**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-QSB**




[x]
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934


FOR
      THE QUARTERLY PERIOD ENDED June 30, 2007




[
      ]   TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the Transition Period From _____ to _____




Commission
      File Number 333-119034




**CHINA
      HOLDINGS, INC.**


**(F/K/A
      CHINA HEALTH HOLDING, INC.)**


(Name
      of
      small business issuer in its charter)


**NEVADA**
            ******98-0432681**(State or other jurisdiction of incorporation or
                organization)
            (I.R.S. Employer Identification
                No.)




**Julianna
      Lu, BSc. MSc.**


**Chief
      Executive Officer**


**101
      Convention Center Drive, Suite 700, Las Vegas, NV
      89107-2001**


(Address
      of principal executive offices) (Zip Code)




Issuer’s
      telephone Number: **(877) 883-0979**




**Mailing
      Address**


**8E-C2,
      Global Trade Mansion, No.9A, GuangHua Rod, Chaovan District, Beijing PR China
      100020**




Issuer’s
      telephone Number:**86-10-6586-4790 and Fax:
      86-10-6586-4790**




Copies
      to:


Richard
      A. Friedman, Esq.


Sichenzia
      Ross Friedman Ference LLP


61
      Broadway, 32nd
      Floor


New
      York,
      New York 10006


Phone:
      (212) 930-9700


Fax:
      (212) 930-9725




Securities
      registered under Section 12(b) of the Exchange Act:


Securities
      registered under Section 12(g) of the Exchange Act:




Indicate
      by check mark whether the issuer (1) has filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.




Yes
      [ x ]
      No [ ]




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).




Yes
      [ ]
      No [ x ]




Total
      revenues for quarter ended June 30, 2007 were $0




As
      of August 15, 2007 there were 158,822,060 shares of issuer's common stock
      issued and outstanding and 1,250,000 Series A Preferred Shares issued and
      outstanding.


















**CHINA
      HOLDINGS, INC.**




**FORM
      10-QSB**




**For
      the Fiscal Quarter Ended June 30, 2007**









Part
                I
            
            PageItem
                1. Financial Statements.
            
            
            3Item
                2. Management's Discussion and Analysis or Plan of
                Operations.
            
            
            31Item
                3. Controls and Procedures
            
            
            41Part
                ll
            
            
            PageItem
                1. Legal Proceedings.
            
            
            41Item
                2. Unregistered Sale of Equity Securities and Use of
                Proceeds
            
            
            41Item
                3. Defaults Upon Senior Securities
            
            
            41Item
                4. Submission of Matters to a Vote of Security Holders.
            
            
            41Item
                5. Other Information
            
            
            41Item
                6. Exhibits.
            
            
            41Signatures.
            
            
            42











2




**CHINA
      HOLDINGS, INC.**


**(a
      development stage company)**


CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS


March
      31,
      2007










June
                  30,
              
              
              December
                  31,2007
              
              
              2006**ASSETS**
              
              Unaudited**CURRENT
                  ASSETS**Cash
              
              $
              5,989
              
              
              $
              -Prepaid
                  expenses and other current assets
              
              
              33,370
              
              
              
              97,759Total
                  current assets
              
              
              39,360
              
              
              
              97,759**PROPERTY
                  AND EQUIPMENT**, net **(Note 4)**
              
              
              617,941
              
              
              
              10,369**Intangible
                  Assets (Note 3)**
              
              
              3
              
              
              
              3**TOTAL
                  ASSETS**
              
              $
              657,304
              
              
              $
              108,131***LIABILITIES
                  AND STOCKHOLDERS’ (DEFICIT)*****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued liabilities
              
              $
              34,069
              
              
              $
              35,007Due
                  to shareholders **(Note 5)**
              
              
              993,344
              
              
              
              875,822Total
                  current liabilities
              
              
              1,027,413
              
              
              
              910,829**COMMITMENTS
                  (Notes 3 and 9)**Stockholders
                (deficit)Preferred
                  stock, $0.001 par value, 20,000,000 shares authorized,1,250,000  (December
                  31, 2006 – 1,250,000) shares issued and outstanding **(Note
                  6)**
              
              
              1,250
              
              
              
              1,250Common
                  stock, $0.001 par value, 300,000,000 shares authorized138,542,060 (December
                  31, 2006-106,747,060) shares issued and outstanding**(Note
                  6)**
              
              
              138,543
              
              
              
              106,747Additional
                  paid-in capital
              
              
              12,487,736
              
              
              
              8,496,543Deferred
                  compensation **(Note 6 and 7)**
              
              
              (100,261
              )
              
              
              (153,942
              )Deficit
                  accumulated during the development stage
              
              
              (12,834,197
              )
              
              
              (9,193,377
              )Accumulated
                  other comprehensive loss
              
              
              (63,181
              )
              
              
              (59,919
              )Total
                  Stockholders’ Deficit
              
              
              (370,110
              )
              
              
              (802,698
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ (DEFICIT**)
              
              $
              657,303
              
              
              $
              108,131




See
        Notes
        to Unaudited Condensed Consolidated Financial Statements






3




**CHINA  HOLDING
      INC.**


**(a
      development stage company)**


**CONDENSED
        CONSOLIDATED STATEMENTOF OPERATIONS**





For
                  the
              
              
              For
                  the
              
              
              For
                  the
              
              
              For
                  the
              
              
              CulmulativeThree
                  Month
              
              
              Three
                  Month
              
              
              Six Month
              
              
              Six Month
              
              
              results
                  ofEnded
              
              
              Ended
              
              
              Ended
              
              
              Ended
              
              
              operations
                  fromJune
                  30
              
              
              June
                  30
              
              
              June
                  30
              
              
              June
                  30
              
              
              April
                  3, 2002 (Inception)2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              to
                  June 30, 2007**SALES**
              
              $
              -
              
              
              $
              -
              
              
              
              
              
              
              
              
              
              8,976Cost
                  of goods sold
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              245-
              
              
              
              -
              
              
              
              
              
              
              
              
              
              8,731**EXPENSES**Advertising
                  and promotion
              
              
              18,640
              
              
              
              3,280
              
              
              
              18,640
              
              
              
              3,280
              
              
              
              140,532Amortization
                  of intangible assets
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              7,125Consulting
                  fees **(Notes 6 and 7)**
              
              
              133,984
              
              
              
              276,210
              
              
              
              1,085,676
              
              
              
              393,314
              
              
              
              4,027,502Depreciation
              
              
              1,509
              
              
              
              1,338
              
              
              
              2,247
              
              
              
              2,390
              
              
              
              11,415Interest
                  and bank charges **(Note 8)**
              
              
              23,408
              
              
              
              16,454
              
              
              
              348,260
              
              
              
              37,793
              
              
              
              535,854Investor
                  relations
              
              
              (238,393
              )
              
              
              37,526
              
              
              
              (196,403
              )
              
              
              72,005
              
              
              
              (64,924
              )Management
                  fees **(Note 7)**
              
              
              181,191
              
              
              
              354,295
              
              
              
              299,385
              
              
              
              523,833
              
              
              
              2,504,729Office
              
              
              3,573
              
              
              
              15,291
              
              
              
              10,445
              
              
              
              24,085
              
              
              
              95,057Professional
                  fees **(Note 7)**
              
              
              66,139
              
              
              
              68,778
              
              
              
              84,724
              
              
              
              130,415
              
              
              
              885,959Compensatory
                  element of Stock
              
              
              180,423
              
              
              
              
              
              
              
              1,978,256
              
              
              
              
              
              
              
              2,741,121Rent
              
              
              9,269
              
              
              
              7,291
              
              
              
              18,041
              
              
              
              15,402
              
              
              
              92,937Research
                  and development **(Note 3)**
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              1,743,593Travel
              
              
              492
              
              
              
              356
              
              
              
              8,851
              
              
              
              3,912
              
              
              
              47,675Impairment
                  of licensing rights (Note 3)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              182,874Vehicle
              
              
              2,346
              
              
              
              5,003
              
              
              
              5,257
              
              
              
              8,109
              
              
              
              31,048**TOTAL
                  EXPENSES**
              
              
              382,579
              
              
              
              785,822
              
              
              
              3,663,377
              
              
              
              1,214,538
              
              
              
              12,982,495**NET
                  LOSS FROM OPERATIONS**
              
              
              (382,579
              )
              
              
              (785,822
              )
              
              
              (3,663,377
              )
              
              
              (1,214,538
              )
              
              
              (12,973,764
              )**OTHER
                  INCOME** (**EXPENSES**)Foreign
                  exchange
              
              
              4,274
              
              
              
              (736
              )
              
              
              5,829
              
              
              
              (1,139
              )
              
              
              40,816Gain
                  (loss) on settlement of debts and issuance of  shares (Notes 7
                  and 11)
              
              
              16,728
              
              
              
              -
              
              
              
              16,728
              
              
              
              
              
              
              
              98,751-**Other
                  Income (expenses)**
              
              
              21,002
              
              
              
              (736
              )
              
              
              22,557
              
              
              
              (1,139
              )
              
              
              139,567**NET
                  LOSS**
              
              $
              (361,577
              )
              
              $
              (786,558
              )
              
              $
              (3,640,820
              )
              
              $
              (1,215,677
              )
              
              $
              (12,834,197
              )**BASIC
                  NET LOSS PER SHARE**
              
              
              (0.00
              )
              
              
              (0.01
              )
              
              
              (0.03
              )
              
              
              (0.02
              )**WEIGHTED
                  AVERAGE NUMBER OF COMMON SHARES****OUTSTANDING**
              
              
              116,584,375
              
              
              
              61,688,000
              
              
              
              108,767,878
              
              
              
              56,803,000**NET
                  LOSS**
              
              $
              (361,577
              )
              
              $
              (786,558
              )
              
              $
              (3,640,820
              )
              
              $
              (1,215,677
              )Comprehensive
                  translation loss
              
              
              -
              
              
              
              -
              
              
              
              (3,262
              )
              
              
              -**Comprehensive
                  loss**
              
              $
              (361,577
              )
              
              $
              (786,558
              )
              
              $
              (3,644,082
              )
              
              $
              (1,215,677
              )




**See
        Notes to Unaudited Condensed Consolidated Financial
        Statements**








4








**CHINA  HOLDING
        INC.**
 **(a
          development stage company)**
 **CONDENSED
            CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**






CulmulativeFor
                  the
              
              
              For
                  the
              
              
              results
                    ofSix Month
              
              
              Six Month
              
              
              operations
                    fromEnded
              
              
              Ended
              
              
              April
                  3, 2002June
                  30
              
              
              June
                  30
              
              
              (Inception)2007
              
              
              2006
              
              
              to
                  June 30, 2007$
              
              
              
              $
              
              
              
              $**OPERATING
                  ACTIVITIES**Net
                  loss
              
              
              
              
              
              
              
              
              
              
              (3,640,820
              )
              
              
              (1,215,677
              )
              
              
              (12,834,197
              )Adjustments
                  to reconcile net loss to cash usedin
                  operating activities:Accrued
                  interest
              
              
              
              
              
              
              
              
              
              
              53,179
              
              
              
              35,908
              
              
              
              234,749Amortization
                  of intangible assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,125Compensatory
                  element of stock
              
              
              
              
              
              
              
              
              
              
              77,932
              
              
              
              
              
              
              
              640,541Depreciation
              
              
              
              
              
              
              
              
              
              
              2,248
              
              
              
              2,390
              
              
              
              11,416Impairment
                  of licensing rights
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              182,874License
                  rights
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,359,999Loss
                  on settlement of debts and
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (107,252
              )issuance
                  of shares
              
              
              
              
              
              
              
              
              
              
              (16,728
              )Non
                  cash expenses paid with shares
              
              
              
              
              
              
              
              
              
              
              968,680
              
              
              
              436,750
              
              
              
              4,172,270Stock-based
                  compensation
              
              
              
              
              
              
              
              
              
              
              139,403
              
              
              
              378,609
              
              
              
              1,844,057Warrant
                  issued for Compensation
              
              
              
              
              
              
              
              
              
              
              1,978,256
              
              
              
              
              
              
              
              2,741,121Changes
                  in operating assets and liabilitiesPrepaid
                  expenses
              
              
              
              
              
              
              
              
              
              
              67,128
              
              
              
              2,445
              
              
              
              120,504Accounts
                  payable and accrued liabilities
              
              
              
              
              
              
              
              
              
              
              (938
              )
              
              
              4,161
              
              
              
              42,449Net
                  cash used in operating activities
              
              
              
              
              
              
              
              
              
              
              (371,660
              )
              
              
              (355,414
              )
              
              
              (1,584,344
              )**INVESTING
                  ACTIVITIES**Purchase
                  deposit for acquisition of companies
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              (19,536
              )Net
                  cash used in investing activities
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              (19,536
              )**FINANCING
                  ACTIVITIES**Proceeds
                  from issuance of common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              513,697Net  advances
                  (repayment) from shareholders
              
              
              
              
              
              
              
              
              
              
              385,184
              
              
              
              347,612
              
              
              
              1,163,626Net
                  cash provided by financing activities
              
              
              
              
              
              
              
              
              
              
              385,184
              
              
              
              347,612
              
              
              
              1,677,323**EFFECT
                  OF EXCHANGE RATE CHANGES**
              
              
              
              
              
              
              
              
              
              
              (7,535
              )
              
              
              (3,066
              )
              
              
              (67,454
              )**NET
                  (DECREASE) INCREASE IN CASH**
              
              
              
              
              
              
              
              
              
              
              5,989
              
              
              
              (10,868
              )
              
              
              5,989**CASH,
                  BEGINNING OF YEAR**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              14,887
              
              
              
              -**CASH,
                  END OF YEAR**
              
              
              
              
              
              
              
              
              
              
              5,989
              
              
              
              4,019
              
              
              
              5,989








**See
        Notes to Unaudited Condensed Consolidated Financial
        Statements**








5




**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**














**CHINA
        HOLDINGS INC.**
 **(a
        development ste company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
   **1.****NATURE
        OF OPERATIONS AND BASIS
        OF PRESENTATION**
  China
          Holdings Inc. (the "Company") is a Nevada company incorporated on April
          3, 2002
          as A E&E Pharma Corporation. The Company changed its name to China Health
          Holding Inc. on May 25, 2004. The Company is a development stage company
          that is
          engaged in the development of potential merger and acquisition opportunities
          with major pharmaceutical companies in PR China and ultimately the development
          of a pharmaceutical drug pipeline and technology. (Note 9)
  The
        Company completed a Form SB-2 registration statement with the United States
        Securities and Exchange Commission on February 11, 2005 and received approval
        from the NASD for the listing of the Company's shares for trading on the
        Over
        the Counter Bulletin Board ("OTCBB') on April 18, 2005.
 
 On
        May 1,
        2007, China Health Holdings, Inc., a Nevada corporation, (the "Company"),
        amended its Articles of Incorporation to change its name to "China Holdings,
        Inc." The Company's new CUSIP number is 16942B 102. The change in name did
        not
        require stockholder approval, and the outstanding shares of common and preferred
        stock will not be affected by the change in name.
 
 Also
        on
        May 1, 2007, the Company's wholly owned subsidiary, China Health World
        Pharmaceutical Corporation, amended its Articles of Incorporation to change
        its
        name to "China Health Holdings, Inc." and on May 9, 2007, the Company’s wholly
        owned subsidiary China Health World Trade Corporation changed its name to
        China
        Power, Inc.
  UNAUDITED
        INTERIM FINANCIAL STATEMENTS
 
 The
        accompanying unaudited condensed consolidated interim financial statements
        have
        been prepared in accordance with United States generally accepted accounting
        principles for interim financial information and in accordance with the
        instructions to Form 10-QSB of Regulation S-B. They do not include all
        information and footnotes required by United States generally accepted
        accounting principles for complete financial statements. In the opinion of
        Management, all adjustments considered necessary for a fair presentation,
        consisting solely of normal recurring adjustments, have been made. Operating
        results for the three months ended June 30, 2007 are not necessarily indicative
        of the results that may be expected for the year ended December 31,
        2007.
   6
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 **2.****SIGNIFICANT
        ACCOUNTING
        POLICIES**
   a)Basis
                  of
                  presentation
 
 These
        unaudited condensed consolidated financial statements have been presented
        in U.S. dollars and prepared in accordance with generally accepted accounting
        principles in the United States. The Company’s year end is December
        31.
 
 The
        financial statements have been prepared on the basis of a going concern which
        contemplates the realization of assets and the satisfaction of liabilities
        in
        the normal course of business. The Company has a working capital deficiency
        of
        $988,054 and a stockholders’ deficit of $370,110 has incurred significant losses
        since inception and further losses are anticipated in the development of
        its
        products raising substantial doubt as to the Company's ability to continue
        as a
        going concern.
 
 The
        Company will depend almost exclusively on outside capital to complete the
        development of its intellectual property, and marketing of its products.
        Such
        outside capital will include proceeds from the issuance of equity securities
        and
        may include commercial borrowing. There can be no assurance that capital
        will be
        available as necessary to meet these development costs or, if the capital
        is
        available, that it will be on terms acceptable to the Company. The issuances
        of
        additional equity securities by the Company may result in a significant dilution
        in the equity interests of its current stockholders. Obtaining commercial
        loans,
        assuming those loans would be available, will  increase the Company's
        liabilities and future cash commitments. If the Company is unable to obtain
        financing in the amounts and on terms deemed acceptable, the business and
        future
        success may be adversely affected.
 
 a)Basis
                  of presentation
                  (continued)
 
 Given
        the
        Company's limited operating history, lack of sales, and its operating losses,
        there can be no assurance that it will be able to achieve or maintain
        profitability. Accordingly, these factors raise substantial doubt about the
        Company’s ability to continue as a going concern.
 
 b)Consolidation
  The
        unaudited condensed consolidated financial statements include the accounts
        of the Company and its wholly-owned subsidiaries, China Health Pharmaceutical
        Corporation and China Health World Trade Corporation. Those subsidiaries
        have
        not yet commenced operations and have no significant assets, liabilities,
        revenues or expenses.
   7
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 **2.****SIGNIFICANT
        ACCOUNTING
        POLICIES**
  
 c)Use
                  of estimates and
                  assumptions
  Preparation
        of the Company’s condensed consolidated financial statements in conformity with
        accounting principles generally accepted in the United States requires
        management to make estimates and assumptions that affect certain reported
        amounts and disclosures. Accordingly, actual results could differ from those
        estimates.
 
 
 d)Property
                  and
                  equipment
 
 Fixed
        assets are stated at cost. Depreciation is computed at the following rates
        over
        the estimated useful lives of the assets:
 
 Computer
        - 30% declining balance
 Furniture
        and fixtures - 20% declining balance
 
 e)Revenue
                  recognition
 
 The
        Company’s revenue is primarily derived from the sale of herbal medicinal
        products and natural food supplements. The Company records revenue when the
        amount is fixed or determinable, delivery has occurred or services have been
        performed and both title and risk of loss have transferred to the customer,
        and
        collection is reasonably assured.
 
 f)Net
                  loss per common
                  share
 
 Basic
        loss per share includes no dilution and is computed by dividing income available
        to common stockholders by the weighted average number of common shares
        outstanding for the period. Dilutive loss per share reflects the potential
        dilution of securities that could share in the earnings of the Company. The
        accompanying presentation is only of basic loss per share as the potentially
        dilutive factors are anti-dilutive to basic loss per share.
  8
 
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
  **2.****SIGNIFICANT
        ACCOUNTING POLICIES
        - CONT****’****D**
   g)Fair
                  value of financial
                  instruments
 
 In
        accordance with the requirements of SFAS No.107,**“**Disclosures
        about Fair Value of Financial Instruments”, the Company has determined the
        estimated fair value of financial instruments using available market information
        and appropriate valuation methodologies. The fair value of financial instruments
        classified as current assets or liabilities including cash, accounts payable
        and
        amounts due to shareholders, approximate carrying value due to the short-term
        maturity of the instruments.
 
 h)Intangible
                  assets
 
 The
        Company has adopted the provision of the Statement of Financial Accounting
        Standards (“SFAS”) No.142, “Goodwill and Intangible Assets”, which revises the
        accounting for purchased goodwill and intangible assets. Under SFAS No. 142,
        goodwill and intangible assets with indefinite lives are no longer amortized
        and
        are to be tested for impairment annually or whenever events or circumstances
        indicate that the estimated fair value is less than the related carrying
        value
        as determined on a reporting unit basis. The determination of any impairment
        would include a comparison of estimated future operating cash flows anticipated
        during the remaining life with the net carrying value of the asset as well
        as a
        comparison of the fair value to book value of the Company. Management has
        determined that the Company’s proprietary rights and formulas described in Note
        3 a) have indefinite lives and as such are not subject to amortization and
        further that no impairment of the carrying value of these intangible assets
        has
        occurred.
 
 Costs
        incurred in connection with the licence agreements entered into as described
        in
        Note 3 b) would normally be amortized on a straight-line basis over the term
        of
        the underlying licence agreements and then tested for impairment annually
        in
        accordance with SFAS No. 144, “Accounting for the Impairment on Disposal of
        Long-Lived Assets”. The determination of any impairment would include a
        comparison of estimated future operating cash flows anticipated during the
        remaining life with the net carrying value of the asset. Management has
        determined that it is not possible at this time to estimate future cash flows
        from these assets and has recorded an impairment charge of $182,874 in 2004
        to
        reduce the carrying value of these intangible assets to $1.
 
 Management
        has determined that the Company’s proprietary rights and formulas described in
        Note 3 c) have indefinite lives and as such are not subject to amortization.
        Management has, however,
  9
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 **2.****SIGNIFICANT
        ACCOUNTING POLICIES
        - CONT****’****D**
 
 determined
        that it is not possible at this time to estimate future cash flows from these
        assets and has recorded an impairment charge of $1,359,999 in 2005 to reduce
        the
        carrying value to $1.
 
 i)Foreign
                  currency
                  translation
 
 The
        Company’s functional currency is the Canadian dollar. The financial statements
        are translated to United States dollars in accordance with SFAS No. 52, “Foreign
        Currency Translation”, using period-end rates of exchange for assets and
        liabilities, and average rates of exchange for the year for revenues and
        expenses. Translation gains (losses) are recorded in accumulated other
        comprehensive income (loss) as a component of stockholders’ deficit. Gains and
        losses arising on translation or settlement of foreign currency denominated
        transactions or balances are included in the determination of income. Foreign
        currency transactions are primarily undertaken in Canadian dollars. The Company
        has not, to the date of these consolidated financials statements, entered
        into
        derivative instruments to
 offset
        the impact of foreign currency fluctuations.
 
 Income
        taxes
 
 The
        Company follows SFAS No. 109, “Accounting for Income Taxes”, using the liability
        method of accounting for income taxes. Under this method, deferred income
        tax
        assets and liabilities are recognized for the estimated tax consequences
        attributable to differences between the financial statement carrying values
        and
        their respective income tax basis (temporary differences). The effect on
        deferred income tax assets and liabilities of a change in tax rates is
        recognized in income in the period that includes the enactment date. At December
        31, 2006, full deferred tax asset valuation allowance has been provided and
        no
        deferred tax asset benefit has been recorded.
 
 k)Stock-based
        compensation
 
 Prior
        to
        January 1, 2006, the Company accounted for stock-based awards under the
        recognition and measurement provisions of Accounting Principles Board Opinion
        No. 25, “Accounting for Stock Issued to Employees” using the intrinsic value
        method of accounting, under which compensation expense was only recognized
        if
        the exercise price of the Company’s employee stock options was less than the
        market price of the underlying common stock on the date of grant. Effective
        January 1, 2006, the Company adopted the fair value recognition provisions
        of
        SFAS No. 123R “Share Based payments”,
        using the modified retrospective transition method. There was no effect on
        the
        Company’s reported loss from operations, cash flows or loss per share as a
        result of adopting SFAS No 123R.
   10
 
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
  **2.****SIGNIFICANT
        ACCOUNTING POLICIES
        - CONT****’****D**
   l)Recent
                  accounting
                  pronouncements
 
 SFAS
        No.
        159. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities.”SFAS 159 permits
        entities to choose to measure many financial instruments, and certain other
        items, at fair value.SFAS 159 applies to reporting periods
        beginning after November 15, 2007. The adoption of SFAS 159 is not expected
        to
        have a material impact on the Company's financial condition or results of
        operations.
  In
        September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
        No. 87, 88, 106, and 132(R)”. This statement requires employers to recognize the
        overfunded or underfunded status of a defined benefit postretirement plan
        (other
        than a multiemployer plan) as an asset or liability in its statement of
        financial position and to recognize changes in that funded status in the
        year in
        which the changes occur through comprehensive income of a business entity
        or
        changes in unrestricted net assets of a not-for-profit organization. This
        statement also requires an employer to measure the funded status of a plan
        as of
        the date of its year-end statement of financial position, with limited
        exceptions. The provisions of SFAS No. 158 are effective for employers with
        publicly traded equity securities as of the end of the fiscal year ending
        after
        December 15, 2006. The adoption of this statement is not expected to have
        a
        material effect on the Company's future reported financial position or results
        of operations.
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The
        objective of SFAS 157 is to increase consistency and comparability in fair
        value
        measurements and to expand disclosures about fair value measurements. SFAS
        157
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles, and expands disclosures about fair
        value measurements. SFAS 157 applies under other accounting pronouncements
        that
        require or permit fair value measurements and does not require any new fair
        value measurements. The provisions of SFAS No. 157 are effective for fair
        value
        measurements made in fiscal years beginning after November 15, 2007. The
        adoption of this statement is not expected to have a material effect on the
        Company's future reported financial position or results of
        operations.
   11
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
  **2.****SIGNIFICANT
        ACCOUNTING POLICIES
        - CONT****’****D**
 
 In
        June
        2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
        No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB
        Statements No. 109”. FIN 48 clarifies the accounting for uncertainty in income
        taxes by prescribing a two-step method of first evaluating whether a tax
        position has met a more likely than not recognition threshold and second,
        measuring that tax position to determine the amount of benefit to be recognized
        in the financial statements. FIN 48 provides guidance on the presentation
        of
        such positions within a classified statement of financial position as well
        as on
        derecognition, interest and penalties, accounting in interim periods,
        disclosure, and transition. FIN 48 is effective for fiscal years beginning
        after
        December
 
  15,
        2006.
        The adoption of this statement is not expected to have a material effect
        on the
        Company's future reported financial position or results of
        operations.
  In
        March
        2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
        Financial Assets, an amendment of FASB Statement No. 140, Accounting for
        Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities". This statement requires all separately recognized servicing
        assets and servicing liabilities be initially measured at fair value, if
        practicable, and permits for subsequent measurement using either fair value
        measurement with changes in fair value reflected in earnings or the amortization
        and impairment requirements of Statement No. 140. The subsequent measurement
        of
        separately recognized servicing assets and servicing liabilities at fair
        value
        eliminates the necessity for entities that manage the risks inherent in
        servicing assets and servicing liabilities with derivatives to qualify for
        hedge
        accounting treatment and eliminates the characterization of declines in fair
        value as impairments or direct write-downs. SFAS No. 156 is effective
        for an entity's first fiscal year beginning after September 15,
        2006.  This adoption of this statement is not expected to have a
        significant effect on the Company’s future reported financial position or
        results of operations.
  In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments-an amendment of FASB Statements No. 133 and 140”, to
        simplify and make more consistent the accounting for certain financial
        instruments. SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative
        Instruments and Hedging Activities”, to permit fair value remeasurement for any
        hybrid financial instrument with an embedded derivative that otherwise would
        require bifurcation, provided that the whole instrument is accounted for
        on a
        fair value basis. SFAS No. 155 amends SFAS No. 140, “Accounting for the
        Impairment or Disposal of Long-Lived Assets”, to allow a
  12
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
  **2.****SIGNIFICANT
        ACCOUNTING POLICIES
        - CONT****’****D**
 
 qualifying
        special-purpose entity to hold a derivative financial instrument that pertains
        to a beneficial interest other than another derivative financial instrument.
        SFAS No. 155 applies to all financial instruments acquired or issued after
        the
        beginning of an entity's first fiscal year that begins after September 15,
        2006,
        with earlier application allowed. This standard is not expected to have a
        significant effect on the Company’s future reported financial position or
        results of operations.
   **3.****INTANGIBLE
        ASSETS**
  a)
              Asset
                  purchase agreement
 
 Pursuant
                  to an asset purchase agreement dated May 1, 2004, the Company acquired
                  from the Company’s President and a significant shareholder proprietary
                  rights and formulas to the 26 natural herbal medicinal products
                  that
                  comprise the King of Herbs and Taoist Medicine product lines. In
                  exchange
                  for the proprietary rights and formulas to these products, the
                  Company
                  agreed to pay total consideration as
                  follows:
  
  -
                  2,200,000 common shares at a
                  fair value of $0.087 per share
              
              $
              191,307-
                  Due to
                  shareholders
              
              
              175,000$
              366,307
  
 The
        amount due to shareholders bears interest at 10% per annum, is unsecured
        and has
        no specific terms of repayment. In addition, the Company agreed to pay the
        vendors a combined total royalty equal to 5% of annual gross sales of the
        products until May 1, 2009.
 
 For
        accounting purposes, the Company has recorded the cost of acquiring the
        proprietary rights and formulas as intangible assets at the related party
        vendor’s carrying value of $1. The excess of the purchase price over the
        carrying value of the intangible assets totalling $336,307 has been expensed
        as
        research and development costs during the year ended December 31,
        2004.
 
 b)
              Licensing
                  rights agreementOn
                  March 9, 2004, the Company entered into an initial licensing agreement
                  (the “Cordyceps Agreement”) with Hotway Nutraceuticals Canada Co., Ltd.
                  (“Hotway”), a British Columbia company. Under this agreement, Hotway has
                  granted the Company exclusive licenses to 19 cordyceps products
                  for a term
                  of twenty years in the following countries: United States, Canada,
                  Argentina, Brazil, Columbia, Chile, Uruguay, Paraguay, England,
                  France,
                  Germany, Italy, Spain, Holland, Poland, Switzerland, Sweden, Australia,
                  Monaco, Norway, Denmark, Austria, Ireland, Israel, Kuwait, Iran,
                  Hong
                  Kong, Japan, Malaise, Singapore, India, Indonesia and the People’s
                  Republic of China. The Cordyceps Agreement grants the Company (a)
                  the
                  exclusive license to utilize 19 neutraceutical products and their
                  raw
                  materials in the above-listed territories; (b) the exclusive rights
                  to
                  register the Trademarks/Trade Names of the products under the Company’s
                  name in each of the above-listed territories; (c) the exclusive
                  license to use, replicate, copy, modify, adopt and manufacture
                  the
                  products for the purpose of developing derivative products by modifying,
                  refining, upgrading, or improving the licensed property; and (d)
                  the
                  exclusive rights to the licensed products’ ingredients. In addition,
                  Hotway granted the Company a right of first refusal to acquire
                  any new
                  products developed by Hotway after January 9, 2004. In consideration
                  for
                  rights granted under the Cordyceps Agreement, the Company agreed
                  to pay
                  Hotway $10,000 for each country listed above, for a total of $330,000,
                  originally due to Hotway by March 9, 2005. ****The
                  Company also agreed to: (a) sell a minimum of 2,000 bottles/60
                  capsules of
                  the licensed products within 6-12 months after March 9, 2004; (b)
                  manage
                  marketing programs for the licensed products within 3-6 months
                  after March
                  9, 2004; (c) maintain sales of a minimum of 6,000 bottles/60 capsules
                  annually for each above-listed country within 6-12 months after
                  March 9,
                  2004; and (d) sell a minimum of 200kg/month of raw materials in
                  Canada
                  within 6-12 months after March 9,
                  2004.
 
  13
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
  **3.****INTANGIBLE
        ASSETS -
        CONT****’****D**
   On
        March
        9, 2004, the Company entered into another licensing agreement (the “De-Daibe
        Agreement”), which grants the Company exclusive licenses to De-Daibe and
        Depressor Herbs neutraceutical products for a term of twenty years in the
        following countries: United States, Canada, Argentina, Brazil, Columbia,
        Chile,
        Uruguay, Paraguay, England, France, Germany, Italy, Spain, Holland, Poland,
        Switzerland, Sweden, Australia, Monaco, Norway, Denmark, Austria, Ireland,
        Israel, Kuwait, Iran, Hong Kong, Japan, Malaise, Singapore, India, Indonesia
        and
        the People’s Republic of China. This licensing agreement grants the Company (a)
        the exclusive license to utilize the De-Daibe and Depressor Herbs neutraceutical
        products and their raw materials in the above-listed territories; (b) the
        exclusive rights to register the Trademarks/Trade Names of the products under
        the Company’s name in each of the above-listed territories; (c) the exclusive
        license to use, replicate, copy, modify, adopt and manufacture the products
        for
        the purpose of developing derivative products by modifying, refining, upgrading,
        or improving the licensed property; and (d) the exclusive rights to the
        licensed products’ ingredients. In addition, Hotway granted the Company a right
        of first refusal to acquire any new products developed by Hotway after March
        9,
        2004. In consideration for rights granted under the De-Daibe Agreement, the
        Company agreed to pay Hotway $10,000 for each country listed above, for a
        total
        of $330,000 originally due to Hotway by March 9, 2005.****The
        Company also agreed to: (a) sell a minimum of 2,000 bottles/60 capsules of
        the
        licensed products within 6-12 months after March 9, 2004; (b) manage marketing
        programs for the licensed products within 3-6 months after March 9, 2004;
        (c)
        maintain sales of a minimum of 6,000 bottles/60 capsules annually for each
        above-listed country within 6-12 months after March 9, 2004; and (d) sell
        a
        minimum of 200kg/month of raw materials in Canada within 6-12 months after
        March
        9, 2004.
 
 Under
        the
        terms of the original Cordyceps and De-Daibe agreements (“Exclusive Licensing
        Agreements”), if the Company fails to meet any of the licensing commitments, the
        license agreements will terminate and all obligations under the agreements
        terminate. Upon expiration of the Exclusive Licensing agreements Hotway will
        own
        the rights to any modifications, upgrades or improvements made to the licensed
        products.
 
 On
        November 2, 2004, the Company entered into an agreement with Hotway to amend
        the
        Exclusive Licensing Agreements (the “Amending Agreement”). The Amending
        Agreement amended certain payment terms under the Exclusive Licensing Agreements
        as follows: (1) the Company shall issue to Hotway 760,000 shares of common
        stock; and (2) pay an aggregate of $100,000 to Hotway no later than 90 days
        after the Company’s common stock has been approved for quotation on the OTC
        Bulletin Board. Other than this consideration, the Company is not required
        to
        make royalty or any other payments of any kind to Hotway in respect of the
        Exclusive Licensing Agreements. In the event that the Company does not pay
        or
        issue this consideration to Hotway, then the Exclusive Licensing Agreements
        will
        terminate and all other obligations under the Exclusive Licensing Agreements
        will terminate. This amendment supercedes the previous consideration that
        the
        Company owed to Hotway under the Exclusive Licensing Agreements. The amendment
        also provides that the Company shall have the exclusive licensing rights
        on any
        future improvements to the products that are licensed to the Company under
        the
        Exclusive Licensing Agreements.
 
 On
        November 2, 2004, 760,000 common shares with a fair value of $0.25 each were
        issued to Hotway representing total consideration of $190,000 paid in respect
        of
        the Exclusive Licensing Agreements. The Company charged amortization of $7,125
        to operations for the year ended December 31, 2004. Management has determined
        that it is not possible at this time to estimate future cash flows to be
        generated from these licences and accordingly an impairment charge equal
        to the
        unamortized balance of $182,874 has been recorded during the year ended December
        31, 2004 leaving a carrying value of $1.
 
  14
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 
  **3.****INTANGIBLE
        ASSETS -
        CONT’D**
  During
        2005, this licensing agreement was cancelled and the 760,000 shares issued
        in
        2004 are to be returned to the Company and cancelled.
 
 c)Asset
                  purchase
                  agreement
 
 Pursuant
        to an asset purchase agreement dated March 22, 2005, the Company acquired
        from
        the Company’s shareholders intellectual rights to 108 “100% Natural Taoist
        Herbal Medicinal Products” that comprise the Company’s Taoist Medicine product
        lines. In exchange for the rights, the Company agreed to pay total consideration
        as follows:
   -4,500,000 common shares at a
                  fair value of $0.30 per share
              
              $
              1,350,000-
                  Payable to
                  shareholders
              
              
              10,000$
              $1,360,000
   In
        addition, the Company agreed to pay the vendors a combined total royalty
        equal
        to 5% of annual gross sales of the products until March 22, 2039.
 
 For
        accounting purposes, the Company has recorded the cost of acquiring the
        intellectual rights as intangible assets at the related party vendor's carrying
        value of $1. The excess of the purchase price over the carrying value of
        the
        intangible assets totalling $1,359,999 has been expensed as research and
        development costs during the year ended December 31, 2005.
  15
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 
   **4.****PROPERTY
        AND
        EQUIPMENT**
  Property
        and equipment consists of the following:
  June
                  30,
              
              December
                  31,2007
              
              2006$
              
              $Computer
              
              $
              27,964
              
              $
              16,688Deposit
                  for Acquisition of Company
              
              
              598,000
              
              
              -0-Furniture
                  and Fixtures
              
              
              3,392
              
              
              2,849629,356
              
              
              19,537Less:
                  accumulated depreciation
              
              
              (11,415
              )
              
              (9,168
              )$
              617,941
              
              $
              10,369
  The
        Deposit for aquisition was paid for by the Company in stock in the first
        quarter.
  **5.****DUE
        TO
        SHAREHOLDERS**
  The
        amount due to shareholders bears interest at 10% per annum, is unsecured
        and has
        no specific terms of repayment (Note 8).
 
 ******6.****CAPITAL
        STOCK**
  The
        authorized capital of the Company consists of 300,000,000 voting common shares
        with $0.001 par value and 20,000,000 voting preferred shares with $0.001
        par
        value. On March 28, 2005, the Company increased the authorized common shares
        from 55,000,000 shares to 300,000,000 shares.
 
 The
        preferred stock has a stated value of $0.15 per share and a liquidation
        preference over the Company's common stock. Holders of Series A preferred
        stock
        are entitled to two votes for each share of Series A preferred stock owned.
        Each
        share of Series A preferred stock is convertible, at the option of the holder,
        into two shares of common stock, commencing two years after the date of
        issuance, provided the market price of the common stock is not below $1.00
        per
        share. Additionally, if prior to two years from the date of issue, there
        is a
        sale or other disposition of all or substantially all of the Company's assets,
        a
        transaction or series of related transactions in which more than 50% of the
        voting power of the Company is disposed of, or upon a consolidation, merger
        or
        other business combination where the Company is not the survivor, then
        immediately prior to such event each holder of Series A preferred stock may
        convert any or all of such holder's shares of Series A preferred stock into
        common stock.
 
 On
        February 21, 2006, the Company filed a Certificate of Designation, Powers
        Preferences and Rights of Series A preferred stock which authorized the Company
        to issue up to 1,000,000 shares of Series A preferred stock with a par value
        of
        $0.001 per share. On June 16, 2006 the Company approved an increase in the
        number of authorized Series A Preferred stock to 2,500,000 with the same
        par
        value.
  During
          the three months ended June 30, 2007, the Company issued a total
          of 4,295,000 common shares for services at an average of $0.038 per share
          for a total consideration of $163,080.
 During
        the three month ended June 30, 2007 Company issued 400,000 common shares as
        loan repayment at an average price of $0.036 per share for a total consideration
        of $14,400.
  On
        February 16, 2006, the Company declared a stock dividend on the basis of
        one new
        share of common stock for every four shares of common stock outstanding,
        and one
        share of Series A preferred stock for every four shares of Series A preferred
        stock outstanding. The record date was February 28, 2006 and the payment
        date
        was March 17, 2006.
  
 16
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 **6.
          **CAPITAL
          STOCK - CONT’D****
 
 The
        Company has granted stock options as follows:
  **Number
                  of Options**
              
              **Weighted
                  Average Exercise price**
                **$**
              
              **Weighted
                  Average Remaining Contractual Life**Balance,
                  December 31, 2006
              
              
              12,729,175
              
              
              0.19
              
              
              2.22
                  yearsIssued
                  during the period
              
              
              --
              
              
              --
              
              
              -Exercised
                  during the period
              
              
              --
              
              
              --Cancelled
                  during the period
              
              
              --
              
              
              --
              
              
              -Expired
                  during the period
              
              
              --
              
              
              --
              
              
              -Balance
                  June 30, 2007
              
              
              12,729,175
              
              
              0.19
              
              
              2.22
                  years
 
 a)
              On
                  June 12, 2006, the Company increased the number of shares of common
                  stock
                  of the Company subject to the Company’s 2005 stock Incentive plan from
                  3,900,000 to 9,000,000.
 
 b)
              On
                  January 22, 2006, the Company granted 1,000,000 stock options to
                  a
                  consultant with an exercise price of $0.20 per share subject to
                  immediate
                  vesting. Stock-based compensation of $84,262 was recorded as consulting
                  expense till June 30, 2007 and $29,619 as unamortized balance in
                  deferred
                  compensation as of June 30,2007. The fair value of the stock options
                  was
                  estimated by application of the fair value method using Black Scholes
                  option pricing model. Assumptions used in this model were as
                  follows:
 
 Risk-free
                  interest rate
              4.26%Dividend
                  yield
              0%Volatility
                  factor
              272%Expected
                  option life
              2
                  years
 
 c)
              On
                  January 22, 2006, the Company granted 1,000,000 stock options to
                  a
                  consultant with an exercise price of $0.20 per share subject to
                  immediate
                  vesting. Stock-based compensation of $55,547 was recorded as consulting
                  expense till June 30, 2007and $55,906 as unamortized balance in
                  deferred
                  compensation as of June 30,2007. The fair value of the stock options
                  was
                  estimated by application of the fair value method using Black Scholes
                  option pricing model. Assumptions used in this model were as
                  follows:
 
 Risk-free
                  interest rate
              4.26%Dividend
                  yield
              0%Volatility
                  factor
              272%Expected
                  option life
              2.92
                  years
 
 
 17
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
  6.
CAPITAL
        STOCK - CONT’D
 
 d)
              On
                  January 22, 2006, the Company granted 2,500,000 stock options to
                  the
                  President of the Company with an exercise price of $0.20 per share
                  subject
                  to immediate vesting. Stock-based compensation of $276,191 was
                  recorded as
                  consulting till June 30, 2007.The fair value of the stock options
                  was
                  estimated by application of the fair value method using Black Scholes
                  option pricing model. Assumptions used in this model were as
                  follows:
 
 Risk-free
                  interest rate
              4.21%Dividend
                  yield
              0%Volatility
                  factor
              272%Expected
                  option life
              4
                  years
 
 e)
              On
                  January 28, 2006, the Company granted 1,000,000 stock options to
                  a
                  consultant with an exercise price of $0.20 per share subject to
                  immediate
                  vesting. Stock-based compensation of $128,827 was recorded as consulting
                  expense till June 30,2007and $50,204 as unamortized balance in
                  deferred
                  compensation as of June 30, 2007. The fair value of the stock options
                  was
                  estimated by application of the fair value method using Black Scholes
                  option pricing model. Assumptions used in this model were as
                  follows:
 
 Risk-free
                  interest rate
              4.38%Dividend
                  yield
              0%Volatility
                  factor
              270%Expected
                  option life
              2
                  years
 
 f)
              On
                  February 1, 2006, the Company granted 1,000,000 stock options to
                  a
                  consultant with an exercise price of $0.20 per share subject to
                  immediate
                  vesting. Stock-based compensation of $169,907 was recorded as consulting
                  expense till June 30, 2007and $66,725 as unamortized balance in
                  deferred
                  compensation as of June 30, 2007. The fair value of the stock options
                  was
                  estimated by application of the fair value method using Black Scholes
                  option pricing model. Assumptions used in this model were as
                  follows:
 
 Risk-free
                  interest rate
              4.47%Dividend
                  yield
              0%Volatility
                  factor
              269%Expected
                  option life
              2
                  years
 
 g)
              On
                  February 7, 2006, the Company granted 150,000 stock options to
                  a
                  consultant with an exercise price of $0.30 per share subject to
                  immediate
                  vesting. Stock-based compensation of $20,248 wasrecorded
                  as consulting expense till June 30,2007 and $494 as unamortized
                  balance in
                  deferred compensation as of June 30, 2007. The fair value of the
                  stock
                  options was estimated by application of the fair value method using
                  Black
                  Scholes option pricing model. Assumptions used in this model were
                  as
                  follows:
 
 Risk-free
                  interest rate
              4.55%Dividend
                  yield
              0%Volatility
                  factor
              266%Expected
                  option life
              1
                  year
 
  18
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
   6. CAPITAL
        STOCK - CONT’D
 h)
              During
                  the year ended December 31, 2006, the Company decreased the exercise
                  price
                  of 100,000 stock options granted to a consultant during the year
                  ended
                  December 31, 2005, from $1.00 per share to $0.30 per share. Stock-based
                  compensation of $2,540  was recorded as consulting expense till June
                  30,2007 and $62 as unamortized balance in deferred compensation
                  as of June
                  30, 2007. The fair value of the stock options was estimated by
                  application
                  of the fair value method using Black Scholes option pricing model.
                  Assumptions used in this model were as
                  follows:
  Risk-free
                  interest rate
              4.55%Dividend
                  yield
              0%Volatility
                  factor
              266%Expected
                  option life
              1
                  year
 
 i)
              During
                  the year ended December 31, 2006, the Company decreased the exercise
                  price
                  of 100,000 stock options granted to a consultant during the year
                  ended
                  December 31, 2005, from $1.00 per share to $0.30 per share. Stock-based
                  compensation of $1,932 was recorded as consulting expense till
                  June
                  30,2007 and $44 as unamortized balance in deferred compensation
                  as of June
                  30, 2007. The fair value of the stock options was estimated by
                  application
                  of the fair value method using Black Scholes option pricing model.
                  Assumptions used in this model were as
                  follows:
 
 Risk-free
                  interest rate
              4.59%Dividend
                  yield
              0%Volatility
                  factor
              269%Expected
                  option life
              1
                  year
 
 j)
              On
                  May 1, 2006, the Company increased the exercise price of 250,000
                  stock
                  options granted to a consultant from $0.30 to $0.50 per share for
                  125,000
                  stock options and $1.00 per share for the remaining 125,000 stock
                  options.
 
 During
        Second Quarter 2007, the Company issued 6,000,000 warrants at $0.20 per unit.
        Each warrant entitles the holder to purchase an additional common share for
        $0.20 and must be exercised within one to three years of the date of issuance:
        The Warrants Blackscholes Values are as following:
 
 i.
        1,000,000 warrants issued on March26 2007 at 0.20 per warrants for three
        years
        term:
  Risk-free
                  interest rate
              4.85%Dividend
                  yield
              0%Volatility
                  factor
              280
                  %Expected
                  option life
              3year
  ii. 1,000,000
        warrants issued on March26 2007 at 0.20 per warrants for two years
        term:
  Risk-free
                  interest rate
              4.85%Dividend
                  yield
              0%Volatility
                  factor
              280
                  %Expected
                  option life
              2year
     19
  **CHINA
          HOLDINGS INC.**
 **(a
          development stage company)**
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (Unaudited)
 iii.
        1,000,000 warrants issued
        on March26 2007 at 0.20 per warrants for one year term:
  Risk-free
                  interest rate
              4.85%Dividend
                  yield
              0%Volatility
                  factor
              280
                  %Expected
                  option life
              1year
  iv.
        1,000,000 warrants issued on June15 2007 at 0.20 per warrants for three years
        term:
 
 Risk-free
                  interest rate
              4.85%Dividend
                  yield
              0%Volatility
                  factor
              280
                  %Expected
                  option life
              3year
  v.
        1,000,000 warrants issued on June15 2007 at 0.20 per warrants for two years
        term:
 
 Risk-free
                  interest rate
              4.85%Dividend
                  yield
              0%Volatility
                  factor
              280
                  %Expected
                  option life
              2year
  vi.
        1,000,000 warrants issued on June 15 2007 at 0.20 per warrants for three
        years
        term:
 
 Risk-free
                  interest rate
              4.85%Dividend
                  yield
              0%Volatility
                  factor
              280
                  %Expected
                  option life
              1year
  The
        Company has issued share purchase warrants as follows:
  **Number
                  of**
                **Warrants**
              
              **Weighted
                  Average** **Exercise
                  Price**Balance,
                  December 31,
                  2006
              
              
              31,750,000
              
              $
              0.15Issued
                during 1Q 2007 (iv,v,vii)
              
              
              25,000,000
              
              
              0.17Issued
                during 2Q 2007
              
              
              6,000,000
              
              
              0.20Expired
                  during the
                  period
              
              
              (100,000
              )
              
              0.15Balance,
                  June 30,
                  2007
              
              
              62,650,000
              
              $
              0.16
   i)
              During
                  2002, the Company issued 19,000 units at $0.10 per unit. Each unit
                  consisted of one common share and one share purchase warrant. Each
                  warrant
                  entitles the holder to purchase an additional common share for
                  $0.75 and
                  must be exercised within nine months of the date the Company's
                  shares
                  commence trading on a United States Stock exchange. These warrants
                  were
                  not exercised, and expired in full during fiscal
                  2005.
 
 ii)
              During
                  2003, the Company issued 100,000 units at $0.08 per unit. Each
                  unit
                  consisted of one common share and one share purchase warrant. Each
                  warrant
                  entitles the holder to purchase an additional common share for
                  $0.11 and
                  must be exercised within two years of the date the Company's shares
                  commence trading on a United States Stock
                  exchange.
   20
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
  **7.**
              **SUPPLEMENTARY
                  NON-CASH INFORMATION**
 
 iii)
              During
                  2004, the Company issued 220,000 units at $0.25 per unit. Each
                  unit
                  consisted of one common share and one share purchase warrant. Each
                  warrant
                  entitles the holder to purchase an additional common share for
                  $0.75 and
                  must be exercised within one year. These warrants were not exercised,
                  and
                  expired in full during fiscal 2005.
 
 iv)
              During
                  2005, the Company issued 1,080,000 units at $0.25 per unit. Each
                  unit
                  consisted of one common share and one share purchase warrant. Each
                  warrant
                  entitles the holder to purchase an additional common share for
                  $0.75 and
                  must be exercised within one year of the date the Company's shares
                  commence trading on a United States Stock exchange. These warrants
                  were
                  not exercised, and expired in full during fiscal the period ended
                  September 30, 2006.
 
 v)
              During
                  2006, the Company issued 21,650,000 warrants at $0.20 per unit.
                  Each
                  warrant entitles the holder to purchase an additional common share
                  for
                  $0.20 and must be exercised within two years of the date of issuance.
                  The
                  Company issued 10,000,000 warrants at $0.10 per unit. Each warrant
                  entitles the holder to purchase an additional common share for
                  $0.10 and
                  must be exercised within two years of the date of
                  issuance.
 
 vi)
              During
                  2007, the Company issued 5,000,000 warrants at $0.20 per unit.
                  Each
                  warrant entitles the holder to purchase an additional common share
                  for
                  $0.20 and must be exercised within five years of the date of
                  issuance.
 
 vii)
              During
                  2007, the Company issued 10,000,000 warrants at $0.10 per unit.
                  Each
                  warrant entitles the holder to purchase an additional common share
                  for
                  $0.10 and must be exercised within five years of the date of
                  issuance.
 
 viii)
              During
                  2007, the Company issued 10,000,000 warrants at $0.20 per unit.
                  Each
                  warrant entitles the holder to purchase an additional common share
                  for
                  $0.20 and must be exercised within five years of the date of
                  issuance.ix)
              During
                the second quarter of 2007 the company issued 6,000,000 warrants
                at $0.20
                per unit. Each warrant entitles the holder to purchase an additional
                common share for $0.20 and must be exercised within five years of
                the date
                of issuance.
  The
        Company entered into the following non-cash transactions:
   a.
              On
                  March 12, 2007, the Company issued 5,000,000 shares of common stock
                  with a
                  fair value of $.06 per share against loan
                  repayment.
  b.
              On
                  March 8, 2007, the Company issued 4,980,000 shares of common stock
                  with a
                  fair value of $.06 per share for consulting services charged under
                  finance
                  charges
  c.
              On
                  March 16,2007, the Company issued 150,000 shares of common stock
                  with a
                  fair value of $.076 per share for consulting
                  services
  d.
              On
                  March 8, 2007, the Company issued 13,050,000 shares of common stock
                  with a
                  fair value of $.06 per share for consulting
                  services
  e.
              On
                  February 23,2007, the company issued 59,400 shares if common stock
                  with
                  fair value of $0.1 per share for consulting
                  services
  f.
              On
                  January 30, 2007, the Company issued 5,000,000 shares of common
                  stock with
                  a fair value of $.115 per share as a deposit for the acquisition
                  of Xi’an
                  Meichen Pharmaceutical Co LTD
  g.
              On
                  January 30, 2007, the Company issued 200,000 shares of common stock
                  with a
                  fair value of $.0115 per share as a deposit for the acquisition
                  of
                  Beinjing Jifatang Chinese Medicine.
  h.
              On
                  January 30, 2007, the Company issued 120,000 shares of common stock
                  with a
                  fair value of $.115 per share for legal
                  services.
  i.
              On
                  January 26, 2007, the Company issued 13,000 shares of common stock
                  with a
                  fair value of $.14 per share for consulting
                  services
  j.
              On
                  January 8, 2007, the Company issued 9,000 shares of common stock
                  with a
                  fair value of $.061 per share for consulting
                  services.
   21
  **CHINA
          HOLDINGS INC.**
 **(a
          development stage company)**
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (Unaudited)
    j.
              On
                  December 30, 2006, the Company issued 2,000,000 shares of common
                  stock
                  with a fair value of $.025 per share for consulting services; $50,000
                  is
                  included in consulting services for 2006.
 
 k.
              On
                  December 30, 2006, the Company issued 1,000,000 shares of common
                  stock
                  with a fair value of $.025 per share for consulting services; $25,000
                  is
                  included in consulting services for
                  2006.
  l.
              On
                  December 30, 2006, the Company issued 300,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $7,500
                  is
                  included in consulting services for
                  2006.
  m.
              On
                  December 30, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $3,750
                  is
                  included in consulting services for
                  2006.
  n.
              On
                  December 30, 2006, the Company issued 800,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $20,000
                  is
                  included in consulting services for
                  2006.
  o.
              On
                  December 29, 2006, the Company cancelled 875,000 shares of common
                  stock
                  with a fair value of $.025 per share due to cancellation of
                  services.
  p.
              On
                  December 29, 2006, the Company issued 880,000 shares of common
                  stock with
                  a fair value of $.025 per share to settle $22,000 of
                  debt.
  q.
              On
                  December 28, 2006, the Company issued 3,800,000 shares of common
                  stock
                  with a fair value of $.025 per share to settle $95,000 of
                  debt.
  r.
              On
                  December 28, 2006, the Company issued 700,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $17,500
                  is
                  included in consulting services for
                  2006.
  s.
              On
                  December 28, 2006, the Company issued 1,000,000 shares of common
                  stock
                  with a fair value of $.025 per share for consulting services; $25,000
                  is
                  included in consulting services for
                  2006.
  t.
              On
                  December 18, 2006, the Company issued 300,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $7,500
                  is
                  included in consulting services for
                  2006.
  
 22
 
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
   u.
              On
                  December 18, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services ; $7,500
                  is
                  included in consulting services for
                  2006.
  v.
              On
                  December 18, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $7,500
                  is
                  included in consulting services for
                  2006.
  w.
              On
                  December 14, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.026 per share for Legal services; $3,900 is included
                  in
                  professional fees for 2006.
  x.
              On
                  December 12, 2006, the Company issued 300,000 shares of common
                  stock with
                  a fair value of $.026 per share for consulting services; $7,800
                  is
                  included in consulting services for
                  2006.
  y.
              On
                  December 12, 2006, the Company issued 300,000 shares of common
                  stock with
                  a fair value of $.026 per share for consulting services; $7,800
                  is
                  included in consulting services for
                  2006.
  z.
              On
                  December 12, 2006, the Company issued 1,000,000 shares of common
                  stock
                  with a fair value of $.026 per share for Legal services; $26,000
                  is
                  included in professional fees for
                  2006.
  aa.
              On
                  December 12, 2006, the Company issued 1,000,000 shares of common
                  stock
                  with a fair value of $.026 per share for consulting services ;
                  $26,000 is
                  included in consulting services.
  bb.
              On
                  December 1, 2006, the Company issued 2,000,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $50,000
                  is
                  included in consulting fees for
                  2006.
  cc.
              On
                  November 27, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share for Legal services; $3,750 is included
                  in
                  professional fees for 2006.
  dd.
              On
                  November 27, 2006, the Company issued 100,000 shares of common
                  stock with
                  a fair value of $.025 per share for Legal services; $2,500 is included
                  in
                  professional fees for 2006.
  ee.
              On
                  November 26, 2006, the Company issued 1,500,000 shares of common
                  stock
                  with a fair value of $.025 per share to settle debt of $37,500
                  in
                  2006.
  ff.
              On
                  November 26, 2006, the Company issued 550,000 shares of common
                  stock with
                  a fair value of $.025 per share for Legal services; $13,750 is
                  included in
                  professional fees for 2006.
  gg.
              On
                  November 21, 2006, the Company issued 450,000 shares of common
                  stock with
                  a fair value of $.025 per share for Legal services; $11,250 is
                  included in
                  professional fees for 2006.
  hh.
              On
                  November 21, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share for management services; $3,750
                  is
                  included in management fee for
                  2006.
  ii.
              On
                  November 21, 2006, the Company issued 125,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $3,750
                  is
                  included in consulting fees for
                  2006.
  jj.
              On
                  November 21, 2006, the Company issued 250,000 shares of common
                  stock with
                  a fair value of $.025 per share to settle debt of $6,250 in
                  2006.
  kk.
              On
                  November 20, 2006, the Company issued 1,400,000 shares of common
                  stock
                  with a fair value of $.025 per share for consulting services; $35,000
                  is
                  included in consulting services for
                  2006.
  23
 **CHINA
        HOLDINGS INC.**
 **(a
          development stage company)**
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (Unaudited)
     ll.
              On
                  November 17, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share for Legal services; $3,750 is included
                  in
                  professional fees for 2006.
  mm.
              On
                  November 17, 2006, the Company issued 100,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $2,500
                  is
                  included in professional fees for
                  2006.
  nn.
              On
                  November 17, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share for PR services; $3,750 is included
                  in
                  consulting services for 2006.
  oo.
              On
                  November 17, 2006, the Company issued 500,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $12,500
                  is
                  included in consulting services for
                  2006.
  pp.
              On
                  November 17, 2006, the Company issued 200,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $5,000
                  is
                  included in consulting services for
                  2006.
  qq.
              On
                  November 17, 2006, the Company issued 800,000 shares of common
                  stock with
                  a fair value of $.025 per share to settle $20,000 of
                  debt.
  rr.
              On
                  November 17, 2006, the Company issued 500,000 shares of common
                  stock with
                  a fair value of $.025 per share for PR services; $12,500 is included
                  in
                  consulting services for 2006.
  ss.
              On
                  November 17, 2006, the Company issued 150,000 shares of common
                  stock with
                  a fair value of $.025 per share to settle $3,750 of
                  debt.
  tt.
              On
                  November 17, 2006, the Company issued 500,000 shares of common
                  stock with
                  a fair value of $.025 per share for consulting services; $12,500
                  is
                  included in consulting services for
                  2006.
  uu.
              On
                  November 16, 2006, the Company issued 800,000 shares of common
                  stock with
                  a fair value of $0.25 per share for PR services; $20,000 is included
                  in
                  consulting fees for 2006.
  vv.
              On
                  November 17, 2006, the Company issued 810,000 shares of common
                  stock with
                  a fair value of $.025 per share to settle $20,250 of
                  debt.
  ww.
              On
                  November 16, 2006, the Company granted warrants to acquire 2,000,000
                  shares of common stock exercisable at $0.20 per share for 5 years
                  as
                  compensation to the Companies current
                  president.
  xx.
              On
                  October 19, 2006, the Company issued 50,000 shares of common stock
                  with a
                  fair value of $.035 per share to settle $4,000 of
                  debt.
  yy.
              On
                  October 18, 2006, the Company issued 3,250,000 shares of common
                  stock in
                  consideration for consulting
                  services.
  zz.
              On
                  October 12, 2006 the Company granted warrants to acquire 11,650,000
                  shares
                  of common stock in consideration for consulting and management
                  services.
  aaa.
              On
                  October 12, 2006, the Company issued 10,000,000 shares and granted
                  warrants to acquire 10,000,000 shares of common stock exercisable
                  at $0.10
                  per share for five years and warrants to acquire 10,000,000 shares
                  of
                  common stock exercisable at $0.20 for ten years to settle $300,000
                  of
                  debt.
  bbb.
              On
                  October 4, 2006, the Company issued 200,000 common shares with
                  a fair
                  value of $0.03 per share to settle $6,000 of services
                  provided..
  ccc.
              On
                  September 27, 2006, the Company issued 200,000 common shares with
                  a fair
                  value of $0.03 per share for a loss on shares issued for lease
                  payments.
  ddd.
              On
                  September 27, 2006, the Company issued 400,000 common shares with
                  a fair
                  value of $0.03 per share for auto expenses, of which $12,00 is
                  included in
                  prepaid expenses.
    24
 
 **CHINA
            HOLDINGS INC.**
 **(a
            development stage company)**
 NOTES
            TO
            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (Unaudited)
 eee.
              On
                  September 27, 2006, the Company issued 125,000 common shares with
                  a fair
                  value of $0.045 per share for $5,625 of consulting services included
                  in
                  deferred compensation.
  fff.
              On
                  September 27, 2006, the Company issued 4,525,000 common shares
                  with a fair
                  value of $0.04 per share for $181,000 of consulting services of
                  which
                  $101,204 is included in deferred
                  compensation.
  ggg.
              On
                  September 27, 2006, the Company issued 100,000 common shares with
                  a fair
                  value of $0.03 per share for $3,000 of charitable
                  donations.
  hhh.
              On
                  September 27, 2006, the Company issued 965,000 common shares with
                  a fair
                  value of $0.03 per share for $28,950 of consulting services of
                  which
                  $13,221 is included in deferred
                  compensation.
  iii.
              On
                  June 16, 2006, the Company issued 250,000 common shares with a
                  fair value
                  of $0.105 per share for $26,250 of consulting
                  services.
  jjj.
              On
                  June 1, 2006, the Company issued 500,000 common shares with a fair
                  value
                  of $0.09 per share for $45,000 of consulting
                  services.
  kkk.
              On
                  May 4, 2006, the Company issued 250,000 common shares with a fair
                  value of
                  $0.10 per share for $25,000 of legal
                  services.
  lll.
              On
                  April 16, 2006, the Company issued 500,000 common shares with a
                  fair value
                  of $0.10 per share for $50,000 of management consulting
                  services.
  mmm.
              On
                  April 12, 2006, the Company issued 300,000 common shares with a
                  fair value
                  of $0.105 per share for $31,500 of consulting
                  services.
  nnn.
              On
                  April 12, 2006, the Company issued 150,000 common shares with a
                  fair value
                  of $0.105 per share for $15,750 of management consulting
                  services.
  ooo.
              On
                  February 21, 2006, the Company issued 300,000 shares with a fair
                  value of
                  $0.12 per share for $36,000 of consulting services. is included
                  in
                  deferred compensation.
  ppp.
              On
                  February 21, 2006, the Company issued 150,000 shares with a fair
                  value of
                  $0.12 per share for $18,000 of filing services. At September 30,
                  2006,
                  $7,685 is included in deferred
                  compensation.
  qqq.
              On
                  February 16, 2006, the Company declared a stock dividend on the
                  basis of
                  one new share of common stock for every four shares of common stock
                  outstanding, and one new share of Series A preferred stock for
                  every four
                  shares of Series A preferred stock outstanding. The record date
                  was
                  February 28, 2006 and the payment date was March 17,
                  2006.
  rrr.
              On
                  February 14, 2006, the Company issued 100,000 common shares with
                  a fair
                  value of $0.11 per share for $11,000 of consulting services, included
                  in
                  deferred compsnation.
  sss.
              On
                  February 2, 2006, the Company issued 90,000 common shares with
                  a fair
                  value of $0.25 per share for $22,500 of consulting services included
                  in
                  deferred compensation..
  ttt.
              On
                  January 28, 2006, the Company issued 200,000 common shares with
                  a fair
                  value of $0.19 per share for $38,000 of consulting services is
                  included as
                  a deferred compensation.
  uuu.
              On
                  January 22, 2006, the Company issued 134,710 common shares with
                  a fair
                  value of $0.12 per share for $16,165 of consulting services is
                  included in
                  deferred compensation.
  vvv.
              On
                  January 22, 2006, the Company issued 150,000 common shares with
                  a fair
                  value of $0.12 per share for $18,000 of consulting services is
                  included as
                  a deferred compensation.
  xxx.
              On
                  January 22, 2006, the Company issued 100,000 common shares with
                  a fair
                  value of $0.12 per share for $12,000 of consulting services included
                  in
                  deferred compensation.
     25
 **CHINA
          HOLDINGS INC.**
 **(a
          development stage company)**
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (Unaudited)
     yyy.
              On
                  January 18, 2006, the Company issued 300,000 common shares with
                  a fair
                  value of $0.11 per share for $33,000 of consulting services is
                  included in
                  deferred compensation.
  zzz.
              On
                  January 17, 2006, the Company issued 100,000 common shares with
                  a fair
                  value of $0.12 per share for $12,000 of consulting services is
                  included in
                  deferred compensation.
  aaaa.
              On
                  January 17, 2006, the Company issued 150,000 common shares with
                  a fair
                  value of $0.12 per share for $18,000 of consulting services is
                  included in
                  deferred compensation.
  bbbb.
              During
                  the quarter ended September 30, 2005, the Company issued 5,625,000
                  common
                  shares with a fair value of $0.24 per share as partial consideration
                  for
                  the purchase of licensing rights. (See Note 3
                  (c)).
  cccc.
              During
                  the year ended December 31, 2005, the Company issued 534,875 common
                  shares
                  with fair values ranging from $0.20 to $0.24 for a total value
                  of $125,725
                  of which $50,725 was recorded as consulting expenses and $75,000
                  was
                  recorded as professional fees.
   **8.****RELATED
                  PARTY TRANSACTIONS**
  The
                  Company has entered into the following related party
                  transactions:
 
 a)
              Recorded
                  management and consulting fees to directors and shareholders totalling
                  $181,093 (June 30, 2006 -
                  $286,643);
 
 b)
              Accrued
                  interest expense to directors and shareholders totalling $17,242
                  (June 30,
                  2006 - $20,069);
 
 26
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 
  
  **9.****COMMITMENTS**
   On
        August
        3 2007, the Company has appointed Mr. Chen, Moxian as Senior Vice President
        of
        China Power, Inc., the company’s wholly owned subsidiary. The Company has paid
        him for a total of 250,000 common stocks/144 Rules in July 2007 already .
        Additional compensation will be on further projects and performances
        basis.
  On
        July 1
        2007, the Company has appointed Ms. Guo, Yumin as the Company’s accountant. Ms.
        Guo  (Licensed CPA in PR China), who was appointed as the Company's
        accountant since June 2007. Ms. Guo was the chief accountant for  W&G
        (Germanic) communication test instrument Ltd.  to handle Beijing head
        office accounting, and the other five local branch internal control,
        verification of account, approval budget, detail for inventory by location,
        and check tax filing, in dealing with tax bureau, make formal monthly,
        quarterly, annual records, provide financial data analysis report to overseas
        Group Financial Department.  Ms. Guo is also a audit manager
        for  Zhong Ding CPA Co.Ltd.  to Participated in the annual audit
        including development of the final certification report.
 
 On
        July1
        2007, the Company has appointed Mr. Farzam Kamalabadi as the Company’s Co- the
        chairman of its advisory board in Energy Section. The Company has agreed
        and
        paid to Mr. Farzam Kamalabadi for a total  of 5,000,000 common stocks
        as SEC 144 rules and legends and a total of 200,000 common stocks as SEC
        S-8
        Legends and also $10,000 USD in cash paid in July 2007 by the Company via
        Julianna Lu paid as Loan to the Company.
  On
        April
        3, 2007, the Company appointed Mr. Ron Shon as the chairman of its advisory
        board. Mr. Shon is the President of The Shon Group of Companies, a group
        of
        privately held real estate investment (such as the AAA+ Carsideral Office
        Building in downtown Vancouver, Canada) and development companies. Mr. Shon
        is
        also the President of China Education Resources Inc., and a director of the
        Spectra Group of Great Restaurants Inc. Mr. Shon holds a B.A. from Stanford
        University and a M.B.A. from the Wharton School, University of Pennsylvania.
        The
        Company has issued Mr. Shon for a total of 500,000 common stocks as SEC 144
        Rules and Legends and a total of 6,000,000 common stocks warrants at 0.20
        per
        warrant, exercise within one to three years.
  The
        Company has resolved that The President Yu, Xiaofei’s compensation has adjusted
        to $7000USD from April 1 2007. The Company’s Board has adjusted and re-confirmed
        Mr. Yu, Xiaofei to back to serve as the Company’s President on Aug6 2007.
        However, the Company has revolved to adjust Mr. Yu, Xiaofei’s compensation from
        $15,000 to $7000 monthly since April1 2007 due to reduce RESPONSIBILITIES
        and
        Obligations.
 
 On
        February 9, 2006, Xiao Fei Yu was appointed as President of the Company.
        Mr. Yu
        has served as a Director of the Company since May 26, 2004 and was appointed
        as
        our Vice President on October 6, 2004. Mr. Yu has helped the Company create
        and
        develop 26 natural herbal product formulas that make up our King of Herbs
        and
        Taoist Medicine product lines. From 1997 to Present, Mr. Yu has been the
        President and Director of Taoist Tantric & Toltec Research and Development
        Centre located in Beijing, People's Republic of China. From 1998 to Present,
        Mr.
        Yu has been a Research Scientific Consultant of Central TCM Research and
        Development Institute located in Beijing, People's Republic of China. From
        1999
        to Present, Mr. Yu has been teaching Taoism, Taoist medicine and Indian
        classical philosophy & religion as a professor in the Department of
        Philosophy at the University of CCCP located in Beijing, People's Republic
        of
        China. From 1994 until 1999, Mr. Yu was an Associate Professor in Taoism,
        Taoist
        medicine, Buddhism and Scientific Philosophy in the Department of Philosophy
        at
        the University of CCCP.
 
 The
        Company has also entered into a Consulting Agreement with Mr. Yu pursuant
        to
        which Mr. Yu will provide global corporate development consulting services
        to
        the Company, including, advising the company with respect to global corporate
        development, strategic planning, global strategic partnership, business
        development and to assist the Company with identifying suitable acquisition
        candidates in the PR of China. The consulting agreement provides for a term
        of
        two years with an initial review after six months and annual reviews thereafter,
        at which time, the terms of the consulting agreement, including compensation,
        may be amended upon the mutual agreement of the parties. In consideration
        for
        the consulting services, the Company agreed to a monthly compensation of
        $18,000
        USD which will accrue as a loan to the Company until as such time as the
        Company
        shall have closed a financing. In addition, the Company agreed to issue to
        Mr.
        Yu warrants to purchase 4,000,000 shares of common stock of the Company
        exercisable at a price of $0.20 per shares which shall be exercisable through
        February 8, 2012 or within 30 days of the termination of the Consulting
        Agreement.
 
 Also
        on
        February 9, 2007, the Company appointed Dr. Zheng-Lun Fan as a director of
        the
        Company. Dr. Fan has served as the Company's Vice President of Research &
Development since 2005. Over the past five years, Dr. Fan has been a research
        fellow at Beijing's Cui Yue-li Research Center of Traditional Chinese Medicine,
        where he is also Professor. Dr. Fan is nationally known as an expert in Chinese
        traditional medicine, which he has practiced for more than 40
        years.
 
 Dr.
        Fan
        was also appointed to serve as a member of the Company's Nominating Committee
        and Corporate Governance Committee.
 
 There
        are
        no understandings or arrangements between Dr. Fan and any other person pursuant
        to which Dr. Fan was selected as a director. Dr. Fan does not have any family
        relationship with any director, executive officer or person nominated or
        chosen
        by us to become a director or executive officer.
 
 The
        Company has also entered into a Consulting Agreement with Dr. Fan pursuant
        to
        which Dr. Fan will provide global corporate development consulting services
        to
        the Company, including, advising the company with respect to global corporate
        development, strategic planning, global strategic partnership, business
        development and to assist the Company with identifying suitable acquisition
        candidates in the PR of China. The consulting agreement provides for a term
        of
        two years with an initial review after six months and annual reviews thereafter,
        at which time, the terms of the consulting agreement, including compensation,
        may be amended upon the mutual agreement of the parties. In consideration
        for
        the consulting services, the Company agreed to issue to Dr. Fan 500,000 shares
        of common stock pursuant to Section 4(2) of the Securities Act of 1933, as
        amended. In addition, the Company agreed to issue to Dr. Fan warrants to
        purchase 1,000,000 shares of common stock of the Company exercisable at a
        price
        of $0.20 per shares which shall be exercisable through February 8, 2012 or
        within 30 days of the termination of the Consulting Agreement.
  In
        addition, on February 9, 2007, the shareholders of the Company holding 2/3
        of
        the outstanding voting stock of the Company voter to remove DaHong Li as
        a
        director of the Company. Mr. Li will serve as a Vice-President of the Company
        on
        a consultancy basis.
   27
  **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 
  **9.****COMMITMENTS
                  - continued**
  ***a).
        Agreement with Hunan Zhangjiajie Chalinhe Electric Power Co.,
        Ltd***
 
 On
        July
        27 2007, the Company’s wholly owned subsidiary, China Power, Inc. entered into
        an acquisition definitive agreement for the acquisition of Hunan Zhangjiajie
        Chalinhe Electric Power Co., Ltd and it’s Chalinhe Hydropower Station.
        The purchase price for the assets shall consist of (i) a cash payment in
        the
        amount of 380 million RMB (approximately USD$50 million), and (ii) the
        assumption of a bank loan in the amount of 300 million RMB ($USD40 million).The
        Chalinhe Hydropower Station comprises a reservoir with a dam 95 meters
        high and a total land position of 90,064 square meters. Specifications for
        the
        dam consist of a dead water level of 77 meters, design flood level of 88.31
        meters, check flood level of 92.81 meters and a total power generation capacity
        of 72,000 kW (4×18,000 kW). The first stage of the power station is to be
        completed in December 2007, when the total installed power production capacity
        will be approximately 54,000 kW. Annual power generation is expected to be
        280 million kilowatt hours (kWh) based on 5,185 annual operating hours. The
        electricity sale price is expected to be RMB 0.316 Yuan/kWh (or approximately
        USD $0.042/kWh) pursuant to an existing contract with the China State Grid.
        In
        addition, the Chalinhe Hydropower Station has full legal approved CDM
        rights and full legal rights for development of an additional 18,000 kW
        capacity to bring the total power generation capacity to 72,000 kW. The total
        expected current annual power generating capacity is currently 280,000,000
        kWh
        with expected current annual revenues of approximately USD$12 million and
        expected net income of approximately USD $11 million.
 
 The
        Agreement contemplates that the transaction will be completed at a closing
        to be
        held on the first business day after the closing conditions are met or waived,
        or on a date agreed upon by the parties. The closing conditions include,
        but are
        not limited to: (i) the satisfactory completion by each party of a review
        of the
        business operations, finances, assets and liabilities of the other party,
        (ii)
        delivery of such certificates and closing documents as each party's counsel
        may
        request, and (iii) the approval of all of the shareholders of Hunan Zhangjiajie
        Chalinhe Electric Power Co., Ltd.
 
 ***b).
        Memorandum of Understanding with Aroma International Petroleum (HK) Co.
        Ltd.***
 
 On
        July
        13, 2007, we executed a memorandum of understanding with Aroma International
        Petroleum (HK) Co, Ltd. for a joint venture investment partnership with Aroma
        International Petroleum (China), a wholly -owned subsidiary Aroma International
        Petroleum (HK) to complete development of a 1.2 million cubic meter
        (approximately 7.5 million barrel) oil storage facility (Tank Farm Area)
        and its
        auxiliary facilities.
  The
        MOU
        also provided China Holdings right of first refusal during the next 9 months
        for
        further development and investment in the joint venture investment partnership.
        The Companies agreed to execute a definitive agreement for their joint venture
        within approximately one month upon mutually agreeable terms.
   Under
        the
        terms of the MOU, China Holdings and Aroma International Petroleum agree
        to
        jointly invest, develop and construct the 1.2 million cubic meters oil storage
        facility (Tank Farm Area) and its auxiliary facilities, consisting of 2.2
        square
        kilometers located in Yangkou Port, China. The project will require a total
        investment of approximately $235 million and completion is expected in
        approximately 2 years. The complex will be comprised of a 1.2 million cubic
        meter oil tank complex including the oil tank block, logistic park, pipeline
        wharf and a complete pipeline system.
  c)
              On
                  January 19, 2007, the Company executed an Acquisition Definitive
                  Agreement
                  (the "Agreement") with Beijing Boran Pharmaceuticals Co. Ltd. ("Beijing
                  Boran") pursuant to which the Company will acquire 65% of the total
                  issued
                  and outstanding shares of Beijing Boran (the "Shares"). In exchange
                  for
                  the Shares the Company shall pay a consideration of USD $3,000,000.
                  The
                  consideration was determined based upon a total revenue of 32,000,000
                  RMB
                  ( " China Currency") (approximately USD$4,118,000) (the "Revenue
                  Target")
                  and assets of 58,511,000 RMB (approximately USD$7,530,000) for
                  the year
                  ended December 31, 2006 and revenue of $30,000,000 RMB (approximately
                  USD$3,861,000 for the year ended December 31, 2005. The consideration
                  shall be paid at the closing with USD$800,000 retained by the Company
                  in
                  the event that upon the completion of audited financial statements
                  of
                  Bejing Boran, the Revenue Target is not met. The consideration
                  shall be
                  reduced as agreed upon by the Company and Bejing
                  Boran.
 
 d)
              On
                  January 12, 2007, the Company entered into a binding Memorandum
                  of
                  Understanding ("MOU") with Beijing Jifatang Chinese Medicine Research
                  Institute ("BJCMRI") and Beijing Jifatang Chinese Medicine Research
&
                  Development Institution ("BJCMRDI") for establishing the strategic
                  partnership, collaboration and alliances for further research,
                  development, manufacture and commercialization of new innovative
                  pharmaceutical drugs for the treatment of diseases and conditions
                  related
                  to cancers, diabetes, cardiovascular disease, cerebral diseases
                  and
                  neurological disorders. The MOU provides that BJCMRI and BJCMRDI
                  will
                  grant to the Company first refusal rights and exclusive rights
                  to acquire
                  all rights to any new drugs and to any intellectual properties
                  which
                  BJCMRI and BJCMRDI may develop for a term of 10 years. As consideration
                  for granting to the Company such first refusal and exclusive rights,
                  the
                  Company agreed to issue an aggregate of 200,000 restricted shares
                  of its
                  common stock to BJCMRI and BJCMRDI.
 
 e)
              On
                  January 1, 2007, the Company executed an Acquisition Definitive
                  Agreement
                  (the "Agreement") with Xi'An Meichen Pharmaceutical Co. Ltd. ("Xi'An
                  Meichen") to acquire all of the assets of Xi'An Meichen. Pursuant
                  to the
                  Agreement, the Company has agreed to acquire from Xi'An Meichen
                  its
                  pharmaceutical manufacturing facilities which are certified by
                  the China
                  State Food and Drug Administration ("China -SFDA"), a total of
                  43
                  China-SFDA certified pharmaceutical drugs, and a total of 25 MU
                  lands,
                  which is approximately 16,000 square meters (collectively the "Assets").
                  In consideration for the Assets, the Company has agreed to issue
                  20,000,000 shares of restricted common stock and pay $12,000,000
                  RMB (USD
                  $1,535,313) to Xi'An Meichen. The Agreement contemplates that the
                  transaction will be completed at a closing to be held on the first
                  business day after the closing conditions are met or waived (the
                  "Closing
                  Conditions"), or on a date agreed upon by the parties. The closing
                  conditions include, but are not limited to: (i) the satisfactory
                  completion by each party of a review of the business operations,
                  finances,
                  assets and liabilities of the other party, (ii) delivery of such
                  certificates and closing documents as each party's counsel may
                  request,
                  and (iii) the approval of all of the shareholders of Xi'An
                  Meichen.
 
 f)
              On
                  December 12, 2006, the Board of Directors of the Company. terminated,
                  Nick
                  DeCotiis as President of the Company. The Company's Board of Directors
                  appointed Julianna Lu, as President of the Company. Ms. Lu is the
                  Founder,
                  Chief Executive Officer and
                  Chairman.
 
 g)
              On
                  November 28, 2006,the Company executed a binding Acquisition Letter
                  of
                  Intent with Xi'an Chunhui Pharmaceuticals Co. Ltd. ("Xi'an Chunhui")
                  for
                  the proposed acquisition of 51% or more ownership of Xi'an Chunhui.
                  Pursuant to the letter of intent, both parties have expressed their
                  intent
                  and support for the cooperation and accomplishment of the acquisition
                  of
                  Xi'an Chunhui, by the Company. Further, Xi'an Chunhui has agreed
                  to offer
                  the Company first refusal rights and legal exclusive rights for
                  the
                  acquisition of 51% or more ownership of Xi'an Chunhui within twelve
                  months
                  from the date of the Letter of Intent. Xi'an Chunhui has agreed
                  to provide
                  the Company with all necessary documentation and audited financial
                  statements within 60days, to enable the Company to conduct its
                  due
                  diligence. The completion of the acquisition is subject to the
                  negotiation
                  and execution of a definitive acquisition agreement, as well as
                  to the
                  completion of full legal and financial due
                  diligence.
 
 
 28
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
 
   **9.****COMMITMENTS
                - continued**
 
 h)
              On
                  October 19, 2006, the Company entered into a letter of engagement
                  and work
                  authorization with an investor relations firm who will provide
                  investor
                  relations services for a term of one to three years in exchange
                  for
                  $10,000 a month for three month and $15,000 a month after that,
                  3,000,000
                  common shares and 4,000,000 warrants exercisable for 3 years at
                  prices
                  ranging from $0.25 per share to $3.50 per
                  share.
  i)
              On
                  October 11, 2006, the Company entered into a letter of intent,
                  with
                  BeiJing Boran Pharmaceutical Co., Ltd. (“BeiJing Boran”), for the proposed
                  acquisition by the Company of 51% or more of Beijing Boran. Pursuant
                  to
                  the Letter of Intent, the Company has first refusal rights and
                  legal
                  exclusive rights to acquire 51% or more of BeiJing Boran for a
                  period of
                  nine months from the date of
                  letter.
  j)
              On
                  September 19, 2006, the Company entered into a consulting agreement
                  with
                  the President of the Company who will provide consulting services
                  for two
                  years in consideration for 250,000 shares of the Company’s common stock
                  (issued) and warrants to purchase 4,000,000 shares of the Company’s stock
                  at $0.20 for one year (issued
                  subsequently).
  k)
              On
                  September 19, 2006, the Company entered into a consulting agreement
                  with a
                  company related by a common president and an independent company
                  (the
                  “Consultants”) for the provision of consulting services in exchange for
                  250,000 common shares of the Company and a cash finders’ fee of 10% of any
                  corporate financing raised by the Consultants, and two year warrants
                  to
                  purchase common stock equal to 10% of the number of securities
                  sold by the
                  Consultants.
  l)
              On
                  June 22, 2006, the Company entered into a letter of intent with
                  Henan
                  Furen Pharmaceuticals Group Co., Ltd. (“Furen”), China, for the proposed
                  acquisition by the Company of 51% or more of Furen’s subsidiary Henan
                  Furen Huaiqingtang Pharmaceuticals Co. Ltd. (“Huiaqingtang “) Pursuant to
                  the Letter of Intent, the Company has first refusal rights and
                  legal
                  exclusive rights to acquire 51% or more of Furen for a period of
                  nine
                  months from the date of letter. On August 7, 2006, the Company
                  entered
                  into a definitive acquisition agreement with Furen and Huiaqingtang
                  to
                  acquire 60% of the outstanding stock of Huiaqingtang at an aggregate
                  purchase price of $95,000,000 RMB, a portion of which shall be
                  paid by the
                  Company on or before the closing of the agreement and a portion
                  to be paid
                  three months after closing.
  m)
              On
                  June 16, 2006, the Company entered into an engagement agreement
                  with a
                  placement agent who will market the Company’s proposed debt/equity
                  offering (the “Offering”) in consideration for 250,000 common shares
                  (issued) and a cash fee equal to 10% of the gross proceeds of the
                  Offering
                  and warrants to purchase 10% of the total number of shares, or
                  underlying
                  shares to be purchased by the investor exercisable at a price equal
                  to the
                  purchase price or conversion price paid by the investor. The term
                  of the
                  agreement is one year.
  n)
              On
                  May 27, 2006, the Company entered into a consulting agreement with
                  consulting firm that will provide marketing, investor relations
                  and public
                  relations services for one year in consideration for 1,500,000
                  shares of
                  the Company’s common stock. At September 30, 2006, the Company had issued
                  500,000 shares of common stock. Subsequent to the period the Company
                  cancelled the consulting agreement and will not issue any more
                  shares.
  o)
              On
                  May 2, 2006, the Company entered into a letter of intent, with
                  Shannxi
                  Meichen Pharmaceuticals Co. Ltd. (“Shannxi”), China, for the proposed
                  acquisition by the Company of 51% or more of Shannxi. Pursuant
                  to the
                  Letter of Intent, the Company has first refusal rights and legal
                  exclusive
                  rights to acquire 51% or more of Shannxi for 9 months from the
                  date of
                  letter. In September 2006 the Company executed a definitive acquisition
                  agreement with Shaanxi to acquire 100% of the issued and outstanding
                  stock
                  of Shaanxi for an aggregate purchase price of $24,800,000 RMB.
                  The
                  purchase price is payable as follows: i) 80% of the purchase price
                  is
                  payable in shares of common stock of the Company, based on the
                  average
                  closing price of the Company’s common stock, as reported on the OTCBB for
                  the five day period prior to the closing date of the acquisition
                  and ii)
                  20% of the purchase price payable in cash within 30 days of closing
                  the
                  transaction.
  p)
              On
                  April 16, 2006, the Company entered into a letter of intent, with
                  Henan
                  Tiankang Pharmaceuticals Co. ltd. (“Henan”), located in Henan, China, for
                  the proposed acquisition by the Company of 51% or more of Henan.
                  Pursuant
                  to the Letter of Intent, the Company has first refusal rights and
                  legal
                  exclusive rights to acquire 51% of Henan for a period of nine months
                  from
                  the date of letter.
  q)
              On
                  February 19, 2006, the Company entered into a letter of intent
                  effective
                  February 28, 2006, with Shaanxi WanAn Pharmaceutical Co. Ltd. For
                  the
                  proposed acquisition by the Company of 51% or more of Shaanxi WanAn
                  Pharmaceutical Co. Ltd. Pursuant to the letter of intent the Company
                  has
                  first refusal rights and legal exclusive rights for further acquisition
                  of
                  51% of Shaanxi WanAn for the next 12
                  months.
  
 29
 **CHINA
        HOLDINGS INC.**
 **(a
        development stage company)**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (Unaudited)
   **9.****COMMITMENTS
                  - continued**
  r)
              On
                  February 21, 2006, the Company filed a Certificate of Designation,
                  Powers
                  Preferences and Rights of Series A preferred stock which authorized
                  the
                  Company to issue up to 1,000,000 shares of Series A preferred stock
                  with a
                  par value of $0.001 per share. The Series A preferred stock has
                  a stated
                  value of $0.15 per share and a liquidation preference over the
                  Company’s
                  common stock. Holders of Series A preferred stock are entitled
                  to two
                  votes for each share of Series A preferred stock owned. Each share
                  of
                  Series A preferred stock is convertible, at the option of the holder,
                  into
                  two shares of common stock, commencing two years after the date
                  of
                  issuance, provided the market price of the common stock is not
                  below $1.00
                  per share. Additionally, if prior to two years from the date of
                  issue,
                  there is a sale or other disposition of all or substantially all
                  of the
                  Company’s assets, a transaction or series of related transactions in which
                  more than 50% of the voting power of the Company is disposed of,
                  or upon a
                  consolidation, merger or other business combination where the Company
                  is
                  not the survivor, then immediately prior to such event each holder
                  of
                  Series A preferred stock may convert any or all of such holder's
                  shares of
                  Series A preferred stock into common
                  stock.
  s)
              On
                  January 16, 2006, the Company entered into a letter of intent,
                  effective
                  January 27, 2006, with WangJing Hospital and WangJing Hospital
                  of China
                  Academy of Chinese Medical Sciences, located in Beijing, China,
                  for the
                  worldwide development of the China International University of
                  Traditional
                  Chinese Medicine and the University Hospital for Traditional Chinese
                  Medical Sciences (the “Project”). Pursuant to the Letter of Intent, the
                  parties agreed to pursue the co-development of the Project on a
                  worldwide
                  basis for a five (5) year period following execution of the Letter
                  of
                  Intent. Further, WangJing Hospital and WangJing Hospital of China
                  Academy
                  of Chinese Medical Sciences have agreed to provide the Company
                  with full
                  intellectual and scientific and medical and technical support for
                  further
                  development of the Project, while the Company has agreed to be
                  responsible
                  for further investment capital and business development for the
                  Project.
                  The parties have agreed to further discuss and negotiate the detailed
                  terms for the development of the Project, and expect that any such
                  agreement shall be made in a formal agreement to be entered into
                  between
                  the parties.
  t)
              Pursuant
                  to various management and consulting contracts the Company has
                  committed
                  to pay fees and issue common stock as
                  follows:
  -
              pay
                  a monthly management fee of $20,000 to the Company’s Chief Executive
                  Officer starting on January 1, 2006 and pay a 3% royalty on gross
                  sales of
                  the Company.
 
 -
              pay
                  a monthly consulting fee of $7,000 to a shareholder and officer
                  of the
                  Company.
 
 -
              pay
                  a monthly consulting fee of $5,000 to a shareholder and officer
                  of the
                  Company.
  **10.****SUBSEQUENT
        EVENTS**
  On
          July 1,
          2007 the Company granted 100,000 shares of common stock the Company’s attorneys
          for legal fees.
  On
          July 1,
          2007 the Company granted 5,000,000 shares of common stock for investor
          relation
          services and fees.
 On
          July 6,
          2007 the Company granted 8,000,000 shares of common stock to a director
          and
          shareholder to extend current note and continue to fund company.
 
 On
          July 7,
          2007 the Company granted 1,380,000 shares of common stock to a director
          and
          shareholder to extend current note and continue to fund company.
 
 On
          July 7,
          2007 the Company granted 400,000 shares of common stock to the Company’s
          President for management fees.
 
 On
          July 7,
          2007 the Company granted 200,000 shares of common stock to the Company’s
          attorneys for legal fees.
 
 On
          July 1 2007, the Company engaged Ms. Yumin Guo as the Company's accountant.
          Ms.
          Guo is a licensed CPA in PR China. Ms. Guo was the chief accountant
          for W&G (Germanic) communication test instrument Ltd.  where
          she was responsible for handling the Beijing head office accounting, and
          the
          other five local branch internal control, verification of accounting, budget
          approval, detail for inventory by location, and check tax filing, in dealing
          with tax bureau, make formal monthly, quarterly, annual records, provide
          financial data analysis report to overseas Group Financial
          Department.  Ms. Guo is also the audit manager for Zhong Ding CPA
          Co. Ltd.
 
 On
          July 1
          2007, the Company appointed Mr. Farzam Kamalabadi as the Co- chairman of
          its
          advisory board in Energy Section. The Company has agreed and paid to Mr.
          Farzam
          Kamalabadi an aggregate of 5,200,000 shares of common stock and a cash
          payment
          of $10,000 USD.
 
 On
          July 27
          2007, the Company’s wholly owned subsidiary, China Power, Inc. entered into an
          acquisition definitive agreement for the acquisition of Hunan Zhangjiajie
          Chalinhe Electric Power Co., Ltd and its Chalinhe Hydropower Station.
          The purchase price for the assets shall consist of (i) a cash payment in
          the
          amount of 380 million RMB (approximately USD$50 million), and (ii) the
          assumption of a bank loan in the amount of 300 million RMB ($USD40 million).The
          Chalinhe Hydropower Station comprises a reservoir with a dam 95 meters
          high and a total land position of 90,064 square meters. Specifications
          for the
          dam consist of a dead water level of 77 meters, design flood level of 88.31
          meters, check flood level of 92.81 meters and a total power generation
          capacity
          of 72,000 kW (4×18,000 kW). The first stage of the power station is to be
          completed in December 2007, when the total installed power production capacity
          will be approximately 54,000 kW. Annual power generation is expected to
          be 280
          million kilowatt hours (kWh) based on 5,185 annual operating hours. The
          electricity sale price is expected to be RMB 0.316 Yuan/kWh (or approximately
          USD $0.042/kWh) pursuant to an existing contract with the China State Grid.
          In
          addition, the Chalinhe Hydropower Station has full legal approved rights
          to CDM
          (Clean Development Mechanism) projects and full legal rights for development
          of
          an additional 18,000 kW capacity to bring the total power generation capacity
          to
          72,000 kW. The total expected current annual power generating capacity
          is
          currently 280,000,000 kWh with expected current annual revenues of approximately
          USD$12 million and expected net income of approximately USD $11
          million.
 
 The
          Agreement
          contemplates that the transaction will be completed at a closing to be
          held on
          the first business day after the closing conditions are met or waived,
          or on a
          date agreed upon by the parties. The closing conditions include, but are
          not
          limited to: (i) the satisfactory completion by each party of a review of
          the
          business operations, finances, assets and liabilities of the other party,
          (ii)
          delivery of such certificates and closing documents as each party's counsel
          may
          request, and (iii) the approval of all of the shareholders of Hunan Zhangjiajie
          Chalinhe Electric Power Co., Ltd.
 
 On
          July 13,
          2007, we executed a memorandum of understanding with Aroma International
          Petroleum (HK) Co, Ltd. for a joint venture investment partnership with
          Aroma
          International Petroleum (China), a wholly -owned subsidiary Aroma International
          Petroleum (HK) to complete development of a 1.2 million cubic meter
          (approximately 7.5 million barrel) oil storage facility (Tank Farm Area)
          and its
          auxiliary facilities.
  The
          MOU also
          provided China Holdings right of first refusal during the next 9 months
          for
          further development and investment in the joint venture investment partnership.
          The Companies agreed to execute a definitive agreement for their joint
          venture
          within approximately one month upon mutually agreeable terms.
  Under
          the
          terms of the MOU, China Holdings and Aroma International Petroleum agree
          to
          jointly invest, develop and construct the 1.2 million cubic meters oil
          storage
          facility (Tank Farm Area) and its auxiliary facilities, consisting of 2.2
          square
          kilometers located in Yangkou Port, China. The project will require a total
          investment of approximately $235 million and completion is expected in
          approximately 2 years. The complex will be comprised of a 1.2 million cubic
          meter oil tank complex including the oil tank block, logistic park, pipeline
          wharf and a complete pipeline system.
  On
          August
          3 2007, the Company appointed Mr. Moxian Chen was appointed as Senior Vice
          President of China Power, Inc., the company's wholly owned subsidiary.
          In
          connection with Mr. Chen’s engagement, the Company issued 250,000 shares of
          common stock to Mr. Chen. Additional compensation will be
          negotiated  in connection with further projects on a performances
          basis.


30


**ITEM
      2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.**







This
      quarterly report contains certain forward-looking statements within the meaning
      of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
      the
      Securities Exchange Act of 1934, as amended. These include statements about
      our
      expectations, beliefs, intentions or strategies for the future, which we
      indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
      "will," "we believe," "our company believes," "management believes" and similar
      language. These forward-looking statements are based on our current expectations
      and are subject to certain risks, uncertainties and assumptions, including
      those
      set forth in the following discussion, including under the heading "- Risk
      Factors". Our actual results may differ materially from results anticipated
      in
      these forward-looking statements. We base our forward-looking statements on
      information currently available to us, and we assume no obligation to update
      them. In addition, our historical financial performance is not necessarily
      indicative of the results that may be expected in the future and we believe
      that
      such comparisons cannot be relied upon as indicators of future
      performance.





To
      the
      extent that statements in the quarterly report is not strictly historical,
      including statements as to revenue projections, business strategy, outlook,
      objectives, future milestones, plans, intentions, goals, future financial
      conditions, future collaboration agreements, the success of the Company's
      development, events conditioned on stockholder or other approval, or otherwise
      as to future events, such statements are forward-looking, All forward-looking
      statements, whether written or oral, and whether made by or on behalf of the
      company, are expressly qualified by the cautionary statements and any other
      cautionary statements which may accompany the forward-looking statements, and
      are made pursuant to the safe harbor provisions of the Private Securities
      Litigation Reform Act of 1995. The forward-looking statements contained in
      this
      annual report are subject to certain risks and uncertainties that could cause
      actual results to differ materially from the statements made. Other important
      factors that could cause actual results to differ materially include the
      following: business conditions and the amount of growth in the Company's
      industry and general economy; competitive factors; ability to attract and retain
      personnel; the price of the Company's stock; and the risk factors set forth
      from
      time to time in the Company's SEC reports, including but not limited to its
      annual report on Form 10-KSB; its quarterly reports on Forms 10-QSB; and any
      reports on Form 8-K. In addition, the company disclaims any obligation to update
      or correct any forward-looking statements in all the Company’s annual reports
      and SEC filings to reflect events or circumstances after the date
      hereof.








**Critical
      Accounting Policies And Estimates**





We
      have
      identified one policy area as critical to the understanding of our consolidated
      financial statements. The preparation of our consolidated financial statements
      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 consolidated financial statements. In particular,
      management makes estimates concerning the valuation of stock based transactions.
      Stock based transactions include issuance of stock for services and for
      intangible assets such as technologies or licenses. Stock based transactions
      also include issuance of stock options and warrants for services and
      intangibles.





We
      suggest that our significant accounting policies, as described in our
      consolidated financial statements in the Summary of Significant Accounting
      Policies, be read in conjunction with this Management's discussion and Analysis
      of Financial Condition and Results of Operations.





**Overview**





We
      are a
      development stage company, founded by our Chairman and Chief Executive Officer,
      Julianna Lu, in 2002 with the goal of becoming a leading manufacturer, marketer
      and distributor in the global natural medical and pharmaceutical industry.
      On
      April 3, 2002, we were incorporated under the laws of the State of Nevada under
      the name A E&E Pharma Corporation and changed our name on May 25, 2004, to
      China Health Holding, Inc. On May 1, 2007, we changed our name to China
      Holdings, Inc. Effective May 11, 2007, our stock trades under the symbol CHHL
      on
      the OTC Bulletin Board. The Company maintains a website at
      www.chinaholding.net.





We
      have
      had nominal revenues since our inception.





The
      Company has two wholly-owned subsidiaries: (i) China Power, Inc., and (ii)
      China
      Health Holdings, Inc.





On
      May 1,
      2007, our wholly owned subsidiary, China Health World Pharmaceutical
      Corporation, amended its Articles of Incorporation to change its name to "China
      Health Holdings, Inc and on May 9, 2007, our wholly owned subsidiary China
      Health World Trade Corporation amended its Articles of Incorporation to change
      its name to China Power, Inc.





Our
      initial business plan was to engage in the manufacturing, marketing and
      distributing proprietary natural medicinal products. We have since revised
      our
      business plan to not only focus on the manufacture, marketing and distribution
      of natural medicinal products but to also focus on becoming a diversified global
      assets holding company. We and our subsidiaries intend to engage in multiple
      China-focused business activities including, pharmaceutical, real estate,
      utilities, energy and finance.Our objective is to
      achieve long-term capital appreciation through investment in companies and
      other
      entities with significant assets, investments, production activities, trading
      or
      other business interests in China, or/and worldwide, or/and which derive a
      significant part of their revenue from China, or/and worldwide.




China
      Power Inc.– is a development stage company with the goal of becoming a
      global energy holding corporation that will focus on the merger and
      acquisitions, investment, research and development, construction and operation
      of energy and renewable energy and environment protection projects in China
      and
      worldwide.





China
      Health Holdings, Inc. - is a development stage company with the goal of
      becoming a leading developer, manufacturer, marketer and distributor of
      pharmaceutical drugs and dietary supplements in China and worldwide. The
      Company's main objective is to partner with China -- SFDA approved drug
      producers, GMP certified manufacturing facilities, research and development
      centers and universities in China.




31


**Operations
      Plans**




Our
      goal
      is to become****a diversified global assets holding company.
      We and our subsidiaries engage in multiple China-focused business activities
      including pharmaceutical, real estate, utilities, energy and finance. Our
      objective is to achieve long-term capital appreciation through investment in
      companies and other entities with significant assets, investments, production
      activities, trading or other business interests in China, and/or worldwide
      which
      derive a significant part of their revenue from China, and/or
      worldwide.






China
      Power Inc.China Power intends to capture China's growing energy, renewable
      energy, and environment protection projects domestically and worldwide. China
      Power, Inc. intends to engage in business activities and investments in
      Hydropower Plants, and companies in China, and/or worldwide, and expects to
      reach a total hydropower capacity from 150,000 KW to 1,000,000 KW annually
      within the next 1-4 years, primarily through mergers and acquisitions,
      joint-venture partnerships with hydro-power plants and companies in China,
      and/or worldwide. The Company’s advanced hydro-power renewable energy strategy
      and plan is expected to improve the technical, societal, and environmental
      benefits of hydropower and provide investment and business activities in the
      cost-competitive hydropower capacity energy supply in China and worldwide,
      with
      a focus towards building the Company’s long-term shareholder value.







China
      Health Holdings, Inc.a
      wholly owned subsidiary of China Holdings, Inc., is a development stage company
      with the goal of becoming a leading developer, manufacturer,marketer and distributor
      of
      pharmaceutical drugs and dietary supplements in China and worldwide.Ourmain objective is to partner with
      CHINA -- SFDA approved drug producers, GMP certified manufacturing facilities,
      research and development centers and universities in China.Ourgoals for 2007-2009 include the
      profitable penetration of the Chinese pharmaceutical industry by merger and
      acquisition (M&A) leading pharmaceutical companies in the China.Ourstrategy is to leverage synergies,
      integrate drug pipelines
      and distribution channels, and management expertise between pending
      pharmaceutical acquisitions. We intend to develop a Taoist Medicine
      product line and a Vitamins and Supplements product line over the next twelve
      months. All of the products for these product lines are fully developed and
      we
      expect to launch the Taoist Medicine and Vitamins and Supplements product lines
      within the next twelve months. All of our manufacturing will be outsourced
      to
      third parties. We plan to generate revenues by sales of our herbal supplement
      products (1) through a website that is currently under construction, (2) through
      retail and wholesale distributors, and (3) through the establishment of retail
      stores in major cities in North America. All of our manufacturing will be
      outsourced to third parties. We plan to generate revenues by sales of our herbal
      supplement products (1) through a website that is currently under construction,
      (2) through retail and wholesale distributors, and (3) through the establishment
      of retail stores in major cities in North America. While in the past our current
      operations and sales were in Canada, we anticipate expanding our sales into
      the
      United States over the next six to twelve months and, thereafter, into regions
      of Europe and Asia.





**RESULTS
      OF OPERATIONS**





**Three
      Months ended June 30, 2007 compared to the Three months ended June 30,
      2006**





We
      had a net loss of $361,577 for the three months ended June 30, 2007 as compared
      to a net loss of $786,558 for the three months ended June 30
      2006.  The net loss for the three months ended June 30, 2007 consisted
      primarily of $ 133.984  of consulting fees, $181,191 of management fees,
      $66,139 of professional fees, $23,408 of interest and bank charges, $9,269
      in
      rent, $492 of travel expenses, $3,573 of office expenses, $238,393 of reversal
      of investor relations related travel costs, $1,509 in depreciation expenses,
      $18,640 of advertising and promotional expenses, and $2,346 of vehicle expenses.
      The decrease in net loss for the three months ended June 30, 2007 was the result
      in an drecreased consutants, investor relations, management fees and rent
      expenses.





Other
      Income (Expenses) was $21,002 for the three months ended June 30, 2007 as
      compared to $(736) for the three months ended June 30, 2006.  The
      increase in other  income is attributed primarily due to foreign
      currency translation gain and gain on settlement of debt/ recognized during
      the
      three months ended June 30, 2007 compared to a minor foreign currency tralation
      loss as booked for the three months ended June 30, 2006.





32


**Six
      Months ended June 30, 2007 compared to the Six months ended June 30,
      2006**





We
      had a net loss of $3,640,820 for the six months ended June 30, 2007 as compared
      to a net loss of $1,215,677 for the six months ended June 30 2006. The net
      loss
      for the six months ended June 30, 2007 consisted primarily of $1,085,676 of
      consulting fees, $299,385of management fees, $84,724 of professional fees,
      $348,260 of interest and bank charges, $18,041 in rent, $8,851of travel
      expenses, $10,445 of office expenses, $196,403 benefit in investor relations
      expenses, $2,247 in depreciation expenses, $18,640 of advertising and
      promotional expenses, and $5,257 of vehicle expenses. The increase in net loss
      for the six months ended June 30, 2007 was primarily the result of in an
      increase in consulting fees, advertising and promotion, interest and bank
      charges, and rent.





Other
      Income (Expenses) was $22,557 for the six months ended June 30, 2007 as compared
      to $1,139 loss for the six months ended June 30, 2006. The increase income
      is
      attributed primarily on foreign exchange recognized during the six months ended
      June 30, 2006 compared to nil for the six months ended June 30,
      2007.





LIQUIDITY
      AND CAPITAL RESOURCES





As
      of June 30, 2007, we had cash of $5,989. Our current liabilities as of June
      30,
      2007 aggregated $1,027,413.  As of June 30, 2007, we had a working
      capital deficiency of $988,054 and an accumulated deficit of $12,834,197. In
      order to sustain our current level of operations, we will need to raise at
      least
      $ 5 million over the next six to twelve months. In order to expand our business,
      fund future development and begin marketing and selling our three product lines
      and pursue our acquisition strategy, we will need to raise at least $ 50 million
      over the next twelve to twenty-four months. We intend to seek outside debt
      and
      equity financing, to the extent that such funding is available under reasonable
      terms and conditions. We have not yet sought any commitments for such financing
      and no assurance can be given that additional financing will be available,
      or if
      available, will be on acceptable terms.




While
      we
      have raised capital to meet our working capital and financing needs in the
      past,
      additional financing is required within the next 12 months in order to meet
      our
      current and projected cash flow deficits from operations and development. We
      have sufficient funds to conduct our operations for several months, but not
      for
      12 months or more. Further, in order to expand our business, fund future
      development and begin marketing and selling our three products lines and pursue
      our acquisition strategy, we will need to raise at least $50 million over the
      next twelve to twenty-four months. There can be no assurance that financing
      will
      be available in amounts or on terms acceptable to us, if at all.





By
      adjusting our operations and development to the level of capitalization, we
      believe we have sufficient capital resources to meet projected cash flow
      deficits. However, if during that period or thereafter, we are not successful
      in
      generating sufficient liquidity from operations or in raising sufficient capital
      resources, on terms acceptable to us, this could have a material adverse effect
      on our business, results of operations liquidity and financial
      condition.





Our
      registered independent certified public accountants have stated in their report
      that we have incurred operating losses in the last two years, and that we are
      dependent upon management's ability to develop profitable operations. These
      factors among others may raise substantial doubt about our ability to continue
      as a going concern.





We
      presently do not have any available credit, bank financing or other external
      sources of liquidity. Due to our brief history and historical operating losses,
      our operations have not been a source of liquidity. We will need to obtain
      additional capital in order to expand operations and become profitable. We
      intend to pursue the building of a re-seller network outside the United States,
      and if successful, the re-seller agreements would constitute a source of
      liquidity and capital over time. In order to obtain capital, we may need to
      sell
      additional shares of our common stock or borrow funds from private lenders.
      There can be no assurance that we will be successful in obtaining additional
      funding and execution of re-seller agreements outside the Unites
      States.





We
      will
      still need additional investments in order to continue operations to cash flow
      break even. Additional investments are being sought, but we cannot guarantee
      that we will be able to obtain such investments. Financing transactions may
      include the issuance of equity or debt securities, obtaining credit facilities,
      or other financing mechanisms. However, the trading price of our common stock
      and the downturn in the U.S. stock and debt markets could make it more difficult
      to obtain financing through the issuance of equity or debt securities. Even
      if
      we are able to raise the funds required, it is possible that we could incur
      unexpected costs and expenses, fail to collect significant amounts owed to
      us,
      or experience unexpected cash requirements that would force us to seek
      alternative financing. Further, if we issue additional equity or debt
      securities, stockholders may experience additional dilution or the new equity
      securities may have rights, preferences or privileges senior to those of
      existing holders of our common stock. If additional financing is not available
      or is not available on acceptable terms, we will have to curtail our
      operations.





We
      expect to spend approximately
      $200,000 over the next six months to work with scientific consultants in the
      People's Republic of China for the purpose of identifying and evaluating
      potential acquisition candidates that operate in the areas of energy and
      renewable energy technologies. We anticipate that any such energy and/or
      renewable energy acquisition technologies or projects will require approval
      by
      the Chinese Government. If approval of such with new technologies or projects
      by
      the Chinese Government or any other foreign regulators is delayed or cannot
      be
      obtained, we will be forced to delay our plans to acquire, market and/or sell
      these technologies or projects. Any such delay could adversely affect our
      operations.





33


As
      part
      of our growth strategy, we are currently in negotiations with respect to a
      number of with new acquisition projects in the areas of energy and renewable
      energy, utilities, real estate, finance and pharmaceutical products. However,
      except as previously disclosed by the Company, no formal agreements with respect
      to any such additional proposed with acquisition(s) have been completed or
      entered into. Proposing, negotiating and implementing any such arrangements
      or
      agreements is a lengthy and complex process. Other companies, including those
      with substantially greater financial, marketing and sales resources, may compete
      with us for the acquisition or license of product candidates. We may not be
      able
      to acquire or license the rights to additional product candidates on terms
      that
      we find acceptable, or at all. If we are successful acquiring any such projects
      or technologies, we will be required to raise additional capital for research
      and development, regulatory review and marketing efforts associated with such
      products or technologies, all of which will be required before any such projects
      or technologies are likely to provide us with any revenue. We intend to seek
      outside debt and equity financing to the extent that such funding is available
      under reasonable terms and conditions, in order to fund our these efforts.
      However, no assurance can be given that additional financing will be available,
      or if available, will be on acceptable terms.





**RECENT
      DEVELOPMENTS**





***Agreement
      with Hunan Zhangjiajie Chalinhe Electric Power Co.,
      Ltd***





On
      July
      27 2007, the Company’s wholly owned subsidiary, China Power, Inc. entered into
      an acquisition definitive agreement for the acquisition of Hunan Zhangjiajie
      Chalinhe Electric Power Co., Ltd and
      its Chalinhe Hydropower Station. The purchase price for the
      assets shall consist of (i) a cash payment in the amount of 380 million RMB
      (approximately USD$50 million), and (ii) the assumption of a bank loan in the
      amount of 300 million RMB ($USD40 million).The
      Chalinhe Hydropower Station comprises a reservoir with a dam 95 meters
      high and a total land position of 90,064 square meters. Specifications for
      the
      dam consist of a dead water level of 77 meters, design flood level of 88.31
      meters, check flood level of 92.81 meters and a total power generation capacity
      of 72,000 kW (4×18,000 kW). The first stage of the power station is to be
      completed in December 2007, when the total installed power production capacity
      will be approximately 54,000 kW. Annual power generation is expected to be
      280
      million kilowatt hours (kWh) based on 5,185 annual operating hours. The
      electricity sale price is expected to be RMB 0.316 Yuan/kWh (or approximately
      USD $0.042/kWh) pursuant to an existing contract with the China State Grid.
      In
      addition, the Chalinhe Hydropower Station has full legal approved rights to
      CDM
      (Clean Development Mechanism) projects and full legal rights for development
      of
      an additional 18,000 kW capacity to bring the total power generation capacity
      to
      72,000 kW. The total expected current annual power generating capacity is
      currently 280,000,000 kWh with expected current annual revenues of approximately
      USD$12 million and expected net income of approximately USD $11
      million.





The
      Agreement contemplates that the transaction will be completed at a closing
      to be
      held on the first business day after the closing conditions are met or waived,
      or on a date agreed upon by the parties. The closing conditions include, but
      are
      not limited to: (i) the satisfactory completion by each party of a review of
      the
      business operations, finances, assets and liabilities of the other party, (ii)
      delivery of such certificates and closing documents as each party's counsel
      may
      request, and (iii) the approval of all of the shareholders of Hunan Zhangjiajie
      Chalinhe Electric Power Co., Ltd.





***Memorandum
      of Understanding with Aroma International Petroleum (HK) Co.
      Ltd.***





On
      July
      13, 2007, we executed a memorandum of understanding with Aroma International
      Petroleum (HK) Co, Ltd. for a joint venture investment partnership with Aroma
      International Petroleum (China), a wholly -owned subsidiary Aroma International
      Petroleum (HK) to complete development of a 1.2 million cubic meter
      (approximately 7.5 million barrel) oil storage facility (Tank Farm Area) and
      its
      auxiliary facilities.




The
      MOU
      also provided China Holdings right of first refusal during the next 9 months
      for
      further development and investment in the joint venture investment partnership.
      The Companies agreed to execute a definitive agreement for their joint venture
      within approximately one month upon mutually agreeable terms.






Under
      the
      terms of the MOU, China Holdings and Aroma International Petroleum agree to
      jointly invest, develop and construct the 1.2 million cubic meters oil storage
      facility (Tank Farm Area) and its auxiliary facilities, consisting of 2.2 square
      kilometers located in Yangkou Port, China. The project will require a total
      investment of approximately $235 million and completion is expected in
      approximately 2 years. The complex will be comprised of a 1.2 million cubic
      meter oil tank complex including the oil tank block, logistic park, pipeline
      wharf and a complete pipeline system.




34





**Future
      Development**





We
      are in
      the process of identifying merger and/or acquisitions candidates in the Peoples
      Republic of China and worldwide as part of our growth plan to secure a strong
      future. Our acquisition strategy highlights our updated growth strategy to
      accrete value to our shareholders through the strategic combination of assets
      of
      natural medicinal products and technologies and energy and renewable energy
      companies in China and throughout the world. Growth by acquisition is an
      important component of our updated business model. As the Chinese government
      policy continues to change and move towards privatization of businesses, our
      focus on the emerging opportunities in China will primarily focus on small
      and
      medium-sized enterprises. Management believes that our growth strategy will
      enable the company to secure a strong future and a powerful position in the
      global assets holding company.




If
      we are
      successful in raising $100 million of financing in order to expand our business
      and fund future development, we anticipate the following expenses over the
      next
      twelve months: (a) $150,000 to develop our Internet website and e-commerce
      system in multi-languages; (b) $200,000 for media advertising to promote our
      brand name; (c) $200,000 for our research and development program; (d) $400,000
      for an investor relations program; (f) $500,000 for professional and consultant
      fees; (g) $1,800,000 for general working capital, including product development,
      inventory, and general and administrative expenses; and (h) $96,750,000 for
      merger and acquisitions and joint-ventures.





If
      we are
      only successful in raising $3 million of financing to sustain our current level
      of business operations, we anticipate the following expenses over the next
      twelve months: (a) $150,000 to develop our Internet website and e-commerce
      system in multi-languages; (b) $200,000 for media advertising to promote our
      brand name; (c) $200,000 for our research and development program; (d) $400,000
      for an investor relations program; (f) $500,000 for professional and consultant
      fees; and (g) $1,800,000 for general working capital, including product
      development, inventory, and general and administrative expenses.





*Acquisition
      of Plant and Equipment and Other Assets*





If
      we
      successfully close on the acquisition of the
      Chalinhe Hydropower Station we will acquire material property, plant
      or equipment during the next 12 months.





*Number
      of Employees*





From
      our
      inception through the period ended June 30, 2007, we have principally relied
      on
      the services of outside consultants and part-time employees for services. We
      currently have eight (8) full time employees and 30 part-time employees. In
      order for us to attract and retain quality personnel, we anticipate we will
      have
      to offer competitive salaries to future employees. We anticipate that it may
      become desirable to add additional full and or part time employees to discharge
      certain critical functions during the next 12 months. This projected increase
      in
      personnel is dependent upon our ability to generate revenues and obtain sources
      of financing. There is no guarantee that we will be successful in raising the
      funds required or generating revenues sufficient to fund the projected increase
      in the number of employees. As we continue to expand, we will incur additional
      cost for personnel.





**Recently
      issued accounting pronouncements**




SFAS
      No.
      159. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
      to measure many financial instruments, and certain other items, at fair value.
      SFAS 159 applies to reporting periods beginning after November 15, 2007. The
      adoption of SFAS 159 is not expected to have a material impact on the Company's
      financial condition or results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106, and 132(R)”. This statement requires employers to recognize the
      overfunded or underfunded status of a defined benefit postretirement plan (other
      than a multiemployer plan) as an asset or liability in its statement of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income of a business entity or
      changes in unrestricted net assets of a not-for-profit organization. This
      statement also requires an employer to measure the funded status of a plan
      as of
      the date of its year-end statement of financial position, with limited
      exceptions. The provisions of SFAS No. 158 are effective for employers with
      publicly traded equity securities as of the end of the fiscal year ending after
      December 15, 2006. The adoption of this statement is not expected to have a
      material effect on the Company's future reported financial position or results
      of operations.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The
      objective of SFAS 157 is to increase consistency and comparability in fair
      value
      measurements and to expand disclosures about fair value measurements. SFAS
      157
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS 157 applies under other accounting pronouncements
      that
      require or permit fair value measurements and does not require any new fair
      value measurements. The provisions of SFAS No. 157 are effective for fair value
      measurements made in fiscal years beginning after November 15, 2007. The
      adoption of this statement is not expected to have a material effect on the
      Company's future reported financial position or results of
      operations.





In
      June
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB
      Statements No. 109”. FIN 48 clarifies the accounting for uncertainty in income
      taxes by prescribing a two-step method of first evaluating whether a tax
      position has met a more likely than not recognition threshold and second,
      measuring that tax position to determine the amount of benefit to be recognized
      in the financial statements. FIN 48 provides guidance on the presentation of
      such positions within a classified statement of financial position as well
      as on
      derecognition, interest and penalties, accounting in interim periods,
      disclosure, and transition. FIN 48 is effective for fiscal years beginning
      after
      December 15, 2006. The adoption of this statement is not expected to have a
      material effect on the Company's future reported financial position or results
      of operations.





35


In
      March
      2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
      Financial Assets, an amendment of FASB Statement No. 140, Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities". This statement requires all separately recognized servicing
      assets and servicing liabilities be initially measured at fair value, if
      practicable, and permits for subsequent measurement using either fair value
      measurement with changes in fair value reflected in earnings or the amortization
      and impairment requirements of Statement No. 140. The subsequent measurement
      of
      separately recognized servicing assets and servicing liabilities at fair value
      eliminates the necessity for entities that manage the risks inherent in
      servicing assets and servicing liabilities with derivatives to qualify for
      hedge
      accounting treatment and eliminates the characterization of declines in fair
      value as impairments or direct write-downs. SFAS No. 156 is effective
      for an entity's first fiscal year beginning after September 15,
      2006.  This adoption of this statement is not expected to have a
      significant effect on the Company’s future reported financial position or
      results of operations.







In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments-an amendment of FASB Statements No. 133 and 140”, to
      simplify and make more consistent the accounting for certain financial
      instruments. SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities”, to permit fair value remeasurement for any
      hybrid financial instrument with an embedded derivative that otherwise would
      require bifurcation, provided that the whole instrument is accounted for on
      a
      fair value basis. SFAS No. 155 amends SFAS No. 140, “Accounting for the
      Impairment or Disposal of Long-Lived Assets”, to allow a qualifying
      special-purpose entity to hold a derivative financial instrument that pertains
      to a beneficial interest other than another derivative financial instrument.
      SFAS No. 155 applies to all financial instruments acquired or issued after
      the
      beginning of an entity's first fiscal year that begins after September 15,
      2006,
      with earlier application allowed. This standard is not expected to have a
      significant effect on the Company’s future reported financial position or
      results of operations.




**RISK
      FACTORS**




Our
      business involves a high degree of risk. Any of the following risks could
      materially and adversely affect our business, financial condition, and results
      of operations. This could cause the trading price of our common stock to
      decline, with the loss of part or all of an investment in our common
      stock.




**RISKS
      RELATED TO OUR FINANCIAL CONDITION**







**Our
      Financial Status Creates Doubt Whether We Will Continue As A Going
      Concern.**




We
      reported net losses totaling of $3,640,820, and $ 1,215,677 for the six months
      ended June 30,  2007 and June 30, 2006, respectively. As of June 30, 2007,
      we had a working capital deficiency of $988.054 (current assets less current
      liabilities) and an accumulated deficit of $12,834,197. With our current
      resources we expect to be able to satisfy our cash requirements through June
      30,
      2008. However, in order to expand our current business operations, fund future
      development and market, sell our three existing product lines and completed
      our
      acquisition projects we will need to raise at least $50 million in financing
      over the next twelve months. There are no assurances that we will be able to
      achieve a level of revenues adequate to generate sufficient cash flow from
      operations or obtain additional financing through private placements, public
      offerings and/or bank financing necessary to support our working capital
      requirements. To the extent that funds generated from any private placements,
      public offerings and/or bank financing are insufficient, we will have to raise
      additional working capital. No assurance can be given that additional financing
      will be available, or if available, will be on acceptable terms. These
      conditions raise substantial doubt about our ability to continue as a going
      concern. If adequate working capital is not available we may be forced to
      discontinue operations, which would cause investors to lose the entire amount
      of
      their investment.




**We
      Need Significant Infusions Of Additional Capital, Which May Result In Dilution
      To Our Shareholders' Ownership And Voting Rights In Our
      Company.**




Based
      upon our current cash reserves and forecasted operations, we believe that we
      will need to obtain at least $2 million of outside funding in order to sustain
      our current business operations over the next twelve months, and at least $50
      million of outside funding in order to expand our business, fund future
      development and market, sell our three existing product lines and complete
      our
      acquisition projects.  Our need for additional capital to finance our
      business strategy, operations, and growth will be greater should, among other
      things, revenue or expense estimates prove to be incorrect. If we fail to
      arrange for sufficient capital in the future, we may be required to reduce
      the
      scope of our business activities until we can obtain adequate financing. We
      may
      not be able to obtain additional financing in sufficient amounts or on
      acceptable terms when needed, which could adversely affect our operating results
      and prospects. Debt financing must be repaid regardless of whether or not we
      generate profits or cash flows from our business activities. Equity financing
      may result in dilution to existing shareholders and may involve securities
      that
      have rights, preferences, or privileges that are senior to our common
      stock.





36


**The
      Issuance Of Shares Of Our Common Stock To Fund Our Operations And As
      Consideration At The Closing Of Our Acquisition Targets Will Result In
      Significant Dilution To Our Existing Shareholders.**




To
      date our operations have been funded through
      cash advances from our Chief Executive Officer, Julianna Lu and through the
      issuance of shares of our common stock. There can be no assurance that our
      Chief
      Executive will continue to fund our operations. The issuance of shares of our
      common stock will result in dilution to our existing holders. Further, to
      proceed with the closing of our acquisition targets in China, we will be
      required to issue shares of our common stock as consideration, this will result
      in significant dilution to our existing shareholders. The amount of dilution
      will be dependent upon the terms on which we issue shares of our common
      stock.




**RISKS
      RELATED TO OUR BUSINESS**




**We
      Are A Development Stage Company And Have A Limited Operating History Upon Which
      An Evaluation Of Our Company Can Be Made. For That Reason, It Would Be Difficult
      For A Potential Investor To Judge Our Prospects For
      Success.**




We
      were
      organized in April 2002 and have had limited operations since our inception
      from
      which to evaluate our business and prospects. There can be no assurance that
      our
      future proposed operations will be implemented successfully or that we will
      ever
      have profits. If we are unable to sustain our operations, our shareholders
      may
      lose their entire investments. We face all the risks inherent in a new business,
      including the expenses, difficulties, complications and delays frequently
      encountered in connection with conducting operations, including capital
      requirements and management's potential underestimation of initial and ongoing
      costs. As a new business, we may encounter delays and other problems in
      connection with the methods of product distribution that we implement. We also
      face the risk that we will not be able to effectively implement our business
      plan. In evaluating our business and prospects, these difficulties should be
      considered. If we are not effective in addressing these risks, we will not
      operate profitably and we may not have adequate working capital to meet our
      obligations as they become due.





**If
      We Fail To Adequately Protect Or Enforce Our Intellectual Property Rights,
      Competitors May Produce And Market Products Similar To Ours. In Addition, We
      May
      Be Subject To Intellectual Property Litigation And Infringement Claims By Third
      Parties.**




Our
      ability to compete effectively is dependent upon the proprietary nature of
      the
      designs, processes, technologies and materials owned by, used by or licensed
      to
      us. All of our intellectual property rights are based on common law and our
      license agreements with Hotway Nutraceuticals Canada Co., Ltd. and from rights
      to herbal supplement formulas that we obtained from our principal officers,
      Ms.
      Julianna Lu and Mr. Xiao Fei Yu. We do not own and have not applied for patents,
      trademarks or any other registrations of our intellectual properties. Although
      we attempt to protect such proprietary properties, both in the United States
      and
      in foreign countries through trade secret laws and non-disclosure agreements,
      these may be insufficient. In addition, because of the differences in foreign
      laws concerning proprietary rights, our products may not receive the same degree
      of protection in foreign countries as they would in the United States. We may
      not always be able to successfully protect or enforce our proprietary properties
      against competitors, which may materially adversely affect our
      business.




In
      addition, although we do not believe that our products infringe the rights
      of
      others and while to date we have not been subject to such claims, in the future
      we may be subject to intellectual property litigation and infringement claims,
      which could cause us to incur significant expenses or prevent us from selling
      our products. A successful claim of trademark, patent or other intellectual
      property infringement against us could adversely affect our growth and
      profitability, in some cases materially. Others may claim that our proprietary
      or licensed products are infringing their intellectual property rights, and
      that
      our products may infringe those intellectual property rights. If we are found
      to
      have infringed on the intellectual property rights of another party, licenses
      for such intellectual property may
      not be available on favorable terms or at all. If someone claims that our
      technology or products infringe their intellectual property rights, any
      resulting litigation could be costly and time consuming and would divert the
      attention of management and key personnel from other business issues. The
      complexity of the technology involved and the uncertainty of intellectual
      property litigation increase these risks. We also may be subject to significant
      damages or injunctions preventing us from manufacturing, selling or using some
      aspect of our products in the event of a successful claim of patent or other
      intellectual property infringement. Any of these adverse consequences could
      have
      a material adverse effect on our business and profitability.




**We
      May Incur Material Product Liability Costs.**




We
      are in
      the business of formulating and selling nutritional supplements for human
      consumption. As a distributor of products designed for human consumption, we
      are
      subject to product liability claims if the use of our products is alleged to
      have resulted in injury. We may be subject to various product liability claims,
      including, among others, allegations that our products include inadequate
      instructions for use or inadequate warnings concerning possible side effects
      and
      interactions with other substances. In addition, although our manufacturers
      maintain quality controls and procedures with respect to products that we sell,
      our products could contain contaminated substances. All of the products we
      sell
      are produced by third-party manufacturers. As a distributor of products
      manufactured by third parties, we may also be liable for various product
      liability claims for products we do not manufacture even though we have no
      control over the manufacturing procedures used in connection with the production
      of these third-party products. We are in the process of applying for product
      liability insurance. Such insurance, once obtained, may not be available at
      a
      reasonable cost, or may not be adequate to cover liabilities.




37


**If
      We Are Not Able To Manage Growth Of Our Business, Our Financial Condition And
      Results Of Operations Will Be Negatively Affected.**




Over
      the
      next six to eighteen months, we anticipate launching our King of Herbs, Taoist
      Medicinal and Vitamins and Supplements products lines upon the receipt of
      funding. We have not yet implemented any marketing and distribution strategies.
      Accordingly, we may experience a period of significant growth. While we have
      not
      experienced problems with growth of our business in the past, any future growth
      could cause significant strain on our managerial, operational, financial and
      other resources. Success in managing this expansion and growth will depend,
      in
      part, upon the ability of our senior management to effectively manage the growth
      of our business. Any failure to manage the proposed growth and expansion of
      our
      business could have a material adverse effect on our financial condition and
      results of operations.




**Our
      Strategy Of Growth Through Acquisition Is Inherently
      Risky.**





We
      intend
      to seek to identify and develop merger and/or acquisitions candidates in the
      Peoples Republic of China and worldwide as part of our growth plan to secure
      a
      strong future. Although we have signed Letters of Intent to acquire WangJing
      Hospital and WangJing Hospital of China Academy of Chinese Medical Sciences,
      Furen Pharmaceuticals, Henan Tiankang Pharmaceuticals Ltd. Xi’An Meichen
      Pharmaceutical Co. Ltd., there can be no assurance that any or all of such
      acquisitions will be completed. Even if the acquisitions are completed, the
      final terms of the acquisition agreements may vary substantially from the terms
      described in the Letter of Intents.





Our
      acquisition of companies and businesses and expansion of operations involve
      risks, including the following:


·
            the
                potential inability to identify the companies best suited to our
                business
                plan;·
            the
                potential inability to successfully integrate acquired operations
                and
                businesses or to realize anticipated synergies, economics of scale
                or
                other expected value;·
            the
                potential need to restructure, modify or terminate customer relationships
                of the acquired company; and·
            loss
                of key employees of acquired
                operations.





The
      occurrence of any one or more of these risks could result in a material adverse
      effect on our operations.




**If
      We Fail To Acquire And Develop Other Products Or Product Candidates, We May
      Be
      Unable To Grow Our Business.**





We
      license the rights to a majority of our products from outside third parties.
      As
      part of our growth strategy, we intend to license or acquire additional products
      and product candidates for development and commercialization. The success of
      this strategy depends upon our ability to identify, select and acquire the
      right
      product candidates. Any product candidate we license or acquire may require
      additional development efforts prior to commercial
      sale, including extensive clinical
      testing and approval by regulatory authorities. All product candidates are
      prone
      to the risks of failure inherent in product development, including the
      possibility that the product candidate will not be shown to be sufficiently
      safe
      and effective. In addition, we cannot assure you that any products that we
      license or acquire will be manufactured or produced economically, successfully
      commercialized or widely accepted in the marketplace. Proposing, negotiating
      and
      implementing an economically viable product acquisition or license is a lengthy
      and complex process. Other companies, including those with substantially greater
      financial, marketing and sales resources, may compete with us for the
      acquisition or license of product candidates. We may not be able to acquire
      or
      license the rights to additional products on terms that we find acceptable,
      or
      at all.




**If
      Our Relationships With Our Manufacturers Terminate, Or Their Facilities Are
      Damaged Or Destroyed, We May Be Unable To Develop Or Commercialize Our
      Products.**




Currently,
      only a limited number of companies manufacture our products. The number of
      contract manufacturers with the expertise, required regulatory approvals and
      facilities to manufacture our product candidates on a commercial scale is
      extremely limited, and it would take a significant amount of time to arrange
      for
      alternative manufacturers. If any of our manufacturers fail to deliver the
      required commercial quantities of bulk substance or finished product on a timely
      basis and at commercially reasonable prices, and we are unable to find one
      or
      more replacement manufacturers capable of production at a substantially
      equivalent cost, in substantially equivalent volumes and quality, and on a
      timely basis, we will likely be unable to meet customer demand as we begin
      to
      market and sell our existing product lines.




**The
      Loss Of Our Current Management Team Could Have A Material Adverse Effect On
      Our
      Business. If We Are Not Able To Retain Additional Key Personnel, Our Business
      Could Suffer.**




Our
      success depends to a large degree upon the skills of our current management
      team
      and directors and advisors, including Ms. Julianna Lu and upon our ability
      to
      identify, hire, and retain additional senior management, sales, marketing,
      scientific, and financial personnel. Although, to date we have not experienced
      problems attracting and retaining key personnel, we may encounter such problems
      in the future as we grow and expand our operations. The loss of any of our
      current executives, employees, or advisors or the failure to attract, integrate,
      motivate, and retain additional key employees could have a material adverse
      effect on our business. To our knowledge, none of our key employees has plans
      to
      retire or leave us in the near future. We do not have "key person" insurance
      on
      the lives of any of our management team.




38


**RISKS
      RELATED TO OUR INDUSTRY**




**The
      Nutritional Supplements Industry Is Intensely Competitive. We Have Many
      Well-Established Competitors With Substantially Greater Financial And Other
      Resources Than Us. These Factors May Make It More Difficult For Us To
      Successfully Implement Our Business Plan And May Adversely Affect Our Results
      Of
      Operations.**




The
      nutritional supplements industry is a large, highly fragmented and growing
      industry, with no single industry participant accounting for more than 10%
      of
      total industry retail sales. Participants include specialty retailers,
      supermarkets, drugstores, mass merchants (wholesalers), multi-level marketing
organizations,
      mail order companies and a variety
      of other smaller participants. The market is also highly sensitive to the
      introduction of new products, including various prescription drugs, which may
      rapidly capture a significant share of the market. Increased competition from
      companies that distribute through retail or wholesale channels could have a
      material adverse effect on our financial condition and results of operations.
      Some of the nutraceutical companies that we will compete with are Weider
      Nutrition International, Inc., USANA Health Sciences Inc., Nature's Sunshine
      Products, Inc. and Herbalife International, Inc. We are a development stage
      business and the only revenues we have received from product sales since
      inception were nominal and were generated during 2004. Accordingly, we have
      not
      been operational long enough to experience any of the above problems. However,
      since we are a development stage business, most, if not all companies in our
      industry have greater financial and other resources available to them and
      possess manufacturing, distribution and marketing capabilities greater than
      ours. In addition, our competitors may be more effective and efficient in
      integrating new products. We may not be able to compete effectively and any
      of
      the factors listed above may cause price reductions, reduced margins and
      difficulties in gaining market share.




**Compliance
      With Governmental Regulations May Impose Additional Costs, Which May Adversely
      Affect Our Financial Condition And Results Of Operations.**




The
      processing, formulation, manufacturing, packaging, labeling, advertising and
      distribution of our products are subject to regulation by one or more federal
      agencies, including the Health Protectorate Branch in Canada, the FDA, the
      Federal Trade Commission ("FTC"), the Consumer Product Safety Commission, the
      United States Department of Agriculture, the United States Customs and Border
      Protection and the Environmental Protection Agency. These activities are also
      regulated by various agencies of the states and localities in which our products
      are sold.




The
      FDA
      may attempt to regulate any of our products that fall within its jurisdiction,
      and the FTC has jurisdiction to regulate the advertising of our products that
      fall within its jurisdiction. The FDA may not accept the evidence of safety for
      any new ingredients that we may want to market, may determine that a particular
      product or product ingredient presents an unacceptable health risk, may
      determine that a particular statement of nutritional support that we want to
      use
      is an unacceptable drug claim or an unauthorized version of a food "health
      claim," may determine that a particular product is an unapproved new drug,
      or
      the FDA or the FTC may determine that particular claims are not adequately
      supported by available scientific evidence. Such a determination would prevent
      us from marketing particular products or using certain statements of nutritional
      support on our products. One of the key areas of our development focus is the
      specialty supplements category, which includes products that are directed at
      particular nutritional concerns. The FDA may not agree with our statements
      of
      nutritional support as to a particular specialty supplement or permit us to
      promote our specialty supplements directed at particular nutritional concerns.
      We also may be unable to disseminate third-party literature in connection with
      our products if the third-party literature fails to satisfy certain
      requirements. In addition, the FDA could require us to remove a particular
      product from the market. Any future recall or removal would result in additional
      costs to us, including lost revenues from any products that we are required
      to
      remove from the market, any of which could be material. Any such product recalls
      or removals could lead to liability, substantial costs and reduced growth
      prospects.




Although
      the regulation of dietary supplements is less restrictive than the regulation
      of
      drugs, dietary supplements may not continue to be subject to less restrictive
      regulation. Many of our dietary supplements contain traditional Chinese herbs
      which may or may not have been previously evaluated by the FDA. All herbs
      marketed in dietary supplements in the United States must be Generally
      Recognized as Safe (GRAS). The FDA maintains a list of problems herbs. If any
      of
      the herbs in our products appeared on the FDA's list, or if the agency
      determined there were issues concerning their safety, we would not be able
      to
      market the products containing these ingredients in the United States. We have
      not determined whether any of the herbs in our products are on the FDA's list
      of
      problem herbs and we have not determined whether any such herbs are Generally
      Recognized as Safe. If any of the herbs in our products have not been evaluated
      by the FDA and are not Generally Recognized as Safe, then we would not be
      permitted to sell products containing them in the United States. Any such
      prohibition could materially adversely affect our results of operations and
      financial condition.




Further,
      if more stringent statutes are enacted for dietary supplements, or if more
      stringent regulations are promulgated, we may not be able to comply with such
      statutes or regulations without incurring substantial expense, or at all.
      Legislation has been introduced in Congress to impose substantial new regulatory
      requirements for dietary supplements including adverse event reporting, post
      market surveillance requirements, FDA reviews of dietary supplement ingredients,
      safety testing and records inspection. If enacted, any of the proposed
      legislation may result in difficulty getting our products to the market and
      could raise our costs and hinder our business.




39


In
      addition, we expect that the FDA soon will adopt the proposed rules on Good
      Manufacturing Practice in manufacturing, packaging, or holding dietary
      ingredients and dietary supplements, which will apply to the products we
      manufacture. These regulations will require dietary supplements to be prepared,
      packaged and held in compliance with strict rules, and will require quality
      control provisions similar to those in the Good Manufacturing Practice
      regulations for drugs. We may not be able to comply with the new rules without
      incurring additional expenses.




Each
      of
      our products imported into the United States may be blocked at the border by
      U.S. Customs. The FDA could issue Import Alerts for any of our products if
      the
      agency considers them to be misbranded, adulterated and/or unapproved new drugs.
      Further in light of recent reports of corruption and the acceptance of bribes
      by
      personnel of the Chinese State Food and Drug Administration, the United States
      may ban imports of drugs from China.




The
      FTC
      exercises jurisdiction over the advertising of dietary supplements. In the
      past,
      the FTC has instituted numerous enforcement actions against dietary supplement
      companies for failure to have adequate substantiation for claims made in
      advertising or for the use of false or misleading advertising claims. These
      enforcement actions have often resulted in consent decrees and the payment
      of
      civil penalties by the companies involved.




We
      are
      also subject to regulation under various state, local, and international laws
      that include provisions governing, among other things, the processing,
      formulation, manufacturing, packaging, labeling, advertising and distribution
      of
      our products that are deemed "dietary supplements" or "over-the-counter drugs."
      Government regulations in foreign countries may prevent or delay the
      introduction, or require the reformulation, of certain of our products. In addition,
      from time to time in the future,
      Congress, the FDA, the FTC or other federal, state, local or foreign legislative
      and regulatory authorities may impose additional laws or regulations that apply
      to us, repeal laws or regulations that we consider favorable to us or impose
      more stringent interpretations of current laws or regulations. We are not able
      to predict the nature of such future laws, regulations, repeals or
      interpretations or to predict the effect additional governmental regulation,
      when and if it occurs, would have on our business in the future. Such
      developments could, however, require reformulation of certain products to meet
      new standards, recalls or discontinuance of certain products not able to be
      reformulated, additional record-keeping requirements, increased documentation
      of
      the properties of certain products, additional or different labeling, additional
      scientific substantiation, or other new requirements. Any such developments
      could have a material adverse effect on our business, financial condition and
      results of operations.




**RISKS
      RELATED TO OUR COMMON STOCK**




**There
      Is A Limited Public Market For Our Common Stock. Failure To Develop Or Maintain
      A Trading Market Could Negatively Affect The Value Of Our Shares And Make It
      Difficult Or Impossible For Shareholders To Sell Their
      Shares.**





On
      April
      18, 2005, our common stock was approved for quotation on the OTC Bulletin Board
      under the symbol "CHHH." To date there is a limited trading market in our common
      stock on the OTC Bulletin Board. Failure to develop or maintain an active
      trading market could negatively affect the value of our shares and make it
      difficult for our shareholders to sell their shares or recover any part of
      their
      investment in us. The market price of our common stock may be highly volatile.
      In addition to the uncertainties relating to our future operating performance
      and the profitability of our operations, factors such as variations in our
      interim financial results, or various, as yet unpredictable factors, many of
      which are beyond our control, may have a negative effect on the market price
      of
      our common stock.




**OUR
      COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING
      MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR COMMON
      STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR
      STOCK.**




The
      Securities and Exchange Commission has adopted Rule 3a51-1 which establishes
      the
      definition of a "penny stock," for the purposes relevant to us, as any equity
      security that has a market price of less than $5.00 per share or with an
      exercise price of less than $5.00 per share, subject to certain exceptions.
      For
      any transaction involving a penny stock, unless exempt, Rule 15g-9
      requires:




-
      that a
      broker or dealer approve a person's account for transactions in penny stocks;
      and




-
      the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be
      purchased.




In
      order
      to approve a person's account for transactions in penny stocks, the broker
      or
      dealer must:




-
      obtain
      financial information and investment experience objectives of the person;
      and




-
      make a
      reasonable determination that the transactions in penny stocks are suitable
      for
      that person and the person has sufficient knowledge and experience in financial
      matters to be capable of evaluating the risks of transactions in penny
      stocks.




The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the SEC relating to the penny stock market,
      which, in highlight form:




-
      sets
      forth the basis on which the broker or dealer made the suitability
      determination; and




-
      that
      the broker or dealer received a signed, written agreement from the investor
      prior to the transaction.




Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
      "penny stock" rules. This may make it more difficult for investors to dispose
      of
      our common stock and cause a decline in the market value of our
      stock.




Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.





40


**ITEM
      3. CONTROLS AND
      PROCEDURES.**





(a)
      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. As of the date of this report,
      the Company's management carried out an evaluation, under the supervision of
      the
      Company's Chief Executive Officer and the Chief Financial Officer of the
      effectiveness of the design and operation of the Company's system of disclosure
      controls and procedures pursuant to the Securities and Exchange Act, Rule
      13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation,
      the
      Chief Executive Officer and Chief Financial Officer concluded that the Company's
      disclosure controls and procedures were effective, as of the date of their
      evaluation, for the purposes of recording, processing, summarizing and timely
      reporting material information required to be disclosed in reports filed by
      the
      Company under the Securities Exchange Act of 1934.




(b)
      CHANGES IN INTERNAL CONTROLS. There were no changes in internal controls over
      financial reporting that occurred during the period covered by this report
      that
      has materially affected, or is likely to materially effect, the Company's
      internal control over financial reporting.




**PART
      II**






**ITEM
      1. LEGAL PROCEEDINGS.**




We
      are
      currently not aware of any legal proceedings or claims that we believe will
      have, individually or in the aggregate, a material adverse affect on our
      business, financial condition or operating results.




**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





On
      April
      2, 2007, we issued 400,000 shares of common stock with a fair value of $0.036
      in
      full satisfaction of a loan in the principal amount of $31,471.44.





On
      April
      2, 2007, we issued 100,000 shares of common stock with a fair value of $0.036
      as
      compensation for legal services.





On
      April
      5, 2007, we issued 500,000 shares of common stock with a fair value of $0.036
      for consulting services.





On
      May 1,
      2007, we issued 1,000,000 shares of common stock with a fair value of $0.05
      to
      our President and Chief Executive Officer, as compensation for loans advanced
      to
      the Company.





On
      June
      18, 2007, we issued 250,000 shares of common stock with a fair value of $0.030
      for consulting services.





On
      June
      29, 2007, we issued 5,000,000 shares of common stock with a fair value of $0.030
      for investor relations services.







All
      of
      the foregoing issuances were exempt from registration under Section 4(2) of
      the
      Securities Act and/or Regulation S, promulgated pursuant to the Securities
      Act.
      None of the purchasers who received shares under Regulation S are U.S. persons
      as defined in Rule 902(k) of Regulation S, and no sales efforts were conducted
      in the U.S., in accordance with Rule 903(c). Such purchasers acknowledged that
      the securities purchased must come to rest outside the U.S., and the
      certificates contain a legend restricting the sale of such securities until
      the
      Regulation S holding period is satisfied.






**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




None.




**ITEM
      5. OTHER INFORMATION**




None.




**ITEM
      6. EXHIBITS**




31.1
            
            Certification
                by Chief Executive Officer/Chief Financial Officer, required by Rule
                13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200232.1
            
            Certification
                by Chief Executive Officer/Chief Financial Officer, required by Rule
                13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350
                of
                Chapter 63 of Title 18 of the United States Code, promulgated pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002








41










**SIGNATURES**




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


**China
                Holdings,
                Inc.**Dated:
                August 14, 2007
            By:
            /s/ 
                *Julianna Lu*Julianna
                LuChief
                Executive Officer, Principal Financial Officer, Principal Accounting
                Officer, Treasurer and Chairman of the Board of
                Directors





42