BMP Sunstone (BJGP) 10-Q/A 2008 Q3 Quarterly report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(AMENDMENT NO. 1)

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 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. Employer
incorporation or organization)	Identification No.)
600 W. Germantown Pike, Suite 400
Plymouth Meeting, Pennsylvania	19462
(Address of principal executive offices)	(Zip Code)

610) 940-1675
(Registrant’s telephone number, including area code)

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

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

Large accelerated filero  Accelerated filerþ  Non-accelerated filer  o
(Do not check if a smaller reporting company) Smaller reporting companyo 

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

The number of shares of common stock of BMP Sunstone Corporation outstanding as of January 20, 2009 was 40,246,410.

EXPLANATORY NOTE

     This Amendment No. 1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2008, filed with the Securities and Exchange Commission (the “SEC”) on November 10, 2008 (the “Original Report”), of BMP Sunstone Corporation (the “Registrant”) is being filed to amend and restate Item 2 and Item 4 of the Original Report in its entirety. No other portion of the Original Report is being modified by this amendment.

PART I. FINANCIAL INFORMATION

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 onForm 10-K for the year ended December 31, 2007.

Forward-Looking Statements

     Certain of the statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and elsewhere in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. The forward-looking statements herein include, among others, statements addressing management’s views with respect to future financial and operating results, the dependence of our future success on obtaining additional promotional and market research agreements and licensing rights for China and on acquiring additional distribution companies, the significance of our acquisition of Wanwei, Rongheng and Sunstone, our cash and cash equivalents investments, our anticipated use of cash resources, our ability to fund our current level of operations through our cash and cash equivalents, our hiring goals for the next twelve months, our capital requirements and the possible impact on us if we are unable to satisfy these requirements, our approaches to raise additional funds, our expectation to continue to pursue strategic acquisitions in the near future and our ability to develop stronger internal controls at Sunstone China Limited. Various factors, including competitive pressures, success of integration, market interest rates, changes in customer mix, changes in pharmaceutical manufacturers’ pricing and distribution policies or practices, regulatory changes, changes in the People’s Republic of China’s policies, customer defaults or insolvencies, acquisition of businesses that do not perform as we expect or that are difficult for us to integrate or control, adverse resolution of any contract or other disputes with customers and suppliers, the loss of one or more key customer or supplier relationships or our inability to hire and train qualified employees, could cause actual outcomes and results to differ materially from those described in forward-looking statements. Certain additional factors that management believes could cause actual outcomes and results to differ materially from those described in forward-looking statements are set forth in this report in Part II, Item 1A. “Risk Factors” in this quarterly report on Form 10-Q and in Part I, Item 1A. “Risk Factors — Risks Relating to Our Business” in our Annual Report on Form 10-K for the year ended December 31, 2007.

Overview

     BMP Sunstone Corporation (formerly known as Beijing Med-Pharm Corporation), a Delaware corporation, is a fully integrated specialty pharmaceutical company focused on the commercialization of branded prescription and over-the-counter, or OTC, products in China. Through our subsidiary, Sunstone (Tangshan) Pharmaceutical Co., Ltd., or Sunstone, we manufacture, market and distribute OTC products in China. Through Beijing Medpharm Co. Ltd., or BMP China, and Beijing Wanwei Pharmaceutical Co., Ltd., or Wanwei, we market, promote and distribute prescription products exclusively licensed from foreign pharmaceutical companies. In addition, Wanwei offers domestic pharmaceutical manufacturers in China distribution services and BMP China offers foreign pharmaceutical manufacturers ready to enter the China markets a package of market entry services. Our services include:

• 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

     The majority of our revenues have been derived from two sources: branded OTC revenues from Sunstone products and revenue from the distribution of pharmaceutical products, including our licensed products, in China through our subsidiaries Wanwei and Rongheng. Each revenue source accounts for 56.9% and 43.1% of total revenue, respectively, for the nine months ended September 30, 2008. Revenues for Sunstone are for the period February 18, 2008 through September 30, 2008. Revenues for Rongheng are for the period July 5, 2008 through September 30, 2008.

     Our future success will depend on expanding sales of our current products, obtaining additional promotional and market research agreements and licensing rights for China, expanding our OTC sales through Sunstone as well as acquiring additional distribution companies currently operating in China. During 2008 and 2007, we have pursued a strategy of broadening our range of promoted products and we are currently actively reviewing for license various branded pharmaceutical and OTC products and products in development from western pharmaceutical companies for marketing and distribution in China.

Acquisitions

Acquisition of Guangzhou Pharmaceutical Corporation

     On January 28, 2008, Alliance BMP Limited, an investment vehicle based in the United Kingdom that is 80 percent-owned by Alliance Boots Ltd. and 20 percent-owned by the Company, completed its acquisition of a 50% stake in Guangzhou Pharmaceuticals Corporation. The investment in Alliance BMP Limited was accounted for as an investment at cost. Our total investment in Alliance BMP Limited was $15.1 million. The remaining 50 percent ownership of Guangzhou Pharmaceutical Company Limited is retained by a Hong Kong and Shanghai Exchange-listed company, subject to semi-annual reporting requirements.

Acquisition of Sunstone

     On October 31, 2007, the Company acquired 49% of the issued share capital of Sunstone China Limited, or Sunstone China, which holds 100% of the equity interests of Sunstone, for cash consideration of $32 million, plus direct acquisition costs of $1.1 million. Sunstone is a manufacturer of primarily OTC medicines, with operations in Tangshan, Hebei Province, People’s Republic of China. The acquisition has been accounted for under the purchase method of accounting.

     On February 17, 2008, the Company acquired the remaining 51% of Sunstone for up to eight million shares of BMP���s common stock, valued at approximately $94.7 million (based upon the average quoted prices of our stock for two days prior to the agreement, the day of the agreement and two days subsequent to the agreement).

     In connection with our acquisition of Sunstone, 1.2 million of the issued shares represent consideration that is contingent upon certain events. Under the agreement, 800,000 shares are contingent upon certain conditions precedent relating to the veracity and propriety of the facts and circumstances surrounding the acquisition for a three year period from the date of the completion of the agreement for the 51% ownership in Sunstone China. The remaining 400,000 shares, including any declared dividends and bonuses, are contingent upon Sunstone China’s achieving net profit in the amount of not less than $13.5 million in 2008.

     The acquisition of Sunstone has been accounted for as a business combination, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS 141”). We have allocated our investment basis to our pro rata share of Sunstone’s assets and liabilities at each significant acquisition date based on

the estimated fair values of such assets and liabilities on such dates, and the excess of our investment basis over the adjusted estimated fair values of such identifiable net assets has been allocated to goodwill. For financial reporting purposes, we have accounted for Sunstone using the equity method through February 17, 2008, and as a consolidated subsidiary thereafter.

Acquisition of Rongheng

     On July 4, 2008, the Company completed its acquisition of 63.3 percent of Shanghai Rongheng Pharmaceutical Co., Ltd. (“Rongheng”). Rongheng is a pharmaceutical distribution company which distributes over 400 pharmaceutical products to more than 140 top-tier hospitals and 1,000 retail pharmacies in Shanghai. Rongheng was founded in 1999 by CAS Shanghai Shenglongda Biotech Group, a high-tech biomedical group focused on research and development, marketing and sales of new biotechnology and pharmaceuticals in China, and Orient International (Holding) Co., one of the largest foreign trade enterprises in China. Shanghai Rongheng International Trade Co., Ltd. of Orient International (Holding) Co., CAS Shanghai Shenglongda Biotech Group and one other individual own the remaining 36.7 percent of Rongheng.

     In acquiring its 63.3 percent interest in Rongheng, the Company exchanged cash consideration of $1.6 million, of which $0.9 million was used to purchase shares in Rongheng and the remainder functioned as a capital injection, plus direct acquisition costs of $0.1 million. The acquisition has been accounted for under the purchase method of accounting, in accordance with SFAS 141.

     We have allocated our investment basis to our pro rata share of Rongheng’s assets and liabilities as of the acquisition date based on the estimated fair values of such assets and liabilities on such date, and the excess of our investment basis over the adjusted estimated fair values of such identifiable net assets has been allocated to goodwill. The purchase accounting for Rongheng is preliminary and subject to adjustment based upon our final assessment of the fair values of the identifiable tangible and intangible assets and liabilities. For financial reporting purposes, we have accounted for Rongheng as a consolidated subsidiary from July 5, 2008 through September 30, 2008.

Liquidity and Capital Resources

Cash

     As of September 30, 2008, we had unrestricted cash and cash equivalents of approximately $3.8 million which represented 2% of our total assets. Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at the time of purchase and are primarily invested in short-term money market instruments. However, we do not anticipate any losses with respect to such cash balances because the balances are invested in highly-rated securities.

Notes Receivable

     As of September 30, 2008, we had notes receivable of approximately $15.5 million which represented 7% of our total assets. Notes receivable are notes received from customers for the settlement of trade receivable balances. As of September 30, 2008, all notes receivables were issued by established banks in the People’s Republic of China, and these notes are irrevocable and transferrable, and have maturities of six months or less. The fair value of the notes receivable approximated their carrying value.

Limitations on Transfer of Cash (and other assets) to the United States

     China restricts the amount of cash (and other assets) that is legally permitted to be sent to the U.S. by a subsidiary of the Company formed under Chinese law. This restriction is based upon the subsidiary having scheduled registered capital injected into its business sufficient for the subsidiary’s operational requirements. Once this restriction is met, the Company is able to distribute to the U.S. any cash (or other assets) resulting from the profits of these subsidiaries generated during the Company’s ownership of the subsidiary, subject to a withholding tax of 5% and a required retention of 10% of after-tax profits as a surplus reserve (until such time as the surplus reserve equals 50% of the registered capital of the subsidiary). Cash (or other assets) held by the Company’s Chinese subsidiaries that are attributable to profits generated prior to the ownership by the Company of these subsidiaries is not allowed to be transferred to the U.S., but such cash (or other assets) is allowed to be used by the subsidiaries for operations within China.

     Based on the guidelines above, only one of the Company’s Chinese subsidiaries, Sunstone, is eligible to transfer

cash (or other assets) to the U.S. Since Sunstone has achieved the required retention for their surplus reserve, 95% of its profits at September 30, 2008, or approximately $11 million, can be distributed to the U.S.

Cash Flow

     We anticipate that our September 30, 2008 balance of approximately $3.8 million in unrestricted cash and cash equivalents and $15.5 million in notes receivable will be sufficient to fund our current level of operations for at least the next 12 months. Our future capital requirements will depend on many factors, including those factors described in Part II, Item 1A. “Risk Factors” in this quarterly report on Form 10-Q and in Part I, Item 1A. “Risk Factors — Risks Relating to Our Business” in our Annual Report on Form 10-K for the year ended December 31, 2007 as well as our ability to maintain our existing cost structure and return on sales, fund obligations for additional capital that will occur on additional product licenses and acquisitions and execution of our business and strategic plans as currently conceived.

     On November 1, 2007, the Company issued an aggregate of $23,000,000 principal amount of 10% Senior Secured Debt due May 1, 2009. The Senior Secured Debt bears interest of 10% per annum, payable semi-annually in arrears on May 1, 2008, November 1, 2008 and May 1, 2009. Although our September 30, 2008 balance of approximately $3.8 million in unrestricted cash and cash equivalents and $15.5 million in notes receivable is sufficient to fund our current level of operations for the next 12 months, we anticipate that a sufficient amount of notes receivable will not be able to be converted into cash and transferred to a U.S. bank account in order to pay the outstanding principal and interest that will be due on May 1, 2009. We are reviewing alternative financing arrangements for the repayment of the $23,000,000 principal amount which may include entering into an amendment with respect to our Senior Secured Debt, securing new debt, entering into a new debt arrangement or issue additional equity securities to pay off our Senior Secured Debt prior to May 1, 2009.

     Net cash used in operating activities was $5,425,000 for the nine months ended September 30, 2008. This amount reflected our loss of $4,561,000, offset by $8,454,000 net non-cash charges including amortization of intangible assets and inventory marked to fair value incurred as a result of acquisitions of $3,279,000, amortization of debt discount and debt issuance costs of $2,931,000, stock based compensation expense of $1,816,000, depreciation and amortization of equipment and leasehold improvements of $1,424,000 and equity method investment income of $996,000. In addition, we generated $5,186,000 of operating cash as result in changes in certain of our operating liabilities during the nine months ended September 30, 2008. The changes were the increases in accounts payable of $3,724,000 and accrued other expenses of $1,462,000. Offsetting these changes were increases in inventory of $4,387,000, accounts receivable of $2,693,000, prepaid and other assets of $2,473,000 value added tax receivable of $157,000 and due from related parties of $1,199,000, other receivables of $95,000 and a decrease in deferred revenue of $1,584,000 and a decrease in due to related parties of $1,360,000.

     Cash used in investing activities was $13,850,000 and reflects the payment for Alliance BMP of $12,040,000, cash received in the acquisition of Sunstone China and Rongheng of $2,587,000, acquisition of Rongheng of $1,661,000, repayment of $214,000 on a note from Rongheng and the acquisition of property, plant and equipment of $2,950,000. Net cash used in financing activities of $397,000, consisted of $968,000 from the exercise of warrants and options and net payments on note payables of $1,365,000.

     Net cash used in operating activities was $5,614,000 for the nine months ended September 30, 2007. This amount principally reflected our net loss of $5,045,000, partially offset by $1,429,000 in non-cash charges including stock-based compensation expense of $1,133,000, intangible amortization of $192,000, depreciation of $85,000 and loss on disposal of assets of $20,000. In addition, we generated $2,170,000 of operating cash as a result of changes in certain of our operating assets and liabilities during the nine months ended September 30, 2007. The most significant changes were the increase in accounts payable of $1,470,000, accrued other expenses of $344,000, accrued professional fees of $168,000 and deferred revenues of $144,000. Offsetting these changes were increases in accounts receivable of $2,902,000, prepaid expenses and other current assets of $764,000, inventory of $434,000 and other receivables of $68,000. Cash used in investing activities was $5,883,000 of which $4,800,000 was the initial payment for the Sunstone acquisition, $659,000 was provided as a loan to Rongheng, $214,000 was paid to the Chinese Taxing Authority for taxes related to the Wanwei acquisition and $210,000 was for the acquisition of equipment. Cash generated from financing activities was $30,414,000 and reflects $30,603,000 net proceeds from sale of common stock in August 2007, $838,000 from the exercise of common stock warrants and options, and is offset by $619,000 in reduction of notes payable and $408,000 increase in restricted cash.

     Critical Accounting Policies

     Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets or liabilities as of the dates of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results might differ materially from these estimates under different assumptions or conditions.

     Our critical accounting policies are described in MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2007. There have been no changes in these accounting policies.

     Our significant accounting policies are described in Note 2 to our 2007 consolidated financial statements contained in our 2007 Annual Report on Form 10-K for the year ended December 31, 2007. Information concerning our implementation and the impact of recent accounting standards issued by the Financial Accounting Standards Board is included in the notes to our 2007 consolidated financial statements and also in Note 1 to our consolidated financial statements contained in this quarterly report on Form 10-Q.

Results of Operations

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

     The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the three months ended September 30, 2008 and 2007:

	For the Three Months Ended						For the Three Months Ended
	September 30,						September 30,
($ amounts in thousands)	2008			2007			2008			2007
Net 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:

     Net revenues were approximately $30,503,000 for the three months ended September 30, 2008 as compared with approximately $8,979,000 for the three months ended September 30, 2007.

Revenue by product categories was as follows:

	Three Months Ended September 30,
($ amounts in thousands)	2008		2007		$ Increase		% Increase
Branded OTC	$	15,471	$	—	$	15,471		N/A
Distribution products		13,696		8,019		5,677		71	%
Licensed products		1,336		960		376		39	%
	$	30,503	$	8,979	$	21,524		240	%

     Branded OTC. Sunstone revenues were $15,471,000 for the three months ended September 30, 2008. Sunstone manufactures and sells pediatric products under the Goodbaby brand, women’s health products under the Confort brand and nutritional products under the Nemei brand. The Goodbaby franchise accounted for 80% of Sunstone’s total product sales for the three months ended September 30, 2008. The top products were the treatment of Pediatric Paracetamol and Amantadine Hydrochloride Granules for the treatment of the common cold, Pediatric Huatan Zhike Granules for the treatment of coughing, Pediatric Kechuanling Oral Solution for the treatment of coughing and Pidotimod Tablets to increase immune system response. The Confort franchise accounts for 13% of Sunstone’s total product sales for the three months ended September 30, 2008 with Confort Pessaries as the leading product. These top five products accounted for approximately 96% of Sunstone’s revenue for the period.

     Pharmaceutical Distribution. Distribution revenue for the three months ended September 30, 2008, excluding licensed products, was $13,696,000 as compared to $8,019,000 for the three months ended September 30, 2007. Rongheng’s revenues of $5,046,000 were included for the period July 5, 2008 through September 30, 2008. Rongheng’s top five products were Xindakang Tablets, Selenious Yeast Tablets, Cefotiam Hydrocloride, Gemcifabine Hydrochloride and Ciwujia Zhusheye which collectively accounted for 26% of Rongheng’s revenue for the period July 5 through September 30, 2008. Wanwei’s top five products were Xingnaojing, Glurenorm, Ferrous Succinate Tablets, Citicoline Monosodium Salt and Famofidine which collectively accounted for 30% of Wanwei’s revenue for the three months ended September 30, 2008.

     Licensed Products. We provided sales and marketing and distribution services for Anpo and Propess used in obstetrics and gynecology, Galake for mild to moderate pain and Ferriprox for iron overload in patients with Thalassemia. Revenues totaled $1,336,000 for the three months ended September 30, 2008 as compared to $960,000 for the three months ended September 30, 2007, an increase of 39%. This increase was the result of continued sales and marketing efforts promoting Propess and Anpo and initiating sales of Galake and Ferriprox during the third quarter of 2007 and third quarter 2008. As of September 30, 2008 there were 456 and 489 hospitals selling Propess and Anpo respectively, versus 348 and 267 as of September 30, 2007. In addition, there were 159 hospitals selling Galake as of September 30, 2008.

Cost of Sales:

	Three months ended September 30,
($ amounts in thousands)	2008			2007			$ Increase		% Increase
Branded OTC
Revenues	$	15,471		$	N/A		$	N/A		N/A
Cost of Sales		3,640			N/A			N/A		N/A
Gross Profit	$	11,831		$	N/A		$	N/A		N/A
Gross Margin %		76.5	%		N/A
Distribution 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	%
Total
Revenues	$	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.

     Cost of goods sold was approximately $16,676,000 for the three months ended September 30, 2008 as compared with $7,805,000 for the three months ended September 30, 2007. The gross profit for the three months ended September 30, 2008 was 45.3% as compared to 13.1% for the three months ended September 30, 2007. The gross profit for the three months ended September 30, 2008 of Sunstone products was $11,831,000, which included $107,000 of amortization resulting from the Sunstone acquisition. The gross profit for the three months ended September 30, 2008 was 76.5%, which included the purchase accounting adjustments. The combined gross profit for the three months ended September 30, 2008 for distribution and licensed products was $1,996,000 as compared to $1,174,000 for the three months ended September 30, 2007. The gross profit for distribution and licensed products was 13.3% for the three months ended September 30, 2008 as compared to 13.1% for the three months ended September 30, 2007.

Sales and Marketing Expenses:

     Sales and marketing expenses were $9,152,000 for the three months ended September 30, 2008 as compared with $1,077,000 for the three months ended September 30, 2007. The acquisitions of Sunstone and Rongheng in February and July 2008 respectively, accounted for $7,957,000 of the increase in sales and marketing for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. Marketing, advertising, salaries and related benefits, selling expenses, travel and entertainment and amortization of intangibles account for $8,007,000 or 88% of sales and marketing expenses for the three months ended September 30, 2008. The most significant sales and marketing expense increases for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 are as follows: marketing $1,133,000; salaries and related benefits of $1,447,000; television, newspaper and magazine advertising of $1,916,000; sales office selling expenses $791,000; travel and entertainment of $1,327,000; and amortization of intangibles of $864,000 which resulted from the acquisitions of Sunstone and Rongheng.

General and Administrative Expenses:

     General and administrative expenses were approximately $2,910,000 for the three months ended September 30, 2008 as compared to $2,092,000 for the three months ended September 30, 2007. General and administrative expenses as a percentage of net revenues decreased to 9.5% for the three months ended September 30, 2008 as compared to 23.3% for the three months ended September 30, 2007. Sunstone and Rongheng’s general and administrative expenses accounted for $852,000 and $144,000 of the increase for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. Salaries and related benefits increased $603,000 for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. This increase is the result of the Sunstone and Rongheng acquisitions for $432,000, additional senior management in China in 2007 and salary increases. Stock-based compensation increased $176,000 for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. Office rent and supply expenses increased $176,000 for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 as a result of both BMP China and Wanwei moving administrative offices during 2008 and the acquisitions of Sunstone and Rongheng. Depreciation expenses increased $154,000 for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007, of which $118,000 was the result of the Sunstone and Rongheng acquisitions. State and business taxes increased $171,000 for the three months ended September 30, 2008 as compared to September 30, 2007, of which $138,000 of the increase was the result of the Sunstone and Rongheng acquisitions. During the three months ended September 30, 2008, the Company reversed $525,000 which was an over accrual for social taxes from prior years.

Interest Income:

     Our interest income primarily consists of income earned on our cash and cash equivalents. We received interest income on our balances of cash and cash equivalents of $6,000 during the three months ended September 30, 2008 and $172,000 for the three months ended September 30, 2007.

Interest Expense:

     Our interest expense primarily consists of incurred interest and debt discount amortization from our November 2007 long term debt financing that had net proceeds of $21,870,000. We had interest expenses of $1,590,000 during the three months ended September 30, 2008 and $47,000 for the three months ended September 30, 2007. As a part of the issuance of the debt, the Company issued common stock purchase warrants to the purchasers of the debt giving them the right to purchase up to an aggregate of 1,037,580 shares of common stock

at an exercise price of $12.43 per share. Class A warrants will expire on May 1, 2009 and Class B warrants will expire on November 1, 2012, unless sooner exercised. In accordance with APB 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” (“APB 14”) the relative fair value of these warrants on their date of grant, which was determined to be approximately $4,601,000, was recorded as a discount to the underlying debt and as an addition to additional paid-in capital. The discount is being amortized over the term of the underlying debt on a straight line basis, which approximates the effective interest method. As of September 30, 2008, the unamortized debt discount amounted to approximately $1,789,000. Total amortization of the debt discount was $767,000 for three months ended September 30, 2008. Interest expense of 10% for the November 2007 long term debt financing was $575,000 for the three months ended September 30, 2008. Outstanding debt of Sunstone resulted in an additional $255,000 of interest expense for the three months ended September 30, 2008.

Debt Issuance Cost Amortization:

     Our issuance cost amortization is the result of our long term debt financing costs we incurred in November 2007. The Company defers debt issuance costs and amortizes the amount over the life of debt on a straight-line basis which approximates the effective interest method. The unamortized debt issuance cost was $490,000 as of September 30, 2008 and $210,000 of debt issuance costs had been amortized for the three months ended September 30, 2008.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

     The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the nine months ended September 30, 2008 and 2007:

	For the Nine Months Ended						For the Nine Months Ended
	September 30,						September 30,
($ amounts in thousands)	2008			2007			2008			2007
Net 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:

     Net revenues were approximately $78,230,000 for the nine months ended September 30, 2008 as compared with approximately $21,844,000 for the nine months ended September 30, 2007. Sunstone revenues were included for the period February 18, 2008 through September 30, 2008. Rongheng revenues were included for the period July 5, 2008 through September 30, 2008. Revenue by product categories was as follows:

	Nine Months Ended September 30,
($ amounts in thousands)	2008		2007		$ Increase		% Increase
Branded OTC	$	44,540	$	—	$	44,540		N/A
Distribution 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. Sunstone revenues were $44,540,000 for the period February 18, 2008 through September 30, 2008. Sunstone manufactures and sells pediatric products under the Goodbaby brand, women’s health products under the Confort brand and nutritional products under the Nemei brand. The Goodbaby franchise accounted for 79% of Sunstone’s total product sales for the period February 18, 2008 through September 30, 2008. The top products were Pediatric Paracetamol and Amantadine Hydrochloride Granules for the treatment of the common cold, Pediatric Huatan Zhike Granules for the treatment of coughing, Pediatric Kechuanling Oral Solution for the treatment of coughing and Pidotimod Tablets to increase immune system response. The Confort franchise accounts for 14% of Sunstone’s total product sales for period February 18, 2008 through September 30, 2008 with Confort Pessaries the leading product. These top five products accounted for approximately 91% of Sunstone’s revenue for the period.

     Pharmaceutical Distribution. Distribution revenue for the nine months ended September 30, 2008, excluding licensed products, was $29,788,000 as compared to $19,807,000 for the nine months ended September 30, 2007. Rongheng revenues of $5,046,000 were included for the period July 5, 2008 through September 30, 2008. Wanwei’s top five products were Xingnaojing, Glurenorm, Ferrous Succinate Tablets, Citicoline Monosodium Salt and Cephalexin which accounted for 34% of total distribution revenue for the nine months ended September 30, 2008. Rongheng’s top five products were Xindakang Tablets, Selenious Yeast Tablets, Cefotiam Hydrocloride, Gemcifabine Hydrochloride and Ciwujia Zhusheye which accounted for 26% of Rongheng’s revenue for the period July 5 through September 30, 2008.

     Licensed Products. We provided sales and marketing and distribution services for Anpo and Propess, used in obstetrics and gynecology, Galake for mild to moderate pain relief, and Ferriprox for iron overload in patients with Thalassemia. Revenues totaled $3,902,000 for the nine months ended September 30, 2008 as compared to $2,037,000 for the nine months ended September 30, 2007 an increase of 92%. This increase was the result of continued sales and marketing efforts promoting Propess Anpo and Galake and initiating sales of Ferriprox during the third quarter of 2008. As of September 30, 2008 there were 456 and 489 hospitals selling Propess and Anpo respectively, versus 385 and 356 as of September 30, 2007. In addition, there were 152 hospitals selling Galake as of September 30, 2008.

Cost of Sales:

	Nine Months Ended September 30,
($ amounts in thousands)	2008			2007			$ Increase		% Increase
Branded OTC (1)
Revenues	$	44,540		$	N/A		$	N/A		N/A
Cost of Sales		10,675			N/A			N/A		N/A
Gross Profit	$	33,865		$	N/A		$	N/A		N/A
Gross Margin %		76.0	%		N/A
Distribution 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	%
Total
Revenues	$	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.

Cost of goods sold was approximately $40,120,000 for the nine months ended September 30, 2008 as compared with $19,040,000 for the nine months ended September 30, 2007. The gross profit for the nine months ended September 30, 2008 was 48.7% as compared to 12.8% for the nine months ended September 30, 2007. The gross profit of Sunstone products for the nine months ended September 30, 2008 was $33,865,000, which included $609,000 of purchase accounting adjustment to mark the February 18, 2008 inventory to fair value and $276,000 of amortization resulting from the Sunstone acquisition. The gross margin for the nine months ended September 30, 2008 was 76.0%. The combined gross profits for the nine months ended September 30, 2008 for distribution and licensed products was $4,245,000 as compared to $2,804,000 for the nine months ended September 30, 2007. The gross profit for distribution and licensed products was 12.6% for the nine months ended September 30, 2008 as compared to 12.8% for the nine months ended September 30, 2007.

Sales and Marketing Expenses:

     Sales and marketing expenses were $26,251,000 for the nine months ended September 30, 2008 as compared with $2,424,000 for the nine months ended September 30, 2007. The acquisitions of Sunstone and Rongheng in February and July 2008 resulted in $23,117,000 of the 23,827,000 increase in sales and marketing expenses for the nine months ended September 30, 2008 as compared to September 30, 2007. Marketing, advertising, salaries and related benefits, office expenses, travel and entertainment and amortization of intangibles account for $22,966,000 or 88% of sales and marketing expenses for the nine months ended September 30, 2008. The most significant sales and marketing expense increases for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 are as follows: advertising $5,083,000; marketing $4,114,000; salaries and related benefits of $3,078,000; sales office selling expenses of $3,320,000; travel and entertainment of $4,016,000 and amortization of intangibles of $2,131,000 which resulted from the acquisitions of Sunstone and Rongheng.

General and Administrative Expenses:

     General and administrative expenses were approximately $9,886,000 for the nine months ended September 30, 2008 as compared to $5,847,000 for the nine months ended September 30, 2007. As a percentage of net revenues, general and administrative expenses decreased to 12.6% for the nine months ended September 30, 2008 as compared to 26.8% for the nine months ended September 30, 2007. Sunstone’s general and administrative expenses for the period February 18 through September 30, 2008 and Rongheng’s general and administrative expenses for the period July 5 through September 30, 2008 accounted for $2,531,000 of the $4,037,000 increase for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. Salaries and related benefits increased $1,608,000 for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. This increase is the result of the acquisitions for $989,000, the increase in additional senior management in China in 2007 and salary increases. Stock-based compensation increased $683,000 for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. Business taxes increased $390,000 for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 of which $324,000 was the result of the acquisitions. Office rent and supply expenses increased $496,000 for the nine months ended September 30, 2008 as compared to nine months ended September 30, 2007 as a result of both BMP China and Wanwei moving administrative offices during the quarter and the acquisitions. Depreciation expenses increased $396,000 for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 of which $296,000 was the result of the Sunstone acquisition. During the nine months ended September 30, 2008 the Company reversed $525,000 which an over accrual for social and welfare taxes from prior years.

Interest Income:

     Our interest income primarily consists of income earned on our cash and cash equivalents. We received interest income on our balances of cash and cash equivalents of $68,000 during the nine months ended September 30, 2008 and $441,000 for the nine months ended September 30, 2007.

Interest Expense:

     Our interest expense primarily consists of incurred interest and debt discount amortization from our November 2007 long term debt financing that had net proceeds of $21,870,000. We had interest expense of $4,770,000 during the nine months ended September 30, 2008 and $90,000 for the nine months ended September 30, 2007. As a part of the issuance of the debt, the Company issued common stock purchase warrants to the purchasers of the debt giving them the right to purchase up to an aggregate of 1,037,580 shares of common stock

at an exercise price of $12.43 per hare. Class A warrants will expire on May 1, 2009 and Class B warrants will expire on November 1, 2012, unless sooner exercised. In accordance with APB 14, the relative fair value of these warrants on their date of grant, which was determined to be approximately $4,601,000, was recorded as a discount to the underlying debt and as an addition to additional paid-in capital. The discount is being amortized over the term of the underlying debt on a straight line basis, which approximates the effective interest method. As of September 30, 2008, the unamortized debt discount amounted to approximately $1,789,000. Total amortization of the debt discount was $2,301,000 for the nine months ended September 30, 2008. Interest expense of 10% for the November 2007 long term debt financing was $1,725,000 for the nine months ended September 30, 2008. Outstanding debt of Sunstone resulted in an additional $699,000 of interest expense for the period February 17, 2008 through September 30, 2008.

Debt Issuance Cost Amortization:

     Our issuance cost amortization is the result of our long term debt financing costs we incurred in November 2007. The Company defers debt issuance costs and amortizes the amount over the life of debt on a straight-line basis which approximates the effective interest method. The unamortized debt issuance cost was $490,000 as of September 30, 2008 and $630,000 of debt issuance costs had been amortized for the nine months ended September 30, 2008.

Equity Method Investment Income:

     For our 49% investment in Hong Kong Health Care that was not fully consolidated but instead was included in our financial statements under the equity method of accounting for the period January 1, 2008 through February 17, 2008, the difference between our cost of our investment and our proportionate share of the equity in the underlying net assets is accounted for under the purchase method of accounting. Under the purchase method of accounting we allocated the purchase price to the net assets acquired in the transaction at their respective estimated fair market values. The premium we paid, representing the excess cost over the underlying fair value of our proportionate share of the net assets acquired, is referred to as equity method goodwill. The excess cost over book value of net assets acquired not representing trademarks and goodwill is amortized over the estimated useful life of acquired assets (with definitive useful lives) against our share of investee earnings.

     The following table provides a reconciliation of our equity method investment loss. Prior to purchase accounting adjustments Sunstone China generated net income of $2,746,000 or $1,345,000 for our 49% equity ownership. The total amortization for the period was $349,000 which resulted in an equity method investment income of $996,000.

	($ amounts in
	thousands)
Equity in earnings of Sunstone China for the period January 1, 2008 through February 17, 2008	$	1,345
Less adjustments of excess fair value:
Amortization expense of intangible assets		(349	)
Total equity method investment gain after amortization	$	996

ITEM 4. Controls and Procedures

          (a) Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, since we acquired Hong Kong Health Care on February 18, 2008, and 63.3% of Rongheng on July 4, 2008

our ability to effectively apply our disclosure controls and procedures to those acquired businesses is inherently limited by the short period of time that we have had to evaluate their operations.

     In connection with their audit of the financial statements of Sunstone China as of December 31, 2006 and September 30, 2007 and for the year ended December 31, 2006 and the nine-month period ended September 30, 2007, the independent auditors of Sunstone China issued a report to Sunstone China noting that the internal controls of Sunstone China may be insufficient to detect in a timely manner misstatements that could occur in financial statements of Sunstone China in amounts that may be material.

     In connection with their audit of the financial statements of Sunstone China as of December 31, 2007 and for the two-month period ended December 31, 2007, the independent registered public accounting firm of KPMG issued another report to Sunstone China noting that the internal controls of Sunstone China may be insufficient to detect in a timely manner misstatements that could occur in financial statements of Sunstone China in amounts that may be material.

     Both reports reported one material weakness and a number of significant deficiencies in the internal controls over financial reporting of Sunstone China. The reported material weakness of Sunstone China related generally to the financial reporting process, including accounts closing and financial statement preparation. The auditors noted that Sunstone China had no clear process, schedule, segregation of duties or review with respect to its financial reporting process and had an accounting and financial reporting team without sufficient knowledge of U.S. generally accepted accounting principles. The reported significant deficiencies of Sunstone China related generally to (i) failure to properly recognize sales and the related accounts receivable, (ii) failure to regularly reconcile delivery of inventories with vendor invoices, (iii) the lack of controls over monitoring and recording of related party transactions, (iv) failure to properly record property, plant and equipment upon receipt, (v) failure to properly recognize research and development expenses and (vi) lack of timely reconciliation of accounting records with the underlying transactions.

     Now that we own all of the issued share capital of Sunstone China, we are in the process of improving the internal controls over financial reporting of Sunstone China. We have added accounting and finance personnel to oversee internal controls for financial reporting and the company has implemented several reconciliation processes with regards to invoicing and sales reports, inventory receipts to vendor invoices, plant and equipment receipts and related party transactions. We have implemented an R&D Progress report which is prepared by the research department and is reviewed by finance to provide for timely recognition of research and development costs. We have held two training sessions for our accounting staff on US and China GAAP adjustments. In addition, we have engaged independent consultants to review and test our financial report closing.

     The implementation of this process began during the second quarter of fiscal 2008 and is expected to be completed during 2008. We do not believe that the costs associated with these improvements will have a material adverse effect on our financial condition. However, despite these steps, we may experience reportable conditions, material weaknesses and significant deficiencies in the future, which, if not remediated, may render us unable to detect in a timely manner misstatements that could occur in our financial statements in amounts that may be material. We cannot assure you that our auditors will determine that the material weakness and significant deficiencies have been remedied by the end of our fiscal year ended December 31, 2008.

          (b) Changes in Internal Control Over Financial Reporting

     Other than the material deficiency and related remedial efforts at Hong Kong Health Care disclosed in Item 4(a) above, no change in our internal control over financial reporting occurred during our third fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits

     The following is a list of exhibits filed as part of this Amendment No. 1 to Quarterly Report on Form 10-Q/A.

Exhibit
Number	Description
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002/SEC Rule 13a-14(a)
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002/SEC Rule 13a-14(a)

SIGNATURES

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

	BMP Sunstone Corporation
Date: January 30, 2009	/s/ David Gao
	David Gao
	Chief Executive Officer (Principal Executive Officer)
Date: January 30, 2009	/s/ Fred M. Powell
	Fred M. Powell
	Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

     The following is a list of exhibits filed as part of this Amendment No. 1 to Quarterly Report on Form 10-Q/A.

Exhibit
Number	Description
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002/SEC Rule 13a-14(a)
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002/SEC Rule 13a-14(a)