Tongli Pharmaceuticals (TGLP) 10-Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ending June 30, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ________    to ________.

Commission file number: 000-52954

Tongli Pharmaceuticals (USA), Inc.

(Exact name of registrant as specified in its charter)

Delaware	84-1090791
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification number)
14 Wall Street, 20th Floor New York, NY	10005
(Address of Principal Executive Offices)	(Zip Code)

212-842-8837            212-842-8837

(Registrant’s Telephone Number, Including Area Code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨  Nox

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Yes¨  No  ¨

Large accelerated filer¨	Accelerated filer¨
Non-accelerated filer¨	Smaller reporting companyx
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes¨ Nox

As of August 13, 2012, there were 13,548,122 shares of company’s common stock issued and outstanding.

TABLE OF CONTENTS

Cautionary Note on Forward Looking Statements		3
PART I – FINANCIAL INFORMATION		5
Item 1.	Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4(T).	Controls and Procedures	20
PART II – OTHER INFORMATION		21
Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
SIGNATURES		22

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

2

CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements.  We cannot give any guarantee that the plans, intentions or expectations described in the forward looking statements will be achieved.  All forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those factors described in the “Risk Factors” section of our Annual Report for the fiscal year ended March 31, 2012 (the “2012 10-K”).  Readers should carefully review such risk factors as well as factors described in other documents that we file from time to time with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as “guidance,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology.  You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information.  There may be events in the future that we are not able to accurately predict or control.  You should be aware that the occurrence of any of the events described in our risk factors and other disclosures could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, and levels of activity, performance or achievements.  Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:

· our ability to obtain sufficient working capital to support our business plans;

our ability to recommence operations at our manufacturing facility;

· our ability to expand our product offerings and maintain the quality of our products;

· the availability of Chinese government granted rights to exclusively manufacture or co-manufacture our products;

· the availability of Chinese national healthcare reimbursement of our products;

· our ability to manage our expanding operations and continue to fill customers’ orders on time;

· our ability to maintain adequate control of our expenses allowing us to realize anticipated revenue growth;

· our ability to maintain or protect our intellectual property;

· our ability to maintain our proprietary technology;

· the impact of government regulation in China and elsewhere, including the support provided by the Chinese government to the Traditional Chinese Medicine and healthcare sectors in China;

· our ability to implement product development, marketing, sales and acquisition strategies and adapt and modify them as needed;

· our ability to integrate any future acquisitions;

· our implementation of required financial, accounting and disclosure controls and procedures and related corporate governance policies; and

3

· our ability to anticipate and adapt to changing conditions in the Traditional Chinese Medicine and healthcare industries resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management’s opinions only as of the date thereof.  We undertake no obligation to revise or publicly release the results of any revision of our forward-looking statements, except as required by law.

4

PART I

ITEM 1.    FINANCIAL STATEMENTS

TONGLI PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2012		March 31,2012
	(Unaudited)
ASSETS
Current assets:
Cash	$	54,294	$	23,508
Accounts Receivable		2,316,337		4,166,178
Inventories		74,536		13,613
Advance to suppliers		1,028,826		1,016,294
Prepaid expense and other current assets		51,680		241,738
Deferred tax assets		533,230		399,081
Contract deposit-current portion		4,279,669		3,189,441
Due from related parties		-		87,538
Total current assets		8,338,572		9,137,391
Long-term assets:
Property and equipment, net		6,180,583		6,193,526
land use right, net		4,037,983		4,041,032
Contract deposit-long term		-		469,726
Total long-term assets		10,218,566		10,704,284
Total assets	$	18,557,138	$	19,841,675
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilties:
Accounts payable	$	121,716	$	429,117
Taxes payables		122,111		879,386
Accrued expenses		197,624		192,340
Due to related parties		4,741		-
Total current liabilities		446,192		1,500,843
Stockholders' Equity
Preferred stock, $0.001 par value,authorized 1,000,000 shares; none issued and outstanding		-		-
Common stock, $0.001 par value,authorized 200,000,000 shares issued and outstanding 13,428,111 and 13,294,778 shares, as of June 30, 2012 and March 31, 2012 respectively		13,428		13,295
Additional paid-in-capital		8,862,566		8,842,699
Accumulated other comprehensive income		2,309,799		2,075,975
Retained earnings		6,925,153		7,408,863
Total Stockholders' equity		18,110,946		18,340,832
Total liablities and Stockholders' equity	$	18,557,138	$	19,841,675

The accompanying notes are an integral part to the consolidated financial statements

5

TONGLI PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	For the Three Months Ended June 30,
	2012			2011
Revenue	$	-		$	5,564,834
Cost of sales		-			2,996,442
Gross Profit		-			2,568,392
Operating expenses:
General and administrative expenses		503,593			217,023
Depreciation and amortization expenses		91,238			86,038
Selling expenses		19,066			70,515
Total operating expenses		613,897			373,576
Operating income(loss)		(613,897	)		2,194,816
Other income(expenses):
Interest income(expense)		25			(13,933	)
Total other income(expenses)		25			(13,933	)
Income(loss) before income taxes		(613,872	)		2,180,883
Income tax expense(credit)		(130,162	)		580,575
Net Income(loss)		(483,710	)		1,600,308
Other Comprehensive income
Foreign Currency Translation adjustment		233,824			242,692
Comprehensive income(loss)	$	(249,886	)	$	1,843,000
Basic and diluted income(loss) per share	$	(0.04	)	$	0.14
Basic and diluted weighted average shares outstanding		13,370,968			11,770,742

The accompanying notes are an integral part to the consolidated financial statements

6

TONGLI PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	For the Three Months Ended June 30,
	2012			2011
Cash flows from operating activities
Net income(loss)	$	(483,710	)	$	1,600,308
Adjustments to reconcile net income(loss) to net cash
provided by(used in)operating activities:
Depreciation and amortization		142,184			137,866
Accrued interest- related party		-			13,933
Stock issued for services		20,000			18,793
Deferred Tax		(130,162	)		(8,966	)
Changes in operating assets and liabilities:		-
Accounts receivable		1,901,550			(1,702,097	)
Inventory		(60,766	)		(722,920	)
Prepaid expenses and other current assets		192,752			(66,755	)
Accounts payable		(312,746	)		134,972
Accrued expenses and tax payables		(763,125	)		(113,944	)
Net cash provided by (used in) operating activities		505,977			(708,810	)
Cash flows from investing activities
Refund(Payment) of contract deposit		(575,478	)		307,767
Net cash provided by (used in) investing activities		(575,478	)		307,767
Cash flows from financing activities
Proceeds from related party loans		100,751			-
Repayement of related party loans		-			(142,108	)
Net cash provided by (used in) financing activities		100,751			(142,108	)
Effect of exchange rate changes on cash		(464	)		62,664
Net increase (decrease) in cash		30,786			(480,487	)
Cash, beginning of the period		23,508			592,671
Cash, end of the period	$	54,294		$	112,184
Supplemental cash flow information
During the period, cash was paid for the following:
Income taxes	$	-		$	833,241

The accompanying notes are an integral part to the consolidated financial statements

7

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Tongli Pharmaceuticals (USA), Inc.(the “Company”), through an indirect wholly-owned subsidiary, Harbin Tianmu Pharmaceuticals Co., Ltd. (“Tianmu Pharmaceuticals”), develops, produces and sells a wide variety of pharmaceuticals and healthcare products in the People’s Republic of China (“PRC” or “China”) that are based on traditional Chinese medicine (“TCM”).  In August 2011, the Company formed Harbing Lvnong Plant Ltd. (“Lvnong”) to plant and sell herbs in China. Lvnong is 100% owned by the Company’s indirect wholly-owned subsidiary, Heilongjiang Tongli Technology Co., Ltd. (“Tongli Technology”).

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial  information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year or any other periods. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

The balance sheet as of March 31, 2012 has been derived from the audited financial statements of the Company as of that date, but does not include all of the information and footnotes required by U.S. GAAP for the complete financial statements.

Principles of consolidation

The consolidated financial statements include the accounts of: (i) the Company (ii) the Company’s wholly-owned subsidiary American Tony Pharmaceuticals, Inc., a Delaware corporation (“American Tony”), (iii) American Tony’s wholly-owned subsidiary Tongli Technology, and (iv) Tongli Technology’s wholly-owned subsidiaries, Tianmu Pharmaceuticals and Lvnong, each PRC companies.  All significant inter-company accounts and transactions have been eliminated upon consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Uses of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.  Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company adopted ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

8

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, inventory, prepaid expense, accounts payable and other accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with ASC 820.

Inventory

Inventory is stated at the lower of cost, determined using the weighted average cost method, and net realizable value.  Costs include materials, labor and manufacturing overhead.  Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose.  Management periodically compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost. No allowance for inventory markdown is considered necessary for three months ended June 30, 2012 and 2011.

Harvested Chinese herbs inventories are stated at lower of cost or market. Cost of growing herbs includes director labor and material costs accumulated through the balance sheet date.

Impairment of Long Lived Assets

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

The Company accounts for the impairment of long-lived assets in accordance with the guidance of FASB ASC 360-10-20. Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable.  For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value.  If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.  Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable.  Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. Based on its review, the Company believes that, as of December 31, 2011, there were no impairment of its long-lived assets.

Deferred income taxes

The Company accounts for income taxes in accordance with FASB ASC 740 “Income Taxes”which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  In addition, ASC 740 requires recognition of future tax benefits, such as carry-forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management reviews this valuation allowance periodically and makes adjustments as warranted.

9

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign currency translation

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

Revenue Recognition

Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, and no other significant obligations of the Company exist and collectability is reasonably assured.Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. The Company sells primarily to distributors who subsequently sell the merchandise. The agreements with distributors do not provide for the right of return.  Return from distributors has historically been immaterial and accordingly no reserve is deemed necessary as of June 30, 2012 and 2011.

3. INVENTORY

As of June 30, 2012 and March 31, 2012, inventory consists the following:

	June 30, 2012		March 31, 2012
Raw materials	$	13,720	$	13,553
Work in process		60,756		-
Finished goods		60		60
Total	$	74,536	$	13,613

4. CONTRACT DEPOSIT

Contract deposit represents payments under material contracts by which the Company intends to purchase drug formula to be used in the manufacturing and increasing its product lines.

As of June 30, 2012 and March 31, 2012, contract deposit consists the following:

	June 30, 2012		March 31, 2012
Contract deposit-Tonghua (1)	$	3,487,137	$	3,444,658
Contract deposit-Xinyu (2)		792,532		214,509
		4,279,669		3,659,167
Less: current portion		-		(3,189,441	)
Total	$	4,279,669	$	469,726

10

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

4. CONTRACT DEPOSIT (Continued)

(1) On March 21, 2010, the Company entered into a New Drug Assignment Agreement (the “Tonghua Agreement”) with Tonghua Yisheng Pharmaceuticals Company Limited (“Tonghua”) pursuant to which the Company agreed to purchase a new drug candidate, called Nafarelin, from Tonghua for a purchase price of RMB33,000,000 (approximately $4.85 million). The total purchase price is payable in three installments: 33% of the total purchase price (approximately $1.6 million) was paid upon execution of the Tonghua Agreement in March 2010; another 33% (approximately $1.6 million) was paid in March 2011 (although it is required to be paid upon conclusion of third clinical trial for the product pursuant to the terms of the Tonghua Agreement) and the balance is payable upon conclusion of the transfer.

Nafarelin is a proposed treatment for endometriosis and prostate cancer. At a minimum, completion of the third phase clinical trail is a pre-condition to receipt of the New Drug Approval Certificate from the SFDA. The SFDA new drug approval procedure is separate and distinct from the patent prosecution procedure. To date, neither Tonghua nor the Company has applied or intend to apply for patent protection for Nafarelin or the formula or process related to Nafarelin. Once Tonghua is granted the New Drug Approval Certificate for Nafarelin, according to pharmaceutical laws of PRC, the Company, as the assignee of the New Drug Approved Certificate, shall receive 4 years of exclusive protection.  As described below, the Company regards such protection period as the appropriate amortization period. The patent protection is irrelevant for purposes of amortization in determining the life of the drug as the Company will not apply for patent protection for Nafarelin.

The Company is not responsible for conducting or paying for any clinical trial and/or research and development in connection with the new drug application for Nafarelin. Pursuant to the Tonghua Agreement, Tonghua shall continue the research, development and clinical trial work for Nafarelin until the SFDA grants the New Drug Approval Certificate and the product is ready to be marketed. Tonghua is listed as the applicant for the SFDA new drug approval process for this product. Once SFDA approval is obtained, the Company will be able to consummate the assignment and enjoy the protection afforded by the New Drug Approval Certificate. In addition, the Company’s ability to commercialize this new product also requires assistance and cooperation from Tonghua, which Tonghua is obligated to provide to us under the Tonghua Agreement.

Under PRC law, the SFDA’s New Drug Approval Certificate grants certain exclusive protections to approved new drugs, meaning that the subject formula may not be manufactured by other parties in China. The exclusive protection periods for the new drugs vary from 4 to 12 years depending on the category of the new drug. Because the Company shall be the beneficiary of the exclusive protection during the applicable period (the so-called “new drug approval period”), upon consummation of the transaction contemplated by the Tonghua Agreement, the Company will regard the protection period as the appropriate amortization period. Based on ASC 805-50-30 “Initial Measurement on Acquisition of Assets Rather Than a Business” and ASC350-30 ”General Intangibles Other Than Goodwill”, the total payment pursuant to the Tonghua Agreement will be recorded as an intangible asset once the Company obtains the SFDA New Drug Approval Certificate and will be amortized over the term of the new drug protection period.

Based on a written mutual understanding between the Company and Tonghua, any payments the Company made to Tonghua under the Tonghua Agreement will be refunded if SFDA approval is not abtained for Nafarelin. Such mutual understanding, although the Company believes to be binding, was not explicitly stipulated in the Tonghua Agreement or otherwise memorialized. As such, the first two installment under the Tonghua Agreement was accounted as a deposit and the remaining last installment payment will be also accounted as deposits until the New Drug Approval Certificate is obtained, at which point the total payment will be recorded as intangible asset and amortized over the term of the new drug protection period.The Tonghua Agreement also provides that the Company and Tonghua will compensate one another for all losses incurred by the other party if the purchase is not concluded due to reasons attributable to the offending party.

11

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

4. CONTRACT DEPOSIT (Continued)

On June 6, 2012, the Company entered into a Termination Agreement with Tonghua pursuant to which the Tonghua Agreement was terminated. Pursuant to the Termination Agreement, Tonghua will refund prepayment of RMB 22,000,000 (approximate to $3.5 million) in four installments. The first installment of RMB5, 000,000 (approximately $794,000) will be refunded prior to August 30, 2012, the second installment of RM6, 000,000 (approximately $950,000) will be refunded prior to November 30, 2012, the third installment of RMB8,000,000 (approximately $1.3 million) will be refunded prior to February 28, 2013 and the last installment of RMB3,000,000 (approximately $476,000) will be refunded prior to May 30, 2013.

(2) On April 30, 2012, the Company entered into Xinyu Breath Spray purchase agreement with Harbin Junde Healthcare product Company. Pursuant to the agreement, the total purchase price is RMB8,500,000(approximately $1.33 million). The Company will pay 50% of the purchase price after commencement of the Xinyu Breath Spray purchase agreement and pay the rest of the purchase price after the Company manufactured three batches of Xinyu Breath Spray that meet the quality standards of the product.  The Company paid RMB 5,000,000 (approximately $793,000) to Harbin Junde Healthcare product Company since the purchase agreement was entered.

5. LAND USE RIGHT

The executive offices and manufacturing facilities of the Company’s subsidiary Tianmu Pharmaceuticals are located in the Limin Pharmaceutical Technology Park in the City of Harbin, which is the capital of Heilongjiang Province in The People’s Republic of China.  In 2008, Tianmu Pharmaceuticals paid RMB 2.7 million (approximate to $400,000) to local government to obtain a land use right of 50,000 square meters for 50 years for manufacturing purposes. The Company amortizes this land use right on a straight-line basis over 50 years.

On December 20, 2010, the Company entered into a contract with a non-affiliated individual to acquire rights to use a parcel of land and fixtures thereon for twenty years (from December 20, 2010 to December 30, 2030) for RMB20 million (approximately $3 million). RMB12 million (equivalent to $1,817,541) was paid upon execution of the contract in December 2010. The balance was required to be paid within 20 days after the conveyance of a list of land and fixtures. Due to the nature of the subject parcel of land, there is no PRC government approval or recording required for the transfer of land use right. The Company paid the outstanding balance under the contract on February 21, 2011 and the transfer was concluded in March 2011. As such, the total contract price was recorded as long-term assets and is amortized over the twenty years use right period.

In March 2011, the Company entered into a supplemental contract with the same third-party to acquire a nearby fish pond for twenty years with total contract price of RMB 5.5 million (approximate to $0.85 million). The Company will use this fish pond to provide water supply to the planted traditional Chinese medicine. Total amount of this contract was amortized on a straight-line basis over twenty years.

As of June 30, 2012 and March 31, 2012, land use rights consist of the following: 

	June 30, 2012			March 31, 2012
Land use rights	$	4,469,876		$	4,415,426
Less: Accumulated amortization		(431,893	)		(374,394	)
	$	4,037,983		$	4,041,032

The amortization expense for the three months ended June 30, 2012 and 2011 was $52,891 and $51,437 respectively.

12

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

6. DUE TO/(FROM) RELATED PARTIES

Due to/(from) related parties consist of the following:

	June 30, 2012			March 31, 2012
Due from Harbin Tianmu Real Estate Development Co. Ltd (a)	$	(398,898	)	$	(599,151	)
Due to Yao, Mingli, Chairman of the Company		570,324			570,324
Due to(from) US Hua Sky International Investment LLC (b)		(53,090	)		27,727
Due from Tianmu Investment Co. Ltd (c)		(4,755	)		(7,829	)
Due from Yao, Yuan, a shareholder of the Company (d)		(108,840	)		(78,609	)
Total	$	4,741		$	(87,538	)

(a) Harbin Tianmu Real Estate Development Co., Ltd. is an entity owned by our Chairman, Mr. Mingli Yao.

(b) US Hua Sky International Investment LLC is an entity owned by our Chairman, Mr. Mingli Yao

(c)Tianmu Investment Co., Ltd. is an entity partially owned by our Chairman, Mr. Mingli Yao.

(d) Ms. Yuan Yao is the daughter of Mr. Mingli Yao. 

Mr. Mingli Yao has personally guaranteed the loan receivable from Harbin Tianmu Real Estate Development Co. Ltd and Tianmu Investment Co. Ltd. If theloan has not been repaid in the year ended March 31, 2013, Mr. Yao has agreed to offset the balance due to him referenced above.

7. STOCKHOLDERS’ EQUITY

On May 10, 2012, the Company issued 133,333 common shares to its legal counsel Ellenoff Grossman & Schole LLP for services rendered. The Company recorded the fair value of $20,000 for these issued shares.

8. TAXES

(a) Corporation income tax (“CIT”)

The Company’s Chinese subsidiaries are governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are generally subject to tax at a new statutory rate of 25%. As of June 30, 2012, for the Company’s PRC entities remain open for statutory examination by PRC tax authorities.

The Company is incorporated in the United States.  It had net operating loss carry forwards for United States income tax purposes amounted to $1,956,227 and $1,871,117 for the three months ended June 30, 2011 and the year ended March 31, 2012 respectively, which may be available to reduce future years' taxable income in the United States. These carry forwards will expire between 2028 and 2030. Management doesn't expect to remit any of its net income back to the United States in the foreseeable future.  Accordingly, the Company recorded a full valuation allowance as of June 30, 2012 and March 31, 2012.

The reconciliation of income tax expense at the U.S. statutory rate at 35% in 2012 and 2011, to the Company’s effective tax is as follows:

	June 30, 2012			June 30, 2011
U.S. Statutory income tax rate	$	(214,855	)	$	762,422
Taxable difference between U.S. and China		52,876			(232,088	)
Change in valuation allowance		31,817			50,241
Effective income tax	$	(130,162	)	$	580,575

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TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

The provisions for income taxes for the three months ended June 30, 2012 and 2011 are summarized as follows:

	For the Three Months Ended June 30,
	2012			2011
Current	$	-		$	589,541
Deferred - United States		(29,788	)		(49,873	)
Deferred - China		(132,191	)		(8,966	)
Change in Valuation Allowance		31,817			49,873
Total	$	(130,162	)	$	580,575

The components of income (loss) before income taxes from China and U.S. for the three months ended June 30, 2012 and 2011 were as follows:

	For the Three Months Ended June 30,
	2012			2011
China	$	(528,762	)	$	2,323,416
United States		(85,110	)		(142,535	)
Income before income tax	$	(613,872	)	$	2,180,881

(b) Value added tax (“VAT”)

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

(c) Other taxes

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

9. COMMITMENTS AND CONTINGENCIES

On June 28, 2012, the Company signed the lease agreement for the Company’s New York office located in Flushing, Queens which will have a rental arrangement of $1,749 per month. Pursuant to the lease agreement, the term of the lease is from August 2012 to July 2013. Four months rental were waived. $3,498 was paid as security deposit in June, 2012. As of June 30, 2012, the Company was obligated to pay $13,992 under the lease agreement.

10. VULNERABILITY DUE TO OPERATIONS IN PRC

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than thirty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen

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

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

14

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

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

The Company’s business depends on maintaining licenses of its current products from SFDA. Obtaining licenses for additional products can be expensive and is usually time consuming. Failure to obtain the required licenses can cause the Company’s business plan to be delayed. If the delays prevent the Company from generating positive cash flows or introducing a significant number of products, there will be a material adverse effect on the Company.

11. SUBSEQUENT EVENTS

The Company has evaluated events after the date of these financial statements through the date that these financial statements were issued and no subsequent event is required to be disclosed.

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Item 2. Management’s Discussion and Analysis of Financial Conditions of Operations.

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of Tongli Pharmaceuticals (USA) Inc. for the three months ended 2012 and 2011, and should be read in conjunction with such financial statements and related notes included in this report. Those statements in the following discussion that are not historical in nature should be considered to be forward looking statements that are inherently uncertain. Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “Cautionary Note on Forward Looking Statements” set forth above.

Company Overview

Tongli Pharmaceuticals (USA), Inc.(“the Company”), through its indirectly wholly-owned subsidiaries, Harbin Tianmu Pharmaceuticals Co., Ltd. (“HTP” or “Tianmu Pharmaceuticals”) and Harbin Lvnong Plant Ltd.(“Lvnong”), develops, produces and sells a wide variety of pharmaceuticals and healthcare products in the People’s Republic of China (“PRC” or “China”) that are based on traditional Chinese medicine, or TCM.The Company’s main products include cholesterol reduction pill, mouthwash, anti-inflammatory tablet, Panax and Radix Polygoni Capsule and calcium supplement. These products are sold through distributors or directly to customers; no service is required of the Company after sales are made.  The Company’s primary customers are drug stores and hospitals located in China.

The Company owns all of the outstanding capital stock of American Tony Pharmaceutical, Inc., a Delaware corporation (“American Tony”). American Tony is a holding company.  In February 2007, American Tony acquired, through its wholly-owned subsidiary, Heilongjiang Tongli Technology Co., Ltd., a PRC company (“Tongli Technology”), all of the registered capital of Harbin Tianmu Pharmaceuticals Co., Ltd. (“Tianmu Pharmaceuticals”), a corporation organized under the laws of the PRC on November 26, 1999.   Tianmu Pharmaceuticals is our principal operating subsidiary and is engaged in developing, manufacturing and marketing pharmaceutical and health care products that incorporate elements of Chinese Traditional Medicine with elements of western medicine.

In August 2011, we formed HarbingLvnong Plant Ltd. (“Lvnong”) to plant and sell herbs in China. Lvnong is 100% owned by Tongli Technology.

Development and Strategy

Suspension of Operations

For the three months ended June 30, 2012, we did not generate any revenue because (as initially disclosed in our Annual Report on Form 10-K for the periodending March 31, 2012)our productionwas interrupted by the breakdown of a boiler and related pipeline at our manufacturing facilities in January 2012.As of the date of this report, most of equipment and production lines are still undergoing adjustments and have not resumed production except production line of Radix Polygoni Capsule, which resumed production in July 2012.We anticipate the full production will resume in September 2012. We anticipate there may not be as much revenue generated during the quarter ended September 30, 2012 compared to the same period last year as a result of this situation.

Panax and Radix Polygoni Capsule

In October, 2010, we began to manufacture and sell our new product Panax and Radix Polygoni Capsule. This new product has helped us to generate about 52% of our total sales for the three months ended June 30, 2011. We believe that this new product have great market potential and will continue to generate sustainable income for our company in the foreseeable future.

Xinyu Breath Spray

On April 30, 2012, we entered into Xinyu Breath Spray Purchase Agreement (“Xinyu Purchase Agreement”) with Harbin Junde Healthcare Product Company (“Harbin Junde”). Pursuant to the Xinyu Purchase Agreement, we will acquire the right to manufacture the Xinyu Breath Spray at the total purchase price of RMB 8,500,000 (approximately $1.33 million). We will pay 50% of the purchase price at time of closing of the Xinyu Purchase Agreement and pay the rest of the purchase price after we manufacture three batches of Xinyu Breath Spray that meet the quality standards of product. We paid RMB 1,370,000 (approximately $214,508) on March 29, 2012 and RMB 3,630,000 (approximately $568,369) on May 30, 201, which includes the first installment payment of RMB 4,250,000 and RMB 750,000 for other payment orally agreed by the parties. On July 2, 2012, the Company entered into a supplementary agreement to record the oral agreement the parties reached in May with regard to our payment obligation in respect to inspection fees, improvement fees and raw material fees.

Xinyu Breath Spray was marketed primarily through adware. The major markets include supermarkets, hotels and internet. We have two medium-size packages with two flavors for the product, one for man and another for woman. We are targeting to high-end consumers.

We anticipate we will start production of Xinyu Breath Spray in September 2012.

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Land Parcel

On December 20, 2010, we entered into a contract with third party to acquire the right to use a parcel of land for twenty years (from December 20, 2010 to December 30, 2030) with a total contract price of RMB 20 million (approximate to $3 million).  We started to use this parcel of land to plant the traditional Chinese medicine in 2011. We paid RMB 12 million (equivalent to $1,817,541) in December 2010 and RMB 8 million (equivalent to $1,211,694) in February 21, 2011.

In addition, in March 2011, we entered into a supplemental contract with the same third-party to acquire the right to use a nearby fish pond for twenty years with total contract price of RMB 5.5 million (approximate to $0.85 million). RMB5,270,665 (approximately $825,000) was paid as of March 31, 2012. We used this fish pond to provide water supply to the traditional Chinese medicine field.

Marketing and sales

Management plans to continue to emphasize on expanding and enhancing marketing and sales in the fiscal year 2013 and beyond.  Part of this strategy involves increasing and improving marketing and sales activities to enhance the market position of our key products and to increase the sales of other products by expanding our sales force, solidifying our distribution network and expanding market segment coverage, and increasing marketing and promotional activities. Management also plans to selectively pursue strategic acquisition opportunities to further consolidate our resources and expand our market coverage. We believe that such initiatives will provide effective means to broaden our product lines, expand our market coverage and complement our research and development capabilities. As of the date of this report, we are not engaged in any material discussions regarding any potential acquisition.

Subject to the recommencement of our manufacturing capability, management believes that our emphasis on further commercializing and broadening our product lines, enhanced sales and marketing efforts create the potential for increases in revenue in fiscal 2013 and beyond.

 Discussion of Operating Results

Operating results for the three months ended June 30, 2012 and 2011

Revenues, cost of sales and gross profit

We did not generate any revenue for the three months ended June 30, 2012.The lack of revenue during the three months ended June 30, 2012 was due to the fact that the manufacturing process was interrupted by the breakdown of a boiler and related pipeline in January, 2012.As of the date of this report, most of equipment and production lines are still undergoing repairs except production line of Radix Polygoni Capsule, which has resumed production in July 2012.

 The Company had distribution contracts with various distributors during the three months ended June 30, 2011to sell its products in China.  The Company manufactures its products and ships the products to distributors based on the sales order from distributors each month.  Revenue is recognized at the time of the shipment.  No return is allowed, unless there is a quality problem.  During the three months ended June 30, 2011, there were no returns from distributors or customers.  Distributors normally make payments upon receiving the products; however, in some cases, the Company may extend credit to certain creditable distributors for certain period until the next shipment.

As we discussed above, we didn’t generate any revenues for the three months ended June 30, 2012. Therefore, we also didn’t incur any cost of goods for the three months ended June 30, 2012. Additionally, the gross profit for the period in this year is not a good indicator of what our gross profits normally are. For example, for the three months ended June 30, 2011, we generated $2,568,392 in gross profit.

Operating expenses

Total operating expenses increased by approximately $240,321 for the three months ended June 30, 2012 from $373,576 for the three months ended June 30, 2011 to $613,897 for the three months ended June 30, 2012, representing a 64.3% increase. The increase in our total operating expense for the three months ended June 30, 2012 as compared to the prior comparative period was primarily related to repairing for broken boiler.

Interest income (expense)

Interest expense was $0 for the three months June 30, 2012 compared to interest expense of $13,933 for the three months ended June 30, 2012. Interest expense for the period was only related to the loans to related parties.

Income tax expense (Credit)

All of our net income for the three months ended June 30, 2011 was from Tianmu Pharmaceuticals, which conducts substantially of our operation in the PRC. Our Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning the private-run enterprises, which are generally subject to tax at a new statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

We had income tax credit of $130,162 for the three months ended June 30, 2012 that results from net losses of current period.

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Net income (loss)

As a result of the disruption in our manufacturing capability as described above, we reported net loss of $483,710 for the three months ended June 30, 2012, as compared to the net income of $1,600,308 for the three months ended June 30, 2011.  

Other comprehensive income

We operate primarily in the PRC and the functional currency of our operating subsidiary is RMB. RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.  No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into USD at the rate on June 30, 2012 or at any other rate.

The value of RMB against USD may fluctuate and is affected by changes in political and economic conditions. Our revenues, costs and financial assets are mostly dominated in RMB while our reporting currency is the U.S. dollar. Accordingly, this may result in gains or losses from currency translation on our financial statements.

Translation adjustments resulting from this process amounted to a gain of $233,824 and $242,692 as of June 30, 2012 and 2011, respectively.  The balance sheet amounts with the exception of equity at March 31, 2012 were translated at 6.3885 RMB to 1.00 USD as compared to 6.3089 RMB to 1.00 USD at June 30, 2012. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the three months ended June 30, 2012 and 2011 were 6.3078 RMB and 6.4984 RMB, respectively.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. We have financed our operation and capital expenditures through cash from operations as well as loans from shareholders and an entity owned by our Chairman. As of the date of this report, we do not have any outstanding bank loans.

As of June 30, 2012 and March 31, 2012, due to (from) related parties consists the following: 

	June 30, 2012			March 31, 2012
Due from Harbin Tianmu Real Estate Development Co. Ltd (a)	$	(398,898	)	$	(599,151	)
Due to Yao, Mingli, Chairman of the Company		570,324			570,324
Due to(from) US Hua Sky International Investment LLC (b)		(53,090	)		27,727
Due from Tianmu Investment Co. Ltd (c)		(4,755	)		(7,829	)
Due from Yao, Yuan, a shareholder of the Company		(108,840	)		(78,609	)
Total	$	4,741		$	(87,538	)

As of June 30, 2012, the balance of due from Harbin Tianmu Real Estate Development Co. Ltd. was 398,898.Harbin Tianmu Real Estate Development Co., Ltd. is an entity owned by our Chairman, Mr. Mingli Yao. Due from US Hua Sky International Investment LLC was $53,090. US Hua Sky International Investment LLC is an entity owned by our Chairman, Mr. Mingli Yao. Due from Tianmu Investment Co. Ltd was $4,755. Tianmu Investment Co., Ltd. is an entity partially owned by our Chairman, Mr. Mingli Yao.

Mr. Mingli Yao has personally guaranteed the loan receivable from Harbin Tianmu Real Estate Development Co. Ltd and Tianmu Investment Co. Ltd. If the loan could not been repaid during the year ended March 31, 2013, Mr. Yao has agreed to offset the balance due to him referenced above.

We plan to fund operations and capital expenditures with cash from operations, as well as loans from major shareholders and management members and their affiliates.  We might also pursue sources additional financing in the form of debt, equity or convertible security offerings. There can be no assurance that we will be able to obtain such additional financing at acceptable terms to us, or at all. The disruption of our manufacturing capability has adversely impacted our cash flow and may also require us to seek financing.

Total current assets decreased to approximately $8.3 million as of June 30, 2012 as compared to $9.1 million at March 31, 2012.  The primary changes in our current assets during this period were from changes in accounts receivable and a reclassification of part of contract deposit to current. The decrease of accounts receivable from approximately $4.1 million at March 31, 2012 to approximately $2.3 million as of June 30, 2012 was due to collection from customers.

Our current liabilities as of June 30, 2012 were approximately $0.45 million compared to $1.50 million as of March 31, 2012. The decrease in our current liabilities during this period was mainly from the decrease in tax payable. 

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The growth of our company will require additional debt and/or equity financing.  Currently we have budgeted $3.5 million for capital improvements. We intend to pursue additional debt financing which could be secured by our property and equipment and approach international equity markets for additional debt and/or equity financing.  To date we have no commitment from any source for the funds we require.

Discussion of Cash Flow

Comparison of cash flows results for the three months ended June 30, 2012 and 2011 is summarized as follows:

	June 30, 2012			June 30, 2011
Net cash provided by (used in) operating activities	$	505,977		$	(708,810	)
Net cash provided by (used in) investing activities		(575,478	)		307,767
Net cash provided by (used in) financing activities		100,751			(142,108	)
Effect of exchange rate changes on cash		(464	)		62,664
Net increase (decrease) in cash		30,786			(480,487	)
Cash, beginning of period		23,508			592,671
Cash, end of period	$	54,294		$	112,184

Operating activities

Cash flows provided by operating activities for the three months ended June 30, 2012 amounted to $505,977, which consists of our net loss of $483,710, and adds back noncash adjustments of $32,022 (including depreciation and amortization of $142,184, stock issued for services of $20,000 and deferred tax asset of $130,162) and offset by net changes in operating assets and liabilities, primarily including increase of accounts receivable of $1,901,550 which represented the collected amount from our customers during the period, an decrease in accrued expenses and tax payable of 763,125.

Cash flows used in operating activities for the three months ended  June 30, 2011 amounted to $708,810, which consist of our net income of $1,600,308, adds back noncash adjustments of $161,626(including depreciation of property and equipment of $86,705, amortization of land use right of $51,161, accrued interest expense on related party loan of $13,933, stock issued for services of $18,793 and deferred tax asset of $8,966) and offset by net changes in operating assets and liabilities, primarily including increase of accounts receivable of $1,702,097 which represented the temporarily uncollected amount from our increased credit sales during the period, a increase in inventory of 722,920 to stock raw materials to avoid the potential raw material price increase in the near future.

Investing activities

Net cash used in investing activities for the three months ended June 30, 2012 amounted to $575,478 which consists of repayment of contract deposit from the termination agreement with Lanhai and acquisition of property and equipments.

Net cash provided by investing activities for the three months ended June 30, 2011 amounted to $307,767 which consists of refund of contract deposit from the Termination Agreement pursuant to Lanhai.

Financing activities

Cash flows provided by by financing activities amounted to $100,751 for the three months ended June 30, 2012, which consists of proceeds and repayment of related party loan.

Cash flows used in by financing activities amounted to $142,108 for the three months ended June 30, 2011, which consists of repayment of related party loan by the same amount.

Off-Balance Sheet Arrangements

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Inflation

Inflation has not had a material impact on our business and we do not expect inflation to have a material impact on our business in the near future.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T.  CONTROLS AND PROCEDURES

We seek to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended ( the “Exchange Act”)  is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such 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.

Evaluation of Disclosure Controls and Procedures.

As of June 30, 2012, the end of the fiscal quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not operating effectively as of June 30, 2012. Our disclosure controls and procedures were not effective because of certain “material weaknesses” described in the “Management’s Annual Report on Internal Control over Financial Reporting” section in Item 9A of our annual report for the fiscal year ended March 31, 2012. As of June 30, 2012, we had not completed the remediation of these material weaknesses.

Limitations on the Effectiveness of Disclosure Controls.  

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.  An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended June 30, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, except as disclosed above

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PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.

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

None.

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not applicable.

Item 5.     Other Information

None.

Item 6.     Exhibits

(a)  Exhibits

Exhibit No.	Description
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Tongli Pharmaceuticals (USA), Inc.
August 14, 2012	By:	/s/ Mingli Yao
		Mingli Yao Chief Executive Officer (Principal Executive Officer)
August 14, 2012	By:	/s/ Li Li
		Li Li Chief Financial Officer (Principal Financial and Accounting Officer)

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