U.S. SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C.  20549





FORM 10-Q





(Mark One)





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





For the quarterly period ended March 31, 2010








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





For the transition period from _______________ to _______________








Commission File Number





Tianyin Pharmaceutical Co., Inc.


(Exact name of registrant as specified in its charter)





Delaware(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)





23rd Floor, Unionsun Yangkuo Plaza


No. 2, Block 3, Renmin Road South


Chengdu, P. R. China, 610041





+0086-028-86154737


(Address, including zip code, and telephone number,


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








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





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





Large Accelerated Filer


Accelerated FilerNon-accelerated filer
(do not check if a smaller reporting company)

Smaller reporting company
X





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








As of May 10, 2010,we are authorized to issue up to [50,000,000] shares of Common Stock, par value US$.001 per share and [10,000,000] shares of Series A Preferred Stock, of which [26,844,026] and [1,872,750] respectively are currently issued and outstanding.




















TABLE OF CONTENTS





PagePART I - FINANCIAL INFORMATION
3Item 1.  Financial Statements
3Consolidated Balance Sheets at

March 31, 2010 (unaudited) and June 30, 2009
4Unaudited Consolidated Statements of  Operations for the

three and nine months ended March 31, 2010 and 2009
5Unaudited Consolidated Statements of Cash Flows

for the nine months ended March 31, 2010 and 2009
6Unaudited notes to Consolidated Financial Statements
7Item 2.  Management’s Discussion and Analysis or Plan of Operation
19Item 3.Quantitative and Qualitative Disclosure About Market Risk
25Item 4.  Controls and Procedures
26PART II – OTHER INFORMATION
27Item 1.  Legal Proceedings
27Item 2.  Unregistered Sales of Equity Securities And Use Of Proceeds
27Item 3.  Defaults Upon Senior Securities
27Item 4.  (Removed and Reserved)
27Item 5. Other Information
27Item 6.  Exhibits
27











2


PART I- FINANCIAL INFORMATION





Report of Independent Registered Public Accounting Firm





To the Board of Directors and Stockholders


Tianyin Pharmaceutical Co., Inc.







We have reviewed the accompanying consolidated balance sheet of Tianyin Pharmaceutical Co., Inc. (the “Company”) as of March 31, 2010, and the related consolidated statements of operations and comprehensive income for the three months and nine months ended March 31, 2010 and 2009, and cash flows for the nine months ended March 31, 2010 and 2009. These consolidated financial statements are the responsibility of the Company's management.




We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.





Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.




We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the balance sheet of Tianyin Pharmaceutical Co., Inc. as of June 30, 2009, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated September 10, 2009, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of June 30, 2009, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.




/s/  Patrizio & Zhao, LLCPatrizio & Zhao, LLC





Parsippany, New Jersey


April 29, 2010


3
 TIANYIN PHARMACEUTICAL CO., INC.





Consolidated Balance Sheets


(Unaudited)


March 31,


June 30,2010


2009(Unaudited)AssetsCurrent assets:Cash and cash equivalents

$
23,259,400


$
12,352,223Accounts receivable, net of allowance for doubtful accounts of $268,955and $171,947 at March 31, 2010 and June 30, 2009, respectively


8,257,642



5,620,519Inventory


3,622,666



3,808,289Advance payments


381,420



1,188,115Loan receivable


293,400



-Other current assets


226,382



683,189Total current assets


36,040,910



23,652,335Property and equipment, net


14,571,130



9,642,526Intangibles, net


15,312,832



12,037,483Total assets

$
65,924,872


$
45,332,344LiabilitiesCurrent liabilities:Accounts payable and accrued expenses

$
1,831,973


$
1,392,639Accounts payable – construction related


2,888,303



-Short-term bank loans


1,467,000



1,399,075VAT taxes payable


546,893



458,930Income taxes payable


686,441



490,514Other taxes payable


17,083



11,890Dividends payable


82,541



325,417Other current liabilities


504,298



307,934Total current liabilities


8,024,532



4,386,399EquityStockholders’ equity:Common stock, $0.001 par value, 50,000,000 shares authorized,26,599,027 and 17,908,912 shares issued and outstanding atMarch 31, 2010 and June 30, 2009, respectively


26,599



17,909Series A convertible preferred stock, $0.001 par value, 10,000,000shares authorized, 2,072,750 and 7,146,500 shares issued andoutstanding at March 31, 2010 and June 30, 2009, respectively


2,073



7,147Additional paid-in capital


29,830,243



19,694,514Statutory reserve


2,299,806



2,299,807Treasury stock


(111,587
)


(111,587
)Retained earnings


22,817,495



16,486,775Accumulated other comprehensive income


2,598,009



2,551,380Total stockholders’ equity


57,462,638



40,945,945Noncontrolling interest


437,702



-Total equity


57,900,340



40,945,945Total liabilities and equity

$
65,924,872


$
45,332,344


The accompanying notes are an integral part of these consolidated financial statements.
 4
 TIANYIN PHARMACEUTICAL CO., INC.




Consolidated Statements of Operations and Comprehensive Income


(Unaudited)


For the Three Months Ended


For the Nine Months EndedMarch 31,


March 31,2010


2009


2010


2009Sales

$
15,917,771


$
9,929,301


$
44,259,352


$
29,593,109Cost of sales


7,493,230



5,069,133



21,019,960



14,696,736Gross profit


8,424,541



4,860,168



23,239,392



14,896,373Operating expenses:Selling, general and administrative


4,607,897



2,481,188



13,135,398



7,709,861Research and development


218,515



86,495



608,385



253,353Total operating expenses


4,826,412



2,567,683



13,743,783



7,963,214Income from operations


3,598,129



2,292,485



9,495,609



6,933,159Other income (expenses):Interest income (expense), net


(3,845
)


4,874



(23,840
)


34,682Other expenses


-



(20,821
)


(39,510
)


(75,515
)Total other expenses


(3,845
)


(15,947
)


(63,350
)


(40,833
)Income before provision for income tax


3,594,284



2,276,538



9,432,259



6,892,326Provision for income tax


686,161



380,521



1,767,852



1,148,197Net income


2,908,123



1,896,017



7,664,407



5,744,129Less: Net (loss) attributable to noncontrolling interest


(1,357
)


-



(2,397
)


-Net income attributable to Tianyin


2,909,480



1,896,017



7,666,804



5,744,129Other comprehensive incomeForeign currency translation adjustment


(155
)


(50,359
)


46,629



296,009Comprehensive income

$
2,909,325


$
1,845,658


$
7,713,433


$
6,040,138Basic earnings per share

$
0.11


$
0.10


$
0.31


$
0.29Diluted earnings per share

$
0.09


$
0.10


$
0.26


$
0.23Weighted average number of common sharesOutstandingBasic


26,363,749



15,987,334



23,650,332



15,902,618Diluted


31,631,330



15,987,334



29,931,923



24,980,236


The accompanying notes are an integral part of these consolidated financial statements.
 5
 TIANYIN PHARMACEUTICAL CO., INC.




Consolidated Statements of Cash Flows
 (Unaudited)
 For the Nine Months EndedMarch 31,2010


2009Cash flows from operating activities:Net Income

$
7,666,804


$
5,744,129Adjustments to reconcile net income to net cashprovided by (used in) operating activities:Depreciation and amortization


678,372



355,933Bad debt expense


96,734



-Noncontrolling interest


(2,397
)


-Share-based payments


1,274,516



-Loss on disposal of fixed assets


39,510



-Changes in current assets and current liabilities:Accounts receivable


(2,725,110
)


(512,429
)Inventory


190,744



(1,095,822
)Other current assets


457,487



(312,467
)Accounts payable and accrued expenses


437,483



(76,119
)VAT taxes payable


87,300



46,066Income tax payable


195,177



37,915Other taxes payable


5,175



(31,085
)Other current liabilities


195,931



247,867Total adjustments


930,922



(1,340,141
)Net cash provided by operating activities


8,597,726



4,403,988Cash flows from investing activities:Additions to property and equipment


(59,934
)


(57,994
)Additions to construction in progress


(5,278,806
)


(2,686,567
)Additions to intangible assets – approved drugs


(2,742,168
)


(2,416,425
)Loan receivable


(293,280
)


-Accounts payable – construction related


2,887,122



-Net cash used in investing activities


(5,487,066
)


(5,160,986
)Cash flows from financing activities:Proceeds from (repayment of) bank loans


65,988



(512,575
)Additional paid-in capital


8,864,825



-Repayment of shareholder loans


-



(102,737
)Proceeds from minority shareholders


439,920



-Payment of dividends


(1,577,068
)


-Net cash provided by (used in) financing activities


7,793,665



(615,312
)Effect of foreign currency translation on cash


2,852



48,831Net increase (decrease) in cash and cash equivalents


10,907,177



(1,323,479
)Cash and cash equivalents – beginning


12,352,223



12,057,150Cash and cash equivalents – ending

$
23,259,400


$
10,733,671Supplemental schedule of non cash activitiesAdvance payments exchanged for intangible assets – drug

$
807,986


$
-




The accompanying notes are an integral part of these consolidated financial statements.
 6


Note 1 – Organization and Nature of Business





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





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





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





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





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


7


Note 2 – Summary of Significant Accounting Policies





Basis of Presentation





The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America. The consolidated financial statements include the accounts of Tianyin Pharmaceutical Co., Inc. and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.





In preparing the accompanying unaudited consolidated financial statements, we evaluated the period from March 31, 2010 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for this period.





Interim Financial Statements





These interim financial statements should be read in conjunction with the audited financial statements for the years ended June 30, 2009 and 2008, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the years ended June 30, 2009 and 2008.





Fair value of financial instruments





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





The Company adopted ASC 820-10, “Fair Value Measurements”, on January 1, 2008.  ASC 820-10, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:





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





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





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


8


Note 2 – Summary of Significant Accounting Policies (continued)





Recent Accounting Pronouncements





In November 2008, the SEC issued for comment a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). Under the proposed roadmap, we could be required in fiscal 2014 to prepare financial statements in accordance with IFRS. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. We are currently assessing the impact that this potential change would have on our consolidated financial statements and we will continue to monitor the development of the potential implementation of IFRS.





In June 2009, the Financial Accounting Standards Board (“FASB”) modified the accounting standard related to consolidation.  This standard, as modified, intends to improve financial reporting by enterprises involved with variable interest entities.  This standard, as modified, addresses the effects on certain provisions relating to the Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in the accounting standard related to transfers and servicing, and constituent concerns about the application of certain key provisions of this standard, including those in which the accounting and disclosures under the standard do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity.  This standard, as modified, is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited.  The adoption of the consolidation standard, as modified, did not have a material effect on our consolidated financial statements.





On July 1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched the FASB Accounting Standards Codification (“ASC”), which has become the single official source of authoritative nongovernmental U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The ASC is designed to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the ASC carries an equal level of authority. The ASC is effective for all interim and annual periods ending after September 15, 2009. The Company’s implementation of this guidance effective July 1, 2009 did not have a material effect on the Company’s condensed consolidated financial statements.





On July 1, 2009, the Company adopted the accounting and disclosure requirements of Statement of Financial Accounting Standard (“SFAS”) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51, which is now included with ASC Topic 810 Consolidation.  This standard establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation.  On a prospective basis, any changes in ownership will be accounted for as equity transactions with no gain or loss recognized on the transactions unless there is a change in control.





In October 2009, the FASB issued Accounting Standards Update No. 2009-13, "Multiple-Deliverable Revenue Arrangements" ("ASU No. 2009-13"). ASU No. 2009-13 amends guidance included within Accounting Standards Codification ("ASC") Topic 605-25 to require an entity to use an estimated selling price when vendor specific objective evidence or acceptable third party evidence does not exist for any products or services included in a multiple element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU No. 2009-13 also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  Early adoption and retrospective application are also permitted.  We are currently evaluating the impact of adopting the provisions of ASU No. 2009-13.








Note 3 – Accounts Receivable





Trade accounts receivable are stated at original invoice amount less allowance for doubtful receivables based on management’s periodic review of aging of outstanding balances and customer credit history. Allowance for doubtful accounts amounted to $268,955 and $171,947 at March 31, 2010 and June 30, 2009, respectively.








9





Note 4 – Inventory





Inventory at March 31, 2010 and June 30, 2009 consists of the following:





March 31, 2010


June 30, 2009Raw materials

$
1,212,618


$
1,104,461Packaging supplies


584,395



412,314Work in process


1,161,405



1,314,344Finished goods


802,695



1,115,429Subtotal


3,761,113



3,946,548Less: Inventory reserve


138,447



138,259Total

$
3,622,666


$
3,808,289





Note 5 – Property and Equipment





Property and equipment at March 31, 2010 and June 30, 2009 consists of the following:





March 31, 2010


June 30, 2009Buildings

$
8,748,277


$
5,175,726Machinery and equipment


2,629,439



1,200,827Office equipment and furniture


55,917



48,777Vehicles


62,788



397,340Subtotal


11,496,421



6,822,670Less: Accumulated depreciation


2,206,257



2,165,7959,290,164



4,656,875Add: Construction in progress


5,280,966



4,985,651Total

$
14,571,130


$
9,642,526





10


Note 5 – Property and Equipment (continued)





Depreciation expenses for the three months ended March 31, 2010 and 2009 were $127,516 and $78,107, and for the nine months ended March 31, 2010 and 2009 were $385,801 and $235,332, respectively.





Note 6 – Intangible Assets





Intangible assets at March 31 2010 and June 30, 2009 consist of the following:





March 31, 2010


June 30, 2009Rights to use land

$
1,452,330


$
1,450,350Approved drugs:Traditional Chinese Medicine subject to impairment


9,279,255



8,416,905Non-traditional Chinese Medicine


5,413,230



2,708,785Total approved drugs:


14,692,485



11,125,690Total Intangible assets


16,144,815



12,576,040Less: accumulated amortization


831,983



538,557Total

$
15,312,832


$
12,037,483


Approved drugs can be separated into two groups: Traditional Chinese Medicine (TCM) and Non Traditional Chinese Medicine (NTCM). The useful life of the TCM is considered to be indefinite because no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life. The term indefinite does not mean infinite. NTCM drugs are amortized on a straight-line basis over their estimated useful life of 10 years. Amortization expenses for the three months ended March 31, 2010 and 2009 were $157,281 and $40,214, and for the nine months ended March 31, 2010 and 2009 were $292,571 and $120,601, respectively.





Note 7 – Accounts Payable and Accrued Expenses





Accounts payable and accrued expenses consist of the following:





March 31, 2010


June 30, 2009Accounts payable

$
1,761,042


$
1,182,714Accrued expenses


70,931



209,925Total

$
1,831,973


$
1,392,639





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





Note 8 – Accounts Payable – Construction Related





As of March 31, 2010 and December 31, 2009, the Company had construction payables of $2,888,303 and $-0-, respectively. Construction payables represent the cost of additions of manufacturing facilities.




Note 9 – Short-Term Bank Loans





Short-term bank loans consist of the following:




March 31, 2010


June 30, 2009On July, 2008, the Company obtained a loan from Agricultural Bank ofChina, out of which the principal was paid in full by July 10, 2009.  Theinterest was calculated using an annual fixed interest rate of 7.881% andpaid monthly.  The loan was secured by the Company's property andequipment.

$
-


$
520,075
 
  11


Note 9 – Short-Term Bank Loans (continued)





March 31, 2010


June 30, 2009On June 24, 2009, the Company obtained a loan from Agricultural Bank ofChina, out of which the principal is to be paid in full by June 23, 2010. Theinterest is to be calculated using an annual fixed interest rate of 5.6286%and paid monthly. The loan is secured by the Company’s property andequipment.

$
-


$
879,000On January 29, 2010, the Company obtained a loan from China CITIC Bank,out of which the principal is to be paid in full by January 28, 2011.Theinterest is to be calculated using an annual fixed interest rate of 5.5755%and paid monthly. The loan is secured by the Company’s property andequipment.

$
1,467,000


$
-Total short-term bank loans

$
1,467,000


$
1,399,075





Note 10 – Income Taxes





The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.”





Raygere is incorporated in the British Virgin Islands. While under the corporate tax laws of British Virgin Islands, Raygere is not subject to tax on income or capital gain, other transactional taxes at times may apply.





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





On March 16, 2007, the National People’s Congress of China enacted a new Corporate Income Tax (“CIT”) law, under which Foreign Invested Enterprises and domestic companies would be subject to CIT at a uniform rate of 25%. The new CIT law became effective on January 1, 2008. Currently, the Company does not believe the new CIT law will affect the preferential tax treatments enjoyed by them. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, as of March 31, 2010, the Company has not recorded any withholding tax on the retained earnings of its foreign invested enterprises in China.





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





Note 11 – Stockholders’ Equity and Related Financing Agreements





On January 16, 2008, the shareholders of Raygere were issued 12,790,800 shares of Viscorp’s Common Stock, under a Share Exchange Agreement (SEA) pursuant to a claim of exemption under Section 4(2) of the Securities Act of 1933, as amended, for issuances not involving a public offering. Under the SEA, after the transfer of all of its shares, Raygere became a wholly-owned subsidiary of Viscorp, which has changed its name to Tianyin Pharmaceutical Co., Inc. (hereinafter Tianyin).





12


Note 11 – Stockholders’ Equity and Related Financing Agreements (continued)





On January 16 and 25, 2008, Tianyin (formerly Viscorp.) completed private financings totaling $15,225,000, with 27 accredited investors (the “January 2008 Financing”). The net proceeds from the financing were approximately $13,697,000. Consummation of the financing was a condition to the completion of the Share Exchange transaction with Raygere and the Raygere Stockholders under the Share Exchange Agreement. The securities offered in the financing were sold pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) by and among Tianyin (formerly Viscorp.), Raygere, the Raygere stockholders, Grandway and the investors named in the Purchase Agreement (collectively, the “Investors”). In accordance with the Purchase Agreement, Tianyin (formerly Viscorp.) issued a total of 152.25 units of securities consisting of: (i) An aggregate of $15,225,000 principal amount of Tianyin 10% convertible exchangeable notes due on or before June 30, 2009 (the “Notes”); (ii) Five (5) year warrants to purchase 4,757,814 shares of Tianyin Common Stock, $0.001 par value per share at an initial exercise price of $2.50 per share (the “Class A Warrants”), and (iii) Seven (7) year warrants to purchase 4,757,814 shares of Tianyin common stock at an initial exercise price of $3.00 per share (the “Class B Warrants” and together with the Class A Warrants, the “Warrants”). The exercise prices of the Warrants are subject to weighted average and other anti-dilution adjustments.





Pursuant to the terms of the Purchase Agreement, the $15,225,000 of Notes automatically converted into an aggregate of 9,515,625 shares of Tianyin Series A convertible preferred stock, par value 0.001 per share (the “Series A Preferred Stock”) on March 11, 2008, the effective date of the authorization and designation of such class. As issued, the Series A Preferred Stock:





●
Pays an annual dividend of 10%, payable at Tianyin’s option either in cash or (if such shares have been registered for resale under the Securities Act of 1933, as amended) in additional shares of Tianyin Common stock valued at $1.60 per share;





●
Has a stated or liquidation value of $1.60 per share, or $15,225,000 as to all 9,515,625 shares of Series A Preferred Stock.





Each outstanding share of Series A Preferred Stock is convertible at any time at the option of the holder into one (1) full share of Tianyin Common stock.





As of March 31, 2010, there had been 7,442,875 shares of Series A Preferred Stock converted to 7,442,875 shares of Tianyin Common stock in total, of which 5,073,750 shares were converted during the nine months ended March 31, 2010.





As of March 31, 2010, 859,376 Class A and 500,000 Class B Warrants of the Company have been exercised for respective equivalent number of shares of common stock. The exercise prices of Class A and Class B Warrants are $2.50 and $3.00 per share, respectively. In addition, the warrants to the placement agent to purchase 542,394 shares of common stock at $1.60, 15,025 shares of common stock at $2.50 and the options issued to external service providers to purchase 150,000 shares of common stock at $2.00 per share have also been exercised. As a result, an aggregate of 2,066,795 shares of outstanding common stock have been added and a total of $4,561,958 in net proceeds have been received from the exercise of these warrants and options.





On May 9, 2008, Chengdu Tianyin issued 20,000 shares of Common stock to employees. The company recorded a $68,000 General and Administrative expense as a result of the issuance of common shares priced at fair value on the date of issuance of such shares to the employee’s.





In connection with a financing by TriPoint Global Equities, LLC acting as the Company’s placement agent, Tianyin granted warrants to purchase 1,522,500 shares of Common Stock at exercise prices of $1.60, $2.50 and $3.00, respectively. per share to TriPoint Global Equities, LLC. The warrants issued to TriPoint Global Equities, LLC have the same terms as the warrants issued to investors under the financing that TriPoint Global Equities, LLC acted as placement agent upon.


13


Note 11 – Stockholders’ Equity and Related Financing Agreements (continued)





On July 29, 2008, the Company issued 236,488 shares of common stock, representing the fiscal year 2008 fourth quarter dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock.





On September 30, 2008, the Company recorded $361,332 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. A resolution was approved by the Company’s Board of Director’s and the Company issued common stock in lieu of cash to the investor group who invested in the Company’s January 208 financing.





On October 29, 2008, the Company issued 225,932 shares of common stock, representing the fiscal year 2009 first quarter dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock.





On December 31, 2008, the Company recorded $357,694 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. A resolution was approved by the Company’s Board of Directors and the Company issued common stock in lieu of cash to the investor group who invested in the Company’s January 2008 financing.





On January 5, 2009, the Company issued 223,558 shares of common stock, representing the fiscal year 2009 second quarter dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock.





On March 31, 2009, the Company recorded $346,578 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. A resolution was approved by the Company’s Board of Director’s and the Company issued common stock in lieu of cash to the investor group who invested in the Company’s January 2008 financing.





On April 14, 2009, the Company issued 216,609 shares of common stock, representing the FY 2009 third quarter dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock.





On April 14, 2009, the Company announced that its Series A Preferred shareholders approved an annual cash dividend of $0.10 per common share that will be paid quarterly for each quarter of this fiscal year to common shareholders. The initial dividend of $0.025 per common share, which amounted to $73,944, was paid to common shareholders of record on April 30, 2009, with the actual distribution on June 10, 2009. The cash dividend was paid solely to common stockholders and not paid on shares owned by management, advisors or other inside shareholders, all of whom have agreed to waive receipt of the dividend.





On June 30, 2009, the Company recorded $325,417 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. A resolution was approved by the Company’s Board of Director’s and the Company paid dividends to the investor group who invested in the Company’s January 2008 financing on July 31, 2009.





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





14


Note 11 – Stockholders’ Equity and Related Financing Agreements (continued)





On September 30, 2009, the Company recorded $233,683 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. A resolution was approved by the Company’s Board of Director’s and the Company paid dividends to the investor group who invested in the Company’s January 2008 financing in cash on October 31, 2009.





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





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





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





On December 31, 2009, the Company recorded $98,538 as dividends to the investors of the Company’s January 2008 financings, representing the quarterly dividend (10% per annum) in accordance with the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock. A resolution was approved by the Company’s Board of Director’s and the Company paid dividends in cash to those investors on January 31, 2010.





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





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





Note 12 – Employee Welfare Plan





The Company has established an employee welfare plan in accordance with Chinese laws and regulations. Full-time employees of the Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance and other welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on a certain percentage of the employees’ salaries. The total contribution for such employee benefits was $151,494 and $114,157 for the nine months ended March 31, 2010 and 2009, respectively.


15


Note 13 – Risk Factors





The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Further discussions of Risk Factors are available on the Company’s Annual Report on Form 10-K for the year ended June 30, 2009.





Note 14 – Concentrations of Credit Risk and Significant Customers





Financial instruments potentially subject the Company to credit risk, which consist of cash and cash equivalents, and accounts receivable.





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





Five customers accounted for 15% and 16% of the total revenue for the nine months ended March 31, 2010  and 2009. Sales to these customers were $6,638,902 and $5,495,387for the nine months ended March 31, 2010 and 2009, respectively. And there were no customers who accounted for more than 10% of accounts receivables during the same period of time.





During the nine months ended March 31, 2010, three vendors accounted for approximately 29% of the Company’s purchases of raw materials, while during the nine months ended March 31, 2009, three vendors accounted for approximately 44% of the Company’s purchases of raw materials. Total purchases from these vendors were $6,313,105 and $7,331,047 for the nine months ended March 31, 2010 and 2009, respectively.








Note 15 – Supplemental Cash Flow Disclosures





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





Nine Months Ended March 31,2010


2009Cash paid for interest

$
58,276


$
75,515Cash paid for income taxes

$
1,572,675


$
1,110,282





Note 16 – Earnings Per Share





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


16


Note 16 – Earnings Per Share (continued)





Three Months Ended March 31,2010


2009Net income (numerator for diluted income per share)

$
2,909,480


$
1,896,017Less: Dividend attributable to preferred stockholders


82,541



346,578Net income attributable to common stockholders(numerator for basic income per share)


2,826,939



1,549,439Weighted average common shares(denominator for basic income per share)


26,363,749



15,987,334Effect of diluted securities:Convertible preferred stock


2,125,528



-Warrants


3,142,053



-Weighted average common shares(denominator for diluted income per share)


31,631,330



15,987,334Basic net income per share

$
0.11


$
0.10Diluted net income per share

$
0.09


$
0.10







Nine Months Ended March 31,2010


2009Net income (numerator for diluted income per share)

$
7,666,804


$
5,744,129Less: Dividend attributable to preferred stockholders


414,762



1,065,603Net income attributable to common stockholders(numerator for basic income per share)


7,252,042



4,678,526Weighted average common shares(denominator for basic income per share)


23,650,332



15,902,618Effect of diluted securities:Convertible preferred stock


3,354,810



9,044,060Warrants


2,926,781



33,558Weighted average common shares(denominator for diluted income per share)


29,931,923



24,980,236Basic net income per share

$
0.31


$
0.29Diluted net income per share

$
0.26


$
0.23


17


Note 17 – Share - Based Payments





In March, April and November, 2009, the Company granted to external service providers a total of 45,000 restricted shares of common stock and options to purchase 195,000, 75,000 and 180,000 shares of common stock at $1.60, $2.00 and $3.28 per share, respectively, all expected lives of 5 years in addition to cash compensations. The fair value of each option granted is estimated on the measurement date per ASC 505-50 (formerly “EITF 96-18”) using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the quarter ended March 31, 2010: expected volatility of 126.86 percent and risk-free interest rate of 2.55 percent.





In July 2009, the Company granted options to purchase 50,000 shares of common stock at $2.00 per share with both expected lives of 3 years to an external service provider in addition to cash compensations. The fair value of each option grant is estimated on the measurement date per ASC 505-50 (formerly “EITF 96-18”) using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the quarter ended March 31, 2010: expected volatility of 126.86 percent and risk-free interest rate of 1.60 percent.





Accordingly, an aggregate of $219,121 and $-0- share based payments were recognized in the income statements as professional fees of external service providers for the three months ended March 31, 2010 and 2009, respectively. And for the nine months ended March 31, 2010 and 2009, the share based payments were $1,091,495 and $-0-, respectively.





Note 18 – Treasury Stock





On October 27, 2008, the board of directors approved the stock repurchase program and authorized the repurchase of up to three (3) million shares of the Company’s common stock on the open market or through privately negotiated transactions. As of March 31, 2010, the Company has repurchased 83,785 shares at an aggregate cost of $111,587. The purpose of the repurchase program was to reduce the number of shares outstanding and thus increasing the price of remaining shares.





Note 19 – Subsequent Events





None.











18





Item 2





Management’s Discussion and Analysis of Financial Condition and Results of Operations





The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of Tianyin Pharmaceutical for the periods ended March 31, 2010 and 2009 and should be read in conjunction with such financial statements and related notes included in this report and the Company’s Annual Report on Form 10-K for the year ended June 30, 2009.





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





Overview





We are engaged primarily in the development, manufacturing, marketing and sale of modernized traditional Chinese medicines and other pharmaceuticals in China. We currently manufacture and market a comprehensive portfolio of 52 products, 23 of which are listed in the highly selective National Medicine Catalog of the National Medical Insurance program, including patent protected Ginkgo Mihuan Oral Liquid  and 3 drug candidates under the SFDA’s review. Additionally, we have 6 trademarks granted and 16 trademarks pending.





Established in 1994, Chengdu Tianyin is a biopharmaceutical company that manufactures and sells modernized traditional Chinese medicines and branded generics. The current management of Chengdu Tianyin acquired 100% of the equity interest of Chengdu Tianyin in 2003. On October 30, 2007, Grandway completed the acquisition of the 100% of the equity interest and now owns 100% of the equity interest of Chengdu Tianyin, a company located in Chengdu, Sichuan Province of the PRC that operates our business.





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





On August 21, 2009, Sichuan Jiangchuan Pharmaceutical Co., Ltd (“Sichuan Jiangchuan JV”) was established by Chengdu Tianyin, Sichuan Mingxin Pharmaceutical and an individual investor with crude drug production as its major business. Total registered capital of Sichuan Jiangchuan JV is $2,934,000, of which Chengdu Tianyin accounts for 77%. Tianyin will utilize Sichuan Jiangchuan JV as the foundation for a broader, longer term strategy to establish a significant presence in the rapidly growing Chinese macrolide antibiotics market





Competitive environment





The market for pharmaceutical products is highly competitive. Our operations may be affected by technological advances by competitors, industry consolidation, patents granted to competitors, competitive combination products, new products offered by our competitors, as well as new information provided by other marketed products and/or other post-market studies.





Development and growth strategy





The cornerstone of our business development strategy relies upon our partnership-based research and development efforts that support our ability to commercialize, produce, and broaden our product pipeline and to market those products through our sales and marketing infrastructure.  In the past fiscal year, we implemented this strategy, which has led to increased market penetration and revenue growth.





As part of our continuing growth strategy, we will continue our partnership-based research and development efforts to further commercialize and broaden our product pipeline.  As of March 31, 2010, we have received the following five new SFDA approvals in addition to our existing portfolio:








Drug Name

SFDA Approval NumberYinqiao Jiedu Tablets

(Z20093555)Kangjun Xiaoyan Capsule

(Z20090855)Xiaoyan Lidan Tablets II

(Z20093681)











19





Fleroxacin Tablets I

(H20094057)Fleroxacin Tablets II

(H20094038)





Descriptions of the function of the above products are as follows:





·
Yinqiao Jiedu Tablets for acute respiratory system ailments, such as the influenza and the common cold.


·
Kangjun Xiaoyan Capsule for sore throat and gum caused by fever and cold


·
Xiaoyan Lidan Tablets II for acute cholangtis and cholecystitis.


·
Fleroxacin Tablets I for bronchitis, pneumonia and other respiratory infections, genitourinary system infection and gastrointestinal infections.


·
Fleroxacin Tablets II for urogenital infections, including urinary tract infections, bacterial prostatitis, Neisseria gonorrhea urethritis or cervicitis, respiratory tract infections, gastrointestinal tract infections, bone and joint infections, skin and soft tissue infections and sepsis.





To meet the increasing demand from our customers and to enhance production and sales infrastructure, as part of the use of proceeds from our private financings, we built production facilities on the vacant portion of our current premises to accommodate our growth. The new facilities should allow us to increase production activity threefold with an estimated project expenditure of approximately $5 million. The capital required for the expansion of our facilities was sourced from our $15.2 million financing completed in January 2008. The Gross Floor Area (GFA) is about ten thousand square meters with modern state-of-the-art manufacturing equipment. Construction started in July 2008 and trial operations commenced in May 2009. By the end of June 2009, construction of our new plant was completed. The facilities have passed Good Manufacturing Practice (“GMP”) certification and have started mass production. Management believes that our current facilities, including land available for expansion, will be sufficient for the growth we anticipate over the next 5 years.  As our growth accelerates, we will be able to install new equipment and production lines to meet further demands for our products.





Management plans to selectively pursue strategic acquisitions and licensing opportunities as part of our growth strategy. We believe that strategic acquisitions and licensing provide effective means to broaden our product portfolio, consolidate our resources and expand our market coverage. As part of these initiatives, in April 2009, we entered into a land supply agreement with the Sichuan Xinjin County Government to acquire 100 mu (approximately 66,700 square meters) of land within the Xinjin Chemical Industrial Park. We plan to establish a manufacturing plant for Active Pharmaceutical Ingredients (“API”) of macrolides antibiotics on the site. In August 2009, we partnered with Sichuan Mingxin Pharmaceutical Co., Ltd. in the launch of a new joint venture, Sichuan Jiangchuan JV, which primarily engages in the research and development, manufacturing, sales and marketing of API and chemical intermediates of macrolides antibiotics. The joint venture is 77% owned by Tianyin. We plan to fund the Sichuan Jiangchuan JV in two phases with a total investment estimated to reach approximately $20 million (Phase I: $10 million for plant construction, auxiliary facilities construction and equipment purchase. Phase II: $10 million for construction of high output manufacturing lines). We expect to fund the Sichuan Jiangchuan JV through internal cash flow, funds from the exercise of investor warrants from our previous financing and possible future financings. Currently Phase I of the project is being carried out and expected to be completed in August 2010 and commence operations after GMP certification.





In addition, we believe the pharmaceutical industry could benefit from the ongoing healthcare reform which is part of the recently announced government stimulus plan. Twenty three of our medicines are included in the 2009 Edition of the National Basic Medical Insurance, Industrial Injury Insurance and Maternity Insurance Medicine Directory. The 2009 Edition Directory includes a total of 2,151 medicines and became effective throughout the PRC on December 1, 2009. There are 1,164 Western drugs in the Directory, including 349 Category A medicines, 791 Category B medicines, 20 restricted work injury insurance agents, and 4 maternity insurance agents. In addition, there are 987 Chinese medicines, including 154 Category A medicines and 833 Category B medicines. Patients will be fully reimbursed for consumption of Category A medicines by the National Basic Medical Insurance. The 23 medicines treat a variety of common indications and diseases and make up approximately 70% of Tianyin's total revenues for the fiscal year 2009. Among 23 medicines produced by Tianyin, 8 medicines are classified as Category A and 15 medicines are classified as Category B.




Manufacturing, Sales and marketing





We support our commercialized products with various manufacturing, sales and marketing efforts. We are also in the process of enhancing our infrastructure and business via additional investments, including capital expenditures in new plant and production tools and facilities, improved and advanced information technology systems, and continued post-marketing studies and monitoring studies.





Fiscal Year 2010 Financial Guidance





We anticipate the growth momentum to continue in the remainder of 2010 fiscal year, following a solid gain of 50% on average year over year for the first nine month of 2010 fiscal year. We  reiterate our guidance of $63 million in revenue, or 48% year over year growth for fiscal year 2010. We expect the sales growth to come from both the increase of Ginkgo Mihuan Oral Liquid sales and the roll out of our new products. Management estimates that sales of the Company's flagship product, Ginko Mihuan, to grow by approximately 89% to $22 million in fiscal 2010.








20




During fiscal year 2010, we expect to generate a potential minimum net income of $11.0 million. Forecasted net income does not include non-cash expenses associated with stock compensation plans, stock option expenses and/or future interest expense.





Discussion on Operating Results





The following table shows the results of our business. All references to the results of operations and financial conditions are on a consolidated basis that includes Chengdu Tianyin, Tianyin Medicine Trading and Sichuan Jiangchuan JV.


Comparison of results for the three months and nine months ended March 31, 2010 and 2009:





Three Months Ended March 31,



Nine Months Ended March 31,2010



2009



2010



2009Sales

$
15,917,771


$
9,929,301


$
44,259,352


$
29,593,109Cost of sales

$
7,493,230


$
5,069,133


$
21,019,960


$
14,696,736Gross profit

$
8,424,541


$
4,860,168


$
23,239,392


$
14,896,373Total operating expenses

$
4,826,412


$
2,567,683


$
13,743,783


$
7,963,214Total other income (expense)

$
(3,845
)

$
(15,947
)

$
(63,350
)

$
(40,833
)Provision for income taxes

$
686,161


$
380,521


$
1,767,852


$
1,148,197Net income

$
2,908,123


$
1,896,017


$
7,664,407


$
5,744,129Less: Net (loss) attributable to noncontrolling interest

$
(1,357
)

$
-


$
(2,397
)

$
-Foreign currency translation adjustment

$
(155
)

$
(50,359
)

$
46,629


$
296,009Comprehensive income

$
2,909,325


$
1,845,658


$
7,713,433


$
6,040,138





Sales.Total revenues were $15.9 million for the three months ended March 31, 2010 as compared to $9.9 million for the three months ended March 31, 2009, an increase of $6.0 million or 60%. Revenues for the nine months ended March 31, 2010 were $44.3 million, as compared to total revenue of $29.6 million for the nine months ended March 31, 2009, an increase of $14.7 million or 50%. The revenue increase was primarily the result of the continuous channel expansion, market penetration and optimized usage of our expanded production facility. We expect greater unit sales as a result of the expansion of both our sales channels and sales force as we continue to implement or sales and marketing strategy.





Cost of sales.Cost of revenues for the three months ended March 31, 2010 was $7.5 million or 47% of revenues as compared to $5.1 million or 51% of revenues for the three months ended March 31, 2009. Cost of revenues for the nine months ended March 31, 2010 was roughly $21.0 million or 47.5% of revenue as compared to $14.7 million or 50% of revenues for the nine months ended March 31, 2009. Our cost of revenue consists of the raw material cost, labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead. The improvement of our cost of revenue was due to an increase in higher margin products in our sales mix along with enhanced cost control processes that we implemented that yielded greater efficiencies during the manufacturing process. We believe we will be able to further reduce our cost of revenue by continuing the efforts in higher margin products, production efficiency improvement.




Gross profit.Gross profit margin for the three months ended March 31, 2010 was approximately 53% as compared to 49% for the three months ended March 31, 2009. Considering the change of market environment and the adjustment of the Group strategy, management has gradually developed the products structure to expand the market of products with higher margin since  fiscal year 2009, such as Ginkgo Mihuan Oral Liquid and Apu Shuangxin, as well as to reduce the production of low gross margin products, such as Qingrejiedu Oral Liquid and Hugan Tablets.





Operating expenses. Operating expenses were $4.8 million for the three months ended March 31, 2010, as compared to $2.6 million for the three months ended March 31, 2009, an increase of $2.3 million or 88%. Operating expenses were $13.7 million for the nine months ended March 31, 2010, as compared to $8.0 million for the nine months ended March 31, 2009, an increase of $5.8 million or 73%. The increase was primarily due to our recent sales and marketing strategy that increased our sales payrolls and direct marketing expenses, along with the increased compensation expenses to external service providers.





Net income.Net income was $2.9 million for the three months ended March 31, 2010, as compared to net income of $1.9 million for the three months ended March 31, 2009, an increase of $1.0 million or 53%.  Net income was approximately $7.7 million for the nine months ended March 31, 2010, as compared to net income of $5.7 million for the nine months ended March 31, 2009, an increase of $1.9 million or 33%. The increase in our net income was primarily the result of increase in our revenue along with higher product margins.






21




Foreign Currency Translation Adjustment.Our reporting currency is the US dollar.  Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.





Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to $46,631 as of March 31, 2010. The balance sheet amounts with the exception of equity at March 31, 2010 were translated at 6.81663 RMB to 1.00 US dollar as compared to 6.82560 RMB to 1.00 US dollar at March 31, 2009. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months ended March 31, 2010 and 2009 were 6.81896 RMB and 6.84659 RMB to 1.00 US dollar. The average translation rates applied to income statement accounts for the nine months ended March 31, 2010 and 2009 were 6.81942 RMB and 6.82827 RMB to 1.00 US dollar.





Comprehensive Income.As a result of the above, the comprehensive income, which adds the currency adjustment to net income, was $2.9 million for the three months ended March 31, 2010, as compared to the comprehensive income of $1.8 million for the three months ended March 31, 2009, an increase of $1.1 million or 58%. The comprehensive income for the nine months ended March 31, 2010 was $7.7 million, as compared to the comprehensive income of $6.0 million for the nine months ended March 31, 2009, an increase of $1.7 million or 28%.





Liquidity and Capital Resources





Discussion of cash flow





For the nine months ended March 31,2010


2009Cash provided by operating activities

$
8,597,726


$
4,403,988Cash used in investing activities


(5,487,066
)


(5,160,986
)Cash provided by (used in) financing activities


7,793,665



(615,312
)





Operating activities





As of March 31, 2010, we had working capital totaling approximately $28.0 million, including cash and cash equivalents of $23.3 million. Net cash generated from operating activities was $8.6 million for the nine months ended March 31, 2010 as compared to $4.4 million for the same period of 2009. The increase in cash generated from operating activities during the nine months ended March 31, 2010 was primarily the result of revenue growth which led to an increased net income. We believe that Tianyin is adequately funded to meet all of our working capital and capital expenditure needs for 2010.





Investing activities





Net cash used in investing activities for the nine months ended March 31, 2010 and 2009 totaled $5.5 million and $5.2 million respectively. The increase in cash used in investing activities during the nine months ended March 31, 2010 was mainly the result of the new drug development and the construction of Sichuan Jiangchuan JV production plant.





Financing activities





On October 27, 2009, we completed a private equity financing of $4,987,500, with eight accredited investors (the “October 2009 Financing”). Net proceeds from the offering were approximately $4,490,000. Pursuant to the financing, we issued a total of 1,534,570 units of our securities at $3.25 per unit.





Net cash provided in financing activities for the nine months ended March 31, 2010 totaled $7.8 million and predominately related to capital contribution from October 2009 Financing and to warrant exercises during the period. Net cash used in financing activities for the nine months ended March 31, 2009 was $0.6 million and predominately related to the repayment of long-term bank loans and the purchase of our common stock repurchasing program.





Borrowings and Credit Facilities





The bank borrowing balance equals to the credit facilities as of March 31, 2010. The short-term bank borrowings outstanding as of March 31, 2010 and 2009 were $1.5 million and $1.4 million respectively.  We paid an average interest rate of 5.5755% and 7.881% per annum, respectively. These loans were made from various financial institutions and secured by the property and equipment of Chengdu Tianyin. They do not contain any additional financial covenants or restrictions. The borrowings have one year terms and contain no specific renewal terms.






22





Stock Repurchase Program




On October 27, 2008, the Board of Directors authorized the Company to repurchase up to $3.0 million of its common stock from time to time in the open-market or through privately negotiated transactions.




On January 30, 2009, we announced the start of the initial purchase of shares under its previously announced stock repurchase program. Those shares will be retired to the treasury while reducing the number of outstanding shares of the common stock or sold out wholly or partially when market turns better. The initial share buyback illustrate our confidence in the long-term growth of the company and our commitment to our shareholders. As of April 3, 2009, a total of 83,785 shares have been bought back at prevailing market prices. The share repurchase program is to continue for the remainder of 2010.




Cash dividend




On March 26, 2009, we announced that the Board of Directors declared an annual cash dividend of $0.10 per common share that will be paid quarterly. The initial dividend of $.025 was paid to common shareholders of record on April 30, 2009, with the actual distribution occurring around June 10, 2009. The cash dividend was paid solely to common stockholders and was not be paid on shares owned by management, advisors or other inside shareholders, all of whom have agreed to waive receipt of the dividend. The majority of the Company's Series A Preferred Shareholders had approved the cash dividend as of April 14, 2009.




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





The China health care industry, through the ongoing healthcare reform, is currently evolving and realizing an ever changing and dynamic competitive landscape. As a result of the reform, opportunities exist for Tianyin to capture a greater market share by investing the internal capital resources in our strategic growth plan. We believe by utilizing the capital in our strategic growth plan instead of making dividend payments at the present time to our common shareholders, we should be able to generate greater long-term returns for our shareholders. Given these opportunities and the necessary approvals that we are required to obtain from our preferred holders to continue to pay a dividend to our common shareholders, we have decided to suspend our common share dividend program.
 
 As a policy management believes that in the event we experience a shortage of opportunities to efficiently invest and grow our business with our excess cash on hand, then a dividend payable is an appropriate use of excess capital.





Changes in Equity




Common Stock Activity during the Nine Months Ended March 31, 2010




Common StockOutstanding, June 30, 2009


17,908,912Series A  conversions


5,073,750Warrant exercises


1,916,795Option exercises


150,000Financing shares


1,534,570Newly issued


15,000Outstanding, March 31, 2010


26,599,027





Series A Preferred Stock Activity during the Nine Months Ended March 31, 2010





Preferred StockOutstanding, June 30, 2009


7,146,500Series A conversions


(5,073,750
)Outstanding, March 31, 2010


2,072,750






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Stock Option Activity during the Nine Months Ended March 31, 2010


Number of

Shares


Weighted Average Exercise PriceOutstanding, June 30, 2009


456,000


$
1.90Granted


230,000



3.00Exercised


150,000



2.00Forfeited


--



--Expired


--



--Outstanding, March 31, 2010


536,000


$
2.34





Investor Warrant Activity during the Nine Months Ended March 31, 2010


Number of

Warrants


Weighted Average Exercise PriceOutstanding, June 30, 2009


9,515,628


$
2.75Granted


306,913



4.50Exercised


1,359,376



2.68Forfeited


--



--Returned and exchanged


--



--Expired


--



--Outstanding, March 31, 2010


8,463,165


$
2.82





Pursuant to the October 2009 Financing, the Company issued investors three year warrants to purchase 306,913 shares of Tianyin Common Stock, $0.001 par value per share at an initial exercise price of $4.50 per share.





During the nine months ended March 31, 2010, the Company received gross proceeds of approximately $3,648,000 from the exercise of 1,359,376 warrants.  As a result, as of March 31, 2010, the Company had 3,898,438 Class A Warrants at a strike price of $2.50 which expire in January 2013, 4,257,814 Class B Warrants at a strike price of $3.00 which expire in January 2015 and 306,913 Class C Warrants at a strike price of $4.50 which expire in October 2012 outstanding. If all these warrants are exercised, of which there can be no guarantee, the Company would receive gross proceeds of approximately $23,900,000.





Placement Agent Warrant Activity during the Nine Months Ended March 31, 2010





Number of

Shares


Weighted Average Exercise PriceOutstanding, June 30, 2009


1,522,500


$
2.18Granted


147,319



3.46Exercised


557,419



1.62Forfeited


--



--Expired


--



--Outstanding, March 31, 2010


1,112,400


$
2.62Exercisable, August 31, 2009


1,112,400


$
2.62





Pursuant to the October 2009 Financing, the Company issued 122,766 Series II Placement Agent Warrants and 24,553 Class C Placement Agent Warrants to the placement agent in conjunction with the October 2009 Financing and are exercisable at US$3.25 and $4.50 per share respectively. These warrants have the same terms as the warrants issued to investors and are included in the units.





During the nine months ended March 31, 2010, the Company received gross proceeds of approximately $905,000 from exercise of 557,419 warrants.





As a result, as of March 31, 2010, the Company had 218,856 Series I Placement Agent Warrants at a strike price of $1.60, 365,600 Class A Placement Agent Warrants at a strike price of $2.50 which expire in January 2013, 380,625 Class B Placement Agent Warrants at a strike price of $3.00 which expire in January 2015, 122,766 Series II Placement Agent Warrants at a strike price of $3.25 and 24,553 Class C Placement Agent Warrants at a strike price of $4.50 which expire in October 2012 outstanding. If all these Placement Warrants are exercised, of which there can be no guarantee, the Company would receive gross proceeds of approximately $2,915,000.






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As a result of the above, as of March 31, 2010, Tianyin has 26,599,027 common shares and 2,072,750 Series A preferred shares outstanding. Each outstanding share of Series A preferred stock is convertible at any time at the option of the holder into one (1) full share of Tianyin Common stock. The company also has Class A, Class B and Class C Warrants to purchase a total of 8,463,165 shares of Tianyin common stock at weighted average exercise price of $2.82 per share. In addition, Tianyin has stock options to purchase 536,000 shares of Tianyin common stock at weighted average exercise price of $2.34 per share. The company also has placement agent warrants in total to purchase 1,112,400 shares of Tianyin common stock at weighted average exercise price of $2.62 per share.





At March 31, 2010, if all options and warrants were exercised and all shares of Series A preferred stock were converted, the Company would have 38,536,153 shares of common stock outstanding excluding the 83,785 repurchased shares and the Company would receive approximately $28,028,000 in additional gross proceeds.





Critical Accounting Policies and Estimates





Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K/A for the year ending June 30, 2009, for disclosures regarding Tianyin’s critical accounting policies and estimates as well as updates further disclosed in our interim financial statements as described in this Form 10-Q.





Off-Balance Sheet Arrangements





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





Others





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







Item 3. Quantitative and Qualitative Disclosure About Market Risk





Not applicable























25








Item 4. Controls and Procedures





(a)
Evaluation of disclosure controls and procedures





We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, and are effective in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.





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





(b)
Changes in internal control over financial reporting





In our Management’s Report on Internal Control Over Financial Reporting included in our Form 10-K for the year ended June 30, 2009, management concluded that our internal control over financial reporting was effective. Management did however identify a significant deficiency as of June 30, 2009, as discussed below. A significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.





During the preparation of the consolidated financial statements, we have employed the expertise and knowledge of external financial advisors in US GAAP conversion. Although we have not identified any material errors with our financial reporting or any material weaknesses with our internal controls, no assurances can be given that there are no such material errors or weaknesses existing. To remediate this situation, we are in the process of recruiting experienced professionals to augment our financial staff to address issues of timeliness and completeness in US GAAP financial reporting. In addition, we do not believe we have sufficient documentation with our existing financial processes, risk assessment and internal controls.  We plan to work closely with external financial advisors to document the existing financial processes, risk assessment and internal controls systematically.





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





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











26











PART II - OTHER INFORMATION





ITEM 1. Legal Proceedings





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





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





(a)             Not applicable.









(c)             Not applicable.





ITEM 3. Defaults upon Senior Securities





(a)             Not Applicable.





(b)             Not Applicable.





ITEM 4. (Removed and Reserved)




ITEM 5. OTHER INFORMATION





(a)             Not applicable.





(b)             Not applicable.





ITEM 6.  EXHIBITS





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





Exhibit No.

Document3.1
Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K filed on September 24, 2009).3.2
Bylaws (Incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed on September 24, 2009).31.1
Certification  of  Chief  Executive  Officer  required  by Rule 13a-14/15d-14(a) under the Exchange Act31.2
Certification of  Acting Chief Accounting Officer required by Rule 13a-14/15d-14(a) under the Exchange Act32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
Certification of Acting Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





27


SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 Date:    May 11, 2010
 
 By: TIANYIN PHARMACEUTICAL CO., INC.
   /s/  Dr. Guoqing JiangName:  Dr. Guoqing JiangTitle:    Chairman, Chief Executive Officer/s/  Dr. James Jiayuan TongName:  Dr. James Jiayuan TongTitle:    Chief Financial Officer, Chief Accounting Officer,Chief Business and Development Officer, Director





28