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 February 28, 2009.





OR


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 333-144910





SINOBIOPHARMA,
INC.


(Exact
Name of Registrant as Specified in its Charter)


Nevada
            26-3002371(State
      or other Jurisdiction of
              Incorporation
      or Organization)
            (IRS
      Employer
              Identification
      Number)8
      Zhong Tian Road
              Nantong
      City, Jiangsu Province, China
            226009(Address
      of Principal Executive Offices)
            (Zip
      Code)011-86-51-385328336
              (Registrant's
      Telephone Number, Including Area Code)N/A
              (Former
      name, former address and former fiscal year, if changed since last
      report)








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





Yes x No o




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





Large
accelerated filer o                                                                                                     Accelerated
filer o


Non-accelerated
filer   o (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 o  No x





Applicable
only to issuers involved in bankruptcy proceedings during the preceding five
years:





Check
whether the registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.





Yes o  No o





Applicable
only to corporate issuers:





Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date.





Class
            Outstanding
      as of April 15, 2009Common
      Stock, $0.0001 par value
            79,920,000









TABLE
OF CONTENTS




Forward
      Looking Statements
            1Use
      of Names
            1Part
      I.  Financial Information
            2Item
      1.  Financial Statements
            2Item
      2.  Management’s Discussion and Analysis or Plan of
      Operation
            21Item
      3.  Quantitative and qualitative disclosures about market
      risk
            23Item
      4.  Controls and Procedures
            23Part
      II.  Other Information
            24Item
      1.  Legal Proceedings
            24Item
      1A.  Risk Factors
            24Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
            40Item
      3.  Defaults Upon Senior Securities
            40Item
      4.  Submission of Matters to a Vote of Security
      Holders
            40Item
      5.  Other Information
            40Item
      6. Exhibits
            40







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
annual 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 periodic 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 annual report.





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.




1





PART
I.  FINANCIAL INFORMATION





ITEM
1.  FINANCIAL STATEMENTS




SINOBIOPHARMA,
INC.
 Consolidated
Balance Sheet
 (Expressed
in US Dollars)
 Unaudited-
Prepared by Management




Note
      1 - Basis of Presentation - going concern
              
              February
      28
              
              
              May
      312009
              
              
              2008pro
      formaASSETSCURRENT
      ASSETSCash
              
              $
              501,211
              
              
              $
              267,327Accounts
      receivable (Note 3)
              
              
              216,147
              
              
              
              80,609Loans
      to related parties
              
              
              -
              
              
              
              5,760Inventory
      (Note 4)
              
              
              407,966
              
              
              
              420,958Other
      current assets (Note 5)
              
              
              311,763
              
              
              
              117,672Total
      current assets
              
              
              1,437,087
              
              
              
              892,326Fixed
      assets (Note 6)
              
              
              2,738,109
              
              
              
              2,742,108Intangible
      assets (Note 7)
              
              
              1,332,248
              
              
              
              1,356,750Total
      assets
              
              $
              5,507,444
              
              
              $
              4,991,184LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESLoans
      payable (Note 8)
              
              $
              2,649,801
              
              
              $
              2,458,910Accounts
      payable
              
              
              392,154
              
              
              
              598,950Customer
      deposits (Note 9)
              
              
              235,444
              
              
              
              442,272Shareholder
      loans (Note 10)
              
              
              1,268,176
              
              
              
              1,086,380Other
      current liabilities
              
              
              501,959
              
              
              
              355,821Total
      current liabilities
              
              
              5,047,534
              
              
              
              4,942,333COMMITMENTS
      AND CONTINGENCIES (Notes 1, 2, 3, 4, 5, 7, 8, 12 and 14)STOCKHOLDERS'
      EQUITYCommon
      stock (Note 13)Authorized
      2,500,000,000 shares at par value of $US 0.0001 eachIssued and outstanding 79,900,000
      shares
              
              
              7,990
              
              
              
              7,990Additional
      paid-in capital
              
              
              7,224,334
              
              
              
              5,222,862Subscriptions
      received
              
              
              20,000
              
              
              
              -Deficit
              
              
              (7,016,334
              )
              
              
              (5,393,642
              )Accumulated
      other comprehensive income
              
              
              223,920
              
              
              
              211,641Total
      stockholders' equity
              
              
              459,910
              
              
              
              48,851Total
      liabilities and stockholder's equity
              
              $
              5,507,444
              
              
              $
              4,991,184
  The
accompanying notes to the consolidated financial statements are an integral part
of these statements.


2




SINOBIOPHARMA, INC.
 Consolidated
Statements of Operations
 (Expressed
in US Dollars)
 Unaudited-
Prepared by Management
 
 Three
      Months Ended
              
              
              Nine
      Months EndedFebruary
      28,
                2009
              
              
              February
      29,
                2008
                (pro
      forma)
              
              
              February
      28,
                2009
              
              
              February
      29,
                2008
                (pro
      forma)REVENUE$
              813,326
              
              
              $
              586,929
              
              
              $
              2,715,702
              
              
              $
              1,170,677Cost
      of goods sold
              
              
              221,015
              
              
              
              267,272
              
              
              
              900,211
              
              
              
              735,011Gross
      profit
              
              
              592,311
              
              
              
              319,657
              
              
              
              1,815,491
              
              
              
              435,666EXPENSESAdvertising
              
              
              8,092
              
              
              
              89
              
              
              
              14,784
              
              
              
              1,820Depreciation
      and amortization
              
              
              22,591
              
              
              
              20,359
              
              
              
              74,482
              
              
              
              83,832General
      and administration
              
              
              176,830
              
              
              
              181,564
              
              
              
              457,494
              
              
              
              330,425Interest
      and bank charges
              
              
              53,399
              
              
              
              60,576
              
              
              
              168,085
              
              
              
              132,629Professional
      fees
              
              
              27,939
              
              
              
              -
              
              
              
              318,048
              
              
              
              30,036Research
      and development
              
              
              27,352
              
              
              
              35,313
              
              
              
              157,771
              
              
              
              47,772Salaries
      and benefits
              
              
              69,017
              
              
              
              37,978
              
              
              
              177,326
              
              
              
              56,333Stock-based
      compensation
              
              
              972,375
              
              
              
              -
              
              
              
              1,944,750
              
              
              
              -Travel
              
              
              61,164
              
              
              
              40,004
              
              
              
              221,807
              
              
              
              59,869Write-down of impaired intangible
      assets
              
              
              -
              
              
              
              376,972
              
              
              
              -
              
              
              
              376,972Write-down of impaired
      inventory
              
              
              -
              
              
              
              7,000
              
              
              
              -
              
              
              
              7,000Total
      expenses
              
              
              1,418,759
              
              
              
              759,855
              
              
              
              3,534,547
              
              
              
              1,126,688Net
      (loss) for the period from operations
              
              
              (826,448
              )
              
              
              (440,198
              )
              
              
              (1,719,056
              )
              
              
              (691,022
              )OTHER
      INCOME AND EXPENSESGain
      on debt renegotiation
              
              
              -
              
              
              
              61,589
              
              
              
              -
              
              
              
              246,350Income
      (loss) from discount of no-interest loan
              
              
              101,132
              
              
              
              -
              
              
              
              96,364
              
              
              
              -Net
      income (loss) for the period
              
              
              (725,316
              )
              
              
              (378,609
              )
              
              
              (1,622,692
              )
              
              
              (444,672
              )Other
      comprehensive income (loss)Foreign
      currency translation
              
              $
              4,438
              
              
              $
              (3,568
              )
              
              $
              12,279
              
              
              $
              22,047Comprehensive
      income (loss)
              
              
              (720,878
              )
              
              
              (382,177
              )
              
              
              (1,610,413
              )
              
              
              (422,625
              )Net
      (loss) per common share - basic and fully diluted:Net
      (loss) for the period
              
              $
              (0.01
              )
              
              $
              nil
              
              
              $
              (0.02
              )
              
              $
              nilWeighted
      average number of common stock outstanding
              
              
              79,900,000
              
              
              
              79,900,000
              
              
              
              79,900,000
              
              
              
              79,900,000
  The
accompanying notes to the consolidated financial statements are an integral part
of these statements.
 
 3




SINOBIOPHARMA,
INC.
 Consolidated
Statements of Cash Flows
 (Expressed
in US Dollars)
 Unaudited-
Prepared by Management
 
 
 Three
      Months Ended
                
                
                Nine
      Months EndedFebruary
      28,
                  2009
                
                
                February
      29, 2008
                  (pro
      forma)
                
                
                February
      28,
                  2009
                
                
                February
      29, 2008
                  (pro
      forma)Cash
      and cash equivalent from (used in) operating activities:Net
      income (loss)
                
                $
                (725,316
                )
                
                $
                (378,609
                )
                
                $
                (1,622,692
                )
                
                $
                (444,672
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      of fixed assets
                
                
                57,199
                
                
                
                50,698
                
                
                
                181,130
                
                
                
                152,093Amortization
      of intangible assets
                
                
                14,964
                
                
                
                10,204
                
                
                
                45,609
                
                
                
                30,614Loss
      on disposition of fixed assets
                
                
                -
                
                
                
                5,491
                
                
                
                426
                
                
                
                10,982Write-down
      of intangible assets
                
                
                -
                
                
                
                376,972
                
                
                
                -
                
                
                
                376,972Write-down
      of inventory
                
                
                -
                
                
                
                7,000
                
                
                
                -
                
                
                
                7,000Imputed
      interest expense on shareholders' loans
                
                
                16,555
                
                
                
                317
                
                
                
                56,722
                
                
                
                949Amortization
      of discount in interest expense
                
                
                32,840
                
                
                
                58,604
                
                
                
                105,311
                
                
                
                131,072Gain
      on debt renegotiation
                
                
                -
                
                
                
                (61,589
                )
                
                
                -
                
                
                
                (246,350
                )Stock-based
      compensation
                
                
                972,375
                
                
                
                -
                
                
                
                1,944,750
                
                
                
                -Loss
      (income) from discount of no-interest loan
                
                
                (101,132
                )
                
                
                -
                
                
                
                (96,364
                )
                
                
                -Net
      change in operating assets and liabilities:Accounts
      receivable
                
                
                17,064
                
                
                
                (14,277
                )
                
                
                (135,538
                )
                
                
                (25,524
                )Inventory
                
                
                10,809
                
                
                
                (53,397
                )
                
                
                12,992
                
                
                
                (81,299
                )Other
      current assets
                
                
                63,622
                
                
                
                (9,833
                )
                
                
                (194,091
                )
                
                
                67,032Accounts
      payable
                
                
                (379,543
                )
                
                
                9,655
                
                
                
                (206,796
                )
                
                
                129,964Customer
      deposits
                
                
                (56,117
                )
                
                
                (61,554
                )
                
                
                (206,828
                )
                
                
                45,585Other
      current liabilities
                
                
                41,618
                
                
                
                158,756
                
                
                
                146,138
                
                
                
                258,625Net
      cash and cash equivalent from (used in) operating
    activities
                
                
                (35,062
                )
                
                
                98,438
                
                
                
                30,769
                
                
                
                413,043Cash
      and cash equivalent from (used in) investing activities:Purchases
      of fixed assets
                
                
                (53,705
                )
                
                
                (40,424
                )
                
                
                (138,320
                )
                
                
                (315,456
                )Purchase
      of intangible assets
                
                
                -
                
                
                
                (171,125
                )
                
                
                -
                
                
                
                (513,375
                )Net
      cash and cash equivalent from (used in) investing
    activities
                
                
                (53,705
                )
                
                
                (211,549
                )
                
                
                (138,320
                )
                
                
                (828,831
                )Cash
      and cash equivalent from financing activities:Repayment
      of loans by unrelated parties
                
                
                -
                
                
                
                29,728
                
                
                
                -
                
                
                
                59,456Share
      subscriptions received
                
                
                -
                
                
                
                -
                
                
                
                20,000
                
                
                
                -Repayments
      of loans by related parties
                
                
                5,712
                
                
                
                1,332
                
                
                
                5,712
                
                
                
                2,665Loans
      received from unrelated parties
                
                
                731,000
                
                
                
                -
                
                
                
                731,000
                
                
                
                -Repayments
      of loans payable
                
                
                (288,800
                )
                
                
                (197,250
                )
                
                
                (576,800
                )
                
                
                (394,500
                )Loans
      received from shareholders
                
                
                0
                
                
                
                174,611
                
                
                
                162,694
                
                
                
                615,676Net
      cash and cash equivalent from (used in) financing
    activities
                
                
                447,912
                
                
                
                8,421
                
                
                
                342,606
                
                
                
                283,297Effect
      of other comprehensive income (loss) on cash
                
                
                (5,072
                )
                
                
                (1,318
                )
                
                
                (1,171
                )
                
                
                (4,091
                )Increase
      (decrease) in cash and cash equivalent
                
                
                354,073
                
                
                
                (106,008
                )
                
                
                233,884
                
                
                
                (136,582
                )Cash
      and cash equivalent, beginning of period
                
                
                147,138
                
                
                
                196,493
                
                
                
                267,327
                
                
                
                227,067Cash
      and cash equivalent, end of period
                
                $
                501,211
                
                
                $
                90,485
                
                
                $
                501,211
                
                
                $
                90,485
  The
accompanying notes to the consolidated financial statements are an integral part
of these statements.
  4
  SINOBIOPHARMA,
INC.
 Consolidated
Statement of Stockholders' Equity
 (Expressed
in US Dollars)
 Unaudited-
Prepared by Management
  Common
      Stock
                
                
                Amount
                
                
                Additional
                  paid-in
      capital
                
                
                Subscriptions
      received
                
                
                Deficit
                
                
                Accumulated
      Other Comprehensive Income
                
                
                Stockholders’
      EquityBalance
      May 31, 2008 as previously reported
                
                
                100,000,500
                
                
                $
                10,000
                
                
                $
                65,000
                
                
                $
                -
                
                
                $
                (95,196
                )
                
                $
                415
                
                
                $
                (19,781
                )Capital
      changes to give effect to reverse take-over
                
                
                40,000,000
                
                
                
                4,000
                
                
                
                5,151,852
                
                
                
                -
                
                
                
                (5,298,446
                )
                
                
                211,226
                
                
                
                68,632Cancellation
      of shares
                
                
                (60,100,500
                )
                
                
                (6,010
                )
                
                
                6,010
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance
      May 31, 2008, pro forma
                
                
                79,900,000
                
                
                $
                7,990
                
                
                $
                5,222,862
                
                
                $
                -
                
                
                $
                (5,393,642
                )
                
                $
                211,641
                
                
                $
                48,851Stock-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                1,944,750
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,944,750Subscriptions
      received pursuant to private placement
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                20,000Imputed
      interest on shareholders' loans
                
                
                -
                
                
                
                -
                
                
                
                56,722
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                56,722Net
      income (loss) for the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,622,692
                )
                
                
                12,279
                
                
                
                (1,610,413
                )Balance
      February 28, 2009
                
                
                79,900,000
                
                
                $
                7,990
                
                
                $
                7,224,334
                
                
                $
                20,000
                
                
                $
                (7,016,334
                )
                
                $
                223,920
                
                
                $
                459,910
  5
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  1.
BASIS OF PRESENTATION – GOING CONCERN
 Theseconsolidated
financial statementsofSinobiopharma,
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 businessfor
the foreseeable future.
  The
Company has experienced losses sincecommencement
of operationsamounting
to $7,016,334and
has negative working capitalas
ofFebruary
28,
2009,
whichraise
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 achieveaconsistentlyprofitable
level of operations.  Thereare
no assurances that the Company will be successful in achieving these
goals.
  The
Companyis
in the process ofdeveloping
markets for its existing products andresearching,
developing, testingandevaluatingproposed
new pharmaceutical products,and
has
not yet determined whether theseproductsare
technically or economically feasible.The
underlying value of thecompanyis
dependent on thesuccessful
implementation of one or more of these products,
the ability of the Company to obtain the necessary financing
to complete development and upon future profitable production or sufficient
proceeds from the disposition ofmanufacturing
rights.Management’s
plan isto
actively search for new sources of capitalthroughequity
investment.
  These
financial statements
do not give effect to adjustmentsto
the amounts and classifications to assets and liabilitiesthat
would be necessary should the Company be unable to continue as a going
concern.
  2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Organization and
Description 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 will 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.
  6
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
 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 incorporated a subsidiary, “Sinobiopharma, Inc.” with
an investment of $0.001 and completed a merger with Sinobiopharma, Inc. 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 effected 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 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.
  Dongying
BVIwas incorporated
under the laws oftheBritish Virgin
IslandsonJanuary 29,
2008.
OnMay
13, 2008Dongying
BVIacquired
a 100% interest in Big Global Limited (“Big Global”) from the sole shareholder
of Dongying BVIfor
consideration of $1.00. The purpose of the transaction was the change of
domicile to the British Virgin
Islands.Accordingly, these financial statements include balance sheets for two
years presented as if the transaction had occurred on January 1,
2007.
  7
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  Big
Global was
incorporated under the laws ofHong 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 ofthe
People’s Republic ofChinain
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 February 28,
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 11% of sales revenue in the five months ended May 31, 2008 (18% in 2007).
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.
  Principles
of Consolidation
  The
consolidated financial statements include accounts of the Company and its
subsidiaries, Dongying BVI,Big
Global and Dong Ying China.All significant inter-company balances and transactions are eliminated.
The net effect of the series of transactions comprising the Share Exchange
Agreement, closed on September 22, 2008, and the cancellation of shares on
September 26, 2008 is to transfer controlling interest in the company to the
former shareholders of Dongying BVI. Accordingly the transactions have been
treated as a reverse take-over, and all assets and liabilities of the
consolidated entity after the transaction are carried at their same book values
as before the transaction.
  8
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  Cash
and Cash Equivalents
  Cash
equivalents comprise certain highly liquid instruments with a maturity of three
months or less when purchased.  As at February 28,
2009and
May 31, 2008, the Company did not have any cash equivalents.
  Inventory
  Inventory
is carried at the lower of cost and estimated net realizable value. Raw
materials cost is determined on a moving average basis. Manufacturing costs are
applied to goods in process on a full cost basis. Cost of finished goods on hand
at the balance sheet date is determined on a moving average basis.
  Revenue
recognition
  Revenues
are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No. 104,
"Revenue Recognition."  Under SAB 104, product revenues (or service
revenues) are recognized when persuasive evidence of an arrangement exists,
delivery has occurred (or service has been performed), the sales price is fixed
and determinable and collectibility is reasonably assured.
  Concentrations
  The
Company’s operations are located in the People’s Republic ofChina.
  The
Company’s largest two customers account for 25% of sales revenue and the largest
five customers account for 40% of sales revenue.
  AtFebruary
28, 2009the
Company had only one product that has patent protection, theCisatracurium Besylate product, for which a patent has been applied but
not yet granted.
  Research
and Development Expenditures
  Expenditures
on research and development activities, including assets acquired for use in
research and development activities, are charged to operations as
incurred.
  Asset
Retirement Obligations
  The
Company has adopted SFAS No. 143, Accounting for
Asset Retirement Obligations which requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred. The Company has no asset retirement
obligations.
  9
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  Fixed
Assets
  Fixed
assets are carried at cost less a provision for depreciation on a straight-line
basis over their estimated useful lives. Each asset is estimated to have a
residual value of 10% of cost at the end of its useful life. Estimated useful
lives are as follows:
  Buildings
      and building equipment
                    10-20
      yearsLand
      license
                    40
      yearsManufacturing
      equipment
                    5 -
      10 yearsOffice
      furniture and equipment
                    5
      yearsRoad
                    20
      yearsVehicles
                    8
      years
  Intangible
Assets
  Intangible
assets are carried at cost less a provision for amortization on a straight-line
basis over their estimated useful lives of 20 years.
  Advertising
Expenses
  Advertising
expenses are expensed as incurred.
  Foreign
Currency
  The
parent company is located in the United States.  It maintains a
lawyer’s trust account with a lawyer in Canada. The functional currency is the
U.S. Dollar. Transactions in foreign currencies, if any, are remeasured into the
functional currency at the rate in effect at the time of the transaction.
Remeasurement gains and losses that arise from exchange rate fluctuations are
included in income or loss from operations. Monetary assets and liabilities
denominated in foreign currencies are presented in the balance sheet at the rate
in effect at the balance sheet date.
  Dongying
BVIis
located in theBritish Virgin
Islands.  It maintains no bank balances. The functional
currency is the U.S. Dollar. Transactions in foreign currencies, if any, are
remeasured into the functional currency at the rate in effect at the time of the
transaction. Remeasurement gains and losses that arise from exchange rate
fluctuations are included in income or loss from operations. Monetary assets and
liabilities denominated in foreign currencies are presented in the balance sheet
at the rate in effect at the balance sheet date.
  Big
Global is located in Hong Kong.  It maintains no bank balances. The
functional currency is the U.S. Dollar. Transactions in foreign currencies, if
any, are remeasured into the functional currency at the rate in effect at the
time of the transaction. Remeasurement gains and losses that arise from exchange
rate fluctuations are included in income or loss from operations. Monetary
assets and liabilities denominated in foreign currencies are presented in the
balance sheet at the rate in effect at the balance sheet date.
  10
 SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
 The
operations of Dong Ying China are located in China, and its accounting records
are maintained in Chinese Renminbi Yuan (symbol “¥”). The functional currency is
the Chinese Renminbi Yuan. Transactions in foreign currencies other than the
functional currency, if any, are remeasured into the functional currency at the
rate in effect at the time of the transaction. Remeasurement gains and losses
that arise from exchange rate fluctuations are included in income or loss from
operations. Monetary assets and liabilities denominated in the functional
currency are translated into U.S. Dollars at the rate in effect at the balance
sheet date.  Revenue and expenses denominated in the functional
currency are translated at the average exchange rate.  Other
comprehensive income (loss) includes the foreign exchange gains that arise from
translating from the functional currency into U.S. Dollars.
  Use
of Estimates
  The
preparation of the Company’s consolidated financial statements in conformity
with generally accepted accounting principles of the United States of America
requires management to make estimates and assumptions that affect the 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 makes
its best estimate of the ultimate outcome for these items based on historical
trends and other information available when the financial statements are
prepared.    Actual results could differ from those
estimates.
  Loss
Per Share
  Basic
earnings (loss) per share of common stock are computed by dividing the net
earnings (loss) by the weighted average number of (post-split) common shares
outstanding during the period. Diluted earnings (loss) per share are equal to
the basic earnings (loss) per share for the three and six month periods ended
February 28,
2009 and 2008 because the common stock equivalents outstanding are
anti-dilutive.
  Fair
Value of Financial Instruments
  The
Company’s financial instruments consist of cash, accounts receivable, loans
payable and accounts payable at February 28,
2009 and May 31, 2008, and loans receivable at May 31, 2008. Accounts
receivable and loans receivable are carried at estimated net realizable values
net of provisions for uncollectible amounts. Uncollectible accounts are charged
off when determined to be unrecoverable. The loan payable is carried at
discounted present value – see Note 9. The carrying values of the remaining
financial instruments reflected in these financial statements approximate their
fair values due to the short-term maturity of the instruments.
  Comprehensive
Income
  The
Company has adopted Statement of Financial Accounting Standards (SFAS) No. 130,
“Reporting Comprehensive Income”. Comprehensive income includes net income and
all changes in equity during a period that arise from non-owner sources, such as
foreign currency items and unrealized gains and losses on certain investments in
equity securities.
  11
 SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  Income
taxes
  The
Company records deferred taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes."  The statement requires recognition of deferred tax assets and
liabilities for temporary differences between the tax bases of assets and
liabilities and the amounts at which they are carried in the financial
statements, based upon the enacted tax rates in effect for the year in which the
differences are expected to reverse.  A valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
  Product
liability
  These
financial statements do not include a provision for product liability as the
Company is not directly liable to consumers for its products under the laws of
China.
  Environmental
remediation
  The
Company has no obligations for environmental remediation.
  Impairment
of Long-Lived Assets
  The
Company periodically analyzes its long-lived assets for potential impairment,
assessing the appropriateness of lives and recoverability of unamortized
balances through measurement of undiscounted operation cash flows in accordance
with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-lived Assets.If impairment
is deemed to exist, the asset will be written down to its fair
value.  Fair value is generally determined using a discounted cash
flow analysis.
  New
Accounting Pronouncements
  In March
2006, the FASB issued SFAS No. 156, “Accounting
for Servicing of Financial Assets,” (“SFAS No. 156”), which amends SFAS
No. 140,”
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.” In a significant change to current guidance, SFAS No.
156 permits an entity to choose either of the following subsequent measurement
methods for each class of separately recognized servicing assets and servicing
liabilities:  (1) Amortization Method or (2) Fair Value Measurement
Method. SFAS No. 156 is effective as of the beginning of an entity’s first
fiscal year that begins after September 15, 2006. The
adoption of SFAS No. 156doesnot have any impact on the Company’s
consolidated financial statements.
  In June
2006, the FASB issued SFAS Board Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – an Interpretation of FASB statement No.
109” (“FIN 48”), which clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with FASB
No. 109. The interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.  This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and
transition.  FIN 48 is effective for fiscal years beginning after
December 15, 2006.  Earlier application of the provisions of FIN 48 is
encouraged if the enterprise has not yet issued financial statements, including
interim financial statements, in the period this Interpretation is
adopted.  The
adoption ofFIN
48doesnot have any impact on the Company’s
consolidated financial statements.
  12
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.”  This statement defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosure about fair value
measurements.  This statement applies under other accounting
pronouncements that require or permit fair value measurement, the FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute.  This statement does not require any
new fair value measurements.  However, for some entities, the
application of the statement will change current practice.  This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years.  The Company does not expect the adoption of this pronouncement
to have a material impact on its financial statements.
  In
September 2006, the FASB issued SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106 and 123(R).”  This
statement improves financial reporting by requiring an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multi-employer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets for a not-for-profit
organization.  This statement also improves financial reporting by
requiring an employer to measure the funded status of a plan as of the date of
its year-end statement of financial position, with limited
exceptions.  The
adoption ofFIN
48doesnot have any impact on the Company’s
consolidated financial statements.
  There
were various other accounting standards and interpretationsrecentlyissued,
none of which isexpected
to have a material impact on the Company's financial position, operations or
cash flows.
  3.
ACCOUNTS RECEIVABLE
  Trade
accounts receivable consists of receivable for sales of product on credit.
Accounts receivable as at February 28,
2009 are net of allowance for doubtful accounts in the amount of $28,536
(May 31, 2008 - $22,848).
  13
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  4.
INVENTORY
  Inventory
consists of the following:
 February 28,
      2009
                  
                  
                  May 31,2008Raw
      materials
                  
                  $
                  162,596
                  
                  
                  $
                  200,041Goods
      in process
                  
                  
                  63,667
                  
                  
                  
                  74,689Finished
      goods
                  
                  
                  181,703
                  
                  
                  
                  146,228$
                  407,966
                  
                  
                  $
                  420,958
  5.
OTHER CURRENT ASSETS
  The
Company has loans receivable from other companies and from employees totaling
$82,101 (May 31, 2008 - $60,498) which have a carrying value of $10,453 (May 31,
2008 -$9,072) after allowance for doubtful debts. The loans do not bear interest
and have no specified terms of repayment.
  The
reminder of other current assets consists primarily of deposits paid in advance
to suppliers in respect of purchases yet to be received.
  6.
FIXED ASSETS
  Fixed
assets consist of the following:
 February 28,
      2009
                  
                  
                  May
      31, 2008Buildings
                  
                  $
                  1,987,488
                  
                  
                  $
                  1,959,020Land
      license
                  
                  
                  404,953
                  
                  
                  
                  398,859Manufacturing
      equipment
                  
                  
                  765,093
                  
                  
                  
                  672,425Office
      furniture and equipment
                  
                  
                  70,981
                  
                  
                  
                  17,856Road
      and grounds
                  
                  
                  212,501
                  
                  
                  
                  209,303Vehicles
                  
                  
                  9,997
                  
                  
                  
                  9,8473,451,013
                  
                  
                  
                  3,267,310Less:
      Accumulated depreciation
                  
                  
                  712,904
                  
                  
                  
                  525,202$
                  2,738,109
                  
                  
                  $
                  2,742,108
  The
land license is for the use of the land on which the Company’s buildings are
situated, and is for a term expiring June 1, 2054. At the end of the license,
the Company expects to have an option to renew the license.
  14
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  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:
  February 28,
      2009
                  
                  
                  May
      31, 2008Clindamycin
      Hydrochloride
                  
                  $
                  -
                  
                  
                  $
                  -Cisatracurium
      Besylate
                  
                  
                  731,000
                  
                  
                  
                  720,000Perindopril
      (manufacturing permit pending)
                  
                  
                  731,000
                  
                  
                  
                  720,0001,462,000
                  
                  
                  
                  1,440,000Less:
      Accumulated amortization
                  
                  
                  129,752
                  
                  
                  
                  83,250$
                  1,332,248
                  
                  
                  $
                  1,356,750
  Amortization
for the nine months ended February 28,
2009 in the amount of $45,609 (2007 - $30,614) is included in
Depreciation and Amortization expense.
  Intangible
assets consisting of rights to manufacture and sell the following products were
acquired by the Company in 2004 from two companies owned 25% and 30% by the
Company’s shareholder and have been subsequently deemed not realizable through
impairment analysis:
  Product
                  
                  Purchase
                    price
                  
                  Year
                    impaired
                  
                  Impaired
      amount
                    (net
      of accumulated amortization)Prulifloxacin
                  
                  $
                  967,004
                  
                  2006
                  
                  $
                  836,522Lansoprazole
                  
                  
                  966,400
                  
                  2006
                  
                  
                  894,520Azithromycin
                  
                  
                  326,160
                  
                  2006
                  
                  
                  301,900Ganciclovir
                  
                  
                  331,898
                  
                  2006
                  
                  
                  307,212Clarithromycin
                  
                  
                  81,812
                  
                  2006
                  
                  
                  75,727Olmesartan
                  
                  
                  314,080
                  
                  2006
                  
                  
                  290,719Eplerenone
                  
                  
                  362,400
                  
                  2006
                  
                  
                  335,445Total
      2006 impairment
                  
                  $
                  3,349,754
                  
                  
                  
                  $
                  3,042,045Clindamycin
      hydrochloride
                  
                  
                  362,400
                  
                  2007
                  
                  
                  376,972$
                  3,712,154
                  
                  
                  
                  $
                  3,419,017
  15
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  8.
LOANS PAYABLE
  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 ¥20 Million ($2,924,000 at the exchange rate applicable at February 28,
2009) and was due for repayment in full in March 2007. During 2007 the
Company repaid ¥3,000,000.  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 ¥2,000,000. On February1, 2009the
Company repaid  another ¥2,000,000 and the Company was granted an
extension to December 31, 2009 over the remainder of the loan.  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 nine months
ended February 28,
2009 in the amount of $101,268 (2007 - $131,072) is determined as the
amortization on the straight-line basis of the discount over the remaining
period to maturity of the loan. Loss from discount of no-interest loan
represents the difference between the remaining unamortized balance of the loan
discount and the recalculation of the loan discount as of the date of the loan
repayment in the period.
  On
March 31, 2008 the Company received a loan of $100,000 from an unrelated party.
The loan has no interest or fixed repayment terms. It has been the Company’s
intention to repay the loan by the end of 2008. Since the loan bears no
interest, the obligation was carried until December 31, 2008 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 (7.3%). Since December 31, 2008 the obligation
is overdue for payment and a new date for repayment has not been negotiated.
Accordingly imputed interest is recorded at the Bank of China one-year rate
applicable for the current year. Loan interest expense included in the accounts
for the nine months ended February 28,
2009 in the amount of $4,043 is determined as the amortization on the
straight-line basis of the discount over the remaining period to maturity of the
loan, and imputed interest has been charged to interest expense and added to
additional paid-in capital.
  9.
CUSTOMER DEPOSITS
  Customer
deposits consist of deposits received in advance from customers in respect of
sales yet to be delivered and recognized.
  10.
SHAREHOLDER LOANS
  The
loans from shareholders in the aggregate amount of $1,268,176 (May 31, 2008 -
$1,086,380) do not bear interest and have no stated repayment terms. Imputed
interest has been recorded on the shareholder loan at prevailing Bank of China
one-year rate, currently 5.6%. 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.
  16
 SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
 11.RELATED PARTY
TRANSACTIONS
  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 past
and present intangible assets have been purchased from those related companies.
The Company has written down intangible assets with carrying values totaling
$3,419,017 as they were deemed not realizable through impairment analysis. See
Note 7.
  12.
INCOME TAXES
  The
Company is subject to Chinese income taxes.  The Company had no income
tax expense during the reported periods due to net operating
losses.
  A
reconciliation of income tax expense to the amount computed at the statutory
rates is as follows:
  2009
                  
                  
                  2008Income
      (loss) for the nine months ended February 28
                  
                  $
                  (1,622,692
                  )
                  
                  $
                  (444,672
                  )Average
      statutory tax rate in China
                  
                  
                  33
                  %
                  
                  
                  33
                  %Expected
      income tax provision
                  
                  $
                  (535,488
                  )
                  
                  $
                  (146,742
                  )Tax
      basis of deferred expenses in excess of book cost
                  
                  
                  (29,112
                  )
                  
                  
                  138,711Non-deductible
      interest expense
                  
                  
                  53,471
                  
                  
                  
                  43,567Non-taxable
      gain on debt renegotiation and discount
                  
                  
                  (31,800
                  )
                  
                  
                  (81,966
                  )Non-deductible
      stock-based compensation
                  
                  
                  641,768
                  
                  
                  
                  --Unrecognized
      tax losses
                  
                  
                  (98,839
                  )
                  
                  
                  46,430Income
      tax expense
                  
                  $
                  --
                  
                  
                  $
                  --
  17
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  Significant
components of deferred income tax assets are as follows:
  Operating
      losses carried forward
                  
                  $
                  781,000Excess
      of tax basis over book cost of deferred expenses in China
                  
                  
                  790,000Valuation
      allowance
                  
                  
                  (1,571,000
                  )Net
      deferred income tax assets
                  
                  $
                  -
  The
Company has tax losses carried forward for Chinese tax purposes of approximately
$2,394,000 which will expire in 2013 if not utilized.
  13.
COMMON STOCK
  On
September 22, 2008 the Company issued 40,000,000 shares of common stock as
consideration for .the shares of Dongying BVI pursuant to the Share Exchange
Agreement as more fully described in Note 2.
  On
September 26, 2008 the Company cancelled 60,100,500 shares of common stock
surrendered for cancellation by a shareholder as more fully described in Note
2.
  14.
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.
  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.
  18
 SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
 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.
  A
summary of the Company’s stock option activities is presented
below:
  Number
      of options
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Weighted
      Average Grant-date Fair Value
                  
                  
                  Aggregate
      Intrinsic ValueOptions Outstanding,
                    June 1,
      2008Options
      granted:
                  
                  
                  2,525,000
                  
                  
                  
                  1.80
                  
                  
                  
                  1.28
                  
                  
                  $
                  100,000Options Outstanding,
                    February
      28, 2009
                  
                  
                  2,525,000
                  
                  
                  
                  1.80
                  
                  
                  
                  1.28
                  
                  
                  $
                  100,000
   Compensation
cost related to options to vest in the future will be recognized as the related
options vest.  Outstanding options vest as follows:
  Weighted
                  
                  
                  Compensation
                  
                  
                  AggregateVested
      at
                  
                  Range
      of ExercisePrices
                  
                  
                  Number
                  
                  
                  Average
      Exercise
                  
                  
                  Expense
      to be Recognized
                  
                  
                  Intrinsic
                    ValueFebruary
      28,
                  
                  
                  
                  
                  of
      Shares
                  
                  
                  Price2009
      and earlier
                  
                  
                  1.80
                  
                  
                  
                  1,515,000
                  
                  
                  
                  1.80
                  
                  
                  
                  
                  
                  $
                  60,000Remainder
      of 2009
                  
                  
                  1.80
                  
                  
                  
                  757,500
                  
                  
                  
                  1.80
                  
                  
                  $
                  972,375
                  
                  
                  
                  30,0002010
                  
                  
                  1.80
                  
                  
                  
                  252,500
                  
                  
                  
                  1.80
                  
                  
                  
                  324,125
                  
                  
                  
                  10,0002,525,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  100,000
  Non-vested
options are as follows:
  Number
      outstanding
                  
                  
                  Total
      fair value
                  
                  
                  Weighted
      average
                    grant-date
      fair valueNon-vested
      options outstanding, June 1, 2008
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -Non-vested options outstanding, February 28,
      2009
                  
                  
                  1,010,000
                  
                  
                  $
                  1,296,500
                  
                  
                  $
                  1.28Options vested in nine months ended February 28,
      2009
                  
                  
                  1,515,000
                  
                  
                  $
                  1,944,750
                  
                  
                  $
                  1.28
  19
  SINOBIOPHARMA,
INC.
 AND
CONSOLIDATED SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 February
28, 2009
 (Expressed
in US Dollars)
 UNAUDITED
– Prepared by Management
  If
not previously exercised or canceled, options outstanding at February 28,
2009 will expire as follows:
  Range
      of Exercise Prices
                  
                  
                  Number
                  
                  
                  Weighted
      averageExpiry
      Date
                  
                  High
                  
                  
                  Low
                  
                  
                  of
      Shares
                  
                  
                  exercise
      priceYear
      Ending May 31, 2014
                  
                  
                  1.80
                  
                  
                  
                  1.80
                  
                  
                  
                  2,525,000
                  
                  
                  
                  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 andassumptions
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
fairvalue
of the Company’s
stock options.
  20


ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION





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, including, but not limited to, those
presented under “Risk Factors” in this quarterly report on Form
10-Q.





Corporate
History





The
Company was incorporated October 26, 2006, as Buzz Media Ltd., under the laws of
the state of Nevada.  On November 8, 2006, we purchased all the issued and
outstanding shares of Buzz Media Ltd., a Nova Scotia company (“Buzz Nova
Scotia”) from our officer and director Tiffany Walsh for 10 shares of our common
stock.  As a result of the transaction, Buzz Nova Scotia became a
wholly-owned subsidiary of ours.  On July 2, 2008, Ms. Walsh agreed to sell
her 1,250,010 shares of our issued and outstanding common stock to Mr. Jianguo
Wang for an aggregate price of CDN$300,000.  In connection with that
transaction, Ms. Walsh also agreed to resign as a director and officer of the
Company and Mr. Wang agreed to join the Company as a director and
officer.  On July 14, 2008, Ms. Walsh appointed Mr. Wang as President,
Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and a
director of the Company and subsequently resigned as an officer and a
director.





Effective
July 29, 2008, we completed a merger with our wholly-owned subsidiary,
Sinobiopharma, Inc. As a result of the merger, the Company’s name was changed
from “Buzz Media Ltd.” to “Sinobiopharma, Inc.” to better reflect the Company’s
direction and business.





In
addition, 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.  Our issued and
outstanding share capital increased from 2,000,010 shares of common stock to
100,000,500 shares of common stock.





As a
result of the closing of a share exchange agreement on September 22, 2008 (the
“Share Exchange Agreement”), between the Company and Dongying Pharmaceutical Co,
Limited (“Dongying BVI”), as discussed below, the total issued and outstanding
share capital increased to 140,000,500 shares of common
stock.  However, on September 24, 2008, 60,100,500 shares of the
62,500,500 shares registered to Mr. Jianguo Wang were cancelled in accordance
with the Amended Letter Agreement entered into on September 8, 2008, by Dongying
BVI and Mr. Jianguo Wang, resulting in a total issued and outstanding share
capital of 79,900,000 shares of common stock.  A copy of the Amended
Letter Agreement is attached to the Form 8-K/A-2 filed with the SEC on EDGAR on
September 26, 2008.





Overview





As from
the inception of the Company and up to May 31, 2008, we were in business of
designing, publishing, and distributing the magazine, Buzz.  Buzz was
expected to be a student lifestyle magazine, which featured stories, articles,
and photographs submitted by current college and university students from across
Canada.  We intended to distribute the publication free of charge via
direct mail, physical distribution boxes at specified locations, email, and the
internet at www.ReadBuzzMagazine.com.




However,
we determined to change our business plan from the designing, publishing and
distributing the Magazine, Buzz and began focusing around the Chinese
biopharmaceutical industry.  On September 22, 2008, the Company
completed the reverse acquisition of Dongying BVI, a company organized under the
laws of the Territory of the British Virgin Islands, and all the subsidiaries of
Dongying BVI in accordance with the Share Exchange Agreement, whereby the
Company acquired 100% of the issued and outstanding shares in the capital of
Dongying BVI (the “Dongying BVI Capital”), in exchange for the issuance of
40,000,000 (post forward stock split) shares of common stock of the Company in
aggregate to the shareholders of Dongying BVI on a pro rata basis.
 
 Dongying
BVI is the registered owner of
100% of the capital of Big Global Limited, a company organized under the laws of
Hong Kong, and Big Global Limited is the registered owner of 100% of the capital
of Dong Ying (Jiangsu) Pharmaceutical Co., Ltd. (“Dong Ying China”), a company
organized under the laws of the People’s Republic of China
(“China”).  Dong YingChinais in the business ofthe
research, production and development of biopharmaceutical products.


21




The
business of the Company will be conducted through its subsidiary, Dongying BVI,
which, in turn, will conduct its business through it subsidiary, Big Global
Limited, which, in turn will conduct its business through Dong Ying
China.





Dong Ying
China 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.  Dong Ying
China’s current therapeutic focus is on anesthesia-assisted agents and
cardiovascular drugs.  Dong Ying China’s R&D focus is new,
innovative methods of synthesizing compounds more rapidly at lower cost, and/or
improved drug formulation with enhanced usability.





Currently
the product line of Dong YingChina includes
Cisatracurium Besylate – a skeletal muscle relaxant, Clindamycin Hydrochloride –
an antibiotic for penicillin-allergic patients, and Perphenazine – an
anti-psychotic drug.  However, Dong Ying China has recently
discontinued producing and selling Perphenazine as it is no longer considered a
profitable product.





Results
of Operations





The
Company realized a net loss of $1,622,692 for the nine months ended February 28,
2009, as compared to $444,672 for the nine months ended February 29,
2008.





Sales
revenues and cost of sales





Sales
revenue increased to $2,715,702 for the nine months ended February 28, 2009,
from $1,170,677 in the corresponding period in 2008.  Gross profit
increased to $1,815,491 (67% of sales revenue) for the nine months ended
February 28, 2009, from $435,666 (37% of revenue) for the nine months ended
February 29, 2008.  The increase in sales volume and the improvement
in gross profit percentage are both due to growth in sales of Cisatracurium
Besylate, which was introduced in late 2006.  Sales of this product
increased to $2,511,752 in the nine months ended February 28, 2009, from
$765,615 in the nine months ended February 28, 2008, representing 92% of sales
revenue and 65% of sales revenue for the nine months ended February 28, 2009,
and February 29, 2008, respectively.  At the same time, as volume has
increased, cost of manufacturing Cisatracurium Besylate has decreased to 30% of
its price for the nine months ended February 28, 2009, from 64% of its price for
the nine months ended February 29, 2008.





Our sales
of Perphanazine were discontinued in May, 2008.  Sales of Clindamycin
Hydrochloride have increased from approximately $126,000 for the nine months
ended February 28, 2008, to approximately $204,000 for the nine months ended
February 28, 2009.  Clindamycin Hydrochloride was sold at a loss for
most of the nine months ended February 29, 2008, and is being sold for
approximately break-even for the nine months ended February 28, 2009, so does
not significantly contribute to gross profit.





Operating
Expenses





The
Company incurred $3,534,547 in operating expensesfor the nine months
ended February 28, 2009, as compared to $1,126,688 for the nine months ended
February 29, 2008.  The most significant category of expenses was
stock-based compensation of $1,944,750 for the nine months ended February 28,
2009, compared to $nil for the nine months ended February 29, 2008, as the
Company granted stock options to various directors, management, employees and
consultants upon completing the reverse acquisition and effectively taking the
Dongying BVI companies public.  Sixty per cent (60%) of these options
have vested as at February 28, 2009, and accordingly 60% of their fair value has
been recognized in expenses.  Another 30% will vest in the remainder
of the year ended May 31, 2009 and the final 10% will vest in the first quarter
of the year ending May 31, 2010.





The
Company incurred $457,494 in general and administrative expenses for the nine
months ended February 28, 2009, an increase from $330,425 for the nine months
ended February 29, 2008.  The increase is due to increased
manufacturing, marketing and general activity with the push to gain market share
for the Cisatracurium Besylate product.  Salaries and benefits and
travel expenses have increased significantly due to the same
activity.




22





The third
most significant expense category is professional fees, which have increased to
$318,048 for the nine months ended February 28, 2009, from $30,036 for the nine
months ended February 29, 2008.  The main reason for the increase is
the reverse acquisition, which required a substantial amount of legal,
accounting and audit work to bring the Chinese companies up to U.S. financial
reporting standards and to advise on and document the legal
agreements.





Liquidity and Capital Resources





The
Company had $501,211 in cash at February 28, 2009.  The Company had a
working capital deficiency of $3,610,447 at February 28, 2009.  The
Company has insufficient cash available to sustain operations.  The
operations of Dong Ying China have generated profits for the nine months ended
February 28, 2009, but not in a sufficient amount to enable Dong Ying China to
pay the RMB 13,700,280 debt due for repayment by the end of February,
2009.  The Company plans to raise capital through sales of shares to
provide cash to pay debt of Dong Ying China and fund further drug product
development.





During
the nine months ended February 28, 2009, we received gross proceeds of $20,000
from one investor for the subscription of 20,000 (post forward stock split)
shares of our common stock at a price of $1.00 per share.  The 20,000
shares were issued by the Company on April 3, 2009.





Off-Balance
Sheet Arrangements





The
Company has no off-balance sheet arrangements.





ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





The
Company, as a smaller reporting company” (as defined by §229.10(f)(1)), is not
required to provide the information required by this Item.





ITEM
4.  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 (as defined in Rule 13a-15(f) under the
Exchange Act).  Our internal control over financial reporting is a
process designed 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.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Therefore, even those systems
determined to be effective can provide only reasonable assurance of achieving
their control objectives.  Furthermore, smaller reporting companies
face additional limitations.  Smaller reporting companies employ fewer
individuals and find it difficult to properly segregate
duties.  Often, one or two individuals control every aspect of our
operation and are in a position to override any system of internal
control.  Additionally, smaller reporting companies tend to utilize
general accounting software packages that lack a rigorous set of software
controls.




23





Our
management, with the participation of the President, evaluated the effectiveness
of our internal control over financial reporting as of February 28,
2009.  In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control -- Integrated Framework.  Based on this
evaluation, our management, with the participation of the President, concluded
that, as of February 28, 2009, our internal control over financial reporting was
not effective due to material weaknesses in the system of internal
control.





Specifically,
management identified the following control deficiencies:





(1) We
have not properly segregated duties as one individual initiates, authorizes, and
completes all transactions.  We have not implemented measures that
would prevent the individual from overriding the internal control
system.  We do not believe that this control deficiency has resulted
in deficient financial reporting because the Chief Financial Officer is aware of
his responsibilities under the SEC's reporting requirements and personally
certifies the financial reports; and





(2) We
have installed accounting software that does not prevent erroneous or
unauthorized changes to previous reporting periods and does not provide an
adequate audit trail of entries made in the accounting software.  We
do not think that this control deficiency has resulted in deficient financial
reporting because we have implemented a series of manual checks and balances to
verify that previous reporting periods have not been improperly modified and
that no unauthorized entries have been made in the current reporting
period.





Accordingly,
while we have identified certain material weaknesses in our system of internal
control over financial reporting, we believe that we have taken reasonable steps
to ascertain that the financial information contained in this Quarterly Report
is in accordance with generally accepted accounting
principles.  Management has determined that current resources would be
appropriately applied elsewhere and when resources permit, they will alleviate
material weaknesses through various steps.





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





None.





ITEM
1A.  RISK FACTORS





Risks
Related to the Company





We
have a history of operating losses and may never be profitable.





Biopharmaceutical
product development is a highly speculative undertaking and involves a
substantial degree of risk.  Dong YingChina has incurred substantial
losses since its inception and it expects to continue to incur losses only in
the short term future.  Dong YingChina incurred net losses of
$559,343 and $3,444,090 in 2007 and 2006.Dong Ying China realized a
profit of approximately $102,000 in the nine months ending February 28, 2009,
however, the Company as a whole incurred a net loss of $1,622,922. As of
February 28, 2009, the accumulated deficit amounted to
$7,016,334.  The losses have resulted principally from write-downs of
impaired intangible assets related to product rights acquired, research and
development costs, sales costs and general and administrative
expenses.  We cannot assure you that the Company will be able to
achieve profitability or sustain any profitability, if reached.




24





We
will need additional capital to expand the production capacity for our existing
products, to continue development of our product pipeline and to market existing
and future products on a large scale, and we cannot guarantee that we will find
adequate sources of capital in the future.





We will
need to raise further funds from the capital markets to finance expenditures for
equipment, intellectual property asset acquisitions, to expand the production
capacity for our existing products, to continue the development and
commercialization of our product candidates and for other corporate
purposes.  As of February 28, 2009, Dong Ying China had $498,894 in
unrestricted cash.  We will need to undertake significant future
financings for the following reasons:





·
            to
      proceed with the research and development of other products, including
      clinical testing relating to new
products;





·
            to
      develop or acquire other product candidates, technologies or other lines
      of business;





·
            to
      establish and expand manufacturing
capabilities;





·
            to
      commercialize our products, including the marketing and distribution of
      new and existing products;





·
            to
      protect our intellectual property;





·
            to
      seek and obtain regulatory approvals;
and





·
            to
      finance general and administrative and research activities that are not
      related to specific products under
development.





In the
past, Dong YingChina funded most of its product
rights acquisitions, fixed asset acquisitions, research and development and
other expenditures through investment of shareholder, grants and debt
financing.  We intend to raise additional funds in the near future
because our current operating and capital resources are expected to be
insufficient to meet future requirements.





If we
raise additional funds by issuing equity securities, it will result in further
dilution to our existing shareholders, because the shares may be sold at a time
when the market price is low, and because shares issued in equity financing will
normally be sold at a discount to the current market
price.  Unforeseen problems, including materially negative
developments relating to, among other things, product sales, new product
rollouts, clinical trials, research and development programs, our strategic
relationships, our intellectual property, litigation, regulatory issues in our
industry, the Chinese market generally or in general economic conditions, could
interfere with our ability to raise additional equity capital or materially
adversely affect the terms upon which such funding is available.  If
we raise additional funds by issuing debt securities, these debt securities
would have rights, preferences and privileges senior to those of holders of our
common shares, and the terms of the debt securities issued could impose
significant restrictions on our operations.  If we raise additional
funds through collaborations and licensing arrangements, we might be required to
relinquish significant rights to certain of our technologies, marketing
territories, product candidates or products that we would otherwise seek to
develop or commercialize ourselves, or be required to grant licenses on terms
that are not favorable to us.





We do not
know whether additional financing will be available to us on commercially
acceptable terms when needed.  If adequate funds are not available or
are not available on commercially acceptable terms, we may need to downsize or
suspend some or all of our operations and may be unable to continue developing
our products.  In any such event, our ability to bring a product to
market and obtain revenues could be delayed, competitors could develop products
sooner than us, and we could be forced to relinquish rights to technologies,
products or potential products.




25





Our current business is primarily based
on a single product, and we may not be able to generate significant revenue if
this product fails.





We generate a significant portion of our
revenues from sales of Dong YingChina’s Cisatracurium
Besylate.92% of Dong YingChina’s product sales in the nine
months ended February 28, 2009 were attributable to Cisatracurium
Besylate.  Dong
YingChina generated
revenues of $2,511,752 in sales of Cisatracurium Besylate in the
nine months ended February 28, 2009.  We expect that sales of Cisatracurium Besylate will
continue to comprise a substantial portion of our revenues in the near
future.  A decrease in Cisatracurium Besylate sales
would most likely have an adverse affect on our financial results.





If
we are unable to successfully compete in the highly competitive biotechnology
industry, our business could be harmed.





We
operate in a highly competitive environment, and the competition is expected to
increase.  Competitors include large pharmaceutical and biotechnology
companies and academic research institutions, in each case both within and
outside China.  Some of these competitors, particularly large
pharmaceutical and biotechnology companies, have greater resources than
us.  New competitors may also enter into the markets where we
currently compete.  Accordingly, even if we are successful in
launching a product, we may find that a competitive product dominates the market
for any number of reasons, including:





·
            the
      possibility that the competitor may have launched its product
      first;





·
            the
      competitor may have greater access to certain raw
    materials;





·
            the
      competitor may have more efficient manufacturing
  processes;





·
            the
      competitor may have greater marketing capabilities;
  or





·
            the
      competitive product may have therapeutic or other
    advantages.





The
technologies applied by our competitors and us are rapidly evolving, and new
developments frequently result in price competition and product
obsolescence.  In addition, we may be impacted by competition from
generic forms of our products, substitute products or imports of products from
lower priced markets.





Competitors
may develop and market bio-pharmaceutical products that are less expensive, more
effective or safer, making our products obsolete or uncompetitive.





Some of
our competitors and potential competitors have greater product development
capabilities and financial, scientific, marketing and human resources than we
do.  Technological competition from biopharmaceutical companies and
biotechnology companies is intense and is expected to increase.  Other
companies have developed technologies that could be the basis for competitive
products.  Some of these products have an entirely different approach
or means of accomplishing the desired curative effect than products we are
developing.  Alternative products may be developed that are more
effective, work faster and are less costly than our
products.  Competitors may succeed in developing products earlier than
us, obtaining approvals and clearances for such products more rapidly than us,
or developing products that are more effective than ours.  In
addition, other forms of treatment may be competitive with our
products.  Over time, our technology or products may become obsolete
or uncompetitive.





We
are controlled by a small number of shareholders and their affiliated entities
and their interests may not be aligned with the interests of our other
shareholders.





Our
directors and executive officers and their affiliates collectively control
approximately 25.9% of our outstanding common shares as of February 28,
2009.  These stockholders, if they act together, may be able to
influence our management and affairs and all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions.  The concentration of ownership of these
shareholders may discourage, delay or prevent a change in control of the
Company, which could deprive our shareholders of an opportunity to receive a
premium for their shares as part of a sale of the Company and might reduce the
price of our common shares.  These actions may be taken even if they
are opposed by our other shareholders.  In cases where the interests
of our significant shareholders are aligned and they vote together, these
shareholders may also have the power to prevent or cause a change in
control.  In addition, these shareholders could divert business
opportunities from us to themselves or others.




26





If
we are unable to obtain the regulatory approvals or clearances that are
necessary to commercialize our products, we will have less revenue than
expected.





China and
other countries impose significant statutory and regulatory obligations upon the
manufacture and sale of bio-pharmaceutical products.  Each regulatory
authority typically has a lengthy approval process in which it examines
pre-clinical and clinical data and the facilities in which the product is
manufactured.  Regulatory submissions must meet complex criteria to
demonstrate the safety and efficacy of the ultimate
products.  Addressing these criteria requires considerable data
collection, verification and analysis.  We may spend time and money
preparing regulatory submissions or applications without assurances as to
whether they will be approved on a timely basis or at all.





Our
product candidates, some of which are currently in the early stages of
development, will require significant additional development and pre-clinical
and clinical testing prior to their commercialization.  These steps
and the process of obtaining required approvals and clearances can be costly and
time-consuming.  If our potential products are not successfully
developed, cannot be proven to be safe and effective through clinical trials, or
do not receive applicable regulatory approvals and clearances, or if there are
delays in the process:





·
            the
      commercialization of our products could be adversely
    affected;





·
            any
      competitive advantages of the products could be diminished;
      and





·
            revenues
      or collaborative milestones from the products could be reduced or
      delayed.





Governmental
and regulatory authorities may approve a product candidate for fewer indications
or narrower circumstances than requested or may condition approval on the
performance of post-marketing studies for a product candidate.  Even
if a product receives regulatory approval and clearance, it may later exhibit
adverse side effects that limit or prevent its widespread use or that force us
to withdraw the product from the market.  Any marketed product and its
manufacturer, including us, will continue to be subject to strict regulation
after approval.  Results of post-marketing programs may limit or
expand the further marketing of products.  Unforeseen problems with an
approved product or any violation of regulations could result in restrictions on
the product, including its withdrawal from the market and possible civil
actions.





Establishing
and expanding international operations requires significant management
attention.





Substantially
all of Dong Ying China’s revenues are derived from China.  We intend
to expand our operations internationally into Southeast Asia and the United
States, which, if not planned and managed properly, could materially adversely
affect our business, financial condition and operating
results.  Expanding internationally exposes us to legal uncertainties,
new regulatory requirements, liability, export and import restrictions, tariffs
and other trade barriers, difficulties in managing operations across disparate
geographic areas, foreign currency fluctuations, dependence on local
distributors and potential disruptions in sales or manufacturing.  We
may also face challenges in protecting our intellectual property or avoiding
infringement of others’ rights, and in complying with potentially uncertain or
adverse tax laws.





We
rely on vendors to supply ingredients for our products.





Regulatory
authorities also periodically inspect manufacturing facilities, including third
parties who provide ingredients to us, and may challenge their quality,
qualifications or competence.  Pharmaceutical manufacturing facilities
must comply with applicable good manufacturing practice standards, and
manufacturers usually must invest substantial funds, time and effort to ensure
full compliance with these standards and make quality products.  We do
not have control over our vendors’ compliance with these
requirements.  Failure to comply with regulatory requirements can
result in sanctions, fines, delays, suspension of approvals, seizures or recalls
of products, operating restrictions, manufacturing interruptions, costly
corrective actions, injunctions, adverse publicity against us and our products
and criminal prosecutions.




27





If we are
unable to obtain sufficient supplies of ingredients, if climatic or
environmental conditions adversely affect them or if they increase significantly
in price, our business would be seriously harmed.  If any of our
current or future third-party suppliers cease to supply products in the quantity
and quality we need to produce our products, or if they are unable to comply
with applicable regulations, the qualification of other suppliers could be a
lengthy process, and there may not be adequate alternatives to meet our
needs.  As a result, we may not be able to obtain the necessary
ingredients used in our products in the future on a timely basis, if at
all.  This would negatively affect our business.





Our
drug-development program depends upon third-party research scientists who are
out of our control.





We depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our pre-clinical and clinical trials under
agreements with us.  These collaborators are not our employees and we
cannot control the amount or timing of resources that they devote to our
programs.  These investigators may not assign as great a priority to
our programs or pursue them as diligently as we would if we were undertaking
such programs ourselves.  If outside collaborators fail to devote
sufficient time and resources to our drug-development programs, or if their
performance is substandard, the approval of our applications, if any, and our
introduction of new drugs, if any, will be delayed.  These
collaborators may also have relationships with other commercial entities, some
of whom may compete with us.  If our collaborators assist our
competitors at our expense, our competitive position would be
harmed.





We
could be subject to costly and time-consuming product liability actions for the
sale of our products in countries other than China.





Dong YingChina’s product line includes skeletal
muscular relaxants and antibiotics.  If Dong Ying China markets its
products in countries other than China and the products fail to function as
anticipated, whether as a result of the design of these products, unanticipated
health consequences or side effects, or misuse or mishandling by third parties
of such products or because of faulty or contaminated supplies, we could be
subject to product liability lawsuits in countries other than in
China.  Any product liability claim brought against us, with or
without merit, could have a material adverse effect on us.  Even a
meritless or unsuccessful product liability claim could be time consuming,
expensive to defend, and could result in the diversion of management’s attention
from managing our core business or result in associated negative
publicity.





If we
expand our business activities outside of China, we may be exposed to potential
product liability risks that are inherent in the testing, manufacturing and
marketing of biopharmaceutical products.  We cannot be certain that we
will be able to obtain and maintain adequate product liability insurance at a
reasonable cost for potential business activities outside of
China.  We currently do not have any clinical trial insurance for our
clinical trials because such coverage is not available in mainland
China.  Any insurance coverage that we may obtain for any business
activities outside of China may not be sufficient to satisfy any liability
resulting from product liability claims.  A successful product
liability claim or series of claims for business activities outside of China
could have a material adverse impact on our business, financial condition and
results of operations.





If
we market and sell our products outside of China, then we may incur substantial
liabilities and be required to limit commercialization of our products in
response to product liability lawsuits.





The
marketing and sale of our products in countries other than China entails
inherent risks of product liability.  As a manufacturer of products
designed for human application, we may be subject to product liability claims
that use of our products has resulted in injury in countries other than
China.  Previously unknown adverse reactions resulting from human use
of our products could occur.  We may be held liable if serious adverse
reactions result from the use of our products.  If we cannot
successfully defend ourselves against product liability claims, we may incur
substantial liabilities and damage to our commercial reputation, or be required
to limit commercialization of our products.  Our inability to obtain
sufficient product liability insurance outside China at acceptable cost against
claims could prevent or inhibit commercialization of our products outside
China.  We may not be able to obtain insurance at reasonable cost, if
at all. If we obtain insurance in the future, it may not adequately compensate
us for all losses that we may incur, which could have a material adverse effect
on our business.




28





We
depend on our key personnel, the loss of whom would adversely affect our
operations.  If we fail to attract and retain the talent required for
our business, our business will be materially harmed.





We are a
small company with over 80 full-time employees as of February 28, 2009, and we
depend to a great extent on principal members of our management and scientific
staff.  If we lose the services of any key personnel, in particular,
Dr. Huang, our President and Chief Executive Officer, it could significantly
impede the achievement of our research and development objectives and delay our
product development programs and the approval and commercialization of our
product candidates.  We do not currently have any key man life
insurance policies.  In addition, recruiting and retaining qualified
scientific, technical and managerial personnel and research partners will be
critical to our success.  Competition among biopharmaceutical and
biotechnology companies for qualified employees in China is intense and turnover
rates are high.  There is currently a shortage of employees in China
with expertise in our areas of research and clinical and regulatory affairs, and
this shortage is likely to continue.  We may not be able to retain
existing personnel or attract and retain qualified staff in the
future.  If we fail to hire and retain personnel in key positions, we
may be unable to develop or commercialize our product candidates in a timely
manner.





We
may encounter difficulties in managing our growth, which could adversely affect
our results of operations.





Dong YingChinahas experienced a period of
rapid and substantial growth that has taken place and, if such growth continues,
it will continue to place a strain on our administrative and operational
infrastructure.  If we are unable to manage this growth effectively,
our business, results of operations or financial condition may be materially and
adversely affected.  Our ability to manage our operations and growth
effectively requires us to continue to improve our operational, financial and
management controls, reporting systems and procedures and hiring
programs.  We may not be able to successfully implement these required
improvements.





We
may face difficulties in achieving and maintaining widespread market acceptance
for our pharmaceutical products and any future pharmaceutical product
candidates.





If any of
our products or product candidates for which we receive regulatory approval do
not achieve broad market acceptance, the revenues that we generate from their
sales will be limited.





The
commercial success of any of our products or product candidates for which we
obtain marketing approval from regulatory authorities will depend upon the
acceptance of these products by the medical community, including physicians,
patients and healthcare payors.  The degree of market acceptance of
any of our approved products will depend on a number of factors,
including:





·
            demonstration
      of clinical safety and efficacy compared to other
  products;





·
            the
      relative convenience and ease of
administration;





·
            the
      prevalence and severity of any adverse side
  effects;





·
            limitations
      or warnings contained in a product’s approved
  labeling;





·
            availability
      of alternative treatments, including, a number of competitive products
      already approved or expected to be commercially launched in the near
      future;





·
            pricing
      and cost effectiveness;





·
            the
      effectiveness of our or any future collaborators’ sales and marketing
      strategies;





·
            our
      ability to obtain sufficient third-party coverage or reimbursement;
      and





·
            the
      willingness of patients to pay out of pocket in the absence of third-party
      coverage.




29




If any of
our products or approved product candidates do not achieve an adequate level of
acceptance by physicians, healthcare payors and patients, we may not generate
sufficient revenue from these products, and we may not become or remain
profitable.  In addition, our efforts to educate the medical community
and third-party payors on the benefits of our product candidates may require
significant resources and may never be successful.





Moreover,
even if any of our products or product candidates receive marketing approval, we
or others may later identify undesirable side effects caused by the product, and
in that event a number of potentially significant negative consequences could
result, including but not limited to:





·
            regulatory
      authorities may withdraw their approval of the
  product;





·
            regulatory
      authorities may require the addition of labeling statements, such as
      warnings or contraindications;





·
            we
      may be required to change the way the product is administered, conduct
      additional clinical trials or change the labeling of the product;
      and





·
            our
      reputation may suffer.





Any of
these events could prevent us from achieving or maintaining market acceptance of
the affected product or product candidate and could substantially increase the
costs of commercializing our other products or product candidates.





We
may have difficulties in developing future pharmaceutical products.





Our
product candidates are prone to the risks of failure inherent in drug
development.  Before obtaining regulatory approvals for the commercial
sale of any product candidate for a target indication we must demonstrate with
substantial evidence gathered in well-controlled clinical trials and to the
satisfaction of regulatory authorities that the product candidate is safe and
effective for use for that target indication.





Despite
our efforts, our product candidates may not:





·
            offer
      therapeutic or other improvement over existing, comparable
      drugs;





·
            be
      proven safe and effective in clinical
trials;





·
            meet
      applicable regulatory standards;





·
            be
      capable of being produced in commercial quantities at acceptable costs;
      or





·
            be
      successfully commercialized.





Positive
results in preclinical studies of a product candidate may not be predictive of
similar results in humans during clinical trials, and promising results from
early clinical trials of a product candidate may not be replicated in later
clinical trials.  Interim results of a clinical trial do not
necessarily predict final results.  A number of companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in late-stage clinical trials even after achieving promising results in
early-stage development.  Accordingly, the results from completed
preclinical studies and clinical trials may not be predictive of the results we
may obtain in later stage trials.  Our preclinical studies or clinical
trials may produce negative or inclusive results, and we may decide, or
regulators may require us, to conduct additional preclinical studies or clinical
trials.




30





Undesirable
side effects caused by our product candidates could cause us, regulatory
authorities or institutional review boards to interrupt, delay or halt clinical
trials and could result in the denial of regulatory approval.





Management
is inexperienced in running a U.S. public company.





We are
managed by a management team that is relatively unfamiliar with the capital
market and the processes by which a U.S. public company should be managed and
operated.  Management is currently making efforts to familiarize
itself with the relevant laws, rules and regulations and market practice, but
there can be no assurance that it can master the relevant knowledge and skills
and set up the required systems in time to prevent mistakes and to meet
shareholder and market expectations.





We
may have difficulty establishing adequate management, legal and financial
controls in China.





Chinese
companies historically have not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and computer, financial and other control
systems.  As a result, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices that meet standards required of U.S. public
companies.  Therefore, we may, in turn, experience difficulties in
implementing and maintaining adequate internal controls as required under
Section 404 of the Sarbanes-Oxley Act.  This may result in significant
deficiencies or material weaknesses in our internal controls which could impact
the reliability of our financial statements and prevent us from complying with
SEC rules and regulations and the requirements of the Sarbanes-Oxley
Act.  Any such deficiencies, weaknesses or lack of compliance could
have a material adverse effect on our business.





We
have limited business insurance coverage.





The
insurance industry in China is still at an early stage of
development.  Insurance companies in China offer limited business
insurance products.  As a result, we do not have any property or
casualty insurance coverage for our facilities or business liability insurance
coverage for our operations.  If we incur any losses, we will have to
bear those losses without any assistance.  As a result, we may not
have sufficient capital to cover material damage to, or the loss of, our
manufacturing facilities due to fire, severe weather, flood or other causes, and
such damage or loss would have a material adverse effect on our financial
condition, business and prospects.





We do not plan to declare or pay any
dividends to our shareholders in the near future.





Neither the Company nor Dongying BVI
declared any dividends for their respective fiscal year ends.  The
combined company does not intend to distribute dividends in the near
future.  The declaration, payment and amount of any future dividends
will be made at the discretion of the board of directors, and will depend upon,
among other things, the results of operations, cash flows and financial
condition, operating and capital requirements, and other factors as the board of
directors considers relevant.  There is no assurance that future
dividends will be paid, and if dividends are paid, there is no assurance with
respect to the amount of any such dividend.





We are a holding company and rely on
the receipt of dividends from our operating subsidiaries.  We may
encounter limitations on the ability of our subsidiaries to pay dividends to
us.





As a
holding company, we have no direct business operations other than the ownership
of our operating subsidiaries.  Our ability to pay dividends and meet
other obligations depends upon the receipt of dividends or other payments from
our operating subsidiaries.  In addition, our operating subsidiaries,
from time to time, may be subject to restrictions on their ability to make
distributions to us, including as a result of restrictive covenants in loan
agreements, restrictions on the conversion of local currency into U.S. dollars
or other hard currency and other regulatory restrictions relating to doing
business in China.  If future dividends are paid in Renminbi yuan
(“Renminbi”), fluctuations in the exchange rate for the conversion of Renminbi
into U.S. dollars may reduce the amount received by U.S. stockholders upon
conversion of the dividend payment into U.S. dollars.




31





We
may not be able to achieve the benefits we expect to result from the Share
Exchange Agreement.





We may
not realize the benefits that we hoped to derive as a result of the share
exchange agreement, which include:





·
            access
      to the capital markets of the United
States;





·
            the
      increased market liquidity expected to result from exchanging stock in a
      private company for securities of a public company that are publicly
      traded;





·
            the
      ability to use securities to make acquisition of assets or
      businesses;





·
            increased
      visibility in the financial
community;





·
            enhanced
      access to the capital markets;





·
            improved
      transparency of operations; and





·
            perceived
      credibility and enhanced corporate image of being a publicly traded
      company.





In
addition, the attention and effort devoted to achieving the benefits of the
share exchange and attending to the obligations of being a public company, such
as reporting requirements and securities regulations, could significantly divert
management’s attention from operational issues, which could materially and
adversely affect our operating results or stock price in the
future.





There are substantial risks of lack of
liquidity and volatility risks.





Currently, the Company’s common stock is
quoted in the OTC Bulletin Board (the “OTCBB”) market under the symbol
“SNBP”.  The liquidity of our common stock may be very limited and
affected by its limited trading market.  The OTCBB market is an
inter-dealer market much less regulated than the major exchanges, and is subject
to abuses and volatilities and shorting.  There is currently no
broadly followed and established trading market for our common
stock.  An established trading market may never develop or be
maintained.Active trading markets generally result
in lower price volatility and more efficient execution of buy and sell orders.
 Absence of an active trading market reduces the liquidity of the shares
traded there.





The trading volume of our common stock
may be limited and sporadic.  As a result of such trading activity, the
quoted price for our common stock on the OTCBB may not necessarily be a reliable
indicator of its fair market value.  In addition, if our shares of common
stock cease to be quoted, holders would find it more difficult to dispose of or
to obtain accurate quotations as to the market value of, our common stock and as
a result, the market value of our common stock likely would
decline.





We may be subject to the risks inherent
in a penny stock.





The Company’s common stock may be
subject to regulations prescribed by theSECrelating to “penny stock.”  TheSEChas adopted regulations that generally
define a penny stock to be any equity security that has a market price (as
defined in such regulations) of less than $5.00 per share, subject to certain
exceptions.  If the Company’s common stock meets the definition of a penny
stock, it will be subject to these regulations, which impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors - generally
institutions with assets in excess of $5,000,000 and individuals with a net
worth in excess of $1,000,000 or annual income exceeding $200,000 (individually)
or $300,000 (jointly with their spouse).




32




Risks
Related To Government Regulation





We
can only sell products that have received regulatory approval and many factors
affect our ability to obtain such approvals.





Pre-clinical
and clinical trials of our products, and the manufacturing and marketing of our
technologies, are subject to extensive, costly and rigorous regulation by
governmental authorities in China and in other countries.  Even if we
complete preclinical and clinical trials successfully, we may not be able to
obtain applicable regulatory approvals.  We cannot market any product
candidate until we have both completed our clinical trials and obtained the
necessary regulatory approvals for that product candidate.





Conducting
clinical trials and obtaining regulatory approvals are uncertain, time consuming
and expensive processes.  The process of obtaining required regulatory
approvals from China State Food and Drug Administration (the “China SFDA”), and
other regulatory authorities often takes many years to complete and can vary
significantly based on the type, complexity and novelty of the product
candidates.





There can
be no assurance that all of the clinical trials pertaining to our products in
development will be completed within the time frames anticipated by
us.  We could encounter difficulties in enrolling such drugs for
trials or encounter setbacks during the conduct of trials that result in delays
or trial cancellation.  Data obtained from preclinical and clinical
studies are subject to varying interpretations that could delay, limit or
prevent regulatory approval, and failure to observe regulatory requirements or
inadequate manufacturing processes are examples of other problems that could
prevent approval.  In addition, we may encounter delays or rejections
in the event of additional government regulations from future legislation,
administrative action or changes in the China SFDA’s policies or if unforeseen
health risks become an issue with the participants of clinical
trials.  Clinical trials may also fail at any stage of
testing.  Results of early trials frequently do not predict results of
later trials, and acceptable results in early trials may not be
repeated.  For these reasons, we do not know whether regulatory
authorities will grant approval for any of our product candidates in the
future.





Delays in
obtaining the China SFDA’s or foreign approval of our products could result in
substantial additional costs and adversely affect our ability to compete with
other companies.  Even if regulatory approval is ultimately granted,
there can be no assurance that we can maintain the approval or that the approval
will not be withdrawn.  Any approval received may also restrict the
intended use and marketing of the product we want to commercialize.





Outside
China, our ability to market any of our potential products is contingent upon
receiving marketing authorizations from the appropriate regulatory
authorities.  These foreign regulatory approval processes include all
of the risks associated with the China SFDA approval process described above and
may include additional risks.





We
may not be able to comply with applicable good manufacturing practice
requirements and other regulatory requirements, which could have a material
adverse affect on our business, financial condition and results of
operations.





We are
required to comply with applicable good manufacturing practice regulations,
which include requirements relating to quality control and quality assurance as
well as corresponding maintenance, record-keeping and documentation
standards.  Manufacturing facilities must be approved by governmental
authorities before we can use them to commercially manufacture our products and
are subject to inspection by regulatory agencies.





If we
fail to comply with applicable regulatory requirements, including following any
product approval, we may be subject to sanctions, including:





·
            fines;





·
            product
      recalls or seizure;





·
            injunctions;




33




·
            refusal
      of regulatory agencies to review pending market approval applications or
      supplements to approval
applications;





·
            total
      or partial suspension of
production;





·
            civil
      penalties;





·
            withdrawals
      of previously approved marketing applications;
  or





·
            criminal
      prosecution.





Failure
to comply with the U.S. Foreign Corrupt Practices Act could subject us to
penalties and other adverse consequences.





We are
subject to the U.S. Foreign Corrupt Practices Act, which generally prohibits
U.S. companies from engaging in bribery or other prohibited payments to foreign
officials for the purpose of obtaining or retaining business.  In
addition, we are required to maintain records that accurately and fairly
represent our transactions and have an adequate system of internal accounting
controls.  Chinese companies and some other foreign companies,
including some that may compete with us, are not subject to these prohibitions,
and therefore may have a competitive advantage over us.  Corruption,
extortion, bribery, pay-offs, theft and other fraudulent practices occur from
time-to-time in China, and our executive officers and employees have not been
subject to the U.S. Foreign Corrupt Practices Act prior to the completion of the
share exchange pursuant to the Share Exchange Agreement in September,
2008.  We can make no assurance that our employees or other agents
will not engage in such conduct for which we might be held
responsible.  If our employees or other agents are found to have
engaged in such practices, we could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations.





A recent campaign imposed by the Chinese
government against the export of unsafe and substandard products, could hinder
our ability to export our products internationally.





In August, 2007,China’s Administration of Quality
Supervision, Inspection and Quarantine (“AQSIQ”) announced an ongoing
national campaign in China against unsafe food and substandard
products.  The special campaign against poor product quality was
launched in response to a series of safety scares involving Chinese products
worldwide.  The campaign set 20 detailed goals, including twelve “100
percents”.





As a
result of this campaign by the AQSIQ, there has been a general slow-down and
backlog of export clearances for certain Chinese consumer
products.  If we seek to export our products in the future, we may
experience significant delays in obtaining export clearances.





Compliance
with changing regulation of corporate governance and public disclosure will
result in additional expenses and pose challenges for our new management
team.





Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act and SEC regulations, have
created uncertainty for public companies and significantly increased the costs
and risks associated with accessing the public markets and public
reporting.  Our new management team, which has no prior experience
operating a U.S. public company, will need to devote significant time and
financial resources to comply with both existing and evolving standards for
public companies, which will lead to increased general and administrative
expenses and a diversion of management time and attention from revenue
generating activities to compliance activities.





Standards
for compliance with Section 404 of the Sarbanes-Oxley Act are uncertain, and if
we fail to comply in a timely manner, our business could be harmed and our stock
price could decline.





Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an
annual assessment of a public company’s internal control over financial
reporting, and attestation of this assessment by the public company’s
independent registered public accountants.  We believe that the annual
assessment of our internal controls requirement first applied to our annual
report for the 2008 fiscal year and the attestation requirement of management’s
assessment by our independent registered public accountants will first apply to
our annual report for the 2009 fiscal year.  The standards that must
be met for management to assess the internal control over financial reporting
are new and complex, and require significant documentation, testing and possible
remediation to meet the detailed standards.  We may encounter problems
or delays in completing activities necessary to make an assessment of our
internal control over financial reporting.  In addition, the
attestation process by our independent registered public accountants is new and
we may encounter problems or delays in completing the implementation of any
requested improvements and receiving an attestation of our assessment by our
independent registered public accountants.  If we cannot assess our
internal control over financial reporting as effective, or our independent
registered public accountants are unable to provide an unqualified attestation
report on such assessment, investor confidence and share value may be negatively
impacted.




34





Risks
Related To Our Intellectual Property





If
we are unable to protect our intellectual property, we may not be able to
operate our business profitably.





Our
success depends, in part, on our ability to protect our proprietary
technologies.  We try to protect the technology that we consider
important to our business by filing Chinese patent applications and relying on
trade secret and pharmaceutical regulatory protection.





In
addition to patents, we rely on trade secrets and proprietary know-how to
protect our intellectual property.  We have entered into
confidentiality agreements (which include, in the case of employees,
non-competition provisions) with the majority of our employees and all our
advisors.  These agreements provide that all confidential information
developed or made known to the individual during the course of the individual’s
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances.  In the case of our
employees, the agreements provide that all of the technology which is conceived
by the individual during the course of employment is our exclusive
property.  These agreements may not provide meaningful protection or
adequate remedies in the event of unauthorized use or disclosure of our
proprietary information.  In addition, it is possible that third
parties could independently develop proprietary information and techniques
substantially similar to ours or otherwise gain access to our trade
secrets.





We cannot
assure you that our current or potential competitors, many of which have
substantial resources and may have made substantive investments in competing
technologies, do not have and will not develop products that compete directly
with our products despite our intellectual property rights.





Intellectual
property rights and confidentiality protections in China may not be as effective
as in the United States or other countries.  For example,
implementation and enforcement of Chinese intellectual property-related laws
have historically been deficient and ineffective and may be hampered by
corruption and local protectionism.  Policing unauthorized use of
proprietary technology is difficult and expensive, and we might need to resort
to litigation to enforce or defend patents issued to us or to determine the
enforceability, scope and validity of our proprietary rights or those of
others.  The experience and capabilities of Chinese courts in handling
intellectual property litigation varies, and outcomes are
unpredictable.  Further, such litigation may require significant
expenditure of cash and management efforts and could harm our business,
financial condition and results of operations.  An adverse
determination in any such litigation could materially impair our intellectual
property rights and may harm our business, prospects and
reputation.





We
may depend on market exclusivity for certain of our products, which will afford
us less protection than patents.





Assuming
regulatory approvals are obtained, our ability to successfully commercialize
certain drugs may depend on the availability of market exclusivity under Chinese
law, which provides protection for certain new products.  Under
China’s former Regulation on
the Protection of New Pharmaceuticals and Technology Transfer, new drugs
were afforded exclusivity protection of six, eight or twelve years, depending on
the category of the drug in question.  During the protection period,
the China SFDA would not accept third parties’ applications for manufacturing
the drug under protection.




35





After
China joined the WTO in 2001, the Chinese government amended and implemented
many laws and regulations in the area of pharmaceuticals.  Currently,
the Drug Administration
Law, Implementing
Regulations on Drug Administration and Drug Registration Regulationare the primary laws and regulations governing the exclusive protection
regime for new drugs.





The Implementing Regulations on Drug
Administration provide that the China SFDA may establish a monitoring
period for up to five years for certain new drugs to monitor the safety of these
products.  During the monitoring period, the China SFDA will not
accept third parties’ applications for manufacturing or importing the same
drug.  The China SFDA’s regulations provide that the monitoring period
shall be 3, 4 or 5 years.  The China SFDA determines the availability
and length of the monitoring period depending on the approval conditions of the
same or similar drugs in China and in overseas markets.  According to
the Regulations on the Drug
Registration promulgated by the China SFDA in 2005, in case there is more
than one application for the same new drug pending, after the issuance of the
first production license afforded with a monitoring period, the other co-pending
applications should be rejected unless a clinical trial application has been
approved.





If
our products infringe the intellectual property rights of third parties, we may
incur substantial liabilities, and we may be unable to sell these
products.





Our
commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third
parties.  Patent applications are maintained incognito until their
publication 18 months from the filing date.  The publication of
discoveries in the scientific or patent literature frequently occurs
substantially later than the date on which the underlying discoveries were made
and patent applications are filed.  China, similar to many other
countries, adopts the first-to-file system under which whoever first files a
patent application (instead of the one who makes first actual discoveries) will
be awarded patent.  Even after reasonable investigation we may not
know with certainty whether we have infringed upon a third-party’s patent
because such third-party may have filed a patent application without our
knowledge while we are still developing that product.  If a
third-party claims that we infringe upon its proprietary rights, any of the
following may occur:





·
            we
      may become involved in time-consuming and expensive litigation, even if
      the claim is without merit;





·
            we
      may become liable for substantial damages for past infringement if a court
      decides that our technology infringes upon a competitor’s
      patent;





·
            a
      court may prohibit us from selling or licensing our product without a
      license from the patent holder, which may not be available on commercially
      acceptable terms, if at all, or which may require us to pay substantial
      royalties or grant cross licenses to our patents,
  and





·
            we
      may have to reformulate our product so that it does not infringe upon
      others’ patent rights, which may not be possible or could be very
      expensive and time-consuming.





If any of
these events occurs, our business will suffer and the market price of our common
shares could decline.




36





Our
products will be adversely affected if we are unable to protect proprietary
rights or operate without infringing the proprietary rights of
others.





The
profitability of our products will depend in part on our ability to obtain and
maintain protection for our intellectual property rights, such as patents,
licenses and trade secrets, and the period our intellectual property remains
exclusive.  We must also operate without infringing on the proprietary
rights of third parties and without third parties circumventing our
rights.  The proprietary rights of enterprises such as ours are
uncertain and involve complex legal and factual questions for which important
legal principles are largely unresolved.  In addition, the scope of
the originally claimed subject matter in a patent application can be
significantly reduced before a patent is issued.  The biotechnology
patent situation outside the U.S. is even more uncertain, is currently
undergoing review and revision in many countries, and may not protect our
intellectual property rights to the same extent as the laws of the
U.S.  Because patent applications are maintained in secrecy in some
cases, we cannot be certain that we or our licensors are the first creators of
inventions described in our pending patent applications or patents or the first
to file patent applications for such inventions.  Other companies may
independently develop similar products and design around any patented or
proprietary products we develop.  We cannot assure you
that:





·
            any
      of our applications for patent or exclusivity will result in their
      issuance;





·
            we
      will develop additional patentable or proprietary
  products;





·
            the
      patents or exclusive rights we have been issued will provide us with any
      competitive advantages;





·
            the
      patents of others will not impede our ability to do business;
      or





·
            third
      parties will not be able to circumvent our patents or proprietary
      rights.





Risks
Related To Doing Business in China





Adverse
changes in political, economic and other policies of the Chinese government
could have a material adverse effect on the overall economic growth of China,
which could reduce the demand for our products and materially and adversely
affect our competitive position.





All of
our business operations are conducted in China, and all of our sales are
currently made in China.  Accordingly, our business, financial
condition, results of operations and prospects are affected significantly by
economic, political and legal developments in China.  The Chinese
economy differs from the economies of most developed countries in many respects,
including:





·
            the
      extent of government involvement;





·
            the
      level of development;





·
            the
      growth rate;





·
            the
      control of foreign exchange;





·
            the
      allocation of resources;





·
            an
      evolving regulatory system; and





·
            a
      lack of sufficient transparency in the regulatory
  process.





While the
Chinese economy has experienced significant growth in the past 20 years, growth
has been uneven, both geographically and among various sectors of the
economy.  The Chinese government has implemented various measures to
encourage economic growth and guide the allocation of resources.  Some
of these measures benefit the overall Chinese economy, but may also have a
negative effect on us.  For example, our financial condition and
results of operations may be adversely affected by government control over
capital investments or changes in tax regulations that are applicable to
us.





The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy.  Although in recent years the Chinese
government has implemented measures emphasizing the utilization of market forces
for economic reform, the reduction of state ownership of productive assets and
the establishment of sound corporate governance in business enterprises, a
substantial portion of the productive assets in China are still owned by the
Chinese government.  The continued control of these assets and other
aspects of the national economy by the Chinese government could materially and
adversely affect our business.  The Chinese government also exercises
significant control over Chinese economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies.  Efforts by the Chinese government to slow
the pace of growth of the Chinese economy could result in decreased expenditures
by hospitals and other users of our products, which in turn could reduce demand
for our products.




37





Moreover,
the political relationship between the United States, Europe, or other Asian
nations and China is subject to sudden fluctuation and periodic
tension.  Changes in political conditions in China and changes in the
state of foreign relations are difficult to predict and could adversely affect
our operations or cause our products to become less attractive.  This
could lead to a decline in our profitability.





Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on overall economic growth and the level of
healthcare investments and expenditures in China, which in turn could lead to a
reduction in demand for our products and consequently have a material adverse
effect on our businesses.





Future
changes in laws, regulations or enforcement policies in China could adversely
affect our business.





Laws,
regulations and enforcement policies in China, including those regulating our
business, are evolving and subject to future change.  Future changes
in laws, regulations or administrative interpretations, or stricter enforcement
policies by the Chinese government, could impose more stringent requirements on
us, including fines or other penalties.  Changes in applicable laws
and regulations may also increase our operating costs.  Compliance
with such requirements could impose substantial additional costs or otherwise
have a material adverse effect on our business, financial condition and results
of operations.  These changes may relax some requirements, which could
be beneficial to our competitors or could lower market entry barriers and
increase competition.  Further, regulatory agencies in China may
periodically, and sometimes abruptly, change their enforcement
practice.  Therefore, prior enforcement activity, or lack of
enforcement activity, is not necessarily predictive of future
actions.  Any enforcement actions against us could have a material and
adverse effect on us and the market price of our common shares.  In
addition, any litigation or governmental investigation or enforcement
proceedings in China may be protracted and may result in substantial cost and
diversion of resources and management attention, negative publicity, damage to
our reputation and decline in the price of our common shares.





The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.





In the
last 20 years, despite a process of devolution of regulatory control to
provincial and local levels and resulting economic autonomy and private economic
activities, the Chinese central government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership.  Our ability to operate in
China may be harmed by changes in its laws and regulations, including those
relating to taxation, import and export tariffs, environmental regulations, land
use rights, property and other matters.  We believe that our
operations in China are in material compliance with all applicable legal and
regulatory requirements.  However, the central or local governments of
the jurisdictions in which we operate may impose new, stricter regulations or
interpretations of existing regulations that would require additional
expenditures and efforts on our part to ensure our compliance with such
regulations or interpretations.





Accordingly,
government actions in the future, including any decision to adjust
economic policies or even to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.





Fluctuation
in the value of the Renminbi may have a material adverse effect on your
investment.





The value
of the Renminbi against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in China’s political and economic
conditions.  The conversion of Renminbi into foreign currencies,
including U.S. dollars, has historically been set by the People’s Bank of
China.  On July 21, 2005, the Chinese government changed its policy of
pegging the value of the Renminbi to the U.S. dollar.  Under the new
policy, the Renminbi is permitted to fluctuate within a band against a basket of
certain foreign currencies.  This change in policy resulted initially
in an approximately 2.0% appreciation in the value of the Renminbi against the
U.S. dollar.  Since the adoption of this new policy, the value of
Renminbi against the U.S. dollar has fluctuated on a daily basis within narrow
ranges, but overall has continued to strengthen against the U.S.
dollar.  There remains significant international pressure on the
Chinese government to further liberalize its currency policy, which could result
in a further and more significant appreciation or depreciation in the value of
the Renminbi against the U.S. dollar.  Any significant revaluation of
the Renminbi may have a material adverse effect on our revenues and financial
condition, and the value of, and any dividends payable on, our common shares in
foreign currency terms.  For example, to the extent that we need to
convert U.S. dollars into Renminbi for our operations, appreciation of the
Renminbi against the U.S. dollar would reduce the Renminbi amount we receive
from the conversion.  Conversely, if we decide to convert our Renminbi
into U.S. dollars for the purpose of making dividend payments on our common
shares or for other business purposes, appreciation of the U.S. dollar against
the Renminbi would reduce the U.S. dollar amount available to us.




38





Under
the Enterprise Income Tax (the “new EIT Law”), we may be classified a “resident
enterprise” for Chinese tax purposes, which may subject us to Chinese enterprise
income tax for any dividends we receive from our Chinese subsidiaries and to
Chinese income tax withholding for any dividends we pay to our non-Chinese
shareholders.





On March
16, 2007, the National People’s Congress promulgated the Law of the People’s
Republic of China on Enterprise Income Tax (the “new EIT Law”),
which became effective on January 1, 2008.  In accordance with
the new EIT Law, the corporate income tax rate is set at 25% for all
enterprises.  However, certain industries and projects, such as
enterprises with foreign investors, may enjoy favorable tax treatment pursuant
to the new EIT Law and its implementing rules.





Under the
new EIT Law, an enterprise established outside of China whose “de facto
management bodies” are located in China is considered a “resident enterprise”
and is subject to the 25% enterprise income tax rate on its worldwide
income.  The new EIT Law and its implementing rules are relatively
new, and currently, no official interpretation or application of this new
“resident enterprise” classification is available.  Therefore, it is
unclear how tax authorities will determine the tax residency of enterprises
established outside of China.





Most of
our management is currently based in China.  If Chinese tax
authorities determine that our U.S. holding company is a “resident enterprise”
for Chinese enterprise income tax purposes, we may be subject to an enterprise
income tax rate of 25% on our worldwide taxable income.  The “resident
enterprise” classification also could subject us to a 10% withholding tax on any
dividends we pay to our non-Chinese shareholders if the relevant Chinese
authorities determine that such income is China-sourced income.  In
addition to the uncertainties regarding the interpretation and application of
the new “resident enterprise” classification, the new EIT Law may change in the
future, possibly with retroactive effect.  If we are classified as a
“resident enterprise” and we incur these tax liabilities, our net income will
decrease accordingly.





It may be difficult to effect service of
process and enforcement of legal judgments upon Dongying BVI and some of our
officers and directors because they reside outside theUnited States.





As Dongying BVI’s operations are
presently based inChinaand some of our directors and officers
reside inChina, service of process on Dongying BVI and
such directors and officers may be difficult to effect within theUnited States.  Also, substantially all of
Dongying BVI’s assets are located inChinaand any judgment obtained in theUnited Statesagainst Dongying BVI may not be
enforceable outside theUnited States.





Since all ofDongying BVI’s assets are located inChina, any dividends of proceeds from
liquidation is subject to the approval of the relevant Chinese government
agencies.





Dongying BVI’s assets are located insideChina.  Under the laws governing
foreign invested enterprises inChina, dividend distribution and liquidation
are allowed but subject to special procedures under the relevant laws and
rules.  Any dividend payment will be subject to the decision of the
board of directors and subject to foreign exchange rules governing such
repatriation.  Any liquidation is subject to both the relevant
government agency’s approval and supervision as well as the foreign exchange
control.  This may generate additional risk for investors in case of
dividend payment and liquidation.




39




The
Company is required to be in compliance with the registered capital requirements
of China.





Under the company law ofChina, the combined company will be required
to contribute a certain amount of “registered capital” to its wholly owned
subsidiary.  By law, Dongying BVI and its subsidiaries are required to
contribute at least 10% of after tax net income (as determined in accordance
with Chinese GAAP) into a statutory surplus reserve until the reserve is equal
to 50% of Dongying BVI and its subsidiaries’ registered capital, and between 5%
and 10% of its after tax net income, as determined by Dongying BVI’s board of
directors, into a public welfare fund.  These reserve funds are
recorded as part of shareholders' equity but are not available for distribution
to shareholders other than in the case of liquidation.  As a result of
this requirement, the amount of net income available for distribution to
shareholders will be limited.





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





On April
3, 2009, the Company issued 20,000 shares of common stock to one individual due
to the closing of the Company’s private placement at $1.00 per Share for total
gross proceeds of $20,000.  The Company believes that the issuance is
exempt from registration under Regulation S promulgate under the Securities Act
of 1933, as amended as the securities were issued to the individual through an
offshore transaction which was negotiated and consummated outside the
United States.





In
relation to the Company’s private placement offering at $1.00 per share, the
Company will be paying a cash finder’s fee in the amount of $2,000 to an
individual in Singapore.





ITEM
3.  DEFAULTS UPON SENIOR SECURITIES





None.





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





None.





ITEM
5.  OTHER INFORMATION





On April
3, 2009, the Company issued 20,000 shares of common stock to one individual due
to the closing of the Company’s private placement at $1.00 per Share for total
gross proceeds of $20,000.  The Company believes that the issuance is
exempt from registration under Regulation S promulgate under the Securities Act
of 1933, as amended as the securities were issued to the individual through an
offshore transaction which was negotiated and consummated outside the
United States.





In
relation to the Company’s private placement offering at $1.00 per share, the
Company will be paying a cash finder’s fee in the amount of $2,000 to an
individual in Singapore.





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




40


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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 on this 17th day of
April, 2009





SINOBIOPHARMA,
      INC.
              (Registrant)By:
      /s/ Lequn Lee HuangLequn
      Lee HuangPresident
      and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:





Signature
            
            Title
            
            Date/s/
      Lequn Lee Huang
            
            President,
      CEO, CFO,
            
            April
      17, 2009Lequn
      Lee Huang
            
            Treasurer
      and Director/s/
      Jianguo Wang
            
            Secretary
      and Director
            
            April
      17, 2009Jianguo
      Wang