Attached files
| file | filename |
|---|---|
| EX-31.1 - Tongli Pharmaceuticals (USA), Inc. | v193826_ex31-1.htm |
| EX-32.2 - Tongli Pharmaceuticals (USA), Inc. | v193826_ex32-2.htm |
| EX-32.1 - Tongli Pharmaceuticals (USA), Inc. | v193826_ex32-1.htm |
| EX-31.2 - Tongli Pharmaceuticals (USA), Inc. | v193826_ex31-2.htm |
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,
2010
|
OR
|
¨
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For
the transition period from
________ to ________.
|
Commission
file number: 000-52954
Tongli
Pharmaceuticals (USA), Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
84-1090791
|
|
|
(State
or other jurisdiction
of
incorporation or organization)
|
(IRS
Employer
Identification
number)
|
|
|
136-17 Maple
Avenue, 11H
Flushing,
NY
|
11355
|
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
718-321-8380
(Registrant’s
Telephone Number, Including Area Code)
None
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
None
(Title of
Class)
Name of
each exchange on which registered
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $.001 par value per share
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨.
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 ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ¨
|
Accelerated filer ¨
|
|
|
Non-accelerated filer ¨
|
Smaller reporting company x
|
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x.
As of
August 16, 2010, there were 11,395,036 outstanding shares of common stock of the
registrant, par value $.001 per share.
TABLE
OF CONTENTS
|
Cautionary
Note on Forward Looking Statements
|
|||
|
PART
I – FINANCIAL INFORMATION
|
|||
|
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
||
|
Condensed
Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and March 31,
2010
|
1
|
||
|
Condensed
Consolidated Statements of Income and Comprehensive Income (Unaudited) for
the three months ended June 30, 2010 and 2009
|
2
|
||
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the three months
ended March 31, 2010 and 2009
|
4
|
||
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
5
|
||
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
9
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
17
|
|
|
Item 4(T).
|
Controls
and Procedures
|
18
|
|
|
PART
II – OTHER INFORMATION
|
|||
|
Item
1.
|
Legal
Proceedings
|
19
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
|
|
Item
4.
|
Removed
and Reserved
|
19
|
|
|
Item
5.
|
Other
Information
|
19
|
|
|
Item
6.
|
Exhibits
|
19
|
|
|
SIGNATURES
|
|||
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.
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. The forward looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward looking statements. In
some cases, you can identify forward looking statements by terminology such as
“may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended,” or
“continue” or the negative of these terms or other comparable
terminology. Readers are cautioned not to place undue reliance on
these forward looking statements, which reflect management’s opinions only as of
the date thereof. In evaluating such forward looking statements, readers
should carefully review the discussion of risks and uncertainties in this
Quarterly Report on Form 10-Q and in our most recent Annual Report on Form 10-K
as well as in other filings with the Securities and Exchange Commission
including, without limitation, possible changes in capital structure, and other
financial items; changes in approaches to medical treatment; introduction of new
products by others; possible acquisitions of other technologies, assets or
businesses; and possible actions by customers, suppliers, competitors and
regulatory authorities. Although we believe that the expectations
reflected in the forward looking statements are reasonable, we cannot guarantee
future results, growth rates, and levels of activity, performance or
achievements. Except as expressly required by the federal securities laws, there
is no undertaking to publicly update or revise any forward looking statements,
whether as a result of new information, future events, changed circumstances or
any other reason.
The
discussion of risks and uncertainties set forth in this Quarterly Report on Form
10-Q and in our most recent Annual Report on Form 10-K as well as in other
filings with the SEC, is not necessarily a complete or exhaustive list of all
risks facing the Company at any particular point in time. We operate
in a highly competitive, highly regulated and rapidly changing
environment. Therefore, it is likely that new risks will emerge, and
that the nature and elements of existing risks will change, over time. It is not
possible for management to predict all such risk factors or changes therein, or
to assess either the impact of all such risk factors on our business or the
extent to which any individual risk factor, combination of factors, or new or
altered factors, may cause results to differ materially from those contained in
any forward looking statement. We disclaim any obligation to revise or update
any forward looking statement that may be made from time to time by us or on our
behalf.
PART
I
ITEM
1. FINANCIAL
STATEMENTS
|
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
|
|||||||
|
CONSOLIDATED
BALANCE SHEETS
|
|
As of
|
||||||||
|
June 30, 2010
|
March 31, 2010
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
|
114,580 | 30,066 | ||||||
|
Accounts
receivable
|
714,560 | 351,991 | ||||||
|
Inventory
|
264,659 | 109,387 | ||||||
|
Prepaid
expense
|
3,900 | 3,900 | ||||||
|
Advance
to suppliers
|
2,065,164 | 1,465,713 | ||||||
|
Total
current assets
|
3,162,863 | 1,961,057 | ||||||
|
Property
and equipment, net
|
6,703,340 | 6,744,376 | ||||||
|
Contract
deposits (Note 2)
|
2,658,727 | 2,641,418 | ||||||
|
Intangible
assets, net (Note 3)
|
157,994 | 163,244 | ||||||
|
Total
assets
|
12,682,924 | 11,510,095 | ||||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
172,052 | 101,611 | ||||||
|
Due
to related parties (Note 4)
|
856,771 | 788,166 | ||||||
|
Accrued
expenses and other current liabilities
|
571,616 | 555,969 | ||||||
|
Total
current liabilities
|
1,600,439 | 1,445,746 | ||||||
|
Stockholders’
Equity
|
||||||||
|
Preferred
stock, $0.001 par value, Authorized 1,000,000 shares; none
issued
|
- | - | ||||||
|
Common
stock, $0.001 par value Issued and
outstanding- 11,395,025 shares
|
11,395 | 11,395 | ||||||
|
Additional
paid-in-capital
|
7,913,799 | 7,913,799 | ||||||
|
Accumulated
other comprehensive income
|
1,221,621 | 1,142,133 | ||||||
|
Retained
earnings
|
1,935,670 | 997,022 | ||||||
|
Total
Stockholders’ Equity
|
11,082,485 | 10,064,349 | ||||||
|
Total
Liabilities and Stockholders’ Equity
|
$ | 12,682,924 | $ | 11,510,095 | ||||
See
accompanying notes to the condensed consolidated financial
statements.
1
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF INCOME AND OTHER COMPREHENSIVE INCOME
(UNAUDITED)
|
For the three months ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Revenue
|
$ | 3,213,420 | $ | 2,347,094 | ||||
|
Cost
of sales
|
1,790,142 | 1,256,951 | ||||||
|
Gross
Profit
|
1,423,278 | 1,090,143 | ||||||
|
Operating
expenses:
|
||||||||
|
General
and administrative expenses
|
87,080 | 131,973 | ||||||
|
Research
and development expenses
|
- | 3,461 | ||||||
|
Depreciation
expenses
|
37,259 | 39,398 | ||||||
|
Selling
expenses
|
14,599 | 17,929 | ||||||
|
Total
operating expenses
|
138,938 | 192,761 | ||||||
|
Operating
income
|
1,284,340 | 897,382 | ||||||
|
Other
Income (expenses):
|
||||||||
|
Interest expense, related party
|
(13,904 | ) | (17,892 | ) | ||||
|
Total
other income (expenses)
|
(13,904 | ) | (17,892 | ) | ||||
|
Income
before income taxes
|
1,270,436 | 879,490 | ||||||
|
Income
Taxes
|
331,786 | 245,582 | ||||||
|
Net
Income
|
938,650 | 633,908 | ||||||
|
Other
Comprehensive item:
|
||||||||
|
Foreign
Currency Translation adjustment
|
79,488 | 4,552 | ||||||
|
Comprehensive
income
|
1,018,138 | 638,460 | ||||||
|
Basic
and diluted income per share
|
$ | 0.08 | $ | 0.06 | ||||
|
Basic
and diluted weighted average shares outstanding
|
11,395,025 | 10,225,501 | ||||||
See
accompanying notes to the condensed consolidated financial
statements.
2
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For the three months ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
income
|
$ | 938,650 | $ | 633,908 | ||||
|
Adjustments
to reconcile net income to net cash provided (used in) operating
activities:
|
||||||||
|
Depreciation
and amortization
|
90,939 | 86,386 | ||||||
|
Amortization
of stock compensation
|
- | 12,750 | ||||||
|
Accrued
interest- related party
|
13,904 | 17,900 | ||||||
|
Stock
issued for services
|
- | 20,000 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(358,011 | ) | (327,681 | ) | ||||
|
Inventory
|
(153,591 | ) | (171,269 | ) | ||||
|
Advances
to suppliers
|
(586,160 | ) | (448,623 | ) | ||||
|
Prepaid
expenses
|
- | - | ||||||
|
Accounts
payable
|
69,340 | 117,039 | ||||||
|
Accrued
expenses and other current liabilities
|
12,809 | (95,034 | ) | |||||
|
Net
cash provided by (used in) operating activities
|
27,880 | (154,624 | ) | |||||
|
Cash
flows from financing activities
|
||||||||
|
Proceeds
from related party loans
|
56,231 | 193,638 | ||||||
|
Net
cash provided by financing activities
|
56,231 | 193,638 | ||||||
|
Effect
of exchange rate changes on cash
|
403 | 17 | ||||||
|
Net
increase in cash
|
84,514 | 39,031 | ||||||
|
Cash,
beginning of the period
|
30,066 | 50,247 | ||||||
|
Cash
, end of the period
|
$ | 114,580 | $ | 89,278 | ||||
|
Supplemental
cash flow information
|
||||||||
|
During
the period, cash was paid for the following:
|
||||||||
|
Income
taxes
|
$ | 278,653 | $ | 204,745 | ||||
|
Interest
paid
|
$ | - | $ | - | ||||
See
accompanying notes to the condensed consolidated financial
statements.
3
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2010 AND 2001
(UNAUDITED)
|
1.
|
BASIS
OF PRESENTATION
|
Tongli
Pharmaceuticals (USA), Inc., through a 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”).
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. 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,
2010.
The
balance sheet as of March 31, 2010 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by U.S. GAAP for the complete financial
statements.
The
Company has evaluated events after the date of these financial statements
through August 15, 2010, the date that these financial statements were
issued. There were no material subsequent events as of that
date.
|
2.
|
CONTRACT
DEPOSITS
|
Contract
deposits represent payments under material contracts by which the Company
intends to purchase drug formula to be used in the manufacturing and increasing
its product lines. On December 24, 2008, the Company signed a patent transfer
agreement with a third party Harbin Lanhai Biochemical Company Limited and paid
RMB 7,030,000 (approximately USD 1.03 million) for the purchase of a
nutraceutical product from Lanhai Biochemical Company Limited. The Company’s
ability to conclude this purchase and ultimately commercialize this product
requires, among other things, additional assistance from the seller and
obtaining government approvals. Due to the recent strict regulation regarding
the examination and approval procedure, the Company is now still waiting for
suspended governmental approval for the formula to be used in production of
Calcium supplements and is expected to obtain such approval from the China State
Food & Drug Administration (“SFDA”) by 2011.
On March
21, 2010, the Company signed a patent purchase agreement with a third party
Tonghua Yisheng Pharmaceuticals Company Limited for purchase of a new drug
candidate. Total contract price for this patent transaction amounted to RMB
33,000,000 (approximate to USD 4.85 million) to be paid in three installments.
The Company paid the first installment of RMB 11,000,000 (equivalent to USD
1,611,514) to Tonghua Yisheng Pharmaceuticals Company Limited in March 2010 upon
signing the patent purchase agreement. The Company’s ability to conclude this
purchase and ultimately commercialize this product requires additional
assistance from the seller and obtaining government approvals, including the
approvals from the SFDA.
4
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2010 AND 2001
(UNAUDITED)
|
3.
|
INTANGIBLE
ASSETS
|
Intangible
assets primarily represent the exclusive rights to manufacture and sell a new
product pursuant to an agreement entered into by the Company with a third party,
Harbin Sanmu Pharmaceuticals Inc. (“Sanmu”). In August 2009, the
Company entered into an agreement with Sanmu and purchased the exclusive rights
to use the product’s trademark, manufacture and sell the product nationwide in
the PRC for seven years for a total amount of RMB 1,200,000 (equivalent to USD
175,772) which was paid in October 2009. The Company amortizes such
product sales right using straight-line method for seven years. The
amortization expense as of June 30, 2010 totaled $18,959.
|
4.
|
DUE
TO RELATED PARTIES
|
Due to
related parties consist of the following:
|
As of
|
||||||||
|
June 30, 2010
|
March 31, 2010
|
|||||||
|
(Unaudited)
|
||||||||
|
Harbin
Tianmu Real Estate Development Co., Ltd. (a)
|
$ | (316,166 | ) | $ | (308,705 | ) | ||
|
Chairman
of the Company (a)
|
(520,018 | ) | (458,874 | ) | ||||
|
US
Hua Sky International Investment LLC. (b)
|
(20,587 | ) | (20,587 | ) | ||||
|
Total
|
$ | (856,771 | ) | $ | (788,166 | ) | ||
|
(a)
|
Harbin
Tianmu Real Estate Development Co., Ltd. is owned by the Company’s
Chairman. These loans bear interest at 7% per annum and are due on
demand.
|
|
(b)
|
The
Company has a month to month sub-lease arrangement for its New York office
with a company owned by the Chairman. This arrangement began on March 31,
2008 and the monthly rental was $3,950 which was the same as the amounts
incurred by the related entity. This arrangement ended on March 31, 2009.
A new lease agreement under the name of the Chairman for the Company’s New
York office commenced on April 1, 2009 with a monthly rental of
$1,950.
|
|
5.
|
EARNINGS PER
SHARE
|
Earnings
per share are computed by dividing income available to the holders of the
Company’s common stock, par value $0.001 per share (the “Common Stock”), by the
weighted-average number of shares of Common Stock outstanding for the three
months ended June 30, 2010 and 2009. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator
is increased to include the number of additional shares of Common
Stock that would have been outstanding if the potential shares of Common Stock
have been issued and if the additional shares of Common Stock were dilutive.
There are no Common Stock equivalents available for dilution purposes as of June
30, 2010 and 2009, respectively.
5
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2010 AND 2001
(UNAUDITED)
|
5.
|
EARNINGS
PER SHARE (continued)
|
The
following demonstrates the calculation for earnings per share for the three
months ended June 30, 2010 and 2009:
|
As of
|
||||||||
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Net
income
|
$ | 938,650 | $ | 633,908 | ||||
|
Weighted
shares outstanding- Basic and diluted
|
11,395,025 | 10,225,501 | ||||||
|
Earning
per share- Basic
|
$ | 0.08 | $ | 0.06 | ||||
|
Earnings
per share- Diluted
|
$ | 0.08 | $ | 0.06 | ||||
|
6.
|
TAXES
|
|
(a)
|
Corporation
income tax (“CIT”)
|
The
Company has not recorded a provision for U.S federal income tax for the three
months ended June 30, 2010 and 2009 due to the net operating losses in the
United States for which the Company has set up 100% valuation
allowance.
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 statutory rate of 25% on income reported in the
statutory financial statements after appropriate tax adjustments.
A
reconciliation of tax at United States Federal statutory rate to provision for
income tax recorded in the financial statements is as follows:
|
As of
|
||||||||
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
U.S.statutory
income tax rate
|
35.0 | % | 35.0 | % | ||||
|
Foreign
tax rate difference between US and China
|
(10.0 | )% | (10.0 | )% | ||||
|
NOL
from U.S with 100% valuation allowance
|
1.1 | % | 2.90 | % | ||||
|
Actual
consolidated income tax rate
|
26.1 | % | 27.9 | % | ||||
6
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2010 AND 2001
(UNAUDITED)
|
6.
|
TAXES
(continued)
|
The
components of deferred taxes as of June 30, 2010 and March 31, 2010 consist of
the following:
|
As
of
|
||||||||
|
June
30, 2010
|
March
31, 2010
|
|||||||
|
(Unaudited)
|
||||||||
|
Net
operating loss carry-forwards
|
792,943 | 773,165 | ||||||
|
Valuation
allowance
|
(792,943 | ) | (773,165 | ) | ||||
|
Net
deferred tax asset
|
- | - | ||||||
Management
believes the deferred tax assets as of June 30, 2010 do not satisfy the
realization criteria set forth in FASB ASC 740 and has recorded a valuation
allowance for the entire net tax asset.
|
(b)
|
Value
added tax (“VAT”)
|
Enterprises
or individuals who sell
commodities, engage in repair and maintenance or import or export goods in the
PRC are subject to a value added tax in accordance with the PRC laws. The value
added tax standard rate is 17% of the gross sales price. A credit is available
whereby VAT paid on the purchases of semi-finished products or raw materials
used in the production of the Company’s finished products can be used to offset
the VAT due on the sales of the finished products.
|
(c)
|
Other
taxes
|
The
Company is also subject to 5% of business tax (BT), 7% of City Construction Tax
and 4% of Education Fees based on VAT and BT.
|
7.
|
COMMITMENTS
AND CONTINGENCIES
|
On March
21, 2010, the Company signed a patent purchase agreement with a third party
Tonghua Yisheng Pharmaceuticals Company Limited for purchase of a new drug
candidate. See Note 2.
|
8.
|
CONCENTRATION
OF RISKS
|
During
the three months ended June 30, 2010, approximately 33.9% of sales were
generated from one distributor.
In
addition, three products manufactured by the Company (including
Antihyperlipidemics, Anti-bacterial Mouthwash and Calcium Gluconate Oral Liquid)
represented approximately 59.5% of the total sales for the three months ended
June 30, 2010, as compared to approximately 92.7% of total sales for the three
months ended June 30, 2009. Sales of Yan Li Xiao Capsule represented
approximately 33.9% of total sales for the three months ended June 30,
2010.
7
TONGLI
PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2010 AND 2001
(UNAUDITED)
|
9.
|
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.
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.
8
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS 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 Tongli Pharmaceuticals (USA) Inc. for the three months
ended June 30, 2010 and 2009, 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,” “we,” “us,” “our” or similar
terminology), formally known as Aim Smart Corporation (“Aim Smart”), was
originally formed in the State of Colorado in April 1998 and reorganized as a
Delaware corporation in September 2007.
On July
29, 2008, Aim Smart acquired all of the outstanding capital stock of American
Tony Pharmaceutical, Inc., a Delaware corporation (“American Tony”), by issuing
9,700,000 shares of its Common Stock, representing 96.7% of the outstanding
shares of Aim Smart, to the shareholders of American Tony. American Tony paid
$525,000 for its controlling interest in Aim Smart and this interest was
acquired solely to effectuate the reverse merger and was paid for with $276,000
of the Company’s own funds and a $249,000 loan from its Chairman.
The
acquisition has been accounted for as a reverse merger under the purchase method
of accounting since there was a change of control. Accordingly, American Tony is
treated as the continuing entity for accounting purposes, whereas the entity
formally known as Aim Smart is the legal surviving entity.
Subsequent
to the reverse merger, Aim Smart changed its name to American Tony
Pharmaceuticals, Inc. on September 23, 2008, and then changed its name to Tongli
Pharmaceuticals (USA), Inc. on October 30, 2008.
American
Tony is a holding company incorporated in the State of Delaware. In February
2007, American Tony acquired, through a wholly owned subsidiary, Heilongjiang
Tongli Technology Co., Ltd. (“TT”), all of the registered capital of Harbin
Tianmu Pharmaceuticals Co., Ltd. (“HTP”), a corporation organized under the laws
of the PRC on November 26, 1999. HTP 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 2005,
HTP obtained the GMP certificate (Good Manufacturing Practices for
Pharmaceutical Products), and Drug Register License and Drug Production
Certificate from the SFDA for its 10 products. The Company’s major products
include Yufang Anti-Bacterial Mouth Wash, Calcium Gluconate Oral Liquid, and
Antihyperlipidemics. 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.
9
DEVELOPMENT
AND STRATEGY
For the
three months ended June 30, 2010, we continued the execution of our product
channel expansion strategy that resulted in increased market penetration of our
products and expanded revenue growth. In order to expand our business, in August
2009, we signed a contract with a third party Harbin Sanmu Pharmaceuticals to
purchase exclusive rights to manufacture and sell a new product nationwide for
seven years. We paid Harbin Sanmu Pharmaceuticals RMB 1,200,000 (approximately
$175,772) for a new product named Yan Li Xiao Capsule in October 2009 and
started to sell it in late 2009. We believe that this new product has great
market potentials and as of June 30, 2010, it has generated additional revenue
for us. In addition to the above development, on March 21, 2010, we signed a
patent purchase agreement with a third party Tonghua Yisheng Pharmaceuticals
Company Limited to purchase a new drug candidate with great market potentials.
Total consideration for this patent transaction amounted to RMB 33,000,000
(approximate to USD 4.85 million) payable in three installments. The Company
paid the first installment of RMB 11,000,000 (equivalent to USD 1.6 million) to
Tonghua Yisheng Pharmaceuticals Company Limited in March 2010 upon execution of
the patent purchase agreement. Our ability to conclude this purchase and
ultimately commercialize this product requires additional assistance from the
seller and obtaining government approvals, including the approvals from the
SFDA.
Management
plans to continue to emphasize on expanding and enhancing marketing and sales in
the fiscal year 2011 ending March 31, 2011 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.
Management
believes that our emphasis on further commercializing and broadening our product
lines, enhanced sales and marketing efforts shall continue to yield increases in
revenue in fiscal 2011 and beyond.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
consolidated financial information has been prepared in accordance with U.S.
GAAP in the United States, which requires us to make judgments, estimates and
assumptions that affect (1) the reported amounts of our assets and liabilities,
(2) the disclosure of our contingent assets and liabilities at the end of each
fiscal period and (3) the reported amounts of revenues and expenses during each
fiscal period. We continually evaluate these estimates based on our
own historical experience, knowledge and assessment of current business and
other conditions, our expectations regarding the future based on available
information and reasonable assumptions, which together form our basis for making
judgments about matters that are not readily apparent from other
sources. Since the use of estimates is an integral component of the
financial reporting process, our actual results could differ from those
estimates. Some of our accounting policies require a higher degree of
judgment than others in their application.
When
reviewing our financial statements, you should consider (1) our selection of
critical accounting policies, (2) the judgment and other uncertainties affecting
the application of those policies, and (3) the sensitivity of reported results
to changes in conditions and assumptions. We believe the following
accounting policies involve the most significant judgment and estimates used in
the preparation of our financial statements.
10
Basis
of presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with U.S. 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. 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,
2010.
The
balance sheet as of March 31, 2010 has been derived from the audited financial
statements at 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 the Tongli, American
Tony, TT and HTP. All significant inter-company accounts and
transactions have been eliminated.
Uses
of estimates
The
preparation of financial statements in conformity with U.S. GAAP 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.
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, advance to suppliers, 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.
11
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 the three months ended June 30, 2010 and for the year ended March
31, 2010.
Impairment
In
accordance with FASB ASC 360-10-20, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” we recognize an impairment loss when circumstances
indicate that the carrying value of long-lived tangible and intangible assets
with finite lives may not be recoverable. Management’s policy in determining
whether an impairment indicator exists, a triggering event, comprises measurable
operating performance criteria as well as qualitative measures. If an analysis
is necessitated by the occurrence of a triggering event, we make certain
assumptions in determining the impairment amount. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
future cash flows expected to be generated by the asset or used in its disposal.
If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized.
Property
and equipment
Property
and equipment are carried at cost. The cost of repairs and maintenance is
expensed as incurred; major replacements and improvements are capitalized. When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition.
Foreign
Currency translation
Since we
operate primarily in the PRC, our functional currency is the Chinese Renminbi
(“RMB”). Revenue and expense accounts are translated at the average rates
during the period, and balance sheet items are translated at year-end rates.
Translation adjustments arising from the use of differing exchange rates
from period to period are included as a separate component of shareholders’
equity. Gains and losses from foreign currency transactions are recognized
in current operations.
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.
Revenue
Recognition
We
recognize revenue at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, and no
other significant obligations by us exist and collectability is reasonably
assured. Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as advances from customers.
12
Comprehensive
income
In
accordance with FASB ASC 220, comprehensive income is defined to include all
changes in equity except those resulting from investments by shareholders and
distributions to shareholders. Among other disclosures, all items
that are required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements. Comprehensive income includes net income and the foreign
currency translation gain, net of tax.
All
revenues are from sales to customers in the PRC. Substantially all of
the Company’s assets are located in the PRC.
Concentration
of risks
During
the three months ended June 30, 2010, approximately 33.9% of sales were
generated from one distributor.
In
addition, three products manufactured by the Company (including
Antihyperlipidemics, Anti-bacterial Mouthwash and Calcium Gluconate Oral Liquid)
represented approximately 59.5% of the total sales for the three months ended
June 30, 2010, as compared to approximately 92.7% of total sales for the three
months ended June 30, 2009. Sales of Yan Li Xiao Capsule represented
approximately 33.9% of total sales for the three months ended June 30,
2010. All revenues are from sales to customers in the
PRC. Substantially all of the Company’s assets are located in the
PRC.
DISCUSSION
OF OPERATING RESULTS
The
results of our operation for the three months ended June 30, 2010 compared to
the prior comparative periods are as follows:
|
As of
|
||||||||
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
Revenues
|
$ | 3,213,420 | $ | 2,347,094 | ||||
|
Cost
of Sales
|
1,790,142 | 1,256,951 | ||||||
|
Gross
Profit
|
1,423,278 | 1,090,143 | ||||||
|
Selling,
general & administrative expeses
|
138,938 | 192,761 | ||||||
|
Other
income (expenses)
|
(13,904 | ) | (17,892 | ) | ||||
|
Provision
of income taxes
|
331,786 | 245,582 | ||||||
|
Net
income
|
938,650 | 633,908 | ||||||
|
Foreign
currency translation adjustments
|
79,488 | 4,552 | ||||||
|
Comprehensive
income
|
$ | 1,018,138 | $ | 638,460 | ||||
13
Revenues,
cost of sales and gross profit
Revenues
increased 36.91% to approximately $3.2 million for the three months ended June
30, 2010 from approximately $2.3 million for the three months ended June 30,
2009. The $0.86 million increase was primarily attributable to the
increase in sales of Yan Li Xiao Capsule, supported by our marketing efforts,
increasing brand recognition and effective pricing strategy and our distribution
to previously unaddressed market. For the three months ended June 30, 2010,
about 33.9% of our revenue was generated by Yan Li Xiao Capsule which broadened
our product offerings and helped to increase our sales. We have the exclusive
rights to use this new product’s trademark, manufacture and sell this product
nationwide for seven years starting from October 2009.
Management
expects that our emphasis on broadening our product lines coupled with our
continued sales channel expansions, along with our enhanced sales and marketing
efforts will continue to yield increases in revenue for fiscal year 2011 and
beyond.
Cost of
sales was approximately $1.79 million for the three months ended June 30, 2010
compared to $1.26 million for the three months ended June 30, 2009. The $0.53
million increase in cost of sales was mainly attributable to the increased
purchased costs associated with our new product Yan Li Xiao Capsule. We do not
manufacture this product by our own but purchase it from a third party
manufacturer for distribution. Accordingly, as the sales of Yan Li Xiao Capsule
increased during the three months ended June 30, 2010, our costs of sales
increased as well. Cost of sales as a percentage of revenue increased
from 53.55% to 55.71% as compared to the prior comparative period.
Gross
profit was approximately $1.42 million for the three months ended June 30, 2010
compared to $1.09 million for the three months ended March 31, 2009, an increase
of $0.33 million due to increased sales of our products. The gross profit as a
percent of revenues for the three months ended June 30, 2010 decreased to 44.29%
compared to 46.45% for the prior comparative period mainly due to increasing of
raw material costs, relatively higher costs incurred by our new product Yan Li
Xiao Capsule and business tax incurred for Yan Li Xiao sales. These factors led
to the increased cost of sales. We expect our gross profit margin will remain at
its current level with slight growth in the future.
Operating
expenses
Total
operating expenses decreased to approximately $138,938 for the three months
ended June 30, 2010 from $192,761 for the three months ended June 30,
2009.
As a
percentage of revenues, operating expenses decreased to 4.32% for the three
months ended June 30, 2010 compared to 8.21% for the three months ended June 30,
2009. The $53,823 decrease in total operating expenses was primarily due to the
decrease in general and administrative expenses attributable to our strict cost
control policy.
Interest
expense
Net
interest expense was $13,904 for the three months ended June 30, 2010 compared
to $17,892 for the three months ended June 30, 2009. Interest expenses for the
above period indicated only related to the loans from related parties. The
decrease of net interest expense for the three months ended June 30, 2010 was
due to our repayment of portion of related party loans when cash generated from
our operations became available. As the balance of related party loans reduced,
our interest expenses decreased accordingly.
14
Income
taxes
All of
our net income for the period ended June 30, 2010 was from HTP, which conducts
substantially all 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 statutory rate of 25% on
income reported in the statutory financial statements after appropriate tax
adjustments.
The
income tax expense of $331,786 for the three months ended June 30, 2010, an
increase of $86,204 or 35.1% compared to the prior comparative period was
attributed to the increased taxable income primarily derived from HTP for the
three months ended June 30, 2010.
A
reconciliation of tax at United States Federal statutory rate to provision for
income tax recorded in the financial statements is as follows:
|
As of
|
||||||||
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
U.S.statutory
income tax rate
|
35.0 | % | 35.0 | % | ||||
|
Foreign
tax rate difference between US and China
|
(10.0 | )% | (10.0 | )% | ||||
|
NOL
from U.S with 100% valuation allowance
|
1.1 | % | 2.9 | % | ||||
|
Actual
consolidated income tax rate
|
26.1 | % | 27.9 | % | ||||
Net
income
As a
result of the above factors, we reported a net income of $938,650 for the three
months ended June 30, 2010, an increase of $0.3 million or 48.07% as compared to
the net income of approximately $633,908 for the three months ended June 30,
2009.
For the
three months ended June 30, 2010, the increase in our net income was primarily
due to our increased revenue and decreased operating expenses.
Other
comprehensive income
We
operate primarily in the PRC and the functional currency of our operating
subsidiary is the Chinese Renminbi (“RMB”). The RMB is not freely
convertible into foreign currency and all foreign exchange transactions must
take place through authorized institutions. No representation is
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, 2010 or at any other
rate.
Translation
adjustments resulting from this process amounted to $79,488 and $4,552 as of
June 30, 2010 and 2009, respectively. The balance sheet amounts with
the exception of equity at June 30, 2010 were translated at 6.7814 RMB to 1.00
USD as compared to 6.8307 RMB to 1.00 USD at June 30, 2009. The equity accounts
were stated at their historical rate. The average translation rates applied to
the income statements accounts for the periods ended June 30, 2010 and 2009 were
6.8241 RMB and 6.8300 RMB, respectively.
15
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
We usually finance our operation and capital expenditures through cash from
operations and short-term bank loans as well as loans from the members of our
management group and advances from another entity owned by our
Chairman.
As of
June 30, 2010, our working capital has improved to $1,562,424 and the operating
results for the three months ended June 30, 2010 reflect
profitability.
Total
current assets increased to approximately $3.16 million as of June 30, 2010 as
compared to $1.96 million at March 31, 2010. The primary changes in
our current assets during this period were from changes in cash, accounts
receivable, inventory and advance to suppliers. The increase in cash from
$30,066 at March 31, 2010 to $114,580 at June 30, 2010 was because our increased
business activities generated more cash to be used in our operation. The
increase of inventory from $109,387 in March 31, 2010 to the amount of $264,659
as of June 30, 2010 was due to the consideration of stocking more raw materials
to avoid the potential material shortage in the near future, and stocking more
finished goods in support of future sales. The increase of advance to suppliers
from $1,465,713 at March 31, 2010 to $2,065,164 as of June 30, 2010 was
attributed to our financial support to strengthen the relationship with our raw
material suppliers. These advances are short-term in nature and we believe the
risk of uncollectibility was small based our past experience.
Our
current liabilities as of June 30, 2010 were $1.60 million as compared to $1.45
million at March 31, 2010. The increase in current liabilities was primarily due
to our increased related party loans in the amount of $68,605 in order to
support our working capital need, and increased accounts payable from $101,611
at March 31, 2010 to $172,052 at June 30, 2010 which represents our purchase of
raw materials on account from our suppliers.
We
believe that we have sufficient funds to operate our existing business for the
next twelve months. However, in addition to funds available from our operating
and loans from related parties, we may need external sources of capital for our
expansion. Currently we have budgeted $3.5 million for capital
improvements. We may 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. There can be no assurance that we
will be able to obtain such additional financing at acceptable terms to us, or
at all. 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 fiscal three months ended June 30, 2010 and 2009,
is summarized as follows:
|
As of June 30
|
||||||||
|
2010
|
2009
|
|||||||
|
Cash
flow from operating activities
|
$ | 27,880 | $ | (154,624 | ) | |||
|
Cash
flow from investing activities
|
$ | - | $ | - | ||||
|
Cash
flow from financing activities
|
$ | 56,231 | $ | 193,638 | ||||
16
Operating
activities
Cash
flows provided by operating activities for the three months ended June 30, 2010
amounted to $27,880, which consist of our net income of $938,650, adds back
noncash adjustments of $104,843 and offset by net changes in operating assets
and liabilities, primarily including increase of advance to suppliers of
$586,160 to maintain good relationship with the suppliers and increase in
inventory of $153,591 to stock more raw materials to avoid the potential
material shortage in the near future, and stock finished goods in support of
future sales, as well as an increase in our accounts payable of $69,340 which
represents a short-term advance made to us by our suppliers.
Cash used
in operating activities during the quarter ended June 30, 2009 amounted to
$154,624, which consists of our net income of $633,908, adds back noncash
adjustments of $137,036 and offset by net changes in operating assets and
liabilities due to expanded operating activities, including increase in accounts
receivables in the amount of $327,681, increase in inventory of $171,269,
increase in advance to suppliers in the amount of $448,623 to stimulate sales
and maintain good relationship with the suppliers, as well as an increase in
accrued liabilities in the amount of $95,034, offset by a increase in accounts
payable of $117,039.
Investing
activities
No cash
was used in investing activities for the three months ended June 30, 2010 and
2009, respectively.
Financing
activities
Cash
flows provided by financing activities amounted to $56,231 in the three months
ended June 30, 2010, which consists of proceeds from related party advances to
support our working capital needs.
Cash
provided by financing activities amounted to $193,638 for the quarter ended June
30, 2009, which represent the proceeds from related party advances.
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.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
17
ITEM
4T. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this report, the Company carried out, under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) in ensuring that information required to be disclosed by
the Company in its reports is recorded, processed, summarized and reported
within the required time periods. In carrying out that evaluation,
management identified a material weakness (as defined in Public Company
Accounting Oversight Board Standard No. 2) in our internal control over
financial reporting regarding a lack of adequate segregation of
duties.
Accordingly,
based on their evaluation of our disclosure controls and procedures as of June
30, 2010, the Company’s Chief Executive Officer and its Chief Financial Officer
have concluded that, as of that date, the Company’s controls and procedures were
not effective for the purposes described above.
Management
is presently seeking to augment the Company’s accounting and financing personnel
resources by retaining more U.S. GAAP knowledgeable accounting staff, which will
enable the Company to potentially implement adequate segregation of duties and remedy any material weakness in its
internal controls.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal controls over financial reporting identified in
connection with the evaluation that occurred during the three months ended June
30, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
18
PART
II
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. 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. 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.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
ITEM
4. REMOVED AND RESERVED
None.
ITEM
6. EXHIBITS
|
Item
Number
|
Description
|
|
|
(31)
|
Section 302
Certification
|
|
|
31.1*
|
Certification
of Registrant’s Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.
|
|
|
31.2*
|
Certification
of Registrant’s Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.
|
|
|
(32)
|
Section 906
Certification
|
|
|
32.1*
|
Certification
of Registrant’s Chief Executive Officer pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
|
|
|
32.2*
|
Certification
of Registrant’s Chief Financial Officer pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350
|
____________________
* filed
herewith
19
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated:
August 16, 2010
|
Tongli
Pharmaceuticals (USA), Inc.
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||
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By:
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/s/
Mingli Yao
|
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Name:
Mingli Yao
|
||
|
Title:
Chief Executive Officer and Chairman
|
||
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By:
|
/s/
Li Li
|
|
|
Name:
Li Li
|
||
|
Title:
Chief Financial
Officer
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