**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





(MARK
      ONE)





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
                2008.






o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE TRANSITION PERIOD FROM ________ TO
                __________





COMMISSION
      FILE NUMBER: 0-52549





**RINO
      International Corporation**





(EXACT
      NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)





**NEVADA**
            
            **41-1508112**(STATE
                OR OTHER JURISDICTION OF
            
            (I.R.S.
                EMPLOYER IDENTIFICATION
              NO.)INCORPORATION
                OR
              ORGANIZATION




**11
      Youquan Road, Zhanqian Street, Jinzhou District**


**Dalian,
      People’s Republic of China 116100**





(ADDRESS
      OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)





REGISTRANT’S
      TELEPHONE NUMBER, INCLUDING AREA CODE: **+86-411-87661222**


_______________





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





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





Large
      accelerated filer o   Accelerated
      filer o


Non-accelerated
      filer x  Smaller
      reporting company o





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




The
      number of shares of Common Stock of the Registrant, par value $.0001 per share,
      outstanding on November 10, 2008, was 25,000,000.












**RINO
      INTERNATIONAL CORPORATION**





**INDEX
      TO MARCH 31, 2008 FORM 10-Q**




Part
                I - Financial Information
            
            
            2Item
                1 - Financial Statements
            
            
            2Consolidated
                Balance Sheets as of September 30, 2008 (unaudited) and December
                31,
                2007
            
            
            2Consolidated
                Statements of Income and Other Comprehensive Income for the three-month
                and nine-month periods ended September 30, 2008 and 2007
                (unaudited)
            
            
            3Consolidated
                Statements of Shareholders’ Equity for the nine months ended September 30,
                2008 (unaudited)
            
            
            4Consolidated
                Statements of Cash Flows for the nine months ended September 30,
                2008 and
                2007 (unaudited)
            
            
            5Notes
                to the Consolidated Financial Statements (unaudited)
            
            
            6Item
                2 - Management's Discussion and Analysis of Results of Operations
                and
                Financial Condition
            
            
            28Item
                3 - Quantitative and Qualitative Disclosure about Market
                Risk
            
            
            38Item
                4 - Controls and Procedures
            
            
            41Part
                II - Other Information
            
            
            41Item
                1A. Risk Factors
            
            
            41Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            
            46Item
                6 - Exhibits
            
            
            48Signature
                Page
            
            
            49









**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


RINO
        INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
 September 30, 2008
                
                December 31, 2007(Unaudited)ASSETSCURRENT
                    ASSETSCash
                    and cash equivalents
                
                $
                1,366,511
                
                $
                7,390,631Restricted
                    cash
                
                
                1,024,951
                
                
                1,000,000Accounts
                    receivable
                
                
                50,549,827
                
                
                19,222,133Notes
                    receivable
                
                
                5,119,245
                
                
                202,670Costs
                    and estimated earnings in excess of billings on uncompleted
                    contracts
                
                
                118,150
                
                
                2,818,122Inventories
                
                
                690,460
                
                
                178,480Advances
                    for inventory purchase
                
                
                23,998,295
                
                
                12,092,202Other
                    current assets and prepaid expenses
                
                
                1,215,893
                
                
                1,174,464Total
                    current assets
                
                
                84,083,332
                
                
                44,078,702PROPERTY,
                    PLANT AND EQUIPMENT, NET
                
                
                12,075,935
                
                
                11,000,581OTHER
                    ASSETSAccounts
                    receivable (non-current)
                
                
                2,342,263
                
                
                1,618,203Prepaid
                    expenses (non-current)
                
                
                76,808
                
                
                95,706Advances
                    for equipment and construction material purchase
                
                
                7,300,869
                
                
                3,751,343Prepayment
                    for land use right
                
                
                457,042
                
                
                428,301Intangible
                    assets, net
                
                
                1,224,962
                
                
                1,190,289Total
                    other assets
                
                
                11,401,944
                
                
                7,083,842Total
                    assets
                
                $
                107,561,211
                
                $
                62,163,125LIABILITIES
                    AND SHAREHOLDERS' EQUITYCURRENT
                    LIABILITIESAccounts
                    payable
                
                $
                1,843,492
                
                $
                2,534,858Billings
                    in excess of costs and estimated earnings on uncompleted
                    contracts
                
                
                112,503
                
                
                -Customer
                    deposits
                
                
                4,018,785
                
                
                116,214Liquidated
                    damages payable
                
                
                2,116,708
                
                
                1,000,000Other
                    payables and accrued liabilities
                
                
                1,924,419
                
                
                686,031Due
                    to shareholder
                
                
                674,883
                
                
                106,963Other
                    taxes payable
                
                
                25,845
                
                
                581,444Income
                    tax payable
                
                
                894,904
                
                
                5,970,794Value
                    added tax payable
                
                
                4,453,106
                
                
                2,989,365Short-term
                    loan
                
                
                7,315,000
                
                
                -Total
                    current liabilities
                
                
                23,379,645
                
                
                13,985,669REDEEMABLE
                    COMMON STOCK ($0.0001 par value, 5,464,357 sharesissued
                    with conditions for redemption outside the control of the
                    company)
                
                
                24,480,319
                
                
                24,480,319COMMITMENTS
                    AND CONTINGENCIES
                
                
                -
                
                
                -SHAREHOLDERS'
                    EQUITYPreferred
                    Stock ($0.0001 par value, 50,000,000 shares authorized, none
                    issued and
                    outstanding)
                
                
                -
                
                
                -Common
                    Stock ($0.0001 par value, 10,000,000,000 shares authorized, 25,000,000
                    shares issued and outstanding as of September 30, 2008 and December
                    31,
                    2007)
                
                
                2,500
                
                
                2,500Additional
                    paid-in capital
                
                
                19,909,557
                
                
                8,221,663Retained
                    earnings
                
                
                27,762,359
                
                
                11,376,163Statutory
                    reserves
                
                
                5,988,170
                
                
                2,109,539Accumulated
                    other comprehensive income
                
                
                6,038,661
                
                
                1,987,272Total
                    shareholders' equity
                
                
                59,701,247
                
                
                23,697,137Total
                    liabilities and shareholders' equity
                
                $
                107,561,211
                
                $
                62,163,125
 The
          accompanying notes are an integral part of this
          statement.
 2
  RINO
        INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
        STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
        THE
        THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (UNAUDITED)
 
 Three months ended
              
              Nine months endedSEPTEMBER 30,
              
              SEPTEMBER 30,2008
              
              2007
              
              2008
              
              2007REVENUES:Contracts
              
              $
              43,575,844
              
              $
              14,789,076
              
              $
              92,060,717
              
              $
              29,065,605Services
              
              
              1,305,292
              
              
              2,849,885
              
              
              6,482,958
              
              
              17,066,29844,881,136
              
              
              17,638,961
              
              
              98,543,675
              
              
              46,131,903COST
                  OF SALESCost
                  of contracts
              
              
              23,298,573
              
              
              8,838,709
              
              
              51,144,465
              
              
              18,147,939Cost
                  of services
              
              
              848,959
              
              
              1,328,688
              
              
              3,341,128
              
              
              5,265,797Depreciation
              
              
              165,889
              
              
              140,867
              
              
              486,145
              
              
              399,68124,313,421
              
              
              10,308,264
              
              
              54,971,738
              
              
              23,813,417GROSS
                  PROFIT
              
              
              20,567,715
              
              
              7,330,697
              
              
              43,571,937
              
              
              22,318,486OPERATING
                  EXPENSESSelling,
                  general and administrative expenses
              
              
              4,211,794
              
              
              2,186,565
              
              
              10,065,666
              
              
              5,339,323Research
                  and development
              
              
              -
              
              
              -
              
              
              267,817
              
              
              681,136Stock
                  compensation expense-shares placed in escrow
              
              
              5,832,960
              
              
              -
              
              
              11,665,920
              
              
              -TOTAL
                  OPERATING EXPENSES
              
              
              10,044,754
              
              
              2,186,565
              
              
              21,999,403
              
              
              6,020,459INCOME
                  FROM OPERATIONS
              
              
              10,522,961
              
              
              5,144,132
              
              
              21,572,534
              
              
              16,298,027OTHER
                  INCOME (EXPENSE), NETOther
                  income
              
              
              15,431
              
              
              87
              
              
              90,187
              
              
              5,240Government
                  grant
              
              
              15,863
              
              
              47,036
              
              
              -
              
              
              -Interest
                  income
              
              
              76,285
              
              
              628
              
              
              132,853
              
              
              3,055Interest
                  expense
              
              
              (149,095
              )
              
              (178,278
              )
              
              (374,503
              )
              
              (489,233
              )Liquidated
                  damage expense
              
              
              (616,708
              )
              
              -
              
              
              (1,116,708
              )
              
              -Other
                  expenses
              
              
              (7,623
              )
              
              (336
              )
              
              (39,536
              )
              
              (3,532
              )TOTAL
                  OTHER INCOME (EXPENSES), NET
              
              
              (665,847
              )
              
              (130,863
              )
              
              (1,307,707
              )
              
              (484,470
              )INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              9,857,114
              
              
              5,013,269
              
              
              20,264,827
              
              
              15,813,557PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              746,581
              
              
              -
              
              
              4,370,199NET
                  INCOME
              
              
              9,857,114
              
              
              4,266,688
              
              
              20,264,827
              
              
              11,443,358OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustment
              
              
              335,796
              
              
              482,329
              
              
              4,051,389
              
              
              785,323COMPREHENSIVE
                  INCOME
              
              $
              10,192,910
              
              $
              4,749,017
              
              $
              24,316,216
              
              $
              12,228,681WEIGHTED
                  AVERAGE NUMBER OF SHARES:Basic
              
              
              25,000,000
              
              
              17,899,643
              
              
              25,000,000
              
              
              17,899,643Diluted
              
              
              25,153,941
              
              
              17,899,643
              
              
              25,152,127
              
              
              17,899,643EARNINGS
                  PER SHARE:Basic
              
              $
              0.39
              
              $
              0.24
              
              $
              0.81
              
              $
              0.64Diluted
              
              $
              0.39
              
              $
              0.24
              
              $
              0.81
              
              $
              0.64
 The
          accompanying notes are an integral part of this statement.
 3
  RINO
        INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
        THE
        NINE MONTHS ENDED SEPTEMBER 30, 2008
 (UNAUDITED)
 
 Common StockPar Value $0.0001
              
              Additional
              
              Retained Earnings
              
              Accumulated otherNumber
              
              Common
              
              Paid-in
              
              Statutory
              
              Unrestricted
              
              comprehensiveof shares
              
              stock
              
              capital
              
              reserve
              
              earnings
              
              income
              
              TotalsBALANCE,
                  December 31, 2007
              
              
              25,000,000
              
              $
              2,500
              
              $
              8,221,663
              
              $
              2,109,539
              
              $
              11,376,163
              
              $
              1,987,272
              
              $
              23,697,137Stock
                  compensation expense-shares placed in escrow
              
              
              
              
              
              
              
              
              11,665,920
              
              
              
              
              
              
              
              
              
              
              
              11,665,920Imputed
                  interest on advances from a shareholder
              
              
              
              
              
              
              
              
              21,974
              
              
              
              
              
              
              
              
              
              
              
              21,974Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              20,264,827
              
              
              
              
              
              20,264,827Allocation
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              3,878,631
              
              
              (3,878,631
              )
              
              
              
              
              -Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,051,389
              
              
              4,051,389BALANCE,
                  September 30, 2008 (Unaudited)
              
              
              25,000,000
              
              $
              2,500
              
              $
              19,909,557
              
              $
              5,988,170
              
              $
              27,762,359
              
              $
              6,038,661
              
              $
              59,701,247
 The
          accompanying notes are an integral part of this
          statement.
 4
 RINO
        INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 FOR
        THE
        NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (UNAUDITED)
 
 2008
              
              2007**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              20,264,827
              
              $
              11,443,358Adjusted
                  to reconcile net income to cash used in operating
                  activities:Depreciation
              
              
              603,965
              
              
              483,778Amortization
              
              
              48,972
              
              
              39,180Imputed
                  interest
              
              
              21,974
              
              
              31,090Amortization
                  of long term prepaid expense
              
              
              25,090
              
              
              16,330Stock
                  compensation expense - shares placed in escrow
              
              
              11,665,920
              
              
              -Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              (29,979,156
              )
              
              (7,820,427
              )Costs
                  and estimated earnings in excess of billings on uncompleted
                  contracts
              
              
              2,413,818
              
              
              (3,173,430
              )Inventories
              
              
              (63,928
              )
              
              (33,498
              )Other
                  current assets and prepaid expenses
              
              
              39,658
              
              
              (492,896
              )Advances
                  for inventory purchase
              
              
              (10,826,678
              )
              
              (8,017,662
              )Accounts
                  payable
              
              
              (851,537
              )
              
              (74,090
              )Billings
                  in excess of costs and estimated earnings on uncompleted
                  contracts
              
              
              110,250
              
              
              189,046Customer
                  deposits
              
              
              3,816,435
              
              
              10,007Liquidated
                  damages payable
              
              
              1,116,708
              
              
              -Other
                  payables and accrued liabilities
              
              
              1,169,036
              
              
              344,385Notes
                  receivable
              
              
              (4,804,195
              )
              
              (2,123,148
              )Other
                  taxes payable
              
              
              (584,387
              )
              
              357,910Value
                  added tax payable
              
              
              1,229,207
              
              
              1,581,692Income
                  tax payable
              
              
              (5,384,128
              )
              
              (503,559
              )Deferred
                  tax liabilities
              
              
              -
              
              
              4,370,199Net
                  cash used in operating activities
              
              
              (9,968,149
              )
              
              (3,371,735
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property and equipment
              
              
              (902,594
              )
              
              (81,453
              )Purchase
                  of intangible assets
              
              
              -
              
              
              (378,856
              )(Increase)
                  decrease in advances for construction material and equipment
                  purchase
              
              
              (3,231,748
              )
              
              560,785Prepayment
                  for land use right
              
              
              -
              
              
              (330,830
              )Net
                  cash used in investing activities
              
              
              (4,134,342
              )
              
              (230,354
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Payment
                  on due to shareholder
              
              
              (1,785,305
              )
              
              (3,076
              )Proceeds
                  from shareholder advances
              
              
              2,334,594
              
              
              -Increase
                  in restricted cash
              
              
              (24,951
              )
              
              -Proceeds
                  from short-term loan
              
              
              7,168,500
              
              
              -Net
                  cash provided by (used in) financing activities
              
              
              7,692,838
              
              
              (3,076
              )**EFFECT
                  OF EXCHANGE RATE ON CASH**
              
              
              385,533
              
              
              78,036**DECREASE
                  IN CASH AND CASH EQUIVALENTS**
              
              
              (6,024,120
              )
              
              (3,527,129
              )**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
              
              
              7,390,631
              
              
              3,604,350**CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD**
              
              $
              1,366,511
              
              $
              77,221**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION**Cash
                  paid during the period for:Interest
              
              $
              352,529
              
              
              428,465Income
                  taxes
              
              $
              5,384,128
              
              
              503,559


The
        accompanying notes are an integral part of this statement.




5





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)





**NOTE
      1 – ORGANIZATION AND BUSINESS**




RINO
      International Corporation (formerly known as “Jade Mountain Corporation” or
“JMC”), (the “Company) was originally incorporated in 1984 as Applied
      Biometrics, Inc. in accordance with the laws of the State of Minnesota. In
      August 2000, the Company determined that it would be unable to complete the
      development of its primary product and ceased its ongoing business operations.





On
      December 27, 2006, the shareholders of JMC approved a proposal to re-domicile
      JMC from the State of Minnesota to the State of Nevada. JMC effected the
      re-domicile through a merger with a new Nevada corporation which was formed
      by
      JMC on September 12, 2006 solely and specifically for the purpose of effecting
      the re-domicile of JMC. At this time, JMC changed its name to Jade Mountain
      Corporation. During the first six months ended June 30, 2007, JMC ceased all
      business operations and disposed of all its assets, liabilities and operating
      activities. JMC has had no operations or significant assets since the year
      ended
      December 31, 2006.





Innomind
      Group Limited (“Innomind”) was incorporated in the British Virgin Islands
      (“BVI”) on November 17, 2006 as an investment holding company. Through its
      wholly owned subsidiary, Dalian Innomind Environment Engineering Co., Ltd.
      (“Dalian Innomind”) incorporated in the People’s Republic of China (“PRC”) as a
      wholly-owned foreign limited liability company on July 9, 2007. Innomind’s
      principal activities are the design, development, manufacture and installation
      of industrial equipment used mainly for environmental protection purposes in
      the
      PRC. In accordance with the business permit, Dalian Innomind’s right of
      operation expires on July 8, 2022 and is renewable on expiry.





Dalian
      Rino Environment Engineering Science And Technology Co., Ltd. (“Dalian Rino”)
      was incorporated in the PRC on March 5, 2003 as a limited liability company.
      On
      September 24, 2008, Dalian Rino formed Dalian Rino Environment Project Design
      Co., Ltd. (“Dalian Rino Design”) as a wholly-owned limited liability company.
      The business activities of Dalian Rino and Dalian Rino Design are the same
      with
      those of Dalian Innomind. In accordance with the business permit, Dalian Rino’s
      business permit expires on March 4, 2021 and is renewable. Dalian Rino Design’s
      right of operation expires on September 23, 2018 and is renewable.




On
      October 5, 2007, JMC consummated a Share Exchange Agreement (“the Agreement”)
      with the shareholders of Innomind pursuant to which JMC issued 17,899,643 shares
      of Common Stock, par value $0.0001 per share to the shareholders of Innomind
      for
      100% equity interest in Innomind. Prior to the Agreement: (i) on July 16, 2007,
      the Company consummated a one (1) share for two hundred thousand (200,000)
      shares reverse split of its Common Stock, with fractional shares rounded up
      to
      the nearest whole number (the “Reverse Split”); and (ii) on August 31, 2007, the
      Company’s Board of Directors authorized a one hundred (100) shares for one (1)
      share forward split of the issued and outstanding shares of its Common Stock
      (the “Forward Split”). All share and per share amounts set forth in this Current
      Report as of dates on or after July 16, 2007, give effect to the Reverse Split
      and all share and per share amounts set forth in this Current Report as of
      dates
      after August 31, 2007, give effect to the Forward Split.




6




**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)





The
      merger of JMC and Innomind is being treated for accounting purposes as a capital
      transaction and recapitalization by Innomind (the “accounting acquirer”) and
      re-organization by JMC (the “accounting acquiree”). As a result, Innomind
      acquired the net assets of Jade Mountain at book value.





The
      financial statements have been prepared as if the re-organization had occurred
      retroactively. Accordingly, these financial statements include:




1)
            The
                balance sheet consisting of the net assets of the accounting acquirer
                at
                historical cost and the net assets of the accounting acquiree at
                historical cost.




2)
            The
                statement of operations including the operations of the accounting
                acquirer for the periods presented and the operations of the accounting
                acquiree from the date of the
                transaction.





On
      October 3, 2007, Dalian Innomind entered into a series of agreements
      (collectively known as the Restructuring Agreements) with Dalian Rino and the
      shareholders of Dalian Rino in which Dalian Innomind assumed the management
      of
      the business activities of Dalian Rino, making Dalian Rino a contractually
      controlled affiliate under EITF 97-2. As both companies were under common
      control before and after the consummation of the Restructuring Agreements on
      October 5, 2007, this was accounted for as a reorganization of entities under
      common control and consolidated financial statements were prepared as if the
      reorganization occurred at the beginning of the first period presented.





Effective
      May 9, 2008, Jade Mountain Corporation changed its name to “RINO International
      Corporation.” The board approved the name change and deemed it better reflected
      the direction and business of the Company.





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





Principles
      of Consolidation





The
      accompanying consolidated financial statements of RINO International Corporation
      reflect the activities of its 100% owned subsidiaries Innomind, Dalian Innomind,
      Dalian Rino, a contractually controlled affiliate of Dalian Innomind, and Dalian
      Rino Design, a 100% owned subsidiary of Dalian Rino (collectively, the
“Company”). All inter-company balances and transactions have been eliminated in
      consolidation.





Basis
      of Presentation





The
      financial statements of the Company have been prepared in accordance with
      accounting principles generally accepted in the United States of America and
      are
      expressed in US dollars.




7





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








The
      Company has included all normal recurring adjustments considered necessary
      to
      give a fair presentation of operating results for the periods presented. Interim
      results are not necessarily indicative of results for a full year. The
      information included in this Form 10-Q should be read in conjunction with
      information included in the 2007 annual report filed on Form
      10-K/A.





Use
      of
      Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the Unites States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Management believes that the estimates used in
      preparing its financial statements are reasonable and prudent. Actual results
      could differ from those estimates.





Cash
      and Cash Equivalents





For
      purposes of the financial statements, cash and cash equivalents include cash
      on
      hand, demand deposits with banks, and all highly-liquid investments with an
      original maturity of 3 months or less.





The
      cash
      held in escrow pursuant to the Board Escrow Holdback as described in Note 20
      is
      accounted for as other current assets and is not shown as cash and cash
      equivalents on the balance sheet until such funds have been released from escrow
      pursuant to the terms of the Securities Purchase Agreement.





Restricted
      Cash





The
      Company records cash deposits in banks or other financial institutions subject
      to restrictions on the withdrawal or use of the funds as restricted cash.





Accounts
      Receivable





Accounts
      receivable represents amounts due from customers for products sales and
      services. The Company grants credit to customers without collateral. The
      Company’s management periodically reviews its accounts receivable to determine
      whether an allowance is necessary based on an analysis of past due accounts
      and
      other factors that may indicate that the realization of an account may be in
      doubt. The Company’s current accounts receivables are outstanding for less than
      one year and the Company has not experienced any loss from uncollected accounts
      receivable. The Company believes all receivables are fully collectible and
      therefore did not reserve an allowance for doubtful account as of September
      30,
      2008.





Inventories





Inventories
      are stated at the lower of cost (weighted average method) or market.




8





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








Property,
      Plant and Equipment





Property,
      plant, and equipment are stated at cost, less accumulated depreciation.
      Expenditures for additions, major renewals and betterments are capitalized
      while
      expenditures for maintenance and repairs are charged to expense as incurred.
      Depreciation is provided on a straight-line basis, less estimated residual
      value
      over the assets’ estimated useful lives. The estimated useful lives are as
      follows:





Buildings
            30
                YearsPlant
                and machinery
            15
                YearsMotor
                vehicles
            10
                YearsFurniture,
                fixtures and equipment
            5
                Years





Intangible
      Assets





Intangible
      assets are stated at cost, less accumulated amortization and impairments. Land
      use rights are stated at cost, less accumulated amortization and are amortized
      over the term of the relevant rights of 50 years from the date of
      acquisition.





Other
      Long-Lived Assets





Long-lived
      assets and certain identifiable intangible assets are reviewed for impairment
      at
      least annually or more often whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable. For
      purposes of evaluating the recoverability of long-lived assets, the
      recoverability test is performed using undiscounted net cash flows related
      to
      the long-lived assets. As of September 30, 2008, the Company expected these
      assets to be fully recoverable.





Fair
      Value of Financial Instruments





On
      January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157, defines fair value, establishes a three-level valuation hierarchy
      for disclosures of fair value measurement and enhances disclosures requirements
      for fair value measures. The carrying amounts reported in the balance sheets
      for
      receivables and payables qualified as financial instruments and are a reasonable
      estimate of fair value because of the short period of time between the
      origination of such instruments and their expected realization and their current
      market rate of interest. The three levels are defined as follows:




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




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




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




9





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








As
      of
      September 30, 2008, the short-term bank loan amounted to $7,315,000. In
      accordance with SFAS 157, the Company determined that the carrying value of
      these loans approximated the fair value using the level 2 inputs by comparing
      the stated loan interest rate to the rate charged by the Bank of China to
      similar loans, since no quoted market rate is available.





Carrying Value as of
              September 30, 2008
            
            Fair Value Measurements at
              September 30, 2008 Using Fair
              Value HierarchyLiabilities
            
            
            
            
            
            Level
                1
            
            
            Level
                2
            
            
            Level
                3Short-term
                bank loans
            
            $
            7,315,000
            
            
            
            
            $
            7,315,000




The
      Company did not identify any assets or liabilities that are required to be
      presented on the balance sheet at fair value in accordance with SFAS No. 157.





Revenue
      Recognition





*Contracts
      -* The
      Company enters into long-term fixed-price contracts with customers to
      manufacture and install industrial equipment. Revenue on long-term fixed-price
      contracts is recognized under the percentage-of-completion method in accordance
      with the American Institute of Certified Public Accountants Statement of
      Position 81-1 “Accounting for Performance of Construction-Type and Certain
      Production-Type Contracts”. Under the percentage-of-completion method,
      management estimates the percentage-of-completion based upon costs incurred
      to
      date as a percentage of the total estimated costs to the customer. When total
      cost estimates exceed revenues, the Company accrues for the estimated losses
      immediately. The use of the percentage-of- completion method requires
      significant judgment relative to estimating total contract revenues and costs,
      including assumptions concerning the length of time to complete the project,
      the
      nature and complexity of the work to be performed, and anticipated changes
      in
      estimated costs. Estimates of total contract revenues and costs are continuously
      monitored during the term of the contract, and recorded revenues and costs
      are
      subject to revision as the contract progresses. When revisions in estimated
      contract revenues and costs are determined, such adjustments are recorded in
      the
      period in which they are first identified.





*Services
      -* In
      addition to our specialty equipment sales, the Company uses heavy machining
      equipment to perform machining services for third parties. These engagements,
      numbering several hundred per year, are essentially piecework and are completed
      in usually less than one month. Accordingly, these heavy machinery contracts
      do
      not fall within the scope of SOP 81-1. Each machining engagement is governed
      by
      a separate contract, indicating existence of an arrangement. Revenue is
      recognized when service is performed, which is usually concurrent with delivery
      to the customer, the contract price is set by contract, and collectability
      is
      reasonably assured. Accordingly, these revenues are recognized under Staff
      Accounting Bulletin No. 104.





10




**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








The
      Company also provides technical professional services to its customers based
      on
      a fixed-price time contract. The Company recognizes services-based revenue
      from
      all of its contracts when the services have been performed, the customers have
      approved the completion of the services and invoices have been issued and
      collectability is reasonably assured.





Government
      Grant





The
      Dalian municipal government also approved grants to the Company to encourage
      the
      high-technology industry. The grants are recognized as other income on receipt
      from the local government.





Shipping
      and Handling





Shipping
      and handling for raw materials purchased are included in cost of goods sold.
      Shipping and handling cost incurred for shipping of finished products to
      customers are included in selling expenses. Shipping and handling expenses
      for
      the three months ended September 30, 2008 and 2007 amounted to $217,657 and
      $40,133, respectively.





Shipping
      and handling expenses for the nine months ended September 30, 2008 and 2007
      amounted to $385,219 and $265,848, respectively.





Research
      and Development Costs





Research
      and development (or “R&D”) expenses include salaries, material, contract and
      other outside service fees, facilities and overhead costs. Under the guidance
      of
      SFAS 2, “Accounting for Research and Development Costs”, the Company expenses
      the costs associated with the R&D activities when incurred.





Stock-based
      Compensation





Stock-based
      compensation is accounted for at fair value in accordance with SFAS 123(R)
      “Accounting for Stock-Based Compensation”. SFAS 123R requires that compensation
      cost relating to stock-based payment transactions be recognized in financial
      statements. That cost is measured based on the fair value of the equity or
      liability instruments issued on the grant date, and is recognized over the
      period during which a party is required to provide service in exchange for
      the
      award (typically the vesting period).





Income
      Taxes





The
      Company accounts for income taxes under the SFAS 109, “Accounting for Income
      Taxes”. Under SFAS 109, deferred tax assets and liabilities are recognized for
      the future tax consequences attributable to temporary differences between the
      financial statement carrying amounts of existing assets and liabilities and
      their respective tax bases. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or settled.
      The
      effect on deferred tax assets and liabilities of a change in tax rates is
      recognized in income in the period included the enactment date.





11




**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”) as of January 1, 2007. A tax position is recognized as a
      benefit only if it is “more likely than not” that the tax position would be
      sustained in a tax examination, with a tax examination being presumed to occur.
      The amount recognized is the largest amount of tax benefit that is greater
      than
      50% likely of being realized on examination. For tax positions not meeting
      the
“more likely than not” test, no tax benefit is recorded. The adoption had no
      effect on the Company’s financial statements.





China
      Income Taxes





The
      Company’s subsidiaries are governed by the Income Tax Law of the People’s
      Republic of China (PRC) concerning Foreign Investment Enterprises and Foreign
      Enterprises and various local income tax laws (the Income Tax
      Laws).





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the old
      laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”).





The
      key
      changes are:




a.
            The
                new standard EIT rate of 25% replaces the 33% rate applicable to
                both DES
                and FIEs, except for High Tech companies that pay a reduced rate
                of
                15%;




b.
            Companies
                established before March 16, 2007 continue to enjoy tax holiday treatment
                approved by local government for a grace period of either for the
                next 5
                years or until the tax holiday term is completed, whichever is
                sooner.





In
      addition, the new EIT also grants tax holidays to entities operating in certain
      beneficial industries, such as the agriculture, fishing, and environmental
      protection. Entities in beneficial industries enjoy a three-year period tax
      exempt and a three-year period with 50% reduction in the income tax rates.





Dalian
      Innomind and Rino are entities in the environmental protection industry, which
      is qualified for the tax exemption for three years and a 50% reduction for
      the
      following three years. As a result, Dalian Innomind and Rino enjoy a 100% tax
      exemption for the years 2008 through 2010 and a 50% income tax reduction for
      the
      years 2011 through 2013.





Foreign
      Currency Translation





JMC
      and
      Innomind maintain their accounting records in their functional currency in
      the
      United States dollars and Hong Kong Dollars, respectively, whereas Dalian
      Innomind and Dalian Rino maintain their accounting records in their functional
      currency, Chinese Renminbi (“RMB”).The reporting currency of the Company is the
      United States dollar.




12




**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








Dalian
      Innomind and Dalian Rino assets and liabilities are translated into United
      States dollars at period-end exchange rates ($0.14630 and $0.13710 at September
      30, 2008 and December 31, 2007, respectively). Dalian Innomind and Dalian Rino
      revenues and expenses are translated into United States dollars at
      weighted-average exchange rates for the periods ($0.14337 and $0.13064 for
      the
      nine months ended September 30, 2008 and 2007, respectively). Resulting
      translation adjustments are recorded as a component of accumulated other
      comprehensive income (loss) within shareholders’ equity. The resulting
      translation gains and losses that arise from exchange rate fluctuations on
      transactions denominated in a currency other than the functional currency are
      included in the results of operations as incurred. Items in the cash flow
      statement are translated at the average exchange rate for the period. As a
      result, amounts related to assets and liabilities reported on the statement
      of
      cash flows will not necessarily agree with changes in the corresponding balances
      on the balance sheet.





As
      of
      September 30, 2008 and December 31, 2007, translation adjustments resulting
      from
      this process included in accumulated other comprehensive income in the
      consolidated statements of shareholders’ equity amounted to $6,038,661 and
      $1,987,272.





Earnings
      Per Share





Basic
      earnings (loss) per share is computed by dividing the net income (loss)
      available to common shareholders by the weighted-average number of common shares
      outstanding during the respective period presented in the accompanying financial
      statements.





Fully
      diluted earnings (loss) per share are computed similar to basic income (loss)
      per share except that the denominator is increased to include the number of
      common stock equivalents (primarily outstanding options and
      warrants).





Common
      stock equivalents represent the dilutive effect of the assumed exercise of
      the
      outstanding stock options and warrants, using the treasury stock method, at
      either the beginning of the respective period presented or the date of issuance,
      whichever is later, and only if the common stock equivalents are considered
      dilutive based upon the Company's net income (loss) position at the calculation
      date.





Segments





The
      Company designs and manufactures pollution control equipment and other equipment
      designed to reduce the resource intensity of steel production, effectively
      serving one segment. Accordingly, segment disclosure is not presented.
      Additional detail on the composition of revenues is presented in Note 18,
      Concentrations and Risks, below.




13





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








Reclassifications





Certain
      prior year amounts have been reclassified to conform to the current year
      presentation. These reclassifications had no effect on net income or cash flows
      as previously reported.





Recent
      Accounting Pronouncements





In
      September 2006, FASB issued SFAS 157, Fair Value Measurements. This statement
      defines fair value and establishes a framework for measuring fair value in
      generally accepted accounting principles (GAAP). More precisely, this statement
      sets forth a standard definition of fair value as it applies to assets or
      liabilities, the principle market (or most advantageous market) for determining
      fair value (price), the market participants, inputs and the application of
      the
      derived fair value to those assets and liabilities. The Company adopted SFAS
      No.
      157 as of January 1, 2008 and the adoption resulted in enhanced disclosure
      of
      financial instruments but had no impact on the Company’s balance sheet or
      statement of income and other comprehensive income.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. The SFAS
      159
      became effective for us on January 1, 2008. The Company chose not to elect
      the
      option to measure the fair value of eligible financial assets and liabilities.





In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that used or rendered
      for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed. The
      Company adopted FSP EITF 07-3 and expensed the research and development as
      incurred.





In
      December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests ** in
      subsidiaries held by parties other than the parent, the amount of consolidated
      net income attributable to the parent and to the noncontrolling interest,
      changes in a parent’s ownership interest and the valuation of retained
      non-controlling equity investments when a subsidiary is deconsolidated. The
      Statement also establishes reporting requirements that provide sufficient
      disclosures that clearly ** identify
      and distinguish between the interests of the parent and the interests of the
      non-controlling owners. SFAS 160 is effective for ** fiscal
      years beginning after December 15, 2008. The Company believes that the
      application of SFAS 160 will ** not
      have
      an impact on its consolidated financial statements.




14





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








In
      December 2007, the FASB issued SFAS 141R, “Business Combinations,” which applies
      to all transactions or other events in which an entity obtains control of one
      or
      more businesses, including those sometimes referred to as “true mergers” or
“mergers of equals” and combinations achieved without the transfer of
      consideration. This statement replaces FASB Statement No. 141 and applies to
      all
      business entities, including mutual entities that previously used the
      pooling-of-interests method of accounting for some business combinations. The
      adoption of SFAS No. 141R will have an impact on the Company’s accounting for
      business combination, but the effect is dependent upon acquisition at that
      time.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” This Statement identifies the sources of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with generally accepted accounting principles (GAAP)
      in
      the United States (the GAAP hierarchy). This Statement will not have an impact
      on the Company’s financial statements.




In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of
      this Statement is limited to financial guarantee insurance (and reinsurance)
      contracts, as described in this Statement, issued by enterprises included within
      the scope of Statement 60. Accordingly, this Statement does not apply to
      financial guarantee contracts issued by enterprises excluded from the scope
      of
      Statement 60 or to some insurance contracts that seem similar to financial
      guarantee insurance contracts issued by insurance enterprises (such as mortgage
      guaranty insurance or credit insurance on trade receivables). This Statement
      also does not apply to financial guarantee insurance contracts that are
      derivative instruments included within the scope of FASB Statement No. 133,
      “Accounting for Derivative Instruments and Hedging Activities.” This Statement
      will not have an impact on the Company’s financial statements.





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




15





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








In
      June
      2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
      Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4
      is to provide transition guidance for conforming changes made to EITF No. 98-5,
      “Accounting for Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
      150, “Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity”. This Issue is effective for financial statements issued
      for fiscal years ending after December 15, 2008. Early application is
      permitted. Management is currently evaluating the impact of adoption of
      EITF No. 08-4.





On
      October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
      Financial Asset When the Market for That Asset Is Not Active,” which clarifies
      the application of SFAS 157 in a market that is not active and provides an
      example to illustrate key considerations in determining the fair value of a
      financial asset when the market for that financial asset is not active. FSP
      157-3 became effective on October 10, 2008, and its adoption did not have a
      material impact on our financial position or results for the quarter ended
      September 30, 2008.





**NOTE
      3 – RESTRICTED CASH**





Restricted
      cash consisted of cash deposited in an escrow account and amounted to $1,024,951
      and $1,000,000 as of September 30, 2008 and December 31, 2007,
      respectively.





**NOTE
      4 - ACCOUNTS RECEIVABLE**





Accounts
      receivable consisted of the following:





September 30,
              2008
            
            December 31,
              2007(unaudited)Accounts
                receivable
            
            $
            50,549,827
            
            $
            19,222,133Less:
                allowance for doubtful accounts
            
            
            -
            
            
            -Accounts
                receivable, net of allowance
            
            
            50,549,827
            
            
            19,222,133Accounts
                receivable (non-current)
            
            
            2,342,263
            
            
            1,618,203Less:
                allowance for doubtful accounts
            
            
            -
            
            
            -Accounts
                receivable (non-current), net of allowance
            
            $
            2,342,263
            
            $
            1,618,203





As
      of
      September 30, 2008 and December 31, 2007, the Company considered all accounts
      receivable collectable and, therefore, has not recorded an allowance for
      doubtful accounts. The Company’s equipment sales contracts allow the customer to
      retain 10% of the contract price for one year from the date of purchase.
      Accounts receivable as of September 30, 2008 and December 31, 2007 contain
      retained receivables of $2,342,263 and $1,618,203, respectively.




16





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








**NOTE
      5 – INVENTORIES**





As
      of
      September 30, 2008 and December 31, 2007, inventories consisted of raw material,
      work-in-process and supplies amounting to $690,460 and $178,480, respectively,
      and consisted of the following:





September 30,
              2008
            
            December 31,
              2007(unaudited)Raw
                material
            
            $
            191,567
            
            $
            118,444Work-in-process
            
            
            434,242
            
            
            -Low
                cost consumption supplies
            
            
            64,651
            
            
            60,036Total
            
            $
            690,460
            
            $
            178,480





For
      the
      periods ended September 30, 2008 and December 31, 2007, no provision for
      obsolete inventories was recorded by the Company.





**NOTE
      6 – NOTES RECEIVABLE**





Notes
      receivable represents trade accounts receivable due from various customers
      where
      the customers’ banks have guaranteed the payment of the receivables. This amount
      is non-interest bearing and is normally paid within three to six months. The
      Company has the ability to submit request for payment to the customer’s bank
      earlier than the scheduled payment date, but will incur an interest charge
      and a
      processing fee when it submits the early payment request. The Company had
      $5,119,245 and $202,670 outstanding as of September 30, 2008 and December 31,
      2007, respectively.





**NOTE
      7 – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
      CONTRACTS**





“Costs
      and estimated earnings in excess of billings on uncompleted contracts” represent
      revenues recognized in excess of amounts billed pursuant to the
      percentage-of-completion method used to recognize revenue.





September 30,
              2008
            
            December 31,
              2007(Unaudited)Contracts
                costs incurred plus recognized profits less recognized losses to
                date
            
            $
            118,150
            
            $
            44,074,924Less
                progress billings
            
            
            -
            
            
            41,256,802Costs
                and estimated earnings in excess of billings
            
            $
            118,150
            
            $
            2,818,122





17





**RINO
      INTERNATIONAL CORPORATION AND SUBSIDIARIES**


**(FORMERLY
      KNOWN AS JADE MOUNTAIN CORPORATION)**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





SEPTEMBER
      30, 2008


(UNAUDITED)








**NOTE
      8 – BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED
      CONTRACTS**





“Billings
      in excess of costs and estimated earnings on uncompleted contracts” represent
      billings in excess of revenues recognized. As of September 30, 2008 and December
      31, 2007, billings in excess of revenues recognized were $112,503 and $0 as
      follows:





September 30,
              2008
            
            December 31,
              2007(Unaudited)Progress
                billings
            
            $
            112,503
            
            $
            -Less
                contracts costs incurred plus recognized profits less
                losses
            
            
            -
            
            
            -Billings
                in excess of costs and estimated earnings
            
            $
            112,503
            
            $
            -





**NOTE
      9 – PROPERTY, PLANT AND EQUIPMENT**





The
      following is a summary of property, plant, and equipment at September 30, 2008
      and December 31, 2007:





September 30,
              2008
            
            December 31,
              2007(Unaudited)Buildings
            
            $
            3,865,472
            
            $
            3,612,413Equipment
                and machinery
            
            
            8,255,559
            
            
            7,430,865Motor
                vehicles
            
            
            1,643,023
            
            
            986,274Furniture
                and office equipment
            
            
            406,799
            
            
            352,840Construction
                in progress
            
            
            6,749
            
            
            6,30714,177,602
            
            
            12,388,699Less:
                accumulated depreciation
            
            
            2,101,667
            
            
            1,388,118Property,
                plant and equipment, net
            
            $
            12,075,935
            
            $
            11,000,581





Depreciation
      expense for the three months ended September 30, 2008 and 2007 was $214,412
      and
      $170,724, respectively. For the three months ended September 30, 2008 and 2007,
      no interest was capitalized into construction in progress. Depreciation expense
      for the nine months ended September 30, 2008 and 2007 was $603,965 and $483,778,
      respectively. For the nine months ended September 30, 2008 and 2007, no interest
      was capitalized into construction in progress.





18
 
  **RINO
          INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
          KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008
 (UNAUDITED)




**NOTE
      10 – INTANGIBLE ASSETS**





The
      following is a summary of intangible assets at September 30, 2008 and December
      31, 2007:




September 30,
              2008
            
            December 31,
              2007(Unaudited)Land
                use rights
            
            $
            649,360
            
            $
            605,669Patents
                and licenses
            
            
            731,500
            
            
            683,6111,380,860
            
            
            1,289,280Less:
                accumulated amortization
            
            
            155,898
            
            
            98,991Intangible
                assets, net
            
            $
            1,224,962
            
            $
            1,190,289





Amortization
      expense for the three months ended September 30, 2008 and 2007 amounted to
      $24,839 and $6,773, respectively. Amortization expense for the nine months
      ended
      September 30, 2008 and 2007 amounted to $48,972 and $39,180,
      respectively.





The
      Company paid $457,042 for land use rights; as of September 30, 2008, the Company
      had not obtained the title and therefore reports the payment as a long term
      prepaid in other assets.





**NOTE
      11 – LIQUIDATED DAMAGES PAYABLE**





Registration
      Rights





Pursuant
      to the Securities Purchase Agreement entered into between the Company and a
      group of accredited investors (“Securities Purchase Agreement”) on October 5,
      2007, the Company was obligated to make efforts to file a registration statement
      with the SEC to be declared effective by the SEC on or before March 3, 2008.
      After March 3, 2008 and for each 30-calender day period thereafter in which
      the
      registration statement fails to be declared effective, the Company shall pay
      liquidated damages to investors equal to 1% of the funds raised, or $244,803,
      subject to a cap of 10% of total funds raised, or total liquidated damages
      of
      $2,448,032.





On
      the
      date of the transaction, the Company determined that the registration statement
      would not be filed and declared effective within the required period and accrued
      $500,000 as liquidated damages payable. The liquidated damages was treated
      as
      financing cost at the inception and was recorded as a deduction from additional
      paid-in capital in accordance with the provisions of FSP EITF 00-19-2. This
      amount accrued is based on the penalties due between March 4, 2008 and May
      3,
      2008, the date before which the Company originally anticipated the registration
      statement would be declared effective. As of September 30, 2008, the
      registration statement has not been declared effective. Accordingly, the Company
      has recorded a total reserve of $1,698,195 as of September 30, 2008.




19


**RINO
        INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
        KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
        30, 2008
 (UNAUDITED)


Independent
      Directors





Pursuant
      to the Securities Purchase Agreement, the Company’s Board of Directors must
      consist of a minimum of 5 members, a majority of whom must be “independent
      directors” as defined in NASDAQ Marketplace Rule 4200(a)(15) not later than 120
      days after the date of the agreement. The Company was required to hold
      $1,000,000 in escrow (“Board Escrow Holdback”) and will only be released by the
      escrow agent upon receiving requisite written notice from the investor
      representatives when this requirement is met. Failing to comply with this
      requirement, the Company shall pay liquidated damages to investors equal to
      1%
      of the funds raised, or $244,803, for each month or part of a month, pro rata,
      in which independent directors do not constitute a majority of the 5-member
      board.





On
      the
      date of the transaction, the Company determined that this requirement would
      not
      be met within the required period and accrued $500,000 as liquidated damages
      payable. The liquidated damages was treated as financing cost at the inception
      and was recorded as a deduction from additional paid-in capital in accordance
      with the provisions of FSP EITF 00-19-2. This amount accrued is based on the
      penalties due between December 8, 2007 to April 8, 2008 on or before which
      the
      Company originally anticipated the Board of Directors would consist of a minimum
      of 5 members with a majority being independent directors. The independent
      directors were seated on March 20, 2008, curing this delinquency. Total
      liquidated damages payable for the independent board member requirement
      therefore is $418,513. To date, no liquidated damages have been
      paid.





**NOTE
      12 – SHORT-TERM BANK LOANS PAYABLE**





Short-term
      loan consisted of a loan of $7,315,000 as of September 30, 2008 from Shanghai
      Pudong Development Bank, with an effective annual interest rate of 7.47%, due
      January 28, 2009, and secured by the Company’s buildings, equipments, and land
      use rights. There was no short-term loan outstanding as of December 31,
      2007.





Total
      interest expense on the bank loans for the three months ended September 30,
      2008
      and 2007 amounted to $127,121 and $145,926, respectively. Total interest expense
      on the bank loans for the nine months ended September 30, 2008 and 2007 amounted
      to $352,529 and $456,881, respectively.





**NOTE
      13 – INCOME TAXES**




Income
      Taxes





The
      Company is subject to income taxes on an entity basis on income arising in
      or
      derived from the tax jurisdiction in which each entity is
      domiciled.





RINO
      International Corporation was incorporated in the United States and has incurred
      a net operating loss for income tax purpose for the nine months ended September
      30, 2008. The Company had loss carry forwards of $1,188,285 for U.S. income
      tax
      purposes available for offset against future taxable U.S. income expiring in
      2027.




20
 
 **RINO
          INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
          KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008
 (UNAUDITED)


Management
      believes that the realization of the benefits from the loss carryforward appears
      uncertain due to the Company’s historical operating income and continuing
      losses. Accordingly, 100% valuation allowance has been provided and no deferred
      tax asset benefit has been recorded. The valuation allowance at September 30,
      2008 was $404,017. The net change in the valuation allowance was an increase
      of
      $369,497.




Innomind
      was incorporated in the BVI and under current law of the BVI, income is not
      subject to income tax. Dalian Innomind and Dalian Rino were incorporated in
      the
      PRC and are subject to PRC income tax which is computed according to the
      relevant laws and regulations in the PRC. In 2007, Dalian Innomind was entitled
      to tax exemption granted to entities qualified as Foreign Invested Enterprise
      (“FIE”) so no provision for income tax was made.





Before
      July 2007, Dalian Rino was also qualified as Foreign Invested Enterprise
      (“FIE”). On July 12, 2007, Dalian Rino changed its license status from Foreign
      Invested Enterprise (“FIE”) to a domestic entity and was subject to an income
      tax rate of 33% for the period entitled to tax exemption. For the nine months
      ended September 30, 2007, provision of income tax amounted to $4,370,199.





Starting
      January 1, 2008, the new Enterprise Income Tax laws went effective. Under the
      new law, Dalian Innomind and Dalian Rino are entitled to a three-year income
      tax
      exemption and a 50% income tax reduction for the following three years, no
      provision for income tax was made for 2008.





The
      provision for income taxes differs from the amount computed by applying the
      statutory United States federal income tax rate to income before income taxes.
      The following table reconciles the statutory rates to the Company’s effective
      tax rate for the nine months ended September 30, 2008 and 2007:





2008
            
            2007U.S.
                Statutory rate
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in USA
            
            
            (34.0
            )
            
            (34.0
            )China
                income taxes
            
            
            25.0
            
            
            33.0China
                income tax exemption
            
            
            (25.0
            )
            
            -Effective
                income tax rate
            
            
            0.0
            %
            
            33.0
            %





Value-Added
      Tax





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





21
 
  **RINO
          INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
          KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008
 (UNAUDITED)


VAT
      on
      sales and VAT on purchases amounted to $13,642,041, and $9,859,471 for the
      three
      months ended September 30, 2008 and $4,210,353 and $2,742,008 for the three
      months ended September 30, 2007, respectively. VAT on sales and VAT on purchases
      amounted to $29,372,547, and $21,226,924 for the nine months ended September
      30,
      2008 and $7,587,524 and $5,447,697 for the nine months ended September 30,
      2007,
      respectively. Sales and purchases are recorded net of VAT collected and paid
      as
      the Company acts as an agent because the VAT taxes are not impacted by the
      income tax holiday. As of September 30, 2008 and December 31, 2007, the VAT
      payable amounted to $4,453,106 and $2,989,365, respectively.





**NOTE
      14 – REDEEMABLE COMMON STOCK**





On
      October 5, 2007, the Company received $24,480,319 (or $21,253,722 net proceeds
      after deducting the offering expenses) from a group of accredited investors
      and
      issued 5,464,357 shares of restricted common stock at $4.48 per share. The
      Securities Purchase Agreement contained a transferrable provision such that
      if
      any governmental agency in the PRC takes action that adversely affects the
      Restructuring Agreements or the Share Exchange Agreement and the company doesn’t
      mitigate the adverse effect to the investors’ reasonable satisfaction within 60
      days of the PRC action, then the company is required to pay liquidated damages
      in an amount equal to the initial investment without interest and the
      shareholder must return the shares acquired under the agreement. Consequently,
      the total amount of the gross proceeds has been excluded from permanent equity
      and recorded as redeemable common stock in accordance with Rule 5-02.28 of
      Regulation S-X and Section 211 of the Codification of Financial Reporting
      Policies. Although there is no fixed redemption requirement in any of the next
      five years, the entire amount of $24,480,319 could become redeemable in any
      of
      the next five years. These shares are included as outstanding common stock
      for
      purposes of earnings per share.





**NOTE
      15 – COMMON STOCK AND OTHER SHAREHOLDERS’ EQUITY**





Statutory
      Reserves





The
      Company is required to make appropriations to the statutory surplus reserve
      based on the after-tax net income determined in accordance with the laws and
      regulations of the PRC. Prior to January 1, 2006, the appropriation to the
      statutory surplus reserve should be at least 10% of the after tax net income
      determined in accordance with the laws and regulations of the PRC until the
      reserve is equal to 50% of the entities’ registered capital. Appropriations to
      the statutory public welfare fund are at 5% to 10% of the after tax net income
      determined by the Board of Directors. Effective January 1, 2006, the Company
      is
      only required to contribute to one statutory reserve fund at 10 percent of
      net
      income after tax per annum, such contributions not to exceed 50 percent of
      the
      respective company’s registered capital.





22
 
  **RINO
          INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
          KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008
 (UNAUDITED)
  The
          statutory reserve funds are restricted for use to set off against prior
          period
          losses, expansion of production and operation, or for the increase in the
          registered capital of the Company. These reserves are not transferable
          to the
          Company in the form of cash dividends, loans or advances. These reserves
          are
          therefore not available for distribution except in liquidation.
  As
          of
          September 30, 2008 and December 31, 2007, the Company appropriated $3,878,631
          and $2,109,539 respectively to the reserves funds based on its net income
          in
          accordance with the laws and regulations of the PRC.


Common
      Stock and Warrants





**Issuance
      of Common Stock in Private Placement**





In
      connection with the private placement, 250,000 shares of common stock were
      issued to a consultant for advisory services. This expense is recorded as
      additional paid-in capital in the accompanying financial statements.





In
      connection with the private placement and pursuant to the Engagement Agreement
      Providing for Investment Banking Services, dated January 19, 2007 by and between
      the Company and the placement agent, the placement agent received the following
      compensation: (i) $80,000 cash as an engagement and documentation fee; (ii)
      $1,750,000 as a placement commission; (iii) 875,000 shares of Common Stock,
      and
      (iv) warrants to purchase 382,500 shares of Common Stock at an exercise price
      of
      $5.376 per share, exercisable within 6 years of the date of issue. The exercise
      price of the warrant is subject to adjustments under certain circumstances
      and
      the warrants permit cashless exercise by the holders. This expense is recorded
      as additional paid-in capital in the accompanying financial statements.





The
      warrants issued to the placement agent, qualify as permanent equity under EITF
      00-19, the value of such warrants has created offsetting debit and credit
      entries to additional paid-in capital.





**Warrants**





Following
      is a summary of the warrant activity:




Number of SharesOutstanding
                as of December 31, 2007
            
            
            382,500Granted
            
            
            -Forfeited
            
            
            -Exercised
            
            
            -Outstanding
                as of September 30, 2008
            
            
            382,500





23
 
  **RINO
            INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
            KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
            30, 2008
 (UNAUDITED)


Following
      is a summary of the status of warrants outstanding at September 30, 2008:


Outstanding Warrants
              
              Exercisable WarrantsExercise Price
              
              Number of
                Shares
              
              Average
                Remaining
                Contractual Life
              
              Average
                Exercise Price
              
              Number of
                Shares
              
              Average
                Remaining
                Contractual Life$
              5.376
              
              
              382,500
              
              
              5
                  years
              
              $
              5.376
              
              
              382,500
              
              
              5
                  yearsTotal
              
              
              382,500
              
              
              
              
              
              
              
              
              382,500





**Issuance
      of Common Stock to Former Chief Financial Officer of Dalian
      Rino**





At
      the
      Closing of the Share Exchange Agreement and the private placement, the Company
      issued 20,000 shares of common stock to the former chief financial officer
      of
      Dalian Rino, in full satisfaction of Dalian Rino’s obligations to the former
      chief financial officer under a Compensation Agreement dated July 30, 2007.
      The
      shares were valued at market on the date of issuance, yielding an aggregate
      fair
      value of total $49,000. This expense was recorded as stock compensation expense.





**NOTE
      16 - EARNINGS PER SHARE**





The
      following demonstrates the calculation for earnings per share for the three
      months and nine months ended September 30:




Three months ended
              September 302008
            
            2007Net
                income
            
            $
            9,857,114
            
            $
            4,266,688Adjustments
                for diluted EPS calculation
            
            
            -
            
            
            -Adjusted
                net income for calculating EPS-diluted
            
            $
            9,857,114
            
            $
            4,266,688Weighted-average
                shares of common stock – Basic
            
            
            25,000,000
            
            
            17,899,643Effect
                of dilutive securities:Warrants
            
            
            153,941
            
            
            -Weighted-average
                shares of common stock – Diluted
            
            
            25,153,941
            
            
            17,899,643Earnings
                per share:Basic
            
            $
            0.39
            
            $
            0.24Diluted
            
            $
            0.39
            
            $
            0.24




24




**RINO
        INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
        KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
        30, 2008
 (UNAUDITED)


Nine months ended
              September 302008
            
            2007Net
                income
            
            $
            20,264,827
            
            $
            11,443,358Adjustments
                for diluted EPS calculation
            
            
            -
            
            
            -Adjusted
                net income for calculating EPS-diluted
            
            $
            20,264,827
            
            $
            11,443,358Weighted-average
                shares of common stock – Basic
            
            
            25,000,000
            
            
            17,899,643Effect
                of dilutive securities:Warrants
            
            
            152,127
            
            
            -Weighted-average
                shares of common stock – Diluted
            
            
            25,152,127
            
            
            17,899,643Earnings
                per share:Basic
            
            $
            0.81
            
            $
            0.64Diluted
            
            $
            0..81
            
            $
            0.64





**NOTE
      17 – RELATED PARTY TRANSACTIONS**





The
      Company owed $674,883 and $106,963 to a shareholder as of September 30, 2008
      and
      December 31, 2007, respectively, for advances made on an unsecured basis,
      payable on demand and interest-free. Imputed interest is charged per annum
      on
      the amount due at 8% and 7% for the periods ended September 30, 2008 and
      December 31, 2007, respectively. Total imputed interest recorded as additional
      paid-in capital amounted to $11,518 and $6,923 for the three months ended
      September 30, 2008 and 2007, respectively. Total imputed interest recorded
      as
      additional paid-in capital amounted to $21,974 and $31,090 for the nine months
      ended September 30, 2008 and 2007, respectively.





**NOTE
      18 – CONCENTRATIONS AND RISKS**





Cash





Cash
      includes cash on hand and demand deposits in accounts maintained with
      state **** owned
      banks within the People’s Republic of China and with banks within the United
      States. Total cash deposited with these banks at September 30, 2008 and December
      31, 2007 amounted to $1,364,149 and $7,390,631, respectively, of which only
      $5,000 are covered by FDIC insurance. In addition, as of September 30, 2008
      and
      December 31, 2007, restricted cash of $1,024,951 and $1,000,000 (Note 3),
      respectively, are uninsured. The Company has not experienced any losses in
      such
      accounts and believes it is not exposed to any risks on its cash in bank
      accounts.





Customers





The
      Company made sales to a small number of customers. During the three months
      ended
      September 30, 2008, no customer accounted for more than 10% of the Company’s
      total sales, and during the three months ended September 30, 2007, five
      customers accounted for 91% of the Company’s total sales. For the nine months
      ended September 30, 2008 and 2007, one major customer accounted for 10% of
      the
      Company’s total sales, and four major customers accounted for 67% of the
      Company’s total sales, respectively. At September 30, 2008, accounts receivable
      from those customers totaled $2,545,620.





25
 
 **RINO
          INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
          KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008
 (UNAUDITED)


PRC
      Risks





The
      Company's operations are carried out in the PRC. Accordingly, the Company's
      business, financial condition and results of operations may be influenced by
      the
      political, economic and legal environments in the PRC, and by the general state
      of the economy in the regions where the Company’s customers are located. The
      Company's operations in the PRC are subject to specific considerations and
      significant risks not typically associated with companies in the North America
      and Western Europe. These include risks associated with, among others, the
      political, economic and legal environments and foreign currency exchange. The
      Company's results may be adversely affected by changes in governmental policies
      with respect to laws and regulations, anti-inflationary measures, currency
      conversion and remittance abroad, and rates and methods of taxation, among
      other
      things.





The
      PRC
      government imposes controls on the convertibility of RMB into foreign currencies
      and, in certain cases, the remittance of currency out of the PRC. Under existing
      PRC foreign exchange regulations, payment of current account items, including
      profit distributions, interest payments and expenditures from the transaction,
      can be made in foreign currencies without prior approval from the PRC State
      Administration of Foreign Exchange by complying with certain procedural
      requirements. However, approval from appropriate governmental authorities is
      required where RMB is to be converted into foreign currency and remitted out
      of
      the PRC to pay capital expenses, such as the repayment of bank loans denominated
      in foreign currencies. The PRC government may also at its discretion restrict
      access in the future to foreign currencies for current account
      transactions.





**NOTE
      19 – COMMITMENTS AND CONTINGENCIES**





Employee
      Benefits





The
      full
      time employees of the Company are entitled to employee benefits including
      medical care, welfare subsidies, unemployment insurance and pension benefits
      through a Chinese government mandated multi-employer defined contribution plan.
      The Company is required to accrue for those benefits based on certain
      percentages of the employees’ salaries and make contributions to the plans out
      of the amounts accrued for medical and pension benefits. The total provisions
      and contributions made for such employee benefits were $19,112 and $19,333
      for
      the three months ended September 30, 2008 and 2007, respectively. The total
      provisions and contributions made for such employee benefits were $56,425 and
      $42,860 for the nine months ended September 30, 2008 and 2007, respectively.
      The
      Chinese government is responsible for the medical benefits and the pension
      liability to be paid to these employees.




26


**RINO
        INTERNATIONAL CORPORATION AND SUBSIDIARIES**
 **(FORMERLY
        KNOWN AS JADE MOUNTAIN CORPORATION)**
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
        30, 2008
 (UNAUDITED)




Capital
      Commitments





As
      of
      September 30, 2008 and December 31, 2007, the Company had firm purchase
      commitments for capital projects in progress of $9,243,541 and $750,844
      respectively.





**NOTE
      20 – ESCROW ACCOUNTS**





At
      the
      private placement closing, Zou Dejun and Qiu Jianping, who, through The Innomind
      Trust, together control 71.6% of the Company’s outstanding common stock, and are
      the founders of Dalian Rino - delivered to an escrow agent a total of 5,580,000
      of their beneficially owned shares of common stock in order to secure the
      Company’s obligation under the Securities Purchase Agreement to deliver
      additional common stock to the private placement investors in the event the
      Company fails to achieve certain after-tax net income targets for fiscal years
      2007 and 2008 (“Make Good Escrow Shares”). Those targets are $16,000,000 in
      after-tax net income (“ATNI”) for the fiscal year ended December 31, 2007, and
      $28,000,000 in after-tax net income for the fiscal year ending December 31,
      2008. For purposes of the Make Good agreements only, no expense related to
      return of the shares from escrow would be charged against ATNI. If the Company
      had not achieved the 2007 net income target, Zou Dejun and Qiu Jianping would
      have been obligated to transfer 1,674,000 shares of their common stock to the
      private placement investors on a pro-rata basis. The 2007 net income target
      was
      achieved and the shares have been returned to Zou and Qiu as of September
      30,2008. If the Company fails to achieve the 2008 net income target, Zou and
      Qiu
      must transfer to the investors the remaining 3,906,000 shares still in escrow.





No
      later
      than February 2, 2008, the Company’s Board of Directors was to consist of a
      minimum of 5 members, a majority of whom must be “independent directors” as
      defined in NASDAQ Marketplace Rule 4200(a)(15). This covenant was complied
      with
      on March 20, 2008. Until this covenant was complied with, the Company was
      required to hold $1,000,000 in escrow (“Board Escrow Holdback”). If for any
      reason or no reason the escrow agent did not receive requisite written notice
      from the investor representatives as to releasing this sum from escrow within
      120 days after the private placement closing, the Company was required to pay
      liquidated damages of $244,803 per month (or partial month) until the default
      is
      cured. No liquidated damages have yet been paid as of September 30, 2008.





The
      cash
      held in escrow pursuant to the Board Escrow Holdback as described above will
      be
      accounted for as other current assets and will not be shown as cash or cash
      equivalents on the balance sheet until such funds have been released from escrow
      pursuant to the terms of the Securities Purchase Agreement. The shares held
      in
      escrow as Make Good Escrow Shares will not be accounted for on our books until
      such shares became releasable from escrow pursuant to the terms of the
      Securities Purchase Agreement. If any Make Good Escrow Shares are released
      to
      the company management or employees, the value of such shares at the time of
      release will be recorded as compensation expense with a corresponding offset
      to
      additional paid-in capital in accordance with SFAS 123(R) paragraph 11. As
      a
      result, the Company recognized $7,499,520 of compensation expense for the year
      ended December 31, 2007. Based on the performance for the nine months ended
      September 30, 2008, the Company believes it is more likely than not to achieve
      the 2008 after-tax net income target. Therefore the Company has accrued
      $11,665,920 of compensation expense for the nine months ended September 30,
      2008. If any Make Good Escrow Shares are released to the Investors, no entry
      will be made. During the time such Make Good Escrow Shares are held in escrow,
      they will be accounted for as contingently issuable shares in determining the
      EPS denominator in accordance with SFAS 128.





27




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





Disclaimer
      Regarding Forward-looking Statements





Certain
      statements made in this report, and other written or oral statements made by
      or
      on behalf of RINO International Corporation, may constitute
“forward-looking statements” under the Private Securities Litigation
      Reform Act of 1995, which represent the expectations or beliefs of,
      including, but not limited to, statements concerning RINO International
      Corporation’s operations, performance, financial condition and growth. For this
      purpose, any statements contained in this report that are not statements of
      historical fact may be deemed forward-looking statements. Without limiting
      the generality of the foregoing, when used in this report, the word “believes,”
“expects,” “estimates,” “intends,” “will,” “may,” “anticipate,” “could,”
“should,” “can,” or “continue” or the negative or other variations thereof or
      comparable terminology are intended to identify forward-looking statements.
      Examples of such statements in this report include descriptions of our plans
      and
      strategies with respect to developing certain market opportunities, our overall
      business plan, our plans to develop additional strategic partnerships, our
      intention to develop our products and platform technologies, our continuing
      growth and our ability to contain our operating expenses. All forward-looking
      statements are subject to certain risks and uncertainties that could cause
      actual events to differ materially from those projected, including those
      described under the caption “Risk Factors” in our Annual Report on Form 10-K,
      the risk factors described under Item 1A. Risk Factors of Part II of this
      report, and matters described in this report generally. In light of these risks
      and uncertainties, there can be no assurance that the forward-looking statements
      contained in this filing will in fact occur. You should not place undue reliance
      on these forward-looking statements.





28


The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the financial statements and
      accompanying notes and the other financial information appearing in Part I,
      Item 1 and elsewhere in this report.





*Except
      as otherwise specifically stated or unless the context otherwise requires,
      the
      "Company", "we," "us," "our," and the "Registrant" refer to (i) RINO
      International Corporation (formerly Jade Mountain Corporation), (ii) Innomind
      Group Limited (“Innomind”), a wholly-owned subsidiary of RINO International
      Corporation organized under the laws of the British Virgin Islands, Dalian
      Innomind Environment Engineering Co., Ltd. (“Dalian Innomind”), a wholly-owned
      subsidiary of Innomind organized under the laws of the People’s Republic of
      China (the “PRC”), Dalian RINO Environment Engineering Science and Technology
      Co., Ltd., a contractually controlled affiliate of Dalian Innomind organized
      under the laws of the PRC (“Dalian Rino”), and Dalian Rino Environment Project
      Design Co., Ltd. (“Dalian Rino Design”), a wholly-owned subsidiary of Dalian
      Rino.*





**Overview**





The
      Company is engaged in designing, developing, manufacturing, and installing
      environmental protection and energy saving equipment for the Chinese iron and
      steel industry. Our customers are large, state-owned iron and steel companies.
      Our business operations are conducted throughout China.




China’s
      iron and steel companies have experienced robust growth during the last twenty
      years, following the expansion of China’s economy and industrial base,
      generally. Along with this growth, the iron and steel industry has produced
      large amounts of waterborne and airborne industrial waste and pollution, and
      as
      a consequence it faces increasingly stringent governmental mandates to reduce
      or
      eliminate sulphur dioxide emissions and untreated wastewater discharges. Failure
      to meet mandated emission and discharge standards can result in financial
      penalties.





Demand
      for our core product, the Lamella Wastewater System, increased 96.6% to $12.6
      million for the nine-months ended September 30, 2008, as compared with the
      nine
      months ended September 30, 2007. For the nine months ended September 30, 2008,
      we recorded revenues related to 5 wastewater systems.





Our
      Desulphurization System, which we introduced in late 2006, utilizes proprietary
      technology we jointly developed with the Research Institute of the Chinese
      Academy of Sciences, and can reduce flue gas sulphur dioxide levels by over
      90%.
      We anticipate strong demand from the iron and steel industry for the solutions
      that our Desulphurization System offers for airborne sulphur dioxide emissions.
      For the nine months ended September 30, 2008, we recorded revenues of $75.2
      million, as compared to revenues of $20.7million for the nine months ended
      September 30, 2007. We recorded revenues related to 22 desulphurization
      contracts in the nine months ended September 30, 2008.





29


Starting
      in January 2007, we launched another new product, our Anti-Oxidation System
      that
      materially reduces oxidation loss in the production of hot rolled steel plate.
      Anti-oxidation is a long-sought solution in the iron and steel industry. We
      believe our Anti-Oxidation System, including coatings and spraying equipment
      is
      the only online system that prevents or reduces oxidation without needing to
      first cool down the steel slab. We anticipate that our Anti-Oxidation System
      will be an important driver of revenue growth. For the nine months ended
      September 30, 2008, we recorded revenues of $3.0 million anti-oxidation
      equipment and related coatings sales, as compared to revenues of $2.0 million
      for the nine months ended September 30, 2007. The increase in revenues largely
      reflects our increased pricing as the value of the anti-oxidation technology
      has
      been proven in commercial practice.





In
      addition to the foregoing, we provide machining services to third parties,
      utilizing our heavy machine tools’ idle time to generate contract manufacturing
      revenue. The revenue generated from our machining services fluctuates based
      on
      the level of our using our heavy machining equipment to produce more of our
      own
      products rather than for third-party contract work. For the three months ended
      September 30, 2007, revenues accounted for 5.8% of the total revenue as compared
      to 15.8% for the corresponding period in 2007, reflecting a higher level of
      our
      own production and reduced level of contractual work.





We
      also
      receive grants from the local government in Dalian, China, with amounts varying
      from year to year as rewards for our continued investment in new technologies.
      While being selected for these grants signals important government support
      for
      our technology development efforts, we believe the amounts of these grants
      are
      immaterial to our business. In the twelve months ended December 31, 2007, we
      received government grants of $228,430, or 0.4% of our total equipment and
      services sales revenue for the period. In the nine months ended September 30,
      2008 and 2007, we received government grants of $307,385 and $122,802,
      respectively, totaling 0.3% and 0.3% of respective revenues for the nine months
      ended September 30, 2008 and 2007.





All
      of
      our products are custom-built to our customers’ specific requirements. We enter
      into fixed price equipment sales contracts with our customers that are performed
      in engineering, manufacturing, construction and installation phases. Equipment
      and components are engineered and manufactured primarily at our headquarter
      facilities. Generally, we fulfill our contracts within twelve
      months.





Our
      project-based revenue is affected directly by our customers’ capital budgets and
      their need to build new plants. Because our customers are
      state-owned-enterprises, their budgeting decisions are influenced by the Chinese
      central government’s environmental protection and pollution control policies,
      which presently are favorable to our business and products. We believe that
      such
      policy emphasis will continue for the foreseeable future.





The
      cost
      of revenue for our products includes direct materials, direct labor, and
      manufacturing overhead, with a significant portion allocable to materials costs,
      which are subject to fluctuation.





30


**Recent
      Developments**





**Departure
      of Certain Officer**





On
      September 5, 2008, Bruce Richardson resigned from his positions as the Chief
      Financial Officer and Secretary of the Company to pursue other interests. The
      Company accepted Mr. Richardson’s resignation. Thereafter, Mr. Richardson’s
      duties have been assumed by Ms. Qiu Jianping and several managers pending the
      hiring of a replacement and the Company does not believe that Mr. Richardson’s
      departure will have an adverse impact on the Company’s operations.





**New
      Products**





*Integrated
      Dust Catching System*





In
      the
      first quarter of 2008, the Company commercialized and received initial purchase
      orders for a new integrated dust catching syste which removes up to 99% of
      the
      dust from sintering iron during the production process and complements its
      current desulphurization equipment.





The
      integrated dust catching system uses electric precipators to remove part of
      the
      dust load from flue gases, followed by a bag filtration system, which together
      achieve dust removal rates of up to 99%. The integrated dust catching system
      completes the treatment of sintering flue gases begun by the Company’s
      desulphurization equipment. Adoption of the integrated dust catching system
      is
      being driven in part by China’s regulatory pressure to reduce particulate
      emissions to as low as 30mg/cubic meter of flue gas, down from levels usually
      above 80mg/cubic meter. New Chinese regulations for dust content of flue gases
      in major cities will be comparable to those in place in the European Union.
      To
      date, the Company’s integrated dust catchers have been installed in several
      steelmaker in China. The Company anticipates the average selling price will
      be
      around US$2.0 million and the time from contract signing to final installation
      will equate to approximately two to three months.





*Sludge
      Treatment System*





In
      the
      3 rd quarter
      of 2008, the Company has successfully developed a new sludge treatment system
      through cooperation with the Dalian University of Technology.




The
      new
      sludge treatment system utilizes superheated steam to dehydrate municipal sludge
      which can be used as agricultural fertilizer, as a component in various
      construction materials or combined with coal to generate energy more efficiently
      with less pollution. Our sludge treatment system costs approximately 50% less
      than imported products and the costs of daily operation are approximately 45%
      less. The Chinese government recently implemented a new regulation that at
      least
      60% of municipal wastewater has to be treated by 2010 and is expected to
      significantly increase the amount of municipal sludge produced from the
      wastewater treatment process in China in next several years. We estimate the
      profit to process one ton of municipal sludge varies between $12 and $19
      depending on the steam source, and currently China generates approximately
      27.8
      million metric tons of municipal sludge annually which is comprised of
      approximately 80% water. The technology we use in the sludge treatment system
      can also be utilized to dehydrate oil sludge which can then be used in place
      of
      coal. We are located in northeastern China, which is the oil industry center
      and
      generates approximately 2 million tons of oil sludge annually. The profit to
      process one ton of oil sludge ranges between $39 and $44.




31


We
      have
      already installed and tested this system internally and the results confirm
      the
      functionality of our system in dehydrating multiple kinds of sludge. We will
      move forward with additional field trials and expect to commercialize this
      product during the first half of 2009.





Dalian
      University of Technology has made a patent application for this technology
      in
      China (Application number: 200710011115.0). We have agreed to pay an ongoing
      royalty of approximately 5% of sales to the university.





**Formation
      of a Subsidiary**





On
      September 24, 2008, Dalian Rino formed Dalian Rino Environment Project Design
      Co., Ltd. (“Dalian Rino Design”) as a wholly-owned subsidiary of Dalian Rino
      under the laws of PRC.  Pursuant to its business license, Dalian Rino
      Design is permitted to engage in the same scope of business as that of Dalian
      Innomind. Among other business activities, Dalian Rino Design will focus
      primarily on research and development and technical design aspect of our
      business, which we expect will also enhance the company’s overall position and
      influence in the marketplace.  In addition, the formation of Dalian Rino
      Design may enable us to potentially take advantage of certain preferential
      tax
      treatment under the PRC laws and regulations.  Pursuant to Dalian Rino
      Design’s business permit, Dalian Rino Design’s right of operation expires on
      September 23, 2018 and is renewable.





**Results
      of Operations**





*Three
      Months Ended September 30, 2008 And September 30, 2007.*





**Results
      of Operations**





*Net
      Sales*





Net
      sales
      increased by $27.2 million to $44.9 million or 154.4% for the three months
      ended
      September 30, 2008, as compared to the three months ended September 30, 2007.
      The increase in the third quarter of 2008 was due to continued growth in demand
      in our waste water treatment and flue gas desulphurization product lines. The
      breakdown of the revenue growth is as follows:




32




For the three months ended September 30,2008
            
            2007Net Sales
              000
            
            % to Total
            
            Net Sales
              000
            
            % to Total
            
            %IncreaseWastewater
                treatment equipment
            
            $
            4,410
            
            
            9.8
            %
            $
            2,359
            
            
            13.4
            %
            
            86.9
            %Flue
                gas desulphurization (including ancillary equipment)
            
            
            37,712
            
            
            84.0
            %
            
            12,274
            
            
            69.5
            %
            
            207.3
            %Anti-oxidation
                equipment and coatings
            
            
            164
            
            
            0.4
            %
            
            156
            
            
            0.9
            %
            
            5.1
            %Machining
                services
            
            
            2,595
            
            
            5.8
            %
            
            2,783
            
            
            15.8
            %
            
            -6.8
            %Services
            
            
            -
            
            
            -
            %
            
            67
            
            
            0.4
            %
            
            -100.0
            %Total
                Net Sales
            
            $
            44,881
            
            
            100.0
            %
            $
            17,639
            
            
            100.0
            %
            
            154.4
            %





*Wastewater
      treatment equipment* .
      Our
      line of wastewater treatment continued to enjoy strong demand supported by
      increasingly strict environmental enforcement by the Chinese government. In
      the
      third quarter of 2008, we installed wastewater treatment equipment which
      generated sales revenue of $4.4 million. We have orders for approximately $12
      million or 100 additional wastewater filtration canisters and related slurry
      and
      sludge handling equipment. Although we have a strong record of performance
      and
      profitability, we cannot guarantee that these contracts will be successfully
      executed or that we will be paid upon completion.





*Flue
      Gas Desulphurization equipment* .
      While
      most of China’s coal-burning electric plants have already installed
      desulphurization equipment, the clean-up of China’s iron sintering remains in
      its early phase. Accordingly, our flue gas desulphurization equipment continued
      to enjoy strong growth in the third quarter of 2008 as tightening environmental
      policies required increased reductions in emissions of sulfur dioxide. Increased
      activity in desulphurization of sintering operations has attracted competitors,
      including some international providers. As in the prior quarters of 2008, this
      has lead to increased time spent in the tendering and negotiation
      processes.





*Anti-Oxidation
      Equipment* .
      Our
      anti-oxidation equipment has achieved considerable technical success,
      outperforming our projected reductions in oxidation loss during heat processing
      of hot-rolled steel, one of China’s major steel categories. We installed three
      sets of anti-oxidation equipment for the nine month period ended September
      30,
      2007 and two sets of anti-oxidation equipment in the same respective period
      of
      2008. During the third quarter of 2008 we have focused our sales efforts on
      desulphurization equipment, but we are planning increased sales activity of
      anti-oxidation equipment and coatings beginning in the third quarter of 2008.
      To
      this end, we have already exhibited our working anti-oxidation installations
      to
      approximately 30 of China’s steelmakers.




*Machining
      services.* Our
      machining services revenue declined 6.8% due in part to our using our heavy
      machining equipment to produce more of our own products rather than for
      third-party contract work, as indicated by the lower percentage of machining
      services to total revenues.





33


*Cost
      of Sales*





The
      cost
      of sales for the three months ended September 30, 2008 increased by $14.0
      million to $24.3 million from $10.3 million for the three months ended September
      30, 2007, largely due to increased sales. As a percentage of sales, the cost
      of
      sales decreased to 53.9% of revenue for the three months ended September 30,
      2008 compared to 58.4% for the same period of 2007. This increase in gross
      profitability reflects in large part the effects of changes in product mix,
      with
      more of the revenues from higher margin contract recorded in the three months
      ended 2008 than the same period ended September 30, 2007. These contracts are
      generally related to the sale and installation of our equipment. The gross
      margin achieved in the three months ended September 30, 2008 is however within
      the historical range of the Company’s quarterly gross margins.





*Operating
      Expense.*





Operating
      expenses for the three months ended September 30, 2008 increased by $7.8 million
      to $10.0 million from $2.2 million for the same period ended September 30,
      2007,
      an increase of 359.4%. The $7.8 million increase in our operating expenses
      was
      largely led by a $5.8 million charge for stock compensation expense related
      to
      the 2008 earnings targets or “Make Good” provision agreed upon in out Stock
      Purchase Agreement with investor in October, 2007. Our year-to-date performance
      indicates that we may achieve our 2008 make good earnings targets of after-tax
      net income of $28.0 million and earnings per share of $1.12, If we achieve
      these
      targets, 3,906,000 shares of our common stock that were issued to the Innomind
      Trust (with Mr. Zou Dejun, our founder, Chief Executive Officer and a director,
      and Ms. Qiu Jianping, our founder and Chairman of the Board, as its sole
      beneficiaries) and are currently held in escrow will be returned to the Innomind
      Trust, triggering a non-cash stock-based compensation charge of $17.5 million.
      We have allocated one-third of that amount to selling, general and
      administrative expenses in second quarter to better match revenues and expenses.
      The charges for depreciation and amortization increased as our asset base
      increased. The increase in operating expense was also partially due to the
      increase of selling, general & administrative expenses of approximately $1.2
      million Dalian Innomind from $0.4 million for the three month period ended
      September 30, 2007 to $1.6 million for the same period in 2008 after Dalian
      Innomind was incorporated on July 9, 2007.





*Other
      Income and Expense.*




Other
      Income and Expense for the three months ended September 30, 2008 increased
      by
      $534,984 to $665,847 from $130,863, an increase of 409%. The increase in other
      income and expense was mainly due to the reserve of liquidated damage expense
      of
      $616,708 for the three month ended September 30, 2008 as a result of: (1) the
      Company’s failure to cause the registration statement filed with the SEC to be
      declared effective by the SEC on or before March 3, 2008; 2) the Company’s
      failure to meet the requirement under the security purchase agreement entered
      into in October 2007 that the Company’s Board of Directors must consist of a
      minimum of five members, a majority of whom must be “independent directors” as
      defined in NASDAQ Marketplace Rule 4200(a)(15) not later than 120 days after
      the
      date of the agreement. Interest income rose sharply to $76,285 from a low base
      as our cash balances increased after raising equity capital in October 2007,
      but
      the absolute amount of interest income remains immaterial. Interest expense
      fell
      to $149,095 for the three months ended September 30, 2008 from $178,278 for
      the
      quarter ended September 30, 2007 as the Company’s bank loan amounts were
      reduced.





34


*Nine
      Months Ended September 30, 2008 And September 30, 2007.*





**Results
      of Operations**





*Net
      Sales*





Net
      sales
      increased by $52.4 million to $98.5 million or an increase of 113.6% for the
      nine months ended September 30, 2008, as compared to the nine months ended
      September 30, 2007. The increase in nine months of 2008 was due to continued
      growth in demand across our entire product lines, with the exception of our
      discontinued Services line, which involved provision of technical consulting
      on
      flue gas desulphurization. The breakdown of the revenue growth is as
      follows:





For the nine months ended September 30,2008
            
            2007Net Sales
              000
            
            % to
              Total
            
            Net Sales
              000
            
            % to
              Total
            
            %
              IncreaseWastewater
                treatment equipment
            
            $
            12,623
            
            
            12.8
            %
            $
            6,420
            
            
            13.9
            %
            
            96.6
            %Flue
                gas desulphurization (including ancillary equipment)
            
            
            75,182
            
            
            76.3
            %
            
            20,688
            
            
            44.9
            %
            
            263.4
            %Anti-oxidation
                equipment and coatings
            
            
            2,965
            
            
            3.0
            %
            
            1,958
            
            
            4.2
            %
            
            51.4
            %Machining
                services
            
            
            7,773
            
            
            7.9
            %
            
            7,660
            
            
            16.6
            %
            
            1.5
            %Services
            
            
            -
            
            
            -
            %
            
            9,406
            
            
            20.4
            %
            
            -100.0
            %Total
                Net Sales
            
            $
            98,544
            
            
            100.0
            %
            $
            46,132
            
            
            100.0
            %
            
            113.6
            %





*Cost
      of Sales*





The
      cost
      of sales for the nine months ended September 30, 2008 increased by $31.2 million
      to $55.0 million from $23.8 million for the nine months ended September 30,
      2007, largely due to increased sales. As a percentage of sales, the cost of
      sales rose to 55.7% for the nine months ended September 30, 2008 compared to
      51.6% for the same period of 2007. The gross margin achieved in the nine months
      ended September 30, 2008 is however within the historical range of the Company’s
      gross margins.





*Operating
      Expense.*





Operating
      expenses for the nine months ended September 30, 2008 increased to $22.0 million
      from $6.0 million for the same period ended September 30, 2007, an increase
      of
      265.4%. The $16.0 million increase in our operating expenses was largely led
      by
      a $11.7 million charge for stock compensation expense related to the 2008 Make
      Good as described above in this section of the report. The increase in operating
      expense was also partially due to the increase of selling, general &
administrative expenses of approximately $4 million in Dalian Innomind from
      $0.4
      million for the nine month period ended September 30, 2007 to $5.3 million
      for
      the same period in 2008, after Dalian Innomind was incorporated on July 9,
      2007





35


*Other
      Income and Expense.*




Other
      Income and Expense for nine months ended September 30, 2008 increased by $0.8
      million to $1,3 million from $0.5 million, an increase of 170%. The increase
      in
      other income and expense was mainly due to the reserve of liquidated damage
      expense of $1.1 million as a result of: (1) the Company’s failure to file the
      registration statement with the SEC to be declared effective by the SEC on
      or
      before March 3, 2008; 2) the Company’s failure to meet the requirement by the
      Stock Purchase Agreement that the Company’s Board of Directors must consist of a
      minimum of five members, a majority of whom must be “independent directors” as
      defined in NASDAQ Marketplace Rule 4200(a)(15) not later than 120 days after
      the
      date of the agreement. Interest income rose sharply to $132,853 from a low
      base
      as our cash balances increased after raising equity capital in October 2007,
      but
      the absolute amount of interest income remains immaterial. Interest expense
      fell
      to $374,503 for the nine months ended September 30, 2008 from $489,233 for
      the
      period ended September 30, 2007, due to a reduced amount of bank debt financing
      as we applied collections of accounts receivable in the third and fourth
      quarters of 2007 to repay bank loans. All bank debt was repaid by year-end
      2007,
      but we borrowed approximately $7.3 million from one commercial bank in China
      in
      January, 2008 with an effective interest rate of 7.47% due January 28, 2009.





**Liquidity
      and Capital Resources**





We
      have
      historically funded our working capital needs from operations, advance payments
      from customers, bank borrowings, and capital from shareholders. Our working
      capital requirements are influenced by the level of our operations, the
      numerical and dollar volume of our project contracts, the progress of our
      contract execution, and the timing of accounts receivable
      collections.





As
      of
      September 30, 2008, and December 31, 2007, the Company had firm purchase
      commitments of $9,243,541 and $750,844, respectively. As compared to December
      31, 2007, our firm purchase commitments at September 30, 2008 increased by
      $8,492,697 for acquisition of equipments to be used for our expansion in
      production capacity.





In
      connection with our Stock Purchase Agreement with the investors entered into
      in
      October, 2007, we agreed to a provision which provides that in the event that
      the legal structure of our Company is challenged by Chinese authorities and
      we
      do not mitigate the adverse effect to the investors’ reasonable satisfaction
      within 60 days of the Chinese government action, then we are required to redeem
      the investors’ common stock for $24.4 million. Consequently, this amount has
      been excluded from permanent equity and recorded as redeemable common stock
      in
      accordance with Rule 5-02.28 of Regulation S-X and Section 211 of the
      Codification of Financial Reporting Policies. While we believe that the
      possibility of such a redemption is remote, we do not currently have adequate
      cash on hand for such a redemption and the requirement to pay this amount would
      result in our having to borrow funds or raise additional capital. There can
      be
      no assurance that loans or additional capital would be available, if necessary,
      or that they would be available on terms acceptable to us.




36


Without
      a
      redemption, we believe that we have sufficient cash, along with projected cash
      to be generated by our business to support operations for at least the next
      12
      months.





*Cash
      and Cash Equivalents*





Cash
      and
      cash equivalents totaled $1.4 million as of September 30, 2008, as compared
      to
      $7.4 million as of December 31, 2007, representing a decrease of 81.5%. The
      decrease in cash and cash equivalents was attributable to increase in accounts
      receivable, advances made for inventory and construction material and equipment
      purchases, and decrease in income tax payable, partially offset by increased
      customer deposits and bank loans.





The
      following tables present our net cash flows for the nine months ended September
      30, 2008 and for the same period ended September 30, 2007.




For
                the nine months ended
              September
                30,US$
                thousands
            
            2008
            
            2007Cash
                used in operating activities
            
            $
            (9,968
            )
            $
            (3,372
            )Cash
                used in investing activities
            
            $
            (4,134
            )
            $
            (230
            )Cash
                provided by (used in) financing activities
            
            $
            7,693
            
            $
            (3
            )




*Cash
      flow from operating activities*





Net
      cash
      used in operating activities was $10.0 million for the nine months ended
      September 30, 2008 as compared to net cash used in operations of $3.4
      million in the same period ended September 30, 2007. Increased net income,
      higher non-cash expenses, decrease in costs and estimated earnings in excess
      of
      billings on uncompleted contracts and an increase in customers deposits
      contributed to increased cash flows from operations. These increases to cash
      flow from operations were offset by increases in accounts receivable, advances
      for inventory purchases, notes receivable and decrease in income tax
      payable.




*Accounts
      Receivable*




During
      the nine months ended September 30, 2008, our accounts receivable rose to $50.5
      million from $19.2 million at December 31, 2007. As a percentage of total
      assets, our accounts receivable rose to 47.0% at September 30, 2008, as compared
      to that of 30.9% at December 31, 2007. The level of our receivables reflects
      the
      combined effect of our growing revenues and our sales to a small number of
      large
      clients, which means that repayment or delay in repayment on even a single
      account can have a disproportionate effect on total receivables in any given
      period. Our growth in receivables is due largely to rising sales.




37


As
      we
      sell almost exclusively to a few significant customers with established credit
      history with us, historically, we have not experienced collection issues,
      therefore we generally do not need to record a reserve for doubtful
      accounts.




*Contracts
      in progress*





Contracts
      in progress represent work in progress. During the nine months ended September
      30, 2008, billings in excess of costs and estimated earnings on uncompleted
      contracts increased to $112,503 from $0 as of December 31, 2007. Costs and
      estimated earnings in excess of billings were decreased to $118,150 at September
      30, 2008 from $2.8 million at December 31, 2007, as the Company became more
      current with its contract billing.




*Advances
      for inventory purchase*





Advances
      for inventory purchase are required to ensure timely delivery of raw materials
      needed to execute existing production contracts as well as to expand the
      business. Our advances for inventory purchase increased to $24.0 million at
      September 30, 2008, an increase of $11.9 million, from the $12.1 million
      recorded at December 31, 2007 as more orders of raw materials were placed for
      production.





*Cash
      used in investing activities.*





For
      the
      nine months ended September 30, 2008, net cash used in investing activities
      increased to $4.1 million as compared to $230,354 for the same period ended
      September 30, 2007. This increase primarily resulted from the advances for
      equipment and construction material purchase.





*Cash
      provided by financing activities.*





Our
      operations historically have been financed by capital contributions and loans
      from RINO’s founder, our $24.4 million private placement in October, 2007 and by
      short-term bank loans. For the nine months ended September 30, 2008, net cash
      provided by financing activities increased to $7.7 million as compared to cash
      used in financing of $3,076 for the same period ended September 30, 2007. This
      was principally the result of an increase in short-term bank loans and amounts
      due to related parties.





**Contractual
      Obligations**





As
      of
      September 30, 2008, and December 31, 2007, the Company had firm purchase
      commitments of $9,243,541 and $750,844, respectively. As compared to December
      31, 2007, our firm purchase commitments at September 30, 2008 increased by
      $8,492,697 for acquisition of equipments to be used for our expansion in
      production capacity.





**Off-Balance
      Sheet Arrangements**





The
      Company does not have any off-balance sheet arrangements.


38





**CRITICAL
      ACCOUNTING POLICIES**




There
      have been no changes in our critical accounting policies or significant
      accounting estimates as disclosed in our 2007 Annual Report on Form 10-K,
      as amended, except the adoption of the following recent accounting
      pronouncements.





Fair
      Value of Financial Instruments





On
      January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157, defines fair value, establishes a three-level valuation hierarchy
      for disclosures of fair value measurement and enhances disclosures requirements
      for fair value measures. The carrying amounts reported in the balance sheets
      for
      receivables and payables qualified as financial instruments and are a reasonable
      estimate of fair value because of the short period of time between the
      origination of such instruments and their expected realization and their current
      market rate of interest. The three levels are defined as follows:




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




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




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





As
      of
      September 30, 2008, the short-term bank loan amounted to $7,315,000. In
      accordance with SFAS 157, the Company determined that the carrying value of
      these loans approximated the fair value using the level 2 inputs by comparing
      the stated loan interest rate to the rate charged by the Bank of China to
      similar loans, since no quoted market rate is available.





Carrying Value as of
              September 30, 2008
            
            Fair Value Measurements at
              September 30, 2008 Using Fair
              Value HierarchyLiabilities
            
            
            
            
            
            Level
                1
            
            
            Level
                2
            
            
            Level
                3Short-term
                bank loans
            
            $
            7,315,000
            
            
            
            
            $
            7,315,000




The
      Company did not identify any assets or liabilities that are required to be
      presented on the balance sheet at fair value in accordance with SFAS No. 157.





On
      October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
      Financial Asset When the Market for That Asset Is Not Active,” which clarifies
      the application of SFAS 157 in a market that is not active and provides an
      example to illustrate key considerations in determining the fair value of a
      financial asset when the market for that financial asset is not active. FSP
      157-3 became effective on October 10, 2008, and its adoption did not have a
      material impact on our financial position or results for the quarter ended
      September 30, 2008.


39





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





**Item
      3.****Quantitative
      and Qualitative Disclosures about Market Risk**





*Disclosures
      About Market Risk.* We may
      be exposed to changes in financial market conditions in the normal course of
      business. Market risk generally represents the risk that losses may occur as
      a
      result of movements in interest rates and equity prices. We currently do not
      use
      financial instruments in the normal course off business that are subject to
      changes in financial market conditions.





*Currency
      Fluctuations and Foreign Currency Risk.* Substantially all of our operations are conducted in the PRC, with the exception
      of our export business and limited overseas purchases of raw materials. Most
      of
      our sales and purchases are conducted within the PRC in Renminbi, which is
      the
      official currency of the PRC. As a result, the effect of the fluctuations of
      exchange rates is considered minimal to our business operations. Substantially
      all of our revenues and expenses are denominated in Renminbi. However, we use
      the United States dollar for financial reporting purposes. Conversion of
      Renminbi into foreign currencies is regulated by the People’s Bank of China
      through a unified floating exchange rate system. A 10% strengthening in the
      Chinese RMB against the U.S. dollar would have increased the other comprehensive
      income for the quarter ended March 31, 2008 by approximately $0.55 million.
      Although the PRC government has stated its intention to support the value of
      the
      Renminbi, there can be no assurance that such exchange rate will not again
      become volatile or that the Renminbi will not devalue significantly against
      the
      U.S. dollars. Exchange rate fluctuations may adversely affect the value, in
      U.S.
      dollar terms, of our net assets and income derived from our operations in the
      PRC.


40


*Interest
      Rate Risk.* We do
      not have significant interest rate risk, as our debt obligations are primarily
      short-term in nature, with fixed interest rates.





*Credit
      Risk.* We have
      not experienced significant credit risk, as most of our customers are long-term
      customers with superior payment records. Our receivables are monitored regularly
      by our credit managers.





**Item
      4.****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.




(b)  *Changes
      in internal controls over financial reporting* .
      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.




A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control systems are met.
      Because of the inherent limitations in all control systems no evaluation of
      controls can provide absolute assurance that all control issues, if any, within
      a company have been detected. Such limitations include the fact that human
      judgment in decision-making can be faulty and that breakdowns in internal
      control can occur because of human failures, such as simple errors or mistakes
      or intentional circumvention of the established process.




**PART
      II****-
      OTHER INFORMATION**





**Item
      1A. Risk Factors**





There
      have been no material changes to the risk factors as previously disclosed in
      the
      Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
      2008, as amended, except for the following addition:





***We
      may not have adequate internal accounting controls. While we have certain
      internal procedures in our budgeting, forecasting and in the management and
      allocation of funds, our internal controls may not be
      adequate.***





We
      are
      constantly striving to improve our internal accounting controls. We hope to
      develop an adequate internal accounting control to budget, forecast, manage
      and
      allocate our funds and account for them. There is no guarantee that such
      improvements will be adequate or successful or that such improvements will
      be
      carried out on a timely basis. If we do not have adequate internal accounting
      controls, we may not be able to appropriately budget, forecast and manage our
      funds, we may also be unable to prepare accurate accounts on a timely basis
      to
      meet our continuing financial reporting obligations and we may not be able
      to
      satisfy our obligations under US securities laws.


41





On
      May
      30, 2008, management of the Company determined in consultation with the
      Company’s prior independent accountants that there were material errors in the
      presentation of current assets, concentration of risks related to the Company’s
      largest customers and cash flows related to the payment of deposits for the
      acquisition of property and equipment in the Company’s financial statements for
      the fiscal years ended December 31, 2007 and 2006 and that such financial
      statements should not be relied upon. As a result, the Company restated the
      financial statements in Amendment No.2 to the Annual Report on 10-K for the
      fiscal year ended December 31, 2007 (“2007 10-K”) which was filed with the SEC
      on June 11, 2008. On July 24, 2008, management of the Company determined in
      consultation with the Company’s current and prior independent accountants that
      there were also errors in the restated financial statements filed with Amendment
      No. 2 to the 2007 10-K as well as the Company’s unaudited financial statements
      as of March 31, 2008 and for the three months then ended which were filed with
      the SEC as part of the Company’s Quarterly Report on Form 10-Q for the quarter
      ended March 31, 2008 (the “March 2008 10-Q”) causing redeemable stock to be
      presented as permanent equity and that such financial statements should not
      be
      relied upon. As a result, the Company restated the financial statements
      contained in Amendment No.2 to the 2007 10-K by filing on August 4, 2008
      Amendment No.3 to the 2007 10-K and also restated the financial statements
      contained in the March 2008 10-Q by filing on August 5, 2008 Amendment No.
      1 to
      the March 2008 10-Q. The restatements had no effect on the income statement,
      including net income and earnings per share for the periods covered by the
      restated financial statements.





On
      September 5, 2008, Bruce Richardson resigned from his positions as the Chief
      Financial Officer and Secretary of the company to pursue other interests. The
      Company accepted Mr. Richardson’s resignation. Mr. Richardson’s duties will be
      assumed by Ms. Qiu Jianping and several managers pending the hiring of a
      replacement. Although the Company does not believe that Mr. Richardson’s
      departure will have an adverse impact on the Company’s operations, there is no
      guarantee that prior to the hiring of a new CFO, the Company’s internal
      accounting control will not be adversely affected. The Company has been
      aggressively seeking replacement of the CFO through international recruiting
      firms and is currently interviewing candidates. The Company expects to hire
      a
      new CFO in the near future.




42




***Our
      internal controls over financial reporting may not be effective, and our
      independent auditors may not be able to certify as to their effectiveness,
      which
      could have a significant and adverse effect on our
      business.*** **


Rules
      adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
      require annual assessment of our internal control over financial reporting,
      and
      attestation of this assessment by our company's independent registered public
      accountants. The SEC extended the compliance dates for “non-accelerated filers,”
as defined by the SEC. Accordingly, we believe that the annual assessment of
      our
      internal controls requirement will first apply to our annual report for the
      2007
      fiscal year and the attestation requirement of management's assessment by our
      independent registered public accountants will first apply to our annual report
      for the 2008 fiscal year. The standards that must be met for management to
      assess the internal control over financial reporting as effective are new and
      complex, and require significant documentation, testing and possible remediation
      to meet the detailed standards. Based on our management’s assessment of our
      internal control over financial reporting, our management has concluded that
      our
      internal control was effective as of December 31, 2007 to provide reasonable
      assurance regarding the reliability of financial reporting and the preparation
      of financial statements for external reporting purposes in accordance with
      GAAP.
      However, our internal control over financial reporting system has yet to be
      evaluated by an external auditor for the purposes of providing an attestation
      report required by Section 404 of the Sarbanes-Oxley Act of 2002. The Company
      restated its financial statements for the fiscal years ended December 31, 2007
      and 2006 in Amendment No.2 to the Annual Report on 10-K for the fiscal year
      ended December 31, 2007 (“2007 10-K”) which was filed with the SEC on June 11,
      2008. Thereafter, the Company restated the financial statements contained in
      Amendment No.2 to the 2007 10-K by filing on August 4, 2008 Amendment No.3
      to
      the 2007 10-K and also restated the financial statements contained in the
      Quarterly Report on 10-Q for the quarter ended March 2008 by filing on August
      5,
      2008 Amendment No. 1 to the March 2008 10-Q. The restatements had no effect
      on
      the income statement, including net income and earnings per share for the
      periods covered by the restated financial statements. Since the resignation
      of
      Bruce Richardson as the Company’s Chief Financial Officer and Secretary on
      September 5, 2008, Ms. Qiu Jianping and several managers of the Company have
      been performing the duties of the Chief Financial Officer of the Company and
      the
      Company has been aggressively looking for a new CFO. Although the Company does
      not believe that Mr. Richardson’s departure will have an adverse impact on the
      Company’s operations, there is no guarantee that prior to the hiring of a new
      CFO, the Company’s internal accounting control will not be adversely affected.
      If, in the future, management identifies one or more material weaknesses, and/or
      our external auditors are unable to attest that our management’s report is
      fairly stated or to express an opinion on the effectiveness of our internal
      controls, this could result in a loss of investor confidence in our financial
      reports, have an adverse effect on our stock price and/or subject us to
      sanctions or investigation by regulatory authorities.





***We
      may not be able to hire and retain qualified personnel to support our growth
      and
      if we are unable to retain or hire such personnel in the future, our ability
      to
      improve our products and implement our business objectives could be adversely
      affected.***




If
      one or
      more of our senior executives or other key personnel are unable or unwilling
      to
      continue in their present positions, we may not be able to replace them easily
      or at all, and our business may be disrupted and our financial condition and
      results of operations may be materially and adversely affected. Competition
      for
      senior management and senior technology personnel is intense, the pool of
      qualified candidates is very limited, and we may not be able to retain the
      services of our senior executives or senior technology personnel, or attract
      and
      retain high-quality senior executives or senior technology personnel in the
      future. On September 5, 2008, Bruce Richardson resigned from his positions
      as
      the Chief Financial Officer and Secretary of the company to pursue other
      interests. The Company accepted Mr. Richardson’s resignation. Mr. Richardson’s
      duties will be assumed by Ms. Qiu Jianping and several managers pending the
      hiring of a replacement. Although the Company does not believe that Mr.
      Richardson’s departure will have an adverse impact on the Company’s operations,
      there is no guarantee that prior to the hiring of a new CFO, the Company’s
      internal accounting control will not be adversely affected. Although the Company
      has been aggressively seeking replacement of the CFO through international
      recruiting firms and is currently interviewing candidates, there is no guarantee
      that the Company will be able to hire a qualified new CFO in the near future.
      Any failure for us to attract or retain high-quality senior executives or senior
      technology personnel could materially and adversely affect our future growth
      and
      financial condition.


43




***Ambiguities
      in the merger and acquisition regulations implemented on September 8, 2006
      relating to acquisitions of assets and equity interests of Chinese companies
      by
      foreign persons may present risks in our compliance status under the
      regulations.***





On
      September 8, 2006, the Ministry of Commerce (“MOFCOM”), together with several
      other government agencies, promulgated a comprehensive set of regulations
      governing the approval process by which a Chinese company may participate in
      an
      acquisition of its assets or its equity interests and by which a Chinese company
      may obtain public trading of its securities on a securities exchange outside
      the
      PRC. Although there was a complex series of regulations in place prior to
      September 8, 2006 for approval of Chinese enterprises that were administered
      by
      a combination of provincial and centralized agencies, the new regulations have
      largely centralized and expanded the approval process to the MOFCOM, the State
      Administration of Industry and Commerce, the SAFE or its branch offices, the
      State Asset Supervision and Administration Commission, and the China Securities
      Regulatory Commission. Depending on the structure of the transaction as
      determined once a definitive agreement is executed, these regulations will
      require the Chinese parties to make a series of applications and supplemental
      applications to the aforementioned agencies. The merger and acquisition
      regulations set forth many specific requirements that have to be followed,
      but
      there are still many ambiguities in the meaning of many material provisions.





The
      restructuring transactions that were completed between Dalian Innomind and
      Dalian Rino in October 2007, in which Dalian Innomind acquired control over
      Dalian Rino’s business and operation through various agreements (collectively,
      the “Restructuring Agreement”) are structured in a manner such that consummation
      of such transactions would not bring these transactions within the regulatory
      scope of the September 8, 2006 regulations. However, due to the ambiguities
      in
      the meaning of many provisions, until there has been clarification either by
      pronouncements, regulation or practice, there is some uncertainty in the scope
      of the regulations. Moreover, the ambiguities give the regulators wide latitude
      in the enforcement of the regulations and the transactions to which they may
      or
      may not apply. Therefore, it is not inconceivable that future issuance of new
      regulations and pronouncement for the purposes of clarifying the application
      of
      September 30, 2006 regulations may retroactively make it apparent that the
      consummation of the transactions contemplated under the Restructuring Agreements
      are subject to September 8, 2006 regulations and failure to obtain approval
      required under the September 8, 2006 regulations may cause the PRC government
      to
      take actions that adversely affect the Restructuring Agreements including
      requiring us to unwind the Restructuring Agreements. If this occurs, and if
      we
      do not mitigate the adverse effect to the investors’ reasonable satisfaction
      within 60 days of such PRC government actions, then we are required, within
      30
      days from the date of a written demand from the investor, to pay liquidated
      damages in an amount equal to the initial investment without interest and the
      shareholder must return the shares acquired under the agreement. If we are
      obligated to pay liquidated damages of the entire investment amount, we would
      be
      forced to raise more capital or incur additional debt to satisfy such
      obligations and our liquidity will be materially and adversely affected. If
      we
      do not have sufficient liquidity to satisfy our short working capital
      requirements and long-term capital expenditure requirements, our operating
      results would be materially adversely affected which will likely adversely
      affect the value of our common stock.


44





However,
      according to the legal opinion issued by the Company’s PRC counsel, the
      Restructuring Agreements and the organizational structure resulted thereunder
      are legal and enforceable under current PRC law and that changes to current
      law
      would need to be enacted in order for the PRC government or any of its entities
      to challenge the structure of the Company. Therefore, the Company believes
      that
      the chances of the restructuring structure being successfully challenged are
      remote.





***The
      5,464,357 shares issued in the October 5, 2007 private placement may be
      redeemable under the Securities Purchase Agreement***





The
      Securities Purchase Agreement that the Company entered into in October 2007
      pursuant to which the Company raised a gross proceeds of $24,480,319 (or
      $21,251,000 in net proceeds) from the sale of 5,464,357 shares of our common
      stock contained a transferable provision. Such provision provides that if any
      governmental agency in the PRC takes action that adversely affects the
      Restructuring Agreements or the Share Exchange Agreement that the Company
      entered into in September 2007, pursuant to which the Company acquired Innomind
      and its subsidiary Dalian Innomind, and the company doesn’t mitigate the adverse
      effect to the investors’ reasonable satisfaction within 60 days of the PRC
      action, then the company is required to pay liquidated damages in an amount
      equal to the initial investment without interest and the shareholder must return
      the shares acquired under the agreement. Consequently, the total amount of
      the
      gross proceeds has been excluded from permanent equity and recorded as
      redeemable common stock in accordance with Rule 5-02.28 of Regulation S-X and
      Section 211 of the Codification of Financial Reporting Policies. Although there
      is no fixed redemption requirement in any of the next five years, the entire
      amount of $24,480,319 could become redeemable in any of the next five years,
      in
      which case we would be forced to raise more capital or incur additional debt
      to
      satisfy the redemption obligations and our liquidity will be materially and
      adversely affected. If we do not have sufficient liquidity to satisfy our
      short-term working capital requirements and long-term capital expenditure
      requirements, our operating results would be materially and adversely
      affected which will likely adversely affect the value of our common
      stock.


45





***Instability
      and volatility in the financial markets could have a negative impact on the
      Company’s business, financial condition, results of operations and cash
      flows.***





During
      recent months, there has been substantial volatility and a decline
      in financial markets due at least in part to the deteriorating global
      economic environment. In addition, there has been substantial uncertainty in
      the
      capital markets and access to financing is uncertain. Moreover, customer
      spending habits may be adversely affected by the current economic crisis. 
These conditions could have an adverse effect on the Company’s industry and
      business, including the Company’s financial condition, results of operations and
      cash flows.





To
      the
      extent that the Company does not generate sufficient cash from operations,
      it
      may need to incur indebtedness to finance plans for growth. Recent turmoil
      in
      the credit markets and the potential impact on the liquidity of major financial
      institutions may have an adverse effect on the Company’s ability to fund its
      business strategy through borrowings, under either existing or newly created
      instruments in the public or private markets on terms that the Company believes
      to be reasonable, if at all.





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





*Issuance
      of Common Stock in Acquisition of Innomind*





In
      a
      share exchange transaction that was signed on October 3, 2007 and closed on
      October 5, 2007 (the “Share Exchange”), the Company acquired Innomind, and
      through that acquisition also acquired Innomind’s wholly-owned subsidiary,
      Dalian Innomind, as well as some of the assets and the business of Dalian
      Innomind’s PRC affiliate, RINO. In the Share Exchange the Company issued
      17,899,643 shares of our common stock (the “Control Shares”) to Zhang Ze,
      Innomind’s sole shareholder, in exchange for 10 shares of capital stock of
      Innomind, which represented all of the issued and outstanding shares of
      Innomind, which were owned by Zhang Ze. At the completion of that share
      exchange, Innomind became the Company’s wholly owned subsidiary. The Share
      Exchange was accomplished in reliance upon Section 4(2) of the Securities Act.
      Immediately after this Share Exchange, Zhang Ze placed the Jade Mountain shares
      he received in exchange for all his shares in Innomind into a Trust. The sole
      beneficiaries of this Trust are Zou Dejun and Qiu Jianping, the founders of
      Dalian Rino.




*Issuance
      of Common Stock in Private Placement*





On
      August
      16, 2007, the Company issued 125 (12,500 post-forward split) common shares
      in a
      private placement for cash of $5,532. The Company relied on the exemption from
      registration provided under Section 4(2) of the Securities Act.


46





On
      October 5, 2007, in a private placement through Douglas Financial, LLC, an
      NASD
      and SEC registered broker-dealer (“Douglas Financial”), we sold 5,464,357 shares
      of our common stock for $24,480,319 gross proceeds (or $21,250,109 net proceeds
      after deducting the offering expenses) under a Securities Purchase Agreement
      by
      and among the Company and a group of accredited investors (as defined under
      Rule
      501(a) of Regulation D promulgated under the Securities Act) named therein
      dated
      as of September 27, 2007 (the “Securities Purchase Agreement”). In the private
      placement we sold the common stock and issued warrants in reliance upon the
      exemption from registration provided by Rule 506 of Regulation D promulgated
      under the Securities Act of 1933 and Section 4(2) of the Securities
      Act.





Under
      the
      Securities Purchase Agreement, we are required to register for resale each
      share
      of common stock sold therein as well as the shares of common stock underlying
      the above, placement agent warrants.





In
      connection with the private placement, 250,000 shares of common stock were
      issued to Chief Capital, Ltd., for advisory services. We relied on the exemption
      from registration provided by Regulation S of the Securities Act for such
      issuance.





In
      connection with the private placement and pursuant to the Engagement Agreement
      Providing for Investment Banking Services, dated January 19, 2007 by and between
      RINO and Douglas Financial, Douglas Financial, as placement agent, received
      the
      following compensation: (i) $80,000 cash as an engagement and documentation
      fee;
      (ii) $1,750,000 as a placement commission; (iii) 875,000 shares of our Common
      Stock, and (iv) warrants to purchase 382,500 shares of Common Stock at an
      exercise price of $5.376 per share, exercisable within 6 years of the date
      of
      issue. The exercise price of the warrant is subject to adjustments under certain
      circumstances and the warrants permit cashless exercise by the holders. We
      relied on the exemption from registration provided by Section 4(2) of the
      Securities Act for the issuance of common stock and warrants to Douglas
      Financials.




*Issuance
      of Common Stock to Former Majority Shareholder*





On
      August
      8, 2007, the Company issued 2,950 (295,000 post-forward split) common shares
      to
      Glenn A. Little for cash of $14,750. The Company relied on the exemption from
      registration provided under Section 4(2) of the Securities Act.




On
      September 11, 2007, the Company issued 928 pre- Forward Split shares (or 92,800
      shares post-Forward Split) of its common stock to Glenn A. Little (the “Little
      Shares”) for an aggregate of $4,168. At that time and immediately prior to the
      consummation of the Share Exchange, Mr. Little was the Company’s majority
      shareholder and its sole director and executive officer. The Company relied
      on
      the exemption from registration provided under Section 4(2) of the Securities
      Act.


47


*Issuance
      of Common Stock to Former Chief Financial Officer of RINO*





At
      the
      Closing of the Share Exchange and the private placement, the Company issued
      20,000 shares of common stock to Eric Gan (“Gan”), RINO’s former chief financial
      officer, in full satisfaction of RINO’s obligations to Gan under a Compensation
      Agreement dated July 30, 2007. The Company relied on the exemption from
      registration provided under Section 4(2) of the Securities Act.





**Item
      6. Exhibits**





(a)
            Exhibits




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.





48




**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.





**RINO
                INTERNATIONAL CORPORATION**Date:
                November 11, 2008
            BY:
            /s/
                Zou DejunZou
                DejunChief
                Executive Officer


49





INDEX
      TO
      EXHIBITS




EXHIBIT
              NUMBER
            
            DESCRIPTION31.1
            
            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.


50