UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




x
            Quarterly
      report pursuant to section 13 or 15(d) of the Securities Exchange Act
      of 1934.


For
the quarterly period ending September 30, 2010




OR





o
            Transition report pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
      1934.


For
the transition period from
________    to ________.




Commission
file number: 000-52954





Tongli
Pharmaceuticals (USA), Inc.


(Exact
name of registrant as specified in its charter)




Delaware
              
              84-1090791(State
      or other jurisdiction
                of
      incorporation or organization)
              
              (IRS
      Employer
                Identification
      number)136-17 Maple Avenue,
      11H
                Flushing,
      NY
              
              11355(Address
      of Principal Executive Offices)
              
              (Zip
      Code)




718-321-8380


(Registrant’s
Telephone Number, Including Area Code)





n/a


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x  No
 ̈





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





Large
      accelerated filer  ̈
              
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              
              Smaller
      reporting company x(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  ̈ No
x





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).      ̈





As of
November 15, 2010, there were 11,645,025 shares of company’s common stock issued
and outstanding.





TABLE
OF CONTENTS





Cautionary
      Note on Forward Looking StatementsPART
      I – FINANCIAL INFORMATIONItem
      1.
                          Unaudited
      Condensed Consolidated Financial Statements
                          
                          1Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          
                          9Item
      3.
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          
                          18Item
      4(T).
                          Controls
      and Procedures
                          
                          18PART
      II – OTHER INFORMATIONItem
      1.
                          Legal
      Proceedings
                          
                          19Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          
                          19Item
      3.
                          Defaults
      Upon Senior Securities
                          
                          19Item
      4.
                          Removed
      and Reserved
                          
                          19Item
      5.
                          Other
      Information
                          
                          19Item
      6.
                          Exhibits
                          
                          20SIGNATURES
                          
                          21





Unless
otherwise provided in this Quarterly Report on Form 10-Q, references to “the
Company,” “the Registrant,” “Tongli,” “we,” “us,” and “our” refer to Tongli
Pharmaceuticals (USA), Inc. together with its wholly-owned
subsidiaries.





References
to “RMB” are to the Renminbi, the
official currency of the
People’s Republic of
China.





CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS




In
addition to historical information, this Quarterly Report on Form 10-Q contains
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  The forward looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward looking statements.  In
some cases, you can identify forward looking statements by terminology such as
“may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended,” or
“continue” or the negative of these terms or other comparable
terminology.  Readers are cautioned not to place undue reliance on
these forward looking statements, which reflect management’s opinions only as of
the date thereof. In evaluating such forward looking statements, readers
should carefully review the discussion of risks and uncertainties in this
Quarterly Report on Form 10-Q and in our most recent Annual Report on Form 10-K
as well as in other filings with the Securities and Exchange Commission
including, without limitation, possible changes in capital structure, and other
financial items; changes in approaches to medical treatment; introduction of new
products by others; possible acquisitions of other technologies, assets or
businesses; and possible actions by customers, suppliers, competitors and
regulatory authorities.  Although we believe that the expectations
reflected in the forward looking statements are reasonable, we cannot guarantee
future results, growth rates, and levels of activity, performance or
achievements. Except as expressly required by the federal securities laws, there
is no undertaking to publicly update or revise any forward looking statements,
whether as a result of new information, future events, changed circumstances or
any other reason.





The
discussion of risks and uncertainties set forth in this Quarterly Report on Form
10-Q and in our most recent Annual Report on Form 10-K as well as in other
filings with the SEC, is not necessarily a complete or exhaustive list of all
risks we are facing at any particular point in time.  We operate in a
highly competitive, highly regulated and rapidly changing
environment.  Therefore, it is likely that new risks will emerge, and
that the nature and elements of existing risks will change, over time. It is not
possible for management to predict all such risk factors or changes therein, or
to assess either the impact of all such risk factors on our business or the
extent to which any individual risk factor, combination of factors, or new or
altered factors, may cause results to differ materially from those contained in
any forward looking statement. We disclaim any obligation to revise or update
any forward looking statement that may be made from time to time by us or on our
behalf.





PART
I





ITEM
1.           FINANCIAL
STATEMENTS





TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





As
      ofSeptember
      30, 2010
                
                
                March
      31, 2010(Unaudited)ASSETSCurrent
      assets:Cash
                
                
                683,158
                
                
                
                30,066Accounts
      Receivable
                
                
                799,202
                
                
                
                351,991Inventory
                
                
                230,635
                
                
                
                109,387Prepaid
      expense
                
                
                3,900
                
                
                
                3,900Advance
      to suppliers
                
                
                2,093,028
                
                
                
                1,465,713Total
      current assets
                
                
                3,809,923
                
                
                
                1,961,057Property
      and equipment, net
                
                
                6,707,385
                
                
                
                6,744,376Contract
      deposits
                
                
                2,694,600
                
                
                
                2,641,418Intangible
      assets, net
                
                
                -
                
                
                
                163,244Total
      assets
                
                
                13,211,908
                
                
                
                11,510,095LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilties:Accounts
      payable
                
                
                121,419
                
                
                
                101,611Due
      to related parties
                
                
                875,677
                
                
                
                788,166Accrued
      expenses and other current liabilities
                
                
                524,069
                
                
                
                555,969Total
      current liabilities
                
                
                1,521,165
                
                
                
                1,445,746Stockholders'
      EquityPreferred
      stock, $0.001 par value,Authorized
      1,000,000 shares; none issued
                
                
                -
                
                
                
                -Common
      stock, $0.001 par value200,000,000
      shares authorized, 11,645,025 and 11,395,025 shares outstanding at
      September 30, and March 31, 2010, respectively.
                
                
                11,645
                
                
                
                11,395Additional
      paid-in-capital
                
                
                8,011,049
                
                
                
                7,913,799Accumulated
      other comprehensive income
                
                
                1,386,105
                
                
                
                1,142,133Retained
      earnings
                
                
                2,281,944
                
                
                
                997,022Total
      stockholders' equity
                
                
                11,690,743
                
                
                
                10,064,349Total
      liablities and stockholders' equity
                
                $
                13,211,908
                
                
                $
                11,510,095











1




TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF INCOME AND OTHER COMPREHENSIVE INCOME


(UNAUDITED)




For the three months ended September 30,
                      
                      
                      For the six months ended September 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Revenue
                      
                      $
                      2,166,458
                      
                      
                      $
                      546,281
                      
                      
                      $
                      5,379,878
                      
                      
                      $
                      2,893,375Cost
      of sales
                      
                      
                      1,184,925
                      
                      
                      
                      333,821
                      
                      
                      
                      2,975,067
                      
                      
                      
                      1,590,772Gross
      Profit
                      
                      
                      981,533
                      
                      
                      
                      212,460
                      
                      
                      
                      2,404,811
                      
                      
                      
                      1,302,603Operating
      expenses:General
      and administrative expenses
                      
                      
                      343,729
                      
                      
                      
                      123,388
                      
                      
                      
                      430,809
                      
                      
                      
                      255,361Research
      and development expenses
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,461Depreciation
      expenses
                      
                      
                      43,850
                      
                      
                      
                      37,223
                      
                      
                      
                      81,109
                      
                      
                      
                      76,621Selling
      expenses
                      
                      
                      12,924
                      
                      
                      
                      9,928
                      
                      
                      
                      27,523
                      
                      
                      
                      27,857Total
      operating expenses
                      
                      
                      400,503
                      
                      
                      
                      170,539
                      
                      
                      
                      539,441
                      
                      
                      
                      363,300Operating
      income
                      
                      
                      581,030
                      
                      
                      
                      41,921
                      
                      
                      
                      1,865,370
                      
                      
                      
                      939,303Other
      Income (expenses):Interest
      expense-related party
                      
                      
                      (14,542
                      )
                      
                      
                      (23,894
                      )
                      
                      
                      (28,446
                      )
                      
                      
                      (41,786
                      )Total
      other income (expenses)
                      
                      
                      (14,542
                      )
                      
                      
                      (23,894
                      )
                      
                      
                      (28,446
                      )
                      
                      
                      (41,786
                      )Income
      before income taxes
                      
                      
                      566,488
                      
                      
                      
                      18,027
                      
                      
                      
                      1,836,924
                      
                      
                      
                      897,517Income
      Taxes
                      
                      
                      220,214
                      
                      
                      
                      28,856
                      
                      
                      
                      552,000
                      
                      
                      
                      274,438Net
      Income (loss)
                      
                      
                      346,274
                      
                      
                      
                      (10,829
                      )
                      
                      
                      1,284,924
                      
                      
                      
                      623,079Other
      Comprehensive item:Foreign
      Currency Translation adjustment
                      
                      
                      164,483
                      
                      
                      
                      6,086
                      
                      
                      
                      243,972
                      
                      
                      
                      10,638Comprehensive
      income
                      
                      $
                      510,757
                      
                      
                      
                      (4,743
                      )
                      
                      
                      1,528,896
                      
                      
                      
                      633,717Basic
      and diluted income per share
                      
                      $
                      0.03
                      
                      
                      $
                      -
                      
                      
                      $
                      0.11
                      
                      
                      $
                      0.06Basic
      and diluted weighted average shares outstanding
                      
                      
                      11,454,808
                      
                      
                      
                      10,225,932
                      
                      
                      
                      11,425,080
                      
                      
                      
                      10,225,718










2




TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




For the six months ended September 30,2010
                                                                                              
                                                                                              
                                                                                              2009Cash
      flows from operating activitiesNet
      income
                                                                                              
                                                                                              $
                                                                                              1,284,924
                                                                                              
                                                                                              
                                                                                              $
                                                                                              623,079Adjustments
      to reconcile net income to net cash provided (used in)operating activities:Depreciation
      and amortization
                                                                                              
                                                                                              
                                                                                              182,599
                                                                                              
                                                                                              
                                                                                              
                                                                                              170,968Accrued
      interest- related party
                                                                                              
                                                                                              
                                                                                              28,446
                                                                                              
                                                                                              
                                                                                              
                                                                                              41,801Write-off
      of intangible asset
                                                                                              
                                                                                              
                                                                                              151,338
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Stock
      issued for services
                                                                                              
                                                                                              
                                                                                              97,500
                                                                                              
                                                                                              
                                                                                              
                                                                                              45,500Changes
      in operating assets and liabilities:Accounts
      receivable
                                                                                              
                                                                                              
                                                                                              (433,301
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (140,631
                                                                                              )Inventory
                                                                                              
                                                                                              
                                                                                              (117,202
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (241,798
                                                                                              )Advances
      to suppliers
                                                                                              
                                                                                              
                                                                                              (588,536
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (448,521
                                                                                              )Accounts
      payable
                                                                                              
                                                                                              
                                                                                              17,487
                                                                                              
                                                                                              
                                                                                              
                                                                                              173,477Accrued
      expenses and other current liabilities
                                                                                              
                                                                                              
                                                                                              (39,296
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (333,771
                                                                                              )Net
      cash provided by (used in) operating activities
                                                                                              
                                                                                              
                                                                                              583,959
                                                                                              
                                                                                              
                                                                                              
                                                                                              (109,896
                                                                                              )Cash
      flows from financing activitiesProceeds
      from related party loans
                                                                                              
                                                                                              
                                                                                              58,915
                                                                                              
                                                                                              
                                                                                              
                                                                                              277,705Net
      cash provided by  financing activities
                                                                                              
                                                                                              
                                                                                              58,915
                                                                                              
                                                                                              
                                                                                              
                                                                                              277,705Effect
      of exchange rate changes on cash
                                                                                              
                                                                                              
                                                                                              10,218
                                                                                              
                                                                                              
                                                                                              
                                                                                              134Net
      increase in cash
                                                                                              
                                                                                              
                                                                                              653,092
                                                                                              
                                                                                              
                                                                                              
                                                                                              167,943Cash,
      beginning of the period
                                                                                              
                                                                                              
                                                                                              30,066
                                                                                              
                                                                                              
                                                                                              
                                                                                              50,247Cash
      , end of the period
                                                                                              
                                                                                              $
                                                                                              683,158
                                                                                              
                                                                                              
                                                                                              $
                                                                                              218,190Supplemental
      cash flow informationDuring
      the period, cash was paid for the following:Income
      taxes
                                                                                              
                                                                                              $
                                                                                              612,914
                                                                                              
                                                                                              
                                                                                              $
                                                                                              450,460Interest
      paid
                                                                                              
                                                                                              $
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              -




3




TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010
AND 2009


(UNAUDITED)





1.           BASIS
OF PRESENTATION





Tongli
Pharmaceuticals (USA), Inc., through a wholly-owned subsidiary, Harbin Tianmu
Pharmaceuticals Co., Ltd. (“Tianmu Pharmaceuticals”), develops, produces and
sells a wide variety of pharmaceuticals and healthcare products in the People’s
Republic of China (“PRC” or “China”) that are based on traditional Chinese
medicine (“TCM”).





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for
interim financial information and pursuant to the requirements for reporting on
Form 10-Q. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statements. In the opinion of the
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Results shown
for interim periods are not necessarily indicative of the results to be obtained
for a full year. The information included in this Form 10-Q should be read in
conjunction with Management’s Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements and notes thereto included in
the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2010.





The
balance sheet as of March 31, 2010 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by U.S. GAAP for the complete financial
statements.





The
Company has evaluated events after the date of these financial statements
through the date that these financial statements were issued.  There
were no material subsequent events as of that date.





2.           INTANGIBLE
ASSETS





Intangible
assets primarily represent sales rights of Yan Yi Xiao Capsule specified in a
contract between the Company and a third party Harbin Sanmu Pharmaceuticals. The
Company paid RMB 1,200,000 (equivalent to USD 175,772) to Harbin Sanmu
Pharmaceuticals in October 2009 for the exclusive rights to use the product’s
trademark, manufacture and sell the product nationwide for seven years. The
Company amortizes such rights using straight-line method. For the three and six
months ended September 30, 2010, the amortization expense totaled $6,331and
$12,615, respectively.   However, during the three months ended
September 30, 2010, such exclusive rights and the cooperative relationship
between the Company and Harbin Sanmu Pharmaceuticals were
terminated.  Management decided to write off the intangible asset
related to Yan Yi Xiao Capsule.





3.           DUE
TO RELATED PARTIES





Due to related parties consists of the
following:


4


TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010
AND 2009


(UNAUDITED)





AsofSeptember30,2010
                    
                    
                    March31,2010(Unaudited)Harbin Tianmu Real Estate
      Development Co., Ltd. (a)
                    
                    $
                    326,039
                    
                    
                    $
                    308,705Chairman of the Company
      (a)
                    
                    
                    529,051
                    
                    
                    
                    458,874US Hua Sky International
      Investment LLC. (b)
                    
                    
                    20,587
                    
                    
                    
                    20,587Total
                    
                    $
                    875,677
                    
                    
                    $
                    788,166





(a)
            Harbin
      Tianmu Real Estate Development Co., Ltd. is owned by the Company’s
      Chairman.  These loans bear interest at 7% per annum and are due
      on demand.





(b)
            On
      behalf of the Company, the Company’s Chairman entered into a lease
      agreement with a monthly rental of $1,950 for the Company’s New York-based
      office on April 1, 2009.





4.           STOCKHOLDERS’
EQUITY





In
December 2009, the Company established the Company’s 2009 incentive plan (the
“Plan”) to provide additional incentive to selected employees, officers,
directors and consultants of the Company and to retain the best available
personnel for positions of substantial responsibility and to promote the
long-term success of the Company.  2,000,000 shares were initially
reserved for issuance pursuant to awards granted under the Plan. Awards may be
in the form of incentive stock options, non-qualified stock options, restricted
shares or other arrangements or programs. On March 29, 2010, the Company issued
1,169,093 common shares to 46 employees. The Company recorded the fair value of
$1,180,784 for these issued shares. On September 8, 2010, additional 250,000
shares of common stock were issued out of the Plan to several employees and
consultant for their services. The Company recorded the fair value of $97,500
for these issued shares.




5.           EARNINGS
(LOSS) PER SHARE





Earnings
(loss) per share are computed by dividing income available to stockholders of
the Company’s common stock by the weighted-average number of shares of common
stock outstanding for the three and six months ended September 30, 2010 and
2009. Diluted earnings per share is computed similar to basic earnings per share
except that the denominator is increased to include the number of additional
shares of common stock that would have been outstanding if the potential shares
of common stock have been issued and if the additional shares of common stock
were dilutive. There are no common stock equivalents available for dilution
purposes as of September 30, 2010 and 2009, respectively. The following
demonstrates the calculation for earnings per share for the three and six months
ended September 30, 2010 and 2009:


5


TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010
AND 2009


(UNAUDITED)





Three months ended September
      30
                
                
                Six months ended September
      302010
                
                
                2009
                
                
                2010
                
                
                2009(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Net income
      (loss)
                
                $
                346,274
                
                
                $
                (10,829
                )
                
                $
                1,284,924
                
                
                $
                623,079Weighted shares outstanding- Basic
      and diluted
                
                
                11,454,808
                
                
                
                10,225,932
                
                
                
                11,425,080
                
                
                
                10,225,718Earning per share-
      Basic
                
                $
                0.03
                
                
                $
                -
                
                
                $
                0.11
                
                
                $
                0.06Earnings per share-
      Diluted
                
                $
                0.03
                
                
                $
                -
                
                
                $
                0.11
                
                
                $
                0.06





6.           TAXES





(a)          Enterprise
income tax





The
Company has not recorded a provision for U.S federal income tax for the three
and six months ended September 30, 2010 and 2009 due to the net operating losses
in the United States for which the Company has set up 100% valuation
allowance.





The
Company’s Chinese subsidiaries are governed by the Enterprise Income Tax Law of
the People’s Republic of China, which are generally subject to tax at a
statutory rate of 25% on income reported in the statutory financial statements
after appropriate tax adjustments.





A
reconciliation of tax at United States Federal statutory rate to provision for
income tax recorded in the financial statements is as follows:





NinemonthsendedSeptember30,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)U.S.statutory income tax
      rate
                  
                  
                  35.0
                  %
                  
                  
                  35.0
                  %Foreign tax rate difference
      between US and China
                  
                  
                  (10.0
                  )%
                  
                  
                  (10.0
                  )%NOL from U.S with 100% valuation
      allowance
                  
                  
                  5.1
                  %
                  
                  
                  5.5
                  %Actual consolidated income tax
      rate
                  
                  
                  30.1
                  %
                  
                  
                  30.5
                  %





The components of deferred taxes as of
September 30, 2010 and March 31, 2010 consist of the
following:





AsofSeptember30,2010
                    
                    
                    March31,2010(Unaudited)Net operating loss carry-forwards
      U.S.
                    
                    
                    849,999
                    
                    
                    
                    773,165Valuation
      allowance
                    
                    
                    (849,999
                    )
                    
                    
                    (773,165
                    )Net deferred tax
      asset
                    
                    
                    -
                    
                    
                    
                    -




Management believes the deferred tax assets as of
September 30, 2010 and March 31, 2010 do not satisfy the realization criteria
set forth inFASB ASC 740 and has recorded a valuation allowance
for the entire net tax asset.


6


TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010
AND 2009


(UNAUDITED)





(b)          Value
added tax (“VAT”)





Enterprises
or individuals who sell commodities, engage in repair and maintenance or import
or export goods in the PRC are subject to a value added tax in accordance with
the PRC laws. The value added tax standard rate is 17% of the gross sales price.
A credit is available whereby VAT paid on the purchases of semi-finished
products or raw materials used in the production of the Company’s finished
products can be used to offset the VAT due on the sales of the finished
products.





(3)          Other
taxes





The Company is also subject tobusiness taxat a rate of5%,City Construction Taxat a rate of7% of andEducation Feesat a rate of4% based on VAT.





7.           COMMITMENTS
AND CONTINGENCIES





On March
21, 2010, the Company signed a patent purchase agreement with a third party
Tonghua Yisheng Pharmaceuticals Company Limited for the purchase of a new drug.
Total contract price for this patent transaction amounted to RMB 33,000,000
(approximate to USD 4.85 million) and is payable in three
installments.  The Company paid the first installment of RMB
11,000,000 (equivalent to USD 1,611,514) to Tonghua Yisheng Pharmaceuticals
Company Limited in March 2010 upon execution of the purchase agreement and is
still liable to pay the other two installments in the near
future.  The Company’s ability to conclude this purchase and
ultimately commercialize this product requires additional assistance from the
seller and is pending on the government approvals.





8.           CONCENTRATION
OF RISKS





During
the six months ended September 30, 2010, approximately 45% of sales were
generated from five major customers with the largest customer representing 17.9%
of the total sales, as compared to approximately 35.6% of sales generated from
four major customers for the six months ended September 30, 2009.





In
addition, four products manufactured by the Company, including
Antihyperlipidemics, Calcium Gluconate Oral Liquid, Anti-bacterial Mouthwash,
and Yan Li Xiao Capsule, represented 25.5%, 24.1%, 22.3% and 20.3%,
respectively, of the total sales for the six months ended September 30, 2010.
Three products manufactured by the Company, including Anti-bacterial Mouthwash,
Antihyperlipidemics, and Calcium Gluconate Oral Liquid represented 33.9%, 32.3%
and 24.5%, respectively, of total sales for the six months ended September 30,
2009.





9.           VULNERABILITY
DUE TO OPERATIONS IN PRC





The
Company’s operations may be adversely affected by significant political,
economic and social uncertainties in the PRC. Although the PRC government has
been pursuing economic reform policies for more than thirty years, no assurance
can be given that the PRC government will continue to pursue such policies or
that such policies may not be significantly altered, especially in the event of
a change in leadership, social or political disruption or unforeseen
circumstances affecting the PRC’s political, economic and social conditions.
There is also no guarantee that the PRC government’s pursuit of economic reforms
will be consistent or effective.


7


TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010
AND 2009


(UNAUDITED)





Substantially
all of the Company’s businesses are transacted in RMB, which is not freely
convertible. The Peoples Bank of China or other banks are authorized to buy and
sell foreign currencies at the exchange rates quoted by the Peoples Bank of
China. Approval of foreign currency payments by the Peoples Bank of China or
other institutions requires submitting a payment application form together with
suppliers’ invoices, shipping documents and signed contracts.





Since the
Company has its primary operations in the PRC, the majority of its revenues will
be settled in RMB, not U.S. Dollars. Due to certain restrictions on currency
exchanges that exist in the PRC, the Company’s ability to use revenue generated
in RMB to pay any dividend payments to its shareholders outside of China may be
limited.





The
Company’s business depends on maintaining licenses of its current products from
State of Food and Drug Administration (“SFDA”). Obtaining licenses for
additional products can be expensive and is usually time consuming. Failure to
obtain the required licenses can cause the Company’s business plan to be
delayed. If the delays prevent the Company from generating positive cash flows
or introducing a significant number of products, there will be a material
adverse effect on the Company.


8


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 Tongli Pharmaceuticals (USA) Inc. for the three and six
months ended September 30, 2010 and 2009, and should be read in conjunction with
such financial statements and related notes included in this report. Those
statements in the following discussion that are not historical in nature should
be considered to be forward looking statements that are inherently uncertain.
Actual results and the timing of the events may differ materially from those
contained in these forward looking statements due to a number of factors,
including those discussed in the “Cautionary Note on Forward Looking Statements”
set forth above.





COMPANY OVERVIEW





Tongli
Pharmaceuticals (USA), Inc. formally known as Aim Smart Corporation (“Aim
Smart”), was originally formed in the State of Colorado in April 1998 and
reorganized as a Delaware corporation in September 2007.





On July
29, 2008, Aim Smart acquired all of the outstanding capital stock of American
Tony Pharmaceutical, Inc., a Delaware corporation (“American Tony”), by issuing
9,700,000 shares of its common stock, representing 96.7% of the outstanding
shares of Aim Smart, to the shareholders of American Tony. American Tony paid
$525,000 for its controlling interest in Aim Smart and this interest was
acquired solely to effectuate the reverse merger and was paid for with $276,000
of the Company’s own funds and a $249,000 loan from its Chairman.





The
acquisition has been accounted for as a reverse merger under the purchase method
of accounting since there was a change of control. Accordingly, American Tony is
treated as the continuing entity for accounting purposes, whereas the entity
formally known as Aim Smart is the legal surviving entity.




Subsequent
to the reverse merger, Aim Smart changed its name to American Tony
Pharmaceuticals, Inc. on September 23, 2008, and then changed its name to Tongli
Pharmaceuticals (USA), Inc. on October 30, 2008.





American
Tony is a holding company incorporated in the State of Delaware. In February
2007, American Tony acquired, through a wholly owned subsidiary, Heilongjiang
Tongli Technology Co., Ltd. (“TT”), all of the registered capital of Harbin
Tianmu Pharmaceuticals Co., Ltd. (“HTP”), a corporation organized under the laws
of the PRC on November 26, 1999.  HTP is engaged in developing,
manufacturing and marketing pharmaceutical and health care products that
incorporate elements of Chinese Traditional Medicine with elements of western
medicine.





In 2005,
HTP obtained the GMP certificate (Good Manufacturing Practices for
Pharmaceutical Products), and Drug Register License and Drug Production
Certificate from the SFDA for its 10 products. The Company’s major products
include Yufang Anti-Bacterial Mouth Wash, Calcium Gluconate Oral Liquid, and
Antihyperlipidemics. These products are sold through distributors or directly to
customers; no service is required of the Company after sales are made. The
Company’s primary customers are drug stores and hospitals located in
China


9





DEVELOPMENT
AND STRATEGY





For the
three and six months ended September 30, 2010, we continued the execution of our
product channel expansion strategy that resulted in increased market penetration
of our products and expanded revenue growth. In order to expand our business, in
August 2009, we signed a contract with a third party Harbin Sanmu
Pharmaceuticals (“Sanmu”) to purchase exclusive rights to manufacture and sell
Yan Li Xiao Capsule nationwide for seven years.  We paid Sanmu RMB
1,200,000 (approximately $175,772) in October 2009 under the contact and started
to sell it in late 2009.  In July 2010, due to certain dispute with
Sanmu, we terminated the contract with Sanmu and suspended the sales of Yan Li
Xiao Capsule. Accordingly, no sales revenue from Yan Li Xiao Capsule was
reported for the quarter ended September 30, 2010. Management has decided to
write off the intangible asset related to Yan Li Xiao Capsule in September
2010.





On March
21, 2010, we entered a patent purchase agreement with a third party Tonghua
Yisheng Pharmaceuticals Company Limited (“Yisheng”) to purchase a new drug
candidate with great market potentials. Total consideration for this patent
transaction amounted to RMB 33,000,000 (approximate to USD 4.85 million) payable
in three installments. We paid the first installment of RMB 11,000,000
(equivalent to USD 1.6 million) to Yisheng in March 2010 upon execution of the
patent purchase agreement. The second and third installments are expected to be
paid in late 2011 and 2012 pending on whether the clinic test results for this
drug candidate meet requirements specified in our agreement.





Our
ability to conclude this purchase and ultimately commercialize this product
requires additional assistance from the seller and obtaining government
approvals, including the approvals from the SFDA.





Management
plans to continue to emphasize on expanding and enhancing marketing and sales in
the fiscal year 2011 ending March 31, 2011 and beyond.  Part of this
strategy involves increasing and improving marketing and sales activities to
enhance the market position of our key products and to increase the sales of
other products by expanding our sales force, solidifying our distribution
network and expanding market segment coverage, and increasing marketing and
promotional activities. Management also plans to selectively pursue strategic
acquisition opportunities to further consolidate our resources and expand our
market coverage. We believe that such initiatives will provide effective means
to broaden our product lines, expand our market coverage and complement our
research and development capabilities. As of the date of this report, we are not
engaged in any material discussions regarding any potential
acquisition.





Management
believes that our emphasis on further commercializing and broadening our product
lines, enhanced sales and marketing efforts shall continue to yield increases in
revenue in fiscal 2011 and beyond.





DISCUSSION
OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND
2009





The
results of our operation for the three months ended September 30, 2010 compared
to the prior comparative periods are as follows:





Three months ended September 302010
                  
                  
                  2009Revenues
                  
                  $
                  2,166,458
                  
                  
                  $
                  546,281Cost
      of Sales
                  
                  
                  1,184,925
                  
                  
                  
                  333,821Gross
      Profit
                  
                  
                  981,533
                  
                  
                  
                  212,460Operating
      expenses
                  
                  
                  400,503
                  
                  
                  
                  170,539Other
      income (expenses)
                  
                  
                  (14,542
                  )
                  
                  
                  (23,894
                  )Provision
      of income taxes
                  
                  
                  220,214
                  
                  
                  
                  28,856Net
      income (loss)
                  
                  
                  346,274
                  
                  
                  
                  (10,829)Foreign
      currency translation adjustments
                  
                  
                  164,483
                  
                  
                  
                  6,086Comprehensive
      income(loss)
                  
                  $
                  510,757
                  
                  
                  $
                  (4,743)


10





Revenues,
cost of sales and gross profit





Revenues
increased 296.6% to approximately $2.2 million for the three months ended
September 30, 2010 from approximately $0.5 million for the three months ended
September 30, 2009.  The $1.62 million increase was primarily
attributable to the increase in sales of Antihyperlipidemics, Calcium Gluconate
Oral Liquid and Anti-bacterial Mouthwash, supported by our marketing efforts,
increasing brand recognition and effective pricing strategy and our distribution
to previously unaddressed market. For the three months ended September 30, 2010,
about 91% of our revenue was generated by the above mentioned three
products.  Due to the termination of the agreement with Sanmu, no
sales revenue was generated from Yan Li Xiao Capsule for the three months ended
September 30, 2010.





Cost of
sales was approximately $1.18 million for the three months ended September 30,
2010 compared to $0.33 million for the three months ended September 30, 2009.
The $0.85 million or 254% increase in cost of sales was mainly attributable to
the increased purchase costs for raw material and was in line with the increase
in our sales.  Cost of sales as a percentage of revenue decreased from
61.11% to 54.69% as compared to the prior comparative period.





Gross
profit was approximately $0.98 million for the three months ended September 30,
2010 compared to $0.2 million for the three months ended September 31, 2009, an
increase of $0.77 million due to increased sales of our products. The gross
profit as a percent of revenues for the three months ended September 30, 2010
increased to 45.31% compared to 38.9% for the prior comparative period mainly
due to increased sales of our major products Antihyperlipidemics, Calcium
Gluconate Oral Liquid, Anti-bacterial Mouthwash, plus our well-planned marketing
and distribution efforts. We expect our gross profit margin will remain at its
current level with slight growth in the future.





Operating
expenses





Total
operating expenses increased to approximately $343,729 for the three months
ended September 30, 2010 from $170,539 for the three months ended September 30,
2009.  The increase in operating expense was primarily due to the
write-off of intangible assets related to Yan Li Xiao’s sales rights in
September 2010 which led to an increase in the general and administrative
expenses of $151,338 and the issuance of 250,000 shares of common stock to
several employees and consultants under our 2009 Stock Incentive Plan in the
quarter ended September 30, 2010 for which we recorded general and
administrative expenses in the amount of $97,500.


11





As a
percentage of revenues, operating expenses decreased to 18.5% for the three
months ended September 30, 2010 compared to 31.22% for the three months ended
September 30, 2009.





Operating expenses for the three months
ended September 30, 2010 and 2009consisted of the
following:





For the three months endedSeptember 30, 2010
                
                
                September 30, 2009General
      & administrative expenses
                
                $
                343,729
                
                
                $
                123,388Depreciation
      and amortization expenses
                
                
                43,850
                
                
                
                37,223Selling
      expenses
                
                
                12,924
                
                
                
                9,928Total
      operating expenses
                
                $
                400,503
                
                
                $
                170,539





Interest
expense





Net
interest expense was $14,542 for the three months ended September 30, 2010
compared to $23,894 for the three months ended September 30, 2009. Interest
expenses for the above period indicated only related to the loans from our
Chairman and a company owned by him. The decrease of net interest expense for
the three months ended September 30, 2010 was due to our repayment of portion of
related party loans when cash generated from our operations became available. As
the balance of related party loans reduced, our interest expenses decreased
accordingly.





Income
taxes





All of
our net income for the period ended September 30, 2010 was from HTP, which
conducts substantially all of our operation in the PRC.  Our Chinese
subsidiaries are governed by the Enterprise Income Tax Law of the PRC and are
generally subject to tax at a statutory rate of 25% on income reported in the
statutory financial statements after appropriate tax adjustments.





The
income tax expense was $220,214 for the three months ended September 30, 2010,
an increase of $191,358 or 663.1% compared to the prior comparative period. The
increase was attributed to the increased taxable income primarily derived from
HTP for the three months ended September 30, 2010.





Net
income





As a
result of the above factors, we reported a net income of $346,274 for the three
months ended September 30, 2010, an increase of $0.40 million as compared to the
net loss of approximately $10,829 for the three months ended September 30, 2009.
The increase in our net income was primarily due to our increased
revenue.


12





Other
comprehensive income





Foreign
Currency Translation Adjustments amounted to $164,483 and $6,086 as of September
30, 2010 and 2009, respectively.  The balance sheet amounts with the
exception of equity at September 30, 2010 were translated at 6.6912 RMB to 1.00
USD as compared to 6.8263 RMB to 1.00 USD at September 30, 2009. The equity
accounts were stated at their historical rate. The average translation rates
applied to the income statements accounts for the periods ended September 30,
2010 and 2009 were 6.7965 RMB and 6.8305 RMB, respectively.





DISCUSSION
OF OPERATING RESULTS SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





The
results of our operation for the six months ended September 30, 2010 compared to
the prior comparative periods are as follows:





As ofSeptember 30, 2010
                  
                  
                  September 30, 2009Revenues
                  
                  $
                  5,379,878
                  
                  
                  $
                  2,893,375Cost
      of Sales
                  
                  
                  2,975,067
                  
                  
                  
                  1,590,772Gross
      Profit
                  
                  
                  2,404,811
                  
                  
                  
                  1,302,603Operating
      expenses
                  
                  
                  539,441
                  
                  
                  
                  363,300Other
      income (expenses)
                  
                  
                  (28,446
                  )
                  
                  
                  (41,786
                  )Provision
      of income taxes
                  
                  
                  552,000
                  
                  
                  
                  274,438Net
      income
                  
                  
                  1,284,924
                  
                  
                  
                  623,079Foreign
      currency translation adjustments
                  
                  
                  243,972
                  
                  
                  
                  10,638Comprehensive
      income
                  
                  $
                  1,528,896
                  
                  
                  $
                  633,717





Revenues,
cost of sales and gross profit





Revenues
increased 85.94% to approximately $5.37 million for the six months ended
September 30, 2010 from approximately $2.89 million for the six months ended
September 30, 2009.  The $2.48 million increase was primarily
attributable to the increase in sales of our major products including
our four major products Antihyperlipidemics, Calcium Gluconate Oral Liquid,
Anti-bacterial Mouthwash and Yan Li Xiao Capsule supported by our marketing
efforts, increasing brand recognition, effective pricing strategy and our
distribution to previously unaddressed market. For the six months ended
September 30, 2010, more than 70% of our sales were generated from sales of
Antihyperlipidemics, Calcium Gluconate Oral Liquid and Anti-bacterial Mouthwash.
About 20.3% of our revenue was generated by Yan Li Xiao Capsule. Due to the
termination of the agreement with Sammu, no sales revenue was generated from Yan
Li Xiao Capsule for the quarter ended September 30, 2010.





Cost of
sales was approximately $2.97 million for the six months ended September 30,
2010 compared to $1.59 million for the six months ended September 30,
2009.  The $1.38 million or 87% increase in cost of sales was mainly
attributable to the increased sales.  Cost of sales as a percentage of
revenue increased from 54.98% to 55.3% as compared to the prior comparative
period.


13





Gross
profit was approximately $2.4 million for the six months ended September 30,
2010 compared to $1.3 million for the six months ended September 31, 2009, an
increase of $1.1 million due to increased sales of our products. The gross
profit as a percent of revenues for the six months ended September 30, 2010
decreased to 44.7% compared to 45.02% for the prior comparative period mainly
due to increase in raw material price, relatively higher production and distributioncosts
incurred by Yan Li Xiao Capsule. Notwithstanding the decrease in the six months
ended September 31, 2010 as compared to the same period of 2009, we expect our
gross profit margin will remain at its current level with slight growth in the
future.





Operating
expenses





Total
operating expenses increased to approximately $539,441 for the six months ended
September 30, 2010 from $363,300 for the six months ended September 30,
2009.  The $176,141 increase in operating expense was primarily
attributable to the write-off of intangible assets related to Yan Li Xiao’s
sales right in September 2010 which led to an increase in the general and
administrative expenses of $151,338 and the issuance of 250,000 shares of common
stock to several employees and consultants under our 2009 Stock Incentive Plan
in the quarter ended September 30, 2010 for which we recorded general and
administrative expenses in the amount of $97,500.





As a
percentage of revenues, operating expenses decreased to 10.03% for the six
months ended September 30, 2010 compared to 12.56% for the six months ended
September 30, 2009. The changes in operating expenses are summarized
below.





For the six months endedSeptember 30, 2010
                
                
                September 30, 2009General
      & administrative expenses
                
                $
                430,809
                
                
                $
                255,361Research
      & development
                
                
                0
                
                
                
                3,461Depreciation
      and amortization expenses
                
                
                81,109
                
                
                
                76,621Selling
      expenses
                
                
                27,523
                
                
                
                27,857Total
      Operating expenses
                
                $
                539,441
                
                
                $
                363,300





Interest
expense





Net
interest expense was $28,446 for the six months ended September 30, 2010
compared to $41,786 for the six months ended September 30, 2009. Interest
expenses for the above period indicated only related to the loans from our
Chairman and a company owned by him. The decrease of net interest expense for
the six months ended September 30, 2010 was due to our repayment of portion of
related party loans when cash generated from our operations became available. As
the balance of related party loans reduced, our interest expenses decreased
accordingly.


14


Income
taxes





All of
our net income for the period ended September 30, 2010 was from HTP, which
conducts substantially all of our operation in the PRC. Our Chinese subsidiaries
are governed by the Enterprise Income Tax Law of the PRC and are generally
subject to tax at a statutory rate of 25% on income reported in the statutory
financial statements after appropriate tax adjustments.





The
income tax expense of $552,000 for the six months ended September 30, 2010, an
increase of $277,562 or 101.1% compared to the prior comparative period was
attributed to the increased taxable income primarily derived from HTP for the
six months ended September 30, 2010.





A
reconciliation of tax at United States Federal statutory rate to provision for
income tax recorded in the financial statements is as
follows:




As of September 302010
                  
                  
                  2009U.S.
      statutory income tax rate
                  
                  
                  35.0
                  %
                  
                  
                  35.0
                  %Foreign
      tax rate difference between US and China
                  
                  
                  (10.0
                  )%
                  
                  
                  (10.0
                  )%NOL
      from U.S with 100% valuation allowance
                  
                  
                  5.1
                  %
                  
                  
                  5.5
                  %Actual
      consolidated income tax rate
                  
                  
                  30.1
                  %
                  
                  
                  30.5
                  %




The components of deferred taxes as of
September 30, 2010 and March 31, 2010 consist of the
following:




AsofSeptember30,2010
                          
                          
                          March31,2010(Unaudited)Net operating loss
      carry-forwards
                          
                          
                          849,999
                          
                          
                          
                          773,165Valuation
      allowance
                          
                          
                          849,999
                          
                          
                          
                          (773,165
                          )Net deferred tax
      asset
                          
                          
                          -
                          
                          
                          
                          -





Net
income





As a
result of the above factors, we reported a net income of $1,284,924 for the six
months ended September 30, 2010, an increase of $0.66 million or 106.2% as
compared to the net income of $623,079 for the six months ended September 30,
2009. The increase in our net income was primarily due to our increased
revenue.





Other
comprehensive income





Foreign
Currency Translation Adjustments amounted to $243,971 and $10,638 as of
September 30, 2010 and 2009, respectively.  The balance sheet amounts
with the exception of equity at September 30, 2010 were translated at 6.6912 RMB
to 1.00 USD as compared to 6.8263 RMB to 1.00 USD at September 30, 2009. The
equity accounts were stated at their historical rate. The average translation
rates applied to the income statements accounts for the periods ended September
30, 2010 and 2009 were 6.7965 RMB and 6.8305 RMB, respectively.


15





LIQUIDITY
AND CAPITAL RESOURCES





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
We usually finance our operation and capital expenditures through cash from
operations and short-term bank loans as well as loans from our management and
advances from a company owned by our Chairman. As of September 30, 2010, our
working capital has improved to $2,288,758.





Total
current assets increased to approximately $3.8 million as of September 30, 2010
as compared to $1.96 million at March 31, 2010.  The primary changes
in our current assets during this period were from changes in cash of $653,092, accounts receivable
of $447,211, inventory of $121,248 and advance to suppliers of $627,315.
The increase in cash from $30,066 at March 31, 2010 to $683,158 at September 30,
2010 was because our increased business activities generated more cash to be
used in our operation. The increase in accounts receivable from $351,991 at
March 31, 2010 to $799,202 at September 30, 2010 was in line with our increased
credit sales. The increase of inventory from $109,387 in March 31, 2010 to the
amount of $230,635 as of September30, 2010 was because we stocked more raw
materials in anticipation of increasing sales and to avoid the potential
material shortage in the near future, and stocked more finished goods for future
sales. The advance to suppliers increase from $1,465,713 at March 31, 2010 to
$2,093,028 as of September 30, 2010 as we made more advances to our raw material
suppliers to strengthen our relationship with them. These advances are
short-term in nature and we believe the risk of uncollectibility was small based
our past experience.





Our
current liabilities as of September 30, 2010 were $1.52 million as compared to
$1.45 million at March 31, 2010. The increase in current liabilities was
primarily due to the increase in related party loans in the amount of $87,510 in
order to support our working capital need, and increased accounts payable from
$101,611 at March 31, 2010 to $121,419 at September 30, 2010 which represented
our purchase of raw materials on account from our suppliers.




We
believe that we have sufficient funds to operate our existing business for the
next twelve months. However, in addition to funds available from our operating
and loans from related parties, we may need external sources of capital for our
expansion.  Currently, we have budgeted $3.5 million for capital
improvements. We may pursue additional debt financing which could be secured by
our property and equipment and approach international equity markets for
additional debt and/or equity financing.  There can be no assurance that we
will be able to obtain such additional financing at acceptable terms to us, or
at all. To date, we have no commitment from any source for the funds we
require.





Discussion
of Cash Flow





Comparison
of cash flows results for the fiscal six months ended September 30, 2010 and
2009 is summarized as follows:





As of September 302010
                      
                      
                      2009Cash
      flow from operating activities
                      
                      $
                      583,959
                      
                      
                      $
                      (109,896
                      )Cash
      flow from investing activities
                      
                      $
                      -
                      
                      
                      $
                      -Cash
      flow from financing activities
                      
                      $
                      58,915
                      
                      
                      $
                      277,705


16




Operating
activities





Cash
flows provided by operating activities for the six months ended September 30,
2010 amounted to $583,959, which consist of our net income of $1,284,924, adds
back noncash adjustments of $459,883 which primarilyconsisted of depreciation and
amortization expense incurred during the six months ended September 30, 2010,
accrued related party loan interest and common stock issued for services and
offset by net changes in operating assets and liabilities, primarily including
an increase in accounts receivable of $433,301 which represented sale of product
on credit to certain reliable clients, an increase of advance to suppliers of
$588,536 to maintain good relationship with the suppliers and an increase in
inventory of $117,202 to stock more raw materials to avoid the potential
material shortage in the near future, and stock finished goods in support of
future sales, as well as an increase in our accounts payable of
$17,487.





Cash used
in operating activities during the six months ended September 30, 2009
amounted to $109,896, which consisted of a net income of $623,079, adds back
noncash adjustments of $258,269 and offset by net changes in operating assets
and liabilities due to expanded operating activities, including an increase
in accounts receivables in the amount of $140,631, an increase in inventory
of $241,798, an increase in advance to suppliers in the amount of $448,521 to
stimulate sales and maintain good relationship with the suppliers, as well as a
decrease in accrued liabilities in the amount of $333,771, offset by an increase
in accounts payable of $173,477.





Investing
activities





No cash
was used in investing activities for the six months ended September 30, 2010 and
2009, respectively.





Financing
activities





Cash
flows provided by financing activities amounted to $58,915 in the six months
ended September 30, 2010, which represented proceeds from related party loans to
support our working capital needs. Cash
provided by financing activities amounted to $277,705 for the six months ended
September 30, 2009, which represented the proceeds from related party
loans.





Off-Balance
Sheet Arrangements





As of the
date of this report, 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 are
material to investors. The term “off-balance sheet arrangement” generally means
any transaction, agreement or other contractual arrangement to which an entity
unconsolidated with us is a party, under which we have: (i) any obligation
arising under a guarantee contract, derivative instrument or variable interest;
or (ii) a retained or contingent interest in assets transferred to such entity
or similar arrangement that serves as credit, liquidity or market risk support
for such assets.





Inflation





Inflation
has not had a material impact on our business and we do not expect inflation to
have a material impact on our business in the near future.


17





ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK





Not applicable.





ITEM 4T.  CONTROLS AND
PROCEDURES




Evaluation of Disclosure Controls and
Procedures





As of the end of the period covered by
this report, the Company carried out, under the supervision and with the
participation of the Company’s management, including its Chief Executive
Officer and Chief Financial Officer, an evaluation of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) in ensuring that
information required to be disclosed by the Company in its reports is recorded,
processed, summarized and reported within the required time
periods.  In carrying out that evaluation, management identified a
material weakness (as defined in Public Company
Accounting Oversight Board Standard No. 2) in our internal control over
financial reporting regarding a lack of adequate segregation of
duties.





Accordingly, based on their evaluation
of our disclosure controls and procedures as ofSeptember 30, 2010, the Company’s Chief Executive Officer and its Chief
Financial Officer have concluded that, as of that date, the Company’s controls and procedures were not
effective for the purposes described above.





Managementis presently seeking to augmentthe Company’s accounting and financing personnel
resources by retaining more U.S. GAAP knowledgeableaccounting staff, which will enable the Company topotentiallyimplementadequatesegregation of dutiesand remedy any material
weakness in its
internalcontrols.




Changes in Internal Control Over
Financial Reporting





Other than as disclosed above,
there were no changes in
our internal controls over financial reporting identified in connection with the
evaluation that occurred during the three months endedSeptember30, 2010that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.


18


PART II - OTHER INFORMATION





Item
1.     Legal Proceedings





From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. We are currently not aware of any such
legal proceedings or claims that will have, individually or in the aggregate, a
material adverse affect on our business, financial condition or operating
results. However, litigation is subject to inherent uncertainties, and an
adverse result in these or other matters may arise from time to time that may
harm business.





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





None.





Item
3.     Defaults Upon Senior Securities





None.





Item
4.     Removed and Reserved








Item
5.     Other Information





None.


19


Item
6.     Exhibits





(a)  Exhibits





Exhibit
                Number
              
              Description of Exhibit31.1*
              
              Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.31.2*
              
              Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.32.1*
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Executive
  Officer).32.2*
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Financial
  Officer).





* Filed
herewith


20


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Tongli
      Pharmaceuticals (USA), Inc.November
      15, 2010
                  By:
                  /s/
      Mingli YaoMingli
      Yao
                    Chief
      Executive Officer
                    (Principal
      Executive Officer)November
      15, 2010
                  By:
                  /s/ Li
      LiLi
      Li
                    Chief
      Financial Officer
                    (Principal
      Accounting
Officer)


21