UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K/A





(Mark One)





( X )
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.FOR THE FISCAL YEAR ENDED JUNE 30, 2010




(   )
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: 0-53254





JINZANGHUANG TIBET PHARMACEUTICALS, INC.


(Exact Name of Registrant as Specified in Its Charter)





DELAWARE
26-2443288(State or other jurisdiction of
(I.R.S. Employerincorporation or organization)
Identification No.)








Harborside Financial Center, 2500 Plaza V, Jersey City, NJ 07311


(Address of principal executive offices)





86-534-2111-962 (China) 201-882-3332 (U.S.)


(Issuer's telephone number)





Securities Registered Pursuant to Section 12(b) of the Exchange Act: NONE





Securities Registered Pursuant to Section 12(g) of the Exchange 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 406 of the Securities Act.    Yes __ 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.    Yes __ No √





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  √   No __





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes ____ No ____








Indicate by check mark disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) 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. [X ]





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)





Large accelerated filer ____ Accelerated filer ____ Non-accelerated filer ____ Small reporting company X





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No √





As of December 31, 2009, the aggregate market value of the common stock held by non-affiliates was $3,358,677, based upon the closing price on December 31, 2009 of $.10 per share.





As of September 28, 2010, there were 40,665,063 shares of common stock outstanding.





Documents incorporated by reference: NONE




AMENDMENT NO. 1


The amendment is being filed in order to:
 
 ·
modify the disclosure in the first paragraph of Item 1, “Business;”
 ·
revise the third risk factor in Item 1A “Risk Factors:”
 ·
add a risk factor regarding the lack of U.S. GAAP expertise among the employees of the Company;
 ·
modify Item 7, “Management’s Discussion,” as required to conform to the other modifications in the Report;
 ·
restate the balance sheet and statements of cash flows as described in Note 9 to the Financial Statements;
 ·
modify Note 1 to the Financial Statements;
 ·
modify Note 3 to the Financial Statements and eliminate similar text in Note 7;
 ·
revise management’s evaluation of disclosure controls and procedures in Item 9A, “Controls and Procedures.”
 
 No other material changes have been made to the disclosure, nor has the disclosure been updated.  For current information regarding the Company, reference should be made to the more recent filings by the Company on EDGAR.








PART I





FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED





In addition to historical information, this Annual Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Jinzanghuang Tibet Pharmaceuticals, Inc.  Whether those beliefs become reality will depend on many factors that are not under Management’s control.  Many risks and uncertainties exist that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section 1A of this Report,entitled “Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.








ITEM 1.                BUSINESS





Jinzanghuang Tibet Pharmaceuticals, Inc. is a Delaware corporation with no business operations and only one asset:  a wholly-owned subsidiary named Tibet Medicine, Inc.  Tibet Medicine, Inc., likewise, is a Delaware corporation with no business operations and only one asset: 100% of the registered capital of Beijing Taibodekang Consulting Co., Ltd., a Wholly Foreign Owned Entity organized under the laws of the People’s Republic of China (“Beijing Taibodekang”). Beijing Taibodekang has no assets other than cash, but it does have a
business operation, namely the management of Leling Jinzanghuang Biotech Co., Ltd. (“Leling Jinzanghuang”), which is also organized under the laws of the People’s Republic.  Beijing Taibodekang carries out that management pursuant to the terms of four agreements that it made on January 4, 2009 with Leling Jinzanghuang and with the equity owners in Leling Jinzanghuang.  Collectively, the agreements provide Beijing Taibodekang exclusive control over the business of Leling Jinzanghuang.  The relationship is one that is generally identified as “entrusted management.” Leling Jinzanghuang is engaged in the distribution of Tibetan pharmaceutical and nutraceutical products in The People’s Republic of China.
 
 At times throughout this Report we will use the term “Company” to refer to the four entities mentioned above as a single entity, which is a consolidated entity for financial reporting purposes.  References to the “business of the Company” and the like, however, all refer to the business carried out by Leling Jinzanghuang, which is the only one of the four consolidated entities that carries on business
operations.


Jinzanghuang Leling is a sales company. Leling Jinzanghuang was founded in November 2008 under the laws of the People’s Republic of China with registered capital of 3.5 million RMB ($513,450). Registered capital increased to 8.5 million RMB (approximately $1,250,000) AS OF June 30, 2010.  Leling Jinzanghuang’s executive offices and operations are located at Fu Qian Road South End (Westside), Leling City, Shandong Province, in eastern China. Leling Jinzanghuang engages in the distribution of the pharmaceutical and nutraceutical products that Tibetans have used for centuries to treat diseases and facilitate health. The distributed products are classified by  Leling
Jinzanghuang in three major categories: pharmaceuticals, therapeutic supplements, and dietary supplements.  Tibetan medicine is a centuries-old medical system that employs a complex approach to diagnosis, incorporating techniques such as pulse analysis and urinalysis, and utilizes behavior and dietary modification. By synthesizing knowledge from various medical systems, Tibetans created an approach to medicine drawn from thousands of years of empirical knowledge and intuition about the nature of health and illness. Since practitioners of Tibetan medicine seek to treat diseases in a natural way, Tibetan pharmaceuticals are usually composed of natural materials, particularly the herbs and minerals found in the high-latitude, low-temperature, and pollution-free environment of Tibet.  Practitioners have demonstrated the benefits of Tibetan medicine in treating diseases
of the human respiratory system, digestive system, cardiovascular system, kinematic system, and skin. Until recently, however, the primitive manufacturing techniques used in traditional Tibetan medicine prevented its integration into modern medical practice.  With the incorporation of modern techniques into the production process, however, Tibetan medicine is being gradually recognized along with Chinese traditional medicine as a medical system parallel to western medicine.





Currently, our only market is within China, where Tibetan medicine is classified as one type of Chinese traditional medicine, a pharmaceutical industry that exists in China parallel to western medicine in China.  The Chinese have long perceived and accepted traditional Chinese medicine as a safe and effective solution to diseases, having the advantage of causing fewer side effects than western medicine, due to the natural ingredients used.  With the improvement of living standards in China, the revenues of the health care industry have been substantially
increased in recent decades which has also stimulated the domestic demands for Tibetan medicine.





The market for Tibetan pharmaceuticals in China is only a very small portion of the overall medical market in China.  The annual production of Tibetan medicine amounts to approximately 1500 tons with more than 293 items marketed.  The growth rate of the market for Tibetan pharmaceuticals is substantial, however.  One factor spurring growth has been the willingness of Chinese regulators to accredit products based on Tibetan medicine.  At the present time, this accreditation includes:


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·
14 products that have been listed on the Protected Chinese Traditional Medicine List;·
24 products that have been included in the National Medicine Index;·
218 products that have been certified by the SFDA; and·
20+ products that have registered trademarks in China.





In 2006, the overall revenues of the 19 major Tibetan pharmaceutical companies in the Tibet Autonomous Region were 623 million RMB ($92,846,498).  We believe, moreover, that the supply of Tibetan medicine in China’s domestic market falls short of demand, which presents a considerable market potential. Furthermore, as Chinese traditional medicine is gradually recognized in the international medical community as an alternative way to treat diseases, there is a potential international market for Tibetan medicine and nutritious products as well. Our business plan, therefore, contemplates that in the future we will export a small portion of our products to several foreign counties,
including Russia and South Korea, where Tibetan medicine is well accepted.





Product Lines





The 13 Tibetan health products that Leling Jinzanghuang currently distributes are among those Tibetan medicines made with modern drug manufacturing techniques. The manufacturing equipment and techniques used by our supplier are certified under China’s national standards of Good Manufacturing Practice (GMP), and are in compliance with applicable regulations of the SFDA, which regulates both the pharmaceutical and the nutraceutical industries in China. The automatic production and testing processes used by our supplier assure the accurate execution of the formula and the quality and quantity of the products. Moreover, the strict quality control and inspection procedures performed in the
supplier’s state-of-the-art laboratories assure the quality of our distributed products.





Currently, our principal products are:





Ying Huang Tablet,which isone the two pharmaceutical products marketed by Leling Jinzanghuang that been approved by SFDA.The effective ingredients in the Ying Huang Tablet are extracts from the honeysuckle and the Huangqin herb. It can be used to treat upper respiratory infections including pharyngitis, encephalitis and conjunctivitis. It can also be used to reduce inflammation and relieve pain.  The Ying Huang Table has no known side effects.





San Qi Capsules,which areone of the dietary supplements certified by SFDA.  San Qi Capsules lower blood lipid and cholesterol levels.  Thus they can be used as a precautionary therapy to prevent cardiovascular diseases, including coronary heart disease, heart angina and stroke. In addition, the San Qi Capsules enhance immune system functions, which may help in the prevention of cancer.





Foshou Capsules are a Tibetan nutraceutical. The effective ingredients, Xue Yu, Dongchong Xiacao, Fozhang, and Ginseng, are extracts of several plants and animals that are native to the Tibet Plateau. The Foshou Capsules are intended to improve certain organ functions, particularly to alleviate the diseases of insomnia, amnesia, fatigue, and sexual function decline caused by female menopause syndrome.





Bai He Capsulesare a Tibetan dietary supplement. The effective ingredients consist of Baihe, Fozhang Ginseng and Himalayan purple jasmine. The Bai He Capsules are used to treat male erectile dysfunction and other sexual dysfunction problems.





Marketing





We sell our products through sales agents.  During the year ended June 30, 2010 we had seven sales agents, four of whom worked under term contracts.  All of our sales agency contracts have expired, however, and we are currently working to engage new sales agents.


2





Our business plan contemplates that we will supplement our sales agent network by establishing 600 franchise stores throughout China by the end of 2013.  At present, however, we do not have any committed franchise contracts.  We plan to train our agents and franchisees to improve their product knowledge and sales skills. We also plan to advertise our products through national and local television networks, major newspapers and magazines, and on major Chinese internet platforms.  Finally, we plan to sell our product directly to customers by the use of a membership discount program and an online e-commerce platform.





Through the above efforts, we hope that we can establish our own branded name in the distribution of Tibetan pharmaceutical products in both the domestic and the international market.  All of these plans, however, and the extent to which we can implement them will depend on our success in obtaining working capital for our business.





Our Suppliers





Currently, all of the products that Leling Jinzanghuang distributes are manufactured by one supplier: Shandong Jinzanghuang (Tibet) Pharmaceutical Co., Ltd. (“Shandong Jinzanghuang”), which is located approximately five kilometers from our offices. We entered into a three-year distribution contract with Shandong Jinzanghuang on November 21, 2008.  The agreement does not give us exclusive marketing rights; however Shandong Jinzanghuang has only one other distributor and has informed us that it does not intend to develop any other marketing channels.  Xue Bangyi, our Chief Executive Officer, is also the Chief Executive Officer of Shandong Jinzanghuang.





The agreement provides that Shandong Jinzanghuang will deliver products (FOB the Shandong Jinzanghuang warehouse) in response to orders received from Leling Jinzanghuang, which has the right to distribute the products throughout China. The agreement gives Shandong Jinzanghuang the right to fix the price it charges to us, although it is required to provide us timely notice of any price increase. In addition, Shandong Jinzanghuang retains ownership of all of the patent right, trademark right, and other intellectual property rights related to the sold products. Under this agreement, each party has the right to terminate the contract, provided that 60-day written notice in advance is given to the
other party.





Although we have a strong relationship with Shandong Jinzanghuang, we recognize that dependence on a single supplier entails significant risks.  For that reason, we intend to develop additional suppliers for Tibetan health products or other Chinese traditional medicine products. There are over 100 Tibetan pharmaceutical manufacturing companies in China that we can approach as potential suppliers.





The principal raw materials used for the production of our distributed products are natural plants and minerals located in the Qing Tibetan Plateau, which extends across Tibet and Yunnan Province. To ensure a sufficient supply of raw materials, Shandong Jinzanghuang has developed multiple raw material purchase spots in Changdu and Lizhi City in the Tibetan Autonomous Region and in Di Qin City in Yunnan Province. All the raw materials used by Shandong Jinzanghuang are tested by experts to ensure their quality.





Intellectual Property





Shandong Jinzanghuang has one patent application pending with Chinese State Intellectual Property Agency: patent application number: 200710113118.5 (application date: 09/25/2007), which covers the technique for manufacturing the Yu Gan Zi Capsule.





The primary protection of our intellectual property is through trade secrets.  Shandong Jinzanghuang has engaged as its chief pharmacist Luoga Renboqie, who is responsible for supervision of the production of the products.  “Living Buddha Luoga” is considered to be the 17th reincarnated living Buddha in Tibet.  In that position, he has been entrusted with many secret Tibetan medicine formulas, which he incorporates into the Shandong Jinzanghuang products, such as the Foshou Capsule.  The association of our products with the Living Buddha Luoga provides us a distinct competitive
advantage.


3





Government Regulation





Unlike its U.S. counterpart, the Chinese Food and Drug Administration (“SFDA”) regulates the manufacture and distribution of both pharmaceuticals and nutraceuticals in China.  Each Chinese province also has an agency with responsibility for the pharmaceuticals and nutraceuticals distributed in the Province.  Pharmaceutical products can be distributed only after clinical trials and approval of the SFDA.  In order to achieve widespread market acceptance, a nutraceutical product must obtain certification from either SFDA or the provincial agency, and preferably from both.  Certain tests need to be conducted to get the approval depending on the
alleged medical effects.





At the present time, our products have obtained the following certifications:





§
Dietary Supplements:





San Qi Capsule (SFDA Health Certificate Number: G20050232).





·
Nutraceuticals:





Foshou Capsule (SFDA filing number: 3714X2677-2008);


Bai He Capsule (SFDA filing number: 3714X2678-2008);


Gan Wang Bao Huang Jing San (filing number: 3714X2833-2008);


Wu She Capsule (SFDA filing number: 3714X2832-2008);


Papaya Capsule (SFDA filing number: 3714X3091-2007);


Yu Gan Zi Capsule (SFDA filing number: 3714X3214-2007);


Sha Ji Capsule (SFDA filing number: 3714X2934-2006);


She Xiang Capsule (SFDA filing number: 3714X2831-2008);


Yi Zhi Ren Capsule (SFDA filing number: 3714X2935-2006).





Competition





The Tibetan medicine industry is now in a transition stage from small, backyard enterprises into large-scale, industrialized operations. Our competitors can be divided into two categories in terms of scale and competitiveness:





·
State-run pharmaceutical companies, such as Jingqiu Tibetan Medicine, Jinhe Tibetan Medicine and Tibetan Pharmaceutical Factory; and





·
Private or joint-venture enterprises, such as Tibet Cheezheng Tibetan Medicine and Niemula Tibet Medicine.





The state-owned enterprises have access to state financial and political support. They also entered into the market earlier than we did, and thus have accumulated management experiences and personnel in the Tibetan medicine business. Meanwhile, the private pharmaceutical companies, like us, entered into market later, but grow very fast due to the efficient management skills.





Our competitive advantages include the proprietary product portfolio owned by our current supplier and association with the Living Buddha Luoga.  Shandong Jinzanghuang has exclusive rights to distribute these products, and we are its primary distributor.  Nevertheless, we will face substantial competition from our competitors in  theTibetan pharmaceutical industry due to the similar products and competitive prices.





Employees





Presently, we have twelve full-time employees.    As we establish our marketing network nationwide, we expect a rapid expansion of our departments and personnel.


4


ITEM 1A .            RISK FACTORS





Investing in our common stock involves risk. You should carefully consider the risks described below together with all of the other information contained in this Report, including the financial statements and the related notes, before deciding whether to purchase any shares of our common stock. If any of the following risks occurs, our business, financial condition or operating results could materially suffer. In that event, the trading price of our common stock could decline and you may lose all or part of your investment.





Our business and operations are newly established. Unless we manage our growth effectively, our business will fail.





Leling Jinzanghuang was organized in November 2008.  Some members of our management had prior experience marketing the products of Shandong Jinzanghuang when they were employed by that company.  The extrapolation of that experience into a marketing business on the magnitude contemplated by Leling Jinzanghuang will place significant demands on our management, and on our operational and financial infrastructure. If we do not effectively manage our operations, the quality of our marketing program will suffer, which would negatively affect our operating results. If the necessary funding can be obtained, we will be able to improve our operational, financial and management controls
and our reporting systems and procedures. The complexity of this undertaking means that we are likely to face many challenges, some of which are not yet foreseeable. Problems may occur with our product acquisition, and with our ability to sell our products to our customers. If we are not able to obtain the necessary funding and operate efficiently, our business plan may fall short of its goals, and our ability to manage our growth could be hurt.





The capital investments that we plan may result in dilution of the equity of our present shareholders.





Our business plan contemplates that we will raise $5 million to $10 million in capital during the next two years.  We intend to raise all or a large portion of the necessary funds by selling equity in our company.  At present we have no commitment from any source for those funds.  We cannot determine, therefore, the terms on which we will be able to raise the necessary funds.  It is possible that we will be required to dilute the value of our current shareholders’ equity in order to obtain the funds.  If, on the other hand, we are unable to raise the necessary funds, our growth will be limited, as will our ability to compete
effectively.





If we were unable to enforce the terms of the entrusted management agreements between Beijing Taibodekang and Leling Jinzanghuang, we would have no business operations.
 
 All of our business activities are carried out by Leling Jinzanghuang.  All of the assets shown on our balance sheet, other than a portion of the cash, are owned by Leling Jinzanghuang.  However, Jinzanghuang Tibet Pharmaceuticals, Inc., the U.S. public company owned by our shareholders, does not own any equity in Leling Jinzanghuang.  Instead, we consolidate the assets and results of operations of Leling Jinzanghuang with the financial statements of Jinzanghuang Tibet Pharmaceuticals by reason of a set of four contracts.  Those
contracts transfer 95% of the benefits and responsibilities of the operations of Leling Jinzanghuang to a wholly-owned subsidiary of Jinzanghuang Tibet Pharmaceuticals.  As a result, under U.S. accounting principles, Leling Jinzanghuang is deemed to be a variable interest entity with respect to that subsidiary, and so is a consolidated entity within the Company.  Our entitlement to those benefits, however, depends on our ability to enforce the agreements between our subsidiary, Beijing Taibodekang, and Leling Jinzanghuang.  If a dispute arose between those entities that could not be resolved amicably, we would have to resort to a court or arbitration tribunal in the People’s Republic of China to secure our rights with respect to Leling Jinzanghuang.  We are not aware, however, of any reported decisions regarding the enforceability of
agreements of this sort under the laws of the PRC.  It is possible, therefore, that the Chinese tribunal would decide that the agreements were not enforceable, either as a matter of national policy or for some other reason.  If that were to occur, Jinzanghuang Tibet Pharmaceuticals, Inc. would have no business operations or assets, and its outstanding common stock would be essentially worthless.


A recession in China could significantly hinder our growth.





The success of our efforts to introduce Tibetan pharmaceuticals and nutraceuticals in China will depend on continuation of recent improvements in the Chinese economy and the amount of disposable income available to the Chinese population.  If money becomes tight, individuals will be less willing to pay extra for the benefits offered by our products.  In recent months, China’s economy has suffered the effects of the worldwide liquidity crisis, and many financial commentators expect a recession to occur in China in the near future.  The occurrence of a serious recession could significantly hinder our efforts to implement our business plan.


5


Reliance on one supplier for the sources and pricing of products could adversely affect our operational result.





Currently, we rely on one supplier, Shandong Jinzanghuang, for the products we distribute.  Shandong Jinzanghuang has the right to decide the wholesale prices at which it will sell products to us.  If Shandong Jinzanghuang found it necessary to increase our wholesale prices, we would be faced with the choice of suffering reduced profit margins or passing along the increases in our prices to our customers.  Since our business has a low profit margin, a reduction of our margins could substantially affect our results of operations. On the other hand, increasing the price for our products would reduce our competitiveness.  Therefore, until we develop additional
sources for our products, our reliance on one supplier puts the welfare of our business at risk.





We operate in a highly competitive marketplace, which could adversely affect our sales and financial condition.





We compete on the basis of quality, price, product availability and security of supply, product development and customer service. Some competitors are larger than us in certain markets and may have greater financial resources that allow them to be in a better position to withstand changes in the industry. Our competitors may introduce new products based on more competitive alternative technologies that may be causing us to lose customers which would result in a decline in our sales volume and earnings. Our customers demand high quality and low cost products and services. The cost in the research and development and marketing expansion may continue to increase and thus adversely affect the
competitiveness of our products. Competition could cause us to lose market share and certain lines of business, or increase expenditures or reduce pricing, each of which would have an adverse effect on our results of operations, cash flows and financial condition.





We may be unable to secure the government licenses that are necessary for us to engage in the sale of pharmaceuticals.





The manufacture and marketing of pharmaceuticals is highly regulated in China.  Prior to marketing any of our pharmaceutical products and many of our nutraceutical products, we are required to satisfy several government protocols, and receive several licenses from the national and local governments.  Obtaining these licenses can be expensive and it is usually time consuming.  If we are unable to obtain the necessary licenses when we need to have them, our business plan will be delayed.  If the delays prevent us from generating positive cash flow or introducing a significant number of products, our business may fail.





We may be subject to the People’s Republic of China’s price control of drugs, which may limit our profitability and even cause us to stop selling certain products





The State Development and Reform Commission ("SDRC") of the People’s Republic of China and the price administration bureaus of the relevant provinces of China in which our pharmaceutical products are marketed are responsible for the retail price control over our pharmaceutical products.  The SDRC sets the price ceilings for certain pharmaceutical products in China.  Where our products are subject to a price ceiling, we will need to adjust the product price to meet the requirement and to accommodate for the pricing of competitors in the competition for market share.  The price ceilings set by the SDRC may limit our profitability, and in some instances, such as
where the price ceiling is below wholesale costs, may cause us to stop manufacturing certain products.





Increased government regulation of our marketing operations could diminish our profits.





At present, there is no significant government regulation of the health claims that participants in the nutraceutical industry make regarding their products.  Other developed countries, in particular members of the European Community, have far more extensive regulation of the operations of nutraceuticals, including strict limitations on the health-related claims that can be made without scientifically-tested evidence.  It is not unlikely, therefore, that China will increase its regulation of our activities in the future.  To the extent that new regulations required us to conduct a regimen of scientific tests of the
efficacy of our nutraceutical products, the expense of such testing would reduce our profitability.  In addition, to the extent that the health benefits of some of our products could not be fully supported by scientific evidence, our sales might be reduced.


6





We may have difficulty defending our intellectual property rights from infringement, which may undermine our competitive position.





Our ability to compete effectively depends on our ability to distinguish our products from those of our competitors.  A primary distinction on which we intend to rely is the availability to Shandong Jinzanghuang of the Tibetan formulae known only to its chief pharmacist.  We will rely on trade secret laws and restrictions on disclosure to protect our intellectual property rights. Unauthorized use of our formulae could damage our ability to compete effectively.  At the same time, the appearance of counterfeit products on the market could also damage our marketing program.  Policing the unauthorized use of proprietary technology and the appearance of
counterfeit products can be difficult and expensive.





If litigation becomes necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others, such litigation may be costly and may divert management attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and could harm our business, prospects and reputation. Enforcement of judgments in China is uncertain and even if we are successful in a litigation it may not provide us with an effective remedy. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are
unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.





In addition, third parties may file infringement claims against us asserting that we are infringing on their patents or trademarks. In the event that such claims are filed, regardless of the merit of such a claim, we may incur substantial costs and diversion of management as a result of our involvement in such proceedings.





Product liability claims could materially impact operating results and profitability.





We may produce products which inadvertently have an adverse pharmaceutical effect on the health of individuals.  Existing laws and regulations in China do not require us to maintain third party liability insurance to cover product liability claims.  However, if a product liability claim is brought against us, it may, regardless of merit or eventual outcome, result in damage to our reputation, breach of contract with our customers, decreased demand for our products, costly litigation, product recalls, loss of revenue, and our inability to commercialize some products.





We are subject to the risk of natural disasters.





Many of the raw materials that are used to manufacture our products are very sensitive crops, which can be readily damaged by harsh weather, by disease, and by pests.  If our suppliers find their raw materials scarce due to drought, flood, storm, blight, or the other woes of farming, they will increase their prices and may be unable to satisfy our orders.  If, as a result, we are unable to produce sufficient products at reasonable prices to meet demand, our distribution network is likely to atrophy.  This could have a long-term negative effect on our ability to grow our business, in addition to the near-term loss of income.





We may have difficulty establishing adequate management and financial controls in China.





The People’s Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with.  We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company.  If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.




The staff of our accounting department lack training and experience in U.S. accounting principles, which may result in accounting errors in the financial statements that we file with the Securities and Exchange Commission.
 
 Our executive offices are located in Leling in the PRC.  Our entire bookkeeping and accounting staff is located there.  Our books and records are maintained in Chinese, using Chinese accounting principles.  Chinese accounting principles vary in many important respects from U.S. accounting principles.  To file our Company’s financial statements with the Securities and Exchange Commission, our accounting staff must convert the financial statements from Chinese accounting principles to U.S. accounting principles.  However, none of the members of our accounting staff has extensive experience or
training in the preparation of financial statements under U.S. accounting principles.  Neither do we have any employee who has previous experience in accounting for a U.S. public company.  This situation creates a risk that the financial statements we file with the SEC will fail to present our financial condition and/or results of operations as required by SEC rules and the principles of accounting generally applied in the United States.


7


We may incur significant costs to ensure compliance with U.S. corporate governance and accounting requirements.





We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors, on committees of our board of directors or as executive officers.





As a public company, we are required to comply with rules and regulations of the SEC, including expanded disclosure, accelerated reporting requirements and more complex accounting rules.  This will continue to require additional cost management resources. We will need to continue to implement additional finance and accounting systems, procedures and controls as we grow to satisfy these reporting requirements. In addition, we may need to hire additional legal and accounting staff with appropriate experience and technical knowledge, and we cannot assure you that if additional staffing is necessary that we will be able to do so in a timely fashion. If we are unable to complete the required
annual assessment as to the adequacy of our internal reporting or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting in the future, we could incur significant costs to become compliant.





Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.





The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals necessary for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility
of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to pay dividends to our shareholders.





Currency fluctuations may adversely affect our operating results.





Leling Jinzanghuang generates revenues and incurs expenses and liabilities in Renminbi, the currency of the People’s Republic of China.  However, as a subsidiary of the Company, it will report its financial results in the United States in U.S. Dollars.  As a result, our financial results will be subject to the effects of exchange rate fluctuations between these currencies.  From time to time, the government of China may take action to stimulate the Chinese economy that will have the effect of reducing the value of Renminbi.  In addition, international currency markets may cause significant adjustments to occur in the value of the
Renminbi.  Any such events that result in a devaluation of the Renminbi versus the U.S. Dollar will have an adverse effect on our reported results.  We have not entered into agreements or purchased instruments to hedge our exchange rate risks.





All of our assets are located in China.  So any dividends or proceeds from liquidation are subject to the approval of the relevant Chinese government agencies.





Our assets are located inside China. Under the laws governing FIEs in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well the foreign exchange control. This may generate additional risk for our investors in case of dividend payment or liquidation.


8


We have limited business insurance coverage.





The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.





Because our funds are held in banks which do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.





Banks and other financial institutions in the People’s Republic of China do not provide insurance for funds held on deposit. As a result, in the event of a bank failure, we may not have access to funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.





Jinzanghuang Tibet Pharmaceuticals is not likely to hold annual shareholder meetings in the next few years.





Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved.  The current members of the Board of Directors were appointed to that position by the previous directors.  If other directors are added to the Board in the future, it is likely that the current directors will appoint them.  As a result, the shareholders of the Company will have no effective means of exercising control over the operations of the Company.





ITEM 1B.             UNRESOLVED STAFF COMMENTS





Not Applicable.





ITEM 2.                DESCRIPTION OF PROPERTY





Our executive offices and marketing operations are located on Kaiyuan Avenue, Leling City, Shandong Province, P. R. China, in the same building as is used by Shandong Jinzanghuang .  Our portion of the building has a total usable area of 50 square meters.    The office will be adequate for our operations for the foreseeable future.





On May 13, 2009 we purchased a building and land lease for 4 million Renminbi (approximately $586,000).  The buildinghas a usable area of 2,866.23 square meters.  Our plan is to renovate the building, then locate our Research and Development Center and offices there, while retaining the use of some of the space as rentals property.





We also maintain a U.S. representative office in Jersey City, New Jersey.





ITEM 3.               LEGAL PROCEEDINGS





None.





ITEM 4.                RESERVED


9


PART II





ITEM 5.               MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





(a) Market Information





Our common stock is listed for quotation on the OTC Bulletin Board system under the symbol “JZHG.”  The common stock was first listed for trading on July 31, 2008.  The following table sets forth for the respective periods indicated the prices of the common stock, as reported by the OTC Bulletin Board (except during the period from May 20, 2009 to August 10, 2009, when the stock was quoted on the Pink Sheets only).  Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.


BidQuarter Ending

High


LowSeptember 30, 2008

$
.25


$
.15December 31, 2008

$
.15


$
.10March 31, 2009

$
.10


$
.10June 30, 2009

$
.10


$
.10September 30, 2009

$
.10


$
.10December 31, 2009

$
.75


$
.10March 31, 2010

$
1.01


$
.10June 30, 2010

$
1.01


$
.10





(b) Shareholders





On September 26, 2010 there were 292 holders of record of our common stock.





(c)  Dividends





Since the Company’s incorporation, no dividends have been paid on our Common Stock. We intend to retain any earnings for use in our business activities, so it is not expected that any dividends on our common stock will be declared and paid in the foreseeable future.





(d)  Securities Authorized for Issuance Under Equity Compensation Plans





The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of June 30, 2010.





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 plansEquity compensation plans approved by security holders
0

N.A.

0Equity compensation plans not approved by security holders
0

N.A.

0Total
0

N.A.

0





(e)  Sale of Unregistered Securities





Jinzanghuang did not effect any unregistered sales of equity securities during the 4th quarter ended June 30, 2010.


10


(f) Repurchase of Equity Securities





Jinzanghuang did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the 4th quarter ended June 30, 2010.








ITEM 6.               SELECTED FINANCIAL DATA





Not applicable.





ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS





Accounting for Variable Interest





Jinzanghuang Tibet Pharmaceuticals, Inc. is a holding company whose only asset is an indirect 100% ownership interest in Beijing Taibodekang Management Consulting Co., Ltd. (“Beijing Taibodekang”), a Wholly Foreign Owned Entity organized under the laws of the People’s Republic of China on December 5, 2008.  On January 4, 2009, Beijing Taibodekang entered into four agreements with Leling Jinzanghuang Biotech Co. Ltd. (“Leling Jinzanghuang”) and with the equity owners in Leling Jinzanghuang.  Collectively, the agreements provide Beijing Taibodekang exclusive control over the business of Leling Jinzanghuang.  The relationship is one that is
generally identified as “entrusted management.”





The accounting effect of the Entrusted Management Agreements between Beijing Taibodekang and Leling Jinzanghuang is to cause the balance sheets and financial results of Leling Jinzanghuang to be consolidated with those of Beijing Taibodekang, with respect to which Leling Jinzanghuang is now a variable interest entity.  Since the parties to the Entrusted Management Agreements were both controlled by Xue Bangyi, who is CEO of both Beijing Taibodekang and Leling Jinzanghuang, the financial statements included in this report reflect the consolidation of the results of operations and cash flows of Leling Jinzanghuang since its inception.





Results of Operations




All of the business operations of the Company are carried out by Leling Jinzanghuang, its variable interest entity. Leling Jinzanghuang has entered into a three-year distribution agreement with Shandong Jinzanghuang to distribute the Tibetan pharmaceutical and health products it manufactures.  From time to time we advance funds to Shandong Jinzanghuang for the production of products, which usually take one to two months. As of June 30, 2010, we had $305,557 in inventory purchased in this fashion, and the balance of our
advances to Shandong Jinzanghuang was $239,555, against which we will take additional inventory in the next year.





During the year ended June 30, 2010, Leling Jinzanghuang had sales revenue of $642,158, all of which came from the sale of products purchased from Shandong Jinzanghuang.  In the prior fiscal year, which ended on June 30, 2009, our sales had been only $456,957.  However the prior period had been a partial year, as our operations commenced in November 2008.  The lack of growth in our level of sales arises primarily from our lack of capital assets, which limits our marketing program, and from the inconsistency of our distribution network, as we have engaged and then replaced several sales agents since our operations began.





In both fiscal years, our gross margin was approximately 28%.  Since we purchase all of our products under contract with Shandong Jinzanghuang, this level of margin will persist until we expand the sources for our products.





During the period ended June 30, 2010 we incurred $237,552 in general and administrative expenses, an increase of 32% from the general and administrative expenses incurred in the year ended June 30, 2009.   The general and administrative expenses resulting from our business operations in China were relatively low during the year ended June 30, 2010, due to the relatively low level of our operations.  We expect our selling, general and administrative expenses to increase in proportion to the increase in our business activity in the coming periods.


11


Because our sales volume was low during the year ended June 30, 2010, our gross profit was inadequate to fund our administrative expenses.  As a result, our business generated a net loss before minority interest of $67,842.  The Entrusted Management Agreements provide, however, that Beijing Taibodekang will receive only 95% of the net profits and suffer 95% of the net losses generated by Leling Jinzanghuang.  The remaining 5% will inure to the benefit of the owners of Leling Jinzanghuang.  For that reason, we report a minority interest in our financial statements.  For the recent period, the minority
interest reduced our portion of Leling Jinzanghuang’s net loss by $434.  When Leling Jinzanghuang begins to realize profits, the minority interest will reduce our net income from that operation by 5%.








Liquidity and Capital Resources





To date, Leling Jinzanghuang has been funded by the contribution of our registered capital made by Leling Jinzanghuang’s four founders: Wang Shuxiang, Zhen Yilin, Yang An, and Kong Ruifen.  In addition, Mr. Xue Bangyi contributed the capital required by Tibet Medicine, Inc.  As a result, at June 30, 2010, we had no bank or other debt.  Although our operations during fiscal year 2010 consumed $206,854 in cash, the entirety of that amount, as well as the $591,537 used for purchase of new facilities, was contributed by our founders.





Our working capital at June 30, 2010 totalled $553,018. The primary components of that sum are inventory ($305,557) and advance to supplier ($239,555).  In the past, these items have been funded, in part, by advances that our customers made to us for goods.  When our delivery of goods met the requirements for revenue recognition, we would debit both inventories and customer advances, and the net profit on the sale would be credited to accumulated deficit.  At June 30, 2010, however, we had no customer advances. The realization of revenue from our capital assets, therefore, may not occur as quickly as in past periods.




Included in working capital at June 30, 2010 was an advance payment to our supplier in the amount of $239,555. The recipient of this advance payment is our primary source of distributed products. To maintain a long-term relationship with our vendors, we need to make advances one to two month ahead. The advances to the supplier are interest free.




Our business plan contemplates that we will obtain $5 million to $10 million in additional capital during 2010 and 2011.  The funds are needed in order to:




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




·
Implement our direct marketing program, including development of an online presense;




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




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




·
Establish franchisees throughout China; and




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




Our plan is to sell a portion of our equity in order to obtain the necessary funds, which will reduce the equity share of our existing shareholders.  To date, however, we have received no commitment from any source for funds.


Critical Accounting Policies and Estimates





In preparing our financial statements we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values.  In our preparation of the financial statements for the year ended June 30, 2010, there was one estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results.  That was the determination, noted in Note 5 in the Notes to Financial Statements, that we would establish a 100% valuation allowance with respect to our net operating loss carryforward.  We made that determination because it is uncertain that we will realize taxable income in the future against which
we could offset the NOL.


12





Impact of Accounting Pronouncements





There were no recent accounting pronouncements that have had a material effect on the Company’s financial position or results of operations.





Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.





ITEM 7A.            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not Applicable.








ITEM 8.                FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





Index to the Consolidated Financial Statements





Page


F-1

Report of Independent Registered Public Accounting Firm.F-2

Consolidated Balance Sheets as of June 30, 2010 and 2009.F-3

Consolidated Statements of Operations and Comprehensive Loss for the Fiscal Years Ended June 30, 2010 and 2009.F-4

Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30, 2010 and 2009.F-5

Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2010 and 2009.F-6 to F-13

Notes to Financial Statements.




13





REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM











To the board of directors


Jinzanghuang Tibet Pharmaceuticals, Inc.








We have audited the accompanying balance sheets of Jinzanghuang Tibet Pharmaceuticals, Inc. as of June 30, 2010 and 2009 and the related statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the year ended June 30, 2010 and period from inception (November 20, 2008) to June 30, 2009.  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 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 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 Jinzanghuang Tibet Pharmaceuticals, Inc. as of June 30, 2010 and 2009 and the results of its operations and its cash flows for the year ended June 30, 2010 and the period from inception (November 20, 2008) to June 30, 2009 in conformity with accounting principles generally accepted in the United States of America.











/s/Paritz & Company, P.A.





Hackensack, New Jersey


September 27, 2010, except for note 9, which is dated October 13, 2011


F-1





JINZANGHUANG TIBET PHARMACEUTICALS, INC.CONSOLIDATED BALANCE SHEETSASSETSJUNE 30,


June 30,2010


2009CURRENT ASSETS:Cash

$
42,184


$
25,115Accounts receivable


-



32,759Inventory


305,557



326,937Advance to supplier - related party


239,555



146,399Contract deposit, current


14,730



-Prepaid expenses and other sundry current assets


15,351



11,712Deferred tax assets


15,092



4,118TOTAL CURRENT ASSETS


632,469



547,040CONTRACT DEPOSIT


117,840PROPERTIES AND EQUIPMENT, NET OFACCUMULATED DEPRECIATION AND AMORTIZATION


576,762



586,000TOTAL  ASSETS

$
1,327,071


$
1,133,040LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES:Accrued expenses and other sundry current liabilities

$
79,451


$
635,763TOTAL CURRENT LIABILITIES AND TOTAL LIABILITIES


79,451



635,763STOCKHOLDERS' EQUITY:Common stock, $0.001 par value,300,000,000 shares authorized,40,665,063 and 40,645,063 shares issued and outstandingat June 30, 2010 and 2009, respectively


40,665



40,645Additional paid-in capital


1,264,427



490,117Accumulated deficit


(128,285
)


(60,009
)Accumulated other comprehensive income (loss)


6,842



(3
)TOTAL STOCKHOLDERS' EQUITY OF JINZANGHUANG TIBET PHARMACEUTICALS, INC.


1,183,649



470,750NONCONTROLLING INTEREST IN SUBSIDIARY


63,971



26,527TOTAL STOCKHOLDERS' EQUITY


1,247,620



497,277TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
1,327,071


$
1,133,040







See Notes to Financial Statements


F-2





JINZANGHUANG TIBET PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSTHE PERIOD FROMINCEPTIONFOR THE YEAR ENDED


(NOVEMBER 20, 2008)JUNE 30,


TO JUNE 30,2010


2009SALES

$
642,158


$
456,957COSTS of SALES


463,928



327,427GROSS PROFIT


178,230



129,530COSTS AND EXPENSESGeneral and Administrative Expenses


237,552



180,823LOSS BEFORE INCOME TAX


(59,322
)


(51,293
)INCOME TAX


8,520



7,826NET LOSS


(67,842
)


(59,119
)LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS


434



890NET LOSS ATTRIBUTABLE TO THE COMPANY


(68,276
)


(60,009
)OTHER COMPREHENSIVE INCOME (LOSS)Foreign currency translation adjustment


7,205



(3
)COMPREHENSIVE LOSS


(61,071
)


(60,012
)LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS


3,646



-COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY

$
(64,717
)

$
(60,012
)Basic and diluted earnings per common share

$
(0.00
)

$
(0.00
)Weighted average number of shares outstanding


40,657,830



40,645,063


F-3


JINZANGHUANG TIBET PHARMACEUTICALS, INC.CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYCOMMON





ADDITIONAL





OTHER


TOTALSTOCK





PAID-IN


ACCUMULATED


COMPREHENSIVE


EQUITY OF


NONCONTROLLINGSHARES


AMOUNT


CAPITAL


DEFICIT


INCOME (LOSS)


THE COMPANY


INTERESTS


TOTALBALANCE -November 20, 2008


-


$
-


$
-


$
-


$
-


$
-


$
-


$
-Capital contribution, includingCapital contributed to VIE


40,645,063



40,645



490,117











530,762







530,762Noncontrolling interests






















-



26,527



26,527Net loss














(60,009
)






(60,009
)






(60,009
)Foreign currency translation adjustments


















(3
)


(3
)






(3
)BALANCE - June 30, 2009


40,645,063



40,645



490,117



(60,009
)


(3
)


470,750



26,527



497,277Common stock issued for services


20,000



20



2,580











2,600



36,650



2,600Capital contribution to VIE










696,350











696,350







733,000Capital contribution










75,380











75,380







75,380Net loss














(68,276
)






(68,276
)


434



(67,842
)Foreign currency translation adjustments


















6,845



6,845



360



7,205BALANCE - JUNE 30, 2010


40,665,063


$
40,665


$
1,264,427


$
(128,285
)

$
6,842


$
1,183,649


$
63,971


$
1,247,620








F-4


JINZANGHUANG TIBET PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWTHE PERIOD FROMINCEPTIONFOR THE YEAR ENDED


(NOVEMBER 20, 2008)JUNE 30,


TO JUNE 30,2010


2009OPERATING ACTIVITIES:Net loss

$
(68,276
)

$
(60,009
)Adjustments to reconcile net loss to net cash usedin operating activities:Net income attributable to noncontrolling interests


434



890Depreciation and amortization


16,775



-Deferred tax


(10,974
)


-cash used in operating assets and liabilities:Accounts receivable


32,938



(32,759
)Inventory


23,166



(326,937
)Advance to supplier


(92,357
)


(146,399
)Contract deposit


(132,570
)


-Prepaid exenses and other sundry current assets


(3,553
)


(15,830
)Accrued expeses and other sundry current liabilities


27,563



49,763NET CASH USED IN OPERATING ACTIVITIES


(206,854
)


(531,281
)INVESTING ACTIVITIES:Acquisition of property and equipment


(591,537
)


-NET CASH USED IN INVESTING ACTIVITIES


(591,537
)


-FINANCING ACTIVITIES:Contribution from non-controlling interest


36,650



25,637Capital contribution


771,730



530,762NET CASH PROVIDED BY FINANCING ACTIVITIES


808,380



556,399EFFECT OF EXCHANGE RATE ON CASH


7,080



(3
)INCREASE IN CASH


17,069



25,115CASH - BEGINNING OF PERIOD


25,115



-CASH - END OF PERIOD

$
42,184


$
25,115Supplemental disclosures of cash flow information:Cash paid for income tax

$
22,995


$
11,922Supplemental disclosures of noncash investing and financing transactions:Issuance of common stock for service provided

$
2,600


$
-Non-cash investing activities:Acquisition of property charged to accrued expenses

$
0


$
586,000








F-5


JINZANGHUANG TIBET PHARMACEUTICALS, INC.





NOTES TO FINANCIAL STATEMENTS





JUNE 30, 2010











1              BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES








Business description





Jinzanghuang Tibet Pharmaceuticals, Inc. (“the Company”) distributes Tibetan pharmaceutical and nutraceutical products in the People’s Republic of China (“PRC”) through Leling Jinzanghuang Biotech Co., Ltd. (Leling JZH).





On January 12, 2009 Jinzanghuang Tibet Pharmaceuticals, Inc.  acquired all of the outstanding capital stock of Tibet Medicine, Inc. (“TMI”), a Delaware corporation, in exchange for the issuing of 36,401,462 shares of its common stock to the shareholders of TMI, representing 89.6% of the issued and outstanding shares of the Company.





For accounting purposes, the above transaction was accounted for as a reverse merger. TMI became the surviving entity for accounting purposes, whereas the Company will be recognized as the surviving entity for legal purposes. Accordingly, the financial statements include the assets, liabilities and operations of TMI.





TMI was organized under the laws of Delaware on September 4, 2008 and is the 100% owner of the registered capital of Beijing Taibodekang Consulting Co., Ltd. (“BTC”).





BTC is a Wholly Foreign Owned Entity that was organized under the laws of the People’s Republic of China on December 5, 2008. On January 4, 2009, BTC entered into four ten-year agreements (the “Entrusted Management Agreements”) with Leling JZH and its registered equity holders.





The purpose of these agreements is to transfer to BTC full responsibility for the management of Leling JZH, as well as 95% of the financial benefits that arise from the business of Leling JZH. As a result, BTC now has control over the business of Leling JZH.





For variable interest entities, we assess the terms of our interest in each entity to determine if we are the primary beneficiary as prescribed by ASC 810. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity’s net assets excluding variable interests. In according with ASC 810, Leling JZH is considered
a variable interest entity (“VIE”).


The accounting effect of the Entrusted Management Agreements between Beijing Taibodekang and Leling Jinzanghuang is to cause the balance sheets and financial results of Leling Jinzanghuang to be consolidated with those of Beijing Taibodekang, with respect to which Leling Jinzanghuang is now a variable interest entity.  Since the parties to the Entrusted Management Agreements were both controlled by Xue Bangyi, who is CEO of both Beijing Taibodekang and Leling Jinzanghuang, the financial statements included in this report reflect the consolidation of the results of operations and cash flows of Leling Jinzanghuang since its inception.





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


F-6


Basis of presentation





The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and are presented in U.S. Dollars.





The consolidated financial statements include the financial statements of the Company and its subsidiaries and variable interest entity.  All inter-company transactions and balances among the Company and its subsidiaries are eliminated upon consolidation.





Minority interest represents the allocation of earnings to the VIE owners who are not at risk for the majority of losses of the VIE, which have been accounted for by using the consolidation method of accounting.




Uses of estimates in the preparation of financial statements





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 net revenue and expenses during each reporting period.  Actual results could differ from those estimates.




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


June 30, 2009Total current assets

$
592,341


$
525,379Total assets


1301,673



1,111,379Total current liabilities


52,451



607,738Total liabilities


52,451



607,738
 
 The Consulting Agreement between Leling Jinzanghuang and Beijing Taibodekang requires that, in payment for the consulting services provided by Beijing Taibodekang, Leling Jinzanghuang will pay fees to Beijing Taibodekang equal to:
  ·
10,000 RMB per month, plus
 ·
95% of the annual gross profit of Leling Jinzanghuang.
  The Consulting Agreement also provides, however, that Beijing Taibodekang will reimburse Leling Jinzanghuang for the amount of any net loss incurred by Leling Jinzanghuang during the period when it is managed by Beijing Taibodekang.  Because Leling Jinzanghuang incurred net losses in both of the years ended June 30, 2010 and 2009, no fees have been paid by Leling Jinzanghuang to Beijing Taibodekang for services in either of those years.


Revenue recognition





Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, and no other significant obligations of the Company exist and collectability is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.





F-7




If the Company’s customer distribution agreements contain clauses that grant the customer the right to return or exchange products, the Company accounts for sales to these distributors under the guidance of ASC 605-15-25 Sale of Product When Right of Return Exists.   If the Company does not have sufficient historical evidence of customer acceptance, it recognizes revenue when the return provisions lapse. When the Company has sufficient historical evidence of customer acceptance it recognizes revenue upon shipment.





Shipping and handling costs





In accordance with ASC 605-45-45,all amounts billed to customers in a sales transaction for shipping and handling are classified as revenue.





Cash





The Company maintains cash with financial institutions in the People’s Republic of China (“PRC”) which are not insured or otherwise protected.  Should any of these institutions holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution.





Accounts Receivable





Accounts receivables represent customer accounts receivables. Reserve for bad debts is based on a combination of current sales, historical charge-offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified. There is no bad debt expense recorded for the years ended June 30, 2010 or 2009.


Inventories





Inventories are valued at the lower of cost or market with cost determined on the weighted average method.





Property and equipment





Property and equipment are recorded at cost. Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight line method.





On May 10, 2009, Leling JZH entered into an agreement to purchase a building and land lease for an aggregate cost of RMB4,000,000 (approximately $586,000), which was paid in July 2009.





Deferred income taxes





The Company accounts for income taxes in accordance with with the FASB ASC 740-10-25, which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  In addition, ASC 740-10-25 requires recognition of future tax benefits, such as carry-forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not
be realized.


Currency translation





Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (”RMB”).  Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates.  Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders’ equity.  Gains and losses from foreign currency transactions are recognized in current operations.








F-8




The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
 
 Comprehensive income
 
 Comprehensive income is defined to include all changes in equity except those resulting from investments by shareholders and distributions to shareholders.  Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.  Comprehensive income includes net income and the foreign currency translation gain, net of tax.
 
 Statement of Cash Flows
 
 In accordance with ASC 230 “Statement of Cash Flows,” cash flows from the Company’s operations are calculated 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.


Fair value of financial instruments





The Company adopted the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:





Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.





Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.





Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.





The carrying amounts reported in the balance sheets for cash, advance to suppliers, other payables and accrued expenses, approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any other assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with ASC 820.





Earnings per share





Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period.  Diluted earnings per share is computed similar to basic earnings per share, 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.  There are no such additional common shares available for dilution purposes as of June 30, 2010 and 2009.





F-9




New Accounting Pronouncements





In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Level 1 and 2, separate disclosures of purchases, sales, issuance, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010 (the Company’s fiscal year 2011); early
adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2010-06 on its financial statements.





In February 2010, FASB issued new standards in ASC 855, Subsequent Event. This amendment removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of GAAP. All of the amendments are effective upon issuance of the final update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The Company does not expect the adoption of this amendment to have a material impact
on its consolidated financial statements.


2              CONTRACT DEPOSIT





In August 2009 Leling JZH entered into a 10 year contract with the Leling BaiCaoYuan Honeysuckle Planting Cooperative.  Pursuant to the contract, Leling JZH advanced RMB 1,000,000 ($149,031 if translated at June 30, 2010 exchange rate) to be used by the farmers in the Cooperative to plant honeysuckle on 300 acres of land.  All of the honeysuckle that is produced on that acreage and that meets quality standards will be purchased by Leling JZH at negotiated prices that will be 25% below the wholesale market price, except that the discount will be only 10% if the market price is less than RMB 80 per kilogram.  Either party may terminate the agreement after Leling JZH has
recouped its investment. The contract deposit is amortized over the life of the contract using straight line method.





3              RELATED PARTY TRANSACTIONS
 
 All of the products that the Company distributes are manufactured by one supplier, Shandong Jinzanghuang (Tibet) Pharmaceutical Co., Ltd. (“Shandong Jinzanghuang”).  Xue Bangyi, who is the Company’s CEO, owns 91% of the registered capital of Shandong Jinzanghuang and also serves as CEO of that entity.  The Company entered into a three-year distribution contract with Shandong Jinzanghuang on November 21, 2008, which provides Leling JZH non-exclusive marketing rights.  The agreement provides that Shandong Jinzanghuang will deliver
products in response to orders received from Leling JZH.  The agreement gives Shandong Jinzanghuang the right to fix the price it charges, although it is required to provide Leling JZH timely notice of any price increase.  In addition, Shandong Jinzanghuang retains ownership of all of the patent rights, trademark rights and other intellectual property rights related to the sold products.  Under this agreement, each party has the right to terminate the contract, provided that sixty-day written notice in advance is given to the other party.
 
 Since initiating operations in December 2008, Leling JZH has advanced sums to Shandong Jinzanghuang in prepayment of the wholesale price of the goods that Leling JZH distributes.  The payments by Leling JZH to Shandong Jinzanghuang are recorded on the Company’s books as “advance to supplier - related party.” When goods are delivered giving rise to a payment obligation by Leling JZH to Shandong Jinzanghuang, the contract price is reclassified to cost of goods sold.  During the years ended June 30, 2010 and 2009, Leling JZH made cash payments to
Shandong Jinzanghuang totaling $535,704 and $800,763, respectively.


4              PROPERTY, PLANT AND EQUIPMENT, NET





Property, plant and equipment, net, consisted of the following:





As of June 30,2010


2009Buildings

$
589,200


$
586,000Office equipments


4,337



-593,537



586,000Less: accumulated depreciation


16,774Property, plant and equipment, net

$
576,762


$
586,000




F-10





5             TAXES





The Company’s Chinese subsidiaries are governed by the Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.





The comparison of income tax expense at the U.S. statutory rate of 35% in 2010 and 2009 to the Company's effective tax rate is as follows:





June 30 2010


June 30 2009Rate

Amount


Rate

AmountU.S.statutory income tax

(35
%)

$
(20,763
)


(35
%)

$
(17,952
)Tax rate difference between US and China

(7
%)


(4,045
)


10
%


5,129NOL from U.S with 100% valuation allowance

59
%


34,920



40
%


20,649Tax exempt income and expenses, net

(3
)%


(1,592
)



-


-Actual consolidated income tax

14
%

$
8,520



15
%

$
7,826





The provision for income taxes are summarized as follows:





June 30 2010


June 30 2009Current – foreign

$
19,494


$
7,826Deferred – foreign


(10,974
)


-Deferred - United States


(34,920
)


20,649Valuation allowance - United States


34,920



(20,649
)Total

$
8,520


$
7,826





The tax effects of temporary differences that give rise to the Company's net deferred tax asset as of June 30, 2010 are as follows:





June 30 2010


June 30 2009Deferred tax assets


-



-NOL carryforward

$
56,826


$
20,649Management fee

$
4,404Amortization of contract deposit

$
3,670Accrued expenses

$
10,623


$
4,118Gross deferred tax assets

$
75,523


$
24,767Valuation allowance

$
(55,569
)

$
(20,649
)Total deferred tax assets

$
19,954


$
4,118Deferred tax liabilities


-



-Management fee

$
(4,404
)


-Prepaid expenses

$
(458
)


-Total deferred tax liabilities

$
(4,862
)


-Net deferred tax assets

$
15,092


$
4,118




F-11




6              CONCENTRATIONS




During the period from inception (November 20, 2008) to June 30, 2009, there were three customers to whom the Company made sales representing over 10% of its revenue for the period.  The customers accounted for 40%, 30% and 19% of revenue for the period.





For the year ended June 30, 2010, sales to one customer represented 93% of total sales.





Two products represented approximately 37% and 24% of total sales for the period from inception (November 20, 2008) to June 30, 2009.





Three products represented approximately 54%、20% and 11% of total sales for the year ended June 30,2010.





7             COMMITMENTS AND CONTINGENCIES




Operating lease commitment





The Company leases buildings under non-cancelable operating lease agreements. Based on the current rental lease agreements, the future minimum rental payments required for the coming years are as follows:





Years ending June 30:2011

$
4,0652012


3,9482013


884Remaining operating lease payments


-Total future minimum operating lease payments

$
8,897





Vulnerability due to Operations in PRC





The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC.  Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRCs political, economic and social conditions.  There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.





Substantially all of the Company’s businesses are transacted in RMB, which is not freely convertible.  The Peoples Bank of China or other banks are authorized to buy and sell foreign currencies at the exchange rates quoted by the Peoples Bank of China.  Approval of foreign currency payments by the Peoples Bank of China or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.





Since the Company has its primary operations in the PRC, the majority of its revenues will be settled in RMB, not U.S. Dollars. Due to certain restrictions on currency exchanges that exist in the PRC, the Company’s ability to use revenue generated in RMB to pay any dividend payments to its shareholders outside of China may be limited.





In September 2006, PRC changed the laws regarding transfer of equity in PRC companies in exchange for equity in non-PRC companies.  Approvals and registrations for such transfers are required and penalties may be imposed if the requirements are not met.





F-12


8             SUBSEQUENT EVENTS





We have evaluated events after the date of these financial statements through, the date that these financial statements were issued.  There were no material subsequent events as of that date.




9.                      RESTATEMENT
 
 The balance sheet as of June 30, 2010 presented herein has been restated.  The restatements were made to:
 
 ·
reclassify the contract deposit asset from a current asset to a long-term asset, based on the life of the Company’s agreement with Leling BaiCao Yuan Honeysuckle Planting Cooperative (See: Note 2).
 
 ·
reallocate the contributed capital between the Company and Leling JZH. The Company has changed its classification of an equity contribution of $733,000 to Leling JZH from a contribution by non-controlling interest to a capital contribution to the Company. This classification results from the fact that the contribution was made by the controlling shareholder of the company who is also a 97% legal owner of Leling JZH, whereby the substance of the transaction is an equity contribution to the Company.
 
 The effect of the restatement on the balance sheet is shown in the table below.
 
 As Originally Reported


As RestatedContract deposit - current portion

$
132,570


$
14,730Total current assets


750,309



632,469Contract deposit - non-current


--



117,840Additional paid-in capital


568,077



1,264,427Accumulated other comprehensive income


3,556



6,842Total shareholders’ equity of the Company


484,013



1,183,649Non-controlling interest


763,607



63,971
 
 
 The effect of the restatement on the statement of cash flows is shown in the table below.
 
 As Originally Reported


As RestatedFinancing activitiesContribution from non-controlling interest

$
733,000


$
36,650Capital contribution


75,380



771,730




F-13


ITEM 9.               CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





Not applicable.





ITEM 9A.            CONTROLS AND PROCEDURES





(a)           Evaluation of Disclosure Controls and Procedures.





The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.





The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). That evaluation disclosed that the Company has material defects in its disclosure controls and procedures.  Specifically they determined that there is a lack of expertise in U.S. GAAP among the Company’s management personnel.  They also determined that the size of the Company’s accounting
staff and low number of supervisory personnel prevented an appropriate segregation of accounting functions.  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were not effective.


(b)           Changes in Internal Controls.





The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was no change to the
Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.





(c)            Management’s Report on Internal Control over Financial Reporting.





Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  We have assessed the effectiveness of those internal controls as of June 30, 2010, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.





Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  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 and procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.





A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal
controls over financial reporting, we identified two material weaknesses in our internal control over financial reporting.  These material weaknesses consisted of:


26





a.           Lack of expertise in U.S accounting principles among the personnel in our Chinese headquarters.  Our books are maintained and our financial statements are prepared by the personnel employed at our executive offices in the City of Leling.  Few of our employees have experience or familiarity with U.S accounting principles.  The lack of personnel in our Leling office who are trained in U.S. accounting principles is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary
to comply with U.S. GAAP.





b.           Inadequate staffing and supervision within the accounting operations of our company.  The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system.  The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.





Management is currently reviewing its staffing and their training in order to remedy the weaknesses identified in this assessment.  To date, we are not aware of significant accounting problems resulting from these weaknesses; so we have to weigh the cost of improvement against the benefit of strengthened controls.  However, because of the above conditions, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of June 30, 2010.





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.








ITEM 9B.             OTHER INFORMATION





None.





PART III





ITEM 10.             DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





The executive officers and directors of the Company are:





Name
Age
Positions with the Company
Director SinceXue Bangyi
52
Chairman, Chief Executive Officer
2009Wang Shuxiang
54
Director, Executive Vice President
2009Vincent DeFilippo
38
Director, Chief Operations Officer
2010Eva Deng
44
Director, Chief Financial Officer
2010Luan Dahai
46
Director, Vice President
2010Liu Min
50
Director, Vice President
2010Bai Xiaosong
48
Director, Vice President
2010





XUE BANGYI. Since 2006 Mr. Xue has been employed as Chairman of Shandong Jinzanghuang (Tibet) Pharmaceuticals Co., Ltd., which is involved in the manufacture and distribution of pharmaceutical and nutraceutical products based on traditional Tibetan medical principles. Shandong Jinzanghuang is the principal supplier of the products marketed by the Registrant’s subsidiary.  From 1996 until 2006 Mr. Xue was employed as General Manager of Qunming Railway Resources Co., which manufactured equipment in China. Mr. Xue was awarded a degree in Economics and Management by the Wuhan College of Finance.





WANG SHUXIANG. From November 2008 until July 2009, Mr. Wang was employed as Chief Executive Officer of Leling Jinzanghuang, the Registrant’s subsidiary. Since 2002, Mr. Wang has been employed as Operational Manager of Shandong Jinzanghuang. From 1998 to 2002, Mr. Wang was the Ethics Chair for the Discipline Division of the Health Department of Leling City, Shandong Province. In 1994, Mr. Wang was awarded a degree in Finance Accounting by Shandong College of Economics.


27





VINCENT DEFILIPPO.  Mr. DeFilippo brings to the Company almost twenty years of experience in investment banking.  Since 2008 Mr. DeFilippo has been employed as Chief Operations Officer by Newport Coast Securities Corp. in Newport Beach, California.  From 2007 to 2008 Mr. DeFilippo was employed as Vice President of Operations by John Thomas Financial in New York City.  From 2004 to 2007 he was employed as Branch Manager, with responsibility for residential and commercial loans, by International Mortgage & Real Estate in Beverly Hills.  From 2002 to 2004 Mr. DeFilippo was employed as Vice President of Investment by Broadway Growth Strategies in
New York City.  From 1992 to 2002 he was employed as Assistant to the Investment Manager by Lighthouse Capital in New York City.  Mr. DeFilippo was awarded a degree with a concentration in finance and investment by Bernard Baruch College.





EVA DENG.  Ms. Deng brings to the Company nearly twenty years experience in financial management and accounting.  Since 2008 Ms. Deng has been employed as Chief Financial Officer of Beijing Lepro Seva Technology Development Co., Ltd.  From 2006 to 2008 Ms. Deng was employed as Chief Financial Officer of Ambow Education Holding, Ltd. in China.  From 2004 to 2006 she was employed as Chief Financial Officer of Global InfoTech Company, a software developer.  From 1994 to 2003 Ms. Deng was employed as in the Beijing Office of Deloitte China, first as Senior Auditor and then as Auditing
Manager.  Ms. Deng is a member of The Association of Chartered Certified Accountants.  In 1991 she was awarded a Bachelor Degree with concentrations in economics and management by Beijing University of Agriculture.





LUAN DAHAI.  Since 2010 Mr. Luan has been employed as President by both Leling Jinzanghuang and Shandong Jinzanghuang.  From 1998 to 2007 Mr. Luan was employed as General President of Liaoning Jiangfeng Co., Ltd.  Prior to undertaking that position, Mr. Luan had 15 years of executive experience in China.  He brings to the board extensive experience in marketing and sales, both domestically and internationally.  In 1984 Mr. Luan was awarded a Bachelor Degree with a concentration in Enterprise Management by the Northeast Normal University.





LIU MIN.  Since 2009 Ms. Liu has been employed as Vice President by both Leling Jinzanghuang and Shandong Jinzanghuang.  From 2007 to 2009 Ms. Liu was employed as Vice President by Jilin Huangfeng Ginseng Group Corporation.  From 2005 to 2007 Ms. Liu was employed as Vice President by Tianshanqi Pharmaceutical Group Corporation.  From 2003 to 2005 she was employed as Marketing Director by Chengzi Group of Singapore.  From 2000 to 2002 Ms. Liu was employed as Business Controller by the Amway Corporation in the United States.  Prior to taking that position, Ms. Liu had several years of employment as an accountant.  She
brings to the Board extensive experience in financial management and a familiarity with the Chinese national finance system.  In 1986 Ms. Liu was awarded a degree with a concentration in industrial accounting by the Broadcast and Television University of Jilin Province.





BAI XIAOSONG.  Mr. Bai joined Leling Jinzanghuang in 2010 as Vice President of Sales.  From 2007 to 2010 he was employed as Vice President by Shanghai Ruiying Chemical Co., Ltd.  From 1992 to 2001 Mr. Bai was employed by Hengfa Property Company as Engineer, with responsibilities for property management.  Mr. Bai brings to the Board over 25 years of experience in management.  In 1989 Mr. Bai was awarded a degree with a concentration in mechanics by the Harbin University of Science and Technology (formerly Harbin College of Electrical Engineering.





All of our directors hold offices until the next annual meeting of the shareholders of the Company, and until their successors have been qualified after being elected or appointed.  Officers serve at the discretion of the board of directors.





Audit Committee; Compensation Committee; Nominating Committee.





Our Board of Directors was very small until last month, when we expanded to seven members.  Therefore, we have not yet constituted an audit committee, a compensation committee or a nominating committee.  Decisions regarding nominations to the Board will be made by all currently-serving members of the Board.  The Board has determined that Eva Deng meets the qualifications to serve as our  audit committee financial expert, by reason of her experience in public accounting.


28





Code of Ethics





The Board of Directors has not adopted a code of ethics applicable to the Company’s executive officers.  The Board believes that the small number of individuals involved in the Company’s management makes such a code unnecessary.





Section 16(a) Beneficial Ownership Reporting Compliance





None of the officers, directors or beneficial owners of more than 10% of the Company’s common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the year ended June 30, 2010, except that none of the members of our board of directors has filed a Form 3.





ITEM 11.             EXECUTIVE COMPENSATION





The following table sets forth all compensation awarded to, earned by, or paid by the companies that are currently subsidiaries of Jinzanghuang to Xue Bangyi for services rendered in all capacities to the Company during the year ended June 30, 2010.  Mr. Xue was the Company’s Chief Executive Officer from July 8, 2009 to date.  The table also sets forth the compensation paid to Wang Shuxiang for service as Chief Executive Officer during the year ended June 30, 2009. There was no officer whose salary and other compensation for the year exceeded $100,000.





Year
Salary
Bonus
Stock

Awards
Option

Awards
Other

CompensationXUE BANGYI
2010
$8,772
--
--
--
--WANG SHUXIANG
2009
$8,772
--
--
--
--





Employment Agreements





All of our officers and directors serve on an at-will basis, and none has entered into employment contracts with the company.





Compensation of Directors





The Board of Directors has not adopted any compensation arrangements for its members.





Equity Grants





The following tables set forth certain information regarding the stock options acquired by the Company’s Chief Executive Officer during the year ended June 30, 2010 and those options held by him on June 30, 2010.





Option Grants in the Last Fiscal Year


Number of

securities

underlying

option
Percent

of total

options

granted to

employees

in fiscal
Exercise

Price
Expiration
Potential realizable

value at assumed

annual rates of

appreciation

for option termgranted
year
($/share)
Date
5%
10%Xue Bangyi
--
--
--
--
--
--





The following tables set forth certain information regarding the stock grants received by the executive officers named in the table above during the year ended June 30, 2010 and held by them unvested at June 30, 2010.


29





Unvested Stock Awards in the Last Fiscal Year





Number of

Shares That

Have Not

Vested
Market Value

of Shares That

Have Not

VestedXue Bangyi
--
--








ITEM 12.             SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of the date of this prospectus by the following:





·
each shareholder known by us to own beneficially more than 5% of our common stock;





·
Xue Bangyi, our Chief Executive Officer





·
each of our directors; and





·
all directors and executive officers as a group.








There are 40,665,063 shares of our common stock outstanding on the date of this report.  Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares,  subject to community property laws where applicable.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.





In computing the number of shares beneficially owned by a person and the percent ownership of that person, we include shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days. We do not, however, include these “issuable” shares in the outstanding shares when we compute the percent ownership of any other person.





Name  and Address of

Beneficial Owner(1)

Amount and Nature

of Beneficial

Ownership(2)


Percentage

of ClassXue Bangyi


4,429,359



10.9
%Wang Shuxiang


2,648,935



6.5
%Vincent DeFilippo


0



-Eva Deng


0



-Luan Dahai


0



-Liu Min


0



-Bai Xiaosong


0



-All officers and directors as a group (7 persons)


7,078,294



17.6
%


________________________________


(1)           Except as otherwise noted, each shareholder’s address is c/o Fu Qian Road South End (Westside), Leling City, Shandong Province, P. R. China.





(2)           Except as otherwise noted, all shares are owned of record and beneficially.


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ITEM 13.            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





Certain Relationships and Related Transactions





Xue Bangyi is the Chairman of the Board of Jinzanghuang Tibet Pharmaceuticals.  Xue Bangyi is also the President of Shandong Jinzanghuang, which is the sole supplier of products distributed by Leling Jinzanghuang.  Details regarding the relationship between the companies is set forth earlier, in the description of the business of Leling Jinzanghuang.





Director Independence





None of the members of the Company’s Board of Directors is an independent director, pursuant to the definition of “independent director” under the Rules of The NASDAQ Stock Market.





ITEM 14.             PRINCIPAL ACCOUNTANT FEES AND SERVICES





Paritz & Company, P.A. has been the independent accountant for Tibet Medicine, Inc. and its subsidiaries since September 4, 2008.  In January 2009, when Jinzanghuang Tibet Pharmaceuticals, Inc. acquired Tibet Medicine, Paritz & Company, P.A. became the independent accountant for Jinzanghuang Tibet Pharmaceuticals.





Audit Fees





Paritz & Company, P.A. billed $30,000 to the Company for professional services rendered for the audit of financial statements for the fiscal year ended June 30, 2010.Paritz & Company, P.A. billed $30,000 to the Company for professional services rendered for the audit of financial statements for the fiscal year ended June 30, 2009.





Audit-Related Fees





Paritz & Company, P.A. billed $0 to the Company during 2010 and 2009 for assurance and related services that are reasonably related to the performance of the 2010 audit or the 2009 audit or review of the quarterly financial statements.





Tax Fees





Paritz & Company, P.A. billed $0 to the Company during fiscal 2010 and fiscal 2009 for professional services rendered for tax compliance, tax advice and tax planning.





All Other Fees





Paritz & Company, P.A. billed $0 to the Company in fiscal 2010 and fiscal 2009 for services not described above.





It is the policy of the Company that all services other than audit, review or attest services must be pre-approved by the Board of Directors.  No such services have been performed by Paritz & Company, P.A..





Subcontracted Services





All work on Paritz’ engagement to audit the Company’s financial statements for the year ended June 30, 2010 was performed by full-time permanent employees of Paritz.


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ITEM 15.              EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





3-a
Certificate of Incorporation - filed as an exhibit to the Registration Statement on Form 10 filed on May 22, 2008 and incorporated herein by reference.





3-a(1)
Certificate of Amendment to Certificate of Incorporation - filed as an exhibit to the Current Report on Form 8-K filed on March 27, 2009 and incorporated herein by reference.





3-b
Amended and Restated Bylaws - filed as an exhibit to the Registration Statement on Form 10 filed on May 22, 2008 and incorporated herein by reference.





10-a
Exclusive Technical Service and Business Consulting Agreement dated January 4, 2009 between Beijing Beijing Taibodekang Co., Ltd. and Leling Jinzanghuang Biotech Co., Ltd.(1)





10-b
Share Pledge Agreement dated January 4, 2009 among Beijing Beijing Taibodekang Co., Ltd., the equity owners in Leling Jinzanghuang Biotech Co., Ltd. and Leling Jinzanghuang Biotech Co., Ltd.(1)





10-c
Call Option Agreement dated January 4, 2009 between Beijing Beijing Taibodekang Co., Ltd. and the equity owners in Leling Jinzanghuang Biotech Co., Ltd.(1)





10-d
Proxy Agreement dated January 4, 2009 between Beijing Beijing Taibodekang Co., Ltd., the equity owners in Leling Jinzanghuang Biotech Co., Ltd., and Leling Jinzanghuang Biotech Co., Ltd.(1)





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Subsidiaries –   Tibet Medicine, Inc., a Delaware corporation


Leling Jinzanghuang Biotech Co., Ltd., a  PRC corporation





31.1
Rule 13a-14(a) Certification – CEO





31.2
Rule 13a-14(a) Certification – CFO





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Rule 13a-14(b) Certifications





_______________





(1)
Filed as an exhibit to the Current Report on Form 8-K filed on September 10, 2010and incorporated herein by reference.





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SIGNATURES





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








JINZANGHUANG TIBET PHARMACEUTICALS, INC.Date: September 28, 2010
/s/ Xue BangyiXue Bangyi, Chief Executive Officer





Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.





/s/ Xue Bangyi
September 28, 2010Xue BangyiDirector, Chief Executive Officer/s/ Eva Deng
September 28, 2010Eva Deng, Chief Financial and Accounting Officer, Director/s/Wang Shuxiang
September 28, 2010Wang ShuxiangDirector, Executive Vice President/s/Vincent DeFilippo
September 28, 2010Vincent DeFilippoDirector, Chief Operations Officer/s/Luan Dahai
September 28, 2010Luan DahaiDirector, Vice President/s/Liu Min
September 28, 2010Liu MinDirector, Vice President/s/Bai Xiaosong
September 28, 2010Bai XiaosongDirector, Vice President









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