UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




x
            Quarterly
      report pursuant to section 13 or 15(d) of the Securities Exchange Act
      of 1934.
              For
      the quarterly period ending June 30,
2009




OR





o
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934.
              For
      the transition period from
      ________    to ________.




Commission
file number 000-52954




Tongli
Pharmaceuticals (USA), Inc.


(Exact
name of registrant as specified in its charter)




Delaware
                
                84-1090791(State
      or other jurisdiction
                  of
      incorporation or organization)
                
                (IRS
      Employer
                  Identification
      number)136-14 Apt. 6D, Northern
      Blvd.Flushing,
      New York, NY
                
                11354(Address
      of Principal Executive Offices)
                
                (Zip
      Code)




718-321-8380


(Registrant’s
Telephone Number, Including Area Code)





Securities
registered pursuant to Section 12(b) of the Act:





None


(Title of
Class)





Name of
each exchange on which registered





None





Securities
registered pursuant to Section 12(g) of the Act:


Common
Stock, $.001 par value per share





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈    No x





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





Large
      accelerated filer   ̈
                Accelerated
      filer   ̈Non-accelerated
      filer   ̈
                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.





As of
August 14, 2009, there were 10,225,932 outstanding shares of common stock of the
registrant, par value $.001 per share.








TABLE
OF CONTENTS





Cautionary
      Note On Forward Looking Statements
                -i-Part
      I
                Financial
      InformationItem
      1.
                Unaudited
      Condensed Financial Statements
                1.
                Condensed
      Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and March 31,
      2009 (Audited)
                1Condensed
      Consolidated Statements of Income and Comprehensive Income (Unaudited) for
      the three months ended June 30, 2009 and 2008
                2Condensed
      Consolidated Statements of Cash Flows (Unaudited) for the three months
      ended June 30, 2009 and 2008
                3Notes
      to Unaudited Condensed Consolidated Financial Statements
                4Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                10Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                17Item
      4T.
                Controls
      and Procedures
                17Part
      II
                Other
      Information
                19Item
      1.
                Legal
      Proceedings
                19Item
      1A.
                Risk
      Factors
                19Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                19Item
      3.
                Defaults
      Upon Senior Securities
                19Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                19Item
      5.
                Other
      Information
                19Item
      6.
                Exhibits
                19Signatures





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








CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS




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




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


-i-


PART
I





Item
1.  Financial
Statements





TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





As ofJune 30
                          
                          
                          March 31,2009
                          
                          
                          2009(Unaudited)
                          
                          
                          (Audited)ASSETSCurrent
      assets:Cash
                          
                          
                          89,278
                          
                          
                          
                          50,247Accounts
      Receivable, net
                          
                          
                          722,990
                          
                          
                          
                          395,170Inventory
                          
                          
                          190,277
                          
                          
                          
                          19,016Advance
      to suppliers
                          
                          
                          1,435,286
                          
                          
                          
                          986,281Total
      current assets
                          
                          
                          2,437,831
                          
                          
                          
                          1,450,714Property
      and equipment, net
                          
                          
                          6,993,408
                          
                          
                          
                          7,076,746Contract
      deposit
                          
                          
                          1,029,179
                          
                          
                          
                          1,028,736Total
      assets
                          
                          
                          10,460,418
                          
                          
                          
                          9,556,196LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                          
                          
                          236,720
                          
                          
                          
                          119,643Due
      to related parties
                          
                          
                          1,274,443
                          
                          
                          
                          1,063,629Accrued
      expenses and other current liabilities
                          
                          
                          448,012
                          
                          
                          
                          542,892Total
      current liabilities
                          
                          
                          1,959,175
                          
                          
                          
                          1,726,164Stockholders'
      EquityPreferred
      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 - 10,225,932 shares and 10,186,716,
      respectively
                          
                          
                          10,226
                          
                          
                          
                          10,187Additional
      paid in capital
                          
                          
                          6,698,060
                          
                          
                          
                          6,665,349Accumulated
      other comprehensive income
                          
                          
                          1,134,837
                          
                          
                          
                          1,130,285Retained
      earnings
                          
                          
                          658,120
                          
                          
                          
                          24,210Total
      Stockholders' equity
                          
                          
                          8,501,243
                          
                          
                          
                          7,830,031Total
      liabilities and Stockholders' equity
                          
                          $
                          10,460,418
                          
                          
                          $
                          9,556,196





See
accompanying notes to the condensed consolidated financial
statements.


1





TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF INCOME AND OTHER COMPREHENSIVE INCOME


(UNAUDITED)





For the three months ended June 30,2009
                  
                  
                  2008Revenue
                  
                  $
                  2,347,094
                  
                  
                  $
                  1,665,170Cost
      of sales
                  
                  
                  1,256,951
                  
                  
                  
                  970,140Gross
      Profit
                  
                  
                  1,090,143
                  
                  
                  
                  695,030Operating
      expenses:General
      & administrative expenses
                  
                  
                  131,973
                  
                  
                  
                  129,870Research
      & development
                  
                  
                  3,461
                  
                  
                  
                  10,175Depreciation
      expense
                  
                  
                  39,398
                  
                  
                  
                  42,348Selling
      expense
                  
                  
                  17,929
                  
                  
                  
                  15,575Total
      operating expenses
                  
                  
                  192,761
                  
                  
                  
                  197,968Operating
      income
                  
                  
                  897,382
                  
                  
                  
                  497,062Other
      Income (expenses):Interest
      expense (net of interest income)
                  
                  
                  (17,892
                  )
                  
                  
                  (35,077
                  )Rental
      income
                  
                  
                  -
                  
                  
                  
                  43,000Total
      other income (expenses)
                  
                  
                  (17,892
                  )
                  
                  
                  7,923Income
      before income taxes
                  
                  
                  879,490
                  
                  
                  
                  504,985Income
      Taxes
                  
                  
                  245,582
                  
                  
                  
                  -Net
      Income
                  
                  
                  633,908
                  
                  
                  
                  504,985Other
      Comprehensive item:Foreign
      Currency Translation adjustment
                  
                  
                  4,552
                  
                  
                  
                  120,906Comprehensive
      income
                  
                  
                  638,460
                  
                  
                  
                  625,891Basic
      and diluted income per share
                  
                  $
                  0.06
                  
                  
                  $
                  0.05Basic
      and diluted weighted average shares outstanding
                  
                  
                  10,225,501
                  
                  
                  
                  9,913,106





See
accompanying notes to the condensed consolidated financial
statements.


2





TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





For the three months ended June 30,2009
                          
                          
                          2008Cash
      flows from operating activitiesNet
      income
                          
                          $
                          633,908
                          
                          
                          $
                          504,985Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                          
                          
                          86,386
                          
                          
                          
                          86,291Amortization
      of stock compensation
                          
                          
                          12,750
                          
                          
                          
                          -Accrued
      loan interest
                          
                          
                          17,900
                          
                          
                          
                          -Stock
      issued for services
                          
                          
                          20,000
                          
                          
                          
                          17,500Changes
      in operating assets and liabilities:(Increase)
      decrease in -Accounts
      receivable
                          
                          
                          (327,681
                          )
                          
                          
                          -Inventory
                          
                          
                          (171,269
                          )
                          
                          
                          (21,869
                          )Advances
      to suppliers
                          
                          
                          (448,623
                          )
                          
                          
                          (203,724
                          )Prepaid
      expenses
                          
                          
                          -
                          
                          
                          
                          (12,280
                          )Accounts
      payable
                          
                          
                          117,039
                          
                          
                          
                          (269,147
                          )Accrued
      expenses and other current liabilities
                          
                          
                          (95,034
                          )
                          
                          
                          124,674Net
      cash provided by (used in) operating activities
                          
                          
                          (154,624
                          )
                          
                          
                          226,430Cash
      flows from investing activitiesRefundable
      deposit
                          
                          
                          -
                          
                          
                          
                          397,470Payment
      made on Aim Smart acquisition
                          
                          
                          -
                          
                          
                          
                          (276,000
                          )Net
      cash provided by investing activities
                          
                          
                          -
                          
                          
                          
                          121,470Cash
      flows from financing activitiesProceeds
      from (repayment of) related party loans
                          
                          
                          193,638
                          
                          
                          
                          (133,254
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          193,638
                          
                          
                          
                          (133,254
                          )Effect
      of exchange rate changes on cash and cash equivalents
                          
                          
                          17
                          
                          
                          
                          (11,918
                          )Net
      increase in cash
                          
                          
                          39,031
                          
                          
                          
                          202,728Cash
      balance, beginning of the period
                          
                          
                          50,247
                          
                          
                          
                          130,630Cash
      balance, end of the period
                          
                          $
                          89,278
                          
                          
                          $
                          333,358Supplemental
      cash flow informationDuring
      the quarter, cash was paid for the following:Income
      Taxes
                          
                          $
                          204,745
                          
                          
                          $
                          -Noncash
      investing and financing activitiesPayment
      made by the officer on Aim Smart acquisition
                          
                          $
                          -
                          
                          
                          $
                          276,000Common
      stock issues for stock-based compensation
                          
                          $
                          20,000
                          
                          
                          $
                          17,500





See
accompanying notes to the condensed consolidated financial
statements.




3




TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


NOTES
TO CONSENDED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE QUARTER ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)





1.
            BASIS
      OF PRESENTATION





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





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information.  Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended June 30, 2009 and
2008 are not necessarily indicative of the results that may be expected for the
full years. The information included in this Form 10-Q should be read in
conjunction with Management’s Discussion and Analysis and the financial
statements and notes to thereto included in the Company’s 2008 Form 10-K for the
year ended March 31, 2009.





The
balance sheet as March 31, 2009 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by GAAP for the complete financial statements.





2.
            NEW
      ACCOUNTING PRONOUNCEMENTS





In
June 2009, the FASB issued SFAS 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162. The FASB Accounting Standards
Codification (“Codification”) will become the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) recognized by FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. On the effective date of SFAS 168, the Codification
will supersede all then-existing non-SEC accounting and reporting standards. All
other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. SFAS 168 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. Adoption of SFAS 168 is not expected to have a material impact on the
Company’s results of operations or financial position.





In
June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46(R) , improves financial reporting by enterprises involved with
variable interest entities. SFAS 167 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities , as a result of the elimination of
the qualifying special-purpose entity concept in SFAS 166 and (2) concerns
about the application of certain key provisions of FIN 46(R), including those in
which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise’s involvement in a
variable interest entity. SFAS 167 shall be effective as of the beginning of
each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within the first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. Adoption of SFAS 167 is not expected to have a
material impact on the Company’s results of operations or financial
position.


4





In
May 2009, the FASB issued SFAS 165, Subsequent Events , which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. An entity should apply the requirements of SFAS 165 to
interim or annual financial periods ending after June 15, 2009. Adoption of
SFAS 165 did not have a material impact on the Company’s results of operations
or financial position.





3.
            GOING
      CONCERN





The
report of the Company’s independent registered public accounting firm on the
financial statements for the fiscal year ended March 31, 2009 includes an
explanatory paragraph indicating substantial doubt as to the Company’s ability
to continue as a going concern.  The Company has taken certain actions
designed to improve its financial results and operating cash flows.  The
actions include certain cost-saving initiatives and continuous development
of new and existing customers.  The Company believes that these
actions will enable it to move towards profitability and improve cash flow in
its continuing operations through the coming fiscal year.  As of June 30,
2009, the Company’s working capital has been improved to $478,656 and the
operating results for the three months ended June 30, 2009 reflect
profitability.





4.
            INVENTORY





As of
June 30, 2009 and March 31, 2009, inventory consists the following:





As ofJune 30, 2009
                    
                    
                    March 31, 2009Raw
      materials
                    
                    $
                    70,374
                    
                    
                    $
                    15,100Finished
      goods
                    
                    
                    119,903
                    
                    
                    
                    3,916Total
                    
                    $
                    190,277
                    
                    
                    $
                    19,016





5.
            PROPERTY
      AND EQUIPMENT





A summary
of property and equipment is as follows:





As ofJune 30, 2009
                    
                    
                    March 31, 2009Building
                    
                    $
                    7,108,334
                    
                    
                    $
                    7,105,308Right
      to use land
                    
                    
                    395,275
                    
                    
                    
                    395,107Machinery
      and equipment
                    
                    
                    1,022,213
                    
                    
                    
                    1,021,778Office
      equipment
                    
                    
                    16,061
                    
                    
                    
                    16,057Vehicle
                    
                    
                    99,348
                    
                    
                    
                    99,305Total
                    
                    
                    8,641,231
                    
                    
                    
                    8,637,555Less:
      accumulated depreciation and amortization
                    
                    
                    1,647,823
                    
                    
                    
                    1,560,809Total
                    
                    $
                    6,993,408
                    
                    
                    $
                    7,076,746


5





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.  The Company is now waiting for governmental approval for the
formula to be used in production and expects to obtain such approval from the
China State Food & Drug Administration within 2009.





7.
            DUE
      TO RELATED PARTIES





Due to
related parties consist of the following:





As ofJune 30, 2009
                    
                    
                    March 31, 2009Harbin
      Tianmu Real Estate Development Co., Ltd. (a)
                    
                    $
                    (803,872
                    )
                    
                    $
                    (688,808
                    )Chairman
      of the Company (a)
                    
                    
                    (449,984
                    )
                    
                    
                    (354,234
                    )US
      Hua Sky International Investment LLC. (b)
                    
                    
                    (20,587
                    )
                    
                    
                    (20,587
                    )Total
                    
                    $
                    (1,274,443
                    )
                    
                    $
                    (1,063,629
                    )





(a)
              These loans bear 7%
      interest rate per annum and due on demand.  Tianmu
      Pharmaceuticals is the Company’s principal operating
      subsidiary.





(b)
              The
      Company has a month to month sub-lease arrangement for its New York office
      with a company owned by its Chairman. This arrangement began on March 31,
      2008 and the monthly rental $3,950 is the same as the amounts incurred by
      the related entity.





8.
            STOCKHOLDERS’
      EQUITY




On March
16, 2009, the Company issued 100,000 shares of common stock to a consultant. The
Company’s contract with this consultant has a term of one year, and the unearned
stock compensation will be amortized as expense over one year term from the date
of the grant. The amortization of this stock compensation for the quarter ended
June 30, 2009 was $12,750.




On April
1, 2009, the Company issued 39,216 shares of common stock to a law firm for
legal services rendered and recorded at its fair value of $20,000.




As of
June 30, 2009, there were 10,225,932 shares of common stock issued and
outstanding and no preferred stock issued and outstanding.




9.
            EARNINGS
      PER SHARE




Earnings
(loss) per share are computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period ended June 30, 2009 and 2008. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares have been issued and if the additional common
shares were dilutive. There are no common stock equivalents available for
dilution purposes as of June 30, 2009 and 2008, respectively. The following
demonstrates the calculation for earnings per share for the period ended June
30, 2009 and 2008:


6





As ofJune 30, 2009
                  
                  
                  June 30, 2008Net
      income
                  
                  $
                  633,908
                  
                  
                  $
                  504,985Weighted
      shares outstanding- Basic
                  
                  
                  10,225,501
                  
                  
                  
                  9,913,106Earning
      per share- Basic
                  
                  $
                  0.06
                  
                  
                  $
                  0.05Earnings
      per share- Diluted
                  
                  $
                  0.06
                  
                  
                  $
                  0.05




10.
            TAXES




(a)
              Corporation
      income tax (“CIT”)




The
Company has not recorded a provision for U.S federal income tax for the quarter
ended June 30, 2009 due to the net operating loss carry forward in the United
States which the Company has set up 100% valuation allowance.





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





As of
June 30, 2009, the Company had approximately $102,249 and $0 of net operating
loss carry-forward for income tax purposes in the United States and China
respectively.





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





As ofJune 30, 2009
                  
                  
                  June 30, 2008U.S.statutory
      income tax rate
                  
                  
                  35.0
                  %
                  
                  
                  35.0
                  %Foreign
      tax rate difference between US and China
                  
                  
                  (10.0
                  )%
                  
                  
                  (10.0
                  )%Effect
      of tax deduction due to NOL from China
                  
                  
                  0.0
                  %
                  
                  
                  (25
                  )%NOL
      from U.S with 100% valuation allowance
                  
                  
                  2.9
                  %
                  
                  
                  -Actual
      consolidated income tax rate
                  
                  
                  27.9
                  %
                  
                  
                  0.0
                  %





Deferred
income taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes, and operating loss
carry-forwards.




The
components of deferred taxes as of June 30, 2009 and 2008 consist of the
following:


7




As ofJune 30, 2009
                  
                  
                  June 30, 2008Net
      operating loss carry-forwards
                  
                  
                  35,787
                  
                  
                  
                  13,139Valuation
      allowance
                  
                  
                  (35,787
                  )
                  
                  
                  (13,139
                  )Net
      deferred tax asset
                  
                  
                  -
                  
                  
                  
                  -





Management
believes the deferred tax assets as of June 30, 2009 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire net tax asset.





(b)
              Value
      added tax (“VAT”)





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





(c)
              Other
      taxes





The
Company is also subject to 5% of business tax, 7% of City Construction Tax and
4% of Education Fees based on VAT.





11.
            COMMITMENTS
      AND CONTINGENCIES





The
Company entered into agreements with three distributors to provide agreed upon
amounts of products at pre-agreed pricing.  These agreements expire
between June 2008 and 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.  Revenues during the three
months ended June 30, 2009 and 2008 were immaterial from these
agreements.




Since
June 2007, Tianmu Pharmaceuticals has 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 through
March 31, 2009.  At March 31, 2008 approximately $102,700 of rents was
unpaid due to the school’s limited revenues. At March 31, 2008, the Company
recorded a 100% reserve against this receivable. During the year ended March 31,
2009, the company recovered $14,700 unpaid rent from prior period and the
balance of the reserve against the rent receivable is approximately $88,000 as
of March 31, 2009. As of March 31, 2009, the facility became vacant and
available to the Company for future operation. No rental income
was generated from the facility during the quarter ended June 30,
2009.





12.
            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 PRCs political, economic and social
conditions.  There is also no guarantee that the PRC government’s
pursuit of economic reforms will be consistent or effective.


8





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





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





The
Company’s business depends on maintaining licenses of its current products from
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.


9


Item 2.MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS





The
following discussion and analysis of financial condition and results of
operations relates to the operations and financial condition reported in the
financial statements of Tongli Pharmaceuticals(USA) Inc. for the quarters ended
June 30, 2009 and 2008 and should be read in conjunction with such financial
statements and related notes included in this report. Those statements in the
following discussion that are not historical in nature should be considered to
be forward-looking statements that are inherently uncertain. Actual results and
the timing of the events may differ materially from those contained in these
forward-looking statements due to a number of factors, including those discussed
in the “Cautionary Note on Forward-Looking Statements” set forth
above.





Company
Overview





Tongli
Pharmaceuticals (USA), Inc. (the “Company”), formally known as Aim Smart
Corporation (“Aim Smart”), was originally formed in the State of Colorado in
April 1998 and reorganized as a Delaware corporation in September
2007.  The Company changed its name to Tongli Pharmaceuticals (USA),
Inc. on October 30, 2008.  The name change was done to better
represent the origin and ongoing business of the Company.





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





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





American
Tony is a holding company incorporated in the State of Delaware.  In
February 2007, American Tony acquired, through a wholly-owned subsidiary,
Heilongjiang Tongli Technology Co., Ltd. (“TT” or “Tongli Technology”), all of
the registered capital of Tianmu Pharmaceuticals, a corporation organized under
the laws of the PRC on November 26, 1999.  Almost all of our operation
is conducted through Tianmu Pharmaceuticals in the PRC.  Tianmu
Pharmaceuticals is engaged in the business of manufacturing and marketing
pharmaceuticals and health care products in the PRC, and 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 by our in house research and development team
and, in the past, 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.




In 2005,
Tianmu Pharmaceuticals obtained the National Drug GMP (Good Manufacturing
Practices) Certification, and Drug Register License and Drug Production
Certificate for nine products from the China State Food and Drug
Administration (formerly, China State Drug Administration).  The
Company’s main products include cholesterol reduction pill, mouthwash,
anti-inflammatory tablet and calcium supplement. These products are sold through
distributors or directly to customers; no service is required after sales are
made. The Company’s primary customers are drug stores and hospitals located in
China.


10


Development
and Strategy




In the
quarter ended at June 30, 2009, we continued the execution of our product
channel expansion strategy that resulted in increased market penetration of our
products and expanded revenue growth.  Management plans to continue
the emphasis on expanded and enhanced marketing and sales in our 2009 fiscal
year and beyond.  Part of this strategy involves increasing and
improving our marketing and sales activities to enhance the market leadership of
our key leading products and to increase the sales of other products by
expanding our sales force, solidifying our distribution network and expanding
our market segment coverage, and increasing our marketing and promotional
activities.




Management
also plans to pursue strategic acquisitions as part of our growth strategy in
2009 and beyond.  We plan to selectively pursue strategic acquisition
opportunities to further consolidate our resources and expand our market
coverage.  We believe that such an initiative will provide effective
means to broaden our product lines, increase our market coverage and complement
our research and development capabilities.




Management
believes that our emphasis on further commercializing and broadening our product
lines, enhanced sales and marketing efforts shall continue to yield significant
increases in revenue in 2009 and beyond.





Critical
Accounting Policies and Estimates





The
consolidated financial information has been prepared in accordance with
generally accepted accounting principles in the United States, which requires us
to make judgments, estimates and assumptions that affect (1) the reported
amounts of our assets and liabilities, (2) the disclosure of our contingent
assets and liabilities at the end of each fiscal period and (3) the reported
amounts of revenues and expenses during each fiscal period.  We
continually evaluate these estimates based on our own historical experience,
knowledge and assessment of current business and other conditions, our
expectations regarding the future based on available information and reasonable
assumptions, which together form our basis for making judgments about matters
that are not readily apparent from other sources.  Since the use of
estimates is an integral component of the financial reporting process, the
actual results could differ from those estimates.  Some of accounting
policies require a higher degree of judgment than others in their
application.





When
reviewing the financial statements, you should consider (1) the selection of
critical accounting policies, (2) the judgment and other uncertainties affecting
the application of those policies, and (3) the sensitivity of reported results
to changes in conditions and assumptions.  We believe the following
accounting policies involve the most significant judgment and estimates used in
the preparation of our financial statements.





Basis
of Presentation





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended June 30, 2009 and
2008 are not necessarily indicative of the results that may be expected for the
full years. The information included in this Form 10-Q should be read in
conjunction with Management’s Discussion and Analysis and the financial
statements and notes to thereto included in the Company’s 2008 Form 10-K for the
year ended March 31, 2009.





The
balance sheet as March 31, 2009 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by GAAP for the complete financial
statements.


11


Principles
of consolidation





The
consolidated financial statements include the accounts of the Company, American
Tony, TT and Tianmu Pharmaceuticals.  All significant inter-company
accounts and transactions have been eliminated.





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.





Discussion
of Operating Results





The
results of our operation for the quarter ended June 30, 2009 compared to the
prior comparative periods are as follows:





For the three months endedJune 30, 2009
                  
                  
                  June 30, 2008Revenues
                  
                  $
                  2,347,094
                  
                  
                  $
                  1,665,170Cost
      of Sales
                  
                  
                  1,256,951
                  
                  
                  
                  970,140Gross
      Profit
                  
                  
                  1,090,143
                  
                  
                  
                  695,030Selling,
      general & administrative expeses
                  
                  
                  197,761
                  
                  
                  
                  197,968Other
      income (expenses)
                  
                  
                  (17,892
                  )
                  
                  
                  7,923Provision
      of income taxes
                  
                  
                  245,582
                  
                  
                  
                  -Net
      income
                  
                  
                  633,908
                  
                  
                  
                  504,985Foreign
      currency translation adjustments
                  
                  
                  4,552
                  
                  
                  
                  120,906Comprehensive
      income
                  
                  $
                  638,460
                  
                  
                  $
                  625,891





Going
Concern





The
report of our independent registered public accounting firm on the financial
statements for the year ended March 31, 2009 includes an explanatory paragraph
indicating substantial doubt as to the our ability to continue as a going
concern. We have taken certain actions and continue to implement changes
designed to improve our financial results and operating cash flows. The actions
include certain cost-saving initiatives and continuous development of new
and existing clients.  We believe that these actions will enable us to
move towards profitability and improve cash flow in our continuing operations
through the coming year. As of June 30, 2009, our working capital deficiency has
been improved to $478,656 and the operating results for the three months ended
June 30, 2009 reflect profitability.





Revenues,
cost of sales and gross profit





Revenues
increased 41% to approximately $2.34 million for the quarter ended June 30, 2009
as compared to approximately $1.66 million for the same period ended June 30,
2008.  The $ 0.68 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.


12





Cost of
sales was approximately $1.26 million for the quarter ended June 30, 2009 as
compared to $0.97 million for the quarter ended June 30, 2008. The $0.28 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 $1.09 million for the quarter ended June 30, 2009, as
compared to $0.69 million for the quarter ended June 30, 2008, an increase of
$0.4 million contributed by our product Yufang Anti-Bacterial Mouth
Wash.  The gross profit as a percent of revenues for the three
months ended June 30, 2009 increased to 46.4% compared to 41.7% in the same
period in 2008.  The decrease in cost of sales as a percentage of
revenue was primarily attributable to better management of raw
material and more efficient control in labor costs. We expect our gross profit
margin will remain in its current level with slight growth in the
future.





Operating
expenses





Total
operating expenses decreased to $197,761 for the quarter ended June 30, 2009
from $197,968 for the quarter ended June 30, 2008.  As a percentage of
revenues, operating expenses decreased to 8.4% for the quarter ended June 30,
2009 compared to 11.9% for the quarter ended June 30, 2008. The slight decrease
in total operating expenses was due to the decrease in administrative expenses.
The changes in operating expenses are summarized below.





Depreciation
and amortization expenses amounted to $39,398 as of June 30, 2009, representing
a 6.9% decrease from $42,348 as of June 30, 2008. Depreciation expense
represented 19.9% and 21.4% of the total operating expenses for the quarter
ended June 30, 2009 and 2008, respectively.





As ofJune 30, 2009
                    
                    
                    June 30, 2008General
      & administrative expenses
                    
                    $
                    131,973
                    
                    
                    $
                    129,870Research
      & development
                    
                    
                    3,461
                    
                    
                    
                    10,175Depreciation
      and amortization expenses
                    
                    
                    39,398
                    
                    
                    
                    42,348Selling
      expenses
                    
                    
                    17,929
                    
                    
                    
                    15,575Total
      Operating expenses
                    
                    $
                    197,761
                    
                    
                    $
                    197,968





Interest
expense





Net
interest expense was $17,900 for the quarter ended June 30, 2009 compared to
$35,077 for the quarter ended June 30, 2008. The decrease of net interest
expense for the quarter ended June 30, 2009 was because we have repaid the bank
loan as of March 31, 2009 and therefore reduced our interest
expenses.





Income
taxes





The
majority of our net income for the period ended June 30, 2009 was from Tianmu
Pharmaceuticals, which conducts substantially all of our operations in
the PRC. Our Chinese subsidiaries are governed by the Income Tax Law of the
People’s Republic of China concerning the private-run enterprises, which are
generally subject to tax at a new statutory rate of 25% on income reported in
the statutory financial statements after appropriate tax
adjustments.





The
income tax expense of $245,582 for the quarter ended June 30, 2009 was
attributed to the income primarily derived from Tianmu
Pharmaceuticals.  No provision for income taxes is required as a
result of the utilization of net operating loss carry-forwards for the quarter
ended June 30, 2008.


13





We have
not recorded a provision for U.S federal income tax for the quarter ended June
30, 2009 due to the net operating loss carry forward in the United States which
we have set up 100% valuation allowance.





As of
June 30, 2009, we had approximately $102,249 of net operating loss carry-forward
for income tax purposes in the United States. As of June 30, 2008, we had
approximately $37,541of net operating loss carry-forward for income tax purposes
in the United States.





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




As ofJune 30, 2009
                      
                      
                      June 30, 2008U.S.statutory
      income tax rate
                      
                      
                      35.0
                      %
                      
                      
                      35.0
                      %Foreign
      tax rate difference between US and China
                      
                      
                      (10.0
                      )%
                      
                      
                      (10.0
                      )%Effect
      of tax deduction due to NOL from China
                      
                      
                      0.0
                      %
                      
                      
                      (25
                      )%NOL
      from U.S with 100% valuation allowance
                      
                      
                      2.9
                      %
                      
                      
                      -Actual
      consolidated income tax rate
                      
                      
                      27.9
                      %
                      
                      
                      0.0
                      %





Deferred
income taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes, and operating loss
carry-forwards.




The
components of deferred taxes as of June 30, 2009 and 2008 consist of the
following:




As ofJune 30, 2009
                  
                  
                  June 30, 2008Net
      operating loss carry-forwards
                  
                  
                  35,787
                  
                  
                  
                  13,139Valuation
      allowance
                  
                  
                  (35,787
                  )
                  
                  
                  (13,139
                  )Net
      deferred tax asset
                  
                  
                  -
                  
                  
                  
                  -




We
believe the deferred tax assets as of June 30, 2009 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire net tax asset.





Net
income





As a
result of the above, the net income for the quarter ended June 30, 2009, was
approximately $633,908, an increase of $128,923, as compared to the net income
of approximately $504,985 for the quarter ended June 30, 2008. The increase in
our net income was primarily due to our increased sales revenues.





Other
comprehensive income





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.





Translation
adjustments resulting from this process amounted to $4,552 and $120,906 as of
June 30, 2009 and 2008, respectively.  The balance sheet amounts with
the exception of equity at June 30, 2009 were translated at 6.8307 RMB to 1.00
USD as compared to 6.8591 RMB to 1.00 USD at June 30, 2008. The equity accounts
were stated at their historical rate. The average translation rates applied to
the income statements accounts for the periods ended June 30, 2009 and 2008 were
6.8300 RMB and 6.9576 RMB, respectively.


14


Liquidity
and Capital Resources





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing
basis.  We usually finance our operation and capital expenditures
through short-term bank loans as well as loans from the members of our
management group and advances from another entity owned by our
chairman.





The
report of our independent registered public accounting firm on the financial
statements for the year ended March 31, 2009 includes an explanatory paragraph
indicating substantial doubt as to the our ability to continue as a going
concern. We have taken certain actions and continue to implement changes
designed to improve our financial results and operating cash flows. The actions
include certain cost-saving initiatives and continuous development of new
and existing clients.  We believe that these actions will enable us to
move towards profitability and improve cash flow in our continuing operations
through the coming year. As of June 30, 2009, our working capital has been
improved to $478,656 and the operating results for the three months ended June
30, 2009 reflect profitability.





Total
current assets increased to approximately $2.43 million as of June 30, 2009 from
$1.45 million as of ended March 31, 2009.  The primary changes in our
current assets during this period were from changes in accounts receivables,
inventory and advance to suppliers. The increase of accounts receivables from
$395,170 as of March 31, 2009 to the amount of $722,990 as of June 30, 2009 was
due to our extended credit to distributors in support of their sales of our
products. Our need to have raw materials available when needed causes us to
advance cash to suppliers and increase inventory stock during the quarter.
 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 increase of inventory from $19,016 as of March 31, 2009
to $190,277 as of June 30, 2009 was due to the consideration of stocking raw
materials to avoid the potential material shortage in the near future and to
support the increased production capacity. The increase of advance to suppliers
from $986,281 as of March 31, 2009 to $1,435,286 as of June 30, 2009 was
attributed to our financial support to strengthen the relationship with our
raw material suppliers.




Total
current liabilities as of June 30, 2009 totaled $1.95 million as compared to
$1.72 million at March 31, 2009. The increase in current liabilities was
primarily due to increase our accounts payable and related party borrowings.
Balance sheet as of June 30, 2009 reflects a balance due to related parties of
$1,274,443 which was a working capital advances made to us by the president as
well as companies owned by our president. The increase of related party loans by
the amount of $0.20 million as compared to that of March 31, 2009 was primarily
due to cash demand generated by new product development and acquisitions. These
advances are interest bearing and are due on demand.




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 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.





Discussion
of Cash Flow





Comparison
of cash flows results for the quarters ended June 30, 2009 and 2008 respectively
is summarized as follows:


15





As
      of June 302009
                  
                  
                  2008Cash
      flow from operating activities
                  
                  $
                  (154,624
                  )
                  
                  $
                  226,430Cash
      flow from investing activities
                  
                  $
                  -
                  
                  
                  $
                  121,470Cash
      flow from financing activities
                  
                  $
                  193,638
                  
                  
                  $
                  (133,254
                  )





Operating
activities





Cash used
in operating activities during the quarter ended June 30, 2009 amounted to
$154,624, which consists of our net income of $633,908 ,adds back noncash
adjustments of $137,036 and offset by net changes in operating assets and
liabilities due to expanded operating activities, including increase in accounts
receivables in the amount of $327,681, increase in inventory of $171,269,
increase in advance to suppliers in the amount of $448,623 to stimulate sales
and maintain good relationship with the suppliers, as well as an increase in
accrued liabilities in the amount of $95,034, offset by a decrease in accounts
payable of $117,039.  Cash used in operating activities in the quarter
ended June 30, 2008 amounted to $226,430, which consist of our net income of
$504,985 increased by noncash adjustments of $103,791 and net changes in
operating assets and liabilities, primarily including increase of advance of
$203,724 to suppliers to maintain good relationship with the suppliers, an
increase in accounts payable in the amount of $269,147 and offset by decrease in
other accrued liabilities in the amount of $124,674. Cash flows from operations
during the quarter ended June 30, 2009 decreased by $381,054 or 168.2% compared
to the same period of 2008.  The decrease in cash provided by
operations as of June 30, 2009 was mainly attributable to an increase in current
assets which reduced our cash.





Investing
activities





Cash used
in investing activities amounted to $0 in the quarter ended June 30,
2009.  Cash used in investing activities amounted to $121,470 for the
quarter ended June 30, 2008, which consists of payment made on Aim Smart
acquisition in the amount of $276,000 and a refundable deposit in the amount of
$397,470.  Cash used in investing activities for the quarter ended
June 30, 2009 decreased by $121,470 or 100% compared to the same period in
2008.





Financing
activities





Cash
provided by financing activities amounted to $193,638 for the quarter ended June
30, 2009, which represent the proceeds from related party advances. Cash used in
financing activities amounted to $133,254 for the quarter ended June 30, 2008,
which was repayment for related party loan. Cash provided by financing
activities increased by $326,892 or 245% compared to the same period in
2008.





Off-Balance
Sheet Arrangements





As of the
date of this report, we do not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors. We have not entered into any other financial guarantees
or other commitments to guarantee the payment obligations of any third parties.
We have not entered into any derivative contracts that are indexed to our shares
and classified as shareholder’s equity or that are not reflected in our
consolidated financial statements. Furthermore, we do not have any retained or
contingent interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity. We do not
have any variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing, hedging or
research and development services with us.


16


Issuance
of Common Stock




On March
16, 2009, we issued 100,000 shares of common stock to a consultant. Our contract
with this consultant has a term of one year, and the unearned stock compensation
will be amortized as expense over one year term from the date of the grant. The
amortization of this stock compensation for the quarter ended June 30, 2009 was
$12,750.




On April
1, 2009, we issued 39,216 shares of common stock to a law firm for services
rendered and recorded at its fair value of $20,000.




As of
June 30, 2009, there were 10,225,932 shares of common stock issued and
outstanding and no preferred stock issued and outstanding.




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.





Item 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




As a
“smaller reporting company”, the Company is not required to provide this
information.





Item 4T. 
CONTROLS AND PROCEDURES




As of the
end of the period covered by this report, the Company carried out, under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) in ensuring that information required to be disclosed by
the Company in its reports is recorded, processed, summarized and reported
within the required time periods.  In carrying out that evaluation,
management identified a material weakness (as defined in Public Company
Accounting Oversight Board Standard No. 2) in our internal control over
financial reporting regarding a lack of adequate segregation of
duties.  Accordingly, based on their evaluation of our disclosure
controls and procedures as of June 30, 2009, the Company’s Chief Executive
Officer and its Chief Financial Officer have concluded that, as of that date,
the Company’s controls and procedures were not effective for the purposes
described above.





There was
no change in the Company’s internal control over financial reporting (as defined
in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934)
during the quarter ended June 30, 2009 that has materially affected or is
reasonably likely to materially affect the Company’s internal control over
financial reporting.




Management’s
Report on Internal Control over Financial Reporting





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934.  We have assessed the effectiveness
of those internal controls as of June 30, 2009, using the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Intergrated
Framework as a basis for our assessment.





Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.  All internal
control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.


17


A
material weakness in internal controls is a deficiency in internal control, or
combination of control deficiencies, that adversely affects the Company’s
ability to initiate, authorize, record, process, or report external financial
data reliably in accordance with accounting principles generally accepted in the
United States of America such that there is more than a remote likelihood that a
material misstatement of the Company’s annual or interim financial statements
that is more than inconsequential will not be prevented or
detected.  In the course of making our assessment of the effectiveness
of internal controls over financial reporting, we identified a material weakness
in our internal control over financial reporting.  This material
weakness consisted of inadequate staffing and supervision within the bookkeeping
and accounting operations of our company.  The relatively small number
of employees who have bookkeeping and accounting functions prevents us from
segregating duties within our internal control system.  The inadequate
segregation of duties is a weakness because it could lead to the untimely
identification and resolution of accounting and disclosure matters or could lead
to a failure to perform timely and effective reviews.





As we are
not aware of any instance in which the company failed to identify or resolve a
disclosure matter or failed to perform a timely and effective review, we
determined that the addition of personnel to our bookkeeping and accounting
operations is not an efficient use of our resources at this time and not in the
interest of shareholders.





Because
of the above condition, the Company’s internal controls over financial reporting
were not effective as of June 30, 2009.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.




This
Report does not include an attestation report of our registered public
accounting firm regarding our internal controls over financial reporting. The
disclosure contained under this Item  was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only the disclosure under this Item  in this
Report.





Changes
in internal control over financial reporting





There
were no changes in our internal controls over financial reporting identified in
connection with the evaluation that occurred during the quarter ended June 30,
2009 that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.


18


PART
II





Item 1. LEGAL PROCEEDINGS




We are
not a party to any current or pending legal proceedings that, if decided
adversely to us, would have a material adverse effect upon our business, results
of operations, or financial condition, and we are not aware of any threatened or
contemplated proceeding by any governmental authority against
us.





To our
knowledge, we are not a party to any threatened civil or criminal action or
investigation. However, from time to time, we may become involved in
various lawsuits and legal proceedings that arise in the ordinary course of
business. Litigation is subject to inherent uncertainties, and an adverse result
in these or other matters may arise from time to time that may harm our
business.




Item 1A. 
RISK FACTORS




As a
“smaller reporting company” the Company is not required to provide information
required by this Item.




Item 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS




None.




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





Item
                      Number
                    
                    Description(31)
                    
                    Section 302
      Certification31.1*
                    
                    Certification
      of Registrant’s Chief Executive Officer pursuant to Rule
      13a-14(a)/15d-14(a) of the Securities Exchange Act of
  1934.31.2*
                    
                    Certification
      of Registrant’s Chief Financial Officer pursuant to Rule
      13a-14(a)/15d-14(a) of the Securities Exchange Act of
  1934.(32)
                    
                    Section 906
      Certification32.1*
                    
                    Certification
      of Registrant’s Chief Executive Officer pursuant to Rule
      13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
      Section 1350.32.2*
                    
                    Certification
      of Registrant’s Chief Financial Officer pursuant to Rule
      13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
      Section
1350







* filed
herewith


19


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.





Dated:
      August 13, 2009/s/ Mingli YaoMingli
      YaoChief
      Executive Officer and Chairman/s/
      Li LiLi
      LiChief
      Financial Officer





EXHIBIT
INDEX




EXHIBIT
NO.




31.1
              
              Certification
      of Chief Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the
      Securities Exchange Act of 1934.31.2
              
              Certification
      of Chief Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the
      Securities Exchange Act of 193432.1
              
              Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
              
              Certification
      of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.