UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
quarterly period ended August 31,
2009.


Or





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





For the
transition period from to 
to





Commission
File Number
:                   333-144910





SINOBIOPHARMA,
INC.


(Exact
name of registrant as specified in its charter)





Nevada
                26-3002371(State
      or other jurisdiction of incorporation or
                  organization)
                (I.R.S.
      Employer Identification No.)8
      Zhong Tian Road
                  Nantong City, Jiangsu Province,
      China
                  (Address
      of principal executive offices)
                226009
                  (Zip
      Code)





011-86-51-385328336(Registrant’s
      telephone number, including area code)
                  
                  Not Applicable
                  (Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


x
Yes         ̈ No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 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*


*The
registrant has not yet been phased into the interactive data
requirements.





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


 ̈
Yes        x No





80,020,000 shares of common
stock with a par value of $0.0001 issued and outstanding as of October 15,
2009.





TABLE OF
CONTENTS





USE
      OF NAMES
                    3CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
                    3PART
      I – FINANCIAL INFORMATION
                    4Item
      1. Financial Statements
                    4Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                    17Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                    18Item
      4T. Controls and Procedures
                    18PART
      II - OTHER INFORMATION
                    20Item
      1. Legal Proceedings
                    20Item
      1A. Risk Factors
                    20Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                    20Item
      3. Defaults upon Senior Securities
                    20Item
      4. Submission of Matters to a Vote of Security Holders
                    20Item
      5. Other Information
                    20Item
      6. Exhibits
                    20Signature
                    21


2


USE
OF NAMES





In this
quarterly report, the terms “Sinobiopharma”, “Company”, “we”, or “our”, unless
the context otherwise requires, mean Sinobiopharma, Inc. and its
subsidiaries.





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





This
quarterly report on Form 10-Q and other reports that we file with the SEC
contain statements that are considered forward-looking
statements.  Forward-looking statements give the Company’s current
expectations, plans, objectives, assumptions or forecasts of future
events.  All statements other than statements of current or historical
fact contained in this quarterly report, including statements regarding the
Company’s future financial position, business strategy, budgets, projected costs
and plans and objectives of management for future operations, are
forward-looking statements.  In some cases, you can identify
forward-looking statements by terminology such as “anticipate,” “estimate,”
“plans,” “potential,” “projects,” “ongoing,” “expects,” “management believes,”
“we believe,” “we intend,” and similar expressions.  These statements
are based on the Company’s current plans and are subject to risks and
uncertainties, and as such the Company’s actual future activities and results of
operations may be materially different from those set forth in the forward
looking statements.  Any or all of the forward-looking statements in
this quarterly report may turn out to be inaccurate and as such, you should not
place undue reliance on these forward-looking statements.  The Company
has based these forward-looking statements largely on its current expectations
and projections about future events and financial trends that it believes may
affect its financial condition, results of operations, business strategy and
financial needs.  The forward-looking statements can be affected by
inaccurate assumptions or by known or unknown risks, uncertainties and
assumptions due to a number of factors, including:





·
            dependence
      on key personnel;


·
            competitive
      factors;


·
            degree
      of success of research and development
programs;


·
            the
      operation of our business; and


·
            general
      economic conditions in the United States and
  China.





These
forward-looking statements speak only as of the date on which they are made, and
except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements contained in
this quarterly report.




3


PART
I – FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





SINOBIOPHARMA,
INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(US
Dollars)





August
      31,
                    
                    
                    May
      31,2009
                    
                    
                    2009(UNAUDITED)
                    
                    
                    (AUDITED)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                    
                    $
                    771,970
                    
                    
                    $
                    891,132Accounts
      receivable, net of allowance for doubtful accounts
                    
                    
                    306,503
                    
                    
                    
                    214,178Inventories
                    
                    
                    555,174
                    
                    
                    
                    547,317Advance
      payments
                    
                    
                    645,373
                    
                    
                    
                    293,585Other
      receivables
                    
                    
                    435,832
                    
                    
                    
                    -Total
      Current Assets
                    
                    
                    2,714,852
                    
                    
                    
                    1,946,212Property
      and Equipment, at cost- net of Accumulated Depreciation
                    
                    
                    2,721,246
                    
                    
                    
                    2,691,258Intangible
      assets, net
                    
                    
                    1,298,658
                    
                    
                    
                    1,318,973$
                    6,734,756
                    
                    
                    $
                    5,956,443LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                    
                    
                    265,565
                    
                    
                    
                    655,064Short-term
      bank loans
                    
                    
                    1,461,732
                    
                    
                    
                    732,000Loans
      from government
                    
                    
                    1,866,585
                    
                    
                    
                    1,844,193Due
      to shareholders
                    
                    
                    549,242
                    
                    
                    
                    1,169,032Advance
      from customers
                    
                    
                    160,382
                    
                    
                    
                    136,755Other
      payables
                    
                    
                    1,032,728
                    
                    
                    
                    642,568Total
      Current Liabilities
                    
                    
                    5,336,234
                    
                    
                    
                    5,179,612STOCKHOLDERS'
      EQUITYCommon
      stock; $0.0001 par value; 2,500,000,000 shares authorized; Issued and
      outstanding 80,020,000 shares at August 31,2009 and 79,920,000 shares at
      May 31, 2009
                    
                    
                    8,002
                    
                    
                    
                    7,992Additional
      paid-in capital
                    
                    
                    8,622,951
                    
                    
                    
                    8,254,991Retained
      earnings
                    
                    
                    (7,474,111
                    )
                    
                    
                    (7,711,278
                    )Accumulated
      other comprehensive income
                    
                    
                    241,680
                    
                    
                    
                    225,126Total
      Stockholders' Equity
                    
                    
                    1,398,522
                    
                    
                    
                    776,831$
                    6,734,756
                    
                    
                    $
                    5,956,443





See
accompanying notes to the unaudited consolidated financial
statements




4





SINOBIOPHARMA,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(UNAUDITED)


(US
DOLLARS)





Three
      Months Ended August 31,2009
                
                
                2008SALES
                
                $
                1,293,764
                
                
                $
                931,203COST
      OF GOODS SOLD
                
                
                330,841
                
                
                
                318,775GROSS
      PROFIT
                
                
                962,923
                
                
                
                612,428Selling
      expenses
                
                
                84,168
                
                
                
                78,012Research
      and development
                
                
                64,302
                
                
                
                97,404Depreciation
      and amortization
                
                
                110,041
                
                
                
                75,656Stock-based
      compensation
                
                
                324,125
                
                
                
                426General
      and administrative expenses
                
                
                88,151
                
                
                
                142,473670,787
                
                
                
                393,971INCOME
      FROM OPERATIONS
                
                
                292,136
                
                
                
                218,457OTHER
      INCOME (EXPENSE)Interest
      income
                
                
                1,852
                
                
                
                65Interest
      expense
                
                
                (56,428
                )
                
                
                (70,659
                )Other
      income(expense)
                
                
                (393
                )
                
                
                -TOTAL
      OTHER INCOME (EXPENSES)
                
                
                (54,969
                )
                
                
                (70,594
                )INCOME
      BEFORE INCOME TAX EXPENSE
                
                
                237,167
                
                
                
                147,863INCOME
      TAX EXPENSE
                
                
                -
                
                
                
                -NET
      INCOME
                
                
                237,167
                
                
                
                147,863OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      Currency Translation Adjustment
                
                
                16,554
                
                
                
                (8,090
                )COMPREHENSIVE
      INCOME
                
                $
                253,721
                
                
                $
                139,773Net
      income (loss) per share:Basic
      and Diluted
                
                $
                0.00
                
                
                
                0.00Weighted
      average shares used in computation:Basic
      and Diluted
                
                
                79,977,609
                
                
                
                40,000,000





See
accompanying notes to the unaudited consolidated financial
statements




5





SINOBIOPHARMA,
INC. AND SUBSIDIARIES


UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


(US
DOLLARS)





Three
      Months Ended August 31,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
                  
                  $
                  237,167
                  
                  
                  $
                  147,863Adjustments
      to reconcile net loss to net cash provided (used) in operating
      activitiesDepreciation
      and amortization
                  
                  
                  110,041
                  
                  
                  
                  75,656Stock
      based compensation
                  
                  
                  324,125
                  
                  
                  
                  426Imputed
      interest expenses on shareholders' loans
                  
                  
                  10,845
                  
                  
                  
                  19,691Amortization
      of discount in interest expenses
                  
                  
                  25,244
                  
                  
                  
                  39,385Stock
      based payment
                  
                  
                  33,000
                  
                  
                  
                  -Changes
      in assets and liabilities:Accounts
      receivable, net
                  
                  
                  (92,636
                  )
                  
                  
                  (94,828
                  )Inventories
                  
                  
                  13,258
                  
                  
                  
                  37,920Other
      receivables, net
                  
                  
                  (142,670
                  )
                  
                  
                  7,833Advances
      to suppliers
                  
                  
                  (645,229
                  )
                  
                  
                  -Accounts
      payable
                  
                  
                  (145,755
                  )
                  
                  
                  70,649Deposit
      received
                  
                  
                  23,833
                  
                  
                  
                  (153,036
                  )Other
      payables
                  
                  
                  69,619
                  
                  
                  
                  31,091Net
      Cash (Used in) Provided by Operating Activities
                  
                  
                  (179,158
                  )
                  
                  
                  182,650CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                  
                  
                  (125,924
                  )
                  
                  
                  (6,120
                  )Net
      Cash Used in Investing Activities
                  
                  
                  (125,924
                  )
                  
                  
                  (6,120
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from bank loans
                  
                  
                  1,461,408
                  
                  
                  
                  -Proceeds
      from share capital
                  
                  
                  -
                  
                  
                  
                  20,000Proceeds
      from shareholder loans
                  
                  
                  (610,021
                  )
                  
                  
                  -Repayment
      of bank loans
                  
                  
                  (730,704
                  )
                  
                  
                  (285,600
                  )Repayment
      of loans by related parties
                  
                  
                  -
                  
                  
                  
                  5,712Loans
      received from shareholders
                  
                  
                  -
                  
                  
                  
                  8,698Net
      Cash Provided by (Used in) Financing Activities
                  
                  
                  120,683
                  
                  
                  
                  (251,190
                  )EFFECT
      OF FOREIGN CURRENCY FLUCTUATION ON CASH AND CASH
    EQUIVALENTS
                  
                  
                  65,237
                  
                  
                  
                  (9,775
                  )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                  
                  
                  (119,162
                  )
                  
                  
                  (84,435
                  )CASH
      AND CASH EQUIVALENTS - BEGINNING
                  
                  
                  891,132
                  
                  
                  
                  267,327CASH
      AND CASH EQUIVALENTS - ENDING
                  
                  $
                  771,970
                  
                  
                  $
                  182,892Supplemental
      cash flow information:Cash
      paid for income taxes
                  
                  $
                  -
                  
                  
                  $
                  -Cash
      paid for interest
                  
                  $
                  35,911
                  
                  
                  $
                  -





See
accompanying notes to the unaudited consolidated financial
statements


6





SINOBIOPHARMA,
INC. AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements





1.
            ORGANIZATION
      ANDDESCRIPTION OF BUSINESS





Sinobiopharma,
Inc. (the “Company”) was incorporated in the State of Nevada under the name of
Buzz Media Ltd. on October 26, 2006. On November 8, 2006 the Company acquired
all the issued and outstanding shares of Buzz Media Ltd. (“Buzz Nova Scotia”), a
corporation incorporated in the province of Nova Scotia, Canada on October 26,
2006. The transaction was treated as an acquisition for accounting purposes. The
consideration for the acquisition of Buzz Nova Scotia was 500 shares (on a
post-forward stock split basis) of the Company valued at $0.10, the book value
of the net assets of Buzz Nova Scotia, since the acquisition was from a related
party.





The
Company’s business plan through the year ended May 31, 2008 was design,
publishing, and distribution of a magazine called “Buzz” through Buzz Nova
Scotia. Buzz is a student lifestyle magazine, which features stories, articles,
and photographs submitted by current college and university students from across
the country. The magazine was intended to be distributed free of charge via
direct mail, via physical distribution boxes at specified locations, via email,
and via the internet at www.ReadBuzzMagazine.com. On May 18, 2007 the Company
filed a trademark application with the United States Patent and Trademark
Office, seeking a trademark on "Buzz Magazine" used as the name, or title, of a
magazine.





On July
14, 2008 the Company’s President and majority shareholder sold all of her shares
in the company, representing a 62.5% interest in the Company, to an unrelated
individual. On the same day, she resigned from all of her positions as officer
and director of the Company and the purchaser was appointed the sole director
and officer of the Company.





Effective
July 29, 2008, the Company under its original name of Buzz Media, Ltd.
incorporated a subsidiary, “Sinobiopharma, Inc.” with an investment of $0.001
and merged with it. for the sole purpose of changing the name of the Company. As
a result, the Company changed its name from “Buzz Media Ltd.” to “Sinobiopharma,
Inc.”.





Effective
July 29, 2008, the Company effected a fifty (50) for one (1) forward stock split
of its authorized, issued and outstanding common stock. As a result, the
Company’s authorized capital increased from 50,000,000 shares of common stock
with a par value of $0.0001 to 2,500,000,000 shares of common stock with a par
value of $0.0001. The Company’s issued and outstanding share capital increased
as a result of the split from 2,000,010 shares of common stock to 100,000,500
shares of common stock. Share capital figures are presented in these financial
statements giving retroactive effect to the stock split and accordingly all
share capital figures are presented on a post-split basis as if the split had
been affected upon inception.





On August
19, 2008, the Company entered into a share exchange agreement (the “Share
Exchange Agreement”) with Dongying Pharmaceutical Co, Limited (“Dongying BVI”),
a company organized under the laws of the Territory of the British Virgin
Islands, and all the shareholders of Dongying BVI, whereby the Company agreed to
acquire 100% of the issued and outstanding shares in the capital of Dongying BVI
through the issuance of approximately 40,000,000 shares of common stock of the
Company in aggregate to the shareholders of Dongying BVI on a pro rata basis in
accordance with each Dongying BVI shareholders’ percentage of ownership in
Dongying BVI. The Share Exchange Agreement closed on September 22,
2008.





Concurrently
with the closing of the Share Exchange Agreement, by a letter agreement entered
into on September 8, 2008 between Dongying BVI and the Company’s majority
shareholder, that shareholder agreed to cancel 60,100,500 shares of the
62,500,500 shares of common stock of the Company registered in his name within
ten (10) days of the closing of the Share Exchange Agreement.  The
60,100,500 shares were cancelled on September 26, 2008. The share cancellation
completed the reverse merger with Dongying BVI as a recapitalization of the
Company such that voting control of the Company was obtained by the former
stockholders of Dongying BVI. The net assets of





Dongying
BVI and the Company have been brought forward at their historical bases. The
costs associated with the reverse merger were expensed as
incurred.


7





Dongying
BVI was incorporated under the laws of the British Virgin Islands on
January 29, 2008. On May 13, 2008 Dongying BVI acquired a 100% interest in
Big Global Limited (“Big Global”) from the sole shareholder of Dongying
BVI for consideration of $1.00. The purpose of the transaction was the
change of domicile to the British Virgin Islands.





Big
Global was incorporated under the laws of Hong Kong on November 26, 2007. On
December 10, 2007 Big Global acquired a 100% interest in Dong Ying (Jiangsu)
Pharmaceuticals Co., Ltd. (“Dong Ying China”) from the sole shareholder of Big
Global for consideration of $1.00. The purpose of the transaction was the change
of domicile to Hong Kong. The acquisition was approved by the Chinese government
in May 2008.





During
2007 the shareholder of Dong Ying China commenced a plan to sell some of his
interest in Dong Ying China. Funds were received by Dong Ying China on behalf of
the shareholder from potential purchasers, then refunded when a new plan was
commenced aimed at getting shares listed for trading in the US over-the-counter
market.





Dong Ying
China was incorporated under the laws of the People’s Republic of China in 2003.
Dong Ying China’s business is the development, manufacture and sale of
pharmaceutical products in China. There are two product lines currently
manufactured and sold as at August 31, 2009 and several other potential products
in various stages of research and development. The product lines currently sold
are Cisatracurium Besylate, a skeletal muscle relaxant, and Clindamycin
Hydrochloride, an antibiotic for penicillin-allergic patients. In May 2008 the
Company discontinued production and sale of its Perphenazine product, an
anti-psychotic drug, due to the cost of manufacturing this product exceeding the
market price. Perphenazine accounted for 14% of sales revenue in the year ended
May 31, 2008. Dong Ying China’s offices and manufacturing facility are in owned
premises located on land used under license in Nantong, China and its research
and development is carried out in Nanjing, China.





On August
20, 2008, the Company entered a share purchase agreement (the “Share Purchase
Agreement”) with the Company’s former majority shareholder, effective
concurrently with the closing of the Share Exchange
Agreement.  Pursuant to the Share Purchase Agreement, the former
majority shareholder acquired all of the capital of Buzz Media, Ltd. (“Buzz Nova
Scotia”), the wholly-owned subsidiary of the Company incorporated in the
Province of Nova Scotia, Canada, in exchange for the payment of
$10.00.





Basis
of presentation – going concern





These
consolidated financial statements of Sinobiopharma, Inc. (the “Company”) have
been prepared on a going-concern basis which assumes that the Company will be
able to realize assets and discharge liabilities in the normal course of
business for the foreseeable future.




For the
first quarter ended August 31, 2009, the Company had a net income of $237,167,
but the cumulative losses since commencement of operations is amounting to
$7,474,111 and has negative working capital as of August 31, 2009, which raises
substantial doubt about the Company's ability to continue as a going
concern.  The ability of the Company to meet its commitments as they
become payable is dependent on the ability of the Company to obtain necessary
financing or achieve a consistently profitable level of
operations.  There are no assurances that the Company will be
successful in achieving these goals.




These
financial statements do not give effect to adjustments to the amounts and
classifications to assets and liabilities that would be necessary should the
Company be unable to continue as a going concern.


8


2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES




Change
of Reporting Entity
 
 As a
result of the Share Exchange closed on September 22, 2008, the former Dongying
BVI shareholders owned a majority of the common stock of the Company. The
transaction was regarded as a reverse merger whereby Dongying BVI was considered
to be the accounting acquirer as its shareholders retained control of the
Company after the Share Exchange, although the Company is the legal parent
company. As such, Dongying BVI (and its historical financial statements) is the
continuing entity for financial reporting purpose. Financial Statements have
been prepared as if Dongying BVI had always been the reporting company and then
on the share exchange date, had changed its name and reorganized its capital
stock.


Principles
of Consolidation and Basis of Presentation





The
accompanying consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in the United States
of America (“U.S. GAAP”) and include the financial statements of the Company and
its subsidiaries. The accompanying unaudited consolidated balance sheet as of
August 31, 2009, unaudited consolidated statements of income and comprehensive
income for the three months ended August 31, 2009 include Sinobiopharma, Inc.
and its directly owned subsidiaries, Dongying BVI, Big Global and Dong Ying
China. The Company’s unaudited consolidated statements of income and
comprehensive income and cash flows for the three months ended August 31, 2008
consist of the financial results of Dongying BVI and its directly owned
subsidiaries, Big Global and Dong Ying China.




All
significant intercompany transactions and balances are eliminated on
consolidation.





The
accompanying unaudited consolidated financial statements as of August 31, 2009
and for the three months ended August 31, 2009 and 2008 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 8-03 of Regulation
S-X applicable to smaller reporting companies. In the opinion of management, the
accompanying unaudited consolidated interim financial statements include all
adjustments considered necessary to ensure the financial statements are not
misleading. Management has evaluated subsequent events that have occurred
through October 15, 2009, the date of issuance of the accompanying interim
financial statements as of and for the three months ended August 31,
2009.





The
unaudited consolidated interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended May 31, 2009 that are included in the Company’s
2009 annual report on 10-K filed with the Securities and Exchange
Commission.





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 157, “Fair Value Measurement” (FAS 157). While this statement does
not require new fair value measurements, it provides guidance on applying fair
value and expands required disclosures. FAS157 is effective for the Company
beginning in fiscal 2008, for fair value measurements of financial assets and
financial liabilities and for fair value measurements of nonfinancial items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis, and is effective beginning in fiscal 2009, for fair value
measurements of nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The adoption of FAS 157 has no material impact on the
Company’s financial statement.





In
December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations, and
FASB Statement No. 160, No controllingInterests in Consolidated Financial
Statements–an amendment to ARB No. 51.
SFAS No. 141(R) and No. 160 require most identifiable assets, liabilities, no
controlling interests, and goodwill acquired in a business combination to be
recorded at “full fair value” and require no controlling interests (previously
referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with no controlling interest
holders. Both Statements are effective for periods beginning on or after
December 15, 2008, and earlier adoption is prohibited. SFAS No. 141(R) will be
applied to business combinations occurring after the effective date. SFAS No.
160 will be applied prospectively to all no controlling interests, including any
that arose before the effective date.  In April 2009, the FASB issued
FSP FAS 141(R)-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, which amends and clarifies FAS141(R) to address
application issues on initial recognition and measurement, subsequent
measurement and disclosure of assets and liabilities arising from contingencies
in a business combination. Other than the change in presentation of no
controlling interests, the adoption of FAS 141(R) and FAS 160 has no impact on
the Company’s financial statement.


9


In May
2009, the FASB issued Statement No. 165, “Subsequent Events” (FAS 165). The
statement established general standards of accounting for and disclosures of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This Statement requires the disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. FAS 165 is
effective for the Company beginning in this second quarter of fiscal
2009.





3.
ACCOUNTS RECEIVABLE





Trade
accounts receivable consists of receivable for sales of product on credit.
Accounts receivable as at August 31, 2009 and May 31, 2009 was $306,503 and
214,178 respectively.





August
      31, 2009
                    (Unaudited)
                  
                  
                  May
      31, 2009
                    (Audited)Accounts
      receivable
                  
                  $
                  308,652
                  
                  
                  $
                  246,515Allowance
      for doubtful accounts
                  
                  
                  (2,149
                  )
                  
                  
                  (32,337
                  )$
                  306,503
                  
                  
                  $
                  214,178





4.
OTHER RECEIVABLES





The total
amount include $423,902 receivable from Agricultural Bank of China
representing the overnight lending made on August 31, 2009, the lending bear no
interest and due on September 1, 2009. Agricultural Bank of China paid back to
the company the whole amount on September 1, 2009.





The rest
$11,930 is the prepaid expenses to Agricultural Bank of China.





5.
INVENTORIES




Inventories
at August 31, 2009 and May 31, 2009 consist of the following:




August
      31, 2009
                    (Unaudited)
                  
                  
                  May
      31, 2009
                    (Audited)Raw
      materials
                  
                  $
                  257,985
                  
                  
                  $
                  401,782Goods
      in process
                  
                  
                  59,272
                  
                  
                  
                  -Finished
      goods
                  
                  
                  237,917
                  
                  
                  
                  145,535$
                  555,174
                  
                  
                  $
                  547,317




10




6.
PROPERTY AND EQUIPMENT




Property
and equipment at August 31, 2009 and May 31, 2009 consist of the
following:





August
      31, 2009
                          (Unaudited)
                        
                        
                        May
      31, 2009
                          (Audited)Buildings
                        
                        $
                        1,987,124
                        
                        
                        $
                        1,990,207Land
      use right
                        
                        
                        404,879
                        
                        
                        
                        405,507Manufacturing
      equipment
                        
                        
                        782,143
                        
                        
                        
                        769,317Office
      furniture and equipment
                        
                        
                        86,911
                        
                        
                        
                        79,391Road
      and grounds
                        
                        
                        212,461
                        
                        
                        
                        212,791Vehicles
                        
                        
                        83,197
                        
                        
                        
                        10,011Leasehold
    improvement
                        
                        
                        31,089
                        
                        
                        
                        -3,587,804
                        
                        
                        
                        3,467,224Less:
      Accumulated depreciation
                        
                        
                        866,558
                        
                        
                        
                        775,966$
                        2,721,246
                        
                        
                        $
                        2,691,258




The
depreciation expense for three months ended August 31, 2009 and August 31, 2008
was $89,884 and $55,195 respectively.





The
Company’s land license, road and grounds and buildings with carrying value of
$2,053,853 are pledged as collateral for the loan from the Agricultural Bank of
China. The face value of the loan is RMB10,000,000 ($1,462,000). The loan bears
interest at the rate of 5.31% per annum paid monthly. The loan is due for
repayment in half May 12, 2010 and June 9, 2010.





7.
INTANGIBLE ASSETS




Intangible
assets consist of the cost of purchased rights to manufacture and sell the
company’s products. The rights were acquired by the Company from two companies
owned 25% and 30% by the Company’s shareholder. The rights have unlimited
duration. The amounts related to particular products are as follow:





August
      31, 2009
                    (Unaudited)
                  
                  
                  May
      31, 2009
                    (Audited)Cisatracurium
      Besylate
                  
                  $
                  732,000
                  
                  
                  $
                  732,000Perindopril
      (manufacturing permit pending)
                  
                  
                  732,000
                  
                  
                  
                  732,0001,464,000
                  
                  
                  
                  1,464,000Less:
      Accumulated amortization
                  
                  
                  165,342
                  
                  
                  
                  145,027$
                  1,298,658
                  
                  
                  $
                  1,318,973





Amortization
for the three months ended August 31, 2009 and August 31, 2008 in the amount of
$20,157 and $20,461 is included in Depreciation and Amortization
expense.




8.
SHORT TERM BANK LOAN




As of May
31, 2009, the balance RMB 5,000,000($732,000) represents loan from Bank of
Communications and it has been repaid in full at June 8, 2009. The loan bears
interest at the rate of 6.37% per annum paid monthly.


11





On June
10, 2009 the Company received a loan in the amount of RMB 10,000,000
(approximately $1,462,000) from the Agricultural Bank of China. The loan bears
interest at the rate of 5.31% per annum paid monthly. The loan is due for
repayment in half May 12, 2010 and June 9, 2010. The Company’s land license,
road and grounds and buildings with carrying value of $2,053,853 are pledged as
collateral for this loan.





The
interest expense from bank loans for the three months ended August 2009 and 2008
was $20,339 and $11,583.





9.
LOANS FROM GOVERNMENT





The
Company has a loan from the Nantong Economic and Technology Development Zone
Administration. The loan bears no interest. The original principal amount of the
loan was RMB20million ($2,923,464 at the exchange rate applicable at August 31,
2009) and was due for repayment in full in March 2007. During 2007 the Company
repaid RMB3,000,000($438,520 at the exchange rate applicable at August 31,
2009).  In December 2007 the Company was granted an extension of the
due date to December 31, 2008. During the year ended December 31, 2008 the
Company repaid RMB2,000,000 ($292,346 at the exchange rate applicable at August
31, 2009). On February 1, 2009 the Company repaid another RMB2,000,000 ($292,346
at the exchange rate applicable at August 31, 2009) and the Company was granted
an extension to December 31, 2009 over the remainder of the loan RMB13, 000, 000
($1,900,251 at the exchange rate applicable at August 31, 2009)





Since the
loan bears no interest, the obligation is carried at its net present value using
interest rates equal to the prevailing Bank of China one-year rate at the time
the loan was received (5.6% in 2004, applied in respect of the 2006 year) or the
date the extension was effective (6.4% in March 2007, applied in respect of the
2007 and 2008 years, 5.6% in February, 2009, applied in respect of the 2009
year). Loan interest expense included in the accounts for the three months ended
August 31, 2009 in the amount of $25,244 (three months ended August 31, 2008 -
$39,385) is determined as the amortization on the interest method basis of the
discount over the remaining period to maturity of the loan.





The
present value of the total government loan was $1,866,585 as of August 31, 2009
and $1,844,193 as of May 31, 2009.





10.
SHAREHOLDER LOANS





Shareholder
loans carry the value of $549,242 and $1,169,032 at August 31, 2009 and May 31,
2009. The loans are all due to Mr. Lequan Huang, the principle shareholder of
the Company and do not bear interest and have no stated repayment
terms.





Imputed
interest of $10,845 and $19,691 three months ended August 31, 2009 and August
31, 2008 has been recorded on the shareholder loans at prevailing Bank of China
one-year rate, (5.6% in 2009 and 7.3% in 2008). The





net
interest calculated is included in interest expense and has been recorded as
additional paid-in capital since the imputed interest is not
payable.





11.RELATED PARTY TRANSACTIONS AND
BALANCES





The
Company has a right of first refusal to purchase rights to any new products
developed by two companies owned 25% and 30% by the Company’s CEO (also a
shareholder), at prices to be negotiated at the time. All of the Company’s
intangible assets ($1,464,000 at cost) have been purchased from those related
companies.





In July
2008, the Company has signed a contract to purchase the technology of
L-Alanyl-L-Glutamine from Meisujining Technology Limited Company (Owned 25%
by the Company’s CEO also a shareholder) for the total price of RMB2,000,000
($292,346), the company paid RMB1,733,333 ($253,367), and recorded as advanced
payment.


12





In July
2009, the Company has signed a contract with Meisujining Technology Limited
Company to purchase the technology of gabexate mesilate for the total price of
RMB 5,000,000 ($730,866). The Company has paid RMB2, 500,000 ($365,433) in
August 2009 and booked as advanced payment.





In August
2009, the Company has signed a technical support contract of Perindopril
rocuronium with SUJI Bio-Medical (Research and Development Limited Company
(Owned 30% by the Company’s CEO also a shareholder) for the total price of
RMB8,000,00 ($1,169,385). The term of contract is from Oct 2010 to Jan 2015. The
Company has accrued RMB400, 000 ($58,469) for the three months ended August 31,
2009 as research and development expenses according to the
contract.





12.
CONCENTRATIONS AND CREDIT RISK





At August
31, 2009 and May 31, 2009, the Company had a credit risk exposure of cash in
banks of approximately $771,970 and $891,132 respectively that is uninsured by
the government authority. To limit exposure to credit risk relating to deposits,
the Company primarily places cash deposits only with large financial institution
in the PRC with acceptable credit rating.





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 as well as by the general
state of the PRC’s economy. The business may be influenced 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.





(1)
            Our
      main products include Clindamycin Hydrochloride and Cisatracurium Besylate
      which accounted for 100% of the Company’s total
  sales.







Three
      months ended August 31,2009
                (Unaudited)
              
              
              2008
                (Unaudited)Amount
      of Sales
              
              
              %
      of Total Sales
              
              
              Amount
      of Sales
              
              
              %
      of Total SalesClindamycin
      Hydrochloride 0.75g
              
              $
              17,342
              
              
              
              1
              %
              
              
              21,792
              
              
              
              2
              %Clindamycin
      Hydrochloride 0.90g
              
              
              36,025
              
              
              
              3
              %
              
              
              24,216
              
              
              
              3
              %Cisatracurium
      Besylate 5mg
              
              
              1,240,397
              
              
              
              96
              %
              
              
              885,195
              
              
              
              95
              %Total
              
              $
              1,293,764
              
              
              
              100
              %
              
              
              931,203
              
              
              
              100
              %





(2)
            Customers
      accounted for over 10% of the Company’s total sales are as
      follows:





Three
      months ended August 31,2009
                          
                          
                          2008(Unaudited)
                          
                          
                          (Unaudited)Amount
      of
                            sales
                          
                          
                          %
      of Total
                            Sales
                          
                          
                          Amount
      of
                            sales
                          
                          
                          %
      of Total
                            SalesCustomer
      A
                          
                          $
                          1,948,718
                          
                          
                          
                          22
                          %
                          
                          $
                          227,472
                          
                          
                          
                          25
                          %Customer
      B
                          
                          $
                          1,454,871
                          
                          
                          
                          16
                          %
                          
                          $
                          -
                          
                          
                          
                          0
                          %


13





(3)   One
supplier accounted for 69% ($266,681) and 10% ($32,000) of the Company’s total
purchase for the three months ended August 31, 2009 and August 31,
2008. The materials that the company is purchasing from that supplier are
Tetrahydropapaverine Hydrocholide, DMPEA and Homoveratric acid which are in the
fully competitive market and can easily be purchased from other
suppliers.





13.
INCOME TAXES





The
Company’s operating subsidiary Dongying China is not subject to Chinese
enterprise income taxes in 2009 due to a two-year tax holiday for wholly-owned
foreign enterprises. The Company’s Chinese operations will be subject to
enterprise income tax starting from January 1, 2010. The Company is subject to
United States income tax to the extent of its operations in the United States.
The Company had no U.S. income tax expense in 2008 or 2009 due to net
losses.





Significant
components of deferred income tax assets as a result of the net losses in U.S.
are as follows:




2009
                  
                  
                  2008Operating
      losses carried forward
                  
                  $
                  303,274
                  
                  
                  $
                  193,072Valuation
      allowance
                  
                  
                  (303,274
                  )
                  
                  
                  (193,072
                  )Net
      deferred income tax assets
                  
                  $
                  -
                  
                  
                  $
                  -




The
Company has tax losses carried forward for United States tax purposes of
approximately $567,858 which will expire in 2029 if not utilized.





14.
COMMON STOCK





On July
10, 2009 the Company issued 100,000 common shares to Emissary Capital Group LLC
in exchange of financial advisory and independent equity research consultation.
The common stock par value is $0.0001 and the market price on July 10, 2009 as
fair value is $0.33. No cash proceed will be paid to the Company for this
issuance.





15.
STOCK-BASED COMPENSATION





On
September 29, 2008, the Company adopted a stock option and incentive plan (the
“2008 Stock Option and Incentive Plan”).  The 2008 Stock Option and
Incentive Plan provides authorization to the Board of Directors to grant Stock
Options and Incentives to a total number of shares of the Company’s common
stock, not to exceed ten million (10,000,000) (post forward stock split) shares.
The following option awards are part of this plan.





On
September 29, 2008, the Company granted to certain directors, officers and
consultants of the Company in aggregate 1,800,000 stock options having an
exercise price of $1.80 per share and an expiry date of five years from the date
of grant.  These stock options have vesting provisions of 10% on the
date of grant and 10% on the last day of each month thereafter beginning on
October 31, 2008.





On
October 2, 2008, the Company granted to certain mid-level managers of Dong Ying
China in aggregate 500,000 stock options having an exercise price of $1.80 per
share and an expiry date of five years from the date of grant.  These
stock options have vesting provisions of 10% on the date of grant and 10% on the
last day of each month thereafter beginning on October 31, 2008.





On
October 22, 2008, the Company granted to a scientific consultant and advisory
board member of the Company 225,000 stock options having an exercise price of
$1.80 per share and an expiry date of five years from the date of
grant.  These stock options have vesting provisions of 10% on the date
of grant and 10% on the last day of each month thereafter beginning on October
31, 2008.


14





A summary
of the Company’s stock option activities is presented below:




Number
      of
                          options
                        
                        
                        Weighted
                          Average
                          Exercise
      Price
                          Per
      Share
                        
                        
                        Weighted
                          Average
      Grant-
                          date
      Fair Value
                          Per
      Share
                        
                        
                        Aggregate
                          Intrinsic
      ValueOptions
      Outstanding,June
      1, 2009
                        
                        
                        2,525,000
                        
                        
                        $
                        1.8
                        
                        
                        $
                        1.28
                        
                        
                        $
                        100,000Options
      granted:August
      31, 2009
                        
                        
                        2,525,000
                        
                        
                        $
                        1.8
                        
                        
                        $
                        1.28
                        
                        
                        $
                        100,000





Compensation
cost related to options to vest in the future will be recognized as the related
options vest.  As of August 31, 2009, all the outstanding options have
been vested as follows:





Vested
options are as follows:


Number
                        outstanding
                      
                      
                      Total
      fair value
                      
                      
                      Weighted
      average grant-
                        date
      fair value per shareOptions vested
      ,August
      31, 2009
                      
                      
                      2,525,000
                      
                      
                      $
                      3,241,250
                      
                      
                      $
                      1.28





If not
previously exercised or canceled, options outstanding at August 31, 2009 will
expire as follows:





Range
      of
                              Exercise
      Prices
                            
                            
                            Number
                            
                            
                            Weighted
      averageExpiry
      Date
                            
                            High
                            
                            
                            Low
                            
                            
                            of
      Shares
                            
                            
                            exercise
      priceSeptember
      29, 2013
                            
                            $
                            1.80
                            
                            
                            $
                            1.80
                            
                            
                            
                            1,800,000
                            
                            
                            $
                            1.80October
      2, 2013
                            
                            $
                            1.80
                            
                            
                            $
                            1.80
                            
                            
                            
                            500,000
                            
                            
                            $
                            1.80October
      22, 2013
                            
                            $
                            1.80
                            
                            
                            $
                            1.80
                            
                            
                            
                            225,000
                            
                            
                            $
                            1.80





The fair
values of the options granted September 29, October 2 and October 22, 2008 were
estimated at values of $1.25 per share, $1.42 per share and $1.25, respectively,
using the Black-Scholes Option Pricing Model with the following weighted average
assumptions:





Volatility:
                          
                          
                          88.3
                          %Risk-free
      interest rate:
                          
                          
                          2.30
                          %Dividend
      yield:
                          
                          
                          —Expected
      lives      (years):
                          
                          
                          5




Option-pricing
models require the use of highly subjective estimates and assumptions including
the expected stock price volatility.  Changes in the underlying
assumptions can materially affect the fair value estimates and therefore, in
management’s opinion, existing models do not necessarily provide reliable
measure of the fair value of the Company’s stock options.


15





16.  NET
INCOME PER SHARE





The
following table sets forth the computation of basic and diluted income per share
for the period indicated:





Three months endedAugust
      31, 2009
                        
                        
                        August
      31, 2008(Unaudited)
                        
                        
                        (Unaudited)Numerator
      used in basic net income per share:Net
      income
                        
                        $
                        237,167
                        
                        
                        
                        147,863Shares
      (denominator):Weighted
      average common shares outstanding
                        
                        
                        79,977,609
                        
                        
                        
                        40,000,000Weighted
      average common shares outstanding used in computing diluted net
      income per ordinary share
                        
                        
                        79,977,609
                        
                        
                        
                        40,000,000Net
      income per common share-basic
                        
                        $
                        0.00
                        
                        
                        
                        0.00Net
      income per common share-diluted
                        
                        $
                        0.00
                        
                        
                        
                        0.00





As of
August 31, 2009, the Company had 2,525,000 common share equivalents outstanding
that could potentially dilute basic income per share in the future, but which
were excluded in the computation of diluted income per share in the periods
presented, as their effect would have been anti-dilutive.




17.  SUBSEQUENT
EVENTS


16


ITEM
2 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





You
should read the following plan of operation together with our financial
statements and related notes appearing elsewhere in this quarterly
report.  This plan of operation contains forward-looking statements
that involve risks, uncertainties, and assumptions.  The actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors.





Overview





The
Company, through its operating subsidiary Dong Ying China, is involved in the
Chinese biopharmaceutical industry. We are engaged in the research, development,
manufacture and marketing of biopharmaceutical products in China. The company
has developed new methods for synthesis of active pharmaceutical ingredient
(“API”) and innovative drug delivery (new formulation) that dramatically reduces
the time and cost of drug development. Our current therapeutic focus is on
anesthesia-assisted agents and cardiovascular drugs. Our R&D focus is new,
innovative methods of synthesizing compounds more rapidly at lower cost, and/or
improved drug formulation with enhanced usability.





Results
of Operations





The
Company realized a net income of $237,167 for the three months ended August 31,
2009, as compared to $147,863 for the three months ended August 31,
2008.





Sales
revenues and cost of sales





Sales
revenue increased 39% to $1,293,764 for the three months ended August 31, 2009,
from $931,203 for the three months ended August 31, 2008.  Gross
profit increased 57% to $962,923 (74% of sales revenue) for the three months
ended August 31, 2009, from $612,428 (66% of revenue) for the three months ended
August 31, 2008.  The increase in sales volume and the improvement in
gross margin are both due to growth in sales of Cisatracurium
Besylate.  Sales of this product increased to $1,240,405 for the three
months ended August 31, 2009, from $865,407 for the three months ended August
31, 2008, representing 96% of sales revenue and 95% of sales revenue for the
three months ended August 31, 2009, and August 31, 2008,
respectively.  At the same time, as volume has increased, cost of
manufacturing Cisatracurium Besylate has decreased which also contributed to the
increased gross margin.





Operating
Expenses





The
operating expensesfor the three months
ended August 31, 2009 is $670,787, representing a 70% increase as compared to
$393,971 for the three months ended August 31, 2008.  The most
significant category of expenses was for the stock-based compensation of
$324,125 for the three months ended August 31, 2009, compared to $426 for the
three months ended August 31, 2008. As of August 31, 2009, all the stock options
have been fully vested and expensed.





The
Company incurred $88,151 in general and administrative expenses for the three
months ended August 31, 2009, and decrease from $142,473 for the three months
ended August 31, 2008.  The decrease is attributed to the expense
spent on the reverse takeover activities in the three months ended August 31,
2008.





The
Research and development expenses declined 34% from $97,404 for the three months
ended August 31, 2008 to $64,302 for the three months ended August 31, 2009.
That’s because after years of development, the technology became
mature and the research and development expenses decreased
correspondingly.


17


Liquidity
and Capital Resources





The
Company had $771,970 in cash at August 31, 2009.  The Company had a
working capital deficiency of $2,621,382 at August 31, 2009.  The
Company has insufficient cash available to sustain operations.  The
operations of Dong Ying China have generated profits for the three months ended
August 31, 2009, but not in a sufficient amount to enable Dong Ying China to pay
current debt due for repayment.  The Company plans to raise capital
through equity finance to provide cash to pay debt of Dong Ying China, fund
further drug product development and to launch new products. The company is
also working in developing markets for the existing products to increase sales
and positive cash flow. In addition, management has arranged a line of credit of
RMB 10,000,000 (approximately $1,464,000) with a Chinese bank and is involved in
negotiations for a possible extension of the due date of the interest-free
loan.





Net cash
used in the operating activities for the three months ended August 31, 2009 was
$179,158 compared to the net cash provided in the operating activities of
$182,650 for the three months ended August 31, 2008, a decrease of $361,808. The
decrease was attributed to the deposit for the purchase of the new technologies
in the amount of $645,229 during the three months ended August 31, 2009 which
net the accrual of stock compensation for the amount $324,125 for the three
months ended August 31, 2009. Net cash used in the investment activities for the
three months ended August 31, 2009 and 2008 was $125,924 and $6,120
respectively. The Company has purchased more fixed assets in the three months
period ended August 31, 2009 than in the same period last year.





Net cash
provided by the financing activities for the three months ended August 31, 2009
was $120,683 and net cash used in the financing activities for the three months
ended August 31, 2008 was $251,190. The difference was because during the three
months ended August 31, 2009 period, the Company had generated cash of $851,387
from net borrowing, and repaid the bank loan in the amount of $730,704. The
payment for the loan during the three months ended August 31, 2008 amounted to
$285,600.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





As a
“smaller reporting company” (as defined by §229.10(f)(1)), we are not required
to provide the information required by this Item.





ITEM
4T. CONTROLS AND PROCEDURES.





Evaluation
of Disclosure Controls and Procedures





Our
management, with the participation of our President, evaluated the effectiveness
of our disclosure controls and procedures as of the end of the period covered by
this report.  Based on that evaluation, our President concluded that
our disclosure controls and procedures as of the end of the period covered by
this report were effective such that the information required to be disclosed by
us in reports filed under the Securities Exchange Act of 1934 is: (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms; and (ii) accumulated and communicated to our management,
including our President, as appropriate to allow timely decisions regarding
disclosure.  A controls system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.





Internal
Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company’s principal executive and principal financial
officers and effected by the company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures
that:





1.
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;


18


2.
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of America and that
      receipts and expenditures of the company are being made only in accordance
      with authorizations of management and directors of the company;
      and





3.
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.





As of
August 31, 2009, management assessed the effectiveness of our internal control
over financial reporting and based on that evaluation, they concluded that,
during the period covered by this report, such internal controls and procedures
were not effective to detect the inappropriate application of US GAAP rules as
more fully described below. This was due to deficiencies that existed in the
design or operation of our internal controls over financial reporting that
adversely affected our internal controls and that may be considered to be
material weaknesses.





The
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee due
to a lack of a majority of independent members and a lack of a majority of
outside directors on our board of directors, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and
procedures; (2) inadequate segregation of duties consistent with control
objectives; and (3) lack of a formal whistleblower policy. The aforementioned
material weaknesses were identified by our Chief Executive Officer in connection
with the review of our financial statements as of August 31, 2009.





Management
believes that the material weaknesses set forth in items (2) and (3) above did
not have an effect on our financial results. However, management believes that
the lack of a functioning audit committee and the lack of a majority of outside
directors on our board of directors results in ineffective oversight in the
establishment and monitoring of required internal controls and procedures, which
could result in a material misstatement in our financial statements in future
periods.





Management’s Remediation
Initiatives





In an
effort to remediate the identified material weaknesses and other deficiencies
and enhance our internal controls, we have initiated, or plan to initiate, the
following series of measures:





1.
            We
      plan to create a position to segregate duties consistent with control
      objectives and plan to increase our personnel resources and technical
      accounting expertise within the accounting function when funds are
      available to us; and





2.
            We
      plan to appoint one or more outside directors to our board of directors
      who shall be appointed to an audit committee resulting in a fully
      functioning audit committee who will undertake the oversight in the
      establishment and monitoring of required internal controls and procedures
      such as reviewing and approving estimates and assumptions made by
      management when funds are available to
us.





Management
believes that the appointment of one or more outside directors, who shall be
appointed to a fully functioning audit committee, will remedy the lack of a
functioning audit committee and a lack of a majority of outside directors on our
Board.





We
anticipate that these initiatives will be at least partially, if not fully,
implemented by May 31, 2010.


19


Changes
in Internal Control Over Financial Reporting





There
have been no changes in our internal controls over financial reporting that
occurred during our fiscal quarter of the period covered by this quarterly
report on Form 10-Q that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.





PART
II - OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





We are
not a party to any pending legal proceeding. We are not aware of any pending
legal proceeding to which any of our officers, directors, or any beneficial
holders of 5% or more of our voting securities are adverse to us or have a
material interest adverse to us.





ITEM
1A. RISK FACTORS





As a
“smaller reporting company” (as defined by §229.10(f)(1)), we are not required
to provide the information required by this Item.





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





Not
applicable.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the quarterly period ended August
31, 2009.





ITEM
5. OTHER INFORMATION





Not
applicable.





ITEM
6. EXHIBITS





(a)
            Exhibit
      List





31.1
            Certificate
      pursuant to Rule 13a-14(a)


31.2
            Certificate
      pursuant to Rule 13a-14(a)


32.1
            Certificate
      pursuant to 18 U.S.C. §1350


32.2
            Certificate
      pursuant to 18 U.S.C. §1350


20


SIGNATURE





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





SINOBIOPHARMA,
      INC.
                      (Registrant)Date:  October
      15, 2009
                    By: /s/ Lequn Lee HuangLequn
      Lee HuangPresident,
      CEO, Treasurer and Director
                      (Principal
      Executive Officer)




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