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, 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 45 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 November 12, 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 27,986,026 and 1,360,250 respectively are currently issued and outstanding.















TABLE OF CONTENTS





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

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

three months ended September 30, 2010 and 2009
5Unaudited Consolidated Statements of Cash Flows

for the three months ended September 30, 2010 and 2009
6Unaudited notes to Consolidated Financial Statements
7Item 2.  Management’s Discussion and Analysis or Plan of Operation
15Item 3.Quantitative and Qualitative Disclosure About Market Risk
20Item 4.  Controls and Procedures
20PART II – OTHER INFORMATION
21Item 1.  Legal Proceedings
21Item 2.  Unregistered Sales of Equity Securities And Use Of Proceeds
21Item 3.  Defaults Upon Senior Securities
21Item 4.  (Removed and Reserved)
21Item 5. Other Information
21Item 6.  Exhibits
21














2
 TIANYIN PHARMACEUTICAL CO., INC.





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 September 30, 2010, and the related consolidated statements of operations and comprehensive income for the three months ended September 30, 2010 and 2009, and cash flows for the three months ended September 30, 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, 2010, 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 24, 2010, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of September 30, 2010, 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


November 12, 2010








3
 TIANYIN PHARMACEUTICAL CO., INC.




Consolidated Balance Sheets


September 30,


June 30,2010


2010Assets

(Unaudited)Current assets:Cash and cash equivalents

$
26,889,203


$
27,009,066Accounts receivable, net of allowance for doubtful accounts of $427,939


9,171,877



8,185,240and $421,079 at September 30, 2010 and June 30, 2010, respectivelyInventory


5,218,254



3,588,824Advance payments


389,220



382,980Loans receivable


299,400



294,600Other current assets


172,189



77,283Total current assets


42,140,143



39,537,993Property and equipment, net


17,023,433



14,968,822Intangibles, net


15,297,911



15,232,286Total assets

$
74,461,487


$
69,739,101LiabilitiesCurrent liabilities:Accounts payable and accrued expenses

$
1,523,622


$
1,715,781Accounts payable – construction related


1,131,717



2,248,849Short-term bank loans


1,497,000



1,473,000VAT taxes payable


583,630



658,312Income taxes payable


916,459



861,614Other taxes payable


59,801



19,564Dividends payable


54,857



72,995Other current liabilities


597,665



429,135Total current liabilities


6,364,751



7,479,250Total liabilities


6,364,751



7,479,250EquityStockholders’ equity:Common stock, $0.001 par value, 50,000,000 shares authorized,


27,986



27,32627,986,026 and 27,371,526shares issued and outstanding atSeptember 30, 2010 and June 30, 2010, respectivelySeries A convertible preferred stock, $0.001 par value 1,360,250 shares


1,360



1,360issued and outstanding at September 30, 2010 and June 30, 2010,RespectivelyAdditional paid-in capital


30,891,906



29,623,396Statutory reserve


3,732,883



3,732,883Treasury stock


(111,587
)


(111,587
)Retained earnings


29,310,447



25,687,770Accumulated other comprehensive income


3,797,958



2,845,076Total stockholders’ equity


67,650,953



61,806,224Noncontrolling interest


445,783



453,627Total equity


68,096,736



62,259,851Total liabilities and equity

$
74,461,487


$
69,739,101







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 EndedSeptember 30,2010


2009Sales

$
21,950,814


$
13,405,203Cost of sales


11,139,689



6,349,227Gross profit


10,811,125



7,055,976Operating expenses:Selling, general and administrative


5,987,226



4,117,766Research and development


257,975



192,490Total operating expenses


6,245,201



4,310,256Income from operations


4,565,924



2,745,720Other income (expenses):Interest income (expense)


9,206



(9,560
)Other expenses


-



(39,502
)Total other income (expenses)


9,206



(49,062
)Income before provision for income taxes


4,575,130



2,696,658Provision for income taxes


905,439



509,936Net income


3,669,691



2,186,722Less: Net loss attributable to noncontrolling interest


(7,844
)


(2,526
)Net income attributable to Tianyin Pharmaceutical Co., Inc.


3,677,535



2,189,248Other comprehensive incomeForeign currency translation adjustment


952,882



35,857Comprehensive income

$
4,630,417


$
2,225,105Basic earnings per share

$
0.13


$
0.10Diluted earnings per share

$
0.12


$
0.08Weighted average number of common shares outstandingBasic


27,891,488



19,735,790Diluted


29,945,191



27,516,458


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 Three Months EndedSeptember 30,2010


2009Cash flows from operating activities:Net Income

$
3,669,691


$
2,186,722Adjustments to reconcile net income to net cashprovided by (used in) operating activities:Depreciation and amortization


314,116



197,037Share-based payments


1,269,170



512,209Loss on disposal of fixed assets


-



39,502Changes in current assets and current liabilities:Accounts receivable


(843,012
)


(1,492,362
)Inventory


(1,552,067
)


126,979Other current assets


(93,032
)


419,905Accounts payable and accrued expenses


(189,572
)


183,242Accounts payable – construction related


(1,139,900
)


-VAT taxes payable


(111,405
)


16,025Income tax payable


40,316



19,054Other taxes payable


66,462



(433
)Dividends payable


(18,138
)


-Other current liabilities


133,153



33,582Total adjustments


(2,123,909
)


54,740Net cash provided by operating activities


1,545,782



2,241,462Cash flows from investing activities:Additions to property and equipment


(1,922,700
)


(525,965
)Additions to intangible assets – drug


-



(1,891,269
)Loan receivable


-



(293,220
)Net cash used in investing activities


(1,922,700
)


(2,710,454
)Cash flows from financing activities:Additional paid-in capital


-



2,534,581Contribution from minority shareholders


-



439,830Dividends paid


(54,857
)


(499,331
)Net cash provided by (used in) financing activities


(54,857
)


2,475,080Effect of foreign currency translation on cash


311,912



(5,435
)Net increase (decrease) in cash and cash equivalents


(119,863
)


2,000,653Cash and cash equivalents – beginning


27,009,066



12,352,223Cash and cash equivalents – ending

$
26,889,203


$
14,352,876Supplemental schedule of non cash activitiesAdvance payments exchanged for intangible assets – drug

$
-


$
425,169


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.) 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 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 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 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 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 September 30, 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 (“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 Jiangchuan is $2,934,000, of which Chengdu Tianyin accounts for 77%. As of September 30, 2010, registered capital of $1,173,600 has been invested and the financial results of Jiangchuan are consolidated into the consolidated financial statements presented herein.





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 September 30, 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.








7





Note 2 – Summary of Significant Accounting Policies (continued)




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, 2010 and 2009, as not all disclosures required by generally accepted accounting principles 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, 2010 and 2009.




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, 2010 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:





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 2 – Summary of Significant Accounting Policies (continued)





Reclassification





Certain amounts as of September 30, 2009 were reclassified for presentation purposes.





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 Accounts receivable amounted to $9,171,877 and $8,185,240, net of allowance for doubtful accounts amounted to $427,939 and $421,079 as of September 30, 2010 and June 30, 2010, respectively.




8







Note 4– Inventory





Inventory as of September 30, 2010 and June 30, 2010 consists of the following:





September 30, 2010


June 30, 2010Raw materials

$
659,633


$
268,443Packaging supplies


480,705



1,798,555Work in process


2,597,069



1,326,441Finished goods


1,480,847



334,399Subtotal


5,218,254



3,727,838Less: Inventory reserve


-



139,014Total

$
5,218,254


$
3,588,824





Note 5– Property and Equipment





Property and equipment as of September 30, 2010 and June 30, 2010 consist of the following:





September 30, 2010


June 30, 2010Buildings

$
8,927,178


$
8,784,057Machinery and equipment


2,683,211



2,640,194Office equipment and furniture


57,060



56,145Vehicles


64,072



63,045Subtotal


11,731,521



11,543,441Less: Accumulated depreciation


2,522,189



2,348,5449,209,332



9,194,897Add: Construction in progress


7,814,101



5,773,925Total

$
17,023,433


$
14,968,822





Depreciation expense for the three months ended September 30, 2010 and 2009 was $133,752 and $128,277, respectively.








9





Note 6– Intangible Assets





Intangible assets as of September 30, 2010 and June 30, 2010 consist of the following:





September 30, 2010


June 30, 2010Land use rights

$
1,482,030


$
1,458,270Approved drugsTraditional Chinese Medicine subject to impairment


9,229,495



9,081,528Non-traditional Chinese Medicine


5,763,450



5,671,050Total approved drugs


14,992,945



14,752,578Total Intangible assets


16,474,975



16,210,848Less: accumulated amortization


1,177,064



978,562Total

$
15,297,911


$
15,232,286








Amortization expense for the three months ended September 30, 2010 and 2009 was $180,364 and $68,760, respectively.





Note 7 – Accounts Payable and Accrued Expenses





Accounts payable and accrued expenses consist of the following:





September 30, 2010


June 30, 2010Accounts payable

$
1,463,622


$
1,535,781Accrued expenses


60,000



180,000Total

$
1,523,622


$
1,715,781





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 30,2010


2010On 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.The interest is calculated using an annual fixed interest rate of 5.5755% and paid monthly. The loan is secured by the Company’s property and equipment

$
1,497,000


$
1,473,000Total short-term bank loans

$
1,497,000


$
1,473,000








10





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 is 15% until December 31, 2010. Accordingly, the effective tax rate for Chengdu Tianyin for the period from its date of incorporation to June 30, 2010 is 15%. As domestic invested companies, the effective tax rates of Tianyin Medicine Trading and Jiangchuan are both 25% each from their operations.





On March 16, 2007, the National People’s Congress of China enacted a new Corporate Income Tax (“CIT”) law, under which FIEs and domestic companies would be subject to CIT at a uniform rate of 25%. The new CIT law will become 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 September 30, 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 exempt 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.





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 FIN 48 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 three months ended September 30, 2010.





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 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. 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 (the "Common Stock"), and (ii) a Series C Warrant (the "Class C Warrant"), with each Class 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.








11


Note 10 – Stockholders’ Equity and Related Financing Agreements (continued)




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. 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 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. 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 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. 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.





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





Note 11 – Employee Welfare Plan





The Company has 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 $124,878 and $50,739 for the three months ended September 30, 2010 and 2009, 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.








12




Note 13 – Risk of Concentrations and Credit Risk





During the three months ended September 30, 2010, three major vendors accounted for approximately 40% of the Company’s raw materials, while during the three months ended September 30, 2009, three major vendors accounted for approximately 38% of the Company’s raw materials. Total purchases from these vendors were $3,667,973 and $2,507,605 for the three months ended September 30, 2010 and 2009, respectively.





Five major customers accounted for 12% and 15% of the net revenue for the three months ended September 30, 2010 and 2009, respectively. Total sales to these customers were $2,634,098 and $2,411,347, for the three months ended September 30, 2010 and 2009, respectively.





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 – Supplemental Cash Flow Disclosures





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





Three Months Ended September 302010


2009Cash paid for interest

$
79,186


$
19,975Cash paid for income taxes

$
37,604


$
490,514





Note 15 – 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 30,2010


2009Net income attributable to Tianyin Pharmaceutical Co., Inc.

$
3,677,535


$
2,189,248(numerator for diluted income per share)Less: Dividend attributable to preferred stockholders


54,857



233,683Net income attributable to common stockholders


3,622,678



1,955,565(numerator for basic income per share)Weighted average common shares(denominator for basic income per share)


27,891,488



19,735,790Effect of diluted securities:Convertible preferred stock


1,276,464



5,504,890Warrants


777,239



2,275,778Weighted average common shares(denominator for diluted income per share)


29,945,191



27,516,458Basic net income per share

$
0.13


$
0.10Diluted net income per share

$
0.12


$
0.08








13







Note 16 – Share – Based Payments





In March, April and November 2009, the Company granted to external service providers, in addition to cash compensation, 45,000 shares of restricted 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 with a 5-year term . 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 and expected volatility of 116.49 percent and risk-free interest rate of 1.27 percent for the quarter ended September 30, 2010.





In July 2009, the Company granted options to purchase 50,000 shares of common stock at $2.00 per share with a 3-year term 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 fiscal years ended June 30, 2010: expected volatility of 121.47 percent and risk-free interest rate of 1.80 percent and expected volatility of 116.49 percent and risk-free interest rate of 1.27 percent for the quarter ended September 30, 2010.








On July 15 2010, the Company’s Compensation Committee recommended an incentive compensation schedule for certain Company employees, which the Company's Board approved. Pursuant thereto, the Company issued 614,500 shares of restricted Common Stock to certain employees at a fair value of $2.80 per share. One-fourth of the total number of shares shall vest immediately on July 15 2010; One-fourth of the total number of shares shall vest on October 15, 2010; and the remaining shares shall vest on January 15, 2011.





Accordingly, an aggregate of $1,269,170 and $512,209 share based payments were recognized in the income statements for the three months ended September 30, 2010 and 2009, respectively.




















14







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, 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, 2010.





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 patented biopharmaceutical, modernized traditional Chinese medicines, branded generics and other pharmaceuticals in China. We currently manufacture and market a comprehensive portfolio of 56 products, 23 of which are listed in the highly selective National Medicine Catalog of the National Medical Insurance 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 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 China 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” or TMT) 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 (“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 Jiangchuan is $2,934,000, of which Chengdu Tianyin accounts for 77%. Tianyin will utilize Jiangchuan as the foundation for a broader and longer term strategy to establish a significant presence in the rapidly growing Chinese macrolide antibiotics industry.





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





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. Currently, we have 10 pipeline drugs with our partnership research institutes, of which we are entitled to purchase the exclusive ownership and intellectual properties upon the SFDA approval. They are Huangtengsu Tablets, Lifei Tablets, Fuyang Granules, Shuxiong Tablets, Suxiao Zhixie Capsules, Shuanghuang Xiaoyan Tablets, Huoxiang Zhengqi Capsules, Jiegu Xujing Ointment, Runing Tablets, Dengzhan Huasu Tablet. These drugs are currently pending for SFDA approval. Though the pending period of SFDA approval varies from one to several years depending on the individual product, we expect to receive SFDA approvals for these drugs within one and a half to two years based on our past experience.








15


Jiangchuan Macrolide Project





We continue to focus on the construction of Jiangchuan macrolide facility for the research and development, the manufacturing and sales of Active Pharmaceutical Ingredients (“API”) and chemical intermediates of macrolide antibiotics. Currently the construction of the Phase I, 240-ton API capacity is scheduled to complete by year end 2010 and commence operations in the second half of fiscal year 2011.





Development of Tianyin Medicine Trading Distribution Business




We have been developing the distribution portfolio of Tianyin Medicine Trading (TMT). TMT is planned to distribute products manufactured by both Tianyin 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. In early November this year, we have successfully obtained one-year distribution rights from one of the most celebrated national brand injection pharmaceutical manufacturer 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. We forecast the annual distribution revenue from TMT to approach approximately $15 million.




Fiscal Year 2011 Financial Guidance





We reiterate our fiscal year 2011 revenue guidance of $113.0 million, representing 76.8% year over year growth and net income guidance of $18.0 million, representing 50.0% year over year growth. Our forecast is based on the following growth drivers: 1) steady revenue growth of the existing product portfolio including our flagship products such as Gingko Mihuan Oral Liquid (GMOL) for age-related cardiovascular and central nervous system disorders such as coronary heart diseases and stroke, Xuelian Chongcao Oral Liquid (XLCC) for immunity enhancement, Azithromycin Tablets (AZI) for bacterial infections and Apu Shuangxin (Benorylate) Granules (APU) for rheumatoid arthritis; 2) capacity ramp-up of Tianyin's newly completed production facility; 3) new product market entries from Tianyin's pipeline; 4) revenue contribution from Jiangchuan macrolide facility; and 5) business development of Tianyin Medicine Trading (TMT), Tianyin’s distribution arm for specialty products by other pharmaceuticals that provide synergy to our existing product portfolio. In our forecast, we assume steady pricings for our products and revenue growth driven by  increased sales. Forecasted net income does not include non-cash expenses associated with stock compensation plans, stock option expenses and/or future interest expense.





Our current facilities operate at approximately 80% of the total capacity on 24 hours per day schedule. We will be able to further utilize the remaining capacity and optimize the production with high-efficiency equipment base on increasing market demand.


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, Tianyin Medicine Trading and Jiangchuan JV.




Comparison of results for the three months ended September 30, 2010 and 2009:





Three Months Ended September 30,2011



2010Sales

$
21,950,814


$
13,405,203Cost of sales

$
11,139,689


$
6,349,227Gross profit

$
10,811,125


$
7,055,976Total operating expenses

$
6,245,201


$
4,310,256Provision for income taxes

$
905,439


$
509,936Net income

$
3,669,691


$
2,186,722Less: Net (loss) attributable to noncontrolling interest

$
(7,844
)

$
(2,526)Foreign currency translation adjustment

$
952,882


$
35,857Comprehensive income

$
4,614,729


$
2,225,105






16





Sales for 1Q FY2011 was $22.0 million, up 63.7% as compared to $13.4 million for 1Q FY2010. The sales growth was driven by the continuing channel expansion, market penetration and optimized usage of our expanded production facility. We will continue to implement our growth strategy by expanding our sales channels and sales force which are expected to drive our revenue growth.





Revenues from the top selling products are listed as follows:


·
Ginkgo Mihuan Oral Liquid (GMOL): $4.7 million;


·
Apu Shuangxin (Benorylate) Granules  (APU): $1.5 million;


·
Azithromycin Dispersible Tablets (AZI): $0.87 million;


·
Xuelian Chongcao (XLCC): $0.83 million; and


·
Qingrejiedu Oral Liquid (QR): $0.64 million.





These products totaled $8.5 million in sales, representing 38.8% of the quarterly revenue.





Cost of Sales for the three months ended September 30, 2010 was $11.1 million or 50.7% of sales as compared to $6.3 million or 47.4% of sales for the three months ended September 30, 2009. Our cost of sales consists of the raw material cost, labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead.





Gross Margin for the three months ended September 30, 2010 was 49.3% as compared to 52.6% for the three months ended September 30, 2009. The stabilization of our gross margins was due to an increase of distribution revenue which averaged 15% margins from Tianyin Medicine Trading (TMT), the distribution arm of Chengdu Tianyin, combined with a steady growth of high margin products led by GMOL in our organic portfolio.





Operating Expenses were $6.2 million for the three months ended September 30, 2010, as compared to $4.3 million for the three months ended September 30, 2009. The increase was primarily due to 1) continuing sales expansion that increased our sales payroll and marketing expenses, and 2) one-time restricted stock compensation of 614,500 shares on July 15, 2010 with three vesting periods on July 15, 2010, October 15, 2010 and January 15, 2011 for 55 of Tianyin’s employees for their significant  contribution during the fiscal year 2009 and the fiscal year 2010.





Net Income was $3.7 million for the three months ended September 30, 2010, as compared to net income of $2.2 million for the three months ended September 30, 2009, a net increase of $1.5 million or 68.0% year over year. Net profit margins for the three months ended September 30, 2010 improved to 16.7% from 16.3% for the comparable period in fiscal year 2009. This was the result of the leverage in the business operation that drives the growth of the revenue while keeping the operating expenses in-line with the sales expansion.





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, 2010. The balance sheet amounts with the exception of equity at September 30, 2010 were translated at 6.68003 RMB to 1.00 US dollar as compared to 6.81663 RMB to 1.00 US dollar at September 30, 2009. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the quarters ended September 30, 2010 and 2009 were the average exchange rates during the years.





Comprehensive Incomethat includes the currency adjustment to net income was $4.6 million for the three months ended September 30, 2010, as compared to the comprehensive income of $2.2 million for the three months ended September 30, 2009, an increase of $2.4 million or 108.1%.








17





Liquidity and Capital Resources





Discussion of Cash Flow





For the three months ended September 30,2010


2009Cash provided by operating activities

$
1,545,782


$
2,241,462Cash used in investing activities


(1,922,700
)


(2,710,454
)Cash provided by (used in) financing activities


(54,857)



2,475,080





Operating Activities





As of September 30, 2010, we had working capital totaling approximately $35.8 million, including cash and cash equivalents of $26.9 million. Net cash generated from operating activities was $1.5 million for the three months ended September 30, 2010 as compared to $2.2 million for the same period of 2009. The decrease in cash generated from operating activities for the quarter was primarily the result of an increase of inventory of about $1.6 million as a result of  the business development of Tianyin Medicine Trading (“TMT”) distribution products and $1.1 million construction related costs on Jiangchuan macrolide facility which offsets the net  gain of $1.5 million from the operating cash flow. We believe that Tianyin is adequately funded to meet all of our working capital and capital expenditure needs for the fiscal year 2011.





Investing Activities





Net cash used in investing activities for the three months ended September 30, 2010 and 2009 totaled $1.9 million and $2.7 million respectively. The cash used in investing activities during the three months ended September 30, 2010 was mainly the result of the construction of Jiangchuan macrolide plant.





Financing Activities





Net cash used in financing activities for the three months ended September 30, 2010 and 2009 totaled ($54,857) and $2,475,080 respectively. The $54,857 used in financing activities was the payment of preferred share dividends for the outstanding 1,360,250 preferred shares at 10% annual dividends. The cash of $2.5 million received for the three months ended September 30, 2009 was related to the October 27, 2009 private equity financing of $4,987,500 in gross proceeds.





Borrowings and Credit Facilities





The bank borrowing balance equals to the credit facilities as of September 30, 2010. The short-term bank borrowings outstanding as of September 30, 2010 and 2009 were $1.5 million and $1.4 million respectively. We paid an average interest rate of 5.5755% and 5.6286% 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.





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. The initial share buyback illustrate our confidence in the long-term growth of the company and our commitment to our shareholders. As of June 30, 2009, a total of 83,785 shares have been bought back at prevailing market prices.  The shares bought back were retired to the treasury.







18






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.





In May 2010, we announced the temporary suspension of our dividend to our common stock shareholders. The China health care industry, through the ongoing 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 Three Months Ended September 30, 2010


Common StockOutstanding, June 30, 2010


27,371,526Newly issued, July 15, 2010 total of 614,500 shares at a fair value of $2.80


614,500Outstanding, September 30, 2010


27,986,026





During the three months ended September 30, 2010, there have been no activities related to preferred share conversion, warrants exercise including placement agent warrants 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/A for the year ended June 30, 2010, 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.






19





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.





(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, 2010, management concluded that our internal control over financial reporting was effective. Management did however identify a significant deficiency as of June 30, 2010, as discussed in our Form 10-K for the year ended June 30, 2010. 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.  To remediate this significant deficiency, 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.





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.










20







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





(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.








21





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 12, 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


22