UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




x
            Annual
      report pursuant to section 13 or 15(d) of the Securities Exchange Act
      of 1934.
              For
      the fiscal year ending March 31,
2009




OR





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 if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes  o    No  x.





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act.    Yes  o    No  x.





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  o.





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o





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  o
            
            Accelerated
      filer  oNon-accelerated
      filer  o
            
            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 o    No x.





The
aggregate market value of the voting and non-voting common stock, other than
shares held by persons who may be deemed affiliates of the registrant, computed
by reference to the closing sales price for the registrant’s Common Stock on
July 14, 2009, as reported on the OTC Bulletin Board, was approximately
$5,806,428.





As of
July 15, 2009, there were 10,186,716 outstanding shares of common stock of the
registrant, par value $.001 per share.




DOCUMENTS
INCORPORATED BY REFERENCE





None










TABLE
OF CONTENTS


Page





Cautionary
      Note On Forward Looking Statements
            -i-Part
      IItem
      1.
            Business
            1Item
      1A.
            Risk
      Factors
            8Item
      1B.
            Unresolved
      Staff Comments
            22Item
      2.
            Description
      of Properties
            22Item
      3.
            Legal
      Proceedings
            22Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            22Part
      IIItem
      5.
            Market
      For Common Equity, Related Stockholder Matters and Issuer Purchases of
      Equity Securities
            23Item
      6.
            Selected
      Financial Data
            24Item
      7.
            Management’s
      Discussion and Analysis or Plan of Operation
            24Item
      8.
            Financial
      Statements and Supplementary Data
            34Item
      9.
            Changes
      In and Disagreements With Accountants On Accounting and Financial
      Disclosure
            34Item
      9A(T).
            Controls
      and Procedures
            34Item
      9B.
            Other
      Information
            36Part
      IIIItem
      10.
            Directors,
      Executive Officers, Promoters and Control Persons; Compliance With Section
      16(A) of the Exchange Act
            37Item
      11.
            Executive
      Compensation.
            40Item
      12.
            Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters
            41Item
      13.
            Certain
      Relationships and Related Party Transactions
            42Item
      14.
            Principal
      Accountant Fees and Services
            43Part
      IVItem
      15.
            Exhibits
            43Index
      to Financial Statements
            F-1




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













CAUTIONARY
NOTE ON FORWARD LOOKING STATEMENTS




In
addition to historical information, this Annual Report on Form 10-K 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. 
Factors that might cause such a difference include, but are not limited to,
those discussed in the sections entitled “Business”, “Risk Factors”, and
“Management’s Discussion and Analysis or Plan of Operation.”  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management’s opinions only as of the date thereof.  We undertake no
obligation to revise or publicly release the results of any revision of these
forward-looking statements.  Readers should carefully review the risk
factors described in this Annual Report and in other documents that we file from
time to time with the Securities and Exchange Commission.




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. You should read
statements that contain these words carefully, because they discuss our
expectations about our future operating results or our future financial
condition or state other “forward-looking” information. There may be events in
the future that we are not able to accurately predict or control. You should be
aware that the occurrence of any of the events described in these risk factors
and elsewhere in this Annual Report could substantially harm our business,
results of operations and financial condition, and that upon the occurrence of
any of these events, the trading price of our securities could decline. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, growth rates, and levels of
activity, performance or achievements.





Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform
these statements to actual results. The following discussion should be read in
conjunction with our financial statements and the related notes that appear
elsewhere in this report.





We cannot
give any guarantee that these plans, intentions or expectations will be
achieved.  All forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those discussed in
the forward-looking statements as a result of various factors, including those
factors described in the “Risk Factors” section of this Annual
Report.  Listed below and discussed elsewhere in this Annual Report
are some important risks, uncertainties and contingencies that could cause our
actual results, performances or achievements to be materially different from the
forward-looking statements included in this Annual Report.




i




PART
I





Item
1.  Business





Organization
and Business Description





Tongli Pharmaceuticals (USA), Inc.,
through a wholly-owned subsidiary, Harbin Tianmu Pharmaceuticals Co., Ltd.
(“HTP” or “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, or TCM.
 The Company 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, which was originally incorporated on April 27, 1988 in the
State of Colorado under the name “Gatwick, Ltd” for the purpose of seeking out
and completing a merger or acquisition with one or more companies or businesses,
and was reorganized as a Delaware corporation in September 2007.  American
Tony was a holding company which was incorporated on November 17, 2006
in the state of Delaware and has had no significant operations since its
inception.  The acquisition was effected by the merger of American
Tony into a wholly-owned subsidiary of Aim Smart.





Under the
terms of the merger agreement, the former American Tony stockholders exchanged
their shares for Aim Smart shares so that, upon the closing of the merger, the
former American Tony stockholders owned 96.7% of the outstanding shares of Aim
Smart. America Tony 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 Mr. Mingli Zhao.  Aim Smart changed its name to
American Tony upon the closing of the reverse merger.  Tianmu
Pharmaceuticals was formed under laws of the PRC on November 26,
1999.  In February 2007, American Tony acquired Tianmu Pharmaceuticals
through a recapitalization transaction which was accomplished through the
exchange of shares with Heilongjiang Tongli Technology Co., Ltd. (“TT” or
“Tongli Technology”), a wholly-owned subsidiary of American Tony located in the
PRC. TT owns 100% of Tianmu Pharmaceuticals and doesn’t have any other
operations since its inception.




1





The
structure of the Company as of the date of this annual report on Form 10-K is as
follows:









ChangeofFiscalYear
End





In
October, 2008, after the reverse merger, the fiscal year end of the Company was
changed from December 31 to March 31, in order to be consistent with the
accounting year of the American Tony, which is the accounting
acquirer.





Industry
Background





With
annual growth rates in the PRC pharmaceutical industry exceeding 15% per year,
the PRC has become an important market for pharmaceutical
products. According to published reports, the PRC is one of the top 10
emerging pharmaceutical markets of the world, and is the second largest market
in Asia after Japan.  According to Boston Consulting Group, China’s
pharmaceutical market will become the 5th largest
in the world by 2010. Further, a recent report by McKinsey & Co. reported
that Chinese healthcare spending will grow from $21 billion in 2000 to
approximately $323 billion by 2025, or at a compounded growth rate of
11.6%.




2





Our
Products





We have
been developing pharmaceuticals and health care products that incorporate
elements of Chinese traditional medicine with elements of western
medicine.  Tianmu Pharmaceuticals now offers drugs and 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. For the year ended March 31, 2009, sales of
      Antihyperlipidemics accounted for approximately 11.5%
      of our total sales revenue during the
year.





·
            Yuxiang Anti-Bacterial
      Mouthwash.Comprised
      of a mixture of medicinal ingredients that counter disease and odor in the
      oral cavity and throat, Yuxiang Mouthwash is designed to purge bad breath
      caused by gum disease, abnormal sleep, nervousness, food, alcohol and
      smoking.  We package Yuxiang 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
      Yuxiang Mouthwash are restaurants and transport carriers. For the
      year ended March 31, 2009, sales of Yufang Anti-Bacterial Mouthwash
      accounted for approximately 61.3%
      of our total sales revenue during the
year.





·
            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. We
      believe that our product has a competitive advantage over other similar
      products provided by our competitors, because we have obtained a
      pharmaceutical license for this product, which is considerably more
      authoritative than the health license under which most of our competitors
      market their calcium supplements. For the year ended March 31, 2009, sales
      of Calcium Gluconate Oral Liquid accounted for approximately 14.76%
      of our total sales revenue during the
year.





·
            Leucorrhea Relief
      Tablet.  Based on Chinese traditional medicine, this compound
      is designed to reduce leucorrhea (vaginal discharge).  We also
      believe that it can 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.





·
            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.  We believe that this compound can improve blood
      function and replenish the strength of the liver and kidneys.  By
      revitalizing these cleansing organs, Chinese traditional medicine seeks to
      allay the symptoms of neurasthenia caused by mental or physical
      fatigue.




3


We have
obtained Drug Register License and Drug Production Certificate for each of
the products listed above from China State Food & Drug
Administration (“SFDA”). Please refer to the “Government Regulation”
section for more discussion.





We have also developed the following
product that we believe is ready for commercialization, when we have adequate
working capital:





·
            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 29 million RMB ($4.25 million)
      to expand our plant and acquire the machines and raw materials necessary
      to introduce this product to the market.




In addition, we have made a deposit
under a contract to acquire the formula for a nutraceutical
product.  Our ability to conclude this acquisition and ultimately
commercialize this product requires, among other things, additional assistance
from the seller and obtaining government approvals.  We are presently
waiting for governmental approval for the formula to be used in production and
we expect to obtain such approval in 2009.





Manufacturing





Our
manufacturing and warehouse facilities are located in the
Limin Pharmaceutical Technology Park in the City of Harbin.
 Our entire site was constructed in compliance with Chinese State Drug
Administration GMP (Good Manufacturing Practices) standards at a total
construction cost of 50 million RMB (approximately $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) Certificate, which is required by laws in order
to carry on pharmaceutical manufacturing in the PRC.  We have also received
certificates from the International Organization for Standardization:
 specifically, ISO9001:2000 International Quality Management System
Certificate and ISO14001 Environmental Management System
Certificate.





At the
present time, our manufacturing facility has the capacity to produce an annual
output of products with a sales value over 100 million RMB (approximately
$14,650,000).  We believe that our current capacity is adequate for at
least the next two years.  In the meantime, we have budgeted $3.5 million
for capital investment to expand our capacity, and we will need to raise capital
or obtain other funding to finance such expansion.





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;
      and


·
            the
      Harbin Passenger Transportation Agency, which sells our Yuxiang
      Anti-Bacterial Mouthwash on 20 of its inter-city train routes.




4




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





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





Major
Customers





During
the year ended March 31, 2009, approximately 33% of sales were generated from
four major distributors with the largest distributor representing 8.6% of
sales.  The four major distributors are:





·
            Hebei
      Yishoutang Pharmaceutical Co., Ltd.


·
            Heilongjiang
      Province Luhang Pharmaceutical Co.,
Ltd.


·
            Inner
      Mongolia Wanmin Pharmaceutical Co.,
Ltd.


·
            Harbin
      Pharmaceutical Group Kangde Branch





In
addition, Yuxiang Anti-Bacterial Mouthwash, our main product which represented
approximately 63.1% of our total sales for the year ended March 31, 2009, was
partly distributed by the Harbin Passenger Transportation Agency on 20 of its
inter-city train routes.





Research
and Development





Our
research and development (“R&D”) activities have been carried out at
relatively low cost because they have been carried out by our in-house R&D
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. Our
relationships with these institutions are informal collaborations, are not
pursuant to written agreements and are not government approved.





Raw
Materials





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 affected 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 the herbs 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.  As of March 31, 2009, our advances to suppliers totaled
about $ 986,281, which was equal to 13.3% of our revenue for the year ended
March 31, 2009.  As our business expands, we expect that the ratio will
decrease.  However, unless we develop proprietary sources of raw material,
the payment schedule for our raw materials supply will continue to have a
negative effect on our working capital.




5





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 many other companies offering the same competitive
product.  The market continues to attract new entrants because the per
capita medicine consumption in China is still low, compared to developed
countries, and that shows promise for substantial growth.





We
compete with other companies, many of whom are developing, or can be expected to
develop, products similar to ours. Some of our competitors are better
established than we are, have better brand recognition of products that compete
with ours, and have more financial, technical, marketing and other resources
than we presently possess and a larger customer base. These competitors may be
able to respond more quickly to new or changing opportunities and customer
requirements and may be able to undertake more extensive promotional activities,
offer more attractive terms to customers or adopt more aggressive pricing
policies. We cannot assure you that we will be able to compete effectively with
current or future competitors or that the competitive pressures we face will not
harm our business.





We intend
to establish a significant market share by advertising the demonstrated efficacy
of Tianmu Pharmaceutical’s products.  We have extensively tested our
products and can cite studies that demonstrate the efficacy 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.





Growth
Strategies





In our
2008 fiscal year ended at March 31, 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 has the potential to yield
significant increases in revenue in 2009 and beyond.




6




Government
Regulation





The
pharmaceutical industry in China, including the TCM sector, is highly
regulated.  The primary regulatory authority is the SFDA, including
its provincial and local branches. As a developer, producer and distributor of
medicinal products, we are subject to regulation and oversight by the SFDA and
its provincial and local branches. The Law of the PRC on the Administration of
Pharmaceuticals provides the basic legal framework for the administration of the
production and sale of pharmaceuticals in China and covers the manufacturing,
distributing, packaging, pricing and advertising of pharmaceutical products. Its
implementing regulations set forth detailed rules with respect to the
administration of pharmaceuticals in China. We are also subject to other PRC
laws and regulations that are applicable to business operators, manufacturers
and distributors in general.





Under the
SFDA guidelines for licensing of pharmaceutical products, all pharmaceutical
manufacturers must obtain and maintain GoodManufacturingPractices (“GMP”)
Certifiacte.





Because
our manufacturing facility has obtained the National GMP Certificate, we are
authorized to produce products in four modes:  tablets, capsules, granules,
and oral suspensions.  In addition to that, in order to market our products
as pharmaceuticals, we are required to obtain Drug Register License and Drug
Production Certificate specific to each product from the provincial branch of
China SFDA. The process of application for such licenses is rigorous, requiring
considerable testing.  On average, it costs us approximately 1 million RMB
(approximately $150,000) to get the approval for each product by the SFDA. To
date we have obtained Drug Register License and Drug Production Certificate for
the our products listed under "Our Products" above.





The more
readily available license is for “health care products”, which are governed by
the Heilongjiang Province Public Health Bureau.  Tianmu Pharmaceuticals has
registered its Yuxiang Anti-Bacterial Mouthwash with this Bureau.





Currently
we have not developed a market in U.S. so we believe we are not subject to any
of regulations by the U.S. Food and Drug Administration.





Environmental
Matters




Our
manufacturing and warehouse facilities are located in the Limin Pharmaceutical
Technology Park in the City of Harbin.  We believe that the industrial
zone where we have located our manufacturing facilities is equipped with all
necessary equipment that will enable us to comply with the applicable national,
provincial and local environmental laws related to our operation.  We
maintain all the permits and licenses required by the PRC environment
regulations through Limin Pharmaceutical Technology Park, to whom we pay certain
amount of management fees every year.




7




Intellectual
Property





Our
intellectual property protection primarily depends on our trademark 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. All of
our employees are bound by Company policy to not disclose our proprietary
information, although we have no written confidentiality agreements with our
employees.





Employees





We
currently have approximately 86 employees, all of whom are employed on a
full-time basis.  Five employees are in executive management, 11
in line management, five in research and development and 67 in
manufacturing.





Executive
Offices in China





Our
executive offices in China are located at 1 Beijing Road, Limin Development
Zone, Harbin, China. We maintain a website at www.tmyy.com.cn. Information
contained on or accessed through our website is not intended to constitute and
shall not be deemed to constitute part of this annual report.





Item
1A. Risk Factors





Our
business, operations and financial condition are subject to various risks. Some
of these risks are described below and you should take these risks into account
in making a decision to invest in our common stock. If any of the following
risks actually occurs, we may not be able to conduct our business as currently
planned and our financial condition and operating results could be seriously
harmed. In that case, the market price of our common stock could decline and you
could lose all or part of your investment in our common stock.





Risks
Related to Our Business





There
is substantial doubt as to whether our company will continue as a going
concern.





Our
auditors issued an opinion in their audit report on the financial statements for
the fiscal year ended March 31, 2009 expressing uncertainty about the ability of
our Company to continue as a going concern.  This means that there is
substantial doubt that we can continue as an ongoing business without additional
financing and/or generating profits from our operations. The going concern
uncertainty expressed in their audit opinion could make it more difficult for us
to secure additional financing on terms acceptable to us, if at all, and may
materially and adversely affect the terms of any financing that we may obtain.
If our losses continue and we are unable to secure additional financing, we may
ultimately cease doing business or seek protection from creditors under
applicable bankruptcy laws.





We
may need additional financing, which may not be available on satisfactory
terms or at all.




The
revenues from the production and sale may not be adequate to support our
expansion and product development programs. We may need substantial additional
funds to build new production facilities, pursue further research and
development, obtain regulatory approvals, market our products, and file,
prosecute, defend and enforce our intellectual property rights.





At
present we have no commitment from any source for those funds.  We cannot
determine, therefore, the terms on which we will be able to raise the necessary
funds.  To the extent we raise additional capital by issuing equity
securities, our stockholders may experience dilution. To the extent that we
raise additional capital by issuing debt securities, we may incur substantial
interest obligations, may be required to pledge assets as security for the debt
and may be constrained by restrictive financial and/or operational covenants.
Debt financing would also be superior to our stockholders’ interest in
bankruptcy or liquidation.




8




There are
no assurances that future funding will be available to us on favorable
terms or at all. If additional funding is not obtained, we will need to reduce,
defer or cancel development programs, planned initiatives or overhead
expenditures, to the extent necessary. The failure to fund our capital
requirements would have a material adverse effect on our business, financial
condition and results of operations.





We
may not be able to adequately protect our intellectual property, which could
cause us to be less competitive.




We regard
our trademarks, trade secrets, patents and similar intellectual property as
critical to our success. We rely on trademark, patent and trade secret law,
as well as confidentiality and
license agreements with certain ofour customers and others
to protect our proprietary rights. We have received trademark and patent
protection for certain of our products in the PRC. No assurance can be given
that our patents and licenses will not be challenged,invalidated,
infringed or circumvented, or that our intellectual property rights will provide
competitive advantages to us. There can be no assurance that we will be able to
obtain a license from a third-party technology that we may need to conduct our
business or that such technology can be licensed at a reasonable cost.




We
face competition in the pharmaceutical market in the PRC and such competition
could cause our sales revenue and profits to decline.





According
to the State Food and Drug Administration of China (the “SFDA”), there were
approximately 5,071 pharmaceutical manufacturing companies in the PRC as of the
end of June 2004, of which approximately 3,237 manufacturers obtained
certificates of Good Manufacturing Practices Certification (“GMP
certification”). After GMP certification became a mandatory requirement on July
1, 2004, approximately 1,834 pharmaceutical manufacturers were forced to cease
production. Only the 3,237 pharmaceutical manufacturers with GMP certifications
may continue their manufacturing operations. As of the end of 2006, there are
4682 enterprises manufacturing medicines and formulation in China. The
certificates, permits, and licenses required for pharmaceutical operation in the
PRC create a potentially significant barrier for new competitors seeking
entrance into the market. Despite these obstacles, we face competitors that will
attempt to create, or are already marketing, products in the PRC that are
similar to ours. There can be no assurance that our products will be either more
effective in their therapeutic abilities and/or be able to compete in price with
that of our competitors. Failure to do either of these may result in decreased
profits for our Company.





Our
business and growth will suffer if we are unable to hire and retain key
personnel that are in high demand.





Our
future success depends on our ability to attract and retain highly skilled
chemists, pharmaceutical engineers, technical, marketing and customer service
personnel, especially qualified personnel for our operations in China. Qualified
individuals are in high demand in China, and there are insufficient experienced
personnel to fill the demand.  Therefore we may not be able to successfully
attract or retain the personnel we need to succeed.




Our
business development would be hindered if we lost the services of some key
personnel. Yao Mingli is the Chief Executive Officer of our company and of its
operating subsidiary, Tianmu Pharmaceuticals.  Mr. Yao is responsible for
strategizing not only our business plan but also the means of financing it.
 If Mr. Yao were to leave Tianmu Pharmaceuticals or become unable to
fulfill his responsibilities, our business would be imperiled.  At the very
least, there would be a delay in the development of Tianmu Pharmaceuticals until
a suitable replacement for Mr. Yao could be retained.




9





Our
success is highly dependent on continually developing new and advanced products,
technologies, and processes and failure to do so may cause us to lose our
competitiveness in the pharmaceutical industry and may cause our profits to
decline.





To remain
competitive in the pharmaceutical industry, it is important to continually
develop new and advanced products, technologies and processes. There is no
assurance that our competitors’ new products, technologies and processes will
not render our Company’s existing products obsolete or non-competitive. Our
Company’s competitiveness in the pharmaceutical market therefore relies upon our
ability to enhance our current products, introduce new products, and develop and
implement new technologies and processes. Our Company’s failure to
technologically evolve and/or develop new or enhanced products may cause us to
lose our competitiveness in the pharmaceutical industry and may cause our
profits to decline.





Our
research and development may be costly and/or untimely, and there are no
assurances that our research and development will either be successful or
completed within the anticipated timeframe, if ever at all.





The
research and development of our new and existing products and their subsequent
commercialization plays an important role in our success. As of March 31,
2009, we have three products under research and development. The
research and development of new products is costly and time consuming, and there
are no assurances that our research and development of new products will either
be successful or completed within the anticipated time frame, if ever at all.
There are also no assurances that if the product is developed, that it will lead
to successful commercialization.




We
rely on the cooperation with certain research laboratories, pharmaceutical
institutions, and universities, and if there institutions cease to cooperate
with us and we can not find other suitable substitute research and development
partners, then our ability to develop new products may be hindered and our
business may be adversely affected.





We
cooperate with several research institutions including 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. We rely to a certain extent on these institutions for its
development of new products. However, our collaborations with these
institutions are informal, not pursuant to written agreements and are not
government approved. As a result, there is no assurance that these institutions
will continue cooperating with us to develop new products. In the event that
these institutions cease to cooperate with us and we cannot find other suitable
substitute research and development partners, our ability to develop new
products may be hindered and our business may be adversely
affected.





The
commercial success of our products depends upon the degree of market acceptance
among the medical community and failure to attain market acceptance among the
medical community may have an adverse impact on our operations and
profitability.





The
commercial success of our products depends upon the degree of market acceptance
among the medical community, such as hospitals and physicians. Even if our
products are approved by the SFDA, there is no assurance that physicians will
prescribe or recommend our products to patients. Furthermore, a product’s
prevalence and use at hospitals may be contingent upon our relationship with the
medical community. The acceptance of our products among the medical community
may depend upon several factors, including but not limited to, the product’s
acceptance by physicians and patients as a safe and effective treatment, cost
effectiveness, potential advantages over alternative treatments, and the
prevalence and severity of side effects. Failure to attain market acceptance
among the medical community may have an adverse impact on our operations and
profitability.




10





We
are subject to the risk of natural disasters.





The
production of our products depends on the availability of raw materials, a
significant portion of which are herbs.  These herbs tend to be very
sensitive crops, which can be readily damaged by harsh weather, by disease, and
by pests.  If our suppliers’ crops are destroyed by drought, flood, storm,
blight, or the other woes of farming, we will not be able to meet
the demands of our manufacturing facility, which will then become
inefficient and unprofitable.  In addition, if we are unable to obtain
sufficient raw materials to produce products needed to meet demand, our
distribution network is likely to atrophy.  This could have a long-term
negative effect on our ability to grow our business, in addition to the
near-term loss of income.





If
we lost control of our distribution network, our business would
fail.





We depend
on our distribution network for the success of our business.  During the
year ended March 31, 2009, approximately 33% of sales were generated from four
major distributors. Competitors may seek to pull our distribution network away
from us.  In addition, if dominant members of our distribution network
become dissatisfied with their relationship with Tianmu Pharmaceuticals, a
concerted effort by the distribution network could force us to accept less
favorable financial terms from the distribution network.  Either of these
possibilities, if realized, would have an adverse effect on our
business.





We
have been heavily dependent on one key product





One
product manufactured by the Company represented approximately 63.1% and 51.9% of
total sales for the years ended March 31, 2009 and 2008, respectively. We expect
that a significant portion of our future revenue will continue to be derived
from sales of this product. If this product were to become subject to a problem
such as loss of patent protection, unexpected side effects, regulatory
proceedings, publicity adversely affecting user confidence or pressure from
competing products, or if a new, more effective treatment should be introduced,
the impact on our revenues could be significant.


If
our products fail to receive regulatory approval or are severely limited in the
products scope of use, then we may be unable to recoup our research and
development expenditures and we may not be able to adequately sell such
products.
 
 Our
products that are approved to be manufactured as of March 31, 2009 include nine
medicines. There are three products in the stage of research and development as
of March 31, 2009.  The production of our pharmaceutical products is
subject to the regulatory approval of the SFDA.  The regulatory
approval procedure for pharmaceuticals can be quite lengthy, costly, and
uncertain. Depending upon the discretion of the SFDA, the approval process may
be significantly delayed by additional clinical testing and require the
expenditure of currently unavailable resources; in such an event, it may be
necessary for us to abandon our application.  Even where approval of
the product is granted, it may contain significant limitations in the form of
narrow indications, warnings, precautions, or contra-indications with respect to
conditions of use. If approval of our product is denied, abandoned, or severely
limited in terms of the scope of products use, it may result in the inability to
recoup considerable research and development expenditures already
incurred.




Our
certificates, permits, and license are subject to governmental control and
renewal, and the failure to obtain renewal would cause all or part of our
operation to be suspended and have a material adverse effect on our financial
condition.




We are is subject to various PRC laws and
regulations pertaining to the pharmaceutical industry. We have has attained
certain certificates, permits, and licenses required for the operation of a
pharmaceutical enterprise and the manufacturing of pharmaceutical products in
the PRC. We obtained the Medicine Production Permit in 2003 and 2004, which are subject to annual
checks by the SFDA. We also have GMP certificates which are subject to annual
checks by the SFDA. Thepharmaceutical production permits and GMP
certificates are each valid for a term of five years and must be renewed before
their expiration. During the renewal process, we will be re-evaluated by the
appropriate governmental authorities and must comply with the prevailing
standards and regulations, which may change from time to time. In the event that
we are not able to renew the certificates, permits and licenses, all or
part of our operations may be suspended by the government, which would have a
material adverse effect on our financial condition. Furthermore, if escalating
compliance costs associated with governmental standards and regulations
restrict or prohibit any part of our operations, it may adversely affect our
results of operations and profitability.




11




We may be subject
to the People’s Republic ofChina’s price control
of drugs which may limit our profitability and even cause us to stop
manufacturing certain products.





The State
Development and Reform Commission (“SDRC”) of the PRC and the price
administration bureaus of the relevant provinces of the PRC in which the
pharmaceutical products are manufactured are responsible for the retail price
control over our pharmaceutical products. The SDRC sets the price ceilings for
certain pharmaceutical products in the PRC. Although our products have not been
subject to such price controls as of the date of this Form 10-K, there is no
assurance that our products will remain unaffected by it. Where our products are
subject to a price ceiling, we will need to adjust the product price to meet the
requirement and to accommodate for the pricing of competitors in the competition
for market shares. The price ceilings set by the SDRC may limit our
profitability, and in some instances, such as where the price ceiling is below
production costs, may cause us to stop manufacturing certain products which may
adversely affect our results of operations.





Because
we may not be able to obtain business insurance in the PRC, we may not be
protected from risks that are customarily covered by insurance in the United
States.





Business
insurance is not readily available in the PRC.  To the extent that we
suffer a loss of a type which would normally be covered by insurance in the
United States, such as product liability and general liability insurance, we
would incur significant expenses in both defending any action and in paying any
claims that result from a settlement or judgment. We have not obtained fire,
casualty and theft insurance, and there is no insurance coverage for our raw
materials, goods and merchandise, furniture and buildings in China. Any losses
incurred by us will have to be borne by us without any assistance, and we may
not have sufficient capital to cover material damage to, or the loss of, our
production facility due to fire, severe weather, flood or other cause, and such
damage or loss would have a material adverse effect on our financial condition,
business and prospects.





In
addition to that, we may produce products which inadvertently have an adverse
pharmaceutical effect on the health of individuals.  Existing laws and
regulations in China do not require us to maintain third party liability
insurance to cover product liability claims.  However, if a product
liability claim is brought against us, it may, regardless of merit or eventual
outcome, result in damage to our reputation, breach of contract with our
customers, decreased demand for our products, costly litigation, product
recalls, loss of revenue, and our inability to commercialize some
products.





A
large portion of our common stock is controlled by a small number of
stockholders and as a result, these stockholders are able to influence and
ultimately control the outcome of stockholder votes on various
matters.





Mr.
Mingli Yao, our Chairman and CEO, together with his wife and daughter owns
2,985,000, or 29.3 % of our outstanding shares as of the date of this Form 10-K.
As a result, these stockholders are able to influence and ultimately control the
outcome of stockholder votes on various matters, including the election of
directors and other corporate transactions including business combinations. In
addition, the occurrence of sales of a large number of shares of our common
stock, or the perception that these sales could occur, may affect our stock
price and could impair our ability to obtain capital through an offering of
equity securities. Furthermore, the current ratios of ownership of our common
stock reduce the public float and liquidity of our common stock which can in
turn affect the market price of our common stock.




12





If
we are unable to maintain appropriate internal financial reporting controls and
procedures, it could cause us to fail to meet our reporting obligations, result
in the restatement of our financial statements, harm our operating results,
subject us to regulatory scrutiny and sanction, and cause investors to lose
confidence in our reported financial information.





Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud.  As a public company, we have significant
additional requirements for enhanced financial reporting and internal
controls.  We will be required to document and test our internal
control procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires annual management assessments of the
effectiveness of our internal controls over financial reporting and a report by
our independent registered public accounting firm addressing these assessments.
The process of designing and implementing effective internal controls is a
continuous effort that requires us to anticipate and react to changes in our
business and the economic and regulatory environments and to expend significant
resources to maintain a system of internal controls that is adequate to satisfy
our reporting obligations as a public company.




We cannot
assure you that we will not, in the future, identify areas requiring improvement
in our internal control over financial reporting. We cannot assure you that the
measures we will take to remediate any areas in need of improvement will be
successful or that we will implement and maintain adequate controls over our
financial processes and reporting in the future as we continue our growth. If we
are unable to establish appropriate internal financial reporting controls and
procedures, it could cause us to fail to comply with Sarbanes-Oxley and meet our
reporting obligations, result in the restatement of our financial statements,
harm our operating results, subject us to regulatory scrutiny and sanction, and
cause investors to lose confidence in our reported financial
information.





We
incur increased costs as a result of being a public company.





As a
public company, we incur significant legal, accounting and other expenses that
we did not incur as a private company. In addition, the Sarbanes-Oxley Act of
2002, as well as new rules subsequently implemented by the SEC, have required
changes in corporate governance practices of public companies. We expect these
new rules and regulations to increase our legal, accounting and financial
compliance costs and to make certain corporate activities more time-consuming
and costly. In addition, we will incur additional costs associated with our
public company reporting requirements. We are currently evaluating and
monitoring developments with respect to these new rules, and we cannot predict
or estimate the amount of additional costs we may incur or the timing of such
costs.





Our directors
and officers liability insurance may lapse or be invalid or may fail to cover
any expenses and losses due to lawsuits related to financial reporting errors,
and our indemnification obligations could adversely affect our business,
financial condition and results of operations.





Our
director and officer liability insurance may lapse or otherwise be
unable to cover lawsuit expenses and losses related to financial reporting
errors. Our bylaws require us to indemnify our current and former directors,
officers, employees and agents against most actions of a civil, criminal,
administrative or investigative nature. Generally, we are required to advance
indemnification expenses prior to any final adjudication of an individual’s
culpability. The expense of indemnifying our current and former directors,
officers and employees and agents in their defense or related expenses as a
result of any actions related to the internal investigation and financial
restatement may be significant. Therefore, our indemnification obligations could
result in the diversion of our financial resources and may adversely affect our
business, financial condition and results of operations.




13





We
are not likely to hold annual stockholder meetings in the next few
years.





Management
does not expect to hold annual meetings of stockholders in the next few years,
due to the expense involved.  The current members of the Board of Directors
were appointed to that position by the previous directors.  If other
directors are added to the Board in the future, it is likely that
the current directors will appoint them.  As a result, our
stockholders will have no effective means of exercising control over the
operations of the Company.





Potential
environmental liability could have a material adverse effect on our operations
and financial condition.





As a
manufacturer, we are subject to various Chinese environmental laws and
regulations on air emission, waste water discharge, solid wastes and noise.
Although we believe that our operations are in substantial compliance with
current environmental laws and regulations, we may not be able to comply with
these regulations at all times as the Chinese environmental legal regime is
evolving and becoming more stringent. Therefore, if the Chinese government
imposes more stringent regulations in the future, we may have to incur
additional and potentially substantial costs and expenses in order to comply
with new regulations, which may negatively affect our results of operations.
Further, no assurance can be given that all potential environmental liabilities
have been identified or properly quantified or that any prior owner, operator,
or tenant has not created an environmental condition unknown to us. If we fail
to comply with any of the present or future environmental regulations in any
material aspects, we may suffer from negative publicity and be subject to
claims for damages that may require us to pay substantial fines or have our
operations suspended or even be forced to cease operations.





Risks
Associated With Doing Business In China




There are
substantial risks associated with doing business in China, as set forth in the
following risk factors.




Our operations
and assets in China are subject to significant political and economic
uncertainties.





Changes
in PRC laws and regulations, or their interpretation, or the imposition of
confiscatory taxation, restrictions on currency conversion, imports and sources
of supply, devaluations of currency or the nationalization or other
expropriation of private enterprises could have a material adverse effect on our
business, results of operations and financial condition. Under our current
leadership, the Chinese government has been pursuing economic reform policies
that encourage private economic activity and greater economic decentralization.
There is no assurance, however, that the Chinese government will continue to
pursue these policies, or that it will not significantly alter these policies
from time to time without notice.




We derive a
substantial portion of our sales from China and a slowdown or other adverse
developments in the PRC economy may materially and adversely affect our
customers, demand for our services and our business.





Substantially
all of our sales are generated from China. We anticipate that sales of our
products in China will continue to represent a substantial proportion of our
total sales in the near future. Although the PRC economy has grown significantly
in recent years, we cannot assure you that such growth will continue. The
industrial which we are involved in the PRC is relatively new and growing, but
we do not know how sensitive we are to a slowdown in economic growth or other
adverse changes in the PRC economy which may affect demand for our products. A
slowdown in overall economic growth, an economic downturn or recession or other
adverse economic developments in the PRC may materially reduce the demand for
our products and materially and adversely affect our business.




14




Currency
fluctuations and restrictions on currency exchange may adversely affect our
business, including limiting our ability to convert Chinese Renminbi into
foreign currencies and, if Chinese Renminbi were to decline in value, reducing
our revenue in U.S. dollar terms.





Our
reporting currency is the U.S. dollar and our operations in China use their
local currency as their functional currencies. Substantially all of our revenue
and expenses are in Chinese Renminbi. We are subject to the effects of exchange
rate fluctuations with respect to any of these currencies. For example, the
value of the Renminbi depends to a large extent on Chinese government policies
and China’s domestic and international economic and political developments, as
well as supply and demand in the local market. Since 1994, the official exchange
rate for the conversion of Renminbi to the U.S. dollar had generally been stable
and the Renminbi had appreciated slightly against the U.S. dollar. However, on
July 21, 2005, the Chinese government changed its policy of pegging the value of
Chinese Renminbi to the U.S. dollar. Under the new policy, Chinese Renminbi may
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. It is possible that the Chinese government could adopt a more
flexible currency policy, which could result in more significant fluctuation of
Chinese Renminbi against the U.S. dollar. We can offer no assurance that Chinese
Renminbi will be stable against the U.S. dollar or any other foreign
currency.





The
income statements of our operations are translated into U.S. dollars at the
average exchange rates in each applicable period. To the extent the U.S. dollar
strengthens against foreign currencies, the translation of these foreign
currencies denominated transactions results in reduced revenue, operating
expenses and net income for our international operations. Similarly, to the
extent the U.S. dollar weakens against foreign currencies, the translation of
these foreign currency denominated transactions results in increased revenue,
operating expenses and net income for our international operations. We are also
exposed to foreign exchange rate fluctuations as we convert the financial
statements of our foreign subsidiaries into U.S. dollars in consolidation. If
there is a change in foreign currency exchange rates, the conversion of the
foreign subsidiaries’ financial statements into U.S. dollars will lead to a
translation gain or loss which is recorded as a component of other comprehensive
income. In addition, we have certain assets and liabilities that are denominated
in currencies other than the relevant entity’s functional currency. Changes in
the functional currency value of these assets and liabilities create
fluctuations that will lead to a transaction gain or loss. We have not entered
into agreements or purchased instruments to hedge our exchange rate risks,
although we may do so in the future. The availability and effectiveness of any
hedging transaction may be limited and we may not be able to successfully hedge
our exchange rate risks.




The application
of PRC regulations relating to the overseas listing of PRC domestic companies is
uncertain, and we may be subject to penalties for failing to request approval of
the PRC authorities prior to listing our shares in the
U.S.





In recent
years several PRC regulatory agencies have adopted merger and acquisition
regulations pertaining to the overseas listing of PRC domestic companies which
require the approval of the China Securities Regulatory Commission
(“CSRC”).  Because we have been advised by our PRC legal counsel that
we are not subject to these regulations, we do not intend to request approval
from the CSRC prior to listing our shares on the Over the Counter Bulletin Board
or a national exchange.




However,
there are substantial uncertainties regarding the interpretation, application
and enforcement of these rules, and CSRC has yet to promulgate any written
provisions or formally to declare or state whether the overseas listing of a
PRC-related company structured similar to ours is subject to the approval
of CSRC.  Any violation of these rules could result in fines and other
penalties on our operations in China, restrictions or limitations on remitting
dividends outside of China, and other forms of sanctions that may cause a
material and adverse effect to our business, operations and financial
conditions.




15





The new
mergers and acquisitions regulations also established additional procedures and
requirements that are expected to make merger and acquisition activities by
foreign investors more time-consuming and complex, including requirements in
some instances that the Ministry of Commerce be notified in advance of any
change-of-control transaction in which a foreign investor takes control of a PRC
domestic enterprise that owns well-known trademarks or China’s traditional
brands. We may grow our business in part by acquiring other businesses.
Complying with the requirements of the new mergers and acquisitions regulations
in completing this type of transactions could be time-consuming, and any
required approval processes, including CSRC approval, may delay or inhibit our
ability to complete such transactions, which could affect our ability to expand
our business or maintain our market share.





We
may face regulatory uncertainties that could restrict our ability to issue
equity compensation to our directors and employees and other parties who are PRC
citizens or residents under PRC law.





On April
6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also know as “Circular 78.” It is not clear
whether Circular 78 covers all forms of equity compensation plans or only those
which provide for the granting of stock options. For any equity compensation
plan which is so covered and is adopted by a non-PRC listed company after April
6, 2007, Circular 78 requires all participants who are PRC citizens to register
with and obtain approvals from SAFE prior to their participation in the plan. In
addition, Circular 78 also requires PRC citizens to register with SAFE and make
the necessary applications and filings if they participated in an overseas
listed company’s covered equity compensation plan prior to April 6, 2007. We
have begun to make option grants to some of our directors, who are PRC citizens
and may adopt an equity compensation plan in future. Circular 78 may require PRC
citizens who receive option grants to register with SAFE. We believe that the
registration and approval requirements contemplated in Circular 78 will be
burdensome and time consuming. Failure to comply with such provisions may
subject us and recipients of such options to fines and legal sanctions and
prevent us from being able to grant equity compensation to our PRC employees. In
that case, our ability to compensate our employees and directors through equity
compensation would be hindered and our business operations may be adversely
affected.





Because our
principal assets are located outside of the United States and with the exception
of one  director, our directors and all our officers reside outside of
the United States, it may be difficult for you to enforce your rights based on
the United States Federal securities laws against us and our officers and
directors in the United States or to enforce judgments of United States courts
against us or them in the PRC.





All of
our officers and directors reside outside of the United States. In addition, our
operating subsidiaries are located in the PRC and all of their assets are
located outside of the United States. China does not have a treaty with United
States providing for the reciprocal recognition and enforcement of judgments of
courts. It may therefore be difficult for investors in the United States to
enforce their legal rights based on the civil liability provisions of the United
States Federal securities laws against us in the courts of either the United
States or the PRC and, even if civil judgments are obtained in courts of the
United States, to enforce such judgments in PRC courts. Further, it is unclear
if extradition treaties now in effect between the United States and the PRC
would permit effective enforcement against us or our officers and directors of
criminal penalties, under the United States Federal securities laws or
otherwise.




16




We may have
limited legal recourse under PRC law if disputes arise under our contracts with
third parties.





The
Chinese government has enacted some laws and regulations dealing with matters
such as corporate organization and governance, foreign investment, commerce,
taxation and trade. However, their experience in implementing, interpreting and
enforcing these laws and regulations is limited, and our ability to enforce
commercial claims or to resolve commercial disputes is unpredictable. If our new
business ventures are unsuccessful, or other adverse circumstances arise from
these transactions, we face the risk that the parties to these ventures may seek
ways to terminate the transactions, or, may hinder or prevent us from accessing
important information regarding the financial and business operations of these
acquired companies. The resolution of these matters may be subject to the
exercise of considerable discretion by agencies of the Chinese government, and
forces unrelated to the legal merits of a particular matter or dispute may
influence their determination. Any rights we may have to specific performance,
or to seek an injunction under PRC law, in either of these cases, are severely
limited, and without a means of recourse by virtue of the Chinese legal system,
we may be unable to prevent these situations from occurring. The occurrence of
any such events could have a material adverse effect on our business, financial
condition and results of operations. Although legislation in China over the past
30 years has significantly improved the protection afforded to various forms of
foreign investment and contractual arrangements in China, these laws,
regulations and legal requirements are relatively new and their interpretation
and enforcement involve uncertainties, which could limit the legal protection
available to us, and foreign investors, including you. The inability to enforce
or obtain a remedy under any of our future agreements could result in a
significant loss of business, business opportunities or capital and could have a
material adverse impact on our operations.





We must comply
with the Foreign Corrupt Practices Act.





We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business. Foreign
companies, including some of our competitors, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in mainland China. If our
competitors engage in these practices, they may receive preferential treatment
from personnel of some companies, giving our competitors an advantage in
securing business or from government officials who might give them priority in
obtaining new licenses, which would put us at a disadvantage. Although we inform
our personnel that such practices are illegal, we can not assure you that our
employees or other agents will not engage in such conduct for which we might be
held responsible. If our employees or other agents are found to have engaged in
such practices, we could suffer severe penalties.




Due to various
restrictions under PRC laws on the distribution of dividends by our PRC
Operating Companies, we may not be able to pay dividends to our
stockholders.





The
Wholly-Foreign Owned Enterprise Law (1986), as amended and The Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises, such as Harbin Tianmu Pharmaceuticals may pay
dividends only out of their accumulated profits, if any, determined in
accordance with PRC accounting standards and regulations. Additionally, Harbin
Tianmu Pharmaceuticals is required to set aside a certain amount of their
accumulated profits each year, if any, to fund certain reserve funds. These
reserves are not distributable as cash dividends except in the event of
liquidation and cannot be used for working capital purposes. The PRC government
also imposes controls on the conversion of RMB into foreign currencies and the
remittance of currencies out of the PRC.  We may experience
difficulties in completing the administrative procedures necessary to obtain and
remit foreign currency for the payment of dividends from the profits of Harbin
Tianmu Pharmaceuticals.




17




Furthermore,
if our subsidiaries in China incur debt on their own in the future, the
instruments governing the debt may restrict its ability to pay dividends or make
other payments. If we or our subsidiaries are unable to receive all of the
revenues from our operations through these contractual or dividend arrangements,
we may be unable to pay dividends on our Common Stock.




Changes
in foreign exchange regulations in the PRC may affect our ability to pay
dividends in foreign currency or conduct other foreign exchange
business.




We
receive substantially all of our revenues in Renminbi, the Chinese currency,
which is currently not a freely convertible currency.  The
restrictions on currency exchanges may limit our ability to use revenues
generated in RMB to make dividends or other payments in United States
dollars.  The PRC government strictly regulates conversion of RMB into
foreign currencies.  Over the years, foreign exchange regulations in
the PRC have significantly reduced the government’s control over routine foreign
exchange transactions under current accounts.  In the PRC, SAFE
regulates the conversion of the RMB into foreign currencies.  Pursuant
to applicable PRC laws and regulations, foreign invested enterprises
incorporated in the PRC are required to apply for “Foreign Exchange Registration
Certificates.”  Currently, conversion within the scope of the “current
account” (e.g. remittance of foreign currencies for payment of dividends, etc.)
can be effected without requiring the approval of SAFE. However, conversion of
currency in the “capital account” (e.g. for capital items such as direct
investments, loans, securities, etc.) still requires the approval of
SAFE.  In addition, failure to obtain approval from SAFE for currency
conversion on the capital account may adversely impact our capital expenditure
plans and our ability to expand in accordance with our desired
objectives.





The PRC
government also may at its discretion restrict access in the future to foreign
currencies for current account transactions.  If the foreign exchange
control system prevents us from obtaining foreign currency, we may be unable to
pay dividends or meet obligations that may be incurred in the future that
require payment in foreign currency.




The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.




We are
dependent on our relationship with the local government in the province in which
we operate our business.  Chinese government has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership.  Our ability
to operate in China may be harmed by changes in its laws and regulations,
including those relating to taxation, environmental regulations, land use
rights, property and other matters.  We believe that our operations in
China are in material compliance with all applicable legal and regulatory
requirements. However, the central or local governments of these jurisdictions
may impose new, stricter regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part to ensure our
compliance with such regulations or interpretations.  Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties.




Future
inflation in China may inhibit our ability to conduct business in China. In
recent years, the Chinese economy has experienced periods of rapid expansion and
high rates of inflation.  Rapid economic growth can lead to growth in
the money supply and rising inflation.  If prices for our products
rise at a rate that is insufficient to compensate for the rise in the costs of
supplies, it may have an adverse effect on profitability.  These
factors have led to the adoption by Chinese government, from time to time, of
various corrective measures designed to restrict the availability of credit or
regulate growth and contain inflation.  High inflation may in the
future cause Chinese government to impose controls on credit and/or prices, or
to take other action, which could inhibit economic activity in China, and
thereby harm the market for our products.




18




We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.




The PRC
historically has been deficient in Western style management and financial
reporting concepts and practices, as well as in modern banking, and other
control systems.  We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in the PRC.  As a
result of these factors, and especially given that we expect to be a publicly
listed company in the U.S. and subject to regulation as such, we may experience
difficulty in establishing management, legal and financial controls, collecting
financial data and preparing financial statements, books of account and
corporate records and instituting business practices that meet Western
standards.  We may have difficulty establishing adequate management,
legal and financial controls in the PRC.  Therefore, we may, in turn,
experience difficulties in implementing and maintaining adequate internal
controls as required under Section 404 of the Sarbanes-Oxley Act of 2002 and
other applicable laws, rules and regulations.  This may result in
significant deficiencies or material weaknesses in our internal controls which
could impact the reliability of our financial statements and prevent us from
complying with SEC rules and regulations and the requirements of the
Sarbanes-Oxley Act of 2002.  Any such deficiencies, weaknesses or lack
of compliance could have a materially adverse effect on our business and the
public announcement of such deficiencies could adversely impact our stock
price.




It
may be difficult to protect and enforce our intellectual property rights under
PRC law.




Intellectual
property rights in China are still developing, and there are uncertainties
involved in the protection and the enforcement of such rights.  We
will need to pay special attention to protecting our intellectual property and
trade secrets.  Failure to do so could lead to the loss of a
competitive advantage that could not be compensated by our damages
award.




If
our land use rights are revoked, we would have no operational
capabilities.




Under
Chinese law land is owned by the state or rural collective economic
organizations. The state issues to tenants the rights to use
property.  Use rights can be revoked and the tenants forced to vacate
at any time when redevelopment of the land is in the public
interest.  The public interest rationale is interpreted quite broadly
and the process of land appropriation may be less than
transparent.  Our two operating subsidiary relies on these land use
rights as the cornerstone of its operations, and the loss of such rights would
have a material adverse effect on our company.




We
are subject to the environmental protection law of China.




Our
manufacturing process may produce by-products such as effluent, gases and noise,
which are harmful to the environment.  We are subject to
multiple laws governing environmental protection, such as “The Law on
Environmental Protection in the PRC” and “The Law on Prevention of Effluent
Pollution in the PRC,” as well as standards set by the relevant
governmental authorities determining the classification of different wastes and
proper disposal.




China is
experiencing substantial problems with environmental
pollution.  Accordingly, it is likely that the national, provincial
and local governmental agencies will adopt stricter pollution
controls.  There can be no assurance that future changes in
environmental laws and regulations will not impose costly compliance
requirements on us or otherwise subject us to future liabilities.  Our
profitability may be adversely affected if additional or modified environmental
control regulations are imposed upon us.




19




Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect our operations.




A renewed
outbreak of SARS or another widespread public health problem in the PRC, where
all of our revenue is derived, could have an adverse effect on our operations.
Our operations may be impacted by a number of health-related factors, including
quarantines or closures of some of our offices that could leave us without many
employees to conduct our business which would materially and adversely affect
our operations and financial condition.





Risks
Related to Our Common Stock





There
is currently a limited trading market for our common shares, and you may be
unable to sell at or near ask prices or at all if you need to sell your shares
to raise money or otherwise desire to liquidate your shares.





Our
common stock is currently traded in the over-the-counter market through the OTC
Bulletin Board. The quotation of our shares on the OTC Bulletin Board may result
in a less liquid market available for our existing and potential stockholders to
trade shares of our common stock, could depress the trading price of our common
stock and could have a long-term adverse impact on our ability to raise capital
in the future. While there is an active trading market for our common stock, it
is small. We cannot give you any assurance that a broader or more active public
trading market for our common stock will develop or be sustained, or that
current trading levels will be sustained.





The
market price for our stock may be volatile.




The
market price for our stock may be volatile and subject to wide fluctuations in
response to factors including the following:





·
            actual
      or anticipated fluctuations in our quarterly operating
      results;


·
            changes
      in financial estimates by securities research
  analysts;


·
            conditions
      in pharmaceutical markets;


·
            changes
      in the economic performance or market valuations of other pharmaceutical
      companies;


·
            announcements
      by us or our competitors of new products, acquisitions, strategic
      partnerships, joint ventures or capital
  commitments;


·
            addition
      or departure of key personnel;


·
            fluctuations
      of exchange rates between RMB and the U.S.
  dollar;


·
            intellectual
      property litigation; and


·
            general
      economic or political conditions in
China.




In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also materially and
adversely affect the market price of our stock.




20





We
are likely to remain subject to “penny stock” regulation and as a consequence
there are additional sales practice requirements and additional warning issued
by the SEC.





As long
as the trading price of our common stock is below $5.00 per share, the
open-market trading of our common stock will be subject to the “penny stock”
rules of the SEC. The “penny stock” rules impose additional sales practice
requirements on broker-dealers who sell securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of securities and
have received the purchaser’s written consent to the transaction before the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the broker-dealer must deliver, before the transaction, a disclosure
schedule prescribed by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability of broker-dealers to sell the
common stock and may affect a stockholder’s ability to resell the common
stock.





There can
be no assurance that our common stock will qualify for exemption from the “penny
stock” rules. In any event, even if our common stock is exempt from such rules,
we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the
SEC the authority to restrict any person from participating in a distribution of
a “penny stock” if the SEC finds that such a restriction would be in the public
interest.





Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (i) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (ii)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (iii) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differential and markups
by selling broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market.





We
do not foresee paying cash dividends in the foreseeable future.




We
currently intend to retain any future earnings for funding growth. We do not
anticipate paying any dividends in the foreseeable future. As a result, you
should not rely on an investment in our securities if you require dividend
income. Capital appreciation, if any, of our shares may be your sole source of
gain for the foreseeable future. Moreover, you may not be able to resell your
shares in our company at or above the price you paid for them.





Our
Article of Incorporation authorize the issuance of shares of preferred stock
which, if issues, the rights, preference, designations and limitations of such
preferred stock could operate to the disadvantage of the shares of our
outstanding common stock.





Our
articles of incorporation authorize the issuance of shares of preferred stock,
the rights, preferences, designations and limitations of which may be set by the
board of directors. While no preferred stock is currently outstanding or subject
to be issued, the articles of incorporation have authorized issuance of up
to 1,000,000 shares of preferred stock (“Preferred Stock”) in the discretion of
the board of directors. Such Preferred Stock may be issued upon filing of
amended Articles of Incorporation and the payment of required fees; no further
shareholder action is required. If issued, the rights, preferences, designations
and limitations of such Preferred Stock would be set by our board of directors
and could operate to the disadvantage of the shares of our outstanding Common
Stock. Such terms could include, among others, preferences as to dividends and
distributions on liquidation.




21





Item
1B.  Unresolved Staff Comments





None.





Item 2.  Description of
Properties




The
executive offices and manufacturing facilities of our wholly-owned operating
subsidiary, Tianmu Pharmaceuticals, are located in the
Limin Pharmaceutical Technology Park in the City of Harbin, which
is the capital of Heilongjiang Province.





Under the
PRC law, land is owned by the state or rural collective economic organizations.
The state issues to tenants the rights to use land. Tianmu Pharmaceuticals has
been granted by the government of China, a 50-year land use right certificate,
which will expire in April 2046, to use 50,000 square meters of land for
manufacturing purposes.  Currently our offices and manufacturing facility
occupy 15,000 square meters, and our warehouse occupies 1,800 square meters.





Our
facilities are currently underutilized, due to our lack of working capital.
 For that reason we subleased a portion of our facility to a
pharmaceutical college, which paid us a monthly rental of $13,400
(RMB100,000) through September 2008 and $23,300 (RMB160,000) from October 1,
2008 through March 31, 2009. The space is currently vacant and
is available to us.  We believe, therefore, that our property is
sufficient for our operations for the foreseeable future.





Item 3.  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 4. Submission of Matters to a Vote of
Security Holders





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended March 31, 2009.




22





PART
II





Item 5.   Market For
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities





Market
Information





Our
Common Stock is traded on the OTC Bulletin Board under the symbols
“TGLPE.OB”.  The following tables set forth, for the calendar quarter
indicated, the quarterly high and low sales price for the Company’s common stock
as reported on the OTC Bulletin Board. Trading in the common stock in the
over-the-counter market has been limited and sporadic and the quotations set
forth below are not necessarily indicative of actual market conditions. Further,
the quotations merely reflect the prices at which transactions were proposed,
and do not necessarily represent actual transactions.





High
            
            
            Low2008 by
      QuarterApril
      1, 2008 - June 30 , 2008
            
            $
            1.30
            
            
            $
            0.50July
      1, 2008 - September 30, 2008
            
            $
            0.60
            
            
            $
            0.51October
      1, 2008 - December 31, 2008
            
            $
            0.60
            
            
            $
            0.51January
      1, 2009 - March 31 , 2009
            
            $
            0.51
            
            
            $
            0.512007 by
      QuarterApril
      1, 2007 - June 30, 2007
            
            $
            0.00
            
            
            $
            0.00July
      1, 2007 - September 30, 2007
            
            $
            2.25
            
            
            $
            0.00October
      1, 2007 - December 31, 2007
            
            $
            2.25
            
            
            $
            1.30January,
      2008 - March 31, 2008
            
            $
            1.65
            
            
            $
            1.30





On July
14, 2009, the closing price for shares of our common stock, as reported by the
Over-the-Counter Bulletin Board, was $0.51.





Record Holders.





As of
July15, 2009, there were 687 registered holders of our common stock. As of July
15, 2009, there were 10,186,716 shares of common stock issued and
outstanding.





Dividends





We have
not paid dividends on our common stock in the past and do not anticipate doing
so in the foreseeable future. We currently intend to retain future earnings, if
any, to fund the development and growth of our business. The decision whether to
pay cash dividends on our common stock will be made by our board of directors,
at their discretion, and will depend on our financial condition, operating
results, capital requirements and other factors that the board of directors
considers significant.




Recent
Sales of Unregistered Securities




On April
1, 2009, we issued 39,216 shares of common stock to a law firm as consideration
for services.


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.





On
February 17, 2009, the Company issued 33,500 shares of common stock for legal
services rendered and recorded at its fair value of $17,085.




23





On
January 1, 2009, the Company issued 20,000 shares of common stock to a
consultant for services rendered and recorded at its fair value of $10,200.
Also, 60,000 shares of common stock were issued to an independent director for
services rendered and recorded at its fair value at $30,600.





Item
6.  Selected Financial Data




We are a
“smaller reporting company” as defined by Regulation S-K and as such, are not
required to provide the information contained in this item pursuant to
Regulation S-K.





Item 7.  Management’s Discussion
and Analysis or Plan of Operation.





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 fiscal years
ended March 31, 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 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. (“TP” or 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.
Subsequent to the merger, Aim Smart changed its name to American Tony
Pharmaceuticals, Inc. on September 23, 2008, and then change its name to Tongli
Pharmaceuticals (USA), Inc. on October 30, 2008.





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 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
R&D 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.




24





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.




Development
and Strategy




In our
2008 fiscal year ended at March 31, 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





Our
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, our
actual results could differ from those estimates.  Some of our
accounting policies require a higher degree of judgment than others in their
application.





When
reviewing our financial statements, you should consider: (1) our 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.




25





Basis
of presentation





The
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”).





Principles
of consolidation





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





Uses
of estimates





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





We
maintain cash with financial institutions in the PRC, which are not insured or
otherwise protected.  Should any of these institutions holding our
cash become insolvent, or if we are unable to withdraw funds for any reason, we
could lose the cash on deposit with that institution.





Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.





Accounts
Receivable





Accounts
receivables consist primarily of receivables resulting from sales of products,
and are stated at net realizable value. This value includes an appropriate
allowance for estimated uncollectible accounts. The allowance is calculated
based upon the evaluation and the level of past due accounts and the
relationship with and the economic status of the customers.





Inventory





Inventory
is stated at the lower of cost, determined using the weighted average cost
method, and net realizable value.  Net realizable value is the
estimated selling price, in the ordinary course of business, less estimated
costs to complete and dispose. Costs include materials, labor and manufacturing
overhead.  Management periodically compares the cost of inventory with
the market value and an allowance is made for writing down the inventory to its
market value, if lower than cost.





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.




26





Property
and equipment





Property
and equipment are carried at cost. The cost of repairs and maintenance is
expensed as incurred; major replacements and improvements are capitalized. When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", we examine the possibility of decreases in the value of
fixed assets when events or changes in circumstances reflect the fact that their
recorded value may not be recoverable.





Depreciation
is calculated on a straight-line basis over the estimated useful lives of the
assets.





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
exchange rates prevailing during the operating periods of each statement, and
balance sheet items are translated at the exchange rates prevailing at each
balance sheet date.  Translation adjustments arising from the use of
differing exchange rates from period to period are included as a separate
component of stockholders’ 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.




27





Discussion
of Operating Results





We
obtained our GMP Certification and pharmaceutical licenses in 2005.  Our
focus for the next two years is on developing our marketing
efforts.   The results of our operation for the twelve months
ended March 31, 2009 compared to the prior comparative periods are as
follows:




As
      ofMarch
      31, 2009
              
              
              March
      31, 2008Revenues
              
              $
              7,442,445
              
              
              $
              1,974,279Cost
      of Sales
              
              
              4,103,669
              
              
              
              1,079,302Gross
      Profit
              
              
              3,338,776
              
              
              
              894,977Selling,
      general & administrative expeses
              
              
              1,238,603
              
              
              
              468,154Other
      income (expenses)
              
              
              59,423
              
              
              
              (161,386
              )Provision
      of income taxes
              
              
              254,757
              
              
              
              -Net
      income
              
              
              1,904,839
              
              
              
              265,437Foreign
      currency translation adjustments
              
              
              174,997
              
              
              
              550,000Comprehensive
      income
              
              $
              2,334,593
              
              
              $
              815,437





Going
Concern





As of
March 31, 2009 and 2008, we had working capital deficiency of $275,450 and
$1,636,494, respectively. 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 our ability
to continue as a going concern.  Management has
taken certain actions and continues to implement changes designed to improve the
Company’s financial results and operating cash flows.  The actions
include certain cost-saving initiatives, continuous development of new and
existing clients and seeking of capital financings from management and principal
stockholders.  Management believes that these actions will enable the
Company to move towards profitability and improve cash flow in its continuing
operations through the coming year.





Revenues,
cost of sales and gross profit





Revenues
increased 277% to approximately $7.44 million for the twelve months ended March
31, 2009 from approximately $1.97 million for the twelve months ended March 31,
2008.  The $ 5.47 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 $4.1 million for the twelve months ended March 31, 2009
compared to $1.07 million for the twelve months ended March 31, 2008. The $3.02
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 $3.33 million for the twelve months ended March 31,
2009 compared to $0.89 million for the twelve months ended March 31, 2008, an
increase of $2.44 million contributed by our product Yufang Anti-Bacterial Mouth
Wash.  The gross profit as a percent of revenues on this product for
the twelve months ended March 31, 2009 increased to 50% compared to 39% in the
prior year. Our overall gross profit as a percentage of revenues decreased to
44.9% in the twelve months ended March 31, 2009 compared to 45.3% in the
comparable prior year mainly due to a mix shift to higher sales of lower margin
Yufang Anti-Bacterial Mouth Wash as well as increasing raw material
costs.




28





Operating
expenses





Total
operating expenses increased to approximately $1.24 million for the twelve
months ended March 31, 2009 from $0.47 million for the twelve months ended March
31, 2008.  As a percentage of revenues, operating expenses decreased
to 16.6% for the twelve months ended March 31, 2009 compared to 23.7% for the
twelve months ended March 31, 2008. The $0.77 million increase in total
operating expenses was due to the increase in administrative expenses to meet
the requirement of expanded production, increases in salaries expenses in
support of our sales growth, and increased advertising expenses to raise our
brand awareness among customers. These changes are summarized
below:





Depreciation
and amortization expenses amounted to $177,575 as of March 31, 2009,
representing a 1439.3% increase from $11,536 as of March 31, 2008. The
significant increase in depreciation and amortization expense was primarily due
to the increase in the Company’s fixed assets. Depreciation expense represented
14% of the total operating expenses for the year ended March 31,
2009.




As
      ofMarch
      31, 2009
              
              
              March
      31, 2008General
      & administrative expenses
              
              $
              834,194
              
              
              $
              376,781Research
      & development
              
              
              70,670
              
              
              
              38,037Depreciation
      and amortization expenses
              
              
              177,575
              
              
              
              11,536Selling
      expenses
              
              
              156,164
              
              
              
              41,800Total
      Operating expenses
              
              $
              1,238,603
              
              
              $
              468,154





Interest
expense





Net
interest expense was $182,285 for the twelve months ended March 31, 2009
compared to $161,368 for the twelve months ended March 31, 2008. The increase of
net interest expense for the twelve months ended March 31, 2009 was because our
increase of loans from the members of our management group and advances from an
entity owned by our Chairman.





Income
taxes





The
majority of our net income for the period ended March 31, 2009 was from Tianmu
Pharmaceuticals, which conducts substantially all of our operating in 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.





Before
December 31, 2008, no provision for income taxes was required as a result of the
utilization of net operating loss carry-forwards. HTP has a deferred
tax asset resulting from tax loss carry-forwards of approximately $  -
0 - and $470,000 as of March 31, 2009 and March 31, 2008, respectively, for
which the we have provided a 100% valuation allowance. The income tax expense of
$254,757 for the year ended March 31, 2009 was attributed to the net income of
$1,904,839 primarily derived from HTP after applying the net operating loss
carry-forwards. No provision for income taxes is required as a result of the
utilization of net operating loss carry-forwards for the twelve months ended
March 31, 2008.




29





We have
not recorded a provision for U.S federal income tax for the year ended March 31,
2009 due to the net operating loss carry forward in the United States because we
have set up 100% valuation allowance.





As of
March 31, 2009, we had approximately $596,000 and $0 of net operating loss
carry-forward for income tax purposes in the United States and China
respectively. As of March 31, 2008, we had approximately $0 and $1,881,000 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
      ofMarch
      31, 2009
              
              
              March
      31, 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
              
              
              (20.2
              %)
              
              
              (25
              %)NOL
      from U.S with 100% valuation allowance
              
              
              6.7
              %
              
              
              -Actual
      consolidated income tax rate
              
              
              11.5
              %
              
              
              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 March 31, 2009 and 2008 consist of the
following:




As
      ofMarch
      31, 2009
              
              
              March
      31, 2008Net
      operating loss carry-forwards
              
              
              208,732
              
              
              
              470,262Valuation
      allowance
              
              
              (208,732
              )
              
              
              (470,262
              )Net
      deferred tax asset
              
              
              -
              
              
              
              -




We
believes the deferred tax assets as of March 31, 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 year ended March 31, 2009, was
approximately $1.9 million, an increase of $1.63 million, as compared to the net
income of approximately $0.27 million for the year ended March 31, 2008. The
increase in our net income was primarily due to increased sales revenues and
favorite tax treatment arising from applying prior year’ net operating loss
against current profit.





Other
comprehensive income (Foreign Currency Translation Gains)





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.




30





Translation
adjustments resulting from this process amounted to $174,997 and $550,000 as of
March 31, 2009 and 2008, respectively.  The balance sheet amounts with
the exception of equity at March 31, 2009 were translated at 6.8336 RMB to 1.00
USD as compared to 7.012 RMB to 1.00 USD at March 31, 2008. The equity accounts
were stated at their historical rate. The average translation rates applied to
the income statements accounts for the periods ended March 31, 2009 and 2008
were 6.8678 RMB to 1.00 USD and 7.566 RMB to 1.00 USD,
respectively.





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.





However,
up to March 31, 2009, neither our cash flows from operations nor our bank loans
had been sufficient to keep pace with the growth of our business and provide
sufficient working capital to meet increased demand and production
expansion.





As of
March 31, 2009 and 2008, we had working capital deficiency of $275,450 and
$1,636,494, respectively. We funded the working capital 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.The Company is currently profitable and is exploring various alternatives
to improve its financial position and continue to meet its
obligations.





Total
current assets increased to approximately $1.45 million for the twelve months
ended March 31, 2009 from $1.22 million for the twelve months ended March 31,
2008.  The primary changes in our current assets during this period
were from changes in accounts receivables and advance to suppliers. The increase
of accounts receivables from $2,470 in March 31, 2008 to the amount of $395,170
as of March 31, 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.  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 advance to suppliers from $678,654 at March 31, 2008 to $986,281 as
of March 31, 2009 was attributed to our financial support to strengthen the
relationship with our raw material suppliers.




Our total
current liabilities as of March 31, 2009 totaled in the amount of $1.72 million
as compared to $2.86 million in prior fiscal year. The decrease in current
liabilities was primarily due to our repayment of a note payable to our bank in
the amount of $995,168 (RMB 6,918,273). Our balance sheet at March 31, 2009,
also reflects a balance due to related parties of $1,063,629 which was a working
capital advances made to us by our president, an officer as well as other
stockholders of the Company. The increase of related party loans by the amount
of $0.24 million as compared to that of in a year ago was primarily due to cash
demand generated by new product development and acquisitions. These advances are
interest bearing and are due on demand. We are currently repaying these balances
as operating cash become available.




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.




31








Discussion
of Cash Flow





Comparison
of cash flows results for the fiscal year ended March 31, 2009 to the fiscal
year ended March 31, 2008, is summarized as follows:





As
      of March 312009
              
              
              2008Cash
      flow from operating activities
              
              $
              1,306,918
              
              
              $
              458,482Cash
      flow from investing activities
              
              $
              (885,728
              )
              
              $
              (981,411
              )Cash
      flow from financing activities
              
              $
              (493,286
              )
              
              $
              631,437





Operating
activities





Cash
flows provided by operating activities during the twelve months ended March 31,
2009 amounted to $1,306,918, which consists of our net income of $1,904,839,
adds back noncash adjustments of $501,408 and offset by net changes in operating
assets and liabilities due to expanded operating activities, including increase
in accounts receivables in the amount of $390,679, increase in advance to
suppliers in the amount of $287,464 to stimulate sales and maintain good
relationship with the suppliers, as well as an increase in accounts payable of
$803,136 in support of expanded operating activities. Cash flows provided by
operating activities in the twelve months ended March 31, 2008 amounted to
$458,482, which consist of our net income of $265,437 increased by noncash
adjustments of $395,391 and net changes in operating assets and liabilities,
primarily including increase of advance to suppliers to maintain good
relationship with the suppliers and offset by decrease in accounts payable in
the amount of $377,852. Cash flows from operations during the twelve months
ended March 31, 2009 increased by $848,436 or 185.1% compared with to the same
period of 2008.  The increase in our cash flows provided by operations
as of March 31, 2009 was mainly attributable to an increase in our net sales and
accounts payable, offset by increased amounts in advance to suppliers and
accounts receivables.





Investing
activities





Our cash
flows used in investing activities amounted to $885,728 in the twelve months
ended March 31, 2009, which consist of a contract deposit to acquire patent
right payment amounted to $1,023,619 pertaining to a formula for a nutraceutical
product, receipt of a refundable deposit in the amount of $414,762, payment for
a portion of cost of Aim Smart of $276,000 and purchase of property and
equipment of $871.  Cash flows used in investing activities amounted
to $981,411 in the twelve months ended March 31, 2008, which consist of
acquisition of property and equipment of $575,768, and contract deposits of
$405,643.  Cash flows used in investing activities in the twelve
months ended March 31, 2009 decreased by $95,683 or 9.7% compared to the same
period in 2008.





Financing
activities





Our cash
flows used in financing activities amounted to $511,566 in the twelve months
ended March 31, 2009, which consist of proceeds from related party advances of
$1,553,604 offset by payment to related party of $1,027,627 and payment of our
bank loan by $1,017,543. Cash flows provided by financing activities amounted to
$631,437 in the twelve months ended March 31, 2008, which consist of
proceeds from advances from related party of $663,845 and payment of our bank
loan by $32,408. Cash flows provided by financing activities decreased by
$1,143,003 or 181% compared to the same period in 2008.




32





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.





Issuance
of Common Stock





In June
2008, we issued 70,000 shares of common stock to two newly appointed independent
directors. The stock was valued at its fair value of $17,500.





Prior to
the reverse merger, Aim Smart had 333,216 shares of common stock issued and
outstanding. In connection with the reverse merger consummated on July 29, 2008,
Aim Smart issued to shareholders of American Tony and their designees
approximately 9,700,000 shares of common stock.





In
October 2008, we issued 40,000 shares of common stock to an independent director
for services rendered and recorded at its fair value of $20,400.





On
January 1, 2009, we issued 20,000 shares of common stock to a consultant for
services rendered and recorded at its fair value of $10,200. Also, 60,000 shares
of common stock were issued to an independent director for services rendered and
recorded at its fair value at $30,600.





On
February 17, 2009, we issued 33,500 shares of common stock for legal services
rendered and recorded at its fair value of $17,085.





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 year ended March 31, 2009 was
$2,125.





As of
March 31, 2009, there were 10,186,716 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
7A.  Quantitative and Qualitative Disclosures About Market
Risk




We are a
“smaller reporting company” as defined by Regulation S-K and as such, are not
required to provide the information contained in this item pursuant to
Regulation S-K.




33





Item
8.  Financial Statements and Supplementary Data




Our
Consolidated Financial Statements and Notes thereto and the report of Paritz
& Company, P.A., our independent registered public accounting firm, are set
forth on pages F-1 through F-13 of this Report.





Item
9.  Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure.





On July
21, 2008, the Board of Directors terminated Michael F. Cronin from his position
as the principal independent accountant.





The audit
reports of Michael F. Cronin on the Company’s financial statements for the years
ended December 31, 2007 and 2006 did not contain any adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. Michael F. Cronin did not, during the
applicable periods, advise the Company of any of the enumerated items described
in Item 304(a)(1)(iv) of Regulation S-B.





The
Company and Michael F. Cronin have not, during the Company’s two most recent
fiscal years or any subsequent period through the date of dismissal, had any
disagreement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to Michael F. Cronin’s satisfaction, would have caused Michael F.
Cronin to make reference to the subject matter of the disagreement in connection
with his reports.





On July
22, 2008, the Company retained Paritz & Company, P.A. as our independent
certified public accountants. The decision to change accountants was approved by
our Board of Directors. During the two most recent fiscal years, or any
subsequent interim period prior to engaging Paritz & Company, P.A., we nor
anyone acting on our behalf consulted with Paritz & Company, P.A. regarding:
(i) the application of the accountingprinciples to a specified transaction, either completed or
proposed; or the type of audit opinion that might be rendered on the Company's
financial statements, and neither a written report nor oral advice was provided
to the Company that Paritz & Company, P.A. concluded was an important factor
considered by the Company in reaching a decision as to the accounting of
financial reporting issue; or (ii) any matter that was either the subject of a
disagreement or a reportable event (as defined in Regulation S-B, Item
304(a)(1)(iv)).





Item
9A(T).  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 March 31, 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 March 31, 2009 that has materially affected or is
reasonably likely to materially affect the Company’s internal control over
financial reporting.
  34
  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 March 31, 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.
 
 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 March 31, 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.


35





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 9A 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 9A(T) 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 year ended March 31,
2009 that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.





Item 9B.  Other Information





Not
applicable.




36




PART
III





Item 10.   Directors, Executive Officers,
Promoters and Control Persons; Compliance With Section 16(A) of the Exchange
Act.





The
following table sets forth the names and ages of our current directors and
executive officers, and positions with us held by each person.







Name
              
              Age
              
              TitleMingli Yao
              
              59
              
              Chief Executive Officer,
      ChairmanAiling Zhao
              
              52
              
              Corporate Secretary,
      DirectorYuanYao
              
              29
              
              DirectorHui Shao
              
              41
              
              Independent
  DirectorLi Li
              
              42
              
              Chief Finacial
    Officer




The term
of office of each director expires at our annual meeting of
stockholders or until their successors are duly elected and qualified.
Our officers serve at the discretion of our Board of Directors.




Mingli
Yao.  Mr. Yao has been the Chief Executive Officer and a director of
the Company since March 2008. Since 1999, Mr. Yao has been employed as Chairman
of Tianmu Pharmaceuticals.  From 1998 to
1999, Mr. Yao was employed as a manager for a construction
company owned by the People’s
Government of Heilongjiang Province.  In 1983, Mr. Yao earned
an Associate Degree in Electronic Engineering from the China Haerbin College of
Light Industry.  Mr. Yao is the husband of Ailing Zhao and the father of
Yuan Yao.





YuanYao.  Ms. Yao has been a
director of the Company since March 2008. Since 2005, Ms. Yao has been employed
as General Manager in charge of business operations of Tianmu Pharmaceuticals.
 In 2005 Ms. Yao earned a Bachelor of Arts Degree with a concentration in
Law from the China University of Political Science and Law.  Ms. Yao is the
daughter of Mingli Yao and Ailing Zhao.





Ailing Zhao. Mr. Yao has been
a director of the Company since March 2008. Since 1999, Ms. Zhao has been
employed as Deputy General Manager in charge of administration of Tianmu
Pharmaceuticals.  In 1980 Ms. Zhao earned a Vocational Degree in Business
from the Haerbin Business Vocational School.  Ms. Zhao is the
wife of Mingli Yao and the mother of Yuan Yao.





Hui Shao. On January 8, 2009,
Mr. Hui was appointed as an independent director of the Company. Mr. Hui is
currently a Senior Vice President of Finance of China Aoxing Pharmaceutical
Company, Inc. (“China Aoxing”), a vertically integrated pharmaceutical company
specializing in research, development, manufacturing and marketing of a broad
range of narcotics and pain management pharmaceutical products in China. Dr.
Shao joined China Aoxing in January 2007 after ten years working in various
aspects of the pharmaceutical industry. From 2003 to 2006, Dr. Shao served as a
buy-side healthcare analyst for investment firms, initially Mehta Partners LLC
and then Kamunting Street Asset Management. From 1997 to 2003 Dr. Shao was
employed as Principal Scientist by Roche Pharmaceuticals in Nutley, New
Jersey. Dr. Shao was awarded a B.S. in Polymer Chemistry at the University of
Science and Technology in China. He then earned a Ph.D. in Organic Chemistry at
the University of California, San Diego, and an M.B.A. in Finance and
Accounting from the Stern School of Business at New
York University.




37





Li Li. Mr. Li was appointed as
Chief Financial Officer on March 16, 2009. Mr. Li joined Harbin Tianmu
Pharmaceutical Inc., a wholly owned operating subsidiary of the Company, as
Chief Financial Officer in 2009.  Prior to that, he had served as
Chief Financial Officer of Sanpu Pharmaceutical Co., Ltd. from 2006 to 2008, and
Chief Financial Officer of Harbin Qiulin Co., Ltd. from 1999 to
2005.  Mr. Li earned an M.B.A. in Finance from
Peking University.





Family
Relationships





Mr.
Mingli Yao and Ms. Ailing Zhao are husband and wife.  Ms. Yuan Yao is
their daughter. No other family relationships exist among our
directors or executive officers.





Involvement
in Certain Legal Proceedings





Our
directors, executive officers and control persons have not been involved in any
of the following events during the past five years:





1.    
any bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the bankruptcy
or within two years prior to that time;





2.    
any conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);





3.    
being subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; or




4.    
being found by a court of competent jurisdiction (in a civil action), the SEC or
the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.





Code
of Conduct and Ethics





We have
not adopted a code of ethics or a code of conduct that applies to its principal
executive officer, principal financial officer, principal accounting officer,
controller, or to persons performing similar functions.





Director
Independence





We
currently have only one independent director on our Board. As of the date
of this 10-K, our common stock is traded on the OTC Bulletin Board. The OTC
Bulletin Board does not impose on us standards relating to director independence
or the makeup of committees with independent directors, or provide definitions
of independence.





Committees
of the Board of Directors





We
currently do not have an audit committee, compensation committee, nominating
committee, executive committee, or any other committees.




38





Audit
Committee





We do not
presently have a separately-designated standing audit committee. The entire
Board of Directors performs the functions of an audit committee, but no written
charter governs the actions of the Board when performing the functions of what
would generally be performed by an audit committee.





The
primary functions of an audit committee carried out by the entire Board of
Directors include:





l
            appointing,
      approving the compensation of, and assessing the independence of our
      independent auditors;


l
            assisting
      in the oversight of the integrity of our financial statements, the
      Company’s compliance with legal and regulatory requirements, its
      independent auditors’ qualifications, and independence and the performance
      of the independent auditors;


l
            overseeing
      the work of our independent auditors, including through the receipt and
      consideration of certain reports from the independent
      auditors;


l
            reviewing
      and discussing with management and the independent auditors our annual and
      quarterly financial statements and related
  disclosures;


l
            coordinating
      the oversight of our internal control over financial reporting, disclosure
      controls and procedures and code of conduct and ethics;
  and


l
            establishing
      procedures for the receipt and retention of accounting related complaints
      and concerns; meeting independently with our internal auditing staff,
      independent auditors and
management.





The Board
of Directors has determined that no one on our Board qualified as an “auditcommittee financial expert” as
defined in Item 401(e) of Regulation S-B. We believe that our
directors are collectively capable of analyzing and evaluating our financial
statements and understanding internal controls and procedures for financial
reporting.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers,
directors and persons who beneficially own more than 10% of a registered class
of our equity securities (“ten percent stockholders”) to file reports of
ownership and changes in ownership with the SEC. Officers, directors and ten
percent stockholders are charged by the SEC regulations to furnish us with
copies of all Section 16(a) forms they file.




Based
solely upon a review of copies of Section 16(a) reports and representations
received by us from reporting persons, and without conducting any independent
investigation of our own, in fiscal year ended on March 31, 2009, our officers,
directors and ten percent stockholders are in compliance with Section
16(a).




39





Item 11.  Executive
Compensation.




The
following table sets forth all compensation received during the last two fiscal
years by our Chief Executive Officer, Chief Financial Officer and each of the
other most highly compensated executive officers whose total compensation
exceeds $ 100,000 in such fiscal years.  These officers are referred
to as the Named Executive Officers in this Report.
 
 All the
executive officers were paid in RMB and the amounts reported in this table have
been converted from Renminbi to U.S. dollars based on the March 31, 2009
conversion rate of RMB 6.8359 to $1.00.
  SUMMARY COMPENSATION
      TABLEName and Principal
                                                Position
                                              
                                              Fiscal
                                                Year
                                              
                                              Salary
                                                ($)
                                              
                                              
                                              Bonus
                                                ($)
                                              
                                              
                                              Stock
                                                Awards
                                                ($)
                                              
                                              
                                              Option
                                                Awards
                                                ($)
                                              
                                              
                                              Non-Equity
                                                Incentive Plan
                                                Compensation
                                                ($)
                                              
                                              
                                              Change in
                                                Pension Value
                                                and
                                                Nonqualified
                                                Deferred
                                                Compensation
                                                Earnings
                                                ($)
                                              
                                              
                                              All Other
                                                Compensation
                                                ($)
                                              
                                              
                                              Total
                                                ($)Yaoming
      Li
                                              
                                              2007
                                              
                                              $
                                              8,777
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              8,777Chief
      Executive Officer
                                              
                                              2008
                                              
                                              $
                                              8,777
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              8,777Ailing
      Zhao,
                                              
                                              2008
                                              
                                              $
                                              8,777
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              8,777Corporate
      Secretary
                                              
                                              2007
                                              
                                              $
                                              8,777
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              8,777Yuan
      Yao, Former
                                              
                                              2008
                                              
                                              $
                                              8,777
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              8,777Chief
      Financial Officer(1)
                                              
                                              2007
                                              
                                              $
                                              8,777
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              8,777Yibin
      Yang,
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Former
      Chief
                                              
                                              2008
                                              
                                              $
                                              11,702
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              11,702Financial
      Officer (2)
  (1)           On
March 16, 2009, Li Li was appointed to be the Chief Financial
Officer.
 (2)           On
December 23, 2008, Yuan Yao resigned as the Chief Financial
Officer.
 (3)           On
December 23, 2008, Yibin Yang was appointed to be the Chief Financial Officer
and on March 16, 2009, Yibin Yang resigned as the Chief Financial Officer.
Yibing Yang was paid $ 2,925 for his service during the three
months.


40




Director
Compensation




Mr.
Mingli Yao, Ms. Ailing Zhao and Mr. Yuan Yao are paid in their capacity as
executive officers of the Company and they do not receive any additional
compensation for their service as directors.
 
 DIRECTOR
COMPENSATION
  Name (a)
                        
                        Fees
                          Earned
                          or Paid
                          in Cash
                          ($)(1)
                        
                        
                        Stock
                          Awards
                          ($)
                        
                        
                        Option
                          Awards
                          ($)
                        
                        
                        Non-Equity
                          Incentive Plan
                          Compensation
                          ($)
                        
                        
                        Non-Qualified
                          Deferred
                          Compensation
                          Earnings
                          ($)
                        
                        
                        All Other
                          Compensation
                          ($)
                        
                        
                        Total ($)Mingli
      Yao
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -AilingZhao
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Yuan
      Yao
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Hui
      Shao
                        
                        $
                        2,194
                        
                        
                        $
                        20,400
                        (2)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        22,594
 
 (1)           All
the Directors were paid in RMB and the amounts reported in this table have been
converted from Renminbi to U.S. dollars based on the March 31, 2009 conversion
rate of RMB 6.8359 to $1.00.
 (2)           In
October 2008, the Company issued 40,000 shares of common stock to Mr. Hui Shao
for services rendered and recorded at its fair value of $20,400.
 
 We have
historically entered into written agreements with our non-employee
directors.  Mr. Hui Shao is a party to such an agreement, pursuant to
which he is entitled to receive an annual cash fee of a $30,000 and 40,000
shares of our common stock.  In addition, Mr. Shao is entitled to
reimbursement for reasonable and substantiated expenses incurred by him in
furtherance of his performance of duties to the Company.





Item 12.  Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters




The table
sets forth below certain information regarding the beneficial ownership of our
common stock as of July15, 2009, based on 10,186,716 aggregate shares of common
stock outstanding as of such date, by: (i) each person who is known by us to own
beneficially more than 5% of our outstanding common stock with the address of
each such person, (ii) each of our present directors and officers, and (iii) all
officers and directors as a group.





Beneficial
ownership is determined in accordance with SEC rules and generally includes
voting or investment power with respect to securities. Unless otherwise
indicated, the stockholders listed in the table have sole voting and investment
power with respect to the shares indicated. Unless otherwise noted, the
principal address of each of the stockholders, directors and officers listed
below is c/o 1 Beijing Road, Limin Development Zone, Harbin, China.





All share
ownership figures include shares of our Common Stock issuable upon securities
convertible or exchangeable into shares of our Common Stock within sixty (60)
days of March 15, 2009, which are deemed outstanding and beneficially owned by
such person for purposes of computing his or her percentage ownership, but not
for purposes of computing the percentage ownership of any other
person.




41






Name
      of Beneficial Owner
                          
                          Amount and Nature of
                            BeneficialOwnership
                          
                          
                          Percentage
      of ClassMingli
      Yao
                          
                          
                          1,735,000
                          
                          
                          
                          17.0
                          %Yuan
      Yao
                          
                          
                          700,000
                          
                          
                          
                          6.9
                          %AiLing
      Zhao
                          
                          
                          550,000
                          
                          
                          
                          5.4
                          %Wei
      Zhao
                          
                          
                          377,262
                          
                          
                          
                          3.7
                          %QuangYi
      Wang
                          
                          
                          322,000
                          
                          
                          
                          3.2
                          %Hui
      Shao
                          
                          
                          40,000
                          
                          
                          
                          0.4
                          %Li
      Li
                          
                          
                          0
                          
                          
                          
                          0All
      officers and directors as a group (5 persons)
                          
                          
                          3,025,000
                          
                          
                          
                          29.7
                          %





Item 13.  Certain Relationships and Related
Party Transactions





Through
March 31, 2008, the Company advanced $588,886 (RMB 4,135,724) 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.





A note
from Harbin Commercial Bank is secured by certain real estate assets owned by
the principal shareholder of the Company and guaranteed by Heilongjiang Tongli
Technology Co., Ltd. The Company has repaid the loan in full as of March 10,
2009.





The
Company has a month to month sub-lease arrangement with a company owned by the
Chairman to lease office space in New York at a monthly rental of $4,000. This
arrangement began on March 1, 2008.





The
Company's Chairman lent American Tony $ 249,000 to acquire its controlling
interest in Aim Smart in August 2008.





As of
March 31, 2009, the Company has a balance of $ 1,063,629 due to related parties.
This includes amounts payable to members of our management who have loaned funds
to us to help us fund working capital deficits.





Related
      Parties
            
            Balance
      due
              as
      of March 31, 2009Harbin
      Tianmu Real Estate Development Co., Ltd.
            
            $
            688,808Chairman
      of the Company
            
            $
            354,234US
      Hua Sky International Investment LLC
            
            $
            20,587




Review,
Approval or Ratification of Related Party Transactions





Our Board
of Director is responsible for reviewing all “Related Person Transactions” as
defined by Item 404 of Regulation S-K of the rules promulgated by the SEC.
Directors and executive officers are responsible for bringing a potential
Related Person Transaction to the attention of our Board.





In
reviewing a related person transaction, the Board will, after reviewing all
material information regarding the transaction, take into account, among other
factors it deems appropriate, whether the transaction is on terms no less
favorable than terms generally available to an unaffiliated third party under
the same or similar circumstances and the extent of the related person’s
interest in the transaction.




42





Item
14.  Principal Accountant Fees and Services.





On July
22, 2008, the Company retained Paritz & Company, P.A. as independent
auditors to audit our financial statements for the fiscal year ended March 31,
2009. Prior to that, Mr. Michael F. Cronin had served as our independent
auditor.





The
following table sets forth fees billed to us by our independent registered
public accounting firms during the fiscal years ended March 31, 2009 and March
31, 2008 for: (i) services rendered for the audit of our annual financial
statements and the review of our quarterly financial statements; (ii) services
by our independent registered public accounting firms that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as audit fees; (iii) services rendered in connection
with tax compliance, tax advice and tax planning; and (iv) all other fees for
services rendered.





March
      31, 2009
                  
                  
                  March
      31, 2008Audit
      Fees
                  
                  $
                  30,000
                  
                  
                  $
                  35,000Audit
      Related Fees
                  
                  $
                  0
                  
                  
                  $
                  15,000Tax
      Fees
                  
                  $
                  0
                  
                  
                  $
                  0All
      Other Fees
                  
                  $
                  0
                  
                  
                  $
                  -TOTAL
                  
                  $
                  30,000
                  
                  
                  $
                  50,000




Part
IV





Item 15.  Exhibits





Item
              Number
            
            Description(3)
            
            Articles of Incorporation and
      By-laws3.1
      +
            
            Certificate
      of Incorporation3.3
      +
            
            Bylaws(10)
            
            Material
      Contracts10.1
            
            Merger
      Agreement dated July 22, 2008 among Aim Smart Corporation, ATP
      Acquisition
              Corp.
      and American Tony Pharmaceutical, Inc.(incorporated by reference from
      Current Report on Form 8-K, filed on July 29, 2008)(21)
            
            Subsidiaries
      of the registrant21.1*
            
            List
      of Subsidiaries(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






43




INDEX
TO FINANCIAL STATEMENTS





TONGLI
PHARMACEUTICALS (USA) INC. AND SUBSIDIARIES





Report
      of Independent Registered Public Accounting Firm
                    F-1Consolidated
      Balance Sheet at March 31, 2009 and 2008
                    F-2Consolidated
      Statements of Income For The Years Ended March 31, 2009 and
      2008
                    F-3Consolidated
      Statements of Changes In Stockholders’ Equity for the Years Ended March
      31, 2009 and 2008
                    F-4Consolidated
      Statements of Cash Flows for The Years Ended March 31, 2009 and
      2008
                    F-5Notes
      To Consolidated Financial Statements
                    F-6









REPORT OF INDEPENDENT
REGISTERED ACCOUNTING FIRM








To the
Board of Directors of


American
Tony Pharmaceutical, Inc. and subsidiaries





We have
audited the accompanying consolidated balance sheets of Tongli Pharmaceuticals
(USA), Inc. and Subsidiaries as of March 31, 2009 and 2008 and the related
consolidated statements of operations and other comprehensive income (loss) and
changes in shareholders’ equity and cash flows for the years ended March 31,
2009 and 2008.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audit.





We
conducted our audit in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform an audit of is
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our
opinion.  The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.  The
Company has a deficiency of working capital of $275,450 and had minimum cash or
available borrowing capacity as of March 31, 2009. These circumstances, among
others, raise substantial doubt about the Company’s ability to continue as a
going concern.   The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of American Tony Pharmaceutical
Inc., and Subsidiaries as of March 31, 2008, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.





/s/
Paritz & Company, P.A.


Hackensack,
New Jersey


June 24,
2009




F-1




TONGLI
      PHARMACEUTICALS (USA), INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETS




As
      of March 31,2009
            
            
            2008ASSETSCurrent
      assets:Cash
            
            
            50,247
            
            
            
            130,630Accounts
      Receivable, net
            
            
            395,170
            
            
            
            2,470Inventory
            
            
            19,016
            
            
            
            11,172Refundable
      deposit
            
            
            -
            
            
            
            405,643Advance
      to suppliers
            
            
            986,281
            
            
            
            678,654Total
      current assets
            
            
            1,450,714
            
            
            
            1,228,569Property
      and equipment, net
            
            
            7,076,746
            
            
            
            7,813,779Contract
      deposit
            
            
            1,028,736
            
            
            
            -Total
      assets
            
            
            9,556,196
            
            
            
            9,042,348LIABILITIES
      & STOCKHOLDERS' EQUITYCurrent
      liabilities:Notes
      payable - bank
            
            
            -
            
            
            
            995,168Accounts
      payable
            
            
            119,643
            
            
            
            959,382Due
      to related parties
            
            
            1,063,629
            
            
            
            819,620Accrued
      expenses and other current liabilities
            
            
            542,892
            
            
            
            90,893Total
      current liabilities
            
            
            1,726,164
            
            
            
            2,865,063Stockholders'
      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 - 10,186,716 shares and 9,963,216,
      respectively
            
            
            10,187
            
            
            
            9,963Additional
      paid in capital
            
            
            6,665,349
            
            
            
            7,092,663Accumulated
      other comprehensive income
            
            
            1,130,285
            
            
            
            955,288Retained
      earnings (accumulated deficit)
            
            
            24,210
            
            
            
            -1,880,629Total
      Stockholders' equity
            
            
            7,830,031
            
            
            
            6,177,285Total
      liabilities & Stockholders' equity
            
            $
            9,556,196
            
            
            $
            9,042,348





See notes
to consolidated financial statements




F-2





TONGLI
      PHARMACEUTICALS (USA), INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF INCOME AND OTHER COMPREHENSIVE
  INCOME




For
      the years ended March 31,2009
            
            
            2008Revenue
            
            $
            7,442,445
            
            
            $
            1,974,279Cost
      of sales
            
            
            4,103,669
            
            
            
            1,079,302Gross
      Profit
            
            
            3,338,776
            
            
            
            894,977Operating
      expenses:General
      & administrative expenses
            
            
            834,194
            
            
            
            376,781Research
      & development
            
            
            70,670
            
            
            
            38,037Depreciation
      expense
            
            
            177,575
            
            
            
            11,536Selling
      expense
            
            
            156,164
            
            
            
            41,800Total
      operating expenses
            
            
            1,238,603
            
            
            
            468,154Operating
      income
            
            
            2,100,173
            
            
            
            426,823Other
      Income (expenses):Interest
      expense
            
            
            (182,285
            )
            
            
            (161,386
            )Rental
      income
            
            
            241,708
            
            
            
            -Total
      other income (expenses)
            
            
            59,423
            
            
            
            (161,386
            )Net
      income before income taxes
            
            
            2,159,596
            
            
            
            265,437Income
      Taxes
            
            
            254,757
            
            
            
            -Net
      Income
            
            
            1,904,839
            
            
            
            265,437Other
      Comprehensive item:Foreign
      Currency Translation adjustment
            
            
            174,997
            
            
            
            550,000Comprehensive
      income
            
            
            2,334,593
            
            
            
            815,437Basic
      and diluted income per share
            
            $
            0.19
            
            
            $
            0.03Basic
      and diluted weighted average shares outstanding
            
            
            9,968,824
            
            
            
            9,963,216





See notes
to consolidated financial statements




F-3








TONGLI
      PHARMACEUTICALS (USA), INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY




Accumulated
            
            
            RetainedOther
            
            
            EarningsPreferred
      Stock
            
            
            Common
      Stock
            
            
            Additional
            
            
            Comrehensive
            
            
            (AccumulatedShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Paid
      in capital
            
            
            Income
            
            
            Deficits)
            
            
            TotalBalance
      - March 31, 2007
            
            
            -
            
            
            $
            -
            
            
            
            9,963,216
            
            
            $
            9,963
            
            
            $
            7,040,663
            
            
            $
            405,288
            
            
            $
            (2,146,066
            )
            
            $
            5,309,848Imputed
      interest on related party loans
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            52,000
            
            
            
            -
            
            
            
            -
            
            
            
            52,000Foreign
      currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            550,000
            
            
            
            -
            
            
            
            550,000Net
      income
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            265,437
            
            
            
            265,437Balance
      - March 31, 2008
            
            
            -
            
            
            $
            -
            
            
            
            9,963,216
            
            
            $
            9,963
            
            
            $
            7,092,663
            
            
            $
            955,288
            
            
            $
            (1,880,629
            )
            
            $
            6,177,285Effects
      of reverse merger
            
            
            
            
            
            
            
            
            
            
            (100,000
            )
            
            
            (100
            )
            
            
            (524,900
            )
            
            
            -
            
            
            
            -
            
            
            
            (525,000
            )Stock
      issued for services
            
            
            
            
            
            
            
            
            
            
            323,500
            
            
            
            324
            
            
            
            146,461
            
            
            
            -
            
            
            
            -
            
            
            
            146,784Unearned
      stock compensation
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            (48,875
            )
            
            
            -
            
            
            
            -
            
            
            
            (48,875
            )Foreign
      currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            174,997
            
            
            
            -
            
            
            
            174,997Net
      income
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            1,904,839
            
            
            
            1,904,839Balance
      -  March 31, 2009
            
            
            -
            
            
            $
            -
            
            
            
            10,186,716
            
            
            $
            10,187
            
            
            $
            6,665,349
            
            
            $
            1,130,285
            
            
            $
            24,210
            
            
            $
            7,830,031




See notes
to consolidated financial statements




F-4




TONGLI
      PHARMACEUTICALS (USA), INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS




For
      the years ended March 31,2009
            
            
            2008Cash
      flows from operating activitiesNet
      income
            
            $
            1,904,839
            
            
            $
            265,437Adjustments
      to reconcile net income to net cash provided byoperating
      activities:Depreciation
      & amortization
            
            
            346,357
            
            
            
            343,391Amortization
      of stock compensation
            
            
            97,909
            
            
            
            -Accrued
      loan interest
            
            
            57,141
            
            
            
            -Imputed
      interest
            
            
            -
            
            
            
            52,000Changes
      in operating assets and liabilities:(Increase)
      decrease in -Accounts
      receivable
            
            
            (390,679
            )
            
            
            1,145Inventory
            
            
            (7,498
            )
            
            
            17,432Advances
      to suppliers
            
            
            (287,464
            )
            
            
            (672,905
            )Accounts
      payable
            
            
            (803,136
            )
            
            
            377,852Accrued
      expenses and other current liabilities
            
            
            389,447
            
            
            
            74,130Net
      cash provided by operating activities
            
            
            1,306,918
            
            
            
            458,482Cash
      flows from investing activitiesPurchase
      of property and equipment
            
            
            (871
            )
            
            
            (575,768
            )Receipt
      of deposits related to terminated acquisitions
            
            
            414,762
            
            
            
            (405,643
            )Payment
      for contract deposit
            
            
            (1,023,619
            )
            
            
            -Payment
      made on Aim Smart acquisition
            
            
            (276,000
            )
            
            
            -Net
      cash used in investing activities
            
            
            (885,728
            )
            
            
            (981,411
            )Cash
      flows from financing activitiesRepayments
      of short-term loans
            
            
            (1,017,543
            )
            
            
            (32,408
            )Repayments
      of related party loans
            
            
            (1,027,627
            )
            
            
            -Proceeds
      from related party loans
            
            
            1,533,604
            
            
            
            663,845Net
      cash provided by (used in) financing activities
            
            
            (511,566
            )
            
            
            631,437Effect
      of exchange rate changes on cash and cash equivalents
            
            
            9,993
            
            
            
            20,136Net
      increase (decrease) in cash
            
            
            (80,383
            )
            
            
            128,644Cash
      balance, beginning of year
            
            
            130,630
            
            
            
            1,986Cash
      balance, end of year
            
            $
            50,247
            
            
            $
            130,630Supplemental
      cash flow informationDuring
      the year, cash was paid for the following:Interest
      expenses
            
            $
            158,222
            
            
            $
            77,734Noncash
      investing and financing activitiesReduction
      of related party debt in connection with terminated construction
      project
            
            $
            588,886
            
            
            $
            -Payment
      made by the officer on Aim Smart acquisition
            
            $
            249,000
            
            
            $
            -Common
      stock issues for stock-based compensation
            
            $
            146,784
            
            
            $
            -




See notes
to consolidated financial statements




F-5




TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


YEARS
ENDED DECEMBER 31, 2008 AND 2007





1
            ORGANIZATION
      AND BASIS OF PRESENTATION





Organization





Tongli
Pharmaceuticals (USA), Inc. (“TP” or 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.




On August
12, 2008, American Tony completed a reverse merger with Aim Smart Corporation
(“Aim Smart”), a dormant public shell, which was originally incorporated on
April 27, 1988 in the State of Colorado under the name “Gatwick, Ltd” for
the purpose of seeking out and completing a merger or acquisition with one or
more companies or businesses, and was reorganized as a Delaware corporation in
September 2007.  American Tony was a holding company which was
incorporated on November 17, 2006 in the state of Delaware and has had no
significant operations since its inception.  The acquisition was
effected by the merger of American Tony into a wholly-owned subsidiary of Aim
Smart.


Under the
terms of the merger agreement, the former American Tony stockholders exchanged
their shares for Aim Smart shares so that, upon the closing of the merger, the
former American Tony stockholders owned 96.7% of the outstanding shares of Aim
Smart. America Tony 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 Mr. Mingli Zhao.  Aim Smart changed its name to
American Tony upon the closing of the reverse merger.  Tianmu
Pharmaceuticals was formed under laws of the PRC on November 26,
1999.  In February 2007, American Tony acquired Tianmu Pharmaceuticals
through a recapitalization transaction which was accomplished through the
exchange of shares with Heilongjiang Tongli Technology Co., Ltd. (“TT” or
“Tongli Technology”), a wholly-owned subsidiary of American Tony located in the
PRC. TT owns 100% of Tianmu Pharmaceuticals and doesn’t have any other
operations since its inception.





The
acquisition has been accounted for as a reverse merger under the purchase method
of accounting since there has been a change of control. Accordingly, American
Tony and its subsidiaries are treated as the continuing entities 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”), all of the registered capital of Harbin
Tianmu Pharmaceuticals Co., Ltd. (“HTP”), a corporation organized under the laws
of the People’s Republic of China (“PRC”) on November 26, 1999. HTP is engaged
in the business of manufacturing and marketing pharmaceutical and health care
products in the PRC.





In 2005,
HTP obtained the GMP certificate (Good Manufacturing Practices for
Pharmaceutical Products), and 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 include
cholesterol reduction pill, mouthwash, anti-inflammatory tablet and calcium
supplement. These products are sold through distributors and directly to
customers; no service is provided after sales are made. The Company’s primary
customers are drug stores and hospitals located in China.





Basis
of presentation





The
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”).




F-6





Certain
amounts included in the 2008 financial statements have been reclassified to
conform to the 2009 financial statements presentation.





2
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Principles
of consolidation





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





Uses
of estimates





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 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, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.





Accounts
Receivable





Accounts
receivables consist primarily of receivables resulting from sales of products,
and are stated at net realizable value. This value includes an appropriate
allowance for estimated uncollectible accounts. The allowance is calculated
based upon the evaluation and the level of past due accounts and the
relationship with and the economic status of the
customers.  Management believes that no allowance is necessary for the
year ended at March 31, 2009.





Inventory





Inventory
is 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. Management periodically compares the cost of inventory with the market
value and an allowance is made for writing down the inventory to its market
value, if lower than cost. No allowance for inventory is considered necessary
for the years ended March 31, 2009 and 2008.





Advances
to Suppliers





Advance
to suppliers represent the payments made and recorded in advance for goods and
services received. The Company’s management has developed purchasing
relationships with a considerable number of suppliers to ensure multiple sources
for most of the raw materials required. In the opinion of management, the
Company’s business would not be significantly damaged by the loss of any one
supplier.




F-7





2
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)





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.





Property
and equipment





Property
and equipment are recorded at cost.  The cost of an asset comprises
its purchase price and any directly attributable costs of bringing the asset to
its present working condition and locations for its intended use. 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 which expires in April 2046. Depreciation is calculated
using the straight-line method over the following useful lives:




Buildings
      and improvements
              40
      yearsRight
      to use land
              Life
      of leaseMachinery
      and equipment
              10
      yearsOffice
      equipment
              5
      yearsVehicle
              5
      years





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





Impairment
of Long Lived Assets




Long-lived
assets, which include property, plant and equipment and intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
long-lived assets to be held and used is measured by a comparison of the
carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the assets.




The
Company accounts for the impairment of long-lived 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 March 31, 2009, there were no significant
impairments of its long-lived assets used in operations.




F-8





2
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Deferred
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. Management reviews this
valuation allowance periodically and makes adjustments as
warranted.




Foreign
currency translation




Since the
Company operates primarily in the PRC, the Company’s functional currency is the
Chinese Yuan (”RMB”).  For financial reporting purposes, RMB has been
translated into United States dollars ("USD") as the reporting currency. Assets
and liabilities are translated at the exchange rate in effect at the balance
sheet date. Revenues and expenses are translated at the average rate of exchange
prevailing during the reporting period. Translation adjustments arising from the
use of different exchange rates from period to period are included as a
component of stockholders' equity as "Accumulated other comprehensive income".
Gains and losses resulting from foreign currency translations are included in
accumulated other comprehensive income.




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,
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.




F-9





2
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Income
(loss) per common share





The
Company computes earnings per share (“EPS’) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”),
and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS
No. 128 requires companies with complex capital structures to present basic
and diluted EPS.  Basic EPS is measured as net income divided by the
weighted average common shares outstanding for the period.  Diluted EPS is
similar to basic EPS but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, options and warrants) as
if they had been converted at the beginning of the periods
presented, or issuance date, if later.  Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.




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 only one reportable business
segment.  All revenues are from sales to customers in the
PRC.  Substantially all of the Company’s assets are located in the
PRC.





Concentration
of risks





During
the year ended March 31, 2009, approximately 33% of sales were generated from
four major distributors with the largest distributor representing 8.6% of
sales.  In addition, one product manufactured by the Company
represented approximately 63.1% and 51.9% of total sales for the years ended
March 31, 2009 and 2008, respectively.




F-10




2
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




New Accounting
Pronouncements





In June
2008, the FASB issued FASB Staff Position on Emerging Issues Task Force Issue
03-6, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1
states that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share (“EPS”) pursuant to the two-class method. FSP EITF 03-6-1 is effective
for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years. All
prior-period EPS data presented shall be adjusted retrospectively (including
interim financial statements, summaries of earnings, and selected financial
data) to conform with the provisions of FSP EITF 03-6-1. The adoption of this
FSP EITF 03-6-1 did not have a material effect on the Company’s financial
position.





In March
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”)
No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendmentof FASB Statement No. 133,which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a
tabular disclosure of the effects of such instruments and related hedged items
on our financial position, financial performance, and cash flows. SFAS
No. 161 is effective beginning January 1, 2009. We are currently
assessing the potential impact that adoption of SFAS No. 161 may have
on our financial statements.





On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which clarifies
the application of SFAS 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 became effective on October 10, 2008, and its adoption did not have a
material impact on our financial position or results.





In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4
amends SFAS 157 and provides ad d itional guidance for estimating fair value in
accordance with SFAS 157 when the volume and level of activity for the asset or
liability have significantly decreased and also includes guidance on identifying
circumstances that indicate a transaction is not   orderly for fair value
measurements. This FSP shall be applied prospectively with retrospective
application not permitted. This FSP shall be effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for
periods end i ng after March  15, 2009. An entity early adopting this FSP
must also early adopt FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2).
Additionally, if an entity elects to early adop t either FSP FAS 107-1 and APB
28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS
107-1 and APB 28-1) or FSP FAS 115-2 and FAS 124-2, it must also elect to early
adopt this FSP. We are currently evaluating this new FSP but do no t believe
that it will have a significant impact on the determination or reporting of our
financial results.




F-11




3
            INVENTORY





As of
March 31, 2009 and 2008, inventory consists the following:





As
      ofMarch
      31, 2009
            
            
            March
      31, 2008Raw
      materials
            
            $
            15,100
            
            
            $
            -Finished
      goods
            
            
            3,916
            
            
            
            11,172Total
            
            $
            19,016
            
            
            $
            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.  The
refundable deposit amounted to $405,643 at March 31, 2008. As of March 31, 2009,
all those deposits have been refunded.





5
            PROPERTY
      AND EQUIPMENT





A summary
of property and equipment is as follows:




As
      ofMarch
      31, 2009
              
              
              March
      31, 2008Building
              
              $
              7,105,308
              
              
              $
              6,914,476Right
      to use land
              
              
              395,107
              
              
              
              412,699Machinery
      and equipment
              
              
              1,021,778
              
              
              
              993,946Office
      equipment
              
              
              16,057
              
              
              
              15,398Vehicle
              
              
              99,305
              
              
              
              96,638Construction
      in progress
              
              
              -
              
              
              
              588,886Total
              
              $
              8,637,556
              
              
              $
              9,022,043Less:
      accumulated depreciation and amortization
              
              
              1,560,809
              
              
              
              1,208,234Total
              
              $
              7,076,746
              
              
              $
              7,813,779




Depreciation
and amortization expenses were $346,358 and $343,391 for the years ended March
31, 2009 and 2008, respectively.





Through
March 31, 2008, the Company advanced $588,886 (RMB 4,135,724) 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. The
company is now waiting for governmental approval for the formula to be used in
production and is expected to obtain such approval from the SFDA within
2009.




F-12





7
            NOTE
      PAYABLE – BANK





This note
relates to short-term borrowing from Harbin Commercial Bank and 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 has repaid
the loan in full as of March 10, 2009. Interest expense for the above short term
loan totaled $158,222 and $77,734 for the years ended March 31, 2009 and 2008,
respectively.





8
            DUE
      TO RELATED PARTIES





Due to
related parties consist of the following:




As
      ofMarch
      31, 2009
              
              
              March
      31, 2008Harbin
      Tianmu Real Estate Development Co., Ltd. (a)
              
              $
              (688,808
              )
              
              $
              (619,297
              )Chairman
      of the Company (a)
              
              
              (354,234
              )
              
              
              (136,109
              )US
      Hua Sky International Investment LLC. (b)
              
              
              (20,587
              )
              
              
              -Family
      members related to the Company's Chairman ( c)
              
              
              -
              
              
              
              (64,214
              )Total
              
              $
              (1,063,629
              )
              
              $
              (819,620
              )




(a)
            These
      loans bear 7% interest rate per annum and due on
  demand.





(b)
              The
      Company has a month to month sub-lease arrangement for its New York office
      with acompany
      owned by its Chairman. The monthly rental is $3,950 and is the same as theamounts
      incurred by the related entity. This arrangement began on March 1, 2008
      and ended on Feburary 28,
2009.





(c)
            This
      loan bears interest at 7.6% per annum and was repaid in full as of March
      31, 2009.




9
            STOCKHOLDERS’
      EQUITY





In June
2008, the Company issued 70,000 shares of common stock to two newly appointed
independent directors. The stock was valued at its fair value of $17,500. Prior
to the Merger, the Company had 333,216 shares of common stock issued and
outstanding.




In
connection with the Merger consummated on July 29, 2008, the Company issued to
shareholders of American Tony and their designees approximately 9,700,000 shares
of common stock.




F-13





9
            STOCKHOLDERS’
      EQUITY (Continued)




In
October 2008, the Company issued 40,000 shares of common stock to an independent
director for services rendered and recorded at its fair value of
$20,400.




On
January 1, 2009, the Company issued 20,000 shares of common stock to a
consultant for services rendered and recorded at its fair value of $10,200.
Also, 60,000 shares of common stock were issued to an independent director for
services rendered and recorded at its fair value at $30,600.




On
February 17, 2009, the Company issued 33,500 shares of common stock for legal
services rendered and recorded at its fair value of $17,085.




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 year ended
March 31, 2009 was $2,125.




As of
March 31, 2009, there were 10,186,716 shares of common stock issued and
outstanding and no preferred stock issued and outstanding.




10
            EARNINGS
      (LOSS) 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 March 31, 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 March 31, 2009 and 2008, respectively. The following
demonstrates the calculation for earnings per share for the period ended March
31, 2009 and 2008:




As
      ofMarch
      31, 2009
              
              
              March
      31, 2008Net
      income
              
              $
              1,904,839
              
              
              $
              265,437Weighted
      shares outstanding- Basic
              
              
              9,968,824
              
              
              
              9,963,216Earning
      per share- Basic
              
              $
              0.19
              
              
              $
              0.03Earnings
      per share- Diluted
              
              $
              0.19
              
              
              $
              0.03




11
            TAXES




(a)
            Corporation
      income tax (“CIT”)





The
Company has not recorded a provision for U.S federal income tax for the year
ended March 31, 2009 due to the net operating loss carry forward in the United
States which the Company has set up 100% valuation allowance.




F-14





11
            TAXES
      (Continued)





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
March 31, 2009, the Company had approximately $596,000 and $0 of net operating
loss carry-forward for income tax purposes in the United States and China
respectively. As of March 31, 2008, the Company had approximately $0 and
$1,881,000 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
      ofMarch
      31, 2009
              
              
              March
      31, 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
              
              
              (20.2
              %)
              
              
              (25
              %)NOL
      from U.S with 100% valuation allowance
              
              
              6.7
              %
              
              
              -Actual
      consolidated income tax rate
              
              
              11.5
              %
              
              
              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 March 31, 2009 and 2008 consist of the
following:




As
      ofMarch
      31, 2009
              
              
              March
      31, 2008Net
      operating loss carry-forwards
              
              
              208,732
              
              
              
              470,262Valuation
      allowance
              
              
              (208,732
              )
              
              
              (470,262
              )Net
      deferred tax asset
              
              
              -
              
              
              
              -




Management
believes the deferred tax assets as of March 31, 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.




(3)
Other taxes





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




F-15





12
            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 years ended March 31, 2009 and 2008 were
immaterial from these agreements.





Since
June 2007, HTP 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 has
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.





13
            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.





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.




F-16




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:
July 15, 2009


/s/
      Mingli YaoMingli
      YaoChief
      Executive Officer and Chairman




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/
      Mingli Yao
              
              Mingli
      Yao
            
            Chief
      Executive Officer and Chairman
            
            July
      15, 2009/s/
      Li Li
              
              Li
      Li
            
            Chief
      Financial Officer
            
            July
      15, 2009/s/
      Ailing Zhao
              
              Ailing
      Zhao
            
            Corporate
      Secretary and Director
            
            July
      15, 2009/s/
      Yuan Yao
              
              Yuan
      Yao
            
            Director
            
            July
      15, 2009/s/
      Hui Shao
              
              Hui
      Shao
            
            Director
            
            July
      15, 2009