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.

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.