China Pharmaceuticals Inc - FORM 10-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the fiscal year ended December 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _____________to ______________

Commission file number 000-52763

CHINA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Nevada	20-2638087
State or other jurisdiction of Incorporation or organization	(I.R.S. Employer Identification No.)

24 th Floor, Building A, Zhengxin Mansion

No. 5 of 1 st Gaoxin Rd, Hi-Tech Development Zone

Xi’an City, People’s Republic of China 710075

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (86) 29-84067215

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class

Name of each exchange on which registered

Securities registered pursuant to section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. oYes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes  x No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

xYes o 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).

x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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.

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Ac t). o Yes x No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $40,932,634.5

As of May 4, 2012, there were 75,237,972 shares of common stock, par value $0.001 issued and outstanding.

TABLE OF CONTENTS

		Page

PART I

Item 1.	BUSINESS	4
Item 1A.	RISK FACTORS	16
Item 1B.	UNRESOLVED STAFF COMMENTS	16
Item 2.	PROPERTIES	16
Item 3.	LEGAL PROCEEDINGS	17
Item 4.	MINE SAFETY DISCLOSURES	17

PART II

Item 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	17
Item 6.	SELECT FINANCIAL DATA	19
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	F-1 - F-17
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	25
Item 9A.	CONTROLS AND PROCEDURES	25
Item 9B.	OTHER INFORMATION	26

PART III

Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	27
Item 11.	EXECUTIVE COMPENSATION	31
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	32
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	34
Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	34

PART IV

Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	35

SIGNATURES		36

FORWARD LOOKING STATEMENTS

In this Annual Report on Form 10-K (“Annual Report”), references to “China Pharmaceuticals,” “CFMI,” “the Company,” “we,” “our,” “us,” and the Company’s wholly owned subsidiary, “China Qinba,” “Xi’an Development,” and “Xi’an Pharmaceuticals” refer to China Pharmaceuticals, Inc.

This Annual Report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

PART I

Item 1. Business.

Corporate History

China Pharmaceuticals, Inc. was incorporated in the State of Nevada on December 22, 2004, under the name “Nextar Properties, Inc.” On March 30, 2005, the company’s name was changed to “Allstar Restaurants.”

The Company was originally established to pursue opportunities in the family style full-service casual dining segment of the restaurant industry. Allstar Restaurants, through a wholly-owned subsidiary called China Doll Foods Ltd. (f/k/a Fastserve Foods Inc.), acquired on July 1, 2005, owned and operated an established restaurant and licensed lounge called China Doll Restaurant and Lounge located in the city of Regina, in the province Saskatchewan, Canada. Prior to February 12, 2010, China Doll Foods Ltd. acted as the operating company for all business activities relating to the company’s restaurant business(s) in Western Canada.

Allstar Restaurants incorporated a wholly-owned subsidiary under the laws of the State the Delaware under the name Allstar Acquisitions Co. on February 3, 2010. Through the steps described in the section entitled “the Merger Transaction” below, on February 12, 2010, the Company acquired control of Xi’an Qinba Pharmaceuticals, Co., Ltd. (“Xi’an Pharmaceuticals”), a pharmaceuticals manufacturer in the People’s Republic of China (“PRC”), by way of the Company’s acquisition of China Qinba Pharmaceuticals, Inc., a Delaware corporation (“China Qinba”).

In connection with the Merger Transaction and in order to more accurately describe our business, the Company undertook a number of steps to change its name to China Pharmaceuticals, Inc. (the “Name Change Transaction”). On February 4, 2010, Allstar Restaurants incorporated a wholly-owned subsidiary under the laws of the State of Nevada under the name China Qinba Pharmaceuticals, Inc. Allstar Restaurants filed an amendment to the articles of China Qinba Pharmaceuticals Inc. with the State of Nevada to change its name to China Pharmaceuticals, Inc. on February 16, 2010. Effective March 3, 2010, the Company entered into a plan of merger and reorganization with its subsidiary China Pharmaceuticals, Inc., pursuant to which China Pharmaceuticals, Inc. merged into the Company, and the Company thereby changed its name from “Allstar Restaurants” to “China Pharmaceuticals, Inc.”

On June 8, 2010, the Company effected a 5 for 6 reverse split of issued and outstanding shares of common stock of the Company without changing the par value of the stock. The shares outstanding before reverse split were 39,650,000 shares; the shares outstanding after reverse split were 33,041,677. Shares after the reverse split were retroactively restated from beginning of the period for all the periods presented.

On September 10, 2010, the Company effected a 1 for 3 reverse split of issued and outstanding shares of common stock of the Company without changing the par value of the stock. The shares outstanding after reverse split were 11,399,662. The shares after the reverse split were retroactively restated from the beginning of the period for all the periods presented. Effective September 10, 2010, the Company filed a Certificate of Change to the Articles of Incorporation, which decreases the total number of authorized shares of common stock, par value $.001 per share, from 75,000,000 shares to 25,000,000 and sets forth the terms of a corresponding three-for-one reverse split of the Company’s issued and outstanding common stock.

On June 27, 2011, the Company effected a 1 for 6 forward split of issued and outstanding shares of common stock of the Company without changing the par value of the stock. The shares outstanding after reverse split were 75,237,972. The shares outstanding after reverse split were 11,399,662. The shares after the reverse split were retroactively restated from the beginning of the period for all the periods presented. The Company effected the forward stock split by filing a “Certificate of Change Pursuant to Section 78.209” of the Nevada Revised Statutes with the Nevada Secretary, which also increased the number of shares of common stock the Company is authorized to issue from 25,000,000 shares par value $0.001 to 150,000,000 shares par value $0.001.

Corporate History of Xi’an Pharmaceuticals

China Qinba Pharmaceuticals, Inc. was incorporated on May 29, 2008 under the laws of Delaware. On August 18, 2008, China Qinba formed Xi’an Development Co., Ltd. as a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the PRC (“Xi’an Development”).

Xi’an Pharmaceuticals, our operating entity, was incorporated in the PRC on October 15, 1969. Xi’an Pharmaceuticals is in the business of manufacturing, marketing and sales of pharmaceuticals in the PRC

As described below, Xi’an Development entered into a series of agreements with Xi’an Pharmaceuticals which we believe give us effective control over the operations and business of Xi’an Pharmaceuticals, the entity through which we now operate our business.

On October 28, 2008, Xi’an Development entered into a Management Entrustment Agreement with Xi’an Pharmaceuticals and the shareholders of Xi’an Pharmaceuticals (the “Management Entrustment Agreement”), pursuant to which Xi’an Pharmaceuticals and its shareholders agreed to transfer control, or entrust, the operations and management of its business to Xi’an Development. Under the agreement, Xi’an Development manages the operations and assets of Xi’an Pharmaceuticals, controls all of the cash flows of Xi’an Pharmaceuticals through a bank account controlled by Xi’an Development, is obligated to pay all payables and loan payments of Xi’an Pharmaceuticals, and is entitled to 100% of earnings before tax of Xi’an Pharmaceuticals, a management fee. This management fee is payable on a monthly basis and is comprised of 100% of the earnings, before tax, of Xi’an Pharmaceuticals. In the year ended December 31, 2011, the amount of management fee to Xi’an Development had been fully paid.

In addition, under the terms of the Management Entrustment Agreement, Xi’an Development has been granted certain rights which include, in part, the right to appoint and terminate members of Xi’an Pharmaceuticals’ Board of Directors, hire management and administrative personnel and control decisions relating to entering and performing customer contracts and other instruments. We anticipate that Xi’an Pharmaceuticals will continue to be the contracting party under its customer contracts, bank loans and certain other instruments unless Xi’an Development exercises its option. The agreement does not terminate unless the business of Xi’an Pharmaceuticals is terminated or Xi’an Development exercises its option to acquire all of the assets or equity of Xi’an Pharmaceuticals under the terms of the Exclusive Option Agreement as more fully described below and completes the acquisition of Xi’an Pharmaceuticals.

As consideration for Xi’an Pharmaceuticals to enter into the Management Entrustment Agreement, Xi’an Development, through its parent company China Qinba, issued an aggregate of 25,000,000 shares of China Qinba’s common stock to the shareholders of Xi’an Pharmaceuticals which was allocated based on their respective pro rata ownership of Xi’an Pharmaceuticals.

In order to give Xi’an Development further control over Xi’an Pharmaceuticals, the Xi’an Pharmaceuticals shareholders and Xi’an Development, a wholly owned subsidiary of China Qinba in the PRC, entered into a shareholders’ Voting Proxy Agreement (the “Voting Proxy Agreement”) whereby the Xi’an Pharmaceuticals shareholders irrevocably and exclusively appointed the members of Xi’an Development’s board of directors, as their proxies to vote on all matters that require shareholder approval from Xi’an Pharmaceuticals, including, without limitation, the right to appoint members of the board of directors of Xi’an Pharmaceuticals. The agreement further provides that Xi’an Pharmaceuticals will appoint all of the board of directors of Xi’an Development as its board of directors and must remove and appoint new members to its board to reflect any changes to the board of Xi’an Development. The agreement terminates upon the exercise of the option by Xi’an Development to purchase the shares of Xi’an Pharmaceuticals as described below.

In connection with the Entrustment Management Agreement and the Voting Proxy Agreement, Xi’an Pharmaceuticals and the Xi’an Pharmaceuticals shareholders entered into an exclusive option agreement (the “Exclusive Option Agreement”) whereby the Xi’an Pharmaceuticals shareholders granted Xi’an Development an irrevocable and exclusive purchase option (the “Option”) to acquire Xi’an Pharmaceuticals’ equity and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. Current PRC law does not specifically provide for the equity of a non-PRC entity to be used as consideration for the purchase of a PRC entity’s assets or equity unless the value of the shares are equal to or greater than the value of the enterprise acquired. In addition, there is a lengthy appraisal process which must be approved by the provincial PRC government entities. The consideration for the exercise of the Option is to be determined by the parties and memorialized in future definitive agreements setting forth the kind and value of such consideration. Accordingly, we will consider exercising the Option under such circumstances we believe will be in our best interests and our shareholders and the Exclusive Option Agreement has been drafted to give us such flexibility. In considering whether or not we will exercise the Option we may consider such factors as (1) if the exercise price can be lower than the appraised value under current PRC law (2) availability of funds, (3) any relevant tax considerations at the time, (4) any other relevant PRC laws that may exist at the time, (5) the value of our shares that were previously paid to shareholders of Xi’an Pharmaceuticals, and (6) whether or not the exercise of the Option will provide any other additional benefits to us or our shareholders. Upon exercise of the Option, the parties will prepare transfer documents to be submitted for governmental approval and work together to obtain all approvals and permits. This Agreement may not be terminated without the unanimous consent of all the parties except that Xi’an Development may, by giving a thirty (30) days prior notice to terminate this agreement.

In order to further solidify Xi`an Development`s rights, benefits and control of Xi’an Pharmaceuticals under the Entrusted Management Agreement, Voting Proxy Agreement and Exclusive Option Agreement, Xi’an Development and the Xi’an Pharmaceuticals shareholders entered into a share pledge agreement (the “Share Pledge Agreement”) whereby the Xi’an Pharmaceuticals shareholders pledged all of their equity interests in Xi’an Pharmaceuticals, including the proceeds thereof, to guarantee the performance by the shareholders of all of the agreements they entered into with Xi’an Development. Upon breach by any of the shareholders of any of the Management Entrustment Agreement, Voting Proxy Agreement, the Exclusive Option Agreement or the Share Pledge Agreement, Xi’an Development is entitled by operation of law to become the beneficial owner of the shares of Xi’an Pharmaceuticals. Prior to termination of the Share Pledge Agreement, the pledged equity interests of Xi’an Pharmaceuticals cannot be transferred without Xi’an Development’s prior written consent. The provisions of the Share Pledge Agreement and the Voting Proxy Agreement work together to give the board of directors of Xi’an Development control over transfers by the shareholders of Xi’an Pharmaceuticals. The agreement will not terminate until agreed to by all of the parties in writing.

As a result of the above-mentioned contractual agreements between Xi’an Development and Xi’an Pharmaceuticals, the Company treats Xi’an Pharmaceuticals as its variable interest entity (“VIE”), for which the Company is the primary beneficiary, and has consolidated its financial statements include the accounts of the Company, Xi’an Development and Xi’an Pharmaceuticals. All inter-company accounts and transactions have been eliminated in consolidation. The Company has adopted FIN 46R which requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.

The following indicators, among others, contributed to the Company’s determination and classification of Xi’an Pharmaceuticals as its VIE:

●

Xi’an Development has the full right to control and administrate the financial affairs and daily operation of Xi’an Pharmaceuticals and has the right to manage and control all assets of Xi’an Pharmaceuticals. The equity holders of Xi’an Pharmaceuticals as a group have no right to make any decision about Xi’an Pharmaceuticals activities without the consent of Xi’an Development.

●	Xi’an Development was assigned all voting rights of Xi’an Pharmaceuticals and has the right to appoint all directors and senior management personnel of Xi’an Pharmaceuticals. The equity holders of Xi’an Pharmaceuticals possess no substantive voting rights.

●	Xi’an Development will provide financial support if Xi’an Pharmaceuticals requires additional funds to maintain its operations and to repay its debts.

●

Xi’an Development should be paid a management fee equal to 100% of earnings before tax of Xi’an Pharmaceuticals and should assume all operation risks of Xi’an Pharmaceuticals and bear all losses of Xi’an Pharmaceuticals. Therefore, Xi’an Development is the primary beneficiary of Xi’an Pharmaceuticals.

The Merger Transaction

On February 12, 2010, Allstar Restaurants executed and consummated a Merger Agreement and Plan of Reorganization (the “Merger Agreement”) with Allstar Acquisitions Co., a wholly-owned subsidiary of Allstar Restaurants (“Acquisition Subsidiary”), China Qinba Pharmaceuticals, Inc., a Delaware corporation (“China Qinba”), Terry G. Bowering (the “Parent Controlling Shareholder”), and the majority shareholders of China Qinba (the “Majority Qinba Shareholders”). Guozhu Wang, Guiping Zhang, Xiu’e Xing, Yong Xu, Xiling Gao, Xianhong Xue, Congge Wei and Xiulan Kang comprised the Majority Qinba Shareholders.

Pursuant to the Merger Agreement, China Qinba Pharmaceuticals merged with and into the Acquisition Subsidiary, and all of the shareholders of China Qinba Pharmaceuticals exchanged their shares for an aggregate of 9,333,333 shares of newly issued common stock of the Company. Immediately after the Closing, the Company had a total of 10,680,556 shares of common stock outstanding, with all of the China Qinba shareholders (and their assignees) owning approximately 87.39 % of the Company’s outstanding common stock, and the balance held by those who held the Company’s common stock prior to the Closing. In addition, pursuant to a share exchange agreement dated February 12, 2010, the Parent Controlling Shareholder transferred 1,416,667 shares of the Company’s common stock for cancellation in exchange for 100% of the issued and outstanding shares of China Doll Foods Ltd., a wholly owned subsidiary of the Company.

Our board of directors (the “Board”) as well as the directors and the Majority Qinba Shareholders each approved the Merger Agreement. Following the Closing Date, Allstar Acquisitions Co. merged with and into China Qinba, which became the surviving entity and our wholly-owned subsidiary.

Also pursuant to the Merger Agreement, the Parent Controlling Shareholder transferred 1,416,667 shares of common stock of Allstar Restaurants for cancellation in exchange for 100% of the issued and outstanding shares of China Doll Foods Ltd. a wholly-owned subsidiary, d/b/a China Doll Restaurant and Lounge. The Parent Controlling Shareholder and Allstar Restaurants entered into a binding agreement with respect to such transaction on February 12, 2010.

As a result of the above-mentioned merger transactions, (i) China Qinba became a wholly-owned subsidiary of the Company, (ii) the Company acquired the business of Xi’an Pharmaceuticals as its sole business, and (iii) China Doll Foods Ltd. was spun off from the Company.

The following diagram sets forth the current corporate structure of China Pharmaceuticals, Inc., giving effect to the Name Change Transaction consummated on March 3, 2010:

	China Pharmaceuticals, Inc. (a Nevada company)
		100%
	China Qinba Pharmaceuticals, Inc. (a Delaware company)
		100%
	Xi’an Development Co., Ltd. (a PRC company)
		Contractual agreements
	Xi’an Qinba Pharmaceuticals, Co., Ltd. (a PRC company)

Subsidiaries

As a result of the Merger Transaction, China Qinba and Xi’an Development are our wholly-owned subsidiaries. Xi’an Pharmaceuticals, the entity through which we operate our business, currently has no subsidiaries, either wholly-owned or partially-owned.

The following individuals were shareholders of Xi’an Pharmaceuticals who subsequently entered into a series of contractual agreements to transfer control of the operations and management of the business of Xi’an Pharmaceuticals to Xi’an Development:

Name of Shareholder	Title	Amount of Contribution (RMB)	Percent of Capital Contribution
Guozhu Wang	Chief Executive Officer	14,500,000	29	%(1)
Guiping Zhang	President	13,500,000	27	%(2)
Weidong Yan		1,000,000	2	%
Yong Zhang		2,300,000	4.6	%
Xiu’e Xing		2,200,000	4.4	%
Yong Xu		2,200,000	4.4	%
Wei Wang		2,300,000	4.6	%
Xiling Gao		2,000,000	4	%
Chenglin Guo		2,000,000	4	%
Weiping Wu		1,500,000	3	%
Rong Bai		1,300,000	2.6	%
Jin Wu		1,000,000	2	%
Zhibo Ding		2,000,000	4	%
Feng Pu		1,000,000	2	%
Zheng Guan		600,000	1.2	%
Aifang Yang		600,000	1.2	%
Total		50,000,000	100	%

Guozhu Wang and Guiping Zhang are Chief Executive Officer and President of Xi’an Pharmaceuticals, respectively, and own 29 percent and 27 percent equity interests of Xi’an Pharmaceuticals, respectively. Other than disclosed above, no individuals in the table are officers/directors of Xi’an Pharmaceuticals or are related to such officers/directors.

Our Business

Xi’an Pharmaceuticals was formed in October 15, 1969 under the laws of the PRC and is engaged in the research, development, manufacture, packaging, marketing and distribution of pharmaceutical and medical products in the PRC for human use for a variety of diseases and conditions. All of our operations are conducted in the PRC where our two manufacturing facilities are located, one in Xixiang County in Hanzhong and one in Xi’an Jinghe Industrial Zone. We manufacture pharmaceutical products in the form of capsules, oral solutions, tablets, granules, syrups, medicinal teas, tincture and solutions for injection that are either small volume parenteral solutions that are freeze dried powders or large volume parenteral solutions. Certain of the pharmaceutical products we manufacture are used in the treatment of viral pneumonia, hypotonicity dehydration, viral influenza and many other diseases and indications.

We currently manufacture 85 pharmaceutical products which are sold to numerous distributors who distribute our products pursuant to distribution agreements to licensed healthcare providers such as hospitals, clinics and pharmacies. We currently have 35 active distribution agreements. The raw materials used to manufacture our products include various medicinal herbs such as tumeric and zedoary, which we obtain from specified and qualified suppliers with national qualifications, and sulfamethoxazole, an antibiotic, which is primarily used in the manufacture of Fufang Qiguanyan Pian. We also enter into trading agreements for the supply of many of the materials used to manufacture and package our products including aluminum foil, which we use as the inner packing materials used in tablets production. Xi’an Pharmaceuticals has written agreements with substantially all of its suppliers. Typically, Xi’an Pharmaceuticals enters into a standard master supplier contract with its suppliers, which provides the general terms and conditions for transactions in the supplier's products. It then enters into a separate order for each consignment of goods, which specifies the type, price and amount of the products it purchases.

Our focus has been on the development and sale of pharmaceutical products based on traditional Chinese medicines designed to address numerous diseases and indications, with an emphasis on sales to community hospitals and rural medical institutions.

Principal Products

In the fiscal year ended December 31, 2011, our revenues were principally derived from sales of products listed below. We have SFDA approval for all medicines and active pharmaceutical ingredients that we market. The Chinese government agency, SFDA, is analogous to the Food and Drug Administration (“FDA”) in the United States. Unlike the FDA, however, the SFDA provides intellectual property and competitive protection to certain classes of approved drugs. Detailed information is provided in the table of products below.

We market our pharmaceutical products under numerous brand names, including “Xiaonengren” for our pediatric series of drugs. The following is a list of some of our approved pharmaceutical products and their intended uses.

Table of Products Manufactured by Xi’an Pharmaceuticals

Product No.	Product Name	Indications
1	Metronidazole and Glucose Injection	Varieties of tract infections caused by Anaerobion, trichomoniasis and amebic dysentery.
2	Sodium Chloride Injection	Hypotonicity dehydration solvent or thinner for injection.
3	Glucose and Sodium Chloride Injection	Body fluid loss; supply body fluid, electrolyte, energy preoperation, intraoperation and postoperation.
4	Glucose Injection	Supply energy and body fluid, total, total parenteral nutrition, hypoglycemia, hypertonic solution for dehydrating agent.
5	Compound Sodium Chloride Injection	Hypotonicity dehydration solvent or thinner for injection.
6	Mannitol Injection	Hydrocephalus, glaucoma, edema caused by deep burning or scald, acute renal failure and ascites.
7	Heartleaf Houttuynia Herb Injection	Clear heat, detoxification, promote diuresis. Used for lung abscess, phlegm, cough, urinary tract infections.
8	Sterilized Water for Injection	Solvent of sterilized powder for injection, thinner of injection, or wash solution for operation endoscope in urology Surgery.
9	Zedoary Turmeric Oil and Glucose Injection	Viral pneumonia, viral influenza, encephalitis, myocarditis, viral enteritis, mumps, stomatitis.
10	Zedoary Turmeric Oil and Glucose Injection	Anti-viral drug for children’s viral pneumonia.
11	Citicoline Sodium and Glucose Injection	Irritable neurocranium trauma, disturbance of consciousness after brain operation.
12	Fluconazole Injection	Mycotic infections by candida, cryptococcosis, coccidioidomycosis.
13	Fructose Sodium Diphosphate Injection	Hypophosphataemia angina, acute myocardial infarction and arrhythmia of coronary heart disease and myocardial ischemia of cardiac failure.
14	Matrine and Sodium Chloride Injection	Chronic active hepatitis, chronic prolonged hepatitis.
15	Glycerin Sodium Chloride Injection	High osmosis dehydrant. Reduce high cranial pressure caused by intracerebral hemorrhage, cerebral infarction, trauma, meningitis and brain tumor.
16	Xylitol and Sodium Chloride Injection	Supply heat, improve glycometabolism and remove ketonemia, used as substitute of sugar for diabetics.
17	Ligustrazine Hydrochloride Glucose Injection	Insufficient blood supply, cerebral embolism, angiitis, coronary heart disease, angina.
18	Levofloxacin and Glucose Injection	Respiratory tract infections, urinary tract infections, genital tract infections, skin soft tissue infections, enteral infections, septicemia.
19	Dexamethasone Sodium Phosphate Injection	Hypoadrenocorticism, rheumatoid arthritis, cerebral edema, congenital adrenal cortical hyperplasia.
20	Atropine Sulfate Injection	Toxic shock caused by serious infection, internal organs angina, preanesthetic medication, antiarrhythmic.
21	Kanamycin Sulfate	Systemic infections caused by various gram negative bacteria.
22	Gentamycin Sulfate	Urinary tract infection, septicemia, skin soft tissue infection, enteral infection caused by ordinary pathogen and preoperative prophylactic medication.
23	Hydrocortisone Injection	Toxic symptom caused by various infections, hypocorticoidism caused by various infections, anaphylactic shock.
24	Lappaconitine Hydrobromide for Injection	Non-addictive analgesics, strong analgesic effect, have effect of local anaesthesia, temperature reduction, antifebrile and detumescence.
25	Vitamin B12 Injection	Pernicious anemia, megaloblastic anemia, anemia caused by antifolate drugs, stearrhea.
26	Procaine Hydrochloride Injection	Local anesthetics, used for infiltration anesthesia, mental conduction block.
27	Bupleurum injection	Clear heat, relieve exterior syndrome, for cold treatment. Fever of influenza and malaria.
28	Lidocaine hydrochloride Injection	Local anesthetics, antiarrhythmic.
29	Analgin Tablets	Clear heat and kill pain.
30	Compound Sulfamethoxazole Tablets	Sulfa antibacterial drug.
31	Inosine Tablets	Coenzyme drug, improve metabolism, for various liver and heart diseases, leukocytopenia, central retinitis, optic atrophy.
32	Metronidazole Tablet	Amebicide, antitrichomonal agent, Anti-anaerobic bacteria.
	Vitamin C Tablets	Vitamin C, prevent and treat scurvy.
34	Occrycetin Tablets	Broad spectrum antibiotics. Used for rickettsiosis, brucellosis, mycoplasmalpneumonia, Chlamydia infection, sensitive Gram-positive cocci, subinfection caused by coccus-negative.
35	Lidan Paishi Pian	Clear heat and promote diuresis, cholagogue and remove calculi, biliary tract infection, cholecystitis.
36	Rhubarb Sodium Bicarbonate Tablets	Stomachic and acid making. Used for inappetence and hyperchlorhydria.
37	Dried Yeast Tablets	Vitamin medicine.
38	Berberine Hydrochloride Tablets	Antibacterial drug, used for intestinal infection of dysentery bacillus.
39	Compound Tablet of Fritillary Bulb	Clear lung heat, eliminate phlegm, and relieve cough and asthma. Used for wind cold cough and asthma, chest distress, acute and chronic bronchitis.
40	compound tablet of red sage root	Activate blood and dissolve stasis, regulate vital energy and alleviate pain, used for chest distress and angina.
41	Qinghuo Zhimai Pian	Clear heat, detoxification and purgation.
42	Xanthinol Nicotinate Tablets	Ischemic cerebrovascular diseases like cerebral infarction and thrombosis, brain damages like apoplectic sequela, cerebral trauma, brain surgery sequela, also used for thromboangitis obliterans and phlebitis.
43	Tolperisone Hydrochloride Injection	Central muscle relaxant, vasodilatation. Increase blood volume, used for atherosclerosis and apoplexy sequela.
44	Fufang Huzhang Anmin Pian	Clear heat and detoxification, used for fever, rhinorrhoea, headache, faucitis.
45	Berberine Hydrochloride and Trimethoprim Tablets	Gastroenteropathy caused by sensitive bacteria, intestinal infection like bacillary dysentery.
46	Fufang Qiguanyan Pian	Relieve inflammation, reduce phlegm, relieve asthma, for acute and chronic bronchitis.
47	Qinggan Pian	Clear heat and detoxification, cholagogue and remove calculi. Used for cold and fever, throat irritation, parotitis, muggy jaundice.
48	Paracetamol,Caffein,Atificial Cow-bezoar and chlorphenamine Maleate Tablets	Relieve fever, headache, blocked nose, sore throat and sneezing caused by common cold and influenza.

49	Sanhuang Pian	Clear heat and detoxification, purge pathogenic fire, purgation. Used for body heat, conjunctival congestion, ulcers in mouth and nose, throat irritation, bleeding gum, upset and thirsty, yellow urine, constipation, acute gastroenteritis, and dysentery.
50	Norfloxacin Capsules	Urinary tract infections, gonorrhoea, prostatitis, enteral infections, typhia, salmonella bacteria infections.
51	Paracetamol,Caffein,Atificial Cow-bezoar and chlorphenamine Maleate capsules	Relieve fever, headache, blocked nose and sore throat caused by common cold and influenza.
52	Compound Rifampicin Capsules	Various tuberculosis, improve tolerance with other anti-tuberculosis drugs, shorten treatment period, reduce adverse reaction, defer occurrence of antibiotic-resistant bacteria. Used for extrapulmonary tuberculosis, lepriasis, common bacterial infections.
53	Pediatric Paracetamol Atificial Cow-bezoar and Chlorphenamine Maleate Granules	Relieve headache, fever, sore throat and blocked nose caused by cold.
54	Isatis Root Granules	Clear heat and detoxification, cool blood, relieve sore throat, detumescence. Used for body heat, sore throat, tonsillitis and parotitis.
55	Yinhua Ganmao Chongji	Clear heat, relieve exterior syndrome, relieve sore throat, cold, fever, headache, throat irritation.
56	Ganmao Tuire Keli	Clear heat and detoxification. Used for respiratory tract infection, acute tonsillitis and faucitis.
57	Runhou Yaocha	Good for lung and can reduce internal heat, smooth throat, purge, engender saliva, relieve sore throat, clear throat, invigorate spleen, nourish kidney and revive energy. Used for dry throat, sore throat, foreign body sensation.
58	Inosine Oral Solution	Coenzyme drug, improve metabolism, for various liver and heart diseases, leukocytopenia, thrombocytopenia central retinitis, optic atrophy.
59	Compound Guaiacol Potassium Sulfonale Oral Solution	Relieve cough and phlegm.
60	Xiao’aiping Koufuye	Anticancer, relieve asthma, diminish inflammation. Used for esophageal cancer, gastric cancer, lung cancer, liver cancer, Lymphoma, colon cancer, Cervical cancer, septicemia. Also for radiation treatment, chemotherapy, post-operation treatment, chronic bronchitis, bronchial asthma.
61	Qiangli Pipa Lu	Nourish yin and clear lung heat, relieve cough, eliminate phlegm, repeated cough, bronchitis.
62	Xiao’er Zhike Tangjiang	Clear phlegm and relieve cough. Used for pediatric cough caused by cold.
63	Zhike Pipa Lu	Clear lung heat, relieve cough, eliminate phlegm. cough, phlegm, xerostomia caused by wind-heat. Used for bronchitis cough and pediatric cold.
64	Banxia Tangjiang	Clear cough and reduce phlegm, and bronchitis.
65	Fritillary and Loquat Syrup	Clear heat and ventilate lung, clear phlegm and relieve cough. Used for cough and phlegm, sore and swelling throat, chest distress, cold, chronic bronchitis caused by wind heat invading lung and internal heat.
66	Fei’er Tangjiang	Pediatric nutrient, hypofunction of spleen and stomach, do not feel like eating.
67	Sufei Ke Tangjiang	Cough and phlegm, bronchitis.

68	Zinc Sulfate Syrup	Anti zinc deficiency drug, used for pediatric slow growth, malnutrition, anorexia, oral ulcer, post-surgery wound healing caused by zinc deficiency.
69	Orange Tincture	Fragrant and promote digestion.
70	Weiling Heji	Nourish yin and blood, soothe nerves. Used for over fatigue, neurasthenia, amnesia and insomnia.
71	Methylrosanilinium Chloride Solution	Sterilization and antisepsis. Used for superficial injury, anabrosis, ulcer and skin infection.
72	Merbromin Solution	Skin mucosa ulcer and injury sterilization.
73	Iodine Tincture	Sterilization and antisepsis.
74	Zingiberis Tincture	Promote digestion and dispel cold.
75	Weiling Heji	Promote digestion, acid-making, kill pain. Used for gastritis, gastric ulcer and duodenal ulcer.
76	Baixuanxiatare Pian	Clear unusual mucilaginous substance, bile, sepsis, detumescence, antipruritics. Used for tinea manuum, tinea corporis, tinea pedis, tinea versicolor, psoriasis, allergic dermatitis, shingles and acne.
77	Isosor Bide Mononitrate Injection	Long term treatment of coronary heart disease, prevent angina, continuous angina treatment of post myocardial infarction, treat chronic congestive heart disease with digitalis or diuretics.
78	Azithromycin for Injection	Used for infection caused by sensitive strains, like intravenous drip of community-acquired pneumonia caused by Chlamydia pneumoniae, mycoplasma pneumoniae, staphylococcus aureus, streptococcus pneumoniae.
79	Clindamycin Phosphate Injection	Serious infection caused by staphyloccus aureus and anaerobic bacteria. Ideal effect of osteomyelitis caused by sensitive bacteria.
80	Fleroxacin	Mainly used for systematic infection treatment, like acute respiratory infection, urinary infection, gynecological infection, ordinary otolaryngology infection and skin soft tissue infection.
81	Naoxinqing Capsule	Increase pipe, vein and brain blood, improve blood and oxygen supply status of heart and brain tissue, and increase electrophoretic mobility of erythrocyte. Used for coronary heart disease, angina, cerebral arteriosclerosis, ischemic cerebrovascular disease.
82	Weili Capsule	Kill pain and promote circulation, digestion and gall. Used for improper diet, phlegm, vomit, stomachache, bad appetite, constipation, acute gastritis and cholecystitis.
83	Zhiyanxiao Capsule	Clear heat and detoxification, promote circulation, stop bleeding, kill pain and swelling. Used for old patients’ hemorrhoids symptom like dyschizia, hematochezia hemorrhoids inflammation and anal fissure.
84	Yinyangsuo Capsule	Treat renal and impotence, promote body fluid production. Used for impotence, ache and weak at waist and knee, body fluid deficiency, and dizziness.
85	Stanch Capsule	Clear heat and cool blood. Used for menorrhagia, nose bleed, hemoptysis, hematemesis and emptysis caused by blood heat.

Marketing and Sales

We have a trained marketing team and maintain sales offices or agents in approximately 30 provinces throughout the PRC. The sales network covers approximately 146 cities and is staffed by approximately 112 sales representatives with an average per representative of a decade of pharmaceuticals sales experience.

In accordance with the Drug Control Law of the PRC, we use a distribution system comprised of independent regional distributors. In our typical distribution contract, a distributor will be provided with certain sales targets (an annual sales income level) for the term of the agreement according to a set retail price. We are responsible for guaranteeing the quality of the products. At the end of the term, we pay the distributor a commission based upon the annual sales made by the distributor. The distributor is provided a rebate for each product sold, which rebate increases as the sales volume increases. If the distributor completes the sales minimum within the prescribed period, the distributor will be given greater economic incentives and future distribution opportunities. If the distributor fails to complete the sales task within the prescribed period, we will not renew our contract with the distributor and instead will sign with other competent distributors. We also sell pharmaceutical products via the Internet and deliver product information on certain professional websites.

In the fiscal years ended December 31, 2011, 2010 and 2009, no product accounted for more than 10% of Xi’an Pharmaceuticals’ total revenue. Sales of Qiangli pipalu 100ml, the product with the highest sales volume during this period, accounted for approximately 1.87%, 2.23% and 4.4% of total revenue for the years ended December 31, 2011, 2010 and 2009, respectively.

In the fiscal year ended December 31, 2011, Xi’an Pharmaceuticals’ five largest customers were:

Name		%
Xinyang Pharmceuticals Co., Ltd.		3.39%
Baoji Medicine Station		3.28 %
Shaanxi Kangxin Pharmaceuticals Co., Ltd.		3.07 %
Shaanxi Hengqing Pharmaceuticals Co., Ltd.		3.06 %
Xi’an Paiang Pharmaceuticals Co., Ltd.		3.00 %

In the fiscal year ended December 31, 2010, Xi’an Pharmaceuticals’ five largest customers were:

Name		%
Xi’an Ruihua Pharmaceutical Co Ltd,		7.93%
Xi’an Xin xi bei Pharmaceutical Co Ltd,		5.71%
Shaan xi Xinxing Pharmaceutical Co Ltd,		5.10%
Hanzhong Hospital Wangjiang Branch		4.64%
Shaan xi Province Hanzhong City Pharmaceutical head office		4.24%

In the fiscal year ended December 31, 2009, Xi’an Pharmaceuticals’ five largest customers were:

Name		%
Shenyang Zhying Pharmaceuticals Co., Ltd.		6.01%
Datong Zhenhua Pharmaceuticals Co., Ltd.		5.59%
Beijing Shanlinjianghai Trade Co., Ltd.		5.59%
Xinjiang Pharmaceuticals Co., Ltd.		5.13%
Baoji Medicine Station		4.88%

During the fiscal years ended December 31, 2011 and 2010, we spent $6,342,346 and $4,620,959 on marketing, respectively.

Production

We manufacture and package our products at two factories, one located in Xixiang County in Hanzhong and one in Xi’an Jinghe Industrial Zone, PRC. Both facilities are in compliance with Good Manufacturing Practice (GMP) standards and have three GMP certificates dated March 9, 2006 (Certificate No. H0192 for Xi’an Production Base), January 8, 2007 (Certificate No. H4109 for Xi’an Production Base) and January 8, 2007 (Certificate No. H4119 for Hanzong Production Base), respectively. All of the complete production lines at each facility meet international food and drug safety guidelines. The certificate (No. H0192) has been renewed and is valid until December 16, 2012.With respect to the other two certificates, we have submitted the application for renewal. While these certificates are pending renewal, we will not produce the products pertaining to these certificates.

The Hanzhong factory, which was built in 1970, is approximately 12,000 square meters with 800 square meters of sterilized area. This production facility has two production lines for high-volume injection and produces 38 pharmaceutical products with different specifications. This production facility primarily manufactures products of infusion kind. This production facility has 87 sets of machines and supporting parts for pharmaceutical production from domestic and foreign suppliers.

The Xi’an Jinghe factory, which was built in 2006, is approximately 21,000 square meters with 7,000 square meters sterilized area and 15,000 square meters verdurization area. This facility primarily produces low-volume injection, troches, capsules, granules, species, syrups, oral solutions, tincture mixture and lyophilized powder injections. This production facility has 567 sets of machines.

Each facility is an independent production base that can process all stages of production, from raw materials to finished goods, including packaging. We obtain our packing materials from Xi’an No. 1 Printing Factory and we obtain the aluminum foil used in tablet production from Xi’an Haoyu Packing Co., Ltd.

We purchase our raw materials from approximately 100 suppliers. We generally utilize more than three suppliers for each raw material.

Quality Control

Our production facilities are designed and maintained with a view towards conforming with good practice standards. To comply with GMP operational requirements, we have implemented a quality assurance plan setting forth our quality assurance procedures. Our Quality Control department is responsible for maintaining quality standards throughout the production process. Quality Control executes the following functions:

●	setting internal controls and regulations for semi-finished and finished products;

●	implementing sampling systems and sample files;

●	maintaining quality of equipment, instruments, reagents, test solutions, volumetric solutions, culture media and laboratory animals;

●	auditing production records to ensure delivery of quality products;

●	monitoring the number of dust particles and microbes in the clean areas;

●	evaluating stability of raw materials, semi-finished products and finished products in order to generate accurate statistics on storage duration and shelf life;

●	articulating the responsibilities of Quality Control staff; and

●	on-site evaluation of supplier quality control systems.

Competition

The pharmaceutical industry within the PRC is intensely competitive and is characterized by rapid and significant technological progress, and our operating environment is increasingly competitive. Our competitors include large pharmaceutical companies, including Xi’an Jingxi Shuanghe Pharmaceuticals Co., Ltd., that currently engage in or may engage in efforts related to the discovery and development of new pharmaceuticals.

Western pharmaceutical products have more than half of the market share of medications used in the PRC to treat the medical indications that our pharmaceutical products treat, with Chinese pharmaceutical products making up the next largest part of the market. Western medicine is all made from chemosynthesis products, while Chinese medicine is made from botanical, animal and mineral components.

There are certain opportunities for growth through the following growth strategies:

Rapidly growing Chinese pharmaceutical market. With approximately one-fifth of the world’s population and a fast-growing gross domestic product, the PRC represents a significant potential market for the pharmaceutical industry. We believe the significant expected growth of the pharmaceutical market in the PRC is due to factors such as robust economic growth and increased pharmaceutical expenditure, aging population and increased lifestyle-related diseases, government support of the pharmaceutical industry, the relatively low research and development and clinical trial costs in the PRC as compared to developed countries, as well as the increased availability of funding for medical insurance and industry consolidation in the PRC.

Currently the PRC has about 4,516 drug companies (source: http://wenku.baidu.com/view/734db8340b4c2e3f57276351.html). The domestic companies compete in the $10 billion market without a dominant leader. Most often cited adverse factors include a lack of protection of intellectual property rights, a lack of visibility for drug approval procedures, a lack of effective governmental incentives, poor corporate support for drug research and differences in the treatment in the PRC accorded to local and foreign firms. The profile of the pharmaceutical industry in the PRC remains very low. By 2013, the PRC is expected to become the world's third largest drug market (source: http://www.math168.com/jylx/22153.htm).

New Product Development. We will continue to evaluate and develop additional product candidates, both through our in-house research and development department and working with our research and development partners, to expand our pipeline where we perceive an unmet need and commercial potential. We will face the risk that in developing new products we may spend substantial sums of money and the new products developed may not effectively meet the perceived need or may not be successfully commercialized.

Focus on brand development. With intense price competition among many similar or identical products in the industry, we believe that building brand equity is the primary means to generate and sustain profitable growth in the future. The company intends to focus its brand development efforts on building its existing brand names with the intent on it becoming a leading medicine brand in the PRC.

Marketing and Sales Function. We intend to grow our internal marketing and sales function and increase our relationships with other distributors to expand the distribution and presence of our pharmaceutical products. In expanding market share of our products, we intend to take advantage of our large manufacturing scale and reasonable cost control mechanisms, and our strong sales network. In addition, our goal is to establish our products as a preferred choice for medicines in local pharmacies. We hope to add other pharmaceutical products into this channel over the next few years. We may face risks in obtaining adequate quantities of raw materials at reasonable prices in order to meet increased demand for our products that result from any growth. In seeking additional employees, sales representatives, and distributors, we will compete with many other established pharmaceutical manufacturers that may have greater resources than we do.

Low cost producer. Our continuing success in optimizing our manufacturing processes and minimizing our production costs provides us with a competitive advantage.

Government sponsored industry consolidation presents opportunities for acquisitions. The PRC’s pharmaceutical market is highly fragmented. Anticipating the effects of WTO entry and in an effort to compete with foreign firms, the Chinese government has decided to nurture its own large pharmaceutical companies, by encouraging the consolidation of its government-owned companies which, even though the company is not government-owned, may also present the company with acquisition opportunities. To this end, the Chinese State Economic and Trade Commission (SETC) announced plans to consolidate the industry and support the development of 10 to 15 largest pharmaceutical firms. As the industry undergoes further consolidation, the Company may have the opportunity to grow by acquisition.

Raw Materials and Principal Suppliers

The raw materials used to manufacture our products include various medicinal herbs, which we obtain from numerous qualified suppliers with national qualifications. We also enter into trading agreements for the supply of many of the materials used to manufacture and package our products. Xi’an Pharmaceuticals Jinghe Branch has written agreements with substantially all of its suppliers.

The five largest suppliers of Xi’an Pharmaceuticals (Jinghe Branch) in 2011 are set forth below:

	Supplier	Product	%
1	Shaanxi Daxin Plastics Co., Ltd.	Packaging Materials	17.51%
2	Shaanxi Chemical Glass Equipment Co., Ltd.	Packaging Materials	15.62%
3	Xi’an Tianyi Biotechnology Co., Ltd.	Raw Material	13.39%
4	Gansu Nongken Medical Materials Co., Ltd.	Raw Material	10.80%
5	Bao ji City Chenchang District Jieli Carton Plant	Packaging Materials	9.98%

The five largest suppliers of Xi’an Pharmaceuticals (Hanzhong Branch) in 2011 are set forth below:

	Supplier	Product	%
1	Xi’an Xihu Glass Co., Ltd.	Packaging Materials	31.24%
2	Shaanxi Daxin Plastics Co., Ltd.	Packaging Materials	30.06%
3	Xi’an Tianyi Biotechnology Co., Ltd.	Raw Material	26.58%
4	Xi’an Xibei Packaging Co., Ltd.	Packaging Materials	4.25%
5	Bao ji City Chenchang District Jieli Carton Plant	Packaging Materials	4.06%

The five largest suppliers of Xi’an Pharmaceuticals (Jinghe Branch) in 2010 are as follows:

	Supplier	Product	%
1	Shaanxi Daxin Plastics Co., Ltd.	Packaging Materials	17%
2	Xi’an Tianyi Bio-Tech Co. Ltd.	Raw Material	17%
3	Shaan xi Qiangli Technology Co., Ltd	Raw Material	9%
4	Shaan xi Huabo Machinary Company	Packaging Materials	9%
5	Bao ji City Chenchang District Jieli Carton Plant	Packaging Materials	7%

The five largest suppliers of Xi’an Pharmaceuticals (Hanzhong Branch) in 2010 are as follows:

	Supplier	Product	%
1	Xi'an Xihu Glass Co., Ltd	Raw Materials and Packaging Materials	28%
2	Xi’an Tianyi Bio-Tech Co. Ltd.	Raw Material and Packaging Materials	22%
3	Shaanxi Daxin Plastics Co., Ltd..	Raw Material and Packaging Materials	19%
4	Xixiang County Fang zheng Carton Plant	Raw Material and Packaging Materials	7%
5	Proportion of Purchase from Shandong Zibo Maosheng Pharmaceutical Package Co. Ltd.	Raw Material and Packaging Materials	6%

The five largest suppliers of Xi’an Pharmaceuticals (Jinghe Branch) in 2009 are as follows:

	Supplier	Product	%
1	Shaanxi Daxin Plastics Co., Ltd.	Packaging Materials	19 %
2	Xi’an Acetar Bio-Tech Co. Ltd.	Raw Material and Supplementary	14%
3	Kanghua Package Co. Ltd.	Packaging Materials	6%
4	Jieli Carton Company in Chenchang District, Baoji City	Packaging Materials	6%
5	Xi’an No. 1 Printing Factory	Packaging Materials	6%

The five largest suppliers of Xi’an Pharmaceuticals (Hanzhong Branch) in 2009 are as follows:

	Supplier	Product	%
1	Shaanxi Daxin Plastics Co., Ltd.	Raw Materials and Packaging Materials	23%
2	Xi'an Xihu Glass Co., Ltd.	Raw Material and Packaging Materials	16%
3	Shaanxi Dayang Label Co. Ltd.	Raw Material and Packaging Materials	6%
4	Shandong Zibo Maosheng Pharmaceuticals Package Co. Ltd.	Raw Material and Packaging Materials	6%
5	Proportion of Purchase from Shandong Zibo Maosheng Pharmaceutical Package Co. Ltd.	Raw Material and Packaging Materials	6%

Intellectual Property

We regard our service marks, trademarks, trade secrets, patents and similar intellectual property as critical factors to our success. We rely on patent, trademark and trade secret law, as well as confidentiality and license agreements with certain of our employees, customers and others to protect our proprietary rights.

We have numerous trademarks evidenced by Trademark Registration Certificates for our pharmaceutical products, including all kinds of injections tablets, capsules, syrups, oral solutions, medicinal liquor and tincture. These trademarks distinguish our pharmaceutical products from those of our competitors. We regard our trademarks, copyrights domain names, trade dress, trade secrets, proprietary technologies and similar intellectual property as important to our success, and we rely on trademark and copyright law, trade-secret protection, and confidentiality and \or license agreements with our employees, customers, partners, suppliers and others to protect or proprietary rights. In an effort to protect our intellectual property, all of our employees are required to follow our confidentiality principles. We have received trademark registration certificates for the following marks: XiaoNengRen, ShuangTu, JiaYi, LuoYiShu, JunLiQing, Qinba DouJing and ZhuoQing.

Research and Development

Research and development costs are related primarily to the development of new drugs by the Company. The Company also develops new products through arrangements and cooperation with several research institutes to develop new pharmaceutical products. The Company only pays these institutes for their research expenses if the research goals are accomplished, including certification of the product and approval for production, and these achievements are then transferred to the Company and recorded as intangible assets. There was no research and development expense in 2011 and 2010.

Compliance With Government Regulations

Environmental Laws

Xi’an Pharmaceuticals’ operations and facilities are subject to environmental laws and regulations stipulated by the national and the local environment protection bureaus in the PRC. Relevant laws and regulations include provisions governing air emissions, water discharges and the management and disposal of hazardous substances and wastes. The PRC regulatory authorities require pharmaceutical companies to carry out environmental impact studies before engaging in new construction projects to ensure that their production processes meet the required environmental standards.

Xi’an Pharmaceuticals maintains controls at its production facilities to facilitate compliance with environmental rules and regulations. Xi’an Pharmaceuticals is not aware of any investigations, prosecutions, disputes, claims or other proceedings in respect of environmental protection, nor has it been subject to any action made by any environmental administration authorities of the PRC. To management’s knowledge, Xi’an Pharmaceuticals’ operations meet or exceed the existing requirements of the PRC.

During the last two years, Xi’an Pharmaceuticals did not incur any expenses on environmental compliance.

Advertising Laws

Advertisement Law of the PRC and Rules of Medicine Advertisements Management from State Admission for Industry and Commerce, Regulations on Control of Advertisements (tentative) from State Council provide guidelines for advertising prescription and OTC drugs and nutrients made by Xi’an Pharmaceuticals. The rules limit where advertisements may be place and govern the claims that may be made by the manufacturer.

Insurance Catalogue

Pursuant to the Decision of the State Council on the Establishment of the State Basic Medical Insurance System for Urban Employees and the Implementation Measures for the Administration of the Scope of Medical Insurance Coverage for Pharmaceuticals for Urban Employees, the Ministry of Labor and Social Security in the PRC established the Insurance Catalogue. The Insurance Catalogue is divided into Parts A and B. The medicines included in Part A are designated by the Chinese governmental authorities for general application. Local governmental authorities may not adjust the content of medicines in Part A. Although the medicines included in Part B are designated by Chinese governmental authorities in the first instance, provincial level authorities may make limited changes to the medicines included in Part B, resulting in some regional variations in the medicines included in Part B from region to region.

Patients purchasing medicines included in Part A are entitled to reimbursement of the costs of such medicines from the social medical fund in accordance with relevant regulations in the PRC. Patients purchasing medicines included in Part B are required to pay a predetermined proportion of the costs of such medicines.

The medicines included in the Insurance Catalogue are selected by the Chinese government authorities based on various factors including treatment requirements, frequency of use, effectiveness and price. Medicines included in the Insurance Catalogue are subject to price control by the Chinese government. The Insurance Catalogue is revised every two years. In connection with each revision, the relevant provincial drug authority collects proposals from relevant enterprises before organizing a comprehensive appraisal. The SFDA then makes the final decision on any revisions based on the preliminary opinion suggested by the provincial drug administration. Approximately 40% of our revenues are derived from pharmaceutical products listed in the Insurance Catalogue so that purchasers can receive reimbursement on these products. Removal of a significant portion of these products from the Insurance Catalogue would adversely affect our total revenue.

Price Controls

The prices of approximately 1,500 pharmaceuticals are presently set by the PRC government. These constitute approximately 10% of all distributed drugs. The prices for the other 90%, or approximately 12,000 pharmaceuticals, are established by the market (by the companies themselves). Corporations typically establish these prices based on operating costs, and market supply and demand. The Supervision Department of the PRC government will intervene only if there is a significant fluctuation in prices or a monopoly develops in a particular drug. We have not had any products subject to specific pricing control and production and trading of none of our pharmaceutical products constitutes a monopoly.

Employees

We have approximately 344 full-time, salaried employees who receive labor insurance. These employees are organized into a union under the labor laws of China and can bargain collectively with us. In addition, we employ over 112 sales representatives who are paid on a commission basis. These representatives are not part of the union. We maintain good relations with our employees.

Executive Offices

Our principal executive offices are located at 24th Floor, Building A, Zhengxin Mansion, No. 5 of 1st Gaoxin Road, Xi’an, the PRC 710075. Our telephone number is 86-29-84067215. Our website is located at http://www.chinapharmaceuticalsinc.com. Information on our website or any other website is not a part of this report.

Item 1A. Risk Factors.

Not applicable.

Item 1B.

Unresolved Staff Comments.

Not applicable.

Item 2.

Properties.

Our headquarters are located at 24th Floor, Building A, Zhengxin Mansion, No. 5 of 1st Gaoxin Road, Hi-Tech Development Zone, Xi’an City, PRC. Our building that houses our headquarters was purchased by Xi’an Pharmaceuticals on November 8, 2002 and occupies approximately 751 square meters of space.

We manufacture and package our products at two factories, one located in Xixiang County in Hanzhong and one in Xi’an Jinghe Industrial Zone, PRC. The Hanzhong factory, which was built in 1970, is approximately 12,000 square meters with 800 square meters purified. This production facility has two production lines for high-volume injection and produces 38 pharmaceutical products with different specifications. This production facility primarily manufactures products of infusion kind. This production facility has 87 sets of machines and supporting parts for pharmaceutical production from domestic and foreign suppliers.

The Xi’an Jinghe factory, which was built in 2006, is approximately 21,000 square meters with 7,000 square meters purified and 15,000 square meters verdurization area. This facility primarily produces low-volume injection, troches, capsules, granules, species, syrups, oral solutions, tincture mixture and lyophilized powder injections. This production facility has 567 sets of machines.

Each facility is an independent production base that can process raw materials to finished goods, including packaging. We obtain our packing materials from Xi’an Printing Factory and we obtain the aluminum foil used in tablet production from Xi’an Haoyu Packing Co., Ltd.

All land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants landholders a "land use right" after a purchase price for such "land use right" is paid to the government. The "land use right" allows the holder the right to use the land for a specified long-term period of time and enjoys all the incidents of ownership of the land. The following are the details regarding HBOP’s land use rights with regard to the land that it uses in its business.

We have land use rights to the parcels of land on which our two production bases are located. The Hanzhong production base covers an area of 28 mu with building area of 12,000 square meters. The Xi’an Jinghe production base covers an area of 42,000 square meters, and building area of 21,000 square meters. The land use rights for the parcel in Xi’an Jinghe expires on September 30, 2053, and the land use right for the parcel in Hanzhong expires on April 27, 2053.

Item 3.

Legal Proceedings.

ValueRich, Inc. (“ValueRich”) commenced a private arbitration against the Company in Florida asserting breach of contract, conversion, and unjust enrichment claims arising out of a Consulting Agreement between ValueRich and Xi’an Pharmaceuticals, which is the operating entity that a Company’s wholly owned subsidiary has a contractual Entrust Management Relationship. ValueRich asserts that the Company breached and circumvented the Consulting Agreement by terminating it and becoming a public entity through other means. ValueRich seeks specific performance to obtain 20% of the Company’s outstanding shares, or, in the alternative, unspecified monetary damages equal to the value of 20% of the Company’s outstanding shares, attorneys’ fees, arbitration costs, and interest.

On December 6, 2011, the Arbitrator heard a hearing on ValueRich’s claims.

We know of no other material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any other material proceeding or pending litigation.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock, $0.001 par value per share, is traded on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “CFMI”. Prior to March 30, 2010, we traded under the symbol “AREN”.

The following table sets forth the reported high and low closing bid quotation for CMFI’s common stock by quarter for the fiscal years of 2010 and 2011 reported on the OTCBB. The bid prices reflect inter-dealer quotations, do not include retail mark-up, markdowns or commissions and do not necessarily reflect actual transactions.

Period	High		Low
October 1, 2011 to December 31, 2011		0.15		0.11
July 1, 2011 to September 30, 2011		6.00		0.15
April 1, 2011 to June 30, 2011		5.09		0.75
January 1, 2011 to March 31, 2011		5.10		2.55
October 1, 2010 to December 31, 2010		6.00		4.09
July 1, 2010 to September 30, 2010		5.70		1.01
April 1, 2010 to June 30, 2010		1.92		0.85
January 1, 2010 to March 31, 2010		1.44		0.51

Holders

As of May 4, 2012, we had 136 shareholders of record of our common stock and 75,237,972 shares of our common stock outstanding.

Penny Stock Regulations

The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share. Our common stock, falls within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.

Dividends

Our Board of Directors has not declared a dividend on our common stock during the last two fiscal years and we do not anticipate the payments of dividends in the near future as we intend to reinvest our profits to grow operations.

Recent Sales of Unregistered Securities

There were no sales of unregistered securities during the fiscal year ended December 31, 2011 other than those transactions previously reported to the SEC on the Company’s quarterly reports on Form 10-Q and current reports on Form 8-K.

Securities Authorized for Issuance Under Equity Compensation Plan Information

2011 Stock Incentive Plan

On May 10, 2011, our board of directors approved a 2011 Stock Incentive Plan which authorized the Company to issue up to 6,840,000 shares of the Company’s common stock to our employees, officers, and directors, and our consultants and advisors. We also filed a related Form S-8 with the SEC to register the shares under the 2011 Stock Incentive Plan which became effective on May 10, 2011. As of May 4, 2012, we had issued all the shares under the 2011 Stock Incentive Plan.

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)			(c)
Equity compensation plans approved by security holders		0		$	0		0
Equity compensation plans not approved by security holders		0			0		0
Total		0		$	0		0

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operation of the Company for the years ended December 31, 2011, and 2010, should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of our filings with the Securities and Exchange Commission for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report contains forward-looking statements. For this purpose, any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements, including any statements relating to future actions and outcomes including but not limited to prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expense trends, future interest rates, outcome of contingencies and their future impact on financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “contemplates,” “predicts,” “potential,” or “continue” or variations and/or the negative of these similar terms. Forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company, us, our future performance, our beliefs and our Management’s assumptions. All forward-looking statements made in this Annual Report, including any future written or oral statements made by us or on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. Any assumptions, upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash. Please refer to Part II, Item 7 under “Liquidity and Capital Resources” and Part I, Item 1A under “Risk Factors” contained in this Annual Report for additional discussion. Please also refer to our other filings with the Securities and Exchange Commission. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.

Overview

China Pharmaceuticals, Inc. (the "Company”), formerly named Allstar Restaurants, was incorporated in Nevada on December 22, 2004. China Qinba Pharmaceuticals, Inc. (“China Qinba”), a wholly-owned subsidiary of the Company, was incorporated in Delaware on May 29, 2008. China Qinba formed and owned 100% of Xi’an Development Co., Ltd. (“Xi’an Development” or the “WFOE”) in the People’s Republic of China (“PRC”) on August 18, 2008.

On October 28, 2008, WFOE entered into a series of agreements including a Management Entrustment Agreement, a Shareholders’ Voting Proxy Agreement, an Exclusive Option Agreement and a Share Pledge Agreement (the “Agreements”) with Xi’an Qinba Pharmaceutical Co., Ltd ("Xi’an Pharmaceuticals") and its shareholders (the “Transaction”). Xi’an Pharmaceuticals is a corporation formed under the laws of the PRC. According to these Agreements, WFOE acquired management control of Xi’an Pharmaceuticals whereby WFOE is entitled to all of the net profits of Xi’an Pharmaceuticals as a management fee, and is obligated to fund Xi’an Pharmaceuticals’ operations and pay all of the debts. In exchange for entering into the Agreements, on October 28, 2008, China Qinba, the parent company of WFOE, issued 25,000,000 shares of its common stock to Xi’an Pharmaceuticals’ owners, representing approximately 80% of the its common stock outstanding after the Transaction. Consequently, the owners of Xi’an Pharmaceuticals own a majority of China Qinba’s common stock immediately following the Transaction. Therefore, the Transaction is being accounted for as a "reverse acquisition", and Xi'an Pharmaceuticals is deemed to be the accounting acquirer in the reverse acquisition between Xi'an Pharmaceuticals and WFOE.

These contractual arrangements completed on October 28, 2008 provide that WFOE has controlling interest in Xi’an Pharmaceuticals as defined by FASB Accounting Standards Codification (“ASC”) 810, Consolidation, Section 10-15, “Variable Interest Entities” (“VIE”), which requires WFOE to consolidate the financial statements of Xi’an Pharmaceuticals and ultimately consolidate with its parent company, China Qinba. The WFOE, as an entity that consolidates a Variable Interest Entity is called the primary beneficiary of the VIE. Accordingly the WFOE is the primary beneficiary of Xi’an Pharmaceuticals.

On February 12, 2010, the Company completed its merger with China Qinba in accordance with a Merger Agreement (the “Merger Transaction”). Prior to the reverse merger, the Company was a non-operating public shell corporation. Pursuant to Securities and Exchange Commission rules, the merger or acquisition of a private operating company into a non-operating public shell corporation with nominal net assets is considered a capital transaction in substance, rather than a business combination. Accordingly, for accounting purposes, the transaction has been treated as a reverse acquisition and a recapitalization, and pro-forma information is not presented. Transaction costs incurred in the reverse acquisition have been charged to expense, The Company (the legal acquirer) is considered the accounting acquiree and China Qinba (the legal acquiree) is considered the accounting acquirer for accounting purposes. Pursuant to the Merger Agreement, the Company issued 56,000,000 shares of common stock to the shareholders China Qinba in exchange for 100% of the outstanding shares of China Qinba. Immediately after the Closing, the Company had a total of 64,083,354 shares of common stock outstanding, with all of the shareholders of China Qinba (and their assignees) owning approximately 87.39 % of the Company’s outstanding common stock, and the balance held by those who held the Company’s common stock prior to the Closing. Subsequent to the Merger Transaction, the financial statements of the combined entity will in substance be those of China Qinba. The assets, liabilities and historical operations prior to the Merger Transaction will be those of China Qinba. Subsequent to the date of the Merger Transaction, China Qinba is deemed to be a continuation of the business of the Company. Therefore, post-merger financial statements will include the consolidated balance sheets of the Company and China Qinba, the historical operations of the Company and China Qinba from the closing date of the Merger Transaction forward.

Upon the closing of the Merger Transaction, the Company changed its name from Allstar Restaurants to China Pharmaceuticals, Inc.

The Company, through its subsidiary and exclusive contractual arrangement with Xi’an Pharmaceuticals, is engaged in the business of manufacturing and marketing over-the-counter (“OTC”) and prescription pharmaceutical products which include capsules, granules and powder type medicines. The Company currently sells 85 kinds of pharmaceutical products and processes approval of State Food and Drug Administration for all the products it markets.

Comparison of the Years ended December 31, 2011 and 2010

The following table sets forth the results of our operations for the years ended December 31, 2011 and 2010 indicated as a percentage of net sales:

	2011				2010
	$		% of Sales		$		% of Sales
Sales		22,753,686				34,184,906
Cost of Goods Sold		9,981,077		44%		14,748,241		43%
Gross Profit		12,772,609		56%		19,436,665		57%
Operating Expenses		16,483,782		72%		9,014,084		26%
Income (Loss) from Operations		(3,711,173)		(16)%		10,422,581		31%
Other Income (Expenses), net		87,622		-%		(19,377)		-%
Income Tax Expense		214,698		1%		1,994,046		6%
Net Income (Loss)		(3,838,249)		(17)%		8,409,158		25%

Sales

In the year ended December 31, 2011, we had sales of $22,753,686, a decrease of 33% as compared to $34,184,906 in the same period of 2010. This decrease was primarily due to decrease in production volume starting from the second quarter as a result of our preparation for GMP certification. In order to meet the requirements of GMP certification, we had to upgrade our machinery and equipment and provide training to our employees, which interrupted our production. We expect our sales will gradually increase as our production capacity is restored to normal level after the GMP certification.

Cost of Goods Sold

Cost of goods sold consisted of costs of raw materials, salary, fuel and electricity, costs related to manufacturing workshop, and others. Cost of goods sold decreased to $9,981,077 for the year ended December 31, 2011, representing a 32% decrease as compared to $14,748,241 for the year ended December 31, 2010. This decrease was primarily due to a decrease in sales and production volume. The cost of goods sold as a percentage to the sales was 44% for the year ended December 31, 2011 as compared to 43% for the year ended December 31, 2010. The slight increase in cost of goods sold as a percentage to the sales was attributable to increase in costs of raw materials, which resulted from the overall inflation in the PRC.

Gross Profit

Gross profit decreased 34% to $12,772,609 for the year ended December 31, 2011 as compared to $19,436,665 for the year ended December 31, 2010. Our gross profit margin decreased slightly from 57% for the year ended December 31, 2010 to 56% for the year ended December 31, 2011. The decrease in gross margin was a result of increase in cost of goods sold as a percentage to sales.

Operating Expenses

Operating expenses consisted of selling, general and administrative expenses. Operating expenses were $16,483,782 for the year ended December 31, 2011, an increase of 83% as compared to $9,014,084 for the year ended December 31, 2010. This increase was primarily due to 1) stock compensation expenses of $4,856,400 for 6,840,000 shares issued to officers and consultants pursuant to an employee incentive plan and 2) provision for fixed assets impairment of $2,957,175 as a result of one of our factories ceased production since January 2012 due to reconstruction of the plant in accordance with the GMP standards.

Other Income

Other income was $87,622 for the year ended December 31, 2011, compared with other expenses of $19,377 for the same period of 2010, an increase of $106,999 or 552%. The increase in other income was primarily due to an increase in interest income from $21,636 for the year ended December 31, 2010 to $90,796 for the year ended December 31, 2011 resulting from increase in bank deposits, and decrease in interest expense as a result of retirement of all the short term loans in the year ended December 31, 2011.

Net Income (Loss)

Net loss was $3,838,249 for the year ended December 31, 2011, a decrease of $12,247,407 from net income of $8,409,158 for the year ended December 31, 2010. Our net profit margin decreased 42% from 25% for the year ended December 31, 2010 to (17)% for the year ended December 31, 2011. This decrease was primarily attributable to the significant increase in operating expenses and decrease in sales.

Liquidity and Capital Resources

Overview

We had net working capital of $20,502,584 at December 31, 2011, an increase of $3,780,247 from $16,722,337 at December 31, 2010. The ratio of current assets to current liabilities was 9.72 at December 31, 2011.

The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2011 and 2010:

	2011				2010
Cash provided by (used in):
Operating Activities		$	13,937,964			$	1,075,214
Investing Activities			(2,906,558	)			(3,297,694	)
Financing Activities			650,100				133,559

Net cash provided by operating activities

Net cash provided by operating activities was $13,937,964 for the year ended December 31, 2011, an increase of $12,862,750 from $1,075,214 for the year ended December 31, 2010. The increase in cash inflow was primarily attributable to decrease in inventory on hand and timely collection on accounts receivable, despite of decrease in net income and increase in payment of tax.

Net cash used in investing activities

Net cash used in investing activities was $2,906,558 for the year ended December 31, 2011, compared to $3,297,694 cash used in investing activities for the year ended December 31, 2010. The cash outflow was due to the purchase of fixed assets of $181,592 and construction in progress of $2,724,964 for the year ended December 31, 2011, while $3,297,694 was used to purchase fixed assets in the year ended December 31, 2010. On November 29, 2011, we entered into a construction agreement with Shanxi Zi’an Property Development Limited Company for the factory workshop improvement for $3,491,565. The project was commenced in December 2011, and will be completed in July 2012. We have paid $2,793,252 and are obligated to pay the remaining $698,313 on February 27, 2012.

Net cash provided by financing activities

Net cash provided by financing activities was $650,100 for the year ended December 31, 2011, compared to $133,559 cash provided by financing activity for the year ended December 31, 2010. We had $650,100 short-term advance from two shareholders in the year ended December 31, 2011. We paid off a short term loan of $2,511,264 in the year ended December 31, 2010, which was partially offset by cash inflow of approximately $1 million from the exercise of warrants and $1,579,483 proceeds from the stock issuance.

Contractual Obligations and Off-Balance Sheet Arrangements

We have certain fixed contractual obligations and commitments that may include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.

We signed two contracts with Xi’an Keli, a local pharmaceutical company to purchase two medicine formulations that were in the process of completion of their research and development and obtaining of patent from the relevant PRC Government Authority from them; the total contracted amount was approximately $4.7 million (RMB 30 million). As of December 31, 2011, we paid $3.9 million (RMB 25,000,000), and the remaining $0.8 million (RMB 5 million) will be paid upon the Company obtaining the registration certificate of the medicine. In the event that the registration certificate and related medicine production permit cannot be obtained, Keli is obligated to return the prepayment of $3.9 million. These two contracts will expire on May 3, 2013. On June 30, 2011, the Company entered into a supplemental agreement with Keli for changing the final completion date to March 31, 2014 as a result of implementing the new medicine manufacturing GMP standards issued in February 2011 by PRC Food and Drug Administration (“PRC FDA”) into the medicine formulation research and development process. Since 2011, PRC government has been strengthening the supervision of food and drug safety and upgrading large amount of medicine quality standards. Accordingly, on April 23, 2012, the Company and Keli entered into a supplemental agreement for further extension of the final completion date on March 30, 2016 due to increased R&D work and testing cycle as a result of enhanced quality control standards and government regulation. Based on the agreement, if Keli cannot obtain the patents of new medicine formulation from the relevant PRC Governmental Authority as set out in the agreement before the agreement expiration date, Keli will refund the full amount of the prepayment to the Company within 30 days of the agreement expiration date.

Our anticipated needs for the future are to be negotiated in accordance with manufacturing and operation needs, and market conditions of next year.

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management’s discussion and analysis.

Use of Estimates

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

The standard credit period of the Company’s most of client is three months. Within the medical industry in China, the collection period is generally longer than for other industries. Management evaluates the collectability of the receivables at least quarterly. The estimated average collection period was 90 days.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104, “Revenue Recognition”, included in the Codification as ASC 605, Revenue Recognition. Sales revenue is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Revenue is reported net of VAT. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company has one revenue source from manufacturing and selling the pharmaceutical products, and does not allow its customers to return products. The Company’s customers can exchange products only if they are damaged in transportation.

Income Taxes

The Company utilizes SFAS No. 109, “Accounting for Income Taxes”, included in the Codification as ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company adopted the provisions of the FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (codified in FASB ASC Topic 740). When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified as selling, general and administrative expense in the statements of income.

Inflation

Inflation in recent years has affected the business results of the Company. First of all, on the global economic expansion, supply has been restricted and coupled with the fact that USA has adopted a relaxed currency policy etc., these increase inflation risks. Secondly, GNP increases in China also elevates consumption ability and production cost, prices increase as a natural tendency. Finally, as a result of the macro economic trends and price increases, the Company’s procurement prices are also affected resulting in increase in cost of sales.

The Company operates in China and as such, the Company’s business activities, financial position and operational results will be affected by PRC politics, economic and legal environments and also affected by the overall economic situation of China. The business of the Company may be affected by the relevant laws, regulations, anti-inflation measures, currency conversion and overseas remittance and exchange rates issues etc. that are related to China politics.

New Accounting Pronouncements

In December 2011, the FASB issued Accounting Standards Updates No. 2011-11, “Balance Sheet (Topic 210): Disclosure about Offsetting Assets and Liabilities,” (“ASU 2011-11”). ASU 2011-11 enhances disclosure regarding financial instruments and derivative instruments. Entities are required to provide both net information and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAO and those entities that prepare their financial statements on the basis of IFRS. This new guidance is to be applied retrospectively. The adoption of these provisions does not have a material impact on the Company’s consolidated s financial statements.

In September 2011, FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (ASC Topic 350): Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU No. 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the effect that the adoption of this pronouncement will have on its financial statements.

In May 2011, the FASB issued ASU 2011-04, which was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for the Company beginning on January 1, 2012. The adoption of ASU 2011-04 is not expected to significantly impact the Company’s consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 8. Financial Statements and Supplementary Data.

CHINA PHARMACEUTICALS INC.

CONSOLIDTAED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

Reports of Independent Registered Public Accounting Firms

Report of Clement C. W. Chan & Co.	F-2

Report of Acquarella, Chiarelli, Shuster, Berkower & Co., LLP	F-3

Financial Statements

Consolidated Balance Sheets	F-4

Consolidated Statements of Operations and Comprehensive Income	F-5

Consolidated Statements of Cash Flows	F-6

Consolidated Statements of Stockholders’ Equity	F-7

Notes to Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of China Pharmaceutical Inc.

We have audited the accompanying consolidated balance sheet of China Pharmaceutical Inc. as of December 31, 2011, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for the year then ended. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Pharmaceutical Inc. as of December 31, 2011, and the consolidated results of its operations and its consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 16 to the accompanying consolidated financial statements, the consolidated financial statements of the Company for the year ended December 31, 2010 have been restated.

Clement C. W Chan & Co.

Certified Public Accountants

3/F., & 5/F., Heng Shan Centre, 145 Queen's Road East, Wanchai, Hong Kong

April 23, 2012

F-2

ACSB
517 Route One Iselin, New Jersey 08830 732. 855.9600 Fax:732.855.9559 www.acsbco.com	Certified Public Accountants and Advisors

REPORT ON INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

China Pharmaceutical Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of China Pharmaceutical Inc. and Subsidiaries (the "Company") as of December 31, 2010, and the related consolidated statement of income and other comprehensive income, stockholders' equity and cash flows for the year ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Pharmaceuticals Inc. and Subsidiaries as of December 31, 2010, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

New York, New York

April 15, 2011

Except for Note 16 May 2, 2012

F-3

CHINA PHARMACEUTICALS INC.

COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2011 AND 2010

	Notes		2011		2010 (RESTATED)
ASSETS

CURRENT ASSETS
Cash & cash equivalents			$	16,947,343	$	4,729,149
Accounts receivable, net of doubtful accounts of $897,765 and $1,115,319 at December 31, 2011 and 2010, respectively				5,150,061		12,673,111
Inventory		2		193,199		1,019,393
Deposits and other receivables				83,460		540,051
Income tax receivable				343,742		-
Deferred tax asset		9		134,665		-
Due from officer				-		5,587

Total current assets				22,852,470		18,967,291

NONCURRENT ASSETS
Prepayment for patents		3		3,967,687		3,834,474
Property and equipment, net		2		12,537,315		16,188,472
Construction in progress		4		2,793,252		-
Intangible assets		2		8,522,566		8,640,733
Deferred tax asset		9		454,692		-

Total noncurrent assets				28,275,512		28,663,679

TOTAL ASSETS			$	51,127,982	$	47,630,970


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable			$	217,613	$	446,462
Accrued liabilities and other payables		5		1,467,944		952,651
Value-added and other tax payable				14,229		435,614
Income tax payable				-		410,227
Due to a shareholder		6		650,100		-

Total current liabilities				2,349,886		2,244,954

CONTINGENCIES AND COMMITMENT

STOCKHOLDERS' EQUITY
Common stock, par value, $0.001 per share; 150,000,000 shares authorized, 75,237,972 and 68,397,972 shares issued and outstanding at December 31, 2011 and 2010, respectively				75,238		68,398
Paid in capital				16,231,557		11,381,997
Statutory reserve		12		3,274,593		3,274,593
Accumulated other comprehensive income				5,931,371		3,557,442
Retained earnings				23,265,337		27,103,586

Total stockholders' equity				48,778,096		45,386,016

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$	51,127,982	$	47,630,970

F-4

CHINA PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF OPERATION AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2011 and 2010

	Notes	2011			2010 (Restated)

Sales		$	22,753,686		$	34,184,906

Cost of goods sold			9,981,077			14,748,241

Gross profit			12,772,609			19,436,665

Operating expenses
Selling, general and administrative expenses			13,794,411			8,434,572
Provision for impairment loss on property	2		2,957,175			-
(Recovery) / reserve of bad debt allowance			(267,804	)		579,512

Total operating expenses			16,483,782			9,014,084

Income (loss) from operations			(3,711,173	)		10,422,581

Non-operating income (expenses)
Interest income			90,796			21,636
Interest expense			-			(29,565	)
Financial expense			(839	)		(435	)
Other expense			(2,335	)		(11,013	)

Total non-operating income (expenses), net			87,622			(19,377	)

Income (loss) before income tax			(3,623,551	)		10,403,204

Income tax expense	10		214,698			1,994,046

Net income (loss)			(3,838,249	)		8,409,158

Other comprehensive item
Foreign currency translation			2,373,929			1,216,059

Comprehensive Income (loss)		$	(1,464,320	)	$	9,625,217

Weighted average common shares outstanding
Basic	2		73,176,602			65,200,378

Diluted	2		73,176,602			67,108,713

Basic earnings (loss) per share	2	$	(0.05	)	$	0.13

Diluted earnings (loss) per share *	2	$	(0.05	)	$	0.13


* For the purpose of calculating diluted earnings per share, the warrants issued were excluded due to anti-dilution.

F-5

CHINA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011 and 2010

	Common Stock Shares		Amount		Stock subscribed Shares			Amount			Paid- in capital			Subscription receivable			Statutory reserves		Accumulated comprehensive income		Retained earnings			Total shareholders’ equity

Balance at January 1, 2010 (Restated)		56,000,000	$	56,000		25,000		$	25		$	6,527,925		$	(1,000	)	$	2,137,797	$	2,341,383	$	19,831,224		$	30,893,354

Capital Contribution		-		-		(25,000	)		(25	)		64,365			1,000			-		-		-			65,340

Recapitalization on reverse acquisition		8,083,354		8,083		-			-			(8,083	)		-			-		-		-			-

Warrants exercised		2,000,004		2,000		-			-			998,000			-			-		-		-			1,000,000

Issuance of common stock		2,314,614		2,315		-			-			1,577,168			-			-		-		-			1,579,483

Stock based compensation - note 13		-		-		-			-			2,222,622			-			-		-		-			2,222,622

Net income		-		-		-			-			-			-			-		-		8,409,158			8,409,158

Transfer to statutory reserves		-		-		-			-			-			-			1,136,796		-		(1,136,796	)		-

Foreign currency translation gain		-		-		-			-			-			-			-		1,216,059		-			1,216,059

Balance at December 31, 2010 (Restated)		68,397,972		68,398		-			-			11,381,997			-			3,274,593		3,557,442		27,103,586			45,386,016

Issuance of common stock for compensation - note 13		6,840,000		6,840		-			-			4,849,560			-			-		-		-			4,856,400

Net loss		-		-		-			-			-			-			-		-		(3,838,249	)		(3,838,249	)

Foreign currency translation gain		-		-		-			-			-			-			-		2,373,929		-			2,373,929

Balance at December 31, 2011		75,237,972	$	75,238		-		$	-		$	16,231,557		$	-		$	3,274,593	$	5,931,371	$	23,265,337		$	48,778,096

F-6

CHINA PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 and 2010

		2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(3,838,249	)	$	8,409,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock based compensation expense			5,025,150			2,222,622
Provision of bad debt allowance			(267,804	)		579,512
Provision for impairment loss on property			2,957,175			-
Changes in deferred tax			(574,949	)		-
Loss on assets disposed			2,335			-
Depreciation and amortization			2,143,665			841,089
(Increase) decrease in current assets:
Accounts receivable			8,238,354			(9,427,414	)
Inventory			856,786			(597,980	)
Deposits and other receivables			12,742			(3,565,907	)
Trade deposit paid			-			3,012,607
Increase (decrease) in current liabilities:
Accounts payable			(245,498	)		(313,348	)
Trade deposit received			-			(84,470	)
Accrued liabilities and other payables			817,019			148,219
Taxes payable			(1,188,762	)		(148,874	)

Net cash provided by operating activities			13,937,964			1,075,214

CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisition of property and equipment		(181,594	)		(3,297,694	)
	Construction in progress		(2,724,964	)		-

Net cash used in investing activities			(2,906,558	)		(3,297,694	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayment of short-term bank loans		-			(2,511,264	)
	Warrants exercised		-			1,000,000
	Capital contribution		-			65,340
	Sale of common stock		-			1,579,483
	Due to a shareholder		650,100			-

Net cash provided in financing activities			650,100			133,559

EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS			536,688			132,440

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS			12,218,194			(1,956,481	)

CASH & CASH EQUIVALENTS, BEGINNING OF YEAR			4,729,149			6,685,630

CASH & CASH EQUIVALENTS, END OF YEAR		$	16,947,343		$	4,729,149


Supplemental Cash flow data:
Income tax paid		$	1,545,623		$	2,248,704
Interest paid		$	-		$	28,989

F-7

CHINA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

Note 1 - ORGANIZATION

China Pharmaceuticals, Inc. (“the Company”), formerly named Allstar Restaurants, was incorporated in the United States in Nevada on December 22, 2004. China Qinba Pharmaceuticals, Inc. (“China Qinba”), a wholly-owned subsidiary of the Company, was incorporated in the United States in Delaware on May 29, 2008. China Qinba formed and owned 100% of Xi’an Pharmaceuticals Development Co., Ltd. (“Xi’an Pharmaceuticals” or the “WOFE”) in the People’s Republic of China (“PRC”) on August 18, 2008.

On October 28, 2008, WOFE entered into a series of agreements including a Management Entrustment Agreement, a Shareholders’ Voting Proxy Agreement, an Exclusive Option Agreement and a Share Pledge Agreement (the “Agreements”) with Xi’an Qinba Pharmaceutical Co., Ltd ("Xi’an Qinba") and its shareholders (the “Transaction”). Xi’an Qinba is a corporation formed under the laws of the PRC. According to these Agreements, WOFE acquired management control of Xi’an Qinba whereby WOFE is entitled to all of the net profits of Xi’an Qinba as a management fee, and is obligated to fund Xi’an Qinba’s operations and pay all of the debts. In exchange for entering into the Agreements, on October 28, 2008, WOFE issued 25,000,000 shares of its common stock to Xi’an Qinba owners, representing approximately 80% of the Company’s common stock outstanding after the Transaction. Consequently, the owners of Xi’an Qinba own a majority of WOFE's common stock immediately following the Transaction, therefore, the Transaction is being accounted for as a "reverse acquisition", and Xi’an Qinba is deemed to be the accounting acquirer in the reverse acquisition between Xi’an Qinba and WOFE.

These contractual arrangements completed on October 28, 2008 provide that WOFE has controlling interest in Xi’an Qinba as defined by FASB Accounting Standards Codification (“ASC”) 810, Consolidation, Section 10-15, “Variable Interest Entities” (“VIE”), which requires WOFE to consolidate the financial statements of Xi’an Qinba and ultimately consolidate with its parent company, China Qinba (see Note 2, “Principles of Consolidation”). The WOFE, as an entity that consolidates a Variable Interest Entity is called the primary beneficiary of the VIE. Accordingly the WOFE is the primary beneficiary of Xian Qinba.

On February 12, 2010, the Company completed its merger with China Qinba in accordance with a Merger Agreement (the “Merger Transaction”). Prior to the reverse merger, the Company was a non-operating public shell corporation. Pursuant to Securities and Exchange Commission rules, the merger or acquisition of a private operating company into a non-operating public shell corporation with nominal net assets is considered a capital transaction in substance, rather than a business combination. Accordingly, for accounting purposes, the transaction has been treated as a reverse acquisition and a recapitalization, and pro-forma information is not presented. Transaction costs incurred in the reverse acquisition have been charged to expense, The Company (the legal acquirer) is considered the accounting acquiree and China Qinba (the legal acquiree) is considered the accounting acquirer for accounting purposes. Pursuant to the Merger Agreement, the Company issued 56,000,000 shares of Common Stock to the shareholders China Qinba in exchange for 100% of the outstanding shares of China Qinba. Immediately after the Closing, the Company had a total of 64,083,354 shares (post-reverse split) of common stock outstanding, with all of the shareholders of China Qinba Pharmaceuticals (and their assignees) owning approximately 87.39 % of the Company’s outstanding common stock, and the balance held by those who held the Company’s common stock prior to the Closing. Subsequent to the Merger Transaction, the financial statements of the combined entity will in substance be those of China Qinba. The assets, liabilities and historical operations prior to the Merger Transaction will be those of China Qinba. Subsequent to the date of the Merger Transaction, China Qinba is deemed to be a continuation of the business of the Company. As a result, the accompany consolidated financial statements have been retroactively presented to reflect the recapitalization.

Upon the closure of the Merger Transaction, the Company changed its name from Allstar Restaurants to China Pharmaceutical, Inc.

The Company, through its subsidiary and exclusive contractual arrangement with Xi’an Qinba Pharmaceutical Co., Ltd., is engaged in the business of manufacturing and marketing over-the-counter (“OTC”) and prescription pharmaceutical products which include capsules, granules and powder type medicines.

On June 8, 2010, the Company effected a 5 for 6 reverse split of issued and outstanding shares of common stock of the Company without changing the par value of the stock. Shares after reverse split were retroactively restated from beginning of the period for all the periods presented.

On August 23, 2010, the Company sold 2,314,616 (post-reverse split) shares of common stock for approximately $1,600,000. On September 10, 2010 the Company effected a 1 for 3 reverse split of issued and outstanding shares of common stock of the Company without changing the par value of the stock. Shares after reverse split were retroactively restated from beginning of the period for all the periods presented.

On April 21, 2011, the Company issued 6,840,000 (post-reverse split) shares of its common stock to its employees with respect to its 2011 Incentive Stock Plan.

On June 7, 2011, the Company effected a 6 for 1 split of authorized, issued and outstanding shares of common stock of the Company without changing the par value of the stock. The shares outstanding before split were 12,539,662 shares; the shares outstanding after split were 75,237,972. Shares after split were retroactively restated from beginning of the period for all the periods presented.

F-8

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in conformity with US GAAP. The Company's functional currency is the Chinese Yuan Renminbi; however the accompanying consolidated financial statements have been translated and presented in United States Dollars. The accompanying financial statements present the historical financial condition, results of operations and cash flows of the operating companies.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiary and VIE, for which the Company is the primary beneficiary. All inter-company accounts and transactions have been eliminated in consolidation. An enterprise should consolidate a VIE if it has variable interest that provide it with a controlling financial interest as evidenced by (a) the power to direct the activities of the VIE that most significantly impact its economic performance and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

In determining that Xi’an Qinba is a VIE and that Xi’an Pharmaceuticals is the primary beneficiary of Xi’an Qinba, the Company considered the following indicators, among others:

●

Xi’an Pharmaceuticals has the full right to control and administrate the financial affairs and daily operation of Xi’an Qinba and has the right to manage and control all assets of Xi’an Qinba. The equity holders of Xi’an Qinba as a group have no right to make any decision about Xi’an Qinba’s activities without the consent of Xi’an Pharmaceuticals.

●	Xi’an Pharmaceuticals was assigned all voting rights of Xi’an Qinba and has the right to appoint all directors and senior management personnel of Xi’an Qinba. The equity holders of Xi’an Qinba possess no substantive voting rights.

●	Xi’an Pharmaceuticals will provide financial support if Xi’an Qinba requires additional funds to maintain its operations and to repay its debts.

●

Xi’an Pharmaceuticals should be paid a management fee equal to 100% of the earnings before tax. If there are no earnings before taxes and other cash expenses, then no fee shall be paid. If Xi’an Qinba sustains losses, they will be carried over to the next period and deducted from the next management fee. Xi’an Pharmaceuticals should assume all operation risks of Xi’an Qinba and bear all losses of Xi’an Qinba. Therefore, Xi’an Pharmaceuticals is the primary beneficiary of Xi’an Qinba.

Xi’an Qinba is wholly owned by the majority shareholders of the Company. The capital provided to Xi’an Qinba by the Company was recorded as interest-free loan to Xi’an Qinba. There was no written note to this loan and the loan is not interest bearing and was eliminated during consolidation. Under various contractual agreements, the shareholders of Xi’an Qinba are required to transfer their ownership to the Company’s subsidiary in China when permitted by PRC laws and regulations or to designees of the Company at any time when the Company considers it is necessary to acquire Xi’an Qinba. In addition, the shareholders of Xi’an Qinba have pledged their shares in Xi’an Qinba as collateral to secure these contractual arrangements.

Reclassifications

Certain prior year amounts were reclassified to conform to the manner of presentation in the current period. The Company reclassified recovery of bad debt allowance from other income to operating expenses for the year ended December 31, 2010; and prepayment for patents (non–current asset) from deposit (current asset) as of December 31, 2010.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Risks and Uncertainties

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

F-9

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantee, in which case the guarantee would be disclosed.

Cash

Cash and cash equivalents included cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Accounts Receivable

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Costs that are capitalized to inventory primarily include direct manufacturing overhead such as labor costs and packing materials. There was no impairment of inventory for the years ended December 31, 2011 and 2010. As of December 31, 2011 and 2010, inventories consisted of the following:

	2011		2010

Raw materials	$	106,254	$	909,240
Finished goods		86,945		110,153
	$	193,199	$	1,019,393

Property, Plant & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

F-10

Building and improvements	20-42 years
Machinery	8-30 years
Fixture, furniture and equipment	5-15 years
Motor vehicles	5-7 years

Property, Plant & Equipment consisted of the following as of December 31, 2011 and 2010:

	2011			2010 (Restated)
Building and improvements	$	6,212,708		$	6,480,316
Machinery		9,498,795			12,161,799
Fixture, furniture and equipment		151,389			206,243
Motor vehicles		150,558			143,243
		16,013,450			18,991,601
Less: Accumulated depreciation		(3,476,135	)		(2,803,129	)
	$	12,537,315		$	16,188,472

Depreciation expense for the years ended December 31, 2011 and 2010 was approximately $1,597,800 and $319,000, respectively. At December 3, 2011, the Company made a provision for impairment of property and equipment of $3.03 million as a result of one of the Company’s Factory ceased production since January 2012 due to rebuilding the plant to GMP standards. The provision charged in the Consolidated Statements of Operation and Comprehensive Income in the amount of $2,957,175 as impairment loss provision and the balance as exchange loss.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from twenty to fifty years. Management evaluates the recoverability of intangible assets at least annually and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No impairments of intangible assets have been identified during any of the periods presented. The land use right purchased in 2003 will expire in 2053. All of the Company’s intangible assets are subject to amortization with estimated lives of:

Land use right	50 years
Proprietary technologies	20 years

As of December 31, 2011 and December 31, 2010, the components of intangible assets were as follows:

	2011			2010 (Restated)

Land use right	$	1,373,669		$	1,306,921
Proprietary technologies		9,380,943			8,925,119
		10,754,612			10,232,040
Less: Accumulated amortization		(2,232,046	)		(1,591,307	)
	$	8,522,566		$	8,640,733

Amortization expense for the years ended December 31, 2011 and 2010 was $545,790 and $518,980, respectively. The estimated future yearly amortization expenses related to intangible asset as of December 31, 2011 are as follows:


Year 1	$	540,000
Year 2		540,000
Year 3		540,000
Year 4		540,000
Year 5		540,000
Thereafter		5,822,566
	$	8,522,566

F-11

Long-Lived Assets

The Company accounts for long-lived assets in accordance with Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144), included in the Codification as ASC 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business”, included in the Codification as ASC 225, Income Statement. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December 31, 2011, $3.03 million of the Company’s property and equipment was impaired as a result of ceased production of one factory since January 2012 due to rebuild the plant to GMP standards; and as of December 31, 2010, there were no significant impairments of its long-lived assets.

Fair Value of Financial Instruments

Statement of Financial Accounting Standard No. 107, “Disclosures about Fair Value of Financial Instruments”, included in the Codification as ASC 820, Fair Value Measurements and Disclosures, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Fair Value Measurements and Disclosures

ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels are defined as follow:

●

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

	●	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	●	Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

As of December 31, 2011 and December 31, 2010, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

Value Added Tax Payable (“VAT”)

The Company is subject to a value added tax rate of 17% on product sales by the People’s Republic of China. Value added tax payable is computed net of value added tax paid on purchases for all sales in the People’s Republic of China.

Revenue Recognition

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred. For the years ended December 31, 2011and 2010, the Company incurred approximately $2,322,413 and $2,217,000 advertising expense, respectively.

Income Taxes

The Company utilizes SFAS No. 109, “Accounting for Income Taxes”, included in the Codification as ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

F-12

Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified as selling, general and administrative expense in the statements of income. The adoption of FIN 48 did not have a material impact on the Company’s financial statements. At December 31, 2011 and 2010, the Company had not taken any significant uncertain tax position on its tax return for 2011 and prior years or in computing its tax provision for 2011.

Comprehensive Income

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net income, and foreign currency translation adjustments.

Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar. The Company’s operation in China uses Chinese Yuan Renminbi (CNY) as its functional currency. The financial statements of the subsidiary are translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, “Foreign Currency Translation”, included in the Codification as ASC 830, Foreign Currency Matters. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders’ equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income,” as a component of shareholders’ equity, included in the Codification as ASC 220, Comprehensive Income. Foreign exchange transaction gains and losses are reflected in the income statement. The exchange rates used in translation from RMB to USD amount were published by People’s Bank of the People’s Republic of China.

	December 31, 2011	December 31, 2010

Balance sheet items, except for the registered and paid-up capital and retained earnings as of December 31, 2011 and December 31, 2010.	US$1=RMB6.3009	US$1=RMB6.6227
	Year Ended December 31,
	2011	2010

Amounts included in the statements of operations, and statements of cash flow for the year ended December 31, 2011 and 2010.	US$1=RMB6.4588	US$1=RMB6.7695

Statement of Cash Flows

In accordance with SFAS No. 95, “Statement of Cash Flows”, included in the Codification as ASC 230, Statement of Cash Flows, cash flows from the Company’s operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

F-13

Basic and Diluted Earnings (Loss) per Share (EPS)

Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is similarly computed, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted net earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

The following table presents a reconciliation of basic and diluted earnings per share for the years ended December 31, 2011 and 2010:

	2011		2010
Net income (loss)	$	(3,838,249)	$	8,409,158
Weighted average shares outstanding - basic		73,176,602		65,200,378
Effect of dilutive securities:
Warrants issued		1,379,102		1,908,335
Weighted average shares outstanding – diluted *		73,176,602		67,108,713,
Earnings (loss) per share – basic	$	(0.05)	$	0.13
Earnings (loss) per share – diluted	$	(0.05)	$	0.13

* For the purpose of calculating diluted earnings per share, the warrants issued was excluded due to anti-dilution.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Research and Development

Research and development costs are related primarily to the development of new drugs by the Company. Research and development costs are expensed as incurred.

The Company also develops new products through arrangements and corporation with several research institutes to develop new pharmaceutical products. The Company only pays these institutes for their research expenses if the research goals are accomplished, including certification of the product and approval for production, and these achievements are then transferred to the Company and recorded as intangible assets. There was no Research and Development expense in the years ended December 31, 2011 and 2010.

Segment Reporting

Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information”, included in Codification ASC 280, Segment Reporting, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

SFAS 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment of manufacturing and marketing over-the-counter and prescription pharmaceutical products. All of the Company's assets are located in the PRC.

F-14

New Accounting Pronouncements

required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the effect that the adoption of this pronouncement will have on its financial statements.

Note 3 – PREPAYMENTS FOR PATENTS

The Company signed two contracts with Xi’an Keli Pharmaceutical Co., Ltd (“Keli”), a local pharmaceutical company, to purchase two medicine formulation that were in the process of completion of their research and development and obtaining of patent from the relevant PRC Governmental Authority from them; the total contracted amount was approximately $4.7 million (RMB 30 million). As of December 31, 2010, the Company had prepayment for patents of $3,870,688 (RMB 25 million), and was committed to pay the remaining $0.8 million (RMB 5 million) upon the Company obtaining the registration certificate of the medicine. These two contracts will expire on May 3, 2013. On June 30, 2011, the Company entered into a supplemental agreement with Keli for changing the final completion date to March 31, 2014 as a result of implementing the new medicine manufacturing GMP standards issued in February 2011 by PRC Food and Drug Administration (“PRC FDA”) into the medicine formulation research and development process. Since 2011, PRC government has been strengthening the supervision of food and drug safety and upgrading large amount of medicine quality standards; accordingly, on April 23, 2012, the Company and Keli entered into a supplemental agreement for further extension of the final completion date to March 31, 2016 due to increased R&D work and testing cycle as a result of enhanced quality control standards and government regulation. Based on the agreement, if Keli cannot obtain the patents of new medicine formulation, the patents from the relevant PRC governmental Authority as set out in the agreement before the agreement expiration date, Keli will refund the full amount of the prepayment to the Company within 30 days of the agreement expiration date.

F-15

Note 4 – CONSTRUCTION IN PROGRESS

On November 29, 2011, the Company entered the contract for construction of $3,491,565 with Shanxi Zian Property Development Limited Company for the factory workshop improvement. The project was commenced from December 2011, and will finish in July 2012. The Company paid $2,793,252 and is required to pay an additional $698,313 at February 27, 2012.

Note 5 – ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following at December 31, 2011 and December 31, 2010:

	2011		2010
Accrued salaries	$	7,715	$	5,122
Accrued welfare		28,630		33,799
Other payables		15,937		20,463
Accrued expenses - Note 14		1,414,659		877,733
Other levies		1,003		15,534
Total	$	1,467,944	$	952,651

Accrued expenses consisted of accrued employees welfare, insurance, and utilities of the manufacturing plants; and accrual of an arbitration decision of $168,750 representing 1,125,000 shares at $0.15 per share to be awarded to ValueRich (see Note 14).

Note 6 – DUE TO A SHAREHOLDER

As of December 31, 2011, the Company had a short-term loan of $650,100 from its shareholder for the Company’s working capital needs; this loan bore no interest and was payable upon demand.

Note 7 – COMPENSATED ABSENCES

Regulation 45 of local labor law entitles employees to annual vacation leave after 1 year of service. In general all leave must be utilized annually, with proper notification. Any unutilized leave is cancelled.

Note 8 – COMMITMENTS

Purchasing Agreement

The Company signed two contracts with Xi’an Keli, a local pharmaceutical company to purchase two patents of medicine formulation from them; the total contracted amount was approximately $4.7 million (RMB 30 million). As of December 31, 2011, the Company paid $3.9 million (RMB 25,000,000) as prepayment for patents, and the remaining $0.8 million (RMB 5 million) was committed to pay upon the Company obtaining the registration certificate of the medicine. These two contracts will expire on May 3, 2013. On June 30, 2011, the Company entered into a supplemental agreement with Keli for changing the final completion date to March 31, 2014 as a result of implementing the new medicine manufacturing GMP standards issued in February 2011 by PRC Food and Drug Administration (“PRC FDA”) into the medicine formulation research and development process. Since 2011, PRC government has been strengthening the supervision of food and drug safety and upgrading large amount of medicine quality standards; accordingly, on April 23, 2012, the Company and Keli entered into a supplemental agreement for further extension of the final completion date to March 31, 2016 due to increased R&D work and testing cycle as a result of enhanced quality control standards and government regulation. Based on the agreement, if Keli cannot obtain the patents of new medicine formulation from the relevant PRC governmental Authority as set out in the agreement before the agreement expiration date, Keli will refund the full amount of the prepayment to the Company within 30 days of the agreement expiration date.

F-16

Employment Agreements

Through our wholly-owned subsidiary, China Qinba Pharmaceuticals, Inc., the Company has executed employment agreements with each of its executive officers, specifically, Guozhu Wang, Chief Executive Officer; Guiping Zhang, President and Teo Lei, Chief Financial Officer. Each employment agreement has a term of two years.

On January 1, 2010, the Company entered into a three year Employment Agreement with Guozhu Wang to serve as the Company’s Chief Executive Officer. The Agreement provides for an annual salary of $5,095 and an annual bonus of up to 50% of the executive’s annual salary.

On January 1, 2010, the Company entered into a three year Employment Agreement with Guiping Zhang to serve as the Company’s President. The Agreement provides for an annual salary of $5,622 and an annual bonus of up to 50% of the executive’s annual salary.

On January 1, 2010, the Company entered into a three year Employment Agreement with Tao Lei to serve as the Company’s Chief Financial Officer. The Agreement provides for an annual salary of $4,392 and an annual bonus of up to 50% of the executive’s annual salary.

Note 9 – DEFERRED TAX ASSET

Deferred tax asset represented bad debt allowance, allowance for prepayments for patents, and provision for property impairment booked by the Company, which were not allowed per tax purpose. As of December 31, 2011, and 2010, deferred tax asset consisted of the following:

	2011		2010
Deferred tax asset - current (bad debt allowance)	$	134,665	$	-
Deferred tax asset - current		134,665		-

Deferred tax asset - noncurrent (impairment of fixed assets)	$	454,692	$	-

Note 10 – INCOME TAX

The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

China Pharmaceuticals, Inc., the parent company, was incorporated in the U.S. and has net operating losses (NOL) for income tax purposes. China Pharmaceuticals had no net operating loss carry forwards for income taxes at December 31, 2011, which may be available to reduce future years’ taxable income; NOL can be carried forward up to 20 years from the year the loss is incurred.

The Company’s Chinese subsidiary (WOFE) and VIE were incorporated in the PRC which is governed by the Income Tax Laws of the PRC and various local tax laws. Effective January 1, 2008, China adopted a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises). Currently the Company is not subject to examination by major tax jurisdictions, but the tax authority in PRC has the right to examine the Company’s tax position in all past years.

The Company’s VIE is a high-tech enterprise and under PRC Income Tax Laws, it is entitled to a two-year tax exemption for 2006 through 2007. Starting from 2008, the Enterprise Income Tax (EIT) was at a statutory rate of 15%. The Company recorded $214,698 and $1,994,046 income tax expense for the years ended December 31, 2011 and 2010.

F-17

The following table reconciles the U.S. statutory rates to the Company’s consolidated effective tax rate for the years ended December 31, 2011 and 2010:

	2011			2010
US statutory rates		(34.0	)%		34.0	%
Tax rate difference		9.0	%		(10.9)	%
Effect of tax holiday		9.7	%		(12.2)	%
Permanent difference – nondeductible stock compensation expense		20.8	%		-	%
Others		(0.4	)%		0.9	%
Valuation allowance		0.8	%		7.4	%
Tax per financial statements		5.9	%		19.2	%

The provision for income tax (benefit) for 2011 and 2010 consisted of the following:

	2011			2010
Income tax expense - current	$	789,647		$	1,994,046
Income tax benefit - deferred		(574,949	)		-
Total income tax expense	$	214,698		$	1,994,046

Note 11 – MAJOR CUSTOMERS AND CREDIT RISK

For the year ended December 31, 2011and 2010, no customer accounted for 10% or more of the Company’s sales. Three vendors provided 22%, 12%, and 10% of the Company’s purchases of raw materials for the year ended December 31, 2011; three vendors provided 18%, 12% and 10% of the Company’s purchase of raw materials for the year ended December 31, 2010. At December 31, 2011 and 2010, total payable due to these vendors was approximately $68,752, and $79,500, respectively.

Note 12 – STATUTORY RESERVES

In accordance with the laws and regulations of the PRC, a wholly-owned Foreign Invested Enterprises income, after the payment of the PRC income taxes, shall be allocated to the statutory surplus reserves and statutory public affair fund. Prior to January 1, 2006 the proportion of allocation for reserve was 10 percent of the profit after tax to the surplus reserve fund and additional 5-10 percent to the public affair fund. The public affair fund reserve was limited to 50 percent of the registered capital. Effective January 1, 2006 there is now only one fund requirement. The reserve is 10 percent of income after tax, not to exceed 50 percent of registered capital.

Statutory Reserve funds are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of December 31, 2011 and 2010, the Company had allocated $ 3,274,593 and $3,274,593 to these non-distributable reserve funds.

Note 13 – STOCK-BASED COMPENSATION PLAN

On December 17, 2009, China Qinba entered into a Shell Referral agreement with Dragon Link Investments, Ltd (Dragon Link) for Dragon Link to identify and refer a public shell company to the Company to consummate a reverse merger in the US. As consideration for the services provided by Dragon Link (and in accordance with a warrant placement agreement dated February 12, 2010 between the Company and Dragon Link), China Qinba agreed to issue to Dragon Link warrants to acquire 2,000,000 shares of the Company’s common stock, with registration rights, and exercisable at a price of $0.50 per post-split share within three years after the control acquisition or merger by China Qinba with a public company identified by Dragon Link . The warrants will expire on February 11, 2013. The fair value of the warrants at issuing date was $701,058; accordingly, the Company recorded the stock compensation expense of $701,058. The warrants were fully exercised in May of 2010. The Company received $1 million proceeds from exercise of the warrants.

On January 5, 2010, China Qinba entered into an agreement with IFG Investments Services, Inc. (IFG) to obtain certain consulting services including advising on a merger/acquisition transaction and regulatory filings, and other services and support as requested. In consideration for the consulting services to be performed by IFG (and in accordance with a warrant placement agreement dated February 12, 2010 between the Company and IFG), China Qinba agreed to issue to IFG warrants to acquire 3,000,000 shares of the Company’s common stock, with registration rights, exercisable at $0.50 per post-split share within three years after the closing of the control acquisition or merger by China Qinba with public company. The warrants will expire on February 11, 2013. The warrants were vested immediately. The fair value of the warrants at issuing date was $1,051,588; accordingly, the Company recorded the stock compensation expense of $1,051,588.

F-18

On January 27, 2010, China Qinba entered into an investor relations agreement with HACG Investor Relations Services, Inc. (HACG), to obtain certain public company sector services, including advising on and with respect to investor relations. The term of the contract expires January 31, 2011. As consideration for the services to be performed by HACG (and in accordance with a warrant placement agreement dated February 12, 2010 between the Company and HACG), China Qinba agreed to issue to HACG warrants to acquire 2,000,000 shares of the Company’s common stock, with registration rights, exercisable at $0.50 per post-split share until January 31, 2013. The warrants were vested immediately. The fair value of the warrants at issuing date was $469,976; accordingly, the Company recorded the stock compensation expense of $469,976.

Based on the fair value method under ASC Topic 505, the fair value of each warrant granted is estimated on the date of the grant using the Black-Scholes option pricing model and is recognized as compensation expense over the service period of each warrants issued. The Black-Scholes option pricing model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for US Treasury debt securities at a maturity near the term remaining on the warrant. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the historical volatility of the Company’s stock price. The fair value was estimated at the date of grant using the following range of assumptions: average risk-free interest rate – 1.89%; expected life – 3 years; expected volatility – 219%; and expected dividends – nil. The following table summarizes activities of these warrants (post stock split) for the years ended December 31, 2011 and 2010:

	Number of Shares		Average Exercise Price per Share		Weighted Average Remaining Contractual Term in Years
Outstanding at January 1, 2010		-	$	-		-
Exercisable at January 1, 2010		-
Cancelled		-		-		-
Granted		7,000,000		0.50		3.00
Exercised		(2,000,000)		0.50		-
Outstanding at December 31, 2010		5,000,000		0.50		2.11
Exercisable at December 31, 2010		5,000,000		0.50		2.11

Granted
Exercised						-
Outstanding at December 31, 2011		5,000,000	$	0.50		1.11
Exercisable at December 31, 2011		5,000,000	$	0.50		1.11

In April 2011, the Company’s board of Directors approved to issue 6,840,000 shares of its common stock to its employees with respect to its 2011 Incentive Stock Plan upon filing of the Company’s form S-8 with the SEC. Those shares were fully vested and non-forfeitable when issued. The Company recorded $4,856,400 as stock compensation expense based on the fair value of the shares as of the grant date.

Note 14 – CONTINGENCY

ValueRich, Inc. (“ValueRich”) commenced a private arbitration against the Company in Florida asserting breach of contract, conversion, and unjust enrichment claims arising out of a Consulting Agreement between ValueRich and Xi’an Qinba Pharmaceuticals Co. Ltd. (“Qinba”), which is the operating entity that a Company’s wholly owned subsidiary has a contractual Entrust Management Relationship. ValueRich asserts that the Company breached and circumvented the Consulting Agreement by terminating it and becoming a public entity through other means. ValueRich seeks specific performance to obtain 20% of the Company’s outstanding shares, or, in the alternative, unspecified monetary damages equal to the value of 20% of the Company’s outstanding shares, attorneys’ fees, arbitration costs, and interest.

On March 11, 2011, the Company filed its Answer and Counterclaims. ValueRich has filed its Reply to the Company’s Counterclaims. ValueRich filed a Motion to Dismiss the Counterclaims, and the Arbitrator granted the Motion to Dismiss. Thereafter, the Company filed its Answer to the Amended Arbitration Petition, which sought to add additional parties to the proceeding. On December 6, 2011, the Arbitrator heard a hearing on ValueRich’s claims.

On December 7, 2011, the Company received the arbitration decision, in which the Arbitrator awarded 1,125,000 registered shares of the Company to ValueRich for past work performed. To the knowledge of the Company, the award has not been confirmed in a court of competent jurisdiction as of the Balance Sheet date. However, the Company accrued $168,750 (note 5) stock compensation expense for this arbitration decision at the stock price of the arbitration decision date at $0.15 per share.

F-19

Note 15 - CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS

The Company’s major operations are carried out in the PRC; therefore the Company is subject to the risks not typically associated with entities operating in the United States of America. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC's economy. All of the following risks may impair the Company’s business operations. If any of the following risks actually occurs, the Company’s business, financial condition or results of operations could be materially adversely affected. In such case, investor may lose all or part of the investment. Additional risks include:

●	The Company may not be able to adequately protect and maintain its intellectual property.
●	The Company may not be able to obtain regulatory approvals for its products.

●	The Company may have difficulty competing with larger and better financed companies in the same sector. New legislative or regulatory requirements may adversely affect the Company’s business and operations. The Company is dependent on certain key existing and future personnel.
●	The Company’s growth is dependent on its ability to successfully develop, market, or acquire new drugs. The Company may be subject to product liability claims in the future.

●	Changes in the laws and regulations in the PRC may adversely affect the Company’s ability to conduct its business.
●	The Company may experience barriers to conducting business due to governmental policy.

●	Capital outflow policies in the PRC may hamper the Company’s ability to remit income to the United States.
●	Fluctuation of the Renminbi could materially affect the Company’s financial condition and results of operations.

●	The Company may face obstacles from the communist system in the PRC.
●	The Company may have difficulty establishing adequate management, legal and financial controls in the PRC.

●	Trade barriers and taxes may have an adverse affect on the Company’s business and operations.
●	There may not be sufficient liquidity in the market for the Company’s securities in order for investors to sell their securities.

Note 16– RESTATEMENT OF FINANCIAL STATEMENTS

The financial statements for the date at December 31, 2010 were restated to reflect the following:

	1.	Fixed assets and intangible assets should be translated from RMB to US dollar by using the exchange rate at the balance sheet date. As a result, the Property and equipment, net increased by $2,014,754, the Intangible assets increased by $838,387.
	2.	Accumulated other comprehensive income increased by $2,853,141.

The following table presents the effects of the restatement adjustment on the accompanying consolidated balance sheet at December 31, 2010:

Consolidated Balance Sheet	As Previously Reported		Restated		Net Adjustment
Property and equipment, net	$	14,173,718	$	16,188,472	$	2,014,754
Intangible assets	$	7,802,346	$	8,640,733	$	838,387
Total noncurrent assets	$	25,810,538	$	28,663,679	$	2,853,141
Accumulated other comprehensive income	$	704,301	$	3,557,442	$	2,853,141
Total Stockholders’ Equity	$	42,532,875	$	45,386,016	$	2,853,141

The following table presents the effects of the restatement adjustment on the accompanying consolidated statement of operations and comprehensive income for the year ended December 31, 2010:

Consolidated Statement of Operations and Comprehensive Income		As Previously Reported				Restated				Net Adjustment
Comprehensive income		$	631,758			$	1,216,059			$	584,301

Note 17 – SUBSEQUENT EVENTS

For the year ended December 31, 2011, the Company has evaluated subsequent events for potential recognition and disclosure through the date of the financial statement issuance. Other than item already stated in note 3, no significant events occurred subsequent to the balance sheet date and prior to the filing of this report that would have a material impact on our consolidated financial statements.

F-20

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s CEO and CFO (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2011. Based upon that evaluation, the Company’s CEO and CFO noted a material weakness (see Management’s Report on Internal Control over Financial Reporting below) and concluded that the Company’s disclosure controls and procedures were not effective. The Company’s material weakness in its internal control over financial reporting is related to the lack of accounting personnel with U.S. GAAP proficiency. The Company’s internal accounting department has primarily engaged in ensuring compliance with PRC accounting and reporting requirements for our operating affiliates. As a result, our current internal accounting department responsible for financial reporting of the Company, on a consolidated basis, is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies. Although the Company’s accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP matters. In order to mitigate this material weakness to the fullest extent possible, external consultants were used and the Company’s review process was strengthened.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act and for assessing the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission (Rule 13a-15(f) under the Exchange Act), internal control over financial reporting is a process designed by, or under the supervision of the Company’s principal executive and principal financial officers and effected by its Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.

Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Report”). Based on that evaluation and the criteria set forth in the COSO Report, management concluded that at December 31, 2011 there was a material weakness and therefore, the internal control over financial reporting was not effective. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The Company’s material weakness in its internal control over financial reporting is related to the lack of accounting personnel with U.S. GAAP proficiency. The Company’s internal accounting department has primarily engaged in ensuring compliance with PRC accounting and reporting requirements for our operating affiliates. As a result, our current internal accounting department responsible for financial reporting of the Company, on a consolidated basis, is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies. Although the Company’s accounting staff is professional and experienced in accounting requirements and procedures generally accepted in the PRC, management has determined that they require additional training and assistance in U.S. GAAP matters. In order to mitigate this material weakness to the fullest extent possible, external consultants were used and the Company’s review process was strengthened. Therefore, management believes that the consolidated financial statements and other information presented herewith are materially correct. Management believes that the weakness did not have any effect on the accuracy of the Company’s consolidated financial statements for the current reporting period.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

This Annual Report does not include an attestation report issued by our registered independent accounting firm regarding our internal control over financial reporting. The management’s report was not subject to attestation by our registered independent public accounting firm pursuant to rules of the Securities and Exchange Commission that permanently exempt smaller reporting companies.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting during the fiscal year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Set forth below is certain information regarding our directors and executive officers.

Name	Age	Position/Title
Guozhu Wang	49	Chief Executive Officer and Chairman of the Board
Guiping Zhang	46	President and Director
Tao Lei	41	Chief Financial Officer
Zaizhi Cheng	57	Director
Xiaogang Zhu	58	Director
Michael Segal	70	Director

Our directors hold office until the next annual meeting of our shareholders and until their successors have been qualified after being elected or appointed. Our officers serve at the discretion of our Board of Directors.

Set forth below is biographical information about our current directors and executive officers:

GUOZHU WANG – Chief Executive Officer, Chairman. Mr. Wang was appointed Chief Executive Officer of the Company on February 12, 2010. Mr. Wang has been China Qinba Pharmaceuticals’ CEO since November 5, 2008 and its Chairman since November 15, 2008. He has also been Chairman of Xi’an Pharmaceuticals since August 2007. Mr. Wang served as Chairman of the Board at Shandong Cide Pharmaceuticals, Inc., where he was in charge of overall operations of the company from May 2004 until August 2007. Mr. Wang was also employed at Jilin Aodong Medicine Industry Group Co., Ltd., Shandong Sales Company as General Manager in charge of sales from May 2003 until May 2004.

GUIPING ZHANG – President, Director. Mr. Zhang was appointed President of the Company on February 12, 2010 and a director of the Company on March 29, 2010. Mr. Zhang has been the China Qinba Pharmaceuticals’ General Manager since November 5, 2008 and a Director of China Qinba Pharmaceuticals since November 15, 2008. Since August 2007, Mr. Zhang has been General Manager and Vice President with Xi’an Pharmaceuticals and responsible for the overall operations and management of the Xi’an Pharmaceuticals. He was Chairman of the Board of Xi’an Pharmaceuticals from 2001 through August 2007. Mr. Zhang attended Shandong University majoring in Micro-Organism Engineering and graduated in July 1989.

TAO LEI – Chief Financial Officer. Mr. Lei was appointed Chief Financial Officer of the Company on February 12, 2010. Mr. Lei has also served as CFO of Xi’an Pharmaceuticals since May of 2009. Previous to Mr. Lei’s employment with Xi;an Pharmaceuticals, Mr. Lei was employed with Shaanxi Baifu Investment Company from April 2006 to May 2009 as CFO. Mr. Lei was the Finance Manager of Xi’an Zhonghui Shopping Mall from June 2000 to March 2006. After completing his Accounting degree in 1996 from Xi’an Union University, Mr. Lei obtained his Auditor designation in 1997and his Accountant designation in 1998.

ZAIZHI CHENG – Director. Mr. Cheng was appointed a Director of the Company effective March 4, 2010. From January 2005 to December 2009, Mr. Cheng was employed with Shandong Tianyue Pharmaceuticals Co., Ltd., as Chief Financial Officer. From January 2003 to December 2004, Mr. Cheng was employed with Shandong Fangzhou Mi Co., Ltd., as Chief Financial Officer. From May 2001 to December 2002, Mr. Cheng was employed with Guangdong Zhongshan Xiaoya Jinglin Air Conditioner Factory, as Executive Vice President. From May 1997 to May 2001, Mr. Cheng was employed with Shandong Yinchu Industry Co., Ltd., as Chief Financial Officer. Mr. Cheng majored in accounting and received his diploma from Shandong University.

XIAOGANG ZHU – Director. Mr. Zhu was appointed a Director of the Company effective March 4, 2010. Mr Zhu is currently employed with China Recycling Energy Corp (CREG.OB) as General Manager and is also employed with Xi’an TCH Energy Technology Co. Ltd. as Chief Executive Officer. Mr Zhu has held these positions since December 2007. From September 2005 to December 2007, Mr. Zhu was employed with China Natural Gas, Inc. (CHNG.OB) as Chief Financial Officer as well as the Chief Financial Officer of Xi’an Xilan Natural Gas Co., Ltd. From September 2000 to September 2005, Mr. Zhu was employed with Xi’an Dapeng Biological Technology Co., Ltd. as Vice General Manager. Mr. Zhu was graduated from Shaanxi Institute of Finance and Economics, whose major was Accounting, with a designation of Senior Accountant.

MICHAEL SEGAL – Director. Mr. Segal was appointed a Director of the Company effective March 4, 2010. He is President, General Securities Principal, an Options Compliance Principal and an Investment Banking Representative of Halcyon Cabot Partners LTD., a member of the Financial Industry Regulatory Authority (FINRA) since January 2010. From 2006 to 2009 and 2003 to 2005 Mr. Segal was a Principal, Option Compliance Principal and Branch Manager of Whitaker Securities LLC. Mr. Segal is also individually registered as a Commodity Trading Advisor with the Commodity Futures Trading Commission and is a founding member of the Managed Funds Association. Mr. Segal received a B.B.A. in marketing and economics from the University of Miami in Florida. Mr. Segal sits on the board of directors of the following privately held companies: China Chanfang Pharmaceuticals Inc.; International American Capital Inc. and Segal Cirone Services Inc. Mr. Segal also sits on the board of directors of the following publicly held company: Asia Carbon Industries Inc. (ACRB.BB); China Agri-Business Inc. (CHBU.BB); China Printing &Packaging Inc. (CHPI.BB); China Pharmaceuticals Inc. (CFMI.BB); China Power Equipment Company Inc. (CPQQ.BB); and DK Sinopharma Inc. (DKSP.BB). From March 2007 until December 2009, Mr. Segal was a member of the board of directors of Biostar Pharmaceuticals Inc. (BSPM) Mr. Segal brings to our Board of Directors his expertise in the financial and equity markets and his years of experience providing strategic and financial advisory services to complex international organizations. Mr. Segal also provides unique perspective as our only U.S. director.

Director Experience

The Board believes that each of the Company’s directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the Company’s shareholders. When evaluating candidates for election to the Board, the Corporate Governance and Nominating Committee seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment, and leadership skills. The Board has also considered the fact that all of our directors have worked for, or served on the boards of directors of, a variety of companies in a range of industries. The Board believes that through their varying backgrounds, the Company’s directors bring a wealth of experiences, new ideas and solutions to the Board. Specifically, the Board has noted that our directors have the following skills and qualifications that, among others, have made them particularly suited to serve as a director of China Pharmaceuticals:

●	Mr. Guozhu Wang has extensive knowledge of the pharmaceuticals industry and has served in leadership positions in various pharmaceuticals companies since 2003.

●	Mr. Guiping Zhang has been a key member of Xi’an Pharmaceuticals’ management since 2001 and processes an extensive knowledge of the pharmaceuticals industry and the Company’s products.

●	Mr. Zaizhi Cheng has significant experience leading the financial divisions of several companies in the PRC.

●	Mr. Michael Segal has significant experience in the U.S. financial industry and the corporate governance of U.S. public companies.

●	Mr. Xiaogang Zhu is an “audit committee financial expert” with over 10 years of experience in managing the financial, and accounting, and operational activities of various U.S. public companies located in the PRC.

Except as otherwise reported above, none of our directors have held directorships in other reporting companies and registered investment companies at any time during the past five years.

Family Relationship

There are no family relationships among our directors and executive officer.

Involvement in Certain Legal Proceedings

To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:

Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

●	Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.

●	Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.

●	Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

●

Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Audit Committee and Audit Committee Financial Expert

Our board of directors established an audit committee on March 5, 2010. The audit committee is responsible for (i) recommending independent accountants to the Board, (ii) reviewing our financial statements with management and the independent accountants, (iii) making an appraisal of our audit effort and the effectiveness of our financial policies and practices and (iv) consulting with management and our independent accountants with regard to the adequacy of internal accounting controls. The Company’s Audit Committee comprises three independent board members, namely, Xiaogang Zhu (Chairman), Michael Segal, and Zaozhi Cheng.

Our board of directors has determined that it has an "audit committee financial expert" as defined by Item 401(h) of Regulation S-K as promulgated by the Securities and Exchange Commission. Our audit committee financial expert is Xiaogang Zhu. The directors who serve on the audit committee are "independent" directors based on the definition of independence in the listing standards of the National Association of Securities Dealers. Our Board of Directors has adopted a written charter for the Audit Committee. The Charter is currently available on our website: http://www.chinapharmaceuticalsinc.com.

Compensation Committee

Our board of directors established a compensation committee on March 5, 2010.

The compensation committee of the board of directors is responsible for (i) determining the general compensation policies, (ii) establishing compensation plans, (iii) determining senior management compensation and (iv) administering our stock option plans. The Company’s Compensation Committee similarly comprises three independent board members, namely, Michael Segal (Chairman), Zaizhi Cheng, and Xiaogang Zhu.

Our board of directors has adopted a written compensation committee charter. The charter is currently available on our website. The directors who serve on the compensation committee are "independent" directors based on the definition of independence in the listing standards of the National Association of Securities Dealers.

Corporate Governance and Nominating Committee

Our board of directors established a corporate governance and nominating committee in March 5, 2010.

The purpose of the corporate governance and nominating committee of the board of directors is to assist the board of directors in identifying and recruiting qualified individuals to become board members and select director nominees to be presented for board and/or stockholder approval. The Company’s Nominating Committee is similarly comprised of three independent board members, namely, Zaozhi Cheng (Chairman), Michael Segal, and Xiaogang Zhu.

The directors who serve on the nominating committee are "independent" directors based on the definition of independence in the listing standards of the National Association of Securities Dealers. The nominating committee has a written charter. The charter is currently available on our website.

The corporate governance and nominating committee assists the board of directors in identifying individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

●	determining the skills and qualifications in accordance with search criteria required of potential directors, identify, screen potential candidates and make recommendations to the Board of Directors to fill vacancies on the Board.

●	evaluating candidates to be nominated to serve on the Board and recommend the slate of nominees to stand for election at the annual meeting of the shareholders and independence, relevant experience, leadership qualities, diversity and ability to represent shareholders should be considered.

●	reviewing and recommending to the Board for approval the appointment of directors to Board committees and the selection of the chair for each committee.

●	developing and recommending to the Board for approval a set of corporate governance principles and practices applicable to the Company and review such principles annually and recommend amendments as necessary.

●	overseeing the evaluation of the Board and its committees, which may include developing and recommending an annual review process.

At this time, no additional specific procedures to propose a candidate for consideration by the nominating committee, nor any minimum criteria for consideration of a proposed nomination to the board, have been adopted.

Changes in Nominating Process

There are no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.

Code of Ethics

On December 19, 2008, we adopted a code of ethics to apply to all of our executive officers, including our principal executive, financial and accounting officers, our directors, our financial managers and all employees are expected to adhere and promote regarding individual and peer responsibilities, and responsibilities to other employees, the Company, the public and other stakeholders. There were no amendments of waivers to this code in fiscal year of 2011. Our code of ethics is available for review on our website at http://www.chinapharmaceuticalsinc.com. We will provide a copy of our code of ethics free of charge to any person who so requests. Requests should be directed to Mr. Yufei Qiao, our Corporate Secretary, at qiaoyufeiok@yahoo.com.cn, by mail to China Pharmaceuticals, Inc., 24th Floor, Building A, Zhengxin Mansion, No. 5 of 1st Gaoxin Rd, Hi-Tech Development Zone, Xi’an City, PRC 710075 or by telephone at 86-29-82098912-8038.

The board and its committees held the following number of meetings during the fiscal year of 2011:

Board of Directors			5
Audit Committee			1
Compensation Committee			2
Corporate Governance and Nominating Committee			3

The meetings include meetings that were held by means of a conference telephone call, but do not include actions taken by unanimous written consent.

Each director attended at least 75% of the total number of meetings of the board and those committees on which he served during the year. Our non-management directors did not meet in executive session during 2011.

Board Leadership and Risk Oversight

Our Chief Executive Officer also serves as Chairman of the Board. We have four other directors, three of whom are independent. Xiaogang Zhu, the chairman of the Audit Committee, is our lead independent director. The Board has three standing committees, each of which is comprised solely of independent directors with a committee chair. We believe that this leadership structure has served China Pharmaceuticals well. The Board believes that the Company’s Chief Executive Officer is best situated to serve as Chairman of the Board because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. In addition, having one person serve as both Chairman and Chief Executive Officer eliminates potential for confusion and demonstrates to our employees, suppliers, customers, shareholders and other stakeholders that China Pharmaceuticals has clear leadership with a single person setting the tone and managing our operations. The Board has delegated responsibility for the oversight of specific risks to Board committees as follows:

●	appointing, retaining and overseeing the work of the independent auditors, including resolving disagreements between the management and the independent auditors relating to financial reporting;

●	approving all auditing and non-auditing services permitted to be performed by the independent auditors;

●	reviewing annually the independence and quality control procedures of the independent auditors;

●	reviewing, approving, and overseeing risks arising from proposed related party transactions;

●	discussing the annual audited financial statements with the management;

●

meeting separately with the independent auditors to discuss critical accounting policies, management letters, recommendations on internal controls, the auditor’s engagement letter and independence letter and other material written communications between the independent auditors and the management; and

●	monitoring the risks associated with management resources, structure, succession planning, development and selection processes, including evaluating the effect the compensation structure may have on risk decisions.

Shareholder Communications

Shareholders requesting communication with Directors can do so by writing to China Pharmaceuticals, Inc., c/o Corporate Secretary, Mr. Yufei Qiao, 24th Floor, Building A, Zhengxin Mansion, No. 5 of 1st Gaoxin Rd, Hi-Tech Development Zone, Xi’an City, PRC or emailing to qiaoyufeiok@yahoo.com.cn. At this time we do not screen communications received and would forward any requests directly to the named Director. If no Director was named in a general inquiry, the Secretary would contact either the Chairman or the Chairman of a particular committee, as appropriate. We do not provide the physical address, email address, or phone numbers of Directors to outside parties without a Director's permission.

Compliance with Section 16(a) of the Securities Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of the our common stock and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to the fiscal year ended December 31, 2011, our officers and directors, and all of the persons known to us to own more than 10% of our common stock, filed all required reports on a timely basis, except that Zhang Guiping andWang Guozhu were each late in filing a Form 4.

Item 11. Executive Compensation.

The following is a summary of the compensation we paid to our Chief Executive Officer and Chief Financial Officer for the two years ended December 31, 2011 and 2010..

Summary Compensation Table

Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards (3) ($)	Non-equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Terry Bowering, Former Chief Executive Officer and Director (1)	2011	0	0	0	0	0	0	0	0
	2010	0	0	0	0	0	0	0	0

Guozhu Wang, Director and Chief Executive Officer (2)	2011	5,095	0	639,000	0	0	0	0	644,095
Guozhu Wang, Director and Chief Executive Officer (2)	2010	5,242	0	0	0	0	0	0	5,242
Guiping Zhang, President (2)	2011	5,622	0	639,000	0	0	0	0	644,622
Guiping Zhang, President (2)	2010	5,769	0	0	0	0	0	0	5,769

Tao Lei, Chief Financial Officer(2)	2011	4,392	0	0	0	0	0	0	4,932
Tao Lei, Chief Financial Officer(2)	2010	1,581	0	0	0	0	0	0	1,581

(1) Terry Bowering resigned as our Chief Executive Officer, on February 12, 2010, and resigned as a Director, effective March 4, 2010.

(2) These amounts represent compensation paid by China Qinba Pharmaceuticals and its subsidiaries. China Qinba Pharmaceuticals executed employment agreements with our Chief Executive Officer, President and Chief Financial Officer as of January 1, 2010. The employment agreements are for a term of two years. The employment agreements will provide for annual salaries and annual bonuses in amounts not less than the amounts set forth in the table above.

Employment Agreements

Through our wholly-owned subsidiary, China Qinba Pharmaceuticals, Inc, we have executed employment agreements with each of our executive officers, specifically, Guozhu Wang, our Chief Executive Officer; Guiping Zhang, our President and Teo Lei, our Chief Financial Officer. Each employment agreement has a term of two years.

On January 1, 2010, we entered into a three-year Employment Agreement with Guozhu Wang to serve as our Chief Executive Officer. The Agreement provides for an annual salary of $5,095 and an annual bonus of up to 50% of the executive’s annual salary.

On January 1, 2010, we entered into a three-year Employment Agreement with Guiping Zhang to serve as our President. The Agreement provides for an annual salary of $5,622 and an annual bonus of up to 50% of the executive’s annual salary.

On January 1, 2010, we entered into a three-year Employment Agreement with Tao Lei to serve as our Chief Financial Officer. The Agreement provides for an annual salary of $4,392 and an annual bonus of up to 50% of the executive’s annual salary.

Compensation of Directors

The following table sets forth a summary of compensation paid to our directors who are not listed in the Summary Compensation Table during the fiscal years ended December 31, 2011:

Name	Fees earned or paid in cash ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Nonqualified deferred compensation earnings ($)		All other compensation ($)		Total ($)
Zaizhi Cheng (1)		-		-		-		-		-		-		-
Xiaogang Zhu (1)		-		-		-		-		-		-		-
Michael Segal (2)		24,000		-		-		-		-		-		24,000

(1) Zaizhi Cheng and Xiaogang Zhu did not receive any compensation for their services as directors in the year of 2011.

(2) On January 19, 2010, the Company entered into a letter agreement (the “Letter Agreement”) with its director, Michael Segal, for his services to the Company as a director. Pursuant to the Letter Agreement, Mr. Segal is entitled to receive (i) 0.9% Common Stock based upon the total number of shares issued and outstanding as of the date of the Letter Agreement. (ii) a fee of $24,000 annually, and (iii) Common Stock equal to $24,000 based on the closing price of the Company’s stock on December 31st of each year.

Notwithstanding the foregoing, generally, we pay no compensation to the directors for serving as a director. There are no other elements of compensation paid to our directors but it is expected that in the future, we may create a remuneration and expense reimbursement plan.

Outstanding Equity Awards at Fiscal Year-End

There were no equity awards outstanding at the end of the fiscal year of 2011.

Pension and Retirement Plans

Currently, we do not offer any formal annuity, pension or retirement benefits to be paid to any of our officers or directors. There are also no compensatory plans or arrangements with respect to any individual named above which results or will result from the resignation, retirement or any other termination of employment with our company, or from a change in our control.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of any class of voting securities, (ii) each director, (iii) our Chief Executive Officer, President and Chief Financial Officer, and (iv) all executive officers and directors as a group as of May 4, 2012.

Amount and Nature of Beneficial Ownership

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percentage of Common Stock

Directors and Executive Officers

Common Stock	Guozhu Wang Chief Executive Officer and Director		10,756,002		14.30	%

Common Stock	Guiping Zhang President and Director		9,612,000		12.78	%

Common Stock	Tao Lei Chief Financial Officer		0		0	%

Common Stock	Zaizhi Cheng Director 102 Unit 2, Building 24, Yingshi Street, Huaiyin District, Ji’nan, Shandong, People’s Republic of China 250022		0		0	%

Common Stock	Michael Segal Director 11 East 86 th Street, Suite 19B New York, NY 10028		293,124		0.39	%

Common Stock	Xiaogang Zhu Director 513 Unit 1, Building 7 of 3546 Factory, Xinwenxiang, Beilin District, Xi’an, People’s Republic of China 710061		0		0	%

Common Stock
All Directors and Executive Officers as a Group (6 persons)			20,661,126		27.47	%

(1) Except as otherwise indicated, the address of each beneficial owner is c/o China Pharmaceuticals, Inc., 24th Floor, Building A, Zhengxin Mansion, No. 5 of 1st Gaoxin Rd, Hi-Tech Development Zone, Xi’an City, PRC.

(2) Information with respect to beneficial ownership is based upon information furnished by each shareholder or contained in filings made with the Securities and Exchange Commission. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.

In determining the percent of common stock owned by a person or entity on May 4, 2012, (a) the numerator is the number of shares of the class beneficially owned by such person and includes shares which the beneficial owner may acquire within 60 days upon conversion or exercise of a derivative security, and (b) the denominator is the sum of (i) the shares of that class outstanding on May 4, 2012 (75,237,972 shares of Common Stock) and (ii) the total number of shares that the beneficial owner may acquire upon conversion or exercise of a derivative security within such 60 day period. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of the shares.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Mr. Guozhu Wang, Chief Executive Officer of the Company and Mr. Guiping Zhang, President of the Company, each extended a short-term loan of $325,050 to us for the Company’s capital needs. These loans bear no interest and are payable upon demand. As of May 4, 2012, the outstanding balance of these loans was $650,100.

There have been no other transactions since the beginning of our last fiscal year or any currently proposed transactions in which we are, or plan to be, a participant and the amount involved exceeds $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest.

We do not currently have a policy or set of procedures for the review, approval or ratification of transactions required to be reported as related party transactions. However, our bylaws provide that no contract or transaction between us and one or more of our directors or officers, or between us and any other corporation, partnership, association or other organization in which one or more of our directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to us as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders.

Procedures for Approval of Related Party Transactions

Our Board of Directors is charged with reviewing and approving all potential related party transactions. All such related party transactions must then be reported under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.

Director Independence

The Company currently has three independent directors, Zaizhi Cheng, Michael Segal, and Xiaogang Zhu, as that term is defined under the National Association of Securities Dealers Automated Quotation system.

Item 14. Principal Accounting Fees and Services

Fees Billed For Audit and Non-Audit Services

Audit fees and other fees of auditors are listed as follows:

Year Ended December 31	2011(3)		2010(3)

Audit Fees (1)
ACSB (2)	$	26,000	$	47,700
Clement (2)		79,000		-
Audit-Related Fees
ACSB (2)	$	-		394
Clement (2)		-		-
Tax Fees (4)		-		-
All Other Fees (5)	$	-		78,143
Total Accounting Fees and Services	$	105,000	$	126,237

(1)

Audit Fees. These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements.

(2)

On September 6, 2011, the Company was notified that its principal independent accountant, Acquavella, Chiarelli, Shuster, Berkower & Co., LLP (“ACSB”), had resigned its engagement with the Company, effective immediately. On October 8, 2011, the board of directors of the Company ratified and approved the Company's engagement of Clement C. W. Chan & Co. (“Clement”) as independent auditors for the Company and its subsidiaries.

(3)

The amounts shown in 2011 relate to the audit of our annual financial statements for the fiscal year ended December 31, 2011, and (ii) the review of the financial statements included in our filings on Form 10-Q for the quarters of 2011.The amounts shown in 2010 relate to (i) the audit of our annual financial statements for the fiscal year ended December 31, 2010, and (ii) the review of the financial statements included in our filings on Form 10-Q for the quarters of 2010.

(4)

Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.

(5)

All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.

Pre-Approval Policy for Audit and Non-Audit Services

The Audit Committee pre-approves all auditing services and permitted non-audit services to be performed for the Company by its independent auditor, including the fees and terms thereof (subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Audit Committee prior to the completion of the audit). The Audit Committee may form and delegate authority to its subcommittee consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

PART IV

Item 15. Exhibits , Financial Statements Schedules

Exhibit Number		Description

2.1		Merger Agreement and Plan of Reorganization by and among Allstar Restaurants, Allstar Acquisitions Co., Terry Bowering, and China Qinba Pharmaceuticals, Inc. and the Controlling Shareholders of China Quinba dated February 12, 2010 (1)
2.2		Share Exchange Agreement between Allstar Restaurants and Terry Bowering dated February 12, 2010 (1)
3.1		Charter and Articles of Incorporation of Allstar Restaurants. (1)
3.2		Amended Articles of Incorporation of Allstar Restaurants (1)
3.3		Amended Articles of Incorporation of Allstar Restaurants (Name Change) (1)
3. 4		Articles of Merger of Allstar Restaurants and China Pharmaceuticals, Inc. (6)
3. 5		Certificate of Change to the Articles of Incorporation of China Pharmaceuticals, Inc. (4)
3.6		Certificate of Change Pursuant to NRS 78.209, filed with the Nevada Secretary of State. (8)
4.1		China Pharmaceuticals, Inc. 2011 Incentive Stock Plan (9)
10.1		Medical Materials Contract – Xi’an Tianyi Biotechnology Co. Ltd, (1)
10.2		Medicine Packaging Material Contract – Shaanxi Daxin Plastics Co. Ltd. (1)
10.3		Medicine Materials Contract – Shaanxi Qiangli Technology Co. Ltd. (1)
10.4		Employment Agreement with Tao Lei, Chief Financial Officer (1)
10.5		Employment Agreement with Gouzhu Wang, Chief Executive Officer (1)
10.6		Employment Agreement with Guiping Zhang, President (1)
10.7		Warrant Placement Agreement – IFG Investments Services, Inc. (1)
10.8		Warrant Placement Agreement – HACG Investor Relations Services Inc. (1)
10.9		Warrant Placement Agreement – Dragon Link Investments Ltd. (1)
10.10		Consulting Agreement IFG Investment Services, Inc. January 5, 2010 (1)
10.11		Investor Relations Agreement HACG Investor Relations Services Inc. January 27, 2010 (1)
10.12		Referral Agreement Dragon Link Investments Ltd. December 17, 2009 (1)
10.13		Agreement on Entrustment for Operation and Management (1)
10.14		Agreement on Share Pledge (1)
10.15		Exclusive Option Agreement (1)
10.16		Current Fund Loan Agreement, dated January 20, 2009, by and between Industrial and Commercial Bank of China, Hanzhong Sub-branch, and Xi’an Qinba Pharmaceuticals Co., Ltd.(3)
10.17		Current Fund Loan Agreement, dated April 28, 2009, by and between Industrial and Commercial Bank of China, Hanzhong Sub-branch, and Xi’an Qinba Pharmaceuticals Co., Ltd.(3)
10.18		Mortgage & Guarantee & Borrowing Contract, dated April 28, 2007, and extension agreement dated April 6, 2009, by and between Rural Cooperative Bank of Xixiang, Shaanxi, and Xi’an Qinba Pharmaceuticals Co., Ltd. (3)
10.19		Mortgage & Guarantee & Borrowing Contract, dated July 9, 2008, by and between Rural Cooperative Bank of Xixiang, Shaanxi, and Xi’an Qinba Pharmaceuticals Co., Ltd.(3)
10.20		Factoring Agreement, dated April 28, 2009, by and between Industrial and Commercial Bank of China, Hanzhong Sub-branch, and Xi’an Qinba Pharmaceuticals Co., Ltd.(3)
10.21		Shareholder Voting Proxy Agreement (5)
10.22		The Consulting Agreement between ValueRich Inc. and Xi’an Qin Ba Pharmacy Co Ltd. ( 7)
10.23		The Letter Agreement, dated January 19, 2010, by and between the Company and Michael Segal.(5)
10.24		Standard Master Supplier Contract*
10.25		Factory Workshop and Electrical Renovation Project Contract, dated November 29, 2011, between Xi’an Qinba Pharmaceuticals, Inc. and Shaanxi Zi’an Property Development Limited Company*
10.26		Technical Service Contract of Chongloukegandiwan, dated December 2, 2010, between Xi’an Qinba Pharmaceuticals, Inc. and Xi’an Keli Pharmaceutical Co., Ltd., as amended by Supplemental Agreements dated December 3, 2010 and June 30, 2011. *
10.27		Technical Service Contract of Tangningziyabitusipian, dated November 30, 2010, between Xi’an Qinba Pharmaceuticals, Inc. and Xi’an Keli Pharmaceutical Co., Ltd., as amended by Supplemental Agreements dated December 3, 2010 and June 30, 2011.*
10.28		Supplemental Agreement of Technical Service Contract of Chongloukegandiwan and Tangningziyabitusipian, dated April 23, 2012, by and between Xi'an Qinba Pharmaceuticals Co., Ltd. and Xi'an Keli Pharmaceutical Co., Ltd.
14.1		Code of Ethics (2)
16.1		Allstar Letter to HJ & Associates – Termination Letter (1)
16.2		HJ & Associates Letter – Item 4.01 (1)
21.1		List of Subsidiaries (5)
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended*
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended*
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopt pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopt pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS		XBRL INSTANCE DOCUMENT *
101.SCH		XBRL TAXONOMY EXTENSION SCHEMA *
101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE *
101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE *
101.LAB		XBRL TAXONOMY EXTENSION LABEL LINKBASE *
101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE *

*filed herewith.

(1)	Incorporated by reference to the exhibit to our Current Report on Form 8-K filed with the SEC on February 19, 2010.
(2)	Incorporated by reference to the exhibit to our Annual Report on Form 10-KSB filed with the SEC on July 1, 2008.
(3)	Incorporated by reference to the exhibit to our Annual Report on Form 10-K filed with the SEC on April 15, 2010
(4)	Incorporated by reference to the exhibit to our Current Report on Form 8-K filed with the SEC on September 17, 2010.
(5)	Incorporated by reference to the exhibit to our Annual Report on Form 10-K for the fiscal year ended December, 31, 2010, filed with the SEC on April 15, 2011.
(6)	Incorporated by reference to the exhibit to our Current Report on Form 8-K filed with the SEC on April 1, 2010.
(7)	The Consulting Agreement between ValueRich Inc. and Xi’an Qin Ba Pharmacy Co Ltd. was initially filed with the SEC as Exhibit 10.18 to Amendment No. 1 to Form S-1 of China Qinba Pharmaceuticals, Inc. on June 18, 2009, but a complete copy of the agreement was filed with our Annual Report on Form 10-K/A on September 1, 2011 and is incorporated herein by reference.
(8)	Incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on June 24, 2011.
(9)	Incorporated herein by reference to Exhibit 4.1 to our Registration Statement on Form S-8 filed with the SEC on May 10, 2011.
(10)	Incorporated herein by reference to exhibits to our Annual Report on Form 10-K/A filed with the SEC on September 1, 2011.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 7, 2012

	CHINA PHARMACEUTICALS, INC.


	By:	/s/ Guozhu Wang
		Guozhu Wang
		Chief Executive Officer

Pursuant to the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Guozhu Wang	Chief Executive Officer and Director (principal executive officer)	May 7, 2012
Guozhu Wang

/s/ Tao Lei	Chief Financial Officer (principal financial and accounting officer)	May 7, 2012
Tao Lei

/s/ Guiping Zhang	President and Director	May 7, 2012
Guiping Zhang

/s/ Zaizhi Cheng	Director	May 7, 2012
Zaizhi Cheng

/s/ Michael Segal		Director		May 7, 2012
Michael Segal

/s/ Xiaogang Zhu		Director		May 7, 2012
Xiaogang Zhu

Attached files

China Pharmaceuticals Inc Reports

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