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Executives

Matt Hayden – IR, HC International

Allen Tang – Assistant to CEO

Stewart Lor – Director

Analysts

David Maris – CLSA

Gus Lloyd [ph] – Lloyd Capital Management

James Tong – Roth Capital

Simon Bruce [ph]

John Kalisz [ph] – Nashport Business Part [ph]

Boyd Heinz [ph] – Equinox Capital

Tianyin Pharmaceutical Co., Inc. (TPI) F2Q10 (Qtr End 12/31/09) Earnings Call Transcript February 8, 2009 4:30 PM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Tianyin Pharmaceutical second quarter fiscal 2010 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for question. (Operator instructions) This conference is being recorded today, Monday, February 8, 2010.

I will now like to turn the conference over to our host, Matt Hayden with HC International. Please go ahead.

Matt Hayden

Thank you very much and good afternoon, everyone. My name is Matt Hayden, President of Hayden Communication International and I'd like to thank the shareholders and investors who have joined us for Tianyin Pharmaceutical second quarter fiscal 2010 earnings conference call. Joining us from China and by the way, very early in the morning is Ms. Allen Tang, Assistant to the CEO, Dr. Jiang, who will provide prepared remarks and in addition, Stewart Lor, a key board member who will be participating in the Q&A session post the formal presentation.

Today, Allen will provide an overview of second quarter and first six months financial results in addition to the details on recent corporate developments as detailed in the press release and also in the conference call script.

Before we get started, we will run through the Safe Harbor statement. This conference call may contain forward-looking information about the company, Tianyin Pharmaceutical. Forward-looking statements are statements that are not historical facts and these can be identified by forward-looking terminology such as belief, expect, may, will, should, project, plan, seek, intend and anticipate or any other connotation thereof.

We'd like to suggest that you review the full disclosure in the company's filing on Form 10-Q, 10-K and its 8-K filed with the SEC. In addition, we will have an audio replay and a webcast replay available and all that information can be found on the press release which went out.

At this time, I would like turn the call over to Mr. Allen Tang. Allen, the floor is yours.

Allen Tang

Thank you, Matt. On behalf of the Chairman of the board and the CEO, Dr. Guoqing Jiang, I'd like to welcome and thank you for attending Tianyin Pharmaceutical's 2010 second fiscal quarter conference call.

First, I would like to discuss our financial results then comment on our recent business development and growth objectives. We reported strong performance during the second quarter driven by continued execution of our growth strategy, including the expansion of our sales force and distribution channels, increased sales and marketing activities in support of our broad and growing product portfolio and the rapid utilization of the recent added manufacturing capacity.

Revenue for the second quarter of fiscal 2010 was a record of approximately $14.9 million, an increase of 47.9% as compared to the $10.1 million for the second quarter of fiscal 2009. The increase was attributable to higher sales of both existing and new products, channel expansion efforts that increased the market penetration and increased utilization of our expanded production capacity.

In a moment, I will elaborate on our key products sales for the quarter.

Cost of goods sold for the three months ended December 31, 2009 was approximately $7.2 million as compared to the $4.2 million for the three months ended December 31, 2008. A 50% increase year-over-year, while our gross profit for the second quarter was $7.8 million as compared to the $5.2 million in gross profit in the second quarter of fiscal 2009.

Gross margins were 51.9% in the second quarter of 2010 as compared to the gross margins of 51% during the second quarter of fiscal 2009 and improved as a result of great efficiencies in our production and the manufacturing process, along with an increase in higher margin products in our sales mix such as Ginkgo Mihuan and Arpu Shuangxin Oral Liquid.

Gross profit of each key products were 76% and 47% representing year-over-year increase of 200 base points and 100 base points respectively.

Operating expenses for second quarter 2010 were $4.6 million, up 72% as compared to the same period in fiscal 2009. Selling, general and administrative expenses for the period increased to approximately $4.4 million from $2.6 million and was primary due to the implementation of Tianyin's sales and marketing strategy, including increased sales payroll and direct marketing expenses.

In addition, the company incurred a non-cash equity compensation expense of $900,000 which skewed operation results as I will elaborate on.

Operating income for the second quarter of 2010 was $3.2 million, up 27.2% from the $2.5 million generated from the second quarter in fiscal 2009. Operating margin was 21.1% in second quarter 2010 as compared to the 24.5% for the second quarter of fiscal 2009.

Excluding the equity compensation charge, the operating income would have been $4.1 million, a 64%increase year-over-year, yielding operating margins of 27.5% of 350 base point improvement as compared to the second quarter of 2009. The provision for income tax for the second quarter was $0.6 million as compared to the $0.4 million in the year-ago period yielding an effecting tax rate of 18.2% and 16.6% for the second quarter of 2010 and 2009 respectively.

Debt net income was $2.6 million in the second quarter of fiscal 2010, a 24.8% of increase as compared to the $2.1 million for the second quarter of fiscal '09, 2009. Diluted earnings per share were $0.8 in second quarter of fiscal 2010 as compared to the $0.13 in the same period in fiscal 2009 based on $30.4 million and a $15.7 million shares respectively.

Adjusted net income which adds back the non-cash equity compensation charge were $3.4 million, representing 62% year-over-year and earnings $0.11 per diluted share. That’s of December 31, 2009. Tianyin had $25.8 million common share and the $2.3 million Series A preferred shares outstanding convertible on a one-to-one base.

The company also has warrants to purchase a total of 10.1 million shares of Tianyin's common stock at weight average excised price of $2.76 per share. In addition, Tianyin has stock option to purchase 536,000 shares of Tianyin common stock at a weighted average excised price of $2.34 per share.

On December 31, 2009, with all options and the warrants were excised and our shares of Series A preferred stock were converted. The company would have $38.8 million shares of common stock outstanding and what they received approximately $29.4 million of additional growth per se.

Let me now take a moment in running through our results for the six months ended December 31, 2009. For the six months ended December 31, 2009, revenues increase for 44.1% to $28.3 million from the $19.7 million reported for the prior year ago.

Ginkgo Mihuan, one of Tianyin's flagship products contributes approximately $9.2 million or 33% to total revenue for the first six months of fiscal 2010, representing 102% year-over-year growth. Revenues generated from Arpu Shuangxin Oral Liquid were $2.9 million or 16% of total revenue, a 2% increase from the first six months of fiscal 2009.

Tianyin's top five selling products generated revenue of $14.8 million and they represented 53% of total revenue. Cost of goods sold for the first six months of fiscal year 2010 was approximately $13.5 million, yielding a gross profit of $14.8 million and a gross margin of 52.3%, as compared to the $10 million in gross profit and a gross margin of 51% for the same period in fiscal year 2009.

Operating expenses for the first six months of fiscal year 2010 were $8.9 million as compared to the $5.4 million in the same period in 2009. Selling, general and administration expenses for the period increased to approximately $8.5 million from 5.2 million. This included 900,000 non-cash equity compensation expense previously discussed.

Operating income totaled approximately 5.9 million, a 27.1% increase from the $4.6 million reported for the first half of fiscal year 2009. Operating margins were 20.8% and 23.6% for the first half of fiscal year 2010 and 2009, respectively.

Adjusted for the $900,000 expenses, operating income for the first six months of fiscal 2010 would have been $6.8 million, representing a 47.8% increase year-over-year with operating margins of 24%.

For the six months ended December 31, 2009, GAAP net income was approximately $4.8 million, a 23.6% increase from the $3.8 million recorded for the same period in fiscal 2009. Diluted earnings per share on a GAAP base were $0.17 as compared to $0.16 in the same period 2009, based on 28.5 million and 24.7 million shares for 2010 and 2009, respectively. Adjusted net income adding back non-cash charge would have been $5.5 million, representing a 44.7% increase year-over year with diluted earning per share of $0.19.

The provision for income taxes was $1.1 million and $0.8 million for the first half of fiscal 2010 and 2009 with an effective tax rate of 18.5% and 16.6%, respectively.

I will now turn to our balance sheet and cash flow statements. Tianyin Pharmaceutical has consistently maintained a strong balance sheet, which has provided adequate working capital to execute our growth plan. As of December 31, 2009, we had a $19.9 million in cash and cash equivalent and a working capital of $27.9 million.

Total liability including short-term borrowing stood at only $4.8 million, while equity including non-controlling interest totaled $54 million. This compares to a total liability of $4.4 million and a shareholders' equity of $40.9 million on June 30, 2009.

The accounts receivable balance was $8.6 million on December 31, 2009 as compared to $5.6 million at year end of fiscal 2009.

DSO were 58 days for the quarter as compared to 42 days after the end of fiscal 2009. Cash flow from operations in the second quarter of fiscal 2010 was $4.9 million as versus the $3.9 million for the same period in fiscal 2009, which was mainly a result of increased profitability.

Cash used in investment activity rose to $4.3 for the second quarter of 2010 from $2.9 million which was due to the purchase of drugs, investment in property and equipment for the new facility. Cash provide in financing activity was approximately $7 million for the second quarter of 2010.

Turning now to some of our key investment metrics, return on equity in the trailing 12 months is 17.7%. Return on assets in the trailing 12 months is $19.3. Return on investment in the trailing 12 months is 11.4% and the inventory turnover was 2.2 times during the same period.

Our current ratio was 6.8:1 as of December 31, 2009. Book value per share was $1.68 and the debt-to-equity ratio was 0.03 as of December 31, 2009. On February 5, our stock price was $3.83 and our annual dividend yield is 2.7%.

Let me now address revenue and the net income guidance for fiscal 2010 and 2011. We would like to reiterate revenue guidance for fiscal year 2010 of $63.3 million, while our net income of at least $11.3 million, representing 48.3% and 43% year-over-year growth respectively.

This was increased from previous issued guidance of $59 million in revenue and $10.5 million in net income. For those running numbers, well, I am speaking, we are approximately 45% off the way to meeting on our guidance and given our consistent growth, we feel very comfortable with these numbers.

In December 2009, we announced the financial guidance for fiscal year ending June 30, 2011 forecasting revenues of $113.3 million for fiscal year 2011, representing a 78.1% increase over projected fiscal year 2010 revenues with net income of $19.6 million, representing a 73.5% over projected net income for fiscal 2010.

With strong growth of our current product portfolio and with the demand for all our key products capitalized the launch of new approved products as well as the measured contribution from all our antibiotics Jiangchuan [ph] joint venture which is anticipated to come online this summer. We are well positioned to meet these objectives.

Now, let's take a look at to some specifics on our business and the recent development. Our number one drug, Ginkgo Mihuan Oral Liquid contributed approximately $5.2 million or 33% of total revenue in the second quarter representing a 101% growth year-over-year.

Revenue generated from our Arpu Shuangxin Oral Liquid were approximately $1.5 million, an increase of a 2% over the second quarter of fiscal 2009 while Yuelian Chongcao Oral Solution generated $1.6 million during the quarter. Collectively, these products represented approximately 54% of our total revenues with strongest gross margin of 67%.

We have 23 of our products included in the 2009 Edition of the National Basic Medical Insurance, Industrial Injury Insurance and Maternity Insurance Medicine Directory, which includes a total of 2,151 medicines and became effective on December 1, 2009.

The 23 products treat a variety of common indications and diseases and they make up approximately 70% of Tianyin's total revenues for the fiscal year 2009. This should be a strong conduit for growth as more consumer capitalized on government support for their needed medications.

When our key growth strategy is to increase sales in the marketing efforts and expand our distribution channels, again market shares for existing and new products in support of that growth, we commenced operation of our new distribution subsidiary Chengdu Tianyin Medicine Trading Corporation in October 2009, which enabled Tianyin to improve cost management, consolidated self channels and provide alternative to get leverage our distribution network to sell additional products and acquire new target customers.

Another key growth initiative for Tianyin is the joint venture named Sichuan Jiangchuan Pharmaceutical Corporation Limited, which we announced in October 2009. Jiangchuan will further diversify our product offering by focusing on production for macrolide antibiotics such as Azithromycin, one of the worlds' best-selling antibiotics.

Tianyin owns 77% of Jiangchuan and we will utilize this as the foundation for broader, longer-term strategy to build a significant presence in the rapidly growing Chinese macrolide antibiotics market. We also have diversified our revenue based of western pharmaceuticals.

Jiangchuan has received the medicine production license from SFDA and the business license from related Industry and Commerce Bureau and Tax department. The Phase I is for a new production facility on a 20-acre land property we secured in the nearby Xinjin Industry Development zone. And the Tianyin construction commenced on January 8, 2010 with an initial investment of approximately $4.5 million.

The Phase I trend which will be producing oral and injectable-grades API for Azithromycin in addition to other antibiotic intermediaries is expected to be operational by July 2010. The Phase II plan, which we will include high output production of finished products of Roximycin, Crestomycin [ph] and other macrolide is still expected to be online during the second half of 2012.

The total capital expenditure for the joint venture are expected to reach $20 million. We expect this joint venture to be a key component of our growth in fiscal 2011 as it creates new revenue alternatives by addressing an established and the rapidly growing market in China and by leveraging our existing SG&A and distribution network.

The total sales of macrolide antibiotics in Chinese hospital alone is over a $1.5 billion in January. When fully operational, we expect the joint venture to have the potential to generate a $120 million in revenue and a $12 million in net income, which is about the same profit as we will generate this year.

Extending your product growth pipeline for future growth has always been a co-growth [ph] strategy and is evidenced by our continuing new product introductions.

During the second quarter of 2010, we announced SFDA approvals to produce two generic products, including a Pediatric Fever and Cough Oral Liquid and Antibacterial/Anti-Inflammatory Capsule. The Pediatric Fever and a Cough Oral Liquid is a generic prescription TCM that is used for respiratory tract infections and influenza in children to effectively reduce symptoms such as fever, shakes, cough, shortness of breath and sore throat.

According to Tianyin's market research and management estimation, annual sales of this type of products are approximately $1.1 billion in China. The Antibacterial/Anti-inflammatory Capsule is a generic OTC TCM which is used as natural antibiotics to treat bacterial infection and inflammations with minimal side effects as compared to their western counterparts.

Tianyin estimates that total annual sales of associated products in this category are approximately $1.5 billion in China. In addition, in January 2010, we announced that we received approvals from Chinese State Food and Drug Administrative or SFDA to produce two generic antibiotic, Ofloxacin Tablets and Fleroxacin Tablets. Ofloxacin address several indications including staph and strep throat, pneumonia, E. Coli and several sexually transmitted bacterial diseases.

Fleroxacin addresses several indications including chronic and acute bronchitis and pneumonia, salmonella, multiple gastrointestinal and abdominal infections as well as skin/soft tissue infections. Both drugs are included in China's Essential Drug List or EDL, which is increasing the demand for these two products in China.

Also, the recent accomplished guidance for pricing form for managing and medical services was brought forward by the Chinese National Development and the reform commission, the ministry of health and the ministry of human resources and associates they could. And they gather to creating a pricing mechanism to reflect quality differentiations with measure to provide support for higher pricing systems with specialized products such as several of Tianyin's products and is the incentive for drug manufactures to keep bringing proprietary drugs to the market.

That will also cost for uniform pricing for our generic medicines and maximal profits for local and national distributors. Jiangchuan will benefit the company going forward.

On July 11, 2010, Tianyin declared a quarterly cash dividend of $2.5 to be paid to its common stock shareholders for the fiscal second quarter of 2010, with distribution to occur on March 10, 2010. In closing, we are well positioned before a long – for a strong subtended growth which will be driven by several factors as listed below.

First, increased utilization of our manufacturing facility which is supported by our strong working capital position. Second, further market share gains for our leading flagship products, in addition to expanded distribution for our portfolio of 41 products. Third, further SFDA approvals for new products to be launched. We currently have 40 under review and the pipeline of 17 new drugs.

Fourth, increased the sales for product for which we have exclusive distribution rights, which also addressed large target markets. Fifth, leverage in the National Medical and Insurance Program which insures government reimbursement and easy accesses to the end-users and for products listed in the essential drug list, which will be included in Basic Health Insurance Catalog with a higher reimbursed percentage to drive demand.

Sixth, continue to capitalize all relationships with universities and research institutes for new product development. This proven on the model is cost effective, highly efficient and hence sure of developing cycle time to drive incremental revenue growth.

Seven, continue to strengthen our established national distribution network and is 730 person strong salesforce, highly focusing on different market segment.

Eight, continue to evaluate and leverage opportunities derived from regulatory [ph] Xinjin [ph] Chinese Healthcare Reform as it relates to Tianyin's portfolio. As many as of you know, our management team has considerably equity ownership and is comprised of industry veterans with a proven track record. They are dedicated to growing the business and increasing the intrinsic value of TPI. We plan to grow a second efficient [ph] enterprise and are pleased to have your support.

With that, I would like to thank everyone participating in todays’ call for your continued interest in Tianyin Pharmaceuticals. We will continue to effectively and consistently communicate for our progress to our shareholders.

We look further to updating you on Tianyin Pharmaceutical's progress. We now open the call to any question you may have. Operator?

Question-and-Answer Sessions

Operator

Thank you, sir. We will know begin the question- and-answer session. (Operator instructions) Our first question comes from the line of David Maris with CLSA. Please go ahead.

David Maris – CLSA

Good afternoon. I have few questions. The first, is your 2010 guidance based on a GAAP basis or an adjusted basis?

Allen Tang

It's on a GAAP basis.

David Maris – CLSA

And on your DSOs, why do you think they increased this last quarter?

Allen Tang

Well. We are expanding our customer base and as such we are relaxing a little bit on our DSO requirement. I think that is necessary for us to expand our distribution channels and to work with a larger number of distributors. So it has increased a little bit to about 59 days now, 58 days exactly. But it's still considered very, very good in the industry, the average DSO in the industry is typically over 100 days.

David Maris – CLSA

And where do you think, if the averages for some of your peers are 100 and you are at 58. What do you think is an appropriate?

Allen Tang

No. I’m sorry. You're little bit weak. I can't hear the question very well.

David Maris – CLSA

Should we expect for that to continue to rise?

Allen Tang

No. We would like to keep DSO days under 70 days if possible. I think that’s a good number for us, good target for us to achieve and at the same time, expand our customer base.

David Maris – CLSA

Thank you very much.

Allen Tang

Thank you.

Operator

Thank you. And our next question comes from the line of Gus Lloyd [ph] with Lloyd Capital Management. Please go ahead.

Gus Lloyd – Lloyd Capital Management

Hi, I guess, good morning.

Stewart Lor

Well, Good morning to you.

Gus Lloyd – Lloyd Capital Management

Yes. Good afternoon. I'm in New York. Thank you. Could you give us – you guys have this new production facility put on line, three, four months ago. I know you are still ramping up capacity there. Can you give us an idea of what your average utilization was for the new production facility in the last quarter and/or maybe kind of where utilization is right now or couple of data points there might be helpful?

Stewart Lor

Okay. We commenced operation at the end of third quarter, beginning of fourth. We are now, I don’t have the exact number in front of me but I believe we are now at – depending on different times, but we are probably about 60% to 70%.

Gus Lloyd – Lloyd Capital Management

Okay. And where do you think you were – give an idea or what was the average during the quarter maybe I am sure the lower number since you have been ramping up right?

Stewart Lor

Yeah. I think, rule of thumb number that you are going to apply to is this new addition plus our existing facility to be able to carry us to do $100 million of revenue.

Gus Lloyd – Lloyd Capital Management

Right now, I’m just trying to get.

Stewart Lor

Okay, okay.

Gus Lloyd – Lloyd Capital Management

I’m just trying to get sense of what we saw in this last quarter though. Was your average utilization this last quarter 50% or 40%?

Stewart Lor

It's in the 60% range.

Gus Lloyd – Lloyd Capital Management

For the whole quarter that was your average you think?

Stewart Lor

Yes. Yes.

Gus Lloyd – Lloyd Capital Management

Okay. That’s all I have. Thank you.

Stewart Lor

Thank you.

Operator

Thank you. And our next question comes from the line of James Tong with Roth Capital. Please go ahead.

James Tong – Roth Capital

Hi. Good morning. The question I have, I am wondering if you can drill a little bit on diluted shares. Can you reiterate the shares, fully diluted shares and may be warrant situation?

Stewart Lor

Okay. Let me hold up for second, just give me a minute. Currently, we have 25.4 million shares of outstanding; fully diluted will be 38.3 million. There is a 10.5 million of warrants that's still there and the exercised price for the warrants is about $2.75 on average.

James Tong – Roth Capital

Okay. The second question I have is I measured the sales and marketing percentage of the total sales has increased, I think, to about five point percentages from last year. So I am wondering if there is – I wonder if you can add some comment on looking at sales and marketing cost increase or pretty much stable like 30%.

Stewart Lor

We would expect the sales and marketing cost to stay about the same because we feel that the last quarter is a good indication of the kind of the sales marketing efforts that we put out in this type of revenue that we can generate. So that's the number that we will like to sit with.

James Tong – Roth Capital

Okay. Okay. Thank you. Appreciate it.

Stewart Lor

Thank you.

Operator

(Operator instructions) And our next question comes from the line of Simon Bruce [ph], a private investor. Please go ahead.

Simon Bruce

Hello. For the 2011 guidance that you gave, as far the 40 drugs that are under review, does that guidance assume that someone or most or all of those drugs will be approved and will contribute to 2011 revenues?

Stewart Lor

Certainly, not all. We don’t expect to get approval on all of the 17 drugs that we've already filed with SFDA. Under our financial possession model, the bulk of the sales will come from the expansion of the existing product of the antibiotic products that we are introducing in July of 2010. We have intrigued for 2011. We have about two products that are included from the new drug list. So I would say this is a rather conservative number based on what we have.

Simon Bruce

Okay. Your tax rate, do you expect that to remain stable for a while at 18.3%?

Stewart Lor

Yes. That's a tax rate of what we have worked out with the government and that's the status going for a while.

Simon Bruce

Okay. I believe you mentioned additional equity compensation expense that was in this quarter, is that expected to recur or may be give over more detail on that?

Stewart Lor

I would – that's okay, I will refer the question to Matt Hayden.

Simon Bruce

Okay.

Stewart Lor

Matt, are you still there?

Operator

Pardon me. His line is muted.

Stewart Lor

Make it unmute.

Operator

Now, his line is open.

Stewart Lor

Okay. Thanks.

Matt Hayden

Stewart, my apologies, I was on mute. So, I think it's really going to vary in the future as it relates to consultants and at various entities that assist the company both from a corporate level and from their public markets perspective. So at this juncture, it doesn't look like there will be any of those expenses incurred for the balance of the fiscal year, although that is always subject to change but that's at least the look as we see it right now.

Simon Bruce

Okay. Can you still hear me?

Matt Hayden

Yeah.

Simon Bruce

Okay. There is 30 – I believe you set them at 12/31/09; diluted shares outstanding were about $38 million.

Matt Hayden

Yes.

Simon Bruce

Okay. Do you expect that to be the approximate share count average for the first quarter? I mean for this upcoming quarter, the current existing quarter?

Stewart Lor

Yes. We believe so.

Simon Bruce

Okay. Thank you very much.

Stewart Lor

Sure.

Operator

Thank you. And our next question comes from the line of John Kalisz [ph] with Nashport Business Part [ph]. You can go ahead.

John Kalisz – Nashport Business Part

Good morning, Allen. Thank you for taking the call. Going back on the issue of dilution, can you explain a little bit greater detail as to why there is so much dilution, potential dilution with the company? Also could you go onto a description as to how much management and employees owned of the stock of your company?

Allen Tang

Matt, could you address that question?

Operator

And your next question from the line of Boyd Heinz [ph] with Equinox Capital. Please go ahead.

Boyd Heinz – Equinox Capital

I don't think the previous caller's question was answered but I will go ahead and may be he can ask this question another time. I just want to follow-up on one of the discussions about the non-cash stock compensation expenses that was listed in the quarter of being approximately 900,000 U.S. and may be Allen is going to address this because of the cash flow question as well. I just wrote through your queue, it looks like that was a charge that was over the first six months of the fiscal year and not just the second quarter. Can you comment on that?

Allen Tang

I believe that is charged over a third or six months.

Boyd Heinz – Equinox Capital

Okay. So the fist six months, it looks like in the press release that was put out, it was all at the backing for the second quarter results. So roughly it appears to be spread out equally and I guess I had just the follow-up with the previous callers question about whether this is going to continue, I think, Matt addressed it. Is it – at this point is that the last – it is the last quarter for this particular compensation expense.

Allen Tang

That should be for this quarter, yes. First Q2 but is there going to be another business charge of amortize over the full fiscal year or with just with the first six months. Can you give us a little bit more color on that?

Stewart Lor

It adjusted as of the second quarter as Matt had mentioned, I don’t think we are serious for the remainder of the fiscal year but it depends on the situation with under consultants and advisors but we don’t think that will occur.

Boyd Heinz – Equinox Capital

Okay. And the guidance for the fiscal year '10, you said was a GAAP number so that include those non-GAAP charges. Is that correct?

Stewart Lor

Yes.

Boyd Heinz – Equinox Capital

Okay. One last thing I noticed it after the quarter ended, there was a bonus that was paid to the top six executives, is that correct?

Stewart Lor

That's correct. That’s the bonus that the board has decided to pay them for the performance before the timings of new year.

Boyd Heinz – Equinox Capital

Okay. And is that a cash expense that will be expensed entirely in Q3?

Stewart Lor

Yes.

Boyd Heinz – Equinox Capital

Okay. Thank you very much.

Stewart Lor

Thank you.

Operator

Thank you. Mr. Hayden, there are no further questions with this time. Please continue with any closing remarks you may have.

Matt Hayden

Yes. Stewart. Best way is to hand it over to you to give the final remarks. I just wanted to address that question, am I live?

Stewart Lor

Yeah.

Matt Hayden

Okay. So the – to get back to cap structure and there is lot of confusion about this but in general the capital structure for most part has been very much intact since this company went public. So there really is a lot of no news other than you're starting to see a realization of warrants that are converting in the preferred stock, which continues to convert into the common stock.

So if you kind of went back from day one, an inception you're now just starting to see manifestation of time, what preferred warrants do over time as the companies execute and stock prices go higher. So clearly the more shares that convert in the common, the simpler this is going to make it in addition, the company raised in approximately $5 million through the assurance of equity with the small number warrants.

But we have been given update each quarter, which will give people so more insight into exactly how many common and how many warrants remain at preferred and we will do that, each step of the way. Stewart, I'll go ahead and just turn it over to you for final comments.

Stewart Lor

Great. Thank you. Again, I thank everybody who participated in today's call and we look forward to speaking to you soon. We remain as confident as ever to grow the company and to share the benefits with all our shareholders. Thank you very much and good afternoon.

Operator

Ladies and gentlemen, this concludes the Tianyin Pharmaceutical second quarter fiscal 2010 earnings conference call. Thank you for your participation. You may now disconnect.

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