Jinzanghuang Tibet (OTC BB:JZHG)

The increase in revenues was primarily caused by a marked increase in per store revenue, which we attribute to growing awareness of our product line.

Despite our sizeable cash reserves, we borrowed $29,460 from a related party during the quarter ended September 30, 2011. The loans are taken in order to obtain U.S. Dollars to pay our expenses in the United States, including accounting and legal expenses and the expenses that attend the listing of our common stock on the U.S. markets. The procedure required in order to obtain government approval of a conversion of Renminbi into Dollars is time-consuming and laborious. For that reason, until we complete a financing in U.S. Dollars or obtain some other source of U.S. Dollars, we will continue to borrow Dollars from related parties as needed.

Over the long term, our expectation is that we will utilize our capital resources as well as any additional investments that we secure in order to expand our presence in the market for Tibetan medicine. At the present time, however, we are able to operate profitably without significant additional investment. Moreover, our observation of the equity markets indicates that we would be unlikely to obtain financing on favorable terms at this time. Accordingly, our near term plan is to continue the program that we initiated during the past year, utilizing the resources available to us.

To date our operations have been funded by the contributions to capital by our founders and the net cash provided by our operations. As a result, at September 30, 2011 we had no bank debt and only a $65,370 obligation to a related party. At the same time, we had $3,632,284 in cash at September 30, 2011 as well as working capital totaling $4,292,377, an increase of $1,679,480 since our last fiscal year ended on June 30, 2011. So our capital resources are more than sufficient to fund our operations for the coming year as they are currently structured.

Over the long term, our expectation is that we will utilize our capital resources as well as any additional investments that we secure in order to expand our presence in the market for Tibetan medicine. At the present time, however, we are able to operate profitably without significant additional investment. Moreover, our observation of the equity markets indicates that we would be unlikely to obtain financing on favorable terms at this time. Accordingly, our near term plan is to continue the program that we initiated during the past year, utilizing the resources available to us.

Our sauna store program began in October 2010 with a trial group of 50 sauna stores. At the end of December 2010 we added another 50 stores to our program, and then added another 50 at the end of March 2011. As a result, our revenue from advisory services increased from quarter to quarter. The revenue growth was roughly proportionate to the growth in number of stores, except that the third quarter was particularly profitable. This occurred because the Chinese Spring Festival in February affords most Chinese workers from one to two weeks of vacation, during which time the sauna stores experience a sharp increase in business.

On October 8, 2010, Leling JZH entered into a joint venture with Shandong JZH to market to the sauna store industry. Leling JZH entered into an agency agreement with Shenyang Jintao Technology Co., Ltd., which has introduced 50 sauna stores to Shandong JZH and Leling JZH. Shandong JZH sells its Tibetan medicine products to the sauna stores and Leling JZH provides training service to each store to coach how to provide sauna service through using the products sold byShandong JZH. At each month end, each store sends a usage record to Leling JZH. Leling JZH also makes a physical inventory count quarterly to compare remaining inventory with the quantity delivered by Shandong JZH. According to the agreement signed with each store, once products are used, each sauna store will pay 40% of the total sauna service fee to Leling JZH. This arrangement provides Leling JZH with a revenue stream for which it incurs very little direct cost, as the product manufacture and distribution is entirely the responsibility of Shandong JZH. In addition, entry into this new market has not forced us to incur significant start-up costs, as we have used the same employees and same facilities for the sauna market as carried on our prior product distribution activities. On October 8, 2010, Leling JZH entered into a joint venture with Shandong JZH to market to the sauna store industry. Leling JZH entered into an agency agreement with Shenyang Jintao Technology Co., Ltd., which has introduced 50 sauna stores to Shandong JZH and Leling JZH. Shandong JZH sells its Tibetan medicine products to the sauna stores and Leling JZH provides training service to each store to coach how to provide sauna service through using the products sold byShandong JZH. At each month end, each store sends a usage record to Leling JZH. Leling JZH also makes a physical inventory count quarterly to compare remaining inventory with the quantity delivered by Shandong JZH. According to the agreement signed with each store, once products are used, each sauna store will pay 40% of the total sauna service fee to Leling JZH. This arrangement provides Leling JZH with a revenue stream for which it incurs very little direct cost, as the product manufacture and distribution is entirely the responsibility of Shandong JZH. In addition, entry into this new market has not forced us to incur significant start-up costs, as we have used the same employees and same facilities for the sauna market as carried on our prior product distribution activities.

Leling Jinzanghuang continues to sell products designed to provide health protection as its base business. During the six months ended December 31, 2010 it also offered puer tea for sale. We consider the market prospects to be hopeful; so the Company is seeking more customers step by step. During the six months ended December 31, 2010, however, product sales remained low, with no sales at all during the quarter ended December 31, 2010, as we lack the capital necessary to fund a market surge. During the six months ended December 31, 2010 product sales, all of which were made to two customers, contributed only $27,123 to our revenue. In contrast, during the six months ended December 31, 2009, our sales of products manufactured by Shandong Jinzanghuang yielded $548,486 in revenue.

Our operating results for the three and six month periods ended December 31, 2010 were superior to those of the prior year periods, however, since we introduced a second revenue stream in October 2010. We now have arrangements with 50 sauna stores, where we have trained the staff to utilize the products they purchase from Shandong JZH in the sauna services they perform. In exchange for training and advice, we receive 40% of the revenue from the stores. This new business yielded $553,038 in revenue during the three and six month periods ended December 31, 2010. The cost of the sales consists almost entirely of the $1,203 per store fee that we pay to Shenyang Jintao Technology Co., Ltd., which serves as our agent in managing this business, plus the salary of our training staff. As a result, our gross margin for the six months ended December 31, 2010 was 84%. During the six months ended December 31, 2009, we achieved a 28% gross margin.

Our business plan contemplates that we will obtain $5 million to $10 million in additional capital during 2010 and 2011.  The funds are needed in order to:
 
  ● Relocate our headquarters from Shandong to Beijing, where we will have greater access to marketing channels;

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

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

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

 
  ● Establish franchisees throughout China; and

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

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

Leling Jinzanghuang Biotech Co., Ltd, a Tibetan health products company,  goes public via a reverse merger transaction on January 12, 2009.  Upon completion of the Share Exchange, there were 40,644,780 shares common stock issued and outstanding. 

The company has yet to generate any significant revenues, as 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.  However, the growth rate of the market for Tibetan pharmaceuticals is substantial. 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:

• 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.

Source: SEC Form 8K (January 12, 2009)

Our business plan contemplates that we will obtain $5 million to $10 million in additional capital during 2009 and 2010.

Source: SEC Form 8K (January 12, 2009. Page 12)