UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-QSB/A
                                 Amendment No.1


(MARK ONE)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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: 000-23889

                                 ---------------

                           CHINA MEDICINE CORPORATION
       -------------------------------------------------------------------
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

         DELAWARE                                       51-0539830
--------------------------------             -----------------------------------
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION


                               24A Jefferson Plaza
                               Princeton, NJ 08540

        ----------------------------------------------------------------
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)


         ISSUER 'S TELEPHONE NUMBER, INCLUDING AREA CODE: (732) 4388866


 -------------------------------------------------------------------------------
   (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
                                    REPORT)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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 |_|.

                                   -----------

      The number of shares of Common Stock of the Registrant, par value $.0001
per share, outstanding at April 30, 2006 was 7,380,000.

      Transitional Small business Disclosure Format (Check one):
                                                                Yes |_|; No |X|.

<PAGE>


                           CHINA MEDICINE CORPORATION
                      INDEX TO MARCH 31, 2006 FORM 10-QSB/A

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                    ---------
<S>                                                                                                      <C>
Part I - Financial Information                                                                              3

Item 1 - Financial Statements (unaudited)                                                                 F-1

Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005                                    F-1

Consolidated  Statements of Income and Other Comprehensive  Income for the Three
Months ended March 31, 2006 and March 31, 2005                                                            F-2

Consolidated Statements of Shareholders' Equity for the Three Months ended March
31,  2006 and  March 31,  2005                                                                            F-3

Consolidated  Statements of Cash Flows for the three months ended March 31, 2006
and March 31, 2005 Consolidated Notes to the Consolidated Financial Statements                            F-4

Condensed Notes to the Consolidated Financial Statements                                                  F-5

Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition              4

Item 3 - Controls and Procedures                                                                            9

Part II - Other Information                                                                                 9

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                                        9

Item 6 - Exhibits                                                                                           9

Signature Page                                                                                             11
</TABLE>



                                       2
<PAGE>

      This quarterly report on Form 10-QSB/A ("Form 10-QSB/A") is being filed to
amend our quarterly report on Form 10-QSB for the quarter ended March 31, 2006
(the "Original Form 10-QSB") which was filed with the Securities and Exchange
Commission ("SEC") on May 22, 2006 to reflect changes in the financial
statements consistent with changes in the financial statements for the six
months ended June 30, 2006 that were made in Amendment No. 3 to our Registration
Statement on Form SB-2. Pursuant to Rule 12b-15 under the Securities Exchange
Act of 1934, as amended, the Form 10-QSB/A contains current dated certifications
from the principal executive officer and the principal financial officer. We
have not updated the information contained herein for events occurring
subsequent to May 22, 2006, the filing date of the Original Form 10-QSB.


                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


                                       3
<PAGE>

                     CHINA MEDICINE CORPORATION AND SUBSIDIARY
                 (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC.)

                            CONSOLIDATED BALANCE SHEETS
                     AS OF MARCH 31, 2006 AND DECEMBER 31, 2005

                                    ASSETS

<TABLE>
<CAPTION>
                                                                             March 31,        December 31,
                                                                               2006              2005
                                                                            ------------      ------------
                                                                            (Unaudited)
                                                                            ------------      ------------
<S>                                                                         <C>               <C>
CURRENT ASSETS:
    Cash                                                                    $  1,758,279      $     91,964
    Accounts receivable, trade, net of allowance for doubtful accounts
       of $12,412 and $12,333 as of March 31, 2006 and
       December 31, 2005, respectively                                         3,323,205         2,410,824
    Inventories                                                                2,253,491         1,382,929
    Other receivables                                                            114,006            38,301
    Other receivables - related parties                                           60,695                --
    Advances to suppliers                                                      2,084,331         1,075,546
                                                                            ------------      ------------
       Total current assets                                                    9,594,007         4,999,564
                                                                            ------------      ------------

EQUIPMENT, net                                                                   778,234           330,015
                                                                            ------------      ------------

         Total assets                                                       $ 10,372,241      $  5,329,579
                                                                            ============      ============

           LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable, trade                                                 $  1,041,302      $    170,196
    Short-term loans                                                                  --            95,480
    Other payables and accrued liabilities                                         3,220            97,449
    Customer deposits                                                             43,520            37,292
    Taxes payable                                                                367,402           170,456
                                                                            ------------      ------------
       Total current liabilities                                               1,455,444           570,873
                                                                            ------------      ------------

SHAREHOLDERS' EQUITY:
    Preferred stock, $0.0001 par value; 10,000,000 shares
       authorized, 3,120,000 shares issued and outstanding                           312                --
    Common stock, $0.0001 par value; $90,000,000 shares
       authorized, 7,380,000 shares issued and outstanding                           738               653
    Paid-in capital                                                            4,332,842           120,347
    Statutory reserves                                                           722,909           722,909
    Retained earnings                                                          3,714,024         3,813,665
    Accumulated other comprehensive income                                       145,972           101,132
                                                                            ------------      ------------
       Total shareholders' equity                                              8,916,797         4,758,706
                                                                            ------------      ------------

         Total liabilities and shareholders' equity                         $ 10,372,241      $  5,329,579
                                                                            ============      ============
</TABLE>

The accompanying notes are an integral part of this statement.


                                      F-1
<PAGE>

                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC.)

        CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                               2006                2005
                                                            -------------       -------------
                                                              Unaudited           Unaudited
                                                            -------------       -------------
<S>                                                         <C>                 <C>
REVENUES                                                    $   3,511,979       $   2,728,586

COST OF GOOD SOLD                                               2,459,550           1,828,997
                                                            -------------       -------------

GROSS PROFIT                                                    1,052,429             899,589
                                                            -------------       -------------

OTHER OPERATING INCOME                                            296,103             424,628
                                                            -------------       -------------

OPERATING EXPENSES
     Research and development expenses                             54,664                 159
     Selling expenses                                             100,102              39,429
     General and administrative expenses                          187,064              58,288
                                                            -------------       -------------
        Total operating expenses                                  341,830              97,876
                                                            -------------       -------------

INCOME  FROM OPERATIONS                                         1,006,702           1,226,341

ACQUISITION TRANSACTION EXPENSE                                   931,270                  --
OTHER (EXPENSE) INCOME                                             (9,492)                178
                                                            -------------       -------------

INCOME BEFORE INCOME TAXES                                         65,940           1,226,519

PROVISION FOR INCOME TAXES                                        165,581                  --
                                                            -------------       -------------

NET (LOSS) INCOME                                                 (99,641)          1,226,519

OTHER COMPREHENSIVE INCOME :
     Foreign currency translation adjustment                       44,840                  --
                                                            -------------       -------------

COMPREHENSIVE INCOME                                        $     (54,801)      $   1,226,519
                                                            =============       =============

Earning per share - basic                                   $       (0.01)      $        0.19
                                                            =============       =============

Earning per share - diluted                                 $       (0.01)      $        0.19
                                                            =============       =============

Weighted average number of shares outstanding - basic           6,992,778           6,530,000
                                                            =============       =============

Weighted average number of share outstanding - diluted          7,193,678           6,530,000
                                                            =============       =============
</TABLE>


The accompanying notes are an integral part of this statement.


                                      F-2
<PAGE>

                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC.)

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
<TABLE>
<CAPTION>

                                                   Common Stock                     Preferred Stock
                                                 ---------------------------   --------------------------      Paid-in
                                                    Shares        Par Value      Shares       Par Value        capital
                                                 -------------    ----------   ------------   -----------    -------------
<S>                                                <C>        <C>                          <C>           <C>
BALANCE, December 31, 2004                          6,530,000  $        653              -  $          -  $       120,347
     Net income
                                                 -------------    ----------   ------------   -----------    -------------
BALANCE, March 31, 2005 (Unaudited)                 6,530,000           653              -             -          120,347
     Net income
     Distributions
     Foreign currency translation adjustments
                                                 -------------    ----------   ------------   -----------    -------------
BALANCE, December 31, 2005                          6,530,000           653              -             -          120,347
     Net income
     Reverse acquisition, February 8, 2006          1,028,000           103                                       (32,501)
     Shares redeemed in connection with
        reverse acquisition                          (928,000)          (93)                                     (167,509)
     Shares issued for acquisition services           750,000            75                                       607,425
     Issuance of preferred stock                                                 3,120,000           312        2,401,303
     Issuance of common stock A warrants                                                                          815,268
     Issuance of common stock B warrants                                                                          566,117
     Stock option granted                                                                                          22,392
     Foreign currency translation adjustments
                                                 -------------    ----------   ------------   -----------    -------------
BALANCE, March 31, 2006 (Unaudited)                 7,380,000  $        738      3,120,000  $        312  $     4,332,842
                                                 =============    ==========   ============   ===========    =============
<CAPTION>
                                                                                          Accumulated
                                                                                            other
                                                      Statutory         Retained          comprehensive
                                                      reserves          earnings           income              Totals
                                                    --------------   ----------------   --------------    ----------------
<S>                                              <C>              <C>                <C>              <C>
BALANCE, December 31, 2004                        $       722,909  $       1,234,972  $             -  $        2,078,881
     Net income                                                            1,226,519                            1,226,519
                                                    --------------   ----------------   --------------    ----------------
BALANCE, March 31, 2005 (Unaudited)                       722,909          2,461,491                -           3,305,400
     Net income                                                            4,463,651                            4,463,651
     Distributions                                                        (3,111,477)                          (3,111,477)
     Foreign currency translation adjustments                                                 101,132             101,132
                                                    --------------   ----------------   --------------    ----------------
BALANCE, December 31, 2005                                722,909          3,813,665          101,132           4,758,706
     Net income                                                              (99,641)                             (99,641)
     Reverse acquisition, February 8, 2006                                                                        (32,398)
     Shares redeemed in connection with
        reverse acquisition                                                                                      (167,602)
     Shares issued for acquisition services                                                                       607,500
     Issuance of preferred stock                                                                                2,401,615
     Issuance of common stock A warrants                                                                          815,268
     Issuance of common stock B warrants                                                                          566,117
     Stock option granted                                                                                          22,392
     Foreign currency translation adjustments                                                  44,840              44,840
                                                    --------------   ----------------   --------------    ----------------
BALANCE, March 31, 2006 (Unaudited)               $       722,909          3,714,024  $       145,972  $        8,916,797
                                                    ==============   ================   ==============    ================

</TABLE>


The accompanying notes are an integral part of this statement.


                                      F-3
<PAGE>

                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                      2006                2005
                                                                   ------------       ------------
                                                                    Unaudited           Unaudited
                                                                   ------------       ------------
<S>                                                                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                     $    (99,641)      $  1,226,519
    Adjustments to reconcile net income to cash
      used in operating activities:
       Depreciation                                                      21,478             25,794
       Gain on sale of intangible assets                                 15,570                 --
       Stock issued for services                                        607,500                 --
       Stock option granted                                              22,392                 --
    Change in operating assets and liabilities:
      (Increase) decrease in assets:
       Accounts receivable, trade                                      (893,091)           171,033
       Inventories                                                     (858,049)          (492,890)
       Other receivables                                                (75,143)           (36,003)
       Other receivables - related parties                              (60,442)           (40,387)
       Advances to suppliers                                           (997,672)          (679,741)
      Increase (decrease) in liabilities:
       Accounts payable, trade                                          833,982            314,548
       Other payables and accrued liabilities                           (94,462)             6,600
       Customer deposits                                                  5,962           (585,644)
       Taxes payable                                                    195,031            (17,760)
                                                                   ------------       ------------
          Net cash used in operating activities                      (1,376,585)          (107,931)
                                                                   ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of equipment                                              (483,292)           (18,968)
                                                                   ------------       ------------
          Net cash provided by (used in) investing activities          (483,292)           (18,968)
                                                                   ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on short-term loan                                         (95,696)                --
    Proceeds from issuance of preferred stock                         3,783,000                 --
    Cash paid on shares redeemed                                       (167,602)                --
                                                                   ------------       ------------
          Net cash used in financing activities                       3,519,702                 --
                                                                   ------------       ------------

EFFECT OF EXCHANGE RATE ON CASH                                           6,490                 --
                                                                   ------------       ------------

INCREASE (DECREASE) IN CASH                                           1,666,315           (126,899)

CASH, beginning of period                                                91,964            243,520
                                                                   ------------       ------------

CASH, end of period                                                $  1,758,279       $    116,621
                                                                   ============       ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes                                         $         --       $         --
                                                                   ============       ============

Cash paid for interest expense                                     $      1,582       $         --
                                                                   ============       ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION:

Stock issued for services                                          $    607,500       $         --
                                                                   ============       ============


Stock option granted                                               $     22,392       $         --
                                                                   ============       ============
</TABLE>

The accompanying notes are an integral part of this statement.


                                      F-4
<PAGE>

                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization

Organization

China  Medicine   Corporation   (the  "Company")  is  a  Delaware   corporation,
incorporated on February 10, 2005 under the name  Lounsberry  Holdings III, Inc,
for the purpose of acquiring, or merging with, an operating business. On May 10,
2006, the Company changed its corporate name to China Medicine Corporation.

Effective  February 8, 2006, the Company entered into a Stock Exchange Agreement
("Exchange  Agreement") with Guangzhou  Konzern Medicine Co., Ltd.  ("Konzern").
Pursuant to the Exchange Agreement, the Company, at closing, acquired all of the
capital of Konzern from Konzern Stockholders in exchange for 6,530,000 shares of
the Company's common stock. For accounting purposes,  the acquisition of Konzern
has been treated as a recapitalization  of Konzern with Konzern as the acquirer.
The  historical  financial  statements  prior to  February  8, 2006 are those of
Konzern.  Contemporaneously  with the reverse acquisition,  the Company redeemed
928,000  shares of common stock from its then principal  stockholder  who is not
affiliated with the Konzern Stockholders or any member of the investor group for
$167,602 and paid off loans from related party for $32,398.  The 928,000  shares
purchased  constituted  approximately  90.3% of the  1,028,000  shares of common
stock  outstanding  prior to the issuance of the shares of common stock pursuant
to the Exchange Agreement and the 750,000 shares issued as disclosed in Note 15.

Konzern was privatized from a state-owned  medicine  company on July 25, 2000 in
Guangzhou,  People's  Republic  of  China  (PRC).  The  registered  capital  was
$121,000.  The Company has increased Konzern's  registered capital by $2,300,000
with the proceeds  received from the sale of preferred  stock (see Note 15). The
business license provides for a 24 years term and will end on September 2, 2024.

Konzern  is  a   distributor   of  medical   products,   including   traditional
pharmaceutical medicines, traditional Chinese medicines (finished medicines made
of Chinese herbs), Chinese herbs and dietary supplements. These products include
both prescription  drugs and  over-the-counter  drugs. The Company purchases its
products from Chinese drug manufacturers and other medicine companies.

Note 2 - Summary of significant accounting policies

Basis of presentation

The consolidated financial statements of the Company reflected the activities of
100%  ownership  of Konzern  that  locates in PRC.  The  consolidated  financial
statements  have been  presented  as if the  equity  Exchange  Agreement  of the
subsidiary  occurred  during  the  year of 2004  due to  common  management  and
ownership.


                                      F-5
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Basis of presentation, (continued)

The  accompanying  financial  statements  have been prepared in accordance  with
accounting  principles  generally accepted in the United States of America.  The
accompanying  consolidated  financial statements include the accounts of Konzern
and the Company. All material  transactions and balances have been eliminated in
the consolidation.

Use of estimates

In  preparing  financial   statements  in  conformity  with  generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses  during the reported  period.  Actual results could differ
from those estimates.

Cash and cash equivalents

For  purposes  of the cash flow  statements,  the Company  considers  all highly
liquid investments with original  maturities of three months or less at the time
of  purchase  to be cash  equivalents.  Cash  includes  cash on hand and  demand
deposits in accounts maintained with state owned banks within PRC and the United
States.

The Company's  operations may be adversely  affected by  significant  political,
economic and social uncertainties in China.  Although the Chinese government has
pursued  economic  reform  policies in the past,  there is no assurance that the
Chinese  government  will continue to pursue such policies or that such policies
may not be  significantly  altered,  especially  in the  event  of a  change  in
leadership,  social or political  disruption or unforeseen  circumstances affect
China's political,  economic and social  conditions.  There is also no guarantee
that the Chinese  government's pursuit of economic reforms will be consistent or
effective.

Concentration of credit risk

Financial  instruments,  which  subject the Company to  concentration  of credit
risk, consist of cash. The Company maintains balances at financial  institutions
which,  from time to time,  may exceed  Federal  Deposit  Insurance  Corporation
insured  limits for the bank that is located in the Unites  States,  no deposits
with the state owned banks within PRC are covered by insurance.  As of March 31,
2006 and  December  31,  2005,  the Company had  deposits in excess of federally
insured  limits total of $1,900,350 and $78,319,  respectively.  The Company has
not  experienced  any losses in such  accounts and believes it is not exposed to
any significant risks on its cash in bank accounts.


                                      F-6
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Accounts receivable, trade

The Company conducts its business operations in PRC. During the normal course of
business,  the Company  extends  unsecured  credit to its customers.  Management
reviews its accounts  receivable on a regular basis to determine if the bad debt
allowance is adequate.  However,  the Company  records a provision  for accounts
receivable  trade  that  ranges  from 0.3% to 1.0% of the  outstanding  accounts
receivable balance in accordance with generally accepted  accounting  principles
in the PRC.  The  allowance  for  doubtful  accounts  as of March  31,  2006 and
December 31, 2005 amounted to $12,412 and $12,333, respectively.

Inventories

Inventories are stated at the lower of cost or market value,  cost is determined
using the weighted average method.

Plant and equipment

Plant and equipment are stated at the actual cost of acquisition less
accumulated depreciation and amortization. Depreciation and amortization are
provided for in amounts sufficient to relate the cost of depreciation of assets
to operations over their estimated service lives, principally on a straight-line
basis. The estimated lives used in determining depreciation are:

                           Furniture                        3 -  5 years
                           Office equipment                 3 -  5 years
                           Motor vehicles                   4 - 10 years

The residual value is estimated to be 5% of the actual cost.

The cost and  related  accumulated  depreciation  of  assets  sold or  otherwise
retired are eliminated  from the accounts and any gain or loss is include in the
statement of  operations.  Maintenance,  repairs and minor  renewals are charged
directly to expenses as incurred.

Intangibles

Under the Statement of Accounting Standards ("SFAS") No.142, "Goodwill and Other
Intangible  Assets",  all goodwill and certain  intangible  assets determined to
have indefinite lives will not be amortized but will be tested for impairment at
least  annually.  Intangible  assets other than goodwill will be amortized  over
their useful lives and reviewed for impairment in accordance  with SFAS No. 144,
"Accounting for Impairment or Disposal of Long-Lived Assets".


                                      F-7
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Impairment of long-lived assets

Per  SFAS No.  144,  long-lived  assets  will be  analyzed  for  indications  of
impairment.  Impairment of long-lived assets is assessed by the Company whenever
there  is an  indication  that  the  carrying  amount  of the  asset  may not be
recovered.  Recoverability  of these  assets  is  determined  by  comparing  the
forecasted  undiscounted cash flows generated by those assets to the assets' net
carrying  value.  The amount of  impairment  loss,  if any,  is  measured as the
difference between the net book value of the assets and the estimated fair value
of the related assets.

The Company  evaluates the  recoverability of long-lived assets by measuring the
carrying  amount of the assets  against the estimated  undiscounted  future cash
flows associated with them. At the time such flows of certain  long-lived assets
are not sufficient to recover the carrying value of such assets,  the assets are
adjusted to their fair values.

Revenue recognition

The Company  recognizes revenue when all four of the following criteria are met:
(1)  persuasive  evidence has been  received  that an  arrangement  exists;  (2)
delivery of the products and/or services has occurred;  (3) the selling price is
fixed or determinable; and (4) collectibility is reasonably assured. The Company
follows the provisions of SAB No. 104 which sets forth  guidelines in the timing
of  revenue   recognition   based  upon   factors  such  as  passage  of  title,
installation,  payments and customer  acceptance.  Any amounts received prior to
satisfying the Company's  revenue  recognition  criteria is recorded as deferred
revenue.

Sales revenue  represents the invoiced value of goods,  net of a value-added tax
(VAT).  All of the Company's  products that are sold in the PRC are subject to a
Chinese  value-added tax at a rate of 13% to 17% of the gross sales price.  This
VAT may be  offset  by VAT  paid  by the  Company  on raw  materials  and  other
materials included in the cost of producing their finished product.

Research and development costs

Research and development  costs are expensed as incurred.  The costs of material
and  equipment  that are acquired or  constructed  for research and  development
activities,   and  have  alternative   future  uses,   either  in  research  and
development,  marketing,  or sales,  are classified as property and equipment or
depreciated over their estimated useful lives.


                                      F-8
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Foreign currency translation

The  functional  currency  of Konzern is the  Chinese  Renminbi.  The  financial
statements of Konzern are  translated to United  Stated  dollars using  year-end
exchange  rates as to assets and  liabilities  and average  exchange rates as to
revenues and  expenses.  Capital  accounts are  translated  at their  historical
exchange  rates  when the  capital  transaction  occurred.  Net gains and losses
resulting from foreign  exchange  translations are included in the statements of
operations and stockholders' equity as other comprehensive income.

This quotation of the exchange rates does not imply free  convertibility  of RMB
to other foreign currencies.  All foreign exchange transactions continue to take
place either through the People's Bank of China or other banks authorized to buy
and sell foreign currencies at the exchange rate quoted by PRC.

Approval of foreign currency payments by the Bank of China or other institutions
requires submitting a payment application form together with invoices,  shipping
documents and signed contracts.


Translation  adjustments resulting from this process are included in accumulated
other comprehensive income in the consolidated statement of shareholders' equity
and  amounted  to $44,840 and $0 for the three  months  ended March 31, 2006 and
2005,  respectively.  The balance  sheet amounts with the exception of equity at
March 31, 2006 were  translated at 8.01 RMB to $1.00 USD as compared to 8.26 RMB
at March 31, 2005. The equity accounts were stated at their historical rate. The
average  translation  rate of 8.04 RMB for the three months ended March 31, 2006
was applied to income statement accounts.


Income taxes

The Company has adopted  Statement of Financial  Accounting  Standards  No. 109,
"Accounting  for Income Taxes" (SFAS 109).  SFAS 109 requires the recognition of
deferred  income  tax  liabilities  and  assets  for  the  expected  future  tax
consequences  of temporary  differences  between  income tax basis and financial
reporting basis of assets and liabilities. Provision for income taxes consist of
taxes  currently due plus deferred  taxes.  There are no deferred tax amounts at
March 31, 2006 and December 31, 2005.

The Charge for  taxation is based on the  results  for the year as adjusted  for
items, which are non-assessable or disallowed.  It is calculated using tax rates
that have been enacted or substantially enacted by the balance sheet date.


                                      F-9
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Income taxes, (continued)

Deferred  tax is  accounted  for using the  balance  sheet  liability  method is
respect of temporary  differences  arising from differences between the carrying
amount  of  assets  and   liabilities  in  the  financial   statements  and  the
corresponding  tax basis used in the  computation of assessable  tax profit.  In
principle,  deferred tax  liabilities  are recognized for all taxable  temporary
differences,  and  deferred tax assets are  recognized  to the extent that it is
probably  that  taxable  profit  will  be  available  against  which  deductible
temporary differences can be utilized.

Deferred  tax is  calculated  at the tax rates that are expected to apply to the
period when the asset is realized or the  liability is settled.  Deferred tax is
charged or  credited  in the income  statement,  except when it related to items
credited or charged  directly to equity,  in which case the deferred tax is also
dealt with in equity.

Deferred tax assets and  liabilities are offset when they relate to income taxes
levied by the same  taxation  authority  and the  Company  intends to settle its
current tax assets and liabilities on a net basis.

The  Company is  organized  in the United  States and no tax benefit is expected
from tax credits in the future. The Company has located its subsidiary,  Konzern
in a special  economic  region in China.  This economic  region  allows  foreign
enterprises  a two-year  income tax exemption and a 50% income tax reduction for
the  following  three  years.  Konzern was  approved as a foreign  Joint-venture
enterprise in 2004 and as a wholly-owned foreign enterprise in 2006. Konzern has
an income tax  exemption  for 2004 and 2005 and a 50%  reduction  the income tax
rate for 2006, 2007 and 2008.


The estimated tax savings for the period ending March 31, 2006 and 2005 amounted
to $165,581 and $404,751,  respectively. The net effect on earnings per share if
the income tax had been applied would decrease  earnings (losses) per share from
$0.01 to ($0.04) for 2006 and $0.19 to $0.13 for 2005, respectively.


The provision for income taxes at March 31 consisted of the following:

                                        2006                 2005
                                    ---------------      ---------------
                                      Unaudited            Unaudited
                                    ---------------      ---------------
Provision for China Income Tax      $       165,581      $            --
Provision for Local Tax                          --                   --
                                    ---------------      ---------------
Totals                              $       165,581      $            --
                                    ===============      ===============


                                      F-10
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Income taxes, (continued)

The  following  table  reconciles  the U.S.  statutory  rates  to the  Company's
effective tax rate for the three months ended March 31:

                                              2006                  2005
                                         ---------------       ---------------

U.S. Statutory rates                              34.0 %                34.0 %
Foreign income not reognized in USA                (34.0)                (34.0)
China income taxes                                  33.0                    --
50% tax reduction                                  (16.5)                   --
                                         ---------------       ---------------
Effective income tax rate                         16.5 %                   - %
                                         ===============       ===============


Value added tax

Enterprises or individuals who sell commodities are subject to a value added tax
in accordance with Chinese laws. The value added tax standard rate is 17% of the
gross sales  price.  A credit is  available  whereby VAT paid on the purchase of
semi-finished  products or raw  materials  used in  production  of the Company's
finished  products  can be used to offset  the VAT due on sales of the  finished
product.

Fair value of financial instruments

The carrying amounts of the Company's financial instruments  (including accounts
receivable,  shareholder loans and notes payable)  approximate fair value due to
the relatively short period to maturity of these instruments.

Stock-based compensation

Effective  January 1, 2006,  the Company  adopted  the  Statement  of  Financial
Accounting   Standards   No.  123  (revised   2004),   "Share-Based   Payments,"
("FAS123R"),  which established standards for the accounting for transactions in
which an entity  exchange its equity  instruments  for goods or  services.  This
statement  require a public  entity to  measure  the cost of  employee  services
received in exchange for an award of equity  instruments based on the grant-date
fair value of the award (with limited exceptions).  That cost will be recognized
over the period  during  which an employee  is  required  to provide  service in
exchange for the award.


                                      F-11
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Stock-based compensation, (continued)


On February 8, 2006, contemporaneously with the reverse acquisition, the Company
granted options to purchase 430,000 of common stock of which options to purchase
390,000  shares were granted to officers and other key employees of Konzern.  On
March 22, 2006, the Company  granted  options to purchase an additional  850,000
shares of common stock to two officers.  The options all have an exercise  price
of $1.25, which was the conversion price of the series A preferred stock and not
less than the fair market value on the date of grant,  and were granted pursuant
to the Company's 2006  Long-Term  Incentive  Plan. The 2006 Long-Term  Incentive
Plan,  which covers  1,575,000  shares of common stock,  and all options granted
under the plan are  subject to  stockholder  approval  of the plan.  The Company
estimated  that the value of the  options  is  between  $0.17 to 0.23 per shares
subject to the options The plan has been  approved  by the  stockholders  of the
Company in July 2006.

SFAS No. 123 requires that  compensation  expense  related to options granted be
calculated  based on the fair value of the options as of the date of grant.  The
fair value calculations take into account the exercise prices and expected lives
of the  options,  the  current  price  of the  underlying  stock,  its  expected
volatility,  the  expected  dividends  on the stock,  and the current  risk-free
interest rate for the expected  life of the option.  Because there is no trading
market for the Company's  common stock,  no historical  data on which to base an
estimate of volatility. The Company have considered the volatility that might be
expected to occur for companies  comparable to the Company and,  selected  three
publicly-traded companies whose business is similar to the Company's and who are
classified in the same SIC code as the Company, have assumed a volatility of 50%
as being reasonably  representative  of the volatility that could be expected to
occur in the future over the  relevant  periods.  The  risk-free  rates used are
based on  Treasury  Constant  Maturity  rates,  published  by the  U.S.  Federal
Reserve.  The weighted average risk-free rate was 4.65%.  Since the Company does
not have a history of employee stock options, the estimated life is based on one
half of the sum of the vesting period and the contractual life of the option.

The Company used the  Cox-Ross-Rubinstein  binomial  model to value the Warrants
and the  embedded  conversion  option of the the Series A Preferred  Stock.  The
following  assumptions  were used in the preparation of the above  valuations at
inception:


<TABLE>
<CAPTION>
Assumption                   Preferred Stock     Warrants A      Warrants B     Stock options
----------                   ---------------     ----------      ----------     -------------
<S>                            <C>              <C>              <C>              <C>
Common stock - fair value      $      0.81      $      0.81      $      0.81      $      0.81
Expected life                    Perpetual          5 years          5 years        2.5 years
Volatility                                               50%              50%              50%
Risk-free rate                                         4.55%            4.55%            4.65%
</TABLE>


                                      F-12
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of significant accounting policies, (continued)

Major suppliers

For the three months ended March 31, 2006 and the year ended  December 31, 2005,
five suppliers  accounted for  approximately 54% and 74%,  respectively,  of the
Company's purchases.

Major customers

For the three months ended March 31, 2006 and the year ended  December 31, 2005,
five customers  accounted for  approximately 67% and 65%,  respectively,  of the
Company's sales.

Recently issued accounting pronouncements

In July 2005, the Financial Accounting Standards Board (FASB) issued an Exposure
Draft of a proposed  Interpretation  "Accounting for Uncertain Tax Positions--an
interpretation of FASB Statement No. 109." Under the proposed Interpretation,  a
company  would  recognize in its financial  statements  its best estimate of the
benefit of a tax position,  only if the tax position is  considered  probable of
being  sustained  on audit  based  solely  on the  technical  merits  of the tax
position. In evaluating whether the probable recognition threshold has been met,
the proposed  Interpretation would require the presumption that the tax position
will  be  evaluated  during  an  audit  by  taxing  authorities.   The  proposed
Interpretation  would be effective as of the end of the first fiscal year ending
after  December 15, 2005,  with a  cumulative  effect of a change in  accounting
principle to be recorded upon the initial adoption. The proposed  Interpretation
would apply to all tax positions and only benefits from tax positions  that meet
the  probable  recognition  threshold  at or after the  effective  date would be
recognized.


The Company is  currently  analyzing  the  proposed  Interpretation  and has not
determined its potential impact on our Consolidated Financial Statements.  While
we cannot predict with certainty the rules in the final Interpretation, there is
risk that the final Interpretation could result in a cumulative effect charge to
earnings  upon  adoption,  increases  in  future  effective  tax  rates,  and/or
increases in future interperiod effective tax rate volatility.


Note 3 - Consolidated financial statements and condensed footnotes

The  interim  consolidated  financial  statements  presented  herein  have  been
prepared by the Company  and include the  unaudited  accounts of the Company and
its subsidiaries.  All significant  inter-company accounts and transactions have
been eliminated in the consolidation.

These  consolidated  financial  statements have been prepared in accordance with
generally  accepted  accounting  principles  in the United  States  for  interim
financial  information  and the  instructions  for Form  10-QSB  and Item 310 of
Regulation S-B.


                                      F-13
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 3 - Consolidated financial statements and condensed footnotes

Certain  information  and footnote  disclosures  that are  normally  included in
financial  statements presented in accordance with generally accepted accounting
principles  have been condensed or omitted.  Management of the Company  believes
the  disclosures  made  are  adequate  to make  the  information  presented  not
misleading.

In the opinion of management,  the unaudited  consolidated  financial statements
reflect  all  adjustments  (which  include  only normal  recurring  adjustments)
necessary to present  fairly the  financial  position of the Company as of March
31,  2006 and  December  31,  2005,  and the results of  operations,  changes in
shareholders' equity and cash flows for the three months ended March 31,2006 and
2005.  Interim  results  are  not  necessarily   indicative  of  a  full  year's
performance because of the impact of seasonal and short-term variations.

Note 4 - Earnings per share

The Company reports earnings per share in accordance with the provisions of SFAS
No. 128,  "Earnings Per Share." SFAS No. 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.


The following is a  reconciliation  of the basic and diluted  earnings per share
computations for the three months ended March 31, 2006 and 2005:


<TABLE>
<CAPTION>
                                                           2006               2005
                                                         -----------       -----------
                                                          Unaudited         Unaudited
                                                         -----------       -----------
<S>                                                      <C>               <C>
Net income for basic earnings per share                  $   (99,641)      $ 1,226,519
                                                         ===========       ===========
Shares of common stock and common
     stock equivalents:
Weighted average shares used in basic computation          6,992,778         6,530,000
                                                                           ===========
Diluted effect of convertible preferred stock                200,900
                                                         -----------
Weighted average shares used in diluted computation        7,193,678
                                                         ===========
Earnings per share:
Basic                                                    $     (0.01)      $      0.19
                                                         ===========       ===========
Diluted                                                  $     (0.01)
                                                         ===========
</TABLE>


                                      F-14
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 5 - Accounts receivable, trade

Accounts receivable, trade as of March 31, 2006 and December 31, 2005 consisted
of the following:

                             March 31,         December 31,
                               2006              2005
                             -----------      -----------
                              Unaudited         Audited
                             -----------      -----------
Accounts receivable          $ 3,335,617      $ 2,423,157
Less: allowance for
      doubtful accounts           12,412           12,333
                             -----------      -----------
Totals                       $ 3,323,205      $ 2,410,824
                             ===========      ===========

Note 6 - Inventories

Inventories consisted of the following:

                                  March 31,        December 31,
                                    2006              2005
                                  -----------      -----------
                                   Unaudited         Audited
                                  -----------      -----------
Chemical medicine                 $ 2,253,257      $ 1,382,929
Traditional Chinese Medicine              234               --
                                  -----------      -----------
Totals                            $ 2,253,491      $ 1,382,929
                                  ===========      ===========


Note 7 - Advances to suppliers

Advances to suppliers  as of March 31, 2006 and  December  31, 2005  amounted to
$2,084,332 and $1,075,546, respectively. They represent advances to suppliers on
inventory purchases.


                                      F-15
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 8 - Equipment

Equipment is summarized as follows:

                                        March 31,         December 31,
                                         2006                2005
                                    --------------      --------------
                                      Unaudited             Audited
                                    --------------      --------------
Furniture and fixtures              $       59,982      $      160,081
Office equipment                           668,483             369,459
Motor vehicles                             196,685             132,804
                                    --------------      --------------
                         Total             925,150             662,344
Less accumulated depreciation              146,916             332,329
                                    --------------      --------------
Equipment, net                      $      778,234      $      330,015
                                    ==============      ==============

Depreciation expense for the three months ended March 3, 2006 and 2005 amounted
to $21,478 and $25,794 respectively.

Note 9 - Customer deposits

The Company  requires  their  customers to deposit  monies with the Company when
they place an order for their  products.  The Company  does not pay  interest on
these amounts. Customer deposits amounted to $43,520 and $37,292 as of March 31,
2006 and December 31, 2005, respectively.


Note 10 - Taxes payable


Taxes payable consisted of the following:

                            March 31,       December 31,
                              2006             2005
                           -----------      -----------
                            Unaudited         Audited
                           -----------      -----------
Income taxes payable       $   166,273      $        --
Individual income tax              380              205
Value added tax                200,749          170,251
                           -----------      -----------
Totals                     $   367,402      $   170,456
                           ===========      ===========


Note 11 - Short-term bank loan payable



In  January  2006,  the  Company  repaid  $95,696  in short  term loans to CITIC
Industrial Bank including interest of $1,582.

                                                  March 31,        December 31,
                                                     2006              2005
                                                 ------------      ------------
                                                  Unaudited           Audited
                                                 ------------      ------------
Citic Industrial Bank due February 1, 2006,
     annual interest rate at 5.22%               $         --      $     95,480
                                                 ============      ============


                                      F-16
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 12 - Commitments and contingencies

Operating lease

The Company leases its facilities under short-term and long-term, non-cancelable
operating  lease  agreements  expiring  through August 2006. The  non-cancelable
operating  lease  agreement  states  that the  Company  pays  certain  operating
expenses applicable to the leased premises.

Total  rental  expense  for the three  months  ended March 31, 2006 and the year
ended December 31, 2005 amounted to $11,583 and $31,282, respectively.

As of March 31, 2006, the future  minimum annual lease payments  required are as
follows:

     Year Ending December 31,
     ------------------------
              2006                                           $36,985
              2007 and thereafter                                 --

Note 13 - Statutory reserves

The Company's subsidiary, Konzern, is required to make appropriations to reserve
funds,  comprising the statutory  surplus  reserve,  statutory  welfare fund and
discretionary  surplus  reserve,  based on after-tax  net income  determined  in
accordance with generally accepted accounting principles of People's Republic of
China ("PRC GAAP").  Appropriation to the statutory  surplus reserve is required
to be at least 10% of the after tax net income determined in accordance with the
PRC GAAP until the reserve is equal to 50% of the entities'  registered capital.
Appropriations to the statutory public welfare fund is required to be between 5%
to 10% of the after tax net income  determined in accordance  with the PRC GAAP.
Appropriations to the  discretionary  surplus reserve are made at the discretion
of the Board of Directors.


The  statutory  surplus  reserve  fund is  non-distributable  other than  during
liquidation and can be used to fund previous  years' losses,  if any, and may be
utilized for business  expansion or converted  into share capital by issuing new
shares to  existing  shareholders  in  proportion  to their  shareholding  or by
increasing the par value of the shares currently held by them, provided that the
remaining  reserve  balance  after  such  issue  is  not  less  than  25% of the
registered capital.


The  statutory  welfare  reserve can only be  utilized on capital  items for the
collective  benefit  of  the  Company's  employees,   such  as  construction  of
dormitories, cafeteria facilities, and other staff welfare facilities. This fund
is non-distributable other than upon liquidation. The transfer to this fund must
be made before distribution of any dividend to shareholders.


                                      F-17
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 13 - Statutory reserves, (continued)

The  discretionary  surplus  fund  may be used to  acquire  fixed  assets  or to
increase  the  working  capital to expend on  production  and  operation  of the
business.  The Company's Board of Directors decided not to make appropriation to
this reserve. According to Konzern's articles, Konzern should appropriate 10% of
the net profit as statutory  surplus reserve and 6% as statutory public welfare.
As of March 31, 2006, Konzern's statutory reserve did not reach 50% of Konzern's
registered  capital due to the increase in  registered  capital of $2.3 millions
and reserve will be made at the end of 2006.

Note 14 - Retirement benefit plans

Regulations  in  the  PRC  require  the  Company  to  contribute  to  a  defined
contribution  retirement plan for all permanent  employees.  The contribution is
based on a  percentage  required  by the  local  government  and the  employees'
current  compensation.  The Company  contributed  $17,947 and $23,575 during the
three  months  ended  March  31,  2006 and the year  ended  December  31,  2005,
respectively.

Note 15 - Stockholders' equity

Sale of preferred stock


Contemporaneously  with the  reverse  acquisition,  the Company  entered  into a
Preferred Stock Purchase Agreement, dated February 8, 2006, with Barron Partners
L.P.,  Ray and Amy Rivers,  JTROS,  Steve Mazur and William  Denkin  pursuant to
which the Company issued and sold an aggregate of 3,120,000 shares of its Series
A Convertible  Preferred  Stock, a newly-created  series of preferred stock, and
warrants to  purchase  3,694,738  shares of common  stock at $1.75 per share and
3,694,738 shares of common stock at $2.50 per share.

The Series A Convertible  Preferred Stock is  convertible,  at the option of the
holder and at any time, into 3,120,000  shares of common stock. No dividends are
payable on the preferred stock and dividends may not be paid on the common stock
while the preferred stock is outstanding.  The preferred stock is not redeemable
but has a liquidation  preference  of $1.25 per share.  Holders of the preferred
stock are not entitled to vote,  except on matters that would  adversely  affect
their rights.

The warrants have a term of five years and are  exercisable by the holder at any
time. With certain exceptions, if the Company issues common stock at a price, or
warrants or other  convertible  securities with an exercise or conversion price,
which is less than the exercise price of the warrants, the exercise price of the
warrants will be reduced to the sales price, exercise price or conversion price,
as the case maybe, of such other securities. However, in such circumstances, the
number of shares obtainable on exercise of the warrants is not changed.



                                      F-18
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Note 16 - Stockholders' equity, (continued)

Sale of preferred stock, (continued)

The  conversion  rate of the Series A Preferred  Stock and the exercise price of
the warrants  (but not the number of shares  obtainable on exercise) are subject
to adjustment  in certain  events,  including  the failure to achieve  specified
levels  of  adjusted   earnings  before   interest,   taxes,   depreciation  and
amortization or fully diluted pre-tax income per share, computed as set forth in
the  applicable  agreements.  Further,  the Series A Preferred  Stock can not be
converted  and the warrants can not be exercised if such  conversion or exercise
would result in the holder and its affiliates  owning more than 4.9% of the then
outstanding number of shares of common stock.

The  Company  valued  the  warrants  at the time  they  were  issued  using  the
Cox-Ross-Rubinstein  binomial model, based on the exercise price and term of the
warrants  and the  following  assumptions:  fair value of common  stock - $0.81;
volatility - 50%;  interest  rate - 4.55%.  Because there is currently no public
market for the  Company's  common  stock,  the Company  estimated  the  expected
volatility of the Company's  common stock over the term of the warrants based on
a review  of the  historical  volatility  of other  publically-traded  companies
considered by management to be comparable to the Company.  The fair value of the
common  stock  and the  Series A  Preferred  Stock  was  estimated  based on the
implicit value paid by the investors.  As a result,  based on these factors, the
Series A Preferred  Stock was valued at $2,518,615  and the warrants were valued
at $1,381,385,  reflecting the aggregate gross proceeds paid by the investors of
$3,900,000.

Under a  registration  rights  agreement  with the  investors,  the  Company  is
required to file a registration  statement registering the common stock issuable
upon  conversion  of the  preferred  stock and  exercise  of the  warrants.  The
registration  statement  was  filed on  April  13,  2006 but has not yet  become
effective. The registration rights agreement requires the registration statement
to be filed by April 9, 2006 and be declared  effective  by August 8, 2006.  The
Company  filed the  registration  statement  on April 13,  2006.  The Company is
required to pay to the investors liquidated damages of 1,025 shares of preferred
stock each day (i) after April 8, 2006 until the registratin statement is filed,
(ii) after August 8, 2006 until the  registration  statement is  effective,  and
(iii) after the registration  statement  becomes  effective,  subject to certain
limitation,  for each day that the  registration  statement ceases to be current
and effective  until the expiration of two years after the date of the agreement
or until the investors hold less than 10% of the  registerable  securities.  The
agreement also provides that the liquidated  damages resulting from a failure to
file on time will be waived if the registration  statement is declared effective
by the  required  date.  As of March 31,  2006,  the Company had not accrued any
liquidated damages under this agreement.



                                      F-19
<PAGE>
                    CHINA MEDICINE CORPORATION AND SUBSIDIARY
                (FORMERLY KNOWN AS LOUNSBERRY HOLDINGS III, INC)

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Note 16 - Stockholders' equity, (continued)

Sale of preferred stock, (continued)

The Company reviewed the terms of the Series A Preferred Stock and the Warrants,
in accordance with FAS 133 and EITF Issue 00-19.  The conversion  option related
to the Series A Preferred  Stock is an embedded  derivative  instrument  but the
risks and rewards of that embedded  derivative  are considered to be clearly and
closely   related  to  the  risks  and  rewards  of  the  host  instrument  and,
accordingly,  the embedded  derivative  instrument has not been bifurcated.  The
Company has reviewed the requirements of EITF Issue 00-19 and concluded that the
Warrants  should be accounted for as equity  instruments.  Accordingly,  the net
proceeds  from the sale of the  preferred  stock  and  warrants  of  $3,783,000,
representing  the gross  proceeds  received  of  $3,900,000,  net of $117,000 of
commissions, has been credited to additional paid-in capital.

Common stock

The Company issued  750,000  shares of common stock to individuals  for services
performed  and of which  150,000  shares  were issued to Ms. Mary Xia and 37,500
shares  were  issued  to Ms.  Lin Li.  There is no  established  market  for the
Company's common stock. Accordingly, the fair value of the common stock of $0.81
has been estimated by determining the fair value that would equate the aggregate
fair values of the Series A Preferred  Stock and the  Warrants to the gross cash
proceeds  received from the third-party  investors,  keeping all other valuation
factors  constant.  Therefore,  the Company valued the common stock at $0.81 per
share for a total of $607,500 for the 750,000  shares  issued.  The total amount
was charged to income in the period ended March 31, 2006.



                                      F-20
<PAGE>


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


      FORWARD-LOOKING INFORMATION - Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") includes "forward-looking
statements". All statements, other than statements of historical facts, included
in this MD&A regarding the Company's financial position, business strategy and
plans and objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements rely on a number of
assumptions concerning future events and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control, that could cause actual results to materially differ from such
statements. While the Company believes that the assumptions concerning future
events are reasonable, it cautions that there are inherent difficulties in
predicting certain important factors, especially, the prospects for future
acquisitions; the possibility that a current customer could be acquired or
otherwise be affected by a future event that would diminish their medicine
products requirements; the competition in the medical product market and
governmental price policy on medical products and the impact of such factors on
pricing, revenues and margins; and the cost of attracting and retaining highly
skilled personnel.


Overview

      We are the holding company, and our business is conducted through our
wholly owned subsidiary, Guangzhou Konzern Medicine Co., Ltd. ("Konzern"), which
is organized under the laws of the People's Republic of China (the "PRC", or
"China"). Through Konzern, we distribute medical products, including traditional
Chinese medicine (finished medicine made of Chinese herbs) and Chinese herbs and
nutritional supplements in the PRC. We acquired all the outstanding equity of
Konzern in February 2006. In connection therewith, we raised an aggregate of
$3,900,000 in gross proceeds in a private equity financing by certain
non-affiliated accredited investors in February 2006.

      We distribute 1,100 medicine products in China, including traditional
pharmaceutical medicines, traditional Chinese medicines (finished medicines made
of Chinese herbs), Chinese herbs and dietary supplements. These products include
both prescription drugs and over-the-counter drugs. Our network reaches 28
provinces in China, over 300 hospitals, 500 medicine companies and 1700 drug
stores. Our business is dependent upon our ability both to acquire our products
and distribute our products in the Chinese markets. We purchase our products
from Chinese drug manufacturers, and we are the manufacturer's sole distributor
in the PRC for our five largest suppliers. Our five largest suppliers, which
were the same in each period, accounted for 54% and 57% of our purchases in the
three months ended March 31, 2006, and March 31, 2005, respectively. Our
agreements with our suppliers generally have a term of one year and provide that
the suppliers will provide us with the products we order. None of our supply
agreements has any minimum purchase requirements on our part. However, we are
frequently required to make a significant down-payment when we place an order,
and, at March 31, 2006, our advances to our suppliers were approximately $2.1
million. These down payments are made pursuant to contracts with the suppliers,
and, to the extent that we reduce the size of the order, we will receive a
credit from the supplier. To date, all of our down payments have been applied to
our orders. As of March 31, 2006, we have nationwide exclusive sales right from
our suppliers for six products they produce, which accounted for $1,596,938, or
45% of revenue in the quarter ended March 31, 2006, and $683,772, or 24% of
revenue in the comparable quarter of 2005.

      Our customers are typically wholesale medical products companies,
hospitals and retail drug stores. Our five largest customers accounted for 67%
and 60% of our revenue for the three months ended March 31, 2006 and March 31,
2005, respectively.

      Since 2003, we started to conduct medical research and development through
Konzern's R&D center. We have four new medicines currently under development by
Konzern: Yutian Capsule a traditional Chinese medicine which is used in the
treatment of lung cancer, Dioscorea Collettii Hook F Extraction for high blood
pressure treatment, EGFR Test kit for lung cancer testing, Multi Functional
Peptide Derivative for intestine cancer treatment. We have been focusing on the
pre-clinical study of Yutian capsule in the first quarter of 2006. These
products are designed for marketing in the PRC in compliance with PRC regulatory
requirements. None of the claims with respect to these medications would be
permissible in the United States or any other western country.

                                       4
<PAGE>

      Under certain regulations in the form of public notices issued by the PRC
State Administration of Foreign Exchange, or SAFE, our shareholders who are PRC
resident entities or individuals are subject to certain registration
requirements. These regulations would prohibit Konzern from distributing
dividends or profits to us unless the registration requirements are complied
with. As of March 31, 2006, our PRC shareholders have not complied with the
registration requirements under the SAFE regulations. The Company currently does
not have any present plans to pay dividends, and we are prohibited from paying
dividends under the terms of the purchase agreement relating to the series A
preferred stock. The PRC shareholders have advised us that they will comply with
relevant SAFE regulations.

      As a result of the reverse acquisition, we became a reporting company in
February 2006. As a result, our general and administrative expenses increased to
reflect the establishment of a United States office and additional legal,
accounting and other expenses relating to our status as a public company and
compliance with the reporting requirements of the federal securities laws and
our obligations under the agreement pursuant to which we sold preferred stock to
our investors.

Results of Operations

      The following table sets forth our statements of operations for the three
months ended March 31, 2006 and 2005, and the year ended December 31, 2005, in
U.S. dollars:

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                      12 Months Ended
                                      Three Months Ended March 31,      December 31,
                                      ----------------------------      ------------
                                        2006              2005             2005
                                      -----------       -----------      -----------

<S>                                   <C>               <C>              <C>
Revenue                               $ 3,511,979       $ 2,728,586      $12,791,031
Costs of goods sold                     2,459,550         1,828,997        8,656,873
Gross profit                            1,052,429           899,589        4,134,158
Other operating income                    296,103           424,628        2,134,872
R&D expenses                               54,664               159          478,590
Selling expenses                          100,102            39,429          147,020
General and administrative costs          187,064            58,288          364,150
Income from operations                  1,006,702         1,226,341        5,279,270
Reverse acquisition expenses              931,270                 0                0
Other income, net                          (9,492)              178          410,900
Income before income taxes                 65,940         1,226,519        5,690,170
Provision for income taxes                165,581                 0                0
Net (loss)  income                        (99,641)        1,226,519        5,690,170
Other comprehensive income                 44,840                 0          101,132
Comprehensive income                  $   (54,801)      $ 1,226,519      $ 5,748,501
</TABLE>


      Our revenue is derived primarily from the sale of traditional
pharmaceutical medicines, traditional Chinese medicines, which are medicines
derived from Chinese herbs and nutritional products. The following table sets
forth the revenue and percentage of revenue derived from each of these types of
products.

<TABLE>
<CAPTION>
                        Year Ended December 31,                         Three Months Ended March 31,
                       -----------------------                  ---------------------------------------------
                                2005                               2005                               2006
                             -----------                        -----------                       -----------
<S>                          <C>                       <C>      <C>                       <C>      <C>                    <C>
Traditional
Pharmaceutical Medicine      $10,107,138               79%      $ 1,973,275               72%      $ 2,477,138            70.53%
Traditional                                                                                                             Chinese
Medicine                       2,545,854               20%          709,695               26%        1,031,874            29.38%
Chinese Herbs                    138,039                1%           45,616                2%            2,968             0.08%
Total                        $12,791,031              100%      $ 2,728,586              100%      $ 3,511,979              100%
</TABLE>

      Revenues for quarter ended March 31, 2006 were $3,511,979, an increase of
$783,393, or 29%, from the revenue of $2,728,586 for the comparable period in
2005. We obtained the distribution rights for three new products in the second
half of 2005, which generated significant additional revenues for us.

      Cost of revenue for the quarter ended March 31, 2006 was $2,459,505, an
increase of $630,553, or 34%, from $1,828,997 for the comparable period in 2005.
Gross profit for the quarter ended March 31, 2006 was $1,052,429, an increase of
$152,840, or 17%, from $899,589 for the comparable period of 2005. Our gross
margin for the quarter ended March 31, 2006 was 30% as compared with 33% for the
quarter ended March 31, 2005. The drop in our gross margin was due to the
decrease of the medicine prices which was adjusted by the Chinese government.

                                       6
<PAGE>

      Other operating income of $296,103 and $424,628 for the quarter ended
March 31, 2006 and 2005, respectively, represented the proceeds from the sale of
certain technology and know-how on the production of medicines to certain
nonaffiliated drug manufacturers. We bought the technology in its preliminary
stage from other companies and then sold the improved technology to other
pharmaceutical companies.

      Research and development expenses were $54,664 for the quarter ended March
31, 2006 which was for the pre-clinical study of Yutian capsule. The Research
and development expense for the first quarter of 2005 was nominal. Our research
and development for that period was performed pursuant to an agreement with
Nanhua University, and, during the first quarter of 2005, Nanhua University did
not perform any significant services for us.

      Selling expenses were $100,102 for the quarter ended March 31, 2006, an
increase of $60,673 from $39,429 for the comparable period in 2005. The increase
of selling expenses was mainly due to the increase of transportation expenses,
advertising and marketing expenses.


      General and administrative expenses were $187,064 for the quarter ended
March 31, 2006, an increase of $128,776 from $58,288 for the comparable period
in 2005. The increase mainly reflected additional expenses associated with our
status as a reporting company, including the establishment of a United States
office and additional legal, accounting and other expenses relating to our
status as a public company and compliance with the reporting requirements of the
federal securities laws and our obligations under the agreement pursuant to
which we sold preferred stock to our investors.

      Reverse acquisition expenses were $931,270 in the first quarter ended
March 31, 2006. These expenses were one-time expenses which include the value of
stock issued to employees, including two of our officers, and a service
provider; warrants issued to investors, and legal, accounting and investment
banking fees paid during the first quarter of 2006.


      Provision for income taxes was $165,581 for the first quarter of 2006
compared with zero taxes for the first quarter of 2005. As a foreign invested
company in China, our subsidiary Guangzhou Konzern Medicine Co., Ltd has an
income tax exemption for 2004 and 2005 and a 50% reduction income tax rate for
2006, 2007 and 2008.


      Comprehensive income for the quarter ended March 31, 2006 was (54,801), a
decrease of $1,281,320 from $1,226,519 for the comparable period in 2005. The
decrease was mainly due to the increase on selling expenses, G&A expenses,
reverse acquisition expenses and income taxes.


Liquidity and Capital Resources


      Prior to February 2006, we financed our operation and met capital
expenditure requirements primarily through short-term bank loans, trade credit
and equity financing. As of March 31, 2006, as a result of the sale of preferred
stock and warrants, from which we received net proceeds of approximately $3.8
million, we had working capital of $8,138,564, an increase of $3,709,873 from
$4,428,691 from December 31, 2005.


      We used cash of $1,376,510 in our operations for the first quarter of
2006, an increase of $1,268,579 from the cash required for the comparable period
of 2005. The increase in net cash used in operations was largely due to the
increase in the accounts receivables and inventories.

                                       7
<PAGE>

      In January 2006, we repaid $95,696 short term loans to CITIC Industrial
Bank with $1,582 interest payment. As of March 31, 2006, the Company did not
have long-term debt.

      We intend to use our available funds to accelerate the development and
testing of new drugs and we may establish our own production facilities to
manufacture our own products. We believe that our available funds will provide
us with sufficient capital for at least the next twelve months; however, to the
extent that we make acquisitions or establish our own production facilities, we
may require additional capital for the acquisition or for the operation of the
combined companies. We cannot assure that such funding will be available.

Critical Accounting Policies and Estimates

      We have disclosed in Note 2 to our financial statements those accounting
policies that we consider to be significant in determining our results of
operations and our financial position which are incorporated by reference
herein.

      Management's discussion and analysis of its financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. Our financial statements reflect the selection
and application of accounting policies which require management to make
significant estimates and judgments. See note 2 to our consolidated financial
statements, "Summary of Significant Accounting Policies." Management bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. We believe that
the following reflect the more critical accounting policies that currently
affect our financial condition and results of operations. The significant
accounting policies which we believe are the most critical to aid in fully
understanding and evaluating our reported financial results include the
following: Revenue recognition

      The Company recognizes revenue when all four of the following criteria are
met: (1) persuasive evidence has been received that an arrangement exists; (2)
delivery of the products and/or services has occurred; (3) the selling price is
fixed or determinable; and (4) collectibility is reasonably assured. The Company
follows the provisions of SAB No. 104 which sets forth guidelines in the timing
of revenue recognition based upon factors such as passage of title,
installation, payments and customer acceptance. Any amounts received prior to
satisfying the Company's revenue recognition criteria is recorded as deferred
revenue.

      Sales revenue represents the invoiced value of goods, net of a value-added
tax (VAT). All of the Company's products, which are sold exclusively in the PRC,
are subject to a Chinese value-added tax at a rate of 13% to 17% of the gross
sales price. This VAT may be offset by VAT paid by the Company on raw materials
and other materials included in the cost of producing their finished product.

Research and development costs

      Research and development costs are expensed as incurred. To the extent
that research and development services are performed for us by third parties,
these costs are expenses when the services are performed by the third party. The
costs of material and equipment that are acquired or constructed for research
and development activities, and have alternative future uses, either in research
and development, marketing, or sales, are classified as property and equipment
or depreciated over their estimated useful lives.

Use of estimates

                                       8
<PAGE>

      The preparation of financial statements in conformity with generally
accepted accounting principles of the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
the combined financial statements and accompanying notes. Management believes
that the estimates utilized in preparing its financial statements are reasonable
and prudent. Actual results could differ from these estimates.

Inventories

      We record reserves against our inventory to provide for estimated obsolete
or unsalable inventory based on assumptions about future demand for its products
and market conditions. If future demand and market conditions are less favorable
than management's assumptions, additional reserve could be required. Likewise,
favorable future demand and market conditions could positively impact future
operating results if previously reserved for inventory is sold.

Item 3. Controls and Procedures


      (a) Evaluation of disclosure controls and procedures. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness of
the company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), Rules 13a-15e and
15d-15e) as of the end of the period covered by this report (the "Evaluation
Date"), have concluded that, as of the Evaluation Date, our disclosure controls
and procedures were effective and that information required to be disclosed in
the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, to allow timely decisions regarding required disclosure.

      (b) Changes in internal controls. During the fiscal quarter covered by
this quarterly report, there was no change in our internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect our internal control over financial reporting.


                                     PART II

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


      On February 8, 2006, the Company issued 6,530,000 shares of its common
stock in exchange for all the outstanding equity of Kozern and issued an
aggregate of 3,120,000 shares of a newly-created series of preferred stock,
designated as the Series A Convertible Preferred Stock, and warrants to purchase
an aggregate of 7,389,476 shares of common stock of the Company. Subject to
certain restrictions and adjustments, one share of Series A Convertible
Preferred Stock is initially convertible into one share of the Company's common
stock. Contemporaneously with the February 2006 private placement, the Company
issued an aggregate of 750,000 shares of common stock for services including
150,000 shares to Meiyi Xia and 37,500 shares to Lin Li.The Company reported
these transactions on the Company's Current Report on Form 8-K filed with the
Commission on February 14, 2006.


Item 6. Exhibits

      (a)   Exhibits


      3.1   - Certificate of Incorporation, as filed with the Delaware Secretary
            of State on February 10, 2005. (1)

      3.2   - Amendment to the Certificate of Incorporation, as filed with the
            Delaware Secretary of State on May 10, 2006. (1)


                                       9
<PAGE>


      3.3   - Certificate of Correction, as filed with the Delaware Secretary of
            State on February 8, 2006.(1)


      31.1  - Certification of Chief Executive Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002.

      31.2  - Certification of Chief Financial Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002.

      32.1  - Certification of Chief Executive Officer and Chief Financial
            Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1) Incorporate by reference to the Original 10-QSB filed with the SEC on May
22, 2006.



                                       10
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned there
unto duly authorized.

                                        CHINA MEDICINE CORPORATION


Date: September 20, 2006.               BY: /s/ Senshan Yang
                                            -----------------------
                                            Senshan Yang
                                            Chief Executive Officer


                                        BY: /s/ Huizhen Yu
                                            -----------------------
                                            Huizhen Yu
                                            Chief Financial Officer

                                       11