UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ending June 30, 2013

 

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)
116 Village Blvd Suite 200, Princeton NJ		08540
(Address of Principal Executive Offices)		(Zip Code)

 

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.  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 x

 

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 company x
(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 ¨ No x

 

As of August 19, 2013, there were 14,728,111 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	14
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		21

 

 

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.

 

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, 2013 (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

—

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.

 

 

PART I

 

ITEM 1.    FINANCIAL STATEMENTS

 

TONGLI PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

  

		June 30, 2013				March 31,2013
		(Unaudited)
ASSETS
Current assets:
Cash		$	37,121			$	80,618
Accounts receivable			2,304,376				2,966,435
Inventories			26,548				389,128
Advance to suppliers			42,394				43,685
Deferred tax assets			536,166				578,665
Prepaid expense and other current assets			2,673				11,151
Total current assets			2,949,278				4,069,682
Long-term assets:
Property and equipment, net			5,951,448				5,952,652
Intangible assets, net			3,265,025				3,276,958
Contract deposit-long term			9,670,835				8,760,731
Total long-term assets			18,887,308				17,990,341
Total assets		$	21,836,586			$	22,060,023
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	247,856			$	355,407
Taxes payables			224,635				764,717
Accrued expenses			173,437				211,548
Due to related parties			317,996				261,196
Total current liabilities			963,924				1,592,868
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 14,728,111 as of June 30, 2013 and March 31, 2013			14,728				14,728
Additional paid-in-capital			9,106,651				9,093,975
Retained earnings			8,981,832				8,902,347
Accumulated other comprehensive income			2,769,451				2,456,105
Total Stockholders' equity			20,872,662				20,467,155
Total liabilities and Stockholders' equity		$	21,836,586			$	22,060,023

 

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

 

 

TONGLI PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

		For the Three Month Ended June 30,
		2013				2012
Revenue		$	750,566			$	-
Cost of sales			379,033				-
Gross Profit			371,533				-
Operating expenses:
General and administrative expenses			153,949				503,593
Depreciation and amortization expenses			76,129				91,238
Selling expenses			6,354				19,066
Total operating expenses			236,432				613,897
Operating income(loss)			135,101				(613,897	)
Other income(expenses):
Interest expense, net of interest income			(12,551	)			25
Other income			24,184				-
Other expense			(24,750	)			-
Total other income(expenses)			(13,117	)			25
Income(loss) before income tax			121,984				(613,872	)
Income tax expense(credit)			42,499				(130,162	)
Net Income(loss)			79,485				(483,710	)
Other Comprehensive income
Foreign Currency Translation adjustment			313,346				233,824
Comprehensive income(loss)		$	392,831			$	(249,886	)
Basic and diluted income(loss) per share		$	0.01			$	(0.04	)
Basic and diluted weighted average shares outstanding			14,728,111				13,370,968

 

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

 

 

TONGLI PHARMACEUTICALS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

		For the Three Month Ended June 30,
		2013				2012
Cash flows from operating activities
Net income(loss)		$	79,485			$	(483,710	)
Adjustments to reconcile net income(loss) to net cash provided by operating activities:
Depreciation and amortization			152,023				142,184
Imputed interest- related party			12,676				-
Stock issued for services			-				20,000
Deferred tax assets			42,499				(130,162	)
Changes in operating assets and liabilities:
Accounts receivable			703,602				1,901,550
Inventory			366,501				(60,766	)
Advances to supplies			1,942				-
Prepaid expenses and other current assets			8,534				192,752
Accounts payable			(112,394	)			(312,746	)
Accrued expenses and tax payables			(587,671	)			(763,125	)
Net cash provided by operating activities			667,197				505,977
Cash flows from investing activities
Payment of contract deposit			(773,881	)			(792,669	)
Refund of contract deposit			-				217,191
Net cash used in investing activities			(773,881	)			(575,478	)
Cash flows from financing activities
Proceeds from related party loans			61,960				100,751
Net cash provided by financing activities			61,960				100,751
Effect of exchange rate changes on cash			1,498				(464	)
Net increase (decrease) in cash			(43,496	)			30,786
Cash, beginning of the period			80,617				23,508
Cash , end of the period		$	37,121			$	54,294
Supplemental disclosure of cash flow information
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	-			$	-

 

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

 

 

TONGLI PHARMCEUTICAL (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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, 2013.

 

The balance sheet as of March 31, 2013 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.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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.

 

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.

 

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, 2013 and 2012.

 

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 June 30, 2013, 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.

 

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, 2013 and 2012.

 

3.

INVENTORY

 

As of June 30, 2013 and March 31, 2013, inventory consists the following:

 

		June 30, 2013				March 31, 2013
Raw materials		$	11,486			$	14,019
Finished goods			15,062				375,109
Total		$	26,548			$	389,128

 

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, 2013 and March 31, 2013, contract deposit consists the following:

 

		June 30, 2013				March 31, 2013
Contract deposit-Ginshenwubao (1)			2,105,877				2,074,490
Contract deposit-qiangshu(2)			2,996,825				2,952,159
Contract deposit-yinge(3)			2,996,825				2,952,159
Contract deposit-Zexiejuemingzi(4)			712,758				303,195
Contract deposit-Songezhenzhu(5)			858,550				478,728
			9,670,835				8,760,731
Less: current portion			-				-
Total		$	9,670,835			$	8,760,731

 

(1)

On August 10, 2012, the Company entered into Ginshenwubao purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture Ginshenwubao at the total purchase price of RMB13,000,000 (approximately $2.06 million). As of June 30, 2013, the Company paid RMB13,000,000(approximately to $2.07 million).The Company manufactured samples of this product using a subcontractor in the United States in November 2012 in order to provide samples to potential customers. The Company expected to market Ginshenwubao during the third quarter of fiscal 2013.

 

(2)

On November 1, 2012, the Company entered into Qiangshu purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Qiangshu at the total purchase price of RMB18,500,000 (approximately $2.94 million). As of June 30, 2013, the Company paid the full amount of RMB18,500,000 (approximately $2.95 million). The application for the trademark of Qiangshu is under review by United States Patent and Trademark Office at the date of the report.

 

(3)

On December 18, 2012, the Company entered into Yinge purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Yinge at the total purchase price of RMB18,500,000 (approximately $2.94 million). As of June 30, 2013, the Company paid the full amount of RMB18,500,000 (approximately $2.95 million). The application for the trademark of Yinge is under review by United States Patent and Trademark Office at the date of the report.

 

 

(4)

On March 1, 2013, the Company entered into Zexiejuemingzi purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Zexiejuemingzi at the total purchase price of RMB12,000,000 (approximately $1.91 million). The Company paid RMB1.900,000 (approximately $0.30 million) as the deposit at the closing of Zexiejuemingzi purchase agreement in March 2013. The balance of the purchase price will be paid in installments according to the progress of performance under the contract. The Company paid RMB2,500,000(approximately $0.40 million) in April 2013.

 

(5)

On March 1, 2013, the Company entered into Songgezhenzhu purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Songgezhenzhu at the total purchase price of RMB16,000,000 (approximately $2.55 million). The Company paid RMB3,000,000 (approximately $0.48 million) as the deposit at the closing of Songgezhenzhu purchase agreement in March 2013. The balance of the purchase price will be paid in installments according to the progress of performance under the contract. The Company paid RMB2,300,000(approximately $0.37 million) in April 2013.

 

5.

DUE TO(FROM) RELATED PARTIES

 

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

 

		June 30, 2013				March 31, 2013
Due from Harbin Tianmu Real Estate Development Co. Ltd (a)		$	(407,666	)		$	(401,590	)
Due to Yao, Mingli, Chairman of the Company			560,579				534,075
Due to(from) US Hua Sky International Investment LLC (b)			(25,807	)			(24,576	)
Due from Tianmu Investment Co. Ltd (c)			(4,973	)			(4,899	)
Due to(from) Yao, Yuan, a shareholder of the Company (d)			195,863				158,186
Total		$	317,996			$	261,196

 

 

(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 and Ms.Yuan Yao have personally guaranteed the loan receivable from Harbin Tianmu Real Estate Development Co. Ltd, US Hua Sky International Investment LLc and Tianmu Investment Co. Ltd. If the loans have not been repaid in the year ended March 31, 2014, Mr. Yao and Ms.Yao have agreed to offset the balance due to them referenced above.

 

6.

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, 2013, 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 $2,411,761 and $2,146,041 for the three months ended June 30, 2013 and the year ended March 31, 2013, 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, 2013 and March 31, 2013.

 

  

The reconciliation of income tax expense (credit) at the U.S. statutory rate at 35% in 2013 and 2012, to the Company’s effective tax is as follows:

 

		June 30, 2013				June 30, 2012
U.S. Statutory income tax rate		$	42,694			$	(214,855	)
Taxable difference between U.S. and China			(16,999	)			52,876
Change in valuation allowance			16,804				31,817
Effective income tax		$	42,499			$	(130,162	)

 

The provisions (benefits) for income taxes for the three months ended June 30, 2013 and 2012 are summarized as follows:

 

		June 30, 2013				June 30, 2012
Current		$	-			$	-
Deferred - United States			(16,804	)			(29,788	)
Deferred - China			42,499				(132,191	)
Change in Valuation Allowance			16,804				31,817
Total		$	42,499			$	(130,162	)

 

The components of income (loss) before income taxes from China and U.S. for the three months ended June 30, 2013 and 2012 were as follows:

 

		For the Three Months Ended June 30,
		2013				2012
China		$	169,993			$	(528,762	)
United States			(48,011	)			(85,110	)
Income before income tax		$	121,983			$	(613,872	)

 

(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.

 

7.	COMMITMENTS AND CONTINGENCIES

 

On June 28, 2012, the Company signed the lease agreement for the Company’s office 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. In June 2012, the Company paid $3,498 as security deposit.

 

On March 1, 2013, the Company entered into Zexiejuemingzi purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Zexiejuemingzi at the total purchase price of RMB12,000,000 (approximately $1.91 million). The Company paid RMB1.900,000 (approximately $0.30 million) as the deposit at the closing of Zexiejuemingzi purchase agreement in March 2013. The balance of the purchase price will be paid in installments according to the progress of performance under the contract. The Company paid RMB2,500,000(approximately $0.40 million) in April 2013. The Company was obligated to pay RMB7,600,000(approximately $1.23 million) under the purchase agreement as of the date of the report.

 

 

On March 1, 2013, the Company entered into Songgezhenzhu purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Songgezhenzhu at the total purchase price of RMB16,000,000 (approximately $2.55 million). The Company paid RMB3,000,000 (approximately $0.48 million) as the deposit at the closing of Songgezhenzhu purchase agreement in March 2013. The balance of the purchase price will be paid in installments according to the progress of performance under the contract. The Company paid RMB2,300,000(approximately $0.37 million) in April 2013. The Company was obligated to pay RMB10,700,000(approximately $1.73 million) under the purchase agreement as of the date of the report.

 

8.	CONCENTRATION OF CREDIT RISKS

 

For the three months ended June 30, 2013, Radix Polygoni Capsule represented 100% of the total sales.

 

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.

 

10.	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.

 

 

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 June 30, 20123, 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., a Delaware corporstion (the “Company”, “we,” “us” or “our”), owns all of the outstanding capital stock of American Tony Pharmaceutical, Inc., a Delaware corporation (“American Tony”).

 

American Tony is a holding company, incorporated in Delaware.  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. In August 2011, we formed Harbin Lvnong Plant Ltd. (“Lvnong”) to grow herbs in China. Lvnong is a PRC company and is 100% owned by Tongli Technology.  Tianmu Pharmaceuticals and Lvnong are our principal operating subsidiaries. Tianmu Pharmaceutical is engaged in developing, manufacturing and marketing pharmaceutical and health care products that incorporate elements of Chinese Traditional Medicine with elements of western medicine.  Our research and development activities have been carried out at relatively low cost because they have been carried out by our in house research and development team and, in the past, in concert with a number of research institutes and universities, including the Jilin Research Institute of Chinese Traditional Medicine, the Sichuan Research Institute of Chinese Medicine, the Heilongjiang Institute of Chinese Traditional Medicine, the Chemistry Department of Tsinghua University, and the R&D Center of Harbin Medical University.

 

The Company’s main products include Panax and Radix Polygoni Capsule, cholesterol reduction pill, mouthwash, anti-inflammatory tablet 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.

 

In 2005, Tianmu Pharmaceuticals 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 main products include cholesterol reduction pill, mouthwash, anti-inflammatory tablet 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.

 

Development and Strategy

 

The PRC is projected to become the second largest market for health care products after USA after year 2013. The PRC is in great need for health care products, particularly those manufactured in USA. Health care products are not only for care, but for treatment as well, with little or no side effects. The market potential for these products is huge.

 

From the year 2013, the Company plans to fully enter into the healthcare product market. The Company plans to invest about $20 million to build a new manufacturing facility in USA with a R&D center during the next two years. The major products for the new facility would be health care products and drugs as its supplementary products. R&D center will focus its research on new Chinese medicinal materials which are in short supply in China market.

 

The Company currently received the approval for the trademark of Ginshenwubao from United States Patent and Trademark Office. Trade mark applications for Yinge and Qiangshu are under review by United States Patent and Trademark Office. During November 2012, the Company manufactured samples of this product using a subcontractor in the United States in order to provide samples to potential customers. The Company expects to sell Ginshenwubao during third quarter of fiscal 2013.

 

 

For the three months ended June 30, 2013, we continued the execution of our product channel expansion strategy that resulted in increased market penetration of our products and expanded revenue growth. During 2013, the Company will use most of the funds investing in purchasing products from the PRC.

 

Xinyu Breath Spray

 

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 RMB 8,500,000(approximately $1.33 million). The Company paid the full amount of contract deposit and began to sell the product in September 2012.

 

Ginshen Wubao

 

On August 10, 2012, we entered into Ginshenwubao purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to this agreement, we will acquire the exclusive right to manufacture the product Ginshenwubao at the total purchase price of RMB13,000,000 (approximately $2.07 million). As of June 30, 2013, the Company paid the full contract price. The Company manufactured samples of this product using a subcontractor in the United States in November 2012 in order to provide samples to potential customers. The Company is expected to market the product during the third quarter of 2013.

 

Qiangshu

 

On November 1, 2012, the Company entered into Qiangshu purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company acquired the exclusive right to manufacture the product Qiangshu at the total purchase price of RMB18,500,000 (approximately $2.94 million). As of June 30, 2013, the Company paid the full amount of contract price. As the date of the report, the trademark application is under review by United States Patent and Trademark Office.

 

Yinge

 

On December 18, 2012, the Company entered into Yinge purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company acquired the exclusive right to manufacture the product Yinge at the total purchase price of RMB18,500,000 (approximately $2.94 million). As of June 30, 2013, the company paid the full amount of contract price. As the date of the report, the trademark application is under review by United States Patent and Trademark Office.

 

Zexiejuemingzi

 

On March 1, 2013, the Company entered into Zexiejuemingzi purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Zexiejuemingzi at the total purchase price of RMB12,000,000 (approximately $1.91 million). The Company paid RMB1.900,000 (approximately $0.30 million) as the deposit at the closing of Zexiejuemingzi purchase agreement in March 2013. The balance of the purchase price will be paid in installments according to the progress of performance under the contract. The Company paid RMB2,500,000 (approximately $0.40 million) in April 2013.

 

Songgezhenzhu

 

On March 1, 2013, the Company entered into Songgezhenzhu purchase agreement with Harbin Junde Healthcare Product Company. Pursuant to the agreement, the Company will acquire the exclusive right to manufacture the product Songgezhenzhu at the total purchase price of RMB16,000,000 (approximately $2.55 million). The Company paid RMB3,000,000 (approximately $0.48 million) as the deposit at the closing of Songgezhenzhu purchase agreement in March 2013. The balance of the purchase price will be paid in installments according to the progress of performance under the contract. The Company paid RMB2,300,000(approximately $0.37 million) in April 2013.

 

 

The formulas and other related manufacturing know-how for the five products are all dietary supplements, purchased from Harbin Junde HealthCare Product Company. The Company is gradually entering into healthcare product market.. The products are all scientifically formulated and to be manufactured with advanced processing techniques and high quality standards.

 

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 RMB20 million (approximate to $3 million).  We started to use this parcel of land to plant the traditional Chinese medicine in 2011. We paid RMB12 million (equivalent to $1,817,541) in December 2010 and RMB8 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. The balance of RMB229,335 was paid in April 2012. We used this fish pond to provide water supply to the traditional Chinese medicine field.

 

During the third quarter of fiscal year 2012, all the traditional Chinese medicines were destroyed by a typhoon. Therefore, the Company subleased this land from October 2012 to November 2017. During the three months ended June 30, 2013, the Company recorded rental income of RMB150,000 (approximately $24,184). The Company will resume planting traditional Chinese medicines after the sublease is over.

 

As of March 31, 2013, the management revalued the carrying value of the land and fish pond use rights. Based on the current and anticipated condition, the management decided the carrying value of the land can’t be recoverable. Management recorded RMB12,013,967 (approximately $1.91 million) of impairment of the land and fish pond use right during the year ended March 31, 2013.

 

Marketing and sales

 

From 2013, our target market is the agricultural village in the process of medical reforms with the idea of "caring is better than treating". We plan to bring the idea to the second and third tier cities in China. The market for our products would be huge if we can keep the price reasonable and affordable to the customers in the target market.

 

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 and establishing 1000 additional city and county level sale agents, 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 also use subcontractor located in the United States to manufacturing our new dietary food products in order to keeping the quality of our product. That is also the key point when we market our new products comparing the similar products in China.

 

Discussion of Operating Results

 

Operating results for the three months  ended June 30, 2013 and 2012

 

Revenues, cost of sales and gross profit

 

We generated $750,566 revenue for the three months ended June 30, 2013. All revenue during three months ended June 30, 2013 is from the sale of Radix Polygoni Capsule. Since April 2013, the Company suspended the manufacture and maintained the production lines. For the three months ended June 30, 2012, we did not generate any revenue. 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.

 

 

We had distribution contracts with various distributors during the three months ended June 30, 2013 and 2012 to sell its products in China.  We manufacture our 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, 2013 and 2012, there were no returns from distributors or customers.  Distributors normally make payments upon receiving the products; however, in some cases, we may extend credit to certain creditable distributors for certain period until the next shipment.

 

Our cost of sales was 379,033 for the three months June 30, 2013. The gross profit as a percent of revenues for the three months ended June 30, 2013 is 49.5%. 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.

 

Operating expenses

 

Total operating expenses decreased by approximately $377,465 from $613,897 for the three months ended June 30, 2012 to $236,432 for the three months ended June 30, 2013, representing a 61.5% decrease. 

 

The decreases in our total operating expense for the three months ended June 30, 2013 as compared to the prior comparative periods were primarily related to extra costs for repairing the broken boiler.

 

Other income (expense)

 

Interest expense, net of interest income

 

Interest expense for the three months ended June 30, 2013 included $12,676 of imputed interest expense on related party loan bearing non interest, net of interest income of $125.

 

Other income

 

During the third quarter of fiscal year 2012, all the traditional Chinese medicines were destroyed by a typhoon. Therefore, the Company subleased this land from October 2012 to November 2017. During the three months ended June 30, 2013, the Company recorded rental income of RMB150,000 (approximately $24,184).

 

Other expense

 

The Company recorded other expense of $24,750 related to the amortization of the land and fish using right since the Company rented the land and fish to the third party.

 

Income tax expense (credit)

 

All of our net income for the three ended June 30, 2013 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 expenses of $42,499 for the three months ended June 30, 2013 and income tax credit of $130,162 for the three months ended June 30, 2012 that results from net losses of current period.

 

Net income

 

As a result of the above factors, we reported net income of $79,485 for the three months ended June 30, 2013 and net loss of 483,710 for the three months ended June 30, 2012.

 

 

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, 2013 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 $313,346 and $233,824 for the three months ended June 30, 2013 and 2012.  The balance sheet amounts with the exception of equity at March 31, 2013 were translated at 6.2666 RMB to 1.00 USD as compared to 6.1732 RMB to 1.00 USD at June 30, 2013. 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, 2013 and 2012 were 6.2025 RMB and 6.3078 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, 2013 and March 31, 2013, due to (from) related parties consists the following:

 

		June 30, 2013				March 31, 2013
Due from Harbin Tianmu Real Estate Development Co. Ltd (a)		$	(407,666	)		$	(401,590	)
Due to Yao, Mingli, Chairman of the Company			560,579				534,075
Due to(from) US Hua Sky International Investment LLC (b)			(25,807	)			(24,576	)
Due from Tianmu Investment Co. Ltd (c)			(4,973	)			(4,899	)
Due to(from) Yao, Yuan, a shareholder of the Company (d)			195,863				158,186
Total		$	317,996			$	261,196

 

As of June 30, the balance of due from Harbin Tianmu Real Estate Development Co. Ltd. was 407,666. 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 $25,807. US Hua Sky International Investment LLC is an entity owned by our Chairman, Mr. Mingli Yao. Due from Tianmu Investment Co. Ltd was $4,973. Tianmu Investment Co., Ltd. is an entity partially owned by our Chairman, Mr. Mingli Yao.

 

Mr. Mingli Yao and his daughter, Ms.Yuan Yao, have personally guaranteed the loan receivable from Harbin Tianmu Real Estate Development Co. Ltd, US Hua Sky International Investment LLC and Tianmu Investment Co. Ltd. If the loans could not been repaid during the year ended March 31, 2014, Mr. Yao and Ms. Yao agreed to offset the balance due to them 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.

 

Total current assets decreased to approximately $2.95 million as of June 30, 2013 as compared to $4.1 million at March 31, 2013.  The primary changes in our current assets during this period were from changes in accounts receivable and inventory.

  

Our current liabilities as of June 30, 2013 were approximately $0.96 million compared to $1.59 million as of March 31, 2013. The decrease in our current liabilities during this period was mainly from the decrease in tax payable and accounts payable. 

 

 

The growth of our company will require additional debt and/or equity financing.   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, 2013 and 2012 is summarized as follows:

 

		June 30, 2013				June 30, 2012
Net cash provided by  operating activities		$	667,197			$	505,977
Net cash used in investing activities			(773,881	)			(575,478	)
Net cash providedy by  financing activities			61,960				100,751
Effect of exchange rate changes on cash			1,498				(464	)
Net increase (decrease) in cash			(43,496	)			30,786
Cash, beginning of period			80,617				23,508
Cash, end of period		$	37,121			$	54,294

 

Operating activities

 

Cash flows provided by operating activities for the three months ended June 30, 2013 amounted to $667,197, which consists of our net income of $79,485, adds back noncash adjustments of $207,198(including depreciation and amortization of $152,023, imputed interest expense from related parties loan of $12,676 and deferred tax asset of $42,499) and offset by net changes in operating assets and liabilities, primarily including decrease of account receivables.

 

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.

 

Investing activities

 

Net cash used in investing activities for the three months ended June 30, 2013 amounted to $773,881 which consists of payment of contract deposit to Haribin Junde for Zexiejunmingzi and Songgezhenzhu..

 

Net cash used in investing activities for the three months ended June 30, 2012 amounted to $575,478 which consists of refund of contract deposit from the termination agreement with Lanhai of $217,191 and payment of contract deposit of $792,669 to Haribin Junde for Xinyu Breath Spray.

 

Financing activities

 

Cash flows provided by by financing activities amounted to $61,960 for the three months ended June 30, 2013, which consists of proceeds of related party loan.

 

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.

 

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

 

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, 2013, 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, 2013. 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, 2013. As of June 30, 2013, 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, 2013 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, except as disclosed above

 

 

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

 

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these section.

 

 

 

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 19, 2013	By:	/s/ Mingli Yao
		Mingli Yao
		Chief Executive Officer
		(Principal Executive Officer)
August 19, 2013	By:	/s/ Li Li
		Li Li
		Chief Financial Officer
		(Principal Financial and Accounting Officer)