TIANYIN PHARMACEUTICAL CO., INC. - FORM 10-Q

Attached files

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EX-31.1 - CERTIFICATION - TIANYIN PHARMACEUTICAL CO., INC.	ex31one.htm
EX-32.1 - CERTIFICATION - TIANYIN PHARMACEUTICAL CO., INC.	ex32one.htm
EX-31.2 - CERTIFICATION - TIANYIN PHARMACEUTICAL CO., INC.	ex31two.htm
EX-32.2 - CERTIFICATION - TIANYIN PHARMACEUTICAL CO., INC.	ex32two.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

[ ] 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

Tianyin Pharmaceutical Co., Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

23rd Floor, Unionsun Yangkuo Plaza

No. 2, Block 3, Renmin Road South

Chengdu, P. R. China, 610041

+0086-028-86154737

(Address, including zip code, and telephone number,

including area code, of Registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 45 days. Yes [X ] No [ ]

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.

Large Accelerated Filer			Accelerated Filer
Non-accelerated filer	(do not check if a smaller reporting company)		Smaller reporting company	X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes [ ] No [X]

As of May 16, 2011, we are authorized to issue up to 50,000,000 shares of Common Stock, par value $0.001 per share and 10,000,000 shares of Series A Preferred Stock, of which 29,396,276 and -0- preferred shares respectively are outstanding.

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION	3

Item 1. Financial Statements	3

Consolidated Balance Sheets at March 31, 2011 (unaudited) and June 30, 2010	3

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010, and nine months ended March 31, 2011 and 2010	4

Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2011 and 2010, and nine months ended March 31, 2011 and 2010	5

Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 2011 and 2010	6

Unaudited notes to Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis or Plan of Operation	16

Item 3. Quantitative and Qualitative Disclosure About Market Risk	21

Item 4. Controls and Procedures	21

PART II – OTHER INFORMATION	22

Item 1. Legal Proceedings	22

Item 2. Unregistered Sales of Equity Securities And Use Of Proceeds	22

Item 3. Defaults Upon Senior Securities	22

Item 4. (Removed and Reserved)	22

Item 5. Other Information	22

Item 6. Exhibits	22

PART I- FINANCIAL INFORMATION

TIANYIN PHARMACEUTICAL CO., INC.

Consolidated Balance Sheets

	March 31,			June 30,
	2011			2010
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	31,066,927		$	27,009,066
Accounts receivable, net of allowance for doubtful accounts of $436,515		9,742,186			8,185,240
and $421,079 at March 31, 2011 and June 30, 2010, respectively
Inventory		5,431,746			3,588,824
Advance payments		397,020			382,980
Loans receivable		-			294,600
Other current assets		31,831			77,283
Total current assets		46,669,710			39,537,993

Property and equipment, net		25,596,835			14,968,822

Intangibles, net		15,295,417			15,232,286

Total assets	$	87,561,962		$	69,739,101

Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	1,556,489		$	1,715,781
Accounts payable – construction related		2,389,461			2,248,849
Short-term bank loans		2,748,600			1,473,000
VAT taxes payable		746,997			658,312
Income taxes payable		1,333,674			861,614
Other taxes payable		159,356			19,564
Dividends payable		34,661			72,995
Other current liabilities		537,834			429,135
Total current liabilities		9,507,072			7,479,250

Total liabilities		9,507,072			7,479,250

Equity
Stockholders’ equity:
Common stock, $0.001 par value, 50,000,000 shares authorized,		29,396			27,326
29,396,276 and 27,371,526 shares issued and outstanding at
March 31, 2011 and June 30, 2010, respectively
Series A convertible preferred stock, $0.001 par value -0- and 1,360,250		-			1,360
shares issued and outstanding at March 31, 2011 and June 30, 2010,
Respectively
Additional paid-in capital		31,536,139			29,623,396
Statutory reserve		3,732,883			3,732,883
Treasury stock		(111,587	)		(111,587	)
Retained earnings		37,339,441			25,687,770
Accumulated other comprehensive income		5,096,149			2,845,076
Total stockholders’ equity		77,622,421			61,806,224

Noncontrolling interest		432,469			453,627

Total equity		78,054,890			62,259,851

Total liabilities and equity	$	87,561,962		$	69,739,101

The accompanying notes are an integral part of these consolidated financial statements.

TIANYIN PHARMACEUTICAL CO., INC.

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	March 31,						March 31,
	2011			2010			2011			2010

Sales	$	24,880,980		$	15,917,771		$	72,165,647		$	44,259,352

Cost of sales		14,044,670			7,493,230			39,183,982			21,019,960

Gross profit		10,836,310			8,424,541			32,981,665			23,239,392

Operating expenses:
Selling, general and administrative		5,517,647			4,607,897			17,252,309			13,135,398
Research and development		286,020			218,515			802,696			608,385
Total operating expenses		5,803,667			4,826,412			18,055,005			13,743,783

Income from operations		5,032,643			3,598,129			14,926,660			9,495,609

Other income (expenses):
Interest income		33,083			15,068			90,681			34,436
Interest expense		(29,791	)		(18,913	)		(72,599	)		(58,276	)
Other income (expenses)		-			-			-			(39,510	)
Total other Income (Expenses)		3,292			(3,845	)		18,082			(63,350	)

Income before provision for income tax		5,035,935			3,594,284			14,944,742			9,432,259

Provision for income tax		1,323,665			686,161			3,171,172			1,767,852

Net income		3,712,270			2,908,123			11,773,570			7,664,407

Less: Net income (loss) attributable to
noncontrolling interest		(4,492	)		(1,357	)		(21,121	)		(2,397	)

Net income attributable to Tianyin
Pharmaceutical Co., Inc.		3,716,762			2,909,480			11,794,691			7,666,804

Basic earnings per share	$	0.13		$	0.11		$	0.42		$	0.31
Diluted earnings per share	$	0.12		$	0.09		$	0.39		$	0.26

Weighted average number of common shares
outstanding
Basic		28,218,732			26,363,749			28,031,064			23,650,332
Diluted		29,822,596			31,631,330			30,062,270			29,931,923

The accompanying notes are an integral part of these consolidated financial statements.

TIANYIN PHARMACEUTICAL CO., INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

		For the Three Months Ended March 31,						For the Nine Months Ended March 31,
		2011			2010			2011			2010
Net income	$	3,712,270		$	2,908,123		$	11,773,570		$	7,664,407

Other comprehensive income
Foreign currency translation adjustment		484,258			(155	)		2,251,109			46,808

Total other comprehensive income		484,258			(155	)		2,251,109			46,808

Comprehensive income		4,196,528			2,907,968			14,024,679			7,711,215

Comprehensive income attributable to the
noncontrolling interest		(103	)		-			(37	)		(179	)

Comprehensive income attributable to
Tianyin Pharmaceutical Co., Inc.	$	4,196,425		$	2,907,968		$	14,024,642		$	7,711,036

The accompanying notes are an integral part of these consolidated financial statements.

TIANYIN PHARMACEUTICAL CO., INC.

Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended March 31,
	2011			2010
Cash flows from operating activities:
Net Income	$	11,773,570		$	7,664,407
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization		893,896			678,372
Bad debt expense		-			96,734
Share-based payments		1,913,453			1,274,516
Loss on disposal of fixed assets		-			39,510
Changes in assets and liabilities:
Accounts receivable		(1,235,887	)		(2,725,110	)
Inventory		(1,682,777	)		190,744
Other current assets		46,400			457,487
Accounts payable and accrued expenses		(267,848	)		437,483
Accounts payable – construction related		280,295			2,887,122
VAT taxes payable		36,038			87,300
Income taxes payable		433,118			195,177
Other taxes payable		164,187			5,175
Dividends payable		(18,138	)		-
Other current liabilities		(131,682	)		195,931
Total adjustments		431,055			3,820,441

Net cash provided by operating activities		12,204,625			11,484,848

Cash flows from investing activities:
Additions to property and equipment		(10,317,824	)		(5,338,740	)
Additions to intangible assets – approved drugs		-			(2,742,168	)
Loans receivable		300,300			(293,280	)

Net cash used in investing activities		(10,017,524	)		(8,374,188	)

Cash flows from financing activities:
Proceeds from bank loans		1,201,200			65,988
Additional paid-in capital		-			8,864,825
Contribution from minority shareholders		-			439,920
Dividends paid		(54,857	)		(1,577,068	)

Net cash provided by financing activities		1,146,343			7,793,665

Effect of foreign currency translation on cash		724,417			2,852

Net increase in cash and cash equivalents		4,057,861			10,907,177

Cash and cash equivalents – beginning		27,009,066			12,352,223

Cash and cash equivalents – ending	$	31,066,927		$	23,259,400

Supplemental schedule of non cash activities
Advance payments exchanged for intangible assets – drug	$	-		$	807,986

The accompanying notes are an integral part of these consolidated financial statements.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Nature of Business

Tianyin Pharmaceutical Inc. (the “Company” or “TPI”), formerly Viscorp, Inc, a public shell company as defined in Rule 12b-2 of the Exchange Act of 1934, was established under the laws of Delaware on August 20, 2002. The accompanying consolidated financial statements include the financial statements of TPI and its subsidiaries. TPI’s primary business is to develop, manufacture, and sell pharmaceutical products.

On January 16, 2008, Viscorp Inc. (“Viscorp”) completed a reverse acquisition of Raygere Limited (“Raygere”), which was incorporated in the British Virgin Islands on January 26, 2007 (the “Share Exchange”). To accomplish the Share Exchange, Viscorp issued 12,790,800 shares of common stock on a one to one ratio for a 100% equity interest in Raygere, per the terms of the Share Exchange and Bill of Sale of assets of Viscorp and Charles Driscoll. Viscorp was delivered with zero assets and zero liabilities at the time of closing. Following the Share Exchange, Viscorp changed the name to Tianyin Pharmaceutical Inc. The transaction was regarded as a reverse merger whereby Raygere was considered to be the accounting acquirer as its shareholders retained control of TPI after the exchange. Although the Company is the legal parent company, the Share Exchange was treated as a recapitalization of Raygere. Thus, Raygere is the continuing entity for financial reporting purposes. The financial statements have been prepared as if Raygere had always been the reporting company and then on the date of the Share Exchange, had changed its name and reorganized its capital stock.

In September 2007, Raygere acquired 100% interest in Grandway Groups Holdings Ltd. (“Grandway”), which was incorporated on May 25, 2007, in the Special Administrative Region of Hong Kong, the People’s Republic of China (“PRC”). On October 30, 2007, Grandway acquired 100% equity interest in Chengdu Tianyin Pharmaceutical Co., Ltd (“Chengdu Tianyin”), which was incorporated on April 1, 1994 in the city of Chengdu, the People’s Republic of China. As a result of the acquisition, Chengdu Tianyin became the wholly owned subsidiary of Grandway and an indirect wholly owned subsidiary of Raygere. The transaction was regarded as a reverse merger whereby Chengdu Tianyin was considered to be the accounting acquirer as both Grandway and Raygere were holding companies with no significant operations and Chengdu Tianyin continues as the primary operating entity even after the exchange, although Raygere is the legal parent company. As such, Chengdu Tianyin (and its historical financial statements) is the continuing entity for financial reporting purposes. The consolidated financial statements reflect all predecessor statements of income and cash flow activities from the inception of TPI in July 2007.

In June 2009, TPI invested $723,500 to establish a wholly-owned trading subsidiary, Tianyin Medicine Trading Co., Ltd (“Tianyin Medicine Trading” or “TMT”) for sales and distribution of medicine produced by TPI. As of December 31, 2010, the financial results of TMT are consolidated into the consolidated financial statements presented herein.

On August 21, 2009, Sichuan Jiangchuan Pharmaceutical Co., Ltd (“Jiangchuan” or “JCM”) was established by TPI, Sichuan Mingxin Pharmaceutical and an individual investor with raw material pharmaceutical production as its major business. Total registered capital of JCM is $2,934,000, of which TPI accounts for 77%. As of December 31, 2010, registered capital of $1,173,600 has been invested and the results of JCM are consolidated into the consolidated financial statements presented herein.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America. The consolidated financial statements include the accounts of Tianyin Pharmaceutical Co., Inc. and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 2 – Summary of Significant Accounting Policies (continued)

Basis of Presentation (continued)

Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

In preparing the accompanying unaudited consolidated financial statements, we evaluated the period from March 31, 2011 through the date the financial statements were issued for material subsequent event requiring recognition or disclosure. (see Note 18)

Interim Financial Statements

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the years ended June 30, 2010 and 2009, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim consolidated financial statements follow the same accounting policies and methods of computations as the audited consolidated financial statements for the years ended June 30, 2010 and 2009.

Fair value of financial instruments

The Company’s financial instruments include cash equivalents, accounts receivable, notes receivable, accounts payable, short-term debt and other financial instruments associated with the issuance of the common stock. The carrying values of cash equivalents, accounts receivable, notes receivable, and accounts payable approximate their fair value because of the short maturity of these instruments. The carrying amounts of the Company’s bank borrowings under its credit facility approximate fair value because the interest rates are reset periodically to reflect current market rates.

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) on January 1, 2008. SFAS 157 has been codified as ASC 820-10, “Fair Value Measurements.” ASC 820-10, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs which there is little or no market data, which require the reporting entity to develop its own assumptions.

Reclassification

Certain amounts as of March 31, 2010 were reclassified for presentation purposes.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 3 – Accounts Receivable

Trade accounts receivable are stated at original invoice amount less allowance for doubtful receivables based on management’s periodic review of aging of outstanding balances and customer credit history. Allowance for doubtful accounts amounted to $436,515 and $421,079 as of March 31, 2011 and June 30, 2010, respectively.

Note 4– Inventory

Inventory as of March 31, 2011 and June 30, 2010 consists of the following:

	March 31, 2011		June 30, 2011
Raw materials	$	735,833	$	268,443
Packaging supplies		813,441		1,798,555
Work in process		2,844,373		1,326,441
Finished goods		1,038,099		334,399
Subtotal		5,431,746		3,727,838
Less: Inventory reserve		-		139,014
Total	$	5,431,746	$	3,588,824

Note 5– Property and Equipment

Property and equipment as of March 31, 2011 and June 30, 2010 consist of the following:

	March 31, 2011		June 30, 2010

Buildings	$	9,106,079	$	8,784,057
Machinery and equipment		2,736,982		2,640,194
Office equipment and furniture		58,328		56,145
Vehicles		65,358		63,045
Subtotal		11,966,747		11,543,441
Less: Accumulated depreciation		2,848,436		2,348,544
		9,118,311		9,194,897
Add: Construction in progress		16,478,524		5,773,925
Total	$	25,596,835	$	14,968,822

Depreciation expenses for the three months ended March 31, 2011 and 2010 were $137,151 and $127,516, and for nine months ended March 31, 2011 and 2010 were $406,884 and $385,801, respectively.

Note 6– Intangible Assets

Intangible assets as of March 31, 2011 and June 30, 2010 consist of the following:

	March 31, 2011		June 30, 2010

Land use rights	$	1,511,730	$	1,458,270
Approved drugs:
Traditional Chinese Medicine subject to impairment		9,414,455		9,081,528
Non-traditional Chinese Medicine		5,878,950		5,671,050
Total approved drugs		15,293,405		14,752,578
Total Intangible assets		16,805,135		16,210,848
Less: accumulated amortization		1,509,718		978,562

Total	$	15,295,417	$	15,232,286

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Amortization expenses for the three months ended March 31, 2011 and 2010 were $154,161 and $157,281, and for the nine months ended March 31, 2011 and 2010 were $487,012 and $292,571, respectively.

Note 7 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	March 31, 2011		June 30, 2010

Accounts payable	$	1,517,489	$	1,535,781
Accrued expenses		39,000		180,000

Total	$	1,556,489	$	1,715,781

The carrying value of accounts payable and accrued expenses approximates their fair value due to the short-term nature of these obligations.

Note 8 – Short-Term Bank Loans

Short-term bank loans consist of the following:

	March 31,		June 30,
	2011		2010


On January 29, 2010, the Company obtained a loan from China CITIC Bank. The principal is to be paid in full by January 28, 2011.The interest is to be calculated using an annual fixed interest rate of 5.5755% and paid monthly. The loan is secured by the Company’s property and equipment.	$	-	$	1,473,000

On January 1, 2011, the Company obtained a loan from China CITIC
Bank. The principal is to be paid in full in July 29, 2011. The interest is
calculated using an annual fixed interest rate of 6.1005% and paid
monthly. The loan is secured by the Company’s property and equipment.	$	1,221,600	$	-

In March 2, 2011, the Company obtained a loan from China CITIC
Bank. The principal is to be paid in full in March 2, 2012. The interest is
calculated using an annual fixed interest rate of 6.666% and paid
monthly. The loan is secured by the Company’s property and equipment.	$	1,527,000	$	-

Total short-term bank loans	$	2,748,600	$	1,473,000

Note 9 – Income Taxes

Raygere is incorporated in the British Virgin Islands. Under the corporate tax laws of British Virgin Islands, it is not subject to tax on income or capital gain.

The operating subsidiary, Chengdu Tianyin, is a wholly foreign-owned enterprise incorporated in the PRC and subject to PRC Foreign Enterprise Income Tax (“FEIT”) Law. Chengdu Tianyin is entitled to the preferential tax treatment for Opening Up its production facility in Western China in Sichuan Province. The applicable reduced preferential state EIT rate under this policy is 15% until December 31, 2010. Starting January 1, 2011, the effective tax rate for Chengdu Tianyin is 25%. As domestic invested companies, the effective tax rates of Tianyin Medicine Trading (TMT) and Sichuan Jiangchuan (JCM) operations are both 25%.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 9 – Income Taxes (continued)

On March 16, 2007, the National People’s Congress of China enacted a new Corporate Income Tax (“CIT”) law, under which FIEs and domestic companies would be subject to CIT at a uniform rate of 25%. The new CIT law will become effective on January 1, 2008. Currently, the Company does not believe the new CIT law will affect the preferential tax treatments enjoyed by them. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, as of March 31, 2011, the Company has not recorded any withholding tax on the retained earnings of its foreign invested enterprises in China.

On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 will be exempt from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT.

In July 2006, the FASB issued FASB Interpretation No.48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in FIN 48 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company does not recognize any benefits in the financial statements for nine months ended March 31, 2011.

Note 10 – Stockholders’ Equity and Related Financing Agreements

On July 8, 2009, the Company declared a quarterly cash dividend to be paid to its common stock shareholders. The dividend of $0.025 per common share, with the total amount of $172,023 had been declared to shareholders of record as of July 31, 2009 and actually paid on September 9, 2009.

On September 30, 2009, the Company recorded $233,683 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.

On October 5, 2009, the Company declared a quarterly cash dividend to be paid to its common stock shareholders. The dividend of $0.025 per common share, with the total amount of $344,322 has been declared to shareholders of record as of October 30, 2009 and actually paid on December 10, 2009.

On October 27, 2009, the Company completed a private equity financing of $4,987,500, with eight accredited investors (the “October 2009 Financing”). Net proceeds from the offering are approximately $4,490,000. Pursuant to the financing, we issued, for $4,987,500, a total of 1,534,570 units of our securities at $3.25 per unit. Each unit consists of (i) one share of the Company's common stock, par value $0.001 per share (the "Common Stock"), and (ii) a Series C Warrant (the "Class C Warrant"), with each Class C Warrant exercisable at $4.50 to purchase one-fifth of a share of Common Stock, such that the total amount of warrants issued to each investor as shall be equal to twenty percent (20%) of the number of units purchased by each purchaser. Each of the warrants has a term of three (3) years.

In connection with this financing, the Company paid cash compensation to the placement agent, Tripoint Global Equities, in the amount of $495,250. In connection with this financing, the Company granted warrants to purchase 122,766 shares of common stock at $3.25 and 24,553 shares at $4.50 to the placement agent or its designees. These warrants have the same terms as the warrants issued to investors and are included in the units.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 10 – Stockholders’ Equity and Related Financing Agreements (continued)

On December 31, 2009, the Company recorded $98,538 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.

On January 11, 2010, the Company declared a quarterly cash dividend to be paid to its common stock shareholders. The dividend of $0.025 per common share, with the total amount of $403,085 has been declared to shareholders of record as of January 31, 2010 and actually paid on February 25, 2010.

On March 31, 2010, the Company recorded $82,541 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.

On June 30, 2010, the Company recorded $72,995 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.

As of June 30, 2010, 8,155,375 shares of Series A Preferred Stock were converted into 8,155,375 shares of common stock in total, of which 5,786,250 were converted during the fiscal year ended June 30, 2010.

As of June 30, 2010, 859,376 Class A and 500,000 Class B Warrants of the Company have been exercised for respective equivalent number of shares of common stock. The exercise prices of Class A and Class B Warrants are $2.50 and $3.00 per share, respectively. In addition, the warrants to placement agent to purchase 542,394 shares of common stock at $1.60, 15,025 shares of common stock at $2.50 and the options issued to external service providers to purchase 165,000 shares of common stock at $2.00 per share have also been exercised. As a result, an aggregate of 2,081,795 shares of outstanding common stock have been added and a total of $4,591,958 net proceeds have been received from the exercise of these warrants and options.

On September 30, 2010, the Company recorded $54,857 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.

On December 31, 2010, the Company recorded $53,501 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.

By March 18, 2011, under the mandatory conversion agreement, the remaining totaled 1,360,000 preferred shares were converted to common shares as 1:1 exchange ratio.

As of May 16, 2011, there were 29,396,276 common shares outstanding with -0- outstanding preferred shares.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 11 – Employee Welfare Plan

The Company has established an employee welfare plan in accordance with Chinese laws and regulations. Full-time employees of the Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance and other welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on a certain percentage of the employees’ salaries. The total contribution for such employee benefits was $492,007 and $151,494 for the nine months ended March 31, 2011 and 2010, respectively.

Note 12 – Risk Factors

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Note 13 – Risk of Concentrations and Credit Risk

During the nine months ended March 31, 2011, three major vendors accounted for approximately 38% of the Company’s raw materials, while during the nine months ended March 31, 2010, three major vendors accounted for approximately 29% of the Company’s raw materials. Total purchases from these vendors were $7,898,223 and $6,313,105 for the nine months ended March 31, 2011 and 2010, respectively.

Five major customers accounted for 9% and 15% of the total sales for the nine months ended March 31, 2011 and 2010, respectively. Total sales to these customers were $6,654,915 and $6,638,902, for the nine months ended March 31, 2011 and 2010, respectively.

Financial instruments which potentially subject the Company to credit risk consist principally of cash on deposit with financial institutions. Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and minimal credit risk exists with respect to these investments.

Note 14 – Supplemental Cash Flow Disclosures

The following is supplemental information relating to the consolidated statements of cash flows:

	For the Nine Months Ended March 31
	2011		2010

Cash paid for interest	$	72,599	$	58,276
Cash paid for income taxes	$	3,171,172	$	1,572,675

Note 15 – Earnings Per Share

The Company presents earnings per share (“EPS”) on a basic and diluted basis. Basic earnings per share have been computed by dividing net earnings by the weighted average number of common shares outstanding. Diluted earnings per share has been computed by dividing net earnings plus convertible preferred dividends and interest expense (after-tax) on convertible debt by the weighted average number of common shares outstanding including the dilutive effect of equity securities. The weighted average number of common shares calculated for diluted EPS excludes the potential common stock that would be exercised under the options and warrants granted to officers because the inclusion of the potential shares from these options and warrants would cause an antidilutive effect by increasing the net earnings per share.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 15 – Earnings Per Share (continued)

	Three Months Ended March 31,
		2011		2010
Net income attributable to Tianyin Pharmaceutical Co., Inc.	$	3,716,762	$	2,909,480
(numerator for diluted income per share)
Less: Dividend attributable to preferred stockholders		34,661		82,541

Net income attributable to common stockholders		3,682,101		2,826,939
(numerator for basic income per share)

Weighted average common shares
(denominator for basic income per share)		28,218,732		26,363,749

Effect of diluted securities:
Convertible preferred stock		1,148,656		2,125,528
Warrants		455,208		3,142,053

Weighted average common shares

(denominator for diluted income per share)		29,822,596		31,631,330

Basic net income per share	$	0.13	$	0.11
Diluted net income per share	$	0.12	$	0.09

	Nine Months Ended March 31,
	2011		2010

Net income attributable to Tianyin Pharmaceutical Co., Inc.	$	11,794,691	$	7,666,804
(numerator for diluted income per share)
Less: Dividend attributable to preferred stockholders		143,019		414,762

Net income attributable to common stockholders		11,651,672		7,252,042
(numerator for basic income per share)

Weighted average common shares
(denominator for basic income per share)		28,031,064		23,650,332

Effect of diluted securities:
Convertible preferred stock		1,290,748		3,354,810
Warrants		740,458		2,926,781

Weighted average common shares
(denominator for diluted income per share)		30,062,270		29,931,923

Basic net income per share	$	0.42	$	0.31
Diluted net income per share	$	0.39	$	0.26

Note 16 – Share – Based Payments

In March, April and November 2009, the Company granted to external service providers 45,000 restricted shares of common stock and options to purchase 195,000, 75,000 and 180,000 shares of common stock at $1.60, $2.00 and $3.28 per share, respectively, with all expected lives of 5 years in addition to cash compensations. The fair value of each option granted is estimated on the measurement date per ASC 505-50 (formerly “EITF 96-18”) using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the fiscal years ended June 30, 2010: expected volatility of 121.47 percent and risk-free interest rate of 1.80 percent.

TIANYIN PHARMACEUTICAL CO., INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 16 – Share – Based Payments (continued)

In July 2009, the Company granted options to purchase 50,000 shares of common stock at $2.00 per share with both expected lives of 3 years to an external service provider in addition to cash compensations. The fair value of each option grant is estimated on the measurement date per ASC 505-50 (formerly “EITF 96-18”) using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the fiscal years ended June 30, 2010: expected volatility of 121.47 percent and risk-free interest rate of 1.00 percent.

On July 15 2010, the Company’s Compensation Committee recommended an incentive compensation schedule for certain Company employees, which the Company's Board approved. Pursuant thereto, the Company issued 614,500 shares of common stock to certain employees. One-fourth of the total number of shares shall vest immediately on July 15 2010; One-fourth of the total number of shares shall vest on October 15, 2010; and the remaining shares shall vest on January 15, 2011.

Accordingly, an aggregate of $1,913,453 and $1,274,516 share based payments were recognized in the income statements for the nine months ended March 31, 2011 and 2010, respectively.

Note 17 – Non Cash Financial Impact Analysis of Warrants

Under ASC 815-40-15, the Company’s accounting treatment of the warrants including Series A and B warrants from July 1, 2009 until December 31, 2010 is subject to revisions. Due to the presence of certain anti-dilutive clauses in both warrants during the above period, these financial instruments could be re-categorized as liabilities while they were previously treated as equity.

Since the removal of the anti-dilutive clauses in both series of warrants on January 14, 2011, the warrants were re-categorized as equity in the third quarter of fiscal year 2011 while the accounting issues related to the warrants ceased to exist.

Based on the exercise data and weighted valuation, we calculated the non-cash impact for the fiscal year 2010 and the first two quarters of fiscal year 2011.The analysis indicated that the impact from the warrants for fiscal year 2010 was a loss of ($0.16) million, or (1.07%) to pretax net income of $14.7 million and a gain of $1.28 million, or 12.9% to net income for the first two quarters of fiscal year 2011 of $9.9 million.

The foregoing accounting treatment is currently subject to review by the staff of the SEC, as part of its review of our Form 10-K for the fiscal year ended June 30, 2010 and certain other periodic reports. We have requested that the staff to waive the requirement to amend or restate prior periods due to the fact that 1) the changes would be based on non-cash/non-operational charges, and were subsequently removed; 2) the confusion it could potentially cause to investors; and 3) the hardship that could be caused to the Company and its shareholders. Notwithstanding our request, it is possible that the staff will require that we amend or restate prior periods based on the above noted potential non-cash/non-operation financial changes to our financial statements.

Note 18 –Preferred Shares

Due to the presence of the down round protection clauses in the preferred shares agreement from January 2008 financing, this financial instrument could be reclassified as liability under ASC 815-40-15 if certain conditions are met.

By March 18, 2011, all preferred shares have been converted to TPI common stocks at 1:1 ratio under the mandatory conversion of the preferred share agreement. As of March 18, 2011, there were -0- preferred shares outstanding.

For the period of July 1, 2009 to December 31, 2010, there were 2.7 million to 1.3 million preferred shares outstanding with continuous conversions of preferred to common shares of TPI at 1:1 ratio.

Based on the foregoing conversions, our review of ASC 815-40-15, and the terms of the down round protection provision in the terms of TPI preferred shares, which describes the conversion price adjustments according to subsequent issuance of the Company’s common stock, we believe that the preferred shares should remain classified as equity. However, should the SEC staff disagree with our position, we may be required to reclassify all or a portion of the preferred shares as debt rather than equity, which could cause us to have to amend or restate certain prior financial statements.

Note 19 – Subsequent Event

On April 25, 2011, as the last preferred share dividend payment, the Company recorded $34,661 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of TPI for the periods ended March 31, 2011 and 2010 and should be read in conjunction with such financial statements and related notes included in this report and the Company’s Annual Report on Form 10-K for the year ended June 30, 2010.

The information set forth below includes forward-looking statements. Certain factors that could cause results to differ materially from those projected in the forward-looking statements are set forth below. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are engaged primarily in the development, manufacturing, marketing and sale of patented biopharmaceutical, modernized traditional Chinese medicines, branded generics and other pharmaceuticals in China. We currently manufacture and market a comprehensive portfolio of 56 products, 23 of which are listed in the highly selective National Reimbursement List, including our flagship product patent-protected Ginkgo Mihuan Oral Liquid (“GMOL”). We currently have a product pipeline of 10 drug candidates that are pending the SFDA’s approval. In addition, we have 6 trademarks granted and 16 trademarks pending.

Chengdu Tianyin Pharmaceutical Co., Ltd (“Chengdu Tianyin”) was established in 1994 in Chengdu, Sichuan Province of China, as a pharmaceutical company that manufactures and sells modernized traditional Chinese medicines and branded generics. The current management of TPI acquired 100% of the equity interest of Chengdu Tianyin in 2003. On October 30, 2007, Grandway completed the acquisition of the 100% of the equity interest and now owns 100% of the equity interest of Chengdu Tianyin, which operates our business.

In June 2009, TPI invested $723,500 to establish a wholly-owned trading subsidiary, Tianyin Medicine Trading Co., Ltd (“TMT”) for the sale and distribution of medicine produced by TPI as well as pharmaceuticals produced by other manufacturers. We expect the operation of TMT to optimize our business model through enhanced distribution channels.

On August 21, 2009, Sichuan Jiangchuan Pharmaceutical Co., Ltd (“JCM”) was established by TPI, along with Sichuan Mingxin Pharmaceutical and an individual investor to produce pharmaceutical raw materials as its major business. Total registered capital of JCM is $2,934,000, of which TPI accounts for 77%. JCM will serve as TPI’s foundation for its significant presence in the rapidly growing macrolide antibiotics industry in China.

Competitive Environment

The market for pharmaceutical products is highly competitive. Our operations may be affected by technological advances by competitors, industry consolidation, patents granted to competitors, competitive combination products, new products offered by our competitors, as well as new information provided by other marketed products and/or other post-market studies. In addition, the ongoing healthcare reform in China provides opportunities as well as challenges to our pipeline development, the market expansion and the operating margin improvement.

Development and Growth Strategy

Research and Development

The cornerstone of our pipeline development relies upon our partnership-based research and development (R&D) efforts which supports us in developing and commercializing our product pipeline and ultimately marketing and sales through our expanding distribution network. In the past fiscal years, our partnership-based R&D has proven its efficiency and expediency in the market penetration and revenue growth.

Though the pending period of SFDA approval varies from one to several years depending on the individual product, we expect to receive SFDA approvals for our pipeline drugs within one and a half to two years based on our past experience.

Jiangchuan Macrolide Project - JCM

Since the construction completion of JCM, we have entered into the equipment installation, GMP certification preparation phase of the JCM project for the development, manufacturing and sales of Active Pharmaceutical Ingredients (“API”) and chemical intermediates of macrolide antibiotics. During the third quarter of fiscal 2011, we have been conducting the equipment installation, testing runs for production preparation, GMP certification preparation and other procedures that were required for the manufacture of our macrolide API.

Tianyin Medicine Trading Distribution Business - TMT

We have been developing the distribution portfolio of TMT which distributes products manufactured by both TPI and other pharmaceutical companies to fuel our expanding sales network as well as to provide synergy to our existing organic product portfolio. TMT has been distributing mainly TPI's own products since its inception in 2009. In early November 2010, we successfully obtained one-year distribution rights from one of the most celebrated national brand injection pharmaceutical manufacturers, Jiangsu Lianshui Pharmaceutical, to distribute approximately 15 Lianshui-branded generic injection products including cough suppressant, antibiotics, anti-inflammatory medicines and products for other healthcare indications. We forecast the annual distribution revenue from TMT to approach approximately $15 million.

Fiscal Year 2011 Financial Guidance

Due to the recent healthcare reform and the resulting pricing pressure on generic pharmaceutical sales nationwide, since January 2011, our generic division which makes up approximately 40% of our total revenue is expected to experience sales reduction for the next few quarters. In addition, the longer than expected equipment installation and GMP certification preparation process following the newly issued SFDA GMP standards by the PRC government at the beginning of March 2011, are expected to reduce the previously forecast revenue contribution from our JCM macrolide facility. We therefore revise our fiscal year 2011 revenue guidance to $90.0 million representing 40.8% year over year growth, from the previously guided $113.0 million in revenue.

Based on the revised revenue forecast of $90.0 million along with the new 25% income tax rate starting in January 2011 from the previous 15% for Chengdu Tianyin, we revise our net income forecast to $16 million, representing 32.9% year over year growth from previous $18 million. The forecasted net income excludes any non-cash expenses associated with stock compensation plans or stock option expenses.

Our analysis of the market condition suggests that although the pricing pressure on the generic division is likely to continue for the remainder of 2012 calendar year, the JCM revenue along with the TMT distribution revenue are expected to support the growth of TPI for the coming fiscal year. Our forecast for the revenue contribution of the JCM macrolide revenue for the fiscal year 2012 is approximately $30 million.

Our current facilities operate at approximately 80% of the total capacity on 24 hours per day schedule. We will be able to further utilize the remaining capacity and optimize the production with high-efficiency equipment based on increasing market demand.

Management will continue to evaluate the Company's business outlook and communicate any changes on a quarterly basis or as when appropriate.

Discussion of Operating Results

The following table shows the results of our business. All references to the results of operations and financial conditions are on a consolidated basis that includes Chengdu Tianyin, TMT and JCM.

Comparison of results for the three months ended March 31, 2011 and 2010 (in $ millions):

		Three Months Ended March 31,
		2011		2010

Sales	$	24.9	$	15.9
Cost of sales	$	14.0	$	7.5
Gross profit	$	10.8	$	8.4
Operating expenses	$	5.8	$	4.8
Operating income	$	5.0	$	3.6
Provision for income taxes	$	1.3	$	0.7
Net income	$	3.7	$	2.9
Foreign exchange adjustment	$	0.5	$	(0.0)
Comprehensive income	$	4.2	$	2.9

Sales for the quarter ended March 31, 2010 was $24.9 million, up 56.3% as compared to $15.9 million for the quarter ended March 31, 2010. Although our generic pharmaceutical sales have been under pricing pressure since the beginning of the third quarter, the channel expansion and optimized production facility usage, along with the healthy TMT distribution revenue, supported the total revenue growth.

With the current hospital coverage at 880 hospitals up from 850 hospitals from the beginning of fiscal year 2011, we are targeting to reach 900 hospitals by the end of fiscal year 2011.

Revenues from the top selling products are listed as follows,

GMOL: $5.6 million, prescription patented proprietary medicine for stroke treatment, nationally reimbursed;

APU: $1.8 million, OTC product with proprietary granular formulation for inflammation and rheumatism;

AZI: $0.98 million, branded Essential Drug Listed (EDL) highly effective broad spectrum antibiotics;

XLCC: $1.1 million, formulated proprietary TCM oral liquid for immunity and sexual function enhancement;

QR: $0.77 million, modernized TCM legacy product for viral infections such as H1N1 influenza.

These products totaled $10.2 million in sales, representing 41.2% of the quarterly revenue.

Cost of Sales for the quarter ended March 31, 2011 was $14.0 million or 56.2% of sales as compared to $7.5 million or 47.2% of the sales of the quarter ended March 31, 2010. Our cost of sales consists of the raw material cost, labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead.

Gross Margin for the quarter ended March 31, 2011 was 43.6% as compared to 52.8% for the quarter ended March 31, 2010. The decrease in gross margins was attributable to the addition of TMT revenues, the distribution arm of TPI, whose gross margins average approximately 15%. In addition, the pricing pressure on our generic products also contributes to the reduction of the gross margins. During this quarter, our organic product portfolio delivered approximately 51.4% gross margins, about 1.4% lower than 52.8% from a year earlier. Given the blend of the TMT lower margin distribution revenue and recent gross margin reduction associated with our proprietary portfolio under the current pricing trend, we anticipate that our overall gross margin in the near term, on a quarter to quarter comparison basis, may trend lower, but on a sequential basis should stabilize and improve depending upon the revenue mix percentages of TMT revenue, upcoming JCM macrolide API revenue as compared to the proprietary portfolio’s revenue performance.

Operating Expenses for the quarter ended March 31, 2011 were $5.8 million, compared with $4.8 million for the quarter ended March 31, 2010. Continuing sales payroll and marketing expense increase are the main components of the operating expenses.

Net Income reached $3.7 million for the quarter ended March 31, 2011, as compared to net income of $2.9 million for the quarter ended March 31, 2010, a net increase of $0.8 million or 27.6% year over year. Net profit margins for the quarter ended March 31, 2011 decreases to 14.9% from 18.3% for the quarter ended March 31, 2010 mainly attributable to 1) recent pricing pressure on the generic pharmaceutical business, 2) lower margin TMT distribution revenue, 3) increase of tax provisions to 25% starting January 2011 from the previous 15% for Chengdu Tianyin after the expiration of the three year tax benefit for high tech enterprise. We expect the stabilization of the net profit margin at approximately 15% going forward under the current pharmaceutical sales market condition.

Foreign Currency Translation Adjustment. Our reporting currency is the US dollar. We have evaluated the determination of its functional currency based on the guidance in ASC Topic, “Foreign Currency Matters,” which provides that an entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. We have raised financings in the U.S. dollar, paid operating expenses primarily in the U.S. dollar, paid dividends to its shareholders of common stock and expected to receive any dividends that may be declared by its subsidiaries in U.S. dollars. Therefore, it has been determined that our functional currency is the U.S. dollar based on the expense and financing indicators, in accordance with the guidance in ASC 830-10-85-5. However, the functional currency of Chengdu Tianyin, our indirectly owned operating subsidiary is Renminbi (RMB). Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to $0.48 million as of March 31, 2011. The balance sheet amounts with the exception of equity on March 31, 2011 were translated at 6.55738 RMB to 1.00 US dollar as compared to 6.81663 RMB to 1.00 US dollar on March 31, 2010. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the quarters ended March 31, 2011 and 2010 were the average exchange rates during the years.

Comprehensive Income that includes the currency adjustment to net income was $4.2 million for the quarter ended March 31, 2011, as compared to the comprehensive income of $2.9 million for the quarter ended March 31, 2010, an increase of $1.3 million or 44.8% year over year.

Liquidity and Capital Resources

Discussion of Cash Flow (in $ millions)

	For the nine months ended March 31,
	2011		2010
Cash provided by operating activities	$	12.3	$	11.5
Cash used in investing activities		(10.0)		(8.4	)
Cash provided by (used in) financing activities		1.1		7.8

Operating Activities

As of March 31, 2011, we had working capital totaling approximately $37.2 million, including cash and cash equivalents of $31.1 million. Net cash generated from operating activities for the nine months ended March 31, 2011 was $12.3 million, compared with $11.5 million for the nine months ended March 31, 2010, about 7.0% increase year over year. The construction related accounts payable of $2.6 million in this quarter is the main reason for a lower growth percentage compared with the previous quarters.

We believe that TPI is adequately funded to meet all of our working capital and capital expenditure needs for the fiscal year 2011.

Investing Activities

Net cash used in investing activities for the nine months ended March 31, 2011 and 2010 totaled $10.0 million and $8.4 million respectively. The cash used in investing activities during the nine months ended March 31, 2011 was primarily towards the JCM construction, equipment installation and GMP certification.

Financing Activities

Net cash provided by financing activities for the nine months ended March 31, 2011 and 2010 totaled $1.1 million and $7.8 million respectively. The $1.1 million provided by financing activities was a new loan of $1.2 million from CITIC at about market interest spot rate around 6% for one year and the payment for preferred share dividends for the then outstanding 1,360,250 shares of preferred stock with 10% annual dividends. By March 18, 2011, all preferred shares were converted to TPI common stocks at 1:1 ratio. There will be no further preferred share dividend payment going forward. The cash of $7.8 million received for the nine months ended March 31, 2010 was the result of proceeds received from the October 2009 private equity financing and the warrant exercises.

Borrowings and Credit Facilities

The bank borrowing balance equals the credit facilities as of March 31, 2011. The short-term bank borrowings outstanding as of March 31, 2011 and 2010 were $2.7 million and $1.5 million respectively. We paid an average interest rate of 6.4113% and 5.6286% per annum, respectively. These loans were made from CITIC bank and secured by the property and equipment of Chengdu Tianyin. They do not contain any additional financial covenants or restrictions. The borrowings have one year terms and contain no specific renewal terms.

Cash dividend

On March 26, 2009, we announced that the Board of Directors declared an annual cash dividend of $0.10 per common share that will be paid quarterly. The initial dividend of $0.025 per common share was paid to common shareholders of record on April 30, 2009, with the actual distribution occurring around June 10, 2009. The cash dividend was paid solely to common stockholders and was not paid to shares owned by the management, advisors or other inside shareholders, all of whom have agreed to waive receipt of the dividend. The majority of the Company's Preferred Shareholders had approved the cash dividend as of April 14, 2009.

On July 8, 2009, October 5, 2009, and January 11, 2010, respectively, the Company declared quarterly cash dividends to be paid to its common stock shareholders. The dividend of $0.025 per common share, with total amount of $172,023, $344,322 and $403,085, were paid to shareholders of record as of July 31, 2009, October 30, 2009 and February 25, 2010, respectively.

In May 2010, we announced the suspension of our dividend to our common stock shareholders. The China health care industry, through the ongoing reform, is currently evolving and realizing an ever changing and dynamic competitive landscape. As a result of the reform, opportunities exist for TPI to capture a greater market share by investing the internal capital resources in our strategic growth plan. We believe by utilizing the capital in our strategic growth plan, we should be able to generate greater long-term returns for our shareholders. Given these opportunities and the necessary approvals that we are required to obtain from our preferred holders to continue to pay a dividend to our common shareholders, we have decided to suspend our common share dividend program.

As a policy, management believes that in the event we experience a shortage of opportunities to efficiently invest and grow our business with our excess cash on hand, then a dividend payable is an appropriate use of excess capital.

Changes in Equity

Common Stock Activity during the Nine Months Ended March 31, 2011

	Common Stock
Outstanding, June 30, 2010		27,371,526
Newly issued, July 15, 2010 total of 614,500 shares at a fair value of $2.80		614,500
Newly converted, December 21, 2010 from 206,250 preferred shares		206,250
Newly converted, 1,154,000 preferred shares by March 18, 2011		1,154,000
Newly issued, 50,000 restricted shares, February 22, 2011		50,000
Outstanding, March 31, 2011		29,396,276

During the nine months ended March 31, 2011, there have been 1,360,250 shares of preferred stock converted to common stock by March 18, 2011, which reduced the number of preferred shares to zero. During the reporting period, no warrants, including placement agent warrants and options, have been exercised.

Critical Accounting Policies and Estimates

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended June 30, 2010, for disclosures regarding TPI’s critical accounting policies and estimates as well as updates further disclosed in our interim financial statements as described in this Form 10-Q.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Others

Inflation has not had a significant effect on our operations, as increased costs to us have generally been offset by increased prices of products and services sold.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable

Item 4. Controls and Procedures

(a)	Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of March 31, 2011, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, and are not fully effective in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure as a result of the material weakness described herein.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b)	Changes in internal control over financial reporting

In our Management’s Report on Internal Control Over Financial Reporting included in our Form 10-K for the year ended June 30, 2010, management concluded that our internal controls over financial reporting were effective. Management did however identify a significant deficiency as of June 30, 2010, as discussed in our Form 10-K for the year ended June 30, 2010. In connection with our review of our internal controls and procedures over financial reporting as of our last fiscal quarter, ended March 31, 2011, and based on certain comments that we received from the staff of the SEC regarding the accounting treatment and subsequently the non-cash/non-operational financial charges of Series A and B Warrants, which may result in our having to amend or restate financial statements from July 1, 2009 till December 31, 2010, management has concluded that the Company has a material weakness. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. Management identified the following material weaknesses during its assessment of our internal control over financial reporting as of March 31, 2011.

●	Lack of sufficient knowledge regarding U.S. GAAP reporting by our existing accounting staff.
●	Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control;
●	Lack of sufficient documentation with our existing financial processes, risk assessment and internal controls.

Currently we do not have sufficient in-house expertise in US GAAP reporting. Additionally, Mr. Hongcai Li, the financial controller at our operating subsidiary recently requested a temporary leave of absence due to personal reasons and remains as an accounting consultant for the quarterly and annual financial reporting of the Company. Since the end of our last fiscal quarter, management has met on numerous occasions and discussed the following plans to remedy the material weaknesses discussed above. We are seeking to do the following,

Recruit experienced professionals to augment and upgrade our financial staff for sufficient US GAAP financial reporting. We believe that additional accounting staff trained in U.S. GAAP would improve our controls and procedures, specifically with regard to the preparation of our financial statements; and

The Company has made efforts to improve our current accounting staff’s knowledge of U.S. accounting standards.

We believe that the remediation measures we are taking, if effectively implemented and maintained, will remediate the material weaknesses discussed above.

Except as described above, there have been no changes in our internal controls over financial reporting that occurred during the fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not aware of any pending or threatened legal proceeding that, if determined in a manner adverse to us, could have a material adverse effect on our business and operations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

ITEM 3. Defaults upon Senior Securities

(a) Not Applicable.

(b) Not Applicable.

ITEM 4. (Removed and Reserved)

ITEM 5. OTHER INFORMATION

(a) Not applicable.

(b) Not applicable.

ITEM 6. EXHIBITS

(a) The following exhibits are filed as part of this report.

Exhibit No.		Document

3.1	Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K filed on September 29, 2010).

3.2	Bylaws (Incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed on September 29, 2010).

31.1	Certification of Chief Executive Officer required by Rule 13a-14/15d-14(a) under the Exchange Act

31.2	Certification of Chief Accounting Officer required by Rule 13a-14/15d-14(a) under the Exchange Act

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Acting Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

Date: May 16, 2011

By: TIANYIN PHARMACEUTICAL INC.

/s/ Dr. Guoqing Jiang
	Name: Dr. Guoqing Jiang
	Title: Chairman, Chief Executive Officer



/s/ Dr. James Jiayuan Tong
	Name: Dr. James Jiayuan Tong
	Title: Chief Financial Officer, Chief Accounting Officer,
	Chief Business and Development Officer, Director

TIANYIN PHARMACEUTICAL CO., INC. - FORM 10-Q - May 16, 2011

Attached files

TIANYIN PHARMACEUTICAL CO., INC. Reports