UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549







FORM
10-Q





(Mark
One)


x
            Quarterly
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934


For
the quarterly period ended December 31, 2008


OR




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




For
the transition period from________to_________





Commission
File No. 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)
            
            (I.R.S.
      Employer
              Identification
      No.)





125 Maiden Lane, Suite 309,
New York, NY 10038


(Address
of principal executive offices)





(212)
809-5611


(Issuer’s
telephone number, including area code)





Check
whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 90
days.





Yes  x    No   ̈





Check
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer.





Large
accelerated filer   ̈    Accelerated
filer   ̈
    Non-accelerated filer   ̈
Smaller reporting company  x





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





Yes   ̈    No  x





The
number of shares outstanding of each of the issuer’s classes of equity as of the
latest practicable date is stated below




Title
      of each class of Common Stock
              
              Outstanding
      as of  December 31, 2008Common
      Stock, $0.001 par value
              
              10,033,216










PART I – FINANCIAL
    INFORMATION
                                              
                                              1ITEM 1
      – FINANCIAL STATEMENTS
                                              
                                              1ITEM 2
      – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OFOPERATIONS
                                              
                                              13ITEM 3
      – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                                              
                                              22ITEM 4T
      – CONTROLS AND PROCEDURES
                                              
                                              22PART
      II – OTHER INFORMATION
                                              
                                              23ITEM 1
      – LEGAL PROCEEDINGS
                                              
                                              23ITEM 1A
      – RISK FACTORS
                                              
                                              23ITEM 2
      – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
                                              
                                              23ITEM 3
      – DEFAULTS UPON SENIOR SECURITIES
                                              
                                              23ITEM 4
      – SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                                              
                                              23ITEM 5
      – OTHER INFORMATION
                                              
                                              23ITEM 6
      – EXHIBITS
                                              
                                              23





Part
I – FINANCIAL INFORMATION





ITEM
1 – FINANCIAL STATEMENTS





TONGLI
PHARMACEUTICALS (USA), INC.





CONSOLIDATED
BALANCE SHEETS





(UNAUDITED)





DECEMBER 31,
                            2008
                          
                          
                          MARCH 31,
                            2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
                          
                          $
                          45,928
                          
                          
                          $
                          130,630Trade
      accounts receivable, net
                          
                          
                          140,445
                          
                          
                          
                          2,470Inventories
                          
                          
                          58,254
                          
                          
                          
                          11,172Prepaid
      expenses
                          
                          
                          38,429
                          
                          
                          
                          -Refundable
      deposits
                          
                          
                          -
                          
                          
                          
                          405,643Advances
      to suppliers
                          
                          
                          1,263,863
                          
                          
                          
                          678,654TOTAL
      CURRENT ASSETS
                          
                          
                          1,546,919
                          
                          
                          
                          1,228,569PROPERTY
      AND EQUIPMENT, NET
                          
                          
                          7,142,316
                          
                          
                          
                          7,813,779CONTRACT
      DEPOSIT
                          
                          
                          1,025,650
                          
                          
                          
                          -TOTAL
      ASSETS
                          
                          $
                          9,714,885
                          
                          
                          $
                          9,042,348LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Note
      payable - bank
                          
                          $
                          1,009,349
                          
                          
                          $
                          995,168Accounts
      payable
                          
                          
                          104,201
                          
                          
                          
                          959,382Due
      to related parties
                          
                          
                          987,493
                          
                          
                          
                          819,620Accrued
      expenses and other sundry current liabilities
                          
                          
                          262,009
                          
                          
                          
                          90,893TOTAL
      CURRENT LIABILITIES
                          
                          
                          2,363,052
                          
                          
                          
                          2,865,063COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Preferred
      stock, $0.001 par value,Authorized
      1,000,000 shares; none issued
                          
                          
                          -
                          
                          
                          
                          -Common
      stock, $0.001 par value,Authorized
      200,000,000 sharesIssued
      and outstanding - 10,033,216 shares and 9,963,216
    respectively
                          
                          
                          10,033
                          
                          
                          
                          9,963Additional
      paid-in capital
                          
                          
                          6,585,093
                          
                          
                          
                          7,092,663Accumulated
      other comprehensive income
                          
                          
                          1,110,112
                          
                          
                          
                          955,288Accumulated
      deficit
                          
                          
                          (353,405
                          )
                          
                          
                          (1,880,629
                          )TOTAL
      SHAREHOLDERS EQUITY
                          
                          
                          7,351,833
                          
                          
                          
                          6,177,285TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                          
                          $
                          9,714,885
                          
                          
                          $
                          9,042,348





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


1


TONGLI
PHARMACEUTICALS (USA), INC.





CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME





(UNAUDITED)





FOR THE THREE MONTHS
                          ENDED DECEMBER 31,
                        
                        
                        FOR THE NINE MONTHS
                          ENDED DECEMBER 31,2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007REVENUE
                        
                        $
                        1,754,581
                        
                        
                        $
                        449,660
                        
                        
                        $
                        5,065,291
                        
                        
                        $
                        1,223,234COST OF SALES, including
      depreciationand amortization
      of $37,909,  $9,348 $123,810 and $37,117,
      respectively
                        
                        
                        923,525
                        
                        
                        
                        181,423
                        
                        
                        
                        2,820,484
                        
                        
                        
                        626,147GROSS
      PROFIT
                        
                        
                        831,056
                        
                        
                        
                        268,237
                        
                        
                        
                        2,244,807
                        
                        
                        
                        597,087OPERATING
      EXPENSESGeneral
      and administrative
                        
                        
                        148,536
                        
                        
                        
                        57,675
                        
                        
                        
                        453,132
                        
                        
                        
                        135,423Research
      and development
                        
                        
                        16,978
                        
                        
                        
                        -
                        
                        
                        
                        27,153
                        
                        
                        
                        -Depreciation
      expense
                        
                        
                        49,896
                        
                        
                        
                        68,407
                        
                        
                        
                        135,051
                        
                        
                        
                        206,611Selling
      expense
                        
                        
                        106,285
                        
                        
                        
                        2,180
                        
                        
                        
                        142,473
                        
                        
                        
                        16,406TOTAL
      OPERATING EXPENSES
                        
                        
                        321,695
                        
                        
                        
                        128,262
                        
                        
                        
                        757,809
                        
                        
                        
                        358,440OPERATING
      INCOME
                        
                        
                        509,361
                        
                        
                        
                        139,975
                        
                        
                        
                        1,486,998
                        
                        
                        
                        238,647OTHER
      EXPENSE (INCOME)Interest
      expense
                        
                        
                        44,079
                        
                        
                        
                        29,798
                        
                        
                        
                        130,996
                        
                        
                        
                        78,805Rental
      income
                        
                        
                        (69,922
                        )
                        
                        
                        (92,510
                        )
                        
                        
                        (171,222
                        )
                        
                        
                        (92,510
                        )NET
      INCOME
                        
                        
                        535,204
                        
                        
                        
                        202,687
                        
                        
                        
                        1,527,224
                        
                        
                        
                        252,352OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation adjustment
                        
                        
                        943
                        
                        
                        
                        160,205
                        
                        
                        
                        154,824
                        
                        
                        
                        305,108COMPREHENSIVE
      INCOME
                        
                        $
                        536,147
                        
                        
                        $
                        362,892
                        
                        
                        $
                        1,682,048
                        
                        
                        $
                        557,460BASIC
      AND DILUTED INCOME PER SHARE
                        
                        $
                        0.05
                        
                        
                        $
                        0.02
                        
                        
                        $
                        0.15
                        
                        
                        $
                        0.03BASIC
      AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
                        
                        
                        10,033,216
                        
                        
                        
                        9,963,216
                        
                        
                        
                        10,033,216
                        
                        
                        
                        9,963,216





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


2


TONGLI
PHARMACEUTICALS (USA), INC.





CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY





FOR
THE NINE MONTHS ENDED DECEMBER 31, 2008





(UNAUDITED)





AccumulatedOtherCommon
      Stock
                
                
                Additional
                
                
                Comrehensive
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Paid in capital
                
                
                Income
                
                
                Deficit
                
                
                TotalBalance
      March 31, 2008
                
                
                9,963,216
                
                
                $
                9,963
                
                
                $
                7,092,663
                
                
                $
                955,288
                
                
                $
                (1,880,629
                )
                
                $
                6,177,285Effects
      of reverse merger
                
                
                
                
                
                
                
                
                
                
                (525,000
                )
                
                
                
                
                
                
                
                
                
                
                (525,000
                )Stock
      issued for services
                
                
                70,000
                
                
                
                70
                
                
                
                17,430
                
                
                
                
                
                
                
                
                
                
                
                17,500Foreign
      currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                154,824
                
                
                
                
                
                
                
                154,824Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,527,224
                
                
                
                1,527,224Balance
      December 31, 2008
                
                
                10,033,216
                
                
                $
                10,033
                
                
                $
                6,585,093
                
                
                $
                1,110,112
                
                
                $
                (353,405
                )
                
                $
                7,351,833




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




3


TONGLI
PHARMACEUTICALS (USA), INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS





(UNAUDITED)





FOR THE NINE MONTHS ENDED
                              DECEMBER 31,2008
                            
                            
                            2007OPERATING
      ACTIVITIES:Net
      income
                            
                            $
                            1,527,224
                            
                            
                            $
                            252,352Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                            
                            
                            258,861
                            
                            
                            
                            243,728Bad
      debt
                            
                            
                            (13,391
                            )
                            
                            
                            -Stock
      issued for services
                            
                            
                            17,500
                            
                            
                            
                            -Changes
      in operating assets and liabilities:Accounts
      receivable
                            
                            
                            (124,584
                            )
                            
                            
                            (4,855
                            )Inventories
                            
                            
                            (47,082
                            )
                            
                            
                            (69,670
                            )Prepaid
      expenses
                            
                            
                            (38,429
                            )
                            
                            
                            (46,246
                            )Advance
      to suppliers
                            
                            
                            (585,209
                            )
                            
                            
                            (202,214
                            )Accounts
      payable
                            
                            
                            (855,181
                            )
                            
                            
                            372,102Accrued
      expenses and other sundry current liabilities
                            
                            
                            171,116
                            
                            
                            
                            102,217NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                            
                            
                            310,825
                            
                            
                            
                            647,414INVESTING
      ACTIVITIES:Acquisition
      of property and equipment
                            
                            
                            (661
                            )
                            
                            
                            (547,718
                            )Refund
      of deposits related to terminated acquisitions
                            
                            
                            405,643
                            
                            
                            
                            (12,716
                            )Contract
      and other deposit
                            
                            
                            (1,025,514
                            )
                            
                            
                            (537,066
                            )Portion
      of cost of Aim Smart acquisition cost paid by the Company
                            
                            
                            (276,000
                            )
                            
                            
                            -NET
      CASH USED IN INVESTING ACTIVITIES
                            
                            
                            (896,532
                            )
                            
                            
                            (1,097,500
                            )FINANCING
      ACTIVITIES:Payment
      of bank loans, net
                            
                            
                            (7,899
                            )
                            
                            
                            (28,948
                            )Proceeds
      from advances from related party
                            
                            
                            966,470
                            
                            
                            
                            507,107Payments
      to related party
                            
                            
                            (459,854
                            )
                            
                            
                            -NET
      CASH PROVIDED (USED IN) BY FINANCING ACTIVITIES
                            
                            
                            498,717
                            
                            
                            
                            478,159EFFECTS
      OF EXCHANGE RATE ON CASH
                            
                            
                            2,288
                            
                            
                            
                            (18,552
                            )(DECREASE)
      INCREASE IN CASH
                            
                            
                            (84,702
                            )
                            
                            
                            9,521CASH
      BEGINNING OF PERIOD
                            
                            
                            130,630
                            
                            
                            
                            1,986CASH
      END OF PERIOD
                            
                            $
                            45,928
                            
                            
                            $
                            11,507Supplemental
      disclosures of cash flow information:Cash
      paid for:Interest
                            
                            $
                            101,134
                            
                            
                            $
                            78,805Income
      taxes
                            
                            $
                            -
                            
                            
                            $
                            -Noncash
      transactions:Reduction
      of related party debt in connection with terminated contruction
      project
                            
                            $
                            588,886
                            
                            
                            $
                            -Portion
      of cost of Aim Smart acquisition paid on behalf of the Company by the
      Company's Chairman
                            
                            $
                            249,000
                            
                            
                            $
                            -





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


4


TONGLI
PHARMACEUTICALS (USA), INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS




1.
                BUSINESS
      DESCRIPTION AND SIGNIFICANT ACCOUNTING
POLICIES




Organization
and business description





Tongli
Pharmaceuticals (USA), Inc. (“TP” or the “Company”) through a wholly-owned
subsidiary, Harbin Tianmu Pharmaceuticals Co., Ltd. (“HTP”), develops, produces
and sells a wide variety of Chinese drugs and healthcare products in the
People's Republic of China (“PRC”). TP was formerly known as American Tony
Pharmaceutical, Inc. (“American Tony”). The name change became effective on
October 30, 2008 and was done to better represent the origin and ongoing
business of the Company.





On August
12, 2008, American Tony completed a reverse merger with Aim Smart Corporation
(“Aim Smart”), a dormant public shell. Under the terms of the merger agreement,
the former American Tony shareholders exchanged their shares for Aim Smart
shares so that, upon the closing of the merger, the former American Tony
shareholders owned 96.7% of the outstanding shares of Aim Smart. Aim Smart
changed its name to American Tony prior to the change to TP. For accounting
purposes, the Company became the surviving entity and Aim Smart became the
surviving entity for legal purposes. Accordingly, the accompanying financial
statements include the assets, liabilities and operations of the
Company.  The Company acquired its controlling interest in Aim Smart
for a cost of $525,000. This interest was acquired solely to effectuate the
reverse merger and was paid for with $276,000 of its own funds and a $249,000
loan from the Company’s Chairman.  The cost of the Company’s
acquisition of Aim Smart was charged to additional paid in capital at the time
of the merger.





American
Tony was incorporated on November 17, 2006 in the state of Delaware and has had
no significant operations since its inception. HTP was formed under laws of the
People’s Republic of China (“PRC”) on November 26, 1999. In February 2007,
American Tony acquired HTP through a recapitalization transaction which was
accomplished through the exchange of shares with Heilongjiang Tongli Technology
Co., Ltd. (“TT”), a wholly-owned subsidiary of American Tony located in the
PRC.





HTP has a
GMP (Good Manufacturing Practices for Pharmaceutical Products) certificate, 10
Drug Register License and “Drug Production Certificate” from the China State
Food and Drug Administration (formerly, China State Drug
Administration).  The Company’s main products are a cholesterol
reduction pill, mouthwash, an anti-inflammatory tablet and a calcium supplement.
The products are sold through distributors and directly to customers; no service
is provided after sales are made. Our customers are drug stores and hospitals
located in China.





Basis
of presentation





The
consolidated financial statements include the accounts of the Company and all of
its subsidiaries.  All significant inter-company accounts and transactions
have been eliminated. These financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. The functional currency of TT and HTP is the Chinese Renminbi
(RMB).  The accompanying financial statements include the financial
statements of foreign subsidiaries that have been translated and presented in
United States dollars (USD).





Unaudited
Interim Financial Statements





The
accompanying interim consolidated financial statements are unaudited and have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission.  Accordingly, they may not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements.  The unaudited interim consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all adjustments consisting
of normal recurring accruals considered necessary to present fairly the
Company's financial position, results of its operations and cash
flows.  The results of operations for the three and nine months ended
December 31, 2008 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2009.  These interim unaudited
consolidated financial statements should be read in conjunction with the audited
financial statements and accompanying notes for the years ended March 31, 2008
and 2007 included in our Form 8-K filed with the Securities and Exchange
Commission on July 30, 2008.


5


Uses
of estimates in the preparation of financial statements





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net revenue and expenses during each reporting period.
 Actual results could differ from those estimates.





Cash
and Cash Equivalents





The
Company maintains cash with financial institutions in the People’s Republic of
China (“PRC”) which are not insured or otherwise protected.  Should any of
these institutions holding the Company’s cash become insolvent, or if the
Company is unable to withdraw funds for any reason, the Company could lose the
cash on deposit with that institution.




Cash and
cash equivalents include cash in hand and cash in time deposits with original
maturities of three months or less.





Inventories





Inventories
are stated at the lower of cost, determined using the weighted average cost
method, and net realizable value.  Costs include materials, labor and
manufacturing overhead.  Net realizable value is the estimated selling
price, in the ordinary course of business, less estimated costs to complete and
dispose.





Advances
to Suppliers





Company
management developed purchasing relationships with a considerable number of
suppliers, and have multiple sources for most of the raw materials that we
require. The Company’s business would not be significantly damaged by the loss
of any one supplier.





A
considerable portion of the raw materials that production requires are volatile
herbs, which have a brief shelf life.  This situation imposes a risk on
suppliers, who often grow such herbs to order to insure an immediate market for
the herbs.  The situation also necessitates that management is assured that
raw material requirements are available precisely when needed.  To satisfy
these conditions, it is the practice to make substantial cash advances to
suppliers in order to lock-in raw material requirements. However, unless the
Company develops proprietary sources of raw material supplies, the advance
payment schedule for supplies will continue to have a negative effect on working
capital. The advances to suppliers are interest free.





Property
and equipment





Property
and equipment are recorded at cost.  Depreciation is provided in amounts
sufficient to amortize the cost of the related assets over their useful lives
using the straight line method for financial reporting purposes.





HTP
obtained the right to use a parcel of land on which its office and production
facilities are situated.  Pursuant to the contract from the local
government of the PRC, the contract expires in 2051.




Maintenance,
repairs and minor renewals are charged to expense when incurred.
 Replacements and major renewals are capitalized.


6


Impairment
of Long Lived Assets





The
Company accounts for the impairment of long-live assets in accordance with
Statement of Financial Accounting Standards No. 144. “Accounting for the Impairment or
Disposal of Long-Lived Assets”.  Long-lived assets are reviewed for
impairment when circumstances indicate the carrying value of an asset may not be
recoverable.  For assets that are to be held and used, impairment is
recognized when the estimated undiscounted cash flows associated with the asset
or group of assets is less than their carrying value.  If impairment
exists, an adjustment is made to write the asset down to its fair value, and a
loss is recorded as the difference between the carrying value and fair value.
 Fair values are determined based on quoted market values, discounted cash
flows or internal and external appraisals, as applicable.  Assets to be
disposed of are carried at the lower of carrying value or estimated net
realizable value. Based on its review, the Company believes that, as of December
31, 2008, there were no significant impairments of its long-lived assets used in
operations.





Income
taxes





The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS “109”) which requires that deferred tax
assets and liabilities be recognized for future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.  In addition, SFAS 109 requires
recognition of future tax benefits, such as carry-forwards, to the extent that
realization of such benefits is more likely than not and that a valuation
allowance be provided when it is more likely than not that some portion of the
deferred tax asset will not be realized.





Currency
translation





Since the
Company operates primarily in the PRC, the Company’s functional currency is the
Chinese Renminbi (”RMB”).  Revenue and expense accounts are translated at
the average rates during the period, and balance sheet items are translated at
year-end rates.  Translation adjustments arising from the use of differing
exchange rates from period to period are included as a separate component of
shareholders’ equity.  Gains and losses from foreign currency transactions
are recognized in current operations.





The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.





Fair
value of financial instruments





Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments”, requires that the Company disclose estimated fair
values of financial instruments.  The Company’s financial instruments
primarily consist of cash and cash equivalents, accounts receivable, other
receivables, advances to suppliers, accounts payable, accrued expenses and other
sundry current liabilities and related party advances and
borrowings.





As of the
balance sheet dates, the estimated fair values of financial instruments were not
materially different from their carrying values as presented on the balance
sheet.  This is attributed to the short maturities of the instruments and
that interest rates on the borrowings approximate those that would have been
available for loans of similar remaining maturity and risk profile at the
respective balance sheet dates.





Revenue
Recognition





Revenue
is recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, and no
other significant obligations of the Company exist and collectability is
reasonably assured.  Payments received before all of the relevant criteria
for revenue recognition are satisfied are recorded as advances from
customers.


7


Income
per common share





Basic
income per common share amounts are computed by dividing net income by the
weighted-average common stock shares outstanding during the period.
 Diluted income per common share is calculated using weighted-average
common stock shares outstanding, adjusted for the dilutive effect of shares
issuable upon the assumed exercise of common stock equivalents.  As of
December 31, 2008 and 2007 there were no common stock equivalents
outstanding.





Comprehensive
income





Comprehensive
income is defined to include all changes in equity except those resulting from
investments by shareholders and distributions to shareholders.  Among other
disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive income are required to be
reported in a financial statement that is presented with the same prominence as
other financial statements.  Comprehensive income includes net income and
the foreign currency translation gain, net of tax.





Statement
of Cash Flows





In
accordance with Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows,”
cash flows from the Company’s operations are calculated based upon the local
currencies. As a result, amounts related to assets and liabilities reported on
the statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet.





Segment
reporting





Statement
of Financial Accounting Standards No. 131 (“SFAS 131”),“Disclosure about Segments of an
Enterprise and Related Information” requires use of the “management
approach” model for segment reporting.  The management approach model is
based on the way a company’s management organized segments within the company
for making operating decisions and assessing performance.  Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a
company.  SFAS 131 has an immaterial effect on the Company’s financial
statements, as the Company consists of one reportable business segment.
 All revenue is from customers in the PRC.  Substantially all of the
Company’s assets are located in the PRC.





New
Accounting Pronouncements





In
September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, “Fair Value
Measurements” (SFAS 157).  This statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. We
adopted the provisions of SFAS 157 on April 1, 2008. SFAS 157 is applicable
whenever another accounting pronouncement requires or permits assets and
liabilities to be measured at fair value. SFAS 157 does not expand or require
any new fair value measures; however the application of this statement may
change current practice. In February 2008, the FASB decided that an entity
need not apply this standard to nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis until fiscal years beginning after November 15, 2008.
Accordingly, our adoption of this standard in 2008 was limited to financial
assets and liabilities.   The adoption of SFAS No. 157 did not
have a material effect on the results of operations, cash flows or financial
position of the Company.





In
February 2007, the FASB issued FASB Statement No, 159, “The Fair Value Option for Financial
Assets and Liabilities – including an amendment of FASB
Statement No. 115” (FAS 159).  FAS 159 became effective for the
Company on April 1, 2008.  This standard permits companies to choose to
measure many financial instruments and certain other items at fair value and
report unrealized gains and losses in earnings.  The Company elected not to
adopt the fair value option for valuation of those assets and liabilities which
are eligible under this statement and therefore there was no impact to the
Company’s results of operations, cash flows or financial
position.


8


In
December 2007, the FASB issued SFAS No. 141(R),Business Combinations, and
SFAS No. 160,Non-controlling
Interests in Consolidated Financial Statements.  SFAS 141 (R)
requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree attheir
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired.  SFAS No. 160 clarifies that a
non-controlling interest in a subsidiary should be reported as equity in the
consolidated financial statements.  SFAS No. 141 (R) and SFSS No. 160 are
effective for financial statements issued for fiscal years beginning after
December 15, 2008.  Early adoption is prohibited.  The Company has not
yet determined the effect on its financial statements, if any, upon adoption of
SFAS No. 141 (R) or SFAS No. 160. SFAS 141 (R) will significantly affect the
accounting for future business combinations and the Company will determine the
affects of the accounting as new acquisitions are considered.





EITF
Issue 07-1,Accounting for
Collaborative Arrangements Related to the Development and Commercialization of
Intellectual Property is effective for financial statements issued for
fiscal years beginning after December 15, 2008.  This issue addresses the
income statement classification of payments made between parties in a
collaborative arrangement.  The adoption of EITF 07-1 is not expected to
have a significant impact on the Company’s results of operations, cash flows or
financial position.




2.
            GOING
      CONCERN





As noted
in the accompanying financial statements at December 31, 2008, the Company has a
deficiency in working capital of $816,133 and is in default on its bank loan of
$1,009,349.  The uncertainties caused by these conditions raise substantial
doubt as to the Company’s ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





The
Company is currently profitable and is exploring various alternatives to improve
its financial position and continue to meet its obligations. The Company’s
principal shareholder has expressed a willingness to help fund operations with
additional advances which aggregated approximately $443,000 during the quarter
ended December 31, 2008 and approximately $507,000 for the nine months ended
December 31, 2008, and management is focusing on improving its operations and
seeking additional debt and/or equity financing. The Company is attempting to
negotiate new terms with the bank and, as of December 31, 2008, the bank has not
taken any action against the Company. There can be no assurance that any of
these efforts will be fruitful.





3.
            INVENTORIES





As of
December 31, 2008 and March 31, 2008, inventories consist the
following:





DECEMBER 31,
                    
                    
                    MARCH 31,2008
                    
                    
                    2008Raw
      material
                    
                    $
                    52,160
                    
                    
                    $
                    -Finished
      goods
                    
                    
                    6,094
                    
                    
                    
                    11,172$
                    58,254
                    
                    
                    $
                    11,172




4.
            REFUNDABLE
      DEPOSITS





The
principal shareholder of the Company entered into various agreements in an
effort to expand the Company’s business.  Those agreements required
deposits which were refundable if the transactions were not completed.  As
of December 31, 2008, all such deposits have been refunded.


9


5.
            PROPERTY
      AND EQUIPMENT





A summary
of property and equipment and the estimated lives used in the computation of
depreciation and amortization is as follows:





DECEMBER 31,
                      2008
                    
                    
                    MARCH 31,
                      2008
                    
                    
                    LIFEBuilding
                    
                    $
                    7,083,964
                    
                    
                    $
                    6,914,476
                    
                    
                    40
      yearsRight
      to use land
                    
                    
                    393,920
                    
                    
                    
                    412,699
                    
                    
                    50
      yearsMachinery
      and equipment
                    
                    
                    1,018,709
                    
                    
                    
                    993,946
                    
                    
                    10
      yearsOffice
      equipment
                    
                    
                    16,035
                    
                    
                    
                    15,398
                    
                    
                    5
      yearsVehicle
                    
                    
                    99,007
                    
                    
                    
                    96,638
                    
                    
                    5
      yearsConstruction
      in progress
                    
                    
                    -
                    
                    
                    
                    588,886
                    
                    
                    -8,611,635
                    
                    
                    
                    9,022,013Accumulated
      depreciation and amortization
                    
                    
                    1,469,318
                    
                    
                    
                    1,208,234$
                    7,142,316
                    
                    
                    $
                    7,813,779





Through
March 31, 2008, the Company advanced $588,886 (RMB4,135,724) to Harbin Tianmu
Real Estate Development Co. Ltd., an entity owned by the Chairman of the
Company. These advances were in connection with a proposed expansion of the
Company’s manufacturing facilities to a new facility to be constructed in
Yichun, China.  In September 2008, management decided not to build
this facility and the advances were repaid by offsetting such amounts against
existing related party loans due to Harbin Tianmu Real Estate Development Co.
Ltd.





6.
            CONTRACT
      DEPOSIT





Contract
deposit represents a payment under a material contract pertaining to a formula
for a nutraceutical product. The Company’s ability to conclude this acquisition
and ultimately commercialize this product requires, among other things,
additional assistance from the seller and obtaining government
approvals.





7.
            RELATED
      PARTIES





Related
party loans consist of the following:





DECEMBER 31,
                    
                    
                    MARCH 31,2008
                    
                    
                    2008Harbin
      Tianmu Real Estate Development Co. Ltd. (a)
                    
                    $
                    (650,270
                    )
                    
                    $
                    (619,297
                    )Chairman
      of the Company (a)
                    
                    
                    (316,636
                    )
                    
                    
                    (136,109
                    )US
      Hua Sky International Investment LLC. (b)
                    
                    
                    (20,587
                    )
                    
                    
                    -Family
      members related to the Company's Chairman (c)
                    
                    
                    -
                    
                    
                    
                    (64,214
                    )$
                    (987,493
                    )
                    
                    $
                    (819,620
                    )




(a)
            These
      loans are due on demand and bear interest at 7% per
  annum.(b)
            The
      Company has a month to month sub-lease arrangement for its New York office
      with a company owned by its Chairman. The monthly rental is $3,950 and is
      the same as the amounts incurred by the related entity. This arrangement
      began on March 1, 2008.(c)
            This
      loan bears interest at 7.6% per annum and was repaid as of December 31,
      2008.


In June
2008, the Company issued 70,000 shares of common stock to two newly appointed
independent directors.


10


8.
            NOTE
      PAYABLE – BANK





This note
bears interest at 12.3% per annum and is due on demand.  The note is
collateralized by certain real estate assets owned by the principal shareholder
of the Company and guaranteed by Heilongjiang Tongli Technology Co., Ltd. The
Company is currently in default on the loan, subject to default interest and
penalties and is negotiating new terms with the bank.  As of December 31,
2008, the bank has not taken any action against the Company.





9.
            INCOME
      TAXES





No
provision for income taxes is required as a result of the utilization of net
operating loss carry-forwards.  Had carry-forwards not been available,
the Company would have incurred income tax expense of approximately $590,000 and
$81,000 and $240,000 and $64,000, for the nine months ended December 31, 2008
and 2007 and for the three months ended December 31, 2008 and 2007,
respectively.





As of
December 31, 2008, the Company has approximately $61,000 of net operating loss
carry-forward in PRC which expire in 2013 and $299,000 of net operating loss
carry-forwards in the United States of America which expire in
2029.





The
Company has a deferred tax asset resulting from tax loss carry-forwards of
approximately $125,000 and $555,000 as of December 31, 2008 and March 31, 2008,
respectively, for which the Company has provided a 100% valuation
allowance.





10.
            COMMITMENTS
      AND CONTINGENCIES





The
Company entered into agreements with three distributors to provide agreed upon
amounts of products at pre-agreed pricing through March 2011. In the event a
distributor does not purchase a fixed percentage of the agreed upon amounts for
three consecutive months, the Company may cancel the agreement.  In
addition, one agreement provides, among other things, that the distributor can
become the exclusive distributor for a geographical area if certain sales
targets are met.





Since
June 2007, HTP leased a portion of its facility to a pharmaceutical college at a
monthly rental of approximately $13,400 (RMB100,000) through September 30, 2008
and $23,300 (RMB160,000) from October 1, 2008.  At March 31, 2008,
approximately $94,000 of rents were unpaid due to the school’s limited revenues
and the Company has recorded 100% reserve against this
receivable.  During the nine months ended December 31, 2008, the
Company received rents of approximately $171,000 (RMB1,180,000) and recorded the
amount as rental income.  As of December 31, 2008, approximately
$81,000 (RMB560,000) of rents were unpaid and the Company has recorded 100%
reserve against this receivable due to the continued uncertainty of
collection.





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 twenty 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.





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 People’s Bank of
China or other institutions requires submitting a payment application form
together with suppliers’ invoices, shipping documents and signed
contracts.


11


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
the China State Food and Drug Administration.  Obtaining licenses for
additional products can be expensive and is usually time consuming.
 Failure to obtain the necessary licenses when needed can cause the
Company’s business plan to be delayed.  If the delays prevent the Company
from generating positive cash flow or introducing a significant number of
products, there will be a material adverse effect on the Company.





In
September 2006, PRC changed the laws regarding transfer of equity in PRC
companies in exchange for equity in non-PRC companies.  Approvals and
registrations for such transfers are required and penalties may be imposed if
the requirements are not met.  The Company believes it is in
compliance with these requirements.


12


ITEM
2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION





The
following discussion and analysis of our financial condition and results should
be read in conjunction with the information contained in the audited
consolidated financial statements for the years ended March 31, 2008 and 2007
and the notes thereto included in our Form 8-K filed with the SEC on July 30,
2008.





As used
in this report, the terms “Company,” “we,” “our,” “us” and “TP” refer to Tongli
Pharmaceuticals (USA), Inc. and its subsidiaries, a Delaware
corporation.





Preliminary
Note Regarding Forward-Looking Statements





This
report contains forward-looking statements within the meaning of the federal
securities laws. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as “plan”, “anticipate,” “expect,” “intend,” “will,” “we believe,” “TP
believes,” “management believes” and similar language. The forward-looking
statements are based on the current expectations of management and are subject
to certain risks, uncertainties and assumptions, including those set forth in
the discussion under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in this report. Actual results may differ
materially from results anticipated in these forward-looking statements. We base
the forward-looking statements on information currently available to us, and we
assume no obligation to update them.





Company
Overview





Tianmu Pharmaceuticals Co, Ltd., our
subsidiary, has been developing pharmaceutical and health care products that
incorporate elements of Chinese Traditional Medicine with elements of Western
Medicine. Our research and development activities have been carried out at
relatively low cost because they have been carried out in concert with a number
of research institutes and universities, including the Jilin Research Institute
of Chinese Traditional Medicine, the Sichuan Research Institute of Chinese
Medicine, the Heilongjiang Institute of Chinese Traditional Medicine, the
Chemistry Department of Tsinghua University, and the R&D Center of Harbin
Medical University.




Products




As a
result of our efforts, we now offer health care products in several distinct
categories, including:




§
            Antihyperlipidemics. These tablets, based on principles of Chinese Traditional
      Medicine, are used to reduce cholesterol levels and soften blood vessels
      in order to improve circulation.  Our antihyperlipidemics are offered
      as an affordable alternative to the statins commonly used for this purpose
      in Western Medicine.




§
            Yufang Anti-Bacterial
      Mouthwash.  Comprised of a mixture of medicinal ingredients
      that counter disease and odor in the oral cavity and throat, Yufang
      Mouthwash is designed to purge bad breath caused by gum disease, abnormal
      sleep, nervousness, food, alcohol and smoking.  We package Yufang
      Mouthwash in bottles that are small enough to be carried conveniently, and
      we target customers who are travelling or away from home.  Our
      primary points of distribution for Yufang Mouthwash have been restaurants
      and transport carriers.




§
            Calcium Gluconate Oral
      Liquid.  This is a calcium supplement used for the prevention
      and treatment of diseases caused by calcium deficiency, such as
      osteoporosis, bone hypoplasis, and Rickets.  The liquid is
      particularly recommended for women during menopause or lactation.
       The National Nutrition Survey conducted by the government of China
      indicated that the average calcium intake among the population of China is
      less than half of the recommended 800 milligrams.  This indicates a
      broad potential market for our product, in which we will have the
      advantage of carrying a pharmaceutical license number, which is
      considerably more authoritative than the health license numbers under
      which most of our competitors market their calcium
      supplements.




§
            Leucorrhea Relief
      Tablet.  Based on Chinese Traditional Medicine, this compound
      is designed to reduce leucorrhea (vaginal discharge).  It is also
      believed to provide relief from chronic cervicitis, endometritis, colpitis
      and other vaginal inflammations.




§
            Arrhythmia Relief
      Tablet.  Based on Chinese Traditional Medicine, our
      anti-arrhythmia medication is designed to provide relief from irregular
      heart rate and the attendant palpitations and dizziness.  The product
      is particularly effective in treating atrioventricular premature beat.


13


§
            Artery Cleansing Oral
      Liquid.  Based on Chinese Traditional Medicine, this compound
      is designed to improve blood circulation by clearing arteries.  The
      product can be used in treatment of anoxemic cardiovascular and
      cerebrovascular disease, as well as hypertension and arteriosclerosis.




§
            Panax and Radix Polygoni
      Capsule.  This compound is believed to improve blood function
      and replenish the strength of the liver and kidneys.  By revitalizing
      these cleansing organs, Traditional Chinese Medicine seeks to allay the
      symptoms of neurasthenia caused by mental or physical fatigue.





We have
also developed a number of products that are ready for commercialization, when
our working capital is adequate:




§
            Broad-Spectrum Disinfectant.We developed this product for use in the prevention of
      communicable diseases, such as Hepatitis B, bird flu and SARS.  We
      will require approximately RMB29 million ($4.25 million) to expand our
      plant and acquire the machinery and inventory necessary to introduce this
      product to the market.





Manufacturing




We
constructed our manufacturing and warehouse facilities in the Limin
Pharmaceutical Technology Park in the City of Harbin.  Our entire site was
constructed in compliance with China State Food and Drug Administration GMP
standards, at a total construction cost of RMB50 million (approx. $7.3 million),
with a goal of achieving world class standards.  In recognition of our
accomplishment, our manufacturing facility has received the National Drug GMP
(Good Manufacturing Practices) Certification, which is necessary in order to
carry on pharmaceutical manufacturing in the PRC.  We have also received
certifications from the International Organization for Standardization:
 specifically, ISO9001:2000 International Quality Management System
Certification and ISO14001 Environmental Management System
Certification.





At the
present time, our manufacturing facility has the capacity to produce an annual
output of products with a sales value over RMB100 million (approximately
$14,470,000).  We expect this to be adequate for at least the next two
years.  In the meantime, however, we have budgeted $3.5 million for capital
investment, in order to expand our capacity and this will require that we obtain
additional capital.  At present, we have received no commitment for the
necessary capital.





Raw
Materials




We have
developed purchasing relationships with a considerable number of suppliers, and
have multiple sources for most of the raw materials we require.  Our
business would not be significantly damaged by the loss of any one supplier.





A
considerable portion of the raw materials that we require are volatile herbs,
which have a brief shelf life.  This situation imposes a risk on our
suppliers, who will often grow to order in order to insure an immediate market
for their herbs.  The situation also necessitates that we assure ourselves
that our raw material requirements are available precisely when needed.  To
satisfy these conditions, it is our practice to make substantial cash advances
to our suppliers in order to lock-in our raw material requirements. However,
unless we develop proprietary sources of raw material supplies, the payment
schedule for our supplies will continue to have a negative effect on our working
capital.





Marketing




We
currently market exclusively within the PRC.  Our distribution network is
comprised of our own direct sales personnel as well as a network of authorized
distribution agents.  Currently our sales network includes:




§
            26
      regional distribution agents;




§
            over
      200 city and county level distribution
agents;




§
            three
      national distributors, each of whom has the exclusive right to market one
      or more of our products if certain designated sales targets are achieved.
       For example, we have given Jilin Province San Yuan Medical Ltd. the
      exclusive right to market our Calcium Gluconate Oral Solution and our
      Clindamycin Hydrochloride Capsule nationwide through March 2011 if it
      purchases certain designated minimum quantities of each
      product.




§
            The
      Harbin Passenger Transportation Agency, which sells our mouthwash on 20 of
      its inter-city train routes.


14


We also
market online through the “China Flagship Medicine Net,” a consortium website
that offers subscribers medical information services and an online purchasing
platform.




Intellectual
Property and Government Regulation




Because
our manufacturing facility has earned the National GMP Certification, we are
authorized to produce products in four modes:  tablets, capsules, granules,
and oral suspensions.  However, in order to market our products, we require
a license specific to each product.  The more readily available license is
for “health care products,” which are governed by the Heilongjiang Province
Public Health Bureau.  We have registered our Yuxiang Anti-Bacterial
Mouthwash with this Bureau.




In order
to market our products as pharmaceuticals, we are required to obtain a license
specific to each product from the State Food & Drug Administration.
 The process of obtaining such licenses is rigorous, requiring considerable
testing.  On average, it costs us approximately RMB1 million (approximately
$150,000) to submit a product for approval by the SFDA.  To date, we have
obtained the pharmaceuticals license for the following:




§
            Sophora
      Flavescens Ait Tablets


§
            Tong
      Mai Oral Solution


§
            Calcium
      Gluconate Oral Solution


§
            Benorilate
      Tablets


§
            Metformin
      Hydrocloride Tablets


§
            Clindamycin
      Hydrocloride Capsules


§
            Ginseng
      Polygonum Capsules


§
            Jiang
      Zhi Ning Granules


§
            Povidone
      Iodine Tablets




Our
product protection primary depends on our trade name and reputation.  For
that reason, we have registered “Tianmu” as our trademark in China.  In
addition, we have obtained a patent in China that covers the method of applying
blue polyethylene packaging to the bottles of our Calcium Gluconate Oral
Solution.




Competition




China’s
domestic pharmaceutical industry is highly competitive, with hundreds of
companies vying to reach consumers through more than 100,000 pharmacies.
 In some categories in which we compete, there are more than twenty other
companies offering a competitive product.  The market continues to attract
new entrants because the per capita medicine consumption in China is still low,
relative to developed countries, which holds a promise of substantial
growth.




Our
strategies for establishing a significant market share include:




§
                        Leveraging
      the prestige of the Limin Pharmaceutical Zone to develop a strong customer
      base in China’s
northeast.




§
              Advertise
      the demonstrated efficacy of Tianmu Pharmaceutical’s product.  We
      have extensively tested our products and can cite studies that demonstrate
      the value of many of them.  This contrasts with a large portion of
      the over-the-counter pharmaceutical market in China, which is
      characterized by unproven
products.




§
              Our
      investment in a state-of-the-art facility had gained our company a good
      reputation in the Chinese medical field, allowing us access to researchers
      at a number of prestigious medical institutions.  Our advertising
      will highlight these associations, thus adding to the prestige of our
      products.




Employees




We
currently employ approximately 100 employees, all of whom are employed on a
full-time basis.  60% of our employees are involved in technical and
scientific activities.  80% of our employees have received college or
university education.




15




Properties
  The
executive offices and manufacturing facilities in PRC are located in the Limin
Pharmaceutical Technology Park in the City of Harbin, which is the capital of
Heilongjiang Province.  We have a 50 year lease from the government of
China to use 50,000 square meters of land for manufacturing
purposes.  Currently our offices and manufacturing facility occupy
15,000 m2, and our
warehouse occupies another 1,800 m2.
  Our
facilities are currently underutilized, due to our lack of working capital.
 For that reason we have subleased a portion of our facility to a
pharmaceutical college, which is required to pay a monthly rental of $13,400
(RMB100,000) through September 2008 and $23,300 (RMB160,000) from October 1,
2008. During the nine months ended December 31, 2008, we received rental income
totaling approximately $ 171,000 (RMB1,180,000).  If we are able to obtain
the capital needed to expand our operations, the space now occupied by the
college will be available to us.  We believe, therefore, that our property
is sufficient for our operations for the foreseeable future.
 
 Critical
Accounting Policies and Estimates
 
 This
section should be read together with the accounting policies included in the
consolidated financial statements included in our audited consolidated financial
statements for the years ended March 31, 2008 and 2007 in our Form 8-K filed
with the SEC on July 30, 2008.
 
 The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amount of assets and liabilities and related disclosure of
contingent assets and liabilities at the date of our financial statements and
the reported amounts of revenues and expenses during the applicable period.
Actual results may differ from these estimates under different assumptions or
conditions.
 
 We define
critical accounting policies as those that are reflective of significant
judgments and uncertainties and which may potentially result in materially
different results under different assumptions and conditions. In applying these
critical accounting policies, our management uses its judgment to determine the
appropriate assumptions to be used in making certain estimates. These estimates
are subject to an inherent degree of uncertainty. Our critical accounting
policies include the following:
 
 Advances
to Suppliers
 
 We have
developed purchasing relationships with a considerable number of suppliers, and
have multiple sources for most of the raw materials that we require.  Our
business would not be significantly damaged by the loss of any one supplier.
 
 A
considerable portion of the raw materials that we require are volatile herbs,
which have a brief shelf life.  This situation imposes a risk on our
suppliers, who will often grow to order in order to insure an immediate market
for their herbs.  The situation also necessitates that we assure ourselves
that our raw material requirements are available precisely when needed.  To
satisfy these conditions, it is our practice to make substantial cash advances
to our suppliers in order to lock-in our raw material requirements. However,
unless we develop proprietary sources of raw material supplies, the advance
payment schedule for our supplies will continue to have a negative effect on our
working capital. The advances to suppliers are interest free.
 
 Impairment
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” we recognize an impairment loss when circumstances indicate
that the carrying value of long-lived tangible and intangible assets with finite
lives may not be recoverable. Management’s policy in determining whether an
impairment indicator exists, a triggering event, comprises measurable operating
performance criteria as well as qualitative measures. If an analysis is
necessitated by the occurrence of a triggering event, we make certain
assumptions in determining the impairment amount. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
future cash flows expected to be generated by the asset or used in its disposal.
If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized.
  16
  Currency
translation
 
 Since we
operate primarily in the PRC, our functional currency is the Chinese Renminbi
(”RMB”).  Revenue and expense accounts are translated at the average rates
during the period, and balance sheet items are translated at year-end rates.
 Translation adjustments arising from the use of differing exchange rates
from period to period are included as a separate component of shareholders’
equity.  Gains and losses from foreign currency transactions are recognized
in current operations.
 
 The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.
 
 Revenue
Recognition
 
 We
recognize revenue at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, and no
other significant obligations by us exist and collectability is reasonably
assured.  Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as advances from customers.
 
 Accounting For Income
Taxes
 
 In
preparing our consolidated financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate. This process
involves management estimation of our actual current tax exposure and assessment
of temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities. We must then assess the likelihood that our deferred tax assets
will be recovered from future taxable income and, to the extent we believe that
recovery is not likely, we must establish a valuation allowance. To the extent
we establish a valuation allowance or increase this allowance in a period, we
must include an expense within the tax provision in the statement of operations.
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets.
 
 Comprehensive
income
 
 Comprehensive
income is defined to include all changes in equity except those resulting from
investments by shareholders and distributions to shareholders.  Among other
disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive income are required to be
reported in a financial statement that is presented with the same prominence as
other financial statements.  Comprehensive income includes net income and
the foreign currency translation gain, net of tax.
 
 Segment
reporting
 
 Statement
of Financial Accounting Standards No. 131 (“SFAS 131”),“Disclosure about Segments of an
Enterprise and Related Information” requires use of the “management
approach” model for segment reporting.  The management approach model is
based on the way a company’s management organized segments within the company
for making operating decisions and assessing performance.  Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a
company.  SFAS 131 has an immaterial effect on our financial statements, as
our business consists of one reportable business segment.  All revenue is
from customers in the PRC.  Substantially all of our assets are located in
the PRC.
 
 New
Accounting Pronouncements
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, “Fair Value
Measurements” (SFAS 157).  This statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. We
adopted the provisions of SFAS 157 on April 1, 2008. SFAS 157 is applicable
whenever another accounting pronouncement requires or permits assets and
liabilities to be measured at fair value. SFAS 157 does not expand or require
any new fair value measures; however the application of this statement may
change current practice. In February 2008, the FASB decided that an entity
need not apply this standard to nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis until fiscal years beginning after November 15, 2008.
Accordingly, our adoption of this standard in 2008 was limited to financial
assets and liabilities.   The adoption of SFAS No. 157 did not
have a material effect on our results of operations, cash flows or financial
position.
  17
 
 In
February 2007, the FASB issued FASB Statement No, 159, “The Fair Value Option for Financial
Assets and Liabilities – including an amendment of FASB
Statement No. 115” (FAS 159).  FAS 159 became effective for the
Company on April 1, 2008.  This standard permits companies to choose to
measure many financial instruments and certain other items at fair value and
report unrealized gains and losses in earnings.  We elected not to adopt
the fair value option for valuation of those assets and liabilities which are
eligible under this statement and therefore there was no impact to our results
of operations, cash flows or financial position.
 
 In
December 2007, the FASB issued SFAS No. 141(R),Business Combinations, and
SFAS No. 160,Non-controlling
Interests in Consolidated Financial Statements.  SFAS 141 (R)
requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired.  SFAS No. 160 clarifies that a
non-controlling interest in a subsidiary should be reported as equity in the
consolidated financial statements.  SFAS No. 141 (R) and SFSS No. 160 are
effective for financial statements issued for fiscal years beginning after
December 15, 2008.  Early adoption is prohibited.  We have not yet
determined the effect on our financial statements, if any, upon adoption of SFAS
No. 141 (R) or SFAS No. 160. SFAS 141 (R) will significantly affect the
accounting for future business combinations and we will determine the accounting
as new acquisitions are considered.
 
 EITF
Issue 07-1,Accounting for
Collaborative Arrangements Related to the Development and Commercialization of
Intellectual Property is effective for financial statements issued for
fiscal years beginning after December 15, 2008.  This issue addresses the
income statement classification of payments made between parties in a
collaborative arrangement.  The adoption of EITF 07-1 is not expected to
have a significant impact on our current results of operations, cash flows or
financial position.
  Results
of Operations
 
 We
obtained our GMP Certification and pharmaceutical licenses in 2005.  Our
focus for the next two years is on developing our marketing
efforts.  Our sales began only near the end of our fiscal year that
ended on March 31, 2008.   The results of our operation for the
three and nine months ended December 31, 2008 compared to the prior comparative
periods are as follows:
 
 Three
Months Ended December 31, 2008 compared to Three Months Ended December 31,
2007
 
 Revenues,
cost of sales and gross profit
 
 Revenues
increased 290% to approximately $1.75 million for the three months ended
December 31, 2008 from approximately $0.45 million for the three months ended
December 31, 2007.  The $ 1.3 million increase was mainly attributable
to the increase in sales of our product Yufang Anti-Bacterial Mouth Wash
supported by our marketing efforts, increasing brand recognition and effective
pricing strategy and our distribution to previously unaddressed
market.
 
 Cost of
sales was approximately $0.9 million for the three months ended December 31,
2008 compared to $0.2 million for the three months ended December 31, 2007. The
$0.7 million increase in cost of sales was mainly attributable to the increased
sales of our product Yufang Anti-Bacterial Mouth Wash.
 
 Gross
profit was approximately $0.8 million for the three months ended December 31,
2008 compared to $0.3 million for the three months ended December 31, 2007, an
increase of $0.5 million contributed by our product Yufang Anti-Bacterial Mouth
Wash.  The gross profit as a percent of revenues on this product for
the three months ended December 31, 2008 increased to 50% compared to 39% in the
prior quarter. Our overall gross profit as a percentage of revenues decreased to
47.4% in the three months ended December 31, 2008 compared to 59.7% in the
comparable prior quarter mainly due to a mix shift to higher sales of lower
margin Yufang Anti-Bacterial Mouth Wash as well as increasing raw material
costs.
  18
  Operating
expenses
 
 Total
operating expenses increased to approximately $0.3 million for the three months
ended December 31, 2008 from $0.1 million for the three months ended December
31, 2007.  As a percentage of revenues, operating expenses decreased
to 18.3% for the three months ended December 31, 2008 compared to 28.5% for the
three months ended December 31, 2007. The $0.2 million increase in total
operating expenses was due to the increase in salaries resulting from additional
personnel needed by our growth and advertising expenses included in our sales
expenses.
 
 Interest
expense
 
 Net
interest expense was $44,079 for the three months ended December 31, 2008
compared to $29,798 for the three months ended December 31, 2007. The increase
of $14,281 in net interest expense for the three months ended December 31, 2008
was because of higher interest on our bank loan and interest expense related to
our loan to related parties.
 
 Income
taxes
 
 No
provision for income taxes is required as a result of the utilization of net
operating loss carry-forwards   Had carry-forwards not been
available, we would have incurred income tax expense of approximately $240,000
and $64,000 for the three months ended December 31, 2008 and 2007,
respectively.
 
 Nine
months Ended December 31, 2008 compared to Nine months Ended December 31,
2007
 
 Revenues,
cost of sales and gross profit
 
 Revenues
increased 314% to approximately $5.1 million for the nine months ended December
31, 2008 from approximately $1.2 million for the nine months ended December 31,
2007.  The $3.9 million increase was mainly attributable to the
increase in sales of our product Yufang Anti-Bacterial Mouth Wash supported by
our marketing efforts, increasing brand recognition and effective pricing
strategy and our distribution to previously unaddressed market.
 
 Cost of
sales was approximately $2.8 million for the nine months ended December 31, 2008
compared to $0.6 million for the nine months ended December 31, 2007. The $2.2
million increase in cost of sales was mainly attributable to the increased sales
of our Yufang Anti-Bacterial Mouth Wash.
 
 Gross
profit was approximately $2.2 million for the nine months ended December 31,
2008 compared to $0.6 million for the nine months ended December 31, 2007, an
increase of $1.6 million principally contributed by our product Yufang
Anti-Bacterial Mouth Wash.  The gross profit as a percent of revenues
on this product for the nine months ended December 31, 2008 increased to 44.8%
compared to 41.9% in the prior comparative period. Our overall gross profit as a
percentage of revenues decreased to 44.3% in the nine months ended December 31,
2008 from 48.8% in the nine months ended December 31, 2007.
 
 Operating
expenses
 
 Total
operating expenses increased to approximately $0.8 million for the nine months
ended December 31, 2008 from $0.4 million for the nine months ended December 31,
2007.  As a percentage of revenues, operating expenses decreased to
15.0% for the nine months ended December 31, 2008 compared to 29.3% for the nine
months ended December 31, 2007. The $0.4 million increase in total operating
expenses was principally due to increase in salaries and advertising expense
included in our sales expense.
  19
  Interest
expense
 
 Net
interest expense was $130,996 for the nine months ended December 31, 2008
compared to $78,805 for the nine months ended December 31, 2007. The increase in
net interest expense for the nine months ended December 31, 2008 was because of
increased interest expense on our bank loan and amounts due to related
parties.
 
 Income
taxes
 
 No
provision for income taxes is required as a result of the utilization of net
operating loss carry-forwards   Had carry-forwards not been
available, we would have incurred income tax expense of approximately $590,000
and $81,000  for the nine months ended December 31, 2008 and 2007,
respectively.
 
 Liquidity
and Capital Resources
  At
December 31, 2008, the Company had working capital deficiency of $816,133 and an
accumulated deficit of $353,405.  We funded the deficit by means of a bank
loan and loans from the members of our management group and advances from an
entity owned by  our Chairman.
  Included
in our current liabilities at December 31, 2008 is a note payable to our bank in
the amount of $1,009,349 (RMB6,918,273).  The note is collateralized by
real estate owned by our Chairman.  The note has been in default since June
30, 2007, and we are negotiating with the bank a refinancing of the note.
  To date the bank has not taken any action against the
Company.
  Our need
to have raw materials available when needed causes us to advance cash to
suppliers.  This drain on our cash will remain unless we are able to secure
a proprietary source for the volatile herbs that are a large portion of our raw
material purchases.
  The
growth of our company will require additional debt and/or equity financing.
 Currently we have budgeted $3.5 million for capital improvements. We
intend to pursue additional debt financing which could be secured by our
property and equipment (which has a book value of $7.1 million) and approach
international equity markets for additional debt and/or equity financing.
 To date we have no commitment from any source for the funds we
require.
 
 Cash
Flow
 
 Cash
flows provided by operating activities during the nine months ended December 31,
2008 amounted to $310,825, which consists of our net income of $1,527,224
increased by noncash adjustments of $262,970 and offset by changes in operating
assets and liabilities of $1,479,369. Cash flows provided by operating
activities in the nine months ended December 31, 2007 amounted to $647,414,
which consist of our net income of $252,352 increased by noncash adjustments of
$243,728 and changes in operating assets and liabilities of $151,334. Cash flows
from operations during the nine months ended December 31, 2008 decreased by
$336,589 or 52% compared with to the same period of 2007. The decreased cash
flow was due primarily to the increase in our net income by $1,274,872 offset by
net decrease in operating assets and liabilities by $1,630,703.
 
 Our cash
flows used in investing activities amounted to $896,532 in the nine months ended
December 31, 2008, which consist of a contract deposit to acquire patent right,
of $1,025,514, payment for a portion of cost of Aim Smart of $276,000 and
purchase of property and equipment of $661, offset by proceeds from refund of
deposits related to terminated acquisitions of $405,643.  Cash flows
used in investing activities amounted to $1,097,500 in the nine months ended
December 31, 2007, which consist of acquisition of property and equipment of
$547,718, deposits paid relating to planned acquisitions of $12,716 and contract
and other deposits of $537,066.  Cash flows used in investing
activities in the nine months ended December 31, 2008 decreased by $200,968 or
22.4% compared to the same period in 2007.
 
 Our cash
flows provided by financing activities amounted to $498,717 in the nine months
ended December 31, 2008, which consist of proceeds from related party advances
of $966,470 offset by payment to related party of $459,854 and payment of our
bank loan by $7,899. Cash flows provided by financing activities amounted to
$478,159 in the nine months ended December 31, 2007, which consist of proceeds
from advances from related party of $507,107 and payment of our bank loan by
$28,948. Cash flows provided by financing activities increased by $20,558 or
4.1% compared to the same period in 2007.
  20
 
 Off-Balance
Sheet Arrangements
 
 The
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition
or results of operations.
 
 Issuance
of Common Stock
 
 On August
12, 2008, the Company (formerly American Tony) completed a reverse merger with
Aim Smart Corporation (“Aim Smart”), a dormant public shell. Under the terms of
the merger agreement, the former American Tony shareholders exchanged their
shares for Aim Smart shares so that, upon the closing of the merger, the former
American Tony shareholders owned 96.7% of the outstanding shares of Aim Smart.
Aim Smart changed its name to American Tony prior to the change to
TP.
 
 In June
2008, the Company issued 70,000 shares of common stock to two newly appointed
independent directors with a value of $17,500.
 
 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.
 
 Currency
Exchange Fluctuations
 
 We
operate primarily in the PRC and the functional currency of our operating
subsidiary is the Chinese Renminbi (”RMB”).  The RMB is not freely
convertible into foreign currency and all foreign exchange transactions must
take place through authorized institutions. No representation is made that the
RMB amounts could have been, or could be, converted into USD at the rates used
in translation.
 
 All of
the Company’s revenues and a majority of its expenses in the nine months ended
December 31, 2008 and 2007 were denominated in RMB and were converted into US
dollars at the average exchange rate of RMB6.89162  to $1 for the nine
months ended December 31, 2008 and at the average exchange rate of
RMB7.56675  to $1 for the nine months ended December 31,
2007.
  21
  ITEM
3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
required.
  ITEM
4T - CONTROLS AND PROCEDURES
  We
maintain “disclosure controls and procedures,” as such term is defined under
Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and in reaching a reasonable level of assurance our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. We have carried
out an evaluation as required by Rule 13a-15(d) under the supervision and with
the participation of our management, including our Chief Executive Officer and
Principal Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of December 31, 2008. Based upon their
evaluation and subject to the foregoing, the Chief Executive Officer and
Principal Financial Officer concluded that as of December 31, 2008 our
disclosure controls and procedures were effective in ensuring that material
information relating to us, is made known to the Chief Executive Officer and
Principal Financial Officer by others within our company during the period in
which this report was being prepared.
  There
were no changes in our internal controls over financial reporting identified in
connection with the evaluation that occurred during the quarter ended December
31, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
  22
  PART
II
  OTHER
INFORMATION
 
 ITEM
1 LEGAL
PROCEEDINGS
 None.
  ITEM
1A               RISK
FACTORS
 As a
smaller reporting company, the Company is not required to make disclosures under
this Item 1A.
  ITEM
2A               UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Not
applicable.
  ITEM
3                  DEFAULTS
UPON SENIOR SECURITIES
 None.
  ITEM
4                  SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
 None.
  ITEM
5                  OTHER
INFORMATION
 None.
  ITEM
6                  EXHIBITS
 Exhibit
      No.
                
                Description31.1
                
                Certification
      of the Chief Executive Officer (Principal Executive Officer) pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      of the Chief Financial Officer (Principal Financial Officer) pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.32.1
                
                Certification
      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002
  23
  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 thereto
duly authorized.
 
 Tongli
      Pharmaceuticals (USA), Inc.Dated:
      February 11, 2009
                  By:
                  /s/
      Yao MingliName:   Yao
      MingliTitle:     Chief
      Executive OfficerBy:
                  /s/
      Yibin YangName:   Yibin
      YangTitle:     Chief
      Financial Officer
  24