S-1/A

As filed with the Securities and Exchange Commission on October 22, 2010

Registration No. 333-166854

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

PRE-EFFECTIVE AMENDMENT NO. 5

ON

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Tibet Pharmaceuticals, Inc.

(formerly Shangri-La Tibetan Pharmaceuticals, Inc.)

(Exact Name of Registrant as Specified in its Charter)

British Virgin Islands	2834	Not applicable
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

Room 1701, 17/F 90 Jaffe Rd. Wanchai, Hong Kong (852) 9798 5569	CT Corporation System 111 Eighth Avenue New York, New York 10011 (800) 624-0909
(Address, including zip code, and telephone number, including area code, of principal executive offices)	(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Bradley A. Haneberg, Esq.

Anthony W. Basch, Esq.

Christopher J. Mugel, Esq.

Kaufman & Canoles, P.C.

Three James Center, 1051 East Cary Street, 12th Floor

Richmond, Virginia 23219

(804) 771-5700 – telephone

(804) 771-5777 – facsimile

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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 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	¨	(Do not check if a smaller reporting company)	Smaller reporting company	x

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee
Common Shares(2)	$18,000,000	$             —
Placement Agent’s Warrants(3)	$            180	$             —
Common Shares Underlying Placement Agent’s Warrants(3)	$  1,350,000	$             —
Total(4)	$19,350,180	$   1,380.31(4)

⁽¹⁾ The registration fee for securities is based on an estimate of the aggregate offering price of the securities, assuming the sale of the securities at the midpoint of the high and low anticipated offering prices set forth in the prospectus, and such estimate is solely for the purpose of calculating the registration fee pursuant to Rule 457(a).

⁽²⁾ The stated figure assumes the issuance of a maximum of 3,000,000 common shares at an assumed price of $6.00.

⁽³⁾ We have agreed to issue, on the closing date of this offering, warrants to our Placement Agent, Anderson & Strudwick, Incorporated (the “Placement Agent”), to purchase up to 6 percent of the aggregate number of common shares sold by the Registrant (the “Placement Agent’s Warrants”). The price to be paid by the Placement Agent for the Placement Agent’s Warrants is $0.001 per warrant. Each Placement Agent’s Warrant may be exercised to purchase one of our common shares. The closing date will be a date mutually acceptable to the Placement Agent and the Registrant after the minimum offering has been sold; provided, however, that the closing date will be on or before November 22, 2010. Assuming a maximum placement, on the closing date the Placement Agent would receive 180,000 Placement Agent’s Warrants at an aggregate purchase price of $180. The exercise price of the Placement Agent’s Warrants is equal to 125% of the price of the common shares offered hereby. Assuming a maximum placement and an exercise price of $7.50 per share, we would receive, in the aggregate, $1,350,000 upon exercise of the Placement Agent’s Warrants. The common shares underlying the Placement Agent’s Warrants are exercisable within one year of the date of this registration statement and are deemed to commence simultaneously with the Placement Agent’s Warrants.

⁽⁴⁾ $1,456.68 previously paid.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 22, 2010

TIBET PHARMACEUTICALS, INC.

Minimum Offering: 2,500,000 Common Shares

Maximum Offering: 3,000,000 Common Shares

This is the initial public offering of Tibet Pharmaceuticals, Inc., a British Virgin Islands company. We are offering a minimum of 2,500,000 and a maximum of 3,000,000 our common shares. None of our officers, directors or affiliates may purchase shares in this offering.

We expect that the offering price will be between $5.00 and $7.00 per common share. No public market currently exists for our common shares. The offering price will be determined by the Placement Agent and the Company taking into account apparent demand for the common shares, financial market conditions, market conditions for the Company, and other considerations as deemed to be relevant. We have applied for approval for quotation on the NASDAQ Global Market under the symbol “TBET” for the common shares we are offering. We believe that upon the completion of the offering contemplated by this prospectus, we will meet the standards for listing on the NASDAQ Global Market.

Investing in these common shares involves significant risks. See “Risk Factors” beginning on page 11 of this prospectus.

	Per Common Share		Minimum Offering		Maximum Offering
Assumed public offering price	$	6.00	$	15,000,000	$	18,000,000
Placement discount	$	0.42	$	1,050,000	$	1,260,000
Proceeds to us, before expenses	$	5.58	$	13,950,000	$	16,740,000

        We expect our total cash expenses for this offering to be approximately $600,000, exclusive of the above commissions. In addition, we will pay the Placement Agent an accountable expense allowance of 1% of the amount of the offering, or $180,000 (maximum offering) or $150,000 (minimum offering). The Placement Agent must sell the minimum number of securities offered (2,500,000 common shares) if any are sold. The Placement Agent is required to use only its best efforts to sell the securities offered. The offering will terminate upon the earlier of: (i) a date mutually acceptable to us and our Placement Agent after which the minimum offering is sold or (ii) November 22, 2010. Until we sell at least 2,500,000 common shares, all investor funds will be held in an escrow account at SunTrust Bank, Richmond, Virginia. If we do not sell at least 2,500,000 common shares by November 22, 2010, all funds will be promptly returned to investors (within one business day) without interest or deduction. If we complete this offering, net proceeds will be delivered to our company on the closing date. We will not be able to use such proceeds in China, however, until we complete certain remittance procedures in China. If we complete this offering, then on the closing date, we will issue common shares to investors in the offering and Placement Agent Warrants to our Placement Agent exercisable at a rate of one warrant per share to purchase up to 6% of the aggregate number of Common Shares sold in this offering.

        These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Anderson & Strudwick,

Incorporated

Prospectus dated                 , 2010

Conventions That Apply to This Prospectus

Unless otherwise indicated, references in this prospectus to:

• “$,” “US$,” “USD” and “U.S. dollars” are to the legal currency of the United States;

• “China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau;

• “GMP” means Good Manufacturing Practices, a certification program applicable to Chinese pharmaceutical producers;

• “common shares” or “shares” are to our common shares, par value USD$0.001 per share;

• “NMIP” means the National Medical Insurance Program, China’s national medical insurance program;

• “NDRC” means the National Development and Reform Commission, which imposes price controls on some pharmaceutical products;

• “provinces” are the 31 provincial level governments in China, including 22 provinces, four municipalities directly administered under the PRC central government (for example, Beijing and Shanghai) and five autonomous regions (for example, Guangxi and Tibet);

• “RMB”, “Renminbi” and ¥ are to the legal currency of China;

• “SAFE” means China’s State Administration of Foreign Exchange;

• “SFDA” means the State Food and Drug Administration of the PRC;

• “TCM” means traditional Chinese medicine; and

• “we,” “us,” “our company” and “our” are to Tibet Pharmaceuticals Inc., a British Virgin Islands company formerly named Shangri-La Tibetan Pharmaceuticals, Inc. (“TBET”), its predecessor entities and its consolidated subsidiaries, including Chinese Tibetan Pharmaceuticals Limited, a Hong Kong company (“CTP”); and Yibo Information Consulting (Shenzhen) Company Ltd., a PRC company (“WFOE”);

• “YSTP” is to Yunnan Shangri-La Tibetan Pharmaceutical Group Limited, a PRC company, which WFOE controls by contractual arrangements.

This prospectus contains translations of certain RMB amounts into U.S. dollar amounts at a specified rate solely for the convenience of the reader. Unless otherwise noted, all exchange conversions relating to our financial performance made in this prospectus are based upon a rate of RMB 6.8172 to US$1.00, which was the exchange rate on December 31, 2009. Conversions relating to the health care market and Chinese economy that are based on third-party sources may be based upon exchange rates at different dates.

Unless otherwise stated, we have translated balance sheet amounts with the exception of equity at December 31, 2009 at RMB 6.8172 to US$1.00 as compared to RMB 6.8420 to US$1.00 at December 31, 2008. We have stated equity accounts at their historical rate. The average translation rates applied to income statement accounts for the year ended December 31, 2009 and the year ended December 31, 2008 were RMB 6.8296 and RMB 7.0685, respectively. We make no representation that the RMB or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. On October 20, 2010, the exchange rate was $1.00 to RMB 6.6519. See “Risk Factors – Fluctuation of the Renminbi could materially affect our financial condition and results of operations” for discussions of the effects of fluctuating exchange rates on the value of our common shares. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

For the sake of clarity, this prospectus follows English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our chief executive officer will be presented as “Taylor Guo” or “Taylor Z. Guo”, even though, in Chinese, his name would be presented as “Ziqiang Guo”.

Unless otherwise indicated, all information in this prospectus assumes:

• no person will exercise any outstanding options;

• the sale of 3,000,000 common shares, the maximum number of shares offered in this offering; and

• an assumed initial public offering price of $6.00, per share, the midpoint of the range set forth on the cover page of this prospectus.

Prospectus Summary

This summary highlights key aspects of the information contained elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that you should consider before making an investment decision. You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the accompanying notes to those statements. This summary contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could,” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the notes to those statements.

Overview

Our company is a specialty pharmaceutical company focusing on the research, development, manufacturing and marketing of modernized traditional Tibetan medicines. We conduct business through our operational entity, YSTP, located in Yunnan Province, China. We control YSTP’s operations through a series of contractual arrangements between our wholly-owned subsidiary, WFOE, and YSTP. YSTP is a variable interest entity whose shareholders have granted to WFOE the exclusive right to control it in exchange for YSTP shareholders receiving an equity interest in TBET.

YSTP develops products in China for promoting health in human respiratory, digestive, urinary and reproductive systems. Its five SFDA-approved modernized traditional Tibetan medicines are designed to address large market opportunities. YSTP’s product development pipeline includes potential expanded uses of its existing products for additional medical indications and a number of new product candidates that are intended to address significant medical health needs in China.

YSTP currently sells both prescription and over-the-counter traditional Tibetan medicines. It has developed and presently is selling five pharmaceutical products, all of which have received Chinese-government approval. YSTP’s principal commercialized product is its 25 Ingredients Mandrake Pill, which is authorized by the SFDA for use to regulate menses to treat endometritis as well as pelvic inflammations and women’s anemia. YSTP’s second largest selling product is its 28 Ingredients Pinang Pill, which the SFDA approved for use in relieving waist and hip pain, as well as for the treatment of pus hematuria and testis swelling.

YSTP has received SFDA approval for a sixth product, and is evaluating market potential for it before beginning commercialization. In addition, YSTP is in the process of developing several additional products for which it hopes to secure government approval and to commercialize in the future. YSTP sells its products principally to distributors in China, who in turn sell them chiefly to hospitals, hospital pharmacies and retail pharmacies.

Corporate Information

Our principal executive office is located at 53 Niwang Road, Shangri-La County, Diqing, Yunnan Province, China 674400. Our formal corporate mailing address is: Room 1701, 17/F, 90 Jaffe Rd., Wanchai, Hong Kong. Our telephone number is (+86) 887 823 2158. Fax (+86) 887 823 2156. We do not maintain a corporate website at this time.

Geographic Market

YSTP’s products are sold throughout China. A majority of its sales are concentrated in the southern provinces of China, most notably Yunnan Province (where YSTP is located), Guangdong Province, and Zhejiang Province.

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Our headquarters and YSTP’s manufacturing facilities are located in Shangri-La County, in Yunnan Province and close to the source of the raw materials YSTP uses to formulate its medicines. Yunnan Province is part of the Tibetan Plateau, a massive area at generally high altitude that is the habitat for a wide variety of plant species not readily found elsewhere. The Province has been said to have the greatest biodiversity of any area in China, and to host 60 percent of the plants used in traditional Chinese medicine.

Tibetan Medicine

Tibetan medicine has developed over the past seventeen centuries into a significant system to promote health and treat maladies. While traditional Tibetan medicine is generally considered alternative medicine in the West, it is accepted as mainstream medical practice in China and is regulated as such by the SFDA.

Tibetan medicine relies on treatments involving diet, behavior modification, herbal medicines and physical therapies. While changes in diet (types and amount of food and number and times of daily meals) and behavior (meditation, exercise, sleep and eating patterns) are generally considered important first treatments in Tibetan medicine, herbal medicines are typically the most common and important element of treatment. If necessary, Tibetan medicine also incorporates physical therapies such as acupuncture, massage, cupping, moxibustion (heating/burning herbs on the body) baths and inhalation therapy.

Tibetan herbal medications, the type of products we develop and sell, are composed of a wide variety of medicinal herbs, minerals and, to a lesser extent, animal substances. Medications always consist of several ingredients, generally consisting of one major group of ingredients and two minor groups. The major group is addressed to the intended effect. One minor group supports the major group, and the other minor group is intended to help suppress unwanted side effects.

Industry and Market Background – Generally

YSTP operates in China’s healthcare industry, which is large and rapidly growing as a result of population growth, and aging of the population, the country’s growing wealth, and substantial government support. A recent OECD study indicates that spending hikes and regulatory changes in China have contributed to significant growth in health-care spending in the country, and that such spending in 2010 is likely to increase another 8.7 percent, with about 4.5 percent of gross domestic product (GDP) allocated to healthcare. The consulting firm Scientia Advisor projects that healthcare spending in China will reach $600 billion by 2015, a threefold increase over 2000 expenditures.

Improving health-care services is a major focus of government activity and support in China. In April 2009, the Chinese government implemented large-scale healthcare reforms in an effort to significantly improve health care facilities and infrastructure and to extend health insurance and care to ever larger segments of the population, both urban and rural. The State Council allocated $123 billion as part of its New Medical Reform Plan.

Pharmaceutical sales and usage play a larger role in the Chinese healthcare market than in the healthcare sectors of many other countries. With a small share of the population presently enjoying insurance coverage, a still-developing state health-care system, and a massive rural and relatively poor population, individuals (who generally must pay for care out of pocket) and health-care providers rely heavily on medicines, both traditional and modern.

According to Business Monitor International, the Chinese market became the eighth largest pharmaceutical market in the world in 2007, from ninth in 2006. It further estimated that sales of medicines in China, including both prescription and over-the-counter medicines, totaled US$33.9 billion (approximately RMB257 billion) in 2007, representing an increase of 25.6% from 2006 and a 2003-2007 compound average growth rate (“CAGR”) of 17.8%.

Traditional Chinese Medicine (“TCM”) is a major and accepted segment of the health-care industry in China. According to the China Statistical Yearbook 2006-2008, traditional Chinese medicine accounted for approximately 21% of all medicines sold in China, based upon the sales revenues for each year between 2005 and 2007. Similarly, the consulting firm Helmut Kaiser estimated that, in 2005, the output value of TCM amounted to RMB110.3 billion, accounting for a quarter of the overall output value in China's medical industry. It also stated that the net yield and profits of TCM production is much higher than the average for the country's medical industry. The total TCM market in China will rise to about RMB 188.5 billion in 2015. (Traditional Chinese Medicine in China and Worldwide: Markets, Products, Companies, Developments, Technologies and Sciences, by Helmut Kaiser Consultancy, released in July, 2009) TCM products have been widely used in China for thousands of years and are deeply ingrained in the Chinese culture.

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Industry and Market Background – Tibetan Medicine

Traditional Tibetan medicine is a sector of the TCM market segment. The market for Tibetan pharmaceuticals in China is a small but growing in relation to the overall pharmaceutical market in China. There are over one hundred producers of traditional Tibetan medicines, of which about 40 (including our company) have received some GMP certification. Many producers of traditional Tibetan medicines are relatively small, engage in little or no research and development, and employ traditional as opposed to modern formulation and manufacturing techniques.

According to China Medicine Source Net (“CMSN”), in 2006, the 17 GMP-certified Tibetan medicine manufacturers in the Tibet Autonomous Region had total annual industrial output of RMB623 million or about $91,018,871. Overall, China’s Tibetan medicine industry in 2006 is estimated to have been about RMB1 billion in size, or about 0.5% of China’s total pharmaceutical industry. Yet, the Tibetan medicine industry as a whole is growing rapidly, CMSN projected that the Tibetan medicine industry is growing at an annual rate of 50 percent.

Our Opportunities

Generally, we believe that a number of demographic, social, economic and policy trends point to continued growth in the Chinese pharmaceutical market generally and the traditional Tibetan pharmaceutical product market in particular. These include:

• China’s longstanding preference for TCM and Tibetan medicine remedies;

• the rapid growth of the Chinese economy;

• the aging population in China;

• increases in government spending on public health care, as well as in providing medical care in rural areas;

• government support for modernized TCM and Tibetan medicine as a key component of increasing quality of healthcare;

• the rapidly growing over-the-counter market, of which TCM (including Tibetan medicine) makes up more than half; and

• the relative low price of traditional Chinese medicines compared to Western medicine.

In addition, we believe that interest in traditional Tibetan medicines outside of China is both significant and growing.

Our Competitive Strengths

We believe that we have developed a strong position in the traditional Tibetan medicine market as a result of access to raw materials, research and development efforts, modern production techniques, an emphasis on quality control, high-quality, effective products and effective marketing. We believe these strengths position us to take advantage of the growth of the Chinese pharmaceutical market generally and the expansion of the traditional Tibetan medicine market in particular. More specifically, we have:

• an established portfolio of five SFDA-approved, market-leading pharmaceuticals already in distribution;

• worked to develop promising additional products that are in various stages of clinical testing and review for approval in anticipation of commercialization;

• growing diversity in YSTP’s product offerings, with four major categories of products for maintenance of health in the respiratory, digestive, urinary and reproductive systems;

• strong research and development capabilities;

• modern, sophisticated formulation and manufacturing techniques;

• strict quality control procedures;

• an experienced management team;

• access to abundant raw materials used in traditional Tibetan medicine, but not generally available outside YSTP’s geographical region;

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• effective marketing capabilities;

• an established distribution network throughout China; and

• received significant governmental support to protect and enhance traditional Tibetan medicine.

Our Strategies

Our objectives are to maintain and strengthen the position of YSTP’s products in the Tibetan medicine healthcare segment in China, develop new products and to increase the sales of YSTP’s products. YSTP will continue to integrate its marketing, sales, management, technology, research and development and capital resources, to continue build its brand awareness, and to become the market leader for the development, manufacture and commercialization of Tibetan pharmaceutical products throughout the world. We intend to achieve these objectives by:

• promoting YSTP’s existing brands to maintain national recognition;

• developing and introducing additional products to broaden or strengthen YSTP’s existing product pipeline;

• expanding YSTP’s distribution network for further market penetration;

• building brand awareness;

• expanding beyond the China healthcare market; and

• pursuing strategic acquisition and licensing opportunities.

Our Challenges and Risks

Our ability to successfully execute our strategies is subject to certain risks and uncertainties, including those relating to:

• competition from other traditional Tibetan medicine producers that, while generally smaller than us today, in some cases also are striving to modernize, become more efficient and expand;

• competition from other TCM and modern and Western medicine, which also is making inroads into the Chinese pharmaceutical market;

• possible changes in perception of the efficacy of traditional Chinese and Tibetan medicines;

• possible disruptions in access to needed quality raw materials;

• the inability to forecast with certainty YSTP’s ability to develop, prove the efficacy of and secure government approval for new pharmaceutical products;

• possible changes in national or regional government policies relating to health care generally and the promotion and approval of traditional Tibetan medicines in particular;

• our abilities to implement successfully our growth strategy; and

• YSTP’s ability to protect and safeguard its brands and product formulations.

In addition, we face risks and uncertainties that may materially affect our business, financial condition, results of operations and prospects. Thus, you should consider the risks discussed in “Risk Factors” and elsewhere in this prospectus before investing in our common shares.

Corporate Structure

Overview

        TBET is a holding company incorporated in the British Virgin Islands. TBET was formed in December 2009 under the name Shangri-La Tibetan Pharmaceuticals, Inc. In July 2010, it changed its name to Tibet Pharmaceuticals, Inc. TBET owns all of the outstanding capital stock of CTP, our wholly-owned subsidiary in Hong Kong. CTP in turn owns all of the outstanding capital stock of WFOE, our operating subsidiary based in Shenzhen, Guandong Province, China. WFOE has entered into control agreements with all of the owners of YSTP, which agreements allow WFOE to control YSTP. Through our ownership of CTP, CTP’s ownership of WFOE and WFOE’s contractual agreements with the owners of YSTP as well as YSTP itself, we control YSTP.

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Corporate History – YSTP

Yunnan Diqing Shangri-La Tibetan Medicine Co., Ltd was incorporated on April 19, 2000 as a domestic Chinese corporation. On December 24, 2002, it changed its name to Yunnan Shangri-La Tibetan Pharmaceutical Group Limited (“YSTP”). As YSTP has continued to grow, it has increased its registered capital, which presently stands at RMB 60,000,000 (approximately $8,801,267).

The Chairman of our Board, Hong Yu, is also the chairman and principal shareholder of YSTP and holds 79.5% of the shares of YSTP. Indeed, the holders of the majority of the shares of YSTP also hold the majority of the shares of WFOE and TBET. Because our controlling shareholders also own the vast majority of YSTP shares and also because YSTP has entered into control agreements pursuant to which our wholly-owned subsidiary WFOE has effective managerial authority over the business of YSTP.

Corporate History – TBET, CTP and WFOE

We formed TBET, CTP and WFOE in 2009, 2010 and 2010, respectively, in anticipation of registering the common shares of TBET in an initial public offering. In connection with the formation of TBET, CTP and WFOE, WFOE entered into certain control agreements with YSTP and its shareholders, pursuant to which we, by virtue of our ownership of CTP and CTP’s ownership of WFOE, control YSTP.

Control Agreements

We conduct our business in China through our subsidiary, WFOE. WFOE, in turn, conducts it business through YSTP, which we consolidate as a variable interest entity. WFOE and YSTP operate in connection with a series of control agreements, rather than through an equity ownership relationship.

Chinese laws and regulations currently do not prohibit or restrict foreign ownership in pharmaceutical businesses. Yet, Chinese laws and regulations do prevent direct foreign investment in certain industries. On March 26, 2010, to protect the Company’s shareholders from possible future foreign ownership restrictions, YSTP as well as all of the shareholders of YSTP entered into an Entrusted Management Agreement, Exclusive Option Agreement, Shareholders’ Voting Proxy Agreement and Pledge of Equity Interest Agreement (collectively, the “Control Agreements”) with WFOE in return for ownership interests in TBET.

The Control Agreements operate as follows:

• in the Equity Pledge Agreement, all of the shareholders of YSTP pledged all of their rights and interests equity in YSTP, including rights in the shares of YSTP and associated voting rights, to WFOE;

• in the Shareholders’ Voting Proxy Agreement, all of the shareholders of YSTP irrevocably appointed parties designated by WFOE with the exclusive right to exercise their voting rights associated with their shares in YSTP;

• in the Exclusive Option Agreement, YSTP and all of its shareholders irrevocably granted to WFOE the exclusive option to purchase all of their shares of YSTP; and

• in the Entrusted Management Agreement, YSTP and all of its shareholders granted to WFOE the exclusive responsibility for the operation of YSTP, including the rights to appoint and terminate members of its board of directors, to manage and control all cash flow and assets of YSTP, and to control and administer the financial affairs and daily operations of YSTP.

As a result of these Control Agreements, which also cause WFOE to absorb 100% of the expected losses and gains of YSTP, we are considered the primary beneficiary of YSTP. While YSTP maintains its separate corporate identity, management authority for its decisions and actions is formally vested in WFOE, and indirectly with its ultimate parent entity TBET, as a result of the Control Agreements. Accordingly, we consolidate YSTP’s operating results, assets and liabilities in our financial statements. For a description of these contractual arrangements, see “Our Corporate Structure—Contractual Arrangements with YSTP and YSTP’s Shareholders.”

In exchange for these grants, the shareholders of YSTP received ownership of the majority of the shares of TBET. That is, 20 YSTP shareholders (including Mr. Hong Yu, who founded YSTP and is the chairman of the boards of both YSTP and TBET) transferred their right to control YSTP to WFOE. YSTP shareholders then collectively received 10,983,750 of TBET’s 11,812,500 presently issued and outstanding shares, representing 93% of TBET’s issued common shares. Pursuant to the Shareholders’ Voting Proxy Agreement, WFOE designated Mr. Tiangui Li as its designee to vote the proxies of these TBET shareholders.

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Our corporate structure is as follows:

	Equity interest
— — —	Contractual arrangements including Entrusted Management Agreement and Exclusive Option Agreement. For a description of these agreements, see “Corporate Structure— Contractual Arrangements with YSTP and YSTP’s Shareholders.”

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The Offering

Common Shares Offered:	Minimum: 2,500,000 common shares Maximum: 3,000,000 common shares
Shares Outstanding Prior to Completion of Offering:	11,812,500 common shares
Shares to be Outstanding after Offering:	Minimum: 14,312,500 common shares Maximum: 14,812,500 common shares
Assumed Offering Price per Common Share:	$6.00
Gross Proceeds:	Minimum: $15,000,000 Maximum: $18,000,000
Proposed NASDAQ Global Market Symbol:	“TBET” (CUSIP No. G80649 109)
Transfer Agent:	Computershare Trust Company, N.A., 250 Royall St., Canton, MA 02021
Risk Factors:	Investing in these securities involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus before deciding to invest in our common shares.
Closing of Offering:	The offering contemplated by this prospectus will terminate upon the earlier of: (i) a date mutually acceptable to us and our Placement Agent after the minimum offering is sold or (ii) November 22, 2010. If we complete this offering, net proceeds will be delivered to our company on the closing date (such closing date being the above mutually acceptable date on or before November 22, 2010 provided the minimum offering has been sold). We will not complete this offering unless our application to list on the NASDAQ Global Market is approved. We will not be able to use such proceeds in China, however, until we complete certain remittance procedures in China. If we complete this offering, then on the closing date, we will issue shares to investors and Placement Agent Warrants to our Placement Agent exercisable at a rate of one warrant per share to purchase up to 6% of the aggregate number of common shares sold in this offering.

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Placement

We have engaged Anderson & Strudwick, Incorporated as our Placement Agent to conduct this offering on a “best efforts, minimum/maximum” basis. The offering is being made without a firm commitment by the Placement Agent, which has no obligation or commitment to purchase any of our common shares. Our Placement Agent is required to use only its best efforts to sell the securities offered. The offering will terminate upon the earlier of: (i) a date mutually acceptable to us and our Placement Agent after which at least 2,500,000 common shares are sold or (ii) November 22, 2010. Until we sell at least 2,500,000 common shares, all investor funds will be held in an escrow account at SunTrust Bank, Richmond, Virginia. If we do not sell at least 2,500,000 common shares by November 22, 2010, all funds will be promptly returned to investors (within one business day) without interest or deduction. If we complete this offering, net proceeds will be delivered to our company on the closing date.

We will not be able to use the proceeds of the offering in China until we complete certain remittance procedures in China, which in the ordinary course may take approximately six months from the close of an offering. To remit the proceeds of the offering, we must open a special foreign exchange account after submitting to SAFE certain documents, remit the offering proceeds into that account, and finally apply for settlement of the foreign exchange by submitting to SAFE certain application forms, identity documents, payment orders to a designated person, and a tax certificate. See “Risk Factors — We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take a number of months.”

None of our officers, directors or affiliates may purchase shares in this offering. If we complete this offering, then on the closing date, we will issue shares to investors and Placement Agent Warrants to our Placement Agent exercisable at a rate of one warrant per share to purchase up to 6% of the aggregate number of common shares sold in this offering.

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Placement Agent’s Warrants

In connection with this offering, we will, for $0.001 per warrant, sell to our Placement Agent Warrants, exercisable at a rate of one warrant per share, to purchase up to six percent of the shares sold in the offering. The purchase price for the Placement Agent Warrants. These warrants are exercisable for a period of five years from the effective date of this offering at a price equal to 125% of the price of the shares in this offering. If we complete the maximum offering, then on the closing date we will issue 180,000 warrants to the Placement Agent to purchase one common share each. During the term of the warrants, the holders thereof will be given the opportunity to profit from a rise in the market price of our common shares, with a resulting dilution in the interest of our other shareholders. The terms on which we could obtain additional capital during the life of these warrants may be adversely affected because the holders of these warrants might be expected to exercise them when we are able to obtain any needed additional capital in a new offering of securities at a price greater than the exercise price of the warrants. If the Placement Agent exercises all of its warrants, we would have between 1.05% (minimum offering) and 1.22% (maximum offering) more shares outstanding after the Placement Agent’s Warrant exercise than at the conclusion of the offering, assuming no other issuances (including any issuances under the share incentive plan). See “Placement.”

Summary Financial Information

In the table below, we provide you with summary financial data of our company. This information is derived from our consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected for any future period. When you read this historical selected financial data, it is important that you read it along with the historical statements and notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	Period Ending June  30, 2010 (Unaudited)			For the Fiscal Year ended December 31,
				2009			2008
Total Sales	$	14,851,362		$	23,008,031		$	15,580,269
Income from Operations	$	6,314,024		$	9,415,877		$	6,091,960
Net Other Income (Expense)	$	(86,178	)	$	(170,899	)	$	(158,477	)
Net Income attributable to TBET	$	6,227,846		$	9,244,978		$	5,933,483
Other Comprehensive Income attributable to TBET	$	93,062		$	42,693		$	651,895
Comprehensive Income attributable to TBET	$	6,320,908		$	9,287,671		$	6,585,378
Basic and Diluted Earnings per share (based on 11,812,500 common shares outstanding for June 30, 2010, 11,782,500 shares December 31, 2009, and 11,632,500 shares December 31, 2008(1)		0.54			0.79			0.51

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	June 30, 2010		December 31,
			2009		2008
	(Unaudited)
Total Assets	$	22,947,817	$	17,952,955	$	15,982,524
Total Current Liabilities	$	3,317,188	$	3,833,643	$	2,343,715
Total Shareholders’ Equity	$	16,029,624	$	10,537,196	$	10,069,677
Total Liabilities and Shareholders’ Equity	$	22,947,817	$	17,952,955	$	15,982,524

⁽¹⁾ We have presented earnings per share in TBET after giving retroactive effect to the reorganization of our company that was completed on March 18, 2010, upon WFOE's incorporation and approval by Shenzhen Industry and Commerce Bureau.

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Risk Factors

Investment in our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this prospectus before making an investment decision. The risks and uncertainties described below represent our known material risks to our business. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, you may lose all or part of your investment. You should not invest in this offering unless you can afford to lose your entire investment.

Risks Related to Our Company

Our recent operating history makes it difficult to evaluate our future prospects and results of operations.

While YSTP was incorporated in 2000, it operated as a very small business until recently, when business began to develop rapidly. It first became profitable in 2006. While YTSP has grown appreciably in its brief history, there is no guarantee that it will be able to remain successful in the future.

We and YSTP are subject to a variety of risks inherent in the business of developing, manufacturing and marketing pharmaceutical products, and more particularly traditional Tibetan medicines, in China.

We and YSTP bear certain inherent risks and uncertainties experienced in evolving markets such as the growing market for traditional Tibetan medicine products in China. Some of these risks and uncertainties relate to our and YSTP’s ability to:

• develop additional products to attract and retain a larger customer base;

• secure required governmental approvals;

• attract additional customers and increased spending per customer;

• increase awareness of YSTP’s brand and continue to develop customer loyalty;

• respond to competitive market conditions;

• respond to changes in YSTP’s regulatory environment;

• manage continuous growth;

• manage risks associated with intellectual property rights;

• maintain effective control of YSTP’s costs and expenses;

• raise sufficient capital to sustain and expand our business;

• attract, retain and motivate qualified personnel; and

• upgrade YSTP’s technology to support additional research and development of new pharmaceutical products.

If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.

Potential disruptions in the capital and credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements, which could adversely affect our results of operations, cash flows and financial condition.

In the last two years, the global economy has experienced a significant contraction, which has affected the availability of business and consumer credit. We may need to rely on the credit markets, particularly for short-term borrowings from banks in China, as well as the capital markets, to meet our financial commitments and short-term liquidity needs if internal funds are not available from YSTP’s operations. Disruptions in the credit and capital markets, as have been experienced since mid-2008, could adversely affect our ability to draw on such short-term bank facilities. Our access to funds under such credit facilities is dependent on the ability of the banks that are parties to those facilities to meet their funding commitments, which may be dependent on governmental economic policies in China. Those banks may not be able to meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time.

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Long-term disruptions in the credit and capital markets, similar to those that have been experienced since mid-2008, could result from uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions and could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures, and reducing or eliminating discretionary uses of cash.

Continued market disruptions could cause broader economic downturns, which may lead to lower demand for YSTP’s products and increased likelihood that our customers will be unable to pay for YSTP’s products. Further, bankruptcies or similar events by customers may cause us to incur bad debt expense at levels higher than historically experienced. These events would adversely impact our results of operations, cash flows and financial position.

YSTP’s ability to develop new Tibetan pharmaceutical products is uncertain.

YSTP expends a significant amount of time and effort to develop and prove new products. Its products require long lead times to develop and test to secure regulatory approval and gain market acceptance. The nature of pharmaceutical development is that some products in which substantial investments are made ultimately prove not to be safe or effective, or otherwise prove not to be commercially viable. In addition to the long lead-time needed to develop, test and secure approval for traditional Tibetan medicine, the products often take a relatively long time to demonstrate their efficacy in use. As a result, the commercial success of any product may develop, if it develops at all, only over a long period of time.

YSTP’s operations are capital-intensive, and its business could be adversely affected if it fails to maintain sufficient levels of working capital.

Developing and testing these pharmaceutical products requires substantial investments of capital and effort over extended periods of time. Substantial time is needed to develop formulations suitable for use in products, to refine those formulations, and then to conduct clinical trials to determine the efficacy and safety of the products. At times formulations must be modified based on the results of laboratory or clinical testing. YSTP has generated positive cash flow from operating activities of $10,143,153 and $6,049,836 as of December 31, 2009 and 2008, respectively. As a result, we believe we have sufficient working capital to fund our research, development and other operational needs for next 12 months. Yet, our need for working capital may prove to be greater than we anticipate, and changes in the availability of capital and credit may impair our ability to generate needed working capital, and thus to sustain development and testing efforts.

Our future capital needs are uncertain and we may need to raise additional funds in the future.

Our capital investment is very limited at this time. We believe YSTP’s cash flow from operating activities will be sufficient to support our financing needs for the next 12 months. Yet, we may require additional cash resources in the future due to many factors, including:

• changed business conditions or other future developments;

• the time and expenses required to obtain regulatory clearances and approvals;

• the resources we devote to developing, manufacturing, marketing and selling YSTP’s products;

• our ability to identify and YSTP’s desire or need to pursue acquisitions or other investments; and

• the extent to which YSTP’s products generate market demand.

If we need to obtain external financing, we cannot assure you that financing will be available in the amounts or on the terms acceptable to us, if at all. Our future capital needs and other business reasons could require us to sell additional equity or debt securities or obtain credit facilities. The sale of additional equity or equity-linked securities could result in additional dilution to our then existing shareholders. Additional debt financing may include conditions that would restrict our freedom to operate our business, such as conditions that:

• limit our ability to pay dividends or require us to seek consent for the payment of dividends;

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• increase our vulnerability to general adverse economic and industry conditions;

• require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; and

• limit our flexibility in planning for, or reacting to, changes in our business and our industry.

We cannot guarantee that we will be able to obtain any additional financing on terms that are acceptable to us, or at all.

We presently have a limited number of commercialized products, and are dependent on two products for the vast majority of our sales revenue.

At present, we have five products in commercial distribution. Two of these products account for the vast majority of our sales. YSTP’s Gentiana product (for certain respiratory conditions) and its Mandrake product (for certain gynecological conditions) together accounted for 70% of our sales revenue in both 2009 and 2008. While YSTP is developing and working to better distribute other products, we expect these products to continue to generate the majority of our sales in the near future. Should YSTP encounter problems in producing these products, or should competition for these types of products intensify, our revenues and operating results could be adversely affected.

YSTP is dependent on access to raw materials, the availability and quality of which may vary.

YSTP’s products are each comprised of multiple ingredients, many of which are plants and herbs grown principally, if not exclusively, in the Tibetan highlands. While YSTP has relatively good access to the raw materials it uses, changes in weather, disease and insect infestations, supplier business relations and other circumstances could disrupt or interrupt our access to ingredients it requires to manufacture its products. To the extent YSTP does not have access to the raw materials necessary for the production of its products, our operating results would suffer.

We may be unable to consistently purchase needed raw materials of high quality.

YSTP requires high quality raw materials to manufacture its products, and as it purchase such raw materials from third parties, it may not consistently have access to raw materials that meet its standards.

YSTP purchases all medicinal raw materials used for production from third parties. Raw medicinal materials for traditional Tibetan medicines are agricultural products difficult to standardize. During planting and processing, there is no uniform quality standard due to differences in natural climate, soil conditions, picking, drying and processing methods. YSTP has established strict internal quality control standards according to medicinal materials quality standards of Chinese Pharmacopoeia, and has set up strict operation procedures according to GMP requirements. Its purchased medicinal materials are inspected by our Department of Quality before warehousing. Nonetheless, circumstances may lead to shortages of supply of high-quality raw materials. If YSTP cannot obtain needed quantities of quality ingredients, its ability to maintain production, satisfy customers, and obtain desired operational results will be adversely effected.

We depend on the skill and expertise of YSTP’s and our research and development and our executive personnel.

We believe YSTP’s strong research and development capabilities contribute to our success and prospects for future growth. There is no assurance, however, that we will be able to retain our personnel and add additional, sufficiently-skilled personnel in the future. If we fail to do so, it may adversely affect our ability to develop, manufacture and market YSTP’s products, and thus adversely affect our financial condition and results of operations. In addition, competition for these individuals could cause us to offer higher compensation and other benefits in order to attract and retain them, which could also materially and adversely affect our financial condition and results of operations. We also are highly dependent on our senior executives to manage our business and operations. In particular, we rely substantially on YSTP’s founder and the chairman of our board of directors, Mr. Hong Yu, as well as on our Chief Executive Officer, Mr. Taylor Guo. The loss of the services of these individuals could disrupt our operations and adversely affect our financial performance. We do not maintain key man insurance for any of our executive officers.

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If we are unable to attract, train, retain and motivate our salespeople, sales of our products may be materially and adversely affected.

We rely on our salespeople, who are dispersed across China, to market YSTP’s products to distributors. We believe that our leading position in the traditional Tibetan medicine market has resulted, to a significant extent, from the dedication, efforts and performance of our salespeople. We believe that our future success will depend on those same factors. If we are unable to attract, train, retain and motivate YSTP’s salespeople, sales of our products may be materially and adversely affected.

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

YSTP competes on the basis of quality, price, product availability and security of supply, product development and customer service. Some competitors are larger than YSTP in certain markets, including a few TCM companies but also producers of conventional Western medicines, and may have greater financial resources that allow them to be in a better position to withstand changes in the industry. Among producers of traditional Tibetan medicines, our principal competitors are Qinghai Jinke Tibetan Medicine Co., Ltd. and Qinghai Crystal Beads Tibetan Medicine High-tech Industry Co., Ltd., both of which sell products that compete with YSTP’s principal product, YSTP’s 25 Ingredient Mandrake Pill. We believe that both of these competitors, like YSTP, have GMP approval.

YSTP’s competitors also may introduce new products based on more competitive alternative technologies that may cause them to lose customers which would result in a decline in its sales volume and earnings. YSTP’s customers demand high quality and low cost products and services. The costs of research and development and marketing expansion may continue to increase and thus adversely affect the competitiveness of YSTP’s products. Competition could cause YSTP 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 and cash flows.

As Tibetan Medicine industry has good development prospects and large market potential, more enterprises will enter into Tibetan Medicine industry in the future; current Tibetan Medicine enterprises will increase investment in research and development to become more competitive. Biological medicine and chemical medicine, as an alternative to traditional Tibetan medicine, will continuously be produced and could become threats to sales of YSTP’s traditional Tibetan products. In addition, foreign pharmaceutical companies have accelerated their speed of entering China market with their new innovative medicines and special treatment medicine. Through localization, they can reduce the cost of production and gain more market share. All these competition will impact YSTP’s sales and profitability.

We may not be able to manage the expansion of our operations effectively.

YSTP was incorporated in 2000, became profitable in 2006, and has grown significantly in recent years. Its sales increased 48% and 41% in 2009 and 2008, respectively. It anticipates that it will continue to grow through organic growth and potentially some strategic acquisitions. To manage the potential growth of YSTP’s operations, YSTP will be required to improve its operational and financial systems, procedures and controls, to increase manufacturing capacity and output, and to expand, train and manage its growing employee base. Furthermore, YSTP will need to maintain and expand its relationships with suppliers, distributors, hospitals, retail pharmacies and other third parties. We believe our management has planned and organized our departments and personnel for anticipated growth and are not presently aware of material structural or organizational impediments to our further growth. Nonetheless, our current and planned operations, personnel, systems, internal procedures and controls may prove not to be adequate to support our future growth, whether because of unknown or unforeseen circumstances or deficiencies in planning. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.

If we do not keep pace with rapid technological change, we will be unable to capture and sustain a strong market position.

The pharmaceutical industry in China is characterized by rapid changes in technology, constant enhancement of industrial know-how and the frequent emergence of new products. Future technological improvements and continued product developments in the pharmaceutical market may render our existing products obsolete or affect their viability and competitiveness. Therefore, our future success will largely depend on YSTP’s ability to improve its

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existing products, diversify its product range and develop new and competitively priced products that can meet the requirements of the changing market. Should YSTP fail to respond to these frequent technological advances by improving its existing products or developing new products in a timely manner, or should these products not achieve a desirable level of market acceptance, this may adversely affect our business and profitability.

YSTP’s products may prove to have side effects. If side effects associated with its current or future products, or with traditional Tibetan medicines generally, are significant, we may face regulatory, legal and commercial difficulties that could materially adversely affect our revenues and operating results.

Pharmaceutical products sometimes have side effects, which can be minor or life threatening. At present, we know of no material adverse drug reaction among any of YSTP’s presently-commercialized products. The Chinese National Center for Adverse Drug Reaction Monitoring has not found any adverse reactions among YSTP’s products. Nonetheless, adverse effects may be discovered over time, or be found in newly-developed products.

If significant side effects of YSTP’s medicines are identified after they are marketed and sold,

• those medicines listed in the national and provincial medicine catalogs may be removed from the catalogs or downgraded to a lower tier;

• regulatory authorities may withdraw or modify their approvals of such medicines;

• YSTP may be required to reformulate these medicines, change the ways in which they are marketed, conduct additional clinical trials, change the labeling of these medicines or implement changes to obtain new approvals for YSTP’s manufacturing facilities;

• the products may be viewed as less attractive to hospitals, pharmacies and physicians, and as a result YSTP may have less success in marketing and selling those products.

• YSTP may have to recall these medicines from the market and may not be able to re-launch them;

• YSTP may experience a significant decline in sales of the affected products;

• our reputation may suffer; and

• we may become a target of lawsuits.

The occurrence of any of these events would harm YSTP’s sales of these products and substantially increase the costs and expenses of marketing these products, which in turn could cause our revenues and net income to decline. In addition, if any severe side effects are discovered to be associated with another manufacturer’s traditional Tibetan medicine products used to treat medical conditions similar to those that YSTP’s medicines are used to treat, the reputation and, consequently, sales of YSTP’s medicines could be adversely affected.

The retail prices of YSTP’s principal products could be subject to government price controls.

The retail prices of some prescription and OTC medicines in China are subject to price controls administered by the Price Control Office under the National Development and Reform Commission, or the NDRC, and provincial price control authorities, either in the form of fixed prices or price ceilings. From time to time, the NDRC publishes a list of medicines subject to price controls. The NDRC directly regulates retail prices of certain medicines on the list and authorizes provincial price control authorities to regulate retail prices of the remainder on that list. Price controls apply to retail prices, but where they apply, they necessarily also affect a producer’s and distributor’s ability to freely set wholesale prices. At present, none of YSTP’s products are subject to price controls. Yet, should NDRC or provincial authorities decide to subject YSTP’s products to price controls, it would impair its ability to set and raise prices and it could adversely affect our operating results.

YSTP may not be able to obtain manufacturing or marketing approval from SFDA for YSTP’s future products, and failure to obtain approvals for YSTP’s future products could materially harm our business prospects.

All medicines must be approved by the SFDA before they can be manufactured, marketed or sold in China. The SFDA requires a pharmaceutical manufacturer to have successfully completed clinical trials of a new medicine and demonstrated its manufacturing capability before approval to manufacture that new medicine is granted. Clinical trials are expensive and their results are uncertain. In addition, the SFDA and other regulatory authorities may apply

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new standards for safety, manufacturing, labeling, marketing and distribution of future products. Complying with these standards may be time-consuming and expensive. Furthermore, YSTP’s future products may not be efficacious or may have undesirable or unintended side effects, toxicities or other characteristics that may preclude YSTP from obtaining approval or may prevent or limit their commercial use. As a result, we may not be able to obtain SFDA or other governmental approvals for YSTP’s future products on a timely basis or at all. Even if we do obtain approvals, such approvals may be subject to limitations on the indicated uses for which we may market a product, which may limit the size of the market for such a product.

Adverse publicity associated with our company or YSTP’s products could have a material adverse effect on our results of operations.

We are highly dependent upon consumer perceptions of our company, the “Yunnan Shangri-La Tibetan Pharmaceuticals” brand, the “Xiangbala Jidan” trademark, our other trademarks and the safety and quality of YSTP’s products. We could be adversely affected if the “Yunnan Shangri-La Tibetan Pharmaceuticals” brand, the Shangri-La Tibetan Pharmaceutical, Inc. name and brand, the “Xiangbala Jidan” trademark or any of our other trademarks is subject to negative publicity. We could also be adversely affected if any of YSTP’s products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to consumers. Because of our dependence upon consumer perceptions, any negative publicity associated with illness or other adverse effects resulting from consumers’ use or misuse of our products, or any similar products distributed by other companies, could also have a material adverse impact on our results of operations.

We may not be able to sufficiently and promptly respond to rapid changes in government regulation, treatment of diseases and customer preferences in the Chinese pharmaceutical industry, which may adversely affect our business, financial condition and results of operations.

The pharmaceutical industry in China is subject to extensive government regulation and supervision. In recent years, the Chinese government has introduced and implemented certain regulatory measures, and announced plans to implement additional rules and regulations with respect to the pharmaceutical industry, including those relating to: (i) changes in legislation or regulations governing the distribution, manufacturing or pricing of pharmaceutical products; (ii) additional quality control, licensing and certification requirements; (iii) changes in legislation or regulations governing the pricing, procurement, prescription and dispensing of essential and other medicines by public hospitals and other healthcare institutions; and (iv) changes in governmental funding for individual healthcare and pharmaceutical services. These measures may lead to significant changes in the Chinese pharmaceutical industry, and could result in increased costs and lowered profit margins for pharmaceutical distributors. The measures could also lead to decreases in the amount of YSTP’s products and services purchased by our customers or the price they are willing to pay for YSTP’s products and services. In addition, we cannot assure you that the Chinese government will continue to adopt policies supporting the pharmaceutical industry. The Chinese government may adopt laws and regulations that reduce support or the level of healthcare services and benefits provided in China. We cannot assure you that we will be able to adapt to such changes, and further cannot assure you that our business, financial condition and results of operations will not be adversely affected.

The Chinese pharmaceutical industry is also characterized by rapid advances in science and technology and the emergence or mutation of viruses and bacteria that together lead pharmaceutical manufacturers to discover and develop innovative new medicines and other pharmaceutical products and treatments. Our future success depends on our ability to improve and diversify YSTP’s product portfolio by identifying such trends. We cannot assure you that we will be able to respond to emerging trends by improving YSTP’s product portfolio and services or distributing new products in a timely fashion.

In addition to regulatory and industry changes, the preferences and purchasing trends of our customers with regard to pharmaceutical products can rapidly change. Our success depends on our ability to anticipate product lead-time and demand, identify customer preferences and adapt YSTP’s product selection to these preferences. We must adjust YSTP’s product availability, selection and inventory levels based on certain business requirements, sales trends and other market data. In addition, YSTP’s product selection may not accurately reflect product life cycles, seasonality, backorders or customer preferences at any given time. We cannot assure you that we will be able to accurately respond to such changes in customer preferences and purchasing trends, and such failure may have an adverse effect on our business, financial condition, results of operations and profitability.

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We may incur additional environmental protection costs.

Even though YSTP has implemented effective control on pollutant discharge according to environmental protection regulations and relative standards, with the increasing of people’s living standard and continuously enhancing of social and environmental protection consciousness, the state and local government may issue new laws and regulations in the future and increase environmental protection standards so as to make the Company pay higher environmental protection expenses. Additionally, as YSTP’s capacity increases, we may incur more pollutant discharge expenses, which will lead to total increase of our environmental protection spending and impact our profitability.

The Chinese government could cancel its preferential tax policy, and subject us to income tax.

Pursuant to a tax preferential policy of the Yunnan Diqing Tibet Autonomous State (on March 17, 2008, the tax bureau of the Yunnan Diqing Tibet Autonomous State agreed to exempt YSTP from national and provincial taxes through 2012. This measure implemented a policy to exempt from income tax enterprises in national autonomous areas that are deemed worthy of encouragement. In 2007, the Fifth Session of the Tenth National People’s Congress passed the Law of Enterprise Income Tax of the People’s Republic of China, which took effect on January 1, 2008 and provides further authority to autonomous area government agencies to decide to reduce or exempt local enterprises from income taxes. While YSTP presently benefits from an exemption, and believe there is reason to expect a renewal or extension of some exemption, there is no assurance that YSTP’s exemption will be renewed after 2012. If we do not enjoy such an exemption or reduction in the future, our operational results may be adversely affected.

The loss of any of YSTP’s significant customers could reduce our revenues and our profitability.

Our key customers are principally pharmaceutical distributors in China. A few distributors account for a majority of its sales. YSTP has not entered into long-term supply contracts with any of these major customers. Therefore, there can be no assurance that YSTP will maintain or improve the relationships with these customers, or that it will be able to continue to supply these customers at current levels or at all.

As of December 31, 2009 and 2008, YSTP had two customers that accounted for a significant portion of its revenues:

Purchaser Name	Percentage of Revenues in Year ended December 31, 2009			Percentage of Revenues in Year ended December 31, 2008
Kunming Shangri-La Medicine Co., Ltd.		23.0	%		27.7	%
Hangzhou Hesheng Medicine Co., Ltd.		12.6	%		10.2	%

If YSTP cannot maintain long-term relationships with its major distributors, the loss of a significant portion of its sales to them could have an adverse effect on our business, financial condition and results of operations.

YSTP’s products are not included in national and provincial medicine catalogs of the NMIP.

The Ministry of Labor and Social Security, together with other government authorities, determines which medicines are to be included in or removed from the national medicine catalog of the NMIP, thus entitling purchasers of those medicines to coverage and reimbursement under the Chinese health insurance program. YSTP’s products are not covered by the NMIP catalog. YSTP has not sought to have any of YSTP’s commercialized products in the NMIP program. We believe that YSTP’s medicines can and do compete successfully without NMIP coverage because they are sold a modest prices and in large volume. Yet, if purchasers and end-users may perceive NMIP coverage for a medicine to be a competitive advantage; the lack of NMIP coverage for YSTP’s products may be a competitive disadvantage.

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Failure to obtain approval from the SFDA to convert a provisional national production standard of YSTP’s principal products to a national final production standard would require YSTP to suspend or cease the production of these products.

After the SFDA approves a new medicine, it normally directs the manufacturer to produce that medicine according to a provisional national production standard, or a provisional standard. A provisional standard is valid for two years, during which the SFDA closely monitors the production process and quality consistency of the medicine in order to develop a national final production standard, or a final standard. Three months before a medicine’s provisional standard expires, the manufacturer of that medicine is required to apply to the SFDA to convert the provisional standard to a final standard. In practice, the SFDA’s approval process is time-consuming and could take a few years. However, during the SFDA’s review period (including after the expiration of the two-year provisional standard period), the manufacturer may continue to produce the medicine according to the provisional standard.

YSTP has six products that have received SFDA approval (five of which have been commercialized), and other products in development that YSTP hopes to submit for SFDA approval. YSTP has received final approval for YSTP’s production processes for the five commercialized products that have received SFDA approval. It is now seeking approval for a seventh product. If YSTP’s manufacturing processes do not received needed SFDA approval, its ability to grow and our operational results may be adversely affected.

We do not have business interruption, litigation, product liability or other insurance.

The insurance industry in China is still at an early state of development. In particular PRC insurance companies offer limited business products. As a result, we do not have any business liability, product liability, commercial, disruption or key man insurance coverage for WFOE’s and YSTP’s operations in China. Any business interruption, litigation or natural disaster may result in our business incurring substantial costs and the diversion of resources. Furthermore, our business exposes us to the risk of product liability claims, which are inherent in the manufacturing, testing and marketing of medicines. If a product liability lawsuit were to be brought against us, it is likely to divert the attention of our management from pursuing our business strategies and might be costly to defend. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments or require us to limit or forgo commercialization of those products. Should any natural catastrophes (such as earthquakes, fire, floods or any acts of terrorism) occur where YSTP’s production facilities and YSTP’s primary sources of raw materials are concentrated, or elsewhere in China, which constitutes YSTP’s current sole market, we might suffer not only significant property damages but also loss of revenues due to interruptions in YSTP’s business operations.

We may not pay dividends.

We do not anticipate paying any dividends on our common shares. Although we achieved net profitability in 2006, we cannot assure you that YSTP’s operations will continue to result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flows. Furthermore, there is no assurance our Board of Directors will declare dividends even if we are profitable. Dividend policy is subject to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. If we determine to pay dividends on any of our common shares in the future, we will be dependent, in large part, on receipt of funds from YSTP. Investors requiring dividend should not rely on an investment in our company, and income from any such investment may well come only from any rise in the market price of our stock. There can be no assurance that our stock will appreciate in value over time. See “Dividend Policy.”

YSTP’s failure to protect its intellectual property rights may undermine its competitive position, and litigation to protect its intellectual property rights or defend against third-party allegations of infringement may be costly and ineffective.

YSTP relies primarily on trademarks, trade secrets, unpatented proprietary technologies, processes and know-how and other contractual restrictions to protect its intellectual property. These afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. YSTP’s trade secrets may otherwise become known or be independently discovered by its competitors. Third parties may infringe upon or misappropriate its proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. Policing the unauthorized use of proprietary

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technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect YSTP’s trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of such potential litigation may not be in YSTP’s favor and any success in litigation may not be able to adequately protect YSTP’s rights. Such litigation may be costly and divert management attention away from YSTP’s business. An adverse determination in any such litigation would impair YSTP’s intellectual property rights and may harm our business, prospects and reputation. Enforcement of judgments in China is uncertain and even if we are successful in such litigation it may not provide us with an effective remedy. In addition, we and YSTP 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.

We may be exposed to infringement or misappropriation claims by third parties, which, if adversely determined against us, could cause us to pay significant damage awards.

Our success depends largely on our ability to use and develop our technology and know-how without infringing on the intellectual property rights of third parties. The validity and scope of claims relating to patents, proprietary technologies or other intellectual property rights in the pharmaceutical industry involve complex scientific, legal and factual questions and analysis, and therefore may be highly uncertain. We may be subject to litigation involving claims of patent infringement or violation of intellectual property rights of third parties. The defense and prosecution of intellectual property suits, patent opposition proceedings and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the attention and resources of our technical and management personnel. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, to pay ongoing royalties or to redesign YSTP’s products, or subject us to injunctions prohibiting the manufacture and sale of YSTP’s products or the use of YSTP’s technologies. Prolonged litigation could also result in our customers or potential customers deferring or limiting their purchase or use of YSTP’s products until resolution of such litigation.

Customers may confuse YSTP’s products with products of other traditional Tibetan or Chinese medicine companies that use the Chinese characters of “Tibet” or “Shangri-La” in their company names even where such use is not intended to infringe our trademarks.

YSTP markets and sells all of its products under a variety of trademarks. We believe that the public’s recognition of and familiarity with our brand is important to our business and that the growth of the market share of YSTP’s products will depend to a significant extent upon the goodwill associated with this brand. Under the existing Chinese legal regime for intellectual property rights, limited legal remedies are available for a company to prevent the unauthorized use of its trademarks by other companies as part of their company names, unless these trademarks have been legally recognized as “well-known trademarks.” An unauthorized use of a well-known trademark as part of another company’s name can be restricted if this use is regarded as confusing consumers or misleading the public. Consumers may confuse YSTP’s products with the traditional Chinese medicine products from other companies using “Tibet” and/or “Shangri-La” in or as part of their company names, and those products may be of inferior quality. This confusion could harm the reputation of YSTP’s brand and cause consumers to refrain from purchasing YSTP’s products, which in turn would adversely and materially affect our business, financial condition and results of operations.

Our future success depends in part on our ability to make strategic acquisitions and investments. Our failure to consummate or handle the risks associated with these acquisitions and investments could have a material adverse effect on our market penetration and revenues growth.

As part of our plan to expand YSTP’s manufacturing capacity and product offerings, we hope to make strategic acquisitions in the highly-fragmented traditional Tibetan medicine sector. Strategic acquisitions could subject us to uncertainties and risks, including:

• high acquisition and financing costs;

• potential ongoing financial obligations and unforeseen or hidden liabilities;

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• failure to achieve the intended objectives, benefits or revenue-enhancing opportunities; and

• cost of and difficulties in integrating acquired businesses and managing a larger business.

Our failure to address these risks successfully may have a material adverse effect on our financial condition and results of operations.

Since most of our officers reside outside the United States, shareholders may find it difficult to enforce their rights under U.S. federal securities laws.

A majority of our directors and officers are Chinese nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to affect service of process upon these individuals and/or bring legal action against them under U.S. securities laws. Any judgment against these individuals in a United States court would have to be enforced by a Chinese court, and there is no assurance that a Chinese court would recognize or enforce the judgments of a U.S. Court. See “Enforceability of Civil Liabilities”.

Risks Relating to Our Organizational Structure

The PRC government may determine that the Control Agreements are not in compliance with applicable PRC laws, rules and regulations.

We manage and operate YSTP, our operational entity, through WFOE pursuant to the rights its holds under the Control Agreement. By reason of the Control Agreements, YSTP is a variable interest entity (“VIE”). Almost all economic benefits and risks arising from YSTP’s operations are transferred to WFOE under these agreements. Details of the Control Agreements are set out in “Our Business – Control Agreements.”

There are risks involved with the operation of our business in reliance on the Control Agreements, including the risk that the Control Agreements may be determined by PRC regulators or courts to be unenforceable. Our PRC counsel, DeHeng Law Offices, has provided a legal opinion that the Control Agreements are binding and enforceable under PRC law, but has further advised that if the Control Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:

• imposing economic penalties;

• discontinuing or restricting the operations of WFOE or YSTP;

• imposing conditions or requirements with respect to the Control Agreements with which WFOE or YSTP may not be able to comply;

• requiring our company to restructure the relevant ownership structure or operations;

• taking other regulatory or enforcement actions that could adversely affect our company’s business; and

• revoking the business licenses and/or the licenses or certificates of WFOE, and/or voiding the Control Agreements.

Any of these actions could adversely affect our ability to manage, operate and gain the financial benefits of YSTP, which would have a material adverse impact on our business, financial condition and results of operations.

Our ability to manage and operate YSTP under the Control Agreements may not be as effective as direct ownership.

We conduct our business in the PRC and generate virtually all of our revenues through the Control Agreements. Our plans for future growth are based substantially on growing the operations of YSTP. However, the Control Agreements may not be as effective in providing us with control over YSTP as direct ownership. Under the current Control Agreement, as a legal matter, if YSTP fails to perform its obligations under these contractual arrangements, we may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) rely on legal remedies under PRC law, which we cannot be sure would be effective. Therefore, if we are unable to effectively control YSTP, it may have an adverse effect on our ability to achieve our business objectives and grow our revenues. We depend on YSTP to hold and maintain contracts with our customers. YSTP also owns substantially all of our intellectual property, facilities and other assets relating to the operation of our business, and employs the personnel for substantially all of our business. Neither our company nor WFOE has any ownership interest in YSTP, nor do we have business assets or revenue streams other than through our Control Agreements with YSTP. Although we have been advised by DeHeng Law Offices, our Chinese legal counsel, that each contract under WFOE’s contractual arrangements with YSTP is valid, binding and enforceable under current Chinese laws and regulations, these contractual arrangements may not be as effective in providing us with control over YSTP as direct ownership of YSTP would be.

Affiliates of our company and YSTP may be able to terminate the contractual relationships between WFOE and YSTP.

Our company’s controlling shareholders, who collectively hold 93% of our common shares prior to commencement of this offering, also hold 100% of the equity of YSTP. Upon completion of this offering, these shareholders will continue to approximately 80% of our common shares and will be in a position to exert substantial control over our company. Because of this relationship, these shareholders could be in a position to voluntarily terminate the contractual relationship between YSTP and WFOE pursuant to which we control YSTP by virtue of our ownership of all of the equity of CTP and CTP’s ownership of all of the equity of WFOE. If this were to occur, most non-affiliated shareholders would have little to no recourse against the assets of YSTP, which are located in China.

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As the Control Agreements are governed by PRC law, we would be required to rely on PRC law to enforce our rights and remedies under them; PRC law may not provide us with the same rights and remedies as are available in contractual disputes governed by the law of other jurisdictions.

The Control Agreements are governed by the PRC law and provide for the resolution of disputes through arbitral proceedings pursuant to PRC law. If YSTP or its shareholders fail to perform the obligations under the Control Agreements, we would be required to resort to legal remedies available under PRC law, including seeking specific performance or injunctive relief, or claiming damages. We cannot be sure that such remedies would provide us with effective means of causing YSTP to meet its obligations, or recovering any losses or damages as a result of non-performance. Further, the legal environment in China is not as developed as in other jurisdictions. Uncertainties in the application of various laws, rules, regulations or policies in PRC legal system could limit our ability to enforce the Control Agreements and protect our interests.

The payment arrangement under the Control Agreements may be challenged by the PRC tax authorities.

We generate our revenues through the payments we receive pursuant to the Control Agreements. We could face adverse tax consequences if the PRC tax authorities determine that the Control Agreements were not entered into based on arm’s length negotiations. For example, PRC tax authorities may adjust WFOE’s and/or YSTP’s income and expenses for PRC tax purposes which could result in their being subject to higher tax liability, or cause other adverse financial consequences.

We rely on the approval certificates and business license held by WFOE and any deterioration of the relationship between WFOE and YSTP could materially and adversely affect our business operations.

We operate our business in China on the basis of the approval certificates, business license and other requisite licenses held by WFOE and YSTP. There is no assurance that WFOE and YSTP will be able to renew their licenses or certificates when their terms expire with substantially similar terms as the ones they currently hold.

Further, our relationship with YSTP is governed by the Control Agreements that are intended to provide us with effective control over the business operations of YSTP. Yet, the Control Agreements may not be effective in providing control over the application for and maintenance of the licenses required for our business operations. YSTP could violate the Control Agreements, go bankrupt, suffer from difficulties in its business or otherwise become unable to perform its obligations under the Control Agreements and, as a result, our operations, reputations and business could be severely harmed.

If WFOE exercises the purchase option it holds over YSTP’s share capital pursuant to the Control Agreements, the payment of the purchase price could materially and adversely affect our financial position.

Under the Control Agreements, YSTP’s shareholders have granted WFOE an option for the maximum period of time allowed by law to purchase all of the equity interest in YSTP at a price equal to the capital paid in by the transferors, adjusted pro rata for purchase of less than all of the equity interest, unless applicable PRC laws and regulations require an appraisal of the equity interest or stipulate other restrictions regarding the purchase price of the equity interest. As YSTP is already our contractually controlled affiliate, WFOE’s exercising of the option would not bring immediate benefits to our company, and payment of the purchase prices could adversely affect our financial position.

WFOE is also required to allocate a portion of its after-tax profits, as determined by its board of directors, to the general reserve, and the staff welfare and bonus funds, which may not be distributed to equity owners.

Pursuant to the “Wholly Foreign-Owned Enterprise Law of the P.R. China (2000 Revision)” and “Detailed Implementing Rules for the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises (Revised at 2001)”, WFOE is required to allocate a portion of its after-tax profits in accordance with its Articles of Association, to the general reserve, and the staff welfare and bonus funds. Not less than 10% of an enterprise’s after tax-profits should be allocated to the general reserve. When the general reserve account balance is equal to or greater

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than 50% of WFOE’s registered capital, no further allocation to the general reserve account is required. The general reserve is used to offset future extraordinary losses. The subsidiaries may, upon a resolution passed by the shareholders, convert the general reserve into capital. According to the Articles of Association of WFOE, the amount contributed to the staff welfare and bonus funds is determined by WFOE’s board of directors. The staff welfare and bonus fund is used for the collective welfare of the staff of the subsidiaries. These reserves represent appropriations of retained earnings determined according to PRC law.

As of the date of this prospectus, the amounts of these reserves have not yet been determined, and we have not committed to establishing such amounts at this time. Under current PRC laws, WFOE is required to set aside reserve amounts, but has not yet done so. WFOE has not done so because PRC authorities grant companies flexibility in making a determination. Chinese law requires such a determination to be made in accordance with the companies’ organizational documents and WFOE’s organizational documents do not require the determination to be made within a particular timeframe. Although we have not yet been required by PRC authorities to make such determinations or set aside such reserves, PRC authorities may require WFOE to rectify its noncompliance and we may be fined if we fail to do so after warning within the time period set in the warning.

In addition, PRC law provides that a PRC company must allocate a portion of after-tax profits to the general reserve and the staff welfare and bonus funds reserve prior to the retention of profits or the distribution of profits to foreign invested companies. Therefore, if for any reason, the dividends from WFOE cannot be repatriated to us or not in time, then it may detrimentally affect our cash flow and even cause us to become insolvent.

The shareholders of YSTP and their proxy have potential conflicts of interest with us, which may adversely affect our business.

Neither we nor WFOE owns any equity in YSTP. Instead, we rely on WFOE’s contractual obligations to enforce our interest in receiving payments from YSTP. Conflicts of interests may arise between YSTP’s shareholders and our company if, for example, their interests in receiving dividends from YSTP were to conflict with our interest requiring these companies to make contractually-obligated payments to WFOE. The fact that affiliates of YSTP are also affiliates of our company may result in conflicting fiduciary duties. Because of these potentially conflicting interests and fiduciary duties, WFOE required YSTP and its shareholders to execute a Shareholders’ Voting Proxy Agreement granting WFOE the irrevocable power to appoint a designee to vote on their behalf on all matters requiring shareholder approval by YSTP and to require YSTP’s compliance with the terms of its contractual obligations. WFOE has designated Mr. Tiangui Li as its designee to vote YSTP shares pursuant to the Shareholders’ Voting Proxy Agreement. Mr. Li holds a 100% equity interest in LEMANY Invest. Corp., a BVI Corporation, which in turn owns 4.78% of TBET’s shares. Mr. Li does not have a direct equity interest in WFOE, which is wholly owned by CTP, which is in turn wholly owned by TBET. Mr. Li has a contractual interest in 5.2% of YSTP. Mr. Li may have different interests as a YSTP shareholder and representative of other YSTP shareholders from TBET and TBET’s other shareholders. We cannot assure you, if conflicts of interest arise, that Mr. Li as proxy for YSTP shareholders will act completely in our interests or that conflicts of interests will be resolved in our favor. While this could result in a conflict of fiduciary duties, these shareholders could violate their agreements with us by diverting business opportunities from us to others. If we cannot resolve any conflicts of interest between us and YSTP’s shareholders or their proxy, we would have to rely on legal proceedings, which could result in the disruption of our business.

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Our Shareholders and Chairman have potential conflicts of interest with our company which may adversely affect our business.

Hong Yu is the chairman of TBET’s board of directors and also a shareholder. Mr. Yu also was the founder of YSTP, a YSTP shareholder, and the chairman of its board of directors. There could be conflicts that arise from time to time between our interests and the interests of Mr. Yu. While the owners of the shares of YSTP presently hold 93% of the issued common shares of TBET, there could also be conflicts that arise between us and YSTP that could present conflicts in Mr. Yu’s ability to fulfill his fiduciary duties to both YSTP and TBET, and/or that would require our shareholders and YSTP’s shareholders to vote on corporate actions necessary to resolve the conflict. There can be no assurance in any such circumstances that Mr. Yu will vote his shares in our best interest or otherwise act in the best interests of our company. If Mr. Yu fails to act in our best interests, our operating performance and future growth could be adversely affected

We rely on dividends paid by WFOE for our cash needs.

We rely primarily on dividends paid by WFOE for our cash needs, including the funds necessary to pay dividends and other cash distributions, if any, to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities organized in China is subject to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Under British Virgin Islands law, we may only pay dividends from surplus (the excess, if any, at the time of the determination of the total assets of our company over the sum of our liabilities, as shown in our books of account, plus our capital), and we must be solvent before and after the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable value of assets of our company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital. If we determine to pay dividends on any of our common shares in the future, as a holding company, we will be dependent on receipt of funds from WFOE. See “Dividend Policy.”

Pursuant to the Implementation Rules for the new Chinese enterprise income tax law, effective on January 1, 2008, dividends payable by a foreign investment entity to its foreign investors are subject to a withholding tax of up to 10 percent. Pursuant to Article 10 of the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income effective on December 8, 2006, dividends payable by a foreign investment entity to its Hong Kong investor who owns 25% or above equity are subject to a withholding tax of up to 5 percent.

The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. WFOE is also required to set aside at least 10% of its after-tax profit based on Chinese accounting standards each year to its compulsory reserves fund until the accumulative amount of such reserves reaches 50% of its registered capital.

The transfer to this reserve must be made before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital. For the years ended December 31, 2009, we made reserves of RMB9, 532,480 ($1,395,579.64); in 2008, we made reserves of RMB 6,191,330 ($875,904.36).

If WFOE is required to make a payment under its agreement to bear the losses of YSTP, our liquidity may be adversely affected, which could harm our financial condition and results of operations.

On March 26, 2010, WFOE entered into an Entrusted Management Agreement with YSTP. Pursuant to the Entrusted Management Agreement, WFOE agreed to bear the losses of YSTP. If YSTP suffers losses and WFOE is required to absorb all or a portion of such losses, WFOE will be required to seek reimbursement from YSTP. In such event, it is unlikely that YSTP will be able to make such reimbursement, and WFOE may be unable to recoup the loss WFOE absorbed at such time, if ever. Further, under the Entrusted Management Agreement, WFOE may

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absorb the losses at a time when WFOE does not have sufficient cash to make such payment and at a time when we or WFOE may be unable to borrow such funds on terms that are acceptable, if at all. As a result, any losses absorbed under the Entrusted Management Agreement may have an adverse effect on our liquidity, financial condition and results of operations.

WFOE’s contractual arrangements with YSTP may result in adverse tax consequences to us.

We could face material and adverse tax consequences if the Chinese tax authorities determine that WFOE’s contractual arrangements with YSTP were not made on an arm’s length basis and adjust our income and expenses for Chinese tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for Chinese tax purposes, of adjustments recorded by YSTP, which could adversely affect us by increasing YSTP’s tax liability without reducing WFOE’s tax liability, which could further result in late payment fees and other penalties to YSTP for underpaid taxes.

Risks Related to Our Industry

The Chinese healthcare industry is highly regulated, and the regulatory framework, requirements and enforcement trends may change frequently.

The healthcare industry in China is highly regulated. YSTP is governed by various local, regional and national regulatory regimes in all aspects of our operations, including licensing and certification requirements and procedures for manufacturers of pharmaceuticals, operating and security standards and environmental protection. We cannot assure you that the legal framework, licensing and certification requirements and enforcement trends in the healthcare industry will not change, or that we will be successful in responding to any changes. Such changes may result in increased costs of compliance, which would adversely affect our business, financial condition and results of operations.

All pharmaceutical manufacturing companies in China are required to obtain certain permits and licenses from various Chinese governmental authorities, including Good Manufacturing Practice, or GMP, certifications for manufacturing operations. YSTP has obtained permits, licenses and GMP certifications required for the manufacture of YSTP’s pharmaceutical products. These permits and licenses held by YSTP are generally valid for a maximum period of five years and subject to periodic renewal and/or reassessment by the relevant Chinese government authorities and the standards of such renewal or reassessment may change from time to time. We intend to cause YSTP to apply for the renewal of these permits, licenses and certifications when required by applicable laws and regulations. Any failure by YSTP to obtain and maintain all licenses, permits and certifications necessary to carry on its business at any time could have a material adverse effect on our business, financial condition and results of operations. In addition, any inability to renew these permits, licenses and certifications could severely disrupt our business, and prevent us from continuing to carry on our business. Any changes in the standards used by governmental authorities in considering whether to renew or reassess our business licenses, permits and certifications, as well as any enactment of new regulations that may restrict the conduct of our business, may also decrease our revenues and/or increase our costs, and materially reduce our profitability and prospects. Further, if changes occur in the interpretation or implementation of existing laws and regulations or new regulations come into effect requiring us to obtain any additional permits, licenses or certifications that were previously not required to operate our existing businesses, we cannot assure you that we may successfully obtain such permits, licenses or certifications.

YSTP is subject to regular inspections, examinations, inquiries or audits by the regulatory departments as part of the process of maintaining or renewing the various permits, licenses and certificates required for the manufacture and distribution of pharmaceutical products and the provision of related logistics services. In the event that any of YSTP’s products or YSTP’s facilities fails such inspections, our business, profitability and reputation in the industry may be adversely affected.

We may be adversely affected by changes in environmental, employee health and safety and other laws and regulations.

YSTP’s operations are subject to a number of national, provincial and local laws and regulations. These include industry laws and regulations relating to environmental protection, employee health and safety, and tax.

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While we believe that YSTP is and has been in compliance with applicable laws and regulations, we cannot guarantee that changes in laws or regulations, including environmental, employee health and safety, and tax laws and regulations, will not cause us to incur substantial additional expenditures to upgrade or supplement YSTP’s existing facilities or subject us to an increased rate of taxation or fines and penalties. Any such changes in laws and regulations could have a material adverse effect on our business, financial condition and results of operations.

China’s WTO accession may intensify competition in our businesses within China.

As a consequence of its joining the World Trade Organization (“WTO”), China has lowered tariffs on certain imported pharmaceutical products and opened its pharmaceutical distribution market to foreign participation. As a result, an increasing number of foreign investors, many of which have substantially greater financial and marketing resources than we do, may establish entities or ties with existing domestic pharmaceutical distributors in China to engage in the manufacture or distribution of pharmaceutical products in the domestic market. Such new entities or alliances between foreign investors and our competitors may erode our competitiveness and weaken our financial performance.

The existence of counterfeit pharmaceutical products in China’s pharmaceutical retail market may damage our brand and reputation and have a material adverse effect on our business, financial condition, results of operations and prospects.

Certain Tibetan medicine products distributed or sold in China’s pharmaceutical retail market, including those appearing to be YSTP’s products, may be counterfeit. Counterfeit products are products sold under the same or very similar brand names and/or having a similar appearance to genuine products. Counterfeit products, including counterfeit pharmaceutical products, are a significant problem in China. Such products divert sales from genuine products, often are of lower cost, often are or lower quality (having different ingredients or formulations, for example), and have the potential to damage the reputation for quality and effectiveness of the genuine product. The counterfeit pharmaceutical product regulation control and enforcement system in China is not able to completely eliminate production and sale of counterfeit pharmaceutical products. Any sale of counterfeit Tibetan products resulting in adverse side effects to consumers, may subject us to negative publicity and other administrative headaches and expenses. It could have a material adverse effect on our business, financial condition, results of operations and prospects.

YSTP’s competitors may develop or commercialize products ahead of them.

The pharmaceutical market in China is intensely competitive, rapidly evolving and highly fragmented. YSTP’s competitors may develop products that are superior to or more affordable than YSTP’s or they may more effectively market products that compete with YSTP’s. We face direct competition from manufacturers of other traditional Tibetan and Chinese medicines that are similar to our products. We also face competition from manufacturers of Western medicines, including multinational companies, that manufacture Western medicines with similar curative effects and that can be used as substitutes for YSTP’s products. Many of YSTP’s existing and potential competitors have substantially greater financial, technical, manufacturing and other resources than we do. YSTP’s competitors’ greater size in some cases provides them with a competitive advantage with respect to manufacturing costs because of their economies of scale and their ability to purchase raw materials at lower prices. Many of YSTP’s competitors also have better brand name recognition, more established distribution networks and larger customer bases. In addition, many of YSTP’s competitors have extensive knowledge of YSTP’s target markets. As a result, they may be able to devote greater resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than YSTP can. YSTP’s failure to adapt to changing market conditions and to compete successfully with existing or new competitors may materially and adversely affect our financial condition and results of operations.

The ongoing anti-corruption campaign initiated by the Chinese government targeting state-owned hospitals could adversely affect our sales designated for hospitals.

The Chinese government has recently launched a nationwide campaign against corrupt practices that have been frequently engaged by state-owned hospitals in China, including their acceptance of kickbacks or other illegal gains and benefits in connection with their providing medical services and purchasing medical equipment and medicines. In mid-2006, the Chinese Ministry of Health ordered all state-owned hospitals to review, among other

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things, their procurement policies and procedures and self-correct problems and deficiencies, if any, by the end of 2006. As a result of this campaign, many state-owned hospitals have since diverted a significant portion of their attention and resources to their self-inspection and self-correction activities and are reviewing their procurement policies. If the anti-corruption campaign becomes more intensified, causing a significant change to the hospitals’ procurement policies and procedures or otherwise resulting in a further delay for state-owned hospitals to resume their normal procurement of YSTP’s products, our sales designated for hospitals, whether direct or through distributors, may be adversely affected.

YSTP may no longer enjoy the benefits of being in the “permitted” industry if its business in the future falls into the scope of the definition of a restricted or prohibited industry.

The principal regulation in China governing foreign investors’ entry possibility and mode of investment vehicle in the industries in which they intend to invest is the Catalogue of Industrial Guidance for Foreign Investment, effective as of December 11, 2007 (the “Catalogue”). The Catalogue classifies the various industries into four categories: encouraged, permitted, restricted and prohibited. Pursuant to the Catalogue, YSTP is engaged in a “permitted” industry. Such a designation offers businesses distinct advantages. For example, businesses engaged in encouraged industries:

• are not subject to restrictions on foreign investment, and, as such, foreigners can own a majority in Sino-foreign joint ventures or establish wholly-owned foreign enterprises in China; and

• if a company has total investment of less than $100 million, the company is subject to regional (not central) government examination and approval which are generally more efficient and less time-consuming.

The National Development and Reform Commission and the Ministry of Commerce periodically jointly revise the Catalogue of Industrial Guidance for Foreign Investment. As such, there is a possibility that YSTP’s business in the future may fall into the scope of the definition of a restricted or prohibited industry. Should this occur, we would no longer benefit from the above designation.

Risks Related to Doing Business in China

Adverse changes in political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for YSTP’s products and materially adversely affect our competitive position.

We conduct substantially all of our operations and generate all of our revenues in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

• the higher level of government involvement;

• the early stage of development of the market-oriented sector of the economy;

• the rapid growth rate;

• the higher level of control over foreign exchange; and

• the allocation of resources.

While the Chinese economy has grown significantly since the late 1970s, the growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on our business. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that apply to us.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although the Chinese government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the Chinese government continues to exercise significant control over economic growth in China through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.

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Changes in China’s political and economic policies could harm our business.

China’s economy has historically been a planned economy subject to governmental plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the Chinese government have had a positive effect on the economic development of China, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. In addition, the Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD. These differences include:

• economic structure;

• level of government involvement in the economy;

• level of development;

• level of capital reinvestment;

• control of foreign exchange;

• methods of allocating resources; and

• balance of payments position.

As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries. See “Our Business”.

Since 1979, the Chinese government has promulgated many new laws and regulations covering general economic matters. Despite these efforts to develop a legal system, China’s system of laws is not yet complete. Even where adequate law exists in China, enforcement of existing laws or contracts based on existing law may be uncertain or sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China’s judiciary, in many cases, creates additional uncertainty as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Our activities in China will also be subject to administration review and approval by various national and local agencies of China’s government. Because of the changes occurring in China’s legal and regulatory structure, we may not be able to secure the requisite governmental approval for our activities. Although we and YSTP have obtained all required governmental approval to operate our business as currently conducted, to the extent we are unable to obtain or maintain required governmental approvals, the Chinese government may, in its sole discretion, prohibit us from conducting our business. See “Our Business”

Uncertainties with respect to the Chinese legal system could limit the legal protections available to you and us.

We conduct substantially all of our business through our operating subsidiary in China, WFOE, which is a wholly foreign owned enterprise in China. WFOE is generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to foreign-invested enterprises. The Chinese legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new Chinese laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the Chinese legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

A slowdown in the Chinese economy may slow down our growth and profitability.

The Chinese economy has grown at an approximately 9 percent rate for more than 25 years, making it the fastest growing major economy in recorded history. We cannot assure you that growth of the Chinese economy will be steady or that any slowdown will not have a negative effect on our business. Several years ago, the Chinese economy experienced deflation, which may recur in the foreseeable future. More recently, the Chinese government announced its intention to use macroeconomic tools and regulations to slow the rate of growth of the Chinese

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economy, the results of which are difficult to predict. Adverse changes in the Chinese economy could impact the financial performance of the pharmaceutical industry in China. If such adverse changes were to occur in these industries, commercial shipping could decrease, which could, in turn, reduce the demand for our shipping agency services. See “Our Business”

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

Most of our revenues and expenses are denominated in Renminbi. Under Chinese law, the Renminbi is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, WFOE may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, the relevant Chinese government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenues will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to fund our business activities outside China that are denominated in foreign currencies.

Foreign exchange transactions by WFOE under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with Chinese government authorities, including SAFE. In particular, if WFOE borrows foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance WFOE by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the National Development and Reform Commission, or the NDRC, the Ministry of Commerce, or MOFCOM, or their respective local counterparts. These limitations could affect WFOE’s ability to obtain foreign exchange through debt or equity financing.

Recent Chinese regulations relating to the establishment of offshore special purpose vehicles by Chinese residents, if applied to us, may subject the Chinese resident shareholders of us or our parent company to personal liability and limit our ability to acquire Chinese companies or to inject capital into our Chinese subsidiary, limit our Chinese subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.

In October 2005, SAFE issued a public notice, the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, or Notice 75, which requires Chinese residents, including both legal persons and natural persons, to register with the competent local SAFE branch before establishing or controlling any company outside of China, referred to as an “offshore special purpose company,” for the purpose of overseas equity financing involving onshore assets or equity interests held by them. In addition, any Chinese resident that is the shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. Moreover, if the offshore special purpose company was established and owned the onshore assets or equity interests before the implementation date of Notice 75, a retroactive SAFE registration is required to have been completed before March 31, 2006. If any Chinese shareholder of any offshore special purpose company fails to make the required SAFE registration and amendment, the Chinese subsidiaries of that offshore special purpose company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the offshore special purpose company. Moreover, failure to comply with the SAFE registration and amendment requirements described above could result in liability under Chinese laws for evasion of applicable foreign exchange restrictions.

Due to lack of official interpretation, some of the terms and provisions in Notice 75 remain unclear and implementation by central SAFE and local SAFE branches of Notice 75 has been inconsistent since its adoption. Because of uncertainty over how Notice 75 will be interpreted and implemented, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective Chinese subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Notice 75 by our or our parent company’s Chinese resident

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beneficial holders. In addition, such Chinese residents may not always be able to complete the necessary registration procedures required by Notice 75. We also have little control over either our present or prospective direct or indirect shareholders or the outcome of such registration procedures. A failure by our Chinese resident beneficial holders or future Chinese resident shareholders to comply with Notice 75, if SAFE requires it, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiary’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

The Chinese government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which could result in the total loss of our investment in that country.

Our business is subject to significant political and economic uncertainties and may be adversely affected by political, economic and social developments in China. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time with little, if any, prior notice.

Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to stockholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business. Nationalization or expropriation could even result in the total loss of our investment in China and in the total loss of your investment in us.

We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take several of months to complete.

The proceeds of this offering must be sent back to China, and the process for sending such proceeds back to China may take as long as six months after the closing of this offering. In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with the SAFE.

To remit the proceeds of the offering, we must take the following steps:

• First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments of the domestic residents, and foreign exchange registration certificate of the invested company.

• Second, we will remit the offering proceeds into this special foreign exchange account.

• Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate.

The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several months but is required by law to be accomplished within 180 days of application.

We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by the PRC Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several months but is required to be completed within six months of application by law. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

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We face risks related to health epidemics and other outbreaks.

Adverse public health epidemics or pandemics could disrupt business and the economies of China and other countries where we do business. From December 2002 to June 2003, China and other countries experienced an outbreak of a highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. However, a number of isolated new cases of SARS were subsequently reported, most recently in central China in April 2004. During May and June of 2003, many businesses in China were closed by the Chinese government to prevent transmission of SARS. Moreover, some Asian countries, including China, have recently encountered incidents of the H5N1 strain of avian influenza. We are unable to predict the effect, if any, that avian influenza may have on our business. In particular, any future outbreak of SARS, avian influenza or other similar adverse public developments may, among other things, significantly disrupt our business and force us to temporarily close our offices. Furthermore, an outbreak may severely restrict the level of economic activity in affected areas, which may in turn materially adversely affect our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of avian influenza, SARS or any other epidemic.

Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.

As of September 20, 2010, the exchange rate between the Renminbi and U.S. dollar was ¥6.71432 to $1.00. Changes in the value of the Renminbi against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the Renminbi may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of paying dividends on our common shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the Renminbi against other currencies may increase or decrease the cost of imports, and thus affect the price-competitiveness of YSTP’s products against products of foreign manufacture or products relying on foreign inputs. To the extent YSTP continues to sell products solely in China and to purchase materials solely in China, a change in the exchange rate would not directly affect our financial condition or results of operation. It would, however, cause our company’s financial statements to appear stronger in U.S. dollars upon translation from Renminbi to the extent the Renminbi strengthens against the U.S. dollar and weaker to the extent the Renminbi weakens. If YSTP begins to sell YSTP’s products in U.S. dollars, then a stronger dollar will result in an improvement in our financial condition and results of operations to the extent of the improvement in exchange rate, multiplied by the percentage of our sales that are conducted in U.S. dollars, less any impact associated with purchasing materials in U.S. dollars. We reflect the impact of currency translation adjustments in our financial statements under the heading “foreign currency translation adjustment.” For the years ended December 31, 2008 and 2009, we recorded adjustments of $651,895 and $42,693, respectively, for foreign currency translations. Similarly, such fluctuations may affect the price-competitiveness of YSTP’s products in foreign markets as we work to develop an export market. We do not engage in any currency hedging transactions in an effort to mitigate this risk.

Recent changes in the Chinese labor law restrict our ability to reduce YSTP’s workforce in China in the event of an economic downturn and may increase YSTP’s production costs.

In June 2007, the National People’s Congress of China enacted new labor law legislation called the Labor Contract Law, which became effective on January 1, 2008. To clarify certain details in connection with the implementation of the Labor Contract Law, the Chinese State Council promulgated the Implementing Rules for the Labor Contract Law on September 18, 2008, which came into effect immediately. The new legislation formalized workers’ rights concerning overtime hours, pensions, layoffs, employment contracts and the role of trade unions. Considered one of the strictest labor laws in the world, among other things, this new law provides for specific standards and procedures for the termination of an employment contract and places the burden of proof on the employer. In addition, the law requires the payment of a statutory severance pay upon the termination of an employment contract in most cases, including the case of the expiration of a fixed-term employment contract. Further, the law requires an employer to conclude an “employment contract without a fixed-term” with any employee who either has worked for the same employer for 10 consecutive years or more or has had two consecutive fixed-term contracts with the same employer. An “employment contract without a fixed term” can no longer be terminated on the ground of the expiration of the contract, although it can still be terminated pursuant to the standards and procedures set forth under the new law. Because of the lack of precedents for the enforcement of such a law, the standards and procedures set forth under the law in relation to the termination of an employment contract have raised concerns among foreign investment enterprises in China that such “employment contract

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without a fixed term” might in fact become a “lifetime, permanent employment contract.” Finally, under the new law, downsizing of either more than 20 people or more than 10% of the workforce may occur only under specified circumstances, such as a restructuring undertaken pursuant to China’s Enterprise Bankruptcy Law, or where a company suffers serious difficulties in production and/or business operations, or where there has been a material change in the objective economic circumstances relied upon by the parties at the time of the conclusion of the employment contract, thereby making the performance of such employment contract not possible. To date, there has been very little guidance and precedents as to how such specified circumstances for downsizing will be interpreted and enforced by the relevant Chinese authorities. All of YSTP’s employees working for it exclusively within China are covered by the new law and thus, our ability to adjust the size of YSTP’s operations when necessary in periods of recession or less severe economic downturns may be curtailed. Accordingly, if we face future periods of decline in business activity generally or adverse economic periods specific to our business, this new law can be expected to exacerbate the adverse effect of the economic environment on our results of operations and financial condition.

If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

If you are a United States holder, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

Based upon the nature of our business activities, we may be classified as a passive foreign investment company (“PFIC”), by the U.S. Internal Revenue Service (“IRS”), for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, a U.S. investor will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for U.S. tax purposes if either:

• 75% or more of our gross income in a taxable year is passive income; or

• the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%.

The calculation of the value of our assets is based, in part, on the then market value of our common shares, which is subject to change. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. We cannot assure you that we will not be a PFIC for any taxable year. See “Taxation – United States Federal Income Taxation—Passive Foreign Investment Company.”

If relations between the United States and China worsen, our share price may decrease and we may have difficulty accessing U.S. capital markets.

At various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the United States and China could adversely affect the market price of our common shares and our ability to access U.S. capital markets.

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Because our operations are located in China, information about our operations are not readily available from independent third-party sources.

Because YSTP and WFOE are based in China, our shareholders may have greater difficulty in obtaining information about them on a timely basis than would shareholders of a U.S.-based company. Their operations will continue to be conducted in China and shareholders may have difficulty in obtaining information about them from sources other than the companies themselves. Information available from newspapers, trade journals, or local, regional or national regulatory agencies such as issuance of construction permits and contract awards for development projects will not be readily available to shareholders and, where available, will likely be available only in Chinese. Shareholders will be dependent upon management for reports of their progress, development, activities and expenditure of proceeds.

Our failure to obtain prior approval of the China Securities Regulatory Commission (“CSRC”) of the listing and trading of our common shares on a foreign stock exchange could significantly delay this offering or could have a material adverse effect upon our business, operating results, reputation and trading price of our common shares.

On August 8, 2006, six Chinese regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “New M&A Rule”). The New M&A Rule became effective on September 8, 2006. This regulation contains provisions that purport to require that an offshore special purpose vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by Chinese companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of overseas listings.

The application of the New M&A Rule remains unclear with no consensus currently existing among leading Chinese law firms regarding the scope and applicability of the CSRC approval requirement. Our Chinese counsel, DeHeng Law Offices, has advised us that, based upon their understanding of current Chinese laws and regulations:

• We currently control our Chinese affiliate, YSTP, by virtue of WFOE’s Control Agreements with YSTP, but not through equity interest or asset acquisition which are stipulated in the New M&A Rule; and

• In spite of the lack of clarity on this issue, the CSRC has not issued any definitive rule or interpretation regarding whether offerings like the one contemplated by this Prospectus are subject to the New M&A Rule.

The CSRC has not issued any such definitive rule or interpretation, and we have not chosen to voluntarily request approval under the New M&A Rule. If the CSRC requires that we obtain its approval prior to the completion of this offering, the offering will be delayed until we obtain CSRC approval, which may take several months. There is also the possibility that we may not be able to obtain such approval. If prior CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other Chinese regulatory authorities. These authorities may impose fines and penalties upon our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China, or take other actions that could have a material adverse effect upon our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common shares. The CSRC or other Chinese regulatory agencies may also take actions requiring us, or making it advisable for us, to terminate this offering prior to closing.

Chinese regulation of loans and direct investment by offshore holding companies to Chinese entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our Chinese operating subsidiaries.

In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our Chinese operating subsidiaries, we may make loans or additional capital contributions to our Chinese subsidiaries.

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Loans extended by foreign entities such as our company to either an FIE or a domestic Chinese company are subject to Chinese regulatory approvals and registration with the SAFE. For an FIE, such as WFOE, the Chinese regulators approve particular amounts for the FIE’s registered capital, which represents shareholders’ equity investments over a defined period of time, and the FIE’s total investment, which represents the total of the company’s registered capital plus permitted loans. The excess of the total investment over the registered capital represents the maximum amount of borrowings that an FIE is permitted to have under Chinese law. An FIE’s loans must be registered with the SAFE. A domestic Chinese company may borrow medium- and long-term loans from a foreign lender, such as our company, but must obtain NDRC approval for those loans. A domestic Chinese company may also borrow short-term foreign loans, subject, however, to a quota set by the SAFE from time to time.

In addition to loans, we may also decide to finance our subsidiaries by means of capital contributions. These capital contributions, whether to an FIE or a domestic Chinese company, must be approved by the Ministry of Commerce or its local counterparts. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

Risks Related to This Offering

There may not be an active, liquid trading market for our common shares.

Prior to this offering, there has been no public market for our common shares. An active trading market for our common shares may not develop or be sustained following this offering. You may not be able to sell your shares at the market price, if at all, if trading in our common shares is not active. The initial public offering price was determined by negotiations between us and the Placement Agent based upon a number of factors. The initial public offering price may not be indicative of prices that will prevail in the trading market.

Investors risk loss of use of funds subscribed, with no right of return, during the offering period.

We cannot assure you that all or any shares will be sold. Anderson & Strudwick, our Placement Agent, is offering our shares on a best efforts minimum/maximum basis.” We have no firm commitment from anyone, including our subsidiaries, to purchase all or any of the shares offered. If subscriptions for a minimum of 2,500,000 shares are not received on or before October 31, 2010, escrow provisions require that all funds received be promptly refunded. If refunded, investors will receive no interest on their funds. During the offering period, investors will not have any use or right to return of the funds.

The market price for our common shares may be volatile, which could result in substantial losses to investors.

The market price for our common shares is likely to be volatile and subject to wide fluctuations in response to factors including the following:

• actual or anticipated fluctuations in our quarterly operating results;

• changes in the Chinese pharmaceutical industry;

• changes in the Chinese economy;

• announcements by our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

• additions or departures of key personnel; or

• potential litigation.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. As a result, to the extent shareholders sell our common shares in negative market fluctuation, they may not receive a price per share that is based solely upon our business performance. We cannot guarantee that shareholders will not lose some of their entire investment in our common shares.

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Our senior management lacks experience managing a public company and complying with laws applicable to operating as a U.S. public company domiciled in the British Virgin Islands.

Prior to the completion of this offering, YSTP operated as a private company located in China. In connection with this offering, the senior management of YSTP formed TBET in the British Virgin Islands, CTP in Hong Kong and caused WFOE to become TBET’s subsidiary in the PRC. They also caused YSTP and WFOE to enter into certain agreements that gave TBET effective control over the operations of YSTP by virtue of its ownership of CTP and CTP’s ownership of WFOE. In the process of taking these steps to prepare our company for this initial public offering, YSTP’s senior management became the senior management of TBET. TBET’s senior management has limited experience managing a public company or managing a British Virgin Islands company.

As a result of this offering, our company will become subject to laws, regulations and obligations that do not currently apply to it. Our senior management currently has no experience in complying with such laws, regulations and obligations. For example, TBET will need to comply with the British Virgin Islands laws applicable to companies that are domiciled in that country. By contrast, such senior management is currently experienced in operating the business of YSTP in compliance with Chinese law. Similarly, by virtue of this offering, TBET will be required to file quarterly and annual reports and to comply with U.S. securities and other laws, which may not have applied to TBET prior to the offering. These obligations can be burdensome and complicated, and failure to comply with such obligations could have a material adverse effect on TBET. In addition, we expect that the process of learning about such new obligations as a public company in the United States will require senior management to devote time and resources to such efforts that might otherwise be spent on the operation of the business of pharmaceuticals.

Further, because historically our operations have been in China, we have operated in accordance with China GAAP and have not previously been required to comply with U.S. GAAP. Our current CFO has limited experience with U.S. GAAP, although our Senior Accountant and one of our board members do have significant experience with U.S. GAAP. We are taking steps to increase our level of experience with U.S. accounting and SEC requirements, as well as to improve our internal accounting controls. Our annual financial statements are reviewed by our independent registered public accounting firm for compliance with U.S. GAAP standards. Yet, we cannot assure that our management has identified or fully remedied all material weaknesses in our internal controls of financial reporting pursuant to US GAAP. If deficiencies go undetected or unremedied, our financial statements may not accurately reflect our financial condition as required by U.S. GAAP.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.

Upon the closing of this offering, we will become a public company in the United States that is or will be subject to, the Sarbanes-Oxley Act of 2002. As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the U.S. Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports. In addition, the independent registered public accounting firm auditing a company’s financial statements may also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. Under current SEC regulations, our public accounting firm is required to issue an attestation report on our internal controls over financial reporting only if we are an accelerated filer or a large accredited filer. In addition, under current law, we will be required to include a management report beginning with our annual report for the 2010 fiscal year. Our management may conclude that our internal controls over our financial reporting are not effective.

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We can provide no assurance that we will be in compliance with all of the requirements imposed by Section 404. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our reporting processes, which could adversely affect the trading price of our stock.

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Our failure to obtain prior approval of the China Securities Regulatory Commission (“CSRC”) of the listing and trading of our common shares on a foreign stock exchange could significantly delay this offering or could have a material adverse effect upon our business, operating results, reputation and trading price of our common shares.

On August 8, 2006, six Chinese regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “New M&A Rule”). The New M&A Rule became effective on September 8, 2006. This regulation contains provisions that purport to require that an offshore special purpose vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by Chinese companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of overseas listings.

However, the application of the New M&A Rule remains unclear with no consensus currently existing among leading Chinese law firms regarding the scope and applicability of the CSRC approval requirement. Our Chinese counsel, DeHeng Law Offices, has advised us that, based upon their understanding of current Chinese laws and regulations:

• we currently control our Chinese affiliate, YSTP, by virtue of WFOE’s VIE agreements with YSTP, but not through equity interest or asset acquisition which are stipulated in the New M&A Rule; and

• in spite of the lack of clarity on this issue, the CSRC has not issued any definitive rule or interpretation regarding whether offerings like the one contemplated by this Prospectus are subject to the New M&A Rule.

The CSRC has not issued any such definitive rule or interpretation, and we have not chosen to voluntarily request approval under the New M&A Rule. If the CSRC requires that we obtain its approval prior to the completion of this offering, the offering will be delayed until we obtain CSRC approval, which may take several months. There is also the possibility that we may not be able to obtain such approval. If prior CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other Chinese regulatory authorities. These authorities may impose fines and penalties upon our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China, or take other actions that could have a material adverse effect upon our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common shares. The CSRC or other Chinese regulatory agencies may also take actions requiring us, or making it advisable for us, to terminate this offering prior to closing.

If our financial condition deteriorates, we may not meet initial objective listing standards related to net income on the NASDAQ Global Market (or, if we are listed at such time, continued listing standards) and our shareholders could find it difficult to sell our shares.

We have applied to list our common shares for trading on the NASDAQ Global Market. We have not yet been informed that our common shares will trade on the NASDAQ Global Market and can provide no assurance that our NASDAQ Global Market listing application will be approved. Additionally, we will not complete this offering unless our application to list on the NASDAQ Global Market is approved. In order to qualify for initial listing on the NASDAQ Global Market upon the completion of this offering, we must meet the following criteria:

• (i) Equity Standard: we must have been in operation for at least two years, must have shareholder equity of at least $30,000,000 and must have a market value for our publicly held securities of at least $18,000,000; OR (ii) Market Value Standard: we must have a market value for our publicly held securities of at least $20,000,000 and must have a market value of our listed securities of at least $75,000,000; OR (iii) Income Standard: we must have net income from continuing operations in our last fiscal year (or two of the last three fiscal years) of at least $1,000,000, must have shareholder equity of at least $15,000,000 and must have a market value for our publicly held securities of at least $8,000,000; OR (iv) Total Assets/Total Revenue Standard: we must have total assets and total revenues in our last fiscal year (or two of the last three fiscal years) of at least $75,000,000 each and we must have a market value for our publicly held securities of at least $20,000,000; and

• we must have at least 1.1 million publicly held shares;

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• the minimum bid price for our shares must be at least $4.00 per share;

• we must have at least 400 round-lot shareholders;

• we must have at least 3 (in the case of the Income Standard or Equity Standard) or 4 (in the case of the Market Value Standard or Total Assets/Total Revenue Standard) market makers; and

• we must have adopted NASDAQ-mandated corporate governance measures, including a Board of Directors comprised of a majority of independent directors, an Audit Committee comprised solely of independent directors and the adoption of a code of ethics among other items.

As to the first objective listing requirement, we have applied for listing on the NASDAQ Global Market in reliance on the third test (“net income from continuing operations in our last fiscal year (or two of the last three fiscal years) of at least $1,000,000, must have shareholder equity of at least $15,000,000 and must have a market value for our publicly held securities of at least $8,000,000”). While our net income for 2009 and 2008 satisfied this objective requirement, a deterioration in our financial status combined with a protracted registration and offering period could cause us to fail to meet this requirement.

The NASDAQ Global Market also requires companies to fulfill specific requirements in order for their shares to continue to be listed. In order to qualify for continued listing on the NASDAQ Global Market, we must meet the following criteria:

• Equity Standard: our shareholders’ equity must be at least $10,000,000, we must have 750,000 publicly held shares and we must have a market value of publicly held shares of at least $5,000,000; OR Market Value Standard: the market value of our listed securities must be at least $50,000,000, we must have 1,100,000 publicly held shares, and we must have a market value of publicly held shares of at least $15,000,000; OR Total Assets/Total Revenue Standard: our total assets and total revenue in our last fiscal year (or two of the last three fiscal years) must have been at least $50,000,000 each, we must have 1,100,000 publicly held shares, and we must have a market value of publicly held shares of at least $15,000,000;

• the minimum bid price for our shares must be at least $1.00 per share;

• we must have at least 400 round lot shareholders or at least 2,200 total shareholders;

• a market value of publicly held shares (excluding shares held by officers, directors and 10% or greater shareholders) of at least $70 million;

• we must have at least 2 (Equity Standard) or 4 (Market Value Standard or Total Assets/Total Revenue Standard) market makers; and

• we must have adopted NASDAQ-mandated corporate governance measures, including a Board of Directors comprised of a majority of independent directors, an Audit Committee comprised solely of independent directors and the adoption of a code of ethics among other items.

Although we have applied to have our common shares trade on the NASDAQ Global Market upon closing of this offering, investors should be aware that they will be required to commit their investment funds prior to the approval or disapproval of our listing application by the NASDAQ Global Market. We will not close this offering unless our listing application is approved. If our shares are delisted from the NASDAQ Global Market at some later date, our shareholders could find it difficult to sell our shares.

In addition, we have relied on an exemption to the blue sky registration requirements afforded to “covered securities”. Securities listed on the NASDAQ Global Market are “covered securities.” If we were unable to meet the NASDAQ Global Market’s listing standards, then we would be unable to rely on the covered securities exemption to blue sky registration requirements and we would need to register the offering in each state in which we planned to sell shares. Consequently, we will not complete this offering unless we meet the NASDAQ Global Market’s listing requirements.

In addition, if our common shares are delisted from the NASDAQ Global Market at some later date, we may apply to have our common shares quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the NASDAQ Global Market. In addition, if our common shares are not so listed or is delisted at some later date, our common shares may be subject to the “penny stock” regulations. These rules impose additional sales

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practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common shares might decline. If our common shares are not so listed or are delisted from the NASDAQ Global Market at some later date or were to become subject to the penny stock regulations, it is likely that the price of our shares would decline and that our shareholders would find it difficult to sell their shares.

We will incur increased costs as a result of being a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC and NASDAQ changes in corporate governance practices of public companies. We expect these new rules and regulations to significantly increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. We estimate that our costs for SEC reporting and continued listing on the NASDAQ Global Market to be between $500,000 and $1,000,000 per year that we did not experience prior to commencement of this offering.

Our classified board structure may prevent a change in our control.

Our board of directors is divided into three classes of directors. Directors of each class are chosen for staggered three-year terms upon the expiration of their current terms, and each year one class of directors is elected by the shareholders. The staggered terms of our directors may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interest of our shareholders. See “Management – Board of Directors and Board Committees.”

Future sales of our common shares may depress our share price.

The market price of our common shares could decline as a result of sales of substantial amounts of our common shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of common shares. There will be an aggregate of 11,812,500 common shares outstanding before the consummation of this offering and 14,812,500 common shares outstanding immediately after this offering, if the maximum offering is raised. All of the common shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act, except for any shares purchased by any “affiliates,” as defined in Rule 144 of the Securities Act. The remaining common shares will be “restricted securities” as defined in Rule 144. These shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. See “Shares Eligible for Future Sale.”

You will experience immediate and substantial dilution.

The initial public offering price of our common shares is expected to be substantially higher than the pro forma net tangible book value per share of our common shares. Therefore, assuming the completion of the maximum offering, if you purchase common shares in this offering, you will incur immediate dilution of approximately $3.89 or approximately 65% in the pro forma net tangible book value per common share from the price per share that you pay for the common shares. Assuming the completion of the minimum offering, if you purchase common shares in this offering, you will incur immediate dilution of approximately $3.94 or approximately 66% in the pro forma net tangible book value per common share from the price per share that you pay for the common shares. Accordingly, if you purchase common shares in this offering, you will incur immediate and substantial dilution of your investment. See “Dilution.”

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Entities controlled by our employees, officers and/or directors will control a majority of our common shares, decreasing your influence on shareholder decisions.

Assuming the sale of the maximum offering, entities controlled by our employees, officers and/or directors will, in the aggregate, beneficially own approximately 74% of our outstanding shares. Assuming the sale of the minimum offering, entities controlled by our employees, officers and/or directors will, in the aggregate, beneficially own approximately 77% of our outstanding common shares. As a result, our employees, officers and directors will possess substantial ability to impact our management and affairs and the outcome of matters submitted to shareholders for approval. These shareholders, acting individually or as a group, could exert control and substantial influence over matters such as electing directors and approving mergers or other business combination transactions. This concentration of ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common shares. These actions may be taken even if they are opposed by our other shareholders, including those who purchase shares in this offering. See “Principal Shareholders.”

We will have an ongoing relationship with our Placement Agent that may impact our ability to obtain additional capital.

In connection with this offering, we have sold our Placement Agent Warrants to purchase up to 180,000 shares (assuming the maximum offering) for a nominal amount. These warrants are exercisable for a period of five years from the effective date of the offering at a price equal to 125% of the price of the common shares in this offering. During the term of the warrants, the holders thereof will be given the opportunity to profit from a rise in the market price of our common shares, with a resulting dilution in the interest of our other shareholders. The term on which we could obtain additional capital during the life of these warrants may be adversely affected because the holders of these warrants might be expected to exercise them when we are able to obtain any needed additional capital in a new offering of securities at a price greater than the exercise price of the warrants. See “Placement.”

We will have an ongoing relationship with our Placement Agent that may impact our shareholders’ ability to impact decisions related to our operations.

In connection with this offering, we have agreed to allow our Placement Agent to designate two non-voting observers to our Board of Directors until the earlier of the date that:

(i) the investors that purchase shares in this offering beneficially own less than five percent (5%) of our outstanding shares; or

(ii) the trading price per share is at least four (4) times the offering price for any consecutive 15 trading day period.

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Although our Placement Agent’s observers will not be able to vote, they may nevertheless significantly influence the outcome of matters submitted to the Board of Directors for approval. We have agreed to reimburse the observers for their expenses for attending our Board meetings, subject to a maximum reimbursement of $6,000 per meeting and $12,000 annually, which amount is not more than the reimbursement payable to our directors. The observer will be required to certify that such travel expenses are not reimbursed by any other party. We will also pay observers the same amount as our independent directors receive. As of the date of this prospectus, Mr. L. McCarthy Downs III and Mr. Hayden Zou are serving as our Placement Agent’s observers to our Board of Directors. See “Management – Board of Directors Observer.”

As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will be governed by our amended and restated memorandum and articles of association (as they may be amended and modified from time to time), the British Virgin Islands Business Companies Act, 2004 (the “BVI Act”), and the ordinary law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the ordinary law of the British Virgin Islands and by the BVI Act. The ordinary law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English ordinary law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law therefore are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law.

As a result of all of the above, holders of our shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company. They may have greater difficulty securing legal advice about the law of the British Virgin Islands than they would U.S. and state law, and the relatively less developed nature of that country’s securities law may leave investors with less certainty about the validity and strength of any claims they believe they may have against us. In addition, other differences between British Virgin Island and U.S. as well as the terms of our articles of association may result in shareholders having different potential influence than they would under various U.S. state laws with respect to matters such as officer and director actions, mergers and acquisitions, takeover efforts, and other corporate decision making. For a discussion of significant differences between the provisions of the BVI Act and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital – Differences in Corporate Law.”

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

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The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.

Under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, our fourth amended and restated memorandum and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the general law and the articles and memorandum.

There are ordinary law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the ordinary law of the British Virgin Islands for business companies is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

We have not determined a specific use for a significant portion of the proceeds from this offering, and we may use the proceeds in ways with which you may not agree.

While we do have some plans for the use of proceeds from this offering, we have not finally or firmly allocated specific portions of the net proceeds to us from this offering to particular purposes and have not yet determined all of our anticipated uses. Our management will have considerable discretion in the application of the net proceeds received by us. In addition, we have reserved the right to re-allocate funds currently allocated to that purpose to our general working capital. If that were to happen, then our management would have significant discretion over even more of the net proceeds to be received by our company in this offering. The proceeds we receive may be used for corporate purposes that do not improve our profitability or increase our share price. The proceeds we receive from this offering may also be placed in investments that do not produce income or that may lose value. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. See “Use of Proceeds.”

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Forward Looking Statements

We have made statements in this prospectus, including under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere that constitute forward-looking statements. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “will,” “should,” “could” and similar expressions. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.

Examples of forward-looking statements include:

• projections of revenue, earnings, capital structure and other financial items;

• statements of our plans and objectives;

• statements regarding the capabilities and capacities of our business operations;

• statements of expected future economic performance;

• our expectations regarding governmental support for the development of the traditional Chinese pharmaceutical industry;

• our expectations with respect to YSTP’s ability to secure high-quality raw materials in the future;

• competition from other manufacturers of pharmaceutical products, including manufacturers of traditional Chinese medicines;

• our ability to effectively protect our existing and future intellectual property and not to infringe on the intellectual property of others; and

• fluctuations in general economic and business conditions in China; and

• assumptions underlying statements regarding us or our business.

The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss many of these risks under the heading “Risk Factors” above. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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Our Business

Overview

TBET is a holding company incorporated in the British Virgin Islands. TBET owns all of the outstanding capital stock of Chinese Tibetan Pharmaceuticals Limited, a Hong Kong company (“CTP”). CTP in turn owns all of the outstanding capital stock of Yibo Information Consulting (Shenzhen) Company Ltd., a company of the People’s Republic of China (“WFOE”), our subsidiary based in Shenzhen, Guangdong Province, China. WFOE has entered into control agreements with all of the owners of Yunnan Shangri-La Tibetan Pharmaceutical Group Limited (“YSTP”), which agreements allow WFOE to control YSTP. Through our ownership of CTP, CTP’s ownership of WFOE and WFOE’s contractual agreements with the owners of YSTP, we control YSTP.

Our Corporate Structure

Our corporate structure is as follows:

	Equity interest
— — —	Contractual arrangements including Entrusted Management Agreement and Exclusive Option Agreement. For a description of these agreements, see “Corporate Structure—Contractual Arrangements with YSTP and YSTP’s Shareholders.”

Corporate History – YSTP

Yunnan Diqing Shangri-La Tibetan Medicine Co., Ltd was incorporated on April 19, 2000 as a domestic Chinese corporation. On December 24, 2002, it changed its name to Yunnan Shangri-La Tibetan Pharmaceutical Group Limited (“YSTP”). As YSTP has continued to grow, it has increased its registered capital, which presently stands at RMB 60,000,000 (approximately $8,801,267).

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Corporate History – TBET, CTP and WFOE

We formed TBET, CTP and WFOE in 2009, 2010 and 2010, respectively, in anticipation of registering the common shares of TBET in an initial public offering. In connection with the formation of TBET, CTP and WFOE, WFOE entered into certain control agreements with YSTP and its shareholders, pursuant to which we, by virtue of our ownership of CTP and CTP’s ownership of WFOE, control YSTP.

TBET was incorporated in the British Virgin Islands on December 22, 2009 as a limited liability company, initially under the name Shangri-La Tibetan Pharmaceuticals, Inc. In July 2010, it shortened the company's name to Tibet Pharmaceuticals, Inc. TBET is engaged in the research, development, manufacturing, marketing and selling of modernized traditional Tibetan medicines in China. Its wholly owned subsidiary, CTP was incorporated in Hong Kong on January 6, 2010 as a limited liability company. Other than the equity interest in CTP, the Company does not own any assets or conduct any operations.

WFOE was incorporated on March 18, 2010 as a wholly foreign owned enterprise, 100% owned by CTP.

On March 26, 2010, to protect its shareholders from possible future foreign ownership restrictions, YSTP and all of the shareholders of YSTP entered into an entrusted management agreement with WFOE, which provides that WFOE will be entitled to the full guarantee for the performance of such contracts, agreements or transactions entered into by YSTP. WFOE is also entitled to receive the residual return of YSTP. As a result of the agreement, WFOE will absorb 100% of the expected losses and gains of YSTP, which results in WFOE being the primary beneficiary of YSTP.

Control Agreements

Our relationships with YSTP and each of its shareholders are governed by a series of contractual arrangements. Under Chinese laws, each of WFOE and YSTP is an independent legal entity and neither of them is exposed to liabilities incurred by the other party. YSTP is a variable interest entity. Other than pursuant to the contractual arrangements between WFOE and YSTP, YSTP does not transfer any other funds generated from its operations to WFOE.

On March 26, 2010, YSTP and each of the shareholders of YSTP entered into an Entrusted Management Agreement, Exclusive Option Agreement, Shareholders’ Voting Proxy Agreement and Pledge of Equity Interest Agreement (collectively, the “Control Agreements”) with WFOE in return for ownership interests in TBET. Through the organization of TBET as a holding company, 19 YSTP investors (or, in some cases, entities they control) now own a total of 10,983,750 of the common shares of TBET. Of the remaining 898,750 TBET common shares, 30,000 are owned by early-stage investors who paid a total of $100,000 for their shares. The remainder of 798,750 common shares belong to five other investors, as follows: 424,375 shares are held beneficially by two early-stage investors (Hayden and Philip Zou) and their company (Fulcan Investments, LLC), and a total of 374,375 shares are held by two entities and one individual who provided services, as follows: 20,000 shares owned by Richard Ng, who paid $300 and also provided services to us at the request of Fulcan Investments, LLC; 177,187 shares owned by RMCC Investments, LLC, which provided services to Fulcan Investments, LLC; and 177,188 shares owned by Broadview-Richfield Holdings, LLC, an entity controlled by shareholders of our U.S. legal counsel, which provided services to Fulcan Investments, LLC and our company. Mr. Zou transferred his right to receive these shares to Mr. Ng, RMCC Investments, LLC and Broadview-Richfield Holdings, LLC. TBET indirectly controls YSTP through its 100% equity interests of WFOE.

Through the Control Agreements, we can substantially influence YSTP’s daily operations and financial affairs, appoint its senior executives and approve all matters requiring shareholder approval. As a result of these Control Agreements, which enable us to control YSTP, we are considered the primary beneficiary of YSTP. Accordingly, we consolidate YSTP’s operating results, assets and liabilities in our financial statements.

Contractual Arrangements with YSTP and Its Shareholders

We conduct our business in China through our subsidiary, WFOE. WFOE, in turn, conducts it business through YSTP, which we consolidate as a variable interest entity. WFOE manages and controls YSTP through a series of contractual agreements, rather than through an equity ownership relationship.

The Control Agreements, by their terms, are governed under the laws of the PRC. The DeHeng Law Offices has provided us with an opinion that the Control Agreements are valid and enforceable under PRC law.

Chinese laws and regulations currently do not prohibit or restrict foreign ownership in pharmaceutical businesses. Yet, Chinese laws and regulations do prevent direct foreign investment in certain industries. To protect the Company’s shareholders from possible future foreign ownership restrictions, YSTP and all of the shareholders of YSTP entered into a series of contractual arrangements (“Control Agreements”). Under PRC laws, each of

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WFOE and YSTP is an independent legal entity and neither is exposed to liabilities incurred by the other. Other than pursuant to the contractual arrangements between WFOE and YSTP, YSTP does not transfer any other funds generated from its operations to WFOE. Effective March 26, 2010, WFOE entered into a functionally identical set of Control Agreements with YSTP, which agreements provide as follows.

Entrusted Management Agreement. YSTP, WFOE, and the all of the shareholders of YSTP entered into an Entrusted Management Agreement, dated March 26, 2010, that provides that WFOE will be fully and exclusively responsible for the management of YSTP. As consideration for such services, YSTP has agreed to pay the entrusted management fee during the term of this agreement. The entrusted management fee will be equal to YSTP’s earnings. Also, WFOE will assume all operational risks related to the entrusted management of YSTP and bear all losses of YSTP. As a result, WFOE is the beneficiary of the earnings of YSTP, but it also bears the risk of losses by YSTP. The term of this agreement will be from the effective date thereof to the earliest of the following: (1) the winding up of YSTP; (2) the termination date of the Entrusted Management Agreement, as agreed by the parties thereto; or (3) the date on which WFOE completes the acquisition of YSTP.

Exclusive Option Agreement. YSTP and all of YSTP’s shareholders entered into an Exclusive Option Agreement with WFOE, dated March 26, 2010, which option agreement provides that WFOE will be entitled to acquire such shares from the current shareholders in accordance with the terms and procedures set forth therein. In addition, WFOE is entitled to an irrevocable exclusive purchase option to purchase all or part of the assets and business of YSTP, if such a purchase is or becomes allowable under PRC laws and regulations and WFOE so elects. The Exclusive Option Agreement also prohibits YSTP and its shareholders from transferring any portion of the equity interests, business or assets of YSTP to anyone other than WFOE. WFOE has not yet taken any corporate action to exercise this right of purchase, and there is no guarantee that it will do so or will be permitted to do so by applicable law at such times as it may wish to do so.

Shareholders’ Voting Proxy Agreement. All of the shareholders of YSTP have executed a Shareholders’ Voting Proxy Agreement with WFOE, effective March 26, 2010, to irrevocably appoint the persons designated by WFOE with the exclusive right to exercise, on their behalf, all of their Voting Rights in accordance with applicable law and YSTP’s Articles of Association, including but not limited to the rights to sell or transfer all or any of their equity interests in YSTP and to appoint and elect the directors and Chair as the authorized legal representative of YSTP. This agreement will be only terminated prior to the completion of acquisition of all of the equity interests in, or all assets or business of YSTP. Pursuant to the Shareholders’ Voting Proxy Agreement, WFOE has appointer Mr. Tiangui Li as the designee authorized to exercise the shareholders’ voting rights. Mr. Li holds a 100% equity interest in LEMANY Invest. Corp., a BVI Corporation, which in turn owns 4.78% of TBET’s shares.

Pledge of Equity Agreement. WFOE and all of the shareholders of YSTP have entered in Pledge of Equity Agreement, effective March 26, 2010, pursuant to which all shareholder pledges all of their shares (100%) of YSTP, as appropriate, to WFOE. If YSTP or any of its respective shareholders breaches its respective contractual obligations in “Entrusted Management Agreement”, “Exclusive Option Agreement” and “Shareholders’ Voting Proxy Agreement”, WFOE as Pledgee, will be entitled to certain right to foreclose on the pledged equity interests. Such YSTP shareholders cannot dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest. This pledge has been recorded with applicable authorities in China to perfect WFOE’s security interest.

As of August 13, 2010, YSTP investors own 93% of the issued common shares of TBET.

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Use of Proceeds

After deducting the estimated placement discount and offering expenses payable by us, we expect to receive net proceeds of approximately $13,200,000 from this offering if the minimum offering is sold and $15,960,000 if the maximum offering is sold.

We do not have, at this time, a definitive plan to use the proceeds of the offering in particular ways. Generally, we intend to use the net proceeds of this offering to support and expand YSTP’s operations, with particular priority to efforts to expand its production and marketing capabilities as well as to strengthen and expand our distribution network. The precise amounts and percentage of proceeds we would devote to particular categories of activity will depend not only on the total amount of proceeds we generate in the offering, but also on prevailing market and business conditions as well as on the nature of particular opportunities that may arise from time to time. Similarly, the priority of our prospective uses of proceeds will depend on business and market conditions are they develop. Accordingly, we reserve the right to change the use of proceeds that we presently anticipate and describe herein.

Nonetheless, based on our preliminary planning, we anticipate that the proceeds of a minimum and a maximum offering would be allocated to major categories of expense in approximately the following amounts:

Minimum Offering (2,500,000 Common shares)

Use of Net Proceeds	Amount		Percentage of Net Proceeds
Build Distribution Channel	$	4,752,000		36	%
Brand Awareness, Marketing and Advertising	$	1,848,000		14	%
Production Equipment Upgrade	$	2,772,000		21	%
Working Capital, Advance to Distributors	$	2,508,000		19	%
Sarbanes-Oxley Compliance-Related Professional Fees	$	1,320,000		10	%
Total	$	13,200,000		100	%

Maximum Offering (3,000,000 Common shares)

Use of Net Proceeds	Amount		Percentage of Net Proceeds
Build Distribution Channel	$	7,022,400		44	%
Brand Awareness, Marketing and Advertising	$	2,713,200		17	%
Production Equipment Upgrade	$	2,713,200		17	%
Working Capital, Advance to Distributors	$	2,394,000		15	%
Sarbanes-Oxley Compliance-Related Professional Fees	$	1,117,200		7	%
Total	$	15,960,000		100	%

Our present intent is to allocate relatively higher shares of offering proceeds, in the event the offering generates less the maximum proceeds, to working capital, distributor advances, and production equipment upgrades. Regardless of the amount of proceeds generated, however, the category of activity to which we presently plan to devote the largest single share of proceeds is to efforts to build our distribution network.

Our management will have considerable discretion in the application of the net proceeds received by us. We reserve the right to re-allocate funds tentatively allocated to that purpose to our general working capital. If that were to happen, then our management would have significant discretion over even more of the net proceeds to be received by our company in this offering. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to achieve profitability or increase our stock price. The net proceeds from this offering may be placed in investments that do not produce income or that lose value.

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The proceeds of this offering must be sent back to the China, and the process for sending such proceeds back to the China may take several months after the closing of this offering. In utilizing the proceeds of this offering in the manner described above, as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with the SAFE.

We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by the PRC Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

The remittance procedures could take as long as six months to complete. Pending use of the net proceeds, we intend to invest our net proceeds in short-term, interest bearing, investment-grade obligations. These investments may have a material adverse effect on the U.S. federal income tax consequences of an investment in our common shares. It is possible that we may become a passive foreign investment company for U.S. federal income taxpayers, which could result in negative tax consequences to you. These consequences are described in more detail in “Taxation.”

Dividend Policy

We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant.

If we determine to pay dividends on any of our common shares in the future, as a holding company, we will be dependent on receipt of funds from WFOE. Payments of dividends by WFOE to our company are subject to the requirement that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business. Further, such remittances would require WFOE to provide an application for remittance that includes, in addition to the application form, a foreign registration certificate, board resolution, capital verification report, audit report on profit and stock bonuses, and a tax certificate. There are no such similar foreign exchange restrictions in the British Virgin Islands.

Exchange Rate Information

Our business is conducted in China, and the financial records of WFOE and YSTP are maintained in RMB, their functional currency. However, we use the U.S. dollar as our reporting currency; therefore, periodic reports made to shareholders will include current period amounts translated into U.S. dollars using the then-current exchange rates, for the convenience of the readers. Our financial statements have been translated into U.S. dollars in accordance with Accounting Standards Codification (“ASC”) 830-10, “Foreign Currency Matters.” We have translated our asset and liability accounts using the exchange rate in effect at the balance sheet date. We translated our statements of operations using the average exchange rate for the period. We reported the resulting translation adjustments under other comprehensive income. Unless otherwise noted, we have translated balance sheet amounts with the exception of equity at December 31, 2009 at ¥6.8172 to $1.00 as compared to ¥6.842 to $1.00 at December 31, 2008. The average translation rates applied to income statement accounts for the year ended December 31, 2009 and the year ended December 31, 2008 were ¥6.8296 and ¥7.0685, respectively.

We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The Chinese government imposes

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control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On October 20, 2010, the Forex rate was RMB 6.6519 to $1.00. The Company does not currently engage in currency hedging transactions.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.

Forex Exchange Rate

	(RMB per U.S. Dollar)
	Period End		Average
2004		8.2765		8.2767
2005		8.0702		8.17335
2006		7.8041		7.93715
2007		7.295		7.551
2008		6.842		7.0685
2009		6.8172		6.8296
2010
January		6.82679		6.82705
February		6.82601		6.8292
March		6.82588		6.8263
April		6.82523		6.82579
May		6.82790		6.82786
June		6.78114		6.81872
July		6.77502		6.77666
August		6.80741		6.78767
September		6.6912		6.7434
October (through October 20, 2010)		6.6519		6.6680

Capitalization

The following table sets forth our capitalization as of March 31, 2010 on a pro forma as adjusted basis giving effect to the sale of the minimum and maximum offering at an assumed public offering price of $6.00 per share and to reflect the application of the proceeds after deducting the estimated 7% placement fees, 1% accountable expense allowance and $600,000 in other offering expenses.

You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Capital Stock.”

Minimum Offering (2,500,000 Common shares)

U.S. Dollars

June 30, 2010

	As  Reported(1)		Pro Forma Adjusted for IPO(2)
Common shares
Shares(3)		11,812,500		14,312,500
Par Value Amount	$	11,812	$	14,312
Additional Paid-In Capital	$	8,495,765	$	21,695,765	(4)
Statutory Reserves	$	3,101,359	$	3,101,359
Retained Earnings	$	3,633,037	$	3,633,037
Accumulated Other Comprehensive Income	$	787,650	$	787,650
Total	$	16,029,624	$	29,232,124	(4)

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Maximum Offering (3,000,000 Common shares)

U.S. Dollars

June 30, 2010

	As  Reported(1)		Pro Forma Adjusted for IPO(2)
Common shares
Shares(3)		11,812,500		14,812,500
Par Value Amount	$	11,812	$	14,812
Additional Paid-In Capital	$	8,495,765	$	24,455,765	(4)
Statutory Reserves	$	3,101,359	$	3,101,359
Retained Earnings	$	3,633,037	$	3,633,037
Accumulated Other Comprehensive Income	$	787,650	$	787,650
Total	$	16,029,624	$	31,992,624

⁽¹⁾ This column gives effect to the reorganization of our company that was completed on March 18, 2010, upon WFOE incorporation approval by Shenzhen Industry and Commerce Bureau.

⁽²⁾ Gives effect to the sale of the minimum offering and the maximum offering, as applicable, at an assumed public offering price of $6.00 per share and to reflect the application of the proceeds after deducting a 7% underwriting discounts, 1% accountable expense allowance and our estimated offering expenses of $600,000.

⁽³⁾ The number of shares shown in the first column is the number of shares as of June 30, 2010.

⁽⁴⁾ Pro forma adjusted for IPO additional paid in capital reflects the net proceeds we expect to receive, after deducting a 7% underwriting discount, a 1% accountable expense allowance and approximately $600,000 in expenses, less the par value of the shares offered. In a minimum offering, we expect to receive net proceeds of $13,200,000 ($15,000,000 offering, less underwriting discount of $1,050,000, accountable expense allowance of $150,000 and offering expenses of $600,000), of which $13,197,500 would be attributable to additional paid in capital after deducting $2,500 in aggregate par value amount. In a maximum offering, we expect to receive net proceeds of $15,960,000 ($18,000,000 offering, less underwriting discount of $1,260,000, accountable expense allowance of $180,000 and offering expenses of $600,000), of which $15,957,000 would be attributable to additional paid in capital after deducting $3,000 in aggregate par value amount.

Dilution

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per common share and the pro forma net tangible book value per common share after the offering. Dilution results from the fact that the per common share offering price is substantially in excess of the book value per common share attributable to the existing shareholders for our presently outstanding common shares. Our net tangible book value attributable to shareholders at June 30, 2010 was $15,352,777 or approximately $1.30 per common share. Net tangible book value per common share as of June 30, 2010 represents the amount of total tangible assets less goodwill, acquired intangible assets and total liabilities, divided by the number of common shares outstanding.

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If the minimum offering is sold, we will have 14,312,500 common shares outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after June 30, 2010, will be approximately $28,552,777 or $1.99 per common share. This would result in dilution to investors in this offering of approximately $4.01 per common share or approximately 67% from the assumed offering price of $6.00 per common share. Net tangible book value per common share would increase to the benefit of present stockholders by $0.69 per share attributable to the purchase of the common shares by investors in this offering.

If the maximum offering is sold, we will have 14,812,500 common shares outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after June 30, 2010, will be approximately $31,312,777 or $2.11 per common share. This would result in dilution to investors in this offering of approximately $3.89 per common share or approximately 65% from the assumed offering price of $6.00 per common share. Net tangible book value per common share would increase to the benefit of present shareholders by $0.81 per share attributable to the purchase of the common shares by investors in this offering.

The following table sets forth the estimated net tangible book value per common share after the offering and the dilution to persons purchasing common shares based on the foregoing minimum and maximum offering assumptions.

	Minimum Offering(1)		Maximum Offering(2)
Assumed offering price per common share	$	6.00	$	6.00
Net tangible book value per common share before the offering	$	1.30	$	1.30
Increase per common share attributable to payments by new investors	$	0.69	$	0.81
Pro forma net tangible book value per common share after the offering	$	1.99	$	2.11
Dilution per common share to new investors	$	4.01	$	3.89

⁽¹⁾ Assumes net proceeds of $13,200,000 from offering of 2,500,000 common shares, calculated as follows: $15,000,000 offering, less underwriting discount of $1,050,000, accountable expense allowance of $150,000 and offering expenses of $600,000.

⁽²⁾ Assumes net proceeds of $15,960,000 from offering of 3,000,000 common shares, calculated as follows: $18,000,000 offering, less underwriting discount of $1,260,000, accountable expense allowance of $180,000 and offering expenses of $600,000.

Post-Offering Ownership

The following charts illustrate our pro forma proportionate ownership, upon completion of the offering under alternative minimum and maximum offering assumptions, by present shareholders and investors in this offering, compared to the relative amounts paid by each. The charts reflect payment by present shareholders as of the date the consideration was received and by investors in this offering at the assumed offering price without deduction of commissions or expenses. The charts further assume no changes in net tangible book value other than those resulting from the offering.

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	Shares Purchased					Total Consideration					Average Price Per  Share ($)
	Amount (#)		Percent (%)			Amount ($)		Percent (%)
MINIMUM OFFERING
Existing shareholders		11,812,500		82.5	%		10,807,416		41.9	%		0.91
New investors		2,500,000		17.5	%		15,000,000		58.1	%		6.00
Total		14,312,500		100	%		25,807,416		100	%		1.80
	Shares Purchased					Total Consideration					Average Price Per  Share ($)
	Amount (#)		Percent (%)			Amount ($)		Percent (%)
MAXIMUM OFFERING
Existing shareholders		11,812,500		79.7	%		10,807,416		37.5	%		0.91
New investors		3,000,000		20.3	%		18,000,000		62.5	%		6.00
Total		14,812,500		100	%		28,807,416		100	%		1.94

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited historical consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

We focus on the research, development, manufacturing, marketing and selling of modernized traditional Tibetan medicines in China. All of our current products are offered and derived from Tibetan based traditional medicines and are manufactured by YSTP using plant-based natural materials, particularly the herbs and minerals found in the high-latitude, low-temperature, and pollution-free environment of Qinghai-Tibet Plateau. As of December 31, 2009, we sell 5 major prescription and over-the-counter Tibetan medicine products, each of which has certain medicinal functions and has demonstrated safety and efficacy in accordance with the China SFDA requirements for the treatment of at least one or more therapeutic indications.

YSTP’s manufacturing facility in China is GMP certified, fully integrated with manufacturing support systems including quality assurance, quality control and regulatory compliance. YSTP has developed its own independent quality control systems in accordance with SFDA regulations. Its quality assurance team devotes significant attention to quality control for designing, manufacturing and testing our products, and is also responsible for ensuring that YSTP is in compliance with all applicable national and local regulations and standards, as well as our internal policies. YSTP’s senior management team is also actively involved in setting quality assurance policies and managing internal and external quality performance. These support systems enable YSTP to maintain high standards of quality for our products and deliver reliable products to our customers on a timely basis.

In the last two years, YSTP’s business has grown rapidly as a result of China’s strengthening economy, its combining promotion of Tibetan culture with educational physician conferences and seminars and the strong demand for its medicine products resulted from the increase in the number of elderly people in China.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in this item are discussed in further detail in the notes to the audited consolidated financial statements appearing elsewhere in this prospectus. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

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Revenue Recognition

We follow the guidance of ASC 605, “Revenue Recognition,” and the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 104 and SAB Topic 13 for revenue recognition. In general, revenue from the sale of pharmaceutical products is recognized when the products are delivered to and received by the customers, collectability is reasonably assured and the prices are fixed and determinable.

YSTP has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. Accordingly, we record the revenue when products are delivered to and received by the distributors.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates.

Comprehensive Income

The Company has adopted the provisions of ASC 220 “Reporting Comprehensive Income” which establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements.

ASC 220 defines comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities. The Company’s other comprehensive income arose from the effect of foreign currency translation adjustments.

Foreign Currency Translation

The Company’s functional currency is Chinese currency Renminbi (“RMB”) and its reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollar at exchange rate in effect on the date of the transactions. Exchange gains or losses on transaction are included in earnings.

The financial statements of the Company are translated into United States dollars in accordance with the provisions of ASC 830 “Foreign Currency Matters”, using the year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. At June 30, 2010 and December 31, 2009, the cumulative translation adjustment of $787,650 and $694,588 were classified as an item of accumulated other comprehensive income in the shareholders’ equity section of the balance sheet respectively. For the six months ended June 30, 2010 and 2009, other comprehensive income was $93,062 and $24,970, respectively.

Impairment of Long-lived Assets

In accordance with ASC 360-10 (SFAS 144), “Impairment or Disposal of Long-Lived Assets”, we periodically review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We

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recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the estimated fair value and the book value of the underlying asset. We did not record any impairment charges during the six months ended June 30, 2010 and 2009, respectively.

Principal Factors Affecting our Results of Operations

Revenues

We generate revenue mainly from the sales of our products. Our product revenues represent our total revenues from the sales of our products.

Our principal products include 25 Ingredients Mandrake Pill and 15 Ingredients Gentiana Pill.

25 Ingredients Mandrake Pill is a product approved for the treatment of various women’s health indications including irregular menstruation, anemia, gynecological rheumatism, endometritis and pelvic inflammation.

15 Ingredients Gentiana Pill, is a product indicated to regulate lung, alleviate coughing and remove phlegm, and for the treatment of bronchus related coughing, asthma, and hoarseness.

Factors Affecting Revenues

The following factors affect the revenues we derive from our operations. For other factors affecting our revenues, see “Risk Factors—Risks Related to Our Business.”

Industry-wide Factors. YSTP has benefited significantly from the overall economic development in China in recent years and the increase in the number of elderly people in China, which together have resulted in increased expenditures on medicine in China, including traditional Tibetan medicine. The Chinese have long perceived and accepted traditional Tibetan 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 health care industry has grown substantially in recent years, which also stimulated the domestic demands for Tibetan medicine. As China’s elder population grows, as well as the increased awareness and perception of the safety of traditional Tibetan medicine products, the market demand for traditional Tibetan medicine products will keep growing.

Government accreditation in our industry. The market for Tibetan pharmaceutical products in China is only a very small portion of the overall pharmaceutical market in China. The annual production of Tibetan medicine amounts to approximately 1,500 tons with 293 products marketed. However, the growth rate of the market for Tibetan pharmaceuticals is substantial, estimated at 50% a year by China Medicine Source Net (CMSN). One factor spurring growth has been the willingness of Chinese regulators to accredit Tibetan medicine. As of December 31, 2009, 14 Tibetan medicine products have been listed on the Protected Chinese Traditional Medicine List; 24 Tibetan medicine products have been included in the National Medicine Index; and 218 Tibetan medicine products have been certified by the SFDA.

Consolidation and expansion. In recent years, the Tibetan Medicine industry in China has made certain achievements in raw material cultivation, extraction of active ingredients and productions of Tibetan Medicine. The modernized extraction technology is widely applied. However, the equipments and production technology of most Tibetan medicine manufacturers are out dated and many of them are small on scale. Consolidation in the Tibetan medicine industry is likely to increase as inefficient and smaller operators are likely to be acquired or consolidated into larger manufacturer’s operations. As market demand grows stronger for our products, we believe that we must continue to expand our production capacity to seize additional market share. If we fail to make acquisitions or expand our production capacity, our revenue growth could slow.

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Competition. We operate in a highly competitive marketplace. We compete on the basis of brand recognition, quality, price, product availability, and security of supply, product development and customer service. If any of our competitors come out with a product, not only has strong marketing campaign and lowered price, but also has better perceived quality and effectiveness, it could put great pressure on our products and result in a decline in our sales volume and earnings. 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.

Negative Publicity. Adverse publicity associated with our company or our products could have a material adverse effect on our results of operations. We are highly dependent upon consumer perceptions of our company and the safety and quality of our products. We could be adversely affected if the “Shangri-La Tibetan Pharmaceuticals” brand, the “Xiangbala” trademark or any of our other trademarks is subject to negative publicity. We could also be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to consumers. Because of our dependence upon consumer perceptions, any negative publicity associated with illness or other adverse effects resulting from consumers’ use or misuse of our products, or any similar products distributed by other companies, could also have a material adverse impact on our results of operations. In addition, the existence of counterfeit pharmaceutical products in the PRC pharmaceutical retail market may damage our brand and reputation and subject us to negative publicity and other administrative headaches and expenses. It could have a material adverse effect on our business, financial condition, results of operations and prospects.

Costs and Expenses

We primarily incur the following costs and expenses:

Costs of goods sold. YSTP incurs a number of costs that factor in to costs of goods sold:

• raw materials, which are primarily comprised of costs of the necessary active ingredients and supporting ingredients of pharmaceuticals we manufacture;

• labor, including salaries and benefits for employees directly involved in manufacturing activities;

• packaging costs, including cost of packaging materials for our products;

• depreciation and amortization of manufacturing equipment and facilities. Due to our capacity expansion, depreciation and amortization expenses, measured in absolute terms, have increased significantly. We expect that depreciation and amortization expenses in absolute terms will continue to increase in the near future as we continue to grow; and

• overhead, including utility, parts for and maintenance of production equipment, testing, and other expenses related to the manufacturing of our products.

Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of compensation expense for our corporate staff and personnel supporting our corporate, professional fees (including consulting, audit and legal fees), travel and entertainment expenses, contractual performance obligations and office administrative and related expenses.

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Factors Affecting Cost and Expenses

Supplies and commodity prices. The largest component of our cost is the price of raw materials. To the extent the prices of these materials vary, our cost of goods will fluctuate. For this reason, we may be affected by droughts, floods, crop diseases and the like, which tend to make raw material scarcer and thus expensive.

Transition to public company. Once we complete this offering, we expect that our administrative costs will increase significantly, as we need to comply with detailed reporting requirements.

Number of customers. The more customers YSTP has, the greater we expect its selling expenses, travel expenses and the like will be. At present, we are able to sell substantially all of our products to a relatively small number of customers. We believe this concentration of customers has allowed us to focus our marketing and selling efforts in a relatively narrow area. As we expand and build YSTP’s national distribution network, we expect to see a rise in the selling expense.

Advertising expense. As we roll out YSTP’s advertising campaign to build more brand awareness and consumers recognition, we expect to see increases in its advertising expenses related to its brand image promotion and recognition.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Results of Operations

	For the six months ended June 30,
	2010						2009
	Amount			%			Amount			%
Revenues	$	14,851,362			—		$	9,689,762			—
Cost of goods sold	$	(7,216,188	)		49	%	$	(4,930,859	)		51	%
Gross profit	$	7,635,174			51	%	$	4,758,903			49	%
Total operating expenses	$	(1,321,150	)		9	%	$	(1,024,024	)		11	%
Operating income	$	6,314,024			43	%	$	3,734,879			39	%

YSTP’s revenues increased from $9.69 million in the six months ended June 30, 2009 to $14.85 million in the six months ended June 30, 2010, a 53% increase. This is primarily due to continuous growth in sales of our existing five principal products. Our sales volume in the six months ended June 30, 2010 increased 42.7% from 64,660 to 92,280 in the same period of 2009, and our product prices in the six months ended June 30, 2010 increased an average of 7.4% from the same period 2009 prices, calculated using a Weighted Average Method. As of June 30, 2010, YSTP’s biggest product revenue contributor, 25 Ingredients Mandrake Pill, has increased sales 29% from $4.8 million in the six months ended June 30, 2009 to $6.2 million in the same period of 2010. Expanding YSTP’s existing distributor network also drove our revenue performance during the six months ended June 30, 2010.

YSTP’s gross profit margin has increased from 49% in the six months ended June 30, 2009 to 51% in the same period of 2010. In the first half year of 2010, YSTP was able to expand its sales and controlled costs, and benefited from lower cost of raw material purchase, thus successfully maintained the gross profit margins.

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Selling expenses increased by $138,709, or 30%, from $459,528 in the six months ended June 30, 2009 to $ 598,237 in the same period of 2010. The increase in selling expenses resulted from an increase in promotional efforts and media advertisement in 2010 to promote the products.

Research and development costs decreased by $14,091, or 4.6%, from $303,504 in the six months ended June 30, 2009 to $289,413 in the same period of 2010. The Company plans to spend about the same dollar amount on its research and development activities generally. The decrease in this period in 2010 occurred because no new projects happened to have commenced during the period.

Other general and administrative expenses increased by $172,508, or 66%, from $260,992 in the six months ended June 30, 2009 to $443,500 in the six months ended June 30, 2010, primarily as a result of business expansion.

Net interest expense was $92,858 in the six months ended June 30, 2010, compared to net interest expense of $92,463 in the same period of 2009.

Our net income for the six months ended June 30, 2010 and 2009 were $6,227,846 and $3,648,866, respectively. The increase in net income is primarily a result of higher sales, efficient control, management of production costs and administrative expenses.

We realized significant growth in YSTP’s business due to the strengthening of its marketing efforts. YSTP hosts in-person product presentations as well as conferences and seminars for physicians, other healthcare professionals and research scholars to promote and generate awareness of our pharmaceutical products. For our OTC pharmaceutical products, we also carry out consumer advertising and educational campaigns. As the pharmaceutical market in China continues to grow, we plan to hire additional personnel for the sale, marketing and distribution of our pharmaceutical products to increase the market recognition of our products and awareness of YSTP’s brand name.

Liquidity and Capital Resources

Liquidity

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2010 our working capital was $12,150,577 as compared to $6,362,557 at December 31, 2009.

Other than the continued strength of China economy and the increased demand of our medicine products from the increase in the number of elderly people in China (all of which we believe may increase our liquidity if they continue), we are not aware of any trends or any demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way.

For 2010, we expect our main growth will be organic, from existing operations. The demand for our products appears to be getting stronger, which we expect to generate more positive cash flow.

Assuming we generate more positive cash flow from operation, and to the extent demand for our product increases, we may need to consider upgrading our existing production facility and purchasing additional machinery to expand YSTP’s capacity. We anticipate spending approximately $2.2 million to do the upgrade and purchase. If we were to make such upgrade and purchases prior to the completion of this offering or if our cash flow were insufficient, such purchases could put pressure on our liquidity.

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We are also investigating a plan to build YSTP’s distributor network to a national presence. We expect that the total cost for building and recruiting distributors would be approximately $5.8 million. If this were to happen before we receive proceeds from IPO or if our cash flow were insufficient, we could face liquidity pressure.

Capital Resources

The following table provides certain selected balance sheets comparisons at June 30, 2010 with December 31, 2009:

	June 30, 2010		December 31, 2009		Increase/ (Decrease)
Cash	$	7,697,135	$	4,081,752	$	3,615,383
Inventories	$	1,734,628	$	1,305,537	$	429,091
Accounts receivable	$	5,933,516	$	4,608,075	$	1,325,441
Other receivables	$	102,486	$	101,948	$	538
Trade deposits paid in advance	$	—	$	98,888	$	(98,888	)
Total current assets	$	15,467,765	$	10,196,200	$	5,271,565
Property, Plant and equipment	$	6,373,175	$	6,553,113	$	(179,938	)
Intangible assets	$	676,847	$	764,243	$	(87,396	)
Prepaid expense	$	430,030	$	439,399	$	(9,369	)
Total assets	$	22,947,817	$	17,952,955	$	4,994,862
Accounts payable	$	2,006,074	$	2,830,032	$	(823,958	)
Other payables	$	1,311,114	$	1,003,611	$	307,503
Total current liabilities	$	3,317,188	$	3,833,643	$	(516,455	)

We and YSTP maintain cash and cash equivalents in China. At June 30, 2010 and December 31, 2009, bank deposits were as follows:

Country	June 30, 2010		December 31, 2009
China	$	7,697,135	$	4,081,752

All of YSTP’s cash in deposit balances at June 30, 2010 are in the form of RMB held in bank accounts at financial institutions located in the PRC. Cash held in banks in the PRC is not insured. The value of cash on deposit in China of approximately $7.7 million at June 30, 2010 has been converted based on the exchange rate as of June 30, 2010. In 1996, the Chinese government introduced regulations, which relaxed restrictions on the conversion of the RMB; however restrictions still remain, including but not limited to restrictions on foreign invested entities. Foreign invested entities may only buy, sell or remit foreign currencies after providing valid commercial documents at only those banks authorized to conduct foreign exchanges. Furthermore, the conversion of RMB for capital account

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items, including direct investments and loans, is subject to PRC government approval. Chinese entities are required to establish and maintain separate foreign exchange accounts for capital account items. We cannot be certain Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions. Accordingly, cash on deposit in banks in the PRC is not readily deployable by us for purposes outside of China.

Current assets as of June 30, 2010 totaled $15,467,765, an increase of 52% compared to December 31, 2009. Current liabilities as of June 30, 2010 totaled $3,317,188, reflecting a decrease of 13% from our December 31, 2009 balance.

Inventories as of June 30, 2010 were $1,734,628, an increase of $429,091 compared to December 31, 2009. This increase is due primarily to the big increase of sales.

Cash and Cash Equivalents

As of June 30, 2010, cash and cash equivalents were $7,697,135 as compared to $4,081,752 as of December 31, 2009. The components of this increase of $3,615,383 are reflected below.

	Six months ended June 30,
	2010			2009
Net cash provided by operating activities	$	4,530,398		$	5,274,608
Net cash used in investing activities		(139,721	)		0
Net cash used in financing activities		(825,452	)		(2,904,890	)
Exchange rate effect on cash		50,158			4,770
Net cash inflow	$	3,615,383		$	2,374,488

Cash Provided by Operating Activities

Net cash provided by operating activities in the six months ended June 30, 2010 totaled $4,530,398. The activities were mainly comprised of our net income of $6,227,846, an increase in accrued expenses and other payables of $279,668, and a decrease in trade deposit paid of 99,082. These increases were partially offset by an increase in accounts receivable of $1,296,844, a decrease in accounts payable of $836,113, and an increase in inventories of $ 420,812. Non-cash transactions comprised of the followings: (i) $353,152 in depreciation; and (ii) $91,124 in amortization.

In the six months ended June 30, 2009, net cash provided by operations totaled $5,274,608. The activities mainly consisted of our net income of $3,648,866, an increase in accounts payable of $1,411,759, a decrease in accounts receivable of $260,905, an increase in accrued expenses and other payables of $208,487. These increases were partially offset by an increase in inventories of $ 554,037, an increase in trade deposit of $91,421, and a decrease in VAT payable of $68,332. Non-cash transactions comprised of (i) $351,562 in depreciation and (ii) $90,781 in amortization.

Cash Used in Investing Activities

In the six months ended June 30, 2010, our cash used in investing activities totaled $139,721. The activities were solely represented our cash payment in connection with the acquisition of plant and equipment.

No cash used in investing activities for the six months ended June 30, 2009.

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Cash Used in Financing Activities

For the six months ended June 30, 2010, net cash used in financing activities was $825,452. The activities were represented by $2,498,567 dividends paid to the shareholders made by YSTP, offset by a collection in due from shareholder of $1,553,115, and a collection of $120,000 common stock proceeds.

For the six months ended June 30, 2009, net cash used in financing activities was $2,904,890. The activities were solely represented $2,904,890 increase in due from shareholder.

Off Balance Sheet Items

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

• any obligation under certain guarantee contracts,

• any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

• any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder’s equity in our statement of financial position, and

• any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

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Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Liquidity

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At December 31, 2009 our working capital was $6,362,557 as compared to $4,881,151 at December 31, 2008.

Our cash balance at December 31, 2009 totaled $4,081,752, an increase of $1,370,200 over our balance at December 31 2008. During the fiscal year of 2009, we received cash from operating activities of $10,330,239.

YSTP has financed our operations over the two years ended December 31, 2009 primarily through cash from operating activities. Net cash provided by operating activities was approximately $10 million and 6 million in fiscal 2009 and 2008, respectively.

Other than the continued strength of China economy and the increased demand of our medicine products from the increase in the number of elderly people in China (all of which we believe may increase our liquidity if they continue), we are not aware of any trends or any demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way.

For 2010, we expect our main growth will be organic, from existing operations. The demand for YSTP’s products appears to be getting stronger, which we expect to generate more positive cash flow.

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Assuming YSTP generates more positive cash flow from operations, and to the extent demand for YSTP’s product increases, we may need to consider upgrading YSTP’s existing production facility and purchasing additional machinery to expand YSTP’s capacity. We anticipate spending approximately $2.2 million to do the upgrade and purchase. If we were to make such upgrade and purchases prior to the completion of this offering or if our cash flow were insufficient, such purchases could put pressure on our liquidity.

We are also investigating a plan to build YSTP’s distributor network to a national presence. We expect that the total cost for building and recruiting distributors would be approximately $5.8 million. If this were to happen before we receive proceeds from IPO or if our cash flow were insufficient, we could face liquidity pressure.

Capital Resources

The following table provides certain selected balance sheets comparisons between years ended December 31, 2009 and 2008:

	December 31,				Increase/ (Decrease)
	2009		2008
Cash	$	4,081,752	$	2,711,552	$	1,370,200
Inventories	$	1,305,537	$	1,419,099	$	(113,562	)
Accounts receivable	$	4,608,075	$	2,980,698	$	1,627,377
Other receivables	$	101,948	$	101,578	$	370
Trade deposit paid in advance	$	98,888	$	11,939	$	86,949
Total current assets	$	10,196,200	$	7,224,866	$	2,971,334
Property, Plant and equipment	$	6,553,113	$	7,231,210	$	(678,097	)
Intangible assets	$	764,243	$	942,707	$	(178,464	)
Prepaid expense	$	439,399	$	583,741	$	(144,342	)
Total assets	$	17,952,955	$	15,982,524	$	1,970,431
Accounts payable	$	2,830,032	$	1,515,977	$	1,314,055
Other payables	$	1,003,611	$	827,738	$	175,873
Total current liabilities	$	3,833,643	$	2,343,715	$	1,489,928

We maintain cash and cash equivalents in China. At December 31, 2009 and 2008, cash and cash equivalents held by YSTP were as follows:

	December 31,
Country	2009		2008
China	$	4,081,752	$	2,711,552

All of YSTP’s cash in deposit balances at December 31, 2009 are in the form of RMB held in bank accounts at financial institutions located in the PRC. Cash held in banks in the PRC is not insured. The value of cash on deposit in China of approximately $4.08 million at December 31, 2009 has been converted based on the exchange rate as of December 31, 2009. In 1996, the Chinese government introduced regulations, which relaxed restrictions on the conversion of the RMB; however restrictions still remain, including but not limited to restrictions on foreign invested entities. Foreign invested entities may only buy, sell or remit foreign currencies after providing valid commercial documents at only those banks authorized to conduct foreign exchanges. Furthermore, the conversion of RMB for capital account items, including direct investments and loans, is subject to PRC government approval. Chinese entities are required to establish and maintain separate foreign exchange accounts for capital account items. We cannot be certain Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions. Accordingly, cash on deposit in banks in the PRC is not readily deployable by us for purposes outside of China.

Current assets as of December 31, 2009 totaled $10,196,200, an increase of 41% compared to December 31, 2008. Current liabilities as of December 31, 2009 totaled $ 3,833,643, reflecting an increase of 64% from our December 31, 2008 balance.

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Inventories as of December 31, 2009 were $1,305,537, a decrease of $113,562 compared to December 31, 2008. This decrease is due primarily to the better control of inventories management.

At December 31, 2009, we have no commitments for capital expenditures. While we do not have any agreements, understandings or commitments at this time for such activities, we may upgrade and purchase machinery for YSTP for approximately $2.2 million, and build or recruit distributors for approximately $5.8 million. If we undertake any of these activities, we expect to do so without debt financing. Instead, we plan either to use our cash flow resources or proceeds of this offering to make such purchase. As such, any such expenditure would affect our available cash resources but would not affect any debt arrangements.

Principal Factors Affecting our Results of Operations

Revenues

We generate revenue mainly from the sales of YSTP’s products. YSTP product revenues represent our total revenues from the sales of YSTP’s products, less value-added taxes, or VAT.

YSTP’s principal products include 25 Ingredients Mandrake Pill and 15 Ingredients Gentiana Pill.

25 Ingredients Mandrake Pill is a product approved for the treatment of various women’s health indications including irregular menstruation, anemia, gynecological rheumatism, endometritis and pelvic inflammation.

15 Ingredients Gentiana Pill, is a product indicated to regulate lung, alleviate coughing and remove phlegm, and for the treatment of bronchus related coughing, asthma, and hoarseness.

The following table sets out a breakdown of YSTP’s revenues for the two products, with each item expressed as a percentage of its product revenues, for the periods indicated:

	For the year ended December 31,
	2009					2008
	Sales amount		% of product revenues			Sales amount		% of product revenues
25 Ingredients Mandrake Pill	$	11,185,718		49	%	$	7,789,246		50	%
15 Ingredients Gentiana Pill	$	4,941,706		21	%	$	3,120,079		20	%
	$	16,127,424		70	%	$	10,909,325		70	%

Factors Affecting Revenues

The following factors affect the revenues we derive from YSTP’s operations. For other factors affecting our revenues, see “Risk Factors—Risks Related to Our Business.”

Industry-wide Factors. YSTP has benefited significantly from the overall economic development in China in recent years and the increase in the number of elderly people in China, which together have resulted in increased expenditures on medicine in China, including traditional Tibetan medicine. The Chinese have long perceived and accepted traditional Tibetan 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 health care industry has grown substantially in recent years, which also stimulated the domestic demands for Tibetan medicine. As China’s elder population grows, as well as the increased awareness and perception of the safety of traditional Tibetan medicine products, the market demand for traditional Tibetan medicine products will keep growing.

Government accreditation in our industry. The market for Tibetan pharmaceutical products in China is only a very small portion of the overall pharmaceutical market in China. The annual production of Tibetan medicine amounts to approximately 1,500 tons with 293 products marketed. However, the growth rate of the market for Tibetan pharmaceuticals is substantial, estimated at 50% a year by China Medicine Source Net (CMSN). One factor spurring growth has been the willingness of Chinese regulators to accredit Tibetan medicine. As of December 31, 2009, 14 Tibetan medicine products have been listed on the Protected Chinese Traditional Medicine List; 24 Tibetan medicine products have been included in the National Medicine Index; and 218 Tibetan medicine products have been certified by the SFDA.

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Consolidation and expansion. In recent years, the Tibetan Medicine industry in China has made certain achievements in raw material cultivation, extraction of active ingredients and productions of Tibetan Medicine. The modernized extraction technology is widely applied. However, the equipments and production technology of most Tibetan medicine manufacturers are out dated and many of them are small on scale. Consolidation in the Tibetan medicine industry is likely to increase as inefficient and smaller operators are likely to be acquired or consolidated into larger manufacturer’s operations. As market demand grows stronger for YSTP’s products, we believe that we must continue to expand YSTP’s production capacity to seize additional market share. If we fail to make acquisitions or expand YSTP’s production capacity, our revenue growth could slow.

Competition. We operate in a highly competitive marketplace. We compete on the basis of brand recognition, quality, price, product availability, and security of supply, product development and customer service. If any of our competitors come out with a product, not only has strong marketing campaign and lowered price, but also has better perceived quality and effectiveness, it could put great pressure on YSTP’s products and result in a decline in YSTP’s sales volume and earnings. 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.

Negative Publicity. Adverse publicity associated with our company or YSTP’s products could have a material adverse effect on our results of operations. We are highly dependent upon consumer perceptions of our company and the safety and quality of YSTP’s products. We could be adversely affected if the “Shangri-La Tibetan Pharmaceuticals” brand, the “Xiangbala” trademark or any of our other trademarks is subject to negative publicity. We could also be adversely affected if any of YSTP’s products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to consumers. Because of our dependence upon consumer perceptions, any negative publicity associated with illness or other adverse effects resulting from consumers’ use or misuse of YSTP’s products, or any similar products distributed by other companies, could also have a material adverse impact on our results of operations. In addition, the existence of counterfeit pharmaceutical products in the PRC pharmaceutical retail market may damage our brand and reputation and subject us to negative publicity and other administrative headaches and expenses. It could have a material adverse effect on our business, financial condition, results of operations and prospects.

Costs and Expenses

We primarily incur the following costs and expenses:

Costs of goods sold. YSTP incurs a number of costs that factor in to costs of goods sold:

• raw materials, which are primarily comprised of costs of the necessary active ingredients and supporting ingredients of pharmaceuticals we manufacture;

• labor, including salaries and benefits for employees directly involved in manufacturing activities;

• packaging costs, including cost of packaging materials for YSTP’s products;

• depreciation and amortization of manufacturing equipment and facilities. Due to YSTP’s capacity expansion, depreciation and amortization expenses, measured in absolute terms, have increased significantly. We expect that depreciation and amortization expenses in absolute terms will continue to increase in the near future as we continue to grow; and

• overhead, including utility, parts for and maintenance of production equipment, testing, and other expenses related to the manufacturing of YSTP’s products.

Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of compensation expense for our corporate staff and personnel supporting our corporate, professional fees (including consulting, audit and legal fees), travel and entertainment expenses, contractual performance obligations and office administrative and related expenses.

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Factors Affecting Cost and Expenses

Supplies and commodity prices. The largest component of our cost relates to the price of raw materials. To the extent the prices of these materials vary, our cost of goods will fluctuate. For this reason, we may be affected by droughts, floods, crop diseases and the like, which tend to make raw material scarcer and thus expensive.

Transition to public company. Once we complete this offering, we expect that our administrative costs will increase significantly, as we need to comply with detailed reporting requirements.

Number of customers. The more customers YSTP has, the greater we expect its selling expenses, travel expenses and the like will be. At present, we are able to sell substantially all of YSTP’s products to a relatively small number of customers. We believe this concentration of customers has allowed us to focus our marketing and selling efforts in a relatively narrow area. As we expand and build YSTP’s national distribution network, we expect to see a rise in the selling expense.

Advertising expense. As we roll out YSTP’s advertising campaign to build more brand awareness and consumers recognition, we expect to see increases in its advertising expenses related to its brand image promotion and recognition.

Results of Operations

	For the year ended December 31,
	2009					2008
	Amount		%			Amount		%
Revenues	$	23,008,031		—		$	15,580,269		—
Cost of goods sold	$	11,303,118		49	%	$	7,857,884		50	%
Gross profit	$	11,704,913		51	%	$	7,722,385		50	%
Total operating expenses	$	2,289,036		10	%	$	1,630,425		11	%
Operating income	$	9,415,877		41	%	$	6,091,960		39	%

YSTP‘s revenues increased from $15.58 million in 2008 to $23.01 million in 2009, or 48% increase. This is primarily due to continuous growth in sales of our existing five principal products. Our sales volume in 2009 increased 23.5% from 2008, and YSTP’s product prices in 2009 increased an average of 19.6% from the 2008 prices, calculated using a Weighted Average Method. As of December 31, 2009, YSTP’s biggest product revenue contributor, 25 Ingredients Mandrake Pill, has increased sales 44% from $7.79 million in 2008 to $11.19 million in 2009. Expanding YSTP’s existing distributor network also drove its revenue performance during 2009.

YSTP’s gross profit margins stayed relatively the same, from 50% in fiscal year 2008 to 51% in the same period of 2009. In 2009, YSTP was were able to expand its sales and controlled costs, and thus successfully maintained the gross profit margins.

Selling expense increased by $206,026, or 26%, from $782,359 in 2008 to $ 988,385 in 2009. The increase in selling expense resulted from an increase in promotional efforts and media advertisement in 2009 to promote the 25 Ingredients Mandrake Pill and 15 Ingredients Gentiana Pill.

Research and development costs increased by $115,736, or 23%, from $502,827 in 2008 to $618,562 in 2009. This reflected YSTP’s increased spending on research and development of new products.

The other general and administrative expenses increased by $336,850 in the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily as a result of business expansion. Payroll expenses accounted for a majority of the increase in general and administrative expenses.

Net interest expense was $170,900 in 2009, compared to net interest expense of $158,477 in 2008.

Our net income for the years ended December 31, 2009 and 2008 were $9,244,978 and $5,933,483, respectively. The increase in net income is primarily a result of higher sales, efficient control, management of production costs and administrative expenses.

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We realized significant growth in YSTP’s business due to the strengthening of its marketing efforts. YSTP’ hosts in-person product presentations as well as conferences and seminars for physicians, other healthcare professionals and research scholars to promote and generate awareness of our pharmaceutical products. For YSTP’s OTC pharmaceutical products, we also carry out consumer advertising and educational campaigns. As the pharmaceutical market in China continues to grow, we plan to hire additional personnel for the sale, marketing and distribution of YSTP’s pharmaceutical products to increase the market recognition of YSTP’s products and awareness of YSTP’s brand name.

Consolidated Statement of Cash Flows

In the year ended December 31, 2009, our net increase in cash from operations totaled $1,370,200 and was comprised of $10,143,153 provided by operating activities, $8,785,288 used in financing activities, and the effect of prevailing exchange rates provided on our cash position of $12,334.

In the year ended December 31, 2008, our net increase in cash from operations totaled $1,295,797 and consisted of $6,049,836 provided by operating activities, $ 642,112 used in investing activities, $4,244,182 used in financing activities, and the effect of prevailing exchange rates on our cash position of $132,254.

Cash Provided by Operating Activities

Net cash provided by operating activities in the year ended December 31, 2009 totaled $10,330,239. The activities were mainly comprised of our net income of $9,244,978, an increase in accounts payable of $1,306,164, an increase in accrued expenses and other payables of $208,525, a decrease in inventories of $ 118,509 and prepaid expenses of $ 146,200, These increases were partially offset by an increase in accounts receivable of $ 1,613,598. Non-cash transactions comprised of the followings: (i) $703,124 in depreciation; and (ii) $181,563 in amortization, and (iii) $157,500 in stock-based compensation.

In the year ended December 31, 2008, net cash provided by operations totaled $6,187,674. The activities mainly consisted of our net income of $ 5,933,483, an increase in accounts payable of $573,340, a decrease in advances to suppliers of $199,821 and prepaid expenses of $141,259. These increases were partially offset by an increase in accounts receivable of $ 961,302, inventories of $ 304,580, and a decrease in accrued expenses and other payables of $199,798. Non-cash transactions comprised of (i) $611,935 in depreciation and (ii) $175,426 in amortization.

Cash Used in Investing Activities

No cash used in investing activities for the year ended December 31, 2009.

In the year ended December 31, 2008, our cash used in investing activities totaled $642,112. The activities were solely represented our cash payment in connection with the acquisition of plant and equipment.

Cash Used in Financing Activities

For the year ended December 31, 2009, net cash used in financing activities was $8,972,373. The activities solely represented dividends paid to the shareholders by YSTP.

For the year ended December 31, 2008, net cash used in financing activities was $4,382,021. The activities include $4,244,182 of dividends paid to the shareholders by YSTP, and an increase of $137,839 due from shareholders.

Off Balance Sheet Items

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

• Any obligation under certain guarantee contracts,

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• any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

• any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder’s equity in our statement of financial position, and

• any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in this item are discussed in further detail in the notes to the audited consolidated financial statements appearing elsewhere in this prospectus. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

Revenue Recognition

We follow the guidance of ASC 605, “Revenue Recognition,” and the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 104 and SAB Topic 13 for revenue recognition. In general, revenue from the sale of pharmaceutical products is recognized when the products are delivered to and received by the customers, collectability is reasonably assured and the prices are fixed and determinable.

YSTP has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. Accordingly, we record the revenue when products are delivered to and received by the distributors.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates. Significant estimates in the years ended December 31, 2009 and 2008 include the useful life of plant and equipment, intangible assets

Fair Value of Financial Instruments

We follow ASC 820, “Fair Value Measurements and Disclosures,” (SFAS 157), as amended by Financial Accounting Standards Board (FASB) Financial Staff Position (FSP) No. 157-2, on the effective date of FASB Statement No. 157. Those provisions relate to our financial assets and liabilities carried at fair value and our fair value disclosures related to financial assets and liabilities. ASC 820 (SFAS 157) defines fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to

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develop the fair value measures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs to fair value measurements - Level 1, meaning the use of quoted prices for identical instruments in active markets; Level 2, meaning the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable; and Level 3, meaning the use of unobservable inputs. Observable market data should be used when available. We did not have financial instruments during the years ended December 31, 2009 and 2008.

Comprehensive Income

We follow ASC 205, “Presentation of Financial Statements,” and ASC 220 (SFAS 130), “Reporting Comprehensive Income,” to recognize the elements of comprehensive income. Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income for 2009 and 2008 included net income.

Impairment of Long-lived Assets

In accordance with ASC 360-10 (SFAS 144), “Impairment or Disposal of Long-Lived Assets”, we periodically review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the estimated fair value and the book value of the underlying asset. We did not record any impairment charges during the years ended December 31, 2009 and 2008, respectively.

Newly Adopted Accounting Pronouncements

Effective January 1, 2009, the Group adopted an authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. The Group has applied this guidance to business combinations completed since January 1, 2009.

Effective January 1, 2009, the Group adopted an authoritative pronouncement issued by the FASB regarding interim disclosures about fair value of financial instruments. The pronouncement requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements of publicly traded companies. The pronouncement also requires those disclosures in summarized financial information at interim reporting periods. The adoption of this pronouncement did not have any significant impact on the Group’s financial condition or results of operations.

Effective January 1, 2009, the Group adopted an authoritative pronouncement issued by the FASB regarding recognition and presentation of other-than-temporary impairments. The pronouncement amends the other- than-temporary impairment pronouncement in US GAAP for debt securities to make the pronouncement more operational, and improves the presentation and disclosure of other-than-temporary impairments on debt and equity securities in financial statements. The adoption of this pronouncement did not have any significant impact on the Group’s financial condition or results of operations. Effective April 1, 2009, the Company adopted an authoritative pronouncement issued by the FASB regarding determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. The pronouncement provides clarification on estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances that indicate a transaction that is not orderly. The pronouncement emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under the then current market conditions. The adoption of this pronouncement did not have any significant impact on the Group’s financial condition or results of operations.

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Effective July 1, 2009, the Group adopted a new Accounting Standards Codification (the “ASC”) as issued by the FASB. The ASC has become the source of the authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities and provides that all such pronouncements carries an equal level of authority. The ASC is not intended to change or alter existing GAAP. The ASC is effective for interim and annual periods ending after September 15, 2009. The adoption of the ASC did not have any significant impact on the Company’s financial condition or results of operations.

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Our Business

Our Company

Our company is a specialty pharmaceutical company focusing on the research, development, manufacturing and marketing of modernized traditional Tibetan medicines. Our operational entity, YSTP, develops products in China for promoting health in human respiratory, digestive, urinary and reproductive systems. Our five SFDA-approved modernized traditional Tibetan medicines in distribution are designed to address large market opportunities. YSTP’s product development pipeline includes potential expanded uses of our existing products for additional medical indications and a number of new product candidates that are intended to address significant medical health needs in China.

We currently sell both prescription and over-the-counter products. We presently sell five products. YSTP also has developed one additional pharmaceutical product that has received Chinese-government approval but that has not yet been introduced into the market. Still other products are in various stages of development, clinical trials, and review for government approval. YSTP sells its products principally to distributors in China, who in turn resell the products principally to hospitals, hospital pharmacies, and retail pharmacies.

YSTP’s products are sold throughout China. A majority of sales are concentrated in southern provinces (most notably Yunnan Province, Guangdong Province, and Zhejiang Province. To date, we have not sold YSTP’s products outside of China.

China’s Economic Development

China’s economy continues the rapid growth it has shown over recent decades. According to a report by the U.S.-China Business Council, China’s gross domestic product grew from RMB9921.5 billion in 2000 to RMB33535.3 billion in 2009. Real GDP annual growth rates during that period ranged between 8.3 percent and 13 percent. While China suffered some consequences of the recent worldwide economic downturn, it has suffered less and recovered more quickly than most countries. Real GDP growth fell from an annual rate of 13 percent in 2007 to 9.0 percent in 2008 and 8.7 percent in 2009.

Reuters reports that the China Information Center estimated in late 2009 that the country’s GDP will grow by 8.7 percent in 2010, and that the World Bank has more recently forecast a GDP growth rate of 9.5 percent for 2010. According to the National Bureau of Statistics (NBS), China’s GDP grew 11.9 percent year over year in the first quarter of 2010 to RMB 8.06 trillion ($1.19 trillion). According to Economy Watch, China has already surpassed Japan as the world’s second largest economy, behind only the United States.

The rapid and sustained growth of the Chinese economy has resulted in steady growth in consumer wealth and spending. Consumer wealth is also broadening throughout the population: a recent Credit Suisse survey found that, between 2004 to 2009, the average household income of the 40-60 percent income group grew by 98 percent, and the income of the bottom 20 percent households also rose by 50 percent (the latter being attributed in part to the indirect benefits of improved farm profitability). The report anticipates that China’s share of global consumption will grow from 5.2 percent (US$1.72 trillion) in 2009 to 23.1 percent (US$15.94 trillion) in 2020, overtaking the US as the largest consumer market in the world.

China’s Healthcare Industry – Generally

From 1940 through the 1950s, China’s government developed a healthcare system that would address the main health considerations of the day – improved sanitation, improved diet and disease prevention. The healthcare system provided universal access to all Chinese citizens. In China’s rural areas local governments generally financed the healthcare system. The results of the government’s focus upon healthcare resulted in a dramatic long-term improvement of the health of China’s citizens. For example, in 1949, the life expectancy of a Chinese citizen was 35 years; by 2009, the life expectancy of a Chinese citizen had risen to over 73 years, more than six years greater than the worldwide average life expectancy.

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In the 1980s, the Chinese government, led by Deng Xiaoping, introduced socialist market reforms designed to increase China’s presence in the international community while increasing the standard of living in China. However, these reforms also pushed an ever-increasing portion of healthcare costs upon individual citizens. Consequently, an ever-widening gap arose between the provision of healthcare services to citizens in wealthy, urban areas and those in poor, rural areas. In 1975, over 85% of the rural population was covered by government-provided healthcare; in 1997, that proportion had decreased to 10% of the rural population.

In April 2009, the Chinese government implemented large-scale healthcare reform. The State Council allocated $123 billion as part of its New Medical Reform Plan. In addition, the plan includes significant improvements to health care facilities and expansion of China’s health related infrastructure. A recent OECD study indicates that spending hikes and regulatory changes in China have contributed to significant growth in health-care spending in the country, and that such spending in 2010 is likely to increase another 8.7 percent, with about 4.5 percent of gross domestic product (GDP) allocated to healthcare, half of which comes from the private sector. The consulting firm Scientia Advisor projects that healthcare spending in China will reach $600B by 2015, a threefold increase over 2000 expenditures.

The Chinese government aims to improve the urban healthcare system by rebuilding and restructuring approximately 3,700 existing urban community health centers and 11,000 community health clinics. The plan will also accommodate the development of approximately 2,400 new urban health centers. In effect, the plan de-emphasizes the prevalence of large, magnet facilities in favor of smaller, more accessible clinics.

In addition, the plan is designed to improve dramatically medical services available for the 800 million rural poor in China. Through the plan, the Chinese government contemplates the development of clinics in every village and a hospital in every county in China by the end of 2011. If successfully implemented, the plan would result in at least 2,000 new county hospitals and 29,000 village clinics.

The rapid increase in the per capita disposable income of Chinese urban residents and the increase in the number of elderly people in China in recent years have resulted in increasing spending on prescription and OTC medicines, including traditional Chinese medicine.

China’s Market for Pharmaceutical Products

The pharmaceutical market in China has grown rapidly in recent years. According to Business Monitor International, the total sales of medicines in China, including prescription and over-the-counter medicines, was US$33.9 billion (approximately RMB257 billion) in 2007, representing an increase of 25.6% from 2006 and a 2003-2007 CAGR of 17.8%. Business Monitor International estimates that the Chinese market became the eighth largest pharmaceutical market in the world in 2007 from ninth in 2006. The following chart sets forth the trend of PRC expenditures for prescription and over-the-counter medicines in the periods indicated:

Sales of prescription medicines are the principal component of pharmaceutical expenditures in China and are mostly made in hospitals. According to Business Monitor International, sales of prescription medicines grew from US$14.1 billion in 2003 to US$26.4 billion in 2007, representing a CAGR of 17.0%. In 2007, total sales of prescription medicines represented 77.9% of China’s total expenditures on medicine sales. The remaining expenditures were spent on over-the-counter medicines. In 2007, sales of over-the-counter medicines amounted to US$7.5 billion, representing a CAGR of 21.0% from 2003 to 2007. In addition to the primary growth drivers of healthcare spending in China described above, another factor expected to increase the amount of healthcare spending in China is the growing trend of PRC consumers to purchase non-prescription, over-the-counter medicines in non-hospital retail pharmacies.

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Data source: Business Monitor International

The Chinese pharmaceuticals market is fragmented but rapidly growing. According to Business Monitor International, the total sales of medicine in China grew at a CAGR of approximately 17.8% from 2003 to 2007, which we believe was driven by favorable socio-economic factors and strong government support. Furthermore, the Chinese government has recently announced a reform plan to spend RMB850 billion on health care, which is in addition to the regular healthcare budget, from 2009 to 2011 in order to increase the availability of healthcare, basic medicines and health insurance coverage in China. As a comparison, in 2007, the total healthcare expenditure in China was approximately RMB1.1 trillion, of which approximately RMB230 billion was government spending, according to the Ministry of Health. The healthcare reform plan is expected to accelerate growth in the Chinese pharmaceutical industry.

Pharmaceutical sales and usage play a larger role in the Chinese health-care market than in the health-care sectors of many other countries. With a small share of the population presently enjoying insurance coverage, a still-developing state health-care system, and a massive rural and relatively poor population, individuals (who generally must pay for care out of pocket) and health-care providers rely heavily on medicines, both traditional and modern. One report states that the share of health-care spending devoted to pharmaceuticals in China is three times that of the average for countries in the developed word.

In addition to the country’s general economic growth and the government’s emphasis on improving health care, we believe that China’s aging population is a key contributor to the increased expenditures on medicines because elderly people on average spend more on healthcare than younger people. In China, each urban resident over age 60 on average spent approximately RMB984.0 (US$126.1) on medicines in 2000, five times the average spending by an urban resident below age 60 in the same year, according to the China Industry Development Report for the Pharmaceutical Industry 2004 published by the China National Information Center. The portion of the Chinese population aged 60 and above has increased in both absolute numbers and as a percentage of the total population, and this trend is likely to continue in the next few decades. According to two surveys conducted by the National Bureau of Statistics in 2000 and 2005, the number of people in China aged 60 and above was approximately 130.0 million in 2000, or 10.5% of China’s entire population, and this number increased to approximately 144.1 million by 2005, representing 11.0% of the population.

The significant growth of China’s population aged 60 or above is expected to drive demand for healthcare in China. According to the PRC National Bureau of Statistics, the proportion of the population aged 60 or above in China has increased from 11.9% in 2003, or approximately 150.0 million people to 13.6%, or approximately

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162.2 million people in 2007. Rising life expectancy is also expected to contribute to the growth of China’s aging population, both as an absolute number and as a percentage of the total population. We believe that the aging population in China, which historically spends the most on healthcare, will drive the growth of the PRC healthcare industry. The prevalence of chronic health problems, such as arthritis, cardiovascular diseases and cancer, is expected to increase with the growth of China’s population aged 60 or above. In addition, as living standards continue to improve and health consciousness grows in China, many lifestyle-related diseases are also increasing and becoming more widespread. For example, Business Monitor International estimates that sales of prescription cardiovascular medicines increased by 87% from US$2,765 million in 2003 to US$5,177 million in 2007, primarily as a result of the rising prevalence of heart disease in an aging population and increasingly unhealthy lifestyles in the population at large.

National Medical Insurance Program

The National Medical Insurance Program (“NMIP”), introduced in 1999, is the largest medical insurance program in China. As of the end of 2006, the number of participants enrolled in this program was 157.4 million, according to a statement made by China’s Ministry of Labor and Social Security (“MLSS”) on January 18, 2007. According to a February 21, 2006 statement by the MLSS, the Chinese government intends to expand the program enrollment to 300 million of China’s urban population by the end of 2010. We believe that only a small percentage of the Chinese population can afford commercial insurance plans and that a majority of the Chinese population has no medical insurance coverage.

The national medicine catalog of the NMIP provides guidance on which prescription and OTC medicines are included in the program and to what extent the purchases of these medicines are reimbursable. At present, none of our commercialized products is eligible for NMIP reimbursement, and we do not anticipate seeking inclusion in the NMIP program for our medicines. We believe our medicines are better suited to sale at modest prices and in large volume, and that an ample market exists for them among both the insured and uninsured.

In September 2008, the State Council published a draft plan to ease the difficulties and minimize the costs for PRC citizens to obtain proper healthcare treatment. On 17 March 2009, the PRC Government issued the Opinion on Deepening the Healthcare System Reform (the “Opinion”). The State Council subsequently released the Notice on Important Implementing Plans for the Healthcare System Reform 2009-2011 (the “Implementing Plan”). The goal of the healthcare reform plan is to establish a basic, universal healthcare framework to provide Chinese citizens with safe, efficient, convenient and affordable healthcare. The Opinion calls for healthcare reform to be carried out in two steps:

• step One, which will be completed by 2011, aims to increase the accessibility while reducing the cost of healthcare. During this phase, the PRC Government will build up a network of basic healthcare facilities, expand the coverage of the public medical insurance system to cover 90% or more the population, as well as reform the drug supply and public hospital system, and;

• step Two, which will take place between 2011 and 2020, envisions the establishment of a universal healthcare system. The entire population should be covered by public medical insurance; drugs and medical services should be accessible and affordable to citizens in all public healthcare facilities.

While the PRC Government has neither provided a concrete timetable nor steps to implement certain tasks, such as the public hospital reform, it has released execution guidance for other tasks. Most notably, the PRC Government has announced it will spend an additional RMB850 billion from 2009 to 2011 on the healthcare industry. A significant portion will be expended to establish a basic healthcare medical insurance regime, which aims to cover over 90% of the national population by 2011, mainly through the Urban Worker Program, Urban Resident Program and the New Rural Insurance Scheme. The PRC Government further announced that the annual subsidy for each participant will be increased from RMB40 to RMB120 for Urban Resident Program participants, and from RMB80 to RMB120 for New Rural Insurance Scheme participants, starting from 2010. The reform plan will also raise the cap on claim payments from four times the local average annual income to six times such income. Another significant part of the spending plan focuses on healthcare facilities. The PRC Government plans to build 29,000 rural clinics in 2009. In the next three years, it plans to build an additional 5,000 rural clinics, 2,000 county-level hospitals and 2,400 urban community clinics in under-developed areas. This substantial increase in healthcare spending is expected to expedite the growth of the healthcare industry in China.

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In addition, the PRC Government has actively promoted the implementation of the New Rural Cooperative Medical Insurance Scheme (“New Rural Insurance Scheme”), which seeks to provide healthcare services to the vast rural areas of China. The program extends to cover approximately 2,729 counties in the PRC, which account for 95.4% of the total number of counties in the PRC. In addition, the program covers approximately 814 million rural residents, which accounts for approximately 91.5% of the total population engaged in the agricultural industry in China as of December 31, 2008.

Prescription Medicines and Hospitals

Most people in China seek both in-patient and out-patient medical treatments at state-owned hospitals, where doctors may only prescribe medicines that are listed on the hospital’s formulary. Hospital administrators generally decide whether to include a particular medicine on their formulary based upon a number of factors, including doctors’ interest in prescribing the medicine, the cost of the medicine, the perceived efficacy of the medicine and the hospital’s budget. Unlike in the United States, where patients typically fill their prescriptions at pharmacies unaffiliated with hospitals, out-patients in China typically fill their prescriptions at hospital pharmacies.

Substantially all hospitals in China are owned and operated by the government. State-owned hospitals generally have effective monopolies in their respective geographic areas, enabling them to use their market power to obtain prescription medicines from pharmaceutical companies at lower prices.

OTC Medicines and Retail Pharmacies

While out patients in China generally fill their prescriptions at hospital pharmacies, they primarily purchase OTC medicines from retail pharmacies. To the extent that a medical condition can be treated with an OTC medicine, many Chinese people choose to purchase an OTC medicine instead of seeing a doctor in a hospital for a prescription medicine.

The retail pharmacy sector in China is highly fragmented. Retail pharmacies in China include pharmacy chain stores, individual stores, retail chain stores with OTC counters, and OTC counters in supermarkets. While they are expanding quickly, neither pharmacy chain stores nor retail chain stores with OTC counters have developed a nationwide presence in China. As a result, retail pharmacies tend to have less bargaining power than hospitals in procuring medicines from pharmaceutical companies.

A small portion of retail pharmacies in China is authorized for participation in the NMIP. A program participant may be reimbursed for the cost of a medicine included in the provincial medicine catalog only if he or she purchases that medicine from an authorized retail pharmacy. We refer to these pharmacies as authorized pharmacies.

In 2004, the Chinese government authorities began to enforce the regulation prohibiting advertisement of prescription medicines through mass media. However, OTC medicine can be advertised in the mass media.

We believe that Chinese consumers purchase OTC medicines based upon brand name recognition and price. Consumers gain familiarity with an OTC medicine through advertising, word-of-mouth and recommendations by pharmacy salespeople.

Traditional Chinese Medicine

We believe that TCM is and will remain mainstream medicine in China. We also believe that a majority of Chinese consumers gives equal consideration to Western medicine and traditional Chinese medicine in choosing a medicine. According to the China Statistical Yearbook 2006-2008, traditional Chinese medicine accounted for approximately 21% of all medicines sold in China, based upon the sales revenues for each year between 2005 and 2007. Similarly, the consulting firm Helmut Kaiser estimated that, in 2005, the output value of TCM amounted to RMB110.3 billion, accounting for a quarter of the overall output value in China's medical industry. It also stated that the net yield and profits of TCM production is much higher than the average for the country's medical industry. The total TCM market in China will rise to about RMB 188.5 billion in 2015.

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Traditional Chinese medicine has been widely used in China for thousands of years and is therefore deeply ingrained in Chinese culture. The theory underlying traditional Chinese medicine is that the human body is a dynamic energy system, or Qi, that needs to harmonize and balance the different energies within it. Under this theory, a person becomes ill because his or her body experiences disharmony or an imbalance of energy. Traditional Chinese medicine seeks to restore harmony and the balance of energy within the patient’s body, thereby preventing, mitigating or curing diseases.

Historically, traditional Chinese medicine consisted primarily of mixtures of dried herbs and, in some cases, animal parts and minerals. In recent decades, pharmaceutical companies in China have applied modern production technologies to extract active ingredients out of the mixtures and formulate the extracts into a variety of dosage forms such as tablets, capsules and granules, which we refer to as modernized traditional Chinese medicines. These modernized formulations offer patients convenient forms of traditional Chinese medicine and also substantially improve their quality, consistency and dosage precision.

In general, traditional Chinese medicine has long been perceived by many Chinese to be safe and efficacious, while causing fewer side effects than Western medicine. Regulations regarding the safety and efficacy of traditional Chinese medicine in China are administered by the SFDA, the same regulatory agency responsible for oversight of Western medicine.

In 2008, 2,688 out of a total of 19,712 Chinese hospitals were designated as traditional Chinese medicine hospitals, according to the Chinese Ministry of Health Statistical Yearbook 2009. In addition to these traditional Chinese medicine hospitals, a significant majority of hospitals in China, including Western medicine hospitals, has a department dedicated to traditional Chinese medicine, and doctors with Western medical training in other departments of the hospital can also prescribe traditional Chinese medicine to their patients. By the end of 2008, China had 23 government medical schools specializing in traditional Chinese medicine education and practice. Western medical schools in China also offer traditional Chinese medicine curricula to their students.

The Chinese government is committed to supporting and promoting the development of traditional Chinese medicine. In the Chinese pharmaceutical industry five-year plan released in June 2006 by the National Development and Reform Commission, or the NDRC, the NDRC identified traditional Chinese medicine, particularly traditional Chinese medicines used for the treatment of diseases prevalent among middle-aged and elderly people, as a priority area that will receive governmental support. The State Administration of Traditional Chinese Medicine, a national government agency, formulates traditional Chinese medicine industry policies for the development of traditional Chinese medicine and provides research grants for traditional Chinese medicine research and development.

Traditional Tibetan Medicine

Tibetan medicine is classified as one type of Chinese traditional medicine. The Chinese have long perceived and accepted traditional Tibetan 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.

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, medicines composed of natural materials (e.g., herbs and minerals) and physical therapies (e.g. Tibetan acupuncture, moxabustion, etc.) to treat illness.

Traditional Tibetan medicine has a long history. It is a body of medicine that has developed over thousands years, founded on theory. Tibetan medicine is rooted in the traditional Tibetan culture, and is closely bounded with the local religion, philosophy, astronomy, climate, folk-custom, etc. Its theory, thinking mode (way of thinking), technical means, and medical ethic reflects Tibetan traditional culture. Tibetan Medicine is formed through years of clinical practice and summarization on the basis of assimilating medicine of other nationalities around. It bases on the “theory of three categories of disease cause” and forms versatile diagnosis and treatment systems with especially rich clinical experience of treating ordinary and frequent occurring illness. The main documentations of Tibetan medicine are “Four Volume Medicine Tantra”, “King Moon Diagnosis”, “Crystal Beads Herbs”, etc. The knowledge system of Tibetan Medicine and the splendid traditional culture of the Tibetan are the principal resources of the exploitation of Tibetan medicine and afford the theoretical base and cultural support for the development of Tibetan medicine.

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The vast Qinghai-Tibet Plateau area and the complicated and varied nature conditions make it possible for versatile plant, animal resources and the unique resource advantage for cultivation and development of Tibetan Medicine.

According to public reports by Tibet Cheezheng Tibetan Medicine Co., another producer of traditional Tibetan medicines, the market for Tibetan pharmaceuticals in China is a small portion of the overall medical market in China. The annual production of Tibetan medicine amounts to approximately 1,500 tons with more than 293 products marketed.

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.

There are over one hundred producers of traditional Tibetan medicine in China. Many are quite small, employ only traditional manufacturing techniques, and engage in little or no research and development. Roughly 40 companies have received some level of GMP certification. According to China Medicine Source Net (“CMSN”), in 2006, the 17 GMP-certified Tibetan medicine manufacturers in Tibet Autonomous Region had a combined annual industrial output of RMB623 million or about $91,018,871. Overall, China’s Tibetan medicine industry was about RMB1 billion in size in 2006, about 0.5% of China’s total pharmaceutical industry at that time. The Tibetan medicine industry as a whole is growing rapidly, CMSN projected that the Tibetan medicine industry is growing at an annual rate of 50 percent.

Owing to a unique environment featuring large temperature difference between day and night, and alpine-cold and low pressure, we believe the active ingredients and bioactivity of the medicinal plants found in the Qinghai-Tibet Plateau, which lies in part in the area where we reside, are particularly well suited to use in medicine. Tibetan medicinal material growing here are widely accepted and perceived in China to have special non-substitutability and higher pharmaceutical value and curative effects.

OTC Tibetan Medicines

Since the implementation of Drug Classified Management, the OTC medicine market developed rapidly in China. According to Business Monitor International, in 1990 the sale of OTC medicines in China was only RMB1.9 billion. In 2007, the total was about RMB51 billion (about $7.5 billion), reflecting a compound annual growth rate of 21%. The OTC pharmaceutical market is expected to increase at a rate of about 15% per year in the future. (“China’s Pharmaceutical Market Growing 15% Annually,” www.medicalnewstoday.com) TCM and Tibetan medicines comprise the principal part of the OTC pharmaceutical market. The rapid development of OTC market therefore promises substantial opportunities for future growth for TCM and Tibetan medicine suppliers. According to public report by Cheezheng Tibetan Medicine Co., currently, the OTC species have reached 4,488, of which 3,511 or about 78% are traditional Chinese or Tibetan products.

Government Support of Tibetan Medicine

The Chinese government gives strong support to the pharmaceutical industry, especially support to the traditional Chinese and Tibetan medicine industry. China has set the goal to change from a large medicine producing country to a stronger, world first class medicine producing country. China plans to build this solid foundation during its Eleventh Five-year Plan period (2006-2010) by promoting the modernization of traditional Chinese and Tibetan medicine, developing modern biotechnology and creating more effective Chinese and Tibetan drugs made from herbs and other natural ingredients

The Eleventh Five-year Plan, Mid-Term and Long-Term Science and Technology Development Program, Healthcare Industry and Traditional Chinese Medicine Industry Development Plan all have listed the development of folk medicines of ethnic minorities as important issue.

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The Yunnan Province government has enacted a series of preferential policies targeting Tibetan medicine for the purpose of enabling Yunnan province to become a “Biological Resources Power Province”. These efforts comprise part of an effort by the Province to build a brand awareness for the province as the principal source of resources for biological resources, such as plants and herbs used in medical production These measures include providing funds to scientific research and technology improvement, to simplify the medicine applying procedures, and to relax the requirements to get listed in the medical insurance program.

We believe the Chinese government is committed to supporting and promoting the development of modernized TCM and Tibetan medicine, as evidenced by the government formulating an industry development plan for the modernized TCM and Tibetan medicine sector. In addition, in the Chinese pharmaceutical industry five-year plan released in June 2006, the NDRC identified TCM and Tibetan medicines (particularly TCM and Tibetan medicines used for the treatment of diseases prevalent among middle-aged and elderly people) as a priority area for receiving governmental support.

We believe that TCM and Tibetan medicine will remain mainstream medicines in China and will continue to grow as a result of:

• China’s longstanding preference for TCM and Tibetan medicine remedies;

• the growing economy;

• the aging population;

• the increasing participation in the State Basic Medical Insurance System;

• Increase in government spending on public health care;

• government support for modernized TCM and Tibetan medicine as a key component of increasing quality of healthcare;

• existence of well-recognized brands supported by a long history;

• the rapidly growing over-the-counter market, in which TCM and Tibetan medicine makes up more than half; and

• the relative low price compared to Western medicine.

Our Strengths

We believe that our operational entity, YSTP, has developed a strong position in the traditional Tibetan medicine market as a result of access to raw materials, research and development efforts, a focus on quality control, modern production techniques and effective marketing. We believe these assets position us to take advantage of the growth of the Chinese pharmaceutical market generally and the expansion of the traditional Tibetan medicine market in particular. More specifically:

• YSTP has an established portfolio of SFDA-approved pharmaceuticals. YSTP presently markets five products, both prescription and OTC, and we believe these products to be the market leaders among modernized traditional Tibetan medicines for the treatment of diseases of the human respiratory system, digestive system, urinary system and gynecological inflammation. We believe YSTP’s products are unique in their formulas and composition, and we believe they are well perceived by YSTP’s product users to have high efficacy and low cost compared to YSTP’s competitors.

• We have diversity in YSTP’s product offerings. YSTP has developed four major categories of products with the treatment of respiratory, digestive and urinary systems, and reproductive diseases.

• YSTP has developed promising additional products. YSTP has received government approval for our Wupeng Pill, a traditional Tibetan medicines that we plan to introduce in the market for treating insect bite, pestilence, diphtheria, anthrax, echinococcosis and leprosy. It is also applying for government approval on Xuezang Guben Pill, a product for boosting energy and immune system, treating neurasthenia, insomnia and women’s menopausal symptoms. YSTP also has a number of other formulations in development, some of which are the currently in clinical trials.

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• We have strong research and development capabilities. YSTP has employed a large number of senior scientists in Tibetan Medicine. It has established a close cooperation with the China Academy of Medical Sciences and the Second Military Medical University of China People’s Liberation Army (PLA) to ensure research and innovation capacity strength in traditional Tibetan medicines.

• YSTP employs modern, sophisticated formulation and manufacturing techniques. Our medicine products are processed with modern equipment and advanced technology, unlike many traditional Tibetan pharmaceutical products. At the same time, YSTP’s production system consistently adheres to traditional Tibetan medicine principles and concepts, that is, of employing combinations of authentic herbs and traditional processing methods.

• YSTP employs rigorous quality control procedures throughout our operations. We devote substantial effort and attention to quality control, not only in manufacturing, but also in sourcing and selecting raw materials, testing and verifying raw material quality and purity, inspection of product in manufacture and after manufacture, management, and distribution and sales. All of our r commercialized products have GMP certification, and YSTP’s production equipment and facilities also are GMP certified.

• We have an experienced management team. Our management team has extensive experience in the traditional Tibetan medicine sector, including spending the last 10 years exclusively in the Tibetan medicine industry. They have a proven track record of identifying, acquiring and developing modernized traditional Tibetan medicinal products with good sales potential as well as successfully manufacturing, marketing and distributing modernized traditional Tibetan medicine. Both our management team and YSTP’s staff are experienced in operating in the highly-regulated and rapidly-developing Tibetan pharmaceutical sector.

• YSTP has access to abundant raw materials used in traditional Tibetan medicine, but not generally available outside its region. Traditional Tibetan medicines are formulated from a variety of herbs and other ingredients that are available primarily or exclusively in Qinghai-Tibet Plateau.

• YSTP have an established distribution network throughout China. YSTP currently contracts with 19 distributors in China and plan to add to these relationships to target new markets.

Our Strategies

Our objectives are to maintain and strengthen the market leadership of YSTP’s products in Tibetan medicine segment in China, to develop additional products and to increase the sales of YSTP’s other products. We will continue to integrate our marketing, sales, management, technology, research and development and capital resources, to continue build YSTP’s brand awareness, and to become the market leader for the development, manufacture and commercialization of Tibetan pharmaceutical products. We intend to achieve these objectives by taking a variety of steps:

• We plan to further promote YSTP’s existing brands to achieve greater market penetration. We intend to support and grow the existing recognition and reputation of YSTP’s brands and to maintain YSTP’s branded pricing strategy through continued sales and marketing efforts. To achieve this goal, we plan to detail the efficacy and highlight the quality and benefits of YSTP’s fast growing Tibetan pharmaceutical products to physicians at hospitals and clinics in all provinces in China, through combining promotion of Tibetan culture with educational physician conferences and seminars.

• We are pursuing a vigorous research and development program to maintain a pipeline of products in development, and to introduce additional products to diversity YSTP’s product offerings. We plan to focus YSTP’s research and development capabilities towards expanding our existing portfolio of approved products. YSTP has five prescription and over-the-counter pharmaceutical products in its portfolio that have been successfully commercialized, a sixth that has received SFDA approval and that we hope to commercialize in the future, and a seventh product that currently is under SFDA review for approval. In addition, we intend to conduct clinical trials for new modernized products and product line extensions for our existing products. YSTP plans to introduce new modernized products to leverage YSTP’s branded market leadership position, particularly in the therapeutic areas we already have expertise and an established reputation to develop product line extensions for its existing products.

• We are expanding our distribution network to diversify and broaden our market penetration. We intend to expand our reach by building or acquiring national or regional distribution points to drive additional growth of our existing and future products. We plan to build and improve our information system to better respond market demand, improve business process reorganization and optimization, enhance the collaboration among production, supply and sales, achieve good business cooperation on supply chain system, efficiently meet and exceed customer satisfaction, and better promote YSTP’s products.

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• We will work to further develop procedures and systems to support our plans for expansion in research and development, manufacturing and marketing. Our research and development efforts are focused on new and innovative products with substantial market potential, as well as enhancement on existing products. YSTP has forged research and development collaboration partnerships with some of the most prestigious research and development institutions in China, including China Academy of Medical Sciences and the Second Military Medical University of China PLA. In addition, we have plans to expand YSTP’s manufacturing capacity and strengthen its distribution network, both from the proceeds of this offering and from revenues from our operations.

• We will work to build brand awareness. Our ultimate goal is to have our company name “Shangri-La Tibetan Pharmaceuticals” and our brands and trademarks recognized and trusted by our target consumers. In addition, we plan to continue to broaden our marketing efforts outside of major cities in China and increase our market penetration in cities and rural areas where we already have a presence.

• We hope to expand beyond the Chinese market. We also hope to expand YSTP’s presence beyond China to international markets. We plan to work with other international pharmaceutical companies in cross selling of our products.

• We will pursue strategic acquisition and licensing opportunities. We intend to selectively pursue strategic acquisition opportunities that we believe would grow our customer base, expand YSTP’s product lines and distribution network, enhance our manufacturing and technical expertise or otherwise complement our business or further our strategic goals. Pursuing additional acquisitions is a significant component of our growth strategy. Our acquisition targets would be Tibetan pharmaceutical companies who have very competitive products, with strong efficacy.

YSTP’s Products

The five Tibetan medicines that YSTP currently produces are among those Tibetan medicines made with modern drug manufacturing techniques. The manufacturing equipments and techniques 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 facilitate the accurate execution of the formulae and the quality and quantity of the products. Moreover, the strict quality control and inspection procedures similarly enhance the consistent quality of YSTP’s products.

Approved and Commercialized Products

The following table identifies the five products YSTP has commercialized to date, and summarizes the manner in which they are distributed (whether by prescription or over the counter), and the indications or conditions for which the SFDA has authorized their use:

No.	Product Name	Form of Distribution	Indication	Function, Usage (Translation of SFDA Approvals)
1	25 Ingredients Mandrake Pill	RX	Gynecology Disease	Dispel pathogenic wind dampness, relieve pain, and regulate menses. Treat women anemia, gynecological rheumatism, uterus echinococoosis, lower limb joint pain, stomach, liver, gallbladder and upper body pain, depression, deficiency of blood, and irregular menstruation.

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2	28 Ingredients Pinang Pill	RX	Urinary Tract	Warm kidney, relieve strangury. Treat cold waist hip pain, treat pus hemuturia and testis swelling.
3	18 Ingredients Chebulic (Myrobalan) Frusemide Pill	RX	Diabetes, Nephropathy	Invigorate kidney, guard sperm, help urinary. Treat kidney problems, lumbar and kidney pain, frequent urination, turbid urine, diabetes and spermatorrhea.
4	15 Ingredients Gentiana Pill	OTC	Respiratory System	Clear heat, regulate lunch, stop cough and remove phlegm. Treat bronchitis, emphysema, asthma, and hoarseness.
5	Pomegranate Nichirin Pill	OTC	Digestive System	Warmly invigorate stomach and kidney. Treat indigestion, back and leg pain, frequent urination, foot edema, impotence and nocturnal emission

A sixth product, YSTP’s Wupeng Pill, has received SFDA approval but has not yet been commercialized. The translation of the uses and functions to which the Wupeng Pill has been approved by the SFDA is as follows: “heat clearing and detoxification, relieve swelling and pain, dispel wind dampness, insecticide and stop pandora disease. Treat echimococosis, pandora tingling disease, diphtheria, anthrax, yellow water disease and leprosy.”

The translations of SFDA approvals presented above are literal, word-for-word translations and therefore the most accurate possible description of the range of uses authorized by the SFDA. Yet, the translated language is somewhat awkward. It is generally accurate to state, more colloquially, that: the 25 Ingredients Mandrake Pill is authorized for use in regulating menses, treating endometritis, and treating pelvic inflammation and women’s anemia; the 28 Ingredient Pinang Pill is approved for use in relieve waist and hip pain as well as in treating pus hematuria and testis swelling; the 18 Integdients Chebulic Frusenide Pill is used for relieving kidney-related back pain, frequent urination, and nocturnal sperm emission; the 15 Ingredients Gentiana Pill is authorized for use in relieving symptoms of respiratory diseases; and the Pomegranate Nichirin Pill is used to improve kidney and digestive system function, to relieve back and foot pain, foot edema, frequent urination and impotence.

Two of YSTP’s products account for the vast majority of our sales. The Gentiana pill (comprised of 15 ingredients) and YSTP’s Mandrake pill (comprised of 25 ingredients) together accounted for 70 percent of our sales in both 2009 and 2008. YSTP’s other current products combine for a much smaller share of our sales, namely our Pinang Pill (28 ingredients), Chebulic (Myrobalan) Frusemide Pill (18 ingredients) and YSTP’s Pomegranate Nichirin Pill.

YSTP’s Mandrake pill is sold both as a prescription and as an OTC medicine. While there is no substantive difference between the two versions, as a prescription medicine, the Mandrake Pill is approved by the SFDA for the treatment of anemia in women, gynecological rheumatism and endometritis and pelvic inflammations. As an OTC medicine, it is approved for the treatment of irregular menstruation. The Mandrake pill is a formulation comprised of extracts of 25 different plants, including mandrake. It was developed based on a traditional recipe from the Tibet medicine mantra. In 2008 and 2009, sales of the Mandrake pill totaled RMB55.1 million and RMB76.4 million (US$11.2 million), representing 50% and 48% of our net revenues, respectively.

YSTP’s Gentiana pill is an OTC medicine used to treat coughing, asthma and improve the function of the lung. The Gentiana pill is a formulation comprised of 15 plant extracts and that contains active ingredients in traditional Tibetan medicine literature as having phlegm removal and coughing relieving properties. In 2008 and 2009, sales of our Gentiana pill was RMB22.1 million and RMB33.8 million (US$4.9 million), representing 19% and 22 % of our net revenues, respectively.

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Product Pipeline

YSTP has its own research, development and laboratory facilities and retains its own professional research and development team. We are actively developing a number of new medicines and formulations that were primarily acquired from third parties, as well as through joint research and development with universities and research institutions. As of March 31, 2010, we were at different stages of developing over 60 product candidates.

YSTP has many formulations in different stages of development. YSTP’s Xuezang Guben Pill, a product for boosting energy and immune system, treating neurasthenia, insomnia and women’s menopausal symptoms, is now under review for SFDA approval, and we hope to receive approval sometime in 2011. A few other products are currently in clinical trials and are, we believe, particularly promising. The table below identifies what we believe to be the most promising products in development as well as the functions we believe they perform and the indications or uses to which we believe they can be put, based on market potential, market demand and our test results to date. The authorized uses of these formulations in all cases will be subject to the successful completion of clinical trials and securing SFDA approval:

Medicines	Function	Indication	Status
Xuezang Guben pill	Improve kidney function, blood balance, sexual function; regulate endocrine disorder	Treatment of neurasthenia, insomnia, frequent urination, nocturnal emission and women’s menopausal symptoms	Applying for certificate of manufacturing and marketing
Shengke I	Improve kidney function, guard sperms, help urine, improve secretion function is islet cell. Increase the volume of blood flow in heart and brain	Treatment of Type II diabetes	Phase III clinical testing
Shengke II	Reduction of sexual dysfunction, impotence; regulation of endocrine disorders.	Treatment of impotence and premature ejaculation, prostrate disease, memory loss	Phase II clinical testing
Jiuzun pill	Relief from stomach ailments	Treatment of chronic gastroenteritis and peptic ulcers	Phase II clinical testing
Antai pill	Improves liver function	Treatment of hepatitis B	Pre-clinical

Research and Development

Unlike many producers of traditional Tibetan medicines, YSTP devotes considerable effort to product research and development, which efforts we believe contribute greatly to our success and opportunities for growth. YSTP’s research and development department is responsible for new medicine initiation and approval, research and development, new medicine trial production, technology project application, and communication with universities and research institutes. Its R&D department is also responsible for analyzing potential drug projects, starting the establishment, intermediate evaluation, consultation, acceptance and other works of research and development projects.

As of August 13, 2010, YSTP’s research and development team consisted of 11 experienced researchers, engineers and developers. Of these, one holds a doctorate, two have masters degrees, four have bachelor degrees and four have associate degrees. In addition, some of its support employees regularly participate in its research and development efforts. YSTP has developed R&D cooperative relationships with universities and medical institutes, including with China Academy of Medical Science Institute, and the Second Military Medical University of China

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PLA. In addition, it receives outside help from recognized industry experts. For example, Dr. Keji Chen, who’s China’s only fellow in the prestigious Institute of China Academy of Science coming from pharmaceutical industry, worked as a consultant to YSTP. Dr. Chen was a pioneer in the treatment of joint disease and cardiovascular disease through a combination of Western and traditional Chinese medicine. He is also widely recognized for his work in the treatment of coronary, spleen, and kidney conditions, as well as anti-aging.

YSTP’s research and development expenditures were $512,475 and $614,880 in 2008 and 2009, respectively, representing 3.2% and 2.7% of its net revenues, respectively. YSTP’s research and development expenditures were primarily directed to the acquisition of product candidates and our research partnerships and, to a lesser degree, to compensation for our research and development personnel.

Among the five most promising products in YSTP’s development pipeline, based on market potential, market demand, and product effectiveness, we believe three are particularly promising. While the course of pharmaceutical research and develop always is uncertain, and while there can be no assurance that a formulation will be certified for use on any anticipated time frame, the history and anticipated future course of development for each of these three products is summarized below:

• YSTP is beginning the process of submitting Xuezang Guben Pill for SFDA approval and certification. To date, it has incurred $329,000 in research and development expense in connection with this product (about $102,000 in 2008 and $88,000 in 2009). YSTP expects to spend another $37,000 before commercializing the product, assuming SFDA approval, for expenses relating to the SFDA application fee, certification, documentation fee, and related travel expenses, etc. It hopes to complete all the necessary certification work in January 2011, and, assuming certification, to generate revenue from the sale of the product beginning in June 2011.

• YSTP’s Shengke I formulation is in Phase II clinical testing. It has incurred about $202,000 R&D expense developing this product (roughly $67,000 in 2008 and $90,000 in 2009), and expects to spend another roughly $164,000 in future development costs associated with further testing, development and certification. Assuming the successful completion of clinical trials, we hope to complete all the necessary certification work in June 2011, and to generate revenues from sales in December 2011.

• YSTP’s Antai Pill is in a pre-clinical testing period. It has incurred $50,000 in research and development expense to date (none of which occurred in the past two years), and estimates that we may need to allocate another $300,000 in future research and development expense through the certification process. We hope to complete all the necessary certification work in September 2012, and, assuming certification, to receive cash flow from sales beginning roughly in June 2013.

Two other products in development have, in our view, less certain market potential and clinical effectiveness, but nonetheless seem sufficiently promising to us to warrant significant investments in research and development. The development status of these two formulations is summarized below:

• YSTP’s Shengke II is in Phase II clinical testing. YSTP has incurred $184,000 in research and development expense in connection with this product (about $63,000 in 2008 and roughly $92,000 in 2009), and expects to spend another $160,000 to complete development and obtain certification. We hope to complete all the necessary certification work in June 2011, and to generate revenues from sales beginning in December 2011.

• YSTP’s Jiuzun Pill also is in phase II clinical testing. YSTP has incurred $178,000 R&D expense to date in developing this product (of which about $63,000 was spent in 2008 and $92,000 in 2009), and anticipates investing another $190,000 in the future to complete testing and secure certification. We hope to complete all the necessary certification work in September 2011, and, assuming certification, to generate sales revenue beginning in March 2012.

We believe that our long-term success depends in part on YSTP’s ability to develop and market successful new products, and for this reason we have made a significant commitment to research and development efforts. Should one or more of these products prove to be commercially successful, not only would we generate additional revenue, but also we would have a more diverse and competitively-strong portfolio of products as well as a broader platform for product extensions.

Yet, the development of pharmaceuticals is a long and uncertain process, and there can be no assurance that any product will prove to be clinically or commercially effective. Our experience, and we believe that of the pharmaceutical industry as a whole, is that most formulations prove not to be sufficiently viable to warrant full development, and that some that prove to be clinically safe and effective prove not to have sufficient market potential to warrant commercialization.

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Recognizing the inherent uncertainties of pharmaceutical research and development, we investigate a variety of different formulations and attempt to make prudent R&D investment decisions based on test results and market potential. We do not believe that our prospects for future growth are dependent on the commercial success of any of the formulations listed above, although our long-term prospects will vary with our ability to develop successfully some new products.

Manufacturing

YSTP’s production facilities are located in Shangri-La County, Yunnan Province, a top region in China in terms of production of raw materials used in the manufacturing of traditional Tibetan medicines. Its unique location allows YSTP to maintain close relationships with suppliers of medicinal herbs, to have lower transportation costs and to give us the option of farming our own medicinal herbs, which we believe is a competitive advantage. We have a policy of maintaining an inventory that allows us to have at least a three-month supply of raw materials. The company owns the facility.

Most of YSTP’s products are manufactured from an array of ingredients. Compared to most other producers of traditional Tibetan medicines, we employ relatively sophisticated techniques to formulate and produce our products, as well as to maintain quality control of our products and production processes. The ingredients used in our products have passed the drug standard issued by the PRC Ministry of Health, and are included in the “Chinese Pharmacopoeia”. We also have a clear inspection standard in place.

The production process YSTP employs involves several different stages, and the process may vary somewhat depending on the product and its ingredients. YSTP’s average pill production time is 11 days, and the finished products are good for 3 years. The various stages of production in YSTP’s manufacturing process, generally speaking, include: formulation of the product; acquiring, coarsely breaking, crushing, filtering and mixing ingredients; testing of the formulation as mixed; conversion of the mixed formulation to pill form; polishing; drying and sterilizing at different points in the process; and multiple stages of packaging and printing. A key feature of YSTP’s production process, we believe, is that we inspect and test the product at multiple stages of the production process, beginning with YSTP’s acquisition of unprocessed raw ingredients, to ensure quality control. We test ingredients and pills for a variety of attributes, such as ingredient purity, pill weight, pill moisture content, dissolving time, uniformity and manufacturing defects, and sterilization. We also track the quality of ingredients as received from multiple sources, so as to be able to maximize YSTP’s ability to source ingredients from reliable suppliers. YSTP developed this production process internally over the course of its history, and it works to continue to improve it.

YSTP’s production process features a variety of modern manufacturing and testing equipment, and YSTP has made significant investments in the acquisition of modern pharmaceutical production equipment. Illustrations of the types of equipment YSTP employs are as follows: a boiler; a de-ionized water system, dust collecting fine crushing sets; a dryer and sterilizer; an automated pill making machine; a two-state reverse osmosis water treatment device; a blister packaging machine as well as an automatic packaging machine; several different types of grinders as well as cutting and slicing equipment; air blast ovens; ozone sterilization equipment; compressors; YSTP’s annual manufacturing capacity is 360 million pills. YSTP has the capacity to increase production with its existing facilities and equipments, we believe that our continuing growth may soon necessitate additional equipment purchases and upgrades to plant facilities. We anticipate using portions of the proceeds to upgrade YSTP’s production capacity, so it can reach full production limit as we grow our business. Our goal is to eventually increase the annual manufacturing capacity to 500 million pills, or 38% increase over existing manufacturing capacity. This utilization rate is calculated on the basis of one shift per day. YSTP’s facilities can be operated using two shifts per day.

Quality Control

We believe that our close attention to quality control, in all aspects of our operations, is an important contributor to our success and potential for growth. While many producers of traditional Tibetan medicines are small and may have fewer resources to devote to quality control and modern production techniques, ensuring quality is a major focus of our business.

We implement quality control procedures in compliance with the GMP standards and other SFDA regulations to ensure consistent quality in YSTP’s products. The ingredients used in YSTP’s products have passed the drug standard issued by the PRC Ministry of Health, and are included in the “Chinese Pharmacopoeia”. We trace the source of raw

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materials and employ implement quality control procedures that include the inspection of all incoming raw materials. We inspect and test incoming ingredients, products in the course of production, and after production. All of YSTP’s products meet or exceed GMP and relevant national drug quality standards. YSTP’s production equipment and facilities also are GMP-certified.

YSTP has set up a dedicated quality control department, which is responsible for product quality and raw materials management, internal quality control standards and the development of operating procedures and modifications, improving the quality standards of the test methods, and implementing tests of raw materials and finished products. It has implemented a series of corresponding quality control responsibilities among its personnel governing purchasing, production process control, product sales and after-sales service. In addition, YSTP has have set up a drug safety warning rapid response team that is directed by our CEO.

Distributors and Customers

YSTP sells its products to independent distributors who resell these products to hospitals, clinics, retail pharmacies and other healthcare institutions throughout China. These distributors also handle distribution logistics, warehousing and transportation. We do not sell YSTP’s products directly to hospitals or retail pharmacies.

We have appointed nineteen regional distributors across China, most of which are large pharmaceutical distribution companies affiliated with provincial or municipal governments in the provinces or cities in which they operate. We select our distributors based on their reputation, market coverage and sales experience, as well as financial and economic capabilities. We typically enter into annual supply contracts with YSTP’s regional distributors, renewable for one year or more upon their expiration. These supply contracts set forth the target sales revenues and product prices and contain guidelines for the sale, order, delivery and payment arrangement of YSTP’s products, including restrictions on the territories in which the products may be sold.

In 2009 and 2008, the following two distributors each accounted for more than 10% of our revenues: (from

Purchaser Name	Percentage of Revenues in Year ended December 31, 2009			Percentage of Revenues in Year ended December 31, 2008
Kunming Shangri-La Medicine Co., Ltd.		23.0	%		27.7	%
Hangzhou Hesheng Medicine Co., Ltd.		12.6	%		10.2	%

In 2008 and 2009, sales to our top five distributors collectively accounted for 69% and 62% of our net revenues, respectively.

Our agreements with our distributors at present operate on annual terms but generally have been renewed. Distributors have been granted exclusive sales territories, but are not required to sell YSTP’s products exclusively. Distributors are not subject to minimum or annual sales requirements, but we believe our ability to monitory distributor performance closely and terminate or not renew agreements provides us with the ability to incentivize and control distributors. Our terms of sale with distributors call for payment within 60 days.

In the future, we plan to expand significantly the number of distributors with which we work, both to lessen our dependence on existing distributors and to increase our market penetration. We presently plan to expend approximately $5.8 million over a two-year period to recruit additional distributors, achieve broader geographic coverage throughout China, and generally to strengthen our distribution network.

The ultimate customers of YSTP’s prescription products are principally hospitals and hospital pharmacies. The ultimate customers of YSTP’s OTC products are primarily retail pharmacies

Suppliers

Our operational entity YSTP purchases raw materials from local farmers who either locally grow the plants or harvest them. It also purchases raw materials from local open markets where there exist many pharmaceutical stores who are specialized in supplying raw materials for production of Tibetan medicine.

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YSTP’s supplies consist primarily of raw materials for drug production. We believe the materials provided by YSTP’s suppliers are widely available and do not anticipate that we will be unable to obtain these materials from other suppliers in the event our principal suppliers are unable or unwilling to supply us. One supplier, Chun Sheng, accounted for 18.7 percent of our purchases of ingredients in 2009 and 15.9 percent of our purchases of ingredients in 2009. Kunming Morningstar Pringing Company accounted for 18.3 percent of our purchases of packaging material in 2009 and 17.6% of such purchases in 2008.

Marketing and Sales

YSTP markets and sells YSTP’s products principally through YSTP’s distribution network. YSTP does not finance distributor advertising and promotion directly, but it does provide information and support to its distributors. We do expect distributor promotion of YSTP’s products, and look for evidence of this as we monitor YSTP’s distributor network. In addition to promoting YSTP’s products to distributors and others, as we work to expand our distribution network, YSTP also directly promotes its products to end users through advertising on radio and a variety of print media. YSTP’s efforts to strengthen our distribution network and to market directly to end users are both parts of our general effort to build brand awareness and name recognition.

Intellectual Property

We rely primarily on a combination of trademark and trade secret protections, as well as employee and third-party confidentiality agreements to safeguard YSTP’s intellectual property.

Trademarks

The Chinese have domestic laws for the protection of rights in copyrights, patents, trademarks and trade secrets. The Chinese are also a signatory to all of the world’s major intellectual property conventions, including:

• Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);

• Paris Convention for the Protection of Industrial Property (March 19, 1985);

• Patent Cooperation Treaty (January 1, 1994); and

• The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).

The Chinese Trademark Law, adopted in 1982 and revised in 2001, with its implementation rules adopted in 2002, protects registered trademarks. The Trademark Office of the State Administration of Industry and

Commerce (“SAIC”), handles trademark registrations and grants trademark registrations for a term of ten years.

YSTP markets Xiangbala Jidan under a trademark that combines graphic designs and Tibetan characters of “Shangri-La.” YSTP owns and maintains eight registrations of our trademarks in the PRC, including registrations of combinations of the Chinese characters and graphic designs for “Zangyu”, “Shengke” and “Xiangbala Jidan”, and “Baofuwan.” A listing of YSTP’s trademarks registered in China follows:

No	Trademark Name	Registration Number	Valid Through	Category
1	Zangyu	3273849	5/20/2014	Approved Use, Product Category 5
2	Shengke	3273850	1/6/2014	Approved Use, Product Category 5
3	(Design)	1573695	5/20/2011	Approved Use, Product Category 5
4	Xiangbala Jidan	1785280	6/13/2012	Approved Use, Product Category 5
5	(Design)	1974689	12/6/2012	Approved Use, Product Category 5
6	(Design)	2013260	1/20/2013	Approved Use, Product Category 30
7	Baofuwan	3545820	9/13/2015	Approved Use, Product Category 5
8	(Design)	3545841	4/13/2015	Approved Use, Product Category 5

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We believe that YSTP’s trademarks Xiangbala Jidan and Zangyu in particular are well recognized in China among physicians and hospital administrators, pharmacists and osteoporosis patients. We are working to strengthen, expand, and enforce our rights associated with these trademarks and brand names, the protection of which is important to our reputation and branding.

Trade Secrets

Many elements of YSTP’ pharmaceutical formulation, manufacturing and delivery methods and processes involve proprietary technologies, processes, know-how or data that are non-patentable. Other methods and formulations may be patentable, but we have determined that our business interests are better served by trying to protect them as trade secrets or confidential information. We rely heavily on trade secret protection and confidentiality agreements rather than patent laws to protect our rights in these proprietary technologies, processes, know-how and data. YSTP has taken security measures to protect its trade secret rights in this regard. For example, all research and development personnel have entered into confidentiality, non-competition and proprietary information agreements. In addition, YSTP maintains a segregation of duties among personnel involved in different stages of its production process. This segregation reduces the risk that a breach of these protections by any single staff member would result in a leakage of the entire production process of YSTP’s products. It also implements other precautions, such as internal document controls and network assurance procedures and the use of a separate dedicated computer server, for its proprietary information and technical data.

Competition

The traditional Chinese medicine and Tibetan medicine sector in China is highly fragmented and intensely competitive. According to the 2006 China Pharmaceutical Market Research Report prepared by Compass International, a Beijing-based research company, in 2005 there were over 1,200 traditional Chinese medicine manufacturers in China (not including manufacturers of traditional sliced herbs). Of these manufacturers, in 2005, large-sized manufacturers contributed to 27.4% of the total sales of this sector, compared to 30.3% and 42.3% of sales by small- and medium-sized manufacturers, respectively, according to the same research report. According to the company size classification standards used by Compass International in the research report and which are set by the National Bureau of Statistics, a company with a headcount of over 2,000, sales of over RMB300 million and assets of over RMB400 million is classified as a large-sized company. On the other hand, for companies that do not meet all three criteria of a large-sized company, if the company has an employee headcount of at least 300, sales of at least RMB30 million and assets of at least RMB40 million, it is designated as a medium-sized company. Otherwise, it is considered to be a small-sized company. Under these standards, we believe that we would be designated as a medium-sized company within the Chinese pharmaceutical industry as a whole, although we are one of the larger companies among producers of traditional Tibetan medicines.

Different categories of traditional Tibetan medicine companies.

The Tibetan medicine industry is only a segment of the TCM sector. It is now in a transition stage, evolving from a sector dominated by small, backyard enterprises to one increasingly characterized by larger-scale, industrial operations. Our competitors can be divided into two categories:

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

• Private or joint-venture enterprises, such as the Cheezheng Tibetan Medical Group 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 joint-venture enterprises, like us, entered into market later, but, at least in our case, have grown quickly.

Currently the Tibetan drug manufacturers can be divided into two other categories. One category is comprised of many traditional Tibetan medicine companies that produce a variety of different products relies principally on medicinal formulations that have been “inherited” and used for many, many years. The other category, comprised of far fewer companies, employs more modern manufacturing techniques and research and development capabilities to

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formulate new products. Typically companies in this second category, in which we count ourselves as a member, focus on fewer products but higher quality and modern techniques. Other examples include such as Tibet Medicine Industry Company and Cheezheng Tibetan Medicine Company. The former one has developed emergency life saving medicine — rh-BNP for acute heart failure — which has helped to persuade people that Tibetan drug manufacturers do not only rely on the sale of selling biological resources; the latter’s leading product, Cheezheng Pain Relieving Plaster, generated annual sales in 2009 of $59.7 million, demonstrating the commercial potential for Tibetan medicine.

Growth and increasing approval of traditional Tibetan medicine producers

According to China Medicine Source Net (CMSN), there exist more than 100 Tibetan medicine enterprises throughout China, of which about 40 have secured GMP authentication. In 2006, 17 GMP-certified Tibetan medicine manufacturers in Tibet Autonomous Region have total annual industrial output of RMB 623 million. China’s Tibetan medicine industry was about RMB1 billion in size in 2006, about 0.5% of China’s total pharmaceutical industry. The Tibetan medicine industry is believed to be growing rapidly: CMSN projected the Tibetan medicine industry as a whole to be growing at an average annual rate of about 50%.

Principal Bases of Competition

We believe that traditional Chinese medicine manufacturers primarily compete on the basis of:

• brand name and reputation;

• price;

• perceived efficacy;

• side effects;

• marketing ability;

• economies of scale;

• customer service and customer support capabilities; and

• customer base and customer loyalty.

We believe that our experience, relatively large size, attention to R&D and quality control, product quality and modern manufacturing and marketing techniques all position us to compete effectively in the areas listed above.

Principal competitors in the traditional Tibetan medicine sector

We face direct competition from other China-based manufacturers of traditional Tibetan medicines. We believe that the primary traditional Tibetan medicines manufacturers competing with our 25 Ingredients Mandrake Pill are Qinghai Jinke Tibetan Medicine Co., Ltd. and Qinghai Crystal Beads Tibetan Medicine High-tech Industry Co., Ltd. Both companies are PRC domestic pharmaceutical companies.

The following chart sets forth the primary competitors that compete with YSTP’s other principal products:

YSTP’s Product	Primary Competitors
28 Ingredients Pinang Pill	Donggeer Pharmaceuticals Co., Ltd. Xiongbalaqu Shenshui Tibetan Medicine Factory
18 Ingredients Chebulic (Myrobalan) Frusemide Pill	Tibet Shenhou Pharmaceutical Co., Ltd. Qinghai Caidamu High-tech Medicine Co., Ltd.
15 Ingredients Gentiana Pill	Ningxia Duowei Pharmaceutical Co., Ltd. Qinghai Dimaer Tibetan Pharmaceutical Co., Ltd.
Pomegranate Nichirin Pill	Linzhiyutuo Tibetan Pharmaceutical Co., Ltd., Qinghai Tongtianhe Tibetan Medicine Co., Ltd.

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Environmental Matters

Medicine manufacturers in China must comply with environmental laws and regulations stipulated by the state, provincial and local environment protection authorities. Relevant laws and regulations include provisions relating to the treatment of sewage and exhaust fumes and the limitation of industrial pollution. Pharmaceutical companies are required to carry out an environmental impact assessment before commencing construction of their main production facilities as well as to construct accompanying pollution treatment facilities.

The major waste products of YSTP’s manufacturing processes include:

• organic waste from the extraction process – we have set aside a specific area within YSTP’s facility to gather this organic waste for local farmers to remove and use as fertilizer;

• waste water – YSTP has its own waste water treatment facilities to treat the waste water from its production processes; and

• alcohol – YSTP has its own facilities for recycling alcohol.

We believe YSTP complies with the Environmental Protection Law of China as well as the applicable local regulations. In addition to statutory and regulatory compliance, YSTP works to actively ensure the environmental sustainability of its operations. Penalties would be levied upon YSTP if it fails to adhere to and maintain certain standards. Such failure has not occurred in the past, and we generally do not anticipate that it will occur in the future, but no assurance can be given in this regard.

Employees

As of September 15, 2010, YSTP had 173 full-time employees, and no part-time employees. We anticipate that the number of YSTP’s employees will remain about the same in the near future.

Insurance

YSTP does not carry any building, commercial, liability, product liability or key man insurance. This is not unusual in China, where the business insurance market is relatively undeveloped.

Facilities

YSTP’s manufacturing and office facilities are located in Shangri-La County of Yunnan Province, China. The office facility is located in a single building having 17,014 square feet; the manufacturing facility is in a single building of 52,374 square feet. We recently established a small new headquarters office in Hong Kong.

Assuming that we generate positive cash flow from operations and continued growth in demand, we may expand YSTP’s production facility and purchase additional machines to expand its production capacity. We tentatively plan to expend approximately $2.2 million to upgrade production capabilities.

Legal and Administrative Proceedings

Neither we nor YSTP is currently a party to any material legal or administrative proceedings, and we are not aware of any threatened material legal or administrative proceedings against us. We and YSTP may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

Recent Developments

On October 12, 2010, we entered into a Letter of Engagement and associated Stock Issuance Agreement with Trilogy Capital Partners, Inc. (“Trilogy”) by which we engaged Trilogy to provide investor relations and public relations services. Under these agreements, as amended, in exchange for Trilogy’s commitment to provide these services, we agreed to pay it a monthly fee of $7,500. As additional consideration for its services, we agreed to issue to Trilogy 33,334 shares of our common stock, with one-half (or 16,667 shares) to be issued two business days after this offering, and the remaining one-half (another 16,667 shares) to be issued 90 days thereafter.

Regulations

Restriction on Foreign Ownership

The principal regulation in China governing foreign investors’ entry possibility and mode of investment vehicle in the industries in which they intend to invest is the Catalogue of Industrial Guidance for Foreign Investment, effective as of December 11, 2007 (the “Catalogue”). The Catalogue classifies the various industries into four categories: encouraged, permitted, restricted and prohibited. Pursuant to the Catalogue, YSTP is engaged in a “permitted” industry. Such a designation offers businesses distinct advantages. For example, businesses engaged in encouraged industries:

• are not subject to restrictions on foreign investment, and, as such, foreigners can own a majority in Sino-foreign joint ventures or establish wholly-owned foreign enterprises in China; and

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• if a company has total investment of less than $100 million, the company is subject to regional (not central) government examination and approval which are generally more efficient and less time-consuming.

The National Development and Reform Commission and the Ministry of Commerce periodically jointly revise the Catalogue of Industrial Guidance for Foreign Investment. As such, there is a possibility that our company’s business in the future may fall into the scope of the definition of a restricted or prohibited industry. Should this occur, we would no longer benefit from the above designation.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended, and the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996). Under these regulations, Renminbi are freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loan, repatriation of investment and investment in securities outside China, unless the prior approval of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective. Any increase in the amount of the total investment and registered capital must be approved by the Chinese Ministry of Commerce or its local counterpart. We may not be able to obtain these government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans.

The dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant Chinese governmental authorities.

Dividend Distribution. The principal regulations governing the distribution of dividends by foreign holding companies include the Foreign Investment Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, foreign investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends.

Notice 75. On October 21, 2005, SAFE issued Notice 75, which became effective as of November 1, 2005. According to Notice 75, prior registration with the local SAFE branch is required for Chinese residents to establish or to control an offshore company for the purposes of financing that offshore company with assets or equity interests in an onshore enterprise located in China. An amendment to registration or filing with the local SAFE branch by such Chinese resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore company.

Moreover, Notice 75 applies retroactively. As a result, Chinese residents who have established or acquired control of offshore companies that have made onshore investments in China in the past are required to complete the relevant registration procedures with the local SAFE branch. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange

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activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity, and may also subject relevant Chinese residents to penalties under Chinese foreign exchange administration regulations.

Chinese residents who control our company are required to register with SAFE in connection with their investments in us. Such individuals began this registration process on July 19, 2010. If we use our equity interest to purchase the assets or equity interest of a Chinese company owned by Chinese residents in the future, such Chinese residents will be subject to the registration procedures described in Notice 75.

New M&A Regulations and Overseas Listings

On August 8, 2006, six Chinese regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in Chinese companies and controlled directly or indirectly by Chinese companies or individuals obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.

On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process. The application of this new Chinese regulation remains unclear with no consensus currently existing among leading Chinese law firms regarding the scope of the applicability of the CSRC approval requirement.

Our Chinese counsel, DeHeng Law Offices, has advised us that, based on their understanding of the current Chinese laws and regulations:

• We currently control our Chinese affiliate, YSTP, by virtue of WFOE’s Control Agreements with YSTP but not through equity interest acquisition nor asset acquisition which are stipulated in the New M&A Rule; and

• In spite of the above, CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this new procedure.

Registration and Approval of Medicine

The pharmaceutical industry in China, including the traditional Chinese medicine sector, is highly regulated. The primary regulatory authority is the SFDA, including its provincial and local branches. As a developer, producer and distributor of medicinal products, YSTP is subject to regulation and oversight by the SFDA and its provincial and local branches. The Law of China on the Administration of Pharmaceuticals provides the basic legal framework for the administration of the production and sale of pharmaceuticals in China and covers the manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products. Its implementing regulations set forth detailed rules with respect to the administration of pharmaceuticals in China. YSTP is also subject to other Chinese laws and regulations that are applicable to business operators, manufacturers and distributors in general.

A medicine must be registered and approved by the SFDA before it can be manufactured. The registration and approval process requires the manufacturer to submit to the SFDA a registration application containing detailed information concerning the efficacy and quality of the medicine and the manufacturing process and the production facilities the manufacturer expects to use. This process generally takes at least a few months and sometimes longer, depending on the nature of the medicine under review, the quality of the data provided and the workload of the SFDA. To obtain the SFDA registration and approval necessary for commencing production, the manufacturer is also required to conduct pre-clinical trials, apply to the SFDA for permission to conduct clinical trials, and, after clinical trials are completed, file clinical data with the SFDA for approval.

New Medicine. If a medicine is approved by the SFDA as a new medicine, the SFDA will issue a new medicine certificate to the manufacturer and impose a monitoring period of as long as five years. The length of the monitoring period is specified in the new medicine certificate. During the monitoring period, the SFDA will monitor

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the safety of the new medicine, and will neither accept new medicine certificate applications for an identical medicine by another pharmaceutical company, nor approve the production or import of an identical medicine by other pharmaceutical companies. For new medicines approved prior to 2002, the monitoring period could be longer than five years. As a result of these regulations, the holder of a new medicine certificate effectively has the exclusive right to manufacture the new medicine during the monitoring period.

Provisional National Production Standard. In connection with the SFDA’s approval of a new medicine, the SFDA will normally direct the manufacturer to produce the medicine according to a provisional national production standard, or a provisional standard. A provisional standard is valid for two years, during which the SFDA closely monitors the production process and quality consistency of the medicine to develop a national final production standard for the medicine, or a final standard. Three months before the expiration of the two-year period, the manufacturer is required to apply to the SFDA to convert the provisional standard to a final standard. Upon approval, the SFDA will publish the final standard for the production of this medicine. There is no statutory timeline for the SFDA to complete its review and grant approval for the conversion. In practice, the approval for conversion to a final standard is time-consuming and could take a few years. However, during the SFDA’s review period, the manufacturer may continue to produce the medicine according to the provisional standard.

Transitional Period. Prior to the latter of (1) the expiration of a new medicine’s monitoring period or (2) the date when the SFDA grants a final standard for a new medicine after the expiration of the provisional standard, the SFDA will not accept applications for an identical medicine nor will it approve the production of an identical medicine by other pharmaceutical companies. Accordingly, the manufacturer will continue to have an exclusive production right for the new medicine during this transitional period.

Continuing SFDA Regulation

Pharmaceutical manufacturers in China are subject to continuing regulation by the SFDA. If an approved medicine, its labeling or its manufacturing process is significantly modified, a new pre-market approval or pre-market approval supplement will be required by the SFDA. A pharmaceutical manufacturer is subject to periodic inspection and safety monitoring by the SFDA to determine compliance with regulatory requirements. The SFDA has a variety of enforcement actions available to enforce its regulations and rules, including fines and injunctions, recall or seizure of products, the imposition of operating restrictions, partial suspension or complete shutdown of production and criminal prosecution.

Pharmaceutical Product Manufacturing

Permits and Licenses for Pharmaceutical Manufacturers. A pharmaceutical manufacturer must obtain a pharmaceutical manufacturing permit from the SFDA’s relevant provincial branch. This permit is valid for five years and is renewable upon its expiration.

Good Manufacturing Practice. A pharmaceutical manufacturer must meet the Good Manufacturing Practice standards, or GMP standards, for each of its production facilities in China in respect of each form of pharmaceutical products it produces. GMP standards include staff qualifications, production premises and facilities, equipment, raw materials, environmental hygiene, production management, quality control and customer complaint administration. If a manufacturer meets the GMP standards, the SFDA will issue to the manufacturer a Good Manufacturing Practice certificate, or a GMP certificate, with a five-year validity period. However, for a newly established pharmaceutical manufacturer that meets the GMP standards, the SFDA will issue a GMP certificate with only a one-year validity period.

Pharmaceutical Distribution

A distributor of pharmaceutical products in China must obtain a pharmaceutical distribution permit from the relevant provincial or local SFDA branches. The distribution permit is granted if the relevant SFDA provincial branch receives satisfactory inspection results of the distributor’s facilities, warehouse, hygiene environment, quality control systems, personnel and equipment. A pharmaceutical distribution permit is valid for five years.

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Restrictions on Foreign Ownership of Pharmaceutical Wholesale and Retail Businesses in China. Chinese regulations on foreign investment currently permit foreign companies to establish or invest in wholly foreign-owned companies or joint ventures that engage in wholesale or retail sales of pharmaceuticals in China. For retail sales, these regulations restrict the number and size of retail pharmacy outlets that a foreign investor may establish. Retail pharmacy chains with more than 30 outlets that sell a variety of branded pharmaceutical products sourced from different suppliers are limited to 49.0% foreign ownership unless the outlets are owned by a third party and operated under a foreign franchise.

Good Supply Practice Standards. The SFDA applies Good Supply Practice standards, (“GSP “ standards, to all pharmaceutical wholesale and retail distributors to ensure the quality of distribution in China. The currently applicable GSP standards require pharmaceutical distributors to implement controls on the distribution of medicine, including standards regarding staff qualifications, distribution premises, warehouses, inspection equipment and facilities, management and quality control. A certificate for GSP standards, or GSP certificate, is valid for five years, except for a newly established pharmaceutical distribution company, for which the GSP certificate is valid for only one year.

Price Controls

The retail prices of prescription and OTC medicines that are included in the national medicine catalog are subject to price controls administered by the Price Control Office under the National Development and Reform Commission, or the NDRC, and provincial price control authorities, either in the form of fixed prices or price ceilings. The controls over the retail price of a medicine effectively set the limits for the wholesale price of that medicine. From time to time, the NDRC publishes and updates a national list of medicines that are subject to price control. Fixed prices and price ceilings on medicines are determined based on profit margins that the NDRC deems reasonable, the type and quality of the medicine, its production costs, the prices of substitute medicines and the extent of the manufacturer’s compliance with the applicable GMP standards. The NDRC directly regulates the price of some of the medicines on the list, and delegates the power to provincial price control authorities to regulate the remainder on the list. For those medicines under the authority of provincial price control authorities, each provincial price control authority regulates medicines manufactured by manufacturers registered in that province. Provincial price control authorities have the discretion to authorize price adjustments based on the local conditions and the level of local economic development.

Only the manufacturer of a medicine may apply for an increase in the retail price of the medicine and it must apply either to the NDRC, if the price of the medicine is nationally regulated, or to the provincial price control authorities in the province where it is registered, if the price of the medicine is provincially regulated. For a provincially regulated medicine, when provincial price control authorities approve an application, they will file the new approved price with the NDRC for confirmation and thereafter the newly approved price will become binding and enforceable across China.

At present, none of YSTP’s products are subject to price controls.

Tendering Requirement for Hospital Purchases of Medicines

Provincial and municipal government agencies such as provincial or municipal health departments also operate a mandatory tendering process for purchases by state-owned hospitals of a medicine included in provincial medicine catalogs. These government agencies organize a tendering process once every year in their province or city and typically invite manufacturers of provincial catalog medicines that are on the hospitals’ formularies and are in demand by these hospitals to participate in the tendering process. A government-approved committee consisting of physicians, experts and officials is delegated by these government agencies the power to review bids and select one or more medicines for the treatment of a particular medical condition. The selection is based on a number of factors, including bid price, quality and manufacturer’s reputation and service. The bidding price of a wining medicine will become the price required for purchases of that medicine by all state-owned hospitals in that province or city. This price, however, is effective for only one year before the following year’s tendering process, where the manufacturer of the winning medicine must submit a new bid.

The tendering requirement was first introduced in 2004 and has since been implemented across China. We understand that the level of present implementation of the tendering requirement varies among different provinces in China.

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Management

Directors and Executive Officers

The following table sets forth our executive officers and directors, their ages and the positions held by them:

Name	Age	Position	Appointed
Mr. Hong Yu(1)	50	Chairman of the Board and Director	2010
Mr. Taylor Z. Guo(1)	38	Chief Executive Officer, Director	2010
Ms. Sabrina Y. Ren(1)	38	Chief Financial Officer	2010
Dr. Wenbo Chen(1)	74	Independent Director	2010
Mr. Youhang Peng(1)	48	Independent Director	2010
Mr. Solomon Chen(1)	33	Independent Director	2010

⁽¹⁾ The business address for each of Mr. Yu, Mr. Guo, Ms. Ren, Dr. Chen, Mr. Peng and Mr. Chen is: 53 Niwang Road, Shangri-La County, Yunnan Province, China

Mr. Hong Yu. Mr. Yu has served as the chair of our board of directors since April 2010. Mr. Yu is the founder of YSTP, and has also serves as the chairman of its board of directors and previously serves as its General Manager (roughly equivalent to Chief Executive Officer) from 2000 until mid-2009. Mr. Yu holds a MBA from Yunnan Finance and Trade Institute. Mr. Yu was nominated as a director for his knowledge with Tibetan culture and medicine and his leadership of our company.

Mr. Taylor Z. Guo. Mr. Guo has served as a director and our CEO since 2010; he also has served as the General Manager (or CEO) of YSTP since mid-2009. From 2004 to 2009, Mr. Guo was director of Bao-Wei Electronics Limited. Mr. Guo holds a bachelor degree from Dalian University of Technology and a MBA from University of Minnesota. Mr. Guo was nominated as a director because of his operating and management experience.

Ms. Sabrina Y. Ren has served as our Chief Financial Officer since 2010; she serves in the same position for YSTP. From 2000 through 2009, she worked for Yunnan Kangle Pharmaceuticals Co., Ltd. Ms. Ren holds a bachelor degree of Accounting from Henan Financial Institute. Ms. Ren has been retained because of her significant finance and accounting experience, especially in pharmaceutical companies.

Dr. Wenbo Chen. Dr. Chen has served as an independent Director since April 2010. Dr. Chen has been chairman and chief physician of Beijing Medical Center of Famous Physicians since 1993, professor of Beijing University of Chinese Medicine since 1990. Dr. Chen also serves as director of China Geriatric Association and director of Beijing Association of Chinese Medicine. From 1981 through 1998, Dr. Chen was dean and president of Beijing Gulou (Drum Tower) Hospital of Chinese Medicine. Dr. Chen is recognized as a national level expert in traditional Chinese medicine. He was awarded “China’s 100 Top Doctors in Traditional Chinese Medicine”, and enjoys government special allowance issued to him by China Department of State. Dr. Chen has published many books, research papers, and articles. He was the editor for the Journal of Traditional Chinese Medicine. Dr. Chen was nominated as a director because of his outstanding industry knowledge and reputation.

Mr. Youhang Peng. Mr. Peng has served as an independent Director since April 2010. Since 2004, Mr. Peng has been the Senior Managing Director of Caybridge International, Inc., an investment advisory firm based in Dallas, Texas. Mr. Peng has more than 18 years of experience in and extensive knowledge of financial markets, having worked as a Quantitative Analyst and Derivatives Trader with Bankers Trust New York, Sakura Global Capital and HypoVereinsbank in the 1990s. Mr. Peng also worked as a treasury manager with Nokia. Mr. Peng holds a bachelor degree in electronics from Tsinghua University and a master degree in electrical engineering from University of California at Davis. Mr. Peng was nominated as an independent director because of his experience in capital markets.

Mr. Solomon Chen. Mr. Chen has served as an independent Director since April 2010. Since 2004, Mr. Chen has been audit manager of Deloitte Touche Tohmatsu CPA (Shenzhen). Mr. Chen holds a bachelor degree from Xiamen University. Mr. Chen is a Certified Public Accountant (China) and a Certified Tax Accountant (China). Mr. Chen serves as our Audit Committee financial expert. Mr. Chen was nominated as an independent director because of his experience in audit, accounting, internal control review, and transactional advisory experience in merger and acquisitions.

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Summary Compensation Table

The following table shows the annual compensation paid by us for the years ended December 31, 2008 and 2009 to our principal executive officers.

Name and principal position	Year		Salary		Bonus		Stock Awards		All Other Compensation		Total Paid(3)
Mr. Taylor Z. Guo, General Manager(1)		2009	$	30,749	$	0	$	157,500		0	$	188,249
Mr. Hong Yu, General Manager(2)		2009	$	96,638		0		0		0	$	96,638
Mr. Hong Yu, General Manager(2)		2008	$	93,372		0		0		0	$	96,372

⁽¹⁾ Mr. Guo did not become CEO of TBET until 2010. In July 2009, he became General Manager (the equivalent of CEO) of YSTP, and he continues to hold that position. Under his employment agreement with TBET effective April 30, 2010, going forward he will receive annual compensation of $61,500. His employment does not provide for bonuses, options or other compensation. For his services as General Manager of YSTP for one-half of 2009, and for those services he was paid a salary of $30,749.00. In addition, Mr. Guo received non-cash compensation for services rendered in 2009 in the form of a non-plan stock award of 150,000 shares of TBET, the compensation value of which has been valued by the company at $157,500. This valuation was based on the total shareholders’ equity as of December 31, 2009 divided by the number of shares outstanding immediately before the issuance of shares to Mr. Guo, yielding a per share price of $1.05. As a result, Mr. Guo’s total compensation for 2009 was $188,249.

⁽²⁾ Mr. Yu served as General Manager of YSTP prior to Mr. Guo’s arrival in 2009. The salary number reported reflects his total compensation by YSTP, including compensation for his services as General Manager.

⁽³⁾ No other executive officer of either YSTP or TBET received compensation in excess of $100,000 in either 2009 or 2008.

Employment Agreements

Generally

Under Chinese law, we may only terminate employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the employee. We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us.

Our employment agreements with our executive officers generally provide for a term of three years, extendable for an additional two years, and a salary to be paid monthly. The agreements also provide that executive officers are to work an average of forty hours per week and are entitled to all legal holidays as well as other paid leave in accordance with Chinese laws and regulations and our internal work policies. Under such agreements, our executive officers can be terminated for cause without further compensation. The employment agreements also provide that we will pay for all mandatory social security programs for our executive officers in accordance with Chinese regulations. During the agreement and for three (3) years afterward, our executive officers are subject to keep trade secrets confidential. In addition, our employment agreements with our executive officers prevent them from rendering services for our competitors for a period of two (2) years after termination of employment.

To date, YSTP has entered into “retainer agreements” with our officers and the chairman of our board of directors. These agreements went into effect on April 30, 2010; prior to April 30, 2010, YSTP’s officers served without formal, written agreements. The written agreements presently in place require full-time service for us, and provide for the payment of annual salaries plus the reimbursement of reasonably-incurred expenses. They do not

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provide for bonuses or other forms of compensation. Generally, our written retainer agreements have terms of three years, and automatic renewal terms of two years. They require that the individuals work exclusively for the company, and further provide that during the terms of the agreements and for twenty-four months thereafter the individuals may not render services for our direct or indirect competitors. The agreements further bind the individuals to confidentiality obligations throughout the terms of the agreements and for thirty-six months thereafter.

Hong Yu

Mr. Yu entered into a retainer agreement with YSTP, effective April 30, 2010, providing for Mr. Yu to serve as our chairman of the board of directors. The agreement operates, unless sooner terminated as provided for in the agreement, for a term of the agreement is three years, and it is renewable for an additional two-year term. The agreement provides for payment to Mr. Yu of an annual salary of $96,650, payable in equal monthly installments, as well as reimbursement of expenses she reasonably incurs.

Taylor Z. Guo

Mr. Guo entered into a retainer agreement with YSTP effective April 30, 2010. It provides for Mr. Guo to serve as our CEO. The agreement operates for a term of three years, which term is renewable for a subsequent term of two years. The retainer agreements provides for an annual salary payable to Mr. Guo of $61,500, payable in equal monthly installments, as well as for the reimbursement of reasonable expenses incurred by Mr. Guo. The retainer agreement is terminable by either party upon sixty days prior written notice.

Sabrina Y. Ren

Ms. Ren entered into a retainer agreement with YSTP, effective April 30, 2010, providing for Ms Ren to serve as our CFO. The agreement operates, unless sooner terminated as provided for in the agreement, for a term of the agreement is three years, and it is renewable for an additional two-year term. The agreement provides for payment to Ms. Ren of an annual salary of $44,000, payable in equal monthly installments, as well as reimbursement of expenses she reasonably incurs.

Outstanding Equity Awards

As of the end of fiscal year 2009, we had no outstanding equity awards to our executive officers of unvested common stock, unexercised options, or equity incentive plan awards.

Duties of Directors

Under British Virgin Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. See “Description of Share Capital—Differences in Corporate Law” for additional information on our directors’ fiduciary duties under British Virgin Islands law. In fulfilling their duty of care to us, our directors must ensure compliance with our fourth amended and restated memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

• appointing officers and determining the term of office of the officers;

• authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable;

• exercising the borrowing powers of the company and mortgaging the property of the company;

• executing checks, promissory notes and other negotiable instruments on behalf of the company; and

• maintaining or registering a register of mortgages, charges or other encumbrances of the company.

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Board of Directors

Our board of directors currently consists of five (5) directors, including the chairman of the board. We expect that all current directors will continue to serve after this offering. There are no family relationships between any of our executive officers and directors.

The directors will be divided into three classes, as nearly equal in number as the then total number of directors permits. Class I directors shall face re-election at our annual general meeting of shareholders in 2010 and every three years thereafter. Class II directors shall face re-election at our annual general meeting of shareholders in 2011 and every three years thereafter. Class III directors shall face re-election at our annual general meeting of shareholders in 2012 and every three years thereafter.

Mr. Hong Yu, the founder of YSTP and its former General Manager, serves as the chairman of TBET’s board of directors. Mr. Taylor Guo serves as the Chief Executive Officer of TBET and also as the current General Manager of YSTP. The remaining three directors are independent. We have appointed different individuals in the positions of CEO and Chairman because we believe this arrangement is in the best interests of our company. Mr. Hong Yu, as the founder of the company, possesses the vision of the overall development of the industry within China and is therefore, we believe, the right person to serve as the Chairman of the board of directors, which exercises oversight over our company’s general direction and purpose. On the other hand, Mr. Taylor Z. Guo, having been trained in an MBA program in the U.S., is well equipped to execute and implement company decisions on a daily basis, particularly after the offering when our company will be expected to operate, from an investor perspective, in a far more international business context.

Our Board of Directors plays a key role in our risk oversight. The Board of Directors makes all relevant TBET decisions. As such, it is important for us to have both our Chief Executive Officer serve on the Board as he plays a key roles (please change “roles” to “role”) in the risk oversight or the Company. As a smaller reporting company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.

If the number of directors changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly as possible. Any additional directors of a class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class. Decreases in the number of directors will not shorten the term of any incumbent director. These board provisions could make it more difficult for third parties to gain control of our company by making it difficult to replace members of the Board of Directors.

A director may vote in respect of any contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion in respect of any contract or arrangement which he shall make with our company, or in which he is so interested and may vote on such motion.

There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting.

The Board of Directors maintains a majority of independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Listing Rule 5605(a)(15). Solomon Chen, Dr. Wenbo Chen and Youhang Peng are our independent directors.

Mr. Hong Yu serves as the chairman of the board of directors. He has entered into a retainer agreement for his services as chairman of the board of directors, which agreement carries an initial term of 36 months and a renewal term of 24 months. The agreement provides for an annual salary of $96,650, payable in monthly installments, as well as reimbursement of his reasonably-incurred expenses, for his services as chairman. Mr. Taylor Guo serves as a director, and is also our CEO. He has a retainer agreement compensating him for his services as CEO, but he receives no additional compensation for serving as a director.

Our Board of Directors plays a key role in our risk oversight. The Board of Directors makes all relevant Company decisions. As such, it is important for us to have both our Chief Executive Officer and Chief Financial Officer serve on the Board as they play key roles in the risk oversight or the Company. As a smaller reporting company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.

There are no other arrangements or understandings pursuant to which our directors are selected or nominated.

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Committees of the Board of Directors

The board of directors may determine by resolution the existence, powers and composition of committees. Board committees that have been established, and their respective compositions, are as follows: an Audit Committee, presently chaired by Solomon Chen and also comprised of Wenbo Chen and Youhang Peng; a Compensation Committee, presently chaired by Youhang Peng and also composed of Solomon Chen and Wenbo Chen; and a Nominating Committee, now chaired by Solomon Chen and with both Wenbo Chen and Youhang Peng serving as members. The Audit Committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also will administer our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The Nominating Committee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.

Director Compensation

All directors hold office until the next annual meeting of shareholders at which their respective class of directors is re-elected and until their successors have been duly elected and qualified. There are no family relationships among our directors or executive officers. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services. Non-employee directors will be entitled to receive $10,000 per year for serving as directors and may receive option grants from our company. In addition, non-employee directors are entitled to receive compensation for their actual travel expenses for each Board of Directors meeting attended.

Summary Compensation Table FY 2009 – Directors

Name	Director Fees earned or paid in cash		Total(1)
Hong Yu (2) (3)	$	0	$	0
Taylor Z. Guo(2)	$	0	$	0
Dr. Wenbo Chen(2)	$	0	$	0
Mr. Youhang Peng(2)	$	0	$	0
Mr. Solomon Chen(2)	$	0	$	0

⁽¹⁾ None of the directors received any common share awards, option awards, nonqualified deferred compensation earnings or non-equity incentive plan compensation in fiscal year 2009.

⁽²⁾ As TBET was not formed until 2010, none of the directors received any compensation in fiscal year 2009.

⁽³⁾ Mr. Yu has entered into a retainer agreement effective April 30, 2010 that contemplates payment to him of an annual salary of $96,650 for his services as chairman of the board, as well as for reimbursement of his reasonably incurred expenses. The agreement does not provide for separate compensation for his service on the board. He also serves as the chairman of YSTP’s board and, until mid-2009, served as its General Manager In 1999, he received total compensation of $96,638 for his services as General Manager.

Contractual Arrangements with Domestic Companies and their Shareholders

We operate our business in China through a series of contractual arrangements with the Domestic Companies and their shareholders. For a description of these contractual arrangements, see “Our Corporate Structure – Contractual Arrangements with Domestic Companies and their Shareholders.”

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Relationship with our Placement Agent

In connection with this offering, we have agreed to allow our Placement Agent to designate two non-voting observers to our Board of Directors until the earlier of the date that:

• the investors that purchase shares in this offering beneficially own less than 5% of our outstanding shares; or

• the trading price per share is at least $24 per share for any consecutive 15 trading day period.

It is anticipated that Mr. Downs, our Placement Agent’s Senior Vice President, and Mr. Hayden Zou will serve as the Placement Agent’s observers to our Board of Directors.

Although our placement agent’s observers will not be able to vote, they may nevertheless influence the outcome of matters submitted to the Board of Directors for approval. We have agreed to reimburse the observers for their expenses for attending our Board meetings, subject to a maximum reimbursement of $6,000 per meeting and $12,000 annually, which amount is not more than the reimbursement payable to our directors. The observer will be required to certify that such travel expenses are not reimbursed by any other party. We will also pay observers the same amount as our independent directors receive.

Future Related Party Transactions

The Corporate Governance Committee of our Board of Directors must approve all related party transactions. All material related party transactions will be made or entered into on terms that are no less favorable to us than can be obtained from unaffiliated third parties. Related party transactions that we have previously entered into were not approved by independent directors, as we had no independent directors at that time.

Interested Transactions

A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.

Remuneration and Borrowing

The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.

Qualification

A director is not required to hold shares as a qualification to office.

Share Incentive Plan

We intend to establish a pool for share options for our employees following the completion of this offering. This pool will contain options to purchase our common shares equal to up to five percent (5%) of the number of common shares outstanding at the conclusion of this offering, not including any shares underlying placement agent’s

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warrants. This pool will contain options to purchase up to 740,625 of our common shares subject to outstanding share options or reserved for issuance under our share incentive plan, assuming a maximum offering. The options will vest at a rate of 20% per year for five years. Options granted to employees will have a per share exercise price equal to the market price of the common shares on the date of the option grant, except that options granted to employees on the date of the offering will have an exercise price equal to the offering price.

Limitation of Director and Officer Liability

Under British Virgin Islands law, each of our directors and officers, in performing his or her functions, is required to act honestly and in good faith with a view to our best interests and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Our memorandum and articles of association provide that, to the fullest extent permitted by British Virgin Islands law or any other applicable laws, our directors will not be personally liable to us or our shareholders for any acts or omissions in the performance of their duties. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. These provisions will not limit the liability of directors under United States federal securities laws.

Our articles of association provide that the Company shall, subject to certain limitations, indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person. among others, is or was, at the request of the Company, serving as a director of, or in any other capacity or is acting for the Company. We may only indemnify a director if he or she acted honestly and in good faith with the view to our best interests and, in the case of criminal proceedings, the director had no reasonable cause to believe that his or her conduct was unlawful. The decision of our board of directors as to whether the director acted honestly and in good faith with a view to our best interests and as to whether the director had no reasonable cause to believe that his or her conduct was unlawful, is in the absence of fraud sufficient for the purposes of indemnification, unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entry of no plea does not, by itself, create a presumption that a director did not act honestly and in good faith and with a view to our best interests or that the director had reasonable cause to believe that his or her conduct was unlawful. If a director to be indemnified has been successful in defense of any proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with the proceedings.

We may purchase and maintain insurance in relation to any of our directors or officers against any liability asserted against the directors or officers and incurred by the directors or officers in that capacity, whether or not we have or would have had the power to indemnify the directors or officers against the liability as provided in our fourth amended and restated memorandum and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers or persons controlling our company under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Code of Ethics

We have put in place a code of ethics, entitled the “Code of Business Conduct and Ethics,” that applies to all of our employees, including but not limited to our chief executive officer and chief financial officer.

Related Party Transactions

Transactions among Subsidiaries

We operate our business in China through a series of contractual arrangements between WFOE and YSTP and its shareholders, who are related parties. For a description of these contractual arrangements, see “Our Corporate Structure – Contractual Arrangements with Domestic Companies and their Shareholders.”

Contractual Arrangements with Domestic Companies and their Shareholders

We operate our business in China through a series of contractual arrangements with YSTP and its shareholders, who are related parties. Summaries of the provisions of the contractual agreements follow:

Entrusted Management Agreement. YSTP, WFOE, and the all of the shareholders of YSTP entered into an Entrusted Management Agreement, dated March 26, 2010. .

Exclusive Option Agreement. YSTP and all of YSTP’s shareholders entered into an Exclusive Option Agreement with WFOE, dated March 26, 2010.

Shareholders’ Voting Proxy Agreement. All of the shareholders of YSTP have executed a Shareholders’ Voting Proxy Agreement with WFOE, effective March 26, 2010.

Pledge of Equity Agreement. effective March 26, 2010, pursuant to which all shareholder pledges all of their shares (100%) of YSTP.

For a more detailed description of these contractual arrangements, see “Our Corporate Structure – Contractual Arrangements with Domestic Companies and their Shareholders.”

WFOE is a wholly-owned subsidiary of TBET, through its subsidiary CTP. The shareholders beneficially owning 100% of the shares of YSTP entering into these agreements are Hong Yu (who beneficially owns 79.5% of the shares); Luo Ga (who owns 20% of the shares); and Xiaobei Yang (who owns 0.5% of the shares). Mr. Yu is the founder and chairman of YSTP and also the chairman of TBET.

None of the agreements involves a specific dollar amount. Yet, since the Entrusted Management Agreement provides for the payment to WFOE of all of the earnings before tax of YSTP, and as such the value of that agreement to the parties at any particular time will vary with the earnings of YSTP, and in the case of the shareholders in proportion to their holdings. If earnings before taxes are substantial, they may involve amounts of over $120,000. If YSTP sustains losses, which WFOE must bear under the agreement, then the effect on the parties will vary in relation to the amount of losses, and in the case of the shareholders in relation to their respective share of ownership. For example, in 2009 YSTP’s net earnings before taxes was $9,244,978. Had these Control Agreements been in place in 2009, WFOE would have received a fee of $9,244,978. The value lost of the agreements to the shareholders, assuming the value of net earning was distributed to shareholders, would be as follows: Mr. Yu, $7,349,757; Mr. Ga, $1,848,995; and Mr. Yang, $462,248. Similarly, the Pledge of Equity Agreement does not entail any payment or any future payment at any fixed price, but in the event the shareholders become obligated to sell shares to WFOE, the value of the shares sold may exceed $120,000 depending on the value of the shares at the time.

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Transactions among Certain Directors, Shareholders and Affiliates

Kunming Shangri-La Medicine Co., Ltd. is a distributor of YSTP. Our chairman, Mr. Yu, owns 31% of it. At December 31, 2009 and 2008, YSTP had account receivables from Kunming Shangri-La Medicine of approximately $342,000 and $1,277,550, respectively. Such amounts were normal business transactions, payable in 60 days.

At December 31, 2009, YSTP had account receivables to related parties of approximately $1,550,085. Such amounts were payable pursuant to a loan to Mr. Hong Yu, our founder and chairman. As of May 1, 2010, Mr. Hong Yu has paid off such loan balance in full.

Neither TBET nor YSTP has any affiliates.

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Description of Share Capital

Our authorized capital stock consists of 50,000,000 common shares, par value $0.001 per share. As of the date of this prospectus, 11,812,500 common shares are issued and outstanding. Up to an additional 740,625 shares of common shares will be reserved for issuance upon exercise of employee options. The following summary description relating to our capital stock does not purport to be complete and is qualified in its entirety by our Memorandum and Articles of Association.

Common Shares

Holders of common shares are entitled to cast one vote for each share on all matters submitted to a vote of shareholders, including the election of directors. The holders of common shares are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor and subject to any preference of any then authorized and issued preferred stock. See “Dividend Policy.” Such holders do not have any preemptive or other rights to subscribe for additional shares. All holders of common shares are entitled to share ratably in any assets for distribution to shareholders upon the liquidation, dissolution or winding up of the Company, subject to any preference of any then authorized and issued preferred stock. The Memorandum of Association authorizes the Board of Directors may by resolution authorize the redemption, purchase or other acquisition of the common shares, and in our Articles of Association the Board did authorize the redemption or purchase, subject to limitations and conditions stated therein. All outstanding common shares are fully paid and nonassessable.

Limitations on the Right to Own Shares

There are no limitations on the right to own our common shares.

Limitations on Transfer of Shares

Our Articles of Association gives our directors, at their discretion, the right to decline to register any transfer of shares.

Disclosure of Shareholder Ownership

There are no provisions in our Memorandum of Association or Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

Changes in Capital

We may from time to time by ordinary resolution increase the share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe. The new shares shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the shares in the original share capital. We may by ordinary resolution:

• consolidate and divide all or any of our share capital into shares of larger amount than our existing shares;

• convert all or any of our paid up shares into stock and reconvert that stock into paid up shares of any denomination;

• in many circumstances, sub-divide our existing shares, or any of them, into shares of smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share form which the reduced share is derived; and

• cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled.

We may by special resolution reduce our share capital and any capital redemption reserve fund in any manner authorized by law.

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Differences in Corporate Law

The BVI Act and the laws of the British Virgin Islands affecting British Virgin Islands companies like us and our shareholders differ from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the laws of the British Virgin Islands applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and similar arrangements

Under the laws of the British Virgin Islands, two or more companies may merge or consolidate in accordance with Section 170 of the BVI Act. A merger means the merging of two or more constituent companies into one of the constituent companies and a consolidation means the uniting of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation, which must be authorized by a resolution of shareholders.

While a director may vote on the plan of merger or consolidation even if he has a financial interest in the plan, the interested director must disclose the interest to all other directors of the company promptly upon becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the company.

A transaction entered into by our company in respect of which a director is interested (including a merger or consolidation) is voidable by us unless the director’s interest was (a) disclosed to the board prior to the transaction or (b) the transaction is (i) between the director and the company and (ii) the transaction is in the ordinary course of the company’s business and on usual terms and conditions.

Notwithstanding the above, a transaction entered into by the company is not voidable if the material facts of the interest are known to the shareholders and they approve or ratify it or the company received fair value for the transaction.

Shareholders not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger or consolidation contains any provision which, if proposed as an amendment to the memorandum or articles of association, would entitle them to vote as a class or series on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting to approve the plan of merger or consolidation.

The shareholders of the constituent companies are not required to receive shares of the surviving or consolidated company but may receive debt obligations or other securities of the surviving or consolidated company, other assets, or a combination thereof. Further, some or all of the shares of a class or series may be converted into a kind of asset while the other shares of the same class or series may receive a different kind of asset. As such, not all the shares of a class or series must receive the same kind of consideration.

After the plan of merger or consolidation has been approved by the directors and authorized by a resolution of the shareholders, articles of merger or consolidation are executed by each company and filed with the Registrar of Corporate Affairs in the British Virgin Islands.

A shareholder may dissent from a mandatory redemption of his shares, an arrangement (if permitted by the court), a merger (unless the shareholder was a shareholder of the surviving company prior to the merger and continues to hold the same or similar shares after the merger) or a consolidation. A shareholder properly exercising his dissent rights is entitled to a cash payment equal to the fair value of his shares.

A shareholder dissenting from a merger or consolidation must object in writing to the merger or consolidation before the vote by the shareholders on the merger or consolidation, unless notice of the meeting was not given to the shareholder. If the merger or consolidation is approved by the shareholders, the company must give notice of this fact to each shareholder within 20 days who gave written objection. These shareholders then have 20 days to give to the company their written election in the form specified by the BVI Act to dissent from the merger or consolidation, provided that in the case of a merger, the 20 days starts when the plan of merger is delivered to the shareholder.

Upon giving notice of his election to dissent, a shareholder ceases to have any shareholder rights except the right to be paid the fair value of his shares. As such, the merger or consolidation may proceed in the ordinary course notwithstanding his dissent.

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Within seven days of the later of the delivery of the notice of election to dissent and the effective date of the merger or consolidation, the company must make a written offer to each dissenting shareholder to purchase his shares at a specified price per share that the company determines to be the fair value of the shares. The company and the shareholder then have 30 days to agree upon the price. If the company and a shareholder fail to agree on the price within the 30 days, then the company and the shareholder shall, within 20 days immediately following the expiration of the 30-day period, each designate an appraiser and these two appraisers shall designate a third appraiser. These three appraisers shall fix the fair value of the shares as of the close of business on the day prior to the shareholders’ approval of the transaction without taking into account any change in value as a result of the transaction.

Shareholders’ suits

There are both statutory and ordinary law remedies available to our shareholders as a matter of British Virgin Islands law. These are summarized below:

Prejudiced members

A shareholder who considers that the affairs of the company have been, are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory or unfairly prejudicial to him in that capacity, can apply to the court under Section 184I of the BVI Act, among other things, for an order that his shares be acquired, that he be provided compensation, that the Court regulate the future conduct of the company, or that any decision of the company which contravenes the BVI Act or our memorandum and articles of association be set aside.

Derivative actions

Section 184C of the BVI Act provides that a shareholder of a company may, with the leave of the Court, bring an action in the name of the company to redress any wrong done to it.

Just and equitable winding up

In addition to the statutory remedies outlined above, shareholders can also petition for the winding up of a company on the grounds that it is just and equitable for the court to so order. Save in exceptional circumstances, this remedy is only available where the company has been operated as a quasi partnership and trust and confidence between the partners has broken down.

Indemnification of directors and executive officers and limitation of liability

British Virgin Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any provision providing indemnification may be held by the British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

Under our memorandum and articles of association, we indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings for any person who:

• is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was our director; or

• is or was, at our request, serving as a director or officer of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise.

These indemnities only apply if the person acted honestly and in good faith with a view to our best interests and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful.

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This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Anti-takeover provisions in our memorandum and articles of association

Some provisions of our memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable. In particular, our memorandum and articles of association, as amended, provide for a staggered board of directors and prevent shareholders from taking an action by written consent in lieu of a meeting. In addition, we have entered into employment agreements with our senior management for fixed terms. As a result of these measures, an acquirer of a controlling interest in TBET would not be able to immediately exercise effective control over the company. Prospective acquirors therefore my view TBET as a less attractive takeover target. Yet, under British Virgin Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of association, as amended and restated from time to time, as they believe in good faith to be in the best interests of our company.

Directors’ fiduciary duties

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction and that the transaction was of fair value to the corporation.

Under British Virgin Islands law, our directors owe the company certain statutory and fiduciary duties including, among others, a duty to act honestly, in good faith, for a proper purpose and with a view to what the directors believe to be in the best interests of the company. Our directors are also required, when exercising powers or performing duties as a director, to exercise the care, diligence and skill that a reasonable director would exercise in comparable circumstances, taking into account without limitation, the nature of the company, the nature of the decision and the position of the director and the nature of the responsibilities undertaken. In the exercise of their powers, our directors must ensure neither they nor the company acts in a manner which contravenes the BVI Act or our memorandum and articles of association, as amended and re-stated from time to time. A shareholder has the right to seek damages for breaches of duties owed to us by our directors.

Shareholder action by written consent

Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. British Virgin Islands law provides that shareholders may approve corporate matters by way of a written resolution without a meeting signed by or on behalf of shareholders sufficient to constitute the requisite majority of shareholders who would have been entitled to vote on such matter at a general meeting; provided that if the consent is less than unanimous, notice must be given to all non-consenting shareholders. However, our memorandum and articles of association do not permit shareholders to act by written consent.

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Shareholder proposals

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. British Virgin Islands law and our memorandum and articles of association allow our shareholders holding not less than 30% of the votes of the outstanding voting shares to requisition a shareholders’ meeting. We are not obliged by law to call shareholders’ annual general meetings, but our memorandum and articles of association do permit the directors to call such a meeting. The location of any shareholders’ meeting can be determined by the board of directors and can be held anywhere in the world.

Cumulative voting

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under British Virgin Islands law, our memorandum and articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Removal of directors

Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our memorandum and articles of association, directors can be removed from office, with cause, by a resolution of shareholders or by a resolution of directors passed at a meeting of directors called for the purpose of removing the director or for purposes including the removal of the director.

Transactions with interested shareholders

The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or group who or which owns or owned 15% or more of the target’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors. British Virgin Islands law has no comparable statute. However, our memorandum and articles of association expressly provide for the same protection afforded by the Delaware business combination statute.

Dissolution; Winding Up

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the BVI Act and our memorandum and articles of association, we may appoint a voluntary liquidator by a resolution of the shareholders or by resolution of directors.

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Variation of rights of shares

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our memorandum and articles of association, if at any time our shares are divided into different classes of shares, the rights attached to any class may only be varied, whether or not our company is in liquidation, by a resolution passed at a meeting by a majority of the votes cast by those entitled to vote at a meeting of the holders of the issued shares in that class.

Amendment of governing documents

Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by British Virgin Islands law, our memorandum and articles of association may be amended by a resolution of shareholders and, subject to certain exceptions, by a resolution of directors. Any amendment is effective from the date it is registered at the Registry of Corporate Affairs in the British Virgin Islands.

Principal Shareholders

The following table sets forth information with respect to beneficial ownership of our common shares as of August 13, 2010 by:

• Each person who is known by us to beneficially own more than 5% of our outstanding common shares;

• Each of our directors and named executive officers; and

• All directors and named executive officers as a group.

The number and percentage of common shares beneficially owned before the offering are based on 11,812,500 common shares outstanding as of August 13, 2010. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of common shares beneficially owned by a person listed below and the percentage ownership of such person, common shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of August 13, 2010 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all common shares shown as beneficially owned by them. Unless otherwise indicated in the footnotes, the address for each principal shareholder is in the care of: Shangri-La Tibetan Pharmaceutical Group, Inc., 53 Niwang Road, Shangri-La County, Yunnan Province, China. As of the date of the Prospectus, we had 27 shareholders of record.

Named Executive Officers and Directors	Amount of Beneficial Ownership(1)		Percentage Ownership(2)
Hong Yu, Chairman of the Board		3,280,000		27.8	%
Taylor Z. Guo, CEO and Director(3)		4,484,500		38.0	%
Sabrina Y. Ren, CFO		0		0	%
Dr. Wenbo Chen, Director		0		0	%
Mr. Youhang Peng, Director		0		0	%
Mr. Solomon Chen, Director		0		0	%

⁽¹⁾ Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common shares.

⁽²⁾ The number of our common shares outstanding used in calculating the percentage for each listed person excludes the common shares underlying options held by such person.

⁽³⁾ Mr. Guo owns 150,000 shares directly and is the beneficial owner of another 4,334,500 shares, owned in fact by others, by reason of a Trust and Indemnity Agreement giving him the right to vote those shares.

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Shares Eligible for Future Sale

Prior to this offering, there has been no market for our common shares, and a liquid trading market for our common shares may not develop or be sustained after this offering. Future sales of substantial amounts of common shares, including common shares issued upon exercise of outstanding options and exercise of the warrants offered in this prospectus in the public market after this offering or the anticipation of those sales could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sales of our equity securities.

Upon the completion of the offering, we will have outstanding 14,812,500 common shares, assuming the closing of the maximum offering and not including any shares underlying the underwriter warrants. Of these common shares, the 3,000,000 common shares sold in this offering will be freely tradable without restriction under the Securities Act, except that any shares purchased by our “affiliates,” as that term is defined in Rule 144 of the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below. The remaining approximately 11,812,500 common shares outstanding will be restricted shares held by existing shareholders that could be sold pursuant to Rule 144. We have not agreed to register these restricted shares. We have not issued any warrants to purchase our common shares or other securities convertible into our common shares.

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person (or persons whose shares are aggregated) who is deemed to be an affiliate of our company at the time of sale, or at any time during the preceding three months, and who has beneficially owned restricted shares for at least six months, would be entitled to sell within any three-month period a number of our common shares that does not exceed the greater of 1% of the then outstanding common shares or the average weekly trading volume of common shares during the four calendar weeks preceding such sale. Sales under Rule 144 are subject to certain manner of sale provisions, notice requirements and the availability of current public information about our company. In addition, sales by our affiliates may be subject to the terms of lock-up agreements. See “Shares Eligible for Future Sale – Lock-Up Agreements.”

A person who has not been our affiliate at any time during the three months preceding a sale, and who has beneficially owned his or her common shares for at least six months, would be entitled under Rule 144 to sell such shares without regard to any manner of sale, notice provisions or volume limitations described above. Any such sales must comply with the public information provision of Rule 144 until our common shares have been held for one year.

Rule 701

Securities issued in reliance on Rule 701 are also restricted and may be sold by shareholders other than affiliates of our company subject only to manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its six-month holding period requirement.

Registration on Form S-8

We intend to file a registration statement on Form S-8 under the Securities Act as soon as practicable after the closing of this offering to register up to 740,625 of our common shares subject to outstanding stock options or reserved for issuance under our stock incentive plan, such amount being equal to five percent (5%) of the number of common shares issued and outstanding after the closing of the offering, assuming a maximum offering. This registration will permit the resale of these common shares by nonaffiliates in the public market without restriction under the Securities Act, upon the completion of the lock-up period described below. Common shares registered pursuant to the Form S-8 held by affiliates will be subject to Rule 144 volume limitations. As of the date of this Prospectus, we have not issued any options to purchase our common shares.

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Lock-Up Agreements

Each of our executive officers, directors and individuals who on the effective date of the registration statement of which this prospectus is a part are the beneficial owners of more than 4% of our common shares, has agreed not to register, offer, sell, contract to sell or grant any of our common shares or any securities convertible into or exercisable or exchangeable for our common shares or any warrants to purchase our common shares (including, without limitation, securities of our company which may be deemed to be beneficially owned by such individuals in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon the exercise of a stock option or warrant) for a period of (a) as to one-half (1/2) of the common shares now or in the future beneficially owned by such individual, ninety (90) days after the date of effectiveness or commencement of sales of this public offering and (b) as to the other one-half of such common shares now or in the future beneficially owned by such individual, one hundred ninety (190) days after the date of effectiveness or commencement of sales of this public offering. Upon the expiration of these lock-up agreements, additional common shares will be available for sale in the public market.

Summary of Shares Available for Future Sale

The following table summarizes the total shares potentially available for future sale. To the extent we sell a number of common shares between the minimum and maximum offering, the below tables will be adjusted proportionately as to numbers of shares available for sale (as to option pool and Placement Agent shares) and dates on which such shares may be sold (as to currently outstanding shares).

Minimum Offering

Shares	Date Available for Sale
Currently Outstanding Shares: 11,812,500
9,058,125	After 90 days from the date of effectiveness or commencement of sales of the public offering
4,254,375	After 190 days from the date of effectiveness or commencement of sales of the public offering
Common Shares in Option Pool: Up to 740,625	From vesting dates through expiration of grants
Common Shares Underlying Placement Agent’s Warrants: 150,000	After 180 days from the date of effectiveness or commencement of sales of the public offering
Shares Offered in this Offering: 2,500,000	After the date of this prospectus, these shares will be freely tradable.

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Maximum Offering

Shares	Date Available for Sale
Currently Outstanding Shares: 11,812,500
9,058,125	After 90 days from the date of effectiveness or commencement of sales of the public offering
4,254,375	After 190 days from the date of effectiveness or commencement of sales of the public offering
Common Shares in Option Pool: Up to 740,625	From vesting dates through expiration of grants
Common Shares Underlying Placement Agent’s Warrants: 180,000	After 180 days from the date of effectiveness or commencement of sales of the public offering
Shares Offered in this Offering: 3,000,000	After the date of this prospectus, these shares will be freely tradable.

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Tax Matters Applicable to U.S. Holders of Our Ordinary Shares

The following sets forth the material British Virgin Islands, Chinese and U.S. federal income tax matters related to an investment in our common shares. It is directed to U.S. Holders (as defined below) of our common shares and is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This description does not deal with all possible tax consequences relating to an investment in our common shares, such as the tax consequences under state, local and other tax laws.

The following brief description applies only to U.S. Holders (defined below) that hold common shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the tax laws of the United States in effect as of the date of this prospectus and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this prospectus, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of shares and you are, for U.S. federal income tax purposes,

• an individual who is a citizen or resident of the United States;

• a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;

• an estate whose income is subject to U.S. federal income taxation regardless of its source; or

• a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

WE URGE POTENTIAL PURCHASERS OF OUR SHARES TO CONSULT THEIR OWN TAX

ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX

CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES.

People’s Republic of China Enterprise Taxation

The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders. See “Dividend Policy.” Our company is not subject to any enterprise income tax. Our exemption from enterprise income tax derives from the Implementation Rules for the Law on Enterprise Income Tax, which exempts from enterprise income tax for enterprises located in minority ethnic autonomous areas and engaged in encouraged or permitted industries. If this exemption was to be terminated or we were to fail to qualify to receive these exemptions, we would be subject to taxation at the standard 25% for enterprise income taxes, unless we were otherwise to qualify for a decreased tax rate.

British Virgin Islands Taxation

Under the BVI Act as currently in effect, a holder of common shares who is not a resident of the British Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to the common shares and all holders of common shares are not liable to the British Virgin Islands for income tax on gains realized during that year on sale or disposal of such shares. The British Virgin Islands does not impose a withholding tax on dividends paid by a company incorporated or re-registered under the BVI Act.

There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated or re-registered under the BVI Act. In addition, shares of companies incorporated or re-registered under the BVI Act are not subject to transfer taxes, stamp duties or similar charges.

There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands or between China and the British Virgin Islands.

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United States Federal Income Taxation

The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:

• banks;

• financial institutions;

• insurance companies;

• regulated investment companies;

• real estate investment trusts;

• broker-dealers;

• traders that elect to mark-to-market;

• U.S. expatriates;

• tax-exempt entities;

• persons liable for alternative minimum tax;

• persons holding our common shares as part of a straddle, hedging, conversion or integrated transaction;

• persons that actually or constructively own 10% or more of our voting shares;

• persons who acquired our common shares pursuant to the exercise of any employee share option or otherwise as consideration; or

• persons holding our common shares through partnerships or other pass-through entities.

Prospective purchasers are urged to consult their tax advisors about the application of the U.S. Federal tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our common shares.

Taxation of dividends and other distributions on our common shares

Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the common shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.

With respect to non-corporate U.S. Holders, including individual U.S. Holders, for taxable years beginning before January 1, 2011, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the common shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, common shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the NASDAQ Global Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our common shares, including the effects of any change in law after the date of this prospectus.

Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our common shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”

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To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your common shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

Taxation of Dispositions of Common Shares

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the common shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the common shares for more than one year, you will be eligible for reduced tax rates of 0% (for individuals in the 10% or 15% tax brackets) or 15% for all other individuals, assuming the renewal of current capital gains rates prior to their scheduled expiration at the end of 2010. If capital gains preferential rates are not renewed, such gains would be taxable at the personal income rates then in place. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes.

Passive Foreign Investment Company

Based on our current and anticipated operations and the composition of our assets, we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year ending December 31, 2010. Our actual PFIC status for the current taxable year ending December 31, 2010 will not be determinable until the close of such taxable year and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year. Because PFIC status is a factual determination for each taxable year which cannot be made until the close of the taxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either:

• at least 75% of its gross income is passive income; or

• at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”).

We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.

We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our common shares, our PFIC status will depend in large part on the market price of our common shares. Accordingly, fluctuations in the market price of the common shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. If we are a PFIC for any year during which you hold common shares, we will continue to be treated as a PFIC for all succeeding years during which you hold common shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the common shares.

If we are a PFIC for any taxable year during which you hold common shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the common shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the common shares will be treated as an excess distribution. Under these special tax rules:

• the excess distribution or gain will be allocated ratably over your holding period for the common shares;

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• the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and

• the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the common shares cannot be treated as capital, even if you hold the common shares as capital assets.

A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the common shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the common shares as of the close of your taxable year over your adjusted basis in such common shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the common shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the common shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the common shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the common shares, as well as to any loss realized on the actual sale or disposition of the common shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such common shares. Your basis in the common shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “—Taxation of Dividends and Other Distributions on our Common shares” generally would not apply.

The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the NASDAQ Global Market. If the common shares are regularly traded on the NASDAQ Global Market and if you are a holder of common shares, the mark-to-market election would be available to you were we to be or become a PFIC.

Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold common shares in any year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 regarding distributions received on the common shares and any gain realized on the disposition of the common shares.

You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our common shares and the elections discussed above.

Information Reporting and Backup Withholding

Dividend payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

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Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information.

Enforceability of Civil Liabilities

We are incorporated under the laws of the British Virgin Islands with limited liability. We are incorporated in the British Virgin Islands because of certain benefits associated with being a British Virgin Islands corporation, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, the British Virgin Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent. In addition, British Virgin Islands companies may not have standing to sue before the federal courts of the United States.

Substantially all of our assets are located outside the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to affect service of process within the United States upon us or such persons or to enforce against them or against us, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.

We have appointed CT Corporation System as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any State of the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

DeHeng Law Offices, our counsel as to Chinese law, has advised us that there is uncertainty as to whether the courts of China would (1) recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or (2) be competent to hear original actions brought in each respective jurisdiction, against us or such persons predicated upon the securities laws of the United States or any state thereof.

DeHeng Law Offices has advised us that the recognition and enforcement of foreign judgments are provided for under the Chinese Civil Procedure Law. Chinese courts may recognize and enforce foreign judgments in accordance with the requirements of the Chinese Civil Procedure Law based either on treaties between China and the country where the judgment is made or in reciprocity between jurisdictions. China does not have any treaties or other agreements with the British Virgin Islands or the United States that provide for the reciprocal recognition and enforcement of foreign judgments. As a result, it is uncertain whether a Chinese court would enforce a judgment rendered by a court in either of these two jurisdictions.

We have been advised by Kaufman & Canoles, our counsel as to British Virgin Islands law, that the United States and the British Virgin Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of courts of the United States in civil and commercial matters and that a final judgment for the payment of money rendered by any general or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, is unlikely to be enforceable in the British Virgin Islands. We have also been advised by Kaufman & Canoles that a final and conclusive judgment obtained in U.S. federal or state courts under which a sum of money is payable as compensatory damages (i.e., not being a sum claimed by a revenue authority for taxes or other charges of a similar nature by a governmental authority, or in respect of a fine or penalty or multiple or punitive damages) may be the subject of an action on a debt in the court of the British Virgin Islands under the ordinary law doctrine of obligation.

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Placement

We have engaged Anderson & Strudwick, Incorporated to conduct this offering on a “best efforts, minimum/maximum” basis. The offering is being made without a firm commitment by the Placement Agent, which has no obligation or commitment to purchase any of our shares. None of our officers, directors or affiliates may purchase shares in this offering.

Unless sooner withdrawn or canceled by either us or the Placement Agent, the offering will continue until the earlier of (i) a date mutually acceptable to us and our Placement Agent after which the minimum offering is sold or (ii) November 22, 2010 (the “Offering Termination Date”). The Placement Agent has agreed in accordance with the provisions of SEC Rule 15c2-4 to cause all funds received by the Placement Agent for the sale of the common shares to be promptly deposited in an escrow account maintained by SunTrust Bank, N.A. (the “Escrow Agent”) as escrow agent for the investors in the offering. The Escrow Agent will exercise signature control on the escrow account and will act based on joint instructions from our company and the Placement Agent. On the closing date for the offering, net proceeds in the escrow account maintained by the Escrow Agent will be delivered to our company. We will not be able to use such proceeds in China, however, until we complete certain remittance procedures in China, which may take as long as six months in the ordinary course. If we do not complete this offering before the Offering Termination Date, all amounts will be promptly returned as described below.

If we complete this offering, then on the closing date, we will issue shares to investors and Placement Agent Warrants to our Placement Agent exercisable at a rate of one warrant per share to purchase up to 6% of the aggregate number of common shares sold in this offering. In the event of any dispute between our company and the Placement Agent, including about whether the minimum offering has been sold and whether and how funds are to be reimbursed, the escrow agent is entitled to petition a court of competent jurisdiction to resolve any such dispute.

Investors must pay in full for all common shares at the time of investment. Payment for the units may be made (i) by check, bank draft or money order made payable to “SunTrust Bank” and delivered to the Placement Agent no less than four business days before the date of closing, or (ii) by authorization of withdrawal from securities accounts maintained with the Placement Agent. If payment is made by authorization of withdrawal from securities accounts, the funds authorized to be withdrawn from a securities account will continue to accrue interest, if any interest is to accrue on such amounts, at the contractual rates until closing or termination of the offering, but a hold will be placed on such funds, thereby making them unavailable to the purchaser until closing or termination of the offering. If a purchaser authorizes the Placement Agent to withdraw the amount of the purchase price from a securities account, such Placement Agent will do so as of the date of closing. The Placement Agents will inform prospective purchasers of the anticipated date of closing. If payment is made by check, investors should make all checks payable to the Escrow Agent.

Proceeds deposited in escrow with the Escrow Agent may not be withdrawn by investors prior to the earlier of the closing of the offering or the Offering Termination Date. If the offering is withdrawn or canceled or if the 2,500,000 share minimum offering is not reached and proceeds therefrom are not received by us on or prior to the Offering Termination Date, all proceeds will be promptly returned by the Escrow Agent without interest or deduction to the persons from which they are received (within one business day) in accordance with applicable securities laws. All such proceeds will be placed in a non-interest bearing account pending such time.

Pursuant to that certain placement agreement by and between the Placement Agent and us, the obligations of the Placement Agent to solicit offers to purchase the shares and of investors solicited by the Placement Agent to purchase our common shares are subject to approval of certain legal matters by counsel to the Placement Agent. The Placement Agent’s ability to complete this “best efforts minimum/maximum” transaction is dependent upon the existence of stable U.S. trading markets. As such, the Placement Agent’s obligations under the placement agreement are also subject to various conditions which are customary in transactions of this type, including that, as of the closing of the offering, there shall not have occurred (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or the publication of quotations on the NASDAQ Global Market; (ii) a general moratorium on commercial banking activities in the State of New York or China; (iii) the engagement by the United States or China in hostilities which have resulted in the declaration of a national emergency or war if any such event would have a material adverse effect, in the Placement Agent’s reasonable judgment, as to make it impracticable or inadvisable to proceed with the solicitation of offers to consummate the offering with respect to investors solicited by the Placement Agent on the terms and conditions contemplated herein.

We have agreed to indemnify the Placement Agent against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the Placement Agent may be required to make in respect of those liabilities.

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The Placement Agent is offering the common shares, subject to prior sale, when, as and if issued to and accepted by it, subject to conditions contained in the placement agreement, such as the receipt by the Placement Agent of officers’ certificates and legal opinions. The Placement Agent reserves the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part in the event (i) our representations or warranties are incorrect or misleading or we fail to fulfill our agreements with the Placement Agent; (ii) a material adverse change occurs affecting our business, management, property, assets, results of operations, condition or prospects; (iii) trading is suspended on any national securities exchange; (iv) war is declared; (v) a banking moratorium is declared in Virginia, New York or the U.S.; or (vi) any laws, regulations, court or administrative order or other governmental or agency act causes the Placement Agent to believe that our business or the U.S. securities markets will be materially adversely affected. The Placement Agent’s discretion in this regard is broad.

The Placement Agent intends to offer our common shares to its retail customers only in states in which we are permitted to offer our common shares. We have relied on an exemption to the blue sky registration requirements afforded to “covered securities”. Securities listed on the NASDAQ Global Market are “covered securities.” If we were unable to meet the NASDAQ Global Market’s listing standards, then we would be unable to rely on the covered securities exemption to blue sky registration requirements and we would need to register the offering in each state in which we planned to sell shares. Consequently, we will not complete this offering unless we meet the NASDAQ Global Market’s listing requirements.

In connection with this offering, the Placement Agent or certain of the securities dealers may distribute prospectuses electronically. No forms of prospectus other than printed prospectuses and electronically distributed prospectuses that are printable in Adobe PDF format will be used in connection with this offering.

Foreign Regulatory Restrictions on Purchase of our Shares

We have not taken any action to permit a public offering of our shares outside the United States or to permit the possession or distribution of this prospectus outside the United States. People outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to this offering of our shares and the distribution of this prospectus outside the United States.

Commissions and Discounts

The Placement Agent has advised us that it proposes to offer the common shares to the public at the initial public offering price on the cover page of this prospectus. The following table shows the public offering price, Placement Agent fee to be paid by us to the Placement Agent and the proceeds, before expenses, to us.

	Per Common Share		Minimum Offering		Maximum Offering
Assumed public offering price	$	6.00	$	15,000,000	$	18,000,000
Placement discount	$	0.42	$	1,050,000	$	1,260,000
Proceeds to us, before expenses	$	5.58	$	13,950,000	$	16,740,000

We expect our total cash expenses for this offering to be approximately $600,000, exclusive of the above commissions. In addition, we will pay the Placement Agent an accountable expense allowance of 1% of the amount of the offering, or $180,000 (maximum offering, exclusive of shares registered under Rule 462(b)) or $150,000 (minimum offering). The Placement Agent must sell the minimum number of securities offered (2,500,000 common shares) if any are sold. The Placement Agent is required to use only its best efforts to sell the securities offered. The offering will terminate upon the earlier of: (i) a date mutually acceptable to us and our Placement Agent after which the minimum offering is sold or (ii) November 22, 2010. Until we sell at least 2,500,000 shares, all investor funds will be held in an escrow account at SunTrust Bank, Richmond, Virginia. If we do not sell at least 2,500,000 shares by November 22, 2010, all funds will be promptly returned to investors (within one business day) without interest or deduction. If we complete this offering, net proceeds will be delivered to our company on the closing date. We will not be able to use such proceeds in China, however, until we complete certain remittance procedures in China. If we complete this offering, then on the closing date, we will issue common shares to investors in the offering and Placement Agent Warrants to our Placement Agent exercisable at a rate of one warrant per share to purchase up to 6% of the aggregate number of Common shares sold in this offering.

116

Placement Agent’s Warrants

We have agreed to sell to the Placement Agent, on the closing date of this offering, at a price of $0.001 per warrant, Placement Agent’s Warrants exercisable at a rate of one warrant per share to purchase 6% of the number of common shares issued by us in connection with the offering. We will issue between 150,000 and 180,000 Placement Agent’s Warrants in connection with this offering, depending on the number of common shares sold in this offering. Each Placement Agent’s Warrant will be exercisable to purchase one common share. The Placement Agent’s Warrants will be exercisable at 125% the offering price per common share for a period of five years after the effective date of this offering. The Placement Agent’s Warrants may not be exercised, sold, transferred, pledged, assigned or hypothecated for a period of 180 days after the date of effectiveness or commencement of sales of the public offering, except to officers or partners and shareholders of the Placement Agent. This restriction is imposed pursuant to the requirements of FINRA Rule 5110(g)(1). If we do not complete this offering by selling at least the minimum number of common shares, we will not issue any Placement Agent’s Warrants to our Placement Agent.

For the life of the Placement Agent’s Warrants, the holders thereof are given, at nominal costs, the opportunity to profit from a rise in the market price of our common shares with a resulting dilution in the interest of other shareholders. Further, the holders may be expected to exercise the Placement Agent’s Warrant at a time when we would, in all likelihood, be able to obtain equity capital on terms more favorable than those provided in the Placement Agent’s Warrants.

We are required for the life of the Placement Agent’s Warrants to reserve sufficient common shares to deliver upon exercise of the warrants and to take all necessary actions to ensure that we may validly and legally issue fully paid and non-assessable shares on exercise of the warrants.

For a period of five years following the effective date of this offering, the Placement Agent shall have the right to demand registration of the common shares in the event registered common shares are not available at the time of exercise and an exemption from such registration is not otherwise available. If this happens, we will be required to file the registration statement within ninety (90) days after demand and to pay the costs associated with the registration other than the Placement Agent’s counsel fees and any underwriting or selling commissions. We are required to seek the listing of the shares on the same exchange on which our common shares trade, if any.

To the extent we are unable to register the shares, the Placement Agent may exercise the warrant with a cashless exercise, which is designed to give the Placement Agent the economic benefit of exercising the Placement Agent’s Warrants. A cashless exercise, however, would not result in the payment of any exercise price to us.

The Placement Agent’s Warrants also contain anti-dilution provisions, consistent with applicable FINRA rules, to adjust the terms of the Placement Agent’s Warrants as necessary to protect against dilution in the event we reorganize, consolidate, merge or subdivide our shares.

Market and Pricing Considerations

There is not an established market for our common shares. We negotiated with our Placement Agent to determine the offering price of our common shares in this offering based on current market conditions as well as other considerations.

In addition to prevailing market conditions, the factors considered in determining the applicable multiples were:

• the history of, and the prospects for, our company and the industry in which we compete;

• an assessment of our management, its past and present operation, and the prospects for, and timing of, our future revenues; and

• the present state of our development.

117

An active trading market for our common shares may not develop. It is possible that after this offering the common shares will not trade in the public market at or above the initial offering price.

The exercise price for the Placement Agent’s Warrants issued to our Placement Agent in connection with, and conditional on the closing of, this offering has been negotiated between our company and the Placement Agent. The exercise price (125% of the offering price of common shares in this offering), along with the length of time the Placement Agent must wait before exercise (at least 180 days after the closing of this offering) are influenced by the valuation attributed by FINRA in its calculation of the acceptability of aggregate placement consideration.

Discretionary Shares

The Placement Agent will not sell any shares in this offering to accounts over which it exercises discretionary authority, without first receiving written consent from those accounts.

Application for Listing on the NASDAQ Global Market

We have applied to list our common shares on the NASDAQ Global Market under the symbol “TBET.” As this offering is a best-efforts offering, the NASDAQ Global Market has indicated that it is unable to admit our common shares for listing until the completion of the offering and, consequently, the satisfaction of NASDAQ Global Market listing standards. If so admitted, we expect our common shares to begin trading on the NASDAQ Global Market on the day following the closing of this offering. If our common shares are eventually listed on the NASDAQ Global Market, we will be subject to continued listing requirements and corporate governance standards. We expect these new rules and regulations to significantly increase our legal, accounting and financial compliance costs.

Price Stabilization, Short Positions and Penalty Bids

In order to facilitate the offering of the common shares, the Placement Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the common shares. In order to facilitate the offering, the Placement Agent may, but is not required to, bid for, and purchase, common shares in the open market to stabilize the price of the common shares. These activities may raise or maintain the market price of the common shares above independent market levels or prevent or retard a decline in the market price of the common shares. The Placement Agent is not required to engage in these activities, and may end any of these activities at any time. We and the Placement Agent have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

We and the Placement Agent have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

118

Legal Matters

Certain matters as to Virginia law and U.S. federal law in connection with this offering will be passed upon for us and for the Placement Agent by Kaufman & Canoles, P.C. The validity of the shares and certain legal matters relating to the offering as to British Virgin Islands law will be passed upon for us by Kaufman & Canoles, P.C. Certain legal matters relating to the offering as to Chinese law will be passed upon for us by DeHeng Law Offices, People’s Republic of China. Kaufman & Canoles, P.C. may rely upon DeHeng Law Offices with respect to matters governed by Chinese law.

Experts

Financial statements as of December 31, 2009 and 2008, and for the years then ended appearing in this prospectus, have been included herein and in the registration statement in reliance upon the report of Acquavella, Chiarelli, Shuster, Berkower & Co., LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of that firm as experts in accounting and auditing.

Interests of Experts and Counsel

Attorneys with Kaufman and Canoles, P.C., representing our company with respect to this offering beneficially own 177,187 common shares of our company as of the date of this prospectus.

Where You Can Find More Information

We have filed with the SEC under the Securities Act a registration statement on Form S-1 relating to the common shares we and the selling stockholders are offering by this prospectus. This prospectus, which constitutes part of the registration statement filed with the SEC, does not contain all the information included in the registration statement and the exhibits and schedules thereto. For further information with respect to us and our common shares, you should refer to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract, agreement or other document are not necessarily complete, and, where the contract, agreement or other document is an exhibit to the registration statement, any statement with respect to such contract, agreement or document is qualified by the provisions of such exhibit. You may examine and copy the registration statement, including the exhibits, at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can obtain a copy of all or a portion of the registration statement by mail from the Public Reference Section of the SEC at the same address, upon payment of prescribed fees. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains periodic reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is http://www.sec.gov.

As a result of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC.

119

TIBET PHARMACEUTICALS, INC.

(FORMERLLY KNOWN AS SHANGRI-LA TIBETAN PHARMACEUTICALS, INC.)

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Income	F-3
Consolidated Statements of Cash Flows	F-4
Consolidated Statements of Stockholders’ Equity	F-5
Notes to Consolidated Financial Statements	F-6 - F-18

CSB Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

517 Route one	1 Penn Plaza
Iselin, New Jersey, 08830	36th Floor
732.855.9600	New York, NY 10119

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Tibet Pharmaceuticals, Inc.

We have reviewed the accompanying consolidated balance sheet of Tibet Pharmaceuticals, Inc. (the “Company”) as of June 30, 2010, and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the six-month periods ended June 30, 2010 and 2009. These financial statements are the responsibility of the company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2009 and the related consolidated statements of income, retained earnings and comprehensive income, and consolidated statement of cash flows for the year then ended; and in our report dated July 19, 2010, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

Certified Public Accountants

New York, N.Y.

September 21, 2010

F-1

TIBET PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

	6/30/2010 (unaudited)		12/31/2009 (audited)
ASSETS
Current Assets
Cash and cash equivalents	$	7,697,135	$	4,081,752
Accounts receivable- related party		946,008		342,000
Accounts receivable- non-related party		4,987,508		4,266,075
Other receivables		102,486		101,948
Trade deposits		—		98,888
Inventories		1,734,628		1,305,537
Total current assets		15,467,765		10,196,200
Property, plant and equipment, net		6,373,175		6,553,113
Intangible assets		676,847		764,243
Prepaid expenses		430,030		439,399
Total Assets	$	22,947,817	$	17,952,955
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	2,006,074	$	2,830,032
Accrued expenses and other payables		1,220,304		933,099
Value-added tax payable		90,810		70,512
Total current liabilities		3,317,188		3,833,643
Long-term Liabilities
Long-term loan		3,601,005		3,582,116
Total liabilities		6,918,193		7,415,759
Stockholders’ Equity:
Common stock, $0.001 par value, 50,000,000 shares authorized, 11,812,500 and 11,782,500 issued and outstanding as of June 30, 2010 and December 31, 2009 respectively		11,813		11,782
Additional paid in capital		8,495,765		8,375,795
Retained earnings		3,633,037		193,793
Accumulated Other Comprehensive Income		787,650		694,588
Statutory reserve		3,101,359		2,811,323
Total		16,029,624		12,087,281
Due from shareholder		—		(1,550,085	)
Total stockholders’ equity		16,029,624		10,537,196
Total Liabilities and Stockholders’ Equity	$	22,947,817	$	17,952,955

The accompanying notes are an integral part of these financial statements.

F-2

TIBET PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Six months ended June 30,
	2010			2009
Sales, net	$	14,851,362		$	9,689,762
Cost of sales		(7,216,188	)		(4,930,859	)
Gross profit		7,635,174			4,758,903
Selling, general and administrative expense		(1,321,150	)		(1,024,024	)
Income from operations		6,314,024			3,734,879
Interest income		6,680			6,450
Interest expense and bank charges		(92,858	)		(92,463	)
Total Other Income (Expense)		(86,178	)		(86,013	)
Net income	$	6,227,846		$	3,648,866
Net income per common share
Basic and diluted	$	0.53		$	0.31
Weighted average common shares outstanding
Basic and diluted		11,797,914			11,632,500
Consolidated Statements of Comprehensive Income
Net income	$	6,227,846		$	3,648,866
Other comprehensive income		93,062			24,970
Comprehensive income		6,320,908			3,673,836

The accompanying notes are an integral part of these financial statements.

F-3

TIBET PHARMACEUTICALS, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For six months ended June 30th
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income		6,227,846		$	3,648,866
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation		353,152			351,562
Amortization		91,124			90,781
Changes in assets and liabilities
Accounts receivable		(1,296,844	)		260,905
Trade deposit		99,082			(91,421	)
Inventories		(420,812	)		(554,037	)
Prepaid expenses		11,647			16,038
Accounts payable		(836,113	)		1,411,759
Accrued expenses and other payables		279,668			208,487
Value-added tax payable		21,648			(68,332	)
Net cash provided by operating activities		4,530,398			5,274,608
CASH FLOWS FROM INVESTING ACTIVITIES :
Purchase of property & equipment		(139,721	)		0
Net cash used in investing activities		(139,721	)		0
CASH FLOWS FROM FINANCING ACTIVITIES :
Dividend Paid		(2,498,567	)		0
Due from shareholder		1,553,115			(2,904,890	)
Issuance of common stock		120,000			0
Net cash used in financing		(825,452	)		(2,904,890	)
Effect of exchange rate changes on cash and cash equivalents		50,158			4,770
NET CHANGE IN CASH AND CASH EQUIVALENTS		3,615,383			2,374,488
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		4,081,752			2,711,552
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7,697,135		$	5,086,040
SUPPLEMENTAL DISCLOSURES:
Interest paid	$	90,625		$	90,251

The accompanying notes are an integral part of these financial statements.

F-4

TIBET PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock Outstanding		Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings			Statuary Reserve		Accumulated Other Comprehensive Income		Total			Due from shareholder			Total Shareholders’ Equity
Balance, January 1, 2010		11,782,500	$	11,783	$	8,375,795	$	193,793		$	2,811,323	$	694,588	$	12,087,282		($	1,550,085	)	$	10,537,197
Issuance of Common Stock		30,000		30		119,970									120,000						120,000
Net income								6,227,847							6,227,847						6,227,847
Dividend								(2,498,567	)						(2,498,567	)					(2,498,567	)
Transfer to statutory reserve								(290,036	)		290,036				0						0
Foreign currency translation													93,062		93,062						93,062
Payment from shareholder																		1,550,085			1,550,085
Balance, June 30, 2010		11,812,500	$	11,813	$	8,495,765	$	3,633,037		$	3,101,359	$	787,650	$	16,029,624			0		$	16,029,624

The accompanying notes are an integral part of these financial statements

F-5

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(UNAUDITED)

Note 1 – ORGANIZATION

Tibet Pharmaceuticals Inc. (the “Company”), (formerly known as Shangri-La Tibetan Pharmaceuticals, Inc.), was incorporated on December 22, 2009 under the laws of British Virgin Islands. In July 2010, the Company changed its name to Tibet Pharmaceuticals, Inc. China Tibetan Pharmaceuticals Limited (“CTP”), the Company’s 100% owned subsidiary, was established in Hong Kong on January 6, 2010 as a limited liability company. Other than the equity interest in CTP, the Company does not own any assets or conduct any operations. CTP holds all of the outstanding equity interest in Yibo Information Consulting (Shenzhen) Company Ltd., a company established on March 18, 2010 in the PRC as a wholly foreign owned enterprise (“WFOE”). Other than the equity interest in WFOE, CTP does not own any assets or conduct any operations. Yunnan Diqing Shangri-La Tibetan Medicine Co., Ltd was incorporated on April 19, 2000 as a domestic Chinese corporation. On December 24, 2002, it changed its name to Yunnan Shangri-La Tibetan Pharmaceutical Group Limited (“YSTP”). YSTP is engaged in manufacturing, marketing, selling, researching and developing modernized traditional Tibetan medicines in China.

WFOE conducts its business through YSTP via a series of contractual arrangements. YSTP is consolidated as a variable interest entity (“VIE”). The Company does not conduct any substantive operations of its own, but conducts its primary business operations through WFOE’s VIE. The Company holds its interest in the VIE through WFOE.

Effective control over the VIE was transferred to the Company through the series of contractual arrangements without transferring legal ownership in the VIE (“reorganization”). As a result of these contractual arrangements, the Company maintained the ability to approve decisions made by the VIE and was entitled to substantially all of the economic benefits of the VIE, and therefore the Company consolidates the VIE. Immediately before and after the reorganization, the ultimate shareholder controlled the VIE; therefore, the reorganization is accounted for as a transaction between entities under common control. Accordingly, the accompanying consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the periods presented.

Chinese laws and regulations currently do not prohibit or restrict foreign ownership in pharmaceutical manufacturing businesses. However, Chinese laws and regulations do prevent direct foreign investment in certain industries. On March 26, 2010, to protect the Company’s shareholders from possible future foreign ownership restrictions, YSTP and all of the shareholders of YSTP entered into an entrusted management agreement with WFOE, which provides that WFOE will be entitled to the full guarantee for the performance of such contracts, agreements or transactions entered into by YSTP. WFOE is also entitled to receive the residual return of YSTP. As a result of the agreement, WFOE will absorb 100% of the expected losses and gains of YSTP, which results in WFOE being the primary beneficiary of YSTP.

WFOE also entered into a pledge of equity agreement with the principal shareholders, who pledged all their equity interest in these entities to WFOE. The pledge of equity agreement, which were entered into by each principal shareholder, pledged each of the principal shareholders’ equity interest in WFOE as a guarantee for the entrustment payment under the Entrusted Management Agreement. The provincial Administration for Industry and Commerce approved and registered such pledge of equity by which WFOE owns the right of pledge legally.

In addition, WFOE entered into an option agreement to acquire the principal shareholders’ equity interest in these entities at such times as it may wish to do so.

The followings are brief description of contracts entered between WFOE and YSTP

F-6

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 1 – ORGANIZATION (Continued)

(1) Entrusted Management Agreement. The domestic companies, YSTP and WFOE, have entered into an Entrusted Management Agreement, which provides that WFOE will be fully and exclusively responsible for the management of YSTP. As consideration for such services, YSTP has agreed to pay WFOE the management fee during the term of this agreement and the management fee shall equal to YSTP’s estimated earnings before tax. Also, WFOE will assume all operating risks related to this entrusted management service to YSTP and bear all losses of YSTP. The term of this agreement will be from the effective date thereof to the earlier of the following: (1) the winding up of YSTP, or (2) the termination date of this Agreement to be determined by the parties hereto, or (3) the date on which WFOE completes the acquisition of YSTP.

(2) Exclusive Option Agreement. All the shareholders of YSTP as well as YSTP has entered into an Exclusive Option Agreement with WFOE, which provides that WFOE will be entitled to acquire such shares form the current shareholders upon certain terms and conditions, meanwhile WFOE will be entitled an irrevocable exclusive purchase option to purchase all or part of the assets and business of YSTP, if such a purchase is or becomes allowable under PRC laws and regulations. The Exclusive Option Agreement also prohibits the current shareholders of YSTP as well as YSTP from transferring any portion of their equity interests, business or assets to anyone other than WFOE. WFOE has not yet taken any corporate action to exercise this right of purchase, and there is no guarantee that it will do so or will be permitted to do so by applicable law at such times as it may wish to do so.

(3) Shareholders’ Voting Proxy Agreement. All the shareholders of YSTP has executed a Shareholders’ Voting Proxy Agreement to irrevocably appoint the persons designated by WFOE with the exclusive right to exercise, on their behalf, all of their Voting Rights in accordance with the laws and YSTP’s Articles of Association, including but not limited to the rights to sell or transfer all or any of their equity interests of YSTP, and to appoint and elect the directors and Chairman as the authorized legal representative of YSTP. This agreement will be only terminated prior to the completion of acquisition of all of the equity interests in, or all assets or business of YSTP.

(4) Pledge of Equity Agreement. WFOE and the shareholders of YSTP have entered into a Pledge of Equity Agreement, pursuant to which all shareholder pledges all of their shares (100%) of YSTP, as appropriate, to WFOE. If YSTP or any of its respective shareholders breaches its respective contractual obligations in the “Entrusted Management Agreement”, “Exclusive Option Agreement” and “Shareholders’ Voting Proxy Agreement”, WFOE as Pledge, will be entitled to certain rights to foreclose on the pledged equity interests. Such YSTP shareholders cannot dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest

Except for the disclosed above, there are no arrangements that could require the Company to provide financial support to the variable interest entities, including events or circumstances that could expose the Company to a loss. As stated in the disclosure of various agreements between the Company and its VIE, the Company has rights to acquire any portion of the equity interests of the VIE. Also the Company may allocate its available funds to its VIE for business purpose. There are no fixed terms of such arrangements.

F-7

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The Company’s functional currency is the Chinese Renminbi; however the accompanying consolidated financial statements have been translated and presented in United States Dollars. These financial statements are prepared on a historical pro forma basis. The consolidated financial statements include the accounts of the Company, its subsidiary and variable interest entity (“VIE”) for which the Company is the primary beneficiary. All inter-company accounts and transactions have been eliminated in the consolidation. Please also refer to Note 1 for the discussion on accounting for the reorganization and acquisition.

Principles of Consolidation

Pursuant to US GAAP, YSTP is the VIE of the TBET and the TBET is the primary beneficiary of the VIE. Accordingly, the VIE has been consolidated in the TBET’s financial statements.

TBET, CTP and WFOE were formed in 2009, 2010 and 2010, respectively, by YSTP and its shareholders as part of a plan by YSTP’s shareholders to reorganize YSTP’s corporate structure in preparation for listing in the U.S. In connection with the formation of TBET, CTP and WFOE, WFOE entered into several VIE agreements, or Control Agreements, with YSTP and its shareholders. These companies were formed, and the Control Agreements were executed, for the express purpose of restructuring YSTP as the controlled affiliate of a BVI company so that the resulting entity could become a publicly-traded company in the U.S. The shareholders having 100% of the voting rights in YSTP shares entered into a resolution dated December 10, 2009 that authorized this restructuring and the specific steps of forming a BVI company, a Hong Kong subsidiary of that company, the formation of Chinese wholly-foreign owned enterprise owned by the Hong Kong company, and entry into the Control Agreements. These resolutions require TBET to consolidate YSTP’s financial statements with TBET’s from its inception.

Through the VIE agreements, TBET effectively has complete management and ownership control over YSTP, the VIE, and is able to dictate its operations. The equity holders of YSTP became the controlling owners of TBET. By reason of the VIE agreements, TBET is also able to obtain the financial interests such as obtaining periodic income of the VIE through technical and consulting service arrangements and obtaining the net assets of VIE through purchase of their equities at essentially no cost basis (by virtue of TBET’s ownership of CTP and CTP’s ownership of WFOE). TBET therefore concluded that its interest in the VIE is not a noncontrolling interest and therefore it is not classified as such. The amount of noncontrolling interest of the original shareholders of YSTP holding shares of the VIE for the TBET is zero. They exercise no controls over the VIE and no financial interests of ownership are due to them either for periodic income or the net assets. Indeed, they have ceded all such rights to WFOE (and, as a result, TBET) though the Control Agreements. Accordingly, the accompanying financial statements show the operations of TBET and its subsidiaries as well as YSTP as being operated under the common control of TBET.

Prior to these transactions, TBET, CTP, and WFOE were holding companies. Pursuant to ASC 805, the above transactions were accounted for as reorganization under common control. TBET presents the operation of YSTP since inception on a historical pro forma basis in the accompanying financial statements.

Translation Adjustment

As of June 30, 2010 and December 31, 2009, the accounts of the Company were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (“CNY”). Such financial statements were translated into U.S. Dollars (“USD”) in accordance with the Foreign Currency Matters Topic of the FASB Accounting Standards Codification (“ASC 830”), with the CNY as the functional currency. According to ASC 830, all assets and liabilities were translated at the current exchange rate,

F-8

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Translation Adjustment (Continued)

for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the stockholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate Comprehensive Income Topic of the FASB Accounting Standards Codification (“ASC 220”), as a component of shareholders’ equity. Transaction gains and losses are reflected in the income statement.

Use of Estimates

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

Comprehensive Income

The Company follows the Comprehensive Income Topic of the FASB Accounting Standards Codification (“ASC 220”). Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

Risks and Uncertainties

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC’s economy. The Company’s business may be influenced by change in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

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

Contingencies

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

F-9

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Contingencies (Continued)

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Cash Equivalents

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

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. There are no allowances for doubtful accounts as of June 30, 2010 and December 31, 2009.

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. As of June 30, 2010 and December 31, 2009, inventories consist of the following:

	6/30/2010		12/31/2009
Raw materials	$	1,084,732	$	579,118
Package materials		255,701		137,902
Finished goods	$	394,195	$	588,517
Total	$	1,734,628	$	1,305,537

Property, Plant & Equipment

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

Buildings	20 years
Machinery and equipments	10 years
Motor vehicles and others	5 years

F-10

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant & Equipment (Continued)

As of June 30, 2010 and December 31, 2009, Property, Plant & Equipment consist of the following:

	6/30/2010			12/31/2009
Buildings	$	5,434,037		$	5,405,533
Machinery and equipments	$	3,464,975		$	3,306,859
Motor vehicles and others	$	706,275		$	702,570
Sub-total	$	9,605,287		$	9,414,962
Less: Accumulated depreciation	$	(3,232,112	)	$	(2,861,848	)
Property, plant and equipment, net	$	6,373,175		$	6,553,113

Depreciation expenses totaled $353,152 and $351,562 for the six months ended June 30, 2010 and 2009, respectively.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from ten to fifty years. Management evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No impairments of intangible assets have been identified during any of the periods presented. The land use right will expire in 2050. All of the Company’s intangible assets are subject to amortization with estimated lives of:

Land use right	50 years
Proprietary technologies	10 years

F-11

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangible Assets (Continued)

As of June 30, 2010 and December 31, 2009, the components of finite-lived intangible assets are as follows:

	6/30/2010			12/31/2009
Proprietary technologies	$	1,769,539		$	1,760,253
Land use right		294,919			293,376
		2,064,458			2,053,629
Less: Accumulated amortization:		(1,387,611	)		(1,289,386	)
	$	676,847		$	764,243

Amortization expense for the six months ended June 30, 2010 and 2009 were $ 91,124 and $ 90,781 respectively.

The estimated future amortization expenses related to intangible asset as of June 30, 2010 are as follows:

Years ended June 30,
2011	182,248
2012	182,248
2013	138,156
2014	5,879
2015	5,879
Thereafter	162,437

Long-Lived Assets

The Company adopted the Property, Plant and Equipment in accordance with FASB Accounting Standard Codification (“ASC 360”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of June 30, 2010 and December 31, 2009, there were no impairments of its long-lived assets.

F-12

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company’s revenue recognition policies are in compliance with the Revenue Recognition Topic of the FASB Accounting Standards Codification (“ASC 605”). Sales 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, no other significant obligations of the Company exist and collectibility is reasonably assured.

Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. Accordingly, revenue is recognized when products are delivered to and received by the distributors.

If the products sold have quality issues, the Company is responsible because of the product warranty included in each sale. However, the customers cannot return merchandise without permission of the Company. The return is recorded on the date the return is authorized. A quality warranty reserve provision has been made for the anticipated cost to replace items. The quality reserve accruals in amount of $977,612 and $705,681 as of June 30, 2010 and December 31, 2009, respectively, were included in the Accrued expenses and other payables on the consolidated balance sheets.

Revenues are recorded net of value-added taxes.

Prepaid Expenses

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company records payments made to advertising companies for the purpose of reserving prime-time advertising space as prepaid expenses in the consolidated balance sheet. The Company expenses the prepaid advertising amount when the advertisement is published or aired. All other advertising costs are expensed as incurred.

Also, included in prepaid expenses is GMP authentication, which is being amortized during the period of the certificate of authentication.

Research and development costs

Research and development costs are incurred in the development of the new products and processes, including significant improvements and refinements to existing products. All research and development costs are expensed as incurred.

Income Taxes

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

F-13

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes (Continued)

There are no differences between the Company’s tax bases of assets and liabilities and their financial reporting amounts, and therefore, there are no deferred tax assets or deferred tax liabilities.

The Company is entitled to exemption from PRC income tax between 2008 and 2012. According to tax preferential policy of Yunnan Diqing Tibet Autonomous State and approval of governmental tax agency, after approval of document by the tax bureau of the People’s Government Office of Yunnan Diqing Autonomous State, the tax bureau of the Yunnan Diqing Tibet Autonomous State agreed to exempt the Company from income tax for 5 years between 2008 and 2012. The dollar effect of this tax holiday is $1,556,962 and $912,217 for the six months ended June 30, 2010 and 2009, respectively. The per share effect is $0.13 per share for the first half of 2010 and $0.08 per share for the same period of 2009.

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for uncertainty in Income Taxes.” FIN 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition and clearly scopes income taxes out of SFAS 5, “Accounting for Contingencies.” FIN 48 is effective for fiscal years beginning after December 15, 2006. As a result of implementing FIN 48, there have been no adjustments to the Company’s financial statements. SFAS No. 109 and FIN 48 were superseded by the Income Taxes Topic of the FASB Accounting Standards Codification (“ASC 740”) in September 2009. However, this portion of the codification has no application to the Company as stated above.

Statement of Cash Flows

In accordance with the Statement of Cash Flows Topic of the FASB Accounting Standards Codification (“ASC 230”), cash flows from the Company’s operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. As of December 31, 2009, there was no allowance for uncollectible accounts as previously discussed.

F-14

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Segment Reporting

The Company operates and manages its business as a single segment that includes primarily the development, manufacture and sale of modernized traditional Chinese medicine. The Company’s chief operating decision maker has been identified as Mr. Guo, the Chief Executive Officer, who reviews the consolidated results when making decisions about allocating resources and assessing performance of the Company.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that will have a material impact on the Company’s consolidated financial statements.

Note 3 – INDEBTEDNESS

Long-term debts were as follows:

	June 30, 2010		December 31, 2009
Secured long-term loans	$	3,601,005	$	3,582,116

The interest expense was $90,625 and $90,251 for the six months ended June 30, 2010 and 2009, respectively.

The secured long-term bank loans are secured by a pledge of certain of the Company’s machinery equipment and buildings. As of June 30, 2010 and December 31, 2009, the secured long-term loans consisted of two bank loans. Both are due in November 2011 with annual interest rate of 5.05%

F-15

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 4 – COMPENSATED ABSENCES

Regulation 45 of the local labor law of the People’s Republic of China (“PRC”) entitles employees to `annual vacation leave after one year of service. In general, all leave must be utilized annually, with proper notification. Any unutilized leave is cancelled.

Note 5 – TRADE DEPOSITS

The Company advances to certain vendors for the purchase of materials. As of June 30, 2010 and December 31, 2009, the advances to suppliers amounted to $0 and $98,888, respectively.

Note 6 – RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The Revenue derived from related party transactions for the six months ended June 30, 2010 and June 30, 2009, were $2,452,020 and $2,227,093, respectively. As of June 30, 2010 and December 31, 2009, the balance of accounts receivable from related party were $946,008 and $342,000. As of June 30, 2010 and December 31, 2009, the balance of due from shareholders was $0 and $1,550,085, respectively. Such amount is non-interest bearing and due upon demand.

Note 7 – STATUTORY RESERVE

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

Statutory Reserve funds are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of June 30, 2010 and December 31, 2009, the Company had allocated $3,101,359 and $2,811,323, respectively, to these non-distributable reserve funds.

F-16

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 8 – OTHER COMPREHENSIVE INCOME

Balances of related after-tax components comprising accumulated other comprehensive income, included in stockholders’ equity, as of June 30, 2010 and December 31, 2009, are as follows:

	Foreign Currency Translation Adjustment		Accumulated Other Comprehensive Income
Balance at December 31, 2009	$	694,588	$	694,588
Change for six months ended June 30, 2010		93,062		93,062
Balance at June 30, 2010	$	787,650	$	787,650

Note 9 – MAJOR CUSTOMERS AND CREDIT RISK

Details of customers accounting for 10% or more of total net sales of the Company are as follows:

	June 30,
	2010				2009
Kunming Shangri-La Medicine Co., Ltd ( related party)	$	2,452,020	17	%	$	2,227,093	22	%
Hangzhou Hesheng Medicine Co., Ltd		1,471,990	10	%		1,228,023	13	%
Total	$	3,924,010	27	%	$	3,455,115	35	%

Note 10 – COMMON STOCK

In March 2010, a total of 30,000 shares of Company stock were subscribed by three investors. Two investors paid their subscriptions in April 2010, and the third investor paid in June 2010, for a total of $120,000.

On December 30, 2009, the Company issued 150,000 shares of Company stock, valued at $157,500, to the CEO, for services rendered to the Company.

Note 11 – EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share of common stock:

	June 30,
	2010		2009
Basic and diluted earnings per share:
Numerator:
Net income used in computing basic earnings per share	$	6,227,846	$	3,648,866
Net income applicable to common shareholders	$	6,227,846	$	3,648,866
Denominator:
Weighted average common shares outstanding		11,797,914		11,632,500
Basic and diluted earnings per share	$	0.53	$	0.31

F-17

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(UNAUDITED)

Note 12 – SUBSEQUENT EVENTS

In July 2010, the Company changed its name to Tibet Pharmaceuticals, Inc.

In accordance with ASC 855, “Subsequent Events”, the Company has evaluated subsequent events after the balance sheet date of June 30, 2010 through September 21, 2010, and has determined all material subsequent events have been disclosed.

F-18

TIBET PHARMACEUTICALS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

F-19

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm	F-21
CONSOLIDATED BALANCE SHEETS	F-22
CONSOLIDATED STATEMENTS OF INCOME	F-23
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-24
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY	F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-26 – F-38

F-20

ACSB Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

517 Route one	1 Penn Plaza
Iselin, New Jersey, 08830	36th Floor
732.855.9600	New York, NY 10119

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Tibet Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheet of Tibet Pharmaceuticals, Inc. as of December 31, 2009 and December 31, 2008, and the related consolidated statement of income, stockholders’ equity and comprehensive income, and cash flow for each of the two years ended December 31, 2009. Tibet Pharmaceuticals, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tibet Pharmaceuticals, Inc. as of December 31, 2009 and December 31, 2008, and the consolidated results of its operation and its cash flow for each of the two years ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

/s/ Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

Certified Public Accountants

New York, N.Y.

July 19, 2010

F-21

TIBET PHARMACEUTICAS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2009 AND 2008

	2009			2008
ASSETS
Current Assets
Cash and cash equivalents	$	4,081,752		$	2,711,552
Accounts receivable- related party		342,000			1,277,550
Accounts receivable- non-related party		4,266,075			1,703,148
Other receivables		101,948			101,578
Trade deposits paid in advance		98,888			11,939
Inventories		1,305,537			1,419,099
Total current assets		10,196,200			7,224,866
Property, plant and equipment, net		6,553,113			7,231,210
Intangible assets		764,243			942,707
Prepaid expenses		439,399			583,741
Total Assets	$	17,952,955		$	15,982,524
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	2,830,032		$	1,515,977
Accrued expenses and other payables		933,099			721,570
Value-added tax payable		70,512			106,168
Total current liabilities		3,833,643			2,343,715
Long-term Liabilities
Long-term loan		3,582,116			3,569,132
Total liabilities		7,415,759			5,912,847
Stockholders’ Equity:
Common stock, $0.001 par value, 50,000,000 shares authorized, 11,782,500 and 11,632,500 issued and outstanding as of 12/31/09 and 12/31/08		11,782			11,632
Additional paid in capital		8,375,795			8,218,445
Retained earnings		193,793			1,129,863
Accumulated other comprehensive income		694,588			651,895
Statutory reserve		2,811,323			1,415,563
Total		12,087,281			11,427,398
Due from shareholder		(1,550,085	)		(1,357,721	)
Total stockholders’ equity		10,537,196			10,069,677
Total Liabilities and Stockholders’ Equity	$	17,952,955		$	15,982,524

The accompanying notes are an integral part of these financial statements.

F-22

TIBET PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	2009			2008
Sales, net	$	23,008,031		$	15,580,269
Cost of sales		(11,303,118	)		(7,857,884	)
Gross profit		11,704,913			7,722,385
Selling, general and administrative expense		(2,289,036	)		(1,630,425	)
Income from operations		9,415,877			6,091,960
Interest income		14,062			19,172
Interest expenses and bank charges		(184,961	)		(177,649	)
Total Other Income (Expense)		(170,899	)		(158,477	)
Net income	$	9,244,978		$	5,933,483
Net income per common share
Basic and diluted		0.79			0.51
Weighted average common shares outstanding
Basic and diluted		11,633,322			11,632,500
Consolidated Statements of Comprehensive Income
Net income	$	9,244,978		$	5,933,483
Other comprehensive income (loss)		42,693			651,895
Comprehensive income (loss)	$	9,287,671		$	6,585,378

The accompanying notes are an integral part of these financial statements.

F-23

TIBET PHARMACEUTICALS, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	Years Ended December 31,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,244,978		$	5,933,483
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation		703,124			611,935
Amortization		181,563			175,426
Stock based compensation		157,500			—
Changes in assets and liabilities provided/(used) cash:
Accounts receivable		(1,613,598	)		(961,302	)
Other receivables		0			(24,758	)
Trade deposit paid		(86,749	)		199,821
Inventories		118,509			(304,580	)
Intangible assets		0			—
Prepaid expenses		146,200			141,259
Accounts payable		1,306,164			573,340
Accrued expenses and other payables		208,525			(199,798	)
Value-added tax payable		(35,977	)		42,848
Net cash provided by operating activities		10,330,239			6,187,674
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment		—			(642,112	)
Purchase of Intangible assets		—			—
Net cash used in investing activities		0			(642,112	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend Paid		(8,785,288	)		(4,244,182	)
Due from shareholder		(187,085	)		(137,839	)
Net cash used in financing activities		(8,972,373	)		(4,382,021	)
Effect of exchange rate changes on cash and cash equivalents		12,334			132,253
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,370,200			1,295,796
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		2,711,552			1,415,756
CASH AND CASH EQUIVALENTS, END OF YEAR	$	4,081,752		$	2,711,552
SUPPLEMENTAL DISCLOSURES:
Interest paid	$	180,568		$	174,466

The accompanying notes are an integral part of these financial statements.

F-24

TIBET PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	Shares of Common Stock Outstanding		Common Stock		Additional Paid-in Capital		Accumulated Retained			Statuary Reserve		Accumulated Other Comprehensive Income/		Total			Due from shareholder			Total Shareholders' Equity
Balance, January 1, 2008		11,632,500	$	11,632	$	8,218,445	$	316,466		$	539,659	$	0	$	9,086,202			(1,139,851	)		7,946,352
Net income/(loss)								5,933,483							5,933,483						5,933,483
Distribution- Net income								(4,244,182	)						(4,244,182	)					(4,244,182	)
Transfer to statutory reserve								(875,904	)		875,904				0						0
Foreign currency translation													651,895		651,895						651,895
adjustments
Change in Due from shareholders’ equity															(217,870	)		(217,870	)
Balance, December 31, 2008		11,632,500	$	11,632	$	8,218,445	$	1,129,863			1,415,563	$	651,895	$	11,427,398			(1,357,721	)		10,069,677
Balance, January 1, 2009		11,632,500	$	11,632	$	8,218,445	$	1,129,863			1,415,563	$	651,895	$	11,427,398			(1,357,721	)		10,069,677
Stock based compensation		150,000		150		157,350									157,500						157,500
Net (income) loss								9,244,978							9,244,978						9,244,978
Distribution- Net income								(8,785,288	)						(8,785,288	)					(8,785,288	)
Transfer to statutory reserve								(1,395,760	)		1,395,760				0						0
Foreign currency translation																					0
adjustments													42,693		42,693						42,693
Change in Due from shareholders’ equity															(192,364	)		(192,364	)
Balance, December 31, 2009		11,782,500	$	11,782	$	8,375,795	$	193,793			2,811,323	$	694,588	$	12,087,281			(1,550,085	)		10,537,196

The accompanying notes are an integral part of these financial statements.

F-25

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

Note 1 – ORGANIZATION

Shangri-La Tibetan Pharmaceuticals, Inc. was incorporated on December 22, 2009 under the laws of British Virgin Islands. In July 2010, it changed its name to Tibet Pharmaceuticals, Inc. (“the Company”). China Tibetan Pharmaceuticals Limited (“CTP”), the Company's 100% owned subsidiary, was established in Hong Kong on January 6, 2010 as a limited liability company. Other than the equity interest in CTP, the Company does not own any assets or conduct any operations. CTP holds all of the outstanding equity interest in Yibo Information Consulting (Shenzhen) Company Ltd., a company established on March 18, 2010 in the PRC as a wholly foreign owned enterprise (“WFOE”). Other than the equity interest in WFOE, CTP does not own any assets or conduct any operations. Yunnan Diqing Shangri-La Tibetan Medicine Co., Ltd was incorporated on April 19, 2000 as a domestic Chinese corporation. On December 24, 2002, it changed its name to Yunnan Shangri-La Tibetan Pharmaceutical Group Limited (“YSTP”). YSTP is engaged in manufacturing, marketing, selling, researching and developing modernized traditional Tibetan medicines in China

WFOE conducts its business through YSTP via a series of contractual arrangements. YSTP is consolidated as a variable interest entity (“VIE”). The Company does not conduct any substantive operations of its own, but conducts its primary business operations through WFOE's VIE. The Company holds its interest in the VIE through WFOE.

Effective control over the VIE was transferred to the Company through the series of contractual arrangements without transferring legal ownership in the VIE (“reorganization”). As a result of these contractual arrangements, the Company maintained the ability to approve decisions made by the VIE and was entitled to substantially all of the economic benefits of the VIE, and therefore the Company consolidates the VIE. Immediately before and after the reorganization, the ultimate shareholder controlled the VIE; therefore, the reorganization is accounted for as a transaction between entities under common control. Accordingly, the accompanying consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the periods presented.

Chinese laws and regulations currently do not prohibit or restrict foreign ownership in pharmaceutical manufacturing businesses. However, Chinese laws and regulations do prevent direct foreign investment in certain industries. On March 26, 2010, to protect the Company’s shareholders from possible future foreign ownership restrictions, YSTP and all of the shareholders of YSTP entered into an entrusted management agreement with WFOE, which provides that WFOE will be entitled to the full guarantee for the performance of such contracts, agreements or transactions entered into by YSTP. WFOE is also entitled to receive the residual return of YSTP. As a result of the agreement, WFOE will absorb 100% of the expected losses and gains of YSTP, which results in WFOE being the primary beneficiary of YSTP.

WFOE also entered into a pledge of equity agreement with the principal shareholders, who pledged all their equity interest in these entities to WFOE. The pledge of equity agreement, which were entered into by each principal shareholder, pledged each of the principal shareholders’ equity interest in WFOE as a guarantee for the entrustment payment under the Entrusted Management Agreement. The provincial Administration for Industry and Commerce approved and registered such pledge of equity by which WFOE owns the right of pledge legally.

In addition, WFOE entered into an option agreement to acquire the principal shareholders’ equity interest in these entities at such times as it may wish to do so.

F-26

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 1 – ORGANIZATION (Continued)

The followings are brief description of contracts entered between WFOE and YSTP:

(1) Entrusted Management Agreement. The domestic companies, YSTP and WFOE, have entered into an Entrusted Management Agreement, which provides that WFOE will be fully and exclusively responsible for the management of YSTP. As consideration for such services, YSTP has agreed to pay WFOE the management fee during the term of this agreement and the management fee shall equal to YSTP’s estimated earnings before tax. Also, WFOE will assume all operating risks related to this entrusted management service to YSTP and bear all losses of YSTP. The term of this agreement will be from the effective date thereof to the earlier of the following: (1) the winding up of YSTP, or (2) the termination date of this Agreement to be determined by the parties hereto, or (3) the date on which WFOE completes the acquisition of YSTP.

(2) Exclusive Option Agreement. All the shareholders of YSTP as well as YSTP has entered into an Exclusive Option Agreement with WFOE, which provides that WFOE will be entitled to acquire such shares form the current shareholders upon certain terms and conditions, meanwhile WFOE will be entitled an irrevocable exclusive purchase option to purchase all or part of the assets and business of YSTP, if such a purchase is or becomes allowable under PRC laws and regulations. The Exclusive Option Agreement also prohibits the current shareholders of YSTP as well as YSTP from transferring any portion of their equity interests, business or assets to anyone other than WFOE. WFOE has not yet taken any corporate action to exercise this right of purchase, and there is no guarantee that it will do so or will be permitted to do so by applicable law at such times as it may wish to do so.

(3) Shareholders’ Voting Proxy Agreement. Each of the shareholders of YSTP has executed a Shareholders’ Voting Proxy Agreement to irrevocably appoint the persons designated by WFOE with the exclusive right to exercise, on their behalf, all of their Voting Rights in accordance with the laws and YSTP’s Articles of Association, including but not limited to the rights to sell or transfer all or any of their equity interests of YSTP, and to appoint and elect the directors and Chairman as the authorized legal representative of YSTP. This agreement will be only terminated prior to the completion of acquisition of all of the equity interests in, or all assets or business of YSTP.

(4) Pledge of Equity Agreement. WFOE and the shareholders of YSTP have entered into a Pledge of Equity Agreement, pursuant to which all shareholder pledges all of their shares (100%) of YSTP, as appropriate, to WFOE. If YSTP or any of its respective shareholders breaches its respective contractual obligations in the “Entrusted Management Agreement”, “Exclusive Option Agreement” and “Shareholders’ Voting Proxy Agreement”, WFOE as Pledge, will be entitled to certain rights to foreclose on the pledged equity interests. Such YSTP shareholders cannot dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest

Except for the disclosed above, there are no arrangements that could require the Company to provide financial support to the variable interest entities, including events or circumstances that could expose the Company to a loss. As stated in the disclosure of various agreements between the Company and its VIE, the Company has rights to acquire any portion of the equity interests of the VIE. Also the Company may allocate its available funds to its VIE for business purpose. There are no fixed terms of such arrangements. No one individual owns, directly or beneficially, 50% or more of the issued and outstanding shares of TBET; there are no immediate family members who own shares in TBET that together hold, directly or beneficially, 50% or more of the share of TBET; and there are no agreements or arrangements in place that gives any individual or any group of individuals the right to vote a majority of TBET’s shares. TBET owns 100% of the shares of CTP. CTP owns 100% of the shares of WFOE. Mr. Hong Yu holds the right to vote more than 50% of the issued and outstanding shares of YSTP. By reason of the Shareholder’s Voting Proxy Agreement described above, however, WFOE’s designee has the contractual right to vote 100% of the shares of YSTP. Specifically, in the Shareholders Voting Proxy Agreement, all of the shareholders of YSTP, including Mr. Yu, granted to WFOE, through its designee, the exclusive and irrevocable right to vote their shares in YSTP. WFOE has named Mr. Tiangui Li as the designee authorized to exercise the shareholders’ voting rights. Mr. Li holds a 100% equity interest in LEMANY Invest. Corp., a BVI Corporation, which in turn owns 4.78% of TBET’s shares. Neither Mr. Li nor LEMANY Invest. Corp. is a shareholder of YSTP.

F-27

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The Company's functional currency is the Chinese Renminbi; however the accompanying consolidated financial statements have been translated and presented in United States Dollars. These financial statements are prepared on a historical pro forma basis. The consolidated financial statements include the accounts of the Company, its subsidiary and variable interest entity (“VIE”) for which the Company is the primary beneficiary. All inter-company accounts and transactions have been eliminated in the consolidation. Please also refer to Note 1 for the discussion on accounting for the reorganization and acquisition.

Principles of Consolidation

Pursuant to US GAAP, YSTP is the VIE of the Company and the Company is the primary beneficiary of the VIE. Accordingly, the VIE has been consolidated in the Company’s financial statements.

TBET, CTP and WFOE were formed in 2009, 2010 and 2010, respectively, by YSTP and its shareholders. In connection with the formation of TBET, CTP and WFOE, WFOE entered into several VIE agreements, or Control Agreements, with YSTP and its shareholders.

Through the VIE agreements, the Company effectively has complete management and ownership control over YSTP, the VIE, and is able to dictate its operations. The equity holders of YSTP became the controlling owners of TBET. Looking to TBET, CTP, WFOE and YSTP together, there was no material change in ownership, as YSTP’s Mr. Yu and other YSTP founders, who had controlling interest in YSTP at all periods presented, became controlling shareholders of TBET. By reason of the VIE agreements, TBET is also able to obtain the financial interests such as obtaining periodic income of the VIE through technical and consulting service arrangements and obtaining the net assets of VIE through purchase of their equities at essentially no cost basis. The Company therefore concluded that its interest in the VIE is not a noncontrolling interest and therefore it is not classified as such. The amount of noncontrolling interest of the original shareholders of YSTP holding shares of the VIE for the Company is zero. They exercise no controls over the VIE and no financial interests of ownership are due to them either for periodic income or the net assets. Accordingly, the accompanying financial statements show the operations of TBET and its subsidiaries as well as YSTP as being operated under the common control of TBET.

Prior to these transactions, TBET, CTP, and WFOE were holding companies. Pursuant to ASC 805, the above transactions were accounted for as reorganization under common control. The Company presents the operation of YSTP since inception on a historical pro forma basis in the accompanying financial statements.

Translation Adjustment

As of December 31, 2009 and 2008, the accounts of the Company were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (“CNY”). Such financial statements were translated into U.S. Dollars (“USD”) in accordance with the Foreign Currency Matters Topic of the FASB

F-28

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounting Standards Codification (“ASC 830”), with the CNY as the functional currency. According to ASC 830, all assets and liabilities were translated at the current exchange rate, stockholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the FASB Accounting Standards Codification (“ASC 220”), as a component of shareholders’ equity. Transaction gains and losses are reflected in the income statement.

Use of Estimates

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

Comprehensive Income

The Company follows the Comprehensive Income Topic of the FASB Accounting Standards Codification (“ASC 220”). Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

Risks and Uncertainties

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC’s economy. The Company’s business may be influenced by

change in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

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

Contingencies

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

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable

F-29

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Contingencies (Continued)

but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Cash Equivalents

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

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. These are no allowances for doubtful accounts as of December 31, 2009 and 2008.

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. As of December 31, 2009 and 2008, inventories consist of the following:

	December 31,
	2009		2008
Raw materials	$	579,118	$	748,648
Package materials		137,902		137,136
Finished goods	$	588,517	$	533,315
Total	$	1,305,537	$	1,419,099

Property, Plant & Equipment

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

Buildings	20 years
Machinery and equipment	10 years
Motor vehicles and other	5 years

F-30

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant & Equipment (Continued)

As of December 31, 2009 and 2008, Property, Plant & Equipment consist of the following:

	December 31,
	2009			2008
Buildings	$	5,405,533		$	5,385,940
Plant and machinery	$	3,306,859		$	3,294,873
Motor vehicles and other	$	702,570		$	700,023
Sub-total	$	9,414,962		$	9,380,836
Less: Accumulated depreciation	$	(2,861,848	)	$	(2,149,626	)
Property, plant and equipment, net	$	6,553,113		$	7,231,210

Depreciation expenses totaled $703,124 and $611,935 for the years ended December 31, 2009 and 2008, respectively.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from ten to fifty years. Management evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No impairments of intangible assets have been identified during any of the periods presented. The land use right will expire in 2050. All of the Company’s intangible assets are subject to amortization with estimated lives of:

Land use right	50 years
Proprietary technologies	10 years

The components of finite-lived intangible assets are as follows:

	December 31,
	2009			2008
Proprietary technologies	$	1,760,253		$	1,753,873
Land use right		293,376			292,312
		2,053,629			2,046,185
Less: Accumulated amortization:		(1,289,386	)		(1,103,479	)
	$	764,243		$	942,707

Amortization expense for the years ended December 31, 2009 and 2008 were $181,563, and $175,426 respectively.

F-31

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangible Assets (Continued)

The estimated future amortization expenses related to intangible asset as of December 31, 2009 are as follows:

2010	$	181,563
2011		181,563
2012		181,563
2013		5,857
2014		5,857
Thereafter	$	207,840

Long-Lived Assets

Effective January 1, 2002, the Company adopted the Property, Plant and Equipment Topic of the FASB Accounting Standard Codification (“ASC 360”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December 31, 2009 and 2008, there were no impairments of its long-lived assets.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with the Revenue Recognition Topic of the FASB Accounting Standards Codification (“ASC 605”). Sales 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, no other significant obligations of the Company exist and collectibility is reasonably assured.

Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company has distributor arrangements with certain parties for sale of its pharmaceutical products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. Accordingly, revenue is recognized when products are delivered to and received by the distributors.

If the products sold have quality issues, the Company is responsible because of the product warranty included in each sale. However, the customers cannot return merchandise without permission of the Company. The return is recorded on the date the return is authorized. A quality warranty reserve provision

F-32

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (Continued)

has been made for the anticipated cost to replace items. The quality reserve accruals in amount of $705,681 and $ 289,729 as of December 31, 2009 and 2008, respectively, were included in the Accrued expenses and other payables on the consolidated balance sheets.

Revenues are recorded net of value-added taxes.

Prepaid Expenses

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company records payments made to advertising companies for the purpose of reserving prime-time advertising space as prepaid expenses in the consolidated balance sheet. The Company expenses the prepaid advertising amount when the advertisement is published or aired. All other advertising costs are expensed as incurred.

Also, included in prepaid expenses is GMP authentication, which is being amortized during the period of the certificate of authentication.

Research and development costs

Research and development costs are incurred in the development of the new products and processes, including significant improvements and refinements to existing products. All research and development costs are expensed as incurred.

Income Taxes

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

The Company is entitled to exemption from PRC income tax between 2008 and 2012. According to tax preferential policy of Yunnan Diqing Tibet Autonomous State and approval of governmental tax agency, after approval of document by the tax bureau of the People’s Government Office of Yunnan Diqing Autonomous State, the tax bureau of the Yunnan Diqing Tibet Autonomous State agreed to exempt the Company from income tax for 5 years between 2008 and 2012. The dollar effect of this tax holiday is $2,311,245 and $1,483,371 for the year 2009 and 2008, respectively. The per share effect is $0.20 per share for 2009 and $0.13 per share for 2008.

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for uncertainty in Income Taxes.” FIN 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in

F-33

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes (Continued)

interim periods, disclosure and transition and clearly scopes income taxes out of SFAS 5, “Accounting for Contingencies.” FIN 48 is effective for fiscal years beginning after December 15, 2006. As a result of implementing FIN 48, there have been no adjustments to the Company’s financial statements. SFAS No. 109 and FIN 48 were superseded by the Income Taxes Topic of the FASB Accounting Standards Codification (“ ASC 740”) in September 2009. However, this portion of the codification has no application to the Company until 2010 as stated above.

Statement of Cash Flows

In accordance with the Statement of Cash Flows Topic of the FASB Accounting Standards Codification (“ASC 230”), cash flows from the Company’s operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. As of December 31, 2009, there was no allowance for uncollectible accounts as previously discussed.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued the following new accounting standards:

• FASB Staff Position FAS No. 157-4, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, (“FSP FAS No. 157-4”) provides guidelines for making fair value measurements more consistent with the principles presented in SFAS No. 157. FSP FAS No. 157-4 provides additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. It is applicable to all assets and liabilities (i.e., financial and non-financial) and will require enhanced disclosures. FSP FAS No. 157-4 was superseded by the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification (“ASC 820”).

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which is included in ASC Topic 855, Subsequent Events. ASC Topic 855 established principles and requirements for evaluating and reporting subsequent events and distinguishes which subsequent events should be recognized in the financial statements versus which subsequent events should be disclosed in the financial statements. ASC Topic 855 also required disclosure of the date through which subsequent events are evaluated by management. ASC Topic 855 was effective for interim periods ending after June 15, 2009 and applies prospectively. Because

F-34

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Recent Accounting Pronouncements (Continued)

ASC Topic 855 impacted the disclosure requirements, and not the accounting treatment for subsequent events, the adoption of ASC Topic 855 did not impact our results of operations or financial condition.

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The

FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value, which provides additional guidance on how companies should measure liabilities at fair value under ASC 820. The ASU clarifies that the quoted price for an identical liability should be used. However, if such information is not available, an entity may use, the quoted price of an identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities traded as assets, or another valuation technique (such as the market or income approach). The ASU also indicates that the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer and indicates circumstances in which quoted prices for an identical liability or quoted price for an identical liability traded as an asset may be considered level 1 fair value measurements. This ASU is effective October 1, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.

In December 2009, the FASB issued Accounting Standards Update, or ASU, 2009-17, “Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” or ASU 2009-17, which amends the FASB ASC for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R), issued by the FASB in June 2009. The amendments in this ASU replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach primarily focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb the losses of the entity or (2) the right to receive the benefits from the entity. ASU 2009-17 also requires additional disclosure about a reporting entity’s involvement in VIE, as well as any significant changes in risk exposure due to that involvement. ASU 2009-17 is effective for annual and interim periods beginning after November 15, 2009. Early application is not permitted. Please refer to “Principle of Consolidation” in the footnote 2 to the Financial Statements.

F-35

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 3 – INDEBTEDNESS

Long-term debts were as follows:

	December 31,
	2009		2008
Secured long-term loans	$	3,582,116	$	3,569,132

The interest expense was $180,568 and $174,466 for the years ended December 31, 2009 and 2008, respectively.

The secured long-term bank loans are secured by a pledge of certain of the Company’s machinery equipment and buildings.

As of December 31, 2009 and December 31, 2008, the secured long-term loans consisted of 2 bank loans. Both are due in November 2011 with annual interest rate of 5.05%

Note 4 – COMPENSATED ABSENCES

Regulation 45 of the local labor law of the People’s Republic of China (“PRC”) entitles employees to annual vacation leave after one year of service. In general, all leave must be utilized annually, with proper notification. Any unutilized leave is cancelled.

Note 5 – TRADE DEPOSITS PAID IN ADVANCE

The Company advances to certain vendors for the purchase of materials. As of December 31, 2009 and 2008, the advances to suppliers amounted to $98,888 and $11,939, respectively.

Note 6 – RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The Revenue derived from related party transactions for the years ended December 31, 2009 and 2008 were $5,301,094, and $ 4,313,685, respectively. As of December 31, 2009 and December 31, 2008, the balance of accounts receivable from related party were $ 342,000 and $1,277,550. As of December 31, 2009 and December 31, 2008, the balance of due from shareholders was $1,550,085 and $1,357,721, respectively. Such amount is non-interest bearing and due upon demand.

Note 7 – STATUTORY RESERVE

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

Statutory Reserve funds are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the

F-36

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 7 – STATUTORY RESERVE (CONTINUED)

Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of December 31, 2009 and 2008, the Company had allocated $2,811,323 and $1,415,563, respectively, to these non-distributable reserve funds.

Note 8 – OTHER COMPREHENSIVE INCOME

Balances of related after-tax components comprising accumulated other comprehensive income, included in stockholders’ equity, as of December 31, 2009 and 2008, are as follows:

	Foreign Currency Translation Adjustment		Accumulated Other Comprehensive Income
Balance at December 31, 2007		—		—
Change for 2008		651,895		651,895
Balance at December 31, 2008	$	651,895	$	651,895
Change for 2009		42,693		42,693
Balance at December 31, 2009	$	694,588	$	694,588

Note 9 – MAJOR CUSTOMERS AND CREDIT RISK

Details of customers accounting for 10% or more of total net sales of the Company are as follows:

	December 31,
	2009				2008
Kunming Shangri-La Medicine Co., Ltd (related party)	$	5,301,094	23.0	%	$	4,313,685	27.7	%
Hangzhou Hesheng Medicine Co., Ltd	$	2,907,817	12.6	%	$	1,583,471	10.2	%
Total	$	8,208,911	35.6	%	$	5,897,156	37.9	%

Note 10 – SEGMENT REPORTING

The Company operates and manages its business as a single segment that includes primarily the development, manufacture and sale of modernized traditional Chinese medicine. The Company’s chief operating decision maker has been identified as Mr. Guo, the Chief Executive Officer, who reviews the consolidated results when making decisions about allocating resources and assessing performance of the Company.

The revenues attributable to our product groups are as follows:

	December 31,
	2009		2008
25 Ingredients Mandrake Pill	$	11,185,718	$	7,789,246
15 Ingredients Gentiana Pill	$	4,941,706	$	3,120,079
18 Ingredients Chebulic ( Myrobalan) Frusemide Pill	$	2,451,670	$	1,567,877
Pomegranate Nichirin Pill	$	2,265,810	$	1,535,484
28 Ingredients Pinang Pill	$	2,163,127	$	1,567,583
Total	$	23,008,031	$	15,580,269

F-37

TIBET PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 31, 2009

Note 11 – COMMON STOCK

On December 30, 2009, the Company issued 150,000 shares of Company stock, valued at $157,500, to the CEO, Mr. Taylor Guo, for services rendered to the Company.

Note 12 – EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share of common stock:

	Year Ended December 31,
	2009		2008
Basic and diluted earnings per share:
Numerator:
Net income used in computing basic and diluted earnings per share	$	9,244,978	$	5,933,483
Net income (loss) applicable to common shareholders	$	9,244,978	$	5,933,483
Denominator:
Weighted average common shares outstanding		11,633,322		11,632,500
Basic and diluted earnings per share	$	0.79	$	0.51

Note 13 – SUBSEQUENT EVENT

For the year ended December 31, 2009, the Company has evaluated subsequent events for potential recognition and disclosure.

In July 2010, the Company changed its name to Tibet Pharmaceuticals, Inc., which was disclosed in the footnote 1 to the financial statements.

In March 2010, a total of 30,000 shares of Company stock were subscribed but unpaid by three investors. Thereafter, two investors paid their subscription fee in April 2010, and the third investor paid in June 2010, for a total of $120,000.

F-38

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

TABLE OF CONTENTS

Prospectus Summary	1
Risk Factors	11
Forward Looking Statements	42
Our Business	43
Use of Proceeds	46
Dividend Policy	47
Exchange Rate Information	47
Capitalization	48
Dilution	49
Post-Offering Ownership	50
Management’s Discussion and Analysis of Financial Condition and Results of  Operations	52
Our Business	70
Regulations	88
Management	93
Related Party Transactions	99
Description of Share Capital	101
Differences in Corporate Law	102
Principal Shareholders	106
Shares Eligible for Future Sale	107
Enforceability of Civil Liabilities	114
Placement	115
Legal Matters	119
Experts	119
Interests of Experts and Counsel	119

Where You Can Find More Information	119
Financial Pages	F-1

Until                     , 2010 (90 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as a Placement Agent and with respect to unsold allotments or subscriptions.

TIBET

PHARMACEUTICALS, INC.

Common Shares

2,500,000 Share Minimum

3,000,000 Share Maximum

Prospectus

Anderson & Strudwick,

Incorporated

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The estimated expenses payable by us in connection with the offering described in this registration statement (other than the placement discounts and commissions) will be as follows. We do not anticipate material U.S. or state tax-related expenses inasmuch as we are a BVI company and do not have any physical operations in the United States. In addition to the U.S. legal fees referenced below, attorneys for our U.S. counsel also received an equity position in our company from a third party. See “Our Business—Control Agreements.” As these shares involve no cash payment and do not affect the proceeds from the offering, they are not presented in the table below. With the exception of the filing fees for the U.S. Securities Exchange Commission, FINRA and NASDAQ, all amounts are estimates.

U.S. Securities Exchange Commission registration fee	$	1,456.68
FINRA filing fee	$	2,543.03
NASDAQ listing fee	$	125,000
Legal fees and expenses for Chinese counsel	$	70,000
Legal fees and expenses for British Virgin Islands counsel	$	10,000
Legal fees and expenses for U.S. counsel	$	230,000
Accounting fees and expenses	$	130,000
Printing fees	$	30,000
Misc.	$	1,000.29
Total	$	600,000

Item 14. Indemnification of Directors and Officers

British Virgin Islands law and our articles of association provide that we may indemnify our directors, officers, advisors and trustee acting in relation to any of our affairs against actions, proceedings, costs, charges, losses, damages and expenses incurred by reason of any act done or omitted in the execution of their duty in their capacities as such. Under our articles of association, indemnification is not available, however, if those events were incurred or sustained by or through their own willful neglect or default.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

Item 15. Recent Sales of Unregistered Securities

We have issued a total of 11,812,500 shares in the aggregate to 29 shareholders upon the reorganization of our company, in transactions that were not required to be registered under the Securities Act of 1933. All issuances of common shares to these shareholders were deemed to be exempt under the Securities Act by virtue of Section 4(2) thereof as transactions not involving any public offering. In addition, the issuance of 11,033,750 (10,983,750 to our founders and another 30,000 to early-stage investors) were deemed not to fall within Section 5 under the Securities Act and to be further exempt under Rules 901 and 903(b)(1) of Regulation S by virtue of being issuances of securities by non-U.S. companies to non-U.S. citizens or residents, conducted outside the United States and not using any element of interstate commerce.

	Date of Issue	No. of Common Shares	Consideration	Securities Registration Exemption
Fulcan Investments, LLC (Hayden Zou and Philip Zou)	22-Dec.-2009 01-July-2010	424,375	$245,965.28	Securities Act Section 4(2)
RMCC Investments, LLC	30-Jan.-2010	177,188	Received assignment of shares purchased by Fulcan Investments, LLC in consideration of services provided to Fulcan Investments, LLC and TBET	Securities Act Section 4(2)
Broadview-Richfield Holdings, LLC	30-Jan.-2010	177,187	Received assignment of shares purchased by Fulcan Investments, LLC in consideration of services provided to Fulcan Investments, LLC and Tai Shan.	Securities Act, Section 4(2)
One early- stage investor	01-July-2010	20,000	An early-stage investor who received assignment of shares purchased by Fulcan Investments, LLC in consideration of $300 and services provided to Fulcan Investments, LLC and TBET	Securities Act, Section 4(2); Regulation S, Rules 901 and 903(b)
YSTP Shareholders	30-March-2010	10,983,750	Surrender of interests in TBET	Securities Act, Section 4(2); Regulation S, Rules 901 and 903(b)
Other early-stage investors	13-April-2010 19-June-2010	30,000	$120,000	Securities Act, Section 4(2); Regulation S, Rule 901 and 903(b)

II-1

All recipients either received adequate information about the registrant or had access, through their relationships with the registrant, to such information. There were no underwriters employed in connection with any of the transactions set forth above.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

The following exhibits are filed herewith or incorporated by reference in this prospectus:

Exhibit Number	Document
1.1	Form of Placement Agreement, as amended (2)
3(i).1	Articles of Association of the Registrant (1)
3(i).2	Amended and Restated Articles of Association of the Registrant (2)
3(i).3	Articles of Association of Registrant reflecting name change (1)
3(ii).1	Memorandum of Association of the Registrant (1)
3(ii).2	Amended and Restated Memorandum of Association of Registrant (2)
3(ii).3	Memorandum of Association of Registrant reflecting name change (1)
4.1	Specimen Share Certificate (1)
4.2	Form of Placement Agent Warrant (included in Ex. 10.1) (1)
5.1	Form of Opinion of Kaufman & Canoles, P.C., Virginia counsel (1)
5.2	Form of Opinion of Kaufman & Canoles, P.C., British Virgin Islands counsel (1)
10.1	Form of Placement Agent Warrant Agreement (1)
10.2	Translation of Entrusted Management Agreement for YSTP (1)
10.3	Translation of Shareholder Voting Proxy Agreement for WFOE (1)
10.4	Translation of Pledge of Equity Interest Agreement for WFOE (1)
10.5	Translation of Exclusive Option Agreement for YSTP (1)
10.6	Form of Lock-Up Agreement (1)
10.7	(Withdrawn)
10.8	Translation of Medicinal Materials Procurement Contract (Ba Sang) (1)
10.9	Translation of Medicinal Materials Procurement Contract (Chun Sheng) (1)

II-2

Exhibit Number	Document
10.10	Translation of Medicinal Materials Procurement Contract (Cili Peichu) (1)
10.11	Translation of Medicinal Materials Procurement Contract (Kunming Morningstar Printing Co.) (1)
10.12	Translation of Medicinal Materials Procurement Contract (Xiong Ba) (1)
10.13	Translation of Sales Contract (Hangzhou Hesheng Medicine Co. Ltd) (1)
10.14	Translation of Sales Contract (Kunming Shangri-La Medicine Co. Ltd.) (1)
10.15	Translation of Agreement on Prescription and Industrialization Development of Tibetan Medicine (Kunming Institute of Botany of Chinese Academy Of Sciences) (1)
10.16	Translation of Agreement on Research into Tibetan Medicine Pharmacology and Effect (Second Military Medical University of Chinese People’s Liberation Army) (1)
10.17	Retainer Contract (Taylor Z. Guo) (1)
10.18	Retainer Contract (Sabrina Ren) (1)
10.19	Retainer Contract (Hong Yu) (1)
10.20	Form of Escrow Agreement (2)
10.21	Letter of Engagement and attachments with Trilogy Capital Markets, Inc. as amended (1)
21.1	Subsidiaries and Affiliate of the Registrant (1)
23.1	Consent of Acquavella, Chiarelli, Shuster, Berkower & Co., LLP (2)
23.2	Consent of Kaufman & Canoles, Virginia counsel (included in Exhibit 5.1) (1)
23.3	Consent of Kaufman & Canoles, British Virgin Islands counsel (included in Exhibit 5.2) (1)
23.4	Consent of DeHeng Law Offices, Chinese counsel (included in Exhibit 99.1) (1)
24.1	Power of Attorney (included at page II-6) (1)
99.1	Form of Opinion of DeHeng Law Offices, Chinese counsel (1)
99.2	Code of Business Conduct and Ethics (1)

⁽¹⁾ Previously filed.

⁽²⁾ Filed herewith.

(b) Financial Statement Schedules

None.

Item 17. Undertakings

The Registrant hereby undertakes:

(a) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

(i) include any prospectus required by section 10(a)(3) of the Securities Act;

(ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

II-3

(b) that, for the purpose of determining any liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) to file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

(e) that insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registration of expenses incurred or paid by a director, officer or controlling person to the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(f) that, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(g) that, for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of the securities, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) any preliminary prospectus or prospectus of the Registrant relating to the offering filed pursuant to Rule 424;

(ii) any free writing prospectus relating to the offering prepared by or on behalf of the Registrant or used or referred to by the Registrant;

(iii) the portion of any other free writing prospectus relating to the offering containing material information about the Registrant or its securities provided by or on behalf of the Registrant; and

(iv) any other communication that is an offer in the offering made by the Registrant to the purchaser.

(h) to provide to the Placement Agent at the closing specified in the Placement Agent agreements, certificates in such denominations and registered in such names as required by the Placement Agent to permit prompt delivery to each purchaser.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the People’s Republic of China, on the 22nd day of October, 2010.

TIBET PHARMACEUTICALS, INC.

/S/    TAYLOR Z. GUO        

Taylor Z. Guo

Chief Executive Officer

(Principal Executive Officer)

Date: October 22, 2010

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
*         Hong Yu	Chairman of the Board of Directors	October 22, 2010
/s/    TAYLOR Z. GUO         Taylor Z. Guo	Chief Executive Officer, Director (Principal Executive Officer)	October 22, 2010
/s/    SABRINA Y. REN         Sabrina Y. Ren	Chief Financial Officer (Principal Accounting and Financial Officer)	October 22, 2010
*         Dr. Wenbo Chen	Director	October 22, 2010
*         Youhang Peng	Director	October 22, 2010
*         Solomon Chen	Director	October 22, 2010
/s/             Youhang Peng	Authorized Representative in the U.S.	October 22, 2010

*by:	/S/    TAYLOR Z. GUO
	Taylor Z. Guo. Atty in Fact
	October 22, 2010

II-5

EX-1.1

Exhibit 1.1

TIBET PHARMACEUTICALS, INC.

(a British Virgin Islands company)

Minimum Offering: 2,500,000 Common Shares

Maximum Offering: 3,000,000 Common Shares

($         per share)

PLACEMENT AGREEMENT

_______ __, ___

Anderson & Strudwick, Incorporated

707 East Main Street, 20^th Floor

Richmond, Virginia 23219

Ladies and Gentlemen:

The undersigned, Tibet Pharmaceuticals, Inc., a British Virgin Islands company (the “Company”), hereby confirms its agreement with you as follows:

1. Introduction. This Agreement sets forth the understandings and agreements between the Company and you whereby, subject to the terms and conditions herein contained, you will offer to sell, on a “best efforts, minimum/maximum” basis on behalf of the Company as provided in Section 4(a) (the “Offering”), at an offering price of U.S. $             per share, a minimum of 2,500,000 common shares and a maximum of 3,000,000 common shares, to be issued by the Company (the “Shares”). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Prospectus prepared by the Company and dated [            ] (the “Prospectus”).

2. Representations and Warranties of the Company. The Company makes the following representations and warranties to you:

(a) Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 (File No. 333-166854) (as defined below, the “Registration Statement”) conforming to the requirements of the Securities Act of 1933, as amended (the “1933 Act”), and the applicable rules and regulations (the “Rules and Regulations”) of the Commission. Such amendments to such Registration Statement as may have been required prior to the date hereof have been filed with the Commission, and such amendments have been similarly prepared. Copies of the Registration Statement, any and all amendments thereto prepared and filed with the Commission, and each related Preliminary Prospectus, and the exhibits, financial statements and schedules, as finally amended and revised, have been delivered to you for review. The term “Registration Statement” as used in this Agreement shall mean the Company’s Registration Statement on Form S-1, including the Prospectus, any documents incorporated by reference therein, and all financial schedules and exhibits thereto, as amended on the date that the Registration Statement becomes effective. The term “Prospectus” as used in this Agreement shall mean the prospectus relating to the Shares in the form in which it was filed with the Commission pursuant to Rule 424(b) of the 1933 Act or, if no filing pursuant to Rule 424(b) of the 1993 Act is required, shall mean the form of the final prospectus included in the Registration Statement when the Registration Statement becomes effective. The term “Preliminary Prospectus” shall mean any prospectus included in the Registration Statement before it becomes effective. The terms “effective date” and “effective” refer to the date the Commission declares the Registration Statement effective pursuant to Section 8 of the 1933 Act.

(b) A registration statement on Form 8-A (File No. 001-                ) in respect of the registration of the Shares under the U.S. Securities Exchange Act of 1934, as amended (the “1934 Act”), has been filed with the Commission. Such registration statement in the form heretofore delivered to you has been declared effective by the Commission in such form. No other document with respect to such registration statement has heretofore been filed with the Commission. No stop order suspending the effectiveness of such registration statement has been issued and no proceeding for that purpose has been initiated, or to the knowledge of the Company after due inquiry threatened, by the Commission (the various parts of such registration statement, including all exhibits thereto, each as amended at the time such part of the registration statement became effective, being hereinafter called the “Form 8-A Registration Statement”). The Form 8-A Registration Statement when it became effective conformed, and any

further amendments thereto will conform, in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and did not and will not, as of the applicable effective date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

(c) Adequacy of Disclosure. Each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the 1933 Act and the Rules and Regulations, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by you expressly for use in the Registration Statement. When the Registration Statement shall become effective, when the Prospectus is first filed pursuant to Rule 424(b) of the Rules and Regulations, when any amendment to the Registration Statement becomes effective, when any supplement to the Prospectus is filed with the Commission and on the Closing Date (as hereinafter defined), (i) the Registration Statement, the Prospectus and any amendments thereof and supplements thereto will conform in all material respects with the applicable requirements of the 1933 Act and the Rules and Regulations, and (ii) neither the Registration Statement, the Prospectus nor any amendment or supplement thereto will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by you expressly for use in the Registration Statement.

(d) No Stop Order. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus with respect to the Shares, and no proceedings for that purpose have been instituted or threatened by the Commission or the state securities or blue sky authority of any jurisdiction.

(e) Company; Organization and Qualification. The Company has been duly incorporated and is validly existing in good standing under the laws of the British Virgin Islands with all requisite corporate power and authority to enter into this Agreement, to conduct its business as now conducted and as proposed to be conducted, and to own and operate its properties, investments and assets, as described in the Registration Statement and Prospectus. The Company is not in violation of any provision of its memorandum or articles of association or other governing documents and is not in default under or in breach of, and does not know of the occurrence of any event that with the giving of notice or the lapse of time or both would constitute a default under or breach of, any term or condition of any material agreement or instrument to which it is a party or by which any of its properties, investments or assets is bound, except as disclosed in the Registration Statement and Prospectus. Except as noted in the Prospectus, the Company does not own or control, directly or indirectly, any other corporation, association, or other entity. The Company has furnished to you copies of its articles and memorandum of association, as amended, and all such copies are true, correct and complete and contain all amendments thereto through the Closing Date.

(f) Validity of Shares. The Shares have been duly and validly authorized by the Company and upon issuance, will be validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof, and will conform to the description thereof contained in the Prospectus. The preferences, rights and limitations of the Shares are set forth in the Prospectus under the caption “Description of Share Capital.” No party has any preemptive rights with respect to any of the Shares or any right of participation or first refusal with respect to the sale of the Shares by the Company. No person or entity holds a right to require or participate in the registration under the 1933 Act of the Shares pursuant to the Registration Statement; and, except as set forth in the Prospectus, no person holds a right to require registration under the 1933 Act of any Shares of the Company at any other time. The form of certificates evidencing the Shares complies with all applicable requirements of British Virgin Islands law.

(g) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption “Description of Share Capital.” All of the issued and outstanding Shares of the Company have been duly authorized, validly issued, fully paid and are non-assessable. Except as disclosed in the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and no commitment, plan or arrangement to issue, any shares of capital stock of the Company or any security convertible into or exchangeable for capital stock of the Company.

2

(h) Full Power. The Company has full legal right, power, and authority to enter into this Agreement and the Escrow Agreement among the Company, SunTrust Bank (the “Escrow Agent”) and you (the “Escrow Agreement”), to issue and deliver the Shares as provided herein and in the Prospectus and to consummate the transactions contemplated herein and in the Prospectus. Each of this Agreement and the Escrow Agreement has been duly authorized, executed, and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms, except to the extent that enforceability may be limited by (i) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors’ rights generally, regardless of whether such enforceability is considered in equity or at law, (ii) general equity principles, and (iii) limitations imposed by applicable laws or the public policy underlying such laws regarding the enforceability of indemnification or contribution provisions.

(i) Disclosed Agreements. All agreements between or among the Company and third parties expressly referenced in the Prospectus are legal, valid, and binding obligations of the Company, enforceable in accordance with their respective terms, except to the extent enforceability may be limited by (i) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors’ rights generally, regardless of whether such enforceability is considered in equity or at law, (ii) general equity principles and (iii) limitations imposed by federal or state securities laws or the public policy underlying such laws regarding the enforceability of indemnification or contribution provisions.

(j) Consents. Except as disclosed in the Registration Statement and Prospectus, each consent, approval, authorization, order, license, certificate, permit, registration, designation or filing by or with any governmental agency or body or any other third party necessary for the valid authorization, issuance, sale and delivery of the Shares, the execution, delivery and performance of this Agreement and the consummation by the Company of the transactions contemplated hereby and by the Registration Statement and Prospectus, except such as may be required under the 1933 Act, 1934 Act, or under other applicable securities laws has been made or obtained and is in full force and effect.

(k) Litigation. There is not pending or, to the knowledge of the Company, threatened or contemplated, any action, suit, proceeding, inquiry, or investigation before or by any court or any governmental authority or agency to which the Company may be a party, or to which any of the properties or rights of the Company may be subject, that is not described in the Registration Statement and Prospectus and (i) that may reasonably be expected to result in any material adverse change in the condition (financial or otherwise) or business of the Company; or (ii) that may reasonably be expected to materially adversely affect any of the material properties of the Company; or (iii) that may reasonably be expected to adversely affect the consummation of the transactions contemplated by this Agreement, nor, to the knowledge of the Company, is there any meritorious basis therefor.

(l) Financial Statements. The financial statements of the Company together with related schedules and notes included in the Registration Statement and Prospectus present fairly the financial position of the Company as of the dates indicated and the results of operations and cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved. The financial information schedules included in the Registration Statement and the amounts in the Prospectus fairly present the information shown therein and have been compiled on a basis consistent with the financial statements included in the Registration Statement and the Prospectus. No other financial statements or schedules are required by Form S-1 or otherwise to be included in the Registration Statement, the Prospectus or any Preliminary Prospectus. The unaudited pro forma financial information (including the related notes) included in the Prospectus or any Preliminary Prospectus complies as to form in all material respects to the applicable accounting requirements of the 1933 Act and the Rules and Regulations, and management of the Company believes that the assumptions underlying the pro forma adjustments are reasonable. Such pro forma adjustments have been properly applied to the historical amounts in the compilation of the information and such information fairly presents with respect to the Company the financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified.

(m) Independent Accountants. Acquavella, Chiarelli, Shuster, Berkower & Co., LLP, who has audited certain financial statements of the Company and its subsidiaries, are, to the Company’s knowledge, independent public accountants as required by the 1933 Act and the rules and regulations of the Commission promulgated thereunder.

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(n) Disclosed Liabilities. The Company has not sustained, since December 31, 2008, any material loss or interference with its business from fire, explosion, flood, hurricane, accident, or other calamity, whether or not covered by insurance, or from any labor dispute or arbitrators’ or court or governmental action, order, or decree, otherwise than as set forth or contemplated in the Registration Statement and Prospectus; and, since the respective dates as of which information is given in the Registration Statement and Prospectus, and except as otherwise stated in the Registration Statement and Prospectus or as set forth on the Disclosure Schedule, there has not been (i) any material change in the capital stock, long-term debt, obligations under capital leases, or short-term borrowings of the Company, (ii) any material adverse change, or any development that could be reasonably be seen as involving a prospective material adverse change in or affecting the business, prospects, properties, assets, results of operations or condition (financial or other) of the Company, (iii) any liability or obligation, direct or contingent, incurred or undertaken by the Company that is material to the business or condition (financial or other) of the Company, except for liabilities or obligations incurred in the ordinary course of business, (iv) any declaration or payment of any dividend or distribution of any kind on or with respect to the capital stock of the Company, or (v) any transaction that is material to the Company, except transactions in the ordinary course of business or as otherwise disclosed in the Registration Statement and Prospectus.

(o) Required Licenses and Permits. Except as disclosed in the Prospectus, the Company owns, possesses, has obtained or in the ordinary course of business will obtain, and has made available for your review, all material permits, licenses, franchises, certificates, consents, orders, approvals, and other authorizations of governmental or regulatory authorities as are necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, or as contemplated in the Prospectus to be conducted (the “Permits”), and the Company has not received any notice of proceedings relating to revocation or modification of any such Permits.

(p) Internal Accounting Measures. The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 and 15d-14 under the Exchange Act), which (i) are designed to ensure that material information relating to the Company is made known to the Company’s principal executive officer and its principal financial officer by others within the Company; and (ii) are effective in all material respects to perform the functions for which they were established. The Company’s system of internal accounting controls provides reasonable assurance that: (A) transactions are executed in accordance with management’s general or specific authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States (“US GAAP”); (C) access to assets is permitted only in accordance with management’s general or specific authorization; (D) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate actions are taken with respect to any differences; and (E) the Company has made and kept books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of such entity and provide a sufficient basis for the preparation of financial statements in accordance with US GAAP. There (x) are not any significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize, and report financial data or (y) has not been any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. Since the date of the most recent evaluation of the Company’s disclosure controls and procedures, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Upon the effectiveness of the Registration Statement, the Company will be in compliance in all material respect with all provisions of the Sarbanes-Oxley Act of 2002 that are effective and applicable to the Company as an “issuer” as defined under the Sarbanes-Oxley Act of 2002.

(q) Taxes. The Company has timely paid all taxes that have become due and no tax deficiency has been asserted against the Company, and the Company does not know of any tax deficiency that is likely to be asserted against the Company that if determined adversely to the Company, would, either individually or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, results of operations, or condition (financial or otherwise) of the Company. All tax liabilities are adequately provided for on the books of the Company.

(r) Compliance with Instruments. The execution, delivery and performance of this Agreement and the Escrow Agreement, the compliance with the terms and provisions hereof and the consummation of the transactions contemplated herein, therein and in the Registration Statement and Prospectus by the Company, do not and will not

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violate or constitute a breach of, or default under (i) the memorandum or articles of association of the Company; (ii) any of the material terms, provisions, or conditions of any material instrument, agreement, or indenture to which the Company is a party or by which it is bound or by which its business, assets, investments or properties may be affected; or (iii) any order, statute, rule, or regulation applicable to the Company, or any of its business, investments, assets or properties, of any court or (to the knowledge of the Company) any governmental authority or agency having jurisdiction over the Company, or any of its business, investments, properties or assets; and to the knowledge of the Company do not and will not result in the creation or imposition of any lien, charge, claim, or encumbrance upon any property or asset of the Company.

(s) Insurance. The Company maintains insurance (issued by insurers of recognized financial responsibility) of the types and in the amounts generally deemed adequate for its business and, to the knowledge of the Company, consistent with insurance coverage maintained by similar companies and similar businesses, all of which insurance is in full force and effect.

(t) Work Force. To the knowledge of the Company, no general labor problem exists or is imminent with the employees of the Company.

(u) Securities Matters. The Company and its officers, directors, or affiliates have not taken and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in or constitute the stabilization or manipulation of any security of the Company or to facilitate the sale or resale of the Shares.

(v) Payment of Commissions and Fees. Except as stated in or contemplated by the Prospectus, neither the Company nor any affiliate of the Company has paid or awarded, nor will any such person pay or award, directly or indirectly, any commission or other compensation to any person engaged to render investment advice to a potential purchaser of Shares as an inducement to advise the purchase of Shares.

(w) Intellectual Property. Except as disclosed in the Registration Statement and Prospectus, the Company owns, possesses, licenses or has other rights to use the patents and patent applications, copyrights, trademarks, service marks, trade names, technology, know-how (including trade secrets and other unpatented and/or unpatentable proprietary rights) and other intellectual property (or could acquire such intellectual property upon commercially reasonable terms) necessary to conduct its business in the manner in which it is being conducted (collectively, the “Company Intellectual Property”); except as disclosed in the Registration Statement and Prospectus, to the Company’s knowledge, none of the patents owned or licensed by the Company is unenforceable or invalid, and, to the Company’s knowledge, none of the patent applications owned or licensed by the Company would be unenforceable or invalid if issued as patents; to the Company’s knowledge, the Company is not obligated to pay a royalty, grant a license, or provide other consideration to any third party in connection with the Company Intellectual Property other than as disclosed in the Prospectus; except as disclosed in the Registration Statement and Prospectus, the Company has not received any notice of violation or conflict with rights of others with respect to the Company Intellectual Property; except as disclosed in the Registration Statement and Prospectus, there are no pending or to the Company’s knowledge, threatened actions, suits, proceedings or claims by others that the Company is infringing any patent, trade secret, trade mark, service mark, copyright or other intellectual property or proprietary right; and except as disclosed in the Registration Statement and Prospectus, the products or processes of the Company referenced in the Prospectus do not, to the knowledge of the Company, violate or conflict with any intellectual property or proprietary right of any third person.

(x) Forward Looking Statement. No forward-looking statement (within the meaning of Section 27A of the Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Preliminary Prospectus or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

(y) Industry Data. The industry-related and market-related statistics obtained from independent industry publications and reports and included in the Registration Statement and the Prospectus agree with the sources from which they are derived.

(z) Related Party Transactions. No relationship exists between or among the Company and any director, officer, stockholder or affiliate of the Company which is required by the 1933 Act and rules and regulations of the Commission under the 1933 Act to be described in the Registration Statement or the Prospectus which is not so

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described and described as required in material compliance with such requirement. There are no outstanding loans, advances (except advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of their respective family members, except as disclosed in the Registration Statement and the Prospectus.

3. Representations and Warranties of Placement Agent. You represent and warrant to the Company that:

(a) You are a member, in good standing, of the Financial Industry Regulatory Authority (“FINRA”), and are duly registered as a broker-dealer under the 1934 Act, and under the laws of each state in which you propose to offer the Shares, except where such registration would not be required by law.

(b) This Agreement when accepted and approved will be duly authorized, executed and delivered by you and is a valid and binding agreement of you, enforceable in accordance with its terms, except to the extent that enforceability may be limited by (i) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws affecting creditors’ rights generally, regardless of whether such enforceability is considered in equity or at law, (ii) general equity principles, and (iii) limitations imposed by federal and state securities laws or the public policy underlying such laws regarding the enforceability of indemnification or contribution provisions.

(c) The consummation of the transactions contemplated by the Prospectus relating to the Offering will not violate or constitute a breach of, or default under, your memorandum or articles of association, or any material instrument, agreement, or indenture to which you are a party, or violate any order applicable to you of any federal or state regulatory body or administrative agency having jurisdiction over you or your property.

4. Sale of Shares.

(a) Exclusive Agency. The Company hereby appoints you as its exclusive agent to offer for sale, and hereby agrees to sell during the Offering Period (as defined in Section 4.(c)), a minimum of 2,500,000 Shares and a maximum of 3,000,000 Shares, and on the basis of the representations and warranties herein contained but subject to the terms and conditions herein set forth, you accept such appointment and agree to use your best efforts as agent to offer the Shares for sale for the account of the Company, on a cash basis only at the offering price of $             per Share. During the Offering Period (as defined below), the Company will not sell or agree to sell any debt or equity securities otherwise than through you. Subject to your commitment to sell the Shares on a “best efforts, minimum/maximum basis” as provided herein, nothing in this Agreement shall prevent you from entering into an agency agreement, underwriting agreement, or other similar agreement governing the offer and sale of securities with any other issuer of securities, and nothing contained herein shall be construed in any way as precluding or restricting your right to sell or offer for sale securities issued by any other person, including securities similar to, or competing with, the Shares. It is understood between the parties that there is no firm commitment by you to purchase any or all of the Shares.

(b) Obligation to Offer Shares. Your obligation to offer the Shares is subject to receipt by you of written advice from the Commission that the Registration Statement is effective, is subject to the Shares being qualified for offering under applicable laws in the states as may be reasonably designated by you, is subject to the absence of any prohibitory action by any governmental body, agency, or official, and is subject to the terms and conditions contained in this Agreement and in the Registration Statement.

(c) Offering Termination Date. The “Offering Period” shall commence on the day that the Prospectus is first made available to prospective investors in connection with the Offering and shall continue until the “Offering Termination Date,” which shall be the earliest of (i) the date the maximum number of Shares (3,000,000) offered have been sold, (ii) November 22, 2010, or (iii) such other date mutually agreeable to the parties hereto. The Company and you agree that unless the minimum number of Shares (2,500,000) offered are sold on or before the Offering Termination Date, all proceeds that have been paid for the Shares will be returned to the purchasers.

(d) Escrow Agent. Prior to the sale of all of the Shares, all funds received from purchasers of the Shares shall be placed in an escrow account (the “Escrow Account”) with the Escrow Agent pursuant to the Escrow Agreement, the form of which is attached as an exhibit to the Registration Statement, and all payments of, from or on account of such funds shall be made pursuant to the Escrow Agreement. In the event that the Shares are not sold on or before the Offering Termination Date, all funds then held in the Escrow Account shall be returned promptly to the respective purchasers as provided in the Escrow Agreement.

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(e) Closing Date. As and when the closing of the Offering is effected, which shall be on or before the Offering Termination Date, and proceeds from the Shares sold are received and accepted, on such date (the “Closing Date”) and at such time and place as determined by you (which determination shall be subject to the satisfaction on such date of the conditions contained herein), the funds received from purchasers will be delivered by the Escrow Agent to the Company, by wire transfer of immediately available funds.

(f) Selling Commissions and Expense. In consideration for your execution of this Agreement and for the performance of your obligations hereunder, the Company agrees to pay you as follows:

(i) by wire transfer of immediately available funds on the Closing Date, if any, a Selling Commission computed at the rate of seven percent (7.0%) of the gross proceeds of the Shares placed in the offering;

(ii) at the closing of the offering, you will have the right to purchase Placement Agent Warrants for the purchase of Shares, equal to six percent (6%) of the number of Shares sold by you in the Offering at a purchase price of $0.001 per share underlying the Placement Agent Warrants, substantially in the form of Exhibit A attached to this Agreement. NASD Rule 2710(g)(1) generally provides that any securities of the Company that are unregistered and acquired by you or your related persons (A) during the 180-day period prior to the filing of the Registration Statement or (B) after such filing and deemed to be underwriting compensation by the FINRA shall not be sold during the Offering, or sold, transferred, assigned, pledged, hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities (each, a “Transfer”) by any person for a period of 180 days immediately following the date of effectiveness of the Registration Statement or commencement of sales in the Offering; provided, however, such restriction does not apply to Transfers to your officers or partners (each, a “Permitted Transferee”) during such time period if the securities so Transferred remain subject to the lock-up restriction noted above; and

(iii) by wire transfer of immediately available funds on the Closing Date, if any, an accountable expense allowance computed at the rate of one percent (1%) of the public offering price of the Shares sold by you; such expenses include, but are not limited to fees and expenses of your counsel, due diligence expenses and other expenses not prohibited by NASD Rule 2710.

(g) Finder’s Fees. Except as set forth in the Registration Statement or Prospectus, neither you nor the Company, directly or indirectly, shall pay or award any finder’s fee, commission, or other compensation to any person engaged by a potential purchaser for investment advice as an inducement to such advisor to advise the purchase of the Shares or for any other purpose.

(h) Delivery of Share Certificates. Delivery of certificates in definitive form representing the Shares shall be made at the offices of Anderson & Strudwick, Incorporated or at such other place as shall be agreed upon by the Company and you, on such date as you may request (the “Date of Delivery”). The certificates representing the Shares shall be in such denominations and registered in such names as you may request in writing at least three full business days before the Date of Delivery. The certificates representing the Shares will be made available for examination and packaging at the offices of Anderson & Strudwick, Incorporated or at such other place as shall be agreed upon by the Company and you, not later than at least two (2) full business days prior to each Date of Delivery.

5. Covenants.

(a) Covenants of the Company. The Company covenants with you as follows:

(i) Notices. The Company immediately will notify you, and confirm such notice in writing, (A) of any fact that would make inaccurate any representation or warranty by the Company, and (B) of any change in facts on which your obligation to perform under this Agreement is dependent.

(ii) Effectiveness of Registration Statement. The Company will use its best efforts to cause the Registration Statement to become effective (if not yet effective at the date and time this Agreement is executed and delivered by the parties hereto). If the Company elects to rely upon Rule 430A of the Rules and Regulations or the filing of the Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations, and subject to the provisions of Section 5.(a)(iii) of this Agreement, the Company will comply with the requirements of Rule 430A and will file the Prospectus, properly completed, pursuant to the applicable provisions of Rule 424(b) within the time prescribed. The Company will notify you immediately, and confirm the notice in writing, (i) when the

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Registration Statement, or any post-effective amendment to the Registration Statement, shall have become effective, or any supplement to the Prospectus, or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission to amend the Registration Statement or amend or supplement the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Preliminary Prospectus or the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the institution or threatening of any proceeding for any such purposes. The Company will use all reasonable efforts to prevent the issuance of any such stop order or of any order preventing or suspending such use and, if any such order is issued, to obtain the withdrawal thereof at the earliest possible moment.

(iii) Amendments to Registration Statement and Prospectus. The Company will not at any time file or make any amendment to the Registration Statement, or any amendment or supplement (i) to the Prospectus, if the Company has not elected to rely upon Rule 430A, or (ii) if the Company has elected to rely upon Rule 430A, to either the Prospectus included in the Registration Statement at the time it becomes effective or to the Prospectus filed in accordance with Rule 424(b), in either case if you shall not have previously been advised and furnished a copy thereof a reasonable time prior to the proposed filing, or if you or your counsel shall reasonably object to such amendment or supplement; provided, however, that if you shall have objected to such amendment or supplement, you shall cease your efforts to sell the Shares until an amendment or supplement is filed.

(iv) Delivery of Registration Statement. The Company has delivered to you or will deliver to you, without expense to you, at such locations as you shall request, as soon as the Registration Statement or any amended Registration Statement is available, such number of signed copies of the Registration Statement as originally filed and of amended Registration Statements, if any, copies of all exhibits and documents filed therewith, and signed copies of all consents and certificates of experts, as you may reasonably request.

(v) Delivery of Prospectus. The Company will deliver to you at its expense, from time to time, as many copies of each Preliminary Prospectus as you may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will deliver to you at its expense, as soon as the Registration Statement shall have become effective and thereafter from time to time as requested during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as supplemented or amended) as you may reasonably request. The Company will comply to the best of its ability with the 1933 Act and the Rules and Regulations so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and in the prospectus. If the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made when such Prospectus is delivered not misleading or, if for any reason it shall be necessary during the same period to amend or supplement the Prospectus in order to comply with the 1933 Act, the Company will notify you and upon your request prepare and furnish without charge to you and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus that will correct such statement or omission or effect such compliance, and in case you are required to deliver a prospectus in connection with sales of any of the Shares, upon your request but at your expense, the Company will prepare and deliver to you as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the 1933 Act.

(vi) Blue Sky Qualification. The Company, in good faith and in cooperation with you, will use its best efforts to qualify the Shares for offering and sale under the applicable “blue sky” or securities laws of such jurisdictions as you from time to time may reasonably designate and to maintain such qualifications in effect until the date on which the Company ceases to be obligated to maintain the effectiveness of the Registration Statement; provided, however, that the Company shall not be obligated to qualify as a foreign entity in any jurisdiction in which it is not so qualified or to make any undertakings in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Shares have been qualified as above provided.

(vii) Application of Net Proceeds. The Company will apply the net proceeds received from the sale of the Shares in all material respects as set forth in the Prospectus under the caption “Use of Proceeds.”

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(viii) Cooperation with Your Due Diligence. At all times prior to the Offering Termination Date, the Company will cooperate with you in such investigation as you may make or cause to be made of all the business and operations of the Company in connection with the sale of the Shares, and will make available to you in connection therewith such information in its possession as you may reasonably request, all of which you agree to safeguard as the confidential information of the Company and to refrain from using for any purpose adverse to the interests of the Company.

(ix) Transfer Agent. The Company will maintain a transfer agent and, if necessary under applicable jurisdictions, a registrar (which may be the same entity as the transfer agent) for its Shares.

(x) NASDAQ. The Company will use its reasonable best efforts to maintain the quotation of its Shares on The NASDAQ Global Market.

(xi) Actions of Company, Officers, Directors, and Affiliates. The Company will not and will use its best efforts to cause its officers, directors, and affiliates not to (i) take, directly or indirectly, prior to termination of the Offering contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or that may cause or result in, or that might in the future reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Shares, (ii) other than under this Agreement, sell, bid for, purchase, or pay anyone any compensation for soliciting purchases of the Shares or (iii) pay or agree to pay to any person any compensation for soliciting any order to purchase any other securities of the Company.

(xii) Upon the earliest of such time as (A) the investors in the Offering own less than five percent (5%) of our outstanding voting securities or (B) the closing price of one of the Company’s Shares equals or exceeds three times the offering price in this offering for a period of fifteen consecutive trading days, you will have the right, from time to time, to designate not more than two (2) persons to serve as a non-voting observers to the Company’s Board of Directors. This right shall be subject to our approval, which shall not be unreasonably withheld. The observer to the Board will be entitled to receive up to $6,000 of reimbursed travel expenses per meeting attended in person, subject to a maximum of $12,000 per year, which amount is not in excess of the amount payable for the Company’s independent directors.

(b) Your Covenants. You covenant with the Company as follows:

(i) Information Provided. You have not provided and will not provide to the purchasers of Shares any written or oral information regarding the business of the Company, including any representations regarding the Company’s financial condition or financial prospects, other than such information as is contained in the Prospectus. You further covenant that, in connection with the Offering you will use your best efforts to comply with such purchaser suitability requirements

(ii) Prospectus Supplements. Until the termination of this Agreement, if any event affecting the Prospectus, the Company or you shall occur which, in the opinion of counsel to the Company, should be set forth in a supplement to the Prospectus, you agree to distribute each supplement of the Prospectus to each person who has previously received a copy of the Prospectus from you and you further agree to include such supplement in all future deliveries of the Prospectus. You agree that following notice from the Company that a supplement to the Prospectus is necessary, you will cease further efforts to sell the Shares until such a supplement is prepared and delivered to you.

(iii) Compliance with Laws, Etc. In your sale of the Shares, you will comply in all material respects with applicable laws, rules and regulations and the rules and regulations of applicable self-regulatory organizations (provided, however, that you shall be deemed not to have breached this covenant if your failure to so comply is based on a breach by the Company of any of its representations, warranties or covenants contained in this Agreement and you shall have complied with Section 5.(b)(ii) above.

6. Payment of Expenses. Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, and subject to the provisions of Section 10 of this Agreement, the Company hereby agrees that it will pay all fees and expenses incident to the performance of its obligations under this Agreement (excluding fees and expenses of counsel for you, except as specifically set forth below), including (a) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits), as

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originally filed and as amended, the Preliminary Prospectuses and the Prospectus and any amendments or supplements thereto, and the cost of furnishing copies thereof to you, (b) the preparation, printing, and distribution of this Agreement, any selected dealer agreement, the certificates representing the Shares, the blue sky memoranda, and any instruments relating to any of the foregoing, (c) the issuance and delivery of the Shares, including any transfer taxes payable thereon, (d) the fees and disbursements of the Company’s counsel and accountants, (e) the qualification of the Shares under applicable securities laws in accordance with Section 5.(a) of this Agreement and any filing fee paid in connection with the review of the Offering by FINRA, including filing fees and fees and disbursements made in connection therewith and in connection with the blue sky memoranda supplied to you by counsel for the Company, (f) all costs, fees, and expenses in connection with the application for qualifying the Shares for quotation on the NASDAQ Global Market, (g) the transfer agent’s and registrar’s fees and all miscellaneous expenses referred to in the Registration Statement, (h) costs related to travel and lodging incurred by the Company and its representatives relating to meetings with and presentations to prospective purchasers of the Shares reasonably determined by you to be necessary or desirable to effect the sale of the Shares to the public, (i) any escrow arrangements in connection with the transactions described herein, including any compensation or reimbursement to the Escrow Agent for its services as such, and (j) all other costs and expenses incident to the performance of the Company’s obligations hereunder that are not otherwise specifically provided for in this Section.

7. Conditions of Your Obligations. Your obligations hereunder shall be subject to, in your discretion, the following terms and conditions:

(a) Effectiveness of Registration Statement. The Registration Statement shall have become effective not later than 5:30 p.m. on the date of this Agreement or, at such later time or on such later date as you may agree to in writing; and as of the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or shall be pending or, to your knowledge or the knowledge of the Company, shall be contemplated by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the satisfaction of your counsel.

(b) Closing Date Matters. On the Closing Date, (i) the Registration Statement and the Prospectus, as they may then be amended or supplemented, shall contain all statements that are required to be stated therein under the 1933 Act and the Rules and Regulations and in all material respects shall conform to the requirements of the 1933 Act and the Rules and Regulations; the Company shall have complied in all material respects with Rule 430A (if it shall have elected to rely thereon) and neither the Registration Statement nor the Prospectus, as they may then be amended or supplemented, shall contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement, any material adverse change in the business, prospects, properties, assets, results of operations or condition (financial or otherwise) of the Company whether or not arising in the ordinary course of business, (iii) no action, suit or proceeding at law or in equity shall be pending or, to the Company’s knowledge, threatened against the Company that would be required to be set forth in the Prospectus other than as set forth therein and no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company before or by any applicable or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding could materially adversely affect the business, prospects, assets, results of operations or condition (financial or otherwise) of the Company other than as set forth in the Prospectus, (iv) the Company shall have complied with all agreements and satisfied all conditions on their part to be performed or satisfied on or prior to the Closing Date, and (v) the representations and warranties of the Company set forth in Section 2 of this Agreement shall be accurate in all material respects as though expressly made at and as of the Closing Date. On the Closing Date, you shall have received a certificate executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to such effect and with respect to the following additional matters: (A) the Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or preventing or suspending the use of the Prospectus has been issued, and no proceedings for that purpose have been instituted or are pending or, to his knowledge, threatened under the 1933 Act; and (B) he has reviewed the Registration Statement and the Prospectus and, when the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement and the Prospectus and any amendments or supplements thereto contained all statements and information required to be included therein or necessary to make the statements therein not misleading and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus that has not been so set forth.

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(c) Opinion of DeHeng Law Offices. At the Closing Date, you shall receive the opinion of DeHeng Law Offices, counsel for the Company, in form and substance reasonably satisfactory to you, to the effect of Exhibit B.

(d) Opinion of Kaufman & Canoles, P.C. At the Closing Date, you shall receive the opinion of Kaufman & Canoles, P.C., British Virgin Islands counsel to the Company, in form and substance reasonably satisfactory to you, to the effect of Exhibit C.

(e) Opinion of Your Counsel. At the Closing Date, you shall receive the favorable opinion of Kaufman & Canoles, P.C., your counsel, with respect to such matters as you may reasonably require and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass on such matters.

(f) Independent Public Accountants. At the time that this Agreement is executed by the Company, you shall have received from Aquavella, Chiarelli, Shuster, Berkower & Co., L.L.P. a letter, dated the date hereof, in form and substance satisfactory to you, confirming that they are independent public accountants with respect to the Company within the meanings of the 1933 Act and the Rules and Regulations, and stating in effect that:

(i) in their opinion, the financial statements and any supplementary financial information and schedule included in the Registration Statement and covered by their opinion therein comply as to form and in all material respects with the applicable accounting requirements of the 1933 Act and the Rules and Regulations;

(ii) on the basis of limited procedures (set forth in detail in such letter and made in accordance with such procedures as may be specified by you) not constituting an audit in accordance with generally accepted auditing standards, consisting of (but not limited to) a reading of the latest available internal unaudited financial statements of the Company, a reading of the minute books of the Company, inquiries of officials of the Company responsible for financial and accounting matters, and such other inquiries and procedures as may be specified in such letter, nothing came to their attention to cause them to believe that:

(A) the unaudited financial statements and supporting schedule and other unaudited financial data of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the Rules and Regulations or are not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement;

(B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited financial statements included in the Prospectus;

(C) any unaudited pro forma financial information included in the Prospectus does not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the Rules and Regulations or the pro forma adjustments have not been properly applied to historical amounts in the compilation of that information;

(D) at a specified date not more than five (5) days prior to the date of such letter, there was any change in the capital stock or long-term debt or obligations of the Company or there were any decreases in net current assets or net assets, shareholders’ equity, or other items specified by you from that set forth in the Company’s balance sheet at December 31, 2008, except as described in such letter; and

(E) for the period from December 31, 2008 to a specified date not more than five (5) days prior to the date of such letter, there were any decreases in revenues or operating income before interest, depreciation and amortization for the Company, in each case as compared with the corresponding period of the preceding year, except in each case for decreases that the Prospectus discloses have occurred or may occur or that are described in such letter; and

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(iii) in addition to the procedures referred to in clause (ii) above and the examination referred to in their reports including in the Registration Statement, they have carried out certain specified procedures, not constituting an audit in accordance with generally accepted auditing standards, with respect to certain amounts, percentages, and financial information specified by you that are derived from the general accounting records of the Company, that appear in the Registration Statement or the exhibits or schedules thereto and are specified by you, and have compared such amounts, percentages, and financial information with the accounting records of the Company and with material derived from such records and have found them to be in agreement.

(f) Updated Comfort Letter. At the Closing Date, you shall have received from Aquavella, Chiarelli, Shuster, Berkower & Co., L.L.P. a letter, in form and substance satisfactory to you and dated as of the Closing Date, to the effect that they reaffirm the statements made in the letter furnished pursuant to Section 7.(e) above, except that the specified date referred to shall be a date not more than five (5) days prior to the Closing Date.

(g) Post-Financial Developments. In the event that either of the letters to be delivered pursuant to Sections 7.(e) and 7.(f) above sets forth any changes, decreases or increases, it shall be a further condition to your obligations that you shall have reasonably determined, after discussions with officers of the Company responsible for financial and accounting matters and with Friedman LLP, that such changes, decreases or increases as are set forth in such letter do not reflect a material adverse change in the capital stock, long-term debt, obligations under capital leases, total assets, net current assets, or shareholders’ equity of the Company as compared with the amounts shown in the latest consolidated pro forma balance sheet of the Company, or a material adverse change in the revenues or operating income before interest, depreciation and amortization for the Company in each case as compared with the corresponding period of the prior year.

(h) Additional Information. On the Closing Date, you shall have been furnished with all such documents, certificates and opinions as you may reasonably request for the purpose of enabling your counsel to pass upon the issuance and sale of the Shares as contemplated in this Agreement and the matters referred to in Section 7.(b), and in order to evidence the accuracy and completeness of, any of the representations, warranties or statements of the Company, the performance of any of the covenants of the Company, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company at or prior to the Closing Date in connection with the authorization, issuance and sale of the Shares as contemplated in this Agreement, shall be satisfactory in form and substance to you and to your counsel. The Company will furnish you with such number of conformed copies of such opinions, certificates, letters and documents as you shall reasonably request. Any certificate signed by any officer, partner, or other official of the Company and delivered to you or your counsel shall be deemed a representation and warranty by the Company to you as to the statements made therein.

(i) Adverse Events. Subsequent to the date hereof, there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, the NASDAQ National Market or the NASDAQ Global Market, (ii) a general moratorium on commercial banking activities in the People’s Republic of China or New York, (iii) the outbreak or escalation of hostilities involving the United States or the People’s Republic of China or the declaration by the United States or the People’s Republic of China of a national emergency or war if the effect of any such event specified in this clause (iii) in your reasonable judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus, or (iv) such a material adverse change in general economic, political, financial or international conditions affecting financial markets in the United States or the People’s Republic of China having a material adverse impact on trading prices of securities in general, as, in your reasonable judgment, makes it impracticable or inadvisable to proceed with the public offering of the Shares or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus.

(j) FINRA Review. FINRA, upon review of the terms of the Offering, shall not have objected to the Offering, the terms of the offering or your participation in the Offering.

(k) NASDAQ Quotation. The Shares shall be approved for quotation on The NASDAQ Global Market.

If any of the conditions specified in this Section 7 shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement may be terminated by you on notice to the Company at any time at or prior to the Closing Date, and such termination shall be without liability of any party to any other party, except as provided in Sections 6 and 10. Notwithstanding any such termination, the provisions of Section 8 shall remain in effect.

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8. Indemnification and Contribution.

(a) Indemnification by the Company. The Company will indemnify and hold you harmless against any losses, claims, damages, or liabilities, joint or several, to which you may become subject under the 1933 Act, the 1934 Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any representation, warranty or covenant of the Company herein contained or any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse you for any legal or other expenses reasonably incurred by you in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by you expressly for use therein; provided further, that the indemnity agreement contained in Section 8.(a) with respect to any Preliminary Prospectus shall not inure to your benefit if you failed to send or give a copy of the Prospectus to such person at or prior to the written confirmation of the sale of such Shares to such person in any case where such delivery is required by the 1933 Act or the Rules and Regulations and if the Prospectus would have cured any untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage, or liability. In addition to its other obligations under this Section 8.(a), the Company agrees that, as an interim measure during the pendency of any such claim, action, investigation, inquiry, or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 8.(a), it will reimburse you on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry, or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company’s obligation to reimburse you for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. Any such interim reimbursement payments that are not made to you within thirty (30) days of a request for reimbursement shall bear interest at the prime rate (or reference rate or other commercial lending rate for borrowers of the highest credit standing) published from time to time by The Wall Street Journal (the “Prime Rate”) from the date of such request. This indemnity agreement shall be in addition to any liabilities that the Company may otherwise have. For purposes of this Section 8, the information set forth in the last paragraph on the front cover page (insofar as such information relates to you) and under “Placement” in any Preliminary Prospectus and in the Prospectus constitutes the only information furnished by you to the Company for inclusion in any Preliminary Prospectus, the Prospectus, or the Registration Statement. The Company will not, without your prior written consent, settle or compromise or consent to the entry of any judgment in any pending or threatened action or claim or related cause of action or portion of such cause of action in respect of which indemnification may be sought hereunder (whether or not you are a party to such action or claim), unless such settlement, compromise, or consent includes an unconditional release of you from all liability arising out of such action or claim (or related cause of action or portion thereof). The indemnity agreement in this Section 8.(a) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls you within the meaning of the 1933 Act or the 1934 Act to the same extent as such agreement applies to you.

(b) Indemnification by You. You will indemnify and hold harmless the Company against any losses, claims, damages, or liabilities to which the Company may become subject, under the 1933 Act, the 1934 Act, or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any warranty or covenant by you herein contained or any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement, or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that (i) such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement, or the Prospectus or any such amendment or supplement thereto in reliance upon and in conformity with written

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information furnished to the Company by you expressly for use therein, or (ii) you failed to deliver an amendment or supplement to the Prospectus that the Company made available to you prior to the Closing Date and that corrected any statement or omission in a Preliminary Prospectus, the Registration Statement or the Prospectus which forms the basis for a claim against the Company; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability, or action. In addition to its other obligations under this Section 8.(b), you agree that, as an interim measure during the pendency of any such claim, action, investigation, inquiry, or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 8.(b), you will reimburse the Company on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry, or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of your obligation to reimburse the Company for such expenses and the possibility that such payments might later been held to have been improper by a court of competent jurisdiction. Any such interim reimbursement payments that are not made to the Company within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement shall be in addition to any liabilities that you may otherwise have. You will not, without the Company’s prior written consent, settle or compromise or consent to the entry of any judgment in any pending or threatened action or claim or related cause of action or portion of such cause of action in respect of which indemnification may be sought hereunder (whether or not the Company is a party to such action or claim), unless such settlement, compromise, or consent includes an unconditional release of the Company from all liability arising out of such action or claim (or related cause of action or portion thereof). The indemnity agreement in this Section 8.(b) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each officer and director of the Company and each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act to the same extent as such agreement applies to the Company.

(c) Notices of Claims; Employment of Counsel. Any party that proposes to assert the right to be indemnified under this Section 8 promptly shall notify in writing each party against which a claim is to be made under this Section 8 of the institution of such action but the omission so to notify such indemnifying party of any such action shall not relieve it from any liability it may have to any indemnified party except (i) to the extent that the omission to notify shall have caused or increased the indemnifying party’s liability, and (ii) that the indemnifying party shall be relieved of its indemnity obligation for expenses of the indemnified party incurred before the indemnifying party is notified. Such indemnifying party or parties shall assume the defense of such action, including the employment of counsel (satisfactory to the indemnified party) and payment of fees and expenses. An indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless the employment of such counsel shall have been authorized in writing by the indemnifying party or parties in connection with the defense of such action or the indemnifying party or parties shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties reasonably shall have concluded that there may be defenses available to it or them that are different from or additional to those available to such indemnifying party or parties (in which case such indemnifying party or parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by such indemnifying party or parties. Anything in this paragraph to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any such claim or action effected without its written consent.

(d) Arbitration. It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in Sections 8.(a) and 8.(b) hereof, including the amounts of any requested reimbursement payments, the method of determining such amounts and the basis on which such amounts shall be apportioned among the indemnifying parties, shall be settled by arbitration conducted pursuant to the Code of Arbitration Procedure of the FINRA. Any such arbitration must be commenced by service of a written demand for arbitration or a written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Any such arbitration will be limited to the operation of the interim reimbursement provisions contained in Sections 8.(a) and 8.(b) hereof and will not resolve the ultimate propriety or enforceability of the obligation to indemnify for expenses that is created by the provisions of Sections 8.(a) and 8.(b).

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(e) Contribution. If the indemnification provided for in Section 8.(a) or 8.(b) is unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, or liabilities (or actions in respect thereof) referred to therein, then the Company on the one hand and you on the other shall contribute to the amount paid or payable as a result of such losses, claims, damages, or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and you on the other from the Offering. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then the Company and you shall contribute to such amount paid or payable in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and you on the other in connection with the statements or omissions that resulted in such losses, claims, damages, or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and you on the other shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company bear to the total selling commissions received by you in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or to information with respect to you and furnished by you respectively, in writing specifically for inclusion in the Prospectus on the other and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The Company and you agree that it would not be just and equitable if contribution pursuant to this Section 8.(e) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above in this Section 8.(e). The amount paid or payable as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 8.(e) shall be deemed to include any legal or other expenses reasonably incurred by any such party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) with respect to the transactions giving rise to the right of contribution provided in this Section 8.(e) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations in this Section 8.(e) for you to contribute are several in proportion to your respective underwriting obligations and not joint. For purposes of this Section 8.(e), each person, if any, who controls you within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as you, and each director of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, shall have the same rights to contribution as the Company.

9. Representations and Agreements to Survive. Except as the context otherwise requires, all representations, warranties, covenants and agreements contained in this Agreement shall remain operative and in full force and effect regardless of any investigation made by you, or on your behalf, or by any controlling person, or by or on behalf of the Company, and shall survive until the fifth anniversary of the Offering Termination Date and the termination of this Agreement pursuant to Section 10 hereof.

10. Termination of Agreement.

(a) Termination of Agreement. You shall have the right to terminate this Agreement at any time prior to the Closing Date (i) if any representation or warranty of the Company hereunder shall be found to have been incorrect or misleading in any material respect when made or the Company shall fail, refuse, or be unable to perform any of its agreements hereunder or to fulfill any condition of your obligations hereunder, (ii) if there shall have been since the respective dates as of which information is given in the Registration Statement, a material adverse change, or any development which could reasonably be expected to result in a prospective material adverse change, in or affecting the business, prospects, management, properties, assets, results of operations, or condition (financial or otherwise) of the Company, whether or not arising in the ordinary course of business, (iii) if trading on any national securities exchange shall have been suspended (other than for reasons unrelated to the securities markets), or minimum or maximum prices for trading generally shall have been fixed or maximum ranges for prices for all securities shall have been required on any such exchange by such exchange or by order of the Commission or any other governmental authority having jurisdiction, (iv) if there has occurred or accelerated any outbreak of hostilities or other national or international calamity or crisis or change in economic or political conditions the effect of which on the financial markets of the United States is such as to make it, in your reasonable judgment, impracticable to market the Shares or enforce contracts for the sale of the Shares, (v) if a banking moratorium has been declared by Virginia, New York or U.S. authorities, (vi) any applicable statute, regulation, rule, or order of any court or other governmental authority has been enacted, published, decreed, or otherwise promulgated that in your sole judgment materially adversely affects or will materially adversely affect the business or operations of the Company, or (vii) any action has been taken by any applicable government or agency in respect of its monetary or fiscal affairs that in your reasonable opinion has a material adverse effect on the securities markets in the United States. You shall have no liability to the Company pursuant to this Agreement or otherwise as a result of any such termination.

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(b) Result of Termination.

(i) If the sale of Shares provided for herein is not consummated by November 22, 2010 due to reasons beyond the control of either party hereto or if the Company abandons the Offering for reasons within its control, then in addition to its obligations with respect to expenses as set forth in Section 6, the Company will reimburse you on demand for all your reasonable out-of-pocket expenses (including the fees and expenses of your counsel), including disbursements reasonably incurred by you in reviewing the Registration Statement and the Prospectus, and in investigating and making preparations for the marketing of the Shares up to a maximum of $75,000.

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(ii) If the sale of the Shares provided for herein is not consummated for any other reason, the Company shall pay expenses as required by Section 6, and the neither party shall have any additional liability to the other except for such liabilities, if any, as may exist or thereafter arise under Section 8.

11. Notices.

(a) Method and Location of Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be sent by overnight courier, hand-delivered, or confirmed facsimile transmission or electronic mail as follows:

To the Company:

Tibet Pharmaceuticals, Inc.

Room 1701, 17/F

90 Jaffe Rd.

Wanchai, Hong Kong

Attention: Taylor Z. Guo

Facsimile: 86 887 823 2156

E-mail: taylor.guo@tibetpharmaceuticals.com

with a copy to:

To you:

Anderson & Strudwick, Incorporated

707 East Main Street

20^th Floor

Richmond, Virginia 23219

Attention: Mr. L. McCarthy Downs, III

Facsimile: (804) 648-3404

E-mail: mdowns@andersonstrudwick.com

with a copy to:

Kaufman & Canoles, P.C.

Three James Center

1051 East Cary Street, 12^th Floor

Richmond, Virginia 23219

Attention: Bradley A. Haneberg, Esquire

Facsimile: (804) 771-5777

E-mail: bahaneberg@kaufcan.com

(b) Time of Notices. Notice shall be deemed to be given by you to the Company or by the Company to you when it is sent by overnight courier, hand-delivered, telecopied or emailed as provided in Section 11.(a).

12. Parties. This Agreement shall inure solely to the benefit of and shall be binding upon you, the Company and the controlling persons referred to in Section 8, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have a legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained.

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13. Governing Law, Construction, and Time. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. Specified time of day refers to United States Eastern Time. Time shall be of the essence of this Agreement.

14. Description Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

15. Counterparts. This Agreement may be executed in one or more counterparts, and if executed in more than one counterpart, the executed counterparts shall together constitute a single instrument.

If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.

Very truly yours,

TIBET PHARMACEUTICALS, INC.

By:

Name:

Title:

Confirmed and accepted as of the date first above written:

ANDERSON & STRUDWICK, INCORPORATED
By:
Name:	L. McCarthy Downs, III
Title:	Senior Vice President

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EXHIBIT A

Form of Warrant

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EXHIBIT B

Form of DeHeng Law Offices Opinion

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EXHIBIT C

Form of Kaufman & Canoles Opinion

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EX-3.I.2

Exhibit 3.i.2

TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

AMENDED AND RESTATED

ARTICLES OF ASSOCIATION

OF

Tibet Pharmaceuticals, Inc.

A COMPANY LIMITED BY SHARES

1. REGISTERED SHARES

1.1. Every Shareholder is entitled to a certificate signed by a Director or officer of the Company, or any other person authorized by Resolution of Directors, specifying the number of Shares held by him and the signature of the Director, officer or authorized person and the Seal may be facsimiles. A certificate may be issued in electronic form in accordance with the Electronic Transactions Act, 2001 as from time to time amended or re-enacted.

1.2. Any Shareholder receiving a certificate shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a certificate for Shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required and determined under the Company’s policy as set by Resolution of Directors.

1.3. If several Persons are registered as joint holders of any Shares, any one of such Persons may give an effectual receipt for any Distribution.

2. SHARES

2.1. Shares and other Securities may be issued at such times, to such Persons, for such consideration and on such terms as the Directors may by Resolution of Directors determine.

2.2. Section 46 of the Act (Pre-emptive Rights) does not apply to the Company.

2.3. A Share may be issued for consideration in any form, including money, a promissory note, or other written obligation to contribute money or property, real property, personal property (including goodwill and know-how), services rendered or a contract for future services.

2.4. The consideration for a Share with par value shall not be less than the par value of the Share. If a Share with par value is issued for consideration less than the par value, the person to whom the Share is issued is liable to pay to the Company an amount equal to the difference between the issue price and the par value.

2.5. No Shares may be issued for a consideration other than money, unless a Resolution of Directors has been passed stating:

(a) the amount to be credited for the issue of the Shares;

(b) the determination of the Directors of the reasonable present cash value of the non-money consideration for the issue; and

(c) that, in the opinion of the Directors, the present cash value of the non-money consideration for the issue is not less than the amount to be credited for the issue of the Shares.

2.6. The Company shall keep a register (the “register of members”) containing:

(a) the names and addresses of the Persons who hold Shares;

(b) the number of each class and series of Shares held by each Shareholder;

(c) the date on which the name of each Shareholder was entered in the register of members; and

(d) the date on which any Person ceased to be a Shareholder.

2.7. The register of members may be in any such form as the Directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until the Directors otherwise determine, the magnetic, electronic or other data storage form shall be the original register of members.

2.8. A Share is deemed to be issued when the name of the Shareholder is entered in the register of members.

2.9. The entry of the name of a Person in the register of members as a holder of a Share is prima facie evidence that legal title in the Share vests in that Person.

2.10. No share may be issued by the Company that:

(a) increases the liability of a person to the Company; or

(b) imposes a new liability on a person to the Company,

unless that person, or an authorized agent of that person, agrees in writing to becoming the holder of the share.

3. REDEMPTION OF SHARES AND TREASURY SHARES

3.1. The Company may purchase, redeem or otherwise acquire and hold its own Shares save that the Company may not, except pursuant to Article 3.7, purchase, redeem or otherwise acquire its own Shares without the consent of Shareholders whose Shares are to be purchased, redeemed or otherwise acquired unless the Company is permitted by the Act or any other provision in the Memorandum or Articles to purchase, redeem or otherwise acquire the Shares without their consent.

3.2. The Company may only offer to purchase, redeem or otherwise acquire Shares if the Resolution of Directors authorizing the purchase, redemption or other acquisition contains a statement that the Directors are satisfied, on reasonable grounds, that immediately after the acquisition the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

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3.3. Sections 60 (Process for acquisition of own shares), 61 (Offer to one or more shareholders) and 62 (Shares redeemed otherwise than at the option of company) of the Act shall not apply to the Company.

3.4. Shares that the Company purchases, redeems or otherwise acquires pursuant to this Article may be cancelled or held as Treasury Shares except to the extent that such Shares are in excess of 50% of the issued Shares in which case they shall be cancelled to the extent of such excess but they shall be available for reissue.

3.5. All rights and obligations attaching to a Treasury Share are suspended and shall not be exercised by the Company while it holds the Share as a Treasury Share.

3.6. Treasury Shares may be transferred by the Company on such terms and conditions (not otherwise inconsistent with the Memorandum and the Articles) as the Company may by Resolution of Directors determine.

3.7. Where:

(a) the Company undertakes any division of the issued Shares pursuant to section 40A of the Act, and

(b) pursuant to such division a Shareholder holds a total number of Shares which includes a fractional Share, the Company may compulsorily redeem such fractional Share so that (subsequent to such redemption) the Shareholder holds a whole number of Shares.

4. MORTGAGES AND CHARGES OF SHARES

4.1. Shareholders may mortgage or charge their Shares.

4.2. There shall be entered in the register of members at the written request of the Shareholder:

(a) a statement that the Shares held by him are mortgaged or charged;

(b) the name of the mortgagee or chargee; and

(c) the date on which the particulars specified in subparagraphs (a) and (b) are entered in the register of members.

4.3. Where particulars of a mortgage or charge are entered in the register of members, such particulars may be cancelled:

(a) with the written consent of the named mortgagee or chargee or anyone authorized to act on his behalf; or

(b) upon evidence satisfactory to the Directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the Directors shall consider necessary or desirable.

4.4. Whilst particulars of a mortgage or charge over Shares are entered in the register of members pursuant to this Article:

(a) no transfer of any Share the subject of those particulars shall be effected;

(b) the Company may not purchase, redeem or otherwise acquire any such Share; and

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(c) no replacement certificate shall be issued in respect of such Shares, without the written consent of the named mortgagee or chargee.

5. FORFEITURE

5.1. Shares that are not fully paid on issue are subject to the forfeiture provisions set forth in this Article and for this purpose Shares issued for a promissory note, other written obligation to contribute money or property or a contract for future services are deemed to be not fully paid.

5.2. A written notice of call specifying the date for payment to be made shall be served on the Shareholder who defaults in making payment in respect of the Shares.

5.3. The written notice of call referred to in Article 5.2 shall name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which the payment required by the notice is to be made and shall contain a statement that in the event of non-payment at or before the time named in the notice the Shares, or any of them, in respect of which payment is not made will be liable to be forfeited.

5.4. Where a written notice of call has been issued pursuant to Article 5.3 and the requirements of the notice have not been complied with, the Directors may, at any time before tender of payment, forfeit and cancel the Shares to which the notice relates.

5.5. The Company is under no obligation to refund any moneys to the Shareholder whose Shares have been cancelled pursuant to Article 5.4 and that Shareholder shall be discharged from any further obligation to the Company with respect to such cancelled Shares.

6. TRANSFER AND TRANSMISSION OF SHARES

6.1. Shares may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, which shall be sent to the Company for registration.

6.2. The transfer of a Share is effective when the name of the transferee is entered on the register of members.

6.3. If the directors or a duly authorized committee of directors of the Company are satisfied that an instrument of transfer relating to Shares has been signed but that the instrument has been lost or destroyed, they may resolve by Resolution of Directors:

(a) to accept such evidence of the transfer of Shares as they consider appropriate; and

(b) that the transferee’s name should be entered in the register of members notwithstanding the absence of the instrument of transfer.

6.4. Subject to the Memorandum, the personal representative of a deceased Shareholder may transfer a Share even though the personal representative is not a Shareholder at the time of the transfer.

7. MEETINGS AND CONSENTS OF SHAREHOLDERS

7.1. Any action required or permitted to be taken by the Shareholders must be effected at a duly called annual or special meeting (as provided for in Articles 7.3 and 7.4) of the Shareholders entitled to vote on such action and may not be effected by a Resolution consented to in writing.

7.2. All meetings of Shareholders (whether annual or special) shall be held on such dates and at such places as may be fixed from time to time by the directors.

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7.3. A meeting of Shareholders, which shall be held no more than once in each calendar year, for such business as may come before the meeting (the “annual meeting of Shareholders”) shall be held at such date and time as may be determined by the directors.

7.4. A meeting of Shareholders other than an annual meeting of Shareholders which shall be held for the consideration of any business, including the election of directors, shall hereinafter be referred to as a “special meeting of Shareholders.” A special meeting of Shareholders may be called by the directors pursuant to a Resolution of Directors at such date, time and for the consideration of any business as may be determined by the directors, save that upon the written request of Shareholders holding at least 30 percent of the votes of the outstanding voting Shares in the Company, the directors shall convene a special meeting of Shareholders in respect of the matter for which the meeting is requested. If a special meeting of Shareholders is called upon by the written request of Shareholders pursuant to the previous sentence, then such written request must specify the nature of the business proposed to be transacted and such business must be a proper matter for Shareholder action, and, as to any proposed business or director nominations that such Shareholders propose to bring before the meeting, such Shareholder must provide with such request the information set forth in subclauses (i) through (viii) of Article 7.17(a). Furthermore, any such business must comply with, and shall be subject to, the requirements and provisions of Articles 7.16(b) and 7.17(b).

7.5. Written notice of all meetings of Shareholders, stating the time, place and, in the case of a special meeting of Shareholders, the purpose or purposes thereof, shall be given by the Company pursuant to a Resolution of Directors not fewer than ten days before the date of the proposed meeting to those persons whose names appear as Shareholders in the register of members on the date of the notice and are entitled to vote at the meeting.

7.6. The directors may fix the date notice is given of a meeting of Shareholders, or such other date as may be specified in the notice, as the record date for determining those Shares that are entitled to vote at the meeting.

7.7. A meeting of Shareholders may be called on short notice:

(a) if Shareholders holding not less than 90 percent of the total number of Shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of Shares where Shareholders are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or

(b) if all Shareholders holding Shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver.

7.8. The inadvertent failure of the directors to give notice of a meeting to a Shareholder, or the fact that a Shareholder has not received notice, does not invalidate the meeting.

7.9. A Shareholder may be represented at a meeting of Shareholders by a proxy who may speak and vote on behalf of the Shareholder.

7.10. The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote.

7.11. An instrument appointing a proxy shall be in such form as the Directors may from time to time determine or such other form as the chairman of the meeting shall accept as properly evidencing the wishes of the Shareholder appointing the proxy.

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Execution of the instrument appointing a proxy may be accomplished by the Shareholder or such Shareholder’s authorized officer, director, employee or agent signing such instrument by any reasonable means, including, but not limited to, by facsimile signature. A Shareholder may authorize another person or persons to act for such Shareholder as proxy by transmitting or authorizing the transmission of such communication evidencing the Shareholder’s intention to appoint a person or persons as his proxy by means of a telegram, cablegram, or other means of electronic transmission (including but not limited to, via internet or telephone) to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or the other means of electronic transmission (which must be supported by printed evidence thereof) must be either set forth or be submitted with written information from which it can be determined that the telegram, cablegram or printed evidence of the other electronic transmission was authorized by the Shareholder. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Article 7.11 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

7.12. The following applies where Shares are jointly owned:

(a) if two or more persons hold Shares jointly each of them may be present in person or by proxy at a meeting of Shareholders and may speak as a Shareholder;

(b) if only one of the joint owners is present in person or by proxy, he may vote on behalf of all joint owners; and

(c) if two or more of the joint owners are present in person or by proxy, they must vote as one.

7.13. Subject to such limitations, restrictions, guidelines and procedures as may be established by the directors by Resolution of Directors from time to time, a Shareholder shall be deemed to be present at a meeting of Shareholders if he participates by telephone or other electronic means and all Shareholders participating in the meeting are able to hear each other.

7.14. A meeting of Shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50% of the votes of the Shares entitled to vote on the Resolutions of Shareholders to be considered at the meeting. If a quorum be present, notwithstanding the fact that such quorum may be represented by only a single Shareholder or proxy, then such person may pass a Resolution of Shareholders and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy instrument shall constitute a valid Resolution of Shareholders. The Shareholders present at a duly called or held meeting of Shareholders at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action (other than adjournment) is approved by at least a majority of the Shares required to constitute a quorum.

7.15. If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other time and place as the chairman of the meeting may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the Shares or each class or series of Shares entitled to vote on the matters to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved.

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7.16.

(a) At any annual meeting of Shareholders, only proposals of business which have been made in accordance with this Article shall be eligible to be brought before such meeting:

(i) by or at the direction of the Chairman of the Board or by Resolution of Directors;

(ii) by any Shareholder who is a holder of record as of the record date established pursuant to Article 7.6 who is entitled to vote at the meeting and who complies with the requirements and procedures set out in Article 7.17.

(b) At any special meeting of Shareholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the notice of meeting made pursuant to Article 7.5.

7.17.

(a) For business to be properly brought to an annual meeting of Shareholders by a Shareholder, such business must be a proper matter for Shareholder action and the Shareholder must have given timely written notice thereof, either by personal delivery or by prepaid registered post to the Secretary of the Company (the “Secretary”) at the principal executive offices of the Company. To be considered timely in connection with an annual meeting of Shareholders, a Shareholder’s notice must be delivered not less than 60 days nor more than 90 days prior to the anniversary date of the prior year’s annual meeting of Shareholders; provided, however, that in the event that the date of the annual meeting of Shareholders changed by more than 30 days from such anniversary date, notice from a Shareholder shall also be considered timely if it is delivered not earlier than 90 days prior to such annual meeting nor later than the later of (i) 60 days prior to such annual meeting or (ii) the close of business on the tenth day following the day on which public disclosure is first made of the date of such annual meeting of Shareholders. For the purposes of this Article 7.17, any adjournment(s) or postponement(s) of the original annual meeting of Shareholders whereby such meeting will reconvene within 30 days from original date shall be deemed, for purposes of notice, to be a continuation of such original annual meeting of Shareholders and no business may be brought before any reconvened meeting unless such timely notice of such business was properly given to the Secretary for the meeting as originally scheduled. A Shareholder’s notice to the Secretary shall set out:

(i) a brief description of the proposal or the business desired to be brought before the meeting;

(ii) the full text of the proposal or business (including the full text of any resolutions proposed for consideration, and, in the event that such business includes a proposal to amend either the Memorandum or the Articles of the Company, the full text of the proposed amendment) and such other information regarding such proposal as would be required in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such proposal been made by the Company;

(iii) the reasons for making the proposal or conducting such business at the meeting;

(iv) a representation that the Shareholder is a holder of record of Shares in the Company entitled to vote at such meeting and that such Shareholder intends to appear in person or by a proxy at the meeting to conduct the business being proposed as specified in the notice;

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(v) the name and address of record of the Shareholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made;

(vi) the class and number of Shares of the Company which are owned beneficially or of record by such Shareholder and the beneficial owner, if any, on whose behalf the proposal is made;

(vii) any material interest of such Shareholder, and the beneficial owner, if any, on whose behalf the proposal is made, in such proposal or business and a description of all relationships, arrangements or understandings between the Shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and

(viii) if the Shareholder or the beneficial owner, if any, on whose behalf the proposal is made intends to solicit proxies in support of such Shareholder’s or beneficial owner’s proposal, a representation to that effect.

(b) Notwithstanding the foregoing or any other Article contained in the Articles, nothing in Articles 7.4, 7.16(a)(ii), 7.16(b) or 7.17 shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of, the directors. The chairman of a meeting of Shareholders shall have the power and the duty, if the facts so warrant, to determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of Articles 7.4, 7.16 or 7.17 and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding anything contained elsewhere in these Articles, if a Shareholder has notified the Company of his intention to present a proposal at a meeting of Shareholders and such Shareholder does not appear or send a qualified representative, as determined by the chairman of the meeting, to present such proposal at such meeting, the Company need not present such proposal for a vote at such meeting notwithstanding that proxies in respect of such vote may have been received by the Company. Notwithstanding anything contained elsewhere in these Articles, a Shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in Articles 7.4, 7.16(a)(ii), 7.16(b) and 7.17. Nothing in these Articles shall be deemed to affect any rights of Shareholders to request inclusion of proposals in the Company’s proxy statement pursuant to Regulation 14A under the Exchange Act.

7.18. At every meeting of Shareholders, the Chairman of the Board shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present at the meeting, the vice-Chairman of the Board shall be the chairman of the meeting. If there is no vice-Chairman of the Board or if the vice-Chairman of the Board is not present at the meeting, the chief executive officer shall be the chairman of the meeting. In the absence of the chief executive officer, such other person as shall be selected by the Board shall act as chairman of the meeting. Subject to the Memorandum and these Articles, the Board may adopt by Resolution of Directors, rules and regulations for the conduct of meetings of Shareholders as it shall deem appropriate relating to:

(a) the establishment of an agenda or order of business for the meeting and other matters pertaining to the conduct of the meeting;

(b) maintaining order at the meeting and the safety of those present;

(c) limitations on attendance at or participation in the meeting of shareholders of record, their duly authorized and constituted proxies or such other persons as the directors or chairman of the meeting shall determine;

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(d) restrictions on entry to the meeting after the time fixed for commencement thereof; and

(e) limitations on the time allotted to questions or comments by participants.

7.19. Subject to the Memorandum, these Articles and any Resolution of Directors, the chairman of the meeting of Shareholders shall have the right and authority to prescribe rules and regulations for the conduct of meetings of Shareholders as he shall deem appropriate, including but not limited to the matters described in Articles 7.18 (a) through (e) above.

7.20. The chairman of the meeting may adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

7.21. At any meeting of the Shareholders, the chairman of the meeting is responsible for deciding in such manner as he considers appropriate whether any resolution proposed has been carried or not, and the result of his decision shall be announced to the meeting (including any adjournment thereof) and recorded in the minutes of the meeting. If the chairman has any doubt as to the outcome of the vote on a proposed resolution, he shall cause a poll to be taken of all votes cast upon such resolution. If the chairman fails to take a poll, then any Shareholder present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall cause a poll to be taken. If a poll is taken at any meeting, the result shall be announced to the meeting (including any adjournment thereof) and recorded in the minutes of the meeting.

7.22. Any person other than an individual shall be regarded as one Shareholder and subject to the specific provisions hereinafter contained for the appointment of representatives of such persons the right of any individual to speak for or represent such Shareholder shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any Shareholder.

7.23. Any person other than an individual which is a Shareholder of the Company may by resolution of its directors or other governing body of such person authorize such person as it thinks fit to act as its representative at any meeting of the Shareholders or meeting of any class of Shareholders of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the person which he represents as that person could exercise if it were an individual Shareholder.

7.24. The chairman of any meeting at which a vote is cast by proxy or on behalf of any person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such person shall be disregarded.

7.25. Directors of the Company may attend and speak at any meeting of Shareholders and at any separate meeting of the holders of any class or series of Shares.

7.26. No business of the Company shall be conducted at a meeting of shareholders except in accordance with the provisions of this Article 7.

8. DIRECTORS

8.1. The Directors shall be elected by a resolution of Shareholders passed in accordance with Article 8.8 below.

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8.2. No person shall be appointed as a Director, or nominated as a reserve Director, of the Company unless he has consented in writing to be a Director or to be nominated as a reserve Director.

8.3. The minimum number of Directors shall be one and there shall be no maximum number.

8.4. The Board shall be divided into three classes of Directors, as nearly equal in numbers as the then total number of Directors permits with the term of office of one class expiring each year.

8.5. At the annual meeting of Shareholders in 2010:

(a) Directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting of Shareholders;

(b) Directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting of Shareholders; and

(c) Directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting of Shareholders.

8.6. At every succeeding annual meeting of Shareholders, the successors to the class of Directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of Shareholders.

8.7. A Director who retires at the annual meeting of Shareholders shall be eligible for re-election. If he is not re-elected he shall retain office until the meeting elects someone in his place, or if it does not do so, until the end of the meeting.

8.8. The election of Directors at each duly convened and constituted annual meeting of Shareholders shall be determined by a plurality of the votes of the Shares entitled to vote thereon in which respect of which the Shareholders holding the Shares were present at the meeting in person or by proxy and being Shares in respect of which the votes were voted.

8.9. Each Director holds office for the term, if any, fixed by the Resolution of Shareholders appointing him, or until his earlier death, resignation or removal.

8.10. The Directors may at any time appoint any person to be a Director either to fill a vacancy or as an addition to the existing Directors. Where the Directors appoint a person as a Director to fill a vacancy or as an additional Director the term of appointment for that new Director shall not exceed the term that remained when the person who has ceased to be a Director ceased to hold office.

8.11. A vacancy in relation to Directors occurs if a Director dies or otherwise ceases to hold office prior to the expiration of his term of office.

8.12. Where the Company only has one Shareholder who is an individual and that Shareholder is also the sole Director, the sole Shareholder/Director may, by instrument in writing, nominate a person who is not disqualified from being a Director as a reserve director of the Company to act in the place of the sole Director in the event of his death.

8.13. The nomination of a person as a reserve director of the Company ceases to have effect if:

(a) before the death of the sole Shareholder/Director who nominated him,

(i) he resigns as reserve director, or

(ii) the sole Shareholder/Director revokes the nomination in writing; or

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(b) the sole Shareholder/Director who nominated him ceases to be able to be the sole Shareholder/Director for any reason other than his death.

8.14. The Company shall keep a register of directors containing:

(a) the names and addresses of the persons who are directors of the Company or who have been nominated as reserve directors of the Company;

(b) the date on which each person whose name is entered in the register was appointed as a director, or nominated as a reserve director, of the Company;

(c) the date on which each person named as a director ceased to be a director of the Company;

(d) the date on which the nomination of any person nominated as a reserve director ceased to have effect; and

(e) such other information as may be prescribed by the Act.

8.15. The register of directors may be kept in any such form as the Directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until a Resolution of Directors determining otherwise is passed, the magnetic, electronic or other data storage shall be the original register of directors.

8.16. A Director is not required to hold a Share as a qualification to office.

8.17. A Director may be removed from office, with cause, by a Resolution of Shareholders or by Resolution of Directors passed at a meeting of directors called for the purpose of removing the director or for purposes including the removal of the director.

8.18. Without prejudice to the provisions of retirement by rotation hereinafter contained, the office of a Director shall be vacated in any of the events following, namely:

(a) if he resigns his office by notice in writing delivered to the registered office or tendered at a meeting of the Board; or

(b) if the Board resolves that he is through physical or mental incapacity or mental disorder no longer able to perform the functions of a Director; or

(c) if he fails, without leave, to attend (whether or not an alternate Director appointed by him attends) three successive Board meetings or four Board meetings in any consecutive period of 12 months despite a notice being given to him prior to such third or fourth meeting (as the case may be) that the provisions of this paragraph might apply and not less than two- thirds of all the other Directors (excluding the Director concerned and, in his capacity as such, any alternate Director appointed by the Director concerned) resolving that his office should be vacated; or

(d) if he becomes bankrupt or insolvent or makes an arrangement or composition with his creditors or applies to the Court in connection with a voluntary arrangement; or

(e) any event analogous to those listed in Article 8.18(d) under the laws of any other jurisdiction occurs in relation to a Director; or

(f) if he is prohibited by law from being a Director; or

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(g) if he ceases to be a Director by virtue of the Act or is removed from office pursuant to these Articles.

In the case of Articles 8.18 (b) to (e) inclusive above, the Director shall be removed from office.

8.19. A Resolution of Directors declaring that a Director has vacated office under Article 8.18 shall be conclusive as to that fact and as to the ground of vacation as stated in the resolution.

8.20. Each Director shall have the power to appoint any person to be his alternate Director and may at his discretion remove such alternate Director. If such alternate Director is not another Director, such appointment, unless previously approved by the Board, shall have effect only upon and subject to it being so approved. Any appointment or removal of an alternate Director shall be effected by notice in writing signed by the appointer and delivered to the registered office or tendered at a meeting of the Board. An alternate Director shall, if his appointer so requests, be entitled to receive notices of meetings of the Board or of committees of the Board to the same extent as, but in lieu of, the Director appointing him and shall be entitled to such extent to attend at and vote as a Director at any such meeting at which the Director appointing him is not personally present and to exercise and discharge all the functions, powers and duties of his appointer as a Director and for the purposes of the proceedings at such meeting the provisions of these Articles shall apply as if he were a Director.

8.21. Every person acting as an alternate Director shall (except as regards power to appoint an alternate Director and remuneration) be subject in all respects to the provisions of these Articles relating to Directors and shall alone be responsible to the Company for his acts and defaults and shall not be deemed to be the agent of or for the Director appointing him. An alternate Director may be paid expenses and shall be entitled to be indemnified by the Company to the same extent mutatis mutandis as if he were a Director but shall not be entitled to receive from the Company any fee in his capacity as an alternate Director except only such part (if any) of the remuneration otherwise payable to the Director appointing him as such Director may by notice in writing to the Company from time to time direct.

8.22. Every person acting as an alternate Director shall have one vote for each Director for whom he acts as alternate (in addition to his own vote if he is also a Director). The signature of an alternate Director to any resolution in writing of the Board or a committee of the Board shall, unless the notice of his appointment provides to the contrary, be as effective as the signature of his appointer.

8.23. An alternate Director shall ipso facto cease to be an alternate Director if his appointer ceases for any reason to be a Director provided that, if at any meeting any Director retires by rotation or otherwise but is re-elected at the same meeting, any appointment made by him pursuant to this Article which was in force immediately before his retirement shall remain in force as though he had not retired.

8.24. Each of the Directors shall be paid a fee at such rate as may from time to time be determined by the Board provided that the aggregate of all such fees so paid to Directors (excluding amounts payable under any other Article and any amount payable under any service contract) shall not exceed US$100,000 per annum, or such higher amount as may from time to time be determined by Resolution of Shareholders.

8.25. As the Board determines each Director may be paid his reasonable travelling, hotel and incidental expenses of attending and returning from meetings of the Board or committees of the Board or meetings of Shareholders or separate meetings of the holders of any class or series of Shares or of debentures of the Company and shall be paid all expenses properly and reasonably incurred by him in the conduct of the Company’s business or in the discharge of his duties as a Director. Any Director who, by request, goes or resides abroad for any purposes of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Article.

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9. POWERS OF DIRECTORS

9.1. The business and affairs of the Company shall be managed by, or under the direction or supervision of, the Directors. The Directors have all the powers necessary for managing, and for directing and supervising, the business and affairs of the Company. The Directors may pay all expenses incurred preliminary to and in connection with the incorporation of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or the Articles required to be exercised by the Shareholders.

9.2. Each Director shall exercise his powers for a proper purpose and shall not act or agree to the Company acting in a manner that contravenes the Memorandum, the Articles or the Act. Each Director, in exercising his powers or performing his duties, shall act honestly and in good faith in what the Director believes to be the best interests of the Company.

9.3. If the Company is the wholly owned subsidiary of a holding company, a Director may, when exercising powers or performing duties as a Director, act in a manner which he believes is in the best interests of the holding company even though it may not be in the best interests of the Company.

9.4. Any Director which is a body corporate may appoint any individual as its duly authorized representative for the purpose of representing it at meetings of the Directors, with respect to the signing of consents or otherwise.

9.5. The continuing Directors may act notwithstanding any vacancy in their body.

9.6. The Directors may by Resolution of Directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party. The Directors shall have unlimited power to borrow money on behalf of the Company.

9.7. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by Resolution of Directors.

9.8. For the purposes of Section 175 (Disposition of assets) of the Act, the Directors may by Resolution of Directors determine that any sale, transfer, lease, exchange or other disposition is in the usual or regular course of the business carried on by the Company and such determination is, in the absence of fraud, conclusive.

9.9. The Company has no power to grant loans to the Directors.

10. PROCEEDINGS OF DIRECTORS

10.1. Any one Director may call a meeting of the Directors by sending a written notice to each other Director.

10.2. The Directors or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the Directors may determine to be necessary or desirable.

10.3. A Director is deemed to be present at a meeting of Directors if he participates by telephone or other electronic means and all Directors participating in the meeting are able to hear each other.

10.4. A Director shall be given not less than 3 days’ notice of meetings of Directors, but a meeting of Directors held without 3 days’ notice having been given to all Directors shall be valid if all the

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Directors entitled to vote at the meeting who do not attend waive notice of the meeting, and for this purpose the presence of a Director at a meeting shall constitute waiver by that Director. The inadvertent failure to give notice of a meeting to a Director, or the fact that a Director has not received the notice, does not invalidate the meeting.

10.5. A meeting of Directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of Directors, unless there are only 2 Directors in which case the quorum is 2.

10.6. If the Company has only one Director the provisions herein contained for meetings of Directors do not apply and such sole Director has full power to represent and act for the Company in all matters as are not by the Act, the Memorandum or the Articles required to be exercised by the Shareholders. In lieu of minutes of a meeting the sole Director shall record in writing and sign a note or memorandum of all matters requiring a Resolution of Directors. Such a note or memorandum constitutes sufficient evidence of such resolution for all purposes.

10.7. At meetings of Directors at which the Chairman of the Board is present, he shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present, the Directors present shall choose one of their number to be chairman of the meeting.

10.8. An action that may be taken by the Directors or a committee of Directors at a meeting may also be taken by a Resolution of Directors or a resolution of a committee of Directors consented to in writing by all Directors or by all members of the committee, as the case may be, without the need for any notice. The consent may be in the form of counterparts each counterpart being signed by one or more Directors. If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the date upon which the last Director has consented to the resolution by signed counterparts.

11. COMMITTEES

11.1. The Directors may, by Resolution of Directors, designate one or more committees, each consisting of one or more Directors, and delegate one or more of their powers, including the power to affix the Seal, to the committee.

11.2. The Directors have no power to delegate to a committee of Directors any of the following powers:

(a) to amend the Memorandum or the Articles;

(b) to designate committees of Directors;

(c) to delegate powers to a committee of Directors;

(d) to appoint or remove Directors;

(e) to appoint or remove an agent;

(f) to approve a plan of merger, consolidation or arrangement;

(g) to make a declaration of solvency or to approve a liquidation plan; or

(h) to make a determination that immediately after a proposed Distribution the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

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11.3. Articles 11.2(b) and (c) do not prevent a committee of Directors, where authorized by the Resolution of Directors appointing such committee or by a subsequent Resolution of Directors, from appointing a sub-committee and delegating powers exercisable by the committee to the sub-committee.

11.4. The meetings and proceedings of each committee of Directors consisting of 2 or more Directors shall be governed mutatis mutandis by the provisions of the Articles regulating the proceedings of Directors so far as the same are not superseded by any provisions in the Resolution of Directors establishing the committee.

11.5. Where the Directors delegate their powers to a committee of Directors they remain responsible for the exercise of that power by the committee, unless they believed on reasonable grounds at all times before the exercise of the power that the committee would exercise the power in conformity with the duties imposed on Directors under the Act.

12. OFFICERS AND AGENTS

12.1. The Company may by Resolution of Directors appoint officers of the Company at such times as may be considered necessary or expedient. Any number of offices may be held by the same person.

12.2. The officers shall perform such duties as are prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by Resolution of Directors. In the absence of any specific prescription of duties it shall be the responsibility of the Chairman of the Board to preside at meetings of Directors and Shareholders, the Chief Executive Officer to manage the day to day affairs of the Company, the vice-presidents to act in order of seniority in the absence of the president but otherwise to perform such duties as may be delegated to them by the president, the secretaries to maintain the register of members, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Chief Financial Officer to be responsible for the financial affairs of the Company.

12.3. The emoluments of all officers shall be fixed by Resolution of Directors.

12.4. The officers of the Company shall hold office until their successors are duly appointed, but any officer elected or appointed by the Directors may be removed at any time, with or without cause, by Resolution of Directors. Any vacancy occurring in any office of the Company may be filled by Resolution of Directors.

12.5. The Directors may, by Resolution of Directors, appoint any person, including a person who is a Director, to be an agent of the Company.

12.6. An agent of the Company shall have such powers and authority of the Directors, including the power and authority to affix the Seal, as are set forth in the Articles or in the Resolution of Directors appointing the agent, except that no agent has any power or authority with respect to the following:

(a) to amend the Memorandum or the Articles;

(b) to change the registered office or agent;

(c) to designate committees of Directors;

(d) to delegate powers to a committee of Directors;

(e) to appoint or remove Directors;

(f) to appoint or remove an agent;

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(g) to fix emoluments of Directors;

(h) to approve a plan of merger, consolidation or arrangement;

(i) to make a declaration of solvency or to approve a liquidation plan;

(j) to make a determination that immediately after a proposed Distribution the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due; or

(k) to authorize the Company to continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands.

12.7. The Resolution of Directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.

12.8. The Directors may remove an agent appointed by the Company and may revoke or vary a power conferred on him.

13. CONFLICT OF INTERESTS

13.1. A Director shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose the interest to all other Directors.

13.2. For the purposes of Article 13.1, a disclosure to all other Directors to the effect that a Director is a member, director or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry into the transaction or disclosure of the interest, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction.

13.3. A Director who is interested in a transaction entered into or to be entered into by the Company may:

(a) vote on a matter relating to the transaction;

(b) attend a meeting of Directors at which a matter relating to the transaction arises and be included among the Directors present at the meeting for the purposes of a quorum; and

(c) sign a document on behalf of the Company, or do any other thing in his capacity as a Director, that relates to the transaction, and, subject to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit.

14. INDEMNIFICATION

14.1. Subject to the limitations hereinafter provided the Company shall indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who:

(a) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a Director, an officer or a liquidator of the Company; or

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(b) is or was, at the request of the Company, serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise.

The indemnity in Article 14.1 only applies if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful.

14.2. The decision of the Directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of the Articles, unless a question of law is involved.

14.3. The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful.

14.4. Expenses, including legal fees, incurred by a Director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the Director to repay the amount if it shall ultimately be determined that the Director is not entitled to be indemnified by the Company in accordance with Article 14.1.

14.5. Expenses, including legal fees, incurred by a former Director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the former Director to repay the amount if it shall ultimately be determined that the former Director is not entitled to be indemnified by the Company in accordance with Article 14.1 and upon such terms and conditions, if any, as the Company deems appropriate.

14.6. The indemnification and advancement of expenses provided by, or granted pursuant to, this section is not exclusive of any other rights to which the person seeking indemnification or advancement of expenses may be entitled under any agreement, Resolution of Shareholders, resolution of disinterested Directors or otherwise, both as acting in the person’s official capacity and as to acting in another capacity while serving as a Director.

14.7. If a person referred to in Article 14.1 has been successful in defense of any proceedings referred to in Article 14.1, the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings.

14.8. The Company may purchase and maintain insurance in relation to any person who is or was a Director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in the Articles.

15. RECORDS

15.1. The Company shall keep the following documents at the office of its registered agent:

(a) the Memorandum and the Articles;

(b) the register of members, or a copy of the register of members;

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(c) the register of directors, or a copy of the register of directors; and

(d) copies of all notices and other documents filed by the Company with the Registrar of Corporate Affairs in the previous 10 years.

15.2. Until the Directors determine otherwise by Resolution of Directors the Company shall keep the original register of members and original register of directors at the office of its registered agent.

15.3. If the Company maintains only a copy of the register of members or a copy of the register of directors at the office of its registered agent, it shall:

(a) within 15 days of any change in either register, notify the registered agent in writing of the change; and

(b) provide the registered agent with a written record of the physical address of the place or places at which the original register of members or the original register of directors is kept.

15.4. The Company shall keep the following records at the office of its registered agent or at such other place or places, within or outside the British Virgin Islands, as the Directors may determine:

(a) minutes of meetings and Resolutions of Shareholders and classes of Shareholders; and

(b) minutes of meetings and Resolutions of Directors and committees of Directors.

15.5. Where any original records referred to in this Article are maintained other than at the office of the registered agent of the Company, and the place at which the original records are maintained is changed, the Company shall provide the registered agent with the physical address of the new location of the records of the Company within 14 days of the change of location.

15.6. The records kept by the Company under this Article shall be in written form or either wholly or partly as electronic records complying with the requirements of the Electronic Transactions Act, 2001 (No. 5 of 2001) as from time to time amended or re-enacted.

16. REGISTER OF CHARGES

The Company shall maintain at the office of its registered agent, a register of charges in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance created by the Company:

(a) the date of creation of the charge;

(b) a short description of the liability secured by the charge;

(c) a short description of the property charged;

(d) the name and address of the trustee for the security or, if there is no such trustee, the name and address of the chargee;

(e) unless the charge is a security to bearer, the name and address of the holder of the charge; and

(f) details of any prohibition or restriction contained in the instrument creating the charge on the power of the Company to create any future charge ranking in priority to or equally with the charge.

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17. SEAL

17.1. The Company shall have a Seal an impression of which shall be kept at the office of the registered agent of the Company. The Company may have more than one Seal and references herein to the Seal shall be references to every Seal which shall have been duly adopted by Resolution of Directors. The Directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the registered office.

17.2. Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of any one Director or other person so authorized from time to time by Resolution of Directors. Such authorization may be before or after the Seal is affixed, may be general or specific and may refer to any number of sealings. The Directors may provide for the Seal and/or for the signature of any Director or authorized person to be affixed by electronic means on any instrument in accordance with the Electronic Transactions Act, 2001 and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been attested to as hereinbefore described.

17.3. A contract, agreement or other instrument executed by or on behalf of the Company by a Director or an authorized agent of the Company is not invalid by reason only of the fact that the Seal is not affixed to the contract, agreement or instrument.

17.4. An instrument is validly executed by the Company as a deed or an instrument under seal if it is either:

(a) sealed with the Seal and witnessed by a Director or such other person who is authorized by the Memorandum and these Articles to witness the application of the Seal; or

(b) it is expressed to be, or is expressed to be executed as, or otherwise makes clear on its face that it is intended to be, a deed and it is signed by a Director or by a person so authorized from time to time by Resolution of Directors.

18. DISTRIBUTIONS BY WAY OF DIVIDEND

18.1. The Directors of the Company may, by Resolution of Directors, authorize a Distribution by way of dividend at a time and of an amount they think fit if they are satisfied, on reasonable grounds, that, immediately after the Distribution, the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.

18.2. Dividends may be paid in money, shares, or other property.

18.3. Notice of any dividend that may have been declared shall be given to each Shareholder as specified in Article 20.1 and all dividends unclaimed for 3 years after having been declared may be forfeited by Resolution of Directors for the benefit of the Company.

18.4. No dividend shall bear interest as against the Company and no dividend shall be paid on Treasury Shares.

18.5. The Directors may, before authorizing any Distribution, set aside out of the profits of the Company such sum as they think proper as a reserve fund, any may invest the sum so set apart as a reserve fund upon such securities as they may select.

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19. ACCOUNTS AND AUDIT

19.1. The Company shall keep records that are sufficient to show and explain the Company’s transactions and that will, at any time, enable the financial position of the Company to be determined with reasonable accuracy.

19.2. The Company may by Resolution of Shareholders call for the directors to prepare periodically and make available a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for a financial period and a true and fair view of the assets and liabilities of the Company as at the end of a financial period.

19.3. The Company may by Resolution of Shareholders call for the accounts to be examined by auditors.

19.4. The first auditors shall be appointed by Resolution of Directors; subsequent auditors shall be appointed by Resolution of Shareholders or by Resolution of Directors.

19.5. The auditors may be Shareholders, but no director or other officer shall be eligible to be an auditor of the Company during their continuance in office.

19.6. The remuneration of the auditors of the Company may be fixed by Resolution of Directors.

19.7. The auditors shall examine each profit and loss account and balance sheet required to be laid before a meeting of the Shareholders or otherwise given to Shareholders and shall state in a written report whether or not:

(a) in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the assets and liabilities of the Company at the end of that period; and

(b) all the information and explanations required by the auditors have been obtained.

19.8. The report of the auditors shall be annexed to the accounts and shall be given to the Shareholders.

19.9. Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors.

19.10. The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of Shareholders at which the Company’s profit and loss account and balance sheet are to be presented

20. NOTICES

20.1. Any notice, information or written statement to be given by the Company to Shareholders may be given by personal service or by mail addressed to each Shareholder at the address shown in the register of members or by email or facsimile to an email address or facsimile number notified for that purpose by a Shareholder to the Company.

20.2. Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.

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20.3. Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid.

21. VOLUNTARY LIQUIDATION

The Company may by a Resolution of Shareholders or by Resolution of Directors appoint a voluntary liquidator.

22. CONTINUATION

The Company may by Resolution of Shareholders or by a resolution passed unanimously by all Directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws.

23. BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS

23.1. Notwithstanding anything contained in the Memorandum or these Articles, the Company shall not engage in any business combination with any interested Shareholder for a period of 3 years following the time that such Shareholder became an interested Shareholder unless:

(a) prior to such time the board of directors of the Company approved either the business combination or the transaction which resulted in the Shareholder becoming an interested Shareholder;

(b) upon consummation of the transaction which resulted in the Shareholder becoming an interested Shareholder, the interested Shareholder owned at least 85% of the voting Shares of the Company outstanding at the time the transaction commenced, excluding for the purposes of determining the voting Shares outstanding (but not the outstanding voting Shares owned by the interested shareholder) those Shares owned (i) by persons who are directors and also officers and (ii) employee share plans in which employee participants do not have the right to determine confidentially whether Shares held subject to the plan will be tendered in a tender or exchange offer; or

(c) at or subsequent to such time the business combination is approved by the board of directors and authorized at any annual or special meeting of the Shareholders by the affirmative vote of at least 66 2/3% of the outstanding voting Shares which are not owned by the interested Shareholder.

23.2. The restrictions set forth in Article 23.1 shall not apply if:

(a) Subject to the terms of the Memorandum, the Company by Resolution of Directors or a Resolution of Shareholders adopts an amendment to the Articles expressly electing not to be governed by this Article 23 or otherwise deletes this Article 23; provided that, such amendment of this Article 23 shall be effected in such a way as to ensure that it shall not be effective or operative until 12 months after the adoption of such amendment and shall not apply to any business combination between the Company and any Person who became an interested shareholder of the Company on or prior to such adoption.

(b) The Company does not have a class of voting Shares that is: (i) listed on a national securities exchange; (ii) authorized for quotation on The NASDAQ Capital Market; or (iii) held of record by more than 2,000 Shareholders, unless any of the foregoing results from action taken, directly or indirectly, by an interested Shareholder or from a transaction in which a person becomes an interested Shareholder.

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(c) A Shareholder becomes an interested Shareholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient Shares so that the Shareholder ceases to be an interested shareholder; and (ii) would not, at any time within the 3-year period immediately prior to a business combination between the Company and such Shareholder, have been an interested Shareholder but for the inadvertent acquisition of ownership.

(d) The business combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) is with or by a Person who either was not an interested Shareholder during the previous 3 years or who became an interested Shareholder with the approval of the board of directors of the Company or during a period described in Article 23.2(d), (ii) is approved or not opposed by a majority of the directors then in office (but not less than 1) who were directors prior to any Person becoming an interested Shareholder during the previous 3 years or were recommended for election or elected to succeed such directors by a majority of such directors, and (iii) constitutes one of the following transactions:

A. a merger or consolidation of the Company (except for a specified merger);

B. a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in 1 transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Company or any direct or indirect majority-owned subsidiary of the Company (other than to any direct or indirect wholly-owned subsidiary or to the Company) having an aggregate market value equal to 50% or more of either the market value of all of the assets of the Company determined on a consolidated basis or the aggregate market value of all the outstanding Shares of the Company; or

C. a proposed tender or exchange offer for 50% or more of the outstanding voting Shares of the Company.

The Company shall give not less than 20 days’ notice to all interested Shareholders prior to the consummation of any of the transactions described in Articles 23.2(d)(iii)(A) and (B).

(e) The business combination is with an interested Shareholder who became an interested Shareholder at a time when the restrictions contained in this Article 23 did not apply by reason of an amendment pursuant to Article 23.2(a) or 23.2(b) or at the time of registration by the Registrar of the notice of adoption of the Articles, which set forth this Article 23.

23.3. As used in this Article 23 only, the term:

(a) “affiliate” means any Person that directly, or indirectly through 1 or more intermediaries, controls, or is controlled by, or is under common control with, another Person.

(b) “associate,” when used to indicate a relationship with any person, means: (i) any corporation, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of 20% or more of any class of voting stock or voting Shares; (ii) any trust or other estate in which such person has at least a 20% beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person.

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(c) “business combination,” when used in reference to the Company and any interested Shareholder, means:

(i) Any merger or consolidation of the Company or any direct or indirect majority-owned subsidiary of the Company with (A) the interested Shareholder, or (B) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the interested Shareholder and as a result of such merger or consolidation Article 23.1 is not applicable to the surviving entity;

(ii) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in 1 transaction or a series of transactions), except proportionately as a Shareholder of the Company, to or with the interested Shareholder, whether as part of a dissolution or otherwise, of assets of the Company or of any direct or indirect majority-owned subsidiary of the Company which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Company determined on a consolidated basis or the aggregate market value of all the outstanding Shares of the Company;

(iii) Any transaction which results in the issuance or transfer by the Company or by any direct or indirect majority-owned subsidiary of the Company of any Shares of the Company or of such subsidiary to the interested Shareholder, except: (A) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into Shares of the Company or any such subsidiary which securities were outstanding prior to the time that the interested Shareholder became such; (B) pursuant to a merger of the Company with or into a single direct or indirect wholly-owned subsidiary of the Company; (C) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into Shares of the Company or any such subsidiary which security is distributed, pro rata to all holders of a class or series of Shares of the Company subsequent to the time the interested Shareholder became such; (D) pursuant to an exchange offer by the Company to purchase Shares made on the same terms to all holders of said Shares; or (E) any issuance, cancellation, redemption, buy back or transfer of Shares by the Company; provided however, that in no case under items (C)-(E) of this Article shall there be an increase in the interested Shareholder’s proportionate share of the Shares of any class or series of the Company or of the voting Shares of the Company;

(iv) Any transaction involving the Company or any direct or indirect majority-owned subsidiary of the Company which has the effect, directly or indirectly, of increasing the proportionate share of the Shares of any class or series, or securities convertible into the Shares of any class or series, of the Company or of any such subsidiary which is owned by the interested Shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any Shares not caused, directly or indirectly, by the interested Shareholder; or

(v) Any receipt by the interested Shareholder of the benefit, directly or indirectly (except proportionately as a Shareholder of the Company), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in subparagraphs (i)-(iv) of this Article) provided by or through the Company or any direct or indirect majority-owned subsidiary of the Company.

(d) “control,” including the terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting Shares, by contract or otherwise. A Person who is the owner of 20% or more of the

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outstanding voting stock of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary; notwithstanding the foregoing, a presumption of control shall not apply where such Person holds voting stock, in good faith and not for the purpose of circumventing this section, as an agent, bank, broker, nominee, custodian or trustee for 1 or more owners who do not individually or as a group have control of such entity.

(e) “interested Shareholder” means any Person (other than the Company and any direct or indirect majority-owned subsidiary of the Company) that (i) is the owner of 15% or more of the outstanding voting Shares of the Company, or (ii) is an affiliate or associate of the Company and was the owner of 15% or more of the outstanding voting Shares of the Company at any time within the 3-year period immediately prior to the date on which it is sought to be determined whether such Person is an interested Shareholder, and the affiliates and associates of such Person; provided, however, that the term “interested Shareholder” shall not include (x) any Person who (A) owned Shares in excess of the 15% limitation set forth herein as of, or acquired such Shares pursuant to a tender offer commenced prior to, the date of registration by the Registrar of the notice of adoption of the Articles, which set forth this Article 25, or pursuant to an exchange offer announced prior to the aforesaid date and commenced within 90 days thereafter and either (I) continued to own Shares in excess of such 15% limitation or would have but for action by the Company or (II) is an affiliate or associate of the Company and so continued (or so would have continued but for action by the Company) to be the owner of 15% or more of the outstanding voting Shares of the Company at any time within the 3-year period immediately prior to the date on which it is sought to be determined whether such Person is an interested Shareholder or (B) acquired said Shares from a Person described in item (A) of this paragraph by gift, inheritance or in a transaction in which no consideration was exchanged; or (y) any Person whose ownership of Shares in excess of the 15% limitation set forth herein is the result of action taken solely by the Company; provided that such Person shall be an interested Shareholder if thereafter such Person acquires additional Shares of voting Shares of the Company, except as a result of further corporate action not caused, directly or indirectly, by such Person. For the purpose of determining whether a Person is an interested Shareholder, the voting Shares of the Company deemed to be outstanding shall include Shares deemed to be owned by the Person through application of Article 23.3(i) but shall not include any other unissued Shares of the Company which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. Any determination made by the Board of Directors as to whether any Person is or is not an interested shareholder shall be conclusive and binding upon all shareholders of the Company.

(f) “owner,” including the terms “own” and “owned,” when used with respect to any Shares of the Company, means a Person that individually or with or through any of its affiliates or associates:

(i) beneficially owns such Shares, directly or indirectly; or

(ii) has (A) the right to acquire such Shares (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the owner of Shares tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s affiliates or associates until such tendered Shares is accepted for purchase or exchange; or (B) the right to vote such Shares pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the owner of any Shares because of such Person’s right to vote such Shares if the agreement, arrangement or understanding to vote such Shares arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more Persons; or

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(iii) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (B) of subparagraph (ii) of this paragraph), or disposing of such Shares with any other Person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such Shares.

(g) “specified merger” means a merger in connection with which all of the following conditions are satisfied: (1) the agreement of merger does not amend in any respect the Memorandum or these Articles, (2) each Share outstanding immediately prior to the effective date of the merger is an identical outstanding or treasury share of the surviving company after the effective date of the merger, and (3) either no Shares of the surviving company and no shares, securities or obligations convertible into such Shares are to be issued or delivered under the plan of merger, or the authorized unissued Shares or the treasury Shares of the surviving company to be issued or delivered under the plan of merger plus those initially issuable upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the Shares of the Company outstanding immediately prior to the effective date of the merger.

(h) “voting Shares” means Shares of any class or series entitled to vote generally in the election of directors of the Company. Every reference to a percentage of voting Shares shall refer to such percentage of the votes of such voting Shares.

(i) “voting stock” means, with respect to any corporation, stock of any class or series entitled to vote generally in the election of directors and, with respect to any entity that is not a corporation, any equity interest entitled to vote generally in the election of the governing body of such entity. Every reference to a percentage of voting stock shall refer to such percentage of the votes of such voting stock.

24. UNTRACED SHAREHOLDERS

24.1. When the registered address of any Shareholder appears to the Board to be incorrect or out of date such Shareholder may, if the Board so resolves, be treated as if he had no registered address and the Company will not thereafter be obliged to send to such Shareholder cheques, warrants, notices of meetings or copies of the documents referred to in these Articles; provided that no resolution as aforesaid shall be proposed by the Board until cheques or warrants sent to the registered address of such Shareholder have been returned by the Post Office or left uncashed on at least two consecutive occasions or, following one such occasion, reasonable enquiries have failed to establish any new address of such Shareholder.

24.2. The Company shall be entitled to sell at the best price reasonably obtainable any Share of a Shareholder or any Share to which a person is entitled by transmission if and provided that:

(a) for a period of twelve years in the course of which at least three dividends have become payable in respect of the Share in question, no cheque or warrant sent by the Company through the post in a prepaid letter addressed to the Shareholder or to the person entitled by transmission to the Share at his address on the register of members or the other last known address given by the Shareholder or the person entitled by transmission to which cheques and warrants are to be sent has been cashed and no communication has been received by the Company from the Shareholder or the person entitled by transmission; and

(b) the Company has at the expiration of the said period of twelve years by advertisement in both a leading national newspaper and in a newspaper circulating in the area in which the address referred to in paragraph (a) above is located given notice of its intention to sell such Share; and

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(c) the Company has not during the further period of three months after the date of the advertisement and prior to the exercise of the power of sale received any communication from the Shareholder or person entitled by transmission.

24.3. To give effect to any such sale the Company may appoint any person to execute as transferor an instrument of transfer of such Share and such instrument of transfer shall be as effective as if it had been executed by the registered holder of such Share. The Company shall account to the Shareholder or other person entitled to such Share for the net proceeds of such sale and shall be deemed to be his debtor and not a trustee for him in respect of the same. Any money not accounted for to the Shareholder or other person entitled to such Share shall be carried to a separate account and shall be a permanent debt of the Company. Money carried to such separate account may either be employed in the business of the Company or invested in such investments (other than Shares or its holding company, if any) as the Directors may from time to time think fit.

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We, Mossack Fonseca & Co. (B.V.I.) Ltd., of P.O. Box 3136, Road Town, Tortola, British Virgin Islands for the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign these Articles of Association the 22nd day of December, 2009.

Incorporator

Sgd. Rosemarie Flax

Rosemarie Flax

Authorized Signatory for and on behalf of Mossack Fonseca & Co. (B.V.I.) Ltd.

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EX-3.II.2

Exhibit 3.ii.2

TERRITORY OF THE BRITISH VIRGIN ISLANDS

THE BVI BUSINESS COMPANIES ACT, 2004

AMENDED AND RESTATED

MEMORANDUM OF ASSOCIATION

OF

Tibet Pharmaceuticals, Inc.

A COMPANY LIMITED BY SHARES

1. DEFINITIONS AND INTERPRETATION

1.1. In this Memorandum of Association and the attached Articles of Association, if not inconsistent with the subject or context:

“Act” means the BVI Business Companies Act, 2004 (No. 16 of 2004) and includes the regulations made under the Act;

“Articles” means the attached Articles of Association of the Company;

“Board” means the board of Directors of the Company or the Directors present at a duly convened meeting of the Directors at which a quorum is present;

“Business day” means a weekday on which banks are generally open for business in the British Virgin Islands;

“Clear days” in relation to the period of a notice means that period excluding the day when the notice is given or deemed to be given and the day for which it is given or on which it is to take effect;

“Directors” mean those persons holding office as directors of the Company from time to time;

“Distribution” in relation to a distribution by the Company to a Shareholder means the direct or indirect transfer of an asset, other than Shares, to or for the benefit of the Shareholder, or the incurring of a debt to or for the benefit of a Shareholder, in relation to Shares held by a Shareholder, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition of Shares, a transfer of indebtedness or otherwise, and includes a dividend;

“Electronic” means actuated by electric, magnetic, electro-magnetic, electro-chemical or electro-mechanical energy and “by electronic means” means by any manner capable of being so actuated and shall include e-mail and/or other data transmission service;

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended;

“Executed” includes any mode of execution;

“Held” means, in relation to Shares, the Shares entered in the register of members as being held by a member and term “holds” and “holder” shall be construed accordingly;

“Month” means a calendar month;

“Paid up” means paid up or credited as paid up and includes any sum paid by way of premium;

“Person” means individuals, corporations, trusts, the estates of deceased individuals, partnerships and unincorporated associations of persons;

“Present in person” means, in the case of an individual, that individual or his lawfully appointed attorney being present in person and, in the case of a corporation, being present by duly authorized representative or lawfully appointed attorney and, in relation to meetings, “in person” shall be construed accordingly;

“Public disclosure” means any disclosure in a press release issued or disseminated in a manner designated to provide broad, non-exclusionary distribution of the information to the public or in a document publicly filed or furnished by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act or in a registration statement under the Securities Act;

“Memorandum” means this Memorandum of Association of the Company;

“Registrar” means the Registrar of Corporate Affairs appointed under section 229 of the Act;

“Resolution of Directors” means either:

(a) a resolution approved at a duly convened and constituted meeting of Directors or of a committee of Directors by the affirmative vote of a majority of the Directors present at the meeting who voted except that where a Director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority; or

(b) a resolution consented to in writing by all Directors or by all members of a committee of Directors of the Company, as the case may be;

“Resolution of Shareholders” means (other than in respect of a resolution of Shareholders for the election of Directors) a resolution approved at a duly convened and constituted meeting of the Shareholders of the Company by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the Shareholders holding the Shares were present at the meeting in person or by proxy and being Shares in respect of which the votes were voted;

“Seal” means any seal which has been duly adopted as the common seal of the Company;

“Securities” means Shares and debt obligations of every kind of the Company, and including without limitation options, warrants and rights to acquire Shares or debt obligations;

“Securities Act” means the U.S. Securities Act of 1933, as amended from time to time;

“Securities and Exchange Commission” means the United States Securities and Exchange Commission;

“Share” means a common share issued or to be issued by the Company;

“Shareholder” means a Person whose name is entered in the register of members of the Company as the holder of one or more Shares or fractional Shares;

“Treasury Share” means a Share that was previously issued but was repurchased, redeemed or otherwise acquired by the Company and not cancelled;

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“Written” or any term of like import includes information generated, sent, received or stored by electronic, electrical, digital, magnetic, optical, electromagnetic, biometric or photonic means, including electronic data interchange, electronic mail, telegram, telex or telecopy, and “in writing” shall be construed accordingly.

1.2. In the Memorandum and the Articles, unless the context otherwise requires a reference to:

(a) an “Article” is a reference to an article of the Articles;

(b) a “Clause” is a reference to a clause of the Memorandum;

(c) voting by Shareholders is a reference to the casting of the votes attached to the Shares held by the Shareholder voting;

(d) the Act, the Memorandum or the Articles is a reference to the Act or those documents as amended or, in the case of the Act any re-enactment thereof; and

(e) the singular includes the plural and vice versa.

1.3. Any words or expressions defined in the Act unless the context otherwise requires bear the same meaning in the Memorandum and the Articles unless otherwise defined herein.

1.4. Headings are inserted for convenience only and shall be disregarded in interpreting the Memorandum and the Articles.

2. NAME

The name of the Company is Tibet Pharmaceuticals, Inc. The Company was incorporated on the 22^nd day of December, 2009 pursuant to the BVI Business Companies Act. The name of the Company may be changed and this Clause thereby amended by a Resolution of Directors.

3. STATUS

The Company is a company limited by shares.

4. REGISTERED OFFICE AND REGISTERED AGENT

4.1. The first registered office of the Company is at the offices of Akara Bldg., 24 De Castro Street, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands, the office of the first registered agent.

4.2. The first registered agent of the Company is Mossack Fonseca & Co. (B.V.I.) Ltd., P.O. Box 3136, Road Town, Tortola, British Virgin Islands.

4.3. Any change of registered office or registered agent will take effect on the registration by the Registrar of a notice of the change filed by the existing registered agent or a legal practitioner in the British Virgin Islands acting on behalf of the Company.

4.4. The Company may by Resolution of Shareholders or by Resolution of Directors change the location of its registered office or change its registered agent.

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5. CAPACITY AND POWERS

5.1. Subject to the Act and any other British Virgin Islands legislation, the Company has, irrespective of corporate benefit:

(a) full capacity to carry on or undertake any business or activity, do any act or enter into any transaction; and

(b) for the purposes of paragraph (a), full rights, powers and privileges.

5.2. For the purposes of section 9(4) of the Act, there are no limitations on the business that the Company may carry on.

6. NUMBER AND CLASSES OF SHARES

6.1. The Company is authorized to issue a maximum of 50,000,000 common shares of a single class with par value of US$0.001 each.

6.2. The Company may issue fractional Shares and a fractional Share shall have the corresponding fractional rights, obligations and liabilities of a whole Share of the same class or series of Shares.

6.3. Shares may be issued in one or more series of Shares as the Directors may by Resolution of Directors determine from time to time.

7. RIGHTS OF SHARES

7.1. Each Share in the Company confers upon the Shareholder:

(a) the right to one vote at a meeting of the Shareholders or on any Resolution of Shareholders;

(b) the right to an equal share in any dividend paid by the Company; and

(c) the right to an equal share in the distribution of the surplus assets of the Company on its liquidation.

7.2. The Company may by Resolution of Directors redeem, purchase or otherwise acquire all or any of the Shares in the Company subject to Article 3 of the Articles.

8. VARIATION OF RIGHTS

If at any time the Shares are divided into different classes, the rights attached to any class may only be varied, whether or not the Company is in liquidation, by a resolution passed at a meeting by a majority of the votes cast by those entitled to vote at a meeting of the holders of the issued Shares in that class.

9. RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU

The rights conferred upon the holders of the Shares of any class shall not, unless otherwise expressly provided by the terms of issue of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking pari passu therewith.

10. REGISTERED SHARES

10.1. The Company shall issue registered Shares only.

10.2. The Company is not authorized to issue bearer Shares, convert registered Shares to bearer Shares or exchange registered Shares for bearer Shares.

11. TRANSFER OF SHARES

11.1. Subject to the provisions of Articles 6.2 and 6.3 of the Articles, the Company shall, on receipt of an instrument of transfer complying with Article 6 of the Articles, enter the name of the transferee of a Share in the register of members unless the Directors resolve to refuse or delay the registration of the transfer for reasons that shall be specified in a Resolution of Directors.

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11.2. The Directors may not resolve to refuse or delay the transfer of a Share unless: (a) the Shareholder has failed to pay an amount due in respect of the Share; or (b) such refusal or delay is deemed necessary or advisable in the view of the Company or its legal counsel in order to avoid violation of, or in order to ensure compliance with, any applicable corporate, securities and other laws and regulation.

12. AMENDMENT OF THE MEMORANDUM AND THE ARTICLES

12.1. Subject to Clause 8, the Company may amend the Memorandum or the Articles by Resolution of Shareholders or by Resolution of Directors, save that no amendment may be made by Resolution of Directors:

(a) to restrict the rights or powers of the Shareholders to amend the Memorandum or the Articles;

(b) to change the percentage of Shareholders required to pass a Resolution of Shareholders to amend the Memorandum or the Articles;

(c) in circumstances where the Memorandum or the Articles cannot be amended by the Shareholders; or

(d) to Clauses 7, 8, 9 or this Clause 12.

12.2. Any amendment of the Memorandum or the Articles will take effect on the registration by the Registrar of a notice of amendment, or restated Memorandum and Articles, filed by the registered agent.

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We, Mossack Fonseca & Co. (B.V.I.) Ltd., of P.O. Box 3136, Road Town, Tortola, British Virgin Islands for the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign this restated Memorandum of Association the 22nd day of December, 2009.

Incorporator

Sgd. Rosemarie Flax

Rosemarie Flax

Authorized Signatory for and on behalf of Mossack Fonseca & Co. (B.V.I.) Ltd.

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EX-10.20

Exhibit 10.20

ESCROW AGREEMENT

This Escrow Agreement is made and entered into as of the     ^th day of             , 2010, by and among ANDERSON & STRUDWICK, INCORPORATED, a Virginia corporation (the “Placement Agent”), TIBET PHARMACEUTICALS, INC., a British Virgin Islands company (the “Company”) and SUNTRUST BANK (the “Escrow Agent”).

R E C I T A L S:

A. The Company proposes to sell a minimum of 2,500,000 common shares and a maximum of 3,000,000 common shares (the “Shares”) of the Company at a price of $         per share on a “best efforts, minimum/maximum” basis (the “Offering”).

B. The Company has retained the Placement Agent, as agent for the Company to sell the Shares in the Offering, and the Placement Agent has agreed to sell the shares in the Offering as the Company’s agent.

C. The Escrow Agent is willing to hold the proceeds of the Offering in escrow pursuant to this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Agreement, it is hereby agreed as follows:

1. Establishment of the Escrow Agent. Contemporaneously herewith, the parties have established a non-interest-bearing account with the Escrow Agent, which escrow account is entitled “Tibet Pharmaceuticals, Inc. IPO Escrow Account” (the “Escrow Account”). The Placement Agent will transfer funds directly to the Escrow Agent as directed by its customers and will instruct other purchasers of the Shares to make checks payable to the Escrow Agent.

2. Escrow Period. The escrow period (the “Escrow Period”) shall begin with the commencement of the Offering and shall terminate upon the earlier to occur of the following dates:

(a) the date on which the Escrow Agent confirms that it has received in the Escrow Account gross proceeds of $15,000,000, representing the funds necessary to purchase the Shares (the “Maximum”);

(b) November 22, 2010; or

(c) the date on which the Placement Agent and the Company notify the Escrow Agent in writing that the Offering has been terminated.

During the Escrow Period, the Company is aware and understands that it is not entitled to any funds received into escrow and no amounts deposited in the Escrow Account shall become the property of the Company or any other entity, or be subject to the debts of the Company or any other entity.

3. Deposits into the Escrow Account. The Placement Agent agrees that it shall deliver to the Escrow Agent for deposit in the Escrow Account all monies received from purchasers of the Shares by noon of the next business day after receipt together with a written account of each sale, which account shall set forth, among other things, (i) the purchaser’s name and address, (ii) the number of Shares purchased by the purchaser, (iii) the amount paid therefor by the purchaser, (iv) whether the consideration received from the purchaser was in the form of a check, draft or money order, and (v) the purchaser’s social security or tax identification number. The Escrow Agent agrees to hold all monies so deposited in the Escrow Account (the “Escrow Amount”) for the benefit of the parties hereto until authorized to disburse such monies under the terms of this Agreement.

4. Disbursements from the Escrow Account. In the event the Escrow Agent does not receive minimum deposits totaling $15,000,000 prior to the termination of the Escrow Period, or if the Placement Agent and the Company notify the Escrow Agent that the Offering has been terminated, the Escrow Agent shall promptly refund to each purchaser the amount received from the purchaser, without deduction, penalty, or expense to the purchaser, and the Escrow Agent shall notify the Company and the Placement Agent of its distribution of the funds. The purchase money returned to each purchaser shall be free and clear of any and all claims of the Company or any of its creditors.

In the event the Escrow Agent does not receive minimum deposits totaling $15,000,000 prior to termination of the Escrow Period, on the Closing Date (as defined in Section 8), the Escrow Agent shall disburse the Escrow Amount pursuant to the provisions of Section 6, provided, however, in no event will the Escrow Amount be released to the Company until such amount is received by the Escrow Agent in collected funds. For purposes of this Agreement, the term “collected funds” shall mean all funds, including fed funds, received by the Escrow Agent which have cleared normal banking channels.

5. Collection Procedure.

(a) The Escrow Agent is hereby authorized to deposit each check in the Escrow Account.

(b) In the event any check paid by a purchaser and deposited in the Escrow Account shall be returned, the Escrow Agent shall notify the Placement Agent by telephone of such occurrence and advise it of the name of the purchaser, the amount of the check returned, and any other pertinent information. The Escrow Agent shall then transmit the returned check directly to the purchaser and shall transmit the statement previously delivered by the Placement Agent relating to such purchase to the Placement Agent.

(c) If the Company rejects any purchase of Shares for which the Escrow Agent has already collected funds, the Escrow Agent shall promptly issue a refund check to the rejected purchaser. If the Placement Agent rejects any purchase for which the Escrow Agent has not yet collected funds but has submitted the purchaser’s check for collection, the Escrow Agent shall promptly issue a check in the amount of the purchaser’s check to the rejected purchaser after the Escrow Agent has cleared such funds. If the Escrow Agent has not yet submitted a rejected purchaser’s check for collection, the Escrow Agent shall promptly remit the purchaser’s check directly to the purchaser.

6. Delivery of Escrow Account.

(a) Prior to the Closing (as defined in Section 8 of this Agreement), the Placement Agent and the Company shall provide the Escrow Agent with a statement, executed by each party, containing the following information:

(i) The total number of Shares sold by the Placement Agent directly to purchasers and a list of each purchaser, and the number of Shares purchased by such purchaser, and specification of the manner in which the Shares should be issued; and

(ii) A calculation by the Placement Agent and the Company as to the manner in which the Escrow Account should be distributed to the Company and the Placement Agent and in the event of oversubscription or rejection of certain purchasers, the aggregate amount to be returned to individual purchasers and a listing of the exact amount to be returned to each such purchaser.

The Escrow Agent shall hold the Escrow Account and distribute it in accordance with the above-described statement on the date of Closing or such later date that it receives the above-described statement.

(b) Upon termination of the Offering by the Company or the Placement Agent for any reason, the Escrow Agent shall return to the purchasers who contributed to the Escrow Account the exact amount contributed by them.

7. Investment of Escrow Account. The Escrow Agent shall deposit funds received from purchasers in the Escrow Account, which shall be a non-interest-bearing bank account at SunTrust Bank.

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8. Closing Date. The “Closing” shall be the date of closing of the Offering, and the “Closing Date” shall be the date on or subsequent to the date on which the Escrow Agent has received minimum deposits of at least $10,002,000 in collected funds that is designated to the Escrow Agent by the Placement Agent and the Company as the Closing Date.

9. Compensation of Escrow Agent. The Company shall pay the Escrow Agent a fee for its services hereunder in an amount equal to One Thousand Five Hundred Dollars ($1,500), which amount shall be paid on the Closing Date. In the event the Offering is canceled for any reason, the Company shall pay the Escrow Agent its fee within ten (10) days after the Escrow Amount is refunded to purchasers. No such fee or any other monies whatsoever shall be paid out of or chargeable to the funds on deposit in the Escrow Account.

10. Disbursement into Court. If, at any time, there shall exist any dispute between the Company, the Placement Agent and/or the purchasers with respect to the holding or disposition of any portion of the Escrow Amount or any other obligations of the Escrow Agent hereunder, or if at any time the Escrow Agent is unable to determine, to the Escrow Agent’s sole satisfaction, the proper disposition of any portion of the Escrow Amount or the Escrow Agent’s proper actions with respect to its obligations hereunder, or if the Company and the Placement Agent have not within 30 days of the furnishing by the Escrow Agent of a notice of resignation appointed a successor Escrow Agent to act hereunder, then the Escrow Agent may, in its sole discretion, take either or both of the following actions:

(a) suspend the performance of any of its obligations under this Escrow Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of the Escrow Agent or until a successor Escrow Agent shall have been appointed (as the case may be); provided, however, that the Escrow Agent shall continue to hold the Escrow Amount in accordance with Section 7 hereof; and/or

(b) petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in Richmond, Virginia, for instructions with respect to such dispute or uncertainty, and pay into court all funds held by it in the Escrow Account for holding and disposition in accordance with the instructions of such court.

The Escrow Agent shall have no liability to the Company, the Placement Agent or any other person with respect to any such suspension of performance or disbursement into court, specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of funds held in the Escrow Account or any delay in or with respect to any other action required or requested of the Escrow Agent.

11. Duties and Rights of the Escrow Agent. The foregoing agreements and obligations of the Escrow Agent are subject to the following provisions:

(a) The Escrow Agent’s duties hereunder are limited solely to the safekeeping of the Escrow Account in accordance with the terms of this Agreement. It is agreed that the duties of the Escrow Agent are only such as herein specifically provided, being purely of a ministerial nature, and the Escrow Agent shall incur no liability whatsoever except for negligence, willful misconduct or bad faith.

(b) The Escrow Agent is authorized to rely on any document believed by the Escrow Agent to be authentic in making any delivery of the Escrow Account or the certificates representing the Shares. It shall have no responsibility for the genuineness or the validity of any document or any other item deposited with it and it shall be fully protected in acting in accordance with this Agreement or instructions received.

(c) The Company and the Placement Agent hereby waive any suit, claim, demand or cause of action of any kind which they may have or may assert against the Escrow Agent arising out of or relating to the execution or performance by the Escrow Agent of this Agreement, unless such suit, claim, demand or cause of action is based upon the gross negligence, willful misconduct, or bad faith of the Escrow Agent.

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12. Notices. It if further agreed as follows:

(a) All notices given hereunder will be in writing, served by registered or certified mail, return receipt requested, postage prepaid, express courier, or by hand-delivery, to the parties at the following addresses:

to the Company:

Tibet Pharmaceuticals, Inc.

Room 1701, 17/F

90 Jaffe Rd.

Wanchai, Hong Kong

Attention: Taylor Z. Gao, Chief Executive Officer

to the Placement Agent:

Anderson & Strudwick, Incorporated

707 East Main Street, 20^th Floor

Richmond, Virginia 23219

Attention: L. McCarthy Downs, III

Facsimile: (804) 648-3404

with copy to:

Kaufman & Canoles, P.C.

Three James Center

1051 East Cary Street

12^th Floor

Richmond, Virginia 23219

Attention: Bradley A. Haneberg, Esq.

to the Escrow Agent:

SunTrust Bank

919 East Main Street

7^th Floor

Richmond, Virginia 23219

Attention: Matthew Ward

13. Miscellaneous.

(a) This Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns.

(b) If any provision of this Agreement shall be held invalid by any court of competent jurisdiction, such holding shall not invalidate any other provision hereof.

(c) This Agreement shall be governed by the applicable laws of the Commonwealth of Virginia.

(d) This Agreement may not be modified except in writing signed by the parties hereto.

(e) All demands, notices, approvals, consents, requests and other communications hereunder shall be given in the manner provided in this Agreement.

(f) This Agreement may be executed in one or more counterparts, and if executed in more than one counterpart, the executed counterparts shall together constitute a single instrument.

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[Tibet Pharmaceuticals, Inc. - Escrow Agreement Execution Page]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names, all as of the date first above written.

ANDERSON & STRUDWICK, INCORPORATED
By:
	L. McCarthy Downs, III
	Managing Director
TIBET PHARMACEUTICALS, INC.
By:
Name:	Taylor Z. Gao
Title:	Chief Executive Officer
SUNTRUST BANK
By:
Name:	Matthew Ward
Title:	Assistant Vice President

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EX-23.1

Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

517 Route One	1 Penn Plaza
Iselin, New Jersey 08830	36th Floor
732.855.9600	New York, NY
10119
Fax:732.855.9559	212.786.7510
www.acsbco.com

Consent of Independent Registered Public Accounting Firm

We consent to the use in this Registration Statement on Form S-1, Pre-Effective Amendment No. 5, for Tibet Pharmaceuticals, Inc. of our audit report dated July 19, 2010, relating to the consolidated financial statements of Tibet Pharmaceuticals, Inc. (formerly named Shangri-La Tibetan Pharmaceuticals, Inc., the “Company”) as of December 31, 2009 and 2008 and for the years then ended, and of our review report dated September 21, 2010, relating to the consolidated financial statements of the Company as of June 30, 2010 and December 31, 2009, and for the periods ended June 30, 2010 and 2009, and to the reference to our firm under the heading “Expert” in the prospectus.

/s/    Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

New York, NY

October 22, 2010

CORRESP

Christopher J. Mugel (804) 771.5787 cjmugel@kaufcan.com	Kaufman & Canoles, P.C. Three James Center, 12th Floor 1051 East Cary Street Richmond, VA 23219 Mailing Address Post Office Box 27828 Richmond, VA 23261 T (804) 771.5700 F (804) 771.5777 kaufCAN.com

October 21, 2010

Jeffrey P. Riedler, Assistant Director

Division of Corporation Finance

Securities and Exchange Commission

Mail Stop 3561

100 F Street, N.E.

Washington, D.C. 20549

Re: Tibet Pharmaceuticals, Inc.

Amendment No. 5 to Registration Statement on Form S-1

Filed on October 21, 2010

File No. 333-166854

Dear Mr. Riedler:

On behalf of Tibet Pharmaceuticals, Inc. (“TBET”), we are submitting herewith TBET’s Amendment No. 5 to its Registration on Form S-1. Factual information provided herein has been provided to us by TBET. Capitalized terms used herein shall have the meanings ascribed to them in the Registration Statement unless otherwise defined herein.

Amendment No. 5 features only five changes, which we summarize below:

1. Per the request of the Staff, we have changed the word “attribution” to “attestation” in the first paragraph of the risk factor on internal controls over financial reporting that appears at the bottom of page 34. The relevant heading and paragraph now reads as follows:

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.

Upon the closing of this offering, we will become a public company in the United States that is or will be subject to, the Sarbanes-Oxley Act of 2002. As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the U.S. Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the

Disclosure Required by Internal Revenue Service Circular 230: This communication is not a tax opinion. To the extent it contains tax advice, it is not intended or written by the practitioner to be used, and it cannot be used by the taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer by the Internal Revenue Service.

Jeffrey P. Riedler, Assistant Director

Division of Corporation Finance

October 21, 2010

Page 2

company’s internal controls over financial reporting in their annual reports. In addition, the independent registered public accounting firm auditing a company’s financial statements may also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. Under current SEC regulations, our public accounting firm is required to issue an attestation report on our internal controls over financial reporting only if we are an accelerated filer or a large accredited filer. In addition, under current law, we will be required to

2. At the request of the Staff, we have corrected the transcription error and the resulting calculation errors that appeared in minimum offering portion of the Dilution section. The revised Dilution section as it appears in Amendment No. 5 is presented below, with the changes appearing in the second paragraph and in the table at the bottom of the section:

Dilution

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per common share and the pro forma net tangible book value per common share after the offering. Dilution results from the fact that the per common share offering price is substantially in excess of the book value per common share attributable to the existing shareholders for our presently outstanding common shares. Our net tangible book value attributable to shareholders at June 30, 2010 was $15,352,777 or approximately $1.30 per common share. Net tangible book value per common share as of June 30, 2010 represents the amount of total tangible assets less goodwill, acquired intangible assets and total liabilities, divided by the number of common shares outstanding.

If the minimum offering is sold, we will have 14,312,500 common shares outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after June 30, 2010, will be approximately $28,552,777 or $1.99 per common share. This would result in dilution to investors in this offering of approximately $4.01 per common share or approximately 67% from the assumed offering price of $6.00 per common share. Net tangible book value per common share would increase to the benefit of present stockholders by $0.69 per share attributable to the purchase of the common shares by investors in this offering.

If the maximum offering is sold, we will have 14,812,500 common shares outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after June 30, 2010, will be approximately $31,312,777 or $2.11 per common share. This would result in dilution to investors in this offering of approximately $3.89 per common share or approximately 65% from the assumed offering price of $6.00 per common share. Net tangible book value per common share would increase to the benefit of present shareholders by $0.81 per share attributable to the purchase of the common shares by investors in this offering.

The following table sets forth the estimated net tangible book value per common share after the offering and the dilution to persons purchasing common shares based on the foregoing minimum and maximum offering assumptions.

Jeffrey P. Riedler, Assistant Director

Division of Corporation Finance

October 21, 2010

Page 3

	Minimum Offering(1)		Maximum Offering(2)
Assumed offering price per common share	$	6.00	$	6.00
Net tangible book value per common share before the offering	$	1.30	$	1.30
Increase per common share attributable to payments by new investors	$	0.69	$	0.81
Pro forma net tangible book value per common share after the offering	$	1.99	$	2.11
Dilution per common share to new investors	$	4.01	$	3.89

⁽¹⁾ Assumes net proceeds of $13,200,000 from offering of 2,500,000 common shares, calculated as follows: $15,000,000 offering, less underwriting discount of $1,050,000, accountable expense allowance of $150,000 and offering expenses of $600,000.

⁽²⁾ Assumes net proceeds of $15,960,000 from offering of 3,000,000 common shares, calculated as follows: $18,000,000 offering, less underwriting discount of $1,260,000, accountable expense allowance of $180,000 and offering expenses of $600,000.

3. After the submission of Amendment No. 4, TBET and its placement agent agreed to change the termination date of the offering from November 30, 2010 to November 22, 2010. The termination date appears at several locations in the registration statement as well as in the form of placement agreement and escrow agreement. All such dates have been changed to November 22, 2010.

4. The agreement between TBET and its placement agent contemplated an accountable expense allowance for the placement agent of one percent (1%) of the offering price, but the registration statement mistakenly referred to the expense allowance as being non-accountable. All references to the expense allowance in Amendment No. 5 now refer to the “accountable expense allowance.”

5. TBET has updated the current exchange rate information to a more recent date.

Our understanding is that the first two items referenced above represent the only remaining comments the Staff has raised with respect to TBET’s registration statement. Of course, however, please advise us if other issues require our attention.

TBET is eager to complete the registration process. Thank you in advance for your assistance in reviewing this response and Amendment No. 5 to the Registration Statement on Form S-1. Should you have any questions with respect to the above responses, please contact me.

Sincerely,

/s/ Christopher J. Mugel

Christopher J. Mugel