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 March 31,
  2009.




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
      DistrictDalian, 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  ̈.





Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and post such files).Yes  ̈ No  ̈





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 oNon-accelerated filer o     Smaller
reporting company x





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





The
number of shares of Common Stock of the Registrant, par value $.0001 per share,
outstanding on May 12, 2009, was 25,040,000.







RINO
INTERNATIONAL CORPORATION





INDEX
TO MARCH 31, 2009 FORM 10-Q




Part I - Financial
    InformationItem 1 - Financial
    Statements
                                
                                2Consolidated
      Balance Sheets as of March 31, 2009 (unaudited) and December 31,
      2008
                                
                                2Consolidated
      Statements of Income and Other Comprehensive Income for the three-month
      periods ended March 31, 2009 and 2008 (unaudited)
                                
                                3Consolidated
      Statements of Shareholders’ Equity (unaudited)
                                
                                4Consolidated
      Statements of Cash Flows for the three months ended March 31, 2009 and
      2008 (unaudited)
                                
                                5Notes
      to the Consolidated Financial Statements (unaudited)
                                
                                6Item
      2 - Management's Discussion and Analysis of Results of Operations and
      Financial Condition
                                
                                30Item
      4 - Controls and Procedures
                                
                                39Part
      II - Other InformationItem
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
                                
                                40Item 6 - Exhibits
                                
                                42Signature Page
                                
                                43


1




PART
I - FINANCIAL INFORMATION





Item
1. Financial Statements


RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
BALANCE SHEETS
 AS OF
MARCH 31, 2009 AND DECEMBER 31, 2008
 
 March 31, 2009
                      
                      
                      December 31, 2008(Unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                      
                      $
                      47,912,447
                      
                      
                      $
                      19,741,982Restricted
      cash
                      
                      
                      -
                      
                      
                      
                      1,030,317Notes
      receivable
                      
                      
                      2,480,702
                      
                      
                      
                      2,157,957Accounts
      receivable
                      
                      
                      39,078,198
                      
                      
                      
                      51,503,245Inventories
                      
                      
                      1,316,187
                      
                      
                      
                      1,203,448Advances
      for inventory purchase
                      
                      
                      25,262,652
                      
                      
                      
                      21,981,669Other
      current assets and prepaid expenses
                      
                      
                      820,798
                      
                      
                      
                      517,847Total
      current assets
                      
                      
                      116,870,984
                      
                      
                      
                      98,136,465PROPERTY,
      PLANT AND EQUIPMENT, NET
                      
                      
                      12,943,598
                      
                      
                      
                      13,197,119OTHER
      ASSETSPrepaid
      expenses (non-current)
                      
                      
                      76,912
                      
                      
                      
                      73,350Advances
      for equipment and construction material purchase
                      
                      
                      5,279,698
                      
                      
                      
                      5,550,966Prepayment
      for land use right
                      
                      
                      457,667
                      
                      
                      
                      458,292Intangible
      assets, net
                      
                      
                      1,193,276
                      
                      
                      
                      1,211,608Total
      other assets
                      
                      
                      7,007,553
                      
                      
                      
                      7,294,216Total
      assets
                      
                      $
                      136,822,135
                      
                      
                      $
                      118,627,800LIABILITIES AND SHAREHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                      
                      $
                      3,238,443
                      
                      
                      $
                      5,816,714Short-term
      loan
                      
                      
                      8,790,000
                      
                      
                      
                      8,802,000Customer
      deposits
                      
                      
                      9,876,884
                      
                      
                      
                      3,609,407Liquidated
      damages payable
                      
                      
                      2,598,289
                      
                      
                      
                      2,598,289Other
      payables and accrued liabilities
                      
                      
                      407,581
                      
                      
                      
                      746,267Due
      to shareholder
                      
                      
                      214,588
                      
                      
                      
                      596,023Taxes
      payable
                      
                      
                      7,971,091
                      
                      
                      
                      5,062,901Total
      current liabilities
                      
                      
                      33,096,876
                      
                      
                      
                      27,231,601Warrant
      liabilities
                      
                      
                      1,455,160
                      
                      
                      
                      -REDEEMABLE
      COMMON STOCK ($0.0001 par value, 5,464,357 shares issued with conditions
      for redemption outside the control of the company)
                      
                      
                      24,480,319
                      
                      
                      
                      24,480,319COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      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, 25,040,000 shares issued and outstanding as of March 31,
      2009 and December 31, 2008)
                      
                      
                      2,504
                      
                      
                      
                      2,504Additional
      paid-in capital
                      
                      
                      24,870,680
                      
                      
                      
                      25,924,007Retained
      earnings
                      
                      
                      39,350,188
                      
                      
                      
                      28,570,948Statutory
      reserves
                      
                      
                      7,472,085
                      
                      
                      
                      6,196,478Accumulated
      other comprehensive income
                      
                      
                      6,094,323
                      
                      
                      
                      6,221,943Total
      shareholders' equity
                      
                      
                      77,789,780
                      
                      
                      
                      66,915,880Total
      liabilities and shareholders' equity
                      
                      $
                      136,822,135
                      
                      
                      $
                      118,627,800
    2
 
 RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR THE
THREE MONTHS ENDED MARCH 31, 2009 AND 2008
 (UNAUDITED)
 
 2009
                  
                  
                  2008REVENUES:Contracts
                  
                  $
                  35,366,136
                  
                  
                  $
                  16,297,745Services
                  
                  
                  241,983
                  
                  
                  
                  2,747,68035,608,119
                  
                  
                  
                  19,045,425COST
      OF SALESContracts
                  
                  
                  19,125,496
                  
                  
                  
                  10,262,689Services
                  
                  
                  323,918
                  
                  
                  
                  902,394Depreciation
                  
                  
                  208,067
                  
                  
                  
                  157,77519,657,481
                  
                  
                  
                  11,322,858GROSS
      PROFIT
                  
                  
                  15,950,638
                  
                  
                  
                  7,722,567OPERATING
      EXPENSESSelling,
      general and administrative expenses
                  
                  
                  3,370,724
                  
                  
                  
                  2,694,010Research
      and development
                  
                  
                  -
                  
                  
                  
                  10,483TOTAL
      OPERATING EXPENSES
                  
                  
                  3,370,724
                  
                  
                  
                  2,704,493INCOME
      FROM OPERATIONS
                  
                  
                  12,579,914
                  
                  
                  
                  5,018,074OTHER
      INCOME (EXPENSE), NETOther
      (expense) income, net
                  
                  
                  (9,650
                  )
                  
                  
                  59,050Interest
      expense, net
                  
                  
                  (118,959
                  )
                  
                  
                  (56,778
                  )Change
      in fair value of warrants
                  
                  
                  23,611
                  
                  
                  
                  -TOTAL
      OTHER INCOME (EXPENSE), NET
                  
                  
                  (104,998
                  )
                  
                  
                  2,272INCOME
      BEFORE PROVISION FOR INCOME TAXES
                  
                  
                  12,474,916
                  
                  
                  
                  5,020,346PROVISION
      FOR INCOME TAXES
                  
                  
                  -
                  
                  
                  
                  -NET
      INCOME
                  
                  
                  12,474,916
                  
                  
                  
                  5,020,346OTHER
      COMPREHENSIVE (LOSS) INCOME:Foreign
      currency translation adjustment
                  
                  
                  (127,620
                  )
                  
                  
                  2,262,905COMPREHENSIVE
      INCOME
                  
                  $
                  12,347,296
                  
                  
                  $
                  7,283,251WEIGHTED
      AVERAGE NUMBER OF SHARES:Basic
                  
                  
                  25,040,000
                  
                  
                  
                  25,000,000Diluted
                  
                  
                  25,040,000
                  
                  
                  
                  25,161,062EARNINGS
      PER SHARE:Basic
                  
                  $
                  0.50
                  
                  
                  $
                  0.20Diluted
                  
                  $
                  0.50
                  
                  
                  $
                  0.20
  The
accompanying notes are an integral part of these consolidated
statements.
  3
  
 RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
  Common StockPar Value $0.0001
                      
                      
                      Additional
                      
                      
                      Retained Earnings
                      
                      
                      Accumulated otherNumber
                      
                      
                      Common
                      
                      
                      Paid-in
                      
                      
                      Unrestricted
                      
                      
                      Statutory
                      
                      
                      comprehensiveof shares
                      
                      
                      stock
                      
                      
                      capital
                      
                      
                      earnings
                      
                      
                      reserve
                      
                      
                      income
                      
                      
                      TotalsBALANCE,
      December 31, 2007
                      
                      
                      25,000,000
                      
                      
                      $
                      2,500
                      
                      
                      $
                      8,221,663
                      
                      
                      $
                      11,376,163
                      
                      
                      $
                      2,109,539
                      
                      
                      $
                      1,987,272
                      
                      
                      $
                      23,697,137Stock
      compensation expenese-options issued
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      38,204
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      38,204Imputed
      interest on advances from a shareholder
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,862
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,862Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      5,020,346
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      5,020,346Allocation
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (555,246
                      )
                      
                      
                      555,246
                      
                      
                      
                      
                      
                      
                      
                      -Foreign
      currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,262,905
                      
                      
                      
                      2,262,905BALANCE,
      March 31, 2008 (Unaudited)
                      
                      
                      25,000,000
                      
                      
                      $
                      2,500
                      
                      
                      $
                      8,261,729
                      
                      
                      $
                      15,841,263
                      
                      
                      $
                      2,664,785
                      
                      
                      $
                      4,250,177
                      
                      
                      $
                      31,020,454Stock
      compensation expense-shares placed in escrow
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      17,460,676
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      17,460,676Imputed
      interest on advances from a shareholder
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      22,406
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      22,406Shares
      issued for services
                      
                      
                      40,000
                      
                      
                      
                      4
                      
                      
                      
                      179,196
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      179,200Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      16,261,378
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      16,261,378Allocation
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,531,693
                      )
                      
                      
                      3,531,693
                      
                      
                      
                      
                      
                      
                      
                      -Foreign
      currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,971,766
                      
                      
                      
                      1,971,766BALANCE,
      December 31, 2008
                      
                      
                      25,040,000
                      
                      
                      $
                      2,504
                      
                      
                      $
                      25,924,007
                      
                      
                      $
                      28,570,948
                      
                      
                      $
                      6,196,478
                      
                      
                      $
                      6,221,943
                      
                      
                      $
                      66,915,880Cumulative
      effect of reclassification of warrants
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,058,702
                      )
                      
                      
                      (420,069
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,478,771
                      )BALANCE,
      January 1, 2009, as adjusted
                      
                      
                      25,040,000
                      
                      
                      
                      2,504
                      
                      
                      
                      24,865,305
                      
                      
                      
                      28,150,879
                      
                      
                      
                      6,196,478
                      
                      
                      
                      6,221,943
                      
                      
                      
                      65,437,109Imputed
      interest on advances from a shareholder
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      5,375
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      5,375Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      12,474,916
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      12,474,916Allocation
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,275,607
                      )
                      
                      
                      1,275,607
                      
                      
                      
                      
                      
                      
                      
                      -Foreign
      currency translation loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (127,620
                      )
                      
                      
                      (127,620
                      )BALANCE,
      March 31, 2009 (Unaudited)
                      
                      
                      25,040,000
                      
                      
                      $
                      2,504
                      
                      
                      $
                      24,870,680
                      
                      
                      $
                      39,350,188
                      
                      
                      $
                      7,472,085
                      
                      
                      $
                      6,094,323
                      
                      
                      $
                      77,789,780
    4
 
 RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
THREE MONTHS ENDED MARCH 31, 2009 AND 2008
 (UNAUDITED)
 
 2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                  
                  $
                  12,474,916
                  
                  
                  $
                  5,020,346Adjustments
      to reconcile net income to cash used in operating
    activities:Depreciation
                  
                  
                  256,334
                  
                  
                  
                  190,379Amortization
                  
                  
                  16,682
                  
                  
                  
                  15,914Imputed
      interest
                  
                  
                  5,375
                  
                  
                  
                  1,862Amortization
      of long term prepaid expense
                  
                  
                  3,663
                  
                  
                  
                  10,483Liquidated
      damage expense
                  
                  
                  -
                  
                  
                  
                  500,000Change
      in fair value of warrants
                  
                  
                  (23,611
                  )
                  
                  
                  -Changes
      in operating assets and liabilitiesNotes
      receivable
                  
                  
                  (325,709
                  )
                  
                  
                  (724,697
                  )Accounts
      receivable
                  
                  
                  12,355,675
                  
                  
                  
                  (3,430,834
                  )Contract
      in progress
                  
                  
                  -
                  
                  
                  
                  1,853,886Inventories
                  
                  
                  (114,388
                  )
                  
                  
                  (56,679
                  )Advances
      for inventory purchase
                  
                  
                  (3,311,177
                  )
                  
                  
                  (2,079,379
                  )Other
      current assets and prepaid expenses
                  
                  
                  (47,284
                  )
                  
                  
                  550,260Accounts
      payable
                  
                  
                  (2,570,517
                  )
                  
                  
                  (476,669
                  )Customer
      deposits
                  
                  
                  6,272,826
                  
                  
                  
                  -Other
      payables and accrued liabilities
                  
                  
                  (337,742
                  )
                  
                  
                  (5,329
                  )Sales
      commission payable
                  
                  
                  -
                  
                  
                  
                  769,871Tax
      payable
                  
                  
                  2,915,291
                  
                  
                  
                  (5,726,659
                  )Net
      cash provided by (used in) operating activities
                  
                  
                  27,570,334
                  
                  
                  
                  (3,587,245
                  )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of equipment
                  
                  
                  (20,789
                  )
                  
                  
                  (128,377
                  )Advances
      for construction material and equipment purchase
                  
                  
                  -
                  
                  
                  
                  (2,252,156
                  )Net
      cash used in investing activities
                  
                  
                  (20,789
                  )
                  
                  
                  (2,380,533
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESPayment
      on due to shareholder
                  
                  
                  (380,650
                  )
                  
                  
                  (31,231
                  )Change
      in restricted cash
                  
                  
                  1,030,317
                  
                  
                  
                  (4,906,720
                  )Increase
      of notes payable
                  
                  
                  -
                  
                  
                  
                  2,341,296Proceeds
      from short-term loan
                  
                  
                  -
                  
                  
                  
                  6,988,500Net
      cash provided by financing activities
                  
                  
                  649,667
                  
                  
                  
                  4,391,845EFFECT
      OF EXCHANGE RATE ON CASH
                  
                  
                  (28,747
                  )
                  
                  
                  332,648INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  28,170,465
                  
                  
                  
                  (1,243,285
                  )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                  
                  
                  19,741,982
                  
                  
                  
                  7,390,631CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                  
                  $
                  47,912,447
                  
                  
                  $
                  6,147,346SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the period for:Interest
                  
                  $
                  111,509
                  
                  
                  $
                  76,856Income
      taxes
                  
                  $
                  203,016
                  
                  
                  $
                  4,896,545
    5


RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (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. The
Company, through its 100% owned subsidiaries and variable interest entities,
engages in design, development, manufacture and installation of industrial
equipment used mainly for environmental protection purposes in the People’s
Republic of China (PRC).
 
 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 PRC as a wholly owned foreign limited
liability company on July 9, 2007. Dalian Innomind through its variable interest
entity (VIE), Dalian Rino Environment Engineering Science And Technology Co.,
Ltd. (“Dalian Rino”) mainly engages in design, development, manufacture and
installation of industrial equipment used mainly for environmental protection
purposes in the PRC.
 
 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 Environmental
Engineering Project Design Co., Ltd. (“Dalian Rino Design”) as a wholly owned
limited liability company.  On October 14, 2008, Dalian Rino formed
Dalian Rino Environmental Construction & Installation Project Co., Ltd.
(“Dalian Rino Installation”) as a wholly owned limited liability
company.  The business activities of Dalian Rino Design and Dalian
Rino Installation focus primarily on research and development, technical design
and installation aspects of the business.
 
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
Presentation
 
 The
accompanying consolidated financial statements of RINO International Corporation
reflect the activities of the following subsidiaries and variable interest
entities (“VIE”):
 
 Place
                              incorporated
                            
                            Ownership
                              percentageInnomind Group
      Limited
                            
                            BVI
                            
                            100%Dalian
      Innomind Environment Engineering Co., Ltd.
                            
                            Dalian,
      China
                            
                            100%Dalian
      Rino Environment Engineering Science and Technology Co.,
    Ltd.
                            
                            Dalian,
      China
                            
                            VIEDalian
      Rino Environmental Engineering Project Design Co., Ltd.
                            
                            Dalian,
      China
                            
                            VIEDalian
      Rino Environmental Construction & Installation Project Co.,
      Ltd.
                            
                            Dalian,
      China
                            
                            VIE
  6
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
 
 Financial
Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) 46 (revised
December 2003), “Consolidation of Variable Interest Entities, and Interpretation
of ARB No. 51” (“FIN 46R”), addresses whether certain types of entities referred
to as variable interest entities (“VIEs”), should be consolidated in a company’s
consolidated financial statements.  In accordance with the provisions
of FIN 46R, the Company has determined that Dalian Rino, Dalian Rino Design and
Dalian Rino Construction are VIE’s and that the Company is the primary
beneficiary, and accordingly, the financial statements of Dalian Rino, Dalian
Rino Design and Dalian Rino Construction are consolidated into the financial
statements of the Company.
 
 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. All intercompany transactions and balances have
been eliminated in the consolidation.
 
 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 2008 annual report filed on
Form 10-K.
 
 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
 
 The
Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents, for cash
flow statement purposes.  Cash includes cash on hand and demand
deposits in accounts maintained with state owned banks within the PRC and the
United States.
 
 The
Company maintains balances at financial institutions which, from time to time,
may exceed Federal Deposit Insurance Corporation insured limits for the banks
located in the PRC and Hong Kong. Balances at financial institutions or state
owned banks within the PRC and Hong Kong are not insured. As of March 31, 2009
and December 31, 2008, the Company’s cash balances, totaling $46,878,996 and
$19,744,139, respectively at those dates, were not covered by insurance. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant risks on its cash in bank accounts.
  7
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
 
 
 The cash
held in escrow pursuant to the Board Escrow Holdback as described in Note 19 is
accounted for as other current assets and is not 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 and the Escrow
Agreement.
 
 Restricted
Cash
 
 The
Company records cash deposits in banks or other institutions subject to
restrictions on the withdrawal or use of the fund as restricted
cash.
 
 Accounts
Receivable
 
 Accounts
receivable represents amounts due from customers for contract sales and
services. The Company grants credit to customers without collateral. Accounts
receivable balances are considered past due if payment has not been received
within the payment terms established on the sales contracts or granted by the
Company, typically up to one year. 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. An estimate for doubtful accounts is made when
collection of the full amount is no longer probable. When the Company has
exhausted all collection efforts, the receivable and any specific allowance is
written off.  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 March 31, 2009 and December 31, 2008.
 
 Inventories
 
 Inventory
consists of raw materials and low cost consumption supplies used in the
manufacturing process and work in process. Inventory is valued at the lower of
cost or market value using weighted average cost method. Management reviews its
inventories periodically to determine if any reserves are necessary for
potential obsolescence or if a write down is necessary because the carrying
value exceeds net realizable value. There are no provisions for obsolete or
slow moving inventories as of March 31, 2009 and December 31,
2008.
 
 Property, Plant and
Equipment
 
 Property
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.
  8
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
 
 Construction
in progress represents direct costs of construction as well as acquisition and
design fees and interest expense incurred. Interest incurred during construction
is capitalized into construction in progress. All other interest is expensed as
incurred. Capitalization of these costs ceases and the construction in
progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are completed.
No depreciation is provided until construction is completed and the asset is
ready for its intended use. Maintenance, repairs and minor renewals are charged
directly to expense as incurred. Major additions and betterments to buildings
and equipment are capitalized.
 
 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
 
 The
Company evaluates the carrying value of long-lived assets in accordance with FAS
144 “Accounting for Impairment or Disposal of Long Lived Assets.” When estimated
cash flows generated by those assets are less than the carrying amounts of the
asset, the Company recognizes an impairment loss. Based on its review, the
Company believes as of March 31, 2009, there were no impairments of its
long-lived assets.
 
 Intangible
Assets
 
 Intangible
assets consist of land use rights and patents. 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. Patent A and patent B
are stated at cost, less accumulated amortization and are amortized over patent
terms of 15 and 10 years, respectively.
 
 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 March
31, 2009, the Company expected these assets to be fully
recoverable.
 
 Fair Value of Financial
Instruments
 
 FAS 107,
“Disclosure About Fair Value of Financial Instruments” defines financial
instruments and requires fair value disclosure of applicable financial
instruments.  FAS 157 “Fair Value Measurements”, adopted on January 1,
2008, defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosure requirements for
fair value measures. The carrying amounts reported in the balance sheets for
receivables and payables qualify as financial instruments.  Management
concluded the carrying values 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, if applicable, their stated interest rate approximates
current rates available.  The three levels are defined as
follows:
  9
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
 s
              Level 1inputs to the valuation methodology are quoted prices (unadjusted)
      for identical assets or liabilities in active
  markets.
 
 s
              Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.
 
 s
              Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.
 
 The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”
 
 Effective
January 1, 2009, the Company adopted the provisions of EITF 07-5,
"Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock”, which is effective for financial statements for fiscal
years beginning after December 15, 2008 and which replaced the previous guidance
on this topic in EITF 01-6.  Paragraph 11(a) of 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 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.
 
 As a
result of adopting EITF 07-5, 382,500 warrants previously treated as equity
pursuant to the derivative treatment exemption are no longer afforded equity
treatment because the strike price of the warrants is denominated in US dollars,
a currency other than the Company’s functional currency, the Chinese
Renminbi.  As a result, the warrants are not considered indexed to the
Company’s own stock, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings until such time as the
warrants are exercised or expire.
  10
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
 As such,
effective January 1, 2009, the Company reclassified the fair value of these
warrants from equity to liability, as if these warrants were treated as a
derivative liability since their issuance in October 2007. On January 1,
2009, the Company reclassified from additional paid-in capital, as a cumulative
effect adjustment, $420,069 to beginning retained earnings and $1,058,702
to warrant liabilities to recognize the fair value of such warrants. The fair
value of the warrants was $1,455,160 on March 31, 2009.  Therefore,
the Company recognized a $23,611 gain from the change in fair value of
derivative liability for the three months ended March 31,
2009.
 
 These
common stock purchase warrants do not trade in an active securities market, and
as such, the Company estimates the fair value of these warrants using the
Black-Scholes option pricing model using the following assumptions:
 
 March 31, 2009
                  
                  
                  January 1, 2009(Unaudited)Annual
      dividend yield
                  
                  
                  -
                  
                  
                  
                  -Expected
      life (years)
                  
                  
                  4.52
                  
                  
                  
                  4.76Risk-free
      interest rate
                  
                  
                  1.59
                  %
                  
                  
                  1.48
                  %Expected
      volatility
                  
                  
                  137.95
                  %
                  
                  
                  138.91
                  %
 
 In light
of the Company’s thin stock trading history, expected volatility is based on
historical stock pricing data (adjusting for stock splits and dividends) of
seven publicly traded peer companies and the Company’s own data.  The
Company-specific volatility is computed annually by taking the base-10 logarithm
of each daily stock closing price divided by the previous stock closing price
(adjusted for stock splits and dividends).  The logarithm smoothes the
daily results so that percentage differences are computed and
tailed.  Each annual volatility calculation is weighted along with the
other (non-excluded) annual volatility result to produce the average historical
volatility for the selected period.    The Company believes
this method produces an estimate that is representative of the
Company’s expectations of future volatility over the expected term of these
warrants. The Company have no reason to believe future volatility over the
expected remaining life of these warrants is likely to differ materially from
historical volatility. The expected life is based on the remaining term of the
warrants. The risk-free interest rate is based on U.S. Treasury securities
according to the remaining term of the warrants.
 
 The
following table sets forth by level within the fair value hierarchy the
Company’s financial assets and liabilities that were accounted for at fair value
on a recurring basis as of March 31, 2009.
 
 Carrying Value at
                    March 31, 2009
                  
                  
                  Fair Value Measurement at
                    March 31, 2009Level
      1
                  
                  
                  Level
      2
                  
                  
                  Level
      3Warrant
      liability
                  
                  $
                  1,455,160
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  1,455,160
  11
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  The
Company did not identify any other assets and liabilities that are required to
be presented on the balance sheet at fair value in accordance with SFAS
157.
  Derivative
liability
 
 EITF
00-19 “Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in, a Company’s Own Stock”, provides a criteria for
determining whether freestanding contracts that are settled in a company’s own
stock, including common stock warrants, should be designated as either an equity
instrument, an asset or as a liability under SFAS 133. Under the provisions
of EITF 00-19, a contract designated as an asset or a liability must be carried
at fair value on a company’s balance sheet, with any changes in fair value
recorded in a company’s results of operations.  Using the criteria in
EITF 00-19, the Company determines which options, warrants and embedded features
require liability accounting and records the fair values as a derivative
liability. The changes in the values of these instruments is shown in the
accompanying consolidated statements of income and other comprehensive income as
“change in fair value of derivative instrument.”
 
 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 relative
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 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.
  12
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (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 approved grants to the Company to encourage
high-technology industry research and development. The grants are netted with
the research and development expenses upon 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 costs incurred for shipping of finished products to
customers are included in selling expenses. Shipping and handling expenses
included in selling expense for the three months ended March 31, 2009 and 2008,
amounted to $132,283 and $104,275, 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 123R
“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). Stock compensation for stock granted
to non-employees is determined in accordance with SFAS 123R and EITF 96-18,
"Accounting for Equity Instruments that are issued to Other than Employees for
Acquiring, or in Conjunction with Selling Goods or Services", as the fair value
of the consideration received or the fair value of equity instruments issued,
whichever is more reliably measured.
  13
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  Income
Taxes
 
 The
Company accounts for income taxes pursuant to SFAS 109, “Accounting for Income
Taxes” and FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes”
(“FIN 48”) Under SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to 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.
 
 Under FIN
48 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 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 following January 1, 2008or 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 industries. Entities in beneficial industries enjoy preferential tax
treatment for 5 years with a two-year period tax exempt period and thereafter, a
three-year tax reduction period with 50% reduction in the income tax
rates.
 
 Before
July 2007, Dalian Rino was qualified as a 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%. Starting January 1, 2008, under new EIT law, Dalian Rino is subject to the
new standard EIT rate of 25%.
  14
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  Dalian
Innomind is in the environmental protection industry, which is qualified for the
tax exemption for two years and a 50% reduction for the following three years.
As a result, Dalian Innomind enjoys a 100% tax exemption for the years 2008
through 2009 and a 50% income tax reduction for the years 2010 through
2012.
 
 Foreign Currency
Translation
 
 The
reporting currency of the Company is the US dollar. The functional currency is
the Chinese Renminbi (”RMB”). The Company’s PRC subsidiary and VIEs conduct
business in RMB, and maintain their accounting records in RMB. Innomind
maintains their accounting records in their local currency, Hong Kong
Dollars.
 
 The
financial statements of PRC subsidiary and VIEs are translated into US dollars
using period-end exchange rates ($0.14650 and $0.14670 at March
31, 2009 and December 31, 2008, respectively) as to assets and liabilities
and weighted average exchange rates for the periods ($0.14651 and $0.13977 for
the three months ended March 31, 2009 and 2008, respectively) as to income
and cash flow statement.  the equity accounts are translated at their
historical exchange rates.  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.
 
 In
accordance with SFAS 95, "Statement of Cash Flows," cash flows from the
Company's operations is calculated based upon the local currencies using the
average translation rate. As a result, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated balance
sheets.
 
 Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred. Gains and losses from foreign currency
transactions are included in the results of operations for the periods
presented. For the three months ended March 31, 2009 and 2008, no material
transaction gains and losses occurred.
  In
PRC, RMB is not freely convertible into foreign currency and all foreign
currency exchange transactions must take place through government authorized
financial institutions. No representation is made that RMB amounts could have
been, or could be, converted into USD at the rates used in
translation.
 Comprehensive
income
 
 SFAS 130,
“Reporting Comprehensive Income,” establishes standards for reporting and
display of comprehensive income and its components in financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in financial
statements that are displayed with the same prominence as other financial
statements. The accompanying consolidated financial statements include the
provisions of SFAS 130.
  15
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  Earnings Per
Share
 
 The
Company reports earnings per share in accordance with the provisions of SFAS
128, "Earnings Per Share." SFAS 128 requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common stockholders by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock using the treasury method.
 
 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 is engaged in designing, developing, manufacturing, and installing
environmental protection and energy saving equipment for the Chinese iron and
steel industry.
 
 Recently issued accounting
pronouncements
 
 In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities - An Amendment of SFAS No. 133”.  SFAS 161
seeks to improve financial reporting for derivative instruments and hedging
activities by requiring enhanced disclosures regarding the impact on financial
position, financial performance, and cash flows. To achieve this increased
transparency, SFAS 161 requires (1) the disclosure of the fair value of
derivative instruments and gains and losses in a tabular format; (2) the
disclosure of derivative features that are credit risk-related; and
(3) cross-referencing within the footnotes. SFAS 161 became effective on
January 1, 2009 and the adoption of SFAS 161 did not have any impacts to the
Company’s consolidated financial statements.
  16
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  In May
2008, the FASB issued SFAS 162, "The Hierarchy of Generally Accepted Accounting
Principles.” SFAS 162 is intended to improve financial reporting by identifying
a consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
U.S. GAAP for nongovernmental entities. SFAS 162 is effective 60 days following
the SEC's approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles." Adoption of this statement does not have impact
on the Company’s results of operations, financial position or cash
flows.
 
 In June
2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
Issue No. 98-5.” The objective of EITF 08-4 is to provide transition
guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,” that result from EITF 00-27 “Application of Issue No. 98-5
to Certain Convertible Instruments,” and SFAS 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.” This
Issue is effective for financial statements issued for fiscal years ending after
December 15, 2008. The adoption of EITF 08-4 did not have a material impact on
the Company’s financial position or results.
 
 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.
 
 In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets”. FSP EITF 99-20-1 changes the impairment model
included within EITF 99-20 to be more consistent with the impairment model of
FAS 115. FSP EITF 99-20-1 achieves this by amending the impairment model in
EITF 99-20 to remove its exclusive reliance on “market participant” estimates of
future cash flows used in determining fair value. Changing the cash flows used
to analyze other-than-temporary impairment from the “market participant”
view to a holder’s estimate of whether there has been a “probable” adverse
change in estimated cash flows allows companies to apply reasonable judgment in
assessing whether an other-than-temporary impairment has occurred. The adoption
of FSP EITF 99-20-1 did not have a material impact on the Company’s consolidated
financial statements because all investments in debt securities are classified
as trading securities.
 
 In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.” FSP FAS 157-4 amends SFAS 157
and provides additional guidance for estimating fair value in accordance with
SFAS 157 when the volume and level of activity for the asset or liability have
significantly decreased and also includes guidance on identifying circumstances
that indicate a transaction is not orderly for fair value measurements. This FSP
shall be applied prospectively with retrospective application not permitted.
This FSP shall be effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. An entity early adopting this FSP must also early adopt FSP
FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments.” Additionally, if an entity elects to early adopt either FSP FAS
107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial
Instruments” or FSP FAS 115-2 and FAS 124-2, it must also elect to early adopt
this FSP. The Company is currently evaluating this new FSP but does not believe
that it will have a significant impact on the determination or reporting of
financial results.
  17
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  On
April 1, 2009, the FASB approved FSP FAS 141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That
Arise from Contingencies, which amends Statement 141(R) and eliminates the
distinction between contractual and non-contractual contingencies. Under
FSP FAS 141(R), an acquirer is required to recognize at fair value an asset
acquired or liability assumed in a business combination that arises from a
contingency if the acquisition-date fair value of that asset or liability
can be determined during the measurement period. If the acquisition-date
fair value cannot be determined, the acquirer applies the recognition
criteria in SFAS No. 5, Accounting for Contingencies and Interpretation 14,
“Reasonable Estimation of the Amount of a Loss – and interpretation of FASB
Statement No. 5,” to determine whether the contingency should be recognized as
of the acquisition date or after it.
  In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124,
“Accounting for Certain Investments Held by Not-for-Profit Organizations,” and
EITF 99-20, “Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests That Continue to Be Held by a
Transferor in Securitized Financial Assets,” to make the other-than-temporary
impairments guidance more operational and to improve the presentation of
other-than-temporary impairments in the financial statements. This FSP will
replace the existing requirement that the entity’s management assert it has both
the intent and ability to hold an impaired debt security until recovery with a
requirement that management assert it does not have the intent to sell the
security, and it is more likely than not it will not have to sell the security
before recovery of its cost basis. This FSP provides increased disclosure about
the credit and noncredit components of impaired debt securities that are not
expected to be sold and also requires increased and more frequent disclosures
regarding expected cash flows, credit losses, and an aging of securities with
unrealized losses. Although this FSP does not result in a change in the
carrying amount of debt securities, it does require that the portion of an
other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This FSP shall be effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early
adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an
entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1,
the entity also is required to early adopt this FSP. The Company is currently
evaluating this new FSP but does not believe that it will have a significant
impact on the determination or reporting of financial results.
 
 In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS 107 to
require disclosures about fair value of financial instruments not measured on
the balance sheet at fair value in interim financial statements as well as in
annual financial statements. Prior to this FSP, fair values for these assets and
liabilities were only disclosed annually. This FSP applies to all financial
instruments within the scope of SFAS 107 and requires all entities to disclose
the method(s) and significant assumptions used to estimate the fair value of
financial instruments. This FSP shall be effective for interim periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. An entity may early adopt this FSP only if it also elects
to early adopt FSP FAS 157-4, FSP FAS 115-2 and FAS 124-2. This FSP does not
require disclosures for earlier periods presented for comparative purposes at
initial adoption. In periods after initial adoption, this FSP requires
comparative disclosures only for periods ending after initial adoption. The
Company is currently evaluating the disclosure requirements of this new
FSP.
  18
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  Reclassifications
 
 Certain
prior period amounts have been reclassified for consistent presentation. These
reclassifications had no material effect on previously reported net
income.
 
 NOTE
3 - ACCOUNTS RECEIVABLE
 
 Accounts
receivable consisted of the following:
 
 March 31,
                        
                        
                        December 31,2009
                        
                        
                        2008(Unaudited)Accounts
      receivable
                        
                        $
                        39,078,198
                        
                        
                        $
                        51,503,245Less:
      allowance for doubtful accounts
                        
                        
                        -
                        
                        
                        
                        -Accounts
      receivable, net of allowance
                        
                        $
                        39,078,198
                        
                        
                        $
                        51,503,245
 
 As of
March 31, 2009 and December 31, 2008, the Company considered all accounts
receivable collectable and 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 contract completion. All accounts
receivable is expected to be received within one year from the balance sheet
date.
 
 NOTE
4 – INVENTORIES
 
 Inventories
consisted of the following:
 
 March 31,
                    2009
                  
                  
                  December 31,
                    2008(Unaudited)Raw
      material
                  
                  $
                  197,258
                  
                  
                  $
                  223,168Work-in-process
                  
                  
                  1,060,714
                  
                  
                  
                  921,985Low
      cost consumption supplies
                  
                  
                  58,215
                  
                  
                  
                  58,295Total
                  
                  $
                  1,316,187
                  
                  
                  $
                  1,203,448
  19
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  For the
three months ended March 31, 2009 and 2008, no provision for obsolete
inventories was recorded by the Company.
 
 NOTE
5 – 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 $2,480,702 and $2,157,957
outstanding as of March 31, 2009 and December 31, 2008,
respectively.
 
 NOTE
6 – COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS
 
 “Costs
and estimated earnings in excess of billings on uncompleted contracts”
represents revenues recognized in excess of amounts billed pursuant to the
percentage-of-completion method used to recognize revenue.  As of
March 31, 2009 and December 31, 2008, there were no costs and estimated earnings
in excess of billings on uncompleted contracts.
 
 NOTE
7 – BILLINGS IN EXCESS OF COST AND ESTIMATED EARNINGS ON UNCOMPLETED
CONTRACTS
 
 “Billings
in excess of costs and estimated earnings on uncompleted contracts” represents
billings in excess of revenues recognized. As of March 31, 2009 and December 31,
2008, there were no billings in excess of revenues recognized on uncompleted
contracts.
 
 NOTE
8 – PROPERTY, PLANT AND EQUIPMENT
 
 The
following is a summary of property, plant and equipment:
 
 March 31, 2009
                      
                      
                      December 31, 2008(Unaudited)Buildings
                      
                      $
                      3,931,408
                      
                      
                      $
                      3,936,775Equipment
      and machinery
                      
                      
                      9,495,502
                      
                      
                      
                      9,508,465Motor
      Vehicles
                      
                      
                      1,645,269
                      
                      
                      
                      1,647,515Furniture
      and office equipment
                      
                      
                      428,144
                      
                      
                      
                      407,912Construction
      in progress
                      
                      
                      6,758
                      
                      
                      
                      6,768Total
                      
                      
                      15,507,081
                      
                      
                      
                      15,507,435Less:
      accumulated depreciation
                      
                      
                      2,563,483
                      
                      
                      
                      2,310,316Property,
      plant and equipment, net
                      
                      $
                      12,943,598
                      
                      
                      $
                      13,197,119
  20
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  Depreciation
expense for the three months ended March 31, 2009 and 2008 was $256,334 and
$190,379, respectively. For the three months ended March 31, 2009 and 2008, no
interest was capitalized into construction in progress.
 
 NOTE
9 – INTANGIBLE ASSETS
 
 The
following is a summary of intangible assets:
 
 March 31, 2009
                  
                  
                  December 31,(Unaudited)Land
      use rights
                  
                  $
                  650,248
                  
                  
                  $
                  651,136Patents
      and licenses
                  
                  
                  732,500
                  
                  
                  
                  733,500Total
                  
                  
                  1,382,748
                  
                  
                  
                  1,384,636Less:
      accumulated amortization
                  
                  
                  189,472
                  
                  
                  
                  173,028Intangibles,
      net
                  
                  $
                  1,193,276
                  
                  
                  $
                  1,211,608
 Amortization
expense for the three months ended March 31, 2009 and 2008 amounted to $16,682
and $15,914, respectively.   The estimated aggregate amortization
expenses for each of the five succeeding years ended March 31 are as the
following:
 
 Years
                    
                    Estimated
                      Amortization
                      Expense2010
                    
                    $
                    66,7222011
                    
                    $
                    66,7222012
                    
                    $
                    66,7222013
                    
                    $
                    66,7222014
                    
                    $
                    66,722
 
 As of
March 31, 2009 and December 31, 2008, the Company prepaid $457,667 and $458,292
for land use rights, the Company had not obtained the title to the land use
right, therefore the amount has been recorded as a prepayment for land use right
in other assets.
  21
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  NOTE
10 – 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 Securities and Exchange Commission (“SEC”) to be declared effective by
the SEC on or before March 3, 2008. After March 3, 2008 and for each 30 calendar
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 $244,353, subject to a cap of 10% of total funds raised, or
total liquidated damages of $2,443,532.  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. The registration statement has been declared effective on
October 2, 2008. Accordingly, the total liquidated damages the Company recorded
for failing to meet the filing deadline as required by the agreement amounted to
$1,971,116. As of March 31, 2009, no liquidated damages were paid.
 
 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. Failing to comply with this requirement,
the Company shall pay liquidated damages to investors equal to 1% of the funds
raised, or $244,353, 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 and 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 $627,173.  As of March 31, 2009, no liquidated damages
were paid.
 
 Total
liquidated damages payable at March 31, 2009 and December 31, 2008 amounted to
$2,598,289. The Company settled the amount of liquidated damages on April 3,
2009 in the maximum amount of $860,362, see Note 19.
 
 NOTE
11 – SHORT TERM BANK LOANS PAYABLE
 
 Short
term bank loans consist of the following:
  22
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  March 31, 2009
                    
                    
                    December 31, 2008(Unaudited)Due
      to Shanghai Pudong Development Bank, interest at 5.31%, due in December 24
      through December 29, 2009, secured by certain
      buildings,  equipment,  and land use
      rights
                    
                    $
                    8,790,000
                    
                    
                    $
                    8,802,000
 Total
interest expense on the bank loans for the three months ended March 31, 2009 and
2008 amounted to $115,417 and $78,704, respectively.
 
 NOTE
12 – 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.
 
 The
Company was incorporated in the Unitesd States and has incurred a net operating
loss for income tax purpose for the three months ended March 31, 2009. The
Company had loss carry forwards of approximately $1,999,000 and $1,854,103 as of
March 31, 2009 and December 31, 2008, respectively, for U.S. income tax
purposes, available for offset against future taxable U.S. income expiring in
2028.
 
 Management
believes that the realization of the benefits from the loss carryforward appears
uncertain due to the limited operating history and continuing losses.
Accordingly, a 100% valuation allowance has been provided and no deferred tax
asset benefit has been recorded. The valuation allowance at March 31, 2009 and
December 31, 2008 was approximately $680,000 and $630,000. The net change in the
valuation allowance was an increase of $50,000.
 
 Innomind
was incorporated in the BVI and under current law of the BVI; income is not
subject to income tax.  Dalian Innomind, Dalian Rino, Dalian Rino
Design and Dalian Rino Construction 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.
  23
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  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. Starting January 1,
2008, the new Enterprise Income Tax laws went effective. Under the new law,
Dalian Rino is subjected to the new tax rate of 25%.
 
 As part
of the agreements entered in connection with the Purchase Agreement between
Dalian Rino and Dalian Innomind, Dalian Rino and its shareholders agreed to
entrust the operations and management of the Business to Dalian Innomind and
Dalian Innomind is entitled to Dalian Rino’s net profit as an entrusted
management fee, which resulted in no income tax provision for Dalian
Rino.
 
 Dalian
Innomind is entitled to a two-year income tax exemption and a 50% income tax
reduction for the following three years.  No provision for income tax
was made for three months ended March 31, 2009 and 2008.
 
 The
provision for income taxes differs from the amount computed by applying the
statutory United States federal income tax rate to income before taxes. The
following table reconciles the statutory rates to the Company’s effective tax
rate for the three months ended March 31, 2009 and 2008:
 
 Three months ended March 31,2009
                        
                        
                        2008U.S.
      Statutory rate
                        
                        
                        34.0
                        %
                        
                        
                        34.0
                        %Foreign
      income not recognized in USA
                        
                        
                        (34.0
                        )
                        
                        
                        (34.0
                        )China
      income taxes
                        
                        
                        25.0
                        
                        
                        
                        25.0China
      income tax exemption
                        
                        
                        (25.0
                        )
                        
                        
                        (25.0
                        )Effective
      income tax rate
                        
                        
                        0.0
                        %
                        
                        
                        0.0
                        %
 
 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.
 
 VAT on
sales and VAT on purchases amounted to $11,561,292, and $8,859,036 for the three
months ended March 31, 2009, respectively, and $5,056,817 and $3,349,927 for the
three months ended March 31, 2008, 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 March 31, 2009
and December 31, 2008, the VAT payable amounted to $7,298,031 and $4,186,822,
respectively.
  24
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  NOTE
13 – RELATED PARTY TRANSACTIONS
 
 The
Company owed $214,588 and $596,023 to a stockholder as of March 31, 2009 and
December 31, 2008, respectively, for advances made on an unsecured basis,
payable on demand and interest free. The ultimate manner of settlement will be
in cash. Imputed interest is charged per annum on the amount due at
approximately 5.31% and 7.47% for the three months period ended March 31, 2009
and 2008, respectively. Total imputed interest recorded as additional paid-in
capital amounted to $5,375 and $1,862 for the three months periods ended March
31, 2009 and 2008, 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% of net income after tax per
annum, such contributions not to exceed 50% of the respective company’s
registered capital. As of March 31, 2009 and December 31, 2008, the remaining
reserve needed to fulfill the 50% registered capital requirement totaled
$5,425,485 and $6,856,854, respectively.
  25
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  The
statutory reserve funds are restricted for use to offset 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.
 
 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 a placement agent, as amended, 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, initially 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.
 
 Effective
January 1, 2009, the adopted the provisions of EITF 07-5, "Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own
Stock”, which is effective for financial statements for fiscal years
beginning after December 15, 2008 and which replaced the previous guidance on
this topic in EITF 01-6.  As a result of adopting EITF 07-5, 382,500
warrants are not considered indexed to the Company’s own stock, and as such, all
future changes in the fair value of these warrants will be recognized currently
in earnings until such time as the warrants are exercised or
expire.  A discussion of the valuation techniques used to measure fair
value for the liabilities listed above and activity for these liabilities for
the three months ended March 31, 2009 is provided elsewhere in this footnote and
in Note 2.
 
 Warrants
 
 Following
is a summary of the warrant activity:
  26
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
 
 Number of SharesOutstanding
      as of December 31, 2007
                        
                        
                        382,500Granted
                        
                        
                        -Forfeited
                        
                        
                        -Exercised
                        
                        
                        -Outstanding
      as of March 31, 2008 (unaudited)
                        
                        
                        382,500Granted
                        
                        
                        -Forfeited
                        
                        
                        -Exercised
                        
                        
                        -Outstanding
      as of December 31, 2008
                        
                        
                        382,500Granted
                        
                        
                        -Forfeited
                        
                        
                        -Exercised
                        
                        
                        -Outstanding
      as of March 31, 2009 (unaudited)
                        
                        
                        382,500
 
 Following
is a summary of the status of warrants outstanding at December 31,
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
                      
                      4.52
      years
                      
                      $
                      5.376
                      
                      
                      
                      382,500
                      
                      4.52
      yearsTotal
                      
                      
                      382,500
                      
                      
                      
                      
                      
                      
                      
                      
                      382,500
 
 NOTE
16 - EARNINGS PER SHARE
 
 The
following demonstrates the calculation for earnings per share for the three
months ended March 31:
  2009
                      
                      
                      2008Net
      income
                      
                      $
                      12,474,916
                      
                      
                      $
                      5,020,346Adjustments
      for diluted EPS calculation
                      
                      
                      -
                      
                      
                      
                      -Adjusted
      net income for calculating EPS-diluted
                      
                      $
                      12,474,916
                      
                      
                      $
                      5,020,346Weighted
      average number of common stock – Basic
                      
                      
                      25,040,000
                      
                      
                      
                      25,000,000Effect
      of dilutive securities:Warrants
                      
                      
                      -
                      
                      
                      
                      161,062Weighted
      average number of common stock – Diluted
                      
                      
                      25,040,000
                      
                      
                      
                      25,161,062Earnings
      per share:Basic
                      
                      $
                      0.50
                      
                      
                      $
                      0.20Diluted
                      
                      $
                      0.50
                      
                      
                      $
                      0.20
  27
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  NOTE
17 – CONCENTRATIONS AND RISKS
 
 Customers
 
 During
the three months ended March 31, 2009, three customers accounted for 42% of the
Company’s total sales.  During the three months ended March 31, 2008,
the Company made sales to a small number of customers with five customers
accounted for 65% of the Company’s total sales. Accounts receivable from those
three customers totaled $9,688,924 as of March 31, 2009 and from those five
customers totaled $18,479,541 as of December 31, 2008,
respectively.
 
 Suppliers
 
 Two major
suppliers provided approximately 94% of the Company’s purchases of raw materials
for the three months ended March 31, 2009. These same suppliers provided 98% of
the Company’s purchase of raw materials for the three months ended March 31,
2008. Advance to these suppliers amounted to $24,358,472 and $21,376,932 as of
March 31, 2009 and December 31, 2008, respectively.
 
 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.
  28
  RINO
INTERNATIONAL CORPORATION AND SUBSIDIARIES
 (FORMERLY
KNOWN AS JADE MOUNTAIN CORPORATION)
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH 31,
2009
 (UNAUDITED)
  NOTE
18 – 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 $26,621 and
$4,739 for the three months ended March 31, 2009 and 2008, respectively. The
Chinese government is responsible for the medical benefits and the pension
liability to be paid to these employees.
 
 Capital
Commitments
 
 As of
March 31, 2009 and December 31, 2008, the Company had firm purchase commitments
for capital projects in progress of $8,047,245 and $10,594,674
respectively.
 
 NOTE
19 – SUBSEQUENT EVENT
 
 On April
3, 2009, the Company entered into a Waiver and Amendment Agreement (the
“Amendment Agreement”) with certain holders of the shares of the Company’s
common stock representing holders of a majority in interest of the shares of the
Company’s common stock issued in the private placement transaction consummation
on October 5, 2007.  The Amendment Agreement amends the relevant
provisions of the Securities Purchase Agreement and the Registration Rights
Agreement, respectively, such that (i) no amount of liquidated damages shall
have been incurred and payable to the investors due to the late appointment of
independent directors, (ii) the liquidated damages incurred due to the late
effectiveness of the registration statement shall be paid in the form of shares
the Company’s common stock of up to 192,045 shares, or at the election of each
investor, in cash of (up to an aggregate of $860,362 for all investors), each as
provided in the Amendment Agreement, and (iii) the Escrow Agreement to reflect
the amendments made to the Securities Purchase Agreement with regard to the
distribution of the Board Holdback Escrow Amount.
 
 Upon
effectiveness of the Amendment Agreement, each current holder of the Company’s
common stock issued in the Private Financing is required to elect, by written
notice to the Company, whether to receive shares of the Company’s common stock
or cash as provided by the Amendment Agreement.
  29






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 and its direct and indirect
subsidiaries and controlled affiliates (collectively, the “Company”),
may constitute “forward-looking statements” under the Private Securities
Litigation Reform Act of 1995, which represent the expectations or beliefs
of the Company. Such “forward-looking statements” include, but are not limited
to, statements concerning the operations, performance, financial
condition and growth of the Company. 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 Item 1.A. of Part I of our Annual Report on Form 10-K for the
fiscal year ended on December 31, 2008,elsewhere in that
Annual Report andmatters described
inthis
report.
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.


The
following is management’s discussion and analysis of certain significant factors
that have affected aspects of our financial position and results of operations
during the periods included in the accompanying unaudited financial
statements.  You should read this in conjunction with discussion under
“Management’s Discussion and Analysis of Financial Conditions and Results of
Operations” and the audited consolidated financial statements and accompanying
notes for the year ended December 31, 2008 included  in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 and the
unaudited consolidated financial statements and accompanying notes and the other
financial information appearing in Item 1 of this report 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, collectively, (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’s wholly
owned subsidiaries, Dalian Rino Environmental Engineering Project Design Co.,
Ltd. (“Dalian Rino Design”) and Dalian Rino Environmental Construction &
Installation Project Co., Ltd. (“Dalian Rino Installation”).





Company
Overview





We are
engaged in designing, developing, manufacturing, and installing environmental
protection 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. Consequently, despite the recent global financial crisis, our
revenues, gross profit, income from operations and net income continued to grow
across our major product lines.  During the three months ended March
31, 2009, our revenues reached $35.6 million, representing an increase of 87.0%
from the total revenues of $19.0 million for the same period ended March
31, 2008. Our gross profit increased from $7.7 million for the quarter ended
March 31, 2008 to $16.0 million for the quarter ended March 31, 2009,
representing an increase of 106.5%.  Our income from operations
reached $12.6 million for the three months ended March 31, 2009 from $5.0
million for the same period ended March 31, 2008, representing an increase of
150.7%.  Our net income for the quarter ended March 31, 2009 grew to
$12.5 million from $5.0 million for the quarter ended March 31, 2008,
representing an increase of 148.5%.


30





Traditionally,
we have three principal products and product lines:





·
            Lamella
      Inclined Tube Settler Waste Water Treatment System, a highly efficient
      wastewater treatment system that incorporates our proprietary and patented
      ‘Lamella Inclined Tube Settler’
  technology.


·
            Circulating,
      Fluidized Bed, Flue Gas Desulphurization System, a highly effective system
      that removes particulate sulphur from flue gas emissions generated by the
      sintering process in the production of iron and steel (a process in which
      sulphur and other impurities are removed from iron ore by heating, without
      melting, pulverized iron ore) with the resulting discharge meeting all
      relevant PRC air pollution standards,
and


·
            High
      Temperature Anti-Oxidation System for Hot Rolled Steel, a set of products
      and a mechanized system that substantially reduce oxidation-related output
      losses in the production of continuous cast, hot rolled
    steel.





In the
first quarter of 2008, the Company introduced a new integrated dust catching
system which removes up to 99% of the dust from sintering iron during the
production process and which complements its current desulphurization equipment
in the following quarters. To date, the Company’s integrated dust catchers
have been installed in the flues of several steelmakers in China. The Company
anticipates the average selling price will be around $2.0 million and the time
from contract signing to final installation will equate to approximately two to
three months.





In
November 2008, we successfully developed a new sludge treatment system through
cooperation with the Dalian University of Technology. The new sludge treatment
system can be used to treat sludge generated by municipal wastewater treatment
process, industrial sludge generated by chemical industry and oil sludge
generated by oil industry. We estimate that there is a market of approximately
$28.8 billion for the treatment of sludge generated by various municipal
wastewater and industrial processing systems in the PRC market.





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 Dalian
facilities. Generally, we fulfill our contractual obligations within twelve
months.





Our
project-based revenue is affected directly by our customers’ capital budgets and
their need to build new plants. Because most of 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 allocated to materials costs,
which are subject to fluctuation.





Recent
Developments





Waiver
and Reduction of Liquidated Damages





On April
3, 2009, the Company entered into a Waiver and Amendment Agreement (the
“Amendment Agreement”) with certain holders of the shares of the Company’s
common stock representing holders of a majority in interest of the shares of the
Company’s common stock issued in the private placement transaction consummation
on October 5, 2007 (the “Private Financing”).  The Amendment Agreement
amends the relevant provisions of the Securities Purchase Agreement and the
Registration Rights Agreement that the Company entered into with the investors
in the Private Financing, such that (i) no amount of liquidated damages shall
have been incurred and payable to the investors due to the late appointment of
independent directors, (ii) the liquidated damages incurred due to the late
effectiveness of the registration statement shall be paid in the form of shares
of the Company’s common stock of up to 192,045 shares, or, at the election of
each investor, in cash of (up to an aggregate of $860,362 for all
investors).




Upon
effectiveness
of the Amendment Agreement, each holderof the Company’s common stock
issued in the Private Financing is required to elect, by written notice to the
Company, whether to receive shares of the Company’s common stock or
cash as provided by the Amendment Agreement.Pursuant to the Amendment Agreement, as of the date of this report, the Company issued
an aggregate of 47,854 shares of the Company’s common stock and
paid an aggregate of $606,300.66 to the investors.




31


Results
of Operations





Three
Months Ended March 31, 2009 And 2008.





Results
of Operations





Net
Sales





Net sales
increased by $16.6 million to $35.6 million or an increase of 87.0% for the
three months ended March 31, 2009, as compared to the net sales for the three
months ended March 31, 2008. Such increase was due to continued growth in demand
across our three major product lines in 2009. Since June 2008, the Chinese
government tightened gas emission control and all coal-fired sinters are
required to have desulphurization equipment installed.  The breakdown
of the revenue growth is as follows:





For the three months ended March 31,2009
                                                        
                                                        2008Net Sales
                                                          (in thousand)
                                                        
                                                        
                                                        % to
                                                          Total
                                                        
                                                        Net Sales
                                                          (in thousand)
                                                        
                                                        % to
                                                          Total
                                                        
                                                        
                                                        %
                                                          IncreaseWastewater
      treatment equipment
                                                        
                                                        $
                                                        7,238
                                                        
                                                        
                                                        
                                                        20.3
                                                        %
                                                        
                                                        $
                                                        2,178
                                                        
                                                        
                                                        
                                                        11.4
                                                        %
                                                        
                                                        
                                                        232.3
                                                        %Flue
      gas desulphurization
                                                        
                                                        
                                                        25,704
                                                        
                                                        
                                                        
                                                        72.2
                                                        %
                                                        
                                                        
                                                        12,471
                                                        
                                                        
                                                        
                                                        65.5
                                                        %
                                                        
                                                        
                                                        106.1
                                                        %Anti-oxidation
      equipment and coatings
                                                        
                                                        
                                                        2,424
                                                        
                                                        
                                                        
                                                        6.8
                                                        %
                                                        
                                                        
                                                        1,648
                                                        
                                                        
                                                        
                                                        8.7
                                                        %
                                                        
                                                        
                                                        47.1
                                                        %Machining
      services
                                                        
                                                        
                                                        242
                                                        
                                                        
                                                        
                                                        0.7
                                                        %
                                                        
                                                        
                                                        2,748
                                                        
                                                        
                                                        
                                                        14.4
                                                        %
                                                        
                                                        
                                                        -91.2
                                                        %Total
      Net Sales
                                                        
                                                        $
                                                        35,608
                                                        
                                                        
                                                        
                                                        100.0
                                                        %
                                                        
                                                        $
                                                        19,045
                                                        
                                                        
                                                        
                                                        100.0
                                                        %
                                                        
                                                        
                                                        87.0
                                                        %





Demand
for our Lamella Wastewater System, increased 232.3% to $7.2 million for the
three months ended March 31, 2009, as compared with $2.2 million for the three
months ended March 31, 2008.





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 three months ended March 31, 2009, we recorded revenues of $25.7
million, as compared to revenues of $12.5 million for the three months ended
March 31, 2008, representing an increase of 106.1%.





Our
Anti-Oxidation System, which we introduced in January 2007, materially reduces
oxidation loss in the production of hot rolled steel plates. 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 three months ended March 31, 2009,
we recorded revenues of $2.4 million anti-oxidation equipment and related
coatings sales, as compared to revenues of $1.6 million for the three months
ended March 31, 2008, representing an increase of 47.1%. The increase in
revenues largely reflects our increased pricing and demand as the value of the
anti-oxidation technology has been proven in commercial
practice.


32


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 year three months
ended March 31, 2009, revenues accounted for 0.7% of the total revenue as
compared to 14.4% for the corresponding period in 2008, reflecting a higher
level of our own production and reduced level of contractual work.





Cost
of Sales





The cost
of sales for the three months ended March 31, 2009 increased by $8.3 million to
$19.7 million from $11.3 million for the three months ended March 31, 2008,
representing an increase of 73.6%.  The increase was largely due to
increased sales. As a percentage of sales, the cost of sales decrease to 55.2%
for the three months ended March 31, 2009 compared to 59.5% for the same period
of 2008.  The breakdown of the cost of sales is as
follows:





For the three months ended March 31,2009
                        
                        
                        2008Total
                          (in thousand)
                        
                        
                        % of Sales
                        
                        
                        Total
                          (in thousand)
                        
                        
                        % of SalesRevenuesContracts
                        
                        $
                        35,366
                        
                        
                        
                        
                        
                        $
                        16,298Machining
      Services
                        
                        
                        242
                        
                        
                        
                        
                        
                        
                        2,748Cost
      of SalesContracts
                        
                        
                        19,333
                        
                        
                        
                        54.7
                        %
                        
                        
                        10,421
                        
                        
                        
                        63.9
                        %Machining
      Services
                        
                        
                        324
                        
                        
                        
                        133.9
                        %
                        
                        
                        902
                        
                        
                        
                        32.8
                        %Gross
      Profit
                        
                        $
                        15,951
                        
                        
                        
                        
                        
                        
                        
                        7,723





The
decrease of cost of sales as percentage of sales was mainly due to effective
cost control.  For the three months ended March 31, 2009, 99% of the
total revenue was in our contract revenue sector, which used our in-house
service team and we were able to closely monitor costs, which resulted in 4.2%
decrease in percentage of total cost of sales of total sales.





Operating
Expense





Operating
expenses for the three months ended March 31, 2009 increased to $3.4 million
from $2.7 million for the same period ended March 31, 2008, representing an
increase of 24.6%. The $0.7 million increase in our operating expenses was due
to (i) the increase of commission expense which was in line with our increased
revenue.  The sales agent of each contract will receive sales
commission based on certain percentage of the total contract.  The
percentage is not fixed and varies from contract to contract. The commission
expenses increased from $1.0 million for the three months ended March 31, 2008
to $2.0 million for the same period ended March 31, 2009, and (ii) reduced by
liquidated damage expense of $500,000 accrued in the first quarter of 2008. No
such expense was recorded in the same period of 2009.





Liquidated
Damage Expenses





In
connection with the consummation of the Private Financing, and pursuant to the
Registration Rights Agreement entered into between the Company and a group of
accredited investors (the “Registration Rights Agreement”) on October 5, 2007,
we are required to register for resale shares of our common stock issued to the
investors and cause the registration statement to be declared effective by the
SEC on or before March 3, 2008. In addition, under the Securities Purchase
Agreement dated October 5, 2007, by and among the Company and such investors, we
are required to appoint a 5 member board and a majority of the board members
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
Securities Purchase Agreement requires us to pay liquidated damages to the
investors if we do not timely comply with these requirements.  We were
late in complying with both requirements. As a result, we accrued liquidated
damages on both accounts in the aggregate amount of $0.5 million in the first
quarter of 2008.


33


On April
3, 2009, the Company entered into a Waiver and Amendment Agreement (the
“Amendment Agreement”) with certain holders of the shares of the Company’s
common stock representing holders of a majority in interest of the shares of the
Company’s common stock issued in the Private Financing.  The Amendment
Agreement amends the relevant provisions of the Securities Purchase Agreement
and the Registration Rights Agreement, respectively, such that (i) no amount of
liquidated damages shall have been incurred and payable to the investors due to
the late appointment of independent directors, (ii) the liquidated damages
incurred due to the late effectiveness of the registration statement shall be
paid in the form of shares of the Company’s common stock of up to 192,045
shares, or, at the election of each investor, in cash of (up to an aggregate of
$860,362 for all investors).





Other
Expense, net




Other
Expense, net, for three months ended March 31, 2009 increase by $107,270 to
$104,998 from other income, net, of $2,272 in 2008. The increase in other
expense, net, was mainly due to (i) increase in other income in the amount of
$23,611 as result of adoption of new accounting pronouncement EITF 07-5; (ii)
increase in interest expenses and decrease in interest income. The decrease in
interest income of $20,000 was due to the fact that there was no term deposit
for the three months ended in 2009, which normally earned more interest income,
but the absolute amount of interest income remains immaterial. Interest expense
increased to $120,792 for the three months ended March 31, 2009 from $78,704 for
the same period ended March 31, 2008, an increase of 109.5% due to the increased
amount of bank loan in the quarters ended March 31, 2009 comparing to the same
period of 2008, with loan balance of $8.8 million and $7.1 million as of March
31, 2009 and 2008, respectively.





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.





In
connection with our Securities 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’s action, then we are required to
redeem the investors’ common stock for $24.5 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 redemption is remote, we may not continuously holding
adequate cash on hand for such 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.





Without
the 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





Our
liquidity position remains strong, supported by approximately $47.9 million cash
and cash equivalents as of March 31, 2009, representing an increase of 142.7% as
compared to $19.7 million as of December 31, 2008. Cash generated from
operations and financing activities fully supported the needs of our working
capital, and capital investments in 2009. We believe that our cash position is
adequate to meet future short-term and mid-term liquidity
requirements.





34




Cash
provided by operations totaled $27.6 million in the three months ended March 31,
2009, representing an increase of 868.6% as compared to $3.6 million cash used
in operation in the same period of 2008. The major components of cash provided
by operations are net earnings from operations adjusted for non-cash income and
expense items and changes in working capital. Cash provided by operations
increased by $31.2 million in the first quarter of 2009 as compared to the same
period of 2008.





The
following tables present our net cash flows for the three months ended March 31,
2009 and for the same period ended March 31, 2008.




For the three months ended
                                      March 31,US$ thousands
                                    
                                    2009
                                    
                                    
                                    2008Cash
      provided by (used in) operating activities
                                    
                                    $
                                    27,570
                                    
                                    
                                    $
                                    (3,587
                                    )Cash
      used in investing activities
                                    
                                    $
                                    (20
                                    )
                                    
                                    $
                                    (2,381
                                    )Cash
      provided by financing activities
                                    
                                    $
                                    650
                                    
                                    
                                    $
                                    4,392




Cash
flow from operating activities





Net cash
provided by operating activities was $27.6 million for the three months ended
March 31, 2009 as compared to net cash used in operations of $3.6 million
in the same period ended March 31, 2008. An increase in net income, cash
received from accounts receivable, increase in tax payable and customer
deposits contributed to increased cash flows from operations. These increases to
cash flow from operations were offset by increase in advances for inventory
purchases, and a decrease in accounts payable.




Accounts
Receivable




Our
accounts receivable at March 31, 2009 decreased to $39.1 million from $51.5
million at December 31, 2008, representing a decrease of 24.1%. As a percentage
of total sales, our accounts receivable decreased to 109.7% at March 31, 2009,
as compared to that of 132.7% at March 31, 2008.  The decrease in
our receivables reflects the Company’s effort to timely collect the accounts
receivable.




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 $25.3 million at
March 31, 2009, an increase of $3.3 million or 14.9%, from the $22.0 million
recorded at December 31, 2008 as more orders of raw materials were placed for
production due to increased demand of our products.





Cash
used by investing activities





For the
three months ended March 31, 2009, net cash used in investing activities
decreased to $20,789 as compared to $2.4 million used for the same period ended
March 31, 2008, representing a decrease of 99.1%. This decrease primarily
resulted from no additional advances payments made for equipment and
construction material purchase in the three months ended March 31, 2009, as
compared to $2.3 million prepayment made in the same period of 2008.
..


35





Cash
provided by financing activities





For the
three months ended March 31, 2009, net cash provided by financing activities
decreased to $0.6 million as compared to cash provided by financing of $4.4
million for the same period ended March 31, 2008, representing a decrease of
85.2%.  The decrease was primarily due to the fact that we
did not conduct any equity and debt financing in the first quarter of 2009;
However in the comparable period of 2008, we received net proceeds from bank
loans in the amount of $7.0 million and our notes payable increased $2.3
million, reduced by the $4.9 million increase in restricted cash.





Related
Party Transactions





The
Company owed $214,588 and $596,023 to a stockholder as of March 31, 2009 and
December 31, 2008, 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 5.3% and 7.47% for the three months periods ended March 31,
2009 and 2008, respectively.  Total imputed interest recorded as
additional paid-in capital amounted to $5,375 and $1,862 for the three months
ended March 31, 2009 and 2008, respectively.




Off-Balance
Sheet Arrangements





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





CRITICAL
ACCOUNTING POLICIES




We
believe that the application of the following accounting policies, which are
important to our financial position and results of operations, require
significant judgments and estimates on the part of management. Our critical
accounting policies and estimates present an analysis of the uncertainties
involved in applying a principle, while the accounting policies note to the
financial statements (Note 2) describe the method used to apply the accounting
principle.





Accounts
Receivable





Accounts
receivable represents amounts due from customers for products sales and
services. The Company grants credit to customers without collateral. Accounts
receivable balance are considered past due if payment has not been received
within the payment terms established on the sales contract or granted by the
Company, typically up to one year. 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. An estimate for doubtful accounts is made when
collection of the full amount is no longer probable. When the Company has
exhausted all collection efforts, the receivable and any specific allowance is
written off.  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 March 31, 2009.





Fair Value of Financial
Instruments





FAS 107,
“Disclosure about Fair Value of Financial Instruments” defines financial
instruments and requires fair value disclosure of applicable financial
instruments.  FAS 157 “Fair Value Measurements”, adopted on January 1,
2008, defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosure requirements for
fair value measures. The carrying amounts reported in the balance sheets for
current receivables and payables qualify as financial
instruments.  Management concluded the carrying values 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 if
applicable, their stated interest rate approximates current rates
available.  The three levels are defined as follows:


36




·
              Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.
 
 ·
              Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.
 
 ·
              Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.





The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”





Effective
January 1, 2009, the Company adopted the provisions of EITF 07-5,
"Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock”, which is effective for financial statements for fiscal
years beginning after December 15, 2008 and which replaced the previous guidance
on this topic in EITF 01-6.  Paragraph 11(a) of FAS 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 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 FAS 133 paragraph 11(a) scope exception.





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 relative
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.





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.


37





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).  Stock compensation for stock
granted to non-employees is determined in accordance with SFAS 123R and the EITF
96-18, "Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services", as
the fair value of the consideration received or the fair value of equity
instruments issued, whichever is more reliably measured.





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 the Company’s
PRC subsidiaries maintain their accounting records in their functional currency,
Chinese Renminbi (“RMB”).The reporting currency of the Company is the United
States dollar.





The
financial statements of PRC subsidiaries are translated into United States
dollars using period-end exchange rates ($0.14650 and $0.14670 at March 31, 2009
and December 31, 2008, respectively) as to assets and liabilities and weighted
average exchange rates for the periods ($0.14651 and $0.13977 for the three
months ended March 31, 2009 and 2008, respectively) as to revenue
and expenses.  Capital accounts are translated at their
historical exchange rates when the capital transaction
occurred.   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.





Recently issued accounting
pronouncements and adopted accounting





In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets”. FSP EITF 99-20-1 changes the impairment model
included within EITF 99-20 to be more consistent with the impairment model of
FAS 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF
99-20 to remove its exclusive reliance on “market participant” estimates of
future cash flows used in determining fair value. Changing the cash flows used
to analyze other-than-temporary impairment from the “market participant” view
to a holder’s estimate of whether there has been a “probable” adverse
change in estimated cash flows allows companies to apply reasonable judgment in
assessing whether an other-than-temporary impairment has occurred. The adoption
of FSP EITF 99-20-1 did not have a material impact on our consolidated financial
statements because all of our investments in debt securities are classified as
trading securities.





38




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





In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124,
“Accounting for Certain Investments Held by Not-for-Profit Organizations,” and
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held
by a Transferor in Securitized Financial Assets,” to make the
other-than-temporary impairments guidance more operational and to improve the
presentation of other-than-temporary impairments in the financial statements.
This FSP will replace the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired debt security
until recovery with a requirement that management assert it does not have the
intent to sell the security, and it is more likely than not it will not have to
sell the security before recovery of its cost basis. This FSP provides increased
disclosure about the credit and noncredit components of impaired debt securities
that are not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this FSP does not result in a change
in the carrying amount of debt securities, it does require that the portion of
an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This FSP shall be effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early
adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an
entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1,
the entity also is required to early adopt this FSP. We are currently evaluating
this new FSP but do not believe that it will have a significant impact on the
determination or reporting of our financial results.





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS
No. 107, “Disclosures about Fair Value of Financial Instruments,” to
require disclosures about fair value of financial instruments not measured on
the balance sheet at fair value in interim financial statements as well as in
annual financial statements. Prior to this FSP, fair values for these assets and
liabilities were only disclosed annually. This FSP applies to all financial
instruments within the scope of SFAS 107 and requires all entities to disclose
the method(s) and significant assumptions used to estimate the fair value of
financial instruments. This FSP shall be effective for interim periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. An entity may early adopt this FSP only if it also
elects to early adopt FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2. This FSP
does not require disclosures for earlier periods presented for comparative
purposes at initial adoption. In periods after initial adoption, this FSP
requires comparative disclosures only for periods ending after initial
adoption. We are currently evaluating the disclosure requirements of this new
FSP.





Item
4. Controls and Procedures.





Disclosure
Controls and Procedures




The
Company’s management, with participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this
report.




39




The term
“disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e)
means controls and other procedures of the Company that are designed to ensure
that information required to be disclosed by a company in reports, such as this
reports, that it files, or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
U.S. Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.





Management
conducted its evaluation of disclosure controls and procedures under the
supervision of our chief executive officer and our chief financial officer.
Based on that evaluation, management concluded that our disclosure controls and
procedures were not effective as of March 31, 2009.





Changes
in internal control over financial reporting




There
have been no changes to the Company’s internal control over financial reporting
during the quarter ended March 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





PART
II - OTHER INFORMATION





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.





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.


40





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.




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.





Issuance
of Common Stock to Investors in lieu of Cash Payment as Liquidated
Damages





On April
3, 2009, the Company, entered into a Waiver and Amendment Agreement (the
“Amendment Agreement”) with certain holders of the shares of the Company’s
common stock representing holders of a majority in interest of the shares of the
Company’s common stock issued in the private placement transaction consummation
on October 5, 2007 (the “Private Financing”).  The Amendment Agreement
amends certain liquidated damages provisions of the Securities Purchase
Agreement and the Registration Rights Agreement that the Company entered into
with such investors in connection with the Private Financing, such that no
amount of liquidated damages shall have been incurred and payable to the
investors due to the late appointment of independent directors, and the
liquidated damages incurred due to the late effectiveness of the registration
statement shall be paid in the form of shares of the Company’s common stock of
up to 192,045 shares, or, at the election of each investor, in cash of (up to an
aggregate of $860,362 for all investors).


41




Upon
effectiveness of the Amendment Agreement, each current holder of the Company’s
common stock issued in the Private Financing is required to elect, by written
notice to the Company, whether to receive shares of the Company’s common stock
or cash as provided by the Amendment Agreement.  Pursuant
to the Amendment Agreement, as of the date of this report, the Company issued an
aggregate of 47,854 shares of the Company’s common
stock to the investors. Upon issuance, such shares of the Company’s
common stock will not be registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements. The Company intends
to issue these shares in reliance on the exemption from registration provided by
Regulation D. This current report on Form 8-K does not constitute an offer to
sell, or a solicitation of an offer to buy, any security and shall not
constitution an offer, solicitation or sale in any jurisdiction in which such
offering would be unlawful.




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.


42





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 CORPORATIONDate:
      May 15, 2009
                BY:
                /s/
      Zou DejunZou
      DejunChief
      Executive Officer


43





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.


44