Dongsheng Pharma (GREY:DNGH)

During the nine months ended March 31, 2011, we took significant steps in our efforts to diversify our product portfolio and revenue sources. Specifically, in November 2010 we entered into a Product Transfer and Cooperation Agreement with Shanghai Wan’Te Pharmaceutical Co., Ltd. (“Wan’Te”) to acquire from Wan’Te all intellectual property rights, along with exclusive sales and manufacturing rights, of micro-emulsion alprostadil injection for an aggregate purchase price of RMB 10 million. We paid the first RMB 2.4 million of the purchase price in cash in December 2010, and will pay the remaining RMB 7.6 million of the purchase price following the approval of micro-emulsion alprostadil injection by the State Food and Drug Administration of China (the “SFDA”) in cash and shares of our common stock, subject to certain conditions. Micro-emulsion alprostadil injection is ranked as the No. 2 cardiovascular disease treatment measured by Chinese hospital usage, and it has experienced a growth rate of 17% per year (China Pharmaceutical News, 2010). According to the Development Research Centre of the State Council of China, the direct medical cost of cardiovascular disease in China has reached 130 billion RMB per year since 2007 (DRCnet, 2007). We plan to launch sales of micro-emulsion alprostadil injection in late 2011. Substantially all of our sales revenues are currently generated from sales of our top product - ganglioside - which accounted for approximately 95% and 97%, respectively, of our sales revenues during the three and nine months ended March 31, 2011.

Revenues for the three months ended March 31, 2011 decreased by approximately $0.67 million, or 28%, to $1.70 million as compared to $2.37 million for the same period of the prior year. This decrease was due to a decrease in sales of our ganglioside product resulting from our efforts to reorganize our sales and marketing teams, as discussed above, the effects of the price reduction trend mandated by the NDRC as part of the Chinese Health Reform Act, and uncertainty about whether ganglioside will be included in the insurance coverage list for certain of the provinces in which it is sold. We substantially completed our reorganization efforts in March 2011. In addition, we have been advised by the relevant provincial authorities that ganglioside will be included in the insurance coverage list for 2011-2012 for ten of the eleven provinces in which we sell ganglioside. We anticipate that the completion of our sales team reorganization efforts and the removal of the uncertainty regarding insurance coverage of ganglioside in the provinces in which it is sold will have a positive impact on our sales for the remainder of this year.

We achieved gross profits of approximately $0.38 million for the three months ended March 31, 2011, compared to approximately $0.86 million for the same period of the prior year, representing a 56% decrease. Our overall gross profit margin as a percentage of revenue decreased from approximately 36% for the three months ended March 31, 2010 to approximately 22% for the three months ended March 31, 2011. We believe that the decrease in our profit margin was largely the result of the price reduction trend mandated by the NDRC as part of the Chinese Health Reform Act, which limited the prices we could charge for our products. Despite the decrease during the three months ended March 31, 2011 in our gross profits, and the potential long-term impact of the price reduction trend mandated by the NDRC on our profit margins, we anticipate that the decreased sales prices resulting from this price reduction trend will have a positive impact on our long-term operating results due to the fact that, as a result of the lower prices, more people will be able to afford, and will purchase, the products that we distribute. Also, as noted above, we are continuing our efforts to diversify our product portfolio, which would thereby decrease our product concentration risk. We anticipate that the potential expansion of our product portfolio in the future will help our gross margins improve from the levels experienced during the quarter ended March 31, 2011.

We believe that the decrease in revenues was due to a decrease in sales of our ganglioside product resulting from our ongoing efforts to reorganize our sales and marketing teams, as discussed above, and uncertainty about whether ganglioside will be included in the insurance coverage list for certain of the provinces in which it is sold. We expect that our reorganization efforts will be substantially complete by March 2011. In addition, we have been advised by the relevant provincial authorities that ganglioside will be included in the insurance coverage list for 2011-2012 for seven of the eleven provinces in which we sell ganglioside. We expect that the remaining four provinces will finalize their insurance coverage lists in the next several months.

Our cash expenditures during the period were made in connection with significant purchases of inventory and advances to vendors, along with an installment payment to acquire rights to micro-emulsion alprostadil injection from Shanghai Wan’Te Pharmaceutical Co., Ltd., as further described under “Liquidity and Capital Resources – Operations” below. We believe that these inventory purchases and vendor advances have helped stabilize, and will continue to help stabilize, our product costs, which in turn will improve our operating results.

During the quarter we commenced an ongoing effort to reorganize our sales and marketing teams from a product basis to a geographical basis, which disrupted our sales efforts during the quarter, but which we believe will lead to increased product revenues once it is fully implemented. We also believe that sales of our main product, ganglioside, were lower during the quarter as a result of uncertainty about whether it will be included in the insurance catalog for certain of the provinces in which it is sold. We expect that any uncertainties regarding the inclusion of ganglioside in the insurance catalogs for these provinces will be resolved in early 2011 when those provincial catalogs are finalized.

Results of Operations for the Years Ended June 30, 2010 and 2009

• Revenues for the year ended June 30, 2010, increased by approximately $3.4 million or 19.57% to $20.5 million as compared to $17.1 million for the year ended June 30, 2009. Our sales growth was mainly driven by a 24% revenue increase on constant dollar basis over 2009 contributed by one of our major products, Ganglioside Injection, resulting from higher market demand as well as our more aggressive pricing strategy.
  
• Net income for the fiscal year ended June 30, 2010, increased by approximately $1.7 million to $4.1 million as compared to $2.4 million for the previous year, representing a 69.66% increase year-to-year. This increase was mainly attributable to our increase in revenues and operating income, coupled with our efforts to recover doubtful accounts.
  
• EPS was $0.25 vs $0.15.

GeoTeam® Note:

• Fourth quarter EPS was flat at $0.05.
  
• 2010 benfitted from a Recovery of doubtful accounts of $1,441,889.

In January 2010, Chongqing Yidong Pharmaceuticals Co., Ltd. (“Yidong”) filed a lawsuit against the Company in the People’s Court of Yuzhong District, Chongqing City, China. Yidong claims compensation in an amount of RMB 1,520,040 (equivalent to USD 222,648) along with court fees for its alleged losses. On July 27, 2010, the judge issued a judicial authentication order on the signature on the contract that Dongsheng had signed with Yidong. As of September 15, 2010, the judge has not announced any results on judicial authentication or other judgment order related to this case. The Company believes that the case will likely be decided in its favor.

Xintai Pharmaceutical Co., Ltd became a public company via a reverse merger transaction on March 25, 2010.Company Snapshot:

DBL, through Xintai, is a pharmaceutical wholesale company.  . Xintai is in the business of prescription medicines sales, OTC medicines sales and medicine R&D.

Industry Snapshot:

According to the research conducted by Intercontinental Marketing Services (website http://www.imshealth.com), the total revenue for prescription medicines in the world reached 745 billion US dollars in 2008. The prescription medicines sales in developing countries accounted for 25% of the market shares, which increased by 25.7% compared to 2007.

China’s pharmaceutical market is highly fragmented and inefficient. As of 2007, China had around 3,000 to 6,000 domestic pharmaceutical manufacturers and approximately 14,000 domestic pharmaceutical distributors. A lack of protection of intellectual property rights, a lack of visibility for drug approval procedures, a lack of effective governmental incentives and poor corporate support for drug research make their lives even harder.

The severe competition in China’s pharmaceutical market and market environment results in the fact that wholesalers and distributors play a major role in the value chain. Those pharmaceutical manufacturers who work closely with wholesalers with strong sales network sell more drugs. Therefore, further market consolidation is highly expected in China.

Post Merger Share Calculation:

• 16,700,000: Pre reverse merger outstanding shares
• 12,000,000: Shares cancelled as part of the Share Exchange
• 15,830,000: Newly issued shares of Common Stock

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  20,530,000

Please note that this differs from the company's calculation

"Following the Share Exchange, there are 17,000,000 shares of common stock issued and outstanding."

Financial Snapshot:

Revenues:

• For the year ended June 30, 2009 increased by approximately 126% to $17.13 million.

Net Income:

• For the year ended June 30, 2009 increased by approximately 156% to $2.39 million.