UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




(Mark
      One)x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934For
      the Fiscal Year Ended:  December 31, 2009o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934ORFor
      the transition period from ________ to
_________




Commission
File Number: 000-50029




CHINA
HEALTH RESOURCE, INC.


(Exact
name of Registrant as specified in its Charter)




Delaware
            73-1629948(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)




343 Sui
Zhou Zhong Road


Suining
City, Sichuan Province, P.R. China


(Address
of Principal Executive Offices)




+(86-825)
239-1788


(Issuer’s
Telephone Number)




Securities
registered pursuant to Section 12(b) of the Act:




Title
      of each class
            Name
      of each exchange on which registeredNone
            Not
      Applicable




Securities registered
pursuant to Section 12(g) of the Act:


Common
Stock, Class A & Class B, $.01 par value




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes o No  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.  Yes  o  No  x




Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  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 the “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):




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






Table of Contents




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




As of
December 31, 2009, there were 142,288,894 shares of the registrant’s Class
A Common Stock, par value $0.01, issued and outstanding, of which approximately
76,965,906 are held by non-affiliates of the registrant, and none of the
registrant’s Class B Common Stock, par value $0.01, issued and
outstanding.  The aggregate market value of securities held by
non-affiliates is approximately $384,830 as of June 30, 2009, based upon the
registrant’s closing bid price as quoted on the OTC Bulletin Board on June 30,
2009, of $0.005 per share.




Information
related to our company, including certain reports filed with or furnished to the
SEC, are available through our website (www.chriglobal.com).  We are
not including any information on our website as part of, or incorporating it by
reference into, our Form 10-K.









Table of Contents







CHINA
HEALTH RESOURCE, INC.


INDEX TO
ANNUAL REPORT ON FORM 10-K


DECEMBER
31, 2009




TABLE OF CONTENTS








PagePART
      IItem
      1.
            
            Business
            4Item
      1A.
            
            Risk Factors
            10Item
      1B.
            
            Unresolved Staff Comments
            10Item
      2.
            
            Properties
            10Item
      3.
            
            Legal Proceedings
            12Item
      4.
            
            Submission of Matters to a Vote of Security
      Holders
            13PART
      IIItem
      5.
            
            Market for Registrant’s Common Equity, Related Stockholder
      Matters, and Issuer Purchases of Equity Securities
            13Item
      6.
            
            Selected Financial Data
            13Item
      7.
            
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            14Item
      7A.
            
            Quantitative and Qualitative Disclosures about Market
      Risk
            20Item
      8.
            
            Financial Statements and Supplementary Data
            20Item
      9.
            
            Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
            20Item
      9A.
            
            Controls and Procedures
            20Item
      9B.
            
            Other Information
            21PART
      IIIItem
      10.
            
            Directors, Executive Officers and Corporate
      Governance
            21Item
      11.
            
            Executive Compensation
            24Item
      12.
            
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            27Item
      13.
            
            Certain Relationships and Related Transactions, and Director
      Independence
            30Item
      14.
            
            Principal Accounting Fees and Services
            32PART
      IVItem
      15.
            
            Exhibits and Financial Statement Schedules
            32SignaturesExhibit Index





Explanatory
Notes




In this
Annual Report on Form 10-K, China Health Resource, Inc. is sometimes referred to
as the “Company”, “we”, “our” or “China Health Resource, Inc.” and U.S.
Securities and Exchange Commission is sometimes referred to as the
“SEC”.





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CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION




Except
for historical information, this report contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended.  Such forward-looking statements involve risks and
uncertainties, including, among other things, statements regarding our business
strategy, future revenues and anticipated costs and expenses.  Such
forward-looking statements include, among others, those statements including the
words “expect,” “anticipate,” “intend,” “believe” and similar
language.  Our actual results may differ significantly from those
projected in the forward-looking statements.  Factors that might cause
or contribute to such differences include, but are not limited to, those
discussed in Item 1. Business and Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations. You are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date of this report.  We undertake no obligation to publicly release
any revisions to the forward-looking statements or reflect events or
circumstances taking place after the date of this document.




Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements.




All
references in this Form 10-K to the “Company,” “CHRI,” the “Registrant,” “we,”
“us” or “our” are to China Health Resource, Inc., a Delaware
corporation.  These terms also refer, where context requires, to our
subsidiary corporation, Suining Shi Yinfa Bai Zhi Chan Ye You Xian Gong Si, a
corporation organized and


existing
under the laws of the Peoples’ Republic of China (“Yinfa”), acquired in August
2006.  All references in this Form 10-K to the “PRC” are to the
Peoples’ Republic of China.









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PART
I




Item 1.    Business




History




We were
incorporated in the State of Delaware on February 26, 2002. In June and July
2002, we acquired approximately 99% of the outstanding shares of Voice Diary
Ltd., an Israeli corporation (“VDL”), through an exchange of shares of the
Company with shareholders of VDL. On June 13, 2006, we, as the acquirer,
executed a Plan of Exchange with Yinfa (acquiree), the shareholders of Yinfa and
the Company’s then majority shareholders, pursuant to which we issued 30,000,000
(pre-forward split) new shares of our Class A Common Stock to the Yinfa
shareholders in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended, in reliance upon Regulation S thereunder, in
exchange for all of their shares of registered capital of Yinfa. As a result,
Yinfa became our wholly-owned subsidiary. Yinfa was founded on April 24, 2001,
with registered capital of US $125,500 (RMB 1,000,000) and total assets of US
$1,475,795.  Yinfa’s business incorporates a self-owned production
base and a network of DAR (as defined below) associates, farmers and research
and development affiliates. The transaction was treated for accounting purposes
as a capital transaction and recapitalization by the accounting acquirer and as
a re-organization by the accounting acquiree. We disposed of VDL on August 22,
2006 pursuant to the agreement between the Company, VDL and Arie Hinkis, our
former president. On May 21, 2007, we changed our name to China Health Resource,
Inc. to more accurately reflect our business operations.




Our
Business




Since the
completion of the Plan of Exchange with Yinfa, our core business has been in
pharmaceuticals and the continued operations of Yinfa. Yinfa is a Chinese
pharmaceutical company focused on developing and commercializing Dahurian
Angelica Root (“DAR”), a popular traditional Chinese medicine
(“TCM”).  Our business plan includes distributing DAR and its related
products for the treatment of pain, swelling and pustule. DAR is a popular herb
employed extensively as an ingredient in food, medicine and cosmetics. The
Suining district in China’s Sichuan Province is the major planting and
production area in China for DAR as a result of the local climate and soil
properties.  Over 70% of DAR for general use and 100% of DAR for
pharmaceutical use in China is produced in Suining.




In May
2005, we applied for and obtained Good Agricultural Practice of Medical Plants
and Animals (“GAP”) certification for DAR, in cooperation with Sichuan Yinfa
Resource Development Group Co. Ltd., our affiliate (“Yinfa
Resource”).  The standards which must be met to obtain certification
include the study of our environment quality, seed quality, minimum pesticides,
and fertilizer.  These standards were adopted by the Chinese State
Food and Drug Administration (the “SFDA”).  Our GAP project involves
approximately 133,334 square meters of experimental planting fields, and
1,333,340 square meters of fields run by companies we have hired, all of which
passed inspection by the SFDA, on February 26, 2006.  The GAP
certificate has been issued in name of our partner, Yinfa
Resource.  GAP certification means that our planning, quality, and
manufacturing of DAR have met the requisite high and certifiable
standard.




In 2007,
Yinfa contracted with the Sichuan Province Suining City DAR Association
(“Association”) and received the exclusive rights to the “Suining Sichuan
Angelic” certified trademark from the Chinese State Administration of Industry
and Commerce through December 13, 2016. As holder of the rights to the
trademark, Yinfa is entitled to receive a management fee of 1RMB (or
approximately US $0.14) per kilogram of DAR (including packaging fees) from any
user of the trademark, of which 60% may be used by Yinfa for further development
and investment of its DAR business and the remaining 40% must be paid to the
Association for related expenses.  In addition, Yinfa is entitled to
receive 100% of the revenue stream from the use of the DAR trademark through
December 13, 2016 and 95% of the revenue stream thereafter. There are
approximately 235 regional certification trademarks in China, including 65 for
natural resources, of which over 20 are for natural herb resources.





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We
believe our business model will help facilitate the process of growing and
commercializing DAR, research and development, sales and
marketing.  Our current DAR-related products include the Bailing
Capsule, Yisheng Capsule, Kimchee-Mate and Fragrant Bag, all of which have been
certified by the SFDA and are being sold into the market via regional
distributors throughout China. We will continue to explore the development and
addition of DAR in a range of foods, medicines and cosmetics. In addition, we
continue to consider and explore opportunities to expand our current asset base
and product offerings to increase our revenues and enhance shareholder value.
These opportunities may include, but are not limited to, acquisitions or
in-licensing of additional products and the combination or merger of Yinfa with
other Chinese companies in synergistic or complementary industries.




Our
Market Opportunity




We
believe that TCM presents a highly attractive opportunity for the following
reasons.




The trend towards organic
materials.  Since World War II, traditional agricultural and
organic agriculture, has been subject to extensive application of synthetic
chemicals, such as synthetic fertilizers, pesticides, herbicides, and
mass-production techniques. The advocacy of organic agriculture and the trend
for organic materials is recognized globally and is a strong part of the Chinese
culture. In addition, TCM represents a vast market in China and a growing market
internationally. Different from modern chemical-intensive medication, TCM
consists of various natural herbs. Naturalism is the essence of traditional
Chinese herbal theory and the functions of herbs have been studied and applied
for thousands of years in China.




Substantial
markets.  As reported by China Medical News in 2008, the global
trade volume of TCM increased from approximately $140 billion in 2006 to $154
billion in 2007, with the global export volume increasing from approximately
$110 billion to $118 billion in the same period. (China Medical News, Vol. 23,
p.2 Market Journal, 2008).  Additionally, as governments and world
bodies, such as the World Health Organization, continue to accept TCM, the
number of potential customers continues to grow, as shown by the increasing
trade volume and exports.  We believe that we are in a position to
take advantage of the growing acceptance of TCM through the development of our
products.




Acceptance of GAP standards in
China.  Even though Chinese herbal theory has evolved over
thousands of years, China did not play a key role historically in the global
herbal medication market.  This was due to a lack of standards with
respect to quality control of Chinese medicinal herbs.  This situation
has changed since GAP was adopted by China in 2003. GAP regulates controls at
every stage of herb development from the ecological environment, germplasm and
breeding, to cultivating, raising, collecting, transporting, packaging and
quantitative administration. GAP is the first step to implementing good
manufacturing practice in the TCM industry because quality control begins with
the planting of herbs.




The raw herb material is formed
through different growing and production stages.  Different
germplasm, ecological environment, culture technology, and harvesting times and
processing methods can all influence the output and quality of the herbs.
Therefore, without adequate quality control, there can be significant risks when
buying herbs from different sources in the market.  For example, in
the open market, herbs in the same genus but in different species are often
confused and mixed together. Only a specific species will have the most active
ingredients.





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Increasing use in combination with
Western medicine.  Social and demographic factors contribute to
the growth in the TCM market and the need for new, natural
therapies.  TCM is a supplement for chemical-intensive treatments,
such as chemotherapy, due to its natural features and functions in strengthening
the immune system. In addition to the increased side effects of
chemical-intensive treatments, we believe that standard chemical-intensive
treatment regimens have several other limitations, including multiple daily
dosage requirements, lengthy treatment periods, limited effectiveness and severe
side effects, all of which may decrease patient compliance and, ultimately,
therapeutic efficacy.




Our
Proprietary GAP-Certified DAR Products




A GAP
certificate means that the planting, quality and manufacturing of DAR meets a
high and certifiable standard. We are confident in the quality of, and therefore
the market for, our DAR products. Our process in growing DAR is certified
according to GAP. The table below highlights the standards which DAR products
must meet to be GAP-certified.




Ingredients Constituting GAP
DAR (State Food and Drug Administration, “Traditional Chinese Medicine
Production Quality Administration Standard,” No. 32 Order.)




No.
            Ingredient
            GAP
      DAR1
            Water
            
            <12.0%2
            Ash
            
            <6.0%3
            Insoluble
      Acid
            
            <2.0%4
            Heavy
      Metal
            Lead
            <5.0mg/kgCadmium
            <0.3mg/kgMercury
            <0.2mg/kgArsenic
            <2.0mg/kg5
            Pesticide
            Residue
      Benzene hexachloride (BHC)
            <2%Gesarex
            <2%Terrachlor
            <1%6
            Microbes
            Virus
            <30000unit/gMucedine
            <100
      unit/gColibacillus
            N/A7
            Extract
            
            >14.0%8
            Imperatorin
      & Alloisoimperatorin
            
            >0.16%9
            Total
      Coumarin
            
            >0.5%




As
mentioned above, the ecological environment is another important factor
affecting the quality of DAR. The suitable environment for DAR is a warm and
moist climate with medium-dry soil. Suining, where Yinfa is based, is located at
the edge of the Si Chuan Basin, southwest China, covered by the subtropical
climate belt. The annual mean temperature in this region is approximately
63.3°F, and annual rainfall is approximately 39.09 inches. In addition, the soil
in this region contains abundant elements, such as potassium, phosphorus, and
others, which is beneficial to the growth of herbs, such as DAR.




Marketing
Strategy




We expect
to use our proprietary technology in DAR to develop and commercialize more
efficient, effective and convenient DAR products. To achieve this objective, our
business model incorporates our self-owned production base, DAR associates,
farmers and research and development affiliates.  We believe the
business model will facilitate the growing process, research and development,
commercializing DAR, sales and marketing. Currently, our DAR-related products
include the Bailing Capsule, Yisheng Capsule, Kimchee-Mate and Fragrant Bag,
which have been certified by the SFDA and marketed through regional distributors
throughout China. Yinfa continues to explore the application for DAR in a range
of food, medicine and cosmetics.





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In
addition, we have adopted the following product development and
commercialization strategies:




Commercialize GAP DAR
products. We plan to develop high quality DAR products certified by GAP,
which may include DAR seeds to pharmaceutical factories as raw material, or
DAR-related products.  Such DAR-related products may include medicines
used for the treatment of tension and cluster headaches, including migraines,
along with other DAR-related products.  We believe that our DAR and
DAR-related products will be competitive in the marketplace due to our GAP
certification and their increased efficacy over competing products.





Develop sales and marketing
functions across multiple DAR products. We have a long-range plan to
build a pharmaceutical company to take advantage of the local resources of DAR
and develop and commercialize DAR and its related products, diversifying our
product lines to better compete in the growing TCM market. We believe that
Yinfa’s commercialization strategy will allow us to fully enhance the value of
its DAR product and retain significant control over its development and
commercial activities. In order to facilitate the sales channel for DAR, we are
considering several sales and marketing strategies, including strengthening our
nation-wide network in China via regional distributors.




We have
also entered into agreements with other pharmaceutical companies which purchase
DAR as raw material. For example, we have an exclusive agreement with Chengdu
Derentang Pharmaceutical Ltd. (“Derentang”), the largest Chinese medicine
distributor in the Sichuan province, which owns approximately 600 medical
franchise stores throughout China, of which 120 stores are in Sichuan. We are
the exclusive supplier of DAR to Derentang in the Sichuan area and our DAR
products are sold in all of Derentang’s medical franchise
stores.  This agreement will expire in 2017.




Seek support from local
resources. In order to commercialize TCM products and increase the income
for TCM farmers, the local government of Suining City has successfully developed
grower networks for TCM to facilitate the process from fields to end users,
including planting, production, distribution and sales.  Additionally,
we intend to take advantage of the vast TCM resources available to aid in the
development of our products in Sichuan province, which contains numerous
research institutions and universities that focus on research and development of
TCM.




Pursue strategic partners.
For certain DAR products, we intend to enter into collaborative arrangements
with third parties in order for us to:




·
            fund
      our research and development
activities;




·
            fund
      manufacturing by third parties;




·
            seek
      and obtain regulatory approvals;
and




·
            successfully
      commercialize our DAR products.




In 2007,
we entered into an exclusive agreement with DongUi Cosmetics Co. (“DongUi”), a
Korean corporation, for the development of our DAR market in South Korea. DongUi
acts as our sole marketing agent in South Korea for DAR. DongUi’s initial order
was approximately 300 tons of DAR raw material and, under the terms of the
agreement, DongUi is obligated to increase their annual DAR order at a rate of
at least 10% per annum. The collaborative agreement will expire in
2017.





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Competition




The TCM
industry is highly competitive in many areas. Our DAR and DAR-related products
will compete with other available products based primarily on:




·
            efficacy




·
            safety




·
            tolerability




·
            acceptance
      by doctors




·
            patient
      compliance and acceptance




·
            patent
      protection




·
            convenience




·
            price




·
            insurance
      and other reimbursement coverage




·
            distribution




·
            marketing




·
            adaptability
      to various models of dosing




Competitors
include national and regional TCM providers, TCM manufacturers, wholesalers and
chain drug stores.




Many of
our competitors possess greater financial, managerial and technical resources
and have established reputations for successfully developing and marketing TCM,
all of which put us at a competitive disadvantage.  Our competitors
may be able to apply their resources and capabilities to develop and
commercialize products that have distinct, enhanced, or perceived advantages
over our products. In addition, our competitors may be in a position to devote
greater resources in the sales, marketing, and distribution of these products
and, therefore, considerably impact our ability to successfully sell, market and
distribute our own products.




Manufacturing




We
currently rely on several third-party contract manufacturers to produce
sufficient quantities of DAR-related products. We believe that our initial focus
on the application for GAP certification for DAR will reduce the risk and time
involved in the development of manufacturing capabilities because production of
DAR-related products involves well-established and well-accepted manufacturing
techniques and processes. We intend to continue to rely upon third-party
contract manufacturers for production of our DAR-related products. The use of
third parties for these activities allows us to minimize our initial capital
investment and reduce the risk that would be associated with the establishment
of our own commercial manufacturing and distribution operations.





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Chinese
Government Regulation




We must
follow various government regulations and, in particular, the SFDA
regulations.  Government regulations may have material impact on our
operations, increase costs and could prevent or delay our licensing,
manufacturing and selling our products.  Our research, development,
testing, manufacturing and marketing activities are subject to various
governmental regulations in China, including health and drug
regulations.  Government regulations, among other things, cover the
inspection of and controls over testing, manufacturing, safety and environmental
considerations, efficacy, labeling, advertising, promotion, record keeping and
sale and distribution of pharmaceutical products.  We will not be able
to license, manufacture, sell and distribute the vast majority of our products
without proper approvals from government agencies and in particular the SFDA.
There is no assurance that we will obtain such approvals.




In
addition, delays or rejections may be encountered based upon additional
government regulation from future legislation, administrative action or changes
in governmental policy and interpretation during the period of product
development and product assessment.  Although we have, so far,
obtained the marketing rights for selling some of our products in China, we may
not continue to receive and maintain regulatory approvals for the sales of these
products.  Our marketing activities are also subject to government
regulations with respect to the prices that we intend to charge or any other
marketing and promotional related activities.  Government regulations
may substantially increase our costs for developing, licensing, manufacturing
and selling products, negatively impacting our operation, revenue, income and
cash flow.




The
manufacture and sale of pharmaceutical products in the PRC is heavily regulated
by many state, provincial and local authorities.  These regulations
significantly increase the difficulty and costs involved in obtaining and
maintaining regulatory approvals for marketing new and existing products. Our
future growth and profitability depend to a large extent on our ability to
obtain regulatory approvals.




Under the
SFDA guidelines for licensing of pharmaceutical products, all pharmaceutical
manufacturers must obtain and maintain Good Manufacturing Practices (“GMP”)
certifications.  We are currently in compliance with the SFDA
guidelines and maintain GMP certifications. However, should we fail to receive
or maintain the GMP certifications under the guidelines in the future, our
businesses would be materially and adversely affected.




Moreover,
the laws and regulations regarding acquisitions of the pharmaceutical industry
in the PRC may also change and may significantly impact our ability to grow
through acquisitions.




Employees




As of
December 31, 2009, we had 200 full-time employees. There are 35 managers. There
are 126 which have college undergraduate degrees. There are 32 specialists in
researching and development, of which 9 have doctorate degrees.  All
employees are working in our subsidiary located in China.




Seasonality




Our
business is subject to seasonal fluctuations. DAR is planted during the winter
months and is suitable for harvest beginning in the summer.  The prime
season for harvest and resulting sales is typically from July through October,
subject to climate conditions.  As a result, we typically enter into
contracts with farmers during the first quarter of the fiscal year for the
purchase of raw DAR.  We then process the harvested DAR and sell
products to our customers during the second half of the fiscal year.
Consequently, our revenues are received primarily in the second half of the
fiscal year.





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Customers




Our
business is not reliant upon one customer.  Due to our arrangement
with the Association, we are the exclusive distributor of Sichuan
DAR.  This exclusive arrangement provides significant diversification
of our customer base and, as such, keeps us from being reliant on any major
revenue-generating customers, the loss of whom would impact our
business.




Research
and Development




Our
annual research and development expenses for the years ending December 31, 2009
and 2008 were approximately $1 million per year.




Environment




As
described above, we maintain certification with GAP standards. Consistent with
these standards, we maintain an environmentally sound production site and
utilize products such as organic fertilizer to ensure that our DAR and
DAR-related products maintain a high quality.  We generally expend 6%
of our annual profits to maintain our production site to ensure compliance with
best environmental practices.




Item
1A.Risk
Factors.




The
information to be reported under this Item is not required of smaller reporting
companies.




Item 1B.  Unresolved Staff Comments.




The
information to be reported under this Item is not required of smaller reporting
companies.




Item 2.  Properties.




There is
no private ownership of land in China; all land ownership is held by the
government of China, its agencies and collectives. Land use rights are obtained
from the government for periods ranging from 50 to 70 years, and are typically
renewable. Land use rights can be transferred upon approval by the land
administrative authorities of China (State Land Administration Bureau) upon
payment of the required transfer fee.




Owned
Property




Our main
office is located at 343 Sui Zhou Zhong Road, Suining, Sichuan Province,
People’s Republic of China, which is owned by us and has a total area of 1,775
square feet.  No other businesses operate from this
office.




We also
own a five-story building in the City of Cheng Du, Sichuan Province, China, with
a total area of approximately 13,934 square feet, which contains our sales and
research and development departments. We purchased this building from a related
party.







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Leased
Property




We lease
our warehouse of approximately 2,600 square feet.  Under the new lease
for the year ending December 31, 2009, we pay approximately $1,791 per
year.  We renew our lease on a year to year basis, automatically,
unless notice is given by one of the parties.




We lease
farm land of approximately 861,543 square feet from a cooperative of
farmers.  We renewed our lease in March 2008, and under the new terms
of the lease, we pay approximately $7,522 per year.  The lease expires
August 31, 2017, unless notice is given by one of the parties.




Land
Use Rights




On
December 19, 2008, the Company and Mr. Lei Guo, as Trustee, on behalf of Sichuan
Yinfa Resources Development Co., Ltd, the Trustor , pursuant to  a
Property Trust Agreement made under the PRC trust and contract laws, and other
applicable PRC laws and regulations , entered into a  Contract of
Lease of Property, pursuant to PRC contract law, leasing for the
Company  approximately 3,262 acres located in Heiwengtang Valley,
Xianping Forestry, Pingwu County, Mianyang City, Sichuan Province, People’s
Republic of China (the “Property”). The Company planned to use the Property for
commercial uses to expand its business. The lease period commenced December 30,
2008 and was to expire on December 30, 2038.  The total fixed rent for
the full lease period was US$5,775,994 for the full lease term. Pursuant to the
Contract of Lease of Property, the Company agreed to pay US$5,710,994 by issuing
a “Form of  Convertible Promissory Note” in the principal sum of
US$5,710,994, alongwith annual interest at
the rate of one and one-half percent (1.5%), per annum. Pursuant to the terms of
the Form of Convertible Promissory Note, the principal amount and all accrued,
but unpaid interest, automatically converted in four (4) tranches, on the dates
(“Conversion Dates”) set forth in Convertible Promissory Note (each a “Mandatory
Conversion”) into shares of the Company’s Class A Common Stock, at a conversion
price equal to the closing bid price per share for the Class A Common Stock, as
quoted on the OTC Bulletin Board or, if the Class A Common Stock is listed on a
National Securities Exchange, at the closing price per share.  In each
case, the conversion price was to be determined, on the date, five (5) days
prior to the applicable Conversion Date (the “Conversion Price”).  The
Mandatory Conversions were to be implemented as following:




(1)
            On
      March 30, 2009, outstanding principal in the amount of $2,000,000, plus
      accrued and unpaid interest to the date of
  conversion;




(2)
            On
      December 30, 2009, outstanding principal in the amount of $1,000,000, plus
      accrued and unpaid interest to the date of
  conversion;




(3)
            On
      March 30, 2010, outstanding principal in the amount of $1,000,000, plus
      accrued and unpaid interest to the date of conversion;
  and




(4)
            On
      December 30, 2010, the balance of the outstanding principal in the amount
      of $1,710,994, and unpaid interest to the date of
    conversion.




The
Company paid the remaining balance of $65,000, by issuing 43,000,000 shares of
the Company’s Class A Common Stock to the Trustee on behalf of the Trustor, on
December 30, 2008 in a transaction exempt from the registration requirements of
the Securities Act of 1933, as amended, in reliance upon Regulation S
thereunder.





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On
January 21, 2009, the Company and Mr. Lei Guo, the Trustee, on behalf of the
Trustor, agreed to amend and restate the Convertible Promissory Note by revising
the terms of the conversion mechanism in the Convertible Promissory Note – the
remaining terms and conditions of the Convertible Promissory Note remained
unaffected by the amendment.  The amendments were reflected in an
Amended and Restated Convertible Promissory Note (the
“Note”).  Pursuant to the Note, the Conversion Price was amended into
a fixed price, set forth in the terms of the Note, and the terms of the
Mandatory Conversion were amended as follows:




(1)
            On
      March 30, 2009, outstanding principal in the amount of $2,500,000, plus
      accrued but unpaid interest to the date of conversion, at the Conversion
      Price of $0.20 per share of the Common
Stock;




(2)
            On
      December 30, 2009, outstanding principal in the amount of $1,000,000, plus
      accrued but unpaid interest to the date of conversion, at the Conversion
      Price of $0.40 per share of the Common
Stock;




(3)
            On
      March 30, 2010, outstanding principal in the amount of $1,000,000, plus
      accrued but unpaid interest to the date of conversion, at the Conversion
      Price of $1.00 per share of the Common Stock;
  and




(4)
            On
      December 30, 2010, the balance of the outstanding principal in the amount
      of $1,210,994, plus accrued but unpaid interest to the date of conversion,
      at the Conversion Price of $1.50 per share of the Common
      Stock.




On March
30, 2009, the outstanding principal in the amount of $2,500,000, plus the
accrued and unpaid interest automatically converted at the Conversion Price of
US $0.20 per share into 12,605,615 shares of the Company’s Class A Common Stock
for the Trustee, pursuant to the terms of the Note.  The Note and the
Common Stock were issued in reliance upon an exemption from the registration
requirements of the U.S. Securities Act of 1933, as amended, in accordance with
Regulation S.




Effective
July 30, 2009, the Company and Mr. Lei Guo, the Trustee, on behalf of Sichuan
Yinfa Resource Co., Ltd, the Trustor, agreed to terminate the Note, issued on
January 21, 2009.  In connection with the termination of the Lease
Property and Note, effective July 30, 2009, the 12,605,615 shares of the
Company’s Class A Common Stock issued to the Trustee, on March 30, 2009, were
withdrawn and cancelled, but the Trustee was allowed to retain the 43,000,000
shares of the Common Stock issued December 30, 2008.




Mr.
Jianyin Wang is the controlling shareholder of Sichuan Yinfa Resource and the
President and Director of the Company.




Item 3. Legal Proceedings.




As of the
date of this report, we are not a party to any pending legal proceeding and are
not aware of any threatened legal proceeding.





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




None.




PART
II




Item 5.  Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.




Market
Information




Our Class
A Common Stock has been quoted on the Over-the-Counter Bulletin Board (the
“OTCBB”) under the symbol “CHRI” since June 22, 2004.  The range of
closing high and low bid quotations for each quarter of the past two (2) fiscal
years is as follows:




FYE
      2008
            High
            Low1/1/08
      – 3/31/08
            $0.200
            $0.014/1/08
      – 6/30/08
            $0.024
            $0.0037/1/08
      – 9/30/08
            $0.008
            $0.001210/1/08
      – 12/31/08
            $0.004
            $0.001FYE
      2009
            High
            Low1/1/09
      – 3/31/09
            $0.0045
            $0.00354/1/09
      – 6/30/09
            $0.0050
            $0.00457/1/09
      – 9/30/09
            $0.0055
            $0.005510/1/09
      – 12/31/09
            $0.0076
            $0.0060




Holders




As of
March 12, 2010, there were approximately 5,187 holders of record of our Class A
Common Stock and 142,288,894 shares issued and outstanding.  There
were no holders of record of our Class B Common Stock and no Class B Common
Stock shares are issued and outstanding.




Dividends




We have
not declared or paid any cash dividends on either our Class A Common Stock or
our Class B Common Stock since our formation, and do not presently anticipate
paying any cash dividends on our Common Stock in the foreseeable
future.  We currently intend to retain any future earnings to finance
the expansion and development of our business.  The future payment of
cash dividends on any class of our Common Stock will depend on our earnings,
capital requirements and financial position, applicable requirements of the
Delaware General Corporation Law, general economic conditions and other factors
considered relevant by our board of directors.




There are
no contractual restrictions on our ability to declare and pay
dividends.




Securities
Authorized for Issuance Under Equity Compensation Plan




Item 6.  Selected Financial Data.




The
information to be reported under this Item is not required of smaller reporting
companies.





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Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.




Forward
Looking Statements




Certain
statements in this report, including statements of our expectations, intentions,
plans and beliefs, including those contained in or implied by “Management's
Discussion and Analysis of Financial Condition and Results of Operations” and
the Notes to Consolidated Financial Statements, are “forward-looking
statements”, within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), that are subject to certain events, risks
and uncertainties that may be outside our control. The words “believe”,
“expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. We undertake no obligation to update or revise any
forward-looking statements. These forward-looking statements include statements
of management's plans and objectives for our future operations and statements of
future economic performance, information regarding our expansion and possible
results from expansion, our expected growth, our capital budget and future
capital requirements, the availability of funds and our ability to meet future
capital needs, and the assumptions described in this report underlying such
forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements, our expansion and acquisition strategy, our
ability to achieve operating efficiencies, our ability to successfully develop,
manufacture and deliver DAR and related products on a timely basis and in the
prescribed condition, evolving standards in the TCM industry, domestic and
international regulatory matters, general economic and business conditions, the
strength and financial resources of our competitors, our ability to raise
sufficient capital in order to effectuate our business plan, our ability to find
and retain skilled personnel and key executives, the political and economic
climate in which we conduct operations and the risk factors described from time
to time in our other documents and reports filed with the SEC.




General




All
references in this Form 10-K to the “Company,” “CHRI,” the “Registrant,” “we,”
“us” or “our” are to China Health Resource, Inc., a Delaware
corporation.  These terms also refer, where context requires, to our
subsidiary corporation, Suining Shi Yinfa Bai Zhi Chan Ye You Xian Gong Si, a
corporation organized and existing under the laws of the Peoples’ Republic of
China (“Yinfa”), acquired in August 2006.




We were
incorporated in the State of Delaware on February 26, 2002. In June and July
2002, we acquired approximately 99% of the outstanding shares of Voice Diary
Ltd., an Israeli corporation (“VDL”), through an exchange of shares of the
Company with shareholders of VDL. On June 13, 2006, we, as the acquirer,
executed a Plan of Exchange with Yinfa (acquiree), the shareholders of Yinfa and
the Company’s then majority shareholders, pursuant to which we issued 30,000,000
(pre-forward split) new shares of our Class A Common Stock to the Yinfa
shareholders in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended, in reliance upon Regulation S thereunder, in
exchange for all of their shares of registered capital of Yinfa. As a result,
Yinfa became our wholly-owned subsidiary. Yinfa was founded on April 24, 2001,
with registered capital of US $125,500 (RMB 1,000,000) and total assets of US
$1,475,795. Yinfa’s business incorporates a self-owned production base and a
network of DAR (as defined below) associates, farmers and research and
development affiliates. The transaction was treated for accounting purposes as a
capital transaction and recapitalization by the accounting acquirer and as a
re-organization by the accounting acquiree. We disposed of VDL on August 22,
2006 pursuant to the agreement between the Company, VDL and Arie Hinkis, our
former president. On May 21, 2007, we changed our name to China Health Resource,
Inc. to more accurately reflect our business operations.





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Our
Business




Since the
completion of the Plan of Exchange with Yinfa, our core business has been in
pharmaceuticals and the continued operations of Yinfa. Yinfa is a Chinese
pharmaceutical company focused on developing and commercializing Dahurian
Angelica Root (“DAR”), a popular traditional Chinese medicine (“TCM”). Our
business plan includes distributing DAR and its related products for the
treatment of pain, swelling and pustule. DAR is a popular herb employed
extensively as an ingredient in food, medicine and cosmetics. The Suining
district in China’s Sichuan Province is the major planting and production area
in China for DAR as a result of the local climate and soil properties. Over 70%
of DAR for general use and 100% of DAR for pharmaceutical use in China is
produced in Suining.




In May
2005, we applied for and obtained Good Agricultural Practice of Medical Plants
and Animals (“GAP”) certification for DAR, in cooperation with Sichuan Yinfa
Resource Development Group Co. Ltd., our affiliate (“Yinfa Resource”). The
standards which must be met to obtain certification include the study of our
environment quality, seed quality, minimum pesticides, and fertilizer. These
standards were adopted by the Chinese State Food and Drug Administration (the
“SFDA”) . Our GAP project involves approximately 133,334 square meters of
experimental planting fields, and 1,333,340 square meters of fields run by
companies we have hired, all of which passed inspection by the SFDA, on February
26, 2006. The GAP certificate has been issued in name of our partner Yinfa
Resource. GAP certification means that our planning, quality, and manufacturing
of DAR have met the requisite high and certifiable standard.




In 2007,
Yinfa contracted with the Sichuan Province Suining City DAR Association
(“Association”) and received the exclusive rights to the “Suining Sichuan
Angelic” certified trademark from the Chinese State Administration of Industry
and Commerce through December 13, 2016. As holder of the rights to the
trademark, Yinfa is entitled to receive a management fee of 1RMB (or
approximately US $0.14) per kilogram of DAR (including packaging fees) from any
user of the trademark, of which 60% may be used by Yinfa for further development
and investment of its DAR business and the remaining 40% must be paid to the
Association for related expenses. In addition, Yinfa is entitled to receive 100%
of the revenue stream from the use of the DAR trademark through December 13,
2016 and 95% of the revenue stream thereafter. There are approximately 235
regional certification trademarks in China, including 65 for natural resources,
of which over 20 are for natural herb resources.




In
December 2008, we leased an additional 3,262 acres from Yinfa Resource for
commercial uses, as described above under Item 2. “Property.”




We
believe our business model will help facilitate the process of growing and
commercializing DAR, research and development, sales and marketing. Our current
DAR-related products include the Bailing Capsule, Yisheng Capsule, Kimchee-Mate
and Fragrant Bag, all of which have been certified by the SFDA and are being
sold into the market via regional distributors throughout China. We will
continue to explore the development and addition of DAR in a range of foods,
medicines and cosmetics. In addition, we continue to consider and explore
opportunities to expand our current asset base and product offerings to increase
our revenues and enhance shareholder value. These opportunities may include, but
are not limited to, acquisitions or in-licensing of additional products and the
combination or merger of Yinfa with other Chinese companies in synergistic or
complementary industries.




Seasonality




Our
business is subject to seasonal fluctuations. DAR is planted during the winter
months and is suitable for harvest beginning in the summer. The prime season for
harvest and resulting sales is typically from July through October, subject to
climate conditions. As a result, we typically enter into contracts with farmers
during the first quarter of the fiscal year for the purchase of raw DAR. We then
process the harvested DAR and sell products to our customers during the second
half of the fiscal year. Consequently, our revenues are received primarily in
the second half of the fiscal year.





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Critical
Accounting Policies




Revenue
recognition




Our
revenue recognition policies are in accordance with Staff Accounting Bulletin
No. 104. Sales revenue is recognized when all of the following have occurred:
(i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or
services have been rendered, (iii) the price is fixed or determinable, and (iv)
the ability to collect is reasonably assured. These criteria are generally
satisfied at the time of shipment when risk of loss and title passes to the
customer.




We
recognize revenue when the goods are delivered and title has passed. Sales
revenue represents the invoiced value of goods, net of a value-added tax
(“VAT”). All of our products that are sold in the PRC are subject to a Chinese
value-added tax at a rate of 17% of the gross sales price or at a rate approved
by the Chinese local government. This VAT may be offset by the VAT paid by us on
raw materials and other materials included in the cost of producing their
finished product.




Inventory




Inventory
includes raw material, package material, low-value consumables and merchandise.
We have adopted a perpetual inventory system and inventories are recorded at
actual cost. Raw material, package material and merchandise are priced at cost
upon acquisition, and with the weighted average method upon issuance and
shipment. Low-value consumables are amortized at 50% of the amount upon
application and amortized an additional 50% upon obsolescence.




Property,
Plant, and Equipment




Property,
plant, and equipment are recorded at cost, less accumulated depreciation and
impairment. Repairs and maintenance expenditures, which are not considered
improvements and do not extend the useful life of property, plant, and
equipment, are expensed as incurred. The cost and related accumulated
depreciation, applicable to sold or no longer in service property, plant, and
equipment, are eliminated from the accounts and any gain or loss is included in
the statement of operations.




Depreciation
is calculated to write-off the cost or basis of the property, plant, and
equipment over their estimated useful lives for the date on which they become
fully operational and after taking into account their estimated residual values
(salvage value), using the straight-line method, at the following rates per
year:




Equipment:
            Straight-line
      for 5 to 20 years with a 3% salvage valueBuilding:
            Straight-line
      for 20 years with a 5% salvage
value




We
recognize an impairment loss on property, plant, and equipment when evidence,
such as the sum of expected future cash flows (undiscounted and without interest
charges), indicates that future operations will not produce sufficient revenue
to cover the related future costs, including depreciation, and when the carrying
amount of the asset cannot be realized through sale. Measurement of the
impairment loss is based on the fair value of the assets.





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Results
of Operations for the Years Ended December 31, 2009 and 2008




Highlights




Our total
assets at December 31, 2009 were US $2,190,144 compared to December 31, 2008
were US $8,167,073. Total liabilities decreased to US $1,302,794 at December 31,
2009 from US $4,563,476 at December 31, 2008, principally due to a decrease in
the cancellation of a convertible note payable and a decrease in notes
payable.




On
December 19, 2008, the Company and Mr. Lei Guo, as Trustee, on behalf of Sichuan
Yinfa Resources Development Co., Ltd, the Trustor , pursuant to a Property Trust
Agreement made, leasing for the Company  approximately 3,262 acres
located in the Property. The Company planned to use the Property for commercial
uses to expand its business. The lease period commenced December 30, 2008 and
was to expire on December 30, 2038.  The total fixed rent for the full
lease period was US$5,775,994 for the full lease term. Pursuant to the Contract
of Lease of Property, the Company agreed to pay US$5,710,994 by issuing a “Form
of  Convertible Promissory Note” in the principal sum of US$5,710,994,
alongwith annual
interest at the rate of one and one-half percent (1.5%), per annum. On January
21, 2009, the Company and Mr. Lei Guo, the Trustee, on behalf of the Trustor,
agreed to amend and restate the Convertible Promissory Note by revising the
terms of the conversion mechanism in the Convertible Promissory Note. On March
30, 2009, the outstanding principal in the amount of $2,500,000, plus the
accrued and unpaid interest automatically converted at the Conversion Price of
US $0.20 per share into 12,605,615 shares of the Company’s Class A Common Stock
for the Trustee, pursuant to the terms of the Note. Effective July 30, 2009, the
Company and Mr. Lei Guo, the Trustee, on behalf of Sichuan Yinfa Resource Co.,
Ltd, the Trustor, agreed to terminate the Note, issued on January 21,
2009.  In connection with the termination of the Lease Property and
Note, effective July 30, 2009, the 12,605,615 shares of the Company’s Class A
Common Stock issued to the Trustee, on March 30, 2009, were withdrawn and
cancelled, but the Trustee was allowed to retain the 43,000,000 shares of the
Common Stock issued December 30, 2008.




Profit/Loss
            
            For the year endedDecember 31, 2009
            
            
            December 31, 2008Operating
      Income (Loss)
            
            (613,125)
            
            
            
            330,481Net
      Income (Loss) Before Tax
            
            
            (433,065
            )
            
            
            406,535Corp.
      Income Tax
            
            
            (79,807
            )
            
            
            (149,635
            )Net
      Income (Loss)
            
            
            (512,872
            )
            
            
            256,900






Revenues




Our
revenues for the year ended December 31, 2009 were US $4,377,463, an increase of
65% over revenues of US $2,646,111for the year ended
December 31, 2008. The increase in sales revenues was due primarily to an
increase in the volume of sales of DAR received during 2009. Most of the revenue
growth was attributable to increased sales in raw DAR. Our sales arrangements
are not subject to any warranties.





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Cost
of Sales; Gross Profit




Cost of
sales includes expenses directly related to manufacturing and selling our
products, including costs of raw materials purchased from farmers, product
delivery and direct labor costs. Our cost of sales for the year ended December
31, 2009 was US $3,736,867, or approximately 85% of revenues, compared to US
$1,760,035, or approximately 67% of revenues, for the year ended December 31,
2008. The increase in costs of sales is principally due to increased costs for
our product, Bailing Capsules, increased cost of DAR, and improvements to the
DAR-related products’ packaging. The increased cost of raw DAR is attributable
to increased fertilizer and labor costs in the farming process over last
year.




Gross
profit for the year ended December 31, 2009 decreased by approximately 27% to US
$640,596from US
$886,076for the
year ended December 31, 2008. Gross profit margin for the period ended December
31, 2009 was 15% compared to 33% for the year ended December 31,
2008.




Operating
Expenses




Operating
expenses for the year ended December 31, 2009 increased by 126% to US $1,253,721
from US $555,595for the year ended
December 31, 2008. The largest component of operating expenses is attributable
to selling, general and administrative (“SG&A”) expense consisting primarily
of administrative expenses (US $1,140,033). SG&A increased overall to US
$1,184,213 for 2009 compared to US $505,058for 2008. The increase
is primarily due to a significant increase in fees to consultants in
2009.




Other
Income/Expense




We
benefited from a non-reimbursable long term loan from Sui Ning City Finance
Bureau aggregating US $158,917 with prior years’ accrual interest of US $18,803
for the year ended December 31, 2009. We received other income of US $1,580
attributable to the removal of Chengdu representative office. Interest expense
for 2009 was US $69,508 compared to US $50,537 in 2008.




Impact
of Inflation




We
believe that inflation has had a negligible effect on operations during 2009.
The inflation rate in the Sichuan Province has been lower than the average
national inflation rate for China. However, it is too soon to assess the
potential inflationary effect of the major earthquake and aftershocks in the
Sichuan Province in May 2008. None of our operations were effected by the
earthquake and related aftershocks. We believe that we can offset any
inflationary increases in the cost of sales by continuing to increase our sales
of DAR in response to continued demand and by improving operating
efficiencies.




Taxes




According
to the Corporate Income Tax Law of China, companies without any tax abatement
programs are charged at a 25% income tax rate. As of December 31, 2009, we
accrued income taxes of US $79,807. As of December 31, 2008, we accrued income
taxes of US $149,635.




Net
Income




We had
net loss for the year ended December 31, 2009 of (US $512,872), or (US $0.0036)
per share of Common Stock, compared to a net income for the year ended December
31, 2008 US $256,900.  Comprehensive loss for the year ended December 31,
2009 was (US $505,252), a 253% decrease from a comprehensive income of US
$330,306 for the year ended December 31, 2008. The deterioration in our
operating results for 2009 is attributable principally to increased cost, higher
SG&A expense, and a foreign currency translation gain between the RMB and
U.S. dollar of US $7,620.





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We are
working to strengthen our internal management processes and to grow our sales
revenues, while maintaining an efficient cost structure. However, there can be
no assurance that we will achieve or maintain continuing profitability, or that
revenue growth will continue in the future.




Liquidity
and Capital Resources




Cash
flows used in operating activities were US $285,828during the year ended
December 31, 2009, compared to cash flows of US $729,918 provided by operating
activities during the year ended December 31, 2008. Decrease in cash flows from
operations in 2009 were due primarily to an reduction of accounts payable for
consulting services and increase of prepaid expenses.




Cash
flows provided by investing activities improved to US $196,243for the year ended
December 31, 2009 from (US $433,424)for the year ended
December 31, 2008. Cash flows provided by investing activities during 2009
improved due to significantly lower purchases of property, plant and equipment,
where as cash flows used in 2008 related principally to purchase of property,
plant and equipment.




Cash
flows used in financing activities for the year ended December 31, 2009 was US
$0 compare to US $304,530 for the year ended December 31, 2008.




Cash
flows used in financing activities for the year ended December 31, 2008
increased to US $304,530, due primarily to the issuance of a convertible note
payable valued at $5,775,994 and the issuance of common stock valued at $65,000
for the purchase of land usage rights and forestry rights in
China.  The annual interest rate applicable to the note is one and
one-half percent (1.5%), with the principal amount and all accrued but unpaid
interest under the note payable in four (4) tranches of our common stock at
fixed prices.  For additional information regarding the convertible
note, see Note M of “Notes to Audited Financial Statements” included with this
Form 10-K.




Overall,
we have funded our cash needs from inception through December 31, 2009 with a
series of debt and equity transactions, primarily with related parties. If we
are unable to receive additional cash from our related parties, we may need to
rely on financing from outside sources through debt or equity transactions. Our
related parties are under no legal obligation to provide us with capital
infusions. Failure to obtain such financing could have a material adverse effect
on operations and financial condition.




We had
cash of US $18,211 on hand as of December 31, 2009, a decrease of US $83,286
from the beginning of the year and attributable in substantial part to a
reduction in cash inflow and a smaller foreign currency translation. Currently,
we have enough cash to fund our operations for about nine (9) months. This is
based on current cash flows from financing activities and projected revenues. If
the projected revenues fall short of needed capital we may not be able to
sustain our capital needs. We will then need to obtain additional capital
through equity or debt financing to sustain operations for an additional year.
Our current level of operations would require capital of approximately US
$100,000 to sustain operations through year 2010 and each year
thereafter.




On a
long-term basis, our liquidity is dependent on continuation and expansion of our
operations, receipt of revenues, and additional infusions of capital and debt
financing. Our current capital and revenues are insufficient to fund such
expansion. Modifications to our business plans may require additional capital
for us to operate. For example, if we are unable to raise additional capital in
the future we may need to curtail our number of product offers or limit our
marketing efforts to the most profitable geographical areas. This may result in
lower revenues and market share for us. In addition, there can be no assurance
that additional capital will be available to us when needed or available on
terms favorable to us.





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Demand
for our products and services will be dependent on, among other things, market
acceptance of our products, the Chinese TCM in general, and general economic
conditions, which are cyclical in nature. Inasmuch as a major portion of our
activities is the receipt of revenues from the sales of our products, our
business operations may be adversely affected by our competitors and prolonged
recessionary periods.




Our
success will be dependent upon implementing our plan of operations and the risks
associated with our business plans. We manage the processing and DAR
distribution business to retail consumers and wholesale buyers. We plan to
strengthen our position in these markets and to expand our operations through
aggressively marketing our products and our concept.




Off-Balance
Sheet Arrangements




As of
December 31, 2009, we did not have any off-balance sheet
arrangements.




Item 7A.  Quantitative and Qualitative Disclosures About
Market Risk.




The
information to be reported under this Item is not required of smaller reporting
companies.




Item 8.  Financial Statements and Supplementary
Data.




The
consolidated financial statements of the Company and notes thereto are included
at the end of Part IV of this annual report, beginning at page F-1.




Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.




None.




Item 9A.Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures




We
maintain disclosure controls and procedures that are designed to ensure that the
information required to be disclosed in the reports that we file under the
Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures.  In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can only provide reasonable assurance
of achieving the desired control objectives, and in reaching a reasonable level
of assurance, management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.




As
required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
our fourth fiscal quarter covered by this report. Based on the foregoing, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective at the reasonable assurance
level.





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Management’s
Report On Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f)
promulgated under the Exchange Act.




The
Company’s management, including the Company’s Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2009.  In making this
assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated Framework.  The COSO framework is based
upon five integrated components of control: control environment, risk
assessment, control activities, information and communications and ongoing
monitoring.




Based on
the assessment performed, management has concluded that the Company’s internal
control over financial reporting, as of December 31, 2009, is effective and
provides reasonable assurance regarding the reliability of its financial
reporting and the preparation of its financial statements in accordance with
generally accepted accounting principles.




There has
been no change in our internal controls over financial reporting during our
fourth fiscal quarter ended December 31, 2009, that has materially affected, or
is reasonably likely to materially affect, our internal controls over financial
reporting.




Because
of its inherent limitations, our internal control over financial reporting may
not prevent material errors or 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. The continued effectiveness
of our internal control over financial reporting is subject to risks, including
that the control may become inadequate because of changes in conditions or that
the degree of compliance with our policies or procedures may
deteriorate.




This
annual report does not include an attestation report of the Company’s registered
independent public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.




Item 9B. Other Information.




None.




PART
III




Item 10. Directors, Executive Officers and Corporate
Governance.




Our
directors and executive officers and their respective ages as of March 31, 2010,
are as follows:




Name
            
            Age
            
            Principal
      PositionsJiang
      Chen
            
            36
            
            Chief
      Executive Officer and Director
              (Principal
      Executive Officer)Yi
      Zhou
            
            42
            
            Chief
      Financial Officer and Director
              (Principal
      Financial Officer)Jiayin
      Wang
            
            56
            
            President
      and DirectorBing
      Wang
            
            41
            
            DirectorGeiwi
      Wang
            
            35
            
            Director







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The
following describes the business experience of each of our executive officers
and directors, including other directorships held in reporting companies, if
any:




Jiang Chen.  Mr.
Jiang Chen has served as our Chief Executive Officer and as director of the
Corporation since 2006.  In 1995 he earned his Bachelor of Arts in
Commercial Economics from Sichuan University. In 2003, Mr. Chen received a
Master of Business Administrative from Sichuan University.  Mr. Chen
has extensive business management and Chinese regulatory experience focusing on
business strategies, corporate development and corporate growth
strategies.  In the last six years, Mr. Chen has been the chief
executive office of Cheng Du Leader Investment Company Limited, a company
located in the PRC. Cheng Du Leader Investment Company Limited’s principal
business involves investment in media, real estate and movie production in
mainland China.  Mr. Chen also served as the senior manager in several
other companies involved in investment management, media, real estate and
merchandise training.




Yi Zhou.  Mr. Yi
Zhou has served as our Chief Financial Officer and as director of the
Corporation since October 20, 2008. Mr. Zhou has been a Certified Public
Accountant in China since 1999. Mr. Zhou graduated from University of Finance
and Economics in China, with a degree in Financial Accounting. Mr. Zhou has over
ten years of financial and accounting working experience. He worked as chief
financial officer for HongFei Real Estate Co. Ltd. from 1999 to 2004, and as
chief financial officer for BeiXing Co. Ltd. from 2004 to 2007.




Jiayin Wang.  Mr.
Jiayin Wang has served as our President and as director of the Corporation since
October 20, 2008.  He founded YinFa Resource, an affiliate of the
Corporation, in 2001 and has continuously served as its president and
chairman.  Mr. Wang has been the People’s Senator of Suining City,
Sichuan Province, the PRC since 1995 and the Chairman of Sichuan Province DAR
Association since 2001. Mr. Wang was named Excellent Entrepreneur of Sichuan
Province in 2004, National Entrepreneur Star Award in 2001 and 2004,
Entrepreneur Star of Sichuan Province in 2001 and 2004 and Top Ten Entrepreneur
Star of Suining City in 2005, among many other awards.




Bing Wang.  Mr. Bing
Wang has served as our Independent Director of the Corporation since 2006. Mr.
Wang has extensive experience in business and investment
management.  Mr. Wang has a strong professional relationship with the
Sichuan provincial government and the Suining municipal government.




Geiwi Wang.  Mr.
Gewei Wang has served as our Independent Director of the Corporation since 2006.
In 1991, he earned a Bachelor of Arts in Chinese literature from Renmin
University of China. Mr. Wang has extensive experience as an investment
banker.  He is currently the chief executive officer of Sichuan Tian
Yi Investment Consulting Management Company Ltd.




Term
of Office




All of
our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified.  Our
officers are appointed by our board of directors and hold office until their
earlier death, retirement, resignation or removal.




Committees
of the Board of Directors




Our board
of directors intends to establish an audit committee, a compensation committee
and a nominating and corporate governance committee.  Our board may
establish other committees from time to time to facilitate the management of our
company; however, we have not yet established any such committees.





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Audit
committee.  Our audit committee will oversee a broad range of
issues surrounding our accounting and financial reporting processes and audits
of our financial statements, including by (1) assisting our board in monitoring
the integrity of our financial statements, our compliance with legal and
regulatory requirements, our independent auditor's qualifications and
independence and the performance of our internal audit function and independent
auditors, (2) appointing, compensating, retaining and overseeing the work of any
independent registered public accounting firm engaged for the purpose of
performing any audits, reviews or attest services, and (3) preparing the audit
committee report that may be included in our annual proxy statement or annual
report on Form 10-K.  We will have at least three directors on our
audit committee, each of whom will be independent under the requirements of the
NASDAQ Capital Market, the Sarbanes-Oxley Act and the rules and regulations of
the SEC.  We have not yet formed our audit committee.




Compensation
committee.  Our compensation committee will review and
recommend our policies relating to compensation and benefits for our executive
officers and other significant employees, including reviewing and approving
corporate goals and objectives relevant to compensation of our Chief Executive
Officer and other executive officers, evaluating the performance of our
executive officers relative to goals and objectives, determining compensation
for these executive officers based on these evaluations and overseeing the
administration of our incentive compensation plans.  The compensation
committee will also prepare the compensation committee report that may be
included in a subsequent annual report on Form 10-K.  We will
have at least two directors on our compensation committee, each of whom will be
independent under the requirements of the NASDAQ Capital Market.  We
do not yet have a compensation committee.




Nominating and
corporate governance committee.  Our nominating and corporate
governance committee will (1) identify, review and recommend nominees for
election as directors, (2) advise our board of directors with respect to board
composition, procedures and committees, (3) recommend directors to serve on each
committee, (4) oversee the evaluation of our board of directors and our
management, and (5) develop, review and recommend corporate governance
guidelines and policies. We will have at least two directors on our nominating
and corporate governance committee, each of whom will be independent under the
requirements of the NASDAQ Capital Market.  We do not yet have a
nominating and corporate governance committee.




Code
of Ethics




The
Company has adopted a Code of Ethics for its directors, executive officers and
employees.




Shareholder
Communications




The
Corporation provides a process for stockholders to send communications to the
Board.  Information regarding stockholder communications with the
Board can be found on the Corporation’s Web site at http://www.chriglobal.com/.




Compliance
with Section 16(a) of the Act




Section
16(a) of the Exchange Act requires the Corporation’s officers and Directors, and
persons who beneficially own more than ten percent of a registered class of the
Corporation’s equity securities (collectively, the “Reporting Persons”) to file
reports of ownership and changes in ownership with the SEC. Such Reporting
Persons are required by the SEC rules to furnish the Corporation with copies of
all Section 16 forms they file.  Based solely on its review of the
copies of such filings, the Corporation believes that during the fiscal year
ended December 31, 2009, the following filings were late: Mr. Jiayin Wang filed
one late report covering a total of one late transaction and Yinfa Resource
filed one late report covering a total of one late transaction.





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Item 11. Executive Compensation.




Compensation
Discussion and Analysis




Philosophy
and objectives




For the
period December 31, 2008 through December 31, 2009, all compensation decisions
were made by our board of directors.  The primary objective of our
compensation policies and programs with respect to executive compensation is to
serve our shareholders by attracting, retaining and motivating talented and
qualified individuals to manage and lead our business.  We will focus
on providing a competitive compensation package that provides significant short
and long-term incentives for the achievement of measurable corporate and
individual performance objectives.  We intend to establish a
compensation committee and future decisions regarding executive compensation
will be the responsibility of that committee.




Elements
of executive compensation




Base salary.  We
will provide our senior management with a level of base salary in the form of
cash compensation appropriate to their roles and
responsibilities.  Base salaries for our executives are established
based on the executive’s qualifications, experience, scope of responsibilities,
future potential and past performance and cash available to pay executive
compensation.  Base salaries will be reviewed annually and adjusted
from time to time to realign salaries with market levels after taking into
account individual responsibilities, performance and experience.  We
will consider four factors in determining the base salaries of our named
executive officers.  These four factors are, in order of significance,
(1) creating an incentive to achieve corporate goals, (2) individual
performance, (3) cash available to pay compensation and (4) the total
compensation each executive officer previously received while employed with us,
if any.




Incentive cash
bonuses.  Our practice will be to seek to award incentive cash
bonuses to our executive officers based upon their individual performance, as
well as our overall business and strategic objectives.  In determining
the amount of cash bonuses paid to our named executive officers, we will
consider the same four factors as in determining their base
salaries.  See “Summary Compensation Table” below.




Compliance
with Sections 162(m) and 409A of the Internal Revenue Code




Section
162(m) of the Internal Revenue Code limits the deductibility of compensation in
excess of $1 million paid to certain executive officers, unless such
compensation qualifies as performance-based compensation.  Among other
things, in order to be deemed performance-based compensation for Section 162(m)
purposes, the compensation must be based on the achievement of pre-established,
objective performance criteria and must be pursuant to a plan that has been
approved by our shareholders.  At least for the next several years, we
expect the cash compensation paid to our sole executive officer and other
executive officers, if any, to be below the threshold for non-deductibility
provided in Section 162(m), and our equity incentive plans will afford our
compensation committee with the flexibility to make a variety of types of equity
awards to our executive officers, the deductibility of which will not be limited
under Section 162(m).  However, our compensation committee, which we
expect to form, will fashion our future equity compensation
awards.  However, we do not now know whether any such awards will
satisfy the requirements for deductibility under Section 162(m).




We also
currently intend for our executive compensation program to satisfy the
requirements of Internal Revenue Code Section 409A, which addresses the tax
treatment of certain nonqualified deferred compensation benefits.





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Executive
Compensation




The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to our principal executive officer as
of the end of fiscal 2009 and the two most highly compensated executive officers
as of the end of fiscal 2009. We refer to these executive officers as our “Named
Executive Officers.”




Summary
Compensation Table




Year
            Salary
              ($)
            Bonus
              ($)
            Stock
      Awards
              ($)
            Option
      Awards
              ($)
            Non-Equity
      Incentive
              Plan
      Compensation
              ($)
            Change
      in Pension Value and Nonqualified Deferred Compensation Earnings
      ($)
            All
      Other
              Compensation
              ($)
            Total
              ($)Name
      and Principal
              Position
      (a)
            (b)
            (c)
            (d)
            (e)
            (f)
            (g)
            (h)
            (i)
            (j)Jianyin
      Wang(1)
              President
      and Director
            2009
              2008
              2007
            $29,274
              $29,274
              -
            -
              $12,726
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            $29,274
              $42,000
              -Jiang
      Chen
              Principal
      Executive Officer and Director
            2009
              2008
              2007
            $8000
              $8,000
              $8,000
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            $8000
              $8,000
              $8,000Yi
      Zhou(2)
              Principal
      Financial Officer and Director
            2009
              2008
              2007
            $11,710
              $11,710
              -
            -
              $3,290
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            $11,710
              $15,000
              -Jiguang
      Wang(3)
              Former
      President and Former Director
            2009
              2008
              2007
            -
              $10,000
              $10,000
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              $10,000
              $10,000Ying
      Zhong(4)
              Former
      Chief Financial Officer and Former Director
            2009
              2008
              2007
            -
              $10,000
              $10,000
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              -
              -
            -
              $10,000
              $10,000




(1)
            Mr.
      Jiayin Wang’s employment with the Corporation as President commenced in
      October 20, 2008.




(2)
            Mr.
      Yi Zhou’s employment with the Corporation as Principal Financial Officer
      commenced in October 20, 2008.




(3)
            Mr.
      Jiguang Wang’s employment with the Corporation terminated in October 20,
      2008.




(4)
            Ms.
      Zhong’s employment with the Corporation terminated in October 20,
      2008.





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Summary
of Executive Compensation




Jiayin
Wang.  On October 20, 2008, Mr. Jiayin Wang accepted the Corporation’s
offer regarding his employment with the Corporation as its President and
director of the Board. Mr. Wang will serve a three-year term as the President
and a Director of CHRI, and received an annual salary of RMB200,000, or
approximately U.S.$29,274 for the fiscal year 2008, based upon the closing
foreign exchange rate published by Bloomberg on February 5, 2009 of U.S.$1.00 =
RMB 6.832 (the “RMB Rate”).  Mr. Jiayin Wang also received U.S.
$12,726 as a signing bonus.




Jiang
Chen.  In 2006, Mr. Jiang Chen accepted the Corporation’s offer
regarding his employment with the Corporation as its Chief Executive Officer and
director of the Corporation.  Mr. Chen received an annual salary of
U.S.$8,000 for each of the fiscal year 2008 and 2007.   Mr. Chen
does not have a written employment agreement with the Corporation.




Yi Zhou.
On October 20, 2008, Mr. Yi Zhou accepted the Corporation’s offer regarding his
employment with the Corporation as its Chief Financial Officer and director of
the Corporation. Mr. Zhou will serve a one-year term as the Chief Financial
Officer and a director of the Corporation and will receive an
annual


salary of
RBM80,000, or approximately U.S.$11,710 for the fiscal year 2008, based upon the
RMB Rate. Mr. Yi Zhou also received U.S$3,290 as a signing bonus.




Jiguang
Wang. On October 20, 2008, Mr. Jiguang Wang resigned as the Corporation’s
President and director of the Corporation. Mr. Jiguang Wang informed the Board
that his health could no longer allow him to devote the time that would be
required of him as the Corporation’s President and Director. Mr. Jiguang Wang
received total compensation of U.S.$10,000 for each of fiscal year 2008 and
2007. There is no severance or termination agreement.




Ying
Zhong. On October 20, 2008, Ms. Ying Zhong resigned as the Corporation’s Chief
Financial Officer and director of the Corporation. Ms. Ying Zhong received total
compensation of U.S.$10,000 for each of fiscal year 2008 and
2007.  There is no severance or termination agreement.




Other
than the agreements mentioned herein, the Corporation has no employment
agreements with any of our named executive officers, nor do we have any
compensatory plans or arrangements with respect to any named executive officers
that results or will result from the resignation, retirement or any other
termination of such executive officer's employment with the Corporation or from
a change-in-control of the Corporation or a change in the named executive
officer's responsibilities following a change-in-control wherein the amount
involved, including all periodic payments or installments, exceeds
$100,000.




Outstanding
Equity Awards at Fiscal Year-End




We had no
outstanding options, warrants or rights to acquire shares of our common stock
under plans either approved, or not approved, by our
stockholders.  Board members are eligible to participate in the 2009
Omnibus Incentive Plan after the Effective Date.




Compensation
of Directors




The table
below summarizes the compensation of all persons who served as a Director of the
Corporation in fiscal 2009:





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DIRECTOR
COMPENSATION




Fees Earned
              or Paid in
    Cash
            Stock
              Awards
            Option
              Awards
            Non-Equity
              Incentive
      Plan
              Compensation
            Change in Pension Value and Nonqualified Deferred
      Compensation Earnings
            All
      Other
              Compensation
            Total($)
            ($)
            ($)
            ($)
            ($)
            ($)
            ($)Name
      (a)
            (b)
            (c)
            (d)
            (e)
            (f)
            (g)
            (j)Jiayin
      Wang
            -
            -
            -
            -
            -
            -
            -Jiang
      Chen
            -
            -
            -
            -
            -
            -
            -Yi
      Zhou
            -
            -
            -
            -
            -
            -
            -Giewi
      Wang
            -
            -
            -
            -
            -
            -
            -Bing
      Wang
            -
            -
            -
            -
            -
            -
            -




For the
year ended December 31, 2009, no cash compensation was paid, and no equity
grants were made, to the Corporation’s directors.  Mr. Jiayin Wang's
compensation as an executive officer of the Corporation is disclosed under
"Executive Compensation - Summary Compensation Table."  Usually, the
Board reviews the level of compensation it receives for its service every
year.  The Board may take action at any time to amend the amount or
type of compensation it receives.




Item 12.Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.




The
following table sets forth certain information regarding beneficial ownership of
our common stock as of March 31, 2010, for:




•           each
person or group known to us to beneficially own 5% or more of our common
stock;




•           each
of our directors and director nominees;




•           each
of our named executive officers; and




•           all
of our executive officers and directors as a group.




Unless
otherwise indicated below, to our knowledge, all persons listed below have sole
voting and investment power with respect to their shares of common stock, except
to the extent authority is shared by spouses under applicable
law.  Unless otherwise indicated below, each entity or person listed
below maintains an address of 343 Sui Zhou Zhong Road, Suining City, Sichuan
Province, P.R. China.




The
number of shares beneficially owned by each shareholder is determined under
rules promulgated by the SEC.  There are no shares of common stock as
to which any person has the right to acquire beneficial ownership within 60 days
after March 31, 2010 through the exercise of any stock option, warrant or other
right. The percentage ownership is based on 142,288,894 shares of common stock
outstanding as of March 31, 2010.





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Beneficial
      owner
            Number
      of shares
              beneficiallyOwned
            Percentage
      of
              shares
      outstanding (1)Class
      A Common Stock, Lei Guo (2), No. 188 Xishan Road, Chuanshan District,
      Suining City, Sichuan Province, the People’s Republic of
    China
            43,000,000
      (2)
            30.22%Class
      A Common Stock, Zhi Min Zheng, Xili Liulitun, Chaoyang District, Beijing,
      People’s Republic of China
            22,122,488
            15.55%Jianyin
      Wang
            43,001,000
            30.22%Jiang
      Chen
              Principal
      Executive Officer
            0
            0.0%Yi
      Zhou
              Principal
      Financial Officer
            0
            0.0%Gewi
      Wang
              Director
            0
            0.0%Bing
      Wang
              Director
            0
            0.0%All
      Directors and Executive Officers as a Group
            43,001,000
            30.22%




(1)
            This
      percentage is a fraction with its denominator as 142,288,894 shares of the
      Corporation’s Common Stock .




(2)
            Lei
      Guo (the “Trustee”) is the trustee, on behalf of Sichuan Yinfa Resource
      Development Co., Ltd., a PRC company (“Yinfa Resource”). This amount
      includes the 43,000,000 shares of Common Stock issued and held by Mr Lei
      Guo, as Trustee, on behalf of Sichuan Yinfa Resource
      Development Co., Ltd, issued pursuant to the Lease Agreement entered into
      December 19, 2008.  Yinfa Resource, as Trustor, retains
      sole dispositive and voting control over the subject shares. Mr. Jiayin
      Wang is the controlling stockholder and founder of YinFa Resource and,
      consequently, is the indirect beneficial owner of the shares of common
      stock held by the Trustee







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Equity
Compensation Plan Information




Plan
      category
            Number
      of securities to be issued
              upon
      exercise of outstanding options,
              warrants
      and rights
              (a)
            Weighted-average
      exercise price
              of
      outstanding options,
              warrants
      and rights
              (b)
            Number
      of securities remaining
              available
      for future issuance under
              equity
      compensation plans
              (excluding
      securities
              reflected
      in column (a))
              (c)Equity
      compensation plans approved by security holders
            28,000,000
            0
            28,000,000Equity
      compensation plans not approved by security holders
            0
            0
            0Total
            28,000,000
            0
            28,000,000




Policies
and Procedures for Related Party Transactions




We intend
to adopt a written policy that requires any transaction, arrangement or
relationship in which we will be a participant and the amount involved exceeds
the lesser of $120,000 or one percent of the average of the company's total
assets at year end for the last two completed fiscal years, and in which any of
our directors, executive officers or shareholders beneficially owning at least
5% of any class of our voting securities, or any of their immediate family
members or any entity in which any of the foregoing persons is employed or is a
general partner or principal had or will have a direct or indirect material
interest, to be submitted to our audit committee for review, consideration and
approval.  In the event that a proposed transaction with a related
person involves an amount that is less than the threshold amount stated above,
the transaction will be subject to the review and approval of our Chief
Executive Officer (or our Chief Financial Officer in the event our Chief
Executive Officer, an immediate family member of the Chief Executive Officer, or
an entity in which our Chief Executive Officer or a member of his immediate
family is employed or is a general partner or principal is a party to such
transaction).  If the transaction is approved by our Chief Executive
Officer or Chief Financial Officer, such officer will report the material terms
of the transaction to our audit committee at its next meeting.  The
policy will provide for periodic monitoring of pending and ongoing transactions.
In approving or rejecting the proposed transaction, our audit committee will
consider the relevant facts and circumstances available to it, including, (1)
the impact on a director’s independence if the related person is a director or
his or her family member or related entity, (2) the material terms of the
proposed transaction, including the proposed aggregate value of the transaction,
(3) the benefits to us, (4) the availability of other sources for comparable
services or products (if applicable), and (5) an assessment of whether the
proposed transaction is on terms that are comparable to the terms available to
an unrelated third party or to our employees generally.  Our audit
committee will approve only those transactions that the committee determines to
be, in light of known circumstances, in, or not inconsistent with, our best
interests and the best interest of our shareholders.





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Item 13.  Certain Relationships and Related Transactions,
and Director Independence.




There
have been no transactions or proposed transactions in which we or any of our
subsidiaries was or is to be a party in which the amount involved exceeds the
lesser of $120,000 or 1% of the average total assets of the Company at year-end
for the last two completed fiscal years and in which any of our directors,
executive officers or beneficial holders of more than 5% of the outstanding
shares of Common Stock, or any member of the immediate family of any of the
foregoing persons, had, has or will have any direct or indirect material
interest, except as follows:




On
December 19, 2008, the Company and Mr. Lei Guo, as Trustee,on behalf of Sichuan
Yinfa Resources Development Co., Ltd, the Trustor , pursuant to  a
Property Trust Agreement made under the PRC trust and contract laws, and other
applicable PRC laws and regulations , entered into a  Contract of
Lease of Property, pursuant to PRC contract law, leasing for the
Company  approximately 3,262 acres located in Heiwengtang Valley,
Xianping Forestry, Pingwu County, Mianyang City, Sichuan Province, People’s
Republic of China (the “Property”). The Company  planned  to
use the Property for commercial uses  to expand its business. The
lease period commenced December 30, 2008 and was to  expire on
December 30, 2038. The total fixed rent for the full lease period
was  US$5,775,994 for the full lease term. Pursuant to the Contract of
Lease of Property, the Company agreed to pay US$5,710,994 by issuing
a  a “Form of  Convertible Promissory Note” in the principal
sum of US$5,710,994, along with annual interest at the rate of one and one-half
percent (1.5%), per annum.Pursuant to the terms of the Form of Convertible
Promissory Note,  the principal amount and all accrued, but unpaid
interest, automatically converted in four (4) tranches, on the dates(“Conversion
Dates”) set forth in Convertible Promissory Note (each a “Mandatory
Conversion”) into shares of the Company’s Class A Common Stock, at a
conversion price equal to the closing bid price per share for the Class A Common
Stock, as quoted on the OTC Bulletin Board or, if the Class A Common Stock is
listed on a National Securities Exchange, at the closing price per
share.  In each case, the conversion price was to be determined, on
the date, five (5) days prior to the applicable Conversion Date (the “Conversion
Price”).  The Mandatory Conversions were to be implemented as
following:




(1)
            On
      March 30, 2009, outstanding principal in the amount of $2,000,000, plus
      accrued and unpaid interest to the date of
  conversion;




(2)
            On
      December 30, 2009, outstanding principal in the amount of $1,000,000, plus
      accrued and unpaid interest to the date of
  conversion;




(3)
            On
      March 30, 2010, outstanding principal in the amount of $1,000,000, plus
      accrued and unpaid interest to the date of conversion;
  and




(4)
            On
      December 30, 2010, the balance of the outstanding principal in the amount
      of $1,710,994, and unpaid interest to the date of
    conversion.




The
Company paid the remaining balance of $65,000, by issuing  43,000,000
shares of the Company’s Class A Common Stock to the Trustee on behalf of the
Trustor, on December 30, 2008 in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, in reliance upon
Regulation S thereunder.







- 30
-
 Table of Contents







On
January 21, 2009, the Company and Mr. Lei Guo, the Trustee, on behalf of the
Trustor, agreed to amend and restate the Convertible Promissory Note by revising
the terms of the conversion mechanism in the Convertible Promissory Note – the
remaining terms and conditions of the Convertible Promissory Note remained
unaffected by the amendment.  The amendments were reflected in an
Amended and Restated Convertible Promissory Note (the
“Note”).  Pursuant to the Note, the Conversion Price was amended into
a fixed price, set forth in the terms of the Note, and the terms of the
Mandatory Conversion were amended as follows:




(1)
            On
      March 30, 2009, outstanding principal in the amount of $2,500,000, plus
      accrued but unpaid interest to the date of conversion, at the Conversion
      Price of $0.20 per share of the Common
Stock;




(2)
            On
      December 30, 2009, outstanding principal in the amount of $1,000,000, plus
      accrued but unpaid interest to the date of conversion, at the Conversion
      Price of $0.40 per share of the Common
Stock;




(3)
            On
      March 30, 2010, outstanding principal in the amount of $1,000,000, plus
      accrued but unpaid interest to the date of conversion, at the Conversion
      Price of $1.00 per share of the Common Stock;
  and




(4)
            On
      December 30, 2010, the balance of the outstanding principal in the amount
      of $1,210,994, plus accrued but unpaid interest to the date of conversion,
      at the Conversion Price of $1.50 per share of the Common
      Stock.




On March
30, 2009, the outstanding principal in the amount of $2,500,000, plus the
accrued and unpaid interest automatically converted at the Conversion Price of
US $0.20 per share into 12,605,615 shares of the Company’s Class A Common Stock
for the Trustee, pursuant to the terms of the Note.  The Note and the
Common Stock were issued in reliance upon an exemption from the registration
requirements of the U.S. Securities Act of 1933, as amended, in accordance with
Regulation S.




Effective
July 30, 2009, the Company and Mr. Lei Guo, the Trustee, on behalf of Sichuan
Yinfa Resource Co., Ltd, the Trustor, agreed to terminate the Note, issued on
January 21, 2009.  In connection with the termination of the Lease
Property and Note, effective July 30, 2009, the 12,605,615 shares of the
Company’s Class A Common Stock issued to the Trustee, on March 30, 2009, were
withdrawn and cancelled, but the Trustee was allowed to retain the 43,000,000
shares of the Common Stock issued December 30, 2008.




Mr.
Jianyin Wang is the controlling shareholder of Sichuan Yinfa Resource and the
President and Director of the Company.







- 31
-
 Table of Contents





Item 14. Principal Accounting Fees and
Services.




The
following table sets forth fees billed to us for professional services rendered
by Lake & Associates CPA’s LLC, our independent auditor, for the audit of
our financial statements for the years ended December 31, 2009 and December 31,
2008.


2009
            
            
            2008Audit
      Fees
            
            $
            42,000
            
            
            $
            42,000Audit-Related
      Fees
            
            
            -
            
            
            
            -Tax
      Fees
            
            
            -
            
            
            
            -All
      Other Fees
            
            
            -
            
            
            
            -Total
      Audit and Audit-Related Fees
            
            $
            42,000
            
            
            $
            42,000




PART
IV




Item 15.  Exhibits, Financial Statement
Schedules.




(a)           The
following financial statements of the Company are included following the
signature page, commencing on page F-1:




Report of
Independent Registered Public Accounting Firm




Consolidated
Balance Sheets – as of December 31, 2009 and 2008


C onsolidated
Statement of Operations – For years ended December 31, 2009 and
2008


Consolidated
Statement of Cash Flows – For years ended December 31, 2009 and
2008


Consolidated
Statement of Equity (Deficit) – For years ended December 31, 2009 and
2008


Notes to
Audited Financial Statements




(b)           Exhibits:  The
exhibits listed in the accompanying “Index to Exhibits” are filed or
incorporated by reference as part of this Form 10-K





- 32
-
 Table of Contents







SIGNATURES




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




CHINA
      HEALTH RESOURCE, INC.By: 
      /s/   
      Wang,
      Jiayin
            Date:  April
      15, 2010Wang, JiayinPresident




Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated




Signature
            Title
            Date/s/
      Jiang,
      Chen
            Chief
      Executive Officer and Director
            April
      15, 2010Chen,
      Jiang
            (Principal
      Executive Officer)/s/
      Zhou,
      Yi
            Chief
      Financial Officer and Director
            April
      15, 2010Zhou,
      Yi
            (Principal
      Financial Officer)/s/
      Wang,
      Jiayin
            President
      and Director
            April
      15, 2010Wang,
      Jiayin/s/
      Wang,
      Bing
            Director
            April
      15, 2010Wang,
      Bing/s/
      Wang,
      Geiwi
            Director
            April
      15, 2010Wang,
      Geiwi











- 33
-
 Table of Contents





CHINA
HEALTH RESOURCE, INC.





EXHIBIT INDEX
 TO
 2009
ANNUAL REPORT ON FORM 10-K




Exhibit
      Number
            Description3.1
            Certificate
      of Incorporation, as adopted on February 26, 2002 and as amended on May
      14, 2003, October 13, 2006, April 23, 2007 and May 8, 2007. (1)3.2
            Amended
      and Restated By-laws, as adopted on February 17, 2009.(1)10.1
            License
      Agreement Relating to the Exclusive Right to Use “Suining Sichuan Angelic”
      Certified Trademark, by and between Sichuan Province Suining City DAR
      Association and Yinfa, dated March 16, 2004.(2)10.2
            Import-Export
      Agent Executive Agreement, by and between Suining Yinfa DAR Industrial Co.
      and Korean DongUi Cosmetics Co., dated March 5, 2007. (3)10.3
            Sichuan
      DAR Purchase and Processing Contract, by and between Suining Yinfa DAR
      Industrial Co. and Chengdu Derentang Pharmacy Company Medicine Branch,
      dated April 18, 2007.(4)10.4
            Debt
      Transfer and Assumption Agreement by and among Yinfa, Suining Yinfa
      Building Construction and Development Co., Ltd., Chengdu Lianqiang
      Investment Co. and Yinfa Resource, dated September 20, 2008.(5)10.5
            Agreement
      to Cancel the Contract of Lease of Property by and between Mr. Xiao Jian
      Lian and the Company, effective as of December 15, 2008.(6)10.6
            Property
      Trust Agreement by and between Yinfa Resource and Mr. Lei Guo, dated
      December 16, 2008.(7)10.7
            Convertible
      Promissory Note to Mr. Lei Guo, as trustee, dated December 30, 2008.(7)10.8
            Amended
      and Restated Convertible Promissory Note to Mr. Lei Guo, as trustee, dated
      January 21, 2009 and effective as of December 30, 2008.(8)10.9
            Cancellation
      of the Contract of Lease of Property, and the Amended and Restated
      Promissory Note between China Health Resource, Inc. and Mr. Lei Guo, as
      Trustee for Sichuan Yinfa Resource Development Co., Ltd. (English
      Translation). (9)14.1
            Code
      of Ethics.(10)21.1
            Subsidiaries of Registrant.(11)








- 34
-
 Table of Contents









23.1
            Consent of Independent Registered Public Accounting Firm,
      Lake & Asssociates, CPA's LLC (11)31.1
            Rule 13a-14(a)/15d-14(a) Certifications of Chief
      Executive Officer.(11)31.2
            Rule 13a-14(a)/15d-14(a) Certifications of Chief
      Financial Officer.(11)32.1
            Section 1350 Certifications of Chief Executive
      Officer.(11)32.2
            Section 1350 Certifications of Chief Financial
      Officer.(11)




_____________________




(1)
            Incorporated
      by reference to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2008.




(2)
            Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2008.




(3)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on March 6, 2007.




(4)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on April 20, 2007.




(5)
            Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2008.




(6)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on December 18, 2008.




(7)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on December 23, 2008.




(8)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on January 26, 2009.




(9)
            Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on August 11, 2009.




(10)
            Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB for the year
      ended December 31, 2006.




(11)
            Filed
      herewith.







- 35
-
 Table of Contents







CHINA
HEALTH RESOURCE, INC.






CONSOLIDATED
FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008




Report
      of Independent Registered Public Accounting Firm
            F-2Financial
      Statements:Consolidated
      Balance Sheets as of December 31, 2009 and 2008
            F-3Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
            F-4Consolidated
      Statement of Cash Flows for the years ended December 31, 2009 and
      2008
            F-5Consolidated
      Statement of Equity (Deficit) for the years ended December 31, 2009 and
      2008
            F-6Notes
      to Consolidated Financial Statements
            F-7













F -
1
 Table of Contents









REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and
 Stockholders
of China Health Resource Inc.
 
 We have
audited the accompanying consolidated balance sheets of China Health Resource
Inc. and Subsidiary (a Delaware corporation). as of December 31, 2009 and 2008
and related statements of consolidated operations, stockholders’ deficit, and
cash flows for the years ending December 31, 2009 and 2008. These financial
statements are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Health Resource Inc. and
Subsidiary. (a Delaware corporation). as of December 31, 2009 and 2008 and the
results of its operations and its cash flows for years ended December 31, 2009
and 2008 in conformity with accounting principles generally accepted in the
United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered recurring losses and has
yet to generate an internal cash flow that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note I. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 /s/
Lake & Associates, CPA’s LLC
 
 Lake
& Associates, CPA’s LLC
 Boca
Raton, Florida
 April 14,
2010
 20283
State Road #7
 Suite
300
 Boca
Raton, Florida 33498
 Phone:
561.982.9874
 Fax:
561.982.7985


F -
2
 Table of Contents





China
      Health Resource, Inc. and SubsidiaryAudited
      Consolidated Balance SheetsAs
      of December 31, 2009 and 2008ASSETS
            
            December 31, 2009
            
            
            December 31, 2008CURRENT
      ASSETSCash
      and Cash Equivalents
            
            $
            18,211
            
            
            $
            101,497Accounts
      Receivable
            
            
            889,020
            
            
            
            441,047Note
      Receivable
            
            
            350,312
            
            
            
            378,054Employee
      Advances
            
            
            14,916
            
            
            
            3,016Advances
      to Suppliers
            
            
            55,630
            
            
            
            162,158Prepaid
      Expenses
            
            
            -
            
            
            
            59,648Inventory
            
            
            29,006
            
            
            
            264,177TOTAL
      CURRENT ASSETS
            
            
            1,357,094
            
            
            
            1,409,598FIXED
      ASSETSProperty,
      Plant, and Equipment
            
            
            959,557
            
            
            
            6,912,234Accumulated
      Depreciation
            
            
            (126,507
            )
            
            
            (154,759
            )TOTAL
      NET FIXED ASSETS
            
            
            833,050
            
            
            
            6,757,475TOTAL
      ASSETS
            
            $
            2,190,144
            
            
            $
            8,167,073LIABILITIES
      AND EQUITYCURRENT
      LIABILITIESAccounts
      Payable and Accrued Liabilities
            
            $
            268,849
            
            
            $
            238,275Other
      Payables
            
            
            113,592
            
            
            
            87,678Note
      Payable-Convertible Debt
            
            
            -
            
            
            
            3,500,000Due
      to Shareholder
            
            
            376,457
            
            
            
            83,258Taxes
      Payable
            
            
            309,574
            
            
            
            241,493Notes
      Payable - Current Portion
            
            
            234,322
            
            
            
            412,773TOTAL
      CURRENT LIABILITIES
            
            
            1,302,794
            
            
            
            4,563,476LONG-TERM
      LIABILITIESNotes
      Payable-Convertible debt
            
            
            -
            
            
            
            2,210,994TOTAL
      LONG-TERM LIABILITIES
            
            
            -
            
            
            $
            2,210,994TOTAL
      LIABILITIES
            
            
            1,302,794
            
            
            
            6,774,470STOCKHOLDERS'
      EQUITY (DEFICIT)Common
      stock Class A ( 500,000,000 shares authorized,142,288,894
      issued and outstanding, par value $0.01)
            
            
            1,422,889
            
            
            
            1,422,888Common
      stock Class B ( 8,344 shares authorized,0
      issued and outstanding, par value $0.01)
            
            
            -
            
            
            
            -Additional
      paid in capital
            
            
            (134,767
            )
            
            
            (134,767
            )Accumulated
      other comprehensive income
            
            
            157,143
            
            
            
            149,523Retained
      earnings (deficit)
            
            
            (557,914
            )
            
            
            (45,042
            )TOTAL
      STOCKHOLDERS' EQUITY (DEFICIT)
            
            
            887,350
            
            
            
            1,392,603TOTAL
      LIABILITIES AND EQUITY
            
            $
            2,190,144
            
            
            $
            8,167,073The
      accompanying notes are an integral part of these financial
      statements.


F -
3
 Table of Contents


China
      Health Resource, Inc. and SubsidiaryAudited
      Consolidated Statement of OperationsFor
      the Year Ended December 31, 2009 and 2008For
      the 12 months2009
            
            
            2008REVENUESSales
            
            $
            4,377,463
            
            
            $
            2,646,111Cost
      of Sales
            
            
            3,736,867
            
            
            
            1,760,035GROSS
      PROFIT
            
            
            640,596
            
            
            
            886,076OPERATING
      EXPENSESSelling,
      General, and Administrative
            
            
            1,184,213
            
            
            
            505,058Financial
      ExpenseInterest
      Expense
            
            
            69,508
            
            
            
            50,537Distribution
      Costs
            
            
            -
            
            
            
            -TOTAL
      OPERATING EXPENSES
            
            
            1,253,721
            
            
            
            555,595OPERATING
      INCOME (LOSS)
            
            
            (613,125
            )
            
            
            330,481OTHER
      INCOME / (EXPENSES)Non-Operating
      Expenses
            
            
            -
            
            
            
            -Government
      Grants
            
            
            -
            
            
            
            72,857Debt
      Forgiveness
            
            
            177,893Other
            
            
            2,167
            
            
            
            3,197TOTAL
      OTHER INCOME / (EXPENSE)
            
            
            180,060
            
            
            
            76,054NET
      INCOME (LOSS) BEFORE TAXES
            
            
            (433,065
            )
            
            
            406,535INCOME
      TAX EXPENSE
            
            
            79,807
            
            
            
            149,635NET
      INCOME (LOSS)
            
            $
            (512,872
            )
            
            $
            256,900INCOME
      FROM DISCONTINUED OPERATIONS
            
            
            -
            
            
            
            -OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      Currency Translation (Loss) Gain
            
            
            7,620
            
            
            
            73,406COMPREHENSIVE
      INCOME (LOSS)
            
            $
            (505,252
            )
            
            $
            330,306WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDINGBasic
            
            
            142,288,894
            
            
            
            99,523,815Fully
      diluted
            
            
            142,288,894
            
            
            
            99,523,815NET
      LOSS PER COMMON SHAREBasic
            
            
            **
            
            
            
            **Fully
      diluted
            
            
            **
            
            
            
            ****
      Less than $.01The
      accompanying notes are an integral part of these financial
      statements.


F -
4
 Table of Contents


China
      Health Resource, Inc. and SubsidiaryAudited
      Consolidated Statement of Cash FlowsFor
      the Year Ended December 31, 2009 and 2008For
      the 12 months2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income after income tax
            
            $
            (555,705
            )
            
            $
            256,900Adjustments
      to reconcile net income tonet
      cash used in operating activities:Depreciation
            
            
            (28,385
            )
            
            
            48,260Amortization
      of prepaid expenses
            
            
            -
            
            
            
            -Due
      from related party
            
            
            -
            
            
            
            533,824Cancel
      Stock issued for lease contract
            
            
            0
            
            
            
            (1,965,256
            )Accounts
      receivable
            
            
            (447,371
            )
            
            
            58,360Employee
      Advances
            
            
            (11,892
            )
            
            
            5,347Other
      Receivable
            
            
            106,635
            
            
            
            48,814Bad
      debt provision
            
            
            -
            
            
            
            -Prepaid
      Expenses
            
            
            124,647
            
            
            
            1,641,413Inventory
            
            
            235,321
            
            
            
            (226,448
            )Notes
      receivable
            
            
            0
            
            
            
            -Intangible
      assets
            
            
            
            
            
            
            -Long
      term deferred assets
            
            
            
            
            
            
            -Accounts
      payable and accrued liabilities
            
            
            411,786
            
            
            
            116,268Notes
      payable
            
            
            
            
            
            
            -Other
      payable
            
            
            (202,699
            )
            
            
            38,061Others
            
            
            9,515
            
            
            
            10,877Tax
      payable
            
            
            72,319
            
            
            
            163,498NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
            
            
            (285,828
            )
            
            
            729,918CASH
      FLOWS FROM INVESTING ACTIVITIES:Issuance
      of Note Receivable
            
            
            
            
            
            
            -Notes
      Receivable Decrease (Increase)
            
            
            28,085
            
            
            
            (432,370
            )Disposal
      of property , plant, and equipment
            
            
            168,158
            
            
            
            -Purchase
      of property, plant, and equipment
            
            
            -
            
            
            
            (1,054
            )NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
            
            
            196,243
            
            
            
            (433,424
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of short-term note
            
            
            -
            
            
            
            -Proceeds
      from shareholder loan
            
            
            -
            
            
            
            -Note
      Payable from unrelated Party
            
            
            -
            
            
            
            (304,530
            )Payments
      on short-term-note payable
            
            
            -
            
            
            
            -Capital
      contribution
            
            
            -
            
            
            
            -Retirement
      of common stock
            
            
            -
            
            
            
            -Proceeds
      from issuance of common stock
            
            
            -
            
            
            
            -Bonds
      payable
            
            
            -
            
            
            
            -NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            -
            
            
            
            (304,530
            )FOREIGN
      CURRENCY TRANSLATION
            
            
            6,299
            
            
            
            73,406NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (83,286
            )
            
            
            65,370CASH
      AND CASH EQUIVALENTS:Beginning
      of period
            
            
            101,497
            
            
            
            36,127End
      of period
            
            $
            18,211
            
            
            $
            101,497SUPPLEMENTAL
      CASH FLOW INFORMATION:Common
      stock issued for settlement of certain accounts payable
            
            $
            -
            
            
            $
            -Common
      stock issued for services
            
            $
            -
            
            
            $
            -Cancellation
      of Notes Payable for purchase of land right
            
            $
            5,710,994
            
            
            $
            -The
      accompanying notes are an integral part of these financial
      statements.




F -
5
 Table of Contents




China
      Health Resource, Inc. and SubsidiaryAudited
      Consolidated Statement of Equity (Deficit)For
      the years Ended December 31, 2009 and 2008AccumulatedOtherClass
      A
              Shares
            
            
            
            par
      value
              0.01
            
            
            
            Class
      B
              Shares
            
            
            
            par
      value
              0.01
            
            
            
            Paid-in
              Capital
            
            
            
            Earnings
              (Deficit)
            
            
            
            
            Comprehensive
              Income
            
            
            
            TotalBalances,
      December 31, 2007
            
            
            99,288,842
            
            
            $
            992,888
            
            
            
            2,000
            
            
            $
            20
            
            
            $
            2,195,470
            
            
            $
            (301,942
            )
            
            $
            
            76,117
            
            
            $
            2,962,553Issuance
      for lease of property
            
            
            43,000,000
            
            
            
            430,000
            
            
            
            
            
            
            
            
            
            
            
            (365,000
            )
            
            
            
            
            
            
            
            
            
            
            
            65,000Cancellation
      of Class B common stock
            
            
            -
            
            
            
            -
            
            
            
            (2,000
            )
            
            $
            (20
            )
            
            
            (1,965,236
            )
            
            
            -
            
            
            
            
            -
            
            
            
            (1,965,256
            )Net
      Income (Loss) for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            256,900
            
            
            
            
            
            
            
            
            256,900Other
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            
            73,406
            
            
            
            73,406Balances,
      December 31, 2008
            
            
            142,288,842
            
            
            
            1,422,888
            
            
            
            -
            
            
            
            -
            
            
            $
            (134,767
            )
            
            $
            (45,042
            )
            
            $
            
            149,523
            
            
            $
            1,392,603Proceed
      from shareholderFractional
      shares
            
            
            52
            
            
            $
            1
            
            
            
            -
            
            
            
            -
            
            
            $
            (1
            )
            
            $
            -
            
            
            
            
            -
            
            
            
            -Net
      Income(Loss) for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (512,872
            )
            
            
            
            -
            
            
            
            (512,872
            )Other
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            
            7,620
            
            
            
            7,620Balances
      @ December 31, 2009
            
            
            142,288,894
            
            
            $
            1,422,889
            
            
            
            -
            
            
            $
            -
            
            
            $
            (134,767
            )
            
            $
            (557,914
            )
            
            $
            
            157,143
            
            
            $
            887,350The
      accompanying notes are an integral part of these financial
      statements.







F -
6
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Business
Activity





China
Health Resource Inc., f/k/a Voice Diary Inc. (the “Company” or “CHRI”) was
incorporated in the State of Delaware on February 26, 2002. In June and July
2002, the Company acquired approximately 99% of the outstanding shares of Voice
Diary Ltd., an Israeli corporation (“VDL”), through the exchange of shares of
the Company with former shareholders of the Subsidiary. VDL was disposed of on
August 22, 2006 pursuant to the agreement between the Company, VDL and Arie
Hinkis, the former president of the Company. On May 21, 2007, the Company
changed its name to “China Health Resource Inc.”.





On June
13, 2006, CHRI (“acquiree”) executed a Plan of Exchange with Sui Ning Shi Yin Fa
Bai Zhi Chan Ye You Xian Gong Si, a corporation organized and existing under the
laws of the Peoples’ Republic of China (“Yin Fa” or ‘acquirer”), the
shareholders of Yin Fa (the “Yin Fa Shareholders”) and the Majority Shareholder
of the CHRI, pursuant to which six simultaneous transactions were consummated at
closing, as follows: (1) settlement of the liabilities of CHRI, (2) a deposit of
7,977,023 (pre-split) new shares of Class A Common Stock and 2,000 new shares of
Class B Common Stock via hand delivery by Mr. Hinkis in exchange for a payment
of $264,000 in cash , (3) a deposit of 1,305,000 (pre-split) shares of Class A
Common Stock via hand delivery by Mr. Hinkis in exchange for a payment of
$136,000 in cash, (4) the issuance of  30,000,000 (post-split)
investment shares of Class A Common Stock of the Registrant to the Yin Fa
shareholders pursuant to Regulation S under the Securities Act of 1933, as
amended, in exchange for all of the shares of registered capital of Yin Fa, (5)
vending out the CHRI subsidiary after closing, and (6) retirement of 744 shares
of Class B Common Stock owned Mr. Hinkis at closing against payment of $74,000
and settlement of all unpaid salaries and severance pay to Mr. Hinkis in the
amount of $100,000, of which both amounts was taken from the payment made to
CHRI for the issued shares.





The Plan
of Exchange was consummated on August 22, 2006; as a result, Yin Fa became a
wholly-owned subsidiary of CHRI. The transaction was treated for accounting
purposes as a capital transaction and recapitalization by the accounting
acquirer and as a re-organization by the accounting acquiree.





Accordingly,
the consolidated financial statements include the following:




(1)
            The
      balance sheet consists of the net assets of the acquirer at historical
      cost and the net assets of the acquiree at historical cost.(2)
            The
      statement of operations includes the operations of the acquirer for the
      periods presented and the operations of the acquiree from the date of the
      merger.








F -
7
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





Yin Fa
was founded on April 24, 2001 in China.  The main business plan
includes the manufacturing, processing, and sales of Dahurian Angelica Root
(DAR) and its related products.  DAR is one of the major herbs used in
Chinese traditional medicines.  In 2004 and 2005, the company and
Sichuan Yingfa Resource Development Co., Ltd., (Sichuan) began the process of
applying for Good Agricultural Practice of Medical Plants and Animals (GAP) for
DAR. The project passed the inspection of the State Food and Drug Administration
(SFDA), and the SFDA made the final, official announcement on February 26,
2006.





A GAP
certificate means that the planning, quality, and manufacturing of DAR meet a
high and certifiable standard.  The GAP certificate is in the name of
Sichuan and the company manages the processing and sales of DAR. CHRI and its
wholly owned subsidiary Yin Fa are hereafter referred to as (the
“Company”).





Basis of
Presentation





The
financial statements included herein were prepared under the accrual basis of
accounting.





Cash and Cash
Equivalents





For
purposes of the Consolidated Statement of Cash Flows, the Company considers
liquid investments with an original maturity of three months or less to be cash
equivalents.





Management’s Use of
Estimates





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.





Revenue
Recognition





Our
revenue recognition policies are in accordance with Staff Accounting Bulletin
No. 104. Sales revenue is recognized when all of the following have occurred:
(i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or
services have been rendered, (iii) the price is fixed or determinable, and (iv)
the ability to collect is reasonably assured. These criteria are generally
satisfied at the time of shipment when risk of loss and title passes to the
customer.





F -
8
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





We
recognize revenue when the goods are delivered and title has passed. Sales
revenue represents the invoiced value of goods, net of a value-added tax
(“VAT”). All of our products that are sold in the PRC are subject to a Chinese
value-added tax at a rate of 17% of the gross sales price or at a rate approved
by the Chinese local government. This VAT may be offset by the VAT paid by us on
raw materials and other materials included in the cost of producing their
finished product.





Comprehensive Income
(Loss)





The
Company adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards (SFAS) No. 130 (FASB ASC 220), “Reporting Comprehensive
Income,” which establishes standards for the reporting and display of
comprehensive income and its components in the consolidated financial
statements.





Foreign
Currencies





Assets
and liabilities denominated in respective functional currencies are translated
into United States Dollars at the exchange rate as of the balance sheet
date.  The share capital and retained earnings are translated at
exchange rates prevailing at the time of the transactions. Revenues, costs, and
expenses denominated in respective functional currencies are translated into
United States Dollars at the weighted average exchange rate for the period. The
effects of foreign currencies translation adjustments are included as a separate
component of accumulated other comprehensive income.





Company’s Future Operations
Are Dependent on Foreign Operations





The
Company’s future operations and earnings will depend on the results of the
Company’s operations in China. There can be no assurance that the Company will
be able to successfully conduct such operations, and a failure to do so would
have a material adverse effect on the Company’s financial position, results of
operations, and cash flows.





Also, the
success of the Company’s operations will be subject to numerous contingencies,
some of which are beyond management’s control. These contingencies include
general and regional economic conditions, prices for the Company’s products,
competition, and changes in regulation. Since the Company is dependent on
international operations, specifically those in China, the Company will be
subject to various additional political, economic, and other uncertainties.
Among other risks, the Company’s operations will be subject to the risks of
restrictions on transfer of funds; export duties, quotas, and embargoes;
domestic and international customs and tariffs; changing taxation policies;
foreign exchange restrictions; and political conditions and governmental
regulations.





F -
9
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





Inventory





Inventory
includes raw material, package material, low-value consumables and merchandise.
The Company adopts perpetual inventory system and inventories are recorded at
actual cost.  Raw material, package material and merchandise are
priced at cost upon acquisition, and with the weighted average method upon
issuance and shipment. Low-value consumables are amortized at 50% of the amount
upon application and amortized an additional 50% upon obsolescence.





Property, Plant, and
Equipment





Property,
plant, and equipment are recorded at cost, less accumulated depreciation and
impairment.  Repairs and maintenance expenditures, which are not
considered improvements and do not extend the useful life of property, plant,
and equipment, are expensed as incurred. The cost and related accumulated
depreciation, applicable to sold or no longer in service property, plant, and
equipment, are eliminated from the accounts and any gain or loss is included in
the statement of operations.





Depreciation
is calculated to write-off the cost or basis of the property, plant, and
equipment over their estimated useful lives for the date on which they become
fully operational and after taking into account their estimated residual values
(salvage value), using the straight-line method, at the following rates per
year:





Equipment Straight-line
      for 5 to 20 years with a 3% salvage valueBuilding Straight-line
      for 20 years with a 5% salvage value





The
Company recognizes an impairment loss on property, plant, and equipment when
evidence, such as the sum of expected future cash flows (undiscounted and
without interest charges), indicates that future operations will not produce
sufficient revenue to cover the related future costs, including depreciation,
and when the carrying amount of the asset cannot be realized through
sale.  Measurement of the impairment loss is based on the fair value
of the assets.





Income
Taxes





Income
taxes are provided in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109 (FASB ASC 740), “Accounting for Income
Taxes.”A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting and net operating loss
carry forwards.





Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that, and some portion or the entire
deferred tax asset will not be realized.  Deferred tax assets and
liabilities are adjusted for the effect of changes in tax laws and rates on the
date of enactment.








F -
10
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





Fair Value of Financial
Instruments





The
carrying amounts reported in the consolidated balance sheet for cash, accounts
receivable, accounts payable, and loans payable approximate fair value based on
the short-term maturity of these instruments.  The carrying value of
the Company’s long-term debt approximated its fair value based on the current
market conditions for similar debt instruments.





Accounts
Receivable





Accounts
receivable are stated at estimated net realizable value.  Accounts
receivable are comprised of balances due from customers net of estimated
allowances for uncollectible accounts.  In determining the
collectability of the account, historical trends are evaluated and specific
customer issues are reviewed to arrive at appropriate allowances.





Impairment of Long-Lived
Assets





The
Company evaluated the recoverability of its property and equipment, and other
assets in accordance with Statements of Financial Accounting Standards (SFAS)
No. 121, “Accounting for the
Impairment of Long-Lived Assets to be Disposed of,” which requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the estimated future undiscounted cash flows attributable
to such assets or the business to which such intangible assets
relate.





Stock-Based
Compensation





Employee
stock-based compensation is accounted for in accordance with Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”) and the FASB interpretations thereof. Pursuant to
those accounting pronouncements, compensation is recorded for share options
granted to employees at the date of grant based on the difference between the
exercise price of the options and the market value of the underlying shares at
that date. Due to the terms of the grants, the fair value of the compensation in
accordance with SFAS No. 123R, "Accounting for Stock-Based
Compensation" approximates the values computed in accordance with APB No.
25. Stock-based compensation to non-employees is accounted for in accordance
with SFAS No. 123R. Under both accounting pronouncements, as part of the
necessary computations, management is required to estimate the fair value of the
underlying shares. Fair value has generally been determined by management, as
the price at which the Company's shares were issued at the most recent prior
placement of the Company's Common Stock. Since the Company was approved for
listing on the Over the Counter Bulletin Board - fair value is determined
according to stock market price. The timing of the grant and measurement of
stock-based awards will not have a material effect on the Company's results of
operations and financial position.  Since no stock-based awards
exist.





F -
11
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





Recently Issued Accounting
Pronouncements


In
January 2010, the FASB issued ASU No. 2010-06,“Fair
Value Measurements and Disclosures (Topic 820) - Improving Disclosures about
Fair Value Measurements.”ASU
2010-06 requires new disclosures regarding transfers in and out of the Level 1
and 2 and activity within Level 3 fair value measurements and clarifies existing
disclosures of inputs and valuation techniques for Level 2 and 3 fair value
measurements. ASU 2010-06 also includes conforming amendments to employers’
disclosures about postretirement benefit plan assets. The new disclosures and
clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the
disclosure of activity within Level 3 fair value measurements, which is
effective for fiscal years beginning after December 15, 2010, and for
interim periods within those years. The adoption of this statement is not
expected to have a material impact on our consolidated financial position or
results of operation.
  In June
2009, the FASB issued SFAS No. 168, “The
FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles - a replacement of FASB Statement No. 162” (also
issued asAccounting
Standards Update “ASU”No. 2009-01).
This standard establishes the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with generally accepted accounting principles. This standard is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The adoption of ASU No. 2009-5 had no impact
on the results of operations or the financial position of the
Company.
  In August
2009, the FASB issued ASU No. 2009-5,“Fair
Value Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair
Value.”ASU
No. 2009-5 provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using a valuation technique
that uses the quoted price of the identical liability when traded as an asset,
quoted prices for similar liabilities or similar liabilities when traded as
assets, or another valuation technique that is consistent with the principles of
ASC Topic 820. ASU No. 2009-5 is effective for the first reporting period
(including interim periods) beginning after issuance. The adoption of ASU
No. 2009-5 did not have a material impact on the results of operations or
financial position of the Company.
  In May
2009, the FASB issued a new accounting standard (FASB ASC 855-10) on subsequent
events, which establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This accounting standard establishes:
1) the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; 2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and 3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This accounting standard also requires
disclosure of the date through which an entity has evaluated subsequent events.
The adoption of this statement is not expected to have a material impact on our
consolidated financial position or results of operation.
  In April
2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS
124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments,”(FASB
ASC 320-10-65), which amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary impairments on
debt and equity securities in the financial statements. This Staff Position was
effective for interim and annual reporting periods ending after June 15,
2009. The adoption of this statement did not have an impact on the results of
operations or the financial position of the
Company.





F -
12
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





NOTE B - SUPPLEMENTAL CASH
FLOW INFORMATION





Supplemental
disclosures of cash flow information for the period ended December 31, 2009 and
2008 is summarized as follows:





Cash paid
during the period ended December 31, 2009 and 2008 for interest and income
taxes:




2009
            
            
            2008Income
      Taxes
            
            $
            -0-
            
            
            
            -0-Interest
            
            $
            69,508
            
            
            
            50,537





NOTE C -
SEGMENT REPORTING





In June
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information.”





This
statement requires companies to report information about operating segments in
interim and annual consolidated financial statements.  It also
requires segment disclosures about products and services, geographic areas, and
major customers.  The Company determined that it did not have any
separately reportable operating segments as of December 31, 2009 and
2008.





NOTE D - NOTE
RECEIVABLE





As of
December 31, 2008, the company has a note receivable from an unrelated-party
with a total balance due of $378,054. The note is due on December 30, 2009 with
interest payable quarterly at 10.395%. The loan
is extended for another year from December 31, 2009 to December 30, 2010 with
the same interest and payment schedule. As of December 31, 2009, the total
balance due is $350,312.





As of
December 31, 2009 & 2008, the company has no note receivable from any
related-party.





F -
13
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





NOTE E - NOTES PAYABLE -
CURRENT AND LONG-TERM





As of
December 31, 2009 and 2008, notes payable consist of the following:




2009
            
            
            2008Secured
      note payable to an unrelated party.Bearing
      8.6625 % interest Principal payments due10/21/2010
      one payment of $ 234,322
            
            $
            234,322
            
            
            
            234,103Unsecured
      note payable –unrelated partyBearing
      2.4% interest Principal payment due10/31/2009
            
            
            
            
            
            
            178,670TOTAL
            
            $
            234,322
            
            
            
            412,773





Future
payments on note due as follow:





Before
      December 31, 2009
            
            
            234,322
            
            
            
            412,773TOTAL
            
            $
            234,322
            
            
            $
            412,773





NOTE F -
COMMITMENTS




During
2008 the company leased a warehouse for $2,043 per year, which expires on March
14, 2009. In 2009, this lease is renewed on similar terms.





The
Company leased its office space of approximately 1,100 sq feet for approximately
$440 per year, which expires May 21, 2010.





Future
      annual lease payments are as follows:May
      22, 2009 to May 21, 2010
            
            $
            440TOTAL
            
            $
            440





The
Company leased its office space of approximately 1,320 sq feet for approximately
$967 per year.  The lease expires in January 12, 2014. Total Rent
Expense for December 31, 2009 was $967.





F -
14
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





Future
      annual lease payments are as follows:Year
      Ending December 31, 2009
            
            $
            9672010
            
            
            9672011
            
            
            9672012
            
            
            9672013
            
            
            9672014
            
            
            967TOTAL
            
            $
            5,802





NOTE G - RELATED-PARTY
TRANSACTIONS





The
former shareholders of the Company were Sichuan Suining Yinfa Resource
Development Group Co., Ltd., Suining Yinfa Construction Materials Company Ltd,
and Sichuan Yinfa Resource Development Co., Ltd. (the Yinfa group). According to
the Temporary Resolution of the Shareholders' Meeting of the Company held on
January 20, 2006, the company has had a capital restructuring as mentioned in
Note L.  Related-party transactions between the Company and Yinfa
group from 2004 to January 20, 2006 are listed below:





The GAP
certificate is owned by the Yinfa Group, namely Sichuan Yinfa Resource
Development Co., Ltd. GAP is a quality standard for agricultural products such
as DAR.  The GAP certificate means that the company’s DAR meets a high
and certifiable standard. The Company is the virtual manufacturer and seller of
DAR.





The
Company trademark for its “Bailing Capsules” is “Zhiwang” which Sichuan owns and
has applied for registration.  Sichuan is waiting for approval by
State Industrial and Commercial Administration General Bureau Trademark
Bureau.





As of
December 31, 2009, the company has a note receivable from a related-party with a
total balance due of $327,743. The note bears no interest and due on
demand.





NOTE H -COMPREHENSIVE INCOME
(LOSS)





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. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources.
Accumulated comprehensive income, as presented in the accompanying statement of
changes in stockholders’ equity consists of changes in unrealized gains and
losses on foreign currency translation. This comprehensive income is not
included in the computation of income tax expense or benefit. For the years
ended December 31, 2009 and 2008, total comprehensive income (loss) was ($505,252)
and $330,306 respectively.





F -
15
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





NOTE I - GOING
CONCERN





As shown
in the accompanying audited financial statements, the Company has a deficit book
value and a negative cash flow from operations that have placed a doubt as to
whether the Company can continue as a going concern. The ability of the Company
to continue as a going concern is dependent on developing operations, increasing
revenues, and obtaining new capital. Management has enacted a plan to and
increase sales.  In terms of operating profit and cash flow analysis,
the Company’s operating profit and cash flow are relatively poor compare to the
prior year’s data. The reasons are that the Company has cost a lot in
reorganizing the corporate operation, much higher cost of goods especially the
raw material cost and the transportation cost, relative low sales price,
tremendous increase of A/R, cancellation of stock issue for property lease. In
the future, the Company will have a capital expansion plan and sales promotion
plan which will give the advantage to the Company’s asset and profit
level.





NOTE J - INCOME
TAXES





The
Company conducts all its operating business through its subsidiary in China. The
subsidiary is governed by the income tax laws of the PRC and do not have any
deferred tax assets or deferred tax liabilities under the income tax laws of the
PRC because there are no temporary differences between financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
Company by itself does not have any business operating activities in the United
States and is therefore not subject to United States income tax.





The
Company’s subsidiaries are governed by the Income Tax Law of the People’s
Republic of China (“PRC”) concerning Foreign Investment Enterprises and Foreign
Enterprises and various local income tax laws (the “Income Tax Laws”).
 Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has
replaced the previous laws for Domestic Enterprises (“DEs”) and Foreign Invested
Enterprises (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate
previously applicable to both DEs and FIEs.





Prior to
2008, under the Chinese Income Tax Laws, FIEs generally were subject to an
income tax at an effective rate of 33% (30% state income taxes plus 3% local
income taxes) on income as reported in their statutory financial statements
after appropriate tax adjustments unless the enterprise was located in specially
designated regions for which more favorable effective tax rates
apply.  Beginning January 1, 2008, China has unified the corporate
income tax rate on foreign invested enterprises and domestic enterprises. The
unified corporate income tax rate is 25%.





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.





F -
16
 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





Utilization
of the net operating losses may be subject to certain annual limitations due to
changes in control. This may result in the expiration of net operating losses
before full utilization.





The
Company’s total deferred tax asset as of December 31, 2009 is as
follows:





2009
            
            
            2008Net
      operating loss carry-forwards
            
            $
            200,755
            
            
            $
            0Valuation
      Allowance
            
            
            (200,755
            )
            
            
            (0
            )$
            0
            
            
            $
            0Prevailing
      PRC tax rate
            
            
            25
            %
            
            
            15
            %





The
Company is subject to income taxes on an entity basis, on income arising in, or
derived from the tax jurisdiction in which it is domiciled and operates. The
corporate accrued income taxes as of December 31, 2009 and 2008 were $79,807 and
$149,635, respectively.





The
following table reconciles the U.S. statutory rate to the Company’s effective
tax rate:





Year Ended December 312009
            
            
            2008U.S.
      Statutory rate
            
            
            34
            %
            
            
            34
            %Foreign
      income not recognized in USA
            
            
            (34
            )
            
            
            (34
            )China
      income taxes
            
            
            25
            
            
            
            33Total
      provision for income taxes
            
            
            25
            %
            
            
            16
            %





The
Company applies SFAS 109, “Accounting for Income Taxes”, which requires
recognition of deferred income tax liabilities and assets for the expected
future tax consequences of temporary differences between the income tax basis
and financial reporting basis of assets and liabilities. The provision for
income taxes consist of taxes currently due plus deferred taxes. Because the
Company has no operations within the United States, there is no provision for US
income taxes and there are no deferred tax amounts as of December 31, 2009 and
2008.





The
charge for taxation is based on the results for the year as adjusted for items
that are non-assessable or disallowed. It is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date. Deferred
taxes are accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit.  In principle,
deferred tax liabilities are recognized for all taxable temporary differences,
and deferred tax assets are recognized to the extent that it is probable that
taxable profit will be available against which deductible temporary differences
can be utilized.





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 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





Deferred
taxes are calculated at the tax rates that are expected to apply to the period
when the asset is realized or the liability is settled.  Deferred
taxes are charged or credited in the income statement, except when they relate
to items credited or charged directly to equity, in which case the deferred
taxes are also recorded in equity. Deferred tax assets and liabilities are
offset when they relate to income taxes levied by the same taxation authority
and the Company intends to settle its current tax assets and liabilities on a
net basis.





The
Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded. The adoption of FIN 48
had no affect on the Company’s financial statements.





Value added tax
(“VAT”)





Enterprises
or individuals who sell commodities, engage in repair and maintenance or import
or export goods in the PRC are subject to a value added tax in accordance with
the PRC laws. The value added tax standard rate is 17% of the gross sales price.
A credit is available whereby VAT paid on the purchases of semi-finished
products or raw materials used in the production of the Company’s products can
be used to offset the VAT due on the sales of the products.





NOTE K - PLANT AND
EQUIPMENT, NET





Plant and
equipment, net as of December 31, 2009 and 2008 consists of the
following:





2009
            
            
            2008Building
            
            $
            905,083
            
            
            $
            6,564,133Furniture,
      fixture and equipment
            
            
            54,474
            
            
            
            348,101959,557
            
            
            
            6,912,234Less:
      accumulated depreciation
            
            
            (126,507
            )
            
            
            (154,759
            )Plant
      and equipment, net
            
            $
            833,050
            
            
            $
            6,757,475





Depreciation
expense for the year ended December 31, 2009 and 2008 respectively was $30,049
and $48,260.





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 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





NOTE L -EQUITY
TRANSACTIONS





On
January 10, 2007, the Company issued 6,500,000 shares (pre-forward split) of
Class A Common stock for payment of consulting services to several companies and
individuals. The fair value of this stock issuance was determined using the fair
value of the Company’s common stock on the grant date or the specific terms of
the applicable consulting agreements and booked pro rata due to the service
periods. The Company calculated a stock-based compensation cost of total
$699,554 and recognized $212,896 for the year ended December 31, 2007 and
$84,024 for the year ended December 31, 2008. As of December 31, 2008, the
balance of $59,647 is to be amortized on the straight-line method over the
remaining contract periods of seven months.





On
February 2, 2007, the Company issued 1,000,000 shares (pre-forward
split) of Class A Common stock for payment of consulting services to
Greentree Financial Group, Inc. for services in connection with general
management consulting and advisory services. The fair value of this stock
issuance was determined using the fair value of the Company’s common stock on
the grant date or the specific terms of the applicable consulting agreements and
booked pro rata due to the service periods. The Company calculated a stock-based
compensation cost of total $51,225 and recognized $51,225 for the year ended
December 31, 2007.





On June
8, 2007, Deng Shu Lan, the former president of Yin Fa, resigned from all
positions in Yin Fa. Pursuant to an oral termination agreement, Deng Shu
Lan transferred Zheng Zhimin, the new Vice President of Yin Fa, 2,000 shares of
Class B Common stock of the Company, which were converted into 10,342,593
(pre-forward split) Class A Common Stock on July 9, 2007.





On July
23, 2007, the Company effected a forward stock split of the Company's Class A
Common Stock, pursuant to the Delaware General Corporation Law, exchanging one
(1) existing share of Class A Common Stock for two (2) shares of post-forward
split Class A Common Stock. The number of outstanding shares of the Company’s
Class A common stock was increased from 49,644,447 to 99,288,894 shares and par
value of its Class A common stock was unchanged at $0.01.





On August
15, 2007, the Company's Board of Directors authorized the payment of the total
rent of a 20-year leasing property by the issuance of 2,000 shares of Class B
Common Stock to Lian, Xiao Jian, the owner of a property. Pursuant to the terms
and conditions of the Contract of Lease Property, dated June 29, 2007, the total
payment of the rent for 20 years leasing period is $2,023,121 and the leasing
property is approximately 3,600 square feet. The lease commences in July 2007
and expires in June 2027. Total rent expense for the year ended December 31,
2007 was $23,146.





On
December 15, 2008 the 2000 shares of Class B Common Stock shares were returned
to the company and the above lease contract was cancelled.





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 Table of Contents





China
Health Resource, Inc. and Subsidiary


Notes
to Audited Financial Statements


For
the Years Ended December 31, 2009 and 2008





On
December 30, 2008 43,000,000 shares of Class A Common Stock shares were issued
as a partial payment for land usage rights and forestry rights (see note M) the
shares were valued at $65,000.





NOTE M –NOTE
PAYABLE-CONVERTIBLE DEBT





On
December 30, 2008 the Company issued a convertible note to an un-related party
for the purchase of land usage rights and forestry rights to 3,261.79 acres
valued at $5,775,994. The Note has a stated simple interest rate of 1.5% per
year.  Interest is payable upon conversion dates.  The note
has fixed conversion dates, share prices as follows:





On March
30, 2009 the company will issue 12,500,000 shares valued at $.20 per share total
$2,500,000.





On
December 30, 2009 the company will issue 2,500,000 shares valued at $.40 per
share total $1,000,000





On March
30, 2010 the company will issue 1,000,000 shares valued at $1.00 per share total
$1,000,000





On
December 30, 2010 the company will issue 807,329 shares valued at $1.50 per
share total $1,210,994





Current
      portion of Note
            
            $
            3,500,000Non
      Current portion of Note
            
            
            2,210,994Total
      Note Payable
            
            $
            5,710,994





On
December 19 2009, the total Note payable-convertible debt with interest was
cancelled under the decision of the management board meeting. The scheduled
issuance in 2009 has never been issued.





NOTE
N – DEBT FORGIVENESS





The
Company has an unsecured note payable to an unrelated party bearing 2.4%
interest with principal payment due on 10/31/2009. As of December 31, 2008, the
total balance due is $178,670. In 2009, the lender forgave the debt, and the
total unpaid principal balance plus accrued interest is $117,893.





NOTE
O - SUBSEQUENT EVENTS





None. The
Company has evaluated subsequent events through April 14, 2010,
the date which the financial statements were available to be issued, and no such
events have occurred.








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