,397, or 16.9%, to $20,722,712, for the three months ended December 31, 2013, as compared to $24,927,109 for the same fiscal period in 2012. The overall decrease in selling, general, and administrative expenses was mainly due to decreased sales commissions in line with an overall decrease in sales activities offset by increased depreciation and amortization expenses. The percentage of operating expenses to net revenues was 53.6% and 60.9% for the three months ended December 31, 2013 and 2012, respectively, representing a decrease of 7.3% as a percentage of net revenues. Operating expenses decreased faster than the decrease in revenue during this period compared to the same period last year.

Sales commissions decreased by $2,575,397, or 12.7%, to $17,727,340 for the three months ended December 31, 2013, as compared to $20,302,737 for the same period in 2012. Sales commissions accounted for 46.0% and 58.3% of the total revenue for the three months ended December 31, 2013 and 2012, respectively. The decrease in commission is due to decreased sales and decreased collection of accounts receivable resulting from decreased market demand as a consequence of negative bribery industry news during the three months ended December 31, 2013 compared to the same period last year.

Depreciation and amortization expenses in operating expenses increased by $26,986, or 4%, to $718,802 for the three months ended December 31, 2013, as compared to $691,816 for the same fiscal period in 2012, mainly due to the increased amortization of a land use right for a parcel of land purchased in November 30, 2012.   

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Total Other Income (Expenses)

Total other expenses comprised of interest income (expenses), and other income (expenses). Total other expenses were $789,895 for the three months ended December 31, 2013 compared to total other income of $295,567 for the period ended December 31, 2012, an increase of total net other expenses of $1,085,462. The increase in total other expenses were principally due to a decrease of $713,234 of other income in change of fair value of derivative liabilities and an increase of $430,319 for interest expense. The increase of interest expenses was mainly due to increased short term loan and notes payable for the three months ended December 31, 2013 compared to the same period in 2012. The decrease of non-cash income in fair value of warrants is due to the expiration of warrants on January 5, 2013, thus the fair value of derivative instruments became zero thereafter. 

On March 31, 2012, the Company’s Chinese operating subsidiary determined it was unable to convert a sufficient number of RMB needed to repay the notes issued to certain accredited investors on their original maturity date of January 5, 2012. As a result, the Company entered into a series of amendments to the notes with Euro Pacific Capital, Inc. (“Euro Pacific”), as representative of the investors, to extend to the maturity date and increase the interest rate on the notes. Pursuant to the most recent amendment, the maturity date of the notes was extended to April 5, 2013 and the interest rate was increased to 12% per annum. The Company is negotiating with Euro Pacific to extend the maturity date and in connection with such extension, the Company proposed to make a payment in the amount equal to 10% of the outstanding principal plus any accrued interest (at the current rate of 12% per annum). The outstanding balance of the notes amounted to $8,064,500 and $8,464,500 as of December 31, 2013 and June 30, 2013, respectively. There is no written agreement related to the foregoing as of the date of this report and we cannot assure you that such agreement will be entered into. The Company did not make the payment due on April 5, 2013. 

Provision for Income Tax

Our provision for income tax for the three months ended December 31, 2013 and 2012 was $2,105,526 and $1,758,578, respectively, an increase of $346,948, or 19.7%, for the three months ended December 31, 2013 over the same period last year. The increase in provision for income tax was mainly due to the increase of taxable income. The effective income tax rates were 26% and 25% for the three months ended December 31, 2013 and 2012, respectively. 

Net Income

We had a net income of $6,009,031 for the three months ended December 31, 2013, as compared to net income of $5,258,737 for the three months ended December 31, 2012, an increase in net income of $750,294, or 14.3%. This translates into basic earnings per common share of $0.34 and $0.29, and diluted earnings per common share of $0.28 and $0.25, for the three months ended December 31, 2013 and 2012, respectively. The increase in net income was primarily attributable to a decrease in total gross profit of $2,202,693, offset by decrease in operating expenses of $4,204,397 for this year compared to the same period last year.

Net income margin was 15.5% for the three months ended December 31, 2013 as compared to net income margin 12.8% for the same period last year, an increase of 2.7%. The increase was mainly due to the decreased selling and general and administrative expenses, which was larger than the decrease of gross income.

Comparison of the six months ended December 31, 2013 and 2012

Net Revenues

Net revenues are comprised of sales of 11 traditional Chinese medicines (corresponding to 7 drug formulas) in China during the six months ended December 31, 2013. We previously sold 20 medicines (corresponding to 16 drug formulas) following our acquisition of Yantai Tianzheng on August 8, 2012, but have made the strategic choice to narrow our focus to our top 11 products (corresponding to 7 drug formulas). Net revenues for the six months ended December 31, 2013 increased by $13,280,993, or 17.4%, to $89,562,319 as compared to $76,281,326 for the six months ended December 31, 2012. Net revenues were $59,234,636 and $30,327,683 for Bohai and Yantai Tianzheng, respectively, for the six months ended December 31, 2013. Net revenues were $53,529,782 and $22,751,544 for Bohai and Yantai Tianzheng, respectively, for the six months ended December 31, 2012.

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The increase in Bohai’s revenue was primarily due to a net increase in revenues of 21.0% from three leading drug formulas in Bohai: Lung Nourishing Syrup, Tongbi Capsules, and Tongbi Tablets, which together accounted for over 96.0% of our total net revenues for Bohai for the six months ended December 31, 2013. Lung Nourishing Syrup, Tongbi Capsules, and Tongbi Tablets together accounted for 91.5% of our total net revenues for Bohai for the six months ended December 31, 2012. All of our lead products from Bohai are listed for coverage and reimbursement under national medical insurance program starting in December 2009.  

The increase in Tianzheng’s revenue was primarily due to a net increase of 37.5% in revenue derived from two leading drug formulas in Tianzheng: Zhengxintai Capsule and Fangfengtongsheng Granule.

The increase in the Company’s revenue is primarily due to increase in market demand for the company’s key products that are included in the government’s essential drug list. The government encourages hospital and doctors to prescribe essential drugs to the patients.

The sale of our prescription drug products for the six months ended December 31, 2013 represented 82% of total net revenue compared to 80% for the same period in last year.

Cost of Revenues

Cost of revenues is comprised of raw material costs, labor cost, overhead costs associated with the manufacturing processes and related expenses which are directly attributable to our revenues. Our cost of revenues for the six months ended December 31, 2013 was $20,753,749 as compared to $18,178,538 for the six months ended December 31, 2012, representing an increase of $2,575,211, or 14.2%. Cost of revenues were $12,916,046 and $7,837,703 for Bohai and Yantai Tianzheng, respectively, for the six months ended December 31, 2013. Cost of revenues were $11,637,815 and $6,540,723 for Bohai and Yantai Tianzheng, respectively, for the six months ended December 31, 2012. The increase in cost of revenues for the six months ended December 31, 2013, compared to the same period in 2012, was mainly due to an increase in total costs of raw materials, labor, and overhead as a result of an increase in overall sales.   

Gross Profit 

Gross profit represents the difference between net revenues and cost of revenues. We achieved gross profit of $68,808,570 for the six months ended December 31, 2013, as compared to $58,102,788 for the same period in 2012, representing an increase of $10,705,782, or 18.4%, over the same period in 2012. The increase of the gross profit is mainly due to increased revenues.

Our overall gross profit margins as a percentage of net revenues increased by approximately 0.6% from 76.2% to 76.8% in the six months ended December 31, 2013, as compared to the same period in 2012.

  

Operating Expenses

Our operating expenses increased by $5,886,431, or 13.8%, to $48,676,761, for the six months ended December 31, 2013, as compared to $42,790,330 for the same fiscal period in 2012. The overall increase in selling, general, and administrative expenses was mainly due to increased sales commissions in line with an overall increase in sales activities, and increased depreciation and amortization expenses. The percentage of operating expenses to net revenues was 54.3% and 56.1% for the six months ended December 31, 2013 and 2012, respectively, representing a decrease of 1.8% as a percentage of net revenues. Operating expenses increased faster than the increase of revenue this period compared to the same period last year.

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Sales commissions increased by $6,606,466, or 18.3%, to $42,763,720 for the six months ended December 31, 2013, as compared to $36,157,254 for the same fiscal period in 2012. Sales commissions accounted for 47.8% and 55.8% of the total revenue for the six months ended December 31, 2013 and 2012, respectively. The increase in commission is due to increased sales and increased collection of accounts receivable resulting from ramped up sales and collection efforts during the six months ended December 31, 2013 compared to the same period last year.

Depreciation and amortization expenses in operating expenses increased by $84,441, or 6.3%, to $1,432,362 for the six months ended December 31, 2013, as compared to $1,347,921 for the same fiscal period in 2012, mainly due to the increased amortization of a newly purchased land use right for a parcel of land in November 30, 2012.   

 

Total Other Income (Expenses) 

Total other expenses comprised of interest income (expenses), and other income (expenses). Total other expenses were $1,175,508 for the six months ended December 31, 2013 compared to total other income of $281,615 for the period ended December 31, 2012, an increase of total net other expenses of $1,457,123. The increase in total other expenses were principally due to a decrease of $1,211,236 of other income in change of fair value of derivative liabilities and a decrease of $279,572 for interest expense. The increase of interest expenses was mainly due to increased short term loan and notes payable for the six months ended December 31, 2013 and 2012. The decrease of non-cash income in fair value of warrants is due to the expiration of warrants on January 5, 2013, thus the fair value of derivative instruments became zero thereafter.

On March 31, 2012, the Company’s Chinese operating subsidiary determined it was unable to convert a sufficient number of RMB needed to repay the notes issued to certain accredited investors on their original maturity date of January 5, 2012. As a result, the Company entered into a series of amendments to the notes with Euro Pacific, as representative of the investors, to extend to the maturity date and increase the interest rate on the notes. Pursuant to the most recent amendment, the maturity date of the notes was extended April 5, 2013 and the interest rate was increased to 12% per annum. The Company is negotiating with Euro Pacific to extend the maturity date and in connection with such extension, the Company proposed to make a payment in the amount equal to 10% of the outstanding principal plus any accrued interest (at the current rate of 12% per annum). The outstanding balance of the notes amounted to $8,064,500 and $8,464,500 as of December 31, 2013 and June 30, 2013, respectively. There is no written agreement related to the foregoing as of the date of this report and we cannot assure you that such agreement will be entered into. The Company did not make the payment due on April 5, 2013.   

Provision for Income Tax

Our provision for income taxes for the six months ended December 31, 2013 and 2012 were $4,859,539 and $3,939,824, an increase of $919,715, or 23.3%, for the six months ended December 31, 2013 over the same period last year. The increase in provision for income tax was mainly due to the increase of taxable income. The effective income tax rates were 26% and 25% for the six months ended December 31, 2013 and 2012, respectively.

Net Income

We had a net income of $14,096,762 for the six months ended December 31, 2013, as compared to net income of $11,654,249 for the six months ended December 31, 2012, an increase in net income of $2,442,513, or 21.0%. This translates into basic earnings per common share of $0.79 and $0.65, and diluted earnings per common share of $0.66 and $0.55, for the six months ended December 31, 2013 and 2012, respectively. The increase in net income was primarily attributable to an increase in total gross profit of $10,705,782, offset by an increase in operating expenses of $5,886,431 in the six months ended December 31, 2013 compared to the same period in 2012.

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Net income margin was 15.7% for the six months ended December 31, 2013 as compared to net income margin 15.3% for the same period last year, an increase of 0.4%. The increase was mainly due to the increased selling and general and administrative expenses and increased other expense offset by the increase of gross income.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for working capital. As of December 31, 2013, we had cash and cash equivalents of $6,386,084 and restricted cash of $12,718,685, substantially almost all of which is located in financial institutions in China. The following table provides detailed information about our net cash flow for financial statement periods presented in this report: 

Summary of Cash Flow Statements

	For the six months ended
	December 31
	2013		2012
Net cash provided by operating activities	$	6,944,788	$	6,450,665
Net cash used in investing activities		(11,844,592)		(21,277,355)
Net cash provided by (used in) financing activities		4,474,517		(512,773)
Effect of foreign currency translation on cash and cash equivalents		(136,602)		107,759
Net decrease in cash and cash equivalents	$	(561,888)	$	(15,231,704)

Net Cash Provided By Operating Activities

Net cash provided by operating activities totaled $6,944,788 for the six months ended December 31, 2013 as compared to net cash provided by operating activities of $6,450,665 for the six months ended December 31, 2012. The increase in net cash provided by operating activities, for the six months ended December 31, 2013 compared to the same period 2012, was primarily due to increased net income of $2.4 million, increased depreciation and amortization of $0.7 million, decreased net income from change in fair value of derivative liabilities of $1.2 million, a decrease of deferred income tax by $0.3 million, and a decrease of $6.5 million in accounts receivables, offset by a decrease of $4.9 million in accrued expenses, increased purchase of inventories of $2.7 million, a decrease of prepaid expenses by $0.5 million, a decrease of accounts payable of $0.7 million, and decreased impairment of intangible assets of $1.7 million. We expect our cash flow from operating activities to maintain a positive flow in the year ended June 30, 2014 due to our continuous cash flow management.

Net Cash Used In Investing Activities

Net cash used in investing activities was $11,844,592 for the six months ended December 31, 2013 as compared to net cash used in investing activities of $21,277,355 for the six months ended December 31, 2012. The net decrease in cash used in investing activities was mainly due to the cash payment of approximately $7.5 million for our Yantai Tianzheng acquisition in 2012, less cash payment of approximately $0.25 million for property, plant and equipment, and less cash payment of approximately $1.9 million for deposit for property, plant and equipment deposits, offset by more cash payment of approximately $0.17 million for land use rights payments during the six months ended December 31, 2013 compared to the same period in 2012.

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Net Cash Provided by (used in) Financing Activities

Net cash provided by financing activities totaled $4,474,517 for the six months ended December 31, 2013 as compared to net cash used in financing activities of $512,773 for the same period in 2012. The reason for the increase in cash provided by financing activities was mainly due to proceeds from short-term loan and notes payable of $14.7 million for the payment of acquisition payable to fund the Company's operations, less repayment of $1.2 million convertible notes, offset by repayments of short-term loan and notes payable of $9.8 million, and due to decreased net deposit of restricted cash of $1.1 million during the six months ended December 31, 2013 compared to the same period in 2012. The short-term loan and note payable credit facility are all following the execution of third party guaranty arrangements.

Cash Position

As of December 31, 2013, we had cash of $6,386,084 as compared to $6,947,972 as of June 30, 2013, a decrease of $561,888.

We believe that we can meet our liquidity and capital requirements for our ongoing operations from our currently available working capital and maintain our operations at our current levels. 

However, during the current fiscal year and thereafter, we will require cash to meet certain obligations described under “Obligations under Material Contracts” below, in particular the payment of the principal and interest on our convertible notes, which were past due on April 5, 2013 and for which the principal amount of $8,064,500 was not paid as of the date of this report.

We believe we would be able to generate enough cash flow from operating activities to meet these obligations. In case we will not be able to generate enough cash flow from operating activities, we may reduce capital expenditures or raise additional capital to fund these obligations, either through the issuance of debt or equity securities, bank loans or other methods. Readers are cautioned that additional funding, capital or loans may be unavailable to us on favorable terms, if at all. If adequate funds are not available, we would likely have to renegotiate the terms of these obligations, which we may be unable to do on favorable terms. We may thus be required to agree to unfavorable terms that could have a material adverse effect on us, our financial condition and our results of operations in 2013 and beyond. Moreover, to the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership and potentially economic dilution to existing shareholders.

In addition, if we are faced with worldwide financial and credit crises as have occurred in recent years, it may make the future cost of raising funds through the debt or equity markets more expensive or make financial markets unavailable to us at times when we require additional financings.

Finally, it has been very difficult over the past several years for U.S.-listed Chinese companies to raise financing from investors. As a result, our ability to raise needed financing may be compromised.

Critical Accounting Policies and Estimates

As discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, we consider our use of estimates, accounts receivable, revenue recognition, inventories, property plant and equipment, intangible assets and income taxes to be the most critical accounting policies in understanding the judgments that are involved in preparing our condensed consolidated financial statements. There have been no significant changes to these estimates in the six months ended December 31, 2013.

Recent Accounting Pronouncements Adopted

 See Note 3 to the condensed consolidated unaudited financial statements included in Item 1, Financial Information, of this Quarterly Report on Form 10-Q.

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Recent Accounting Pronouncements Not Yet Adopted

See Note 3 to the condensed consolidated unaudited financial statements included in Item 1, Financial Information, of this Quarterly Report on Form 10-Q.

Obligations under Material Contracts

The following table summarizes our contractual obligations as of December 31, 2013, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period
			Less than		1-3		4-5		5
	Total		1 year		Years		years		Years+
Contractual Obligations:
Convertible notes	$	8,064,500	$	8,064,500	$	-	$	-	$	-
Construction In Process		797,813		797,813		-		-		-
Land use right payable		-		-				-		-
Advertising		156,302		156,302		-		-		-
Equipment purchase		1,491,405		1,491,405		-		-		-
Contract Research and Development Arrangement		-		-		-		-		-
Total Contractual Obligations:	$	10,510,020	$	10,510,020	$	-	$	-	$	-

Other than discussed above, there are no other foreseeable material commitments or contingencies as of December 31, 2013.

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 six months ended December 31, 2013. 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 shareholder’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.

Currency Exchange Risk

Our reporting currency is the U.S. dollar and our operations in China use their local currency as their functional currencies. Substantially all of our revenue and expenses are in the Chinese currency, the Renminbi. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example, the value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and international economic and political developments, as well as supply and demand in the local market. Since 1994, the official exchange rate for the conversion of the Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar. In July 2005, the Chinese government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under this policy, which was halted in 2008 due to the worldwide financial crisis, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In June 2010, the Chinese government announced its intention to again allow the Renminbi to fluctuate within the 2005 parameters. It is possible that the Chinese government could adopt an even more flexible currency policy, which could result in more significant fluctuation of Renminbi against the U.S. dollar, or it could adopt a more restrictive policy. We can offer no assurance that the Renminbi will be stable against the U.S. dollar or any other foreign currency. 

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Our consolidated financial statements are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions results in increased revenue, operating expenses and net income for our international operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign consolidated subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign consolidated subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future. The availability and effectiveness of any hedging transaction may be limited and we may not be able to hedge our exchange rate risks. Most of our transactions are settled in Renminbi and U.S. dollars. We are not exposed to significant foreign currency risk.

Credit Risk

Our potential credit risk is mainly attributable to its debtors and bank balances. In respect of debtors, we have 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, we are not considered to be subject to significant credit risk.

Interest Rate Risk

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

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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of December 31, 2013, the quarterly period covered by this report, our management 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, to allow timely decisions regarding required disclosures.

Based on this evaluation, our management has concluded that our disclosure controls and procedures were, due to certain material weaknesses in internal control and significant deficiencies on financial reporting discussed below, not effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.

Material weakness

We identified two material weaknesses in the design and operation of our internal controls. The material weakness is related to (i) the failure to retain sufficient qualified accounting personnel to prepare financial statements in accordance with accounting principles generally accepted in the US (including a qualified Chief Financial Officer); and (ii) the Company’s accounting department personnel have limited knowledge and experience in US GAAP.

To remediate the material weaknesses identified in internal control over financial reporting of the Company, we have commenced to: (i) hire additional personnel with sufficient knowledge and experience in US GAAP; and (ii) provide ongoing training courses in US GAAP to existing personnel, including our Financial Controller in China.

We have engaged the service of an outside financial reporting specialist to assist with the preparation of our consolidated financial statements and quarterly and annual report. We will continue to monitor and assess our remediation initiatives to ensure that the aforementioned material weakness is remediated.

Significant deficiency

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 (within the meaning of PCAOB Auditing Standard No. 5) yet important enough to merit attention by those responsible for oversight of a company’s financial reporting.

The significant deficiencies identified by our management continue to be as described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, which was filed with the SEC on September 27, 2013. As a result, our management and board of directors are continuing to evaluate our internal control over financial reporting and our disclosure controls and procedures in an attempt to address such significant deficiencies.

37

Changes in Internal Control over Financial Reporting

The Company currently lacks an audit committee. Thus, there is no independent supervision from an audit committee to: (1) select and oversee the Company's independent accountant; (2) monitor the procedures for handling complaints regarding the Company's accounting practices; (3) engage advisors; and (4) ensure funding for the independent auditor and any outside advisors engaged by the audit committee.

Subject to the foregoing disclosure, there were no other changes in our internal control over financial reporting during the six months ended December 31, 2013 that materially affected, or are reasonably likely to materially affect, our 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 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

On January 5, 2010, the Company consummated a $12,000,000 financing (the “Offering”) with certain accredited investors (the “Investors”) whereby the Company issued 6,000,000 units at $2.00 per unit, with each unit consisting of a $2.00 principal amount, two year convertible note (collectively, as amended, the “Notes”) and a three year common stock purchase warrant to purchase one share of the Company’s common stock, par value $0.001 per share, at $2.40 per share. The Notes were due to mature on January 5, 2012, but the maturity date was extended (with the agreement of Euro Pacific, the placement agent for the Offering and representative of the Investors) to April 5, 2013 through four amendments to the Notes undertaken during 2012. As of the date of this report, the Company has reduced the outstanding aggregate principal amount under the Notes to $8,064,500.

The Company had previously established an RMB denominated escrow account in China and deposited into such escrow account the remaining outstanding amount of the Notes. As previously disclosed in its Current Report on Form 8-K filed with the SEC on March 26, 2013, the Company and Euro Pacific proposed to have the Company make a payment in the amount equal to 10% of the outstanding principal on the Notes plus any accrued interest (at the current rate of 12% per annum). However, due to significant difficulties encountered by the Company in converting the funds it generates from its business in China (denominated in the Chinese currency, the RMB) into US Dollars, the Company was not able to make the payments in full which were scheduled to be made on April 5, 2013, in the amount of $846,450 plus any accrued interest and October 5, 2013, in the amount of $761,805 plus any accrued interest.

38

To fulfill a portion of its commitment to make the late payments, during the three months ended December 31, 2013, the Company transferred $400,000 to a U.S. escrow account designated by Euro Pacific, and during the three months ended December 31, 2013, the Company paid $400,000 towards the principal. The Company is currently working with Euro Pacific as representative of the Investors on a fifth amendment to the Notes which would further extend the maturity date of the Notes. As of the date of this report, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits 

(a) Exhibits

Exhibit Number	Description of Exhibit
31.1*	Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and principal financial officer).

_________________

* Filed herewith.

39

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Bohai Pharmaceuticals Group, Inc.
February 14, 2014	By:	/s/ Hongwei Qu
		Hongwei Qu Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)

40

EX-31.1

Exhibit 31.1

CERTIFICATION

Pursuant to 18 U.S.C. 1350

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Hongwei Qu, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q of Bohai Pharmaceuticals Group, Inc.;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)         designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)         designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles;

c)         evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)         disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)         all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 14, 2014	By:	/s/ Hongwei Qu
		Name: Hongwei Qu
		Title: Chief Executive Officer
		(Principal Executive Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to 18 U.S.C. 1350

(Section 302 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report on Form 10-Q of Bohai Pharmaceuticals Group, Inc. (the “Company”) for the quarter ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Hongwei Qu, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)         The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 14, 2014	By:	/s/ Hongwei Qu
		Name: Hongwei Qu
		Title: Chief Executive Officer
		(Principal Executive Officer and Principal Financial Officer)

 

XML

NET INCOME PER SHARE (Tables)

6 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following table sets forth the computation of basic and diluted net income per common share:

	Three months		Three months		Six months		Six months
	ended		ended		ended		ended
	December 31,		December 31,		December 31,		December 31,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net income available to common stockholders - basic	$	6,009,031	$	5,258,737	$	14,096,762	$	11,654,249
Interest on convertible notes		241,935		268,043		495,870		550,193
Net income available for common shareholders - diluted	$	6,250,966	$	5,526,780	$	14,592,632	$	12,204,442
Weighted average number of common shares outstanding - basic		17,861,085		17,861,085		17,861,085		17,861,085
Common shares if converted from Convertible Debt		4,084,424		4,232,250		4,158,337		4,232,250
Weighted average number of common shares outstanding - diluted		21,945,509		22,093,335		22,019,422		22,093,335
Earnings per share:
Basic	$	0.34	$	0.29	$	0.79	$	0.65
Diluted	$	0.28	$	0.25	$	0.66	$	0.55

XML

INTANGIBLE ASSETS - LAND USE RIGHTS, NET (Details 1) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Intangible assets - land use rights, net	$ 37,881,530	$ 37,863,464
Use Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Remainder of FY 2014	413,828
2015	827,656
2016	827,656
2017	827,656
2018	827,656
Thereafter	34,157,078
Intangible assets - land use rights, net	$ 37,881,530	$ 37,863,464

XML

INVENTORIES (Details) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Inventory [Line Items]
Raw materials	$ 2,781,656	$ 1,415,071
Work in progress	838,625	840,954
Finished goods	1,422,380	525,709
Total inventories	$ 5,042,661	$ 2,781,734

XML

NET INCOME PER SHARE (Details) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Earnings Per Share Basic And Diluted [Line Items]
Net income available to common stockholders - basic	$ 6,009,031	$ 5,258,737	$ 14,096,762	$ 11,654,249
Interest on convertible notes	241,935	268,043	495,870	550,193
Net income available for common shareholders - diluted	$ 6,250,966	$ 5,526,780	$ 14,592,632	$ 12,204,442
Weighted average number of common shares outstanding - basic (in shares)	17,861,085	17,861,085	17,861,085	17,861,085
Common shares if converted from Convertible Debt (in shares)	4,084,424	4,232,250	4,158,337	4,232,250
Weighted average number of common shares outstanding - diluted (in shares)	21,945,509	22,093,335	22,019,422	22,093,335
Earnings per share:
Basic (in dollars per share)	$ 0.34	$ 0.29	$ 0.79	$ 0.65
Diluted (in dollars per share)	$ 0.28	$ 0.25	$ 0.66	$ 0.55

XML

INTANGIBLE ASSETS - LAND USE RIGHTS, NET (Details Textual)	6 Months Ended			0 Months Ended		1 Months Ended				3 Months Ended		6 Months Ended
	Dec. 31, 2013 USD ($)	Dec. 31, 2013 CNY	Dec. 31, 2012 USD ($)	Nov. 05, 2012 Land Use Rights [Member] USD ($) acre	Nov. 05, 2012 Land Use Rights [Member] CNY	Dec. 31, 2013 Land Use Rights [Member] USD ($)	Dec. 31, 2013 Land Use Rights [Member] CNY	Sep. 30, 2013 Land Use Rights [Member] USD ($)	Sep. 30, 2013 Land Use Rights [Member] CNY	Dec. 31, 2013 Land Use Rights [Member] USD ($)	Dec. 31, 2012 Land Use Rights [Member] USD ($)	Dec. 31, 2013 Land Use Rights [Member] USD ($)	Dec. 31, 2012 Land Use Rights [Member] USD ($)	Dec. 31, 2013 Land Use Rights [Member] Maximum [Member]	Dec. 31, 2013 Land Use Rights [Member] Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets										$ 208,470	$ 226,819	$ 415,384	$ 389,382
Finite-Lived Intangible Asset, Useful Life				50 years	50 years									50 years	30 years
Cost Of Land Held For Use				19,640,000	120,000,000
Land use rights payments	6,512,219		6,340,048					13,020,000	80,000,000
Remaining Installment Payments To Acquire Land	$ 19,640,000	120,000,000		$ 19,640,000	120,000,000	$ 6,510,000	40,000,000
Area of Land				266,668	266,668

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2)	Dec. 31, 2013	Dec. 31, 2012
Significant Accounting Policies [Line Items]
Period end US$: RMB exchange rate	6.1104	6.3086
Average periodic US$: RMB exchange rate	6.1423	6.3091

XML

INDEFINITE LIVED INTANGIBLE ASSETS - PHARMACEUTICAL FORMULAS (Tables)

6 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Indefinite-Lived Intangible Assets [Table Text Block]

Pharmaceutical formulas with indefinite lives consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Pharmaceutical formulas, without amortization, at cost	$	14,271,495	$	14,109,169

XML

STOCK OPTIONS (Details Textual) (USD $)	1 Months Ended	0 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	May 02, 2011	Oct. 13, 2010	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Jun. 30, 2013
Disclosure Of Compensation Related Costs Share-based Payments [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	6,000	26,000			0		32,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 2.00	$ 2.00			$ 0		$ 2.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value	$ 3,184	$ 23,844
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	55.00%	70.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate	0.30%	0.30%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term	5 years	2 years 6 months
Stock or Unit Option Plan Expense			$ 0	$ 0	$ 0	$ 0

XML

OTHER INTANGIBLE ASSETS, NET (Details 1) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Total	$ 26,198,387	$ 28,139,219
Other Intangible Assets [Member]
Finite-Lived Intangible Assets [Line Items]
Remainder of FY 2014	2,244,372
2015	4,488,744
2016	4,488,744
2017	4,488,744
2018	4,488,744
Thereafter	5,999,039
Total	$ 26,198,387

XML

INCOME TAXES (Details Textual)	6 Months Ended
	Dec. 31, 2013
Income Tax Disclosure [Line Items]
Effective Income Tax Rate Reconciliation At Federal Statutory Corporation Income Tax Rate	25.00%

XML

STOCK OPTIONS (Details) (USD $)	6 Months Ended
	Dec. 31, 2013	Jun. 30, 2013	Jun. 30, 2012
Disclosure Of Compensation Related Costs Share-based Payments [Line Items]
Options Outstanding, Number, Exercise Price	$ 2.00	$ 2.00	$ 0
Options Outstanding, Number, Outstanding at December 31,2013	32,000	32,000	0
Options Outstanding, Number, Outstanding Currently Exercisable at December 31, 2013	32,000
Options Outstanding, Number, Weighted Average Remaining Contractual Life (Years)	2 years 1 month 20 days
OptionsOutstanding, Number, Weighted Average Exercise Price of Options currently exercisable	$ 2.00

XML

OPERATING EXPENSES

6 Months Ended

Dec. 31, 2013

Operating Expenses [Abstract]

Operating Expenses [Text Block]

20. OPERATING EXPENSES

For the three and six months ended December 31, 2013 and 2012, operating expenses consisted of the following:

	Three months ended		Three months ended		Six months ended		Six months ended
	December 31, 2013 (unaudited)		December 31, 2012 (unaudited)		December 31, 2013 (unaudited)		December 31, 2012 (unaudited)
Sales Commissions	$	17,727,340	$	20,302,737	$	42,763,720	$	36,157,254
Advertising expense		563,688		1,220		664,968		103,525
Audit fees and other professional expenses		461,783		112,683		489,411		182,276
Depreciation and amortization		718,802		691,816		1,432,362		1,347,921
Staff costs (salary & welfare)		514,909		510,156		1,033,930		1,006,526
Research and development cost		23,705		1,995		62,751		3,990
Other operating expenses		712,485		1,618,016		2,229,619		2,300,352
Impairment of drug formula		-		1,688,486		-		1,688,486
Total Operating expenses	$	20,722,712	$	24,927,109	$	48,676,761	$	42,790,330

XML

PROPERTY, PLANT AND EQUIPMENT, NET (Details Textual)	0 Months Ended		3 Months Ended		6 Months Ended
	Jun. 08, 2010 USD ($)	Jun. 08, 2010 CNY	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2013 CNY
Property, Plant and Equipment [Line Items]
Depreciation			$ 278,830	$ 144,367	$ 555,578	$ 287,490
Construction and Development Costs	3,190,000	19,500,000
Estimated Cost To Be Incurred			$ 800,000		$ 800,000		4,900,000
Construction Completion Percentage			98.00%		98.00%

XML

ORGANIZATION AND PRINCIPAL ACTIVITIES (Details Textual) (USD $)	6 Months Ended
	Dec. 31, 2013	Jun. 30, 2013
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage	100.00%
Common Stock Par Or Stated Value Per Share	$ 0.001	$ 0.001
Chairman and Chief Executive Officer [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Equity Method Investment, Ownership Percentage	96.70%
Two Other Shareholders [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Equity Method Investment, Ownership Percentage	3.30%
Chance High International Limited [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Equity Method Investment, Ownership Percentage	100.00%
Yantai Shencaojishi Pharmaceuticals [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Equity Method Investment, Ownership Percentage	100.00%

XML

OPERATING EXPENSES (Details) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Operating Loss Carryforwards [Line Items]
Sales Commissions	$ 17,727,340	$ 20,302,737	$ 42,763,720	$ 36,157,254
Advertising expense	563,688	1,220	664,968	103,525
Audit fees and other professional expenses	461,783	112,683	489,411	182,276
Depreciation and amortization	718,802	691,816	1,432,362	1,347,921
Staff costs (salary & welfare)	514,909	510,156	1,033,930	1,006,526
Research and development cost	23,705	1,995	62,751	3,990
Other operating expenses	712,485	1,618,016	2,229,619	2,300,352
Impairment of drug formula	0	1,688,486	0	1,688,486
Total Operating expenses	$ 20,722,712	$ 24,927,109	$ 48,676,761	$ 42,790,330

XML

CONVERTIBLE PROMISSORY NOTES IN DEFAULT AND DUE ON DEMAND (Tables)

6 Months Ended

Dec. 31, 2013

Convertible Promissory Notes and Warrants [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

The Company has paid $2,385,500 principle in total. The payment dates and amounts are as follows:

Payment date		Amount
May 14, 2012	$	314,000
June 28, 2012		100,000
July 3, 2012		631,000
November 29, 2012		940,500
October 9, 2013		100,000
October 29, 2013		300,000

XML

INDEFINITE LIVED INTANGIBLE ASSETS - PHARMACEUTICAL FORMULAS (Details Textual)	6 Months Ended
	Dec. 31, 2013
Indefinite-lived Intangible Assets [Line Items]
Indefinite Lived Intangible Asset Intellectual Property Renewal	5 years
Indefinite Lived Intangible Assets Description	This asset includes 12 formulas that are included in the Chinese government’s Essential Drug List (“EDL”) and 25 medicines included in the National Drug Reimbursement List (“NDRL”).

XML

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Details) (Supplier Concentration Risk [Member])	3 Months Ended			6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012		Dec. 31, 2013	Dec. 31, 2012
Shandong Yantai Medicine Procurement and Supply Station [Member]
Loss Contingencies [Line Items]
Concentration Risk, Percentage	25.50%	25.90%		24.80%	26.40%
Shandong Shuntianyi Chinese Herbal Medicine Co., Ltd [Member]
Loss Contingencies [Line Items]
Concentration Risk, Percentage	22.90%		[1]	23.20%		[1]
Shanxi Guang Sheng Capsule Co Ltd [Member]
Loss Contingencies [Line Items]
Concentration Risk, Percentage			[1]	10.40%		[1]

[1] Constitutes less than 10% of the Company’s purchases.

XML

DUE TO RELATED PARTY (Details Textual) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Due To Related Party [Line Items]
Due To Related Parties	$ 43,665	$ 52,830

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Textual)	3 Months Ended		6 Months Ended			12 Months Ended			6 Months Ended				6 Months Ended
	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2013 CNY	Dec. 31, 2012 USD ($)	Jun. 30, 2013 USD ($)	Dec. 31, 2013 Bank Overdrafts [Member] USD ($)	Jun. 30, 2013 Bank Overdrafts [Member] USD ($)	Dec. 31, 2013 Defensive Drug Formulas [Member] USD ($)	Jun. 30, 2013 Defensive Drug Formulas [Member] USD ($)	Jun. 30, 2013 Defensive Drug Formulas [Member] Other Intangible Assets [Member] USD ($)	Jun. 30, 2013 Defensive Drug Formulas [Member] Other Intangible Assets [Member] CNY	Dec. 31, 2012 Office Equipment [Member] Minimum [Member]	Dec. 31, 2012 Office Equipment [Member] Maximum [Member]	Dec. 31, 2013 Machinery and Equipment [Member] Minimum [Member]	Dec. 31, 2013 Machinery and Equipment [Member] Maximum [Member]	Dec. 31, 2013 Vehicles [Member] Minimum [Member]	Dec. 31, 2013 Vehicles [Member] Maximum [Member]	Dec. 31, 2012 Building [Member] Minimum [Member]	Dec. 31, 2012 Building [Member] Maximum [Member]	Dec. 31, 2013 Intersegment Elimination [Member] USD ($)	Jun. 30, 2013 Intersegment Elimination [Member] USD ($)
Significant Accounting Policies [Line Items]
Total current assets	$ 70,474,840		$ 70,474,840			$ 61,519,011															$ 36,999,000	$ 26,417,979
Total current liabilities	41,175,834		41,175,834			44,186,731															9,497,907	4,372,634
Escrow Deposit	12,718,685		12,718,685			12,574,051
Shipping, Handling and Transportation Costs	207,181	261,338	479,384		553,981
Goodwill, Impairment Loss						1,668,486
Property, Plant and Equipment, Useful Life													5 years	10 years	5 years	10 years	5 years	10 years	30 years	40 years
Cost	35,878,563		35,878,563			35,470,476			10,450,277	10,331,414	10,000,000	63,855,371
Finite-Lived Intangible Asset, Useful Life									8 years
Advertising Expense	563,688	1,220	664,968		103,525
Research and Development Expense	23,705	1,995	62,751		3,990
Restricted Cash and Cash Equivalents	7,809,023		7,809,023			7,720,232	4,909,662	4,853,819
Notes Payable, Total	9,819,325		9,819,325			9,707,638
Repayment of contracts			$ 244,154	1,500,000
Indefinite Lived Intangible Asset Intellectual Property Renewal			5 years	5 years

XML

INVENTORIES

6 Months Ended

Dec. 31, 2013

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

4. INVENTORIES

Inventories consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Raw materials	$	2,781,656	$	1,415,071
Work in progress		838,625		840,954
Finished goods		1,422,380		525,709
Total inventories	$	5,042,661	$	2,781,734

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NOTES PAYABLE (Details Textual)	0 Months Ended		6 Months Ended
	Nov. 11, 2013 USD ($)	Nov. 11, 2013 CNY	Dec. 31, 2013 USD ($)	Dec. 31, 2013 CNY	Jun. 30, 2013 USD ($)	Jun. 30, 2013 CNY	Apr. 25, 2014 Subsequent Event [Member] USD ($)	Apr. 25, 2014 Subsequent Event [Member] CNY	Dec. 31, 2013 Guarantees [Member] USD ($)	Dec. 31, 2013 Guarantees [Member] CNY	Jun. 30, 2013 Guarantees [Member] USD ($)	Jun. 30, 2013 Guarantees [Member] CNY
Notes Payable [Line Items]
Restricted Cash and Cash Equivalents			$ 7,809,023		$ 7,720,232		$ 4,909,662	30,000,000	$ 4,909,662	30,000,000	$ 4,853,819	30,000,000
Debt Instrument, Term			6 months	6 months
Debt Instrument, Maturity Date, Description			credit extended by City Bank to Yantai Tianzheng at any time during the period from April 25, 2013 through April 25, 2014.	credit extended by City Bank to Yantai Tianzheng at any time during the period from April 25, 2013 through April 25, 2014.
Bank Charge Fee, Percentage	0.05%	0.05%
Notes Payable, Related Parties, Current	$ 9,819,325	60,000,000	$ 9,819,325	60,000,000	$ 9,707,638	60,000,000
Restricted Cash, Minimum Percentage On Notes Payable			50.00%	50.00%

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LIQUIDITY AND FINANCIAL CONDITION (Details Textual)	0 Months Ended		1 Months Ended		3 Months Ended		6 Months Ended						0 Months Ended		1 Months Ended
	Jun. 08, 2010 USD ($)	Jun. 08, 2010 CNY	Oct. 31, 2013 USD ($)	Sep. 24, 2013 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2013 CNY	Dec. 31, 2012 USD ($)	Jun. 30, 2013 USD ($)	Aug. 15, 2013 Yantai Rural Commercial Bank Ltd [Member] USD ($)	Aug. 15, 2013 Yantai Rural Commercial Bank Ltd [Member] CNY	Nov. 05, 2012 Land Use Rights [Member] USD ($) acre	Nov. 05, 2012 Land Use Rights [Member] CNY acre	Dec. 31, 2013 Land Use Rights [Member] USD ($)	Dec. 31, 2013 Land Use Rights [Member] CNY	Aug. 08, 2011 Yantai Tianzheng [Member] USD ($)
Liquidity and Financial Condition [Line Items]
Net Income (Loss) Attributable To Parent					$ 6,009,031	$ 5,258,737	$ 14,096,762		$ 11,654,249
Net Cash Provided by (Used in) Operating Activities, Continuing Operations, Total							6,944,789		6,450,665
Working Capital					29,299,006		29,299,006
Convertible Notes Payable, Current					8,064,500		8,064,500			8,464,500
Percentage Of Construction Completed							98.00%	98.00%
Construction and Development Costs	3,190,000	19,500,000
Equity Method Investment, Ownership Percentage																	100.00%
Business Acquisition Cash Paid During Period				5,000,000
Remaining Installment Payments To Acquire Land							19,640,000	120,000,000					19,640,000	120,000,000	6,510,000	40,000,000
Estimated Cost To Be Incurred					800,000		800,000	4,900,000
Finite-Lived Intangible Asset, Useful Life													50 years	50 years
Area of Land													266,668	266,668
Amendment Description							The Company is currently working with Euro Pacific as representative of the Investors on a fifth amendment to the Notes which would further extend the maturity date of the Notes. In October 2013, the Company made a payment amounting to $400,000. As of the date of this report, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.	The Company is currently working with Euro Pacific as representative of the Investors on a fifth amendment to the Notes which would further extend the maturity date of the Notes. In October 2013, the Company made a payment amounting to $400,000. As of the date of this report, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.
Business Acquisition Cost Of Acquired Entity Purchase Prices																	35,000,000
Short-term Debt					4,909,662		4,909,662	30,000,000		0	4,909,662	30,000,000
Repayments of Short-term Debt, Total			$ 400,000				$ 9,768,328		$ 0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of BPGI, its wholly-owned subsidiary Chance High, WOFE, WOFE II, Yantai Tianzheng and Bohai. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company, in determining whether it is required to consolidate investee businesses, considers both the voting and variable interest models of consolidation as required under applicable GAAP. The Company adopted FAS Accounting Standards Codification (“ASC”) 810-10-15-14 and also ASC 810-10-05-8, which requires that a VIE be consolidated if that company is entitled to receive a majority of the VIE’s residual returns and has direct ability to make decisions on all operating activities of the VIE. The Company controls Bohai through the VIE Agreements described in Note 1, under the following series of agreements entered into on December 7, 2009.

Under the Operating Agreement entered into between WOFE and Bohai, the WOFE has the direct ability to make decisions on all the operating activities and exercise all voting rights of Bohai. Under the Consulting Services Agreement entered into between WOFE and Bohai, Bohai agreed to pay all of its net income to WOFE quarterly as a consulting fee. Accordingly, WOFE has the right to receive the expected residual returns of Bohai. As such, the Company is the primary beneficiary of and maintains controlling managerial and financial interest in, Bohai in accordance with ASC 810-10-15-14. Accordingly, Bohai’s financial position and results of operations are consolidated with those of the Company for all periods presented.

We initially measured the assets, liabilities, and non-controlling interests of Bohai at their carrying amounts as of the date of the Share Exchange. We have subsequently accounted for the assets, liabilities, and non-controlling interest of Bohai as if it was consolidated based on voting interests. 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, or Primary Beneficiary (“PB”); and

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

The carrying amount and classification of Bohai’s assets and liabilities included in the consolidated balance sheets are as follows:

	December 31,		June 30,
	2013		2013
Total current assets*	$	74,961,160	$	58,857,580
Total assets*		146,772,936		130,683,952
Total current liabilities**		26,075,134		24,065,824
Total liabilities**	$	29,957,188	$	27,729,581

*           Includes intercompany accounts in the amounts of $36,999,000 and $26,417,979 in current assets as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

**         Includes intercompany accounts in the amounts of $9,497,907 and $4,372,634 in current liabilities as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

Business Combinations Policy [Policy Text Block]

Business Combinations

The Company uses the acquisition method of accounting for business combinations which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective fair values. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are charged to expense as incurred. The operating results of acquired business are reflected in the acquirer’s consolidated financial statements and results of operations after the date of the acquisition.

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of December 31, 2013 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended December 31, 2013 are not necessarily indicative of the operating results for the full fiscal year or any future period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 30, 2013, filed on September 27, 2013, and updated, as necessary, in this Quarterly Report on Form 10-Q.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain amounts in the December 31, 2012 condensed consolidated financial statement have been reclassified to conform to the December 31, 2013 presentation.

Segment Reporting, Policy [Policy Text Block]

Business Segments

The Company’s operates its business through a single reporting segment.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those results.

Significant estimates and assumptions include allocating purchase consideration issued in business combinations, valuing equity securities and derivative financial instruments issued in financing transactions and in share-based payment arrangements, accounts receivable reserves, inventory reserves, and evaluating the carrying amounts and useful lives of intangible assets. Certain estimates, including accounts receivable and inventory reserves and the carrying amounts of intangible assets (including present value of future cash flow estimates for the Company’s pharmaceutical formulas) could be affected by external conditions including those unique to the Company’s industry and general economic conditions. It is reasonably possible that these external factors could have an effect on management’s estimates that could cause actual results to differ from management’s estimates.

Company management re-evaluates all of the accounting estimates at least quarterly based on these conditions and records adjustments, when necessary.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. We maintain bank accounts in the PRC and a checking account in the United States of America that principally consist of demand deposits. We also have restricted cash accounts in the United States that include funds designated for interest payments due to convertible note holders and for use in investor relations programs pursuant to a securities purchase agreement.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Escrow account balances amounted to $12,718,685 and $12,574,051 as of December 31, 2013 and June 30, 2013, respectively.

The Company is required by its Note holders to maintain deposits in escrow accounts to fund the principal and interest payments under the Convertible Notes obligation. As of December 31, 2013 and June 30, 2013, there was $7,809,023 and $7,720,232 of cash restricted for this purpose.

The Company has certain outstanding notes payable in the amount of $9,819,325 and $9,707,638 as of December 31, 2013 and June 30, 2013, respectively, and it is required to maintain a portion of these outstanding draft amounts in its bank as restricted cash. As of December 31, 2013 and June 30, 2013, there was $4,909,662 and $4,853,819 cash restricted for this purpose.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable

Accounts receivable consists of amounts due from customers. The Company’s credit terms generally range from 90 to 180 days. The Company’s policy with respect to accounts receivable reserves is to establish an allowance for doubtful accounts based on management’s assessment of known requirements, aging of receivables, payment history, specific customer’s current credit worthiness, and the economic environment. The Company has a significantly low history of credit losses and no historical pattern of making any price or collection concessions with respect to its accounts receivable balances. Accordingly, an allowance for doubtful accounts is not considered necessary based on management’s assessment.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are valued at the lower of cost, determined using the weighted average method, or market. Finished goods inventories include the costs 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/decrease due to management’s projected demand requirements, market conditions and product life cycle changes. As of December 31, 2013 and June 30, 2013, management does not believe that any inventory reserves are necessary.  

Property, Plant and Equipment, Policy [Policy Text Block]

Property, Plant and Equipment

Property, plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets that range from 5 to 10 years for office equipment, machinery, and vehicles and 30 to 40 years for buildings. The cost of repairs and maintenance is charged to expense as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. We examine the possibility of impairment in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Intangible Asset – Pharmaceutical Formulas

The Company has purchased pharmaceutical formulas that were approved by the State Food and Drug Administration of China (“SFDA”). These formulas can be renewed every 5 years without limitation for a minimum fee and are subject to certain protections under PRC drug regulations for an indefinite period of time. These regulations mitigate competition and the ability of other suppliers to replicate the Company’s products or produce comparable substitutes. These intangible assets are measured initially at cost not subject to amortization and are tested for impairment annually or in interim reporting periods if events or changes in circumstances indicate that the carrying amounts of these intangible assets might not be recoverable.

During the year ended June 30, 2013, we determined that we would no longer manufacture or seek to develop a market for ten of our products due to a change in our business strategy as more fully described in Note 2. As a result of this decision, we recorded an impairment charge in the amount of $1,668,486 during the year ended June 30, 2013. In addition to the above, we reclassified certain other formulas with an aggregate carrying amount of approximately $10 million (RMB 63,855,371) to other intangible assets. The Company has suspended plans to develop and manufacture products to be derived from these formulas but intends to retain them to mitigate competition and maintain the option of using these formulas should they be useful in the future. Accordingly, the Company has determined these formulas, which are approved by the State Food and Drug Administration, should be held as defensive assets. The Company determined that these formulas have an estimated useful life of 8 years as defensive assets.

Common Stock Purchase Warrants And Other Derivative Financial Instruments [Policy Text Block]

Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company accounts for the issuance of common stock purchase warrants issued as free standing financial instruments in accordance with the applicable provisions ASC 810 “Derivatives and Hedging Activities.” Based on this guidance, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The common stock purchase warrants have expired as of June 30, 2013.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value Measurements and Fair Value of Financial Instruments

We adopted the guidance of ASC 820 for fair value measurements, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, other receivables, short-term borrowings, accounts payable and accrued expenses, customer advances, and amounts due from related parties approximate their fair market value based on the short-term maturity of these instruments.

ASC 825-10 “ Financial Instruments, ” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. We use Level 3 inputs to value the Company’s derivative liabilities.

The following table reflects gains and losses for the six months ended December 31, 2013 and year ended June 30, 2013 for all financial assets and liabilities categorized as Level 3.

Liabilities:

Balance of warrant liabilities as of June 30, 2012	$	1,211,236
Change in the fair value of warrant liabilities		(1,211,236)
Balance of warrant liabilities as of June 30, 2013		-
Change in the fair value of warrant liabilities		-
Balance of warrant liabilities as of December 31, 2013	$	-

Estimating the fair value of derivative financial instruments require the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. The assumptions used to value the Company’s derivatives, which had a direct effect on the fair values. In addition, valuation techniques are sensitive to changes in the trading market price of the our Common Stock and its estimated volatility interest rate changes and other variables or market conditions not within the Company’s control that can significantly affect management’s estimates of fair value and changes in fair value. Because derivative financial instruments are initially and subsequently carried at fair value, the Company’s net income may include significant charges or credits as these estimates and assumptions change.

The warrants expired on January 5, 2013. At the expiration time, the portion of this warrant not exercised prior thereto shall be and become void and of no value and this warrant shall be terminated and shall no longer be outstanding.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s operating business based in the PRC is the RMB. For the Company’s subsidiaries and affiliates whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the exchange rate in effect as of the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the functional currency financial statements into U.S. dollars are included in comprehensive income.

Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods. All of the Company’s revenue transactions are transacted in the functional currency. The Company has not entered into any material transactions that are either originated, or to be settled, in currencies other than the RMB. Accordingly, transaction gains or losses have not had, and are not expected to have a material effect on the Company’s results of operations.

Period end exchange rates used to translate assets and liabilities and average exchange rates used to translate results of operations in each of the reporting periods are as follows:

	Six months ended December 31, 2013	Six months ended December 31, 2012
Period end US$: RMB exchange rate	6.1104	6.3086
Average periodic US$: RMB exchange rate	6.1423	6.3091

The RMB is not freely convertible into any other currencies. In addition, all foreign exchange transactions in the PRC must be conducted through authorized institutions. Accordingly, management cannot provide any assurance that the RMB underlying the condensed consolidated financial statement amounts could have been, or could be, converted into US dollars at the exchange rates used to translate the functional currency into the reporting currency.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to distributors. Pursuant to the guidance of ASC Topic 605 and ASC Topic 36, 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.

Cost of Sales, Policy [Policy Text Block]

Cost of Revenue

Cost of revenue consists primarily of raw material costs, labor cost, overhead costs associated with the manufacturing process and related expenses which are directly attributable to our revenues.

Share-based Compensation, Option and Incentive Plans, Director Policy [Policy Text Block]

Stock-based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the employee or director’s requisite service period (presumptively, the vesting period). The FASB Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Research and Development Expense, Policy [Policy Text Block]

Research and Development Costs

Research and development costs are charged to expense as incurred and included in operating expenses. We have only one full-time employee who is engaged in research and development, so the Company is mainly dependent on third-parties to perform the limited amount of research and development that the Company undertakes (see Note16). On March 1, 2013, the Company entered into a series of contracts with Binzhou Medical College to establish an institute named Bohai Pharmaceutical Institute in the following 5 years. On May 31, 2013, these two parties entered into two contracts agreeing on performing researches on two pharmaceutical products, namely Lung Nourishing Cream and Tongbi Capsules, in the following 17 months, respectively. These three contracts amount to $244,154 (RMB 1,500,000), which have been fully paid as of December 31, 2013. Research and development costs amounted to $23,704 and $1,995 for the three months ended December 31, 2013 and 2012, respectively. Research and development costs amounted to $62,751 and $3,990 for the six months ended December 31, 2013 and 2012, respectively.

Shipping and Handling Cost, Policy [Policy Text Block]

Shipping costs

Shipping costs are included in selling, general and administrative expense. Shipping costs amounted to $207,181 and $261,338 for the three months ended December 31, 2013 and 2012, respectively. Shipping costs are included in selling, general and administrative expense. Shipping costs amounted to $479,384 and $553,981 for the six months ended December 31, 2013 and 2012, respectively.

Advertising and Promotion [Policy Text Block]

Advertising

Advertising and promotion costs are charged to expense as incurred. Advertising expenses included in selling, general and administrative expenses amounted to $563,688 and $1,220 for the three months ended December 31, 2013 and 2012, respectively. Advertising expenses included in selling, general and administrative expenses amounted to $664,968 and $103,525 for the six months ended December 31, 2013 and 2012, respectively.

Income Tax, Policy [Policy Text Block]

Income Taxes

We are governed by the PRC’s Income Tax Laws and the Internal Revenue Code of the United States. 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 and income tax base of assets and liabilities and operating loss and tax credit carry-forwards. Deferred tax assets are reduced by a valuation allowance to the extent that management concludes it is more likely than not that the benefit of such tax assets will not be realized in future periods. 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 periods that include the enactment date.

We account for certain tax positions based upon authoritative guidance that prescribes a recognition threshold and measurement processes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on recognition, classification, interest and penalties, accounting in interim periods and related disclosure.

Our policy is to classify assessments, if any, for tax related to interest as interest expense and penalties as general and administrative expense.

Earnings Per Share, Policy [Policy Text Block]

Earnings per Share

We report earnings per share in accordance with ASC Topic 260, “Earnings Per Share”. Basic earnings (loss) per share are computed by dividing net income (loss) by the 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 of diluted shares in periods for which they have an anti-dilutive effect. Diluted shares underlying stock options and common stock purchase warrants are included in the determination of diluted earnings per share using the treasury stock method. Diluted shares underlying convertible debt obligations are included in the determination of diluted loss per share using the “if converted” method (Note 17).

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. The ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, this ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The guidance is effective prospectively for reporting periods beginning after December 15, 2012 for public entities. The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial position or results of operations upon adoption.

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SUBSEQUENT EVENTS

6 Months Ended

Dec. 31, 2013

Subsequent Events [Abstract]

Subsequent Events [Text Block]

23.                    SUBSEQUENT EVENTS

On January 17, 2014, the Company merged WOFE with and into WOFE II. In connection with the merger, and in accordance with relevant PRC laws and regulations, WOFE II entered into an assignment agreement with WOFE and Bohai, pursuant to which all rights and obligations of WOFE relating to Bohai, including all of WOFE’s rights and obligations under each of the VIE Agreements, were assigned in full to WOFE II.

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OTHER INTANGIBLE ASSETS, NET (Details)	Dec. 31, 2013 USD ($)	Jun. 30, 2013 USD ($)	Dec. 31, 2013 Customer Relationships [Member] USD ($)	Jun. 30, 2013 Customer Relationships [Member] USD ($)	Dec. 31, 2013 Yantai Tianzheng Drug Formulas [Member] USD ($)	Jun. 30, 2013 Yantai Tianzheng Drug Formulas [Member] USD ($)	Dec. 31, 2013 Defensive Drug Formulas [Member] USD ($)	Jun. 30, 2013 Defensive Drug Formulas [Member] USD ($)	Dec. 31, 2013 Other Intangible Assets [Member] USD ($)	Jun. 30, 2013 Other Intangible Assets [Member] Defensive Drug Formulas [Member] USD ($)	Jun. 30, 2013 Other Intangible Assets [Member] Defensive Drug Formulas [Member] CNY
Finite-Lived Intangible Assets [Line Items]
Cost	$ 35,878,563	$ 35,470,476	$ 14,968,905	$ 14,798,647	$ 10,459,381	$ 10,340,415	$ 10,450,277	$ 10,331,414		$ 10,000,000	63,855,371
Accumulated amortization	(9,680,176)	(7,331,257)	(4,764,009)	(3,767,858)	(3,283,312)	(2,594,829)	(1,632,855)	(968,570)
Other intangible assets, net	$ 26,198,387	$ 28,139,219	$ 10,204,896	$ 11,030,789	$ 7,176,069	$ 7,745,586	$ 8,817,422	$ 9,362,844	$ 26,198,387

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	Dec. 31, 2013		Jun. 30, 2013
Significant Accounting Policies [Line Items]
Total current assets	$ 70,474,840		$ 61,519,011
Total assets	173,025,933		165,624,398
Total current liabilities	41,175,834		44,186,731
Total liabilities	49,274,081		57,234,844
Yantai Bohai [Member]
Significant Accounting Policies [Line Items]
Total current assets	74,961,160	[1]	58,857,580	[1]
Total assets	146,772,936	[1]	130,683,952	[1]
Total current liabilities	26,075,134	[2]	24,065,824	[2]
Total liabilities	$ 29,957,188	[2]	$ 27,729,581	[2]

[1] Includes intercompany accounts in the amounts of $36,999,000 and $26,417,979 in current assets as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

[2] Includes intercompany accounts in the amounts of $9,497,907 and $4,372,634 in current liabilities as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Schedule of Condensed Balance Sheet [Table Text Block]

The carrying amount and classification of Bohai’s assets and liabilities included in the consolidated balance sheets are as follows:

	December 31,		June 30,
	2013		2013
Total current assets*	$	74,961,160	$	58,857,580
Total assets*		146,772,936		130,683,952
Total current liabilities**		26,075,134		24,065,824
Total liabilities**	$	29,957,188	$	27,729,581

*           Includes intercompany accounts in the amounts of $36,999,000 and $26,417,979 in current assets as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

**         Includes intercompany accounts in the amounts of $9,497,907 and $4,372,634 in current liabilities as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

Schedule of Derivative Liabilities at Fair Value [Table Text Block]

The following table reflects gains and losses for the six months ended December 31, 2013 and year ended June 30, 2013 for all financial assets and liabilities categorized as Level 3.

Liabilities:

Balance of warrant liabilities as of June 30, 2012	$	1,211,236
Change in the fair value of warrant liabilities		(1,211,236)
Balance of warrant liabilities as of June 30, 2013		-
Change in the fair value of warrant liabilities		-
Balance of warrant liabilities as of December 31, 2013	$	-

Schedule Of Foreign Exchange Translation Exchange Rate [Table Text Block]

Period end exchange rates used to translate assets and liabilities and average exchange rates used to translate results of operations in each of the reporting periods are as follows:

	Six months ended December 31, 2013	Six months ended December 31, 2012
Period end US$: RMB exchange rate	6.1104	6.3086
Average periodic US$: RMB exchange rate	6.1423	6.3091

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INVENTORIES (Tables)

6 Months Ended

Dec. 31, 2013

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Raw materials	$	2,781,656	$	1,415,071
Work in progress		838,625		840,954
Finished goods		1,422,380		525,709
Total inventories	$	5,042,661	$	2,781,734

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of BPGI, its wholly-owned subsidiary Chance High, WOFE, WOFE II, Yantai Tianzheng and Bohai. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company, in determining whether it is required to consolidate investee businesses, considers both the voting and variable interest models of consolidation as required under applicable GAAP. The Company adopted FAS Accounting Standards Codification (“ASC”) 810-10-15-14 and also ASC 810-10-05-8, which requires that a VIE be consolidated if that company is entitled to receive a majority of the VIE’s residual returns and has direct ability to make decisions on all operating activities of the VIE. The Company controls Bohai through the VIE Agreements described in Note 1, under the following series of agreements entered into on December 7, 2009.

Under the Operating Agreement entered into between WOFE and Bohai, the WOFE has the direct ability to make decisions on all the operating activities and exercise all voting rights of Bohai. Under the Consulting Services Agreement entered into between WOFE and Bohai, Bohai agreed to pay all of its net income to WOFE quarterly as a consulting fee. Accordingly, WOFE has the right to receive the expected residual returns of Bohai. As such, the Company is the primary beneficiary of and maintains controlling managerial and financial interest in, Bohai in accordance with ASC 810-10-15-14. Accordingly, Bohai’s financial position and results of operations are consolidated with those of the Company for all periods presented.

We initially measured the assets, liabilities, and non-controlling interests of Bohai at their carrying amounts as of the date of the Share Exchange. We have subsequently accounted for the assets, liabilities, and non-controlling interest of Bohai as if it was consolidated based on voting interests. 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, or Primary Beneficiary (“PB”); and

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

The carrying amount and classification of Bohai’s assets and liabilities included in the consolidated balance sheets are as follows:

	December 31,		June 30,
	2013		2013
Total current assets*	$	74,961,160	$	58,857,580
Total assets*		146,772,936		130,683,952
Total current liabilities**		26,075,134		24,065,824
Total liabilities**	$	29,957,188	$	27,729,581

*           Includes intercompany accounts in the amounts of $36,999,000 and $26,417,979 in current assets as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

**         Includes intercompany accounts in the amounts of $9,497,907 and $4,372,634 in current liabilities as of December 31, 2013 and June 30, 2013, respectively, which were eliminated in consolidation.

Business Combinations

The Company uses the acquisition method of accounting for business combinations which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective fair values. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are charged to expense as incurred. The operating results of acquired business are reflected in the acquirer’s consolidated financial statements and results of operations after the date of the acquisition.

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of December 31, 2013 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended December 31, 2013 are not necessarily indicative of the operating results for the full fiscal year or any future period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 30, 2013, filed on September 27, 2013, and updated, as necessary, in this Quarterly Report on Form 10-Q.

Reclassifications

Certain amounts in the December 31, 2012 condensed consolidated financial statement have been reclassified to conform to the December 31, 2013 presentation.

Business Segments

The Company’s operates its business through a single reporting segment.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those results.

Significant estimates and assumptions include allocating purchase consideration issued in business combinations, valuing equity securities and derivative financial instruments issued in financing transactions and in share-based payment arrangements, accounts receivable reserves, inventory reserves, and evaluating the carrying amounts and useful lives of intangible assets. Certain estimates, including accounts receivable and inventory reserves and the carrying amounts of intangible assets (including present value of future cash flow estimates for the Company’s pharmaceutical formulas) could be affected by external conditions including those unique to the Company’s industry and general economic conditions. It is reasonably possible that these external factors could have an effect on management’s estimates that could cause actual results to differ from management’s estimates.

Company management re-evaluates all of the accounting estimates at least quarterly based on these conditions and records adjustments, when necessary.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. We maintain bank accounts in the PRC and a checking account in the United States of America that principally consist of demand deposits. We also have restricted cash accounts in the United States that include funds designated for interest payments due to convertible note holders and for use in investor relations programs pursuant to a securities purchase agreement.

Restricted Cash

Escrow account balances amounted to $12,718,685 and $12,574,051 as of December 31, 2013 and June 30, 2013, respectively.

The Company is required by its Note holders to maintain deposits in escrow accounts to fund the principal and interest payments under the Convertible Notes obligation. As of December 31, 2013 and June 30, 2013, there was $7,809,023 and $7,720,232 of cash restricted for this purpose.

The Company has certain outstanding notes payable in the amount of $9,819,325 and $9,707,638 as of December 31, 2013 and June 30, 2013, respectively, and it is required to maintain a portion of these outstanding draft amounts in its bank as restricted cash. As of December 31, 2013 and June 30, 2013, there was $4,909,662 and $4,853,819 cash restricted for this purpose.

Accounts Receivable

Accounts receivable consists of amounts due from customers. The Company’s credit terms generally range from 90 to 180 days. The Company’s policy with respect to accounts receivable reserves is to establish an allowance for doubtful accounts based on management’s assessment of known requirements, aging of receivables, payment history, specific customer’s current credit worthiness, and the economic environment. The Company has a significantly low history of credit losses and no historical pattern of making any price or collection concessions with respect to its accounts receivable balances. Accordingly, an allowance for doubtful accounts is not considered necessary based on management’s assessment.

Inventories

Inventories are valued at the lower of cost, determined using the weighted average method, or market. Finished goods inventories include the costs 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/decrease due to management’s projected demand requirements, market conditions and product life cycle changes. As of December 31, 2013 and June 30, 2013, management does not believe that any inventory reserves are necessary.  

Property, Plant and Equipment

Property, plant and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets that range from 5 to 10 years for office equipment, machinery, and vehicles and 30 to 40 years for buildings. The cost of repairs and maintenance is charged to expense as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. We examine the possibility of impairment in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Intangible Asset – Pharmaceutical Formulas

The Company has purchased pharmaceutical formulas that were approved by the State Food and Drug Administration of China (“SFDA”). These formulas can be renewed every 5 years without limitation for a minimum fee and are subject to certain protections under PRC drug regulations for an indefinite period of time. These regulations mitigate competition and the ability of other suppliers to replicate the Company’s products or produce comparable substitutes. These intangible assets are measured initially at cost not subject to amortization and are tested for impairment annually or in interim reporting periods if events or changes in circumstances indicate that the carrying amounts of these intangible assets might not be recoverable.

During the year ended June 30, 2013, we determined that we would no longer manufacture or seek to develop a market for ten of our products due to a change in our business strategy as more fully described in Note 2. As a result of this decision, we recorded an impairment charge in the amount of $1,668,486 during the year ended June 30, 2013. In addition to the above, we reclassified certain other formulas with an aggregate carrying amount of approximately $10 million (RMB 63,855,371) to other intangible assets. The Company has suspended plans to develop and manufacture products to be derived from these formulas but intends to retain them to mitigate competition and maintain the option of using these formulas should they be useful in the future. Accordingly, the Company has determined these formulas, which are approved by the State Food and Drug Administration, should be held as defensive assets. The Company determined that these formulas have an estimated useful life of 8 years as defensive assets.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company accounts for the issuance of common stock purchase warrants issued as free standing financial instruments in accordance with the applicable provisions ASC 810 “Derivatives and Hedging Activities.” Based on this guidance, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The common stock purchase warrants have expired as of June 30, 2013.

Fair Value Measurements and Fair Value of Financial Instruments

We adopted the guidance of ASC 820 for fair value measurements, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, other receivables, short-term borrowings, accounts payable and accrued expenses, customer advances, and amounts due from related parties approximate their fair market value based on the short-term maturity of these instruments.

ASC 825-10 “ Financial Instruments, ” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. We use Level 3 inputs to value the Company’s derivative liabilities.

The following table reflects gains and losses for the six months ended December 31, 2013 and year ended June 30, 2013 for all financial assets and liabilities categorized as Level 3.

Liabilities:

Balance of warrant liabilities as of June 30, 2012	$	1,211,236
Change in the fair value of warrant liabilities		(1,211,236)
Balance of warrant liabilities as of June 30, 2013		-
Change in the fair value of warrant liabilities		-
Balance of warrant liabilities as of December 31, 2013	$	-

Estimating the fair value of derivative financial instruments require the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. The assumptions used to value the Company’s derivatives, which had a direct effect on the fair values. In addition, valuation techniques are sensitive to changes in the trading market price of the our Common Stock and its estimated volatility interest rate changes and other variables or market conditions not within the Company’s control that can significantly affect management’s estimates of fair value and changes in fair value. Because derivative financial instruments are initially and subsequently carried at fair value, the Company’s net income may include significant charges or credits as these estimates and assumptions change.

The warrants expired on January 5, 2013. At the expiration time, the portion of this warrant not exercised prior thereto shall be and become void and of no value and this warrant shall be terminated and shall no longer be outstanding.

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s operating business based in the PRC is the RMB. For the Company’s subsidiaries and affiliates whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the exchange rate in effect as of the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the functional currency financial statements into U.S. dollars are included in comprehensive income.

Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods. All of the Company’s revenue transactions are transacted in the functional currency. The Company has not entered into any material transactions that are either originated, or to be settled, in currencies other than the RMB. Accordingly, transaction gains or losses have not had, and are not expected to have a material effect on the Company’s results of operations.

Period end exchange rates used to translate assets and liabilities and average exchange rates used to translate results of operations in each of the reporting periods are as follows:

	Six months ended December 31, 2013	Six months ended December 31, 2012
Period end US$: RMB exchange rate	6.1104	6.3086
Average periodic US$: RMB exchange rate	6.1423	6.3091

The RMB is not freely convertible into any other currencies. In addition, all foreign exchange transactions in the PRC must be conducted through authorized institutions. Accordingly, management cannot provide any assurance that the RMB underlying the condensed consolidated financial statement amounts could have been, or could be, converted into US dollars at the exchange rates used to translate the functional currency into the reporting currency.

Revenue Recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to distributors. Pursuant to the guidance of ASC Topic 605 and ASC Topic 36, 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.

Cost of Revenue

Cost of revenue consists primarily of raw material costs, labor cost, overhead costs associated with the manufacturing process and related expenses which are directly attributable to our revenues.

Stock-based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the employee or director’s requisite service period (presumptively, the vesting period). The FASB Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Research and Development Costs

Research and development costs are charged to expense as incurred and included in operating expenses. We have only one full-time employee who is engaged in research and development, so the Company is mainly dependent on third-parties to perform the limited amount of research and development that the Company undertakes (see Note16). On March 1, 2013, the Company entered into a series of contracts with Binzhou Medical College to establish an institute named Bohai Pharmaceutical Institute in the following 5 years. On May 31, 2013, these two parties entered into two contracts agreeing on performing researches on two pharmaceutical products, namely Lung Nourishing Cream and Tongbi Capsules, in the following 17 months, respectively. These three contracts amount to $244,154 (RMB 1,500,000), which have been fully paid as of December 31, 2013. Research and development costs amounted to $23,704 and $1,995 for the three months ended December 31, 2013 and 2012, respectively. Research and development costs amounted to $62,751 and $3,990 for the six months ended December 31, 2013 and 2012, respectively.

Shipping costs

Shipping costs are included in selling, general and administrative expense. Shipping costs amounted to $207,181 and $261,338 for the three months ended December 31, 2013 and 2012, respectively. Shipping costs are included in selling, general and administrative expense. Shipping costs amounted to $479,384 and $553,981 for the six months ended December 31, 2013 and 2012, respectively.

Advertising

Advertising and promotion costs are charged to expense as incurred. Advertising expenses included in selling, general and administrative expenses amounted to $563,688 and $1,220 for the three months ended December 31, 2013 and 2012, respectively. Advertising expenses included in selling, general and administrative expenses amounted to $664,968 and $103,525 for the six months ended December 31, 2013 and 2012, respectively.

Income Taxes

We are governed by the PRC’s Income Tax Laws and the Internal Revenue Code of the United States. 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 and income tax base of assets and liabilities and operating loss and tax credit carry-forwards. Deferred tax assets are reduced by a valuation allowance to the extent that management concludes it is more likely than not that the benefit of such tax assets will not be realized in future periods. 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 periods that include the enactment date.

We account for certain tax positions based upon authoritative guidance that prescribes a recognition threshold and measurement processes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on recognition, classification, interest and penalties, accounting in interim periods and related disclosure.

Our policy is to classify assessments, if any, for tax related to interest as interest expense and penalties as general and administrative expense.

Earnings per Share

We report earnings per share in accordance with ASC Topic 260, “Earnings Per Share”. Basic earnings (loss) per share are computed by dividing net income (loss) by the 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 of diluted shares in periods for which they have an anti-dilutive effect. Diluted shares underlying stock options and common stock purchase warrants are included in the determination of diluted earnings per share using the treasury stock method. Diluted shares underlying convertible debt obligations are included in the determination of diluted loss per share using the “if converted” method (Note 17).

Recent Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. The ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, this ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The guidance is effective prospectively for reporting periods beginning after December 15, 2012 for public entities. The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial position or results of operations upon adoption.

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PROPERTY, PLANT AND EQUIPMENT, NET (Tables)

6 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Property, plant and equipment consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Buildings	$	9,226,484	$	9,121,541
Plant equipment		8,835,641		8,548,658
Office equipment		284,127		250,339
Motor vehicles		281,075		291,784
Total		18,627,327		18,212,322
Less: accumulated depreciation		(3,405,853)		(2,827,442)
Construction in progress		2,439,429		2,293,573
Property, plant and equipment, net	$	17,660,903	$	17,678,453

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STOCK OPTIONS (Tables)

6 Months Ended

Dec. 31, 2013

Disclosure Of Compensation Related Costs Share-based Payments [Line Items]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

A summary of our stock option activity as of December 31, 2013, and changes during the six months ended December 31, 2013 and year ended June 30, 2013 is presented in the following table:

			Exercise Price
	Option	Vested	per Common
	Shares	Shares	Stock Range
Balance, June 30, 2012	-	-	$	-
Granted or vested during the year ended June 30, 2013	32,000	32,000		2.00
Exercised during the year ended June 30, 2013	-	-		-
Expired during the year ended June 30, 2013	-	-		-
Balance, June 30, 2013	32,000	32,000		2.00
Granted or vested during the six months ended December 31, 2013	-	-		-
Exercised during the six months ended December 31, 2013	-	-		-
Expired during the six months ended December 31, 2013	-	-		-
Balance, December 31, 2013	32,000	32,000	$	2.00

Stock Option [Member]

Disclosure Of Compensation Related Costs Share-based Payments [Line Items]

Schedule of Share-based Compensation, Activity [Table Text Block]

The following table summarizes the weighted average remaining contractual life and exercise price of our outstanding options as of December 31, 2013:

	Options Outstanding
	Number
			Outstanding
		Number	Currently	Weighted	Weighted Average
		Outstanding	Exercisable	Average	Exercise Price of
		at	at	Remaining	Options
Exercise		December 31,	December 31,	Contractual Life	currently
Price		2013	2013	(Years)	exercisable
$	2.00	32,000	32,000	2.14	$	2.00

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INTANGIBLE ASSETS - LAND USE RIGHTS, NET (Details) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Less: Accumulated amortization	$ (9,680,176)	$ (7,331,257)
Intangible assets - land use rights, net	37,881,530	37,863,464
Use Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Land use rights, at cost	40,554,688	40,093,414
Less: Accumulated amortization	(2,673,158)	(2,229,950)
Intangible assets - land use rights, net	$ 37,881,530	$ 37,863,464

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STOCK OPTIONS (Details 1) (USD $)	1 Months Ended	0 Months Ended	6 Months Ended	12 Months Ended
	May 02, 2011	Oct. 13, 2010	Dec. 31, 2013	Jun. 30, 2013
Disclosure Of Compensation Related Costs Share-based Payments [Line Items]
Option Shares Balance			32,000	0
Option Shares, Granted or vested	6,000	26,000	0	32,000
Option Shares, Exercised			0	0
Option Shares, Expired			0	0
Option Shares, Balance			32,000	32,000
Vested Shares, Balance			32,000	0
Vested Shares, Granted or vested			0	32,000
Vested Shares, Exercised			0	0
Vested Shares, Expired			0	0
Vested Shares, Balance			32,000	32,000
Exercise Price per Common Stock Range, Balance			$ 2.00	$ 0
Exercise Price per Common Stock Range, Granted or vested	$ 2.00	$ 2.00	$ 0	$ 2.00
Exercise Price per Common Stock Range, Exercised			$ 0	$ 0
Exercise Price per Common Stock Range, Expired			$ 0	$ 0
Exercise Price per Common Stock Range, Balance			$ 2.00	$ 2.00

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CONDENSED CONSOLIDATED BALANCE SHEETS(USD ($))	Dec. 31, 2013	Jun. 30, 2013
Current assets:
Cash	$ 6,386,084	$ 6,947,972
Restricted cash	12,718,685	12,574,051
Accounts receivable	45,889,957	38,716,023
Inventories	5,042,661	2,781,734
Prepaid expenses and other current assets	437,453	499,231
Total current assets	70,474,840	61,519,011
Non-current assets:
Property, plant and equipment, net	17,660,903	17,678,453
Prepayment for property, plant and equipment	1,276,717	1,112,873
Intangible assets - pharmaceutical formulas	14,271,495	14,109,169
Intangible assets - land use right, net	37,881,530	37,863,464
Other intangible assets, net	26,198,387	28,139,219
Goodwill	5,262,061	5,202,209
Total non-current assets	102,551,093	104,105,387
TOTAL ASSETS	173,025,933	165,624,398
Current liabilities:
Notes payable	9,819,325	9,707,638
Short-term loan	4,909,662	0
Convertible notes, net	8,064,500	8,464,500
Accounts payable	4,684,494	5,081,913
Accrued expenses	11,037,264	12,185,615
Land use right payable	0	6,471,759
Income taxes payable	2,616,924	2,222,476
Due to a related party	43,665	52,830
Total current liabilities	41,175,834	44,186,731
Non-current liabilities:
Acquisition purchase price payable - non-current portion	0	5,000,000
Deferred tax liability	8,098,247	8,048,113
Total non-current liabilities	8,098,247	13,048,113
TOTAL LIABILITIES	49,274,081	57,234,844
COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 150,000,000 shares authorized, 17,861,085 shares issued and outstanding as of December 31, 2013 and June 30, 2013, respectively	17,861	17,861
Additional paid-in capital	24,615,353	24,615,353
Accumulated other comprehensive income	10,265,117	8,999,581
Retained earnings	88,853,521	74,756,759
Total stockholders’ equity	123,751,852	108,389,554
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 173,025,933	$ 165,624,398

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Jun. 30, 2013
Liabilities:
Balance of warrant liabilities, Beginning			$ 0	$ 1,211,236	$ 1,211,236
Change in the fair value of warrant liabilities	0	713,234	0	1,211,236	(1,211,236)
Balance of warrant liabilities, Ending	$ 0		$ 0		$ 0

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ORGANIZATION AND PRINCIPAL ACTIVITIES

6 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Nature of Operations [Text Block]

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

The Company’s Operations

Bohai Pharmaceuticals Group, Inc. (“BPGI”) was incorporated under the laws of the State of Nevada on January 9, 2008 under the name of Link Resources, Inc. Prior to January 5, 2010; BPGI was a public “shell” company. BPGI became a public operating company on January 5, 2010 pursuant to a Share Exchange Transaction completed on January 5, 2010.

BPGI is engaged in the production, manufacturing and distribution of herbal pharmaceuticals based on traditional Chinese medicine (“TCM”) in the People’s Republic of China (“China” or the “PRC”) through the following two operating subsidiaries:

(i) Yantai Bohai Pharmaceuticals Group Co., Ltd., (“Bohai”) a PRC company and the Company’s original operating subsidiary. BPGI controls Bohai through a variable interest entity arrangement (“VIE”) described below; and

(ii) Yantai Tianzheng Pharmaceuticals Company, Ltd., a PRC company (“Yantai Tianzheng”), which BPGI acquired effective July 1, 2011 through a newly formed PRC wholly-foreign owned enterprise subsidiary, Yantai Nirui Pharmaceuticals, Ltd. (“WOFE II”).

BPGI owns 100% of Chance High International Limited, a British Virgin Islands company (“Chance High”). Chance High owns 100% of the issued and outstanding shares of capital stock of a Chinese wholly-foreign owned enterprise known as Yantai Shencaojishi Pharmaceuticals Co., Ltd. (the “WOFE”). On December 7, 2009 (prior to the date of the Share Exchange Transaction), the WOFE entered into a series of variable interest entity contractual agreements (the “VIE Agreements”) with Bohai and its three shareholders, including Mr. Hongwei Qu, the Company’s current Chairman and Chief Executive Officer (“Mr. Qu”). Mr. Qu currently owns 96.7 % of the outstanding equity interests of Bohai and two other shareholders who collectively own the remaining 3.3 % of Bohai.

The VIE Agreements include (i) a Consulting Services Agreement, (ii) an Operating Agreement, and (iii) a Proxy Agreement, through which the WOFE has the right to advise, consult, manage and operate Bohai for an annual fee equal to all of Bohai’s yearly net profits after tax. Pursuant to these agreements, the WOFE indirectly owns but has 100 % managerial and economic control of the business activities of Bohai including the right to appoint all executives and senior management and members of the board of directors of Bohai. Additionally, Bohai’s shareholders pledged their rights, titles and equity interest in Bohai as security for the WOFE to collect consulting and services fees provided to Bohai pursuant to an equity pledge agreement. In order to further reinforce the WOFE’s rights to control and operate Bohai, Bohai’s shareholders granted the WOFE an exclusive right and option to acquire all of their equity interests in Bohai through an option agreement. The VIE Agreements have perpetual terms unless otherwise determined by PRC law, and can (particularly in the case of the Consulting Services Agreement (which is the principal VIE Agreement) be terminated by the parties under certain circumstances, including material breach, the termination of Bohai’s business or a liquidation of Bohai. The WOFE (which is controlled indirectly by BPGI through Chance High) can also terminate the Consulting Services Agreement at will.

BPGI, its wholly owned subsidiary Chance High, WOFE, WOFE II, Bohai and Yantai Tianzheng are referred to herein collectively and as a consolidated basis as the “Company” or “we”, “us” or “our” or similar terminology. Mr. Qu currently serves the Company’s Chairman, Chief Executive Officer and President. As used herein, the term “Common Stock” means the common stock of BPGI, $0.001 par value per share.

BPGI is headquartered and maintains its principal operations in the city of Yantai, Shandong Province, China, and conducts business operations exclusively in the PRC.

On January 17, 2014, the Company merged WOFE with and into WOFE II.  In connection with the merger, and in accordance with relevant PRC laws and regulations, all of WOFE’s rights relating to Bohai transferred to WOFE II (See Note 23).

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GOODWILL (Details Textual)	Dec. 31, 2013 USD ($)	Dec. 31, 2013 CNY	Jun. 30, 2013 USD ($)	Jun. 30, 2013 CNY	Aug. 08, 2011 Yantai Tianzheng [Member] USD ($)
Goodwill [Line Items]
Business Acquisition, Percentage of Voting Interests Acquired					100.00%
Goodwill	$ 5,262,061	32,153,295	$ 5,202,209	32,153,295
Business Acquisition Cost Of Acquired Entity Purchase Prices					$ 35,000,000

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OTHER INTANGIBLE ASSETS, NET (Tables)

6 Months Ended

Dec. 31, 2013

Other Intangible Assets [Abstract]

Schedule Of Other Intangible Assets [Table Text Block]

Other intangible assets at December 31, 2013 (unaudited) consist of the following:

	Customer Relationships		Yantai Tianzheng Drug Formulas		Defensive Drug formulas		Total
Cost	$	14,968,905	$	10,459,381	$	10,450,277	$	35,878,563
Accumulated Amortization		(4,764,009)		(3,283,312)		(1,632,855)		(9,680,176)
Net carrying amount	$	10,204,896	$	7,176,069	$	8,817,422	$	26,198,387

Other intangible assets at June 30, 2013 consist of the following:

	Customer Relationships		Yantai Tianzheng Drug Formulas		Defensive Drug formulas		Total
Cost	$	14,798,647	$	10,340,415	$	10,331,414	$	35,470,476
Accumulated Amortization		(3,767,858)		(2,594,829)		(968,570)		(7,331,257)
Net carrying amount	$	11,030,789	$	7,745,586	$	9,362,844	$	28,139,219

Schedule of Finite-Lived Intangible Assets Future Amortization Expense, Net [Table Text Block]

Amortization expense for fiscal years ending subsequent to December 31, 2013 is as follows:

	Amortization
Remainder of FY 2014	$	2,244,372
2015		4,488,744
2016		4,488,744
2017		4,488,744
2018		4,488,744
Thereafter		5,999,039
Total	$	26,198,387

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CONVERTIBLE PROMISSORY NOTES IN DEFAULT AND DUE ON DEMAND (Details Textual) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended		6 Months Ended	0 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Jun. 30, 2013	Dec. 31, 2011	Dec. 31, 2013 Eight Percent Senior Convertible Promissory Note [Member]	Jan. 05, 2010 Securities Purchase Agreement [Member]
Convertible Promissory Notes [Line Items]
Sale of Stock, Number of Shares Issued in Transaction								6,000,000
Proceeds from Issuance or Sale of Equity								$ 12,000,000
Debt Instrument, Interest Rate, Effective Percentage	9.00%		9.00%				8.00%	8.00%
Debt Instrument, Maturity Date			Aug. 14, 2014				Jan. 05, 2012
Common Stock Convertible Conversion Price							$ 2.00	$ 2
Description On Event Of Default			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 our Common Stock that have been placed in escrow by our principal shareholder. The shares in escrow will be returned to our principal shareholder when 50% of the aggregate face amount of the Notes has been converted or, if later, when the Notes are repaid.
Class of Warrant or Right, Exercise Price of Warrants or Rights								2.40
Contractual Interest Expense on Prepetition Liabilities Not Recognized in Statement of Operations	241,935	268,043	495,870	550,193
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate						12.00%
Debt Instrument, Debt Default, Description of Violation or Event of Default			the Company’s principal shareholder, Mr. Qu, is obligated to deliver 1,000,000 shares of Common Stock to the Investors if a default occurs.		the Company’s principal shareholder, Mr. Qu, is obligated to deliver 1,000,000 shares of Common Stock to the Investors if a default occurs.
Debt Instrument, Payment Terms			The Company is negotiating with Euro Pacific to extend the maturity date to April 5, 2014. In October 2013, the Company paid $400,000 towards the principal.
Accretion Of Note Discount	0	0	0	0
Convertible Notes Payable, Current	$ 8,064,500		$ 8,064,500		$ 8,464,500

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NET INCOME PER SHARE

6 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

17. NET INCOME PER SHARE

Basic earnings per share are computed on the basis of the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of Common Stock plus the effect of potentially dilutive common shares outstanding during the period using the if-converted method for the convertible debt and equity securities and the treasury stock method for stock options and common stock purchase warrants. The following table sets forth the computation of basic and diluted net income per common share:

	Three months		Three months		Six months		Six months
	ended		ended		ended		ended
	December 31,		December 31,		December 31,		December 31,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net income available to common stockholders - basic	$	6,009,031	$	5,258,737	$	14,096,762	$	11,654,249
Interest on convertible notes		241,935		268,043		495,870		550,193
Net income available for common shareholders - diluted	$	6,250,966	$	5,526,780	$	14,592,632	$	12,204,442
Weighted average number of common shares outstanding - basic		17,861,085		17,861,085		17,861,085		17,861,085
Common shares if converted from Convertible Debt		4,084,424		4,232,250		4,158,337		4,232,250
Weighted average number of common shares outstanding - diluted		21,945,509		22,093,335		22,019,422		22,093,335
Earnings per share:
Basic	$	0.34	$	0.29	$	0.79	$	0.65
Diluted	$	0.28	$	0.25	$	0.66	$	0.55

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ACCRUED EXPENSES (Tables)

6 Months Ended

Dec. 31, 2013

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

Accrued expense consists of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Sales representatives commission and expenses	$	3,806,791	$	4,731,442
Other payable for PPE		1,710,022		2,279,869
Other accrued expense		1,560,741		1,596,636
Other taxes payable		2,011,061		2,185,328
Accrued Interest expenses		1,694,654		1,117,527
Compensation and related cost		253,995		274,813
Total	$	11,037,264	$	12,185,615

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STOCKHOLDERS' EQUITY

6 Months Ended

Dec. 31, 2013

Stockholders Equity Note [Abstract]

Stockholders Equity Note Disclosure [Text Block]

19. STOCKHOLDERS ’ EQUITY

Authorized Capital

The Company is authorized to issue 150 million shares of Common Stock, par value $0.001 per share. Holders of its Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders.

Retained earnings

According to the laws and regulations in the PRC, we are 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.

In the PRC, we are required to allocate at least 10% of our 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 Company allocated $1,569,452 to the reserve fund during the six months ended December 31, 2013 which recorded in retained earnings.

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

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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Details 1) (USD $)	6 Months Ended	12 Months Ended
	Dec. 31, 2013	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012
Loss Contingencies [Line Items]
Cash and cash equivalents at end of year	$ 6,386,084	$ 6,947,972	$ 3,154,584	$ 18,386,288
Percentage Of Cash and Cash Equivalents By Geographical Segment	100.00%	100.00%
United States [Member]
Loss Contingencies [Line Items]
Cash and cash equivalents at end of year	14,364	28,331
Percentage Of Cash and Cash Equivalents By Geographical Segment	0.22%	0.41%
China [Member]
Loss Contingencies [Line Items]
Cash and cash equivalents at end of year	$ 6,371,720	$ 6,919,641
Percentage Of Cash and Cash Equivalents By Geographical Segment	99.78%	99.59%

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LIQUIDITY AND FINANCIAL CONDITION

6 Months Ended

Dec. 31, 2013

Liquidity and Financial Conditions [Abstract]

Liquidity and Financial Condition [Text Block]

2. LIQUIDITY AND FINANCIAL CONDITION

The Company’s net income amounted to $6,009,031 and $14,096,762 for the three and six-month periods ended December 31, 2013. The Company’s cash flows from operations amounted to $6,944,788 for the six months ended December 31, 2013. The Company had working capital of $29,299,006 as of December 31, 2013. The Company has historically financed its operations principally from cash flows generated from operating activities and external financing through short-term bank loans and notes payable.

On August 8, 2011, the Company, through WOFE II, signed a share transfer agreement with the shareholders of Yantai Tianzheng to acquire 100 % of Yantai Tianzheng for total purchase consideration of US$35,000,000 (of which $5,000,000 was paid on September 24, 2013 and the balance was fully paid as of December 31, 2013).

The Company is gaining the benefits of the economies of scale that is realized by having combined and streamlined the cost structures of the historical Bohai and the acquired Yantai Tianzheng businesses. The Company has committed to a plan of streamlining the combined business around a more focused portfolio of products that include non-prescription drug products acquired as part of the Yantai Tianzheng’s product portfolio.

On June 8, 2010, Yantai Tianzheng signed an agreement with Yantai Huanghai Construction Co. to construct certain portions of a factory. The total contract price amounted to approximately $3.19 million (RMB 19.5 million). Management estimates that construction is 98% completed as of December 31, 2013. The remaining commitment of the contract amounted to approximately $0.8 million (RMB 4.9 million) as of December 31, 2013.

On November 5, 2012, the Company acquired a new land use right of 266,668 square meters located in the high-tech development district of Laishan, Yantai, Shandong Province. The Company was granted the right to use the land for a period of 50 years at a total cost of approximately $19.64 million (RMB 120,000,000). As of December 31, 2013, the Company paid $19.64 million (RMB 120,000,000). (See Note 7).

The Company is also required to repay the remaining $8,064,500 convertible notes balance, which pursuant to four amendments to the original notes, is currently due on an extended maturity date of April 5, 2013. The Company is currently working with Euro Pacific as representative of the Investors on a fifth amendment to the Notes which would further extend the maturity date of the Notes. In October 2013, the Company made a payment amounting to $400,000. As of the date of this report, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.  

As described elsewhere herein, the Company has at times, been in temporary default of its obligation to repay the convertible notes at previously extended maturity dates. The Company is currently in default under the terms of the latest extended note agreement. The Company cannot predict what the implications of the non-payment of the notes would be other than it would continue to experience difficulty converting sufficient currency and will maintain an escrow account of restricted funds intended to secure the Note’s repayment. The non-payment of the notes could have a material adverse effect on the Company should the note holders pursue further action.

Management believes, based on the Company’s historical ability to fund operations using internally generated cash flow and the progress made towards integrating the business of Yantai Tianzheng, and subsequent commitment to focus on a more streamlined higher margin product portfolio, that the Company’s currently available cash and funds it expects to generate from operations and through potential short term loans financing from banks will enable it to operate the business and satisfy short term obligations through at least December 31, 2014. Notwithstanding, the Company still has substantial obligations as described herein and there is no assurance that unforeseen circumstances would not have a material adverse effect on the Company’s financial condition.

The Company will require significant additional capital in order to fund these obligations and execute its longer term business plan. If the Company is unable to generate sufficient operating cash flows or raise additional capital, or encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity. Such measures could include, but not necessarily be limited to, curtailing the Company’s business development activities (as was done recently when the Company determined to streamline its operations to focus on the continued distribution of a smaller number of key products), suspending the pursuit of one or more elements of its business plan, and controlling overhead expenses. There is a material risk, and management cannot provide any assurances, that the Company will be able to raise additional capital if needed. On August 15, 2013, the Company obtained a short term loan from Yantai Rural Commercial Bank Ltd. (“RCB”) due on August 14, 2014. in the amount of $4,909,662 (RMB 30,000,000), which was guaranteed by a third party, Shandong Guangyuan Group Ltd. (“Guangyuan”) and the principal shareholder of the Company, Hongwei Qu. Guangyuan is an unrelated third party and has no business relationship with the Company (See Note 13). Except for the loan from RCB, the Company has not received any commitments for new financing, and cannot provide any assurance that new financing will be available to the Company on acceptable terms, if at all. The failure of the Company to fund its obligations when needed would have a material adverse effect on its business and results of operations.

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CONDENSED CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)	Dec. 31, 2013	Jun. 30, 2013
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	17,861,085	17,861,085
Common stock, shares outstanding	17,861,085	17,861,085

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NOTES PAYABLE

6 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Mortgage Notes Payable Disclosure [Text Block]

12. NOTES PAYABLE

The Company borrowed from Weihai City Commercial Bank (“City Bank”) under the facility was obtained by Yantai Tianzheng. The latest outstanding amount of $9,819,325 (RMB 60,000,000) was borrowed on November 11, 2013 and has a term of a period of six months and has a bank charge fee of 0.05%. As of December 31, 2013 and June 30, 2013, the outstanding aggregate amount was $9,819,325 (RMB 60,000,000) and $9,707,638 (RMB 60,000,000), respectively. The Company was required to maintain 50% of the notes amounts, or $4,909,662 (RMB 30,000,000) and $4,853,819 (RMB 30,000,000) as guaranteed funds, which was classified as restricted cash as of December 31, 2013 and June 30, 2013, respectively.

Yantai Tianzheng entered into this credit facility following its execution of third party guaranty arrangements between Yantai Tianzheng, City Bank and Laishan Public Assets Management LLP (“Laishan”) and between Yantai Tianzheng, City Bank, and Bohai in April 2013. Under the terms of the Guaranty, Laishan and Bohai each has agreed to act as guarantor of up to $4,909,662 (RMB 30,000,000) of any credit extended by City Bank to Yantai Tianzheng at any time during the period from April 25, 2013 through April 25, 2014. Laishan is an unrelated third party and has no business relationship with the Company. As a state-owned enterprise, Laishan provides the guarantee to support the development of Bohai, which is a prominent emerging company in the area.

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Document And Entity Information	6 Months Ended
	Dec. 31, 2013	Feb. 14, 2014
Document Information [Line Items]
Entity Registrant Name	Bohai Pharmaceuticals Group, Inc.
Entity Central Index Key	0001443242
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Trading Symbol	BOPH
Entity Common Stock, Shares Outstanding		17,861,085
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2013
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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SHORT-TERM LOAN

6 Months Ended

Dec. 31, 2013

Short-term Debt [Abstract]

Short-term Debt [Text Block]

13. SHORT-TERM LOAN  

On August 15, 2013, the Company entered into a short term bank loan agreement with RCB. As of December 31, 2013, the loan amounted to $4,909,662 (RMB 30,000,000) with an interest rate of 9% per annum, which is due on August 14, 2014. The Company entered into this credit facility following its execution of third party guaranty arrangements among the Company, RCB, Guangyuan, and the principal shareholder of the Company, Hongwei Qu, on August 15, 2013. Guangyuan is an unrelated third party and has no business relationship with the Company. Guangyuan is a construction company and expected to be a potential constructor for Bohai’s construction on the land purchased in November 2012.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Net revenues	$ 38,673,259	$ 40,932,506	$ 89,562,319	$ 76,281,326
Cost of revenues	9,046,095	9,283,649	20,753,749	18,178,538
Gross profit	29,627,164	31,648,857	68,808,570	58,102,788
Operating expenses:
Selling, general and administrative expenses	20,003,910	22,546,807	47,244,399	39,753,923
Impairment Charge - drug formula	0	1,688,486	0	1,688,486
Depreciation and amortization	718,802	691,816	1,432,362	1,347,921
Total Operating expenses	20,722,712	24,927,109	48,676,761	42,790,330
Income from operations	8,904,452	6,721,748	20,131,809	15,312,458
Other income (expenses):
Interest income	71,930	8,541	74,720	26,326
Interest expenses	(856,642)	(426,323)	(1,218,928)	(939,356)
Other (expenses) income, net	(5,183)	115	(31,300)	(16,591)
Change in fair value of derivative liabilities	0	713,234	0	1,211,236
Total other income (expenses)	(789,895)	295,567	(1,175,508)	281,615
Income before provision for income taxes	8,114,557	7,017,315	18,956,301	15,594,073
Provision for income taxes	(2,105,526)	(1,758,578)	(4,859,539)	(3,939,824)
Net income	6,009,031	5,258,737	14,096,762	11,654,249
Comprehensive income:
Net income	6,009,031	5,258,737	14,096,762	11,654,249
Unrealized foreign currency translation gain	640,898	453,030	1,265,536	204,083
Comprehensive income	$ 6,649,929	$ 5,711,767	$ 15,362,298	$ 11,858,332
Net income per common share
Basic (in dollar per share)	$ 0.34	$ 0.29	$ 0.79	$ 0.65
Diluted (in dollar per share)	$ 0.28	$ 0.25	$ 0.66	$ 0.55
Weighted average common shares outstanding
Basic (in shares)	17,861,085	17,861,085	17,861,085	17,861,085
Diluted (in shares)	21,945,509	22,093,335	22,019,422	22,093,335

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INTANGIBLE ASSETS - LAND USE RIGHTS, NET

6 Months Ended

Dec. 31, 2013

Long Term Prepayment Land Use Rights Net [Abstract]

Long Term Prepayments Land User Rights Net [Text Block]

7. INTANGIBLE ASSETS - LAND USE RIGHTS, NET

	December 31,		June 30,
	2013		2013
	(unaudited)
Land use rights, at cost	$	40,554,688	$	40,093,414
Less: Accumulated amortization		(2,673,158)		(2,229,950)
Intangible assets – land use rights, net	$	37,881,530	$	37,863,464

The Company acquired a new land use right for 266,668 square meters on November 5, 2012. The Company was granted the right to use the land for a period of 50 years at a cost of approximately $19.64 million (RMB 120,000,000). As of September 30, 2013, the Company had paid $13.02 million (RMB 80,000,000) of the purchase price. As of December 31, 2013, the Company has made the remaining installment payment of $6.51 million (RMB 40,000,000) and no amounts remain due to be paid.

There is no private ownership of land in the PRC. All land is owned by the government, which grants land use rights for specified periods of time. Amortization expense for land use rights amounted to $208,470 and $226,819 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for land use rights amounted to $415,384 and $389,382 for the six months ended December 31, 2013 and 2012, respectively.

Amortization is calculated over a period of 30 - 50 years.

Amortization of land use rights for fiscal years ending subsequent to December 31, 2013 is as follows:

	Amortization
Remainder of FY 2014	$	413,828
2015		827,656
2016		827,656
2017		827,656
2018		827,656
Thereafter		34,157,078
Total	$	37,881,530

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INDEFINITE LIVED INTANGIBLE ASSETS - PHARMACEUTICAL FORMULAS

6 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

6. INDEFINITE LIVED INTANGIBLE ASSETS – PHARMACEUTICAL FORMULAS

The Company purchased, and currently owns exclusive rights to, a series of pharmaceutical formulas that were approved by the SFDA. This asset includes 12 formulas that are included in the Chinese government’s Essential Drug List (“EDL”) and 25 medicines included in the National Drug Reimbursement List (“NDRL”). The intellectual property underlying these formulas can be renewed every 5 years without limitation for a minimum fee and are subject to certain protections under PRC drug regulations for an indefinite period of time. These regulations mitigate competition and the ability of other suppliers to replicate the Company’s products or produce comparable substitutes. These intangible assets are measured initially at cost not subject to amortization and are tested for impairment annually or in interim reporting periods if events or changes in circumstances indicate that the carrying amounts of these intangible assets might not be recoverable.

Pharmaceutical formulas with indefinite lives consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Pharmaceutical formulas, without amortization, at cost	$	14,271,495	$	14,109,169

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STOCK OPTIONS

6 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

18. STOCK OPTIONS

On October 13, 2010, we granted stock options to two directors for the purchase of 26,000 shares of our Common Stock at an exercise price of $2.00 per share. The options vested immediately and expire five years from the date of issuance. These options have been valued at $23,844. We use a binomial option pricing model to calculate the grant date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 70%, risk free interest rate of 0.3%, expected term of 2.5 years.

On May 2, 2011, we granted stock options to a director for the purchase of 6,000 shares of our Common Stock at an exercise price of $2.00 per share. The options vested immediately and expire five years from the date of issuance. These options have been valued at $3,184. We use a binomial option pricing model to calculate the grant date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 55%, risk free interest rate of 0.3%, expected term of 5 years.

The following table summarizes the weighted average remaining contractual life and exercise price of our outstanding options as of December 31, 2013:

	Options Outstanding
	Number
			Outstanding
		Number	Currently	Weighted	Weighted Average
		Outstanding	Exercisable	Average	Exercise Price of
		at	at	Remaining	Options
Exercise		December 31,	December 31,	Contractual Life	currently
Price		2013	2013	(Years)	exercisable
$	2.00	32,000	32,000	2.14	$	2.00

The Company accounts for share-based payments in accordance with ASC 718. Accordingly, it expenses the fair value of awards granted to the directors. Total compensation expense related to the stock options for the three and six months ended December 31, 2013 were $0 and $0, respectively. Total compensation expense related to the stock options for the three and six months ended December 31, 2012 were $0 and $0, respectively.

A summary of our stock option activity as of December 31, 2013, and changes during the six months ended December 31, 2013 and year ended June 30, 2013 is presented in the following table:

			Exercise Price
	Option	Vested	per Common
	Shares	Shares	Stock Range
Balance, June 30, 2012	-	-	$	-
Granted or vested during the year ended June 30, 2013	32,000	32,000		2.00
Exercised during the year ended June 30, 2013	-	-		-
Expired during the year ended June 30, 2013	-	-		-
Balance, June 30, 2013	32,000	32,000		2.00
Granted or vested during the six months ended December 31, 2013	-	-		-
Exercised during the six months ended December 31, 2013	-	-		-
Expired during the six months ended December 31, 2013	-	-		-
Balance, December 31, 2013	32,000	32,000	$	2.00

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CONVERTIBLE PROMISSORY NOTES IN DEFAULT AND DUE ON DEMAND

6 Months Ended

Dec. 31, 2013

Convertible Promissory Notes and Warrants [Abstract]

Convertible Promissory Notes and Warrants [Text Block]

14. CONVERTIBLE PROMISSORY NOTES IN DEFAULT AND DUE ON DEMAND

Convertible Notes

On January 5, 2010, pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) with 128 accredited investors (the “Investors”), BPGI 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 (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 exercisable at $2.40 per share subject to certain anti-dilution provisions. The majority of this debt is guaranteed by third-parties and our CEO, Mr. Qu, and a portion is secured by our inventories and fixed assets.

The Notes originally bore interest at 8% per annum, payable quarterly in arrears on the last day of each fiscal quarter of the Company. Principal was originally due 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 Common Stock at a conversion price of $2.00 per share, subject to adjustments for certain anti-dilution provisions.

The Convertible Notes were initially recorded at a discounted carrying amount of zero as a result of having allocated a portion of the proceeds to (i) the fair value of the warrants, which were recorded as liabilities stated at fair value, and (ii) a beneficial conversion feature that was not bifurcated as a free standing derivative at the time of issuance or at subsequent reporting dates based on periodic classification assessments. Accretion of the note discount amounted to $0 and $0 for the three months ended December 31, 2013 and 2012, respectively. Accretion of the note discount amounted to $0 and $0 for the six months ended December 31, 2013 and 2012, respectively. Accretion of the discount was recorded as a component of interest expense in the accompanying statements of income and comprehensive income. Contractual interest expense amounted to $241,935 and $268,043 for the three months ended December 31, 2013 and 2012, respectively. Contractual interest expense amounted to $495,870 and $550,193 for the six months ended December 31, 2013 and 2012, respectively.

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 us 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 our Common Stock that have been placed in escrow by our principal shareholder. The shares in escrow will be returned to our principal shareholder when 50% of the aggregate face amount of the Notes has been converted or, if later, when the Notes are repaid.

On December 31, 2011, the Company’s Chinese operating subsidiary determined it was unable to convert a sufficient amount of RMB needed to repay the notes on their original maturity date of January 5, 2012. As a result, the Company entered into a series of amendments to the Notes with Euro Pacific as representative of the Investors to extend to the maturity date and increase the interest rate on the Notes. Pursuant to the most recent amendment, the maturity date of the notes was extended to April 5, 2013 and the interest rate was increased to 12% per annum. The Company is negotiating with Euro Pacific to extend the maturity date. In October 2013, the Company paid $400,000 towards the principal. The outstanding balance of the Notes amounted to $8,064,500 and $8,464,500 as of December 31, 2013 and June 30, 2013, respectively. As of the date the financial statements were issued, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.    

The Company has been and is currently in temporary default of this obligation at the previously extended maturity dates. Should the Company be unable to repay the notes in time and in the absence of a further extension of the maturity date, this circumstance would constitute an event of default under the terms of loan agreement. The Company cannot predict what the implications of the non-payment of the loan would be other than it would continue to experience difficulty converting sufficiency currency and will maintain an escrow account of restricted funds intended to secure their repayment. The non-payment of the notes could have a material adverse effect on the Company should the note holders pursue further action. As of the date of this report, no written agreement has been entered into in this regard. The Company is unable to predict whether an agreement will be reached.

On June 27, 2012, Euro Pacific also agreed to release us from certain restrictions on our ability to incur debt, to incur liens or to make capital expenditures as stipulated in the note agreement. The purpose of the Third Amendment is to provide us with enhanced flexibility to seek potential sources of financing.

The Company has paid $2,385,500 principle in total. The payment dates and amounts are as follows:

Payment date		Amount
May 14, 2012	$	314,000
June 28, 2012		100,000
July 3, 2012		631,000
November 29, 2012		940,500
October 9, 2013		100,000
October 29, 2013		300,000

As of December 31, 2013 and June 30, 2013, the Company’s principal shareholder, Mr. Qu, is obligated to deliver 1,000,000 shares of Common Stock to the Investors if a default occurs.

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ACCRUED EXPENSES

6 Months Ended

Dec. 31, 2013

Payables and Accruals [Abstract]

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

10. ACCRUED EXPENSES

Accrued expense consists of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Sales representatives commission and expenses	$	3,806,791	$	4,731,442
Other payable for PPE		1,710,022		2,279,869
Other accrued expense		1,560,741		1,596,636
Other taxes payable		2,011,061		2,185,328
Accrued Interest expenses		1,694,654		1,117,527
Compensation and related cost		253,995		274,813
Total	$	11,037,264	$	12,185,615

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ACCRUED EXPENSES (Details) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Accrued Expenses [Line Items]
Sales representatives commission and expenses	$ 3,806,791	$ 4,731,442
Other payable for PPE	1,710,022	2,279,869
Other accrued expense	1,560,741	1,596,636
Other taxes payable	2,011,061	2,185,328
Accrued Interest expenses	1,694,654	1,117,527
Compensation and related cost	253,995	274,813
Total	$ 11,037,264	$ 12,185,615

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OTHER INTANGIBLE ASSETS, NET

6 Months Ended

Dec. 31, 2013

Other Intangible Assets [Abstract]

Other Intangible Assets [Text Block]

8. OTHER INTANGIBLE ASSETS, NET

Other Intangible assets, net include customer relationships and certain prescription drug product formulas. The Company acquired these assets in its business combination with Yantai Tianzheng. Customer relationships are amortized on a straight line basis over periods of 5 and 8 years. Pharmaceutical formulas including those retained as defensive assets are amortized on a straight t line basis over a period of 8 years.

$10,450,277 for the carrying amount of certain other product formulas that the Company will hold as defensive assets have been reclassified from indefinite life drug formulas. According to the Company’s years of industrial experience and R&D knowledge, to get a new drug formula approved from scratch usually take at least 8 years, so the Company is amortizing the pharmaceutical formulas as defensive assets over 8 years.

Other intangible assets at December 31, 2013 (unaudited) consist of the following:

	Customer Relationships		Yantai Tianzheng Drug Formulas		Defensive Drug formulas		Total
Cost	$	14,968,905	$	10,459,381	$	10,450,277	$	35,878,563
Accumulated Amortization		(4,764,009)		(3,283,312)		(1,632,855)		(9,680,176)
Net carrying amount	$	10,204,896	$	7,176,069	$	8,817,422	$	26,198,387

Other intangible assets at June 30, 2013 consist of the following:

	Customer Relationships		Yantai Tianzheng Drug Formulas		Defensive Drug formulas		Total
Cost	$	14,798,647	$	10,340,415	$	10,331,414	$	35,470,476
Accumulated Amortization		(3,767,858)		(2,594,829)		(968,570)		(7,331,257)
Net carrying amount	$	11,030,789	$	7,745,586	$	9,362,844	$	28,139,219

Amortization expense for customer relationships amounted to $475,702 and $462,608 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for customer relationships amounted to $947,854 and $922,794 for the six months ended December 31, 2013 and 2012, respectively.

Amortization expense for Yantai Tianzheng drug formulas amounted to $328,832 and $319,781 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for YTP drug formulas amounted to $655,209 and $637,887 for the six months ended December 31, 2013 and 2012, respectively.

Amortization expense for defensive drug formulas amounted to $326,092 and $316,286 for the three months ended December 31, 2013 and 2012, respectively. Amortization expense for defensive drug formulas amounted to $649,750 and $316,286 for the six months ended December 31, 2013 and 2012, respectively. Amortization expenses are recorded in general and administrative expenses.

Amortization expense for fiscal years ending subsequent to December 31, 2013 is as follows: 

	Amortization
Remainder of FY 2014	$	2,244,372
2015		4,488,744
2016		4,488,744
2017		4,488,744
2018		4,488,744
Thereafter		5,999,039
Total	$	26,198,387

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GOODWILL

6 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

9. GOODWILL

On August 8, 2011, the Company acquired 100% of Yantai Tianzheng’s equity interests for total purchase consideration of US$35,000,000 (paid in its RMB equivalent). The Company accounted for its acquisition of Yantai Tianzheng using the acquisition method of accounting.   The fair value of the purchase consideration issued to the sellers of Yantai Tianzheng was allocated to fair value of the net tangible assets acquired, with the resulting excess allocated to separately identifiable intangibles including customer relationships that have a finite life, pharmaceutical formulas that have an indefinite life and the remainder recorded as goodwill. Goodwill recognized from the transactions mainly represented the expected operational synergies upon acquisition of the subsidiary and intangibles not qualifying for separate recognition. Goodwill is nondeductible for income tax purpose in the tax jurisdiction of the acquisition transactions incurred. Goodwill amounted $5,262,061 (RMB 32,153,295) and $5,202,209 (RMB 32,153,295) as of December 31, 2013 and June 30, 2013, respectively. Goodwill is measured initially at cost not subject to amortization and are tested for impairment annually or in interim reporting periods if events or changes in circumstances indicate that the carrying amounts of these intangible assets might not be recoverable. The Company has decided there is no impairment for the six months ended December 31, 2013 and 2012.

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DUE TO RELATED PARTY

6 Months Ended

Dec. 31, 2013

Due to Related Parties [Abstract]

Related Party Transactions Disclosure [Text Block]

11. DUE TO RELATED PARTY

Due to related party amounted to $43,665 and $52,830 as of December 31, 2013 and June 30, 2013, respectively. It represents accrued out of pocket expenses of Mr. Qu Hongwei, Chief executive officer of the Company.

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CONVERTIBLE PROMISSORY NOTES IN DEFAULT AND DUE ON DEMAND (Details) (USD $)	6 Months Ended
	Dec. 31, 2013
Repayment Date One [Member]
Convertible Promissory Notes [Line Items]
Repayments of Convertible Debt	$ 314,000
Repayment Date of Convertible Debt	May 14, 2012
Repayment Date Two [Member]
Convertible Promissory Notes [Line Items]
Repayments of Convertible Debt	100,000
Repayment Date of Convertible Debt	Jun. 28, 2012
Repayment Date Three [Member]
Convertible Promissory Notes [Line Items]
Repayments of Convertible Debt	631,000
Repayment Date of Convertible Debt	Jul. 03, 2012
Repayment Date Four [Member]
Convertible Promissory Notes [Line Items]
Repayments of Convertible Debt	940,500
Repayment Date of Convertible Debt	Nov. 29, 2012
Repayment Date Five [Member]
Convertible Promissory Notes [Line Items]
Repayments of Convertible Debt	100,000
Repayment Date of Convertible Debt	Oct. 09, 2013
Repayment Date Six [Member]
Convertible Promissory Notes [Line Items]
Repayments of Convertible Debt	$ 300,000
Repayment Date of Convertible Debt	Oct. 29, 2013

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ACQUISITION PURCHASE PRICE PAYABLE (Details Textual) (USD $)	1 Months Ended	6 Months Ended
	Sep. 24, 2013	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Yantai Tianzheng [Member]	Aug. 08, 2011 Yantai Tianzheng [Member]
Acquisition Purchase Price Payable [Line Items]
Equity Method Investment, Ownership Percentage					100.00%
Business Acquisitions Cost Of Acquired Entity Purchase Price				$ 35,000,000
Payments To Acquire Businesses, Gross	$ 5,000,000	$ 5,000,000	$ 12,472,815

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SHORT-TERM LOAN (Details Textual)	6 Months Ended
	Dec. 31, 2013 USD ($)	Dec. 31, 2013 CNY	Jun. 30, 2013 USD ($)
Short-term Debt [Line Items]
Short-term Debt	$ 4,909,662	30,000,000	$ 0
Debt Instrument, Interest Rate, Effective Percentage	9.00%	9.00%
Debt Instrument, Maturity Date	Aug. 14, 2014	Aug. 14, 2014

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INTANGIBLE ASSETS - LAND USE RIGHTS, NET (Tables)

6 Months Ended

Dec. 31, 2013

Long Term Prepayment Land Use Rights Net [Abstract]

Schedule of Acquired Finite-Lived Intangible Assets by Major Class [Table Text Block]

	December 31,		June 30,
	2013		2013
	(unaudited)
Land use rights, at cost	$	40,554,688	$	40,093,414
Less: Accumulated amortization		(2,673,158)		(2,229,950)
Intangible assets – land use rights, net	$	37,881,530	$	37,863,464

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Amortization of land use rights for fiscal years ending subsequent to December 31, 2013 is as follows:

	Amortization
Remainder of FY 2014	$	413,828
2015		827,656
2016		827,656
2017		827,656
2018		827,656
Thereafter		34,157,078
Total	$	37,881,530

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INDEFINITE LIVED INTANGIBLE ASSETS - PHARMACEUTICAL FORMULAS (Details) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Indefinite-lived Intangible Assets [Line Items]
Pharmaceutical formulas, without amortization, at cost	$ 14,271,495	$ 14,109,169

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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

6 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

(a) Contract Research and Development Arrangement

On May 2009, the Company entered into a contract with Yantai Tianzheng Medicine Research and Development Co. to perform research and development on two new pharmaceutical products, namely Fern Injection and Forsythia Capsule. The total contract price is approximately $2,426,910 (RMB 15,000,000). Yantai Tianzheng Medicine Research and Development Co. committed to complete all research work required for the clinical trial within 3 years. As of December 31, 2013, the Company has paid $2,143,075 (RMB 13,095,044) and the remaining contract amount will be paid as the research services are performed. All payments of $2,143,075 (RMB 13,095,044) have been charged to expense. The Company extended the term of the contract to May 10, 2017 due to certain changes in government regulations that affected this research project. Research and development costs associated with this contract amounted to $0 and $0 for the six months ended December 31, 2013 and 2012.

(b) Supplier Concentrations

We have the following concentrations of business with each supplier constituting greater than 10% of the Company’s purchases of raw materials or other supplies:

	Three months		Three months		Six months		Six months
	ended		ended		ended		ended
	December 31,		December 31,		December 31,		December 31,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Shandong Yantai Medicine Procurement and Supply Station	25.5	%	25.9	%	24.8	%	26.4	%
Shandong Shuntianyi Chinese Herbal Medicine Co., Ltd	22.9	%	*	%	23.2	%	*	%
Shanxi Guangsheng Capsule Co., Ltd.	*	%	*	%	10.4	%	*	%

* Constitutes less than 10% of the Company’s purchases.

We had a commitment to purchase certain raw materials totaling $ 2,200,477 as of December 31, 2013 that was fulfilled upon the delivery of the goods in January 2014.

(c) Sales Concentrations

Sales Product Concentrations

Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 31.0%, 20.6%, 16.9%, 9.8% and 19.2%, respectively, of total sales for the three months ended December 31, 2013.

Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 30.2%, 17.8%, 15.5%, 12.7% and 21.2%, respectively, of total sales for the six months ended December 31, 2013.

 Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 37.2%, 14.1%, 17.1%, 11.0% and 15.3%, respectively, of total sales for the three months ended December 31, 2012.

Five of the Company’s products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Syrup, Zhengxintai Capsules and Fangfengtongsheng Tablets represented approximately 31.9%, 12.0%, 16.1%, 11.3% and 16.8%, respectively, of total sales for the six months ended December 31, 2012.

Sales Customer Concentrations  

The Company does not have concentrations of business with each customer constituting greater than 10% of the Company’s gross sales for the six months ended December 31, 2013 and 2012.

(d) Economic and Political Risks

The Company’s operations are conducted solely in the PRC. There are significant risks associated with doing business in the PRC, which include, among others, political, economic, legal and foreign currency exchange risks. The Company’s results may be adversely affected by changes in 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.

(e) Concentrations of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is deposited in state-owned banks within the PRC, and no deposits are covered by insurance. We have not experienced any losses in such accounts and believe that the Company’s loss exposure is insignificant due to the fact that banks in the PRC are state owned and are generally high credit quality financial institutions. A significant portion of the Company’s sales are credit sales which are made primarily to customers whose ability to pay are dependent upon the industry economics prevailing in these areas. We continually monitor the credit worthiness of the Company’s customers in an effort to reduce credit risk.

At December 31, 2013 and June 30, 2013, the Company’s cash balances by geographic area were as follows:

	December 31,				June 30,
	2013				2013
	(unaudited)
Country:
United States	$	14,364	0.22	%	$	28,331	0.41	%
China		6,371,720	99.78	%		6,919,641	99.59	%
Total cash and cash equivalents	$	6,386,084	100	%	$	6,947,972	100	%

(f) Certificate of land use right

The Company’s corporate headquarters is located at No. 9 Daxin Road, Zhifu District, Yantai, Shandong Province in China. Under the current PRC laws, land is owned by the state, and parcels of land in rural areas which are known as collective land are owned by the rural collective economic organization. “Land use rights” are granted to an individual or entity after payment of a land use right fee is made to the applicable state or rural collective economic organization. Land use rights allow the holder of the right to use the land for a specified long-term period.

We have 5 land use rights, for a total of approximately 675,364 square meters of land on which the Company maintains its manufacturing facility.

The Company has not obtained a land use right certificate for two parcels of land located in the high-tech development district of Laishan, including an area of 266,668 square meters purchased on November 5, 2012 and an area of 333,335 square meters purchased on February 22, 2010. Registration of the two land use right certifications is still in process.

We currently have not obtained the land use right certificate for another parcel of land located in Xingfu Twelve Village of Zhifu District. The land is about 11,222 square meters. We maintain our manufacturing facility on this land. In the process of the planning of Yantai City, the usage of the aforesaid land use right has been changed from “industrial use” to “commercial use” and therefore, the approval process for the land use right certificates on five relevant parcels of land including the land occupied by the Company has been suspended until the completion of the planning process.

We cannot provide any assurance that the Company will eventually obtain the land use right certificates for these lands. If the Company is asked by the local government to relocate the Company’s facility, management believes that estimated relocation and other costs will be reimbursed by the local government. The Company does not believe that a requirement to relocate operations would have a material adverse effect on the Company’s financial position or results of operations.

(g) Business insurance

Business insurance is not readily available in the PRC. To the extent that the Company suffers a loss of a type that would normally be covered by insurance in the United States, such as product liability and general liability insurance, the Company would incur significant expenses in both defending any action and in paying any claims that could result from a settlement or judgment.

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INCOME TAXES

6 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

21. INCOME TAXES

The Company is incorporated under the laws of State of Nevada in the United States of America and has legal subsidiaries in the British Virgin Islands (“BVI”) and the PRC. The Company does not have any employees or assets nor or is it engaged in any income producing activities in the Unites States and in the BVI. The Company is currently filing Federal income tax returns in the United States and applicable franchise tax returns in the state of Nevada. The Company has fully reserved for these and all other deferred tax assets generated in the Company’s US operations since it currently more likely than not that those assets will not be realized in future periods.

The Company’s only income producing activities are in the PRC. The statutory corporation income tax rate in the PRC is 25%, which is approximately equal to the effective income tax rate that the Company expects to use when recording income tax expense for financial reporting purposes for the year ending June 30, 2014. Accordingly, the Company is recording a tax provision at interim reporting dates for taxable income earned in the PRC using the effective rate expected to be in effect for the year ending June 30, 2014

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PROPERTY, PLANT AND EQUIPMENT, NET (Details) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 18,627,327	$ 18,212,322
Less: accumulated depreciation	(3,405,853)	(2,827,442)
Construction in progress	2,439,429	2,293,573
Property, plant and equipment, net	17,660,903	17,678,453
Building [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	9,226,484	9,121,541
Plant Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	8,835,641	8,548,658
Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	284,127	250,339
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 281,075	$ 291,784

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OPERATING EXPENSES (Tables)

6 Months Ended

Dec. 31, 2013

Operating Expenses [Abstract]

Schedule Of Operating Costs and Expenses [Table Text Block]

For the three and six months ended December 31, 2013 and 2012, operating expenses consisted of the following:

	Three months ended		Three months ended		Six months ended		Six months ended
	December 31, 2013 (unaudited)		December 31, 2012 (unaudited)		December 31, 2013 (unaudited)		December 31, 2012 (unaudited)
Sales Commissions	$	17,727,340	$	20,302,737	$	42,763,720	$	36,157,254
Advertising expense		563,688		1,220		664,968		103,525
Audit fees and other professional expenses		461,783		112,683		489,411		182,276
Depreciation and amortization		718,802		691,816		1,432,362		1,347,921
Staff costs (salary & welfare)		514,909		510,156		1,033,930		1,006,526
Research and development cost		23,705		1,995		62,751		3,990
Other operating expenses		712,485		1,618,016		2,229,619		2,300,352
Impairment of drug formula		-		1,688,486		-		1,688,486
Total Operating expenses	$	20,722,712	$	24,927,109	$	48,676,761	$	42,790,330

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Cash flows from operating activities:
Net income	$ 14,096,762	$ 11,654,249
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,223,775	2,553,839
Impairment of intangible assets-pharmaceutical formulas	0	1,688,486
Loss on disposal of property, plant and equipment	9,935	0
Change in fair value of warrants	0	(1,211,236)
Deferred income taxes	(42,239)	(323,476)
Changes in operating assets and liabilities:
Accounts receivable	(6,693,563)	(13,168,118)
Prepaid expenses and other current assets	(73,965)	393,515
Inventories	(2,217,346)	519,251
Accounts payable	(453,519)	275,229
Accrued expenses	(1,272,014)	3,637,723
Income taxes payable	366,963	431,203
Net cash provided by operating activities	6,944,789	6,450,665
Cash flows used in investing activities:
Purchases of property, plant and equipment	(182,117)	(433,131)
Land use rights payments	(6,512,219)	(6,340,048)
Property, plant and equipment deposits	(150,256)	(2,031,361)
Cash paid for acquisition of business	(5,000,000)	(12,472,815)
Net cash used in investing activities	(11,844,592)	(21,277,355)
Cash flows from financing activities:
Proceeds from short-term	4,884,164	0
Proceeds from notes payable	9,768,328	0
Borrowing from related party	0	8,020
Repayment to related party	(9,647)	0
Repayment of notes payable	(9,768,328)	0
Deposit of restricted cash-convertible note escrow deposit	400,000	1,885,695
Release of restricted cash-convertible note escrow deposit	(400,000)	(834,988)
Repayment of convertible notes	(400,000)	(1,571,500)
Net cash flows provided by (used in) financing activities	4,474,517	(512,773)
Effect of foreign currency translation on cash and cash equivalents	(136,602)	107,759
Net decrease in cash and cash equivalents	(561,888)	(15,231,704)
Cash and cash equivalents at beginning of period	6,947,972	18,386,288
Cash and cash equivalents at end of period	6,386,084	3,154,584
Cash paid during the period for:
Interest	638,761	282,150
Income taxes	4,534,815	3,832,103
Non-cash investing and financing activities:
Acquisition of property, plant and equipment through assumption of debt	$ 1,700,698	$ 0

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PROPERTY, PLANT AND EQUIPMENT, NET

6 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

5. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:

	December 31,		June 30,
	2013		2013
	(unaudited)
Buildings	$	9,226,484	$	9,121,541
Plant equipment		8,835,641		8,548,658
Office equipment		284,127		250,339
Motor vehicles		281,075		291,784
Total		18,627,327		18,212,322
Less: accumulated depreciation		(3,405,853)		(2,827,442)
Construction in progress		2,439,429		2,293,573
Property, plant and equipment, net	$	17,660,903	$	17,678,453

Depreciation expense for property, plant and equipment for the three months ended December 31, 2013 and 2012 amounted to $278,830 and $144,367, respectively. Depreciation expense for property, plant and equipment for the six months ended December 31, 2013 and 2012 amounted to $555,578 and $287,490, respectively.

On June 8, 2010, Yantai Tianzheng signed an agreement with Yantai Huanghai Construction Co. to construct certain portions of a factory. The total contract price amounted to approximately $3.19 million (RMB 19.5 million). Management estimates that construction is 98% completed as of December 31, 2013 and that the project has be fully completed by January 31, 2014. The remaining commitment of the contract amounted to approximately $0.8 million (RMB 4.9 million) as of December 31, 2013.

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OTHER INTANGIBLE ASSETS, NET (Details Textual)			3 Months Ended		6 Months Ended			6 Months Ended		3 Months Ended		6 Months Ended			6 Months Ended	3 Months Ended		6 Months Ended
	Dec. 31, 2013 USD ($)	Jun. 30, 2013 USD ($)	Dec. 31, 2013 Customer Relationships [Member] USD ($)	Dec. 31, 2012 Customer Relationships [Member] USD ($)	Dec. 31, 2013 Customer Relationships [Member] USD ($)	Dec. 31, 2012 Customer Relationships [Member] USD ($)	Jun. 30, 2013 Customer Relationships [Member] USD ($)	Dec. 31, 2013 Customer Relationships [Member] Minimum [Member]	Dec. 31, 2013 Customer Relationships [Member] Maximum [Member]	Dec. 31, 2013 Drug Formulas [Member] USD ($)	Dec. 31, 2012 Drug Formulas [Member] USD ($)	Dec. 31, 2013 Drug Formulas [Member] USD ($)	Dec. 31, 2012 Drug Formulas [Member] USD ($)	Jun. 30, 2013 Drug Formulas [Member] USD ($)	Dec. 31, 2013 Drug Formulas [Member] Maximum [Member]	Dec. 31, 2013 Defensive Drug Formulas [Member] USD ($)	Dec. 31, 2012 Defensive Drug Formulas [Member] USD ($)	Dec. 31, 2013 Defensive Drug Formulas [Member] USD ($)	Dec. 31, 2012 Defensive Drug Formulas [Member] USD ($)	Jun. 30, 2013 Defensive Drug Formulas [Member] USD ($)	Jun. 30, 2013 Defensive Drug Formulas [Member] Other Intangible Assets [Member] USD ($)	Jun. 30, 2013 Defensive Drug Formulas [Member] Other Intangible Assets [Member] CNY
Finite-Lived Intangible Assets [Line Items]
Amortization of Other Deferred Charges			$ 475,702	$ 462,608	$ 947,854	$ 922,794				$ 328,832	$ 319,781	$ 655,209	$ 637,887			$ 326,092	$ 316,286	$ 649,750	$ 316,286
Finite-Lived Intangible Asset, Useful Life								5 years	8 years						8 years			8 years
Cost	$ 35,878,563	$ 35,470,476	$ 14,968,905		$ 14,968,905		$ 14,798,647			$ 10,459,381		$ 10,459,381		$ 10,340,415		$ 10,450,277		$ 10,450,277		$ 10,331,414	$ 10,000,000	63,855,371

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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Details Textual)	3 Months Ended		6 Months Ended				3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended			6 Months Ended				6 Months Ended
	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Nov. 05, 2012 Laishan District Piece Of Land One [Member] sqm	Feb. 22, 2010 Laishan District Piece Of Land Two [Member] sqm	Dec. 31, 2013 Tongbi Capsules [Member]	Dec. 31, 2012 Tongbi Capsules [Member]	Dec. 31, 2013 Tongbi Capsules [Member]	Dec. 31, 2012 Tongbi Capsules [Member]	Dec. 31, 2013 Lung Nourishing Syrup [Member]	Dec. 31, 2012 Lung Nourishing Syrup [Member]	Dec. 31, 2013 Lung Nourishing Syrup [Member]	Dec. 31, 2012 Lung Nourishing Syrup [Member]	Dec. 31, 2013 Zhengxintai Capsules [Member]	Dec. 31, 2012 Zhengxintai Capsules [Member]	Dec. 31, 2013 Zhengxintai Capsules [Member]	Dec. 31, 2012 Zhengxintai Capsules [Member]	Dec. 31, 2013 Fang Fengtongsheng Tablets [Member]	Dec. 31, 2012 Fang Fengtongsheng Tablets [Member]	Dec. 31, 2013 Fang Fengtongsheng Tablets [Member]	Dec. 31, 2012 Fang Fengtongsheng Tablets [Member]	Dec. 31, 2013 Tongbi Tablet [Member]	Dec. 31, 2012 Tongbi Tablet [Member]	Dec. 31, 2013 Tongbi Tablet [Member]	Dec. 31, 2012 Tongbi Tablet [Member]	Dec. 31, 2013 Raw Materials [Member] USD ($)	Dec. 31, 2013 Manufacturing Facility [Member] Rights sqm	Dec. 31, 2013 Corporate Headquarters [Member] sqm	May 31, 2009 Contract Research and Development Arrangement [Member] USD ($)	May 31, 2009 Contract Research and Development Arrangement [Member] CNY	Dec. 31, 2013 Contract Research and Development Arrangement [Member] Yantai Tianzheng [Member] USD ($)	Dec. 31, 2012 Contract Research and Development Arrangement [Member] Yantai Tianzheng [Member] USD ($)	Dec. 31, 2013 Contract Research and Development Arrangement [Member] Yantai Tianzheng [Member] CNY
Loss Contingencies [Line Items]
Total Contract Amount Paid																														$ 2,426,910	15,000,000	$ 2,143,075		13,095,044
Research and development cost	23,705	1,995	62,751	3,990																												0	0
Each Supplier Constituting Percentage			10.00%
Purchase Obligation																											$ 2,200,477
Percentage Of Total Sales							31.00%	37.20%	30.20%	31.90%	16.90%	17.10%	15.50%	16.10%	9.80%	11.00%	12.70%	11.30%	19.20%	15.30%	21.20%	16.80%	20.60%	14.10%	17.80%	12.00%
Area of Land					266,668	333,335																						675,364	11,222
Number Of Land Use Rights																												5
Each Customer Constituting Percentage			10.00%	10.00%

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VIE

6 Months Ended

Dec. 31, 2013

Variable Interest Entity [Abstract]

Variable Interest Entities [Text Block]

22. VIE

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through the VIE.

As a result of the VIE Agreements signed between WOFE and Bohai, the Company includes the assets, liabilities, revenues and expenses of Bohai (the “VIE”) in its consolidated financial statements.

Substantially all of the Company’s assets, including those of Bohai which is considered the VIE and Yantai Tianzheng, which is an acquired subsidiary of the Company, are accessible to Bohai through WOFE II creditors irrespective of the VIE arrangement.

The VIE Agreements include:

Equity Interest Pledge Agreement. The WOFE and Bohai’s shareholders have entered into Equity Interest Pledge Agreements, pursuant to which each Bohai shareholder has pledged all of his shares of Bohai to the WOFE in order to guarantee cash-flow payments under the applicable Consulting Services Agreement. The Equity Pledge Agreement further entitles the WOFE to collect dividends from Bohai during the term of the pledge.

Consulting Service Agreement. Bohai and the WOFE has entered into a Consulting Services Agreement, which provides that the WOFE will be the exclusive provider of technology services to Bohai and Bohai will pay all of its net income based on the quarterly financial statements to the WOFE for such services. Any such payment from the WOFE to the Company would need to comply with applicable Chinese laws affecting payments from Chinese companies to non-Chinese companies. See “Risk Factors – Risks Associated With Doing Business in China.”

Operating Agreement. Pursuant to the operating agreement among the WOFE, Bohai and the Bohai shareholders, the WOFE provides guidance and instructions on Bohai’s daily operations and financial affairs. The Bohai shareholders must designate the candidates recommended by the WOFE as their representatives on their respective boards of directors. The WOFE has the right to appoint senior executives of Bohai. In addition, the WOFE agrees to guarantee Bohai’s performance under any agreements or arrangements relating to Bohai’s business arrangements with any third party. Bohai, in return, agrees to pledge its accounts receivable and all of its assets to the WOFE. Moreover, Bohai agrees that without the prior consent of the WOFE, Bohai will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of its assets or intellectual property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party.

 

These contractual arrangements may not be as effective in providing the Company with control over the VIE as direct ownership. Due to its VIE structure, the Company has to rely on contract right to effect control and management of the VIE, which exposes it to the risk of potential breach of contract by the shareholders of Bohai. The VIE Agreements are subject to significant risks as set forth in the following risk factors.

¨ The PRC government may determine that the VIE Agreements used to control the Company’s operating subsidiary Bohai are not in compliance with applicable PRC laws, rules and regulations and that they are therefore unenforceable.

¨ There are risks involved with the operation of Bohai under the VIE Agreements. The Company has been advised by PRC legal counsel that if the PRC government determines the VIE Agreement used to control the operating company to be unenforceable as they circumvent the PRC restrictions relating to foreign investment restrictions, the relevant regulatory authorities would have broad discretion in dealing with such breach and could have a material adverse impact on our business, financial condition and results of operations.

¨ The Company depends upon the VIE Agreements in conducting its production, manufacturing, and distribution of traditional Chinese herbal medicines in the PRC, which may not be as effective as direct ownership.

¨ The Company conducts its production, manufacturing and distribution of traditional Chinese herbal medicines in the PRC and generate the revenues from the Bohai business through the VIE Agreements. The VIE Agreements may not be as effective in providing us with control over Bohai as direct ownership. The VIE Agreements are governed by PRC laws and provide for the resolution of disputes through arbitration proceedings pursuant to PRC laws. Accordingly, the VIE Agreements will be interpreted in accordance with PRC laws. If Bohai or its shareholders fail to perform the obligations under the VIE Agreements, the Company may have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, and there is a risk that the Company may be unable to obtain these remedies. The legal environment in China is not as developed as in other jurisdictions. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce the VIE Agreements.

¨ The pricing arrangement under the VIE Agreements may be challenged by the PRC tax authorities.

¨ The Company could face adverse tax consequences if the PRC tax authorities determine that the VIE Agreements were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that the VIE Agreements were not entered into on an arm’s length basis, they may adjust the income and expenses of the Company for PRC tax purposes which could result in higher tax liability.

On January 17, 2014, all rights and obligations of WOFE relating to Bohai, including all of WOFE’s rights and obligations under each of the VIE Agreements, were assigned in full to WOFE II (see Note 23).

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STOCKHOLDERS' EQUITY (Details Textual) (USD $)	6 Months Ended
	Dec. 31, 2013	Jun. 30, 2013
Stockholders Equity Disclosure [Line Items]
Common Stock, Shares Authorized	150,000,000	150,000,000
Common Stock, Par Or Stated Value Per Share	$ 0.001	$ 0.001
Percentage Of Net Income To Be Allocated To Reserve Fund	10.00%
Description On Allocation Of Net Profit To Reserve Fund	In the PRC, we are required to allocate at least 10% of our net profit to the reserve fund until the balance of such fund has reached 50% of its registered capital.
Restructuring Reserve	$ 1,569,452

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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Tables)

6 Months Ended

Dec. 31, 2013

Loss Contingencies [Line Items]

Schedule Of Cash Balances By Geographic Segment [Table Text Block]

At December 31, 2013 and June 30, 2013, the Company’s cash balances by geographic area were as follows:

	December 31,				June 30,
	2013				2013
	(unaudited)
Country:
United States	$	14,364	0.22	%	$	28,331	0.41	%
China		6,371,720	99.78	%		6,919,641	99.59	%
Total cash and cash equivalents	$	6,386,084	100	%	$	6,947,972	100	%

Supplier Concentration Risk [Member]

Loss Contingencies [Line Items]

Schedules Of Concentration Of Risk, By Risk Factor [Table Text Block]

We have the following concentrations of business with each supplier constituting greater than 10% of the Company’s purchases of raw materials or other supplies:

	Three months		Three months		Six months		Six months
	ended		ended		ended		ended
	December 31,		December 31,		December 31,		December 31,
	2013		2012		2013		2012
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Shandong Yantai Medicine Procurement and Supply Station	25.5	%	25.9	%	24.8	%	26.4	%
Shandong Shuntianyi Chinese Herbal Medicine Co., Ltd	22.9	%	*	%	23.2	%	*	%
Shanxi Guangsheng Capsule Co., Ltd.	*	%	*	%	10.4	%	*	%

* Constitutes less than 10% of the Company’s purchases.

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ACQUISITION PURCHASE PRICE PAYABLE

6 Months Ended

Dec. 31, 2013

Acquisition Purchase Price Payable [Abstract]

Business Combination Disclosure [Text Block]

15. ACQUISITION PURCHASE PRICE PAYABLE

On August 8, 2011, the Company, through WOFE II, acquired 100% of Yantai Tianzheng’s equity interests for total purchase consideration of US$35,000,000 that was fully paid as of December 31, 2013. $5,000,000 was paid on September 24, 2013, and the balance was fully paid as of December 31, 2013.