WEB NEWS Deal Flow
Item 3.02 Unregistered Sale of Equity Securities
On July 31, 2012 the Registrant sold 10,000,000 shares of common stock to seven unrelated individuals in a private offering. The purchase price for the shares was $.10 per share, or a total of $1 million. The shares were sold to individuals who are accredited investors and were purchasing for their own accounts. The offering, therefore, was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Section 4(5) of the Securities Act.
Auditor trail
Item 4.01 Change in Registrant’s Certifying Accountant
On June 21, 2012 the Board of Directors of Jinzanghuang Tibet Pharmaceuticals, Inc. approved the dismissal of De Joya Griffith & Company, LLC from its position as the principal independent accountant for Jinzanghuang Tibet Pharmaceuticals.
The Board of Directors engaged De Joya Griffith & Company, LLC as principal independent accountant on July 13, 2011. The audit report of De Joya Griffith & Company, LLC on Jinzanghuang Tibet Pharmaceutical’s financial statements for the fiscal year ended June 30, 2011 did not contain an adverse opinion or disclaimer of opinion or qualification or modification. De Joya Griffith & Company, LLC did not, during the applicable periods, advise Jinzanghuang Tibet Pharmaceuticals of any of the enumerated items described in Item 304(a)(1)(iv) of Regulation S-K.
Jinzanghuang Tibet Pharmaceuticals and De Joya Griffith & Company, LLC have not, during Jinzanghuang Tibet Pharmaceuticals’s most recent fiscal year or any subsequent period through the date of dismissal, had any disagreement on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to De Joya Griffith & Company, LLC’s satisfaction, would have caused De Joya Griffith & Company, LLC to make reference to the subject matter of the disagreement in connection with its reports.
Jinzanghuang Tibet Pharmaceuticals has requested De Joya Griffith & Company, LLC to furnish a letter addressed to the Securities Exchange Commission stating whether or not De Joya Griffith & Company, LLC agrees with the statements in this Form 8-K. A copy of the letter is filed as an exhibit to this 8-K.
On June 21, 2012 Jinzanghuang Tibet Pharmaceuticals retained Stan Jeong-Ha Lee, CPA to audit Jinzanghuang Tibet Pharmaceuticals’ financial statements for the year ended June 30, 2012. At no time during the two most recent fiscal years and the subsequent interim period through June 21, 2012, the date of the engagement, did Jinzanghuang Tibet Pharmaceuticals consult with Stan Jeong-Ha Lee, CPA regarding any matter of the sort described above with reference to De Joya Griffith & Company, LLC, any issue relating to the financial statements of Jinzanghuang Tibet Pharmaceuticals, or the type of audit opinion that might be rendered for Jinzanghuang Tibet Pharmaceuticals.
Comments & Business Outlook
Three Months Ended March 31,
Nine Months Ended March 31,
2012
2011
2012
2011
REVENUE
Pharmaceutical products
$
-
$
-
$
-
$
26,997
Services
2,712,438
1,329,240
7,936,203
1,881,954
2,712,438
1,329,240
7,936,203
1,908,951
COST OF SALES
Pharmaceutical products
-
-
-
24,594
Services
442,447
63,436
1,117,628
132,013
Business and sales related tax
152,552
-
430,694
-
594,999
63,436
1,548,322
156,607
GROSS PROFIT
2,117,439
1,265,804
6,387,881
1,752,344
COSTS AND EXPENSES
General and administrative expenses
128,483
113,489
315,636
212,226
OPERATING INCOME
1,988,956
1,152,315
6,072,245
1,540,118
OTHER INCOME
6,583
-
13,986
-
INCOME BEFORE INCOME TAX
1,995,539
1,152,315
6,086,231
1,540,118
INCOME TAX
578,288
289,451
1,451,583
389,511
NET INCOME
1,417,251
862,864
4,634,648
1,150,607
LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
70,813
43,697
228,184
58,134
NET INCOME ATTRIBUTABLE TO THE COMPANY
1,346,438
819,167
4,406,464
1,092,473
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain, net of tax
1,528
21,289
129,604
61,227
COMPREHENSIVE INCOME
1,347,966
840,456
4,536,068
1,153,700
LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
1,588
3,438
7,992
30,019
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY
$
1,346,378
$
837,018
$
4,528,076
$
1,123,681
Basic and diluted earnings per common share
$
0.03
$
0.02
$
0.11
$
0.03
Weighted average number of shares outstanding
40,665,063
40,665,063
40,665,063
40,665,063
Comments & Business Outlook
Six Months Ended December 31,
2011
2010
2011
2010
REVENUE
Pharmaceutical products
$
-
$
-
$
-
$
26,673
Services
2,659,182
553,038
5,223,765
553,038
2,659,182
553,038
5,223,765
579,711
COST OF SALES
Pharmaceutical products
-
-
-
24,299
Services
441,349
68,872
675,181
68,872
Business and sales related tax
148,830
-
278,142
-
590,179
68,872
953,323
93,171
GROSS PROFIT
2,069,003
484,166
4,270,442
486,540
COSTS AND EXPENSES
General and Administrative Expenses
72,514
64,858
187,153
98,737
OPERATING INCOME
1,996,489
419,308
4,083,289
387,803
OTHER INCOME
6,348
-
7,402
-
INCOME BEFORE INCOME TAX
2,002,837
419,308
4,090,691
387,803
INCOME TAX
397,729
106,993
873,295
100,060
NET INCOME
1,605,108
312,315
3,217,396
287,743
LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
74,695
15,995
157,371
14,437
NET INCOME ATTRIBUTABLE TO THE COMPANY
1,530,413
296,320
3,060,025
273,306
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain, net of tax
56,457
20,011
128,076
39,938
COMPREHENSIVE INCOME
1,586,870
316,331
3,188,101
313,244
LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
2,823
10,512
7,516
26,581
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY
$
1,584,047
$
305,819
$
3,180,585
$
286,663
Basic and diluted earnings per common share
$
0.04
$
0.01
$
0.08
$
0.01
Weighted average number of shares outstanding
40,665,063
40,665,063
40,665,063
40,665,063
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.
Liquidity Requirements
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.
Comments & Business Outlook
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
2011
2010
REVENUE
Pharmaceutical products
$
-
$
26,673
Services
2,564,583
-
2,564,583
26,673
COST OF SALES
Pharmaceutical products
-
24,299
Services
233,832
-
Business and sales related tax
129,312
-
363,144
24,299
GROSS PROFIT
2,201,439
2,374
COSTS AND EXPENSES
General and Administrative Expenses
114,639
33,879
OPERATING INCOME (LOSS)
2,086,800
(31,505
)
OTHER INCOME
1,054
6,933
INCOME (LOSS) BEFORE INCOME TAX
2,087,854
(24,572
)
INCOME TAX
475,566
-
NET INCOME (LOSS)
1,612,288
(24,572
)
LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
82,676
(1,558
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
1,529,612
(23,014
)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain, net of tax
71,619
19,927
COMPREHENSIVE INCOME (LOSS)
1,601,231
(3,087
)
LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
4,693
16,069
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
$
1,596,538
$
(19,156
)
Basic and diluted earnings (loss) per common share
$
0.04
$
(0.00
)
Weighted average number of shares outstanding
40,665,063
40,665,063
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.
Liquidity Requirements
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.
Comments & Business Outlook
JINZANGHUANG TIBET PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
SIX MONTHS ENDED DECEMBER 31,
2010
2009
2010
2009
REVENUE
-Pharmaceutical products
$
-
$
323,536
$
26,673
$
548,486
-Services
553,038
-
553,038
-
553,038
323,536
579,711
548,486
COSTS OF REVENUE
-Pharmaceutical product sales
-
219,860
24,299
391,716
-Services
68,872
-
68,872
-
68,872
219,860
93,171
391,716
GROSS PROFIT
484,166
103,676
486,540
156,770
COSTS AND EXPENSES
General and Administrative Expenses
64,858
60,958
98,737
145,428
INCOME (LOSS) BEFORE INCOME TAX
419,308
42,718
387,803
11,342
INCOME TAX
106,993
16,875
100,060
19,111
NET INCOME (LOSS)
312,315
25,843
287,743
(7,769
)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
15,995
2,489
14,437
2,665
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
296,320
23,354
273,306
(10,434
)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment
20,011
21
39,938
1,365
COMPREHENSIVE INCOME (LOSS)
316,331
23,375
313,244
(9,069
)
LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
10,512
-
26,581
36
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
$
305,819
$
23,375
$
286,663
$
(9,105
)
Basic and diluted earnings per common share
$
0.01
$
0.00
$
0.01
$
(0.00
)
Weighted average number of shares outstanding
40,665,063
40,645,063
40,665,063
40,645,063
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.
Liquidity Requirements
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.
CFO Trail
On August 26, 2010 Yang An resigned from his position as a member of the Registrant’s Board of Directors and as an officer of the Registrant. On the same date Zeng
Yiling resigned from his position as the Registrant’s Chief Financial Officer .
Reverse Merger Activity
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)
Liquidity Requirements
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 )