##### 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 September 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
    
    20-0434726(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)600 W. Germantown Pike, Suite 400
    
    19462Plymouth Meeting, Pennsylvania
    
    (Zip Code)(Address of principal executive offices)
 (610) 940-1675
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-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 September 30, 2008 (Unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended
September 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Stockholders Equity (Unaudited) for the three and nine
months ended September 30, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September
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
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29Part II OTHER INFORMATIONItem 1A. Risk Factors
    
    
    30Item 6. Exhibits
    
    
    31SIGNATURESEX-31.1EX-31.2EX-32.1EX-32.2
      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)September 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent Assets:Cash and Cash Equivalents
    
    $
    3,787
    
    
    $
    22,837Restricted Cash
    
    
    1,297
    
    
    
    1,297Notes Receivable
    
    
    15,441
    
    
    
    Accounts Receivable, net of allowance for doubtful accounts of $51 and $44
    
    
    33,763
    
    
    
    11,707Inventory, net of allowance for obsolescence of $0
    
    
    11,321
    
    
    
    2,897Due from Related Parties
    
    
    3,298
    
    
    
    Other Receivables
    
    
    1,795
    
    
    
    1,379VAT Receivable
    
    
    1,044
    
    
    
    828Prepaid Expenses and Other Current Assets
    
    
    5,971
    
    
    
    2,444Total Current Assets
    
    
    77,717
    
    
    
    43,389Property and Equipment, net
    
    
    22,925
    
    
    
    745Investment in Sunstone China Limited
    
    
    
    
    
    
    33,126Investment in Alliance BMP
    
    
    15,093
    
    
    
    Investments, at Cost
    
    
    146
    
    
    
    137Goodwill
    
    
    70,004
    
    
    
    Other Assets
    
    
    
    
    
    
    3,053Intangible Assets, net of accumulated amortization
    
    
    44,938
    
    
    
    473Total Assets
    
    $
    230,823
    
    
    $
    80,923Liabilities and Stockholders EquityCurrent Liabilities:Notes Payable, net of debt discount
    
    $
    29,694
    
    
    $
    117Accounts Payable
    
    
    24,116
    
    
    
    8,784Deferred Revenue
    
    
    143
    
    
    
    151Due to Related Parties
    
    
    3,461
    
    
    
    Accrued Expenses
    
    
    18,582
    
    
    
    3,952Total Current Liabilities
    
    
    75,996
    
    
    
    13,004Long-Term Debt, net of debt discount
    
    
    
    
    
    
    18,910Deferred Taxes
    
    
    10,802
    
    
    
    Total Liabilities
    
    
    86,798
    
    
    
    31,914Stockholders Equity:Common Stock, $.001 Par Value; 75,000,000 and 50,000,000 Shares
Authorized as of September 30, 2008 and December 31, 2007, respectively;
39,808,864 and 31,240,913 Shares Issued and Outstanding as of September
30, 2008 and December 31, 2007, respectively
    
    
    40
    
    
    
    31Additional Paid in Capital
    
    
    158,240
    
    
    
    66,123Common Stock Warrants
    
    
    9,049
    
    
    
    9,747Accumulated Deficit
    
    
    (32,161
    )
    
    
    (27,600
    )Accumulated Other Comprehensive Income
    
    
    8,857
    
    
    
    708Total Stockholders Equity
    
    
    144,025
    
    
    
    49,009Total Liabilities and Stockholders Equity
    
    $
    230,823
    
    
    $
    80,923
  3




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BMP SUNSTONE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
($ in thousands except per share amounts)
 Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Third Parties
    
    $
    28,544
    
    
    $
    8,979
    
    
    $
    72,979
    
    
    $
    21,844Related Parties
    
    
    1,959
    
    
    
    
    
    
    
    5,251
    
    
    
    Total Revenues
    
    
    30,503
    
    
    
    8,979
    
    
    
    78,230
    
    
    
    21,844Cost of Goods Sold
    
    
    16,676
    
    
    
    7,805
    
    
    
    40,120
    
    
    
    19,040Gross Profit
    
    
    13,827
    
    
    
    1,174
    
    
    
    38,110
    
    
    
    2,804Sales and Marketing Expenses
    
    
    9,152
    
    
    
    1,077
    
    
    
    26,251
    
    
    
    2,424General and Administration Expenses
    
    
    2,910
    
    
    
    2,092
    
    
    
    9,886
    
    
    
    5,847Total Operating Expenses
    
    
    12,062
    
    
    
    3,169
    
    
    
    36,137
    
    
    
    8,271Profit (Loss) From Operations
    
    
    1,765
    
    
    
    (1,995
    )
    
    
    1,973
    
    
    
    (5,467
    )Other Income (Expense):Interest Income
    
    
    6
    
    
    
    172
    
    
    
    68
    
    
    
    441Interest Expense
    
    
    (1,590
    )
    
    
    (47
    )
    
    
    (4,770
    )
    
    
    (90
    )Debt Issuance Cost Amortization
    
    
    (210
    )
    
    
    
    
    
    
    (630
    )
    
    
    Equity Method Investment Income
    
    
    
    
    
    
    
    
    
    
    996
    
    
    
    Other Income
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Total Other Income (Expense)
    
    
    (1,794
    )
    
    
    196
    
    
    
    (4,336
    )
    
    
    422Profit (Loss) Before Provision For Income Taxes
    
    
    (29
    )
    
    
    (1,799
    )
    
    
    (2,363
    )
    
    
    (5,045
    )Provision For Income Taxes
    
    
    787
    
    
    
    
    
    
    
    2,198
    
    
    
    Net Loss
    
    $
    (816
    )
    
    $
    (1,799
    )
    
    $
    (4,561
    )
    
    $
    (5,045
    )Basic and Fully-Diluted Loss Per Share
    
    $
    (0.02
    )
    
    $
    (0.06
    )
    
    $
    (0.12
    )
    
    $
    (0.19
    )Basic and Fully-Diluted Weighted-average
Shares Outstanding
    
    
    39,650
    
    
    
    28,394
    
    
    
    38,070
    
    
    
    27,247
  4




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##### Table of Contents



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
    
    
    $
    143,482Stock-Based Compensation
    
    
    
    
    
    
    
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    636Warrant and Option Exercise
    
    
    221,838
    
    
    
    
    
    
    
    534
    
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    426Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (816
    )
    
    
    
    
    
    
    (816
    )Other Comprehensive (Loss) IncomeForeign Currency Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    296
    
    
    
    296Total Comprehensive (Loss)Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (520
    )Balance as of September 30, 2008
    
    
    39,808,864
    
    
    $
    40
    
    
    $
    158,240
    
    
    $
    9,049
    
    
    $
    (32,161
    )
    
    $
    8,857
    
    
    $
    144,025
  5




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##### Table of Contents



BMP SUNSTONE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine months ended September 30,2008
    
    
    2007Cash Flows from Operating Activities:Net Loss
    
    $
    (4,561
    )
    
    $
    (5,045
    )Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:Bad Debt Expense
    
    
    3
    
    
    
    Depreciation and Amortization of Property and Equipment
    
    
    1,424
    
    
    
    85Amortization of Intangible Assets and Inventory at Fair Value
    
    
    3,279
    
    
    
    192Stock-Based Compensation
    
    
    1,816
    
    
    
    1,133Amortization of Debt Discount and Deferred Debt Issuance Costs
    
    
    2,931
    
    
    
    Equity Method Investment Income
    
    
    (996
    )
    
    
    Loss on Disposal of Asset
    
    
    2
    
    
    
    20Deferred Taxes
    
    
    (561
    )
    
    
    Increase in Accounts Receivable
    
    
    (2,693
    )
    
    
    (2,902
    )Increase in Inventory
    
    
    (4,387
    )
    
    
    (435
    )Increase in Due from Related Parties
    
    
    (1,199
    )
    
    
    Increase in Other Receivables
    
    
    (95
    )
    
    
    (68
    )(Increase) Decrease in Value Added Tax Receivable
    
    
    (157
    )
    
    
    31Increase in Prepaid Expenses Other Current Assets
    
    
    (2,473
    )
    
    
    (764
    )Increase in Accounts Payable
    
    
    3,724
    
    
    
    1,470(Decrease) Increase in Deferred Revenue
    
    
    (1,584
    )
    
    
    144Decrease in Due to Related Parties
    
    
    (1,360
    )
    
    
    Increase in Accrued Expenses
    
    
    1,462
    
    
    
    525Net Cash Used in Operating Activities
    
    
    (5,425
    )
    
    
    (5,614
    )Cash Flows from Investing Activities:Acquisition Payment Due to Wanwei Group
    
    
    
    
    
    
    (214
    )Acquisition of Property and Equipment
    
    
    (2,950
    )
    
    
    (210
    )Cash
Received in Acquisition of Sunstone China and Rongheng
    
    
    2,587
    
    
    
    (4,800
    )Acquisition of Rongheng
    
    
    (1,661
    )
    
    
    Note Receivable with Rongheng
    
    
    214
    
    
    
    (659
    )Investment in Alliance BMP
    
    
    (12,040
    )
    
    
    Net Cash Used In Investing Activities
    
    
    (13,850
    )
    
    
    (5,883
    )Cash Flows from Financing Activities:Net Proceeds from Exercise of Warrants and Options
    
    
    968
    
    
    
    838Net Proceeds from Common Stock Issuance
    
    
    
    
    
    
    30,603Net Payments on Note Payable
    
    
    (1,365
    )
    
    
    (619
    )Increase in Restricted Cash
    
    
    
    
    
    
    (408
    )Investment held For Sale
    
    
    
    
    
    
    Net Cash
used (from) Financing Activities
    
    
    (397
    )
    
    
    30,414Effect of exchange rate changes on cash
    
    
    622
    
    
    
    170Net Decrease in Cash and Equivalents
    
    
    (19,050
    )
    
    
    (19,087
    )Cash and Equivalents, Beginning
    
    
    22,837
    
    
    
    15,331Cash and Equivalents, Ending
    
    $
    3,787
    
    
    $
    34,418Supplemental Disclosure of Cash Flow Information:Cash Paid During the Years for:Income Taxes
    
    $
    1,832
    
    
    
    Interest
    
    $
    1,895
    
    
    $
    58
 6




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##### Table of Contents



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:
  
    
    Level 1Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
 7




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##### Table of Contents




    
    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.
      2. Acquisitions:
 Acquisition of Guangzhou Pharmaceuticals Corporation
  8




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##### Table of Contents



Acquisition of Sunstone
      ($ inthousands)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
    
    
    1,045Fixed 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
 9




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##### Table of Contents



(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
 Acquisition of Rongheng
    10




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##### Table of Contents



$ in thousandsPurchase price:Value of shares to acquire 63.3% of Rongheng
    
    $
    880Cash Consideration
    
    
    735Direct acquisition costs
    
    
    46$
    1,661Less: Fair value of identifiable assets acquired:Cash and equivalents
    
    
    455Accounts receivable
    
    
    3,973Inventory
    
    
    1,495Prepaid expenses and other assets
    
    
    246Fixed assets
    
    
    496,218Plus: Fair value of liabilities assumed:Current liabilities
    
    
    7,094Excess of cost over fair value of net assets
acquired  intangible assets and goodwill
    
    $
    2,537
  Pro Forma Information
  Nine months endedSeptember 30, 2008in millions, exceptper share amountsPro Forma Revenue
    
    $
    96,746Pro Forma Net Loss
    
    $
    (3,890
    )Earnings (Loss) per Share  Basic and Fully Diluted Pro forma
    
    $
    (0.10
    )
  11




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##### Table of Contents



3. Segment Information:
  Branded OTC Segment (Sunstone)
  Pharmaceutical Distribution Segment (Wanwei and Rongheng)
   Licensed Products Segment (BMP China)
   Revenues
 ($ in thousands)Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Branded OTC (1)
    
    $
    15,471
    
    
    $
    
    
    
    $
    44,540
    
    
    $
    Pharmaceutical Distribution
    
    
    14,939
    
    
    
    8,978
    
    
    
    33,537
    
    
    
    21,823Licensed Products
    
    
    471
    
    
    
    45
    
    
    
    1,214
    
    
    
    307Eliminations
    
    
    (378
    )
    
    
    (44
    )
    
    
    (1,061
    )
    
    
    (286
    )Total Revenue
    
    $
    30,503
    
    
    $
    8,979
    
    
    $
    78,230
    
    
    $
    21,844
 Profit (Loss) from operations
 Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Branded OTC (1)
    
    $
    3,222
    
    
    $
    
    
    
    $
    8,558
    
    
    $
    Pharmaceutical Distribution
    
    
    464
    
    
    
    44
    
    
    
    76
    
    
    
    (106
    )Licensed
Products
    
    
    (14
    )
    
    
    (818
    )
    
    
    (1,330
    )
    
    
    (1,918
    )Corporate
    
    
    (1,888
    )
    
    
    (1,082
    )
    
    
    (4,612
    )
    
    
    (3,728
    )Eliminations
    
    
    (19
    )
    
    
    (139
    )
    
    
    (719
    )
    
    
    285Total Operating Profit (Loss) from Operations
    
    $
    1,765
    
    
    $
    (1,995
    )
    
    $
    1,973
    
    
    $
    (5,467
    )
 Assets
 As of September 30,2008
    
    
    2007Branded OTC
    
    $
    180,881
    
    
    $
    0Pharmaceutical Distribution
    
    
    33,460
    
    
    
    16,894Licensed Products
    
    
    814
    
    
    
    3,618Corporate
    
    
    165,205
    
    
    
    54,577Eliminations
    
    
    (149,537
    )
    
    
    (18,562
    )Total Assets
    
    $
    230,823
    
    
    $
    56,527
 
 (1)
    
    Revenue and Profit from Operations for the branded OTC segment is for
the period February 18, 2008 through September 30, 2008.


12



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##### Table of Contents



Depreciation
 Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Branded OTC
    
    $
    535
    
    
    $
    0
    
    
    $
    1,235
    
    
    $
    0Pharmaceutical Distribution
    
    
    47
    
    
    
    21,725
    
    
    
    115
    
    
    
    52Licensed Products
    
    
    23
    
    
    
    6,097
    
    
    
    44
    
    
    
    27Corporate
    
    
    10
    
    
    
    4,879
    
    
    
    30
    
    
    
    6Total Depreciation
    
    $
    615
    
    
    $
    32,701
    
    
    $
    1,424
    
    
    $
    85
 Capital Expenditures
 Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Branded OTC
    
    $
    708
    
    
    $
    0
    
    
    $
    2,682
    
    
    $
    0Pharmaceutical Distribution
    
    
    101
    
    
    
    6
    
    
    
    241
    
    
    
    99Licensed Products
    
    
    9
    
    
    
    2
    
    
    
    27
    
    
    
    89Corporate
    
    
    0
    
    
    
    3
    
    
    
    0
    
    
    
    22Total Capital Expenditures
    
    $
    818
    
    
    $
    11
    
    
    $
    2,950
    
    
    $
    210
 4. Accrued Expenses
  (in thousands)September 30,
    
    
    December 31,2008
    
    
    2007Accrued taxes and related expenses
    
    $
    5,505
    
    
    $
    249Accrued salaries and related expenses
    
    
    2,189
    
    
    
    1,101Accrued sales office expenses
    
    
    4,538
    
    
    
    15Accrued marketing expenses
    
    
    258
    
    
    
    0Accrued travel and entertainment expenses
    
    
    1,691
    
    
    
    29Accrued other expenses
    
    
    2,079
    
    
    
    1,573Accrued advertising expenses
    
    
    929
    
    
    
    0Accrued interest expenses
    
    
    958
    
    
    
    383Accrued professional fees
    
    
    246
    
    
    
    602Accrued research and development expenses
    
    
    189
    
    
    
    0Total Accrued expenses
    
    $
    18,582
    
    
    $
    3,952
 5. Stockholders Equity
  Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    2008
    
    2007Weighted average basic shares
    
    
    39,649,813
    
    
    
    28,394,329
    
    
    
    38,070,234
    
    
    
    27,247,195
  Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    2008
    
    2007Number of shares
    
    
    1,109,849
    
    
    
    2,185,997
    
    
    
    1,297,707
    
    
    
    2,052,482Range of exercise price
    
    $
    1.15-5.12
    
    
    $
    1.15-10.90
    
    
    $
    1.15-5.84
    
    
    $
    1.15-$10.90
 6. Stock-Based Compensation:
  13




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##### Table of Contents



Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    2008
    
    2007Expected life (years)
    
    
    
    
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Risk-free interest rate
    
    
    
    
    
    
    5.23
    %
    
    
    2.36-3.22
    %
    
    
    5.15%-5.23
    %Expected Volatility
    
    
    
    
    
    
    80
    %
    
    
    55.0
    %
    
    
    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
    
    
    $
    6,674,314Granted
    
    
    Exercised
    
    
    (147,750
    )
    
    
    1.88Canceled
    
    
    (99,567
    )
    
    
    6.63Outstanding on September 30, 2008
    
    
    3,184,183
    
    
    
    5.21
    
    
    
    7.46
    
    
    $
    8,061,782Exercisable on September 30, 2008
    
    
    1,694,338
    
    
    
    2.97
    
    
    
    6.20
    
    
    $
    7,322,175
  14




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##### Table of Contents



Weighted-AverageGrant-Date FairNonvested Shares
    
    Shares
    
    
    ValueNonvested at January 1, 2008
    
    
    1,405,469
    
    
    $
    4.87Granted
    
    
    774,000
    
    
    
    3.83Vested
    
    
    (502,910
    )
    
    
    3.83Canceled
    
    
    (186,715
    )
    
    
    5.31Non-vested at September 30, 2008
    
    
    1,489,844
    
    
    $
    4.58
  7. Related Party Transactions
   Balance atSeptember 30, 2008($ in thousands)Amounts due from related parties:Accounts receivable due from entities controlled by Han
    
    $
    2,700Loan due from Han
    
    
    598$
    3,298Amounts due to related parties:Due to Han and entities controlled by Han
    
    $
    2,903Due to Tong and entities controlled by Tong
    
    
    558$
    3,461
 8. Guarantee arrangement:
     15




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##### Table of Contents



9. Subsequent events:
  16




---



##### 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.
 Financial Overview
  17




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##### Table of Contents



Acquisitions
 Acquisition of Guangzhou Pharmaceutical Corporation
  Acquisition of Sunstone
     Acquisition of Rongheng
  18




---



##### Table of Contents



Liquidity and Capital Resources
 Cash
  Notes Receivable
  Cash Flow
    19




---



##### Table of Contents



Critical Accounting Policies
    20




---



##### Table of Contents



Results of Operations
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
  For the Three Months Ended
    
    
    For the Three Months EndedSeptember 30,
    
    
    September 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Revenues
    
    $
    30,503
    
    
    $
    8,979
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    16,676
    
    
    
    7,805
    
    
    
    54.7
    %
    
    
    86.9
    %Gross Profit
    
    
    13,827
    
    
    
    1,174
    
    
    
    45.3
    %
    
    
    13.1
    %Sales and Marketing Expenses
    
    
    9,152
    
    
    
    1,077
    
    
    
    30.0
    %
    
    
    12.0
    %General and Administrative Expenses
    
    
    2,910
    
    
    
    2,092
    
    
    
    9.5
    %
    
    
    23.3
    %Total Operating Expenses
    
    
    12,062
    
    
    
    3,169
    
    
    
    39.5
    %
    
    
    35.3
    %Profit (Loss) From Operations
    
    
    1,765
    
    
    
    (1,995
    )
    
    
    5.8
    %
    
    
    -22.2
    %Other Income (Expense):Interest Income
    
    
    6
    
    
    
    172
    
    
    
    0.0
    %
    
    
    1.9
    %Interest Expense
    
    
    (1,590
    )
    
    
    (47
    )
    
    
    -5.2
    %
    
    
    0.5
    %Debt Issuance Cost Amortization
    
    
    (210
    )
    
    
    
    
    
    
    0.7
    %Other Income
    
    
    
    
    
    
    71
    
    
    
    0
    %
    
    
    0.8
    %Total Other Income (Expense)
    
    
    (1,794
    )
    
    
    196
    
    
    
    -5.9
    %
    
    
    2.2
    %Loss Before Provision for Income Taxes
    
    
    (29
    )
    
    
    (1,799
    )
    
    
    -0.1
    %
    
    
    -20.0
    %Provision for Income Taxes
    
    
    787
    
    
    
    
    
    
    
    -2.6
    %
    
    
    Net Loss
    
    $
    (816
    )
    
    $
    (1,799
    )
    
    
    -2.7
    %
    
    
    -20.0
    %
 Net Revenues:
   Three Months Ended September 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded OTC
    
    $
    15,471
    
    
    $
    
    
    
    $
    15,471
    
    
    
    N/ADistribution products
    
    
    13,696
    
    
    
    8,019
    
    
    
    5,677
    
    
    
    71
    %Licensed products
    
    
    1,336
    
    
    
    960
    
    
    
    376
    
    
    
    39
    %$
    30,503
    
    
    $
    8,979
    
    
    $
    21,524
    
    
    
    240
    %
 Branded OTC
 Pharmaceutical Distribution
 21




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##### Table of Contents



Licensed Products
 Cost of Sales:
 Three months ended September 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded OTCRevenues
    
    $
    15,471
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/ACost of Sales
    
    
    3,640
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AGross Profit
    
    $
    11,831
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/AGross Margin %
    
    
    76.5
    %
    
    
    N/ADistribution and Licensed Products (1)Revenues
    
    $
    15,032
    
    
    $
    8,979
    
    
    $
    6,053
    
    
    
    67.4
    %Cost of Sales
    
    
    13,036
    
    
    
    7,805
    
    
    
    5,231
    
    
    
    67.0
    %Gross Profit
    
    $
    1,996
    
    
    $
    1,174
    
    
    $
    822
    
    
    
    70.0
    %Gross Margin %
    
    
    13.3
    %
    
    
    13.1
    %TotalRevenues
    
    $
    30,503
    
    
    $
    8,979
    
    
    $
    21,524
    
    
    
    239.7
    %Cost of Sales
    
    
    16,676
    
    
    
    7,805
    
    
    
    8,871
    
    
    
    113.7
    %Gross Profit
    
    $
    13,827
    
    
    $
    1,174
    
    
    $
    12,653
    
    
    
    1077.8
    %Gross Margin %
    
    
    45.3
    %
    
    
    13.1
    %
 
 (1)
    
    Revenues and cost of sales for Rongheng is for the period July 5, 2008 through September
30, 2008.  Sales and Marketing Expenses
  22




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General and Administrative Expenses:
  Interest Income:
  Interest Expense:
  Debt Issuance Cost Amortization:
  23




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##### Table of Contents



Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
  For the Nine Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Revenues
    
    $
    78,230
    
    
    $
    21,844
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    40,120
    
    
    
    19,040
    
    
    
    51.3
    %
    
    
    87.2
    %Gross Profit
    
    
    38,110
    
    
    
    2,804
    
    
    
    48.7
    %
    
    
    12.8
    %Sales and Marketing Expenses
    
    
    26,251
    
    
    
    2,424
    
    
    
    33.6
    %
    
    
    11.1
    %General and Administrative Expenses
    
    
    9,886
    
    
    
    5,847
    
    
    
    12.6
    %
    
    
    26.8
    %Total Operating Expenses
    
    
    36,137
    
    
    
    8,271
    
    
    
    46.2
    %
    
    
    37.9
    %Profit (Loss) From Operations
    
    
    1,973
    
    
    
    (5,467
    )
    
    
    2.5
    %
    
    
    -25.0
    %Other Income (Expense):Interest Income
    
    
    68
    
    
    
    441
    
    
    
    0.1
    %
    
    
    2.0
    %Interest Expense
    
    
    (4,770
    )
    
    
    (90
    )
    
    
    -6.1
    %
    
    
    -0.4
    %Debt Issuance Cost Amortization
    
    
    (630
    )
    
    
    
    
    
    
    -0.8
    %
    
    
    Equity Method Investment Income
    
    
    996
    
    
    
    
    
    
    
    1.3
    %
    
    
    Other Income
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    0.3
    %Total Other Income (Expense)
    
    
    (4,336
    )
    
    
    422
    
    
    
    -5.5
    %
    
    
    1.9
    %Loss Before Provision for Income Taxes
    
    
    (2,363
    )
    
    
    (5,045
    )
    
    
    -3.0
    %
    
    
    -23.1
    %Provision for Income Taxes
    
    
    2,198
    
    
    
    
    
    
    
    2.8
    %
    
    
    Net Loss
    
    $
    (4,561
    )
    
    $
    (5,045
    )
    
    
    -5.8
    %
    
    
    -23.1
    %
 Net Revenues:
  Nine Months Ended September 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded OTC
    
    $
    44,540
    
    
    $
    
    
    
    $
    44,540
    
    
    
    N/ADistribution products
    
    
    29,788
    
    
    
    19,807
    
    
    
    9,981
    
    
    
    50
    %Licensed products
    
    
    3,902
    
    
    
    2,037
    
    
    
    1,865
    
    
    
    92
    %$
    78,230
    
    
    $
    21,844
    
    
    $
    56,386
    
    
    
    258
    %
 Branded OTC
 Pharmaceutical Distribution
 24




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Licensed Products
 Cost of Sales:
 Nine Months Ended September 30,($ amounts in thousands)
    
    2008
    
    
    2007
    
    
    $ Increase
    
    
    % IncreaseBranded OTC (1)Revenues
    
    $
    44,540
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/ACost of Sales
    
    
    10,675
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AGross Profit
    
    $
    33,865
    
    
    $
    N/A
    
    
    $
    N/A
    
    
    
    N/AGross Margin %
    
    
    76.0
    %
    
    
    N/ADistribution and Licensed Products (2)Revenues
    
    $
    33,690
    
    
    $
    21,844
    
    
    $
    11,846
    
    
    
    54.2
    %Cost of Sales
    
    
    29,445
    
    
    
    19,040
    
    
    
    10,405
    
    
    
    54.6
    %Gross Profit
    
    $
    4,245
    
    
    $
    2,804
    
    
    $
    1,441
    
    
    
    51.4
    %Gross Margin %
    
    
    12.6
    %
    
    
    12.8
    %TotalRevenues
    
    $
    78,230
    
    
    $
    21,844
    
    
    $
    56,386
    
    
    
    258.1
    %Cost of Sales
    
    
    40,120
    
    
    
    19,040
    
    
    
    21,080
    
    
    
    110.7
    %Gross Profit
    
    $
    38,110
    
    
    $
    2,804
    
    
    $
    35,306
    
    
    
    1259.1
    %Gross Margin %
    
    
    48.7
    %
    
    
    12.8
    %
 
 (1)
    
    Revenue and cost of sales for the Branded OTC segment is for the period February 18, 2008 through September 30, 2008.(2)
    
    Revenue and cost of sales for Rongheng is for the period July 5, 2008 through September 30, 2008.  Sales and Marketing Expenses
  25




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General and Administrative Expenses:
  Interest Income:
  Interest Expense:
  Debt Issuance Cost Amortization:
  Equity Method Investment Income:
  26




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##### Table of Contents



($ 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
 27




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Rate Sensitivity
    Interest Rate Sensitivity
  28




---



##### Table of Contents



ITEM 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
       (b) Changes in Internal Control Over Financial Reporting
  29




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1A. Risk Factors
  30




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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
 31




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##### Table of Contents



SIGNATURES
  BMP SUNSTONE CorporationDate: November 10, 2008
    /s/ DAVID GAODavid GaoChief Executive Officer
(Principal Executive Officer)Date: November 10, 2008
    /s/ FRED M. POWELLFred M. PowellChief Financial Officer
(Principal Financial and Accounting Officer) 32