- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20-549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

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

For the transition period from ______________ to _____________

Commission file number: 000-51060

CHINA HEALTH INDUSTRIES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		86-0827216 (I.R.S. Employer Identification No.)

168 Binbei Street, Songbei District, Harbin City Heilongjiang Province, People’s Republic of China (Address of principal executive offices)		(Zip Code)

011-86-451-5553-9531

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Yes x No o

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

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

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

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

Yes o No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

As of May 14, 2010, there are 62,239,737 shares of $0.0001 par value common stock issued and outstanding.

FORM 10-Q

CHINA HEALTH INDUSTRIES HOLDINGS, INC.

INDEX

		Page
PART I	FINANCIAL INFORMATION	3

	Item 1. Financial Statements (Unaudited).	3

	Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and June 30, 2009.	3

	Consolidated Statements of Operations for the three and nine months ended March 31, 2010 and 2009 (Unaudited).	4

	Consolidated Statements of Cash Flows for the nine months ended March 31, 2010 and 2009 (Unaudited).	5

	Consolidated Statement Stockholders’ Equity (Unaudited) .	6

	Notes to Financial Statements.	7

	Item 2. Management’s Discussion and Analysis of Financial Condition and results of Operations.	20

	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	26

	Item 4. Controls and Procedures.	26

PART II	OTHER INFORMATION	28

	Item 1. Legal Proceedings.	28

	Item 1A. Risk Factors.	28

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	28

	Item 3. Defaults Upon Senior Securities.	28

	Item 4. (Removed and Reserved).	28

	Item 5. Other Information.	28

	Item 6. Exhibits	28

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2010		June 30, 2009
	(Unaudited)		(Audited)
ASSETS

Current assets
Cash and cash equivalents	$	7,620,289	$	7,394,270
Accounts receivable		5,670		21,510
Inventory		377,926		150,652
Prepaid expenses		9,686,213		9,533

Total current assets		17,690,098		7,575,965

Property and equipment – net		998,767		1,032,328
Intangible Assets – net		834,913		849,285
Construction-in-progress		162,666		10,519

Total assets	$	19,686,444	$	9,468,097

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	554,215	$	574,325
Advances from buyers		359		2,922
Related party debt		205,849		868,552
Wages payable		1,585		671,193
Tax payable		4,587,585		3,048,709

Total current liabilities		5,349,593		5,165,701

Commitments and contingencies		21,942		175,316

STOCKHOLDERS’ EQUITY
Common stock ($0.001 par value, 300,000,000 shares authorized, 62,239,737 and 62,239,737 issued and outstanding, respectively)		6,224		6,223
Additional paid-in capital		1,439,274		1,409,846
Accumulated other comprehensive income		444,528		261,301
Retained earnings		12,446,825		2,625,026

Total Stockholders' equity		14,336,851		4,302,396

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	19,686,444	$	9,468,097

See accompanying notes to the consolidated financial statements

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
REVENUE	$	9,889,459		$	1,015,480		$	29,511,002		$	1,438,124
COST OF GOODS SOLD		4,540,126			686,362			13,061,854			1,056,174

Gross Profit		5,349,333			329,118			16,449,148			381,950

OPERATING EXPENSES
Selling, general & administrative expenses		946,960			39,665			3,462,505			89,109
Depreciation and amortization expenses		20,716			15,864			77,012			42,310
Research & development		-			-			-			-
Total operating expenses		967,676			55,529			3,539,517			131,419
Operating profit		4,381,657			273,589			12,909,631			250,531

OTHER INCOME (EXPENSES)
Interest expenses		(3,845	)		(10,761	)		(24,680	)		(40,708	)
Interest income		226,482			100			226,487			326
Other income		-			-			-			150
Other expense		-			(1	)		-			(146	)
Total other income (expense)		222,637			(10,660	)		201,807			(40,378	)

INCOME (LOSS) BEFORE INCOME TAXES		4,604,294			262,927			13,111,438			210,153
Income taxes		1,140,243			65,123			3,289,639			67,535
Net income (loss)	$	3,464,051		$	197,804		$	9,821,799		$	142,618

OTHER COMPREHENSIVE INCOME
Foreign currency translation gain (loss)	$	(1,870	)	$	(1,896	)	$	183,227		$	5,654
Comprehensive income	$	3,462,181		$	195,908		$	10,005,026		$	148,272

Basic and diluted net loss per share		0.06			0.00			0.16			0.00
Weight average shares outstanding		62,239,737			62,234,737			62,239,737			61,541,951

See accompanying notes to the consolidated financial statements

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended March 31
	2010			2009
Cash flows from operating activities:

Net income (loss)	$	9,821,799		$	142,618

Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities

Depreciation & amortization		77,012			53,436
Imputed interest		24,680			40,701
Share-based compensation		4,750
Changes in assets and liabilities -
(Increase) decrease in:

Accounts receivables and other receivables		12,558			-
Inventory		(227,274	)		(71,160	)
Prepaid expense		(19,444	)		975
Accounts payable and other payables		846,594			6,776
Net cash provided by (used in) operating activities		10,540,675			173,346

Cash flows from investing activities:

Purchases/ (transfer) of fixed assets		(29,079	)		(36,147	)
Notes receivable		-			(109,875	)
Prepayment on acquisition		(6,582,701	)		-
Prepayment on land use right		(3,071,253	)		-
construction-in-progress		(152,147	)		-
Net cash provided by investing activities		(9,835,180	)		(146,022	)

Cash flows from financing activities:
Contributed capital					1,464
Proceeds from related party debt		(662,703	)		26,207
Net cash provided by financing activities		(662,703	)		27,671

Effect of exchange rates on cash		183,227			(3,484	)

Net increase (decrease) in cash and cash equivalents		226,019			51,511

Cash and cash equivalents, at beginning of year		7,394,270			35,251

Cash and cash equivalents, at end of year	$	7,620,289		$	86,762

Supplemental cash flow information

Cash paid for income tax	$	1,272,724		$	2,410

Noncash investing and financing activities

Adjustment of fixed asset value	$	-		$	15,747

See accompanying notes to the consolidated financial statements

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common shares				Additional Paid-in		Retained Earnings (Accumulated		Accumulated Other Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit)		Income			Equity

Balances, June 30, 2009		62,234,737	$	6,223	$	1,409,846	$	2,625,026	$	261,301		$	4,302,396
Imputed interest on shareholder loan						15,899							15,899
Net income for the three months ended September 30, 2009								3,889,657					3,889,657
Other comprehensive income-Translation adjustment										184,455			184,455
Balances, September 30, 2009		62,234,737	$	6,223	$	1,425,745	$	6,514,683	$	445,756		$	8,392,407
Imputed interest on shareholder loan						4,936							4,936
Net income for the three months ended December 31, 2009								2,468,091					2,468,091
Other comprehensive income-Translation adjustment										642			642
Balances, December 31, 2009		62,234,737	$	6,223	$	1,430,681	$	8,982,774	$	446,398		$	10,866,076
Stock based compensation		5,000		1		4,749							4,750
Imputed interest on shareholder loan						3,844							3,844
Net income for the three months ended March 31, 2010								3,464,051					3,464,051
Other comprehensive income-Translation adjustment										(1,870	)		(1,870	)
Balances, March 31, 2010		62,239,737	$	6,224	$	1,439,274	$	12,446,825	$	444,528		$	14,336,851

See accompanying notes to the consolidated financial statements

CHINA HEALTH INDUSTRIES HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - ORGANIZATION AND BUSINESS BACKGROUND

We were incorporated in the state of Arizona on July 11, 1996 and were the successor of the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, we entered into a Stock Purchase Agreement and Share Exchange (effecting a reverse merger) with Edmonds 6, Inc. (Edmonds 6) and our name was changed to Universal Fog, Inc. Edmonds 6 was incorporated on August 19, 2004 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. Pursuant to this agreement, Universal Fog, Inc. (which has been in continuous operation since 1996) became a wholly-owned subsidiary of Edmonds 6.

China Health Industries Holdings Limited ("China Health") was incorporated on July 20, 2007 in Hong Kong under the Companies Ordinance as a limited liability company. China Health was formed for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship as defined by Statement of Financial Accounting Standards (SFAS) No. 7.

Harbin Humankind Biology Technology Co., Limited ("Humankind") was incorporated in Harbin City, Heilongjiang Province, the People's Republic of China (the "PRC") on December 14, 2003, as a limited liability company under the Company Law of PRC. China Health is engaged in the business of production and distribution of health food.

On August 20, 2007, the sole shareholder of China Health entered into a Share Purchase Agreement with the owners of Humankind. Pursuant to the Agreement, China Health purchased 100% of the ownership in Humankind for a cash consideration of $60,408. Subsequent to completion of the Agreement, Humankind became a wholly-owned subsidiary of China Health. The share purchase transaction is being accounted for as a “reverse merger,” since the owner of Humankind owns a majority of the outstanding shares of China Health’s common stock immediately following the execution of the Agreement. Humankind is deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements for periods prior to the Agreement will be those of Humankind and will be recorded at the historical cost basis. After completion of the Agreement, China Health’s consolidated financial statements will include the assets and liabilities of both China Health and Humankind, the historical operations of Humankind and the operations of China Health and its subsidiaries from the closing date of the Agreement.

On October 14, 2008, Harbin Humankind set up a 99% owned subsidiary with its primary business being manufacturing and distributing medicine. Mr. Xin Sun, the Company’s majority owner, owns 1% of this subsidiary. The subsidiary is consolidated in the consolidated financial statements of the Company

On December 31, 2008, China Health closed a reverse merger with Universal Fog, Inc, a U.S. public traded shell company. China Health is the accounting acquirer in the transaction and the transaction is treated as a recapitalization of the Company. After the transaction and a 1:20 reverse stock split, Xin Sun owned 61,203,088 shares of common stock, representing 98.3% of the 62,234,737 total outstanding shares of common stock of the Company. In connection with a reverse merger consummated by Universal Fog, Inc. (the “Company”) on December 31, 2008, by which China Health Industries Holdings Limited (“China Health”) became a wholly-owned subsidiary of the Company and China Health’s subsidiary, Harbin Humankind, Biology Technology Co. Limited (“Harbin Humankind”), became the primary operating entity of the Company, on January 9, 2009, the Company adopted the fiscal year end of Harbin Humankind, thereby changing its fiscal year end from December 31 to June 30.

On April 7, 2009, Mr. Sun transferred 28,200,000 shares of common stock to 296 individuals, leaving him with 33,003,088 shares of common stock of the Company, or approximately 53.03%. We changed our name from "Universal Fog, Inc." to "China Health Industries Holdings, Inc." on February 19, 2009.

Note 2 - SIGNIFICANT ACCOUNTING POLICIES

Principals of Consolidation

The accompanying consolidated financial statements include China Health Industries Holdings, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). This basis of accounting differs from that used in the statutory accounts of China Health, which are prepared in accordance with the “Accounting Principles of China” (“PRC GAAP”).

Translation of Foreign Currencies

China Health’s subsidiaries maintain its books and accounting records in PRC currency “Renminbi” (“RMB”), which is determined as the functional currency. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (“PBOC”) prevailing at the date of the transactions. Foreign currency exchange gain and losses resulting from these transactions are included in operations.

China Health’s consolidated financial statements are translated into the reporting currency, the United States Dollar (“US$”). Assets and liabilities of China Health are translated at the prevailing exchange rate at each reporting period end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from translation of these financial statements are reflected as accumulated other comprehensive income (loss) in the shareholders’ equity.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. China Health bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. While China Health believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates.

Earnings per share

Basic earnings per common share is computed by dividing net earnings applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Dilutive common share equivalents include the dilutive effect of share equivalents, which is calculated, based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would be recorded in paid-in capital, if any, when the option is exercised are assumed to be used to repurchase shares in the current period. Share-based awards with market conditions are included in the computation of earnings per share if they are dilutive and if the established conditions have been satisfied or would have been satisfied at the reporting date.

Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less at the time of purchase.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. China Health extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness, and the economic environment.

Concentrations of Credit Risk

Financial instruments that subject China Health to concentrations of credit risk consist primarily of cash and cash equivalents. China Health maintains its cash and cash equivalents with high-quality institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand and therefore bear minimal risk.

The Company carries no general liability or product insurance coverage of any kind.

Fair Value of Financial Instruments

The carrying value of financial instruments including cash and cash equivalents, receivables, accounts payable and accrued expenses, approximates their fair value at March 31, 2010 and 2009 due to the relatively short-term nature of these instruments.

Prepaid Expenses

Prepaid expenses principally include advances to raw material suppliers.

Inventory

Inventories are stated at the lower of cost or market using the weighted average method. China Health reviews its inventory on a regular basis for possible obsolete goods or to determine if any reserves are necessary for potential obsolescence. No reserve was made in the three months ended March 31, 2010 and 2009, respectively.

Impairment of Long–Lived Assets

China Health reviews all of its long-lived assets, including tangible and intangible long-lived assets, for impairment indicators at least annually and performs detailed impairment testing for all long-lived assets whenever impairment indicators are present. When necessary, China Health records charges for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Maintenance, repairs and minor renewals are expensed as incurred; major renewals and improvements that extend the lives or increase the capacity of plant assets are capitalized.

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the reporting period of disposition.

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The percentages or depreciable life applied are:

Building, warehouse and Improvements	20 to 30 years
Land use rights	50 years
Furniture & Equipment	5 to 7 years
Transportation Equipment	5 to 15 years
Machinery and Equipment	7 to 15 years

Property and equipment are evaluated for impairment in value whenever an event or change in circumstances indicates that the carrying values may not be recoverable. If such an event or change in circumstances occurs and potential impairment is indicated because the carrying values exceed the estimated future undiscounted cash flows of the asset, the Company will measure the impairment loss as the amount by which the carrying value of the asset exceeds its fair value.

Intangible assets

Intangible assets consist of patents and goodwill. Patent costs are amortized over an estimated life of ten years.

Intangible assets are accounted for in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Intangible assets with finite useful lives are amortized while intangible assets with indefinite useful lives are not amortized. As prescribed by SFAS 142, goodwill and intangible assets are tested periodically for impairment. The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long- Lived Assets," effective January 1, 2002. Accordingly, the Company reviews its long-lived assets, including property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets. Impairment costs, if any, are measured by comparing the carrying amount of the related assets to their fair value. The Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment loss thru a charge to operating results to the extent the present value of anticipated cash flows attributable to the assets are less than the asset’s carrying value. The Company would depreciate the remaining the remaining value over the remaining estimated useful life of the asset to operating results. There were no impairments during the three months ended March 31, 2010 and 2009.

Pharmaceutical Patents

On June 9, 2007, China Health entered into a Purchase Agreement, pursuant to which China Health agreed to purchase pharmaceutical patents from a third party for $410,792 (RMB ¥ 3,180,000).

China Health recorded the pharmaceutical patents at the purchase price and amortizes the costs over their estimated beneficial period, 10 years, using the straight-line method as of December 31, 2009. The Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment loss thru a charge to operating results to the extent the present value of anticipated cash flows attributable to the assets are less than the asset’s carrying value. The Company would depreciate the remaining the remaining value over the remaining estimated useful life of the asset to operating results. There were impairments during the years ended June 30, 2009 in the amount of $289,636. There was no remaining value of the pharmaceutical patent impaired.

Land Use Right

All land belongs to the State in PRC. Enterprises and individuals can pay the State a fee to obtain a right to use a piece of land for commercial purpose or residential purpose for an initial period of 50 years or 70 years, respectively. The land use right can be sold, purchased, and exchanged in the market. The successor owner of the land use right will reduce the amount of time which has been consumed by the predecessor owner. On June 7, 2004, China Health enter into a Purchase Contract with the local government, pursuant to which China Health agreed to purchase the right to use a piece of land, approximately 8 acres, located in the Harbin County, Heilongjiang Province for commercial purpose over a fifty-year period from June 7, 2004 through June 6, 2054, for $637,261 (RMB ¥5,248,000), which China Health has fully paid to the seller on June 13, 2004. The Department of Housing and Urban Development (“HUD”) of Harbin City approved this transaction. China Health recorded the land use right at its purchase price. The cost of the land use right is amortized over its prospective beneficial period, using the straight-line method with no residual value. China Health’s production facilities and office are located in this piece of land. As of March 31, 2010, the land use right net of amortization has balance of $834,913.

Revenue Recognition

China Health recognizes revenue when the earnings process is complete. This generally occurs when products are shipped to unaffiliated customer or services are performed in accordance with terms of the agreement, title and risk of loss have been transferred, collectability is reasonably assured and pricing is fixed or determinable. Accruals are made for sales returns and other allowances based on China Health’s experience.

Research and Development Costs

Research and development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed when incurred.

The Company recognizes in-process research and development in accordance with FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method and the AICPA Technical Practice Aid, Assets Acquired in a Business Combination to be used in Research and Development Activities: A Focus on Software, Electronic Devices, and Pharmaceutical Industries. Assets to be used in research and development activities, specifically, compounds that have yet to receive new drug approval and would have no alternative use, should approval not be given, are immediately charged to expense when acquired. Certain assets and high technologies acquired that has a foreseeable future cash flows are capitalized as intangible assets. Such intangible assets are amortized starting from the year revenue is generated and amortize over a period of 10 years.

For the three months ended March 31, 2010 and 2009, the Company did not incur in research and development costs.

Advertising Costs

Advertising costs are expensed as incurred and included as part of selling and marketing expenses in accordance with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position 93-7, “Reporting for Adverting Costs”. Advertising costs were immaterial for the three months ended March 31, 2010 and 2009, respectively.

Share-Based Payments

The Company has adopted “Stock-based Compensation and Other Stock-based Payments” . This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services, and applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. The Company uses the fair-value based method to account for all stock-based payments to employees and non-employees by measuring the compensation cost of the stock-based payments using the Black-Scholes option-pricing model.

The fair value of the stock-based compensation is recorded as a charge to operations over the vesting period with a credit to contributed surplus.

The Company recorded $4,750 and $nil in share-based compensation expense that are considered to be non-vested shares under the provisions of FAS 123(R) during the nine months ended March 31, 2010 and March 31, 2009, respectively, related to share-based granted in exchange for goods and services during those periods. The share-based stocks granted in the third quarter of fiscal 2010 have a weighted average grant date fair value of $0.95 per share based on the closing price of the Company's common stock as of the grant date.

Income Taxes

China Health accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”, which requires the asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Enterprise income tax

Under the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC, income tax is payable by enterprises at a rate of 25% of their taxable income. Preferential tax treatment may, however, be granted pursuant to any law or regulations from time to time promulgated by the State Council.

Value added tax

The Provisional Regulations of PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.

Value added tax payable in the PRC is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services in the same financial year.

According to “Agriculture Product Value Added Tax Rate Adjustment and Certain Items’ Value Added Tax Waiver” published by the Ministry of Finance and the National Tax Affairs Bureau, the value added tax for agriculture related products is to be taxed at 13%. Furthermore, traditional Chinese medicine and medicinal plant are by definition agriculture related products.

Accounting for uncertainty in income taxes – In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under FIN 48, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The adoption of FIN 48 did not have a material effect on the Company’s results of operations and financial position

Sales Taxes and Sales-related Taxes

Pursuant to the tax law and regulations of PRC, China Health is obligated to pay totally 6.66% of gross sales as sales tax and sales-related taxes.

Comprehensive Income

Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income,” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Accumulated comprehensive income, as presented in the accompanying statements of changes in shareholders’ equity consists of changes in cumulative foreign currency translation adjustment.

Pension and Employee Benefits

Full time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require China Health to accrue for these benefits based on certain percentages of the employees’ salaries. The Management believes full time employees who have passed the probation period are entitled to such benefits. The total provisions for such employee benefits were minimal for the three months ended March 31, 2010 and 2009.

Statutory Reserves

Pursuant to the applicable laws in PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of China Health’s registered capital. Appropriation to the statutory public welfare fund is 5% to 10% of the after-tax net earnings. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. No appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors.

Segment Reporting

SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” establishes standards for reporting information about operating segments on a basis consistent with China Health’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. China Health currently operates in one principal business segment; therefore segment disclosure is not presented.

Recent Accounting Pronouncements

In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statements errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of China Health’s financial statements and the related financial statement disclosures. SAB No. 108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. The adoption of SAB No. 108 did not have a material effect on China Health’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”. SFAS No. 157 defines fair values, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 25, 2007, and interim periods within those fiscal years. Earlier application is encouraged provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. China Health is currently evaluating the impact of adopting SFAS No. 157 on its financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FA SB Statement No. 115 . SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses on items for which the fair value option has been selected are reported in earnings. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. China Health has not yet determined the impact, if any, on its financial statements.

In December 2007, the FASB issued SFAS No 141 (Revised 2007), Busine ss Combinations (“SFAS No. 141(R)”) to significantly change the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions and will change the accounting treatment for certain specific items, including:

·	acquisition costs will generally be expensed as incurred;

·	Noncontrolling interests will be valued at fair value at the date of acquisition; and

·	liabilities related to contingent consideration will be recorded at fair value at the date of acquisition and subsequently remeasured each subsequent reporting period

SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008. China Health will adopt SFAS No. 141(R) on January 1, 2009, and China Health has not yet determined the impact, if any, on its financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51, to establish new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. China Health will adopt SFAS No. 160 on January 1, 2009, and China Health has not yet determined the impact, if any, on its financial statements.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of SFAS 133 ("SFAS 161"). This Statement will require enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect the adoption of SFAS 161 to have a material impact on its financial position, results of operations or cash flows.

In April 2008, the FASB issued FASB Staff Position on Financial Accounting Standard (“FSP FAS”) No. 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142 “Goodwill and Other Intangible Assets”. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles. The Company is currently evaluating the potential impact of FSP FAS No. 142-3 on its financial statements.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" (FAS No.162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". The implementation of this standard will not have a material impact on the Company's financial position and results of operations.

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The EITF addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The EITF affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. This EITF is effective for fiscal years beginning after December 15, 2008. The Company has no impact of FSP EITF 03-6-1 on its financial position and results of operations as of December 31, 2009.

In June 2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF 07-5). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF 07-5 on its financial position and results of operations.

Note 3 – CASH AND CASH EQUIVALENTS

The company maintains cash and cash equivalents balance at several financial institutions. Only accounts at US financial institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of March 31, 2010 the Company’s uninsured bank balances totaled $7,616,585.

Note 4 - CONTROL BY PRINCIPAL OWNERS

The directors, executive officers, their affiliates and related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding capital of China Health. Accordingly, directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital stock and the dissolution, merger or sale of China Health's assets.

Note 5 - PREPAID EXPENSES

Prepaid expenses consist of the following:

	March 31, 2010		June 30, 2009
			(Audited)
Advances on raw materials		31,585		9,553
Deposit on land use rights		3,071,927		-
Deposit on acquisition		6 , 582 , 701		-
Total prepaid expenses	$	9,686,213	$	9,553

For the nine months ended March 31, 2010, the Company paid $3,071,927 (RMB 21,000,000) to Harbin Songbei District Development and Construction Committee as the prepayment for the acquisition of the land use rights. The Company is in the process of going through a full range of procedures before the land use rights can be granted to the Company.

On April 9, 2009 the Company’s wholly-owned subsidiary, Harbin Humankind Biology Technology Co., Limited (“Harbin Humankind”), entered into a letter of intent with the shareholders of Heilongjiang Tiefeng Rice Company Limited (“Tiefeng”) to purchase all the equity interest of Tiefeng (“the Share Transfer Agreement”). On July 23, 2009 the amount of $731,251 (RMB 5,000,000) were paid as retaining fees. The purchase agreement was signed on August 18, 2009; the amount of $7,312,507 (RMB 50,000,000) was prepaid to Tiefeng on August 19, 2009.

As of March 31, 2010, Tiefeng did not get the crucial certified documents from local government agencies. Based on the amended agreement, the deal is thus voided. Tiefeng paid back approximately $1.46 million (RMB 10,000,000) to the Company on March 31, 2010, the additional $1.46 million (RMB 10,000,000) was paid on April 30, 2010 as part of the deposit refund. Another $1.46 million (RMB 10,000,000) will be paid by May, 2010. $2.92 million (RMB 20,000,000) is treated as loans made by the Company to Tiefeng. Interest is charged monthly by using the Chinese bank borrowing rate. The balance $730,000 (RMB 5,000,000) is considered as advances to Tiefeng for future purchases of inventory.

Note 6 - INVENTORIES

Inventories consist of following:


	March 31, 2010		June 30, 2009
			(Audited)
Finished goods	$	170,939	$	26,623
Raw materials		174,344		109,057
Supplies and packing materials		32,643		14,972
Total inventory	$	377,926	$	150,652

Note 7 - PROPERTY, PLANT AND EQUIPMENT

The following is a summary of property, plant and equipment:


	March 31, 2010			June 30, 2009
				(Audited)
Building and warehouses	$	854,579		$	852,345
Machinery and equipment		173,663			159,921
Office equipment		31,932			33,968
Vehicles		89,069			88,837
Other		21,942			24,657
Less: Accumulated depreciation		(1 72 , 418	)		(127,400	)
Total	$	998,767		$	1,032,328

Depreciation expense charged to operations was $15,566 and $12,718 for the three months ended March 31, 2010 and 2009, respectively.

Note 8 - LAND USE RIGHT

The following is a summary of the land use right:


	March 31, 2010			June 30, 2009
				(Audited)
Land use right	$	927,134		$	925,956
Less: Accumulated amortization		( 92 , 221	)		(76,671	)
	$	834,913		$	849,285

Amortization expense charged to operations was $5,150 and $3,728 for the three months ended March 31, 2010 and 2009, respectively.

Note 9 - RELATED PARTY DEBT

“Related party debt" represents temporary short-term loans from majority owner, Mr. Xin Sun, a PRC citizen. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows classified as due to majority owner are classified as cash flows from financing activities. The total borrowings from Mr. Sun were $205,849 and $868,552 as of March 31, 2010 and June 30, 2009, respectively.

Interest was imputed on the loans using the Chinese bank borrowing rate of 7.47%. The total imputed interest expense was $3,844 for the three months ended March 31, 2010.

Note 10 - INCOME TAX

On March 16, 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”). The new CIT Law reduces the corporate income tax rate from 33% to 25% with effect from January 1, 2008. All Chinese enterprises are governed by the PRC Income Tax Law and various local income tax laws, pursuant to which a company generally is subject to an income tax at a statutory rate of 25% for the three months ended March 31, 2010 and 2009.

The provision for income taxes consisted of the following:

	March 31
	2010		2009
Provision for PRC income tax - current taxes	$	1,140,243	$	65,123
Provision for PRC income tax - deferred taxes		-
Total provision for income taxes	$	1,140,243	$	65,123

The following table reconciles the PRC statutory rates to China Health’s effective tax rate:

	March 31
	2010			2009

Pretax Income( loss )	$	4,604,294		$	262,927
Statutory tax rate		25	%		25	%
Benefits for PRC enterprise income tax at statutory rate		1,151,074			65,732
Expenses not deductible for taxes – temporary difference
Expenses not deductible for taxes – permanent difference		(63,912)			6,164
Increase in valuation allowance related to deferred tax assets		5, 147			3, 728
Total provision for income taxes		1,140,243			65,123

Deferred tax assets (liabilities) as of March 31, 2010 and 2009 are composed of the following:

	March 31
	2010			2009
PRC
Noncurrent deferred tax assets :
Amortization of land use right and other intangible assets	$	5,147		$	3,728
Valuation allowance		( 5, 147	)		( 3 , 728	)
	$	-		$	-

Note 11 - COMMITMENTS AND CONTINGENCIES

China Health’s assets are located in PRC and revenues are derived from operations in PRC.

In terms of industry regulations and policies, the economy of PRC has been transitioning from a planned economy to market oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in PRC are still owned by the Chinese government. For example, all lands are state owned and are leased to business entities or individuals through governmental granting of Land Use Rights. The granting process is typically based on government policies at the time of granting and it could be lengthy and complex. This process may adversely affect our company’s future manufacturing expansions. The Chinese government also exercises significant control over PRC’s economic growth through the allocation of resources and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures.

China Health faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect China Health’s performance.

The Company is not involved in any legal matters arising in the normal course of business. While incapable of estimation, in the opinion of the management, the individual regulatory and legal matters in which the Company might be involved in the future are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Rental expense is approximately $144,468 for the three months ended March 31, 2010. The rental commitment for the fiscal year 2009 is approximately $360,000.

NOTE 12 – PENDING ACQUISITION

On August 24, 2009, the Company’s wholly-owned subsidiary, Harbin Humankind Biology Technology Co., Limited (“Harbin Humankind”), entered into a share transfer agreement with the shareholders of Heilongjiang Tiefeng Rice Company Limited (“Tiefeng”) to purchase all the equity interest of Tiefeng (“the Share Transfer Agreement”).

Pursuant to the Share Transfer Agreement, Harbin Humankind shall pay a total of RMB 102,600,000 (approximately $15 million) in cash for all the equity in Tiefeng as follows:

	(i)	RMB 50,000,000 (approximately, $7.3 million) within 3 days of signing of the Share Transfer Agreement;

	(ii)	RMB 5,000,000 (approximately $700,000) as a deposit towards the purchase price; and

(iii)

The remainder RMB 47,600,000 (approximately, $7 million) within 7 days of the effective transfer of the equity interests to Harbin Humankind.

If the transfer of equity interest is not effected within 60 days from the date of the Share Transfer Agreement, the shareholders of Tiefeng shall pay to Harbin Humankind 5% of the total purchase consideration as compensation to Harbin Humankind. In addition, the shareholders shall pay liquidated damages of 0.04% of the total purchase consideration for every day of delay beyond the 60-day period and Harbin Humankind shall then have the right to terminate the Share Transfer Agreement forthwith.

On July 23, 2009 and August 19, 2009, cash in the amount of $731,251 (RMB 5,000,000) and $7,312,507 (RMB 50,000,000) respectively, were paid to Tiefeng.

China Health gave Tiefang extension of time up to Feburary 28, 2010 to get all approval documents from local government agencies to complete the transaction. Tiefang agreed to pay penalty 0.04% per annum of the total purchase consideration for every day of delay starting from October 23, 2009.

As of March 31, 2010, Tiefeng did not get the crucial certified documents from local government agencies. Based on the amended agreement, the deal is thus voided. Tiefeng paid back approximately $1.46 million (RMB 10,000,000) to the Company on March 31, 2010, the additional $1.46 million (RMB 10,000,000) was paid on April 30, 2010 as part of the deposit refund. Another $1.46 million (RMB 10,000,000) will be paid by May, 2010. $2.92 million (RMB 20,000,000) is treated as loans made by the Company to Tiefeng. Interest is charged monthly by using the Chinese bank borrowing rate. The Company received interest income from Tiefeng in the amount of $226,482 as of March 31, 2010. The balance $730,000 (RMB 5,000,000) is considered as advances to Tiefeng for future purchases of inventory.

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

Forward-Looking Statements

The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in the risk factors and “Forward Looking Statements” summary set forth in the forepart of our Annual Report for the year ended June 30, 2009. This quarterly report on Form 10-Q contains forward-looking statements and is afforded the safe harbor provisions of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Readers should carefully review the risk factors disclosed in our Annual Report for the year ended June 30, 2009 and other documents filed by us with the SEC.

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business Overview” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.

The nature of our business makes predicting the future trends of our revenue, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

the effect of political, economic, and market conditions and geopolitical events;

legislative and regulatory changes that affect our business;

the availability of funds and working capital;

the actions and initiatives of current and potential competitors;

investor sentiment; and

our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this Report.

Except as otherwise indicated by the context, references in this Form 10-Q to “we,” “us,” “our,” “the Registrant”, “our Company,” or “the Company” are to China Health Industries Holdings, Inc., a Delaware corporation, China Health Industries Holdings Limited, and its wholly owned subsidiary, Harbin Humankind Biology Technology Co. Limited. Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iii) “RMB” are to Yuan Renminbi of China; (iv) “Securities Act” are to the Securities Act of 1933, as amended; and (v) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Business Overview

Harbin Humankind Biology Technology Co., Limited was incorporated under the People’s Republic of China on December 14, 2003 and completed its GMP certification on April 24, 2007. It is in the business of the manufacture and sale of health products, “green” (or organic) food and the detection of disease susceptibility or pre-disposition through genetic studies.

Harbin Huimeijia Medicine Company was incorporated on October 14, 2008. Huimeijia completed its GMP certification on July 23, 2009 and will be producing and selling our medical drugs.

Our business is conducted through chain-stores and, with regard to the sale of our products, eventually over the internet.

We also serve as an OEM manufacturer on an ad hoc basis for the production and packaging of various health food and health food supplements. In the three months ended March 31, 2010, our two largest OEM customers were Hayao Group Shiyitang Co. and Harbin Medical Supply Co., Ltd.

Pending Acquisition

Pursuant to the Share Transfer Agreement, Harbin Humankind shall pay a total of RMB 102,600,000 (approximately $15 million) in cash for all the equity in Tiefeng as follows:

	(i)	RMB 50,000,000 (approximately, $7.3 million) within 3 days of signing of the Share Transfer Agreement;

	(ii)	RMB 5,000,000 (approximately $700,000) as a deposit towards the purchase price; and

(iii)

The remainder RMB 47,600,000 (approximately, $7 million) within 7 days of the effective transfer of the equity interests to Harbin Humankind.

On July 23, 2009 and August 19, 2009, cash in the amount of $731,251 (RMB 5,000,000) and $7,312,507 (RMB 50,000,000) respectively, were paid to Tiefeng.

Harbin Humankind gave Tiefang an extension of time of up to Feburary 28, 2010 to get all approval documents from local government agencies to complete the transaction.

As of March 31, 2010, Tiefeng still had not obtained the relevant documents from local government agencies to effect the share transfer and accordingly, Harbin Humankind terminated the Share Transfer Agreement.

As of March 31, 2010, Tiefeng returned approximately $1.46 million (RMB 10,000,000) to the Harbin Humankind. An additional $1.46 million (RMB 10,000,000) was paid on April 30, 2010 as part of refund of the purchase consideration to Harbin Humankind. Tiefeng anticpates repaying another $1.46 million (RMB 10,000,000) by May, 2010.

The parties have agreed that $2.92 million (RMB 20,000,000) of the amount due to Harbin Humankind will be treated as loan to Tiefeng with interest accruing monthly with reference to the current Chinese bank borrowing rate. The balance of the $730,000 (RMB 5,000,000) will be considered as a cash advance to Tiefeng for future purchases of inventory

Results Of Operations

For the three months ended March 31, 2010 as compared to March 31, 2009

Our principal business operations are conducted through our wholly owned subsidiary, Harbin Humankind Biology Technology Co., Limited (“Humankind”) and Humankind’s subsidiary, Harbin Huimeijia Medicine Company (“Huimeijia”) which was incorporated on October 14, 2008. Huimeijia received GMP certification on July 23, 2009 and will be producing and selling our medical drugs.

	March 31
	2010		Variance			2009
REVENUES
Product Sales (net of sales allowance)	$	9,889,459		874	%	$	1,015,480
Total revenues	$	9,889,459					1,015,480

COST OF GOODS SOLD
Cost of goods sold		4,540,126		561	%		686,362
Gross Profit	$	5,349,333		1,525	%	$	329,118

Total revenues increased by 874% in the three months ended March 31, 2010 compared to the same period in 2009. The $8,873,979 increase in revenue is attributable to strong performances from our sales distribution channels.

This growth in sales is attributable to volume and our efforts to continue to develop our distribution channels by hiring additional sales agents to assure that our products and their associated benefits are seen by those making or influencing the purchasing decisions.

Our cost of sales increased $3,853,764, or 561% in the three months ended March 31, 2010 compared to 2009. The costs increased as a result of the increased sales.

Sales by Product Line

A break-down of our sales by major product line for each of the three months ended March 31, 2010 and 2009 is as follows:

	For the Three Months Ended March 31
	2010							2009
Product Category	Quantity (Unit)		Sales USD		% of Sales			Quantity (Unit)		Sales USD		% of Sales
Abalone, Sea cucumber and Frog oil soft capsule	755		166,622		1.68		%		2,484		534,823		52.67	%
Ganoderma lucidum and Aweto Soft Capsules									2,140		460,757		45.37	%
Chao Bao Capsule									500		9,388		0.92	%
Jianwei Calcium Tablet									5,000		3,129		0.31	%
Propolis and Black Ant Capsule		4,766		439,656		4.45	%
Waterlilies Soft Capsule(Sailuozhi)		45,640		5,121,980		51.79	%
Colon Cleanser Capsule		52,763		2,004,512		20.27	%
Sleeping Beauty Capsule		31,988		479,811		4.85	%
Blood Cleanser Soft Capsule		25,626		768,766		7.77	%
Ruddy Granule		23,803		714,077		7.22	%
Virility Max Capsule		15,523		194,035		1.96	%
OEM Sales											7,383		0.73	%
Total			$	9,889,459		100	%			$	1,015,480		100	%

Operating Expenses

The following table summarizes the changes in our operating expenses from $55,529 to $1,036,270 for each of the three months ended March 31, 2010 and 2009, respectively:

	For the Three Months Ended March 31
	2010		Variance			2009
Operating Expenses
Selling , General and Administrative expenses	$	946,960		2,287	%	$	39,665
Depreciation and amortization		20,716		31	%		15,864
Total operating expenses	$	967,676		1,643	%	$	55,529

Total operating expenses for the three months ended March 31, 2010 increased $907,295 or 2,287% over the same period in 2009. The higher operating expenses were primarily attributable to the increased costs of marketing and distribution of our products for sale to generate our increased product sales from $1,015,480 for the three months ended March 31 2009 to $9,889,459 for the corresponding period in 2010.

We incurred imputed interest expenses in the amount of $3,844 on the loans due to Mr. Sun Xin, the executive officer and major shareholder of company, these loans are unsecured, non-interest bearing and have no fixed terms of repayment.

As a result,we had net income of $3,464,051 for the three months ended March 31, 2010, an increase of $3,266,247 or approximately 1,651% from $197,804 for the corresponding period in 2009.

Results Of Operations

For the nine months ended March 31, 2010 as compared to March 31, 2009

	March 31
	2010		Variance			2009
REVENUES
Product Sales (net of sales allowance)	$	29,511,002		1,952	%	$	1,438,124
Total revenues	$	29,511,002					1,438,124

COST OF GOODS SOLD
Cost of goods sold		13,061,854		1,137	%		1,056,174
Gross Profit	$	16,449,148		4,207	%	$	381,950

Total revenues increased by 1,952% in the nine months ended March 31, 2010 compared to the same period in 2009. The $28,072,878 increase in revenue is attributable to strong performances from our sales distribution channels.

Our cost of sales increased $12,005,680, or 1,137% in the nine months ended March 31, 2010 compared to 2009. The costs increased as a result of the increased sales.

Sales by Product Line

A break-down of our sales by major product line for each of the nine months ended March 31, 2010 and 2009 is as follows:

	For the nine Months Ended March 31
	2010							2009
Product Category	Quantity (Unit)		Sales USD		% of Sales			Quantity (Unit)		Sales USD		% of Sales
Sleeping Beauty Capsule	31,988		479,811		1.63		%
Blood Cleanser Soft Capsule	25,626		768,766		2.61		%
Ruddy Granule	23,803		714,077		2.42		%
Virility Max Capsule	15,523		194,035		0.66		%
Abalone, Sea cucumber and Frog oil soft capsule		15,979		2,522,507		8.55	%		2,484		534,823		37.19	%
Ganoderma lucidum and Aweto Soft Capsules		12,008		1,857,551		6.29	%		3,924		802,456		55.80	%
Chao Bao Capsule									2,500		28,172		1.96	%
Jianwei Calcium Tablet									106,200		22,071		1.53	%
Propolis and Black Ant Capsule		78,689		4,857,928		16.46	%
Waterlilies Soft Capsule(Sailuozhi)		89,240		12,140,250		41.14	%
Colon Cleanser Capsule		134,593		5,963,013		20.21	%
OEM Sales				13,064		0.04	%				50,602		3.52	%
Total			$	29,511,002		100	%			$	1,438,124		100	%

Operating Expenses

The following table summarizes the changes in our operating expenses from $75,890 to $2,571,841 for each of the nine months ended March 31, 2010 and 2009, respectively:

	For the Nine Months Ended March 31
	2010		Variance			2009
Operating Expenses
Selling , General and Administrative expenses	$	3,462,505		3,786	%	$	89,109
Depreciation and amortization		77,012		82	%		42,310
Total operating expenses	$	3,539,517		2,593	%	$	131,419

Total operating expenses for the nine months ended March 31, 2010 increased $3,373,396 or 3,786% over the same period in 2009. The higher operating expenses were primarily attributable to the increased costs of marketing and distribution of our products for sale to generate our increased product sales from $1,438,124 in 2009 to $29,511,002 in 2010.

We incurred imputed interest expenses in the amount of $24,680 on the loans due to Mr. Sun Xin, the executive officer and major shareholder of company, these loans are unsecured, non-interest bearing and have no fixed terms of repayment.

As a result,we had net income of $9,821,799 for the nine months ended March 31, 2010, an increase of $9,679,181 or approximately 6,647% from $142,618 for the corresponding period in 2009.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include, but are not limited to, investment tax credits, allowance for doubtful accounts, inventory provisions, inventory valuation, asset impairments, accruals, stock-based compensation, the estimated useful lives and valuation of property, plant and equipment, future income taxes, carrying value of intangible assets and goodwill .

The fair value of the stock-based compensation is recorded as a charge to operations over the vesting period with a credit to contributed surplus.

Liquidity and Capital Resources

The following table summarizes our cash and cash equivalents position, our working capital, and our cash flow activity as of March 31, 2010 and 2009 and for each of the six months then ended:

	March 31,10			March 31,09
As of March 31:
Cash and cash equivalents	$	7,620,289		$	86,762
Working capital	$	12,340,505		$	(618,968	)
Inventories	$	377,926		$	178,285
For the Nine Months Ended March 31:
Cash provided by (used in):
Operating activities	$	10,540,675		$	173,346
Investing activities	$	(9,835,180	)	$	(146,022	)
Financing activities	$	(662,703	)	$	27,671

As of March 31, 2010, cash and cash equivalents were $7,620,289 as compared to $86,762 at March 31, 2009. The increased cash and cash equivalents position of 7,533,527 or 8,683% at March 31, 2010 was primarily due to our cash flows provided by operating activities in 2009 of approximately $12.0 million.

Our current ratio was 3.31 versus 0.40 and the quick ratio was 3.24 versus 0.22 at March 31, 2010 and 2009, respectively. Management endeavors to ensure that funds are available to take advantage of new investment opportunities and that funds are sufficient to meet future liquidity and capital needs.

Cash flows provided by operating activities was $10,540,675 for the nine months ended March 31, 2010 compared to cash flows provided by operation activities of $173,346 for the same period in 2009. The increase in cash provided by operating activities of 10,367,329 is primarily attributable to the increased net income of approximately $9.8 million in 2010 versus $148,000 in 2009.

Our working capital position at March 31, 2010 was $12,340,505 compared to working capital deficit of $618,968 at March 31, 2009. Our increased working capital position in fiscal year 2009 was principally funded by the increased cash flows generated from our operating activities of approximately $10.5 million. Management considers current working capital and borrowing capabilities adequate to cover our current operating and capital requirements for the full fiscal year 2009.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of our Disclosure Controls

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

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

Changes in internal control over financial reporting

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

PART II - OTHER INFORMATION

I tem 1. Legal Proceedings.

There is no material legal proceeding pending against us.

Item 1A. Risk Factors.

Not applicable.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved).

Item 5. Other Information

Not applicable.

Item 6. Exhibits

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

Exhibit No.	SEC Ref. No.	Title of Document
1	31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

2.	31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

3	32.1	Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

4	32.2	Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

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

SIGNATURES

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

	CHINA HEALTH INDUSTRIES HOLDINGS, INC.

Date: May 14, 2010	/s/ Xin Sun
	Xin Sun
	Chief Executive Officer and Chief Financial
	Officer

China Health Industries (QB) (USOTC:CHHE)
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