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

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 regarding derivative liabilities and accounting treatment thereof, statements addressing management's views with respect to future financial and operating results, our ability to obtain an increased market share in the Chinese pharmaceutical marketing and distribution markets, the dependence of our future success on obtaining additional promotional and market research agreements and licensing rights for China, the significance of our acquisition of Wanwei 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 and our expectation to continue to pursue strategic acquisitions in the near future. 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, or the loss of one or more key customer or supplier relationships, 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

Overview

BMP Sunstone Corporation, a Delaware corporation (the "Company"), is a specialty pharmaceutical company with over-the-counter, or OTC, prescription drugs, manufacturing, marketing and distribution based in China. Through our subsidiary, Sunstone (Tangshan) Pharmaceutical Co., Ltd., or Sunstone, we manufacture, market and distribute OTC products in China. In addition, through Beijing Medpharm Co. Ltd., or BMP China, Beijing Wanwei Pharmaceutical Co., Ltd., or Wanwei and Shanghai Rongheng Pharmaceutical Company, or Rongheng, we offer to foreign and domestic pharmaceutical manufacturers in China, services focused primarily on marketing and promotional services and distribution services. The Company, Sunstone, BMP China, Wanwei and Rongheng are collectively referred to as the "Company," "we" or "our".

Financial Overview

Our future success will depend on the continued growth of Sunstone's OTC and our Licensed Products. Sunstone's sales and operating profit growth rate historically has been higher than China's pharmaceutical industry average growth rate. Sunstone's strong brands of "Goodbaby" and "Confort" have helped Sunstone expand its revenue and increase its profitability. Sunstone's brand name and product portfolio are critical to the continued success of its business. Sunstone has been broadening its products pipeline through internal development, acquisition and licensing of the domestic products. Sunstone's revenues are seasonal with the majority of sales related to cough, cold and flu products, which are in the most demand in the winter and spring seasons. Through the acquisition of Shengda we now have antibiotic products in our Goodbaby brand of products. The consumption of antibiotics has the highest market share for the pediatric drugs market in China. In addition, we expect the acquisition of Shengda will enrich our product brands.

We believe our Licensed Products segment will continue to have significant continued growth. During 2008 and 2009, we believe we have made significant adjustments to strengthen our sales and marketing capability by focusing on obstetrics and gynecology. In addition, we have pursued a strategy of consolidating our sales and marketing teams so that we can achieve higher growth and profitability. In addition, we are actively searching for new pharmaceutical products from foreign pharmaceutical companies for licensing into China.

Acquisitions

On December 19, 2008, Sunstone entered into an Equity Transfer Agreement with Beijing Penn Pharmaceutical Sci-Tech Development Co., Ltd. ("Beijing Penn") to purchase 50% of the outstanding equity interests of Zhangjiakou Shengda Pharmaceutical Co., Ltd. ("Shengda") for RMB 20.0 million (or $2,920,000 as of February 16, 2009) in cash. On February 16, 2009 we received the business license of Shengda and closed on the acquisition. The Company has changed its name to Sunstone Shengda (Zhangjiakou) Pharmaceutical Co., Ltd.

The purchase price is payable in installments:

• RMB 6 million (or $875,000 as of December 31, 2008) 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 $2,045,000 as of September 30, 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.

Pursuant to the Equity Transfer Agreement, the Company purchased 50% of the outstanding equity interests of Shengda from Beijing Penn. Shengda is a Sino-foreign joint venture corporation with a contract period of 30 years. Following the transactions as completed by the Equity Transfer Agreement, the Company is one of three shareholders of Shengda. The investment in Shengda was accounted for in accordance with APB 18 under the equity method of accounting. Our total investment in Shengda was $3,114,000 as of September 30, 2009, of which we had paid $2,514,000. There were no acquisition costs incurred during the three or nine months ended September 30, 2009.

On April 12, 2009, Sunstone entered into a joint venture agreement with Tangshan Yangguang Fulai Business Consultants Co., Ltd. ("Tangshan SunshineFly") to establish Taiyangshi Fulai Tangshan Pharmaceutical Co., Ltd. ("Sunstone Fulai") located in Yutian County, Tangshan. Sunstone Fulai is owned 70% by Sunstone and 30% by Tangshan SunshineFly. The joint venture agreement requires Sunstone to inject RMB 35 million (or $5.1 million as of September 30, 2009) and Tangshan SunshineFly to contribute technology with an estimated value of RMB 15 million (or $2.2 million as of April 15, 2009) to the joint venture. On April 16, 2009, Sunstone Fulai received the business license.

In acquiring our 70 percent interest in Sunstone Fulai, Sunstone has agreed to inject RMB 35 million, all of which was injected as of September 30, 2009. Tangshan SunshineFly will contribute production technology at a later date once the manufacturing facility is completed. For financial reporting purposes, we have accounted for Sunstone Fulai as a consolidated subsidiary from April 16, 2009 through September 30, 2009.

The noncontrolling interest of Tangshan SunshineFly represents the fair value of 30 percent of Sunstone's cash injection as of September 30, 2009, or RMB 35.0 million (or $1,536,000 as of September 30, 2009), adjusted for 30% of the net loss of Sunstone Fulai. For the period April 16, 2009 through September 30, 2009, Sunstone Fulai generated a loss of $117,000.

Sale of Alliance BMP Limited

On August 3, 2009, the Company entered into a Share Purchase Agreement with Alliance UniChem Group Limited for the sale of the Company's 20% ownership of Alliance BMP Limited ("Alliance BMP"), an investment vehicle based in the United Kingdom for $15,100,000. The Company recorded Alliance BMP under the cost method investment and prior to the sale Alliance BMP did not record any impairment charges relating to this

investment. The Company received $7,550,000 during the quarter ended September 30, 2009, and the remaining balance of $7,550,000, representing 50% percent of the total consideration, is due in August 2010. The Company recognized a gain on the sale of $7,000 during the quarter ended September 30, 2009.

Liquidity and Capital Resources

Cash

As of September 30, 2009, we had unrestricted cash and cash equivalents of approximately $13.2 million which represented 5.6% 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 and investments. However, we do not anticipate any losses with respect to such cash balances because the balances are invested in government backed securities.

Long Term Debt

On January 20, 2009, BMP Sunstone Corporation (the "Company") completed an exchange (the "Exchange") of $10,650,000 in principal amount of its 10.0% senior secured promissory notes (the "10.0% Notes") for $10,650,000 in principal amount of its 12.5% secured convertible notes (the "January Exchange Notes"), pursuant to note exchange agreements (the "Note Exchange Agreements") by and between the Company and certain holders of the 10.0% Notes (the "Noteholders"). Following the Exchange, $12,350,000 in principal amount of 10.0% Notes remained outstanding.

Pursuant to the Note Exchange Agreements, the Company issued the January Exchange Notes in the aggregate principal amount of $10,650,000 to the Noteholders. The January Exchange Notes bear interest at a rate of 12.5% per annum, payable quarterly in arrears beginning on April 1, 2009. The January Exchange Notes have a maturity date of July 1, 2011. The accrued but unpaid interest on the 10.0% Notes prior to the Exchange was paid to the Noteholders participating in the Exchange on April 1, 2009.

Based upon the original terms of the January Exchange Notes, a Note holder may convert its January Exchange Note into fully paid and non-assessable shares of common stock, par value $0.001 per share (the "Common Shares"), of the Company from time to time at a conversion price, subject to certain adjustments, equal to $5.00. If the Company issues Common Shares in one or more offerings to investors on or prior to September 15, 2009 (other than any offerings following the issuance of Common Shares in one or more offerings to investors resulting in the receipt of proceeds (net of all commissions) by the Company in an aggregate amount of at least $16,000,000), the conversion price will equal the lesser of
(i) $5.00 or (ii) 115% of the lowest price per Common Share for which the Company sells Common Shares in any offering.

The January Exchange Notes were subsequently amended in March 2009 to fix the conversion price option at $3.00.

On March 13, 2009, the Company entered into a Placement Agency Agreement with Philadelphia Brokerage Corporation (the "Placement Agent"), as placement agent relating to the issuance and sale to investors of up to $7,000,000 principal amount of 12.5% Subordinated Convertible Notes due July 1, 2011 (the "March Public Notes") convertible into common shares of the Company (the "Placement").

The March Public Notes bear interest at the annual rate of 12.5% from March 16, 2009, or the most recent interest payment date to which interest has been paid or provided for, payable quarterly in arrears on April 1, July 1, October 1 and January 1 of each year, commencing April 1, 2009 to the persons in whose names the March Public Notes are registered at the close of business on March 15, June 15, September 15 or December 15 (whether or not a business day), as the case may be, preceding the respective interest payment date.

On May 14, 2009, the Company amended the terms of the March Public Notes to fix the conversion price at an amount equal to $3.00 per share of common stock and to add a covenant stating that the Company shall not issue equity, convertible debt or securities convertible into equity at an amount equal to less than $2.75 per share of common stock (with such $2.75 amount to include the fair value of any option, warrant or similar right offered by the Company and to be adjusted in the manner identical to the adjustment of the conversion price as provided in the amendment) until December 31, 2009. The amendment of the March Public Notes was effective as of March 16, 2009.

On March 13, 2009, the Company completed an exchange (the "March Exchange") of $1,000,000 principal amount of its 10.0% Notes for the same principal amount of its 12.5% March Exchange Secured Convertible Notes due July 1, 2011 (the "March Exchange Notes"), pursuant to a note exchange agreement (the "Note Exchange Agreement") by and between the Company and certain holders of the 10.0% Notes (the "March Exchange Noteholders"). The terms of the March Exchange Notes are substantially similar to those of the January Exchange Notes. The Company recorded the fair value of the amended notes at $1,026,000 as of March 13, 2009 which will be amortized to face value using the effective interest method over the remaining term of such notes. Amortization of debt premium of $3,000 was recorded for the three months ended September 30, 2009 and $7,000 was recorded for the period from March 13, 2009 through September 30, 2009.

In addition, on March 16, 2009, the Company completed a private placement (the "Private Placement") of $6,350,000 principal amount of 12.5% March Cash Secured Convertible Notes due July 1, 2011 (the "March Cash Notes"). The terms of the March Cash Notes are substantially similar to the terms of the March Exchange Notes. The Company consummated the Private Placement by entrance into purchase agreements (the "Purchase Agreement") with certain investors (the "Private Noteholders").

The Company amended the March Exchange Notes (the "March Exchange Note Amendment") and the March Cash Notes (the "March Cash Note Amendment") on May 14, 2009. The terms of the March Exchange Note Amendment and March Cash Note Amendment are substantially similar to the terms of the January Exchange Note Third Amendment. The March Exchange Note Amendment was effective as of March 13, 2009 and the March Cash Note Amendment was effective as of March 16, 2009.

On March 16, 2009 the Company called the remaining $11,350,000 of its 10.0% Secured Promissory Notes due May 1, 2009. This resulted in a loss on debt extinguishment of $125,000, recognized in the consolidated statement of operations in the nine months ended September 30, 2009.

On June 24, 2009, the Company entered into a RMB 30,000,000 (or $4,381,000 as of June 24, 2009) loan agreement with the Bank of Communication in China. The term of the loan is June 24, 2009 through May 24, 2011 a 5.4% annual rate of interest and pays interest monthly. The Company's obligations under the debt are secured by assets of Sunstone. The loan agreement does not contain any covenants. As of September 30, 2009, RMB 30,000,000 (or $4,383,000) is outstanding and is due May 2011.

On July 17, 2009, the Company entered into a RMB 16,000,000 (or $2,339,000 as of July 17, 2009) loan agreement with China Construction Bank in China. The term of the loan is July 17, 2009 through July 16, 2012 at 5.4% annual rate of interest paid monthly. The Company's obligations under the debt are secured by the assets of Sunstone. The loan does not contain any covenants. As of September 30, 2009, RMB 16,000,000 (or $2,340,000) is outstanding and is due July 2012.

Common Stock Warrants

On February 20, 2009, the Company closed its offering of 559,062 units (the "Units"), each consisting of (i) two shares of the Company's common stock, par value $0.001 per share ("Common Stock"), and (ii) a warrant ("Warrant") to purchase one share of Common Stock at an exercise price of $4.00 per share, which exercise price was subject to potential re-pricing.

If on the 90th day after the closing date (the "Re-price Date"), the volume weighted average trading price calculated over the 20 trading days prior to the Re-price Date (the "VWAP") of the Common Stock is less than $4.00 per share, the exercise price of the Warrants will be reset to the greater of (i) $1.80 or
(ii) the VWAP. The Warrants are exercisable beginning any time on or after the Re-price Date and expiring on the fifth anniversary of the Closing Date. In no event, shall the number of shares of Common Stock and shares of Common Stock underlying the Warrants exceed 19.99% of the Company's outstanding Common Stock as of February 13, 2009.

The Units were offered by the Company at a purchase price of $6.40 per Unit (the "Offering"). As a result of the Offering, the Company issued 1,118,124 shares of Common Stock and 559,062 Warrants. The net proceeds to the Company from the Offering were approximately $3,000,000.

After 90 days from the issuance of the warrants, or May 21, 2009, the warrant option reprice provisions expired, the exercise price remained at $4.00 and the warrant was deemed to be indexed to its own stock. Accordingly, the warrant liability was extinguished in the amount of $1,342,000 and recorded as additional paid capital.

Cash Flow

We anticipate that our September 30, 2009 balance of approximately $13.2 million in unrestricted cash and cash equivalents 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

Net cash used in operating activities was $1,932,000 for the nine months ended September 30, 2009. This amount reflected our loss of $3,913,000, offset by $9,797,000 in net non-cash charges including loss on early extinguishment of debt of $4,573,000, gain on fair value of derivatives of $1,204,000, amortization of intangible assets of $2,658,000 , amortization of debt discount and debt issuance costs of $695,000, stock based compensation expense of $1,784,000, depreciation and amortization of equipment and leasehold improvements of $1,745,000, decrease in deferred taxes of $369,000 , equity method investment income of $189,000, loss on disposal of asset of $139,000 and noncontrolling interest of $35,000 . In addition, we generated $7,953,000 of operating cash as result in changes in certain of our operating assets and liabilities during the nine months ended September 30, 2009. The most significant changes were the increase in accrued expenses of $1,253,000 and decreases inventory of $1,463,000 and notes receivable of $5,237,000. Offsetting these changes were increases in accounts receivable of $11,547,000, VAT receivable of $136,000, other receivables of $616,000, other current assets of $205,000 and decreases in accounts payable of $3,029,000 and amounts due to related parties of $236,000.

Cash used in investing activities was $903,000 and reflects the acquisition of property, plant and equipment of $5,908,000, payment for land use rights of $901,000 and the payment for Shengda of $1,637,000 and cash received for the sale of our investment in Alliance BMP of $7,543,000.

Net cash used in financing activities was $271,000, which consisted of proceeds from the exercise of warrants of options and $73,000, net proceeds from the issuance of common stock of $2,999,000, proceeds from the issuance of long term debt of $12,031,000, and was offset by the repayment of long term debt of $11,350,000 net payments on bank borrowings of $3,069,000 and the increase of restricted cash of $413,000.

Results of Operations

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 Management's Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no changes in these accounting policies.

Our significant accounting policies are described in Note 1 to the consolidated financial statements contained in this quarterly report on Form 10-Q. 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 2008 consolidated financial statements and also in Note 1 to the consolidated financial statements contained in this quarterly report on Form 10-Q. In addition, we believe the following new accounting estimates reflect our more significant estimates and assumptions used in the preparation of our financial statements:

Valuation of the Embedded and Warrant Derivatives

The valuation of our embedded derivatives and warrant derivatives are determined primarily by the Black-Scholes option pricing model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract), includes the right to convert the note by the holder. These embedded derivatives are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. Warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period.

To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period.

Notes receivable

As of September 30, 2009 we had notes receivable of approximately $10.6 million which represented 4.5% of our total assets. Notes Receivables are also known as Banker's Acceptance Bills in China. Notes receivable are notes received from customers for the settlement of trade receivable balances. As of September 30, 2009, all notes receivables were issued by established banks in the People's Republic of China and these notes are irrevocable, discountable and transferrable and have maturities of six months or less. The fair value of the notes receivable approximated their carrying value.

Three months ended September 30, 2009 Compared to Three months ended September 30, 2008

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, 2009 and 2008:

                                                    For the Three Months          For the Three Months
                                                     Ended September 30,           Ended September 30,
($ amounts in thousands)                             2009            2008         2009             2008
Net Revenues                                      $    33,626      $ 30,503        100.0 %          100.0 %
Cost of Sales                                          17,950        16,676         53.4 %           54.7 %

Gross Profit                                           15,676        13,827         46.6 %           45.3 %

Sales and Marketing Expenses                            9,811         9,152         29.2 %           30.0 %
General and Administrative Expenses                     4,825         2,910         14.3 %            9.5 %

Total Operating Expenses                               14,636        12,062         43.5 %           39.5 %
Profit From Operations                                  1,040         1,765          3.1 %            5.8 %
Other Income (Expense):
Interest Income                                            52             6          0.2 %            0.0 %
Interest Expense                                         (895 )      (1,590 )       -2.7 %           -5.2 %
Debt Issuance Cost Amortization                          (101 )        (210 )       -0.3 %           -0.7 %
Equity Method Investment Income                           107            -           0.3 %            0.0 %
Loss on Early Extinguishment of Debt                       -             -           0.0 %            0.0 %
Gain on Derivatives                                        -             -           0.0 %            0.0 %

Total Other Expense                                      (837 )      (1,794 )       -2.5 %           -5.9 %

Profit (Loss) Before Provision for Income Taxes           203           (29 )        0.6 %           -0.1 %
Provision for Income Taxes                                430           787          1.3 %            2.6 %

Net Loss                                          $      (227 )    $   (816 )       -0.7 %           -2.7 %

. . .