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 Chengdu Tianyin for the three months ended September 30, 2009 and 2008 and should be read in conjunction with such financial statements and related notes included in this report.

Overview

We are engaged primarily in the development, manufacturing, marketing and sale of modernized traditional Chinese medicines and other pharmaceuticals in China. We currently manufacture and market a comprehensive portfolio of 39 products, 22 of which are listed in the highly selective National Medicine Catalog of the National Medical Insurance program. We have an extensive product pipeline of 40 products which are pending regulatory approvals with the China State Food and Drug Administration.

Established in 1994, Chengdu Tianyin is a manufacturer and supplier of modernized traditional Chinese medicines. The current management of Chengdu Tianyin acquired 100% of the equity interest of Chengdu Tianyin in 2003. On October 30, 2007, Grandway completed the acquisition of the 100% of the equity interest and now owns 100% of the equity interest of Chengdu Tianyin, a company located in Chengdu, Sichuan Province of the PRC that operates our business.

In June 2009, Chengdu Tianyin invested $723,500 to establish a wholly-owned trading subsidiary, Chengdu Tianyin Medicine Trading Co., Ltd ("Tianyin Medicine Trading") for sales and distribution of medicine produced by Chengdu Tianyin. We expect the establishment of Tianyin Medicine Trading will help optimize our business model through better distribution channels. As at September 30, 2009, Tianyin Medicine Trading has been on operation and equity method of accounting is used in consolidation.

In August 2009, Sichuan Jiangchuan Pharmaceutical Co., Ltd ("Sichuan Jiangchuan") was established by Chengdu Tianyin, Sichuan Mingxin Pharmaceutical and an individual investor with crude drug production as its major business. Total registered capital of Sichuan Jiangchuan is $2,934,000, of which Chengdu Tianyin accounts for 77%. As at September 30, 2009, registered capital amounted to $1,173,600 had been injected and the Company was still on the stage of preparation for operation. Equity method of accounting is used in consolidation.

Competitive environment

The market for pharmaceutical products is highly competitive. Our operations may be affected by technological advances by competitors, industry consolidation, patents granted to competitors, competitive combination products, new products offered by our competitors, as well as new information provided by other marketed products and/or other post-market studies.

Development and growth strategy

The cornerstone of our business development strategy relies upon our partnership-based research and development efforts that support our ability to commercialize, produce, and broaden our product pipeline allowing us to market and expand those products through our sales and marketing infrastructure. In the past fiscal year, we continued this strategy and increased market penetration and revenue growth in 2009. Management plans to continue our emphasis on expanded and enhanced marketing and sales in our 2010 fiscal year and beyond. Part of this strategy involves increasing and improving our marketing and sales activities to enhance the market leadership of our key leading products and to increase the sales of other products by expanding our sales force, solidifying our distribution network and expanding our market segment coverage, while increasing our marketing and promotional activities.

As part of our continuing growth strategy, we will continue our partnership-based research and development efforts to further commercialize and broaden our product pipeline. During the quarter we have made significant process with our new product development. We currently have 40 drug candidates under the Chinese State Food and Drug Administration (SFDA) review and are planning a series of market launches in the next few years from our product pipeline. At the three months ended September 30, 2009, we have received three new SFDA approvals as below:

         Drug Name                      SFDA Approval Number

         1. Sanqi Tablets               (SFDA approval number Z20093512)

         2. Yinqiao Jiedu Tablets       (SFDA approval number Z20093555)

         3. Kangjunxiaoyan Capsules     (SFDA approval number Z20090855)

Descriptions of the function of the above products are as follows?

Sanqi Tablets are a generic TCM that effectively treats traumatic injuries and stops bleeding without causing blood stasis, while also alleviating associated pain and reducing swelling. Sanqi is also used as a hemostatic for patients with internal bleeding or hemorrhagic diseases.

Yinqiao Jiedu Tablets are a generic TCM which are used mainly to treat acute respiratory system ailments, such as influenza and common cold. It is specifically used to clear the lungs and aid in function of the throat.

Kangjunxiaoyan Capsules are a generic TCM which are used mainly to clear away heat and toxic materials, while also alleviating colds, sore throats and toothaches affected by exogenous wind-heat or endogenous fire.

An important aspect to support our growth strategy is to meet the increasing demand from our customers and enhance production and sales infrastructure. As part of the use of proceeds from our private financing, we built production facilities on the vacant portion of our current premises to accommodate our growth; the new production plant project should enhance our overall production capacity. The new facilities cost US$4.98 million in total and were completed in July 2009. In August, the facility passed Good Manufacturing Practice certification and commenced production. This new facility increases our production capacity of solid dosage drugs approximately threefold.

Management also plans to pursue strategic acquisitions and licensing opportunities as part of our growth strategy in 2010 and beyond. We plan to selectively pursue strategic acquisition and licensing opportunities to further consolidate our resources and expand our market coverage. We believe that strategic acquisitions and licensing provide effective means to broaden our product lines, increase our market coverage and complement our research and development capabilities.

Management believes that our emphasis on further commercializing and broadening our product line coupled with the expansion of our production facility and capacity, enhanced sales and marketing efforts should continue to yield significant increases in revenue in 2010 and beyond. Additionally, we believe that our growth and overall market coverage could be further improved by certain strategic acquisitions or licensing opportunities. In addition, we believe the Pharmaceutical Industry could benefit from the expanded social reform which is part of the recently announced government stimulus plan.

Manufacturing, Sales and marketing

We support our commercialized products with various manufacturing, sales and marketing efforts. We are also in the process of enhancing our infrastructure and business via additional investments, including capital expenditures in new plant and production tools and facilities, improved and advanced information technology systems, and continued post-marketing studies and monitoring studies.

In June 2009, we engaged a major advertising firm to commence a marketing initiative for our Xuelian Chongcao Oral Liquid (Xuelian Chongcao) product that will include prominent, prime-time advertisements on China Central Television (CCTV). CCTV is China's most famous television station and is viewed by roughly 98% of households throughout China. We anticipate this advertisement initiative should expand the brand awareness for this product materially. We anticipate the increasing brand awareness should drive incremental sales materially and lay the groundwork for this product to follow similar growth histories of Ginko Mihuan and Xuelian Chongcao which have become blockbuster products for our Company.

Discussion on Operating Results

The following table shows the results of our business.

Comparison of results for the three months ended September 30, 2009 and 2008

Three months Ended September 30                                    2009            2008
Revenues                                                       $ 13,405,203     $ 9,561,940
Cost of revenues                                               $  6,349,227     $ 4,682,624
Gross profit                                                   $  7,055,976     $ 4,879,316
Selling, general and administrative and research and
development expenses                                           $  4,310,256     $ 2,715,999
Other income (expenses)                                        $    (49,062 )   $   (13,475 )
Income taxes                                                   $    509,936     $   358,849
Non-controlling interest…………………                                $     (2,526 )   $         -
Net profit (loss)                                              $  2,189,248     $ 1,790,993
Foreign currency translation adjustment                        $     35,857     $    89,434
Comprehensive income (loss)                                    $  2,225,105     $ 1,880,427

Revenue. Total revenues were approximately US$13.4 million for the three months ended September 30, 2009 as compared to approximately US$9.6 million for the three months ended September 30, 2008, an increase of approximately US$3.8 million or 40%. The increase in our revenue was primarily the result of our recent sales and marketing efforts. Specifically, our revenue growth was attributable to our sales channel expansion efforts that increased our market penetration of our current products. Management believes that our emphasis on broadening our product pipeline coupled with our continued sales channel expansions, along with our enhanced sales and marketing efforts and our continued expansion of our production facility should continue to yield significant revenue growth in our fiscal year 2010 and beyond.

Cost of Revenue. Cost of revenue for the three months ended September 30, 2009 was approximately US$6.3 million or 47% of revenue as compared to US$4.7 million or 49% of revenue for the three months ended September 30, 2008. Our cost of revenue is primarily composed of the costs of direct raw materials, labor, depreciation and amortization of manufacturing equipment and facilities, and other overheads. The decrease in our cost of revenue was materially due to an increase in higher margin products in our sales mix along with enhanced cost controls processes that we implemented that yielded greater efficiencies in our production and manufacturing processes. We believe we should be able to further improve our margins and further reduce our cost of revenue by continuing to expand our efforts to increase our sales mix with a greater number of higher margin products and by continuing to improve our production and manufacturing processes.

Gross profit. As a result of the above, gross profit for the three months ended September 30, 2009 was approximately 53% as compared to 51% for the three months ended September 30, 2008.

Operating Expenses. Selling, general and administrative and research and development expenses were approximately US$4.3 million for the three months ended September 30, 2009, as compared to approximately US$2.7 million for the three months ended September 30, 2008, an increase of approximately US$1.6 million or 59%. The increase was primarily a result of the implementation of our recent sales and marketing strategy that increased our sales payrolls and direct marketing expenses. In addition, there were consulting expenses amounted to US$0.5 million by way of options granted to external service providers which was included in general and administrative expenses of this quarter.

Net income. Net income was approximately US$2.2 million for the three months ended September 30, 2009, as compared to net income of approximately US$1.8 million for the three months ended September 30, 2008, an increase of US$0.4 million or 22%. The increase in our net income was primarily the result of increases in our revenue along with improved product margins.

Foreign Currency Translation Adjustment. Our reporting currency is the US dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People's Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to US$35,857 as of September 30, 2009. The balance sheet amounts with the exception of equity at September 30, 2009 were translated at 6.81663 RMB to 1.00 US dollar as compared to 6.83527 RMB to 1.00 US dollar at September 30, 2008. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months ended September 30, 2009 and 2008 were the average exchange rates during the three months.

Comprehensive Income. As a result of the above, the comprehensive income, which adds the currency adjustment to net income, was US$2.2 million for the three months ended September 30, 2009, as compared to the comprehensive income of US$1.9 million for the three months ended September 30, 2008, an increase of US$0.3 million.