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EX-32 - RULE 13A-14(B) CERTIFICATIONS - JINZANGHUANG TIBET PHARMACEUTICALS, INC. | jzhg10q20110331ex32.htm |
EX-31.1 - RULE 13A-14(A) CERTIFICATION - CEO - JINZANGHUANG TIBET PHARMACEUTICALS, INC. | jzhg10q20110331ex31-1.htm |
EX-31.2 - RULE 13A-14(A) CERTIFICATION - CFO - JINZANGHUANG TIBET PHARMACEUTICALS, INC. | jzhg10q20110331ex31-2.htm |
U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q
[X]
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
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[ ]
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _____ to _____
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Commission File No. 0-53254
JINZANGHUANG TIBET PHARMACEUTICALS, INC.
(Name of Registrant in its Charter)
Delaware
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26-2443288
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(State or Other Jurisdiction of
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(I.R.S. Employer I.D. No.)
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incorporation or organization)
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Harborside Financial Center, 2500 Plaza V, Jersey City, NJ 07311
(Address of Principal Executive Offices)
Issuer's Telephone Number: 201-882-3332
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 subjected to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ____ No ____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No X
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:
May 16, 2011
Common Voting Stock: 40,665,063
JINZANGHUANG TIBET PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Page(s)
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Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and June 30, 2010
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2
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Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2011 and 2010 (Unaudited)
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3
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Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2011 and 2010 (Unaudited)
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4
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Notes to Financial Statements (Unaudited)
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5-7
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1
JINZANGHUANG TIBET PHARMACEUTICALS, INC.
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CONSOLIDATED BALANCE SHEETS
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ASSETS
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March 31,
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June 30,
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|||||||
2011
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2010
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|||||||
(Unaudited)
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||||||||
CURRENT ASSETS:
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||||||||
Cash
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$ | 1,036,932 | $ | 42,184 | ||||
Accounts receivable
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513,867 | - | ||||||
Inventory
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290,716 | 305,557 | ||||||
Advance to supplier
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255,134 | 239,555 | ||||||
Prepaid expenses and other current assets
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58,862 | 15,351 | ||||||
Deferred tax assets
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9,012 | 15,092 | ||||||
TOTAL CURRENT ASSETS
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2,164,523 | 617,739 | ||||||
LONG-TERM ASSETS:
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||||||||
Property and equipment, net of accumulated depreciation and amortization
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584,992 | 576,762 | ||||||
Contract deposit
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125,565 | 132,570 | ||||||
TOTAL LONG-TERM ASSETS
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710,557 | 709,332 | ||||||
TOTAL ASSETS
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$ | 2,875,080 | $ | 1,327,071 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
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Accrued expenses and other current liabilities
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$ | 415,626 | $ | 79,451 | ||||
TOTAL CURRENT LIABILITIES AND TOTAL LIABILITIES
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415,626 | 79,451 | ||||||
STOCKHOLDERS' EQUITY:
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Common stock, $0.001 par value,
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300,000,000 shares authorized,
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40,665,063 shares issued and outstanding
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at March 31, 2011 and June 30, 2010, respectively
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40,665 | 40,665 | ||||||
Additional paid-in capital
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568,077 | 568,077 | ||||||
Retained earnings (Accumulated deficit)
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964,188 | (128,285 | ) | |||||
Accumulated other comprehensive income
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34,764 | 3,556 | ||||||
TOTAL STOCKHOLDERS' EQUITY OF JINZANGHUANG TIBET PHARMACEUTICALS, INC.
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1,607,694 | 484,013 | ||||||
NONCONTROLLING INTEREST IN SUBSIDIARY
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851,760 | 763,607 | ||||||
TOTAL STOCKHOLDERS' EQUITY
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2,459,454 | 1,247,620 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 2,875,080 | $ | 1,327,071 |
See Notes to Consolidated Financial Statements
2
JINZANGHUANG TIBET PHARMACEUTICALS, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
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(Unaudited)
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THREE MONTHS ENDED MARCH 31,
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NINE MONTHS ENDED MARCH 31,
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2011
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2010
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2011
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2010
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REVENUE
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-Pharmaceutical products
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$ | - | $ | 61,888 | $ | 26,997 | $ | 610,374 | ||||||||
-Services
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1,329,240 | - | 1,881,954 | - | ||||||||||||
1,329,240 | 61,888 | 1,908,951 | 610,374 | |||||||||||||
COSTS OF REVENUE
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-Pharmaceutical products
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- | 49,393 | 24,594 | 441,109 | ||||||||||||
-Services
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63,436 | - | 132,013 | - | ||||||||||||
63,436 | 49,393 | 156,607 | 441,109 | |||||||||||||
GROSS PROFIT
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1,265,804 | 12,495 | 1,752,344 | 169,265 | ||||||||||||
COSTS AND EXPENSES
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General and Administrative Expenses
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113,489 | 38,502 | 212,226 | 183,930 | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAX
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1,152,315 | (26,007 | ) | 1,540,118 | (14,665 | ) | ||||||||||
INCOME TAX (CREDIT)
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289,451 | (1,199 | ) | 389,511 | 17,912 | |||||||||||
NET INCOME (LOSS)
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862,864 | (24,808 | ) | 1,150,607 | (32,577 | ) | ||||||||||
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
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43,697 | (236 | ) | 58,134 | 2,429 | |||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
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819,167 | (24,572 | ) | 1,092,473 | (35,006 | ) | ||||||||||
OTHER COMPREHENSIVE INCOME (LOSS)
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Foreign currency translation adjustment
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21,289 | 385 | 61,227 | 1,750 | ||||||||||||
COMPREHENSIVE INCOME (LOSS)
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840,456 | (24,187 | ) | 1,153,700 | (33,256 | ) | ||||||||||
LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
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3,438 | - | 30,019 | 36 | ||||||||||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
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$ | 837,018 | $ | (24,187 | ) | $ | 1,123,681 | $ | (33,292 | ) | ||||||
Basic and diluted earnings per common share
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$ | 0.02 | $ | (0.00 | ) | $ | 0.03 | $ | (0.00 | ) | ||||||
Weighted average number of shares outstanding, basic and diluted
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40,665,063 | 40,645,063 | 40,665,063 | 40,645,063 |
See Notes to Consolidated Financial Statements
3
JINZANGHUANG TIBET PHARMACEUTICALS, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOW
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(Unaudited)
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NINE MONTHS ENDED MARCH 31,
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2011
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2010
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OPERATING ACTIVITIES:
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Net loss attributable to the Company
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$ | 1,092,473 | $ | (35,006 | ) | |||
Adjustments to reconcile net loss to net cash used
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in operating activities:
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Net income attributable to noncontrolling interests
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58,134 | 2,429 | ||||||
Depreciation and amortization
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14,320 | 6,539 | ||||||
Amortization of long-term contract
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11,415 | - | ||||||
Deferred tax
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6,080 | - | ||||||
Changes in operating assets and liabilities:
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Accounts receivable
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(513,867 | ) | 32,804 | |||||
Inventory
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25,005 | 570 | ||||||
Advance to supplier
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(7,610 | ) | (72,910 | ) | ||||
Contract deposit
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- | (146,800 | ) | |||||
Prepaid exenses and other current assets
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(43,009 | ) | (38,403 | ) | ||||
Accrued expenses and other current liabilities
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334,673 | (559,657 | ) | |||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
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977,614 | (810,434 | ) | |||||
INVESTING ACTIVITIES:
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Acquisition of property and equipment
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(3,364 | ) | - | |||||
NET CASH USED IN INVESTING ACTIVITIES
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(3,364 | ) | - | |||||
FINANCING ACTIVITIES:
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Contribution from minority interest
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- | 36,700 | ||||||
Proceeds of loan from shareholders
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- | 33,741 | ||||||
Capital contribution
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- | 772,966 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
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- | 843,407 | ||||||
EFFECT OF EXCHANGE RATE ON CASH
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20,498 | 219 | ||||||
INCREASE (DECREASE) IN CASH
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994,748 | 33,192 | ||||||
CASH - BEGINNING OF PERIOD
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42,184 | 25,115 | ||||||
CASH - END OF PERIOD
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$ | 1,036,932 | $ | 58,307 | ||||
Supplemental disclosures of cash flow information:
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Cash paid for income tax
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$ | 100,447 | $ | 17,335 |
See Notes to Consolidated Financial Statements
4
1 BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X relating to smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011, or any other period.
The balance sheet at June 30, 2010 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010 filed on September 28, 2010.
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented in U.S. Dollars.
The consolidated financial statements include the financial statements of the Company and its subsidiaries and variable interest entity. All inter-company transactions and balances among the Company and its subsidiaries are eliminated upon consolidation.
Noncontrolling interest in subsidiary represents the allocation of earnings to the VIE owners who are not at risk for the majority of losses of the VIE, which have been accounted for by using the consolidation method of accounting.
2 BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Jinzanghuang Tibet Pharmaceuticals, Inc. (“the Company”) distributes Tibetan pharmaceutical and nutraceutical products and provides training service to sauna stores in the People’s Republic of China (“PRC”) through a variable interest entity named Leling Jinzanghuang Biotech Co., Ltd. (“Leling JZH”). Leling JZH was incorporated under the laws of PRC as a limited liability company on November 20, 2008.
On January 12, 2009 Jinzanghuang Tibet Pharmaceuticals, Inc. acquired all of the outstanding capital stock of Tibet Medicine, Inc. (“TMI”), a Delaware corporation, in exchange for the issuing of 36,401,462 shares of its common stock to the shareholders of TMI, representing 89.6% of the issued and outstanding shares of the Company.
For accounting purposes, the above transaction was accounted for as a reverse merger. TMI became the surviving entity for accounting purposes, whereas the Company will be recognized as the surviving entity for legal purposes. Accordingly, the financial statements include the assets, liabilities and operations of TMI.
TMI was organized under the laws of Delaware on September 4, 2008 and is the 100% owner of the registered capital of Beijing Taibodekang Consulting Co., Ltd. (“BTC”). BTC is a Wholly Foreign Owned Entity that was organized under the laws of the People’s Republic of China on December 5, 2008. On January 4, 2009, BTC entered into four ten-year agreements (the “Entrusted Management Agreements”) with Leling JZH and its registered equity holders. The purpose of these agreements is to transfer to BTC full responsibility for the management of Leling JZH, as well as 95% of the financial benefits that arise from the business of Leling JZH. As a result, BTC now has control over the business of Leling JZH.
5
For variable interest entities, we assess the terms of our interest in each entity to determine if we are the primary beneficiary as prescribed by ASC 810. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity’s net assets excluding variable interests. In according with ASC 810, Leling JZH is considered a variable interest entity (“VIE”).
The accounting effect of the Entrusted Management Agreements between Beijing Taibodekang and Leling JZH is to cause the balance sheets and financial results of Leling JZH to be consolidated with those of Beijing Taibodekang, with respect to which Leling JZH is now a variable interest entity. Since the parties to the Entrusted Management Agreements were both controlled by Xue Bangyi, who is CEO of both Beijing Taibodekang and Leling JZH, the financial statements included in this report reflect the consolidation of the results of operations and cash flows of Leling JZH since its inception.
Revenue recognition
Revenue for sale of pharmaceutical products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. . If the Company’s customer distribution agreements contain clauses that grant the customer the right to return or exchange products, the Company accounts for sales to these distributors under the guidance of “Revenue Recognition When Right of Return Exists.” If the Company does not have sufficient historical evidence of customer acceptance, it recognizes revenue when the return provisions lapse. When the Company has sufficient historical evidence of customer acceptance it recognizes revenue upon shipment or delivery.
The Company provides training services to sauna stores for products that were sold by the related party pursuant to a joint venture with a related party. The Company recognizes the revenue as the products are used by the sauna store based on a fixed percentage fee for the service.
Shipping and handling costs
All amounts billed to customers in a sales transaction for shipping and handling are classified as revenue.
3 CONTRACT DEPOSIT
In August 2009 Leling JZH entered into a ten year contract with the Leling BaiCaoYuan Honeysuckle Planting Cooperative. Pursuant to the contract, Leling JZH advanced RMB 1,000,000 ($152,200 if translated on March 31, 2011 exchange rate) to be used by the farmers in the Cooperative to plant honeysuckle on 300 acres of land. All of the honeysuckle that is produced on that acreage and that meets quality standards will be purchased by Leling JZH at negotiated prices that will be 25% below the wholesale market price, except that the discount will be only 10% if the market price is less than RMB 80 per kilogram. Either party may terminate the agreement after Leling JZH has recouped its investment. The contract deposit is amortized over the contract period of ten years using straight line method.
4 CONCENTRATIONS
During the nine months ended March 31, 2011, the Company’s sales to 2 customers represented 54.50% and 45.50% of total sales of pharmaceutical products. Two products represented 66.63% and 23.70% of total sales of pharmaceutical products for the nine months ended March 31, 2011.
During the nine months ended March 31, 2010, the Company made sales to only one customer. Three products represented approximately 58%, 20% and 11% of total sales for the nine months ended March 31, 2010.
6
5 TAXES
The Company’s Chinese subsidiaries are governed by the Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.
The comparison of income tax expense at the U.S. statutory rate of 35% in 2011 and 2010 is as follows:
Nine months ended,
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March 31 2011
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March 31 2010
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Amount
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Amount
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Income tax under U.S. Statutory rate
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$ | 539,041 | $ | (5,123 | ) | |||
Tax rate difference between China and U.S.
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(155,804 | ) | (7,165 | ) | ||||
NOL from U.S. with 100% valuation allowance
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6,274 | 30,200 | ||||||
Income tax under Effective tax rate
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$ | 389,511 | $ | 17,912 |
The provision for income taxes are summarized as follows:
March 31 2011
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March 31 2010
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Current – foreign
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$ | 383,431 | $ | 21,219 | ||||
Deferred – foreign
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6,080 | (3,307 | ) | |||||
Deferred - United States
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(6,274 | ) | (30,200 | ) | ||||
Valuation allowance - United States
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6,274 | 30,200 | ||||||
Total
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$ | 389,511 | $ | 17,912 |
6 SUBSEQUENT EVENTS
We have evaluated events after the date of these financial statements through the date that these financial statements were issued. There were no material subsequent events as of that date.
7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements: No Assurances Intended
In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Jinzanghuang Tibet Pharmaceuticals, Inc. Whether those beliefs become reality will depend on many factors that are not under Management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A: “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.
Outline of Our Business
Jinzanghuang Tibet Pharmaceuticals, Inc. is a holding company whose only asset is an indirect 100% ownership interest in Beijing Taibodekang Consulting Co., Ltd. (“Beijing Taibodekang”), a Wholly Foreign Owned Entity organized under the laws of the People’s Republic of China on December 5, 2008. On January 4, 2009, Beijing Taibodekang entered into four agreements with Leling Jinzanghuang Biotech Co. Ltd. (“Leling Jinzanghuang”) and with the equity owners in Leling Jinzanghuang. Collectively, the agreements provide Beijing Taibodekang exclusive control over the business of Leling Jinzanghuang. The relationship is one that is generally identified as “entrusted management.”
The accounting effect of the Entrusted Management Agreements between Beijing Taibodekang and Leling Jinzanghuang is to cause the balance sheets and financial results of Leling Jinzanghuang to be consolidated with those of Beijing Taibodekang, with respect to which Leling Jinzanghuang is now a variable interest entity. Since the parties to the Entrusted Management Agreements were both controlled by Xue Bangyi, who is CEO of both Beijing Taibodekang and Leling Jinzanghuang, the financial statements included in this report reflect the consolidation of the results of operations and cash flows of Leling Jinzanghuang since its inception.
Since its formation, Leling Jinzanghuang has been engaged in the distribution of Tibetan pharmaceutical and nutraceutical products manufactured by Shandong Jinzanghuang (Tibet) Pharmaceutical Co., Ltd. (“Shandong JZH”), which is owned by the majority owners of the Company. Leling Jinzanghuang was founded in November 2008 under the laws of the People’s Republic of China with registered capital of 3.5 million RMB ($513,450). Leling Jinzanghuang’s executive offices and operations are located at Fu Qian Road South End (Westside), Leling City, Shandong Province, in eastern China. Until October 2010 Leling Jinzanghuang’s entire business was the distribution of the pharmaceutical and nutraceutical products that Tibetans have used for centuries to treat diseases and facilitate health. The distributed products are classified by Leling Jinzanghuang in three major categories: pharmaceuticals, therapeutic supplements, and dietary supplements.
On October 8, 2010, Leling JZH entered into a joint venture with Shandong JZH to market to the sauna store industry. Leling JZH entered into an agency agreement with Shenyang Jintao Technology Co., Ltd.(Jintao), pursuant to which Jintao introduced 50 sauna stores to Shandong JZH and Leling JZH. Shandong JZH sells its Tibetan medicine products to the sauna stores and Leling JZH provides training service to each store to coach how to provide sauna service through using the products sold by Shandong JZH. Leling JZH pays Jintao RMB 8,000 ($1,176) for each store Jintao introduced under the initial contract. At each month end, each store sends a usage record to Leling JZH. Leling JZH also makes a physical inventory count quarterly to compare remaining inventory with the quantity delivered by Shandong JZH. According to the agreement signed with each store, once products are used, each sauna store will pay 40% of the total sauna service fee to Leling JZH.
8
This arrangement provides Leling JZH with a revenue stream for which it incurs very little direct cost, as the product manufacture and distribution is entirely the responsibility of Shandong JZH. In addition, entry into this new market has not forced us to incur significant start-up costs, as we have used the same employees and same facilities for the sauna market as carried on our prior product distribution activities.
On December 30, 2010, Leling JZH signed an additional agreement with Jintao, pursuant to which Jintao introduced an additional 50 sauna stores to Shandong JZH and Leling JZH for a fee of RMB 8,500 ($1,250) per store. The services provided by Leling JZH under the supplemental agreement are the same as are provided to the first 50 stores, but the stores will pay 40% or 35% depending on location.
Leling JZH intends to continue in the business of selling health care products, which was its original . During the nine months ended March 31, 2011 Leling JZH also offered puer tea for sale. We consider the market prospects to be hopeful; so the Company is seeking more customers step by step. During the nine months ended March 31, 2011, however, product sales remained low, with no sales at all during the quarter ended March 31, 2011, as we focused attention on our new sauna store service business. By comparison, during the three months ended March 31, 2010, our sales of products manufactured by Shandong JZH yielded $61,888 in revenue. During the nine months ended March 31, 2011 product sales, all of which were made to two customers, contributed only $26,997 to our revenue. In contrast, during the nine months ended March 31, 2010, our sales of products manufactured by Shandong JZH yielded $610,374 in revenue.
Our operating results for the three and nine month periods ended March 31, 2011 were superior to those of the prior year periods, however, since we introduced a second revenue stream in October 2010. We now have arrangements with 100 sauna stores, where we have trained the staff to utilize the products they purchase from Shandong JZH in the sauna services they perform. In exchange for training and advice, we receive 40% or 35% of the revenue from the stores. This new business yielded $1,329,240 and $ 1,881,954 in revenue during the three and nine month periods ended March 31, 2011. During the three months ended March 31, 2011 and 2010, the cost of products sales was $0 and $49,393 respectively. During the nine months ended March 31, 2011 and 2010, the cost of products sales was $24,594 and $441,109. The cost of the sales mainly consists of the salary and any expenses related to our training staffs. During the three months ended March 31, 2011 and 2010, the cost of sauna service was $63,436 and $0. During the nine months ended March 31, 2011 and 2010, the cost of sauna service was $132,013 and $0. As a result, our gross margin for the nine months ended March 31, 2011 was 92%. During the nine months ended March 31, 2010, we achieved a 28% gross margin.
Our general and administrative expenses during the three months ended March 31, 2011 were $113,489, an increase of $74,987 from the $38,502 in general and administrative expenses we incurred in the three months ended March 31, 2010. Most of those expenses are employee wages and office expenses. For the nine months ended March 31, 2011 we incurred $212,226 in general and administrative expenses, which represented only a 15% increase over general and administrative expenses during the nine months ended March 31, 2010. The fact that we have been able to increase revenue several-fold with only a modest increase in our general and administrative expenses reflects the lower costs involved in the sauna service business, where Shandong JZH and our agent provide most of the marketing services.
As the new business program was introduced, our sales and operating profit both increased sharply. For the three months ended March 31, 2011, our net income was $862,864 comparing a loss of $24,808 for the three months ended March 31, 2010. Our net income was $1,150,607 for the nine months ended March 31, 2011, compared to a loss of $32,576 for the nine months ended March 31, 2010. The Entrusted Management Agreements provide, however, that Beijing Taibodekang will receive only 95% of the net profits generated by Leling Jinzanghuang. The remaining 5% will inure to the benefit of the owners of Leling Jinzanghuang. For that reason, we attributed $43,697 and $236 in net income and loss (5% of Leling Jinzanghuang’s total net income for the three months ended March 31, 2011 and 2010) to noncontrolling interests. For the nine months ended March 31, 2011 and 2010, we attributed $58,134 and $2,429 in net income to noncontrolling interests.
9
Liquidity and Capital Resources
To date our operations have been funded by the contributions to capital by our founders. As a result, at March 31, 2011 we had no bank or other debt.
For the nine months ended March 31, 2011, our operating activities provided $977,614 in net cash, compared to $810,434 in net cash used during the nine months ended March 31, 2010. The net cash provided in the recent period was slightly lower than our net income, as the increase in our accounts receivable was partially offset by an increase in accrued expenses.
Our working capital at March 31, 2011 totaled $1,748,897, which means that we are capable of funding a significant expansion from our current level of operations. Included in working capital at March 31, 2011 was an advance payment to our supplier in the amount of $255,134. The recipient of this advance payment is Shandong JZH, our primary source of distributed products, from whom we expect to purchase products in the future when we are able to fund an expansion of our product sales efforts. To maintain a long-term relationship with our vendors, we need to make advances months ahead. The advances to the supplier are interest free.
Our business plan contemplates that we will obtain $5 million to $10 million in additional capital during the coming year. The funds are needed in order to:
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Implement our direct marketing program, including development of an online presence;
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Acquire the rights to pharmaceuticals and nutraceuticals that will complement our existing product line;
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Carry on clinical trials of pharmaceuticals required to obtain SFDA approval;
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Establish franchisees throughout China; and
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Implement an advertising and marketing program adequate to assure us of substantial market presence.
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Our plan is to sell a portion of our equity in order to obtain the necessary funds, which will reduce the equity share of our existing shareholders. To date, however, we have received no commitment from any source for funds.
Off-Balance Sheet Arrangements
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 or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.
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(b) Changes in internal controls.
The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter covered by this report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
There have been no material changes from the risk factors included in the Annual Report on Form 10-K for the year ended June 30, 2010.
31.1
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Rule 13a-14(a) Certification - CEO
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31.2
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Rule 13a-14(a) Certification - CFO
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Rule 13a-14(b) Certifications
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
JINZANGHUANG TIBET PHARMACEUTICALS, INC.
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Date: May 16, 2011
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By: /s/ Xue Bangyi
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Xue Bangyi, Chief Executive Officer
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Date: May 16, 2011
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By: /s/ Eva Deng
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Eva Deng, Chief Financial and Accounting Officer
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