##### 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 March 31, 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 001-32980
 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 400Plymouth Meeting, Pennsylvania
    
    19462(Address of principal executive offices)
    
    (Zip Code)
 (610) 940-1675
(Registrants telephone number, including area code)
 
 (Former name, if changed since last report)
 þ o
 o o
  Large
accelerated filer o
    
    Accelerated
filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



BMP SUNSTONE CORPORATION
INDEX
 PageNo.Part I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2009
(Unaudited) and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) for
the three months ended March 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Stockholders Equity
(Unaudited) for the three months ended March 31, 2009
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited) for
the three months ended March 31, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results Of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35Part II OTHER INFORMATIONItem 1A. Risk Factors
    
    
    36Item 6. Exhibits
    
    
    37SIGNATURESEX-31.1EX-31.2EX-32.1EX-32.2




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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)March 31,
    
    
    December 31,2009
    
    
    2008AssetsCurrent Assets:Cash and Cash Equivalents
    
    $
    21,251
    
    
    $
    15,740Restricted Cash
    
    
    781
    
    
    
    1,150Notes Receivable
    
    
    18,776
    
    
    
    15,797Accounts Receivable, net of allowance for doubtful accounts of $210 and $127
    
    
    38,254
    
    
    
    30,897Inventory, net of allowance for obsolescence of $45 and $0
    
    
    9,570
    
    
    
    10,184Due from Related Parties
    
    
    2,435
    
    
    
    1,834Other Receivables
    
    
    2,189
    
    
    
    2,168VAT Receivable
    
    
    989
    
    
    
    921Prepaid Expenses and Other Current Assets
    
    
    5,181
    
    
    
    6,247Total Current Assets
    
    
    99,426
    
    
    
    84,938Property and Equipment, net
    
    
    23,999
    
    
    
    22,840Investment in Alliance BMP Limited
    
    
    15,093
    
    
    
    15,093Investment in Shengda
    
    
    2,938
    
    
    
    Investments at Cost
    
    
    146
    
    
    
    146Goodwill
    
    
    69,950
    
    
    
    69,866Other Assets
    
    
    716
    
    
    
    875Land Use Rights, net accumulated amortization
    
    
    1,983
    
    
    
    2,002Intangible Assets, net of accumulated amortization
    
    
    41,107
    
    
    
    41,891Total Assets
    
    $
    255,358
    
    
    $
    237,651Liabilities and Stockholders EquityCurrent Liabilities:Notes Payable and Bank Borrowings, net of debt discount
    
    $
    18,328
    
    
    $
    33,591Accounts Payable
    
    
    28,544
    
    
    
    27,482Due to Related Parties
    
    
    5,426
    
    
    
    4,361Deferred Revenue
    
    
    128
    
    
    
    128Accrued Expenses
    
    
    16,373
    
    
    
    14,601Total Current Liabilities
    
    
    68,799
    
    
    
    80,163Long-Term
Debt, including debt premium
    
    
    25,297
    
    
    
    Derivative Liability
    
    
    894
    
    
    
    Deferred Taxes
    
    
    9,763
    
    
    
    9,856Total Liabilities
    
    
    104,753
    
    
    
    90,019Stockholders Equity:Common Stock, $.001 Par Value; 75,000,000 Shares Authorized as of March 31,
2009 and December 31, 2008; 41,500,409 and 40,246,410 Shares Issued and
Outstanding as of March 31, 2009 and December 31, 2008, respectively
    
    
    41
    
    
    
    40Additional Paid in Capital
    
    
    164,850
    
    
    
    160,864Common Stock Warrants
    
    
    9,780
    
    
    
    9,049Accumulated Deficit
    
    
    (33,032
    )
    
    
    (31,042
    )Accumulated Other Comprehensive Income
    
    
    8,966
    
    
    
    8,721Total Stockholders Equity
    
    
    150,605
    
    
    
    147,632Total Liabilities and Stockholders Equity
    
    $
    255,358
    
    
    $
    237,651
  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)
 For the three months ended March 31,2009
    
    
    2008(in $ thousands except per share amounts)Net Revenues:Third Parties
    
    $
    35,521
    
    
    $
    17,298Related Parties
    
    
    3,742
    
    
    
    791Total Revenues
    
    
    39,263
    
    
    
    18,089Cost of Goods Sold
    
    
    18,605
    
    
    
    10,368Gross Profit
    
    
    20,658
    
    
    
    7,721Sales and Marketing Expenses
    
    
    13,511
    
    
    
    5,961General and Administration Expenses
    
    
    3,929
    
    
    
    3,156Total Operating Expenses
    
    
    17,440
    
    
    
    9,117Profit (Loss) From Operations
    
    
    3,218
    
    
    
    (1,396
    )Other Income (Expense):Interest Income
    
    
    24
    
    
    
    48Interest Expense
    
    
    (1,417
    )
    
    
    (1,569
    )Debt Issuance Cost Amortization
    
    
    (128
    )
    
    
    (210
    )Equity Method Investment Income
    
    
    17
    
    
    
    675Loss on Early Extinguishment of Debt
    
    
    (4,573
    )
    
    
    Gain on Derivatives
    
    
    1,651
    
    
    
    Total Other Expense
    
    
    (4,426
    )
    
    
    (1,056
    )Loss Before Provision For Income Taxes
    
    
    (1,208
    )
    
    
    (2,452
    )Provision For Income Taxes
    
    
    782
    
    
    
    347Net Loss
    
    $
    (1,990
    )
    
    $
    (2,799
    )Basic and Fully-Diluted Loss Per Share
    
    $
    (0.05
    )
    
    $
    (0.08
    )Basic Weighted-average Shares Outstanding
    
    
    40,765
    
    
    
    35,096Fully Diluted
Weighted-average Shares Outstanding
    
    
    43,066
    
    
    
    36,598
  4




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BMP SUNSTONE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)
 ($ in thousands)
 AccumulatedOtherComprehensiveIncomeAdditional
    
    
    Common
    
    
    
    
    
    
    Foreign
    
    
    TotalNumber
    
    
    $.001 Par
    
    
    Paid-in
    
    
    Stock
    
    
    Accumulated
    
    
    Currency
    
    
    Stockholdersof Shares
    
    
    Value
    
    
    Capital
    
    
    Warrants
    
    
    Deficit
    
    
    Translation
    
    
    EquityBalance as of
December 31, 2008
    
    
    40,246,410
    
    
    $
    40
    
    
    $
    160,864
    
    
    $
    9,049
    
    
    $
    (31,042
    )
    
    $
    8,721
    
    
    $
    147,632Stock-Based
Compensation
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585Common Stock
Issuance in
connection with
private placement
    
    
    1,118,124
    
    
    
    1
    
    
    
    2,846
    
    
    
    731
    
    
    
    
    
    
    
    
    
    
    
    3,578Common Stock
Warrants Issuance
    
    
    
    
    
    
    
    
    
    
    (838
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (838
    )Cost Incurred in
Connection with
Stock Issuance
    
    
    
    
    
    
    
    
    
    
    (579
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (579
    )Common Stock
Issuance in
Connection with
Debt Financing
    
    
    135,875
    
    
    
    
    
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417Extinguishment of
Derivative
Liability
    
    
    
    
    
    
    
    
    
    
    1,555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,555Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,990
    )
    
    
    
    
    
    
    (1,990
    )Other
Comprehensive LossForeign
Currency
Translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    245Total
Comprehensive
Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,745
    )Balance as of March
31, 2009
    
    
    41,500,409
    
    
    $
    41
    
    
    $
    164,850
    
    
    $
    9,780
    
    
    $
    (33,032
    )
    
    $
    8,966
    
    
    $
    150,605
  5




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##### Table of Contents



BMP SUNSTONE CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
  For the three months ended March31,2009
    
    
    2008Cash Flows from Operating Activities:Net Loss
    
    $
    (1,990
    )
    
    $
    (2,799
    )Adjustments to Reconcile Net Loss to Net Cash Provided in
Operating Activities:Bad Debt Expense
    
    
    
    
    
    
    4Depreciation and Amortization of Property and Equipment
    
    
    522
    
    
    
    257Amortization of Intangible Assets and Inventory at Fair Value
    
    
    860
    
    
    
    1,103Amortization of Debt Discount and Deferred Debt Issuance Costs
    
    
    577
    
    
    
    977Stock-Based Compensation
    
    
    585
    
    
    
    563Gain on Fair Value of Derivatives
    
    
    (1,651
    )Loss on Early Extinguishment of Debt
    
    
    4,573Equity Method Investment Income
    
    
    (17
    )
    
    
    (675
    )Loss on Disposal of Asset
    
    
    
    
    
    
    2Decrease in Deferred Taxes
    
    
    (105
    )
    
    
    Increase in Accounts Receivable
    
    
    (7,288
    )
    
    
    (1,359
    )Increase in Notes Receivable
    
    
    (2,958
    )
    
    
    Decrease
(Increase) in Inventory
    
    
    667
    
    
    
    (1,627
    )Decrease in Due from Related Parties
    
    
    460
    
    
    
    Decrease in Other Receivables
    
    
    51
    
    
    
    1,279Increase Decrease in Value Added Tax Receivable
    
    
    (67
    )
    
    
    (8
    )Decrease
(Increase) in Prepaid Expenses and Other Current Assets
    
    
    1,469
    
    
    
    (1,621
    )Decrease  in Accounts Payable
    
    
    (681
    )
    
    
    (135
    )Increase  in Accrued Expenses
    
    
    1,875
    
    
    
    2,515Net Cash Used in Operating Activities
    
    
    (3,118
    )
    
    
    (1,524
    )Cash Flows from Investing Activities:Acquisition of Property and Equipment
    
    
    (1,652
    )
    
    
    (726
    )Cash Received in Acquisition of Sunstone China
    
    
    
    
    
    
    2,132Investment in Alliance BMP
    
    
    
    
    
    
    (12,319
    )Investment in Shengda
    
    
    (409
    )
    
    
    Net Cash Used In Investing Activities
    
    
    (2,061
    )
    
    
    (10,913
    )Cash Flows from Financing Activities:Net Proceeds
from Common Stock Issuance
    
    
    2,999
    
    
    
    Net Proceeds
from Long Term Debt Issuance
    
    
    12,031
    
    
    
    Retirement
of Long Term Debt
    
    
    (4,650
    )
    
    
    Decrease in
Restricted Cash
    
    
    369
    
    
    
    Net Proceeds from Exercise of Warrants
    
    
    
    
    
    
    427Payments on Note Payable
    
    
    
    
    
    
    (1,839
    )Net Cash
Provided by
(Used in ) Provided by Financing Activities
    
    
    10,749
    
    
    
    (1,412
    )Effect of exchange rate changes on cash
    
    
    (60
    )
    
    
    (590
    )Net Increase in Cash and Equivalents
    
    
    5,511
    
    
    
    14,439Cash and Equivalents, Beginning
    
    
    15,740
    
    
    
    22,837Cash and Equivalents, Ending
    
    $
    21,251
    
    
    $
    8,398Supplemental Disclosure of Cash Flow Information:Cash Paid During the Years for:Income Taxes
    
    
    1,573
    
    
    
    Interest
    
    
    212
    
    
    
    126
 6




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BMP SUNSTONE CORPORATION AND SUBSIDIARIES
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Basis of Presentation:
  Earnings Per Share:
 Significant Account Policy: Recent Accounting Pronouncements: Fair Value Measurements Effective Date of FASB Statement No. 157,
     7




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Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active
      Determination of Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entitys Own Stock Accounting for Derivatives and Hedging Activities
 8




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Transition Guidance for Conforming Changes
to Issue No. 98-5 Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios Application of Issue No. 98-5 to Certain Convertible
Instruments Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity
 , Accounting for an Instrument (or an
Embedded Feature) with a Settlement Amount That Is Based on the Stock of an Entitys Consolidated
Subsidiary
 2. Acquisitions:
 Acquisition of Zhangjiakou Shengda Pharmaceutical Co., Ltd
   
    
    RMB 6 million (or $876,000 as of February 16, 2009) was payable within
15 business days following the signing of the Equity Transfer
Agreement and was paid as of December 31, 2008;
    
    RMB 14 million (or $2,044,000 as of February 16, 2009) is payable in
five equal installments on the second, fourth, sixth, eighth and tenth
month anniversary following the closing of the transactions
contemplated by the Equity Transfer Agreement.
  9




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##### Table of Contents



($ in thousands)Purchase Price
    
    $
    2,921Less:
    
    Fair value of identifiable assetsCash
    
    
    324Accounts receivable
    
    
    71Other receivable
    
    
    85Prepaid expenses and other assets
    
    
    89Inventory
    
    
    736Fixed assets
    
    
    621Land use rights
    
    
    701,996Plus:
    
    Fair value of liabilities assumedAccounts payable
    
    
    235Accrued liabilities and other payables
    
    
    561796Excess of cost over fair value of net assets acquired  goodwill
    
    $
    1,721
   ($ in thousands)Equity in earnings of Shengda for the periodFebruary 16 through March 31, 2009
    
    $
    70Less adjustments of excess fair value:Inventory sold
    
    
    53Total equity method income
    
    $
    17
 3. Segment Information:
  Branded OTC Segment (Sunstone)
  Pharmaceutical Distribution Segment (Wanwei and Rongheng)
  10




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##### Table of Contents



Licensed Products Segment (BMP China)
   RevenueThree months ended March 31,2009
    
    
    2008($ in thousands)Branded OTC (i)
    
    $
    24,527
    
    
    $
    9,457Pharmaceutical Distribution
    
    
    14,758
    
    
    
    8,632Licensed Products
    
    
    1,028
    
    
    
    319Eliminations
    
    
    (1,050
    )
    
    
    (319
    )Total Revenue
    
    $
    39,263
    
    
    $
    18,089
 Operating Income (Loss)Three months ended March 31,2009
    
    
    2008($ in thousands)Branded OTC (i)
    
    $
    5,245
    
    
    $
    1,283Pharmaceutical Distribution
    
    
    (122
    )
    
    
    (390
    )Licensed Products
    
    
    68
    
    
    
    (695
    )Corporate
    
    
    (2,012
    )
    
    
    (1,406
    )Eliminations
    
    
    39
    
    
    
    (188
    )Total Operating Profit (Loss)
    
    $
    3,218
    
    
    $
    (1,396
    )
 
  4. Long Term Debt
   11




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Issuers Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument
When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133.
 Determining Whether and
Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock.
   12




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##### Table of Contents



As of March 31, 2009Liability DerivativesBalance Sheet Location
    
    
    Fair Value($ in thousands)Derivatives designated
as hedging instruments
under FAS 133:NoneDerivatives not
designated as hedging
instruments under FAS
133:Embedded Derivative
    
    Other Liabilities
    
    $
    0Total derivatives
    
    
    
    
    
    $
    0
  Amount of Gain (Loss)Recognized in IncomeStatementLocation of Gain (Loss) Recognized in
    
    Quarter Ended March 31,Income Statement
    

    2009($ in thousands)Derivatives not
designated as hedging
instruments under FAS
133:Embedded Derivative
    
    Other Income (Expense)
    
    
    $
    1,707Total
    
    
    
    
    
    $
    1,707
   ($ in thousands)Balance as of December 31, 2008
    
    $
    0Record Derivative Liability on Conversion Option at
January 20, 2009
    
    
    3,262Change in Fair Value of Derivative Liability
    
    
    (1,707
    )Extinguishment of Derivative Liability
    
    
    (1,555
    )Balance as of March 31, 2009
    
    $
    0
 Debtors Accounting for a Modification or Exchange of Debt
Instruments Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 13




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Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
        14




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Debtors Accounting for a Modification or Exchange of Debt
Instruments Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  5. Common Stock Warrants
     Determining
Whether and Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock.
   15




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As of March 31, 2009Liability DerivativesBalance Sheet Location
    
    
    Fair Value($ in thousands)Derivatives designated as
hedging instruments under FAS
133:NoneDerivatives not designated as
hedging instruments under FAS
133:Derivative Warrant Liability
    
    Other Liabilities
    
    $
    894Total derivatives
    
    
    
    
    
    $
    894
  Amount of Gain (Loss)Recognized in IncomeStatementLocation of Gain (Loss) Recognized
    
    Quarter Ended March 31,in Income Statement
    

    2009($ in thousands)Derivatives not designated as
hedging instruments under FAS
133:Derivative Warrant Liability
    
    Other Income (Expense)
    
    $
    (56
    )Total
    
    
    
    
    
    $
    (56
    )
    ($ in thousands)Balance as of December 31, 2008
    
    $
    0Recording of Derivative Liability on Warrant Issuance
    
    
    838Change in Fair Value of Derivative Liability
    
    
    56Balance as of March 31, 2009
    
    $
    894
 16




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##### Table of Contents



6. Accrued Expenses
  2009
    
    
    2008Accrued salary and related expenses
    
    $
    1,804
    
    
    $
    1,152Accrued professional fees
    
    
    421
    
    
    
    418Accrued taxes and related expenses
    
    
    5,024
    
    
    
    7,112Accrued social welfare and related expenses
    
    
    498
    
    
    
    1,409Accrued advertising
    
    
    816
    
    
    
    1,093Accrued travel and entertainment
    
    
    1,251
    
    
    
    881Accrued marketing
    
    
    2,243
    
    
    
    66Accrued sales office expenses
    
    
    2,070
    
    
    
    823Accrued interest expense
    
    
    793
    
    
    
    383Accrued other
    
    
    1,453
    
    
    
    1,264Total Accrued expenses
    
    $
    16,373
    
    
    $
    14,601
 7. Shareholders Equity
  Three months ended March 31,2009
    
    2008Weighted average basic shares
    
    
    40,765,087
    
    
    
    35,096,301
  Three months ended March 31,2009
    
    2008Number of shares
    
    
    2,301,412
    
    
    
    1,501,842Range of exercise price
    
    $
    1.15 - $3.00
    
    
    $
    1.15 - $7.95
 8. Stock-Based Compensation:
  17




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##### Table of Contents



Three months endedMarch 31, 2008Expected life (years)
    
    
    5.0Risk-free interest rate
    
    
    2.36
    %Expected Volatility
    
    
    55
    %Expected Dividend yield
    
    
    0.00
    %
    Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregatePrice
    
    
    Term
    
    
    IntrinsicOptions
    
    
    per Share
    
    
    (in years)
    
    
    ValueOutstanding on January 1, 2009
    
    
    3,157,801
    
    
    $
    5.17
    
    
    
    7.18
    
    
    $
    5,796,000Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    605
    
    
    
    10.90Outstanding on March 31, 2009
    
    
    3,157,196
    
    
    $
    5.17
    
    
    
    6.94
    
    
    $
    2,172,000Exercisable on March 31, 2009
    
    
    1,934,266
    
    
    $
    3.45
    
    
    
    5.88
    
    
    $
    2,149,000
  18




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##### Table of Contents



Weighted-AverageNonvested
    
    
    Grant-Date FairShares
    
    
    ValueNonvested at January 1, 2009
    
    
    1,354,271
    
    
    $
    4.57Granted
    
    
    
    
    
    
    Vested
    
    
    130,736
    
    
    
    4.38Canceled
    
    
    605
    
    
    
    7.37Non-vested at March 31, 2009
    
    
    1,222,930
    
    
    $
    4.59
  9. Related Party Transactions
  Balance atMarch 31, 2009($ amounts in thousands)
    
    ($ in thousands)Amounts due to related parties:Due to RHIT
    
    $
    1,359Due to Shenglongda
    
    
    387$
    1,746
    Balance atMarch 31, 2009($ in thousands)Amounts due from related parties:Accounts receivable due from entities controlled by Han
    
    $
    2,435Amounts due to related parties:Due to Han and entities controlled by Han
    
    $
    3,535Due to Tong and entities controlled by Tong
    
    
    145$
    3,680
 10. Subsequent Events
  19




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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,
2008.
 Forward-Looking Statements
  Overview
 .
 Financial Overview
   21




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##### Table of Contents



Acquisitions
   
    
    RMB 6 million (or $876,000 as of February 16, 2009) was payable within
15 business days following the signing of the Equity Transfer
Agreement and was paid as of December 31, 2008;
    
    RMB 14 million (or $2,044,000 as of February 16, 2009) is payable in
five equal installments on the second, fourth, sixth, eighth and tenth
month anniversary following the closing of the transactions
contemplated by the Equity Transfer Agreement.
  Liquidity and Capital Resources
 Cash
  Long Term Debt
    22




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##### Table of Contents



Issuers Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument
When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133.
 Determining Whether and
Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock.
   23




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##### Table of Contents



As of March 31, 2009Liability DerivativesBalance SheetLocation
    
    
    Fair Value($ in thousands)Derivatives designated
as hedging instruments
under FAS 133:NoneDerivatives not
designated as hedging
instruments under FAS
133:Embedded Derivative
    
    Other Liabilities
    
    $
    0Total derivatives
    
    
    
    
    
    $
    0
  Amount of Gain (Loss)Recognized in IncomeStatementLocation of Gain (Loss)
    
    Quarter Ended March 31,Recognized in Income Statement
    

    2009($ in thousands)Derivatives not
designated as hedging
instruments under FAS
133:Embedded Derivative
    
    Other Income (Expense)
    
    $
    1,707Total
    
    
    
    
    
    $
    1,707
   ($ in thousands)Balance as of December 31, 2008
    
    $
    0Record Derivative Liability on Conversion Option at
January 20, 2009
    
    
    3,262Change in
Fair Value of Derivative Liability
    
    
    (1,707
    )Extinguishment of Derivative Liability
    
    
    (1,555
    )Balance as of March 31, 2009
    
    $
    0
 Debtors Accounting for a Modification or Exchange of Debt
Instruments Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 24




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Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
        25




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##### Table of Contents



Debtors Accounting for a Modification or Exchange of Debt
Instruments Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities
  Common Stock Warrants
     Determining
Whether and Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock.
   26




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##### Table of Contents



As of March 31, 2009Liability DerivativesBalance Sheet Location
    
    
    Fair Value($ in thousands)Derivatives designated as
hedging instruments under FAS
133:NoneDerivatives not designated as
hedging instruments under FAS
133:Derivative Warrant Liability
    
    Other Liabilities
    
    $
    894Total derivatives
    
    
    
    
    
    $
    894
  Amount of Gain (Loss)Recognized in IncomeStatementLocation of Gain (Loss) Recognized
    
    Quarter Ended March 31,in
Income Statement
    

    2009($ in thousands)Derivatives not designated as
hedging instruments under FAS
133:Derivative Warrant Liability
    
    Other Income (Expense)
    
    $
    (56
    )Total
    
    
    
    
    
    $
    (56
    )
    ($ in thousands)Balance as of December 31, 2008
    
    $
    0Recording of Derivative Liability on Warrant Issuance
    
    
    838Change in
Fair Value  of Derivative Liability
    
    
    56Balance as of March 31, 2009
    
    $
    894
 Cash Flow
  27




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##### Table of Contents



Results of Operations
 Critical Accounting Policies
    Valuation of the Embedded and Warrant Derivatives
 Accounting for Derivative Instruments and Hedging Activities Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
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##### Table of Contents



Notes receivable
  Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
  For the Three Months
    
    
    For the Three MonthsEnded March 31,
    
    
    Ended March 31,($ amounts in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net Revenues
    
    $
    39,263
    
    
    $
    18,089
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    18,605
    
    
    
    10,368
    
    
    
    47.4
    %
    
    
    57.3
    %Gross Margin
    
    
    20,658
    
    
    
    7,721
    
    
    
    52.6
    %
    
    
    42.7
    %Sales and Marketing Expenses
    
    
    13,511
    
    
    
    5,961
    
    
    
    34.4
    %
    
    
    33.0
    %General and Administrative Expenses
    
    
    3,929
    
    
    
    3,156
    
    
    
    10.0
    %
    
    
    17.4
    %Total Operating Expenses
    
    
    17,440
    
    
    
    9,117
    
    
    
    44.4
    %
    
    
    50.4
    %Profit (Loss) From Operations
    
    
    3,218
    
    
    
    (1,396
    )
    
    
    8.2
    %
    
    
    -7.7
    %Other Income (Expense):Interest Income
    
    
    24
    
    
    
    48
    
    
    
    0.0
    %
    
    
    0.3
    %Interest Expense
    
    
    (1,417
    )
    
    
    (1,569
    )
    
    
    -3.6
    %
    
    
    -8.7
    %Debt Issuance Cost Amortization
    
    
    (128
    )
    
    
    (210
    )
    
    
    -0.3
    %
    
    
    -1.2
    %Equity Method Investment Income
    
    
    17
    
    
    
    675
    
    
    
    0.0
    %
    
    
    3.7
    %Loss on Early Extinguishment
of Debt
    
    
    (4,573
    )
    
    
    
    
    
    
    -11.6
    %
    
    
    0.0
    %Gain on Derivatives
    
    
    1,651
    
    
    
    
    
    
    
    4.2
    %
    
    
    0.0
    %Total Other Income (Expense)
    
    
    (4,426
    )
    
    
    (1,056
    )
    
    
    -11.3
    %
    
    
    -5.8
    %Profit (Loss) Before Provision for
Income Taxes
    
    
    (1,208
    )
    
    
    (2,452
    )
    
    
    -3.1
    %
    
    
    -13.6
    %Provision for Income Taxes
    
    
    782
    
    
    
    347
    
    
    
    2.0
    %
    
    
    1.9
    %Net Loss
    
    $
    (1,990
    )
    
    $
    (2,799
    )
    
    
    -5.1
    %
    
    
    -15.5
    %
 Net Revenues
  29




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Three Months Ended March 31,($ amounts in thousands)
    
    2009
    
    
    2008
    
    
    $ Increase
    
    
    % IncreaseOTC Sales
    
    $
    24,527
    
    
    $
    9,457
    
    
    $
    15,070
    
    
    
    159.4
    %Distribution products
    
    
    13,384
    
    
    
    7,435
    
    
    
    5,949
    
    
    
    80.0
    %Licensed products
    
    
    1,352
    
    
    
    1,197
    
    
    
    155
    
    
    
    12.9
    %$
    39,263
    
    
    $
    18,089
    
    
    $
    21,174
    
    
    
    117.1
    %
 OTC Sales
 Distribution Products
 Licensed Products
 30




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##### Table of Contents



Cost of Goods Sold:
 Three Months Ended March 31,($ amounts in thousands)
    
    2009
    
    
    2008
    
    
    $ Increase
    
    
    % IncreaseBranded OTC (1)Revenues
    
    $
    24,527
    
    
    $
    9,457
    
    
    $
    15,070
    
    
    
    159.4
    %Cost of Sales
    
    
    5,741
    
    
    
    2,741
    
    
    
    3,000
    
    
    
    109.4
    %Gross Profit
    
    $
    18,786
    
    
    $
    6,716
    
    
    $
    12,070
    
    
    
    179.7
    %Gross Margin %
    
    
    76.6
    %
    
    
    71.0
    %Distribution and
Licensed Products (2)Revenues
    
    $
    14,736
    
    
    $
    8,632
    
    
    $
    6,104
    
    
    
    70.7
    %Cost of Sales
    
    
    12,864
    
    
    
    7,627
    
    
    
    5,237
    
    
    
    68.7
    %Gross Profit
    
    $
    1,872
    
    
    $
    1,005
    
    
    $
    867
    
    
    
    86.3
    %Gross Margin %
    
    
    12.7
    %
    
    
    11.6
    %TotalRevenues
    
    $
    39,263
    
    
    $
    18,089
    
    
    $
    21,174
    
    
    
    117.1
    %Cost of Sales
    
    
    18,605
    
    
    
    10,368
    
    
    
    8,237
    
    
    
    79.4
    %Gross Profit
    
    $
    20,658
    
    
    $
    7,721
    
    
    $
    12,937
    
    
    
    167.6
    %Gross Margin %
    
    
    52.6
    %
    
    
    42.7
    %
 
 (1)
    
    Revenues and cost of goods sold for the Branded OTC segment is for the period February 18, 2008 through March 31,
2008.(2)
    
    Revenues and cost of goods sold for the Distribution and Licensed Products segment includes Wanwei for the three
months ended March 31, 2009 and 2008 and Rongheng for the period January 1, 2009 through March 31, 2009.  Sales and Marketing Expenses:
  31




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##### Table of Contents



General and Administrative Expenses:
  Interest Income:
  Interest Expense:
  Debt Issuance Cost Amortization:
  Loss on Early Extinguishment of Debt:
  Gain on Derivatives:
  Equity Method Investment Income:
  32




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##### Table of Contents



($ amounts in thousands)Equity in earnings of Sunstone China for period
February 16 through March 31,2009
    
    $
    70Less adjustments of excess fair value:Inventory sold
    
    
    (53
    )Total equity method investment income
    
    $
    17
   ($ amounts in thousands)Equity in earnings of Sunstone China for period January
1 through February 17, 2008
    
    $
    1,031Less adjustments of excess fair value:Amortization expense of intangible assets
    
    
    (356
    )Total equity method investment income after amortization
    
    $
    675
 Income Taxes
  33




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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Rate Sensitivity
    Interest Rate Sensitivity
  34




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##### Table of Contents



ITEM 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
  (b) Changes in Internal Control Over Financial Reporting
  35




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1A. Risk Factors
  36




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##### Table of Contents



ITEM 6. Exhibits
 4.1
    
    Form of BMP Sunstone Corporation 12.5% Secured Convertible Note due
July 1, 2011, as amended (incorporated by reference to Exhibit 4.1
of the registrants Current Report on Form 8-K filed on March 16,
2009)4.2
    
    Form of BMP Sunstone Corporation Warrant to Purchase Common Stock,
dated February 20, 2009 (incorporated by reference to Exhibit 4.1 of
the registrants Current Report on Form 8-K filed on February 17,
2009)4.3
    
    Form of BMP Sunstone Corporation 12.5% March Exchange Secured
Convertible Note due July 1, 2011 (incorporated by reference to
Exhibit 4.2 of the registrants Current Report on Form 8-K filed on
March 16, 2009)4.4
    
    Form of BMP Sunstone Corporation 12.5% March Cash Secured
Convertible Note due July 1, 2011 (incorporated by reference to
Exhibit 4.3 of the registrants Current Report on Form 8-K filed on
March 16, 2009)4.5
    
    Form of BMP Sunstone Corporation 12.5% Subordinated Convertible
Note, due July 1, 2011, as amended (incorporated by reference to
Exhibit 4.1 of the registrants Current Report on Form 8-K filed on
March 16, 2009)10.1
    
    Form of Note Exchange Agreement, dated as of January 20, 2009, by
and between BMP Sunstone Corporation and the person identified as
the Noteholder on Schedule A thereto (incorporated by reference to
Exhibit 10.1 of the registrants Current Report on Form 8-K filed on
January 21, 2009)10.2
    
    Form of Pledge Agreement, dated as of January 20, 2009, by and among
BMP Sunstone Corporation, the Noteholders identified on the
signature pages thereto and Les Baledge, as agent for the
Noteholders (incorporated by reference to Exhibit 10.2 of the
registrants Current Report on Form 8-K filed on January 21, 2009)10.3
    
    Equity Transfer Agreement, dated December 19, 2008, by and between
Sunstone (Tangshan) Pharmaceutical Co., Ltd. and Beijing Penn
Pharmaceutical Sci-Tech Development Co., Ltd. (incorporated by
reference to Exhibit 10.1 of the registrants Current Report on Form
8-K filed on February 10, 2009)10.4
    
    Registered Direct Placement Agency Agreement, dated February 13,
2009, by and among Oppenheimer & Co. Inc., Susquehanna Financial
Group, LLLP, Philadelphia Brokerage Corporation and BMP Sunstone
Corporation (incorporated by reference to Exhibit 10.1 of the
registrants Current Report on Form 8-K filed on February 17, 2009)10.5
    
    Form of Purchase Agreement, by and between BMP Sunstone Corporation
and the person identified as the Investor on the signature page
thereto (incorporated by reference to Exhibit 10.2 of the
registrants Current Report on Form 8-K filed on February 17, 2009)10.6
    
    Form of Note Exchange Agreement, dated as of March 13, 2009, by and
between BMP Sunstone Corporation and the person identified as the
Noteholder on Schedule A thereto Form of BMP Sunstone Corporation
12.5% March Exchange Secured Convertible Note due July 1, 2011
(incorporated by reference to Exhibit 10.1 of the registrants
Current Report on Form 8-K filed on March 16, 2009)10.7
    
    Form of Purchase Agreement, by and between BMP Sunstone Corporation
and the person identified as the Investor on the signature page
thereto (incorporated by reference to Exhibit 10.2 of the
registrants Current Report on Form 8-K filed on March 16, 2009)10.8
    
    Amendment No. 1 to the Pledge Agreement, dated as of March 12, 2009,
by and between BMP Sunstone Corporation and Les Baledge, as agent
for the Noteholders (incorporated by reference to Exhibit 10.3 of
the registrants Current Report on Form 8-K filed on March 16, 2009)
 37




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##### Table of Contents



10.9
    
    Placement Agency Agreement, dated March 13, 2009, by and between
Philadelphia Brokerage Corporation and BMP Sunstone Corporation
(incorporated by reference to Exhibit 10.2 of the registrants
Current Report on Form 8-K filed on March 16, 2009)10.10
    
    Form of Subscription Agreement, as entered into on March 16, 2009,
by and between BMP Sunstone Corporation and the person identified as
the Investor on the signature page thereto (incorporated by
reference to Exhibit 10.1 of the registrants Current Report on Form
8-K filed on March 16, 2009)10.11
    
    Form of Indenture for Senior Debt Securities, by and between BMP
Sunstone Corporation and The Bank of New York Mellon, Trustee
(incorporated by reference to Exhibit 10.3 of the registrants
Current Report on Form 8-K filed on March 16, 2009)10.12
    
    Indenture for Subordinated Debt Securities, as entered into on March
16, 2009, by and between BMP Sunstone Corporation and The Bank of
New York Mellon, Trustee (incorporated by reference to Exhibit 10.4
of the registrants Current Report on Form 8-K filed on March 16,
2009)10.13
    
    Form of Officers Certificate, as delivered by BMP Sunstone to The
Bank of New York Mellon, as trustee, on March 16, 2009 (incorporated
by reference to Exhibit 10.5 of the registrants Current Report on
Form 8-K filed on March 16, 2009)10.14
    
    Form of Allonge to 12.5% Subordinated Convertible Note, as entered
into on April 15, 2009, by and between BMP Sunstone and holders of
BMP Sunstones 12.5% Subordinated Convertible Notes due July 1, 2011
(incorporated by reference to Exhibit 10.1 of the registrants
Current Report on Form 8-K filed on April 16, 2009)10.15
    
    First Supplemental Indenture, as entered into on April 15, 2009, by
BMP Sunstone Corporation and The Bank of New York Mellon, as trustee
(incorporated by reference to Exhibit 10.2 of the registrants
Current Report on Form 8-K filed on April 16, 2009)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
 
 *
    
    Filed herewith. 38




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##### Table of Contents



SIGNATURES
  BMP SUNSTONE CorporationDate: May 18, 2009
    /s/ DAVID GAODavid GaoChief Executive Officer
(Principal Executive Officer) Date: May 18, 2009
    /s/ FRED M. POWELLFred M. PowellChief Financial Officer
(Principal Financial and Accounting Officer) 39