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 September 30, 2011





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





For the transition period from _______________ to _______________




Commission File Number





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 45 days. Yes x No o




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
o

Accelerated Filer
oNon-accelerated filer
o(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 o No x





As of November 14, 2011,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 29,396,276 and -0- respectively are currently issued and outstanding.














TABLE OF CONTENTS





PagePART I - FINANCIAL INFORMATION
1Item 1. Financial Statements
1Consolidated Balance Sheets atSeptember 30, 2011 (unaudited) and June 30, 2011
1Unaudited Consolidated Statements of Operations for thethree months ended September 30, 2011 and 2010
2-3Unaudited Consolidated Statements of Cash Flowsfor the three months ended September 30, 2011 and 2010
4Unaudited notes to Consolidated Financial Statements
5Item 2. Management’s Discussion and Analysis or Plan of Operation
12Item 3.Quantitative and Qualitative Disclosure About Market Risk
17Item 4. Controls and Procedures
17PART II – OTHER INFORMATION
18Item 1. Legal Proceedings
18Item 2. Unregistered Sales of Equity Securities And Use Of Proceeds
18Item 3. Defaults Upon Senior Securities
18Item 4. (Removed and Reserved)
18Item 5. Other Information
18Item 6. Exhibits
19










PART I- FINANCIAL INFORMATION


TIANYIN PHARMACEUTICAL CO., INC.


Consolidated Balance Sheets




September 30,


June 30,2011


2011Assets

(Unaudited)Current assets:Cash and cash equivalents

$
33,307,292


$
31,724,906Restricted cash


1,533,700



-Accounts receivable, net of allowance for doubtful accounts of $140,228and $421,079 at September 30, 2010 and June 30, 2011, respectively


8,816,728



9,036,030Inventory


4,168,027



4,932,353Advance payments


669,687



1,639,820Other current assets


113,419



62,951Total current assets


48,608,853



47,396,060Property and equipment, net


27,770,668



27,465,915Intangibles, net


17,945,668



15,339,194Total assets

$
94,325,189


$
90,201,169LiabilitiesCurrent liabilities:Accounts payable and accrued expenses

$
2,913,515


$
2,063,792Accounts payable – construction related


1,606,446



1,824,067Short-term bank loans


4,382,000



2,784,600VAT taxes payable


390,033



674,974Income taxes payable


572,251



930,418Other taxes payable


75,214



124,154Other current liabilities


396,017



519,602Total current liabilities


10,335,476



8,921,607Total liabilities


10,335,476



8,921,607EquityStockholders’ equity:Common stock, $0.001 par value, 50,000,000 shares authorized,


29,396



29,39629,396,276 shares issued and outstanding at September 30, 2011and June 30, 2011Additional paid-in capital


30,065,452



30,065,452Statutory reserve


5,409,764



5,409,764Treasury stock


(111,587
)


(111,587
)Retained earnings


40,899,258



39,374,018Accumulated other comprehensive income


7,024,806



6,077,299Total stockholders’ equity


83,317,089



80,844,342Noncontrolling interest


672,624



435,220Total equity


83,989,713



81,279,562Total liabilities and equity

$
94,325,189


$
90,201,169




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




1




TIANYIN PHARMACEUTICAL CO., INC.


Consolidated Statements of Operations and Comprehensive Income


(Unaudited)




For the Three Months EndedSeptember 30,2011


2010Sales

$
17,528,578


$
21,950,814Cost of sales


11,675,529



11,139,689Gross profit


5,853,049



10,811,125Operating expenses:Selling expenses


2,477,326



3,962,139General and administrative expenses


1,019,122



2,025,087Research and development expenses


210,715



257,975Total operating expenses


3,707,163



6,245,201Income from operations


2,145,886



4,565,924Other income (expenses):Interest income


34,961



132,766Interest expense


(49,845
)


(119,507
)Change in fair value of warrants


-



(273,017
)Other expenses


(4,718
)


-Total other income (expenses)


(19,602
)


(263,811
)Income before provision for income taxes


2,126,284



4,302,113Provision for income taxes


619,067



905,439Net income


1,507,217



3,396,674Less: Net loss attributable to noncontrolling interest


(18,023
)


(7,844
)Net income attributable to Tianyin Pharmaceutical Co., Inc.


1,525,240



3,404,518Basic earnings per share

$
0.05


$
0.12Diluted earnings per share

$
0.05


$
0.11Weighted average number of common shares outstandingBasic


29,396,276



27,891,488Diluted


29,396,276



29,945,191




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




2





TIANYIN PHARMACEUTICAL CO., INC.


Consolidated Statements of Comprehensive Income


(Unaudited)




For the Three Months EndedSeptember 30,2011


2010Net income

$
1,507,217


$
3,396,674Other comprehensive incomeForeign currency translation adjustment


947,507



952,882Comprehensive income


2,454,724



4,349,556Less: comprehensive income attributable to noncontrolling interest


237,404



211,319Comprehensive income attributable to Tianyin Pharmaceutical Co., Inc.

$
2,217,320


$
4,138,237




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




3




TIANYIN PHARMACEUTICAL CO., INC.


Consolidated Statements of Cash Flows


(Unaudited)




For the Three Months EndedSeptember 30,2011


2010Cash flows from operating activities:Net Income

$
1,507,217


$
3,396,674Adjustments to reconcile net income to net cashprovided by (used in) operating activities:Depreciation and amortization


286,668



314,116Change in fair value of warrants


-



273,017Share-based payments


-



1,269,170Bad debt expense


43,558



-Changes in current assets and current liabilities:Accounts receivable


699,626



(843,012
)Inventory


820,036



(1,552,067
)Advance payments


581,122



-Other current assets


(63,523
)


(93,032
)Accounts payable and accrued expenses


828,517



(189,572
)Accounts payable – construction related


(238,357
)


(1,139,900
)VAT taxes payable


(292,196
)


(111,405
)Income taxes payable


(368,238
)


40,316Other taxes payable


(50,282
)


66,462Dividends payable


-



(18,138
)Other current liabilities


(129,363
)


133,153Total adjustments


2,117,568



(1,850,892
)Net cash provided by operating activities


3,624,785



1,545,782Cash flows from investing activities:Addition to property and equipment


(921
)


(1,922,700
)Addition of construction in progress


(112,898
)


-Additions to intangible assets – land use right


(1,815,804
)


-Additions to intangible assets – drug


(765,282
)


-Net cash used in investing activities


(2,694,905
)


(1,922,700
)Cash flows from financing activities:Restricted cash


(1,530,564
)


-Proceeds from short-term bank loan


1,561,800



-Dividends paid


-



(54,857
)Net cash provided by (used in) financing activities


31,236



(54,857
)Effect of foreign currency translation on cash


621,270



311,912Net increase (decrease) in cash and cash equivalents


1,582,386



(119,863
)Cash and cash equivalents – beginning


31,724,906



27,009,066Cash and cash equivalents – ending

$
33,307,292


$
26,889,203Supplemental disclosures of cash flow informationCash paid for interest

$
49,845


$
79,186Cash paid for income taxes

$
987,304


$
37,604




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


4




Note 1 –
Organization and Nature of Business





Tianyin Pharmaceutical Co., Inc. (Formerly Viscorp, Inc.) 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 “TPI”). The Company’s primary business is to research, 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 TPI 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 Hong Kong Special Administrative Region, 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, the People’s Republic of China. 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 were holding companies with no significant operations and Chengdu Tianyin continues as the primary operating entity 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 TPI in July 2007.





In June 2009, Chengdu Tianyin invested $723,500 to establish a wholly-owned trading subsidiary, Chengdu Tianyin Medicine Trading Co., Ltd (“TMT”) for sales and distribution of medicine produced by Chengdu Tianyin as well as other pharmaceuticals. As of September 30, 2011, the financial results of TMT are consolidated into the consolidated financial statements presented herein.





On August 21, 2009, Sichuan Jiangchuan Pharmaceutical Co., Ltd (“Jiangchuan” or “JCM”) was established by Chengdu Tianyin, Sichuan Mingxin Pharmaceutical and an individual investor with active pharmaceutical ingredients (API) production as its major business. Total registered capital of JCM is approximately $2.9 million, of which Chengdu Tianyin accounted for 77%.





5





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 TPI 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 September 30, 2011 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the years ended June 30, 2011 and 2010, as not all disclosures required by GAAP for annual financial statements are presented. The interim consolidated financial statements follow the same accounting policies and methods of computations as the audited consolidated financial statements for the years ended June 30, 2011 and 2010.





Accounts receivable and allowance for doubtful accounts





Trade accounts receivable are stated at original invoice amount less allowance for doubtful accounts based on management’s periodic review of aging of outstanding balances and customer credit history. Based on its assessment of the credit history with customers having outstanding balances and current relationships with them, the management makes conclusions whether any balances outstanding as of September 30, 2011 was deemed uncollectible. As such, the Company reserved 1% of accounts receivable balances that have been outstanding less than one year, 50% of accounts receivable balances that have been outstanding between one year and two years, and 100% of receivable balances that have been outstanding more than two years.





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 Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) on January 1, 2008.  SFAS 157 has been codified as ASC 820-10, “Fair Value Measurements.”  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:






6





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.





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 $140,228 and $421,079 as of September 30, 2011 and June 30, 2011, respectively.





Note 4 –
Inventory





Inventory as of September 30, 2011 and June 30, 2011 consists of the following:




September 30, 2011


June 30, 2011Raw materials

$
906,077


$
707,901Packaging supplies


569,423



765,362Work in process


1,649,122



2,383,900Finished goods


1,043,405



1,075,190Total

$
4,168,027


$
4,932,353




Note 5 –
Property and Equipment





Property and equipment as of September 30, 2011 and June 30, 2011 consist of the following:





September 30, 2011


June 30, 2011Buildings

$
9,332,688


$
9,225,347Machinery and equipment


2,805,094



2,772,831Office equipment and furniture


60,703



59,092Vehicles


66,983



66,212Subtotal


12,265,467



12,123,482Less: Accumulated depreciation


3,188,175



3,024,1119,077,292



9,099,371Add: Construction in progress


18,693,376



18,366,544Total

$
27,770,668


$
27,465,915





Depreciation expense for the three months ended September 30, 2011 and 2010 was $128,613 and $133,752, respectively.





Note 6 –
Intangible Assets





Intangible assets as of September 30, 2011 and June 30, 2011 consist of the following:





September 30, 2011


June 30, 2011Land use rights

$
3,368,874


$
1,531,530Approved drugs


16,440,838



15,493,712Intangible assets


19,809,712



17,025,242Less: accumulated amortization


1,864,044



1,686,048Total

$
17,945,668


$
15,339,194






7





In September, 2011, Chengdu Tianyin acquired a use right of a parcel of land located at Qionglai, Chengdu with an area of approximately 33,700 square meters. The total cost is amortized over 48 years.





Amortization expense for the three months ended September 30, 2011 and 2010 was $158,055 and $180,364, respectively.





Note 7 –
Accounts Payable and Accrued Expenses





Accounts payable and accrued expenses consist of the following:





September 30, 2011


June 30, 2011Accounts payable

$
2,716,162


$
1,780,492Accrued expenses


197,353



283,300Total

$
2,913,515


$
2,063,792





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





Note 8 –
Short-Term Bank Loans





Short-term bank loans consist of the following:





September 30,


June 30,2011


2011On January 4, 2011, the Company obtained a loan from China CITIC Bank, out of which the principal was paid in full by July 30, 2011. The interest is to be calculated using an annual fixed interest rate of 6.666% and paid monthly. The loan was secured by the Company’s property and equipment.


-


$
1,547,000On March 2, 2011, the Company obtained a loan from China CITIC Bank, out of which the principal is to be paid in full by March 2, 2012. The interest is to be calculated an annual fixed interest rate of 6.5963% and paid monthly. The loan was secured by the Company’s property and equipment.

$
2,817,000


$
1,237,600On August 19, 2011, the Company obtained a loan from China Huaxia Bank, out of which the principal is to be paid in full by August 19, 2012.The interest is to be calculated using an annual fixed interest rate of 7.544% and paid monthly. The loan was designated to finance the operating activities of JCM and was secured by Chengdu Tianyin.

$
1,565,000


$
-Total short-term bank loans

$
4,382,000


$
2,784,600




Note 9 –
Income Taxes





Raygere is incorporated in the British Virgin Islands. Under the corporate tax laws of British Virgin Islands, it is not subject to tax on income or capital gain.





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 was 15% until December 31, 2010. Starting January 1, 2011, the effective tax rate for Chengdu Tianyin became 25%. And the effective tax rates of TMT and JCM are both 25% each from their operations. For the quarters ended September 30, 2011 and 2010, the income tax provision for the Company was $619,067 and $905,439, respectively.







8





In July 2006, the FASB issued FASB Interpretation No.48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in FIN48 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company does not recognize any benefits in the financial statements for the fiscal year ended September 30, 2011.





Note 10 –
Stockholders’ Equity and Related Financing Agreements




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 actually paid on September 9, 2009.


On September 30, 2009, the Company recorded $233,683 as dividends to the investors of the Company’s 2008 Financing, 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. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.





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, and (ii) a 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 the financing completed in October 2009, the Company paid cash compensation to the placement agent, Tripoint Global Equities, in the amount of $495,250. In connection with the financing, the Company also 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 2008 Financing, 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. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.





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 2008 Financing, 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. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.





On June 30, 2010, the Company recorded $72,995 as dividends to the investors of the Company’s 2008 Financing, 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. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors. As of June 30, 2010, 8,155,375 shares of Series A Preferred Stock were converted into 8,155,375 shares of common stock in total, of which 5,786,250 were converted during the fiscal year ended June 30, 2010.






9





As of June 30, 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 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 165,000 shares of common stock at $2.00 per share have also been exercised. As a result, an aggregate of 2,081,795 shares of outstanding common stock have been added and a total of $4,591,958 net proceeds have been received from the exercise of these warrants and options.





On September 30, 2010, the Company recorded $54,857 as dividends to the investors of the Company’s 2008 Financing, 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. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.





On December 31, 2010, the Company recorded $53,501 as dividends to the investors of the Company’s 2008 Financing, 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. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.





By March 18, 2011, pursuant to the mandatory conversion provisions of the Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock, the remaining 1,360,000 shares of convertible preferred stock were converted to common shares on a 1:1 exchange ratio.





On March 31, 2011, the Company recorded $34,661 as dividends to the investors of the Company’s 2008 Financing, 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. This resolution was approved by the Company’s Board and the Company decided to pay the dividends in cash to those investors.




As of September 30, 2011, there were 29,396,276 common shares outstanding with -0- outstanding preferred shares.




Note 11 –
Employee Welfare Plan





The Company established an employee welfare plan in accordance with Chinese laws and regulations. Full-time PRC employees of the Company 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 $165,947 and $124,878 for the three months ended September 30, 2011 and 2010, respectively.





Note 12 –
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.





Note 13 –
Risk of Concentrations and Credit Risk





During the three months ended September 30, 2011, three major vendors accounted for approximately 33% of the Company’s raw materials, while during the three months ended September 30, 2010, three major vendors accounted for approximately 40% of the Company’s raw materials. Total purchases from these vendors were $1.9 million and $3.7 million for the three months ended September 30, 2011 and 2010, respectively.





Five major customers accounted for 15% and 12% of the net revenue for the three months ended September 30, 2011 and 2010, respectively. Total sales to these customers were $2.7 million and $2.6 million, for the three months ended September 30, 2011 and 2010, respectively.






10





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.





Note 14 –
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.





Three Months Ended September 30,2011


2010Net income attributable to TPI

$
1,525,240


$
3,404,518(numerator for diluted income per share)Less: Dividend attributable to preferred stockholders


-



54,857Net income attributable to common stockholders


1,525,240



3,349,661(numerator for basic income per share)Weighted average common shares(denominator for basic income per share)


29,396,276



27,891,488Effect of diluted securities:Convertible preferred stock


-



1,276,464Warrants


-



777,239Weighted average common shares(denominator for diluted income per share)


29,396,276



29,945,191Basic net income per share

$
0.05


$
0.12Diluted net income per share

$
0.05


$
0.11





Note 15 –
Share – Based Payments





In March, April and November 2009, the Company granted to external service providers an aggregate 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, with all expected lives of 5 years, in addition to cash compensation. 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 fiscal years ended June 30, 2010: expected volatility of 121.47 percent and risk-free interest rate of 1.80 percent.





In July 2009, the Company granted options to purchase 50,000 shares of common stock at $2.00 per share with an expected life of 3 years to an external service provider in addition to cash compensation. 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 fiscal years ended June 30, 2010: expected volatility of 121.47 percent and risk-free interest rate of 1.00 percent.





On July 15 2010, the Company’s Compensation Committee recommended an incentive compensation schedule for certain Company employees, which the Company's Board of Directors approved. Pursuant thereto, the Company issued 614,500 shares of common stock to certain employees. One-fourth of the total number of shares vested immediately on July 15, 2010; one-fourth of the total number of shares vested on October 15, 2010; and the remaining shares vested on January 15, 2011.





Accordingly, anaggregate of $-0- and $1,269,170 share-based payment were recognized in the income statements for the quarter ended September 30, 2011 and 2010, respectively.





11




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 September 30, 2011 and 2010 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, 2011.





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 in the development, manufacturing, marketing and sale of patented biopharmaceutical, modernized traditional Chinese medicines (TCM), branded generics and other pharmaceuticals in China. We currently manufacture and market a portfolio of 58 products, 24 of which are listed in the National Medical Reimbursement program, including the patent protected Ginkgo Mihuan Oral Liquid (GMOL) and a late stage pipeline of 10 drug candidates pending the SFDA’s approval. In addition, we have 6 trademarks granted and 16 trademarks pending.





Established in 1994, Chengdu Tianyin is a pharmaceutical company that manufactures and sells modernized TCMs and branded generics. The current management 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.


In June 2009, Chengdu Tianyin invested $723,500 to establish a wholly-owned trading subsidiary, Chengdu Tianyin Medicine Trading Co., Ltd (“TMT”) for the sale and distribution of pharmaceutical products to optimize our business model through enhanced distribution channels.





On August 21, 2009, Chengdu Tianyin, Sichuan Mingxin Pharmaceutical and an individual investor established Sichuan Jiangchuan Pharmaceutical Co., Ltd (“JCM”), whose major business is to produce macrolide active pharmaceutical ingredients (API). Total registered capital of JCM is approximately $2.9 million, of which Chengdu Tianyin accounts for 77%. JCM is regarded as the foundation for a broader strategy to establish a significant presence in the macrolide antibiotics industry in China.


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





Research and Development (R&D)





The partnership-based R&D strategy supports TPI to commercialize, produce, and broaden our product pipeline and to market those products through our sales and marketing infrastructure.  Currently, we have 10 pipeline drugs with our partnership research institutes, of which we are entitled to the exclusive ownership and intellectual properties upon the SFDA approval.






12





New formulation development for Gingko Mihuan




In November 2011, we announced the formulation expansion program for our flagship product Gingko Mihuan Oral Liquid (GMOL, SFDA certification number: H20013079; patent number: 20061007800225). GMOL, the proprietary prescription medicine for TPI, is used nationwide in China to treat brain ischemia and infarction, coronary heart diseases, memory dysfunction and other neurological disorders.
 
 For our elderly patients who are also afflicted by with gastrointestinal ailments, our oral liquid formulation shows an efficient absorption rate after intake adding to its differentiation. The new capsule formulation is more convenient to carry while traveling, adding to its ease of use for those long term treatment users. Furthermore, the cost of production and packaging material prices for liquid formulation has been rising during the recent years and therefore, the capsule formulation will reduce the overall cost of sales by 70% while extending the expiration period to 3 years from the current 2 years for oral liquid form. The new capsule formulation is expected to support the revenue growth of GMOL at approximately 30% year over year and improve the gross margin of GMOL products to 75% or higher. TPI will also apply for patent protection for the new capsule formulation. The R&D cost associated with the capsule formulation is estimated at $1-2 million.





Jiangchuan Macrolide Project (JCM)


We completed the 240-ton JCM construction in September 2011 for the R&D, manufacturing and sale of API and chemical intermediates of macrolide antibiotics. Currently, JCM is under GMP certification following the internal quality assessment andthe environmental safety and impact assessment.




Tianyin Medicine Trading Distribution Business (TMT)




We have been developing the distribution portfolio of TMT. TMT is planned to distribute products manufactured by both TPI and other pharmaceutical companies to fuel our expanding sales network as well as to provide synergy to our existing organic product portfolio. TMT has been distributing mainly Tianyin's own products since its inception in 2009. We have obtained one-year distribution rights from Jiangsu Lianshui Pharmaceutical (“Lianshui”) to distribute approximately 15 Lianshui-branded generic injection products including cough suppressant, antibiotics, anti-inflammatory medicines and products for other healthcare indications. To date, TMT annual distribution revenue delivered approximately $23 million, exceeding our revenue forecast, mainly attributable to the fact that the distribution portfolio consists of a majority of Essential Drug Listed (EDL) medicine which experienced an increased volume of sales.




Pre-extraction and formulation plant development at Qionglai Facility (QLF)





In preparation for the new Good Manufacturing Practice (GMP) standards stipulated by the PRC government in early 2011, that requires pharmaceutical companies to be in compliance by 2013, TPI initiated the process of optimizing the manufacturing facilities and production lines. Concurrently, the city of Chengdu has re-designated various industrial parks of nearby counties to be dedicated to particular industries such as automobile, biotechnologies, pharmaceuticals and chemical engineering for individual locations. As a consequence, TPI’s manufacturing facility at the Longquan district, east of Chengdu, which is designated for automotive industry, is scheduled to be relocated to Qionglai city, south of Chengdu, which is dedicated to pharmaceutical industry. The Qionglai facility (QLF) is approximately 18 miles from the Company’s recently completed Jiangchuan macrolide facility (JCM) which is also located in south of Chengdu. The proposed relocation project also includes our traditional Chinese medicine (TCM) pre-extraction plant which is located near the center of city of Chengdu surrounded by rapidly expanding residential area.






13





The QLF is estimated to be 80 mu or 53,000 m2. Both pre-extraction plant and the formulation plant are to be relocated. The combined QLF plant, designed and constructed according to the latest GMP standards, is expected to relieve the current capacity saturation at TPI’s facilities. The re-location and construction cost is estimated at $25 million for Phase I which, when completed in 2012, will expand the current capacity by 30%. For Phase II QLF, an additional $10 million may be employed to double the current capacity by 2013.




Fiscal Year 2012 Financial Guidance





Based on the upcoming JCM macrolide API revenue expected in the second quarter of fiscal year 2012 and the current generic pricing pressure, together with the evolving government policies amid ongoing healthcare reform, we forecast our fiscal year 2012 revenue of $100 million and net income guidance of $11 million.  In summary, our projection is based on: 1) JCM upcoming revenue for primarily the second half of fiscal year 2012; 2) reduced generic sales but relatively steady revenue from the flagship product portfolio; 3) capacity optimization and relocation of TPI’s manufacturing facilities; and 4) steady TMT distribution revenue.





Our current facilities operate at approximately 90% of the total capacity on 24 hours per day schedule. The optimization will utilize the remaining capacity efficiently. The new QLF relocation will ultimately expand the current  production capacity by an additional 30% to 100% capacity.


Management will continue to evaluate the Company's business outlook and communicate any changes on a quarterly basis or as when appropriate





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, TMT and JCM.





Comparison of results for the three months ended September 30, 2011 and 2010 (in $ millions):





Three Months Ended September 30,2011



2010Sales

$
17.5


$
22.0Cost of sales

$
11.7


$
11.1Gross profit

$
5.9


$
10.8Total operating expenses

$
3.7


$
6.2Provision for income taxes

$
0.6


$
0.9Net income

$
1.5


$
3.4Less: Net (loss) attributable to noncontrolling interest

$
(0.0)


$
(0.0)Foreign currency translation adjustment

$
0.9


$
1.0Comprehensive income

$
2.5


$
4.3




Sales for the quarter ended September 30, 2011 was $17.5 million, a decrease of 20.5% as compared to $22.0 million for the quarter ended September 30, 2010. The sales decrease was mainly due to 1) pricing pressure on our generic pharmaceuticals, 2) the government policies to prioritize Essential Drug List (EDL) drug sales that simultaneously reduce the sales and margins of higher margined generic pharmaceuticals, and 3) in the first quarter of fiscal year 2011, ahead of the current healthcare reform policies being enforced, our downstream customers had significantly built up their inventory which led to a revenue gain of 63.7% for TPI  from the prior year.
 
 We have been exploring various strategies to maintain the growth momentum. In addition to the upcoming JCM API revenue, we particularly emphasize on the TMT distribution revenue that consists of mainly EDL drugs. We also focus on AAA and AA hospitals in major cities of China to develop the high-end hospital pharmaceutical market while previously we had targeted large but dispersed markets in rural areas. Our top five product sales are: GMOL: $2.9 million; APU: $0.93 million; AZI: $0.48 million; XLCC: $0.64 million; and Qing Re Jie Du Oral Liquid (QR): $0.61 million. These products totaled $5.6 million in sales, representing 32% of the quarterly revenue.




14




Cost of Sales for the quarter ended September 30, 2011 was $11.7 million or 66.6% of sales as compared to $11.1 million or 50.4% of sales for the quarter ended September 30, 2010. Our cost of sales primarily consists of the costs of direct raw materials, labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead. The increased percentage of our cost of sales from the previous year was due to 1) generic pricing pressure, 2) distribution business through TMT amounting to $4.2 million at 10% gross margin, and 3) increase of raw material costs.
 
 Gross Margin for the quarter ended September 30, 2011 was 33.4% as compared to 49.3% for the quarter ended September 30, 2010. The factors that influence the gross margins include 1) raw material price (85% of the cost of goods sold), and 2) production cost (15% of the cost of goods sold). During this quarter, our organic product portfolio delivered 42.1% gross margins, 7.2% lower than 49.3% a year earlier. Given the blend of the TMT lower margin distribution revenue and gross margin reduction under the current pricing trend, we anticipate that our overall gross margin in the near term, on a quarter to quarter comparison basis, may trend lower, but on a sequential basis should stabilize or improve depending upon the revenue mix percentages of TMT revenue, upcoming JCM API revenue as compared to the proprietary portfolio’s revenue performance.
 
 Operating Expenses were $3.7 million for the quarter ended September 30, 2011, as compared to $6.2 million for the quarter ended September 30, 2010. The decrease in operating expenses is mainly associated with 1) the lower sales and marketing costs as a result of lower sales, and 2) in the prior year, there was a one-time restricted stock compensation impact of approximately $1.5 million in the quarter ended September 30, 2010.
 
 Net Income was $1.5 million for the quarter ended September 30, 2011, as compared to net income of $3.4 million for the quarter ended September 30, 2010, a decrease of $1.9 million. Net profit margins for the three months ended September 30, 2011 decreased to 8.6% from 15.5% for the comparable period in fiscal year 2010. This is the result of sales decrease along with gross margin compression in the quarter.




Foreign Currency Translation Adjustment.Our reporting currency is the US dollar. We have evaluated the determination of its functional currency based on the guidance in ASC Topic, “Foreign Currency Matters,” which provides that an entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. We have raised financings in the U.S. dollar, paid operating expenses primarily in the U.S. dollar, paid dividends to its shareholders of common stock and expected to receive any dividends that may be declared by its subsidiaries in U.S. dollars. Therefore, it has been determined that our functional currency is the U.S. dollar based on the expense and financing indicators, in accordance with the guidance in ASC 830-10-85-5.  However, the functional currency of Chengdu Tianyin, our indirectly owned operating subsidiary is Renminbi (RMB). 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 $0.95 million as of September 30, 2011. The balance sheet amounts with the exception of equity at September 30, 2011 were translated at 6.38978RMB to 1.00 US dollar as compared to 6.68003RMB to 1.00 US dollar at September 30, 2010. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the quarters ended September 30, 2011 and 2010 were the average exchange rates during the years.





Comprehensive Incomethat includes the currency adjustment to net income was $2.5 million for the quarter ended September 30, 2011, as compared to the comprehensive income of $4.3 million for the quarter ended September 30, 2010, a decrease of $1.8 million.




15




Liquidity and Capital Resources





Discussion of Cash Flow ($ in millions)


For the three months ended September 30,2011


2010Cash provided by operating activities

$
3.6


$
1.5Cash used in investing activities


(2.7
)


(1.9
)Cash provided by (used in) financing activities


0.0



(0.0
)





Operating activities


As of September 30, 2011, we had working capital totaling $38.3 million, including cash and cash equivalents of $33.3 million. Net cash generated from operating activities was $3.6 million for the quarter ended September 30, 2011 as compared with $1.5 million for the quarter ended September 30, 2010. This is mainly due to the improvement in accounts receivable collection and reduced inventory. We believe that TPI is adequately funded to meet all of our working capital and capital expenditure needs for fiscal year 2012.




Investing activities


Net cash used in investing activities for the quarter ended September 30, 2011 totaled $(2.7) million compared with $(1.9) million for the quarter ended September 30, 2010. The cash used in investing activities was related to our pipeline development, the JCM construction and the land use right acquisition of $1.8 million.





Financing Activities





Net cash used in financing activities for the quarter ended September 30, 2011 and 2010 totaled $0.0 and $(0.0) million, respectively.





Borrowings and Credit Facilities





The short-term bank borrowings outstanding as of September 30, 2011 and 2010 were $4.4 million and $1.5 million, respectively. We paid an average interest rate of 6.383% and 5.629% per annum, respectively. These loans were made from CITIC bank and Huaxia bank, 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.





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. The Company's original announcement stated that the buyback would be conducted through January 2009, but we later extended the buyback through June 30, 2009. As of September 30, 2011, a total of 83,785 shares had been bought back at prevailing market prices. Shares purchased were retired to treasury.






16





Changes in Equity





Common Stock Activity during the Three Months Ended September 30, 2011




Common StockOutstanding, June 30, 2011


29,396,276Warrants, option exercises


-Outstanding, September 30, 2010


29,396,276





During the three months ended September 30, 2011, there have been no activities related to warrants exercise or option exercises.





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 for the year ended June 30, 2011, for disclosures regarding TPI’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





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.






17




(b)
Changes in internal control over financial reporting




In connection with our review of our internal controls and procedures over financial reporting as of our last fiscal quarter, ended September 30, 2011, and based on certain comments that we received from the staff of the SEC regarding the accounting treatment and the non-cash/non-operational financial charges of our Series A and B Warrants, which resulted in our having to amend and restate our financial statements from July 1, 2009 until December 31, 2010, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2011 due to the existence of the material weaknesses mentioned below. A material   weakness is a control  deficiency,  or  combination  of control deficiencies,  that  results  in more than a remote  likelihood  that a material misstatement  of the  financial  statements  will not be  prevented or detected. Management identified the following material weaknesses during its assessment of our internal control over financial reporting as of September 30, 2011: 1) lack of sufficient knowledge regarding U.S. GAAP reporting by our existing accounting staff; 2) lack of sufficient accounting staff which results in a lack of segregation of duties necessary for an efficient internal control system; and 3) lack of sufficient documentation with our existing financial processes, risk assessment and internal controls.
 
 Currently we are in the process of building an internal accounting team with sufficient in-house expertise in US GAAP reporting. Since the end of our last fiscal year, management has met on numerous occasions and discussed the following plans to improve the efficiency and expertise in GAAP reporting. We have been trying to recruit experienced professionals to augment  our financial staff for sufficient US GAAP, financial reporting, which would improve our controls and procedure, with the regard to the financial statements preparation; and improve the knowledge of U.S. accounting standards for our current accounting staff.
 
 We believe that the remediation measures we are taking, if effectively implemented and maintained, will remediate the significant deficiency discussed above and enable us to meet our GAAP reporting requirements.




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.





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.





(b)             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







18




(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 29, 2010).3.2

Bylaws (Incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed on September 29, 2010).31.1

Certification  of  Chief  Executive  Officer  required  by Rule 13a-14/15d-14(a) under the Exchange Act31.2

Certification of  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.








19





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:    November 14, 2011


TIANYIN PHARMACEUTICAL CO., INC.By:
/s/  Dr. Guoqing JiangName:
Dr. Guoqing JiangTitle :
Chairman, Chief Executive Officer, Chief Accounting Officer




By:
/s/  Dr. James Jiayuan TongName:
Dr. James Jiayuan TongTitle :
Chief Financial Officer,Chief Business and Development Officer, Director





2