Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1
FORM 10-Q/A
(Mark One)

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

For the quarterly period ended:   March 31, 2009

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

For the transition period from ________________ to ______________

Commission file number:    000-53037

JIANGBO PHARMACEUTICALS, INC.
(Exact name of small business issuer as specified in its charter)

Florida
  
65-1130026
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification No.)

25 Haihe Road, Laiyang Economic Development
 Laiyang City, Yantai, Shandong Province, People’s Republic of China 265200
(Address of principal executive offices)

(0086) 535-7282997
(issuer’s telephone number)

 
(Former name, former address and former fiscal year, if changed since last report)

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 o

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The total shares outstanding at May 12, 2010 were 12,078,552.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 
 

Explanatory Note:

This Quarterly Report on Form 10-Q/A is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q (the “Amendment”) for the period ended March 31, 2009, which was originally filed with the Securities Exchange Commission on May 15, 2009, to restate the diluted earnings (loss) per share included in the consolidated Statements of Income. This Amendment is filed solely to include revision in Part I, Item 1 in the “ Financial Statements ” to revise and update diluted earnings (loss) per share calculation on page F-4 and certain disclosure in paragraph 1 of  Note 2- Summary of significant accounting policies, Note 3- Acquisition and   Note 4 – “Earnings (loss) per share”. In addition, new officer certifications are filed as exhibits to this Amendment. Except as specifically referenced herein, this Amendment does not reflect any event occurring subsequent to May 15, 2009 the filing date of the original report.

 
 

INDEX
 
 
Page
PART I - FINANCIAL INFORMATION
  
   
Item 1. Financial Statements
3
   
Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and June 30, 2008
3
   
Consolidated Statements of Income and Other Comprehensive Income for the nine months and three months ended March 31, 2009 and 2008 (Unaudited)
4
   
Consolidated Statements of Cash Flows for the nine months ended March 31, 2009 and 2008 (Unaudited)
5
   
Notes to Consolidated Financial Statements (Unaudited)
6
   
PART II - OTHER INFORMATION
  
   
Item 6. Exhibits
38

 
 

JIANGBO PHARMACEUTICALS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS GENESIS PHARMACEUTICALS ENTERPRISES, INC.)
CONSOLIDATED BALANCE SHEETS

   
March 31,
    
June 30,
  
   
2009
    
2008
  
   
(Unaudited)
        
             
ASSETS
            
CURRENT ASSETS:
            
Cash
  
$
82,338,527
    
$
48,195,798
  
Restricted cash
    
3,713,775
      
7,839,785
  
Investments
    
672,682
      
2,055,241
  
Accounts receivable, net of allowance for doubtful accounts of $525,268 and $155,662, respectively
    
21,688,723
      
24,312,077
  
Accounts receivable - related parties
    
187,766
      
673,808
  
Inventories
    
3,863,947
      
3,906,174
  
Other receivables
    
81,784
      
152,469
  
Other receivables - related parties
    
317,412
      
-
  
Advances to suppliers and other assets
    
130,088
      
1,718,504
  
Total current assets
    
112,994,704
      
88,853,856
  
                 
PLANT AND EQUIPMENT, net
    
14,162,421
      
11,225,844
  
                 
OTHER ASSETS:
                
Investments, restricted
    
400,050
      
2,481,413
  
Financing costs, net
    
1,406,717
      
1,916,944
  
Intangible assets, net
    
17,404,557
      
9,916,801
  
Total other assets
    
19,211,324
      
14,315,158
  
                 
Total assets
  
$
146,368,449
    
$
114,394,858
  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                
CURRENT LIABILITIES:
                
Accounts payable
  
$
5,523,666
    
$
2,341,812
  
Short term bank loan
    
2,197,500
      
2,772,100
  
Notes payable
    
3,713,775
      
5,843,295
  
Other payables
    
4,074,203
      
3,671,703
  
Customer deposits
    
4,102,000
      
-
  
Other payables - related parties
    
176,666
      
324,972
  
Accrued liabilities
    
754,315
      
173,604
  
Liabilities assumed from reorganization
    
1,613,935
      
1,084,427
  
Taxes payable
    
5,276,690
      
166,433
  
Total current liabilities
    
27,432,750
      
16,378,346
  
                 
CONVERTIBLE DEBT, net of discount of $29,820,431 and $32,499,957 as of March 31, 2009 and June 30, 2008, respectively
    
5,019,569
      
2,500,043
  
                 
Total Liabilities
    
32,452,319
      
18,878,389
  
                 
COMMITMENTS AND CONTINGENCIES
                
                 
SHAREHOLDERS' EQUITY:
                
Preferred stock ($0.001 par value; 20,000,000 shares authorized; none issued or outstanding)
    
-
      
-
  
Common stock ($0.001 par value, 22,500,000 and 15,000,000 shares authorized, respectively; 10,435,099 and 9,767,844 shares issued and outstanding at March 31, 2009 and June 30, 2008 respectively)
     
     
    10,436
     
     
  
9,770
  
Paid-in-capital
    
 76,168,319
      
45,554,513
  
Captial contribution receivable
    
(27,845,000
)
    
(11,000
)
Retained earnings
    
56,396,950
      
39,008,403
  
Statutory reserves
    
3,253,878
      
3,253,878
  
Accumulated other comprehensive income
    
5,931,547
      
7,700,905
  
Total shareholders' equity
    
113,916,130
      
95,516,469
  
Total liabilities and shareholders' equity
  
$
146,368,449
    
$
114,394,858
  

The accompanying notes are an integral part of these consolidated financial statements.

 
3
 
 
JIANGBO PHARMACEUTICALS, INC. AND SUBSIDIARIES
(FORMERLY GENESIS PHARMACEUTICALS ENTERPRISES, INC.)
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(UNAUDITED)

   
For the Three Months Ended
    
For the Nine Months Ended
  
   
March 31,
    
March 31,
  
   
2009
    
2008
    
2009
    
2008
  
   
RESTATED
    
RESTATED
    
RESTATED
    
RESTATED
  
REVENUES:
                        
Sales
  
$
25,725,837
    
$
26,231,191
    
$
85,991,330
    
$
66,648,051
  
Sales- related parties
    
-
      
1,869,092
      
243,943
      
4,611,849
  
TOTAL REVENUE
    
25,725,837
      
28,100,283
      
86,235,273
      
71,259,900
  
                                 
Cost of sales
    
6,853,810
      
5,896,113
      
19,705,020
      
16,626,461
  
Cost of sales -related parties
    
-
      
441,709
      
54,500
      
1,117,918
  
COST OF SALES
    
6,853,810
      
6,337,822
      
19,759,520
      
17,744,379
  
                                 
GROSS PROFIT
    
18,872,027
      
21,762,461
      
66,475,753
      
53,515,521
  
                                 
RESEARCH AND DEVELOPMENT EXPENSE
    
1,098,675
      
967,930
      
3,295,125
      
2,170,240
  
                                 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
4,477,356
      
12,136,164
      
31,111,752
      
29,269,330
  
                                 
INCOME FROM OPERATIONS
    
13,295,996
      
8,658,367
      
32,068,876
      
22,075,951
  
                                 
OTHER (INCOME) EXPENSE:
                                
Other (income) expense, net
    
(281,570
)
    
1,244,892
      
1,062,959
      
1,217,385
  
Other (income)-related parties
    
(76,552
)
    
(27,415
)
    
(313,276
)
    
(80,851
)
Non-operating (income) expense
    
150,466
      
(529
)
    
(471
)
    
(232
)
Interest expense, net
    
1,241,843
      
526,509
      
4,143,968
      
925,993
  
Loss from discontinued operations
    
103,008
      
228,812
      
1,693,830
      
341,743
  
OTHER EXPENSE , NET
    
1,137,195
      
1,972,269
      
6,587,010
      
2,404,038
  
                                 
INCOME BEFORE PROVISION FOR INCOME TAXES
    
12,158,801
      
6,686,098
      
25,481,866
      
19,671,913
  
                                 
PROVISION FOR INCOME TAXES
    
3,302,953
      
2,211,265
      
8,093,320
      
6,808,625
  
                                 
NET INCOME
  
$
8,855,848
    
$
4,474,833
    
$
17,388,546
    
$
12,863,288
  
                                 
OTHER COMPREHENSIVE INCOME:
                                
Unrealized holding (loss) gain
  
$
(200,025
)
  
$
(270,351
)
  
$
(2,147,642
)
  
$
1,347,852
  
Foreign currency translation adjustment
    
(201,173
)
    
1,960,948
      
378,284
      
3,428,779
  
                                 
COMPREHENSIVE INCOME
  
$
8,454,650
    
$
6,165,430
    
$
15,619,188
    
$
17,639,919
  
                                 
BASIC WEIGHTED AVERAGE NUMBER OF SHARES
    
10,277,762
      
9,740,129
      
9,937,189
      
6,507,435
  
                                 
BASIC EARNINGS PER SHARE
  
$
0.86
    
$
0.46
    
$
1.75
    
$
1.98
  
                                 
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES
    
14,632,762
      
10,240,129
      
14,305,589
      
6,854,013
  
                                 
DILUTED EARNINGS (LOSS)  PER SHARE
  
$
(1.49)
    
$
(0.01)
    
$
(0.86)
    
$
1.18
  

The accompanying notes are an integral part of these consolidated financial statements.

 
4
 

JIANGBO PHARMACEUTICALS, INC.  AND SUBSIDIARIES
(FORMERLY KNOWN AS GENESIS PHARMACEUTICALS ENTERPRISES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the Nine Months Ended
  
   
March 31,
  
   
2009
    
2008
  
CASH FLOWS FROM OPERATING ACTIVITIES:
        
Net income
  
$
17,388,546
    
$
12,863,288
  
Loss from discontinued operations
    
1,693,830
      
341,743
  
Income from continuing operations
    
19,082,376
      
13,205,031
  
Adjustments to reconcile net income to cash, net of acquisition, provided by operating activities:
                
Depreciation
    
464,094
      
375,456
  
Amortization of intangible assets
    
371,925
      
113,578
  
Amortization of deferred debt issuance costs
    
510,227
      
47,583
  
Amortization of debt discount
    
2,679,526
      
671,296
  
Bad debt expense
    
368,840
      
(112,459
)
Realized (gain) loss on marketable securities
    
(106,865
)
    
19,819
  
Unrealized loss on marketable securities
    
1,255,522
      
1,150,516
  
Other non-cash settlement
    
(20,000
)
    
-
  
Stock-based compensation
    
43,340
      
28,750
  
Changes in operating assets and liabilities
                
Accounts receivable
    
2,353,566
      
(7,246,740
)
Accounts receivable - related parties
    
488,646
      
(1,403,383
)
Notes receivables
    
-
      
59,790
  
Inventories
    
205,471
      
27,542
  
Other receivables
    
63,170
      
(254,886
)
Other receivables - related parties
    
(317,303
)
    
(81,384
)
Advances to suppliers and other assets
    
1,602,693
      
(391,526
)
Accounts payable
    
3,171,180
      
1,159,105
  
Accrued liabilities
    
682,145
      
301,290
  
Other payables
    
194,283
      
2,146,659
  
Other payables - related parties
    
(58,580
)
    
(962,509
)
Customer deposit
    
4,100,600
      
-
  
Liabilities assumed from reorganization
    
(1,164,323
)
    
(1,162,133
)
Taxes payable
    
5,107,831
      
10,006,057
  
Net cash provided by operating activities
    
41,078,364
      
17,697,452
  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
          
Cash used in acquisition
    
(8,581,970
)
    
-
  
Proceeds from sale of marketable securities
    
167,623
      
605,882
  
Prepayment for land use rights
    
-
      
(8,246,830
)
Cash receipt from reverse acquisition
    
-
      
534,950
  
Purchase of equipment
    
(130,814
)
    
(401,302
)
Net cash used in investing activities
    
(8,545,161
)
    
(7,507,300
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
          
Change in restricted cash
    
4,149,305
      
(5,361,849
)
Proceeds from sale of common stock and options exercised
    
-
      
337,500
  
Proceeds from sale of treasury stock
    
-
      
1,977
  
Proceeds from convertible debt
    
-
      
5,000,000
  
Payments on debt issuance costs
    
-
      
(354,408
)
Dividends paid
    
-
      
(10,520,000
)
Proceeds from bank loans
    
2,196,750
      
3,255,360
  
Payments for bank loans
    
(2,782,550
)
    
(5,425,600
)
Proceeds from officers
    
-
      
27,128
  
Proceeds from notes payable
    
7,009,097
      
10,729,040
  
Principal payments on notes payable
    
(9,161,912
)
    
(5,367,191
)
Net cash provided by (used in) financing activities
    
1,410,690
      
(7,678,043
)
                 
EFFECTS OF EXCHANGE RATE CHANGE IN CASH
    
198,836
      
1,324,727
  
                 
 INCREASE IN CASH
    
34,142,729
      
3,836,836
  
                 
CASH, beginning
    
48,195,798
      
17,737,208
  
                 
CASH, ending
  
$
82,338,527
    
$
21,574,044
  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  
Interest paid
  
$
1,130,837
    
$
331,431
  
Income taxes paid
  
$
4,883,039
    
$
3,615,867
  
Non-cash investing and financing activities:
                
Common stock issued to acquire Hongrui
  
$
2,597,132
    
$
-
  

The accompanying notes are an integral part of these consolidated financial statements.

 
5
 
 
JIANGBO PHARMACEUTICALS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS GENESIS PHARMACEUTICALS ENTERPRISES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009
(UNAUDITED)
 Note 1 - Organization and business

Jiangbo Pharmaceuticals, Inc. (the “Company” or “Jiangbo”) was originally incorporated in the state of Florida on August 15, 2001, under the name Genesis Technology Group, Inc. with the principal business objective of operating as a business development and marketing firm that specializes in advising and providing a turnkey solution for small and mid-sized Chinese companies entering western markets. On October 12, 2007, after a share exchange transaction, the Company’s corporate name was changed to Genesis Pharmaceuticals Enterprises, Inc. (“Genesis”).

Pursuant to a Certificate of Amendment to the Amended and Restated Articles of Incorporation filed with the State of Florida which took effect as of April 16, 2009, the Company's name was changed from "Genesis Pharmaceuticals Enterprises, Inc." to "Jiangbo Pharmaceuticals, Inc." (the "Corporate Name Change").  The Corporate Name Change was approved and authorized by the Board of Directors of the Company as well as the holders of a majority of the outstanding shares of the Company’s voting stock by written consent.

As a result of the Corporate Name Change, the stock symbol changed to "JGBO" with the opening of trading on May 12, 2009 on the OTCBB.

On October 1, 2007, the Company completed a share exchange transaction by and among the Company, Karmoya International Ltd. (“Karmoya”), a British Virgin Islands company, and Karmoya’s shareholders. As a result of the share exchange transaction, Karmoya, a company which was established as a “special purpose vehicle” for the foreign capital raising activities of its Chinese subsidiaries, became our wholly-owned subsidiary and our new operating business. Karmoya was incorporated under the laws of the British Virgin Islands on July 17, 2007, and owns 100% of the capital stock of Union Well International Limited (“Union Well”), a Cayman Islands company. Karmoya conducts its business operations through Union Well’s wholly-owned subsidiary, Genesis Jiangbo (Laiyang) Biotech Technology Co., Ltd. (“GJBT”). GJBT was incorporated under the laws of the People’s Republic of China ("PRC") on September 16, 2007, and registered as a wholly foreign owned enterprise (“WOFE”) on September 19, 2007. GJBT has entered into consulting service agreements and equity-related agreements with Laiyang Jiangbo Pharmaceutical Co., Ltd. (“Laiyang Jiangbo”), a PRC limited liability company incorporated on August 18, 2003.

As a result of the share exchange transaction, our primary operations consist of the business and operations of Karmoya and its subsidiaries, which are conducted by Laiyang Jiangbo in the PRC. Laiyang Jiangbo produces and sells western pharmaceutical products in China and focuses on developing innovative medicines to address various medical needs for patients worldwide.

Note 2 - Summary of significant accounting policies

Restatement

The Company previously excluded the dilutive effect of its May 2008 convertible debentures from the diluted earnings per share calculation for the periods ended March 31, 2009 and the dilutive effect of its November 2007 convertible debentures was excluded from the diluted earnings per share calculation for the three months ended March 31, 2008. The Company has revised its accounting to include the dilutive effect of the November 2007 and May 2008 convertible debentures in its diluted earnings per share calculation. The interest expense and amortization expenses on the financing costs and note discounts were added back and all the unamortized financing costs and debt discounts at beginning of the periods were subtracted from the March 31, 2009 and 2008 diluted earnings per share calculation.

The restatement had no effect on the Company’s consolidated balance sheet, consolidated statement of cash flow, and consolidated statements of shareholders’ equity as of and for the periods March 31, 2009 and 2008. The Company’s consolidated statement of income and other comprehensive income for the periods ended March 31, 2009 and 2008 have been restated as follows:

 
6
 

Diluted earnings (loss) per share
 
   
Original
    
Increase 
(Decrease)
    
Restated
  
For the three months ended March 31,2009:
  
 
   
  
        
Net income for basic earnings per share
   $ 8,855,848     $ -     $ 8,855,848  
Add: interest expense
     75,000       447,600       522,600  
Add: financing cost amortization
     29,534       140,542       170,076  
Add: note discount amortization
     219,362       813,929       1,033,291  
Subtract: unamortized financing cost at beginning of the period
     (218,223 )     (1,358,570 )     (1,576,793 )
Subtract: unamortized debt discount at beginning of the period
     (4,134,724 )     (26,718,998 )     (30,853,722 )
Net income (loss) for diluted earnings per share
   $ 4,826,797     $ (26,675,497 )   $ (21,848,700 )
Weighted average shares used in basic computation
     10,277,762       —       10,277,762  
Diluted effect of stock options and warrants
     4,481       (4,481 )     -  
Diluted effect of convertible notes
     625,000       3,730,000       4,355,000  
Weighted average shares used in diluted computation
     10,907,243       3,725,519       14,632,762  
                         
Earnings (loss) per share:
                        
Basic
   $ 0.86     $ -     $ 0.86  
Diluted
   $ 0.44     $ (1.93 )   $ (1.49 )

   
Original
    
Increase
(Decrease)
    
Restated
  
For the three months ended March 31, 2008:
                  
Net income for basic earnings per share
   $ 4,474,833     $ -     $ 4,474,833  
Add: interest expense
     -       75,000       75,000  
Add: financing cost amortization
     -       29,534       29,534  
Add: note discount amortization
     -       466,667       416,667  
Subtract: unamortized financing cost at beginning of the period
     -       (336,359 )     (336,359 )
Subtract: unamortized debt discount at beginning of the period
     -       (4,745,370 )     (4,745,370 )
Net income (loss) for diluted earnings per share
   $ 4,474,833     $ (4,560,528 )   $ (85,695 )
Weighted average shares used in basic computation
     9,740,129       -       9,740,129  
Diluted effect of stock options and warrants
     -       -       -  
Diluted effect of convertible notes
     -       500,000       500,000  
Weighted average shares used in diluted computation
     9,740,129       500,000       10,240,129  
                         
Earnings (loss) per share:
                        
Basic
   $ 0.46     $ -     $ 0.46  
Diluted
   $ 0.46     $ (0.47 )   $ (0.01 )

 
7
 
 
Diluted earnings (loss) per share
 
   
Original
    
Increase
(Decrease)
    
Restated
  
For the nine months ended March 31,2009:
  
 
   
 
   
 
 
Net income for basic earnings per share
   $ 17,388,546     $ -     $ 17,388,546  
Add: interest expense
       225,000         1,370,932       1,595,932  
Add: financing cost amortization
       88,602         421,625         510,227  
Add: note discount amortization
       539,279         2,140,247         2,679,526  
Subtract: unamortized financing cost at beginning of the period
       (277,291 )       (1,639,652 )        (1,916,943 )
Subtract: unamortized debt discount at beginning of the period      (4,454,641 )      (28,045,316 )     (32,499,957 )
Net income (loss) for diluted earnings per share
   $ 13,509,495     $ (25,752,164 )    $ (12,242,669 )
Weighted average shares used in basic computation
       9,937,189         —         9,937,189  
Diluted effect of stock options and warrants
     37,429       (37,429 )     -  
Diluted effect of convertible notes
       625,000         3,743,000         4,368,400   
Weighted average shares used in diluted computation     10,599,618         3,705,971       14,305,589  
                         
Earnings (loss) per share:
                        
Basic
   $ 1.75     $ -     $ 1.75  
Diluted
   $ 1.27     $ (2.13 )   $ (0.86 )

   
Original
    
Increase
(Decrease)
    
Restated
  
For the nine months ended March 31,2008:                   
Net income for basic earnings per share
   $ 12,863,288     $ -     $ 12,863,288  
Add: interest expense
       100,000       -       100,000  
Add: financing cost amortization
       47,583       -         47,583  
Add: note discount amortization
       434,006       -         434,006  
Subtract: unamortized financing cost at beginning of the period
     (354,408 )     -         (354,408 )
Subtract: unamortized debt discount at beginning of the period     (5,000,000 )      -       (5,000,000 )
Net income for diluted earnings per share
   $ 8,090,469     $ -     $ 8,090,469  
Weighted average shares used in basic computation
       6,507,435               6,507,435  
Diluted effect of stock options and warrants
     74,356       -       74,356  
Diluted effect of convertible notes
       500,000       (227,778 )       272,222   
Weighted average shares used in diluted computation     7,081,791       (227,778 )     6,854,013  
                         
Earnings per share:
                        
Basic
   $ 1.98     $ -     $ 1.98  
Diluted
   $ 1.14     $ 0.04     $ 1.18  
 
Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, the accompanying consolidated balance sheets, and related interim consolidated statements of income, and cash flows include all adjustments, consisting only of normal recurring items, however, these consolidated financial statements are not indicative of a full year of operations. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended June 30, 2008 included in the Company’s Annual Report on Form 10-K.

 
8
 

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the following entities, and all significant intercompany transactions and balances have been eliminated in consolidation:

Consolidated entity name:
  
Percentage of ownership
  
Karmoya International Ltd.
     100 %
Union Well International Limited
     100 %
Genesis Jiangbo (Laiyang) Biotech Technology Co., Ltd.
     100 %
Laiyang Jiangbo Pharmaceuticals Co., Ltd.
  
Variable Interest Entity
  

Financial Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) 46 (revised December 2003),  “Consolidation of Variable Interest Entities, an Interpretation of ARB No.51”  (“FIN 46R”), addresses whether certain types of entities, referred to as variable interest entities (“VIEs”), should be consolidated in a company’s consolidated financial statements. In accordance with the provisions of FIN 46R, the Company has determined that Laiyang Jiangbo is a VIE, and the Company is the primary beneficiary, and accordingly, the financial statements of Laiyang Jiangbo are consolidated into the financial statements of the Company.

Reverse stock split

In July 2008, the Company approved a 40-to-1 reverse stock split, effective September 4, 2008, and a new trading symbol “GNPH” also became effective on that day. The accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. All share representations are on a post-split basis.

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the local currency, the Chinese Renminbi (“RMB”). In accordance with Statement of Financial Accounting Standards (“SFAS”) 52,  “Foreign Currency Translation,”  results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rates as quoted by the People’s Bank of China at the end of the period, and equity is translated at historical exchange rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Asset and liability accounts at March 31, 2009 were translated at 6.83 RMB to $1.00 as compared to 6.85 RMB at June 30, 2008. Equity accounts were stated at their historical rates. The average translation rates applied to statements of income for the three months ended March 31, 2009 and 2008 were 6.83 RMB and 7.18 RMB to $1.00, respectively. The average translation rates applied to statements of income for the nine months ended March 31, 2009 and 2008 were 6.83 RMB and 7.40 RMB to $1.00.

In accordance with SFAS 95, "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Use of estimates

The preparation of financial statements in conformity with US 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 date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation of the Company’s consolidated financial statements relate to the assessment of the carrying values of accounts receivable and related allowance for doubtful accounts, allowance for obsolete inventory, sales returns, fair value of warrants and beneficial conversion features related to the convertible notes, and fair value of stock based compensation. Actual results could be materially different from these estimates upon which the carrying values were based.

 
9
 

Revenue recognition

Product sales are generally recognized when title to the product has transferred to customers in accordance with the terms of the sale. The Company recognizes revenue in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “ Revenue Recognition in Financial Statements,”  as amended by SAB No. 104 (together, “SAB 104”), and SFAS 48  “Revenue Recognition When Right of Return Exists.”  SAB 104 states that revenue should not be recognized until it is realized or realizable and earned. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

The Company is generally not contractually obligated to accept returns. However, on a case by case negotiated basis, the Company permits customers to return their products. In accordance with SFAS 48, revenue is recorded net of an allowance for estimated returns. Such reserves are based upon management's evaluation of historical experience and estimated costs. The amount of the reserves ultimately required could differ materially in the near term from amounts included in the accompanying consolidated statements of income.

Financial instruments

SFAS 107, “Disclosures about Fair Value of Financial Instruments,” defines financial instrument and requires fair value disclosures about those instruments.  SFAS 157,  “Fair Value Measurements,”  adopted July 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures .   Investments, receivables, payables, short term loans and convertible debt all qualify as financial instruments.  Management concluded the receivables, payables and short term loans approximate their fair values because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their stated rates of interest are equivalent to rates currently available.

The three levels of valuation hierarchy are defined as follows:

·
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,”  SFAS 133,  “Accounting for Derivative Instruments and Hedging Activities,”  and EITF 00-19,  “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”   Further, as required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Depending on the product and the terms of the transaction, the fair value of notes payable and derivative liabilities were modeled using a series of techniques, including closed-form analytic formula, such as the Black-Scholes option-pricing model, which does not entail material subjectivity because the methodology employed does not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets.

The following table sets forth by level within the fair value hierarchy the financial assets and liabilities that were accounted for at fair value on a recurring basis.
 
   
Carrying Value
at March 31, 2009
    
Fair Value Measurements at
March 31, 2009,
Using Fair Value Hierarchy
  
         
Level 1
    
Level 2
    
Level 3
  
Investments
  
$
672,682
    
$
672,682
    
$
-
    
$
-
  
Investments, restricted
    
400,050
      
400,050
      
-
      
-
  
$5M Convertible Debt (November 2007)
    
1,084,638
      
-
      
-
      
5,288,577
  
$29.8M Convertible Debt (May 2008)
    
3,934,931
      
-
      
-
      
32,608,278
  
Total
  
$
6,092,301
    
$
1,072,732
    
$
-
    
$
37,896,855
  

The Company did not identify any other non-recurring assets and liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with SFAS 157.

 
10
 

SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115,”  became effective for the Company on July 1, 2008. SFAS 159 provides the Company with the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis with the difference between the carrying value before election of the fair value option and the fair value recorded upon election as an adjustment to beginning retained earnings. The Company chose not to elect the fair value option.

Stock-based compensation

The Company accounts for stock-based compensation pursuant to SFAS 123R, "Share Based Payment.” SFAS 123R requires companies to measure compensation cost for stock-based employee compensation plans at fair value at the grant date and recognize the expense over the employee's requisite service period. Under SFAS 123R, the Company’s expected volatility assumption is based on the historical volatility of Company’s stock or the expected volatility of similar entities. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. SFAS 123R requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The Company uses the Black-Scholes option-pricing model which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes option-pricing model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS 123R using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Comprehensive income

SFAS 130, “Reporting Comprehensive Income,” establishes standards for reporting and display of comprehensive income and its components in financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in financial statements that are displayed with the same prominence as other financial statements. The accompanying consolidated financial statements include the provisions of SFAS 130.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. The Company considers all highly liquid instruments with original maturities of three months or less, and money market accounts to be cash and cash equivalents.

The Company maintains cash deposits in financial institutions that exceed the amounts insured by the U.S. government. Balances at financial institutions or state-owned banks within the PRC are not covered by insurance. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. As of March 31, 2009 and June 30, 2008, the Company’s bank balances, including restricted cash balances, exceeded government-insured limits by approximately $85,990,000 and $55,576,000, respectively.

 
11
 

Restricted cash

Restricted cash represent amounts set aside by the Company in accordance with the Company’s debt agreements with certain financial institutions. These cash amounts are designated for the purpose of paying down the principal amounts owed to the financial institutions, and these amounts are held at the same financial institutions with which the Company has debt agreements. Due to the short-term nature of the Company’s debt obligations to these banks, the corresponding restricted cash balances have been classified as current in the consolidated balance sheets.

As of March 31, 2009 and June 30, 2008, the Company had restricted cash of approximately $3,714,000 and $7,840,000, respectively, of which approximately $3,714,000 and $5,843,000, respectively, were maintained as security deposits for bank acceptance related to the Company’s notes payable.

Investments and restricted investments

Investments are comprised of marketable equity securities of publicly traded companies and are stated at fair value based on the quoted price of these securities. These investments are classified as trading securities based on the Company’s intent to sell them within the year. Restricted investments are marketable equity securities of publicly traded companies that were acquired through the reverse merger and contained certain SEC Rule 144 restrictions on the securities. These securities are classified as available-for-sale and are reflected as restricted and noncurrent investments as the Company intends to hold them beyond one year. Restricted investments are carried at fair value based on the trade price of these securities.

The following is a summary of the components of the gain/loss on investments and restricted investments for the three months and nine months ended March 31, 2009 and 2008:

   
For the Three Months Ended
    
For the Nine Months Ended
  
   
March 31,
    
March 31,
  
   
2009
    
2008
    
2009
    
2008
  
Investments - trading securities
                        
Realized loss (gain)
  
$
8,263
    
$
84,561
    
$
(106,865
)
  
$
19,819
  
Unrealized loss (gain)
    
(204,134
)
    
1,159,409
      
1,255,522
      
1,150,516
  
                                 
Restricted investments - available for sale securities
                                
Unrealized loss (gain)
    
200,025
      
270,351
      
2,147,642
      
(1,347,852
)

All unrealized gains and losses related to available-for-sale securities have been properly reflected as a component of accumulated other comprehensive income.

Accounts receivable

In the normal course of business, the Company extends credit to its customers without requiring collateral or other security interests. Management reviews its accounts receivables at each reporting period to provide for an allowance against accounts receivable for an amount that could become uncollectible. This review process may involve the identification of payment problems with specific customers. The Company estimates this allowance based on the aging of the accounts receivable, historical collection experience, and other relevant factors, such as changes in the economy and the imposition of regulatory requirements that can have an impact on the industry. These factors continuously change, and can have a material impact on collections and the Company’s estimation process. Certain accounts receivable amounts are charged off against allowances after unsuccessful collection efforts. Subsequent cash recoveries are recognized as income in the period when they occur.

 
12
 

Inventories

Inventories, consisting of raw materials and finished goods related to the Company’s products, are stated at the lower of cost or market utilizing the weighted average method. The Company reviews its inventory periodically for possible obsolete goods or to determine if any reserves are necessary. As of March 31, 2009 and June 30, 2008, the Company has determined that no reserves were necessary.

Advances to suppliers

Advances to suppliers represent partial payments or deposits for future inventory and equipment purchases. These advances to suppliers are non-interest bearing and unsecured. From time to time, vendors require a certain amount of monies to be deposited with them as a guarantee that the Company will receive their purchases on a timely basis. As of March 31, 2009 and June 30, 2008, advances to suppliers amounted to approximately $130,000 and $1,719,000, respectively.

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation.  Major renewals are charged directly to the plant and equipment accounts, while replacements, maintenance, and repairs which do not improve or extend the respective lives of the assets are expensed currently. 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 the results of operations in the period of disposition. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
 
 
Useful Life
Building and building improvements
5 – 40 Years
Manufacturing equipment
5 – 20 Years
Office equipment and furniture
5 – 10 Years
Vehicles
5 Years

Intangible assets

All land in the PRC is owned by the PRC government and cannot be sold to any individual or company. The Company has recorded the amounts paid to the PRC government to acquire long-term interests to utilize land underlying the Company’s facilities as land use rights. This type of arrangement is common for the use of land in the PRC. Land use rights are amortized on the straight-line method over the terms of the land use rights, which range from 20 to 50 years. The Company acquired land use rights in August 2004 and October 2007 in the amounts of approximately $879,000 and $8,871,000, respectively, which are included in intangible assets.

Patents and licenses include purchased technological know-how, secret formulas, manufacturing processes, technical and procedural manuals, and the certificate of drugs production, and is amortized using the straight-line method over the expected useful economic life of five years, which reflects the period over which those formulas, manufacturing processes, technical and procedural manuals are kept secret to the Company as agreed between the Company and the selling parties.

The estimated useful lives of intangible assets are as follows:
 
 
Useful Life
Land use rights
50 Years
Patents
5 Years
Licenses
5 Years
Customer list and customer relationships
3 Years
Trade secrets - formulas and know how technology
5 Years

 
13
 

Impairment of long-lived assets

Long-lived assets of the Company are reviewed at least annually, more often if circumstances dictate, to determine whether their carrying values have become impaired. The Company considers assets to be impaired if the carrying values exceed the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2009, the Company expects these assets to be fully recoverable.

Beneficial conversion feature of convertible notes

The Company accounts for the $5,000,000 and $30,000,000 secured convertible notes issued pursuant to the subscription agreements discussed in Note 14 under EITF 00-27,  ‘‘Application of Issue 98-5 to Certain Convertible Instruments.”  In accordance with EITF 00-27, the Company has determined that the convertible notes contained beneficial conversion feature because on November 6, 2007, the effective conversion price of the $5,000,000 convertible note was $5.48 when the market value per share was $16.00, and on May 30, 2008, the effective conversion price of the $30,000,000 convertible note was $4.69 when the market value per share was $12.00. Total value of beneficial conversion feature of $2,904,092 for the November 6, 2007 convertible note and $19,111,323 for the May 30, 2008 convertible debt was discounted from the carrying value of the convertible notes. The beneficial conversion feature is amortized using the effective interest method over the term of the note. As of March 31, 2009 and June 30, 2008, $18,776,786 and $20,453,441, respectively, remained unamortized relating to the beneficial conversion features.

Income taxes

The Company accounts for income taxes in accordance with SFAS 109, “Accounting for Income Taxes” and FIN 48,  "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109."  Under the asset and liability method as required by SFAS 109, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS 109, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. Since the Company’s operations are domiciled in the PRC, and the taxable income mirrors that of GAAP income, there are no temporary differences that would result in deferred tax assets or liabilities. As such, no valuation allowances were necessary at March 31, 2009 and June 30, 2008.

FIN 48 clarifies the accounting and disclosure for uncertain tax positions and prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under FIN 48, evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The Company’s operations are subject to income and transaction taxes in the United States and in the PRC jurisdictions. Significant estimates and judgments are required in determining the Company’s worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, and as a result the ultimate amount of tax liability may be uncertain. However, the Company does not anticipate any events that would lead to changes to these uncertainties.

 
14
 

Value added tax

The Company is subject to value added tax (“VAT”) for manufacturing products and business tax for services provided. The applicable VAT rate is 17% for products sold in the PRC. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under the commercial practice of the PRC, the Company paid     VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued. In the event that the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty, which can range from zero to five times the amount of the taxes which are determined to be late or deficient, and will be charged to operations in the period if and when a determination is been made by the taxing authorities that a penalty is due.

VAT on sales and VAT on purchases amounted to approximately $4,372,000 and $712,000, respectively, for the three months ended March 31, 2009, and approximately $4,807,000 and $259,000, respectively, for the three months ended March 31, 2008. VAT on sales and VAT on purchases amounted to approximately $14,659,000 and $1,867,000, respectively, for the nine months ended March 31, 2009, and approximately $12,114,000 and $443,000, respectively, for the nine months ended March 31, 2008. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT is not impacted by the income tax holiday.

Shipping and handling

Shipping and handling costs related to costs of goods sold are included in selling, general and administrative expenses. Shipping and handling costs amounted to approximately $153,000 and $107,000 for the three months ended March 31, 2009 and 2008, respectively. Shipping and handling costs amounted to approximately $405,000 and $253,000 for the nine months ended March 31, 2009 and 2008, respectively.

Advertising

Expenses incurred in the advertisement of the Company and the Company’s products are charged to operations as incurred. Advertising expenses amounted to approximately $1,192,000 and $2,019,000 for the three months ended March 31, 2009 and 2008, respectively, and approximately $2,120,000 and $6,148,000 for the nine months ended March 31, 2009 and 2008, respectively.

Research and development

Research and development costs are expensed as incurred. These costs primarily consist of cost of materials used and salaries paid for the development of the Company’s products and fees paid to third parties to assist in such efforts. Research and development costs amounted to approximately $1,099,000 and $968,000 for the three months ended March 31, 2009 and 2008, respectively, and approximately $3,295,000 and $2,170,000 for the nine months ended March 31, 2009 and 2008, respectively.

Recent accounting pronouncements

In December 2007, the FASB issued SFAS 141(R), “Business Combinations,” which replaced SFAS 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting as well as requiring the expensing of acquisition-related costs as incurred. Furthermore, SFAS 141R provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is evaluating the impact, if any, that the adoption of this statement will have on its consolidated results of operations or consolidated financial position.

 
15
 

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.”  SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It is intended to eliminate the diversity in practice regarding the accounting for transactions between equity and noncontrolling interests by requiring that they be treated as equity transactions. Further, it requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. SFAS 160 also establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated, requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary, among others. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008, with early adoption permitted, and it is to be applied prospectively. SFAS 160 is to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements, which must be applied retrospectively for all periods presented. The Company is currently evaluating the impact that SFAS 160 will have on its consolidated financial position or consolidated results of operations.

In February 2008, the FASB issued FSP No. 157-1 , "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13."  FSP 157-1 indicates that it does not apply under SFAS 13,  "Accounting for Leases,"  and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13. This scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under SFAS 141 or SFAS 141R, regardless of whether those assets and liabilities are related to leases.

Also in February 2008, the FASB issued FSP 157-2, "Effective Date of FASB Statement No. 157." With the issuance of FSP 157-2, the FASB agreed to: (a) defer the effective date in SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), and (b) remove certain leasing transactions from the scope of SFAS 157. The deferral is intended to provide the FASB time to consider the effect of certain implementation issues that have arisen from the application of SFAS 157 to these assets and liabilities.

In March 2008, the FASB issued SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS 161 is intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures to enable financial statement users to better understand the effects of derivatives and hedging on an entity's financial position, financial performance and cash flows. The provisions of SFAS 161 are effective for interim periods and fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company does not anticipate that the adoption of SFAS 161 will have a material impact on its consolidated results of operations or consolidated financial position.

In May 2008, the FASB issued SFAS 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411,  "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The Company does not expect the adoption of SFAS 162 will have a material impact on its consolidated results of operations or consolidated financial position.

On May 9, 2008, the FASB issued FASB FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)."  FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants."  Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact that FSP APB 14-1 will have on its consolidated results of operations or consolidated financial position.

On June 16, 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,”  to address the question of whether instruments granted in share-based payment transactions are participating securities prior to vesting. FSP EITF 03-6-1 indicates that unvested share-based payment awards that contain rights to dividend payments should be included in earnings per share calculations. The guidance will be effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the requirements of FSP EITF 03-6-1 and the impact that its adoption will have on the consolidated results of operations or consolidated financial position.

 
16
 

In June 2008, the FASB issued EITF 07-5, “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.”  EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Paragraph 11(a) of SFAS No. 133  “Accounting for Derivatives and Hedging Activities,”  specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. This standard triggers liability accounting on all options and warrants exercisable at strike prices denominated in any currency other than the functional currency of the operating entity in the PRC (Renminbi). The Company is currently evaluating the impact of the adoption of EITF 07-5 on the accounting for related warrants transactions.

In June 2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to Issue No. 98-5.”  The objective of EITF 08-4 is to provide transition guidance for conforming changes made to EITF 98-5,  “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,”  that result from EITF 00-27 “  Application of Issue No. 98-5 to Certain Convertible Instruments,”  and SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”  EITF 08-4 is effective for financial statements issued for fiscal years ending after December 15, 2008. Early application is permitted. The adoption of EITF08-4 is not expected to have a material impact on the Company’s consolidated results of operations or consolidated financial position.

On October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,”  which clarifies the application of SFAS 157 when the market for a financial asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s internal assumptions should be considered in measuring fair value when observable data are not present, (2) observable market information from an inactive market should be taken into account, and (3) the use of broker quotes or pricing services should be considered in assessing the relevance of observable and unobservable data to measure fair value. The Company is currently evaluating the impact of adoption of FSP 157-3 on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.”  FSP 157-4 amends SFAS 157 and provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. FSP 157-4 shall be applied prospectively with retrospective application not permitted. FSP 157-4 shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP 157-4 must also early adopt FSP 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” Additionally, if an entity elects to early adopt either FSP 107-1 and 28-1, “Interim Disclosures about Fair Value of Financial Instruments” or FSP 115-2 and 124-2, it must also elect to early adopt this FSP. The Company is currently evaluating this new FSP but does not believe that it will have a material impact on the consolidated financial statements.

In April 2009, the FASB issued FSP 115-2 and 124-2. FSP 115-2 amends SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and EITF 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to make the other-than-temporary impairments guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. This FSP will replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This FSP provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this FSP does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP 157-4. Also, if an entity elects to early adopt either FSP 157-4 or FSP 107-1 and 28-1, the entity also is required to early adopt this FSP. The Company is currently evaluating this new FSP but does not believe that it will have a material impact on the consolidated financial statements.

 
17
 

In April 2009, the FASB issued FSP 107-1 and 28-1. This FSP amends SFAS 107, to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only disclosed annually. This FSP applies to all financial instruments within the scope of SFAS 107 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This FSP shall be effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP 157-4 and 115-2 and 124-2. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. The Company is currently evaluating the disclosure requirements of this new FSP.

Reclassifications

Certain amounts in the prior period’s consolidated financial statements have been reclassified to conform to the current period presentation with no impact on the previously reported net income or cash flows.

Note 3 - Acquisition

On January 23, 2009, Laiyang Jiangbo entered into an asset acquisition agreement (the “Agreement”) with Shandong Traditional Chinese Medicine College (the “Medicine College”) and Shandong Hongrui Pharmaceutical Factory (“Shandong Hongrui” or “Hongrui”), a wholly-owned subsidiary of Medicine College,  pursuant to  which Laiyang Jiangbo purchased the majority of the assets owned by Hongrui, including all tangible assets, all manufacturing and office buildings, land, equipment and inventories and all rights to manufacture and distribute Hongrui’s 22 Traditional Chinese Medicines (“TCMs”), for an original contract purchase price of approximately $12 million consisted of approximately $9.6 million in cash and 643,651 shares of Jiangbo’s common stock. The $4.035 fair value of each common share was based on the weighted average trading price of the common stock of 5 days prior to the execution of the Agreement and amounted to $2,597,132. On February 10, 2009, the Agreement was amended to revise the total purchase price to approximately $11 million consisting of approximately $8.6 million in cash. However, the Company is still obligated to issue 643,651 shares of Jiangbo’s common stock to Medicine College within one year of the date of the execution of the Agreement. As of March 31, 2009, Laiyang Jiangbo paid approximately $8.6 million in cash in full. The 643,651 shares of Jiangbo’s common stock issuable to Medicine College in connection with the acquisition of Hongrui have been included in the accompanying consolidated balance sheet as outstanding shares.

The Company accounted for this acquisition using the purchase method of accounting in accordance with SFAS 141, “ Business Combinations .” The purchase price was determined based on an arm's length negotiation and no finder's fees or commissions were paid in connection with this acquisition.

The following represents the allocation of the purchase price to the net assets acquired based on their respective fair values.  The accompanying consolidated financial statements include the acquisition of Hongrui, effective February 5, 2009, under the purchase method of accounting in accordance with SFAS 141.  The following represents the allocation of the purchase price to the net assets acquired based on their respective fair values.

Inventory
  
$
147,250
  
Plant and equipments
    
3,223,808
  
Intangible assets
    
7,810,974
  
Total assets acquired
    
11,182,032
  
Net assets acquired
    
11,182,032
  
Total consideration paid
  
$
11,182,032
  

 
18
 

The following unaudited pro forma consolidated results of operations for the nine months ended March 31, 2009 and 2008, as if the acquisition of Hongrui had been completed as of the beginning of each period presented.  The pro forma information gives effect to actual operating results prior to the acquisition.  The pro forma amounts does not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented and is not intended to be a projection of future results:

   
Nine Months 
Ended
March 31, 2009
    
Nine Months
Ended
March 31, 2008
  
   
RESTATED
    
RESTATED
  
                 
Net Revenues
  
$
93,574,164
    
$
83,101,150
  
Income from Operations
    
32,412,705
      
23,578,314
  
Net Income
    
17,742,804
      
13,895,939
  
Net Income (loss) Per Shares
                
Basic
  
$
1.70
    
$
1.94
  
Diluted
  
$
(0.80
)
  
$
1.22
  
Weighted Average number of shares outstanding
                
Basic
    
10,421,103
      
7,151,086
  
Diluted
    
14,789,503
      
7,497,664
  

 
19
 

Note 4 – Earnings (loss) per share

The Company reports earnings per share in accordance with the provisions of SFAS 128, “Earnings Per Share.” SFAS 128 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

All share and per share amounts used in the Company’s consolidated financial statements and notes thereto have been retroactively restated to reflect the 40-to-1 reverse stock split, which occurred on September 4, 2008.

The following is a reconciliation of the basic and diluted earnings per share computations for the three months ended March 31, 2009 and 2008:

Basic earnings per share

   
2009
    
2008
  
For the three months ended March 31, 2009 and 2008
            
Net income for basic earnings per share
  
$
8,855,848
    
$
4,474,833
  
                 
Weighted average shares used in basic computation
    
10,277,762
      
9,740,129
  
                 
Earnings per share-Basic
  
$
0.86
    
$
0.46
  

Diluted loss per share
   
2009
    
2008
  
   
Restated
    
Restated
  
For the three months ended March 31, 2009 and 2008
            
Net income for basic earnings per share
   $ 8,855,848     $ 4,474,833  
Add: Interest expense
     522,600       75,000  
Add: financing cost amortization
     170,076       29,534  
Add: note discount amortization
     1,033,291       416,667  
Subtract: unamortized financing cost at beginning of the period
     (1,576,793 )     (336,359 )
Subtract: unamortized debt discount at beginning of the period
     (30,853,722 )     (4,745,370 )
Net income (loss) for diluted EPS
     (21,848,700 )     (85,695 )
                 
Weighted average shares used in basic computation
     10,277,762       9,740,129  
Diluted effect of convertible debts
     4,355,000       500,000  
Weighted average shares used in diluted computation
     14,632,762       10,240,129  
                 
Loss per share-Diluted
   $ (1.49 )     (0.01 )
 
The following is a reconciliation of the basic and diluted earnings per share computations for the nine months ended March 31, 2009 and 2008:

 
20
 

Basic earnings per share

   
2009
    
2008
  
For the nine months ended March 31, 2009 and 2008
            
Net income for basic earnings per share
  
$
17,388,546
    
$
12,863,288
  
                 
Weighted average shares used in basic computation
    
9,937,189
      
6,507,435
  
                 
Earnings per share – Basic
  
$
1.75
    
$
1.98
  

Diluted earnings (loss) per share

   
2009
    
2008
  
   
Restated
    
Restated
  
For the nine months ended March 31, 2009 and 2008
            
Net income for basic earnings per share
   $ 17,388,546     $ 12,863,288  
Add: Interest expense
     1,595,932       100,000  
Add: financing cost amortization
     510,227       47,583  
Add: note discount amortization
     2,679,526       434,006  
Subtract: unamortized financing cost at beginning of the period
     (1,916,943 )     (354,408 )
Subtract: unamortized debt discount at beginning of the period
     (32,499,957 )     (5,000,000 )
Net income (loss) for diluted EPS
     (12,242,669 )     8,090,469  
                 
Weighted average shares used in basic computation
     9,937,189       6,507,435  
Diluted effect of stock options and warrants
     -       74,356  
Diluted effect of convertible notes
     4,368,400       272,222  
Weighted average shares used in diluted computation
     14,305,589       6,854,013  
                 
Earnings (loss) per share-Diluted
   $ (0.86 )   $ 1.18  

For the three months and nine months ended March 31, 2009, 140,900 stock options and 2,275,000 warrants with an average exercise price of $4.93 and $9.65, respectively, were not included in diluted per share calculation because of the anti-dilutive effect. For the three months ended March 31, 2008, 133,400 and 324,085 stock options and warrants with an average exercise price of $4.20 and $12.16, respectively, were not included in the diluted per share calculation because of the anti-dilutive effect. For the nine months ended March 31, 2008, 324,085 warrants at an exercise price of $12.15 were not included in the diluted earnings per share calculation because of the anti-dilutive effect.

 
21
 

Note 5 - Discontinued operations

In connection with the reverse merger with Karmoya on October 1, 2007, the Company determined to discontinue its operations of business development and marketing, as it no longer supported its core business strategy. The discontinuance of these operations did not involve any sale of assets or assumption of liabilities by another party. In conjunction with the discontinuance of operations, the Company determined that the assets related to the Company’s business development and marketing operations were subject to the recognition of impairment. However, since the related assets are continuing to be used by the company and its subsidiaries, the Company determined that there had been no impairment. The remaining liabilities of the discontinued operations are reflected in the consolidated balance sheets under the caption "liabilities assumed from reorganization" which amounted to approximately $1,614,000 and $1,084,000 as of March 31, 2009 and June 30, 2008, respectively.

In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the results of operations of a component of entity that has been disposed of or is classified as held for sale shall be reported in discontinued operations. Accordingly, the results of operations of the business development and marketing operation segment are reported as discontinued operations in the accompanying consolidated statements of income for the nine months ended March 31, 2009. As the accompanying consolidated statements of income for the nine months ended March 31, 2009 reflect the results of operations for Karmoya and its subsidiaries, the discontinued operations of the Company did not have any impact on the consolidated statements of income for the period presented.

The following is a summary of the components of the loss from discontinued operations for the three months ended March 31, 2009 and 2008:

   
2009
    
2008
  
Revenues
  
$
-
    
$
-
  
Cost of sales
    
-
      
-
  
Gross profit
    
-
      
-
  
Operating and other non-operating expenses
    
103,008
      
228,812
  
Loss from discontinued operations before other expenses and income taxes
    
103,008
      
228,812
  
Income tax benefit
            
-
  
Loss from discontinued operations
  
$
103,008
    
$
228,812
  

   
2009
    
2008
  
Revenues
  
$
-
    
$
-
  
Cost of sales
    
-
      
-
  
Gross profit
    
-
      
-
  
Operating and other non-operating expenses
    
1,693,830
      
341,743
  
Loss from discontinued operations before other expenses and income taxes
    
1,693,830
      
341,743
  
Income tax benefit
    
-
      
-
  
Loss from discontinued operations
  
$
1,693,830
    
$
341,743
  

 
22
 

 Note 6 - Inventories

Inventories consisted of the following:

   
March 31, 2009
    
June 30, 2008
  
   
(Unaudited)
        
Raw materials
  
$
1,071,627
    
$
2,164,138
  
Work-in-process
    
-
      
531,076
  
Packing materials
    
618,708
      
204,763
  
Finished goods
    
2,173,612
      
1,006,197
  
Total
  
$
3,863,947
    
$
3,906,174
  

Note 7 - Plant and equipment

Plant and equipment consisted of the following:
 
   
March 31,
2009
    
June 30, 2008
  
   
(Unaudited)
        
Buildings and building improvements
   $ 12,798,376     $ 10,926,369  
Manufacturing equipment
     2,579,070       1,188,643  
Office equipment and furniture
     301,126       298,137  
Vehicles
     481,143       380,485  
Total
     16,159,715       12,793,634  
Less: accumulated depreciation
     (1,997,294 )     (1,567,790 )
Total
   $ 14,162,421     $ 11,225,844  

For the three months ended March 31, 2009 and 2008, depreciation expense amounted to approximately $174,000 and $134,000, respectively. For the nine months ended March 31, 2009 and 2008, depreciation expense amounted to approximately $464,000 and $375,000, respectively.

 
23
 

Note 8 - Intangible assets

Intangible assets consisted of the following:

   
March 31, 2009
    
June 30, 2008
  
   
(Unaudited)
        
Land use rights
  
$
11,245,939
    
$
9,930,157
  
Patents
    
4,937,050