##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED June 30, 2008
 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 000-51409
 BMP SUNSTONE CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    20-0434726
(I.R.S. Employer
Identification No.)600 W. Germantown Pike, Suite 400
Plymouth Meeting, Pennsylvania
(Address of principal executive offices)
    
    19462
(Zip Code)
 (610) 940-1675
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



BMP SUNSTONE CORPORATION
INDEX
 PageNo.Part I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) for the three and six months
ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Stockholders Equity (Unaudited) for the three and
six months ended June 30, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June
30, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results Of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26Part II OTHER INFORMATIONItem 1A. Risk Factors
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURESCertificate of the Chief Executive Officer required by Rule 13a-14 (a)Certificate of the Chief Financial Officer required by Rule 13a-14 (a)Certificate of the Chief Executive Officer required by Rule 13a-14(b)Certificate of the Chief Financial Officer required by Rule 13a-14(b)
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 BMP SUNSTONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
 (Unaudited)June 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent Assets:Cash and Cash Equivalents
    
    $
    4,702
    
    
    $
    22,837Restricted Cash
    
    
    1,297
    
    
    
    1,297Notes Receivable
    
    
    17,547
    
    
    
    Accounts Receivable, net of allowance for doubtful accounts of $51 and $44
    
    
    29,228
    
    
    
    11,707Inventory, net of allowance for obsolescence of $0
    
    
    9,501
    
    
    
    2,897Due from Related Parties
    
    
    2,431
    
    
    
    Other Receivables
    
    
    2,813
    
    
    
    1,379VAT Receivable
    
    
    1,451
    
    
    
    828Prepaid Expenses and Other Current Assets
    
    
    4,982
    
    
    
    2,444Total Current Assets
    
    
    73,952
    
    
    
    43,389Property and Equipment, net
    
    
    22,450
    
    
    
    745Investment
in Sunstone China Limited
    
    
    
    
    
    
    33,126Investment in Alliance BMP
    
    
    15,093
    
    
    
    Investments, at Cost
    
    
    145
    
    
    
    137Goodwill
    
    
    67,471
    
    
    
    Other Assets
    
    
    1,565
    
    
    
    3,053Intangible Assets, net of accumulated amortization
    
    
    45,712
    
    
    
    473Total Assets
    
    $
    226,388
    
    
    $
    80,923Liabilities and Stockholders EquityCurrent Liabilities:Notes Payable, net of debt discount
    
    $
    27,862
    
    
    $
    117Accounts Payable
    
    
    19,151
    
    
    
    8,784Deferred Revenue
    
    
    750
    
    
    
    151Due to Related Parties
    
    
    3,855
    
    
    
    Accrued Expenses
    
    
    17,387
    
    
    
    3,952Total Current Liabilities
    
    
    69,005
    
    
    
    13,004Long-Term Debt, net of debt discount
    
    
    2,910
    
    
    
    18,910Deferred Taxes
    
    
    10,991
    
    
    
    Total Liabilities
    
    
    82,906
    
    
    
    31,914Stockholders Equity:Common Stock, $.001 Par Value; 75,000,000 and 50,000,000 Shares
Authorized as of June 30, 2008 and December 31, 2007, respectively;
39,587,026 and 31,240,913 Shares Issued and Outstanding as of June 30,
2008 and December 31, 2007, respectively
    
    
    40
    
    
    
    31Additional Paid in Capital
    
    
    157,070
    
    
    
    66,123Common Stock Warrants
    
    
    9,156
    
    
    
    9,747Accumulated Deficit
    
    
    (31,345
    )
    
    
    (27,600
    )Accumulated Other Comprehensive Income
    
    
    8,561
    
    
    
    708Total Stockholders Equity
    
    
    143,482
    
    
    
    49,009Total Liabilities and Stockholders Equity
    
    $
    226,388
    
    
    $
    80,923
  3




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##### Table of Contents



BMP SUNSTONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
($ in thousands except per share amounts)
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Third Parties
    
    $
    27,137
    
    
    $
    7,180
    
    
    $
    44,435
    
    
    $
    12,865Related Parties
    
    
    2,501
    
    
    
    
    
    
    
    3,292
    
    
    
    Total Revenues
    
    
    29,638
    
    
    
    7,180
    
    
    
    47,727
    
    
    
    12,865Cost of Goods Sold
    
    
    13,077
    
    
    
    6,204
    
    
    
    23,445
    
    
    
    11,235Gross Profit
    
    
    16,561
    
    
    
    976
    
    
    
    24,282
    
    
    
    1,630Sales and Marketing Expenses
    
    
    11,138
    
    
    
    733
    
    
    
    17,099
    
    
    
    1,347General and Administration Expenses
    
    
    3,819
    
    
    
    1,896
    
    
    
    6,975
    
    
    
    3,755Total Operating Expenses
    
    
    14,957
    
    
    
    2,629
    
    
    
    24,074
    
    
    
    5,102Profit (Loss) From Operations
    
    
    1,604
    
    
    
    (1,653
    )
    
    
    208
    
    
    
    (3,472
    )Other Income (Expense):Interest Income
    
    
    14
    
    
    
    119
    
    
    
    62
    
    
    
    270Interest Expense
    
    
    (1,611
    )
    
    
    (24
    )
    
    
    (3,180
    )
    
    
    (44
    )Debt Issuance Cost Amortization
    
    
    (210
    )
    
    
    
    
    
    
    (420
    )
    
    
    Equity Method Investment Income
    
    
    
    
    
    
    
    
    
    
    996
    
    
    
    Total Other Income (Expense)
    
    
    (1,807
    )
    
    
    95
    
    
    
    (2,542
    )
    
    
    226Loss Before Provision For Income Taxes
    
    
    (203
    )
    
    
    (1,558
    )
    
    
    (2,334
    )
    
    
    (3,246
    )Provision For Income Taxes
    
    
    1,064
    
    
    
    
    
    
    
    1,411
    
    
    
    Net Loss
    
    $
    (1,267
    )
    
    $
    (1,558
    )
    
    $
    (3,745
    )
    
    $
    (3,246
    )Basic and Fully-Diluted Loss Per Share
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.10
    )
    
    $
    (0.12
    )Basic and Fully-Diluted Weighted-average Shares Outstanding
    
    
    39,511
    
    
    
    26,739
    
    
    
    39,304
    
    
    
    26,664
  4




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BMP SUNSTONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)
($ in thousands)
 AccumulatedOtherComprehensiveIncomeAdditional
    
    
    Common
    
    
    
    
    
    
    Foreign
    
    
    TotalNumber
    
    
    $.001 Par
    
    
    Paid-in
    
    
    Stock
    
    
    Accumulated
    
    
    Currency
    
    
    Stockholdersof Shares
    
    
    Value
    
    
    Capital
    
    
    Warrants
    
    
    Deficit
    
    
    Translation
    
    
    EquityBalance as of
December 31, 2007
    
    
    31,240,913
    
    
    $
    31
    
    
    $
    66,123
    
    
    $
    9,747
    
    
    $
    (27,600
    )
    
    $
    708
    
    
    $
    49,009Stock-Based
Compensation
    
    
    
    
    
    
    
    
    
    
    563
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    563Common Stock Issuance
    
    
    8,000,000
    
    
    
    8
    
    
    
    88,611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,619Warrant and Option
Exercise
    
    
    251,113
    
    
    
    
    
    
    
    1,020
    
    
    
    (591
    )
    
    
    
    
    
    
    
    
    
    
    429Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,478
    )
    
    
    
    
    
    
    (2,478
    )Other Comprehensive
(Loss) IncomeForeign Currency
Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,532
    
    
    
    4,532Total
Comprehensive
(Loss)Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,054Balance as of March
31, 2008
    
    
    39,492,026
    
    
    $
    39
    
    
    $
    156,317
    
    
    $
    9,156
    
    
    $
    (30,078
    )
    
    $
    5,240
    
    
    $
    140,674Stock-Based
Compensation
    
    
    
    
    
    
    
    
    
    
    616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    616Warrant and Option
Exercise
    
    
    95,000
    
    
    
    1
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,267
    )
    
    
    
    
    
    
    (1,267
    )Other Comprehensive
(Loss) IncomeForeign Currency
Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,321
    
    
    
    3,321Total Comprehensive
(Loss)Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,054Balance as of June
30, 2008
    
    
    39,587,026
    
    
    $
    40
    
    
    $
    157,070
    
    
    $
    9,156
    
    
    $
    (31,345
    )
    
    $
    8,561
    
    
    $
    143,482
  5




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BMP SUNSTONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six months ended June 30,2008
    
    
    2007Cash Flows from Operating Activities:Net Loss
    
    $
    (3,745
    )
    
    $
    (3,246
    )Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities:Bad Debt Expense
    
    
    4
    
    
    
    Depreciation and Amortization of Property and Equipment
    
    
    809
    
    
    
    52Amortization of Intangible Assets and Inventory at Fair Value
    
    
    2,095
    
    
    
    128Stock-Based Compensation
    
    
    1,180
    
    
    
    672Amortization of Debt Discount and Deferred Debt Issuance Costs
    
    
    1,954
    
    
    
    Equity Method Investment Income
    
    
    (996
    )
    
    
    Loss on Disposal of Asset
    
    
    2
    
    
    
    20Deferred Taxes
    
    
    (372
    )
    
    
    Increase in Accounts Receivable
    
    
    (2,188
    )
    
    
    (1,587
    )(Increase) Decrease in Inventory
    
    
    (4,033
    )
    
    
    99Increase in Due from Related Parties
    
    
    (346
    )
    
    
    (Increase) Decrease in Other Receivables
    
    
    (2,677
    )
    
    
    63(Increase) Decrease in Value Added Tax Receivable
    
    
    (554
    )
    
    
    240Increase in Prepaid Expenses Other Current Assets
    
    
    (1,671
    )
    
    
    (484
    )Increase (Decrease) in Accounts Payable
    
    
    5,258
    
    
    
    (116
    )(Decrease) Increase in Deferred Revenue
    
    
    (1,363
    )
    
    
    62Decrease in Due to Related Parties
    
    
    (953
    )
    
    
    Increase in Accrued Expenses
    
    
    1,314
    
    
    
    77Net Cash Used in Operating Activities
    
    
    (6,282
    )
    
    
    (4,020
    )Cash Flows from Investing Activities:Acquisition Payment Due to Wanwei Group
    
    
    
    
    
    
    (214
    )Acquisition of Property and Equipment
    
    
    (1,956
    )
    
    
    (199
    )Cash Received in Acquisition of Hong Kong Fly
    
    
    2,132
    
    
    
    Deposit on Rongheng
    
    
    (1,565
    )
    
    
    Note Receivable with Rongheng
    
    
    212
    
    
    
    (659
    )Investment in Alliance BMP
    
    
    (12,319
    )
    
    
    Net Cash Used In Investing Activities
    
    
    (13,496
    )
    
    
    (1,072
    )Cash Flows from Financing Activities:Net Proceeds from Exercise of Warrants and Options
    
    
    541
    
    
    
    801Net Proceeds on Note Payable
    
    
    475
    
    
    
    (357
    )Increase in Restricted Cash
    
    
    
    
    
    
    (391
    )Investment held For Sale
    
    
    
    
    
    
    (2
    )Net Cash Provided by Financing Activities
    
    
    1,016
    
    
    
    51Effect of exchange rate changes on cash
    
    
    627
    
    
    
    110Net Decrease in Cash and Equivalents
    
    
    (18,135
    )
    
    
    (4,931
    )Cash and Equivalents, Beginning
    
    
    22,837
    
    
    
    15,331Cash and Equivalents, Ending
    
    $
    4,702
    
    
    $
    10,400Supplemental Disclosure of Cash Flow Information:Cash Paid During the Years for:Income Taxes
    
    $
    1,800
    
    
    
    Interest
    
    $
    1,463
    
    
    $
    26
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BMP SUNSTONE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation:
  Earnings Per Share:
 Notes
Receivable:
 Reclassification:
 Recent Accounting Pronouncements:
   7




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
    
    Level 1Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets
or liabilities.
    
    Level 2Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly, including quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; inputs other than quoted prices
that are observable for the asset or liability (e.g., interest rates); and inputs that
are derived principally from or corroborated by observable market data by correlation or
other means.
    
    Level 3Inputs that are both significant to the fair value measurement and unobservable.
       8




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##### Table of Contents



2. Acquisitions:
 Acquisition of Guangzhou Pharmaceuticals Corporation
  Acquisition of Sunstone
      ($ in thousands)Purchase PriceValue of shares to acquire 51% of Sunstone China (i)
    
    $
    88,619Direct acquisition costs
    
    
    570$
    89,189Less: Fair Value of identifiable assets acquired:Cash
    
    
    1,075Notes receivable
    
    
    7,768Accounts receivable
    
    
    7,094Inventory
    
    
    2,059Prepaid expenses and other assets
    
    
    787Due from related parties
    
    
    1,013Deferred income taxes
    
    
    165Land use rights
    
    
    1,045
 9




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($ in thousands)Fixed assets
    
    
    9,91530,921Plus: Fair value of liabilities assumed:Borrowings
    
    
    4,724Accounts payable
    
    
    2,280Accrued liabilities and other payables
    
    
    6,984Due to related parties
    
    
    2,354Deferred tax liability (ii)
    
    
    11,19827,540Excess of cost over fair value of net assets acquired-intangible assets and goodwill
    
    $
    85,808
 
 (i)
    
    Under the terms of the Sale and Purchase Agreement
dated September 28, 2007, 400,000 shares of the
8,000,000 to the Sellers remain contingent on
specified events or transactions in the future and
are not included in the above purchase price
valuation until earned.(ii)
    
    Deferred tax liability of $11,198,000 was recorded at
February 18, 2008 representing 25% tax rate on
intangible assets acquired as part of the acquisition
of Sunstone.  Weighted Average
    
    
    ($ in thousands)Intangible assets
    
    Amortization Period
    
    
    Gross Carrying AmountCustomer Relationships
    
    10 Years
    
    $
    9,719Trademarks
    
    Indefinite
    
    
    9,222Favorable contracts
    
    17.3 Years
    
    
    3,121$
    22,062
 Equity Method Investment Income:
   ($ amounts in thousands)Equity in earnings of Sunstone China for the period January 1, 2008 through February 17, 2008
    
    
    
    
    
    
    $
    1,345Less adjustments of excess fair value:Amortization expense of intangible assets
    
    
    
    
    
    
    (
    349)Total equity method investment income after amortization
    
    
    
    
    
    
    $
    996
 10




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Pro Forma Information
  Six months ended($ in thousands, except per share amounts)
    
    June 30, 2008Pro Forma Revenue
    
    $
    56,464Pro Forma Net Loss
    
    $
    (2,715
    )Loss per Share  Basic and Fully Diluted Pro forma
    
    $
    (0.070
    )
  3. Segment Information:
  Branded OTC Segment (Sunstone)
  Pharmaceutical Distribution Segment (Wanwei)
   Licensed
Products Segment (BMP China)
   Revenues
    
    ($ in thousands)Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Branded OTC (1)
    
    $
    19,612
    
    
    $
    
    
    
    $
    29,069
    
    
    $
    Pharmaceutical Distribution
    
    
    9,966
    
    
    
    7,159
    
    
    
    18,598
    
    
    
    12,845Licensed
Products
    
    
    424
    
    
    
    160
    
    
    
    743
    
    
    
    261Eliminations
    
    
    (364
    )
    
    
    (139
    )
    
    
    (683
    )
    
    
    (241
    )Total Revenue
    
    $
    29,638
    
    
    $
    7,180
    
    
    $
    47,727
    
    
    $
    12,865
 11




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Profit (Loss) from operations
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Branded OTC (1)
    
    $
    4,053
    
    
    $
    
    
    
    $
    5,336
    
    
    $
    Pharmaceutical Distribution
    
    
    2
    
    
    
    127
    
    
    
    (388
    )
    
    
    (151
    )Sales and Marketing
    
    
    (621
    )
    
    
    (695
    )
    
    
    (1,316
    )
    
    
    (1,100
    )Corporate
    
    
    (1,318
    )
    
    
    (1,415
    )
    
    
    (2,724
    )
    
    
    (2,646
    )Eliminations
    
    
    (512
    )
    
    
    330
    
    
    
    (700
    )
    
    
    425Total Operating Profit (Loss) from Operations
    
    $
    1,604
    
    
    $
    (1,653
    )
    
    $
    208
    
    
    $
    (3,472
    )
 
 (1)
    
    Revenue and Profit from Operations for the branded OTC segment is for the period February 18,
2008 through June 30, 2008. 4. Accrued Expenses
  June 30,
    
    
    December 31,2008
    
    
    2007Accrued taxes and related expenses
    
    $
    5,391
    
    
    $
    249Accrued salaries and related expenses
    
    
    2,560
    
    
    
    1,101Accrued office expenses
    
    
    2,416
    
    
    
    15Accrued marketing expenses
    
    
    2,096
    
    
    
    0Accrued travel and entertainment expenses
    
    
    1,954
    
    
    
    29Accrued other expenses
    
    
    1,362
    
    
    
    1,573Accrued advertising expenses
    
    
    916
    
    
    
    0Accrued interest expenses
    
    
    383
    
    
    
    383Accrued professional fees
    
    
    232
    
    
    
    602Accrued research and development expenses
    
    
    77
    
    
    
    0Total Accrued expenses
    
    $
    17,387
    
    
    $
    3,952
 5.
Stockholders Equity
  Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    2008
    
    2007Weighted average basic shares
    
    
    39,510,707
    
    
    
    26,738,948
    
    
    
    39,303,504
    
    
    
    26,664,122
  Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    2008
    
    2007Number of shares
    
    
    1,339,563
    
    
    
    2,206,001
    
    
    
    1,415,876
    
    
    
    2,035,286Range of exercise price
    
    $
    1.15-5.84
    
    
    $
    1.15-10.90
    
    
    $
    1.15-7.48
    
    
    $
    1.15-$10.90
 6. Stock-Based Compensation:
  12




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##### Table of Contents



Three months ended June 30,
    
    Six months ended June 30,2008
    
    2007
    
    2008
    
    2007Expected life (years)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Risk-free interest rate
    
    
    3.14-3.22
    %
    
    
    5.23
    %
    
    
    2.36-3.22
    %
    
    
    5.15%-5.23
    %Expected Volatility
    
    
    55
    %
    
    
    80
    %
    
    
    55
    %
    
    
    78.8%-80
    %Expected Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregatePrice
    
    
    Term
    
    
    IntrinsicOptions
    
    
    per Share
    
    
    (in years)
    
    
    ValueOutstanding on January 1, 2008
    
    
    2,920,626
    
    
    $
    4.30Granted
    
    
    170,000
    
    
    
    8.69Exercised
    
    
    (79,625
    )
    
    
    1.56Canceled
    
    
    (22,354
    )
    
    
    9.00Outstanding on March 31, 2008
    
    
    2,988,647
    
    
    $
    4.58
    
    
    
    7.63
    
    
    $
    13,701,060Granted
    
    
    604,000
    
    
    
    7.35Exercised
    
    
    (95,000
    )
    
    
    1.44Canceled
    
    
    (66,147
    )
    
    
    7.61Outstanding on June 30, 2008
    
    
    3,431,500
    
    
    
    5.10
    
    
    
    7.74
    
    
    $
    6,674,314Exercisable on June 30, 2008
    
    
    1,677,392
    
    
    $
    2.48
    
    
    
    6.33
    
    
    $
    5,901,643
  13




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##### Table of Contents



Weighted-AverageGrant-Date FairNonvested Shares
    
    Shares
    
    
    ValueNonvested at January 1, 2008
    
    
    1,400,469
    
    
    $
    4.87Granted
    
    
    774,000
    
    
    
    3.83Vested
    
    
    (339,881
    )
    
    
    3.83Canceled
    
    
    (92,773
    )
    
    
    5.31Non-vested at June 30, 2008
    
    
    1,741,815
    
    
    $
    4.58
  7. Related Party Transactions
   Balance atJune 30, 2008($ in thousands)Amounts due from related parties:Accounts receivable due from entities controlled by Han
    
    $
    1,841Loan due from Han
    
    
    590$
    2,431Amounts due to related parties:Due to Han and entities controlled by Han
    
    $
    987Due to Tong and entities controlled by Tong
    
    
    2,867$
    3,855
 8. Subsequent Event
  14




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with the Consolidated Financial
Statements and notes thereto contained herein and in conjunction with the financial statements and
notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31,
2007.
 Forward-Looking Statements
  Overview
  
    
    pre-market entry analysis;
    
    clinical trial management;
    
    product registration;
    
    market research;
    
    pharmaceutical marketing to physicians, hospitals and other healthcare providers;
    
    OTC marketing to retail pharmacies; and
    
    pharmaceutical distribution.
  15




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##### Table of Contents



Financial Overview
   Acquisitions
 Acquisition of Guangzhou Pharmaceutical Corporation
  Acquisition of Sunstone
     16




---



##### Table of Contents



Acquisition of Rongheng
  Liquidity and Capital Resources
 Cash
  Notes Receivable
  Cash Flow
      17




---



##### Table of Contents



Critical Accounting Policies
    Results of Operations
 Three Months Ended June 30, 2008 Compared to Three Months June 30, 2007
  For the Three Months Ended
    
    
    For the Three Months EndedJune 30,
    
    
    June 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Revenues
    
    $
    29,638
    
    
    $
    7,180
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    13,077
    
    
    
    6,204
    
    
    
    44.1
    %
    
    
    86.4
    %Gross Profit
    
    
    16,561
    
    
    
    976
    
    
    
    55.9
    %
    
    
    13.6
    %Sales and Marketing Expenses
    
    
    11,138
    
    
    
    733
    
    
    
    37.6
    %
    
    
    10.2
    %General and Administrative Expenses
    
    
    3,819
    
    
    
    1,896
    
    
    
    12.9
    %
    
    
    26.4
    %Total Operating Expenses
    
    
    14,957
    
    
    
    2,629
    
    
    
    50.5
    %
    
    
    36.6
    %Profit (Loss) From Operations
    
    
    1,604
    
    
    
    (1,653
    )
    
    
    5.4
    %
    
    
    -23.0
    %Other Income (Expense):Interest Income
    
    
    14
    
    
    
    119
    
    
    
    0.0
    %
    
    
    1.7
    %Interest Expense
    
    
    (1,611
    )
    
    
    (24
    )
    
    
    -5.4
    %
    
    
    0.3
    %Debt Issuance Cost Amortization
    
    
    (210
    )
    
    
    
    
    
    
    -0.7
    %
    
    
    Total Other Income (Expense)
    
    
    (1,807
    )
    
    
    95
    
    
    
    -6.1
    %
    
    
    1.3
    %Loss Before Provision for Income Taxes
    
    
    (203
    )
    
    
    (1,558
    )
    
    
    -0.7
    %
    
    
    -21.7
    %Provision for Income Taxes
    
    
    1,064
    
    
    
    
    
    
    
    -3.6
    %
    
    
    Net Loss
    
    $
    (1,267
    )
    
    $
    (1,558
    )
    
    
    -4.3
    %
    
    
    -21.7
    %
 18




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##### Table of Contents



Net Revenues:
   Three Months Ended June 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded OTC
    
    $
    19,612
    
    
    $
    
    
    
    $
    19,612
    
    
    
    N/ADistribution products
    
    
    8,657
    
    
    
    6,509
    
    
    
    2,148
    
    
    
    33
    %Licensed products
    
    
    1,369
    
    
    
    671
    
    
    
    698
    
    
    
    104
    %$
    29,638
    
    
    $
    7,180
    
    
    $
    22,458
    
    
    
    313
    %
 Branded OTC
 Distribution Products
 Licensed Products
 Cost of Sales:
 19




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##### Table of Contents



Three Months Ended June 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded Sunstone OTCRevenues
    
    $
    19,612
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/ACost of Sales
    
    
    4,294
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AGross Profit
    
    $
    15,318
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/AGross Margin %
    
    
    78.1
    %
    
    
    N/ADistribution and Licensed ProductsRevenues
    
    $
    10,026
    
    
    $
    7,180
    
    
    $
    2,846
    
    
    
    39.6
    %Cost of Sales
    
    
    8,783
    
    
    
    6,204
    
    
    
    2,579
    
    
    
    41.6
    %Gross Profit
    
    $
    1,243
    
    
    $
    976
    
    
    $
    267
    
    
    
    27.4
    %Gross Margin %
    
    
    12.4
    %
    
    
    13.6
    %TotalRevenues
    
    $
    29,638
    
    
    $
    7,180
    
    
    $
    22,458
    
    
    
    312.8
    %Cost of Sales
    
    
    13,077
    
    
    
    6,204
    
    
    
    6,873
    
    
    
    110.8
    %Gross Profit
    
    $
    16,561
    
    
    $
    976
    
    
    $
    15,585
    
    
    
    1596.8
    %Gross Margin %
    
    
    55.9
    %
    
    
    13.6
    %
  Sales and Marketing Expenses
  General and Administrative Expenses:
  20




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##### Table of Contents



Interest Income:
  Interest Expense:
  Debt Issuance Cost Amortization:
  Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
  For the Six Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Revenues
    
    $
    47,727
    
    
    $
    12,865
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    23,445
    
    
    
    11,235
    
    
    
    49.1
    %
    
    
    87.3
    %Gross Profit
    
    
    24,282
    
    
    
    1,630
    
    
    
    50.9
    %
    
    
    12.7
    %Sales and Marketing Expenses
    
    
    17,099
    
    
    
    1,347
    
    
    
    35.8
    %
    
    
    10.5
    %General and Administrative Expenses
    
    
    6,975
    
    
    
    3,755
    
    
    
    14.6
    %
    
    
    29.2
    %Total Operating Expenses
    
    
    24,074
    
    
    
    5,102
    
    
    
    50.4
    %
    
    
    39.7
    %Profit (Loss) From Operations
    
    
    208
    
    
    
    (3,472
    )
    
    
    0.4
    %
    
    
    -27.0
    %Other Income (Expense):Interest Income
    
    
    62
    
    
    
    270
    
    
    
    0.1
    %
    
    
    2.1
    %Interest Expense
    
    
    (3,180
    )
    
    
    (44
    )
    
    
    -6.7
    %
    
    
    -0.3
    %Debt Issuance Cost Amortization
    
    
    (420
    )
    
    
    
    
    
    
    -0.9
    %
    
    
    Equity Method Investment Income
    
    
    996
    
    
    
    
    
    
    
    2.1
    %
    
    
    Total Other Income (Expense)
    
    
    (2,542
    )
    
    
    226
    
    
    
    -5.3
    %
    
    
    1.8
    %Loss Before Provision for Income Taxes
    
    
    (2,334
    )
    
    
    (3,246
    )
    
    
    -4.9
    %
    
    
    -25.2
    %Provision for Income Taxes
    
    
    1,411
    
    
    
    
    
    
    
    3.0
    %
    
    
    Net Loss
    
    $
    (3,745
    )
    
    $
    (3,246
    )
    
    
    -7.8
    %
    
    
    -25.2
    %
 21




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##### Table of Contents



Net Revenues:
   Six Months Ended June 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded OTC
    
    $
    29,069
    
    
    $
    
    
    
    $
    29,069
    
    
    
    N/ADistribution products
    
    
    16,092
    
    
    
    11,788
    
    
    
    4,304
    
    
    
    37
    %Licensed products
    
    
    2,566
    
    
    
    1,077
    
    
    
    1,489
    
    
    
    138
    %$
    47,727
    
    
    $
    12,865
    
    
    $
    34,862
    
    
    
    271
    %
 Branded OTC
 Distribution Products
 Licensed Products
 22




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##### Table of Contents



Cost of Sales:
 Six Months Ended June 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded Sunstone OTC (1)Revenues
    
    $
    29,069
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/ACost of Sales
    
    
    7,035
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AGross Profit
    
    $
    22,034
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/AGross Margin %
    
    
    75.8
    %
    
    
    N/ADistribution and Licensed ProductsRevenues
    
    $
    18,658
    
    
    $
    12,865
    
    
    $
    5,793
    
    
    
    45.0
    %Cost of Sales
    
    
    16,410
    
    
    
    11,235
    
    
    
    5,175
    
    
    
    46.1
    %Gross Profit
    
    $
    2,248
    
    
    $
    1,630
    
    
    $
    618
    
    
    
    37.9
    %Gross Margin %
    
    
    12.0
    %
    
    
    12.7
    %TotalRevenues
    
    $
    47,727
    
    
    $
    12,865
    
    
    $
    34,862
    
    
    
    271.0
    %Cost of Sales
    
    
    23,445
    
    
    
    11,235
    
    
    
    12,210
    
    
    
    108.7
    %Gross Profit
    
    $
    24,282
    
    
    $
    1,630
    
    
    $
    22,652
    
    
    
    1389.7
    %Gross Margin %
    
    
    50.9
    %
    
    
    12.7
    %
 
 (1)
    
    Revenue and cost of sales for the Sunstone OTC segment is for the period February 18, 2008
through June 30, 2008.  Sales and Marketing Expenses
  General and Administrative Expenses:
  23




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##### Table of Contents



Interest Income:
  Interest Expense:
  Debt Issuance Cost Amortization:
  Equity Method Investment Income:
   ($ amounts inthousands)Equity in earnings of Sunstone China for the period January 1, 2008 through February 17, 2008
    
    $
    1,345Less adjustments of excess fair value:Amortization expense of intangible assets
    
    
    (349
    )Total equity method investment gain after amortization
    
    $
    996
 24




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Rate Sensitivity
    Interest Rate Sensitivity
  25




---



##### Table of Contents



ITEM 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
      (b) Changes in Internal Control Over Financial Reporting
  26




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1A. Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The Annual Meeting of the Stockholders of the Company was held on April 28, 2008.(b)
    
    All director nominees were elected.(c)
    
    Certain matters voted upon at the meeting and the votes cast with respect to such matters are
as follows:
 BrokerFor
    
    Against
    
    Withheld
    
    Abstain
    
    Non-VotesElection of DirectorsDavid (Xiaoying) Gao
    
    
    32,868,044
    
    
    
    *
    
    
    
    74,657
    
    
    
    *
    
    
    
    *Martyn D. Greenacre
    
    
    31,990,235
    
    
    
    
    
    
    
    952,466
    
    
    
    *
    
    
    
    *George Bickerstaff
    
    
    32,866,974
    
    
    
    *
    
    
    
    75,727
    
    
    
    *
    
    
    
    *Jack M. Ferraro
    
    
    32,276,045
    
    
    
    *
    
    
    
    666,656
    
    
    
    *
    
    
    
    *Zhigiang Han
    
    
    32,865,336
    
    
    
    *
    
    
    
    77,365
    
    
    
    *
    
    
    
    *Frank Hollendoner
    
    
    32,578,001
    
    
    
    *
    
    
    
    364,700
    
    
    
    *
    
    
    
    *John W. Stakes
    
    
    32,280,258
    
    
    
    *
    
    
    
    364,443Zhijun Tong
    
    
    32,865,336
    
    
    
    *
    
    
    
    77,365
    
    
    
    *
    
    
    
    *
 
 *
    
    Not Applicable 27




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##### Table of Contents



ITEM 6. Exhibits
 31.1
    
    Certificate of the Chief Executive Officer of BMP Sunstone Corporation required by Rule 13a-14(a) under the Exchange
Act.31.2
    
    Certificate of the Chief Financial Officer of BMP Sunstone Corporation required by Rule 13a-14(a) under the Exchange Act32.1
    
    Certificate of the Chief Executive Officer of BMP Sunstone Corporation required by Rule 13a-14(b) under the Exchange Act32.2
    
    Certificate of the Chief Financial Officer of BMP Sunstone Corporation required by Rule 13a-14(b) under the Exchange Act
 28




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##### Table of Contents



SIGNATURES
  BMP SUNSTONE CorporationDate: August 11, 2008
    /s/ DAVID GAODavid GaoChief Executive Officer
(Principal Executive Officer)Date: August 11, 2008
    /s/ FRED M. POWELLFred M. PowellChief Financial Officer
(Principal Financial and Accounting Officer) 29