UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

FOR THE QUARTERLY PERIOD ENDED September 30, 2006

OR

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

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission file number 000-51409

BEIJING MED-PHARM CORPORATION

(Exact name of registrant as specified in its charter)



| | Delaware(State or other jurisdiction ofincorporation or organization) |  | 20-0434726(I.R.S. Employer
Identification No.) | 
| | --------------------------------------------------------------------- |  | ---------------------------------------------- | 

| |  |  |  | 
| |  |  |  | 

| | 600 W. Germantown Pike, Suite 400Plymouth Meeting, Pennsylvania(Address of principal executive offices) |  | 19462(Zip Code) | 
| | ------------------------------------------------------------------------------------------------------- |  | --------------- | 

(610) 940-1675

(Registrants telephone number, including area code)

Indicate
  by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
  during the preceding 12 months (or for such shorter period that the registrant
  was required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days. Yes    No

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



| | Large accelerated filer | Accelerated filer | Non-accelerated filer | 
| | ----------------------- | ----------------- | --------------------- | 

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

The
  number of shares of common stock of Beijing Med-Pharm Corporation outstanding
  as of November 10, 2006 was 23,172,062.






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BEIJING MED-PHARM CORPORATION

INDEX



Page
          No.Part
          I. FINANCIAL INFORMATIONItem 1.
          Financial Statements (unaudited)Condensed
          Consolidated Balance Sheets as of September 30, 2006 (Unaudited) and
          December 31, 2005
      3Condensed
          Consolidated Statements of Operations (Unaudited) for the three and
          nine months ended September 30, 2006 and 2005
      4Condensed
          Consolidated Statements of Stockholders Equity (Unaudited) for the three
          and nine months ended September 30, 2006
      5Condensed
          Consolidated Statements of Cash Flows (Unaudited) for the nine months
          ended September 30, 2006 and 2005
      6Notes
          to Condensed Consolidated Financial Statements (Unaudited)
      7Item 2.
          Managements Discussion and Analysis of Financial Condition and
          Results Of Operations
      13Item 3.
          Quantitative and Qualitative Disclosures About Market Risk
      19Item 4.
          Controls and Procedures
      20Part
          II OTHER INFORMATIONItem 1A. Risk Factors
      21Item 6.
          Exhibits
      22SIGNATURES


2

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BEIJING MED-PHARM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



(Unaudited)September 30,2006
      
      December
          31,2005AssetsCurrent
          Assets:Cash
          and Cash Equivalents
      
      $
      3,794,496
      
      $
      6,905,911Restricted
          Cash
      
      
      108,000
      
      
      108,000Accounts
          Receivable
      
      
      7,015,846
      
      
      5,100,851Inventory
      
      
      1,477,967
      
      
      1,282,867Other
          Receivables
      
      
      143,056
      
      
      138,084Value
          Added Tax Receivable
      
      
      530,240
      
      
      405,629Prepaid
          Expenses and Other Current Assets
      
      
      683,051
      
      
      902,047Total
          Current Assets
      
      
      13,752,656
      
      
      14,843,389Restricted
          Cash
      
      
      157,000
      
      
      157,000Property
          and Equipment, Net
      
      
      319,202
      
      
      355,005Investments,
          at Cost
      
      
      126,582
      
      
      120,482Intangible
          Assets, net of accumulated amortization
      
      
      787,596
      
      
      984,390Goodwill
      
      
      216,415
      
      
      216,415Total
          Assets
      
      $
      15,359,451
      
      $
      16,676,681Liabilities
          and Stockholders EquityCurrent
          Liabilities:Notes
          Payable
      
      $
      661,156
      
      $
      663,655Accounts
          Payable
      
      
      6,583,209
      
      
      5,933,977Accounts
          Payable Wanhui Group
      
      
      252,554
      
      
      664,643Deferred
          Revenue
      
      
      17,930
      
      
      17,552Accrued
          Payroll
      
      
      451,551
      
      
      475,835Accrued
          Professional Fees
      
      
      10,000
      
      
      174,650Accrued
          Other
      
      
      785,660
      
      
      656,564Contract
          Allowance
      
      
      456,726
      
      
      447,105Total
          Current Liabilities
      
      
      9,218,786
      
      
      9,033,981Notes
          Payable, long term
      
      
      162,952
      
      
      243,872Stockholders
          Equity:Common
          Stock, $.001 Par Value; 50,000,000 SharesAuthorized;
          23,154,562 Shares Issued and Outstanding
      
      
      23,155
      
      
      21,882Additional
          Paid in Capital
      
      
      18,527,492
      
      
      14,707,590Common
          Stock Warrants
      
      
      1,245,975
      
      
      1,812,812Accumulated
          Deficit
      
      
      (13,871,981
      )
      
      (9,168,334
      )Accumulated
          Other Comprehensive Income
      
      
      53,072
      
      
      24,878Total
          Stockholders Equity
      
      
      5,977,713
      
      
      7,398,828Total
          Liabilities and Stockholders Equity
      
      $
      15,359,451
      
      $
      16,676,681


See notes to condensed consolidated financial statements.



3

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BEIJING
  MED-PHARM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



Three months endedSeptember 30,


      

        Nine months endedSeptember 30,2006


      

        2005


      

        2006


      

        2005Net Revenues


      


      $


      6,898,886


      


      $


      23,086


      


      $


      17,020,467


      


      $


      123,839Cost of Sales

        

        

        6,683,601

        

        

        85,874

        

        

        16,457,460

        

        

        784,433Gross Margin

        

        

        215,285

        

        

        (62,788

        )

        

        563,007

        

        

        (660,594

        )Sales and Marketing Expenses

        

        

        295,593

        

        

        14,172

        

        

        885,198

        

        

        35,367General & Administration Expenses

        

        

        1,116,760

        

        

        1,097,083

        

        

        4,055,413

        

        

        3,076,765Loss on Disposal of Asset

        

        

        407,348

        

        

        

        

        

        407,348

        

        

        Total Operating Expenses

        

        

        1,819,701

        

        

        1,111,255

        

        

        5,347,959

        

        

        3,112,132Loss From Operations

        

        

        (1,604,416

        )

        

        (1,174,043

        )

        

        (4,784,952

        )

        

        (3,772,726

        )Other Income (Expense):Interest Income

        

        

        31,763

        

        

        42,639

        

        

        123,985

        

        

        124,525Interest Expense

        

        

        (27,519

        )

        

        

        

        

        (51,108

        )

        

        (17,252

        )Other Income (Expense)

        

        

        45,706

        

        

        10,274

        

        

        42,291

        

        

        (919

        )Total Other Income

        

        

        49,950

        

        

        52,913

        

        

        115,168

        

        

        106,354Loss Before Provision For Income Taxes

        

        

        (1,554,466

        )

        

        (1,121,130

        )

        

        (4,669,784

        )

        

        (3,666,372

        )Provision For Income Taxes

        

        

        

        

        

        

        

        

        33,863

        

        

        15,000Net Loss

        

        $

        (1,554,466

        )

        $

        (1,121,130

        )

        $

        (4,703,647

        )

        $

        (3,681,372

        )Basic and Diluted Loss Per Share

        

        $

        (0.07

        )

        $

        (0.06

        )

        $

        (0.21

        )

        $

        (0.21

        )Basic and Diluted Weighted-average Shares Outstanding

        

        

        23,154,067

        

        

        17,680,916

        

        

        22,612,327

        

        

        17,680,916


See notes to condensed consolidated financial statements.

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BEIJING
  MED-PHARM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYAND OTHER COMPREHENSIVE LOSS (Unaudited)



Common
          Stock
      
      Additional
          Paid-in Capital
      
      Common
          Stock Warrants
      
      Accumulated
          Deficit
      
      Accumulated
          Other Comprehensive Income Foreign Currency Translation
      
      Total
          Stockholders EquityNumberof Shares
      
      $.001
          Par ValueBalance
          as of December 31, 2005
      
      21,880,897
      
      $
      21,882
      
      $
      14,707,590
      
      $
      1,812,812
      
      $
      (9,168,334
      )
      $
      24,878
      
      $
      7,398,828Stock-Based
          Compensation
      
      
      
      
      
      
      
      287,378
      
      
      
      
      
      
      
      
      
      
      
      287,378Series
          A Warrant Exercise
      
      97,247
      
      
      97
      
      
      934,329
      
      
      (58,510
      )
      
      
      
      
      
      
      
      875,916Net
          Loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,537,696
      )
      
      
      
      
      (1,537,696
      )Other
          Comprehensive IncomeForeign
          Currency Translation
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      10,500
      
      
      10,500Total
               Comprehensive Loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,527,196
      )Balance
          as of March 31, 2006 (Unaudited)
      
      21,978,144
      
      $
      21,979
      
      $
      15,929,297
      
      $
      1,754,302
      
      $
      (10,706,030
      )
      $
      35,378
      
      $
      7,034,926Stock-Based
          Compensation
      
      
      
      
      
      
      
      279,646
      
      
      
      
      
      
      
      
      
      
      
      279,646Series
          A and B Warrant and Option Exercise
      
      1,173,888
      
      
      1,174
      
      
      2,216,711
      
      
      (502,483
      )
      
      
      
      
      
      
      
      1,715,402Net
          Loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,611,485
      )
      
      
      
      
      (1,611,485
      )Other
          Comprehensive IncomeForeign
          Currency Translation
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,171
      
      
      1,171Total
          ComprehensiveLoss
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,610,314
      )Balance
          as of June 30, 2006 (Unaudited)
      
      23,152,032
      
      $
      23,153
      
      $
      18,425,654
      
      $
      1,251,819
      
      $
      (12,317,515
      )
      $
      36,549
      
      $
      7,419,660Stock-Based
          Compensation
      
      
      
      
      
      
      
      93,086
      
      
      
      
      
      
      
      
      
      
      
      93,086Warrant
          Exercise and Forfeiture
      
      2,530
      
      
      2
      
      
      8,752
      
      
      (5,844
      )
      
      
      
      
      
      
      
      2,910Net
          Loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,554,466
      )
      
      
      
      
      (1,554,466
      )Other
          Comprehensive IncomeForeign
          Currency Translation
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      16,523
      
      
      16,523Total
          Comprehensive Loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,537,943
      )Balance
          as of September 30, 2006 (Unaudited)
      
      23,154,562
      
      $
      23,155
      
      $
      18,527,492
      
      $
      1,245,975
      
      $
      (13,871,981
      )
      $
      53,072
      
      $
      5,977,713


See notes to condensed consolidated financial statements.

5

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BEIJING
  MED-PHARM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



For
          the nine months ended September 30
      
      2006
      
      2005Cash
          Flows from Operating Activities:Net
          Loss
      
      $
      (4,703,647
      )
      $
      (3,681,372
      )Adjustments
          to Reconcile Net Loss to Net Cash Used In Operating Activities:Depreciation
      
      
      65,851
      
      
      6,494Amortization
          of Intangible Assets
      
      
      196,794
      
      
      Loss
          on assets disposed
      
      
      407,348
      
      
      11,384Stock-Based
          Compensation
      
      
      660,110
      
      
      299,308(Increase)
          Decrease in Accounts Receivable
      
      
      (1,914,995
      )
      
      31,771(Increase)
          in Inventory
      
      
      (195,100
      )
      
      -(Increase)
          Decrease in Other Receivables
      
      
      (4,972
      )
      
      200(Increase)
          in Value Added Tax Receivable
      
      
      (124,611
      )
      
      -(Increase)
          in Prepaid Expenses and Other Current Assets
      
      
      (8,986
      )
      
      (79,930
      )Increase
          (Decrease) in Accounts Payable
      
      
      649,232
      
      
      (82,534
      )Increase
          in Deferred Revenues
      
      
      378
      
      
      -(Decrease)
          in Accrued Payroll
      
      
      (24,284
      )
      
      (66,295
      )(Decrease)
          in Accrued Professional Fees
      
      
      (164,650
      )
      
      (210,171
      )Increase
          in Contract Allowance
      
      
      9,621
      
      
      459,678Increase
          in Accrued Other
      
      
      129,096
      
      
      251,511Net
          Cash Used in Operating Activities
      
      
      (5,022,815
      )
      
      (3,059,956
      )Cash
          Flows from Investing Activities:Acquisition
          of Property and Equipment
      
      
      (209,414
      )
      
      (6,731
      )Acquisition
          Payment to Wanhui
      
      
      (412,089
      )
      
      Net
          Cash Used in Investing Activities
      
      
      (621,503
      )
      
      (6,731
      )Cash
          Provided by Financing Activities:Gross
          Proceeds from exercise of Common Stock Warrants and Options
      
      
      2,594,228
      
      
      Repayments
          of Note Payable
      
      
      (83,419
      )
      
      Net
          Cash Provided by Financing Activities
      
      
      2,510,809
      
      
      Effect
          of Exchange Rate Change on Cash
      
      
      22,094
      
      
      (13,500
      )Net
          Decrease in Cash and Equivalents
      
      
      (3,111,415
      )
      
      (3,080,187
      )Cash
          and Equivalents, Beginning
      
      
      6,905,911
      
      
      6,267,672Cash
          and Equivalents, Ending
      
      $
      3,794,496
      
      $
      3,187,485Supplemental
          Disclosure of Cash Flows InformationCash
          Paid During the Year for:Income
          Taxes
      
      $
      50,290
      
      $
      15,000Interest
      
      
      51,793
      
      
      


See notes to condensed consolidated financial statements.

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BEIJING MED-PHARM CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements as of September 30, 2006 and for the three and nine months ended September 30, 2006 and 2005 of Beijing Med-Pharm Corporation and Subsidiaries (collectively, the Company ) include the accounts of Beijing Med-Pharm Corporation (the Parent) and its wholly-owned subsidiaries, Beijing Med-Pharm Market Calculating Co. Ltd. (BMP China), Beijing Wanwei Pharmaceutical Co., Ltd. (Wanwei) and Beijing Med-Pharm Hong Kong Co., Ltd. (Hong Kong) should be read in conjunction with the audited consolidated financial statements and accompanying footnotes of the Company as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005, filed
with the Securities and Exchange Commission (the SEC) on March 31, 2006. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments, consisting principally of normal recurring adjustments, necessary for a fair presentation of the Companys interim results. Certain information and footnote disclosures required for complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to applicable rules and regulations. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year.

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

Accounting Policy:Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (FAS) No. 123 (Revised 2004), Share-Based Payment (FAS 123R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options, employee stock purchases related to the employee stock purchase plan and restricted stock units based on estimated fair values of these awards over the requisite employee service period. FAS 123R supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), which the Company previously followed in accounting for stock-based awards. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) to provide
guidance on FAS 123R. The Company has applied SAB 107 in its adoption of FAS 123R.

Under FAS 123R, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employees requisite service period. The Company has no awards with market or performance conditions. The Company adopted the provisions of FAS 123R on January 1, 2006, the first day of the Companys fiscal year 2006, using the modified prospective application. The valuation provisions of FAS 123R apply to new awards and to awards that are outstanding on the effective date and subsequently modified or cancelled; prior periods are not revised for comparative purposes. Estimated compensation expense for awards outstanding on the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure under FASB Statement No. 123,
Accounting for Stock-Based Compensation (FAS 123).

In November 2005, the Financial Accounting Standard Board (FASB) issued FASB Staff Position no. FAS 123R-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards (FSP 123R-3). FSP 123R-3 provides an elective alternative transition method that includes simplified methods to establish the beginning balance of the additional paid-in capital pool related to the tax effect of stock-based compensation and to determine the subsequent impact on the additional paid-in capital pool and the Condensed Consolidated Statement of Cash Flows for stock-based compensation awards that are outstanding upon the adoption of FAS No. 123R.

Recent Accounting Pronouncements

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. We do not believe SAB 108 will have a material impact on our results from operations or financial position.

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

7

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In
    July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting
    for Uncertainty in Income Taxesan Interpretation of SFAS 109 Accounting
    for Income Taxes. FIN 48 prescribes a comprehensive model for how a
    company should recognize, measure, present, and disclose in its financial
    statements uncertain tax positions that a company has taken or expects to
    take on a tax return. Under FIN 48, the financial statements will reflect
    expected future tax consequences of such positions presuming the taxing authorities full
    knowledge of the position and all relevant facts, but without considering
    time values. FIN 48 also revises disclosure requirements and introduces a
    prescriptive, annual, tabular roll-forward of the unrecognized tax benefits.
    FIN 48 is effective for fiscal years beginning after December 15, 2006. The
    Company is currently evaluating the  effect FIN 48 will have on its consolidated
    financial position, liquidity, or results of operations.

2.
  Managements Plans Regarding Going Concern:

The
    accompanying consolidated financial statements have been prepared assuming
    that the Company
  will continue as a going concern. The Company incurred a net loss of $1,554,000
  and a negative cash flow from operations of $1,756,000 during the three months
  ended September 30, 2006. These matters raise substantial doubt about its ability
  to continue as a going concern. Management believes that the Company has adequate
  cash to fund anticipated needs through June 30, 2007.

The Company
  currently plans to use its remaining cash primarily to fund: our operating expenses
  and general working capital; the marketing of our current and future products;
  our pursuit of internal growth and strategic acquisitions including our proposed
  acquisition of Shanghai, Rongheng Pharmaceutical Company Limited (Rongheng);
  and the expenses necessary to maintian
  our status as an Exchange Act reporting company.

The
  Companys management is considering raising additional funds in the next
  six months through public or private equity offerings, debt financing or from
  other sources. There is no assurance that such funding will be available on
  favorable terms or at all to the Company.

3.
      Acquisition:

On
  December 6, 2005, the Company completed its acquisition of all of the outstanding
  equity interests of Wanwei from Wanhui Group and Wen Xin. However, for accounting
  and tax purposes, the Company acquired Wanwei from Wanhui Group and Wen Xin
  upon issuance of the business license on October 25, 2005. As required under
  the share transfer and debt restructuring agreement with Wanhui Group, on December 15,
  2004, the Company paid Wanhui Group RMB 2,400,000, or $290,328 as of that date,
  and, on December 6, 2005, the Company paid Wanhui Group RMB 101,030, or
  $12,500 as of that date, which represented full payment of the remaining amount
  of the obligation, net of our estimate tax liability that results from the debt
  forgiveness between the Wanhui Group and Wanwei (the estimated tax obligation).
  On June 29, 2006, the Company paid Wanhui Group RMB 3,290,300, or $412,100 as
  of that date, as the estimated tax obligation was reduced by the same amount.
  If it is determined Wanweis actual tax liability is lower than the estimated
  tax obligation, the Company has agreed to pay Wanhui Group additional funds,
  equal to the reduction in the actual tax liability and, if it is determined
  that Wanweis actual tax liability is higher than the estimated tax obligation
  plus the adjustment in June 2006, Wanhui Group has agreed to return the difference
  to the Company. It is expected that the actual tax liability will be determined
  by the end of the fourth quarter of 2006.

4.
      Stock-Based Compensation:

The Companys 2004 Stock Incentive Plan provides for grants of stock options (incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, other stock grants and other stock-based awards to all employees (including employees who are directors and officers), non-employee directors, consultants and independent contractors of the Company and its affiliates. The Plan authorizes the issuance of up to 2,500,000 shares of the Companys common stock, subject to adjustment, and provides that no more than 400,000 shares of common stock may be awarded to any one individual in any calendar year if the value of the award is based solely on an increase in the value of shares of the Companys common stock after the date of grant of the award, subject to adjustment. The Plan also provides that no more than
100,000 shares of common stock may be awarded to any one individual in any calendar year if the value of the award is not based solely on an increase in the value of shares of the Companys common stock after the date of grant of the award, subject to adjustment. The Plan is administered by the Companys Compensation Committee. The Compensation Committee has the authority to determine the individuals who will receive grants, the type of grant, the number of shares subject to the grant, the terms of the grant, the time the grants will be made, the duration of any exercise or restriction period, and to deal with any other matters arising under the Plan. Options granted under the Plan may be incentive stock options, which are intended to qualify with the requirements of section 422 of the Code, and nonqualified stock options, which are not intended to so qualify. The Companys board of directors may amend or terminate the Plan at any time if
required under the Plan, subject to stockholder approval. Unless terminated earlier by the board of directors or extended by the board of directors, with the approval of the Companys stockholders, no awards may be granted under the Plan after February 10, 2009.

Prior
  to January 1, 2006 the Company accounted for stock based compensation under
  SFAS No. 148, Accounting for Stock-Based Compensation  Transition
  and Disclosure, which amended SFAS No. 123, Accounting for Stock-Based
  Compensation. As permitted under this standard, compensation cost was
  recognized using the intrinsic value method described in Accounting Principles
  Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
  25). Effective January 1, 2006, the Company has adopted Statement of Financial
  Accounting Standards No. 123 (Revised 2004), Share-Based Payment
  and applied the provisions of the Securities and Exchange Commission Staff Accounting
  Bulletin No. 107 using the modified-prospective transition method. Prior periods
  were not restated to reflect the impact of adopting the new standard. As a result
  of the adoption of FAS 123R, stock-based compensation expense recognized during
  the three and nine months ended September 30, 2006 includes compensation expense
  for all share-based payments granted on or prior to, but not yet vested as of
  January 1, 2006, based on the grant date fair value estimated in accordance
  with the original provisions of FAS 123, and compensation cost for all share-based
  payments granted on or subsequent to January 1, 2006, based on the grant date
  fair value estimated in accordance with the provisions of FAS 123R.

During
  the three and nine months September 30, 2005, the Company applied the recognition
  and measurement principles of APB 25 and related interpretations in accounting
  for stock-based compensation. During the three and nine months ended September
  30, 2005, the Company issued options to employees to purchase 340,000 and 400,000
  shares, respectively, of common stock at exercise prices ranging from $1.95
  to $2.25 per share. During the three and nine months ended September 30, 2005,
  the Company did not record any compensation expense associated with such awards.
  Had the Company elected to recognize stock-based compensation expense based
  on the fair value at the grant dates for awards consistent with the method prescribed
  under SFAS 123R, the Company would have recorded compensation in the amount
  of $134,160 and $387,236 respectively, for the three and nine months ended September
  30, 2005. During the three and nine months ended September 30, 2006, the Company
  recognized stock-based compensation expense of $93,086 and $660,110, respectively,
  related to outstanding stock options according to the provisions of FAS 123R,
  using the modified-prospective transition method.

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The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition of SFAS 123(R) to stock-based compensation for the three and nine months ended September 30, 2005.



Threemonthsended


      

        NinemonthsendedSeptember 30, 2005Net lossAs reported

        

        $

        (1,121,130

        )

        $

        (3,681,372

        )Stock-based compensation expense included in reported net loss, net of related tax effects

        

        

        60,859

        

        

        182,578Stock-based compensation expense determined under fair value based method for all awards, net of related tax effects

        

        

        (108,701

        )

        

        (336,049

        )Pro forma

        

        $

        (1,168,972

        )

        $

        (3,834,843

        )Basic and Diluted Loss Per ShareAs reported

        

        $

        (0.06

        )

        $

        (0.21

        )Pro forma

        

        $

        (0.07

        )

        $

        (0.22

        )


Prior to the adoption of FAS 123R and for the three and nine months ended September 30, 2006, no tax benefits from the exercise of stock options has been recognized as the company has a net loss for the nine months ended September 30, 2006. Any future excess tax benefits derived from the exercise of stock options will be recorded prospectively and reported as cash flows from financing activities in accordance with FAS 123R.

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



ThreemonthsendedSeptember30,


      

        NinemonthsendedSeptember30,2006


      


      2005


      


      2006


      


      2005Expected life (years)


      


      5.0


      


      3.0


      


      5.0


      


      3.0Risk-free interest rate

        

        4.77-5.11

        %

        5.00

        %

        4.32-5.19

        %

        5.00

        %Expected Volatility

        

        109.70

        %

        90.00

        %

        93.6-109.7

        %

        90.00

        %Expected Dividend yield

        

        0.00

        %

        0.00

        %

        0.00

        %

        0.00

        %


The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

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A summary of the options issued by the Company for the nine months ended September 30, 2006 is as follows:



Options


      

        Weighted-AverageExercisePrice per Share


      


      Weighted-AverageRemainingContractualTerm(in years)


      

        AggregateIntrinsicValueOutstanding on January 1, 2006


      


      1,395,000


      


      $


      1.61


      


      8.32


      


      


      Granted

        

        285,000

        

        $

        3.60

        

        9.80

        

        

        Exercised

        

        

        

        

        

        

        

        

        

        Forfeited/Canceled

        

        

        

        

        

        

        

        

        

        Outstanding on March 31, 2006

        

        1,680,000

        

        $

        1.95

        

        8.56

        

        $

        1,357,000Granted

        

        48,000

        

        $

        4.20

        

        10.00

        

        

        Exercised

        

        (20,000

        )

        $

        1.15

        

        8.50

        

        

        Forfeited/Canceled

        

        (20,000

        )

        $

        3.66

        

        9.50

        

        

        Outstanding on June 30, 2006

        

        1,688,000

        

        $

        2.00

        

        8.34

        

        $

        1,324,500Granted

        

        80,000

        

        $

        4.43

        

        9.89

        

        

        Exercised

        

        

        

        $

        

        

        

        

        

        Forfeited/Canceled

        

        (127,500

        )

        $

        1.53

        

        8.30

        

        

        Outstanding on September 30, 2006

        

        1,640,500

        

        $

        2.16

        

        8.16

        

        $

        1,165,125Exercisable on September 30, 2006

        

        550,209

        

        $

        1.58

        

        7.58

        

        $

        691,180


The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2006 was $2.91. The total intrinsic value of options exercised during the nine months ended September 30, 2006 was $36,000. Intrinsic value is measured using the fair market value price of the Companys common stock less the applicable exercise price.

A summary of the status of the Companys nonvested shares as of September 30, 2006 is presented below:



Nonvested Shares


      

        Shares


      

        Weighted-AverageGrant-Date Fair ValueNonvested at January 1, 2006


      

        1,375,000


      


      


      1.74Granted


      


      413,000


      


      


      2.91Vested


      


      (550,209


      )


      


      2.55Forfeited


      


      (147,500


      )


      


      2.60Nonvested at September 30, 2006


      


      1,090,291


      


      


      2.31


The unrecognized share based compensation cost related to stock option expense at September 30, 2006 is $2,987,793 and will be recognized over a weighted average of three years. The total fair value of shares vested during the nine months ended September 30, 2006 was $2,092,167.

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5.
  Common Stock:

The Company has authorized 50,000,000 shares of common stock with a par value of $0.001 per share, of which 23,154,562 shares are issued and outstanding, 2,500,000 shares are reserved for issuance upon exercise of common stock options, and shares are reserved for issuance upon exercise of outstanding common stock warrants.

In October 2005, the Company issued 4,199,981 shares of common stock and 524,914 Series A and 524,914 Series B warrants in a private placement at a purchase price of $1.50 per investment unit. Gross proceeds from the private placement amounted to approximately $6,300,000, less associated costs of approximately $360,000.

In October 2005, the Company issued 94,500 Series A and 94,500 Series B warrants to purchase common stock as compensation for placement agent services provided in connection with the private placement completed in October 2005.

The fair value of these warrants was estimated at $534,234 at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2004: risk-free interest rate was 4.13%, an expected dividend yield of 0%, the volatility factor of the expected market price of the Companys common stock was 90%, and a weighed average expected life of the warrants of 3 years for each period. The assumptions for 2005: risk-free interest rate was 5%, an expected dividend yield of 0%, the volatility factor of the expected market price of the Companys common stock was 90% and a weighted average expected life of the warrants of 1.25 years for each period.

On February 21, 2006 we notified the holders of Series A Warrants that, pursuant to the terms of the Series A Warrants, we were exercising our rights to force the conversion of Series A Warrants because the trading price of our common stock had exceeded 200% of the exercise price of Series A Warrants for twenty consecutive days. On March 28, 2006, we notified the holders of Series B Warrants that pursuant to the terms of the Series B Warrants, we were exercising our rights to force the conversion of Series B Warrants because the trading price of our common stock exceeded 200% of the exercise price of Series B Warrants for twenty consecutive days. During the nine months ended September 30, 2006, we received $2,554,311 from Series A and Series B Warrant exercises. We issued 1,238,485 shares for the funds received from Series A and Series B exercises during the nine months ended September 30, 2006.

6.
  Shareholders Equity:

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



Three months ended September 30,
      
      Nine months ended September 30,2006
      
      2005
      
      2006
      
      2005Weighted
          average basic shares
      
      23,154,067
      
      17,680,916
      
      22,612,327
      
      17,680,916


The following table shows potential common stock equivalents outstanding to purchase shares of common stock that were excluded in the computation of diluted loss per share. All common stock equivalents have been excluded from the diluted per share calculations in the three and nine months ended September 30, 2006 and 2005 because their inclusion would have been anti-dilutive.



Three months ended September 30,


      


      Nine months ended September 30,2006


      


      


      2005


      


      


      2006


      


      


      2005Number of shares


      


      


      1,240,764


      


      


      418,449


      


      


      1,543,259


      


      


      608,801Range of exercise price

        

        $

        1.15  $4.20

        

        $

        1.60

        

        $

        1.15  $4.20

        

        $

        2.00


7.
      Segment Information:

The Company is organized based upon the products and services it provides to its customers, and substantially all of its operations are located in China. The Company operated in one significant business segment during the years ended December 31, 2003 and 2004. During the years ended December 31, 2003 and 2004, 100% of the Companys revenues were derived from marketing fees. The Pharmaceutical Distribution segment was started in October 2005 with the acquisition of Wanwei.

The Pharmaceutical Distribution reportable segment includes the operations of Wanwei. The Sales and Marketing reportable segment includes the operations of BMP China. Intersegment sales are recorded at cost plus an agreed upon intercompany profit. Both intersegment sales and profit have been eliminated in the consolidated results.

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

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

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



Three months ended September 30,
      
      Nine months ended September 30,2006
      
      2005
      
      2006
      
      2005Pharmaceutical
          Distribution
      
      $
      6,869,119
      
      
      
      $
      16,933,989
      
      Sales
          and Marketing
      
      
      29,773
      
      23,086
      
      
      86,484
      
      123,839Sales
          and Marketing intersegment
      
      
      30,041
      
      
      
      
      393,974
      
      Eliminations
      
      
      (30,041
      )
      
      
      
      (393,974
      )
      Total
          Revenue
      
      $
      6,898,892
      
      23,086
      
      $
      17,020,473
      
      123,839Pharmaceutical
          Distribution
      
      $
      (4,258
      )
      
      
      $
      (277,591
      )
      Sales
          and Marketing
      
      
      (581,018
      )
      (198,323
      )
      
      (1,461,577
      )
      (1,025,805
      )Corporate
      
      
      (1,006,388
      )
      (922,807
      )
      
      (2,929,516
      )
      (2,655,567
      )Eliminations
      
      
      37,198
      
      
      
      
      (34,963
      )
      Total
          Operating Loss
      
      $
      (1,554,466
      )
      (1,121,130
      )
      $
      (4,703,647
      )
      (3,681,372
      )


Due to our integrated business structure, revenue and operating costs included in one segment may benefit other segments, and therefore these segments are not designed to measure operating income or loss directly related to the products included in each segment. Management will continually evaluate the alignment of sales and inter-segment commissions for segment reporting purposes, which may result in changes to segment allocations in future periods.

8.
      Loss on Disposal of Asset:

For
    the three months ended September 30, 2006 the Company wrote-off the software
    license and implementation cost of an Enterprise Resource Planning (ERP)
    system.
  In 2005 the Company identified the need to implement an ERP system to provide
    for the growth of the Company. In February 2006 the Company initiated the
    implementation
  of the ERP system which was planned to be completed by September 30, 2006.
    During the system implementation, the Company was made aware of a recently
    released
  ERP system which is a better fit for the Companys operation and is expected
  to be more cost effective. During the quarter ended September 30, 2006 the Company
  made the determination to discontinue the selected ERP system and to replace
  it with the recently released system. As part of the write off prepaid expenses
  decreased by $227,982 as this represented the part of the implementation cost
  that was financed and accounted for as a prepaid expense.



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

The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained herein and in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005, filed with the SEC on March 31, 2006.

Forward-Looking Statements

Certain
  of the statements contained in this Managements Discussion and Analysis
  of Financial Condition and Results of Operations (MD&A) and
  elsewhere in this report are forward-looking statements within the
  meaning of Section 27A of the Securities Act of 1933, as amended (the Securities
  Act), and Section 21E of the Securities Exchange Act of 1934, as
  amended (the Exchange Act). These statements are based on managements
  current expectations and are subject to uncertainty and changes in circumstances.
  Actual results may vary materially from the expectations contained in the forward-looking
  statements. The forward-looking statements herein include, among others, statements
  addressing managements views with respect to future financial and operating
  results, our ability to obtain an increased market share in the Chinese pharmaceutical
  marketing and distribution markets, the dependence of our future success on
  obtaining additional promotional and market research agreements and licensing
  rights for China and on acquiring additional distribution companies, the significance
  of our acquisition of Wanwei, our cash and cash equivalents investments, our
  anticipated use of cash resources, our ability to fund our current level of
  operations for at least the next nine months through our cash and cash equivalents,
  our expectation to raise additional funds in the next six months, our hiring
  goals for the next twelve months, our capital requirements and the possible
  impact on us if we are unable to satisfy these requirements, our approaches
  to raise additional funds, our expectation to continue to pursue strategic acquisitions
  in the near future, the expected impact of recent accounting pronouncement,
  our expectation that Wanweis actual tax liability will be determined in
  the fourth quarter of 2006 and our expectation regarding the alternative Enterprise
  Resource Planning system. Various factors, including competitive pressures,
  success of integration, market interest rates, changes in customer mix, changes
  in pharmaceutical manufacturers pricing and distribution policies or practices,
  regulatory changes, changes in the Peoples Republic of Chinas policies,
  customer defaults or insolvencies, acquisition of businesses that do not perform
  as we expect or that are difficult for us to integrate or control, adverse resolution
  of any contract or other disputes with customers and suppliers, the loss of
  one or more key customer or supplier relationships, our interactions with our
  business partners could cause actual outcomes and results to differ materially
  from those described in forward-looking statements. Certain additional factors
  that management believes could cause actual outcomes and results to differ materially
  from those described in forward-looking statements are set forth in Part I,
  Item 1A. Risk Factors  Risks Relating to Our Business in our
  Annual Report on Form 10-K for the year ended December 31, 2005.

Overview

Beijing
     Med-Pharm Corporation, a Delaware corporation, is a pharmaceutical marketing

  and distribution company based in China. Our corporate headquarters are in
    suburban  Philadelphia and our Chinese operations are based in Beijing. In
    addition, we
  have satellite sales offices throughout China. On December 6, 2005, we completed
     the acquisition of all of the outstanding equity interests of Wanwei from
    Wanhui
  Group and Wen Xin. However, for accounting and tax purposes, the Company acquired
     Wanwei from Wanhui Group and Wen Xin upon issuance of the business license
    on
  October 25, 2005. As required under the share transfer and debt restructuring
     agreement with Wanhui Group, on December 15, 2004, we paid Wanhui Group
    RMB
  2,400,000, $290,328 as of that date. In addition, on December 6, 2005, we paid
     Wanhui Group RMB 101,030, $12,500 as of that date, which represented full
    payment
  of the remaining amount of the obligation, net of our estimate tax liability
     that results from the debt forgiveness between the Wanhui Group and Wanwei
    (the
  estimated tax obligation). On June 29, 2006, the Company paid Wanhui
   Group RMB 3,290,300, or $412,100 as of that date, as the estimated tax obligation

  was reduced by the same amount. If it is determined Wanweis actual tax
   liability is lower than the estimated tax obligation, the Company has agreed

  to pay Wanhui Group additional funds, equal to the reduction in the actual
  tax  liability and, if it is determined that Wanweis actual tax liability
  is  higher than the estimated tax obligation plus the adjustment in June 2006,
  Wanhui
  Group has agreed to return the difference to the Company. It is expected that
   the actual tax liability will be determined by the end of the fourth quarter

  of 2006.

On October 19, 2005, we completed a private placement of 4,199,981 shares of our common stock at a price of $1.50 per share, which yielded gross proceeds to us of approximately $6.3 million and net proceeds to us of approximately $5.9 million. In addition, these investors also received our Series A Warrants to purchase an aggregate of 619,414 shares of our common stock at an exercise price of $1.875 per share and Series B Warrants to purchase 619,414 shares of common stock at an exercise price of $2.25 per share. These warrants have been valued using the Black-Scholes pricing model to have an aggregate value of $534,224. On February 21, 2006, we notified the holders of Series A Warrants that, pursuant to the terms of the Series A Warrants, we were exercising our rights to force the conversion of Series A Warrants because the trading price of our common stock had exceeded 200% of the exercise
price of Series A Warrants for twenty consecutive days. On March 28, 2006 we notified the holders of Series B Warrants that pursuant to the terms of the Series B Warrants, we were exercising our rights to force the conversion of Series B Warrants because the trading price of our common stock exceeded 200% of the exercise price of Series B Warrants for twenty consecutive days. During the nine months ended September 30, 2006, we received $2,554,311 from Series A and Series B Warrant exercises. We issued 1,238,485 shares for the funds received from Series A and Series B exercises during the nine months ended September 30, 2006.

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Our cash resources have primarily been devoted to payment of salaries and wages for our employees, professional fees, fees related to sales and promotion of our current products and our acquisition of Wanwei.

We have an operating history of approximately 11 years, dating from the formation of BMP China in 1994. We have historically been a pharmaceutical marketing and product registration company of domestic and foreign pharmaceutical products and devices for the Chinese market. Our acquisition of Wanwei will significantly expand our service offering to include pharmaceutical distribution in the Chinese Market.

Our current services, which we offer to foreign and domestic pharmaceutical manufacturers in China through BMP China and Wanwei include:



        Pre-market entry analysis;




        clinical trial management;




        product registration;




        market research;




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




        pharmaceutical distribution.


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

Historically, we have generated a majority of our revenues from commissions related to sales of pharmaceutical products. Beginning with the acquisition of Wanwei in October 2005, the vast majority of our revenues consist of revenues from the distribution of pharmaceutical products in China through our wholly-owned subsidiary Wanwei.

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

Since
  our inception, we have generated significant losses. As of September 30,
  2006, we had an accumulated deficit of approximately $13.9 million.

Our future success will depend on obtaining additional promotional and market research agreements and licensing rights for China, as well as acquiring additional distribution companies currently operating throughout China. During 2005 and 2006, we have pursued a strategy of broadening our range of promoted products and we are currently actively reviewing for license various branded pharmaceutical products and products in development from western pharmaceutical companies for marketing and distribution in China.

Critical Accounting Policies

Accounting for Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation, allows companies which have stock-based compensation arrangements with employees to adopt a new fair value basis of accounting for stock options and other equity instruments or to continue to apply the existing accounting rules under APB Opinion No. 25, Accounting for Stock Issued to Employees, but with additional financial statement disclosure.

In December 2004, the FASB issued SFAS No. 123R that amends SFAS No. 123, Accounting for Stock-Based Compensation, to report stock-based employee compensation in their financial statements. On January 1, 2006, we adopted SFAS No. 123R. Stock-based compensation expense recognized under SFAS No. 123R for the three and nine months ended September 30, 2006 was $93,086 and $660,110, respectively, which consisted of stock-based compensation expense related to stock options and stock grants under our employee incentive plans.

During 2004, we issued options to employees and advisors to purchase 930,000 shares of common stock at an exercise of $1.15 per share. During 2004, our compensation expense was $295,594, which represents the difference between the exercise price and the fair value of the common stock. Our compensation expense was $399,000 for the year ended December 31, 2005. Our compensation expense related to these shares was $114,055 and $342,166, respectively, for the three and nine months ended September 30, 2006. During 2005, we issued options to employees and board members to purchase 605,000 shares of common stock at exercise prices ranging from $1.60 to $3.66. There was no impact to the statement of operations for the issuance of these options. During the three and nine months ended September 30, 2006, we issued options to employees and board members to purchase 80,000 and 413,000 shares of common
stock, respectively, at exercise prices ranging from $3.60 to $4.60.

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Revenue Recognition

We recognize distribution revenues and related cost of sales at the later of (a) the time of shipment or (b) when title passes to the customers, provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, collectibility is probable and the price is fixed. Revenues consist of gross sales less provisions for estimated customer returns, discounts, vendor payments and volume rebates. Amounts billed to a customer for shipping and handling are reported as revenue. We recognize commission revenue, net of returns, on products delivered by the distribution provider at the time of delivery, provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, collectibility is probable and the price is fixed. Under the terms of these agreements revenues are generally receivable from manufacturers within 45 days of
delivery. We estimate the reserve for product returns at the time revenue is recognized based on various market data, historical trends, and information from customers.

Results of Operations

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Net Revenue:

Net revenue was approximately $6,899,000 for the three months ended September 30, 2006, an increase of $6,876,000, as compared with approximately $23,000 for the three months ended September 30, 2005. This significant increase was primarily due to the acquisition of Wanwei in October 2005. Wanwei generated revenues of $6,869,000 from distribution activities during the three months ended September 30, 2006.

Marketing commissions and registration revenue was increased by $7,000 from $23,000 to $30,000 for the three months ended September 30, 2006 as compared to the three months ended September 30, 2005. This increase was the result of our licensing and initiating sales of Propess during the fourth quarter of 2005.

Cost of Sales:

Cost
    of sales was $6,684,000 for the three months ended September 30, 2006, an
    increase of $6,598,000, as compared with $86,000 for the three months ended
    September
    30, 2005. This increase is primarily attributable to our acquisition of Wanwei
    in October 2005. During the three months ended September 30, 2006, Wanwei
    cost of sales was $6,386,000. The remaining increase in cost of sales is
    directly related to the sales and marketing efforts to promote Propess during
    the three months ended September 30, 2006.

Sales and Marketing Expenses:

Sales
    and marketing expenses were $296,000 for the three months ended September
    30, 2006, an increase of $282,000, as compared with $14,000 for the three
    months ended September 30, 2005. The increase was the result of our acquisition
    of Wanwei which was completed in October 2005. During the three months ended
    September 30, 2006, Wanweis sales and marketing expenses were $280,000.

General and Administrative Expenses:

General
    and administrative expenses were $1,117,000 for the three months ended September
    30, 2006, an increase of $20,000, as compared to $1,097,000 for the three
    months ended September 30, 2005. Our acquisition of Wanwei in October 2005
    accounted for $270,000 of general and administrative expenses for the three
    months ended September 30, 2006.

The
    remaining reduction in general and administrative expenses of $250,000 for
    the three months ended September 30, 2006 as compared to September 30, 2005
    was mainly the result of decreased dependence on professional services. Significant
    reductions in legal fees $173,000, accounting $56,000 and financial printing
    $44,000 was the result of no SEC stock registration ongoing during the three
    months ended September 30, 2006 as well as the determination to move the
    corporate accounting function internal to the Company. The other significant
    reduction in general and administrative expenses was travel and related expenses
    $38,000. Offsetting these reductions was an $75,000 increase in salary and
    related benefits and taxes reflecting an expansion of our corporate staff
    in China over the prior year.

Loss
  on Disposal of Asset:

Loss
    on disposal of asset were $407,000 for the three months ended September 30,
    2006, an increase of $407,000, as compared with zero for the three months
    ended September 30, 2005. The increase was the result of our write-off of
    the software license and implementation cost of an Enterprise Resource Planning
    (ERP)
    system during the three months ended September 30, 2006. In 2005 we identified
    the need to implement an ERP system to provide for the growth of the Company.
    In February 2006 we initiated the implementation of the ERP system which
    was planned
    to be completed by September 30, 2006. During the system implementation,
    the Company was made aware of a recently released ERP system which is a better
    fit for our companys operation and
is expected to be more cost effective. During the quarter
  ended September 30, 2006 we made the determination to discontinue the selected
ERP systemand to replace it with
the recently released system.

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Interest Income and Expense:

Our
    interest income primarily consists of income earned on our cash and cash
    equivalents. In October 2005, we completed a private placement of our shares
    of common stock to investors of $5,941,000, net of issuance costs. We received
    interest income of $32,000 during the three months ended September 30, 2006,
    a decrease of $11,000, as compared to $43,000 for the three months ended
    September 30, 2005. Interest expense of $28,000 is primarily for short term
loans and software financing.

Other Income (Expense):

Other
    income was $46,000 for the three months ended September 30, 2006, an increase
    of $36,000, as compared with other income of $10,000 for the three months
    ended September 30, 2005. The increase was the result of accounts receivable
    collections received from customers which receivable balance was valued at
    zero as part of the acquisition accounting of Wanwei.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Net Revenue:

Net
  revenue was approximately $17,020,000 for the nine months ended September 30,
  2006, an increase of $16,896,000, as compared with approximately $124,000 for
  the nine months ended September 30, 2005. This significant increase was due
  to the acquisition of Wanwei in October 2005. Wanwei generated revenues of $17,014,000
  from distribution activities during the nine months ended September 30, 2006.

Cost of Sales:

Cost
  of sales was $16,457,000 for the nine months ended September 30, 2006, an increase
  of $15,673,000, as compared with $784,000 for the nine months ended September
  30, 2005. This increase is attributable to our acquisition of Wanwei in October
  2005. During the nine months ended September 30, 2006, Wanwei cost of sales
  was $15,739,000.

Sales and Marketing Expenses:

Sales and marketing expenses were $885,000 for the nine months ended September 30, 2006, an increase of $850,000, as compared with $35,000 for the nine months ended September 30, 2005. The increase was the result of our acquisition of Wanwei which was completed in October 2005. During the nine months ended September 30, 2006, Wanweis sales and marketing expenses were $866,000.

General and Administrative Expenses:

General
  and administrative expenses were $4,055,000 for the nine months ended September
  30, 2006, an increase of $978,000, as compared to $3,077,000 for the nine months
  ended September 30, 2005. Our acquisition of Wanwei in October 2005 accounted
  for $662,000 of general and administrative expenses for the nine months ended
  September 30, 2006.

The
  remaining increase in general and administrative expenses is $316,000 for the
  nine months ended September 30, 2006 as compared to September 30, 2005. Stock
  based compensation recognized under SFAS No. 123R for the nine months ended
  September 30, 2006 was $660,000 as compared to $299,000 for the nine months
  ended September 30, 2005, an increase of $361,000. Salary and related benefits
  and taxes increased $285,000 for the nine months ended September 30, 2006 as
  compared to 2005, reflecting the increase in US and China corporate staff and
  salary adjustments. Business development and operational consultants increased
  $215,000, reflecting the expansion of our development related activities. Insurance
  costs increased $51,000 for the nine months ended September 30, 2006 as compared
  to 2005, reflecting higher Directors and Officers and Key Man Life insurance
  premiums. Offsetting these increases were significant reductions in legal fees
  $295,000 and accounting $350,000 reflecting the decision to move internal the
  corporate accounting function as well as the reduction in SEC registration filings
  in 2006.

Loss
  on Disposal of Asset:

Loss
    on disposal of asset were $407,000 for the nine months ended September 30,
    2006,
  an increase of $407,000, as compared with zero for the three months ended September
    30, 2005. The increase was the result of our write-off of the software license
    and implementation cost of an Enterprise Resource Planning (ERP) system during
    the nine months ended September 30, 2006. In 2005 we identified the need
    to
  implement an ERP system to provide for the growth of the Company. In February
    2006 we initiated the implementation of the ERP system which was planned
    to
  be completed by September 30, 2006. During the system implementation, the Company
    was made aware of a recently released ERP system which is a better fit for our companys operation
and is expected to be more cost effective. During the quarter
  ended September 30, 2006 we made the determination to discontinue the selected
ERP system and to replace it
    with the recently released system.

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Interest Income and Expense:

Our interest income primarily consists of income earned on our cash and cash equivalents. In October 2005, we completed a private placement of our shares of common stock to investors of $5,941,000, net of issuance costs. We received interest income of $123,000 during the nine months ended September 30, 2006, a decrease of $2,000, as compared to $125,000 for the nine months ended September 30, 2005. Interest expense of $51,000 primarily relates to short term loans and software financing.

Other Income (Expense):

Other
    income was $42,000 for the nine months ended September 30, 2006, an increase
    of $43,000, as compared with other expense of $1,000 for the nine months
    ended September 30, 2005. The increase was primarily the result of accounts
    receivable collections received from customers which receivable balance was
    valued at zero as part of the acquisition accounting of Wanwei.

Liquidity and Capital Resources

As of September 30, 2006, we had unrestricted cash and cash equivalents of approximately $3.8 million, which represented 24.7% of our total assets. Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at the time of purchase and are primarily invested in short-term money market instruments and investments. However, we do not anticipate any losses with respect to such cash balances because the balances are invested in highly-rated securities.

Since we acquired BMP China in February 2004, we have funded our operations primarily through the issuance of shares of our common stock. In March 2004, we completed a private placement of 8,695,652 shares of our common stock at a purchase price of $1.15 per share, which yielded gross proceeds to us of approximately $10.0 million and net proceeds to us of approximately $8.8 million. On October 19, 2005, we completed a private placement of 4,199,981 shares of our common stock to a group of institutional and individual accredited investors, for gross proceeds of $6.3 million and net proceeds of approximately $5.9 million. In addition, these investors also received our Series A Warrants to purchase an aggregate of 619,414 shares of our common stock at an exercise price of $1.875 per share and Series B Warrants to purchase 619,414 shares of common stock at an exercise price of
$2.25 per share.

On
  February 21, 2006 we notified the holders of Series A Warrants that, pursuant
  to the terms of the Series A Warrants, we were exercising our rights to force
  the conversion of Series A Warrants because the trading price of our common
  stock had exceeded 200% of the exercise price of Series A Warrants for twenty
  consecutive days. On March 28, 2006 we notified the holders of Series B Warrants
  that pursuant to the terms of the Series B Warrants, we were exercising our
  rights to force the conversion of Series B Warrants because the trading price
  of our common stock exceeded 200% of the exercise price of Series B Warrants
  for twenty consecutive days. During the nine months ended September 30, 2006,
  we received $2,554,000 from Series A and Series B Warrant exercises. We issued
  1,238,485 shares for the funds received from Series A and Series B exercises
  during the nine months ended September 30, 2006.

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

To
  date, we have had negative cash flows from operations. Net cash used in operating
  activities was $5,023,000 for the nine months ended September 30, 2006. This
  amount principally reflected our net loss of $4,704,000, partially offset by
  $1,330,000 in non-cash charges including stock-based compensation expense of
  $660,000, depreciation and intangible amortization of $263,000 and a loss on
  assets disposed of $407,000. We used $1,649,000 of operating cash as a result
  of changes in certain of our operating assets and liabilities during the nine
  months ended September 30, 2006. The most significant changes were the increase
  in accounts receivables of $1,915,000, inventory of $195,000 and Value Added
  Taxes Receivable of $125,000 and the decrease of accrued professional fees of
  $165,000 and accrued payable of $24,000. Offsetting these changes was the increase
  in accounts payable of $649,000 and accrued other liabilities of $129,000. Cash
  used in investing activities for the purchase of equipment was $209,000 and
  the payment to Wanhui was $412,000. Net cash provided by financing activities
  was $2,511,000 and consisted of $2,594,000 proceeds from the exercise of warrants
  and options offset by $83,000 in repayments of notes payable.

Our
  net loss of $1,554,000 and negative cash flow from operations of $1,756,000
  during the three months ended September 30, 2006 raise substantial doubt about
  our ability to continue as a going concern. We
  anticipate that our September 30, 2006 balance of approximately $3.8 million
  in unrestricted cash and cash equivalents will be sufficient to fund our current
  level of operations for at least the next nine months.

We
  currently plan to use our remaining cash primarily to fund: our operating expenses
  and general working capital; the marketing of our current and future products;
  our pursuit of internal growth and strategic acquisitions including our proposed
  acquisition of Shanghai Rongheng Pharmaceutical Company Limited; and the expenses necessary to maintain our status as
  an Exchange Act reporting company.

Our future capital requirements will depend on many factors, including those
  factors are set forth in Part I, Item 1A. Risk Factors  Risks Relating
  to Our Business in our Annual Report on Form 10-K for the year ended December
  31, 2005 and Part II, Item 1A. Risk Factors in our Quarterly Report on
  Form 10-Q for the quarter ended March 31, 2006 and in this report, as well as
  our ability to maintain our existing cost structure and return on sales, fund
  obligations for additional capital that will occur on additional product licenses
  and acquisitions and execution of our business and strategic plans as currently
  conceived.

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Our
  capital requirements are likely to increase, particularly as we pursue internal
  growth, add personnel, fund inventory purchases and support increased levels
  of accounts receivables prior to receiving collections from our customers. To
  support our internal growth and acquisitions, it is our expectation that we
  will be adding financial, marketing, product and medical managers over the next
  12 months. As a result of our continuing capital needs, we are considering
  to raise additional funds in the next six months through public or private equity
  offerings, debt financings or from other sources. There is no assurance that
  such funding will be available on favorable terms or at all to the Company.
  If we are not able to raise additional capital through fund raising activities
  our ability to continue as a going concern will be in substantial doubt; we could
  be forced to curtail some of the currently anticipated expenditures in the above
  mentioned areas and our anticipated future growth will be adversly affected.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Rate Sensitivity

We
  are exposed to cash flow and earnings fluctuations resulting from foreign exchange
  rate variation because our operations are in China. This exposure arises from
  the translation of financial statements of our foreign subsidiaries, BMP China
  and Wanwei, from RMB, the functional currency of China, into United States dollars,
  our functional currency of our parent entity. On July 21, 2005, China increased
  the value of its currency, the RMB, by 2.1% to RMB 8.11 to the dollar, and announced
  that its currency, the RMB will no longer be pegged to the US dollar, but will
  be allowed to float in a band (and, to a limited extent, increase in value)
  against a basket of foreign currencies. Any devaluation of the RMB could adversely
  affect the value of our common stock in foreign currency terms because we will
  receive substantially all of our revenues in RMB. Fluctuations in exchange rates
  also could adversely affect the value, translated or converted into United States
  dollars, of our net assets, earnings and any declared dividends. In addition,
  a devaluation of the RMB is likely to increase the portion of our cash flow
  required to satisfy any foreign currency denominated obligations.

Interest Rate Sensitivity

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



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ITEM 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Control Over Financial Reporting

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

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PART II- OTHER INFORMATION

ITEM 1A. Risk Factors

We may not be able to fund our operations and continue as a going concern.

Our recurring losses from operations and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. Substantial doubt about our ability to continue as a going concern may create negative reactions to the price of shares of our common stock and we may have experience difficulty in obtaining financing.

We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.

We believe that we have adequate cash and cash equivalents to fund our current level of operations through June 30, 2007. We are considering raising additional funds in the next six months through public or private equity offerings, debt financing or from other sources. There is no assurance that such funding will be available on favorable terms or at all to us.

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ITEM 6. Exhibits

31.1

        Certificate of the Chief Executive Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(a) under the Exchange Act.


31.2

        Certificate of the Chief Financial Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(a) under the Exchange Act


32.1

        Certificate of the Chief Executive Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(b) under the Exchange Act


32.2

        Certificate of the Chief Financial Officer of Beijing Med-Pharm Corporation required by Rule 13a-14(b) under the Exchange Act


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SIGNATURES

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



Beijing Med-Pharm CorporationDate: November 14, 2006

        

        

        /s/ DAVID GAODavid GaoChief Executive Officer(Principal Executive Officer)Date: November 14, 2006

        

        

        /s/ FRED M. POWELLFred M. PowellChief Financial Officer(Principal Financial and Accounting Officer)


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