JINZANGHUANG TIBET PHARMACEUTICALS, INC. - FORM 10-Q/A

Attached files

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EX-32 - RULE 13A-14(B) CERTIFICATIONS - JINZANGHUANG TIBET PHARMACEUTICALS, INC.	ex32.htm
EX-31.2 - RULE 13A-14(A) CERTIFICATION - CFO - JINZANGHUANG TIBET PHARMACEUTICALS, INC.	ex31-2.htm
EX-31.1 - RULE 13A-14(A) CERTIFICATION - CEO - JINZANGHUANG TIBET PHARMACEUTICALS, INC.	ex31-1.htm

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q/A

(Amendment No. 1)

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended December 31, 2010
[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to _____

Commission File No. 0-53254

JINZANGHUANG TIBET PHARMACEUTICALS, INC.

(Name of Registrant in its Charter)

Delaware	26-2443288
(State or Other Jurisdiction of	(I.R.S. Employer I.D. No.)
incorporation or organization)

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:

February 14,2011

Common Voting Stock: 40,665,063

AMENDMENT NO. 1

The amendment is being filed in order to:

·	restate the balance sheet as described in Note 8 to the Financial Statements;”

·	modify Item 2, “Management’s Discussion,” to add disclosure regarding the variable interest entity relationship with the Company’s operating entity;

·	modify Note 2 to the Financial Statements to add disclosure regarding the variable interest entity relationship;

·	Add Note 4 to the Financial Statements; and

·	revise management’s evaluation of disclosure controls and procedures in Item 9A, “Controls and Procedures.”

No other material changes have been made to the disclosure, nor has the disclosure been updated. For current information regarding the Company, reference should be made to the more recent filings by the Company on EDGAR.

JINZANGHUANG TIBET PHARMACEUTICALS, INC.

TABLE OF CONTENTS

	Page(s)

Consolidated Balance Sheets as of December 31, 2010 (Unaudited) and June 30, 2010	2

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2010 and 2009 (Unaudited)	3

Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2010 and 2009 (Unaudited)	4

Notes to Financial Statements (Unaudited)	5-7

JINZANGHUANG TIBET PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS


ASSETS
	December 31,		June 30,
	2010		2010
	(Unaudited)
CURRENT ASSETS:
Cash	$	246,793	$	42,184
Accounts receivable		243,757		-
Inventory		289,761		305,557
Advance to supplier - related party		254,296		239,555
Contract deposit - current		15,170		14,730
Prepaid expenses and other sundry current assets		10,164		15,351
Deferred tax assets		19,131		15,092
TOTAL CURRENT ASSETS		1,079,072		632,469

LONG-TERM ASSETS:
Property and equipment, net of accumulated depreciation and amortization		584,535		576,762
Long-term contract		113,775		117,840
TOTAL LONG-TERM ASSETS		698,310		694,602

TOTAL ASSETS	$	1,777,382	$	1,327,071


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accrued expenses and other sundry current liabilities	$	202,081	$	79,451

TOTAL CURRENT LIABILITIES AND TOTAL LIABILITIES		202,081		79,451

STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 300,000,000 shares authorized, 40,665,063 shares issued and outstanding at December 31, 2010 and June 30, 2010		40,665		40,665
Additional paid-in capital		1,264,427		1,264,427
Retained earnings (Accumulated deficit)		145,021		(128,285	)
Accumulated other comprehensive income		20,199		6,842

TOTAL STOCKHOLDERS' EQUITY OF JINZANGHUANG TIBET PHARMACEUTICALS, INC.		1,470,312		1,183,649

NONCONTROLLING INTEREST IN SUBSIDIARY		104,989		63,971

TOTAL STOCKHOLDERS' EQUITY		1,575,301		1,247,620

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,777,382	$	1,327,071

See notes to financial statements

JINZANGHUANG TIBET PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)

		THREE MONTHS ENDED DECEMBER 31,				SIX MONTHS ENDED DECEMBER 31,
		2010		2009		2010		2009

REVENUE
	-Pharmaceutical products	$	-	$	323,536	$	26,673	$	548,486
	-Services		553,038		-		553,038		-
			553,038		323,536		579,711		548,486

COSTS OF REVENUE
	-Pharmaceutical product sales		-		219,860		24,299		391,716
	-Services		68,872		-		68,872		-
			68,872		219,860		93,171		391,716

GROSS PROFIT			484,166		103,676		486,540		156,770

COSTS AND EXPENSES
General and Administrative Expenses			64,858		60,958		98,737		145,428

INCOME (LOSS) BEFORE INCOME TAX			419,308		42,718		387,803		11,342

INCOME TAX			106,993		16,875		100,060		19,111

NET INCOME (LOSS)			312,315		25,843		287,743		(7,769	)

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS			15,995		2,489		14,437		2,665

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY			296,320		23,354		273,306		(10,434	)

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment			20,011		21		39,938		1,365

COMPREHENSIVE INCOME (LOSS)			316,331		23,375		313,244		(9,069	)

LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS			10,512		-		26,581		36

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY		$	305,819	$	23,375	$	286,663	$	(9,105	)



Basic and diluted earnings per common share		$	0.01	$	0.00	$	0.01	$	(0.00	)

Weighted average number of shares outstanding			40,665,063		40,645,063		40,665,063		40,645,063

See notes to financial statements

JINZANGHUANG TIBET PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)


	SIX MONTHS ENDED DECEMBER 31,
	2010			2009
OPERATING ACTIVITIES:
Net income (loss) attributable to the Company	$	273,306		$	(10,434	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income attributable to noncontrolling interests		14,437			2,665
Depreciation and amortization		9,456			7,452
Amortization of long-term contract		7,585			-
Deferred tax		(4,039	)		-
Changes in operating assets and liabilities:
Accounts receivable		(243,757	)		32,804
Inventory		24,923			(48,664	)
Advance to supplier		(7,585	)		37,115
Contract deposit		-			(146,700	)
Prepaid exenses and other sundry current assets		5,639			(49,644	)
Accrued expeses and other sundry current liabilities		121,292			(517,961	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		201,257			(693,367	)

INVESTING ACTIVITIES:
Acquisition of property and equipment		-			(3,345	)
NET CASH USED IN INVESTING ACTIVITIES		-			(3,345	)

FINANCING ACTIVITIES:
Contribution from minority interest		-			33,741
Repayment to shareholders		-			36,675
Capital contribution		-			738,808
NET CASH PROVIDED BY FINANCING ACTIVITIES		-			809,224

EFFECT OF EXCHANGE RATE ON CASH		3,352			722

INCREASE IN CASH		204,609			113,234

CASH - BEGINNING OF PERIOD		42,184			25,115

CASH - END OF PERIOD	$	246,793		$	138,349



Supplemental disclosures of cash flow information:
Cash paid for income tax	$	-		$	2,062

See notes to financial statements

JINZANGHUANG TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

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 six month period ended December 31, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.

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 generally accepted accounting principles 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”).

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.

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 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.

Leling JZH was incorporated under the laws of PRC as a limited liability company on November 20, 2008 and is engaged in the distribution of Tibetan pharmaceutical and nutraceutical products and provides training service to sauna stores in the PRC.

Variable Interest Entity

The accounts of Leling JZH have been consolidated with the accounts of the Company because Leling JZH is a variable interest entity with respect to Beijing Taibodekang, which is a wholly-owned subsidiary of the Company. Beijing Taibodekang has a contractual obligation to provide management services to Leling JZH, and the management of the operations of Leling JZH is carried out by Company personnel in fulfillment of that obligation. Beijing Taibodekang also has a contractual obligation to reimburse Leling JZH for any losses incurred as a result of the operations of Leling JZH, and the Company’s principal shareholders have caused funds to be contributed to Leling JZH during the years ended June 30, 2010 and 2009 in satisfaction of that obligation. The carrying amount and classification of Leling JZH’s assets and liabilities included in the Consolidated Balance Sheets are as follows:

	December 31,2010		June 30, 2010
Total current assets	$	1,097,800	$	646,451
Total assets		1,811,279		1,355,783
Total current liabilities		203,195		77,137
Total liabilities		203,195		77,137

The Consulting Agreement between Leling Jinzanghuang and Beijing Taibodekang requires that, in payment for the consulting services provided by Beijing Taibodekang, Leling Jinzanghuang will pay fees to Beijing Taibodekang equal to:

·	10,000 RMB per month, plus

·	95% of the annual gross profit of Leling Jinzanghuang.

The Consulting Agreement also provides, however, that Beijing Taibodekang will reimburse Leling Jinzanghuang for the amount of any net loss incurred by Leling Jinzanghuang during the period when it is managed by Beijing Taibodekang. Because Leling Jinzanghuang incurred a net loss in the six month period ended December 31, 2009, no fees have been paid by Leling Jinzanghuang to Beijing Taibodekang for services in that period. A fee has been accrued for services in the nine month period ended December 31, 2010, but no amount has yet been paid.

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 product 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 ($149,250 if translated on December 31, 2010 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 RELATED PARTY TRANSACTIONS

All of the products that the Company distributes are manufactured by one supplier, Shandong Jinzanghuang (Tibet) Pharmaceutical Co., Ltd. (“Shandong Jinzanghuang”). Xue Bangyi, who is the Company’s CEO, owns 91% of the registered capital of Shandong Jinzanghuang and also serves as CEO of that entity. The Company entered into a three-year distribution contract with Shandong Jinzanghuang on November 21, 2008, which provides Leling JZH non-exclusive marketing rights. The agreement provides that Shandong Jinzanghuang will deliver products in response to orders received from Leling JZH. The agreement gives Shandong Jinzanghuang the right to fix the price it charges, although it is required to provide Leling JZH timely notice of any price increase. In addition, Shandong Jinzanghuang retains ownership of all of the patent rights, trademark rights and other intellectual property rights related to the sold products. Under this agreement, each party has the right to terminate the contract, provided that sixty-day written notice in advance is given to the other party.

Since initiating operations in December 2008, Leling JZH has advanced sums to Shandong Jinzanghuang in prepayment of the wholesale price of the goods that Leling JZH distributes. The payments by Leling JZH to Shandong Jinzanghuang are recorded on the Company’s books as “advance to supplier - related party.” When goods are delivered giving rise to a payment obligation by Leling JZH to Shandong Jinzanghuang, the contract price is reclassified to cost of goods sold. During the six months ended December 31, 2010, Leling JZH made cash payments to Shandong Jinzanghuang totaling $7,526.

5 CONCENTRATIONS

During the six months ended December 31, 2010, the Company sold 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 six months ended December 31, 2010.

During the six months ended December 31, 2009, the Company made sales to only one customer. Three products represented approximately 54%, 23% and 12% of total sales for the six months ended December 31, 2009.

6 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 2010 and 2009 is as follows:

	December 31 2010			December 31 2009
	Amount			Amount
Income tax under U.S. Statutory rate	$	135,731		$	3,979
Tax rate difference between China and U.S.		(40,024	)		(7,644	)
NOL from U.S. with 100% valuation allowance		4,353			22,776
Income tax under Effective tax rate	$	100,060		$	19,111

The provision for income taxes are summarized as follows:

	December 31 2010			December 31 2009
Current – foreign	$	104,099		$	20,282
Deferred – foreign		(4,039	)		(1,171	)
Deferred - United States		(4,353	)		(22,776	)
Valuation allowance - United States		4,353			22,776
Total	$	100,060		$	19,111

7 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.

8. RESTATEMENT

The balance sheet as of December 31, 2010 presented herein has been restated. The restatements were made to:reallocate the contributed capital between the Company and Leling JZH. The Company has changed its classification of an equity contribution of $733,000 to Leling JZH from a contribution by non-controlling interest to a capital contribution to the Company. This classification results from the fact that the contribution was made by the controlling shareholder of the company who is also a 97% legal owner of Leling JZH, whereby the substance of the transaction is an equity contribution to the Company.

The effect of the restatement on the balance sheet is shown in the table below.

	As Originally Reported		As Restated
Additional paid-in capital		568,077		1,264,427
Total shareholders’ equity of the Company		770,676		1,470,312
Non-controlling interest		804,625		104,989

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 Delaware corporation with no business operations and only one asset: a wholly-owned subsidiary named Tibet Medicine, Inc. Tibet Medicine, Inc., likewise, is a Delaware corporation with no business operations and only one asset: 100% of the registered capital of Beijing Taibodekang Consulting Co., Ltd., a Wholly Foreign Owned Entity organized under the laws of the People’s Republic of China (“Beijing Taibodekang”). Beijing Taibodekang has no assets other than cash, but it does have a business operation, namely the management of Leling Jinzanghuang Biotech Co., Ltd. (“Leling Jinzanghuang”), which is also organized under the laws of the People’s Republic. Beijing Taibodekang carries out that management pursuant to the terms of four agreements that it made on January 4, 2009 with 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.” Leling Jinzanghuang is engaged in the distribution of Tibetan pharmaceutical and nutraceutical products in The People’s Republic of China.

At times throughout this Report we will use the term “Company” to refer to the four entities mentioned above as a single entity, which is a consolidated entity for financial reporting purposes. References to the “business of the Company” and the like, however, all refer to the business carried out by Leling Jinzanghuang, which is the only one of the four consolidated entities that carries on business operations.

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 an agency agreement with Shenyang Jintao Technology Co., Ltd., which has 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 byShandong JZH. 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. 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.

Results of Operations

Leling Jinzanghuang continues to sell products designed to provide health protection as its base business. During the six months ended December 31, 2010 it 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 six months ended December 31, 2010, however, product sales remained low, with no sales at all during the quarter ended December 31, 2010, as we lack the capital necessary to fund a market surge. During the six months ended December 31, 2010 product sales, all of which were made to two customers, contributed only $27,123 to our revenue. In contrast, during the six months ended December 31, 2009, our sales of products manufactured by Shandong Jinzanghuang yielded $548,486 in revenue.

Our operating results for the three and six month periods ended December 31, 2010 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 50 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% of the revenue from the stores. This new business yielded $553,038 in revenue during the three and six month periods ended December 31, 2010. The cost of the sales consists almost entirely of the $1,203 per store fee that we pay to Shenyang Jintao Technology Co., Ltd., which serves as our agent in managing this business, plus the salary of our training staff. As a result, our gross margin for the six months ended December 31, 2010 was 84%. During the six months ended December 31, 2009, we achieved a 28% gross margin.

For the six months ended December 31, 2010 we incurred $98,737 in general and administrative expenses. Most of those expenses are employee wages and office expenses. During the six months ended December 31, 2009 our general and administrative expenses were $145,428. The improvement in our efficiency from period to period 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. Our net income was $287,743 for the six months ended December 31, 2010, compared to a loss of $7,769 for the six months ended December 31, 2009. 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 $14,437 in net income (5% of Leling Jinzanghuang’s total net income for the six months ended December 31, 2010) to noncontrolling interests.

Liquidity and Capital Resources

To date our operations have been funded by the contributions to capital of our founders. As a result at December 31, 2010 we had no bank or other debt.

For the six months ended December 31, 2010, our operating activities provided $201,257 in net cash, compared to $693,367 in net cash used during the six months ended December 31, 2009. The net cash provided in the recent period was approximately equal to our net income, as the increase in our accounts receivable was offset by an increase in accrued expenses plus other miscellaneous contributors to cash flow.

Our working capital at December 31, 2010 totaled $876,991, which means that we are capable of funding a significant expansion from our current level of operations. Included in working capital at December 31, 2010 was an advance payment to our supplier in the amount of $254,296. 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 2010 and 2011. The funds are needed in order to:

●	Relocate our headquarters from Shandong to Beijing, where we will have greater access to marketing channels;

●	Implement our direct marketing program, including development of an online presence;

●	Acquire the rights to pharmaceuticals and nutraceuticals that will complement our existing product line;

●	Carry on clinical trials of pharmaceuticals required to obtain SFDA approval;

●	Establish franchisees throughout China; and

●	Implement an advertising and marketing program adequate to assure us of substantial market presence.

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”). That evaluation disclosed that the Company has material defects in its disclosure controls and procedures. Specifically they determined that there is a lack of expertise in U.S. GAAP among the Company’s management personnel. They also determined that the size of the Company’s accounting staff and low number of supervisory personnel prevented an appropriate segregation of accounting functions. 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 not effective.

(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

Item 1A . Risk Factors

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.

Item 6. Exhibits

31.1	Rule 13a-14(a) Certification - CEO
31.2	Rule 13a-14(a) Certification - CFO
32	Rule 13a-14(b) Certifications

SIGNATURES

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.

Date: February17, 2011	By: /s/ Xue Bangyi
	Xue Bangyi, Chief Executive Officer

Date: February 17, 2011	By: /s/ Eva Deng
	Eva Deng, Chief Financial and Accounting Officer

JINZANGHUANG TIBET PHARMACEUTICALS, INC. - FORM 10-Q/A - April 9, 2012

Attached files

JINZANGHUANG TIBET PHARMACEUTICALS, INC. Reports