UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20-549





FORM
10-Q





(Mark
One)





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





For the
quarterly period ended September 30, 2009





o
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT





For the
transition period from ______________ to _____________





Commission
file number: 000-51060




CHINA
HEALTH INDUSTRIES HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)





Delaware
              (State
      or other jurisdiction of incorporation or
              organization)
            
            86-0827216
              (I.R.S.
      Employer Identification No.)168
      Binbei Street, Songbei District, Harbin City
              Heilongjiang
      Province, People’s Republic of China
              (Address
      of principal executive offices)
            
            (Zip
      Code)




011-86-451
8989 1246


(Registrant’s
telephone number, including area code)





Not
Applicable


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed 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
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes   o  No  o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” ion Rule 12b-2 of the Exchange Act.




Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act).          Yes o        No
x





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes o    No
o





APPLICABLE
ONLY TO CORPORATE ISSUERS





Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date:





As of
November 16, 2009, there are 62,234,737
shares of $0.0001
par value common stock issued and outstanding.





FORM
10-Q


CHINA
HEALTH INDUSTRIES HOLDINGS, INC.


INDEX


PagePART
      I
                                                                              FINANCIAL
      INFORMATION
                                                                              3Item
      1. Financial Statements (Unaudited).
                                                                              3Consolidated
      Balance Sheets as of September 30, 2009 (Unaudited) and June 30,
      2009.
                                                                              3Consolidated
      Statements of Operations for the Three Months Ended September 30, 2009 and
      September 30, 2008 (Unaudited).
                                                                              4Consolidated
      Statements of Cash Flows in Stockholders’ Equity for the Three Months
      ended September 30, 2009 (Unaudited).
                                                                              5Consolidated
      Statement of Changes in Stockholders’ Equity for the Three Months
      ended  September 30, 2009 (Unaudited).
                                                                              6Notes
      to Financial Statements.
                                                                              7Item
      2. Management’s Discussion and Analysis of Financial Condition and results
      of Operations.
                                                                              19Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
                                                                              23Item
      4. Controls and Procedures.
                                                                              23PART
      II
                                                                              OTHER
      INFORMATION
                                                                              24Item
      1. Legal Proceedings.
                                                                              24Item
      1A. Risk Factors.
                                                                              24Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
                                                                              24Item
      3. Defaults Upon Senior Securities.
                                                                              24Item
      4. Submission of Matters to a Vote of Security Holders.
                                                                              24Item
      5. Other Information.
                                                                              24Item
      6. Exhibits
                                                                              24


2


PART I - FINANCIAL
INFORMATION




Item
1. Financial Statements (Unaudited)




CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 
 September
      30, 2009 (Unaudited)
              
              
              June
      30, 2009 (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
              
              $
              1,164,590
              
              
              $
              7,394,270Accounts
      receivable
              
              
              5,669
              
              
              
              21,510Inventory
              
              
              152,614
              
              
              
              150,652Prepaid
      expenses
              
              
              11,156,027
              
              
              
              9,533Total
      current assets
              
              
              12,478,900
              
              
              
              7,575,965Property
      and equipment – net of accumulated depreciationof
      $143,476 and $127,400, respectively
              
              
              1,021,896
              
              
              
              1,032,328Intangible
      Assets-net of accumulated amortizationof
      $81,902 and $76,671, respectively
              
              
              845,029
              
              
              
              849,285Construction-in-progress
              
              
              171,405
              
              
              
              10,519Total
      assets
              
              $
              14,517,230
              
              
              $
              9,468,097LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued expenses
              
              $
              164,855
              
              
              $
              173,234Accrued
      expenses
              
              
              789,449
              
              
              
              401,091Advances
      from buyers
              
              
              7,607
              
              
              
              2,922Related
      party debt
              
              
              851,350
              
              
              
              868,552Wages
      payable
              
              
              677,806
              
              
              
              671,193Tax
      payable
              
              
              3,633,756
              
              
              
              3,048,709Total
      current liabilities
              
              
              6,124,823
              
              
              
              5,165,701Commitments
      and contingencies
              
              
              131,625
              
              
              
              175,316STOCKHOLDERS’
      EQUITYCommon
      stock ($0.001 par value, 300,000,000 shares authorized,
                62,234,737 and 61,203,088 issued and outstanding,
      respectively)
              
              
              6,223
              
              
              
              6,223Additional
      paid-in capital
              
              
              1,425,745
              
              
              
              1,409,846Accumulated
      other comprehensive income
              
              
              445,756
              
              
              
              261,301Retained
      earnings (Accumulated deficit)
              
              
              6,514,683
              
              
              
              2,625,026Total
      Stockholders' equity
              
              
              8,392,407
              
              
              
              4,302,396TOTAL
      LIABILITIES AND  STOCKHOLDERS’ EQUITY
              
              $
              14,517,230
              
              
              $
              9,468,097
  See notes
to consolidated financial statements
  3
  CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 For
      the Three Months EndedSeptember
      30, 2009
              
              
              September
      30, 2008REVENUE
              
              $
              10,246,606
              
              
              $
              286,207COST
      OF GOODS SOLD
              
              
              4,486,366
              
              
              
              251,031Gross
      Profit
              
              
              5,760,240
              
              
              
              35,176OPERATING
      EXPENSESSelling,
      general & administrative expenses
              
              
              516,325
              
              
              
              95,442Depreciation
      and amortization expenses
              
              
              20,331
              
              
              
              13,166Research
      & development
              
              
              -
              
              
              
              -Total
      operating expenses
              
              
              536,656
              
              
              
              108,608Operating
      profit
              
              
              5,223,584
              
              
              
              (73,432
              )OTHER
      INCOME (EXPENSES)Interest
      expenses
              
              
              (15,899
              )Other
      income
              
              
              5Other
      expense
              
              
              -
              
              
              
              (11,403
              )Total
      other income (expense)
              
              
              (15,894
              )
              
              
              (11,403
              )INCOME
      (LOSS) BEFORE INCOME TAXES
              
              
              5,207,690
              
              
              
              (84,835
              )Income
      taxes
              
              
              1,318,033
              
              
              
              -Net
      income (loss)
              
              $
              3,889,657
              
              
              $
              (84,835
              )OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain (loss)
              
              $
              184,455
              
              
              $
              (21,416
              )Comprehensive
      income
              
              $
              4,074,112
              
              
              $
              (106,251
              )Basic
      and diluted net loss per share
              
              
              0.06
              
              
              
              (0.00
              )Weight
      average shares outstanding
              
              
              62,234,737
              
              
              
              62,234,732
 
 See notes
to consolidated financial statements
  4
  CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 For
      the Three Months Ended
                September
      302009
              
              
              2008Cash
      flows from operating activities:Net
      income (loss)
              
              $
              3,889,657
              
              
              $
              (87,246
              )Adjustments
      to reconcile net income (loss)  to net cashprovided
      by (used in) operating activitiesDepreciation
      & amortization
              
              
              20,331
              
              
              
              18,528Imputed
      interest
              
              
              15,899
              
              
              
              10,053Changes
      in assets and liabilities -(Increase)
      decrease in:Accounts
      receivables and other receivables
              
              
              15,841
              
              
              
              (11,957
              )Inventory
              
              
              (1,962
              )
              
              
              (56,700
              )Prepaid
      expense
              
              
              (31,483
              )
              
              
              2,364Accounts
      payable and other payables
              
              
              976,324
              
              
              
              (20,344
              )Net
      cash provided by (used in) operating activities
              
              
              4,884,607
              
              
              
              (145,302
              )Cash
      flows from investing activities:Purchases/
      (transfer) of fixed assets
              
              
              (5,643
              )
              
              
              (1,412
              )Prepayment
      on acquisition
              
              
              (8,043,758
              )Prepayment
      on land use right
              
              
              (3,071,253
              )construction-in-progress
              
              
              (160,886
              )
              
              
              -Net
      cash provided by investing activities
              
              
              (11,281,540
              )
              
              
              (1,412
              )Cash
      flows from financing activities:Contributed
      capital
              
              
              
              
              
              
              78,473Proceeds
      from related party debt
              
              
              (17,201
              )
              
              
              62,265Net
      cash provided by financing activities
              
              
              (17,021
              )
              
              
              140,738Effect
      of exchange rates on cash
              
              
              184,454
              
              
              
              (21,416
              )Net
      increase in cash and cash equivalents
              
              
              (6,229,680
              )
              
              
              (27,392
              )Cash
      and cash equivalents, at beginning of year
              
              
              7,394,270
              
              
              
              35,251Cash
      and cash equivalents,  at end of year
              
              $
              1,164,590
              
              
              $
              7,859Supplemental
      cash flow informationCash
      paid for income tax
              
              $
              
              
              
              $
              -
 
  See notes
to consolidated financial statements
  5
  CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 (UNAUDITED)
  
 Common
      sharesShares
              
              
              Amount
              
              
              Additional
      Paid-in Capital
              
              
              Retained
      Earnings (Accumulated Deficit)
              
              
              Accumulated
      Other Comprehensive Income
              
              
              Stockholders'
      EquityBalances,
      June 30, 2009
              
              
              62,234,737
              
              
              $
              6,223
              
              
              $
              1,409,846
              
              
              $
              2,625,026
              
              
              $
              261,301
              
              
              $
              4,302,396Imputed
      interest on shareholder loan
              
              
              
              
              
              
              
              
              
              
              15,899
              
              
              
              
              
              
              
              
              
              
              
              15,899Net
      income for the three months ended September 30, 2009
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,889,657
              
              
              
              
              
              
              
              3,889,657Other
      comprehensive income-Translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              184,455
              
              
              
              184,455Balances,
      September 30, 2009
              
              
              62,234,737
              
              
              $
              6,223
              
              
              $
              1,425,745
              
              
              $
              6,514,683
              
              
              $
              445,756
              
              
              $
              8,392,407
   See notes
to consolidated financial statements
  6
  CHINA
HEALTH INDUSTRIES HOLDINGS, INC.
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
1 - ORGANIZATION AND BUSINESS BACKGROUND
 
 We were
incorporated in the state of Arizona on July 11, 1996 and were the successor of
the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, we
entered into a Stock Purchase Agreement and Share Exchange (effecting a reverse
merger) with Edmonds 6, Inc. (Edmonds 6) and our name was changed to Universal
Fog, Inc. Edmonds 6 was incorporated on August 19, 2004 under the laws of the
State of Delaware to engage in any lawful corporate undertaking, including, but
not limited to, selected mergers and acquisitions. Pursuant to this agreement,
Universal Fog, Inc. (which has been in continuous operation since 1996) became a
wholly-owned subsidiary of Edmonds 6.
 
 China
Health Industries Holdings Limited ("China Health") was incorporated on July 20,
2007 in Hong Kong under the Companies Ordinance as a limited liability
company. China Health was formed for the purpose of seeking and consummating a
merger or acquisition with a business entity organized as a private corporation,
partnership, or sole proprietorship as defined by Statement of Financial
Accounting Standards (SFAS) No. 7.
 
 Harbin
Humankind Biology Technology Co., Limited ("Humankind") was incorporated in
Harbin City, Heilongjiang Province, the People's Republic of China (the "PRC")
on December 14, 2003, as a limited liability company under the Company Law of
PRC. China Health is engaged
in the business of production and distribution of health food.
 
 On August
20, 2007, the sole shareholder of China Health entered into a Share Purchase
Agreement with the owners of Humankind. Pursuant to the Agreement, China Health
purchased 100% of the ownership in Humankind for a cash consideration of
$60,408. Subsequent to completion of the Agreement, Humankind became a
wholly-owned subsidiary of China Health. The share purchase transaction is being
accounted for as a “reverse merger,” since the owner of Humankind owns a
majority of the outstanding shares of China Health’s common stock immediately
following the execution of the Agreement.  Humankind is deemed to be
the acquirer in the reverse merger.  Consequently, the assets and
liabilities and the historical operations that will be reflected in the
financial statements for periods prior to the Agreement will be those of
Humankind and will be recorded at the historical cost basis.  After
completion of the Agreement, China Health’s consolidated financial statements
will include the assets and liabilities of both China Health and Humankind, the
historical operations of Humankind and the operations of China Health and its
subsidiaries from the closing date of the Agreement.
 
 On
October 14, 2008, Harbin Humankind set up a 99% owned subsidiary with its
primary business being manufacturing and distributing medicine. Mr. Xin Sun, the
Company’s majority owner, owns 1% of this subsidiary. The subsidiary is
consolidated in the consolidated financial statements of the
Company.
 
 On
December 31, 2008, China Health closed a reverse merger with Universal Fog, Inc,
a U.S. public traded shell company.  China Health is the
accounting acquirer in the transaction and the transaction is treated as a
recapitalization of the Company.  After the transaction and a 1:20
reverse stock split, Xin Sun owned 61,203,088 shares of common stock,
representing 98.3% of the 62,234,737 total outstanding shares of common stock of
the Company.  In connection with a reverse merger consummated by
Universal Fog, Inc. (the “Company”) on December 31, 2008, by which China Health
Industries Holdings Limited (“China Health”) became a wholly-owned subsidiary of
the Company and China Health’s subsidiary, Harbin Humankind, Biology Technology
Co. Limited (“Harbin Humankind”), became the primary operating entity of the
Company, on January 9, 2009, the Company adopted the fiscal year end of Harbin
Humankind, thereby changing its fiscal year end from December 31 to June
30.
 
 On April
7, 2009, Mr. Sun transferred 28,200,000 shares of common stock to 296
individuals, leaving him with 33,003,088 shares of common stock of the Company,
or approximately 53.03%. We changed our name from "Universal Fog, Inc." to
"China Health Industries Holdings, Inc." on February 19, 2009.
 
 7
 
 Note
2 - SIGNIFICANT ACCOUNTING POLICIES
 
 Principals
of Consolidation
 
 The
accompanying consolidated financial statements include China Health Industries
Holdings, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
 
 Basis
of Presentation
 
 The
accompanying financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America (“US GAAP”). This
basis of accounting differs from that used in the statutory accounts of China
Health, which are prepared in accordance with the “Accounting Principles of
China” (“PRC GAAP”).
 
 Translation
of Foreign Currencies
 
 China
Health maintains its books and accounting records in PRC currency “Renminbi”
(“RMB”), which is determined as the functional currency. Transactions
denominated in currencies other than RMB are translated into RMB at the exchange
rates quoted by the People’s Bank of China (“PBOC”) prevailing at the date
of the transactions. Foreign currency exchange gain and losses resulting
from these transactions are included in operations.
 
 China
Health’s financial statements are translated into the reporting currency, the
United States Dollar (“US$”). Assets and liabilities of China Health are
translated at the prevailing exchange rate at each reporting period end.
Contributed capital accounts are translated using the historical rate of
exchange when capital is injected. Income and expense accounts are translated at
the average rate of exchange during the reporting period. Translation
adjustments resulting from translation of these financial statements are
reflected as accumulated other comprehensive income (loss) in the shareholders’
equity.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and judgments that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.  China Health bases its estimates and judgments
on historical experience and on various other assumptions and information that
are believed to be reasonable under the circumstances.  Estimates and
assumptions about future events and their effects cannot be perceived with
certainty and, accordingly, these estimates may change as new events occur, as
more experience is acquired, as additional information is obtained and as our
operating environment changes.  While China Health believes that the
estimates and assumptions used in the preparation of the financial statements
are appropriate, actual results could differ from those
estimates.
  Earnings
per share
 
 Basic
earnings per common share is computed by dividing net earnings applicable to
common shareholders by the weighted-average number of common shares outstanding
during the period. When applicable, diluted earnings per common share is
determined using the weighted-average number of common shares outstanding during
the period, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of common stock options
and warrants.
 
 Potential
common shares issued are calculated using the treasury stock method, which
recognizes the use of proceeds that could be obtained upon the exercise of
options and warrants in computing diluted earnings per share. It assumes that
any proceeds would be used to purchase common stock at the average market price
of the common stock during the period.
 
 Cash
and Cash Equivalents
 
 Cash and
cash equivalents include cash on hand, deposits in banks with maturities of
three months or less, and all highly liquid investments which are unrestricted
as to withdrawal or use, and which have original maturities of three months or
less at the time of purchase.
  8
  Accounts
Receivable
 
 Accounts
receivable are recorded at the invoiced amount and do not bear interest. China
Health extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and determined based on managements’ assessment of known
requirements, aging of receivables, payment history, the customer’s current
credit worthiness, and the economic environment.
 
 Concentrations
of Credit Risk
 
 Financial
instruments that subject China Health to concentrations of credit risk consist
primarily of cash and cash equivalents. China Health maintains its cash and cash
equivalents with high-quality institutions. Deposits held with banks may exceed
the amount of insurance provided on such deposits. Generally these deposits may
be redeemed upon demand and therefore bear minimal risk.
 
 The
Company is self-insured for all risks and carries no general liability or
product insurance coverage of any kind.
  Fair
Value of Financial Instruments
 
 The
carrying value of financial instruments including cash and cash equivalents,
receivables, accounts payable and accrued expenses, approximates their fair
value at September 30, 2009 and 2008 due to the relatively short-term nature of
these instruments.
 
 Prepaid
Expenses
 
 Prepaid
expenses principally include advances to raw material suppliers.
 
 Inventory
 
 Inventories
are stated at the lower of cost or market using the weighted average method.
China Health reviews its inventory on a regular basis for possible obsolete
goods or to determine if any reserves are necessary for potential obsolescence.
No reserve was made in the three months ended September 30, 2009 and 2008,
respectively.
 
 Impairment
of Long–Lived Assets
 
 China
Health reviews all of its long-lived assets, including tangible and intangible
long-lived assets, for impairment indicators at least annually and performs
detailed impairment testing for all  long-lived assets whenever
impairment indicators are present. When necessary, China Health records charges
for impairments of long-lived assets for the amount by which the present value
of future cash flows, or some other fair value measure, is less than the
carrying value of these assets.
 
 Property,
Plant and Equipment
 
 Property,
plant and equipment are carried at cost. Maintenance, repairs and minor renewals
are expensed as incurred; major renewals and improvements that extend the lives
or increase the capacity of plant assets are capitalized.
 
 When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in
income in the reporting period of disposition.
 
 Depreciation
is calculated on a straight-line basis over the estimated useful life of the
assets.  The percentages or depreciable life applied are:
 
 Building,
      warehouse and Improvements
              20
      to 30 yearsLand
      use rights
              50
      yearsFurniture
      & Equipment
              5
      to 7 yearsTransportation
      Equipment
              5
      to 15 yearsMachinery
      and Equipment
              7
      to 15 years
 
 9
 
 Property
and equipment are evaluated for impairment in value whenever an event or change
in circumstances indicates that the carrying values may not be recoverable. If
such an event or change in circumstances occurs and potential impairment is
indicated because the carrying values exceed the estimated future undiscounted
cash flows of the asset, the Company will measure the impairment loss as the
amount by which the carrying value of the asset exceeds its fair
value.
 
 Intangible
assets
 
 Intangible
assets consist of patents and goodwill. Patent costs are amortized over an
estimated life of ten years.
 
 Intangible
assets are accounted for in accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”).  Intangible assets with finite useful lives are
amortized while intangible assets with indefinite useful lives are not
amortized. As prescribed by SFAS 142, goodwill and intangible assets are tested
periodically for impairment. The Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long- Lived Assets," effective January 1, 2002.
Accordingly, the Company reviews its long-lived assets, including property and
equipment and finite-lived intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. To determine recoverability of its long-lived assets, the
Company evaluates the probability that future undiscounted net cash flows will
be less than the carrying amount of the assets. Impairment costs, if any, are
measured by comparing the carrying amount of the related assets to their fair
value.  The Company recognizes an impairment loss based on the excess
of the carrying amount of the assets over their respective fair values. Fair
value is determined by discounted future cash flows, appraisals or other
methods. If  the assets determined to be impaired are to be held and
used, the Company recognizes an impairment loss thru a charge to operating
results to the extent the present value of anticipated cash flows attributable
to the assets are less than the asset’s carrying value. The Company would
depreciate the remaining the remaining value over the remaining estimated useful
life of the asset to operating results.  There were no impairments
during the three months ended September 30, 2009 and 2008.
 
 Pharmaceutical
Patents
 
 On June
9, 2007, China Health entered into a Purchase Agreement, pursuant to which China
Health agreed to purchase pharmaceutical patents from a third party for $410,792
(RMB ¥ 3,180,000).
 
 China
Health recorded the pharmaceutical patents at the purchase price and amortizes
the costs over their estimated beneficial period, 10 years, using the
straight-line method as of September 30, 2009.  The Company recognizes
an impairment loss based on the excess of the carrying amount of the assets over
their respective fair values. Fair value is determined by discounted future cash
flows, appraisals or other methods. If  the assets determined to be
impaired are to be held and used, the Company recognizes an impairment loss thru
a charge to operating results to the extent the present value of anticipated
cash flows attributable to the assets are less than the asset’s carrying value.
The Company would depreciate the remaining the remaining value over the
remaining estimated useful life of the asset to operating results.  
There were impairments during the years ended June 30, 2009 in the amount of
$289,636.  There was no remaining value of the pharmaceutical patent
impaired.
  Land
Use Right
 
 All land
belongs to the State in PRC. Enterprises and individuals can pay the State a fee
to obtain a right to use a piece of land for commercial purpose or residential
purpose for an initial period of 50 years or 70 years, respectively. The land
use right can be sold, purchased, and exchanged in the market. The successor
owner of the land use right will reduce the amount of time which has been
consumed by the predecessor owner. On June 7, 2004, China Health enter into a
Purchase Contract with the local government, pursuant to which China Health
agreed to purchase the right to use a piece of land, approximately 8 acres,
located in the Harbin County, Heilongjiang Province for commercial purpose over
a fifty-year period from June 7, 2004 through June 6, 2054, for $637,261 (RMB
¥5,248,000), which China Health has fully paid to the seller on June 13, 2004.
The Department of Housing and Urban Development (“HUD”) of Harbin City
approved this transaction. China Health recorded the land use right at its
purchase price. The cost of the land use right is amortized over its prospective
beneficial period, using the straight-line method with no residual value. China
Health’s production facilities and office are located in this piece of
land.  As of September 30, 2009, the land use right has balance of
$845,029.
  10
  Revenue
Recognition
 
 China
Health recognizes revenue when the earnings process is complete. This generally
occurs when products are shipped to unaffiliated customer or services are
performed in accordance with terms of the agreement, title and risk of loss have
been transferred, collectability is reasonably assured and pricing is fixed or
determinable. Accruals are made for sales returns and other allowances based on
China Health’s experience.
 
 Research
and Development Costs
 
 Research
and development costs relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed when incurred.
 
 The
Company recognizes in-process research and development in accordance with FASB
Interpretation No. 4, Applicability of FASB Statement No.
2 to Business Combinations Accounted for by the Purchase Methodand
theAICPA
Technical Practice Aid, Assets Acquired in a Business Combination to be used in
Research and Development Activities:  A Focus on Software, Electronic
Devices, and Pharmaceutical Industries. Assets to be used in research and
development activities, specifically, compounds that have yet to receive new
drug approval and would have no alternative use, should approval not be given,
are immediately charged to expense when acquired.  Certain assets and
high technologies acquired that has a foreseeable future cash flows are
capitalized as intangible assets.  Such intangible assets are
amortized starting from the year revenue is generated and amortize over a period
of 10 years.
 
 For the
three months ended September 30, 2009 and 2008, the Company did not incur in
research and development costs.
 
 Advertising
Costs
 
 Advertising
costs are expensed as incurred and included as part of selling and marketing
expenses in accordance with the American Institute of Certified Public
Accountants (“AICPA”) Statement of Position 93-7, “Reporting for Adverting
Costs”. Advertising costs were immaterial for the three months ended September
30, 2009 and 2008, respectively.
 
 Income
Taxes
 
 China
Health accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”,
which requires the asset and liability approach for financial accounting and
reporting for income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
 
 Enterprise income
tax
 
 Under the
Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated
by the PRC, income tax is payable by enterprises at a rate of 25% of their
taxable income. Preferential tax treatment may, however, be granted pursuant to
any law or regulations from time to time promulgated by the State
Council.
 
 Value added
tax
 
 The
Provisional Regulations of PRC Concerning Value Added Tax promulgated by the
State Council came into effect on January 1, 1994. Under these regulations and
the Implementing Rules of the Provisional Regulations of the PRC Concerning
Value Added Tax, value added tax is imposed on goods sold in, or imported into,
the PRC and on processing, repair and replacement services provided within the
PRC.
  11
 
 Value
added tax payable in the PRC is charged on an aggregated basis at a rate of 13%
or 17% (depending on the type of goods involved) on the full price collected for
the goods sold or, in the case of taxable services provided, at a rate of 17% on
the charges for the taxable services provided, but excluding, in respect of both
goods and services, any amount paid in respect of value added tax included in
the price or charges, and less any deductible value added tax already paid by
the taxpayer on purchases of goods and services in the same financial
year.
 
 According
to “Agriculture Product Value Added Tax Rate Adjustment and Certain Items’ Value
Added Tax Waiver” published by the Ministry of Finance and the National Tax
Affairs Bureau, the value added tax for agriculture related products is to be
taxed at 13%. Furthermore, traditional Chinese medicine and medicinal plant are
by definition agriculture related products.
 
 Accounting for uncertainty in income
taxes –In June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes - an Interpretation of FASB Statement No. 109(FIN 48). FIN 48 is
intended to clarify the accounting for uncertainty in income taxes recognized in
a company’s financial statements and prescribes the recognition and measurement
of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
 
 Under FIN
48, evaluation of a tax position is a two-step process. The first step is to
determine whether it is more-likely-than-not that a tax position will be
sustained upon examination, including the resolution of any related appeals or
litigation based on the technical merits of that position. The second step is to
measure a tax position that meets the more-likely-than-not threshold to
determine the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is greater than
50% likely of being realized upon ultimate settlement.
 
 Tax
positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the
threshold is met. Previously recognized tax positions that no longer meet the
more-likely-than-not criteria should be de-recognized in the first subsequent
financial reporting period in which the threshold is no longer met.
 
 The
adoption of FIN 48 did not have a material effect on the Company’s results of
operations and financial position.
 
 Sales
Taxes and Sales-related Taxes
 
 Pursuant
to the tax law and regulations of PRC, China Health is obligated to pay totally
6.66% of gross sales as sales tax and sales-related taxes.
 
 Comprehensive
Income
 
 Statement
of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive
Income,” establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Accumulated comprehensive
income, as presented in the accompanying statements of changes in shareholders’
equity consists of changes in cumulative foreign currency translation
adjustment.
 
 Pension
and Employee Benefits
 
 Full time
employees of the PRC entities participate in a government mandated
multi-employer defined contribution plan pursuant to which certain pension
benefits, medical care, unemployment insurance, employee housing fund and other
welfare benefits are provided to employees. Chinese labor regulations require
China Health to accrue for these benefits based on certain percentages of the
employees’ salaries. The Management believes full time employees who have
passed the probation period are entitled to such benefits. The total provisions
for such employee benefits were $1,036 for the three months ended September 30,
2009.  The provisions for such employee benefits were minimal for the
three months ended September 30, 2008.
  12
  Statutory
Reserves
 
 Pursuant
to the applicable laws in PRC, PRC entities are required to make appropriations
to three non-distributable reserve funds, the statutory surplus reserve,
statutory public welfare fund, and discretionary surplus reserve, based on
after-tax net earnings as determined in accordance with the PRC GAAP, after
offsetting any prior years ’ losses. Appropriation to the statutory surplus
reserve should be at least 10% of the after-tax net earnings until the reserve
is equal to 50% of China Health’s registered capital. Appropriation to the
statutory public welfare fund is 5% to 10% of the after-tax net earnings. The
statutory public welfare fund is established for the purpose of providing
employee facilities and other collective benefits to the employees and is
non-distributable other than in liquidation. No appropriations to the
discretionary surplus reserve are made at the discretion of the Board of
Directors.
 
 Segment
Reporting
 
 SFAS No.
131 “Disclosures about Segments of an Enterprise and Related Information”
establishes standards for reporting information about operating segments on a
basis consistent with China Health’s internal organization structure as well as
information about geographical areas, business segments and major customers in
financial statements. China Health currently operates in one principal business
segment; therefore segment disclosure is not presented.
 
 Recent
Accounting Pronouncements
 
 In
September 2006, the SEC issued SAB No. 108, which provides guidance on the
process of quantifying financial statement misstatements. In SAB No. 108, the
SEC staff establishes an approach that requires quantification of financial
statements errors, under both the iron-curtain and the roll-over methods,
based on the effects of the error on each of China Health’s financial statements
and the related financial statement disclosures. SAB No. 108 is generally
effective for annual financial statements in the first fiscal year ending after
November 15, 2006. The transition provisions of SAB No. 108 permits existing
public companies to record the cumulative effect in the first year ending after
November 15, 2006 by recording correcting adjustments to the carrying values of
assets and liabilities as of the beginning of that year with the offsetting
adjustment recorded to the opening balance of retained earnings. The adoption of
SAB No. 108 did not have a material effect on China Health’s financial position
or results of operations.
 
 In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”. SFAS No.
157 defines fair values, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements.  This Statement
shall be effective for financial statements issued for fiscal years beginning
after November 25, 2007, and interim periods within those fiscal years. Earlier
application is encouraged provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial statements for an
interim period within that fiscal year.  China Health is currently
evaluating the impact of adopting SFAS No. 157 on its financial position and
results of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair ValueOption for Financial Assets and
Financial Liabilities–Including an amendment of FASB
Statement No. 115.  SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair
value.   Unrealized gains and losses on items for which the fair
value option has been selected are reported in earnings.  SFAS No. 159
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities.  SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007.  China Health has
not yet determined the impact, if any, on its financial statements.
  In December 2007, the FASB issued SFAS No 141 (Revised 2007),
Business Combinations(“SFAS No. 141(R)”) to significantly change the accounting for business
combinations.  Under SFAS No. 141(R), an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition date fair value with limited exceptions and will
change the accounting treatment for certain specific items,
including:
 
 ●
              acquisition
      costs will generally be expensed as
incurred;
  13
  ●
              Noncontrolling
      interests will be valued at fair value at the date of acquisition;
      and
 
 ●
              liabilities
      related to contingent consideration will be recorded at fair value at the
      date of acquisition and subsequently remeasured each subsequent reporting
      period
 
 SFAS No.
141(R) is effective for fiscal years beginning after December 15,
2008.   China Health will adopt SFAS No. 141(R) on January 1,
2009, and China Health has not yet determined the impact, if any, on its
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements–An Amendment of ARB No.51, to establish
new accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary.  SFAS No. 160
requires the recognition of a noncontrolling interest (minority interest) as
equity in the consolidated financial statements and separate from the parent’s
equity.  The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement.  SFAS No. 160 clarifies that changes in a parent’s
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial
interest.  In addition, SFAS No. 160 requires that a parent recognize
a gain or loss in net income when a subsidiary is
deconsolidated.  SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its noncontrolling
interest.  SFAS No. 160 is effective for fiscal years beginning after
December 15, 2008.  China Health will adopt SFAS No. 160 on January 1,
2009, and China Health has not yet determined the impact, if any, on its
financial statements.
 
 In March
2008, the FASB issued Statement No. 161,Disclosures about Derivative
Instruments and Hedging Activities an amendment of SFAS 133 ("SFAS 161").
This Statement will require enhanced disclosures about derivative instruments
and hedging activities to enable investors to better understand their effects on
an entity's financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application
encouraged.  The Company does not expect the adoption of SFAS 161 to
have a material impact on its financial position, results of operations or cash
flows.
 
 In
April 2008, the FASB issued FASB Staff Position on Financial Accounting
Standard (“FSP FAS”) No. 142-3, “Determination of the Useful Life of
Intangible Assets”, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
intangible assets under SFAS No. 142 “Goodwill and Other Intangible
Assets”. The intent of this FSP is to improve the consistency between the useful
life of a recognized intangible asset under SFAS No. 142 and the period of
the expected cash flows used to measure the fair value of the asset under SFAS
No. 141 (revised 2007) “Business Combinations” and other U.S. generally
accepted accounting principles.  The Company is currently evaluating the
potential impact of FSP FAS No. 142-3 on its financial
statements.
 
 In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles" (FAS No.162). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements. SFAS No. 162 is effective
60 days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles". The implementation of
this standard will not have a material impact on the Company's financial
position and results of operations.
 
 In
June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue
No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.” The EITF addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share under the two-class method. The EITF
affects entities that accrue dividends on share-based payment awards during the
awards’ service period when the dividends do not need to be returned if the
employees forfeit the award. This EITF is effective for fiscal years beginning
after December 15, 2008. The Company has no impact of FSP EITF 03-6-1 on
its financial position and results of operations as of September 30,
2009.
 
 In
June 2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether
an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock"
(EITF 07-5). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The Company is currently assessing the
impact of EITF 07-5 on its financial position and results of
operations.
  14
 
 Note
3 – CASH AND CASH EQUIVALENTS
 
 The
company maintains cash and cash equivalents balance at several financial
institutions.  Only accounts at US financial institutions are insured
by the Federal Deposit Insurance Corporation (FDIC) up to
$250,000.  As of September 30, 2009 the Company’s uninsured bank
balances totaled $1,162,620.
 
 On April
9, 2009 the Company’s wholly-owned subsidiary, Harbin Humankind Biology
Technology Co., Limited (“Harbin Humankind”), entered into a letter of intent of
share transfer agreement with the shareholders of Heilongjiang Tiefeng Rice
Company Limited (“Tiefeng”) to purchase all the equity interest of Tiefeng (“the
Share Transfer Agreement”).  On July 23, 2009 and August 19, 2009,
cash in the amount of $731,251 (RMB 5,000,000) and $7,312,507 (RMB 50,000,000)
respectively, were paid to Tiefeng.  Pursuant to the Share Transfer
Agreement, Harbin Humankind shall pay a total of RMB 102,600,000 (approximately
$15 million) in cash for all the equity in Tiefeng; RMB50,000,000 (approximately
$7.3 million) should be paid within 3 days of signing of the share transfer
agreement and RMB5,000,000 (approximately $700,000) as a deposit towards the
purchase price.
 
 
 Note
4 - CONTROL BY PRINCIPAL OWNERS
 
 The
directors, executive officers, their affiliates and related parties own,
beneficially and in the aggregate, the majority of the voting power of the
outstanding capital of China Health. Accordingly, directors, executive officers
and their affiliates, if they voted their shares uniformly, would have the
ability to control the approval of most corporate actions, including approving
significant expenses, increasing the authorized capital stock and the
dissolution, merger or sale of China Health's assets.
 
  Note 5 - PREPAID EXPENSES
 
 Prepaid
expenses consist of the following:
   September
      30, 2009
              
              
              June
      30, 2009 (Audited)Advances
      on raw materials
              
              
              41,016
              
              
              
              9,553Deposit
      on land use rights
              
              
              3,071,253Deposit
      on acquisition
              
              
              8,043,758Total
      prepaid expenses
              
              $
              11,156,027
              
              
              $
              9,553
 
 For the
three months ended September 30, 2009, the Company paid $3,071,253 (RMB
21,000,000) to Harbin Songbei District Development and Construction Committee as
the prepayment for the acquisition of the land use rights.  The
Company is in the process of going through a full range of procedures before the
land use rights can be granted to the Company.
 
 On April
9, 2009 the Company’s wholly-owned subsidiary, Harbin Humankind Biology
Technology Co., Limited (“Harbin Humankind”), entered into a letter of intent of
share transfer agreement with the shareholders of Heilongjiang Tiefeng Rice
Company Limited (“Tiefeng”) to purchase all the equity interest of Tiefeng (“the
Share Transfer Agreement”).  On July 23, 2009 and August 19, 2009,
cash in the amount of $731,251 (RMB 5,000,000) and $7,312,507 (RMB 50,000,000)
respectively, were paid to Tiefeng.
  15
 
 Note 6 - INVENTORIES
 
 Inventories
consist of following:
 
 September
      30, 2009
              
              
              June
      30, 2009 (Audited)Finished
      goods
              
              $
              17
              
              
              $
              26,623Raw
      materials
              
              
              131,651
              
              
              
              109,057Supplies
      and packing materials
              
              
              20,946
              
              
              
              14,972Total
      inventory
              
              $
              152,614
              
              
              $
              150,652
 
  Note 7 - PROPERTY, PLANT AND
EQUIPMENT
 
 The
following is a summary of property, plant and equipment:
 
 September
      30, 2009
              
              
              June
      30, 2009 (Audited)Building
      and warehouses
              
              $
              854,391
              
              
              $
              852,345Machinery
      and equipment
              
              
              167,208
              
              
              
              159,921Office
      equipment
              
              
              31,663
              
              
              
              33,968Vehicles
              
              
              89,050
              
              
              
              88,837Other
              
              
              23,060
              
              
              
              24,657Less:
      Accumulated depreciation
              
              
              (143,476
              )
              
              
              (127,400
              )Total
              
              $
              1,021,896
              
              
              $
              1,032,328
 
 Depreciation
expense charged to operations was $15,184 and $14,699 for the three months ended
September 30, 2009 and 2008, respectively.
 
 
 Note 8 - LAND USE RIGHT
 
 The
following is a summary of the land use right:
 
 September
      30, 2009
              
              
              June
      30, 2009 (Audited)Land
      use right
              
              $
              926,931
              
              
              $
              925,956Less:
      Accumulated amortization
              
              
              (81,902
              )
              
              
              (76,671
              )$
              845,029
              
              
              $
              849,285
 
 Amortization
expense charged to operations was $5,147 and $3,829 for the three months
ended September 30, 2009 and 2008, respectively.
   Note
9 - RELATED PARTY DEBT
 
 “Related
party debt" represents temporary short-term loans from majority owner, Mr. Xin
Sun, a PRC citizen. These loans are unsecured, non-interest bearing and have no
fixed terms of repayment, therefore, deemed payable on demand. Cash flows
classified as due to majority owner are classified as cash flows from financing
activities. The total borrowings from Mr. Sun were $851,351 and $868,552 as of
September 30, 2009 and June 30, 2009, respectively.
  16
 
 Interest
was imputed on the loans using the Chinese bank borrowing rate of 7.47%. The
total imputed interest expense was $15,215 for the three months
ended September 30, 2009.
   Note 10 - INCOME TAX
 
 On March
16, 2007, the National People’s Congress approved the Corporate Income Tax Law
of the People’s Republic of China (the “New CIT Law”). The new CIT Law reduces
the corporate income tax rate from 33% to 25% with effect from January 1, 2008.
All Chinese enterprises are governed by the PRC Income Tax Law and various local
income tax laws, pursuant to which a company generally is subject to an income
tax at a statutory rate of 25% for the three months ended September 30,
2009 and 2008.
 
 The
provision for income taxes consisted of the following:
 
 September 302009
              
              
              2008Provision
      for PRC income tax - current taxes
              
              $
              1,318,033
              
              
              $
              -Provision
      for PRC income tax - deferred taxes
              
              
              -Total
      provision for income taxes
              
              $
              1,318,033
              
              
              $
              -
 
 The
following table reconciles the PRC statutory rates to China Health’s effective
tax rate:
 
 September
      302009
              
              
              2008Pretax
      Income( loss )
              
              $
              5,207,690
              
              
              $
              (84,835
              )Statutory
      tax rate
              
              
              25
              %
              
              
              25
              %Benefits
      for PRC enterprise income tax at statutory rate
              
              
              1,318,033
              
              
              
              (21,209
              )Expenses
      not deductible for taxes – temporary differenceExpenses
      not deductible for taxes – permanent difference
              
              
              (5,147)
              
              
              
              17,380Increase
      in valuation allowance related to deferred tax assets
              
              
              5,147
              
              
              
              3,829Total
      provision for income taxes
              
              
              1,318,033
              
              
              
              -
  Deferred
tax assets (liabilities) as of September 30, 2009 and 2008 are composed of the
following:
  September
      302009
              
              
              2008PRCNoncurrent
      deferred tax assets :Amortization
      of land use right and other intangible assets
              
              $
              5,147
              
              
              $
              3,829Valuation
      allowance
              
              
              (5,147
              )
              
              
              (3,829
              )$
              -
              
              
              $
              -
  17
  Note
11 - COMMITMENTS AND CONTINGENCIES
 
 China
Health’s assets are located in PRC and revenues are derived from operations in
PRC.
 
 In terms
of industry regulations and policies, the economy of PRC has been transitioning
from a planned economy to market oriented economy. Although in recent years the
Chinese government has implemented measures emphasizing the utilization of
market forces for economic reforms, the reduction of state ownership of
productive assets and the establishment of sound corporate governance in
business enterprises, a substantial portion of productive assets in PRC are
still owned by the Chinese government. For example, all lands are state owned
and are leased to business entities or individuals through governmental granting
of Land Use Rights. The granting process is typically based on government
policies at the time of granting and it could be lengthy and complex. This
process may adversely affect our company’s future manufacturing expansions. The
Chinese government also exercises significant control over PRC’s economic growth
through the allocation of resources and providing preferential treatment to
particular industries or companies. Uncertainties may arise with changing of
governmental policies and measures.
  China
Health faces a number of risks and challenges not typically associated with
companies in North America and Western Europe, since its assets exist solely in
the PRC, and its revenues are derived from its operations therein. The PRC is a
developing country with an early stage market economic system, overshadowed by
the state. Its political and economic systems are very different from the more
developed countries and are in a state of change. The PRC also faces many
social, economic and political challenges that may produce major shocks and
instabilities and even crises, in both its domestic arena and in its
relationships with other countries, including the United States. Such
shocks, instabilities and crises may in turn significantly and negatively affect
China Health’s performance.
 
 The
Company is not involved in any legal matters arising in the normal course of
business. While incapable of estimation, in the opinion of the management, the
individual regulatory and legal matters in which the Company might be involved
in the future are not expected to have a material adverse effect on the
Company’s financial position, results of operations, or cash flows.
  Rental
expense is approximately $43,853 for the three months ended September 30,
2009.  The rental commitment for the fiscal year 2009 is approximately
$175,000.
 
 
 NOTE
12 - SUBSEQUENT EVENTS
 
 On August
24, 2009, the Company’s wholly-owned subsidiary, Harbin Humankind Biology
Technology Co., Limited (“Harbin Humankind”), entered into a share transfer
agreement with the shareholders of Heilongjiang Tiefeng Rice Company Limited
(“Tiefeng”) to purchase all the equity interest of Tiefeng (“the Share Transfer
Agreement”).
  Pursuant
to the Share Transfer Agreement, Harbin Humankind shall pay a total of RMB
102,600,000 (approximately $15 million) in cash for all the equity in Tiefeng as
follows:
 
 (i)
              RMB
      50,000,000 (approximately, $7.3 million) within 3 days of signing of the
      Share Transfer Agreement;
  (ii)
              RMB5,000,000
      (approximately $700,000) as a deposit towards the purchase price;
      and
 
 (iii)
              The
      remainder RMB 47,600,000 (approximately, $7 million) within 7 days of the
      effective transfer of the equity interests to Harbin
      Humankind.
 
 If the
transfer of equity interest is not effected within 60 days from the date of the
Share Transfer Agreement, the shareholders shall pay to Harbin Humankind 5% of
the total purchase consideration as compensation to Harbin
Humankind.  In addition, the shareholders shall pay liquidated damages
of 0.04% of the total purchase consideration for every day of delay beyond the
60-day period and Harbin Humankind shall then have the right to terminate the
Share Transfer Agreement forthwith.
 
 On July
23, 2009 and August 19, 2009, cash in the amount of $730,482 (RMB 5,000,000) and
$7,304,815 (RMB 50,000,000) respectively, were paid to Tiefeng.
 
 Completion
of acquisition is currently in process for legal documentation transfers and
reviews from local tax agencies.




18




Item
2.   Management’s Discussion and Analysis of Financial Condition
and Results of Operations.




FORWARD
LOOKING STATEMENTS
  The
following discussion should be read in conjunction with the information
contained in the consolidated financial statements of the Company and the notes
thereto appearing elsewhere herein and in the risk factors and “Forward Looking
Statements” summary set forth in the forepart of our Annual Report for the year
ended June 30, 2009. This quarterly report on Form 10-Q contains forward-looking
statements and is afforded the safe harbor provisions of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. Readers should carefully review the risk factors disclosed in our
Annual Report for the year ended June 30, 2009 and other documents filed by us
with the SEC.
 
 DISCUSSION
 
 We make
certain forward-looking statements in this report. Statements concerning our
future operations, prospects, strategies, financial condition, future economic
performance (including growth and earnings), demand for our services, and other
statements of our plans, beliefs, or expectations, including the statements
contained under the captions “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Business,” as well as captions elsewhere
in this document, are forward-looking statements. In some cases these statements
are identifiable through the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,”
“may,” “should,” “will,” “would,” and similar expressions. We intend such
forward-looking statements to be covered by the safe harbor provisions contained
in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)
and in Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The forward-looking statements we make are not guarantees of
future performance and are subject to various assumptions, risks, and other
factors that could cause actual results to differ materially from those
suggested by these forward-looking statements. Because such statements are
subject to risks and uncertainties, actual results may differ materially from
those expressed or implied by the forward-looking statements. Indeed, it is
likely that some of our assumptions will prove to be incorrect. Our actual
results and financial position will vary from those projected or implied in the
forward-looking statements and the variances may be material. You are cautioned
not to place undue reliance on such forward-looking statements. These risks and
uncertainties, together with the other risks described from time to time in
reports and documents that we file with the SEC should be considered in
evaluating forward-looking statements.
 
 The
nature of our business makes predicting the future trends of our revenue,
expenses, and net income difficult. Thus, our ability to predict results or the
actual effect of our future plans or strategies is inherently uncertain. The
risks and uncertainties involved in our business could affect the matters
referred to in any forward-looking statements and it is possible that our actual
results may differ materially from the anticipated results indicated in these
forward-looking statements. Important factors that could cause actual results to
differ from those in the forward-looking statements include, without limitation,
the following:
 
 ●
              the
      effect of political, economic, and market conditions and geopolitical
      events;
 
 ●
              legislative
      and regulatory changes that affect our
business;
 
 ●
              the
      availability of funds and working
capital;
 
 ●
              the
      actions and initiatives of current and potential
    competitors;
 
 ●
              investor
      sentiment; and
 
 ●
              our
      reputation.
 
 We do not
undertake any responsibility to publicly release any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this report. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by any
forward-looking statements.
 
 The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this
Report.
  19
  Except as
otherwise indicated by the context, references in this Form 10-Q to “we,” “us,”
“our,” “the Registrant”, “our Company,” or “the Company” are to China Health
Industries Holdings, Inc., a Delaware corporation, China Health Industries
Holdings Limited, and its wholly owned subsidiary, Harbin Humankind Biology
Technology Co. Limited. Unless the context otherwise requires, all references to
(i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,”
“$” and “US$” are to United States dollars; (iii) “RMB” are to Yuan Renminbi of
China; (iv) “Securities Act” are to the Securities Act of 1933, as amended; and
(v) “Exchange Act” are to the Securities Exchange Act of 1934, as
amended.
  Business
Overview
 
 Harbin
Humankind Biology Technology Co., Limited was incorporated under the People’s
Republic of China on December 14, 2003 and completed its GMP certification on
April 24, 2007.  It is in the business of the manufacture and sale of
health products, “green” (or organic) food and the detection of disease
susceptibility or pre-disposition through genetic studies.
 
 Harbin
Huimeijia Medicine Company was incorporated on October 14,
2008.   Huimeijia completed its GMP certification on July 23,
2009 and will be producing and selling our medical drugs.
 
 Our
business is conducted through chain-stores and, with regard to the sale of our
products, eventually over the internet.
  We also
serve as an OEM manufacturer on an ad hoc basis for the production and packaging
of various health food and health food supplements.  In the three
months ended September 30, 2009, our two largest OEM customers were Hayao Group
Shiyitang Co. and Harbin Medical Supply Co., Ltd.
 
 Results
Of Operations
 
 For
the three months ended September 30, 2009 as compared to September 30,
2008
 
 Our
principal business operations are conducted through our wholly owned subsidiary,
Harbin Humankind Biology Technology Co., Limited (“Humankind”) and Humankind’s
subsidiary, Harbin Huimeijia Medicine Company (“Huimeijia”) which was
incorporated on October 14, 2008.   Huimeijia received GMP
certification on July 23, 2009 and will be producing and selling our medical
drugs.
  September
      302009
              
              
              Variance
              
              
              2008REVENUESProduct
      Sales (net of sales allowance)
              
              $
              10,246,606
              
              
              
              3,480
              %
              
              $
              286,207Total
      revenues
              
              $
              10,246,606
              
              
              
              
              
              
              
              286,207COST
      OF GOODS SOLDCost
      of goods sold
              
              
              4,486,366
              
              
              
              1,687
              %
              
              
              251,031Gross
      Profit
              
              $
              5,760,240
              
              
              
              16,275
              %
              
              $
              35,176
 
 Total
revenues increased by 3480% in the three months ended September 30, 2009
compared to 2008.  The $9,960,399 increase in revenue is attributable to
strong performances from our sales distribution channels.
 
 This
growth in sales is attributable to volume and our efforts to continue to develop
our distribution channels by hiring additional sales agents to assure that our
products and their associated benefits are seen by those making or influencing
the purchasing decisions.
 
 Our cost
of sales increased $4,235,335, or 1,687% in the three months ended September 30,
2009 compared to 2008. The costs increased as a result of the increased
sales.
  20
  Sales
by Product Line
 
 A
break-down of our sales by major product line for each of the three months ended
September 30, 2009 and 2008 is as follows:
 
 For
      the Three Months Ended September 302009
              
              
              
              
              
              
              
              
              2008Product
      Category
              
              Quantity
                (Unit)
              
              
              Sales
      USD
              
              
              %
      of Sales
              
              
              Quantity
                (Unit)
              
              
              Sales
      USD
              
              
              %
      of
                SalesFrog
      Oil Soft CapsulePropolis
      CapsuleLiquid
      Calcium CapsuleSelenium
      Propolis CapsuleAbalone,
      Sea cucumber and Frog oil soft capsule
              
              
              5,496
              
              
              
              1,181,036.60
              
              
              
              11.53
              %Ganoderma
      lucidum and Aweto Soft Capsules
              
              
              4,424
              
              
              
              911,994.06
              
              
              
              8.9
              %
              
              
              1,198
              
              
              
              257,697.14
              
              
              
              90.04
              %Chao
      Bao CapsuleJianwei
      Calcium TabletPropolis
      and Black Ant Capsule
              
              
              28,982
              
              
              
              2,672,224.26
              
              
              
              26.08
              %Waterlilies
      Soft Capsule(Sailuozhi)
              
              
              13,885
              
              
              
              3,226,614.02
              
              
              
              31.49
              %Colon
      Cleanser Capsule
              
              
              31,589
              
              
              
              2,241,673.72
              
              
              
              21.88
              %OEM
      Sales
              
              
              
              
              
              
              13,063.34
              
              
              
              0.13
              %
              
              
              
              
              
              
              28,509.86
              
              
              
              9.96
              %Total
              
              
              
              
              
              
              10,246,606
              
              
              
              100
              %
              
              
              
              
              
              
              286,207
              
              
              
              100
              %
 
 
 Operating
Expenses
  The
following table summarizes the changes in our operating expenses from $108,608
to $536,656 for each of the three months ended September 30, 2009 and 2008,
respectively:
 
 For
      the Three Months Ended September 302009
              
              
              Variance
              
              
              2008Operating
      ExpensesSelling
      , General and Administrative expenses
              
              $
              516,325
              
              
              
              441
              %
              
              $
              95,442Depreciation
      and amortization
              
              
              20,331
              
              
              
              54
              %
              
              
              13,166Total
      operating expenses
              
              $
              536,656
              
              
              
              394
              %
              
              $
              108,608
 
 Total
operating expenses for the three months ended September 30, 2009 increased
$420,883 or 441% over the same period in 2008. The higher operating
expenses were primarily attributable to the increased costs of marketing and
distribution of our products for sale to generate our increased product
sales from $286,207 in 2008 to $10,246,606 in 2009.
  We
incurred imputed interest expenses in the amount of $15,899 on the loans due to
Mr. Sun Xin, the executive officer and major shareholder of Company. These loans
are unsecured, non-interest bearing and have no fixed terms of
repayment.
  21
  2010
Outlook
 
 We
anticipate our total revenues in 2010 versus 2009 to increase by 101% or
approximately $11.04 million with growth in all categories of our product sales.
Our gross profit margin in 2010 is expected to be approximately 55.45% due to
raw material cost inflation. Operating expenses will increase due to higher
percentage of R&D investment as well as expanding our own distribution
channels. We estimate our overall 2009 net profit margins to be approximately
22.64%.However, there is no assurance that these predictions will be
reached.
  Liquidity
and Capital Resources
 
 The
following table summarizes our cash and cash equivalents position, our working
capital, and our cash flow activity as of September 30, 2009 and 2008 and for
each of the three months then ended:
  September
      30, 09
              
              
              September
      30, 08As
      of September 30:Cash
      and cash equivalents
              
              $
              1,164,590
              
              
              $
              7,859Working
      capital
              
              $
              6,338,177
              
              
              $
              (836,323
              )Inventories
              
              $
              150,652
              
              
              $
              163,825For
      the Three Months Ended September 30:Cash
      provided by (used in):Operating
      activities
              
              $
              4,884,607
              
              
              $
              (145,302
              )Investing
      activities
              
              $
              (11,281,540
              )
              
              $
              (1,412
              )Financing
      activities
              
              $
              (17,201
              )
              
              $
              140,738
  As of
September 30, 2009, cash and cash equivalents were $1,164,590 as compared to
$7,859 at September 30, 2008. The increased cash and cash equivalents position
of 1,156,731 or 14719%  at September 30, 2009 was primarily due
to our cash flows provided by operating activities in 2009 of approximately
$6.7 million.
 
 Our
current ratio was 2.03 versus 0.21 and the quick ratio was 2.01
versus 0.05 at September 30, 2009 and 2008, respectively.  Management
endeavors to ensure that funds are available to take advantage of new investment
opportunities and that funds are sufficient to meet future liquidity and capital
needs.
 
 Cash
flow provided by operating activities was $4,884,604 for the three months ended
September 30, 2009 compared to cash flow used by operation activities of
$145,302 for the same period in 2008.  The increase in cash provided by
operating activities of 5,029,906 is primarily attributable to the increased net
income of approximately $6.7 million in 2009 versus net loss of $84,835 in
2008.
 
 Our
working capital position at September 30, 2009 was $6,338,177 compared to
working capital deficit of $836,323 at September 30, 2008. Our increased working
capital position in 2009 was principally funded by the increased cash flow
generated from our operating activities of approximately $6.7
million.  Management considers current working capital and borrowing
capabilities adequate to cover our current operating and capital requirements
for the full year 2009.
 
 Currency
Exchange Fluctuations
 
 All of
our revenues and majority of the expenses during the three months ended
September 30, 2009 were denominated primarily in Renminbi (“RMB”), the currency
of China, and was converted into US dollars at the exchange rate of 6.8376 RMB
to 1 U.S. Dollar.  In the third quarter of 2005, the Renminbi began to rise
against the US dollar.  There can be no assurance that RMB-to-U.S.
dollar exchange rates will remain stable. A devaluation of RMB relative to the
U.S. dollar would adversely affect our business, financial condition and results
of operations. We do not engage in currency hedging.
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements that are currently material or
reasonably likely to be material to our financial position or results of
operations.
 
 22







Item 3. Quantitative and Qualitative
Disclosures About Market Risk.





Not applicable.




Item
4.  Controls and Procedures.





Evaluation
of our Disclosure Controls





As of the
end of the period covered by this Quarterly Report on Form 10-Q, our principal
executive officer and principal financial officer have evaluated the
effectiveness of our “disclosure controls and procedures” (“Disclosure
Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are
designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this Quarterly
Report, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms.
Disclosure Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the CEO
and CFO, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the CEO and CFO, does not expect that our Disclosure
Controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.





Based
upon their controls evaluation, our CEO and CFO have concluded that our
Disclosure Controls are effective at a reasonable assurance level.





Changes
in internal control over financial reporting





There
have been no changes in our internal controls over financial reporting during
our third fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.


23





PART
II - OTHER INFORMATION





Item 1. Legal
Proceedings.





There is no material legal proceeding pending against
us.




Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds





None.





Item
3.  Defaults Upon Senior Securities





None.




Item
4.  Submission of Matters to a Vote of Security Holders.





None.





Item
5.  Other Information





Not
applicable.





Item
6.  Exhibits





Copies of
the following documents are included as exhibits to this report pursuant to Item
601 of Regulation S-K.




Exhibit No.
            
            SEC Ref. No.
            
            Title of Document1
            
            31.1
            
            Certification
      of the Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 20022.
            
            31.2
            
            Certification
      of the Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 20023
            
            32.1
            
            Certification
      of the Principal Executive Officer pursuant to U.S.C. Section 1350 as
      adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of
      2002*4
            
            32.2
            
            Certification
      of the Principal Financial Officer pursuant to
  U.S





*The Exhibits attached to
this Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to
liability under that section, nor shall it be deemed incorporated by reference
in any filing under the Securities Act of 1933, as amended, or the Exchange Act,
except as expressly set forth by specific reference in such
filing.


24


SIGNATURES





In
accordance with the Exchange Act, the registrant caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.





CHINA
      HEALTH INDUSTRIES
                HOLDINGS,
      INC.Date:
      November 16, 2009/s/
      Xin SunXin
      SunChief
      Executive Officer and Chief Financial
                Officer


25