China Ginseng Holdings Inc - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - China Ginseng Holdings Inc	Financial_Report.xls
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - China Ginseng Holdings Inc	f10q0313ex31i_chinaginseng.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - China Ginseng Holdings Inc	f10q0313ex31ii_chinaginseng.htm
EX-32.2 - CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002. - China Ginseng Holdings Inc	f10q0313ex32ii_chinaginseng.htm
EX-32.1 - CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002. - China Ginseng Holdings Inc	f10q0313ex32i_chinaginseng.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

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

For the transition period from ______________ to ______________

China Ginseng Holdings, Inc.

(Exact name of registrant as specified in its charter)

Nevada		20-3348253
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1562 Jie Fang Great Road 16 FL Zhongji Building, Suite 1062-1063 Nanguan District, Changchun City, China		130022
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone (01186) 43188952022

SEC File Number: 000-54072

N/A

(Former name, former address and former three months, if changed since last report)

Check 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 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" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o			Accelerated filer	o
Non-accelerated file	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

As of May 17, 2013 there were 44,397,297 shares issued and outstanding of the registrant’s common stock.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements	F-1

Item 2. Management’s Discussion and Analysis or Plan of Operation.	3

Item 3. Quantitative and Qualitative Disclosure about Market Risk	19

Item 4. Controls and Procedures.	19

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.	20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	20

Item 3. Defaults Upon Senior Securities	20

Item 4 Mine Safety Disclosures	20

Item 5. Other Information.	20

Item 6. Exhibits.	21

PART I — FINANCIAL INFORMATION

Contents

Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and June 30, 2012	F-2

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended March 31, 2013 and 2012 (Unaudited)	F-3

Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2013 and 2012 (Unaudited)	F-4

Notes to Consolidated Financial Statements, March 31, 2013 (Unaudited)	F-6

F-1

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2013			June 30, 2012
	(Unaudited)

ASSETS

CURRENT ASSETS
Cash	$	88,066		$	24,183
Accounts receivable- net		2,492,833			1,332,043
Inventory		412,552			1,819,905
Ginseng crops, current portion		-			909,665
Due from related parties		189,285			152,394
Prepaid expenses		438,595			311,251
Total Current Assets		3,621,331			4,549,441

PROPERTY AND EQUIPMENT, net		1,504,494			1,629,664

OTHER ASSETS
Ginseng crops, non-current portion		807,958			1,585,878
Intangible assets-patents, net		-			6,447
Receivable from farmers		331,330			191,794
Investment in unconsolidated subsidiaries		24,406			40,001
Deferred income tax asset		-			170,044

Total Assets	$	6,289,519		$	8,173,269

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Loan payable to financial institution	$	319,035		$	316,211
Note payable – building purchase		478,553			1,264,842
Notes payable – related parties		1,728,467			1,667,047
Accounts payable		1,781,551			1,068,765
Accrued expenses		376,755			288,873
Taxes payable		111,574			291,760
Payments received in advance		348,865			199,423
Total Current Liabilities		5,144,800			5,096,921
OTHER LIABILITIES
Note payable – building purchase, net of current portion		797,588			-
Payable to farmers		809,279			549,841
Total Liabilities		6,751,667			5,646,762
STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock, $0.001 par value, 50,000,000 shares authorized; 44,397,297 shares issued and outstanding at March 31, 2013 and June 30, 2012, respectively		44,398			44,398
Additional paid-in capital		7,488,237			7,370,043
Accumulated deficit		(8,830,981	)		(5,761,409	)
Accumulated other comprehensive income		836,198			873,475
Total Stockholders’ Equity (Deficit)		(462,148)			2,526,507

Total Liabilities and Stockholders’ Equity (Deficit)	$	6,289,519		$	8,173,269

See accompanying notes to consolidated financial statements.

F-2

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	March 31,						March 31,
	2013			2012			2013			2012

REVENUES	$	497,943		$	902,807		$	2,690,662		$	3,147,262

COSTS AND EXPENSES
Cost of goods sold		247,837			724,217			2,188,237			2,478,869
Selling, general and administrative expenses		144,161			346,013			846,554			1,498,073
Impairment of ginseng crops and inventory		1,406,457			-			2,327,297			-
Depreciation and amortization		45,791			15,806			150,803			46,338
Total Costs and Expenses		1,844,246			1,086,036			5,512,891			4,023,280

LOSS FROM OPERATIONS		(1,346,303	)		(183,229	)		(2,822,229	)		(876,018	)

NON OPERATING INCOME (EXPENSE)
Foreign exchange		-			4,992			-			30,236
Interest expense		(73,207	)		(100,635	)		(247,343	)		(248,579	)
Net Other Expense		(73,207	)		(95,643	)		(247,343	)		(218,343	)

LOSS BEFORE INCOME TAXES		(1,419,510	)		(278,872	)		(3,069,572	)		(1,094,361	)

PROVISION FOR INCOME TAXES		-			3,090			-			21,803

NET LOSS	$	(1,419,510	)	$	(281,962	)	$	(3,069,572	)	$	(1,116,164	)

OTHER COMPREHENSIVE INCOME (LOSS)
Translation Adjustment		12,615			37,614			(14,660	)		102,017

COMPREHENSIVE LOSS	$	(1,406,895	)	$	(244,348	)	$	(3,084,232	)	$	(1,014,147	)

NET LOSS PER COMMON SHARE
Basic	$	(0.03	)	$	(0.01	)	$	(0.07	)	$	(0.03	)
Diluted	$	(0.03	)	$	(0.01	)	$	(0.07	)	$	(0.03	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING –
Basic		44,397,297			44,397,297			44,397,297			44,397,297
Diluted		44,397,297			44,397,297			44,397,297			44,397,297

See accompanying notes to consolidated financial statements.

F-3

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Nine Months Ended
	March 31,
	2013			2012

Cash Flows from Operating Activities:
Net loss	$	(3,069,572	)	$	(1,116,164	)
Adjustments to reconcile net loss to
net cash from operating activities:

Depreciation and amortization		150,803			46,338
Impairment of ginseng crops		2,327,297			-
Imputed interest		118,194			115,676
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		(1,160,790	)		(784,646	)
(Increase) decrease in inventory		765,652			159,632
(Increase) decrease in prepaid expense		(127,344	)		313,259
(Increase) decrease in due from related parties		(36,891	)		92,880
(Increase) decrease in amounts due from farmers		(139,536	)		(131,243	)
Increase (decrease) in accounts payable		712,786			425,623
Increase (decrease) in taxes payable		-			43,826
Increase (decrease) in receivables in advance		149,442			178,868
Increase (decrease) in accrued expenses		87,882			1,205
Increase (decrease) in payable to farmers		259,438			52,497
Net cash provided by (used in)
operating activities		37,361			(602,249	)

Cash Flows from Investing Activities:
Return of investment in unconsolidated businesses		15,862			(15,871	)
Purchase of property and equipment		(272	)		(64,730	)
Net cash provided by (used in)
investing activities		15,590			(80,601	)

Cash Flows from Financing Activities:
Sales of common stock for cash		-			49,940
Proceeds from loans payable to related parties		61,420			626,533
Net cash provided by (used in) financing activities		61,420			676,473

Effect of exchange rate on cash		(50,488)			60,345

Increase (decrease) in cash		63,883			53,968

Cash at beginning of period		24,183			69,094

Cash at end of period	$	88,066		$	123,062

See accompanying notes to consolidated financial statements.

F-4

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Nine Months Ended
	March 31,
	2013		2012

Supplemental Disclosure of Cash Flow
Information:
Cash paid for:
Interest	$	34,777	$	-
Income taxes		-		-

See accompanying notes to consolidated financial statements.

F-5

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE A – PRESENTATION, NATURE OF BUSINESS, AND GOING CONCERN

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10K for the year ended June 30, 2012. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the consolidated financial statements not misleading have been included. Results for the three and nine months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2013.

Nature of Business

China Ginseng Holdings, Inc. and Subsidiaries (the “Company”), was incorporated under the laws of Nevada on June 24, 2004.

On November 24, 2004, the Company acquired 55% of Yanbian Huaxing Ginseng Industry Co. Limited (“Yanbian Huaxing”), which is located in China and, is in the business of farming, processing, distribution, and marketing of Asian Ginseng products. In 2010, the Company ceased marketing ginseng and is presently utilizing the harvest to produce a ginseng beverage. However, it continues to buy ginseng for the resale market. On November 24, 2005, the Company acquired the remaining 45% of Yanbian Huaxing.

Yanbian Huaxing controls, through 20 year leases granted by the Chinese Government, approximately 1,500 hectors (3,705 acres) of land used to grow ginseng. The Company had no operations prior to November 24, 2004. These leases expire through 2024.

On August 24, 2005, the Company acquired Jilin Ganzhi Ginseng Produce Co. Limited, whose principal business is the manufacture of ginseng drinks.

On October 19, 2005, the Company incorporated a new company, Jilin Huamei Beverage Co. Limited (“Jilin Huamei”), which operates as a sales department for the Company’s canned ginseng juice and wine, which are produced by other subsidiaries of the Company.

On March 31, 2008 the Company acquired Tonghua Linyuan Grape Planting Co. Limited (“Tonghua Linyuan”) whose principal activity is the growing, cultivation and harvesting of a grape vineyard. The Company plans to produce wine and grape juice but to date has not commenced production. In June 2012, the Company decided to abandon the growing and harvesting of grapes due to the poor quality of recent harvests which were not suitable for the production of wine or grape juice. The Company has also decided not to renew its leases with the Chinese Government. The Company will now purchase grapes in the open market to produce wine and grape juice.

On March 2, 2012, the Company approved the incorporation of a new subsidiary, Hong Kong Huaxia International Industrial Co., Limited (“Hong Kong Huaxia”) in Hong Kong in order to sell health and specialized local products. Hong Kong Huaxia was incorporated in Hong Kong on March 18, 2012 and began operations in April 2012.

F-6

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE A – PRESENTATION, NATURE OF BUSINESS, AND GOING CONCERN (CONTINUED)

Consolidated Financial Statements

The consolidated financial statements include the accounts and activities of China Ginseng Holdings, Inc. and its wholly-owned subsidiaries, Yanbian Huaxing Ginseng Co. Limited, Jilin Huamei Beverage Co. Limited, Jilin Ganzhi Ginseng Products Co. Limited, Tonghua Linyuan Grape Planting Co. Limited and Hong Kong Huaxia International Industrial, Co. Limited. All intercompany transactions have been eliminated in consolidation.

Going Concern

As indicated in the accompanying consolidated financial statements, the Company had an accumulated deficit of $8,830,981 as of March 31, 2013 and there are existing uncertain conditions the Company foresees relating to its ability to obtain working capital and operate successfully. Management’s plans include the raising of capital through the equity markets to fund future operations and the generating of revenue through its businesses. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations.

Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE B - PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following at:

	March 31,		June 30,
	2013		2012
Buildings and improvements	$	1,521,543	$	1,508,071
Machinery and equipment		823,657		816,365
Motor vehicles		31,110		30,635
Office equipment		77,311		76,626
		2,453,621		2,431,697
Less accumulated depreciation		949,127		802,033
	$	1,504,494	$	1,629,664

Substantially all of the property and equipment is located in China.

F-7

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE B - PROPERTY AND EQUIPMENT (CONTINUED)

Total depreciation was $ $139,179 and $160,710 for the nine months ended March 31, 2013 and 2012, respectively. Depreciation is recorded in the financial statements as follows:

	Nine Months Ended
	March 31,
	2013		2012
Depreciation Expense	$	136,893	$	40,111
Capitalized Inventory		-		69,005
Capitalized Ginseng Crops		2,286		51,594
	$	139,179	$	160,710

Depreciation expense is included within deprecation and amortization on the consolidated Statements of Operations. Capitalized Inventory and Ginseng Crops are included within their respective balances on the consolidated Balance Sheets.

NOTE C –INVENTORY

Inventory is comprised of the following at:

	March 31,		June 30,
	2013		2012
Raw materials	$	185,785	$	1,590,531
Finished goods		221,265		225,122
Operating supplies		5,502		4,252
	$	412,552	$	1,819,905

At March 31, 2013 and June 30, 2012, there were no shipments of Ginseng at customer locations awaiting inspection and approval that may be subject to invoicing.

NOTE D – INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES

In December 2010, the Company invested $24,342 (RMB 153,000) in Changchun Zhongshen Beverage Co. Ltd. (“Zhongshen”). This investment represented a 17% interest in Zhonghsen. Zhongshen is a retailer of ginseng juice and wine. The Company accounts for this investment utilizing the cost method.

In September 2011, the Company entered into an agreement with three other companies to establish a new entity, Jilin Province Jiliang Beverage Investment Management Co., Ltd (“Jilin Jiliang”). The purpose of Jilin Jiliang is to provide investment and project consultation. Under the agreement, the Company was required to invest a total of $79,759 (RMB 500,000) for a 10% interest in Jilin Jiliang by September 25, 2012. In September 2011, the Company invested $15,952 (RMB 100,000) in Jilin Jiliang. During the three months ended March 31, 2013, the Company terminated its’ investment in Jilin Jiliang and was returned its’ 100,000 RMB investment.

F-8

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE E – GINSENG CROPS

The Company’s business, prior to June 30, 2009, was primarily to harvest and sell fresh and dried Ginseng. The growth period takes approximately 5 to 6 years before harvest can commence and up to 8 years for improved harvest and seedling yields. The Company is changing its business model to utilize the harvested Ginseng to manufacture Ginseng juice and other Ginseng beverages. It commenced the juice operation in August 2011. The Company plants selected areas each year and tracks the costs expended each year by planting area. The Chinese government owns all the land in China.

Currently, the Company has land grants from the Chinese government for approximately 1,500 hectors of land (approximately 3,705 acres) to grow Ginseng which were awarded in April and May 2005. These grants are for 20 years and the management of the Company believes that the grants will be renewed as the grants expire in different areas. However, there are no assurances that the Chinese government will continue to renew these grants in the future. The planting of new Ginseng is dependent upon the Company’s cash flow and its ability to raise working capital.

The Company had planted at June 30, 2012 approximately 173,000 square meters of land. The Company plans to plant, over the next 5 years, 100,000 square meters, representing approximately 20,000 square meters per year. In the succeeding five years, the Company plans to harvest approximately 60,945 square meters of Ginseng. The harvest plan by year is as follows: 2014-58,281 and 2017-2,664. As discussed in Note F, in August of 2012, a typhoon damaged approximately 112,000 square meters of ginseng crops.

An analysis of ginseng crop costs for each of the applicable periods is as follows:

	March 31, 2013			June 30, 2012
Beginning Crop Costs	$	2,495,543		$	2,930,278
Currency Conversion Adjustment to Beginning Balance		-			47,603
Capitalized Costs During Year:
Wages		-			59,747
Fertilizer		-			463
Field clearing and cultivation		98,379			-
Farmer lease fee net of management fee		(82,014	)		(95,515	)
Labor		371,725			-
Irrigation		35,649			-
Depreciation		2,286			5,025
Other		1,459			-
Total Capitalized Costs		427,484			(30,280	)
Less:
Cost of crops harvested		(1,192,374	)		(452,058	)
Impairment adjustment relating to typhoon. See Note F.		(922,695	)		-
		(2,115,069	)		(452,058	)
Ending Crop Costs		807,958			2,495,543
Less: Current portion		-			909,665
Non-Current Portion of Crop Costs	$	807,958		$	1,585,878

F-9

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE E – GINSENG CROPS (CONTINUED)

The cost of harvest is calculated by reference to the planting area and the detailed costs maintained for each planting area. Based upon the square meters planted by area, a square meter cost is calculated and applied to the square meters harvested, rendering a cost of harvest.

For each financial reporting period, the Ginseng crop harvested is valued at net realizable value. If the net realizable value is lower than carrying value, a write down is made for the difference.

NOTE F – IMPAIRMENT OF GINSENG CROPS AND INVENTORY

In August 2012, a typhoon struck the Mudanjiang Ginseng farm destroying approximately 112,000 square meters of planted ginseng having an approximate value of RMB 5,817,110 (US$ 922,695). This loss was charged to operations during the first quarter of 2013.

In March of 2013, the Company determined that the grape juice inventory held at Tonghua is no longer saleable. As such, the Company wrote off inventory with a value of 8,855,284 RMD (US$ 1,404,602) at March 31, 2013.

NOTE G – AGREEMENTS WITH FARMERS

The Company has executed agreements with a number of local farmers to grow, cultivate and harvest Ginseng utilizing the Company’s land grants. The farming contracts commenced in January 2008. In connection with these agreements, the Company (1) leases sections of the Ginseng land grants to the farmers at approximately $1.50 (10 RMB) per square meter per year, (2) provides the seeds and fertilizer to the farmers and clears the land of large debris. These costs are capitalized by the Company and included in the Ginseng Crop inventory, (3) pays the farmers a management fee of approximately $0.50 (4.00 RMB) per square meter per year and (4) the farmers are required to produce 2kg of Ginseng for each square meter that they manage. The Company pays the farmers market price for their Ginseng. If the harvest is below 2kg per square meter, the difference will be deducted from the total payment for Ginseng purchased. If the harvest produces more then 2kg per square meter, the Company pays approximately $3.00 for every extra kilo. The Company records these agreements on a net basis by individual farmers. The Company has recorded a receivable from the farmers for the rental income of the leased Ginseng land grants of $331,330 and $191,794 at March 31, 2013, and June 30, 2012, respectively. The Company has also recorded a long-term payable-farmers for the management fee due to the farmers. The liability at March 31, 2013, and June 30, 2012 was $809,279 and $549,841, respectively. The receivable and payable balances for the respective areas will be settled at harvest time when the Company purchases the harvest at the current market value for Ginseng.

NOTE H – INTANGIBLE ASSETS

Intangible assets consist of the patent rights for Ginseng drinks. The cost and related amortization is as follows:

	March 31,			June 30,
	2013			2012
Cost	$	17,923		$	17,362
Less accumulated amortization		(17,923	)		(10,915	)
	$	-		$	6,447

Amortization expense was $13,910 and $6,227 for the nine months ended March 31, 2013 and 2012, respectively.

F-10

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE I – LOAN PAYABLE TO FINANCIAL INSTITUTION

In 2002, the Company’s subsidiary, Tonghua Linyuan Grape Co. Limited, borrowed 2,000,000 RMB from Ji’an Qingshi Credit Corporation at an interest rate of 6.325% per annum with a maturity date of April 4, 2003. The loan is currently in default. In March 2008, the lender verbally agreed that no principal or interest need be paid until the Company is generating profits. Interest has been paid on the loan through June 30, 2009 and will be accrued in subsequent periods. The loan is secured by the company’s inventory and equipment. The loan balance at March 31, 2013 and June 30, 2012 is $319,035 and $316,211, respectively.

NOTE J – NOTE PAYABLE – BUILDING PURCHASE

On March 2, 2011, the Company entered into an agreement with Meihekou Hang Yilk Tax Warehousing Logistics, an auctioneer, to purchase office and warehouse facilities. The purchase price was $1,325,479 (RMB 9,000,000). On June 24, 2011, the Company made payment of $73,804 (RMB 500,000) leaving a balance of $1,251,675 (RMB 8,500,000). On September 10, 2011, the Company paid 8,000,000 RMB through the proceeds of a loan with Merkekou City Rural Credit Union. The loan was due on August 12, 2012. The interest rate is a floating rate adjusted upwards by 90%. At June 30, 2012, the Central Bank Rate was 6.31%. Applying the adjustment factor yields a rate of 11.989%. The loan is secured by the building. The remaining 500,000 RMB was paid as follows: (a) 100,000 RMB in December 2010 and (b) 400,000 RMB in June 2011. On August 30, 2012, the loan was renegotiated extending the maturity date to August 29, 2014 and requires principal payments of 1,000,000 RMB (USD 159,518) in September 2012; 1,000,000 RMB (USD 159,518) on August 29, 2013; 1,000,000 RMB (USD 159,517) on December 20, 2013 and 5,000,000 RMB (USD 797,588) on August 29, 2014. The payment due in September 2012 was not made by the Company and the note is thus in default.

NOTE K - RELATED PARTY TRANSACTIONS

The Company had been financing its operations from loans from individuals, principally residents of China, who are deemed to be related parties because of their ownership interest in the Company (shareholders). The individuals have loaned the Company funds which are interest free, have no specific repayment date, and are unsecured. The funds received are evidenced by receipt of cash acknowledgments. As of March 31, 2013 and June 30, 2012 funds borrowed to fund the current operations of the Company were $1,728,467 and $1,667,047, respectively. In accordance with FASB ASC 835-30, the Company has imputed an interest charge of $118,194 and $115,676 which has been recorded in the financial statements for the nine months ended March 31, 2013 and 2012, respectively. At March 31, 2013, 30% of these loans were with 2 individuals, including 18% with the Company's Chairman.

As of March 31, 2013 and June 30, 2012, the Company had receivables from related parties aggregating $189,285 and $152,394, respectively. At March 31, 3013, 66% of these receivables, were with 4 individuals.

NOTE L – PROVISION FOR INCOME TAXES

Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

F-11

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE L – PROVISION FOR INCOME TAXES (CONTINUED)

Deferred tax assets consist of the following at:

	March 31,			June 30,
	2013			2012
Timing difference related to inventory provisions	$	-		$	170,044
Net operating losses		1,232,750			1,126,540
Valuation allowance		(1,232,750	)		(1,126,540	)
Deferred tax asset	$	-		$	170,044

The deferred tax asset was the result of an inventory provision and related reserve of $171,110 (RMB 1,075,510). Under Chinese tax laws, the Company is not entitled to a deduction for the provision until the inventory is completely discarded. This deferred tax asset was utilized by the Company in 2013 as the inventory was sold by the Company.

The Company has a net operating loss carry forward as follows:

	March 31,		June 30,
	2013		2012
International (China)	$	3,597,000	$	748,142
United States		1,334,000		1,112,938
	$	4,931,000	$	1,861,080

The operating losses are available to offset future taxable income. The China net operating loss carryforwards can only be carried forward for five years and will commence expiring in the year 2013. The Company does not file a consolidated tax return in China. Therefore, the profitability of the individual Chinese companies will determine the utilization of the carryforward losses. The U.S. carryforward losses are available to offset future taxable income for the succeeding 20 years and commence expiring in the year 2027.

The components of income (loss) before taxes are as follows:

	For the Nine Months Ended March 31,
	2013			2012
International (China)	$	(2,848,121	)	$	(710,874	)
United States		(221,451	)		(383,487	)
	$	(3,069,572	)	$	(1,094,361	)

F-12

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE L – PROVISION FOR INCOME TAXES (CONTINUED)

A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and Federal statutory rate for the nine months ended March 31, 2013 and 2012, respectively, are as follows:

	2013			2012
Federal statutory rate		34.0	%		34.0	%
State income taxes, net of federal benefit		(3.3	)		(3.3	)
Valuation allowance		(30.7	)		(30.7	)
Effective tax rate		-	%		-	%

NOTE M – CONCENTRATIONS

In the nine months ended March 31, 2013, three customers accounted for 47% of revenues.

In the nine months ended March 31, 2012, two customers accounted for 48% of revenues.

At March 31, 2013, two customers accounted for 26% of the accounts receivable.

At June 30, 2012, one customer accounted for 44% of the accounts receivable.

NOTE N – COMMITMENTS AND CONTINGENCIES

The Company has a three year employment contract with the Chief Executive Officer expiring on January 1, 2014 aggregating $15,108 per year.

The Company has a three year contract with the Chief Financial Officer expiring on January 1, 2014 aggregating $ 5,664 per year.

The Company has a three year employment contract with a staff accountant expiring on March 2, 2015 aggregating $5,316 per year.

The Company has a two year employment agreement with an office employee expiring in February 2014 aggregating $5,110 per year.

The Company has a three contract with the Chief Marketing Officer expiring on February 1, 2014 aggregating $17,564 per year.

The Company has a three year employment contract with two office employees expiring between June 2015 and November 2015 aggregating $6,972 per year.

The Company has a three year employment contract with the General Manager of Hong Kong Huaxia International Industrial Co., Limited expiring on August 18, 2015 aggregating $15,108 per year.

The Company has a one year lease for its corporate offices in China aggregating $109,432 RMB per year (USD $17,000) which expired on December 31, 2012. The Company is currently negotiating a new contract.

The Chinese government owns all the land in China. Currently, the Company has grants from the Chinese government for approximately 1,500 hectors of land (3,705 acres) to grow Ginseng. These grants are for 20 years. There is no assurance that the Chinese government will continue to renew these grants in the future.

F-13

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013 (UNAUDITED)

NOTE N – COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company has a 15 year lease with the Representative of Group One Farmer, Si’An City, Qingshi, Qingshi Town, Qingshi Village, China to lease 750 acres to grow and harvest grapes. The lease expires December 31, 2014. The annual lease fee is 187,500 RMB or approximately $29,600 per year to lease the acreage. The land and buildings on the premises have a separate lease concurrent with the property lease. The Company does not plan to renew the leases in 2014.

In 2008, the Company entered into a 5 year lease to refrigerate and store fresh Ginseng. The annual lease fee approximates $15,500 per year.

Rent expense was $50,314 and $5,199 for the nine months ended March 31, 2013 and 2012, respectively.

NOTE O – OPERATING SEGMENTS

The Company presently organizes its business into two reportable farming segments: (1) the cultivation and harvest of Ginseng for the production of Ginseng beverages and (2) the cultivation and harvest of grapes for the eventual production of wine and grape juice.

The Company’s reportable business segments are strategic business units that offer different products. Each segment is managed separately because they require different production techniques and market to different classes of customers.

Nine months ended March 31, 2013:

	Parent Company			Ginseng			Wine			Total
Revenues	$	-		$	2,690,662		$	-		$	2,690,662
Net loss		(221,451	)		(1,377,907	)		(1,470,214	)		(3,069,572	)
Total assets		210,096			6,066,093			13,330			6,289,519

Other significant items:
Depreciation and amortization		1,703			102,498			46,602			150,803
Interest expense		38,351			188,910			20,082			247,343
Expenditures for fixed assets		-			272			-			272
Impairment of ginseng crops and inventory		-			922,695			1,404,602			2,327,297

Nine months ended March 31, 2012:

	Parent Company			Ginseng			Wine			Total
Revenues	$	-		$	3,147,262		$	-		$	3,147,262
Net loss		(335,487	)		(759,686	)		(20,991	)		(1,116,164	)
Total assets		159,110			7,649,219			2,470,177			10,278,506

Other significant items:
Depreciation and amortization		911			44,765			662			46,338
Interest expense		50,821			183,192			14,566			248,579
Expenditures for fixed assets		-			64,730			-			64,730

F-14

Item 2.

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

This Form 10−Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of China Ginseng Holdings Inc. for the three and nine months ended March 31, 2013 and 2012 and should be read in conjunction with such financial statements and related notes included in this report and the Company’s Annual Report on Form 10-K for the year ended June 30, 2012. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.

Company Overview

Our Company, China Ginseng Holdings Inc., was incorporated on June 24, 2004 in the State of Nevada. The Company conducts business through its four wholly-owned subsidiaries located in China. We have been granted 20-year land use rights to 3,705 acres of lands by the Chinese government for ginseng planting and we control, through lease, approximately 750 acres of grape vineyards. However, recent harvests of grapes showed poor quality for wine production which indicates that the vineyards are no longer suitable for planting grapes for wine production. Therefore, we have decided not to renew our lease for the vineyards with the Chinese government upon expiration in 2013 and, going forward, we intend to purchase grapes from the open market in order to produce grape juice and wine.

Since our inception in 2004, we have been engaged in the business of farming, processing, distribution and marketing of fresh ginseng, dry ginseng, ginseng seeds, and seedlings. Starting in August 2010, we have gradually shifted the focus of our business from direct sales of ginseng to canned ginseng juice production and wine production.

Since we shifted the focus of our business into the ginseng beverage business and the wine business, we have started to store our raw material and sell only a limited amount of our self-produced ginseng. We also purchase ginseng from outside sources, and then resell it to generate revenue, which sales are based on orders from the market. However, due to the global recession and local market conditions, demand for ginseng exports declined beginning in 2008, creating a significant oversupply in China. All those factors caused us to incur losses, in 2009 and 2010. In addition, our new business is in the initial stages, we need to spend capital to promote our new products, and develop our marketing plan. There is no assurance that there will be sufficient demand for our beverages and wine to allow us to operate profitably initially, or at all. We have recurring operating losses and there is substantial doubt about our ability to continue as a going concern. As of March 31, 2013, the cash balance on hand for the Company was $88,066.

In order to meet the challenge, we raised capital to support our operation through a Regulation S private placement and we are recruiting distributors for ginseng beverage and wine products. In addition, we established Hong Kong Huaxia in Hong Kong as a sales company for health products and specialized local goods in March 2012. It was set up as a part of our adjusted marketing strategy so that we can explore the Asia Market through Hong Kong Huaxia, while Jilin Huamei remains focused on domestic sales. The focus of Hong Kong Huaxia is sales of our ginseng juice and wine in the Asia market. It is currently recruiting distributors for the Asia market in addition to its online shopping platform for direct sales of our ginseng juice and wine.

Although, we have generated only limited revenues from our ginseng beverage and wine businesses, we believe there is future potential to do so because (i) the China ginseng market is recovering now; (ii) the demand and the price is in an uptrend due to Chinese government restrictions on the amount of land available for ginseng farming (land under our Company’s control has not been affected by the government restrictions); (iii) as of the date of this filing, we have already entered into binding agreements with 20 distributors to distribute our beverage in different cities and 1 distributor to distribute our ginseng beverage in Singapore, Malaysia, Thailand; and (iv) we set up Hong Kong Huaxia to promote our products in the Asia Market and initiate online direct sales of our ginseng juice and wine.

As the impact of the shift in the focus of our business away from the ginseng business and into the ginseng beverage business and the wine business is uncertain and the shift represents a material change in our business, our past revenues and other financial results do not provide a meaningful basis for future performance and there is no guarantee that we will be able to attain profitability in the foreseeable future.

Our Subsidiaries:

Our business in China is currently conducted through four wholly owned subsidiaries located in China. The current operational status of each of these businesses, as of the date of this filing, is as follows:

Yanbian Huaxing Ginseng Industry Co. Limited (“Yanbian Huaxing”) – Ginseng farming and sales

●

On September 8, 2003, we and Jilin Dunhua Huaxing Ginseng Industry Co, Ltd. (“Dunghua Huaxing ”, a PRC company) jointly and legally established Yanbian Huaxing as a joint venture company, in which we held 25% equity interest and Dunhua Huaxing held 75% equity interest. We received a certificate of approval issued by the competent local approval authority on September 8, 2003 and a business license issued by the competent local registration authority on September 16, 2003. On November 24, 2004, we and Dunhua Huaxing adjusted the registered capital of Yanbian Huaxing and our respective shareholding percentage in Yanbian Huaxing, and, as a result, we then held 55% equity interest in Yanbian Huaxing. Subsequently in August, 2005, we acquired the remaining 45% equity interest from Dunhua Huaxing at a purchase of $164,000, and then we hold 100% equity interest in Yanbian Huaxing and changed Yanbian Huaxing from a joint venture into a wholly foreign owned enterprise (“WFOE”). The purchase prices were determined based upon the registered capital of Yanbian Huaxing of $364,000. In October 2005, we increased the registered capital of Yanbian Huaxing by putting in an additional $250,000 in order to meet the requirement for foreign owned enterprise requirement for tax purpose. Now the registered capital of Yanbian Huaxing is $614,000. We have applied with the relevant PRC approval and registration authorities for each of the aforesaid changes and have obtained all applicable approvals and registrations for such changes, including a certificate of approval issued by the local approval authority and a renewed business license issued by the local registration authority certifying Yanbian Huaxing as a WFOE lawfully owned by us. Yanbian Huaxing is operated to plant ginseng and our revenue in the past was mainly from the sales of ginseng produced and sold by Yanbian Huaxing. With the shift of business focus to canned ginseng juice, we have started to reserve the high quality grown ginseng for ginseng beverage production and sold only those not qualified to make ginseng juice. However, due to excessive rain in the year ended June 30, 2011, 90% of our grown ginseng was oxidized and sold to the market. During the year ended June 30, 2012, we were able to reserve 20% of our grown ginseng for ginseng juice production.

Jilin Ganzhi Ginseng Products Co. Ltd. (“Jilin Ganzhi”) - Producing Canned Ginseng Juice.

●

On May 31, 2006, we acquired 100% equity interest in Jilin Ganzhi at a price of $95,691. We received a certificate of approval issued by the competent local approval authority on May 31, 2006 and a business license issued by the competent local registration authority on June 19, 2006. Subsequently, on September 26, 2007 and August 31, 2008, we increased Jilin Ganzhi’s registered capital by $50,000 and $20,000, respectively. Now the registered capital of Jilin Ganzhi is $100,000. We applied with the relevant PRC approval and registration authorities for each of the aforesaid capital increases and have obtained all applicable approvals and registrations for such changes, including a renewed certificate of approval issued by the local approval authority and a renewed business license issued by the local registration authority certifying Jilin Ganzhi as a WFOE lawfully owned by us. Jilin Ganzhi is operated to process ginseng and produce canned ginseng juice. Jilin Ganzhi started production of canned ginseng juice in the three months ended December 31, 2010.

Tonghua Linyuan Grape Planting Co. (“Tonghua Linyuan”) – Growing grapes and producing wine

●

On January 15, 2008, we acquired 100% equity interest in Tonghua Linyuan from two PRC individual shareholders at a price of $1,000,000. The price was determined by arm’s-length negotiations based upon the appraised net asset value of Tonghua Linyuan at the time of acquisition which was approximately $1,332,248. We received a certificate of approval issued by the competent local approval authority on January 15, 2008 and a business license issued by the competent local registration authority on April 1, 2008 certifying Tonghua Linyuan as a WFOE lawfully owned by us with a registered capital of RMB 10,330,000. However, the WFOE certificate is conditioned on us injecting the registered capital into Tonghua Linyuan on or before June 15, 2012. Because we failed to satisfy this condtion, Tonghua Linyuan lost its status as a WFOE beginning June 15, 2012. Tonghua Linyuan is operated to plant grapes and produce wine. However, recent harvests from Tonghua Linyuan showed poor quality for wine production, which indicates that the vineyard is no longer suitable to grow grapes for grape juice and wine production. Therefore, we have decided not to renew our lease with the Chinese government when it expires in 2013 and, going forward, we will purchase grapes from the open market. In addition, Tonghua Linyuan has contracted for the production of wine with a winery producer whereby Tonghua Linyuan provides the producer with grape juice and supplies and producer charges processing fee per bottle. Tonghua Linyuan started wine production through a winery producer in March 2011 and the sale of wine is conducted through Jilin Huamei and Hong Kong Huaxia.

Jilin Huamei Beverage Co. Ltd (“Jilin Huamei”) - Marketing of our canned ginseng juice and wine

●

We incorporated Jilin Huamei as a WFOE on October 17, 2005. We received a certificate of approval issued by the competent local approval authority on October 17, 2005 and a business license issued by the competent local registration authority on October 19, 2005 certifying Jilin Huamei as a WFOE lawfully owned by us. The registered capital of Jilin Huamei is $200,000. Jilin Huamei operates as a sales department for our canned ginseng juice and wine, which are produced by our other subsidiaries. We plan to recruit one general distributor for our canned ginseng juice and one general distributor for our wine in each big city in China through Jilin Huamei. As of the date of this filing, Jilin Huamei has signed 20 general distributors for our ginseng beverage and one general distributor for our wine, as well as established one sales branch office in Jiangsu Province. We commenced sales of ginseng beverage in October 2010 and Jilin Huamei started generating revenue in November 2010.

Hong Kong Huaxia International Industrial Co., Limited (“Hong Kong Huaxia”) – Sell health and specialized local products

●

Hong Kong Huaxia was incorporated in Hong Kong on March 18, 2012 to sell health and specialized local products and it began operations in April 2012. The registered capital of Hong Kong Huaxia is 1 million Hong Kong dollars (approximately $128,838), 1% of which is payable and paid upon registration. Hong Kong Huaxia is focused on recruiting distributors exporting our ginseng juice products and wine to other countries in Southeast Asia. As a part of our adjusted marketing strategy, Hong Kong Huaxia is focused on sales of our ginseng juice and wine in the Asia Market while Jinlin Huamei is focused on domestic sales. In addition, Hong Kong Huaxia sells other famous local products from Northeast China such as ginseng, deer antler velvet, deer products, black fungus, mushroom, pine seeds, pine flower powder. It is currently recruiting distributors for the Asia Market in addition to its online shopping platform for direct sales of our ginseng juice and wine.

Our Products:

Previously, through Yanbian Huaxing, we focused on the farming, processing, distribution and marketing of Asian and American Ginseng and related byproducts in the following varieties:

	o	Fresh Ginseng: For pharmaceutical, health supplement, cosmetic industry and fresh consumption.
	o	Dry Ginseng: Dried form for pharmaceutical and health supplement consumption.

Ginseng Seeds: Selling of ginseng seeds.

Ginseng Seedling: Selling of ginseng seedling.

Ginseng's growing cycle is from April to September, six months a year. Normally we sow the seed in April and harvest in September and October. Ginseng seeds are obtained after the blossom in autumn. The seeds can be sowed in September or the next spring. It takes 10 days to germinate and the growing cycle for seedlings is 10 days. For every hectare cultivated, we can harvest approximately 18 to 20 kg ginseng. As of September 30, 2012, the planting area for ginseng is 111 acres.

Since August 2010, we have gradually shifted our business focus from direct sales of ginseng and ginseng byproducts to production and sales of canned ginseng juice and wine.

Through Jilin Ganzhi, we are producing two types of canned ginseng juice:

Ganzhi Asian Ginseng Beverage

Ganzhi American Ginseng Beverage

In addition to canned ginseng juice, we have added wine production to our business focus. We have already grown and crushed the grapes from our vineyards and reserved the juices. We started wine production through a winery producer in March 2011 and sales in April 2011. We contracted for the production of the wine.

We are producing and selling three kinds of wine:

Bingqing Ice Wine

Pearl in the Snow (Red)

Linyuan Hong Wine (Red)

New Focus of Our Business

Canned Ginseng Juice

Currently, there are about 10 kinds of ginseng drinks on the market; all of them are imported from Korea. The price range for those products is 4 –30 RMB per can (about USD $0.60-$ 4.51).

The most important component of ginseng is ginsenoside. Based upon reading our competitors’ product labels, all of their ginseng drinks are blended after extracting ginsenosides through chemical methods. The chemical extraction of ginsenosides will cause damage to its nutritional components. Our technology is different from the traditional method used by our competitors. We squeeze out the natural juice from fresh ginseng, use that as our main ingredient and then add in natural extracts like xylitol, citric acid and steviosides as subsidiary ingredients. We have farming technicians periodically inspect farmers to ensure they follow our growing guidelines to control the quality of the fresh ginseng. We use low residue pesticide and biodegradable fertilizer for ginseng planting. We also use xylitol, which does not cause a sour taste, instead of sugar to lower the calorie content of our drinks.

Squeezing is not commonly used in canned ginseng juice because it requires fresh ginseng, the preservation of which is very difficult. However, our drink formula uses refrigerated ginseng and therefore we are able to preserve its freshness and nutrition in our final products. The drink formula for our ginseng beverages is a registered patent approved by the Chinese government, patent number ZL 03111397.6. This patent was issued on January 23, 2008 and expires 20 years after issuance.

To produce canned ginseng juice, we store our fresh ginseng in refrigerated warehouse space. We are currently renting a refrigerated warehouse (-20 C degree) to store all fresh ginseng inventory necessary for production of the ginseng beverages. Monthly rent for refrigerated warehouse is RMB 4,500 (about USD $676.86). We commenced production in August 2010 and sales in October 2010. However, as we are in the initial stage of the ginseng beverage business, we cannot assure the demands for our ginseng beverage will be high enough to make our business profitable in the short term and there is no guarantee that we will be able to generate the revenue from ginseng beverage business.

We own the production plant. The plant is certified by the Chinese government as a Good Manufacturing Process facility, which is required for our production of these products. Good Manufacturing Process standards cover organization and personnel, building and facilities, equipment, materials, hygiene and sanitation, validation, documentation, production management, quality management, production distribution and recall, complaints and adverse reactions report, and self-inspections.

Wine

Our grapes grow on 750 acres of land leased from a group of individual farmers, paying approximately $37.50 per acre a year for 15 years. This lease expires on December 31, 2014. However, recent harvests from our vineyard showed poor quality indicating the vineyard is no longer suitable for the production of wine. We decided to abandon the growing and harvesting of grapes and will now purchase grapes in the open market to produce wine. We started production of wine in March 2011 and sales in April 2011. Through our subsidiary Tonghua Linyuan, we have a written production agreement with Tonghua Jinyuanshan Winery (“Jinyuanshan Winery”) to produce Pearl in Snow Wine and Ice Wine for us from May 20, 2012 to May 19, 2017. Under the terms of the agreement, we provide Jinyuanshan Winery with grape juice, bottling supplies and packaging supplies, and Jinyuanshan Winery produces and bottles the wine with a charge of approximately $0.16-0.24 per bottle (approximately $0.16 a bottle for processing red wine, and approximately $0.24 per bottle for processing ice wine). We, through our subsidiary Tonghua Linyuan, have another written production agreement with Jinyuanshan Winery to produce. Linyuan Hong Red for us at a charge of approximately $0.16 per bottle from May 20, 2012 to May 19, 2017. The agreement contains similar terms as the production written agreement we have with Jinyuanshan Wineary for producing Pearl in Snow Wine and Ice Wine.

Distribution

We intend to recruit one general distributor for our products of ginseng beverage and wine in every city in China. The city level distributor can recruit the second level distributors. In addition to recruiting general distributors, in some major cities, Jilin Huamei will establish sale branch offices to facilitate the local sales. Our direct sales will target customers of high end retailers such as supermarkets, pharmacies, hotels, gift shops, entertainment centers, tourists attractions, airport and high speed trains, etc.

We started negotiating distribution and sales agreements with potential general distributors. Currently, we have signed 20 general distributors for our ginseng beverage, 1 distributor to distribute our ginseng beverage in Singapore, Malaysia, Thailand and 1 general distributor for our wine, as well as established one sales branch office in Jiangsu Province.

As a part of our adjusted marketing strategy, we set up Hong Kong Huaxia as a Hong Kong subsidiary which is focused on sales and distribution of our products and famous local goods to the Asia Market outside China in addition to its online shopping platform for direct sales of our ginseng juice and wine.

Competitive environment

The market for ginseng products and wine is highly competitive. Our operations may be affected by technological advances by competitors, industry consolidation, patents granted to competitors, competitive combination products, new products offered by our competitors, as well as new information provided by other marketed products and/or other post-market studies.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the saleability and recoverability of inventory, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

In addition, past financial results are not indicative of future performance due to our emphasis on further commercializing ginseng juice with our crops as raw materials and broadening our offering, such as wine sale. Furthermore, we cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

Consolidated Financial Statements

Inventory

Our inventory consists of fresh and dried ginseng as well as crushed grapes and is stated at the lower of cost or market value. Cost is determined using the First-In, First-Out (FIFO) Method.

Ginseng Crops and Grape Crops

The Company uses the full absorption costing method to value its ginseng crops. Included in crop costs are seeds, labor, applicable overhead including depreciation, and supplies. Common costs are allocated in each period based upon the total number of hectors under cultivation during the period.

The carrying value of the ginseng crops is reviewed on a regular basis for any impairment in value using management’s best estimate as to expect future market values, yields and costs to harvest. Costs accumulated on the acres expected to be harvested during the next fiscal year have been classified as a current asset.

Revenue Recognition

Through the year ended June 30, 2011, the Company’s primary source of revenue was the sale of fresh and dried Ginseng. During the year ended June 30, 2012, the Company reserved and processed its grown Ginseng suitable for ginseng juice production and sold the rest of its grown ginseng. In addition, the Company purchased Ginseng from farmers for its resale business. Ginseng is planted in the Spring (March) and Fall (September) of each year and is generally harvested in September. It usually takes 6 years for a Ginseng root to mature, although, senior maturity can be 8 years.

Harvested ginseng can be sold in two ways: (1) fresh ginseng which can be sold immediately and stored in refrigerators for up to 3 years and (2) dried ginseng which is processed and dried via sunlight and steam machines. Drying is a two month process. Dried ginseng can be stored up to 5 years. The Company has focused on selling dried ginseng as it is more profitable than selling fresh ginseng. The Company has also been storing fresh Ginseng for future juice manufacturing paid upon delivery as payment in advance. The balance is billed after the customer incurs a lengthy inspection process which can take up to 60 days. Until the customer finalizes its inspection and deems the shipment acceptable, the shipment is still the property of the Company. Upon customer completion of inspection and approval, the sale is then recognized and the balance of the invoice price is wired to the Company. For smaller sales, customers pick up the Ginseng from the Company, pay in cash at time of pick up and receive an invoice with appropriate sales tax applied and a cash acknowledgement. On these orders, revenue is recognized upon shipment/payment.

The Company has entered into several distribution agreements to sell Ginseng juice and wine. In accordance with these agreements, the distributors will advance funds to the Company for orders to be placed. Upon the placement of orders by the distributor, the Company will ship the product to the distributor and title will pass to the distributor. In relation to distribution agreements for Ginseng beverages, it is the Company’s policy, commencing with the initiation of the distribution agreements, to allow the distributors to return all unsold products at the end of six months from the shipment date should the product not be sold and the product has not exceeded the expiration date. The Company is establishing history as to the quantity of the Ginseng which has been returned in order to determine if a reserve for returns and allowances is necessary. To date, returns have been minimal. For each reporting period, the Company ascertains from each distributor its’ current on hand quantity and assesses the situation in order to establish a return allowance, if necessary. As of March 31, 2013 and June 30, 2012, all distribution sales had been sold to third parties.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist principally of trade receivables. When ginseng is shipped to a customer, the customer pays 20%-30% of the invoice and is entitled to an inspection process which could take up to 60 days. Upon completion of the inspection and approval process, the customer notifies the company, and a sale is recorded. The allowance for doubtful accounts represents management’s estimate of the amount of probable credit losses, determined by reviewing past due balances and other information. Account balances are written off against the allowance if management determines the receivable is uncollectible. The Company’s standard terms stipulate payment in 60 days and consider a receivable to be uncollectible after appropriate collection efforts have been exhausted.

Vineyard Development Costs

Vineyard development costs consist primarily of the costs of the vines and expenditures related to labor and materials to prepare the land and construct vine trellises. The costs are capitalized within Property and Equipment. When the vineyard becomes commercially productive, annual amortization is recognized using the straight-line method over the estimated economic useful life of the vineyard, which is estimated to be 40 years.

In June 2012, the Company decided to abandon the growing and harvesting of grapes due to the poor quality of recent harvests indicating the vineyard land was no longer suitable for the production of wine or grape juice. Accordingly, the Company has abandoned the vineyard and recorded a charge to operations of $872,568. The Company has also decided not to renew its leases with the Chinese Government. Going forward, the Company will purchase grapes in the open market to produce wine and grape juice.

Going Concern

As indicated in the accompanying financial statement, the Company had net losses of $3,069,572 and $1,116,164 for the nine months ended March 31, 2013 and 2012, respectively, and an accumulated deficit of $8,830,981 as of March 31, 2013 and there are existing uncertain conditions the Company foresees relating to its ability to obtain working capital and operate successfully. Management’s plans include the raising of capital through the debt and equity markets to fund future operations and the generating of revenue through its businesses. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations.

Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Recently Issued Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued an accounting standard update to provide guidance on achieving a consistent definition of and common requirements for measurement of and disclosure concerning fair value as between U.S. GAAP and International Financial Reporting Standards. This accounting standard update is effective for the Company beginning in the third quarter of fiscal 2012. The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements but does not expect it will have a material impact.

In June 2011, the FASB issued an accounting standard update to provide guidance on increasing the prominence of items reported in other comprehensive income. This accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of equity and requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. It is also required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This accounting standard update is effective for the Company beginning in the first quarter of fiscal 2013.

In August 2011, the FASB approved a revised accounting standard update intended to simplify how an entity tests goodwill for impairment. The amendment will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2013 and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements.

Result of Operations

The following tables present certain unaudited consolidated statement of operations information. Financial information is presented for the three months and nine months ended March 31, 2013 and 2012 respectively.

	For the three months Ended March 31,						Year to Year Comparison						For the nine months Ended March 31,						Year to Year Comparison
	2013			2012			Increase /(Decrease)			Percentage change			2013			2012			Increase /(Decrease)			Percentage change

Revenues	$	497,943		$	902,807		$	(404,864	)		(44.85	)%	$	2,690,662		$	3,147,262		$	(456,600	)		(14.51	)%

Cost of Goods Sold		247,837			724,217			(476,380	)		(67.78	)%		2,188,237			2,478,869			(290,632	)		(11.72	)%

Selling, general and administrative expenses		144,161			346,013			(201,852	)		(58.34	)%		846,554			1,498,073			(651,519	)		(43.49	)%

Impairment of ginseng crops and inventory		1,406,457			-			1,406,457			100	%		2,327,297			-			2,327,297			100	%
Depreciation and amortization		45,791			15,806			29,985			189.71	%		150,803			46,338			(104,465	)		225.44	%

Interest expense		73,207			100,635			(27,428	)		(27.25	)%		247,343			248,579			(1,236	)		(0.50	)%

Foreign exchange		-			4,992			4,992			(100.00	)%		-			(30,236	)		30,236			(100.00	)%
Provision for income taxes		0			3,090			(3,090	)		(100.00	)%		-			21,803			(21,803	)		(100.00	)%

Net Loss	$	(1,419,510	)	$	(281,962	)	$	1,137,548			(403.44	)%	$	(3,069,572	)	$	(1,116,164	)	$	1,953,408			175.01	%

Revenue

For the three months ended March 31, 2013 and 2012:

	March 31,					March 31,					2013-2012
	2013		% of total			2012		% of total			Dollar
Products	Revenue		revenue			Revenue		Revenue			Variance			% change
Ginseng (production)	$	339,458		68	%		0		-		$	339,458			-
Ginseng (purchase)	$	139,576		28	%		821,938		91	%	$	(682,362	)		(83	%)
Wine	$	2,631		1	%		9,337		1	%	$	(6,706	)		(72	%)
Ginseng Beverage Production	$	2,066		0	%		71,532		8	%	$	(69,466	)		(97	%)
Aoweisi Cosmetic Products	$	14,212		3	%		0		-		$	14,212			-
Total	$	497,943		100		$	902,807		100	%	$	(404,864	)		(45	%)

Our total revenue decreased from $902,807 for the three months ended March 31, 2012 to $497,943 for the three months ended March 31, 2013, a decrease of $404,864 or 45%. The decrease was primarily due to the decrease of the sales of purchased ginseng, wine and ginseng beverage.

For the three months ended March 31, 2013, approximately $339,458 or 68% of our revenue was generated from our self-ginseng product. In August 2012, a typhoon struck the Mudanjiang Ginseng farm destroying approximately 112,000 square meters of planted ginseng. As a result, the ginseng harvested in September 2012 from Yanbian Huaxing was not qualified as raw material to make ginseng juice and we had to sell it to the market. The sales of our self-grown ginseng constituted the biggest portion of our revenue for the three months ended March 31, 2013.

For the three months ended March 31, 2013, approximately $139,576 or 28% of our revenue was the resale of ginseng purchased from the market and sold to major customers, a decrease of 83% compared to the same period in 2012. The decrease was caused by the decreased quantity of the purchased ginseng of 18,791kg, or 83% compared to the three months ended March 31, 2012. The decrease was mainly due to two of our major customers temporarily stopped their orders.

For the three months ended March 31, 2013, approximately $2,066 or 1 % of our revenue was generated from our ginseng juice product, a decrease of $6,707 or 72%. The decrease was due to our limited funds for marketing and sales promotion. The management anticipates this decrease will be temporary. In order to obtain sufficient capital for marketing and sales promotion, the Company has taken and plans to take the following measures to raise the money: 1) obtaining loans from shareholders or other individuals 2) applying agriculture grant of Jilin province which is a governmental reward to support qualified agriculture companies. The amount of the grant is 5,000,000RMB (approximately $800,000). The Company has submitted its application and currently is waiting for the result which will be released in June, 2013. However, there is no assurance that we will successfully obtain the agriculture grant or obtain enough capital from shareholders or other individuals and the management is continuing exploring other possible ways to raise the capital for our marketing and development.

For the three months ended March 31, 2013, approximately $2,631 or 1% of total revenue was generated from wine production, a decrease of $69,466 or 97% compared to the three months ended March 31, 2012. The decrease was mainly caused by the decreased demands from the customers. Based on the current trend of wine demands in China market, the Company adjusted the anticipation of its wine revenue in the next 3 to 5 years from 20% to 10%. And there can be no assurance that our sales of wine will reach such levels in the anticipated time period, if at all.

The remaining $14,212 of our revenue for the three months ended March 31, 2013 was generated from resale of Aoweisi cosmetic products, which were sold through Hong Kong Huaxia based on consumers’ orders. We do not expect this to be a major source of our revenue in the future.

For the nine months ended March 31, 2013 and 2012:

	March 31,					March 31,				2013-2012
	2013		% of			2012		% of		Dollar
	Revenue		total revenue			Revenue		total Revenue		Variance			% change
Ginseng (production)	$	1,407,398		52	%	$	858,202		27	$	549,196			64	%
Ginseng (purchase)		1,184,274		44	%		2,130,843		68	$	(946,569	)		(44	%)
Wine		2,609		0	%		10,613		0	$	(8,004	)		(75	%)
Ginseng Beverage Production		14,280		1	%		147,604		5	$	(133,324	)		(90	%)
Aoweisi Cosmetic Products		82,101		3	%				0		82,101			-
Total	$	2,690,662		100			3,147,262		100	$	(456,600	)		(15	%)

Our total sales decreased from $3,147,262 for the nine months ended March 31, 2012 to $2,690,662 for the nine months ended March 31, 2013, a decrease of $456,600 or 15%. The decrease was caused by the decrease in resale of ginseng purchased from the market and sold to major customers, sales of ginseng juice and sales of wine.

We generated $1,407,398 or 52% sales from our own farming for the nine months ended March 31, 2013, an increase of $549,196, or 64% compared to the nine months ended March 31, 2012. Due to the damage caused by the typhoon in August 2012, the ginseng harvested from out Yanbian Huaxin was not qualified to produce ginseng juice. As a result, we sold it to the market.

For the nine months ended March 31, 2013, approximately $1,184,274 or 44% of revenue was generated from the resale of ginseng purchased from the market and sold to major customers, a decrease of $946,569 or 44% compared to revenue of $2,130,843 from the resale of purchased ginseng for the nine months ended March 31, 2012. The decreased was mainly because two of our major customers temporarily stopped their orders.

For the nine months ended March 31, 2013, approximately $14,280 or 1% of our revenue was generated from sales of our ginseng juice products, a decrease of 90% compared to revenue of $147,604 from sales of ginseng juice production for the nine months ended March 31, 2012. The decrease was due to decreased sales of canned ginseng juice. As a result of our limited cash position during the nine months ended March 31, 2013, we were not able to promote the market for our ginseng beverage. In order to improve our sales of canned ginseng juice, we plan to produce smaller pack of our ginseng juice in addition to our current pack of ginseng juice to accommodate different needs from the customers and to attract new customers. In addition, we have taken or plan to take measures to raise capital to promote the market for our ginseng beverage including but not limited to obtaining loans from our shareholders or other individuals, and applying agriculture grant of Jilin province which is a governmental reward to support qualified agriculture companies with an amount of approximately $800,000. Through our efforts, we expect that sales of ginseng beverage will rise to 70% of our revenue in the next five years. However, there is no assurance that we will successfully obtain sufficient capital for our marketing and development of ginseng beverage and our sales will reach such levels in the anticipated time frame, if at all.

Approximately $2,609 or 0% of revenue was generated from sale of our produced wine, a decrease of $8,004 or 75% compared to the nine months ended March 31, 2012. The decrease was mainly caused by the decreased demands of the customers. Due to the current trend of decreased demands of wine in China market, the Company has adjusted the anticipation of its wine revenue in the next 3 to 5 years from 20% to 10%. And there can be no assurance that our sales of wine will reach such levels in the anticipated time period, if at all.

The remaining $82,101 or 3 % of our revenue for the nine months ended March 31, 2013 was generated from sales of Aoweisi cosmetic product which was sold through Hong Kong Huaxia based on consumers’ orders. We do not expect this to be a major source of our revenues in the future.

Cost of Goods Sold

For the three months ended March 31, 2013 and 2012:

	March 31, 2013		% of total			March 31,2012		% of total		2103-2012
	Cost of goods sold		cost of goods sold			Cost of goods sold		cost of goods sold		Dollar Variance			% change
Ginseng (production)	$	137,176		55	%		0		0		137,176			-
Ginseng (purchase)		107,436		43	%		673,503		93	$	(566,067	)		(84	)%
Wine		1,092		0	%		5,445		1	$	(4,353	)		(80	)%
Ginseng Beverage Production		926		0	%		45,269		6	$	(44,343	)		(98	)%
Aoweisi Cosmetic Products		1,207		0	%		-		-	$	1,207			0	%
Total	$	247,837		100			724,217		100	$	(476,830	)		(66	)%

Our total cost of goods sold decreased from $724,217 for the three months ended March 31, 2012 to $247,837 for the three months ended March 31, 2013, a decrease of $476,830 or 60%. The primary reason for the decrease was that our cost of purchasing ginseng for resale, wine sale and ginseng juice sale in the three months ended March 31, 2013 decreased compared to the same period in 2012.

The cost of our own farming ginseng for sale is $137,176 for the three months ended March 31, 2013, compared to nil for the same period in 2012.

Our cost of purchasing ginseng for resale decreased from $673,503 during the three months ended March 31, 2012 to $107,436 for the three months ended March 31, 2013 due to decreased demands from our customers.

The cost of wine for sale decreased from $5,445 for the three months ended March 31, 2012 to $1,092 for the three months ended March 31, 2103, which was due to an significant decrease of sales of our wine.

The cost of ginseng beverage for sale was $926 for the three months ended March 31, 2013, a decrease of $44,343 or 98%, compared to $45,269 for the same period in 2012. The decrease was mainly caused by the reduced sale of our ginseng beverage.

We had a new cost of $1,207 from Aoweisi cosmetic product sales for the three months ended March 31, 2013, which did not occur in the three months ended March 31, 2012.

Cost of Sales as a percentage of revenue decreased 32% in the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. The increase was primarily due to decreased cost on our purchased ginseng in the three months ended March 31, 2013.

For the nine months ended March 31, 2013 and 2012:

	March 31,2013		% of total		March 31,2012		% of total		2013-2012
	Cost of goods sold		cost of goods sold		Cost of goods sold		cost of goods sold		Dollar Variance			% change
Ginseng (production)	$	1,104,052		50	$	554,756		22	$	549,296			99	%
Ginseng (purchase)		1,062,739		49		1,820,432		73	$	(757,693	)		(42	)%
Wine		1,396		0		6,624		0	$	(5,228	)		(79	)%
Ginseng Beverage Production		6,344		0		97,057		5	$	(90,713	)		(93	)%
Aoweisi Cosmetic Products		13,706		1		0		0	$	13,705			0	%
Total	$	2,188,237		100		2,478,869		100	$	(290,632	)		(12	)%

Our total cost of goods sold decreased from $2,478,869 for the nine months ended March 31, 2012 to $2,188,237 for the nine months ended March 31, 2013, a decrease of $290,632 or 12%. The primary reason for the decrease was the decreased cost of goods sold of purchased ginseng, wine and ginseng juice.

The total cost of ginseng production for sale increased from $554,756 for the nine months ended March 31, 2012 to $1,104,052 for the nine months ended March 31, 2013, an increase of 549,296 or 99%, as a result of a significant increase in the quantity of ginseng harvested caused by a typhoon strike in August 2012. The harvest costs include seeds, seedlings, plant sheds, woodland expenses, wages, fertilizer, pesticides, irrigation, transportation fees, and the building of pathways.

Our cost of purchasing ginseng for resale in the nine months ended March 31, 2013 decreased from $1,820,432 in the nine months ended March 31, 2012 to $1,062,739 because of decreased quantity of ginseng we purchased from outside farmers. The decreased purchase quantity was due to reduced market demands. There were two customers temporarily stopped their orders.

The cost of wine for sale was $1,396 for the nine months ended March 31, 2013, compared to $6,624 for the same period in 2012, a decrease of $5,228 or 79% caused by a significant decrease of sale of wine.

The cost of ginseng juice for sale decreased from $97,057 during the nine months ended March 31, 2012 to $6,344 for the nine months ended March 31, 2103, which was mainly due to reduced sale of ginseng juice.

We had a new cost of $13,706 from sales of Aoweisi cosmetic product for the nine months ended March 31, 2013, which did not occur during the nine months ended March 31, 2012.

Cost of Sales as a percentage of revenue increased 3% in the nine months ended March 31, 2013 as compared to the nine months ended March 31, 2012. The increase was primarily due to the increase to cost of goods sold attributable to self-ginseng production from Yanbian, as compared to the same period in 2012 and new cost of sale of Aoweisi.

Selling, General and Administration Expenses

Selling, general expenses and administrative expenses decreased from $346,013 for the three months ended March 31, 2012 to $ 144,161for the three months ended March 31, 2013, a decrease of $201,852, or 61%. The decrease is mainly due to the decrease in our operation expense from Jilin Ganzhi, such as salary for the workers for ginseng juice production juice and expense of ginseng juice marketing.

Sales costs, general expenses and administrative expenses decreased from $1,498,073 for the nine months ended March 31, 2012 to $846,554 for the nine months ended March 31, 2013, a decrease of $651,519 or 44%. The decrease is mainly because of 1) the decrease in general administrative expenses, such as marketing expenses for our ginseng juice production; 2) the decrease in our operation expense from Jilin Ganzhi, such as salary for the works for ginseng juice production and expense of ginseng juice marketing.

Depreciation and Amortization

Depreciation and amortization was $45,791 for the quarter ended March 31, 2013, compared to $15,806 for the quarter ended March 31, 2012, an increase of $29,985 or 189%. The increasing was primarily due a full years depreciation on new building purchases. and less depreciation being capitalized.

Depreciation and amortization was $150,803 for the nine months ended March 31, 2013 compared to $46,338 for the nine months ended March 31, 2012, an increase of 104,465 or 225%. The increasing was primarily due a full years depreciation on new building purchases. and less depreciation being capitalized.

Interest Expense

Our interest expense decreased by $27,428 or 65% from $100,635 for the quarter ended March 31, 2012 to $73,207 for the quarter ended March 31, 2013. The change in imputed interest to related party loans and Ganzhi loan were the main reason for the decrease in interest expense.

Our interest expense decreased by $1,236 from $248,579 for the nine months ended March 31, 2012 to $247,343 for the nine months ended March 31, 2012, representing a decrease of 0.05

Income Tax Expense

There is no income tax expense for the quarter ended March 31, 2013 and the nine months ended March 31, 2013.

Net Loss

The net loss for the quarter ended March 31, 2013 was $1,419,510, an increase of $1,137,548 or 403%, compared to a net loss of $281,962 for the quarter ended March 31, 2012. The increase of the net loss in this quarter is primarily due to the inventory impairment.

We had a net loss of $3,069,572 for the nine months ended March 31, 2013, compared to a net loss of $1,116,164 for the nine months ended March 31, 2012, an increase of $1,953,408, or 175%. The net loss was primarily due to the decreased whole sales and increased Cost of Sales as a percentage of revenue and the inventory impairment.

Other Comprehensive Income

We operate primarily in the PRC and the functional currency of our operating subsidiary is the Chinese Renminbi (”RMB”). The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is intended to imply that the Renminbi amounts could have been, or could be, converted, realized or settled into USD at the rate on March 31, 2013 or at any other rate.

The value of RMB against U.S. dollar may fluctuate and is affected by changes in political and economic conditions. Our revenues, costs and financial assets are mostly dominated in RMB while our reporting currency is the U.S. dollar. Accordingly, this may result in gains or losses from currency translation on our financial statements.

Translation adjustments resulting from this process amounted to $12,615 and $37,614 for the three months ended March 31, 2013 and 2012, respectively. And we have comprehensive loss of $1,406,895 and $244,348 for the three months ended March 31, 2013 and 2012, respectively. The assets and liabilities amounts with the exception of equity for the three months ended March 31, 2013 were translated at 6.2689 RMB to 1.00 USD as compared to 6.2943RMB to 1.00 USD for the three months ended March 31, 2012. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the three months ended March 31, 2013 and 2012 were 6.304478 RMB and 6.3560RMB, respectively.

Translation adjustments resulting from this process amounted to $(14,660) and $102,017 for the nine months ended March 31, 2013 and 2012, respectively. And we have comprehensive loss of $3,084,232 and 1,014,147 for the nine months ended March 31, 2013 and 2012, respectively. The assets and liabilities amounts with the exception of equity for the nine months ended March 31, 2013 were translated at 6.2689 RMB to 1.00 USD as compared to 6.62943 RMB to 1.00 USD for the nine months ended March 31, 2012. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the nine months ended March 31, 2013 and 2012 were 6.304478 RMB and 6.3560RMB, respectively.

Discussion of Cash Flow

Cash flows results for the nine months ended March 31, 2013 and the nine months ended March 31, 2012 are summarized as follows:

	March 31, 2013		March 31, 2012
Net cash provided by(used in) operating activities	$	37,361	$	(602,249	)
Net cash provided by(used )in investing activities	$	15,590	$	(80,601	)
Net cash provided by financial activities	$	61,420	$	676,473

Operating activities

Cash flows used in operating activities increased by $37,361 for the nine months ended March 31, 2013 compared to the same period of 2012. This change was due to an increase in net losses of $ 3,069,572, in addition to an increase in accounts receivable of $1,160,790, an increase in amounts due from farmers $139,536 and an increase in prepaid expense of $127,344. These amounts were offset by a decrease in inventory of $765,652, an increase in accounts payable of $712,786, an increase in receivable in advance of $149,442, and an increase in payable to farmers of $259,438.

The increase in accounts receivable was due to increase in credit sales of ginseng held by Yanbian Huaxin. An increase in amounts due from farmers was due to the Company increased a credit to farmer to maintain good relationship with them; an increase in receivable in advance was primarily due to the deposit we received from our ginseng customers and increase in accounts payable was due to the credit term we earned from our supplier, an increase in payable to farmers was because we lack cash to make payment to farmer, an increase in prepaid expense was due to ginseng purchased from market; a decreased in inventory was due to decreased ginseng corp.

Investing activities

Cash flows used in investing activities amounted to $15,590 for the nine months ended March 31, 2013, which consisted of a purchase of office equipment of $272 and return of investment in unconsolidated businesses of $15,862. In July, 2012, the Company purchased a cell phone for sales department and in January, 2013, the Company withdrew the investment made in September 25, 2011 due to Jilin Province Jiliang Beverage Investment Co, Ltd could not provide register fund into the Company.

Cash flows used in investing activities amounted to $80,601 for the nine months ended March 31, 2012, which consisted of a long-term investment of $15,871; a purchase of property and equipment of $64,730

On September 25, 2011, the Company invested $15,871 (100,000 RMB) in Jilin Province Jiliang Beverage Investments Co. Ltd. (“Jilin Jiliang”). This investment represented a 10% interest in Jilin Jiliang. Jilin Jiliang is an investment management company. The Company will account for this investment utilizing the equity method.

Financing activities

Our cash flows provided by financing activities for the nine months ended March 31, 2013 was $61,420, primarily from loans payable to related parties of $61,420.

Cash flows provided by financing activities for the nine months ended March 31, 2012 was $676,473 including proceeds from sale of common stock of $49,940 and proceeds from loans payable to related parties of $626, 533.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. We have currently financed our operations and capital expenditures through loans from individual lenders, including officers, directors and other shareholders of the Company. Our current activities are related to developing our new business strategy: the sale of ginseng juice and wine products.

As of March 31, 2013, we had working capital deficit of $1,523,469, compared to a negative working capital of $ 547,480 as of June 30, 2012.

As of March 31, 2013, there was no change in our loan payments since the loans remained constant compared to March 31, 2012. As of March 31, 2013, we had outstanding loan of 2,000,000 RMB (about $317,748) to Ji’An Qingshi Credit Cooperatives (“Ji’An Qingshi”); the principal terms of the loan are as follows:

Type of Loan: Short Term Agriculture Loan;

Loan Purpose: Planting;

	3.	Loan Amount: Principal of 2,000,000 RMB (approximately USD $317,748) with an annual interest of 6.325%;

	4.	Loan Period: From February 4, 2002 to February 4, 2003; Repayment due date was February 4, 2003;

Security: The loan is secured by the assets of Tonghua Linyuan including 14 carbon-steel storage cans; 16 high-speed steel storage cans and 150 tons of grape juice.

We have not paid any principal or interest of the loan; however, Ji’An Qingshi verbally agreed in March 2008 not to call the loan. The material terms for the verbal agreement are: no principal or interest payments are required to be made until the Company is generating profits and interest continues to accrue until we repay the loan. Thus, the debt will not have impact on our liquidity and capital resource before we start to repay the lender. Nevertheless, we had a net loss of $1,393,202 for the year ended June 30, 2012. If we continue operation without generating net income, Ji’An Qingshi might revoke the oral agreement and call the loan. If we cannot pay off the loan in the event Ji’An Qingshi revokes the oral agreement, Ji’An Qingshi has the right to sell, initiate an auction sale or take any other methods to liquidate the secured assets and receive the payment of outstanding principal and interests senior to any other party out of the secured assets. As of the date of this filing, Tonghua Linyuan has 31 storage cans in total including 15 carbon-steel cans and 16 high-speed steel storage cans; 2 white-steel transport tanks, Therefore, if Ji’An Qinshi decides to revoke the oral agreement and call the loan, it will not lead to the close of operation and business of Tonghua Linyuan; however, it will cause extra costs for Tonghua Linyuan to rent additional storage cans from third parties.

On August 30, 2012, we refinanced the 8 million RMB bank loan which we obtained from Meihekou City Rural Credit Union on November 8, 2010 by a new loan of 8 million RMB (approximately USD $1,272,770) from the same lender. The principal terms of the new 8 million RMB bank loan agreement are as follows:

	●	Parties: Jilin Ganzhi Ginseng Products Co., Ltd (“Jilin Ganzhi”) and Meihekou City Rural Credit Union (“Meihekou Credit Union”);
	●	Meihekou Credit Union granted a loan of 8 million RMB (approximately USD $ 1,264,842 ) to Jilin Ganzhi to be used in calling in and refunding and the term of the loan is 24 months from August 30, 2012 to August 29, 2014.
	●	The loan carries a benchmark interest rate is the rate announced by the People’s Bank of China as an interest rate of same type and class of loans at the date of the loan and changes with the adjustment of national bank rate. Meihekou Credit Union calculates the interest on a monthly basis applying this annual floating rate which is payable on the 21st day of each month. We paid interest of 94,127 RMB (about USD $ 14,838) on August 21, 2012.And from September to March 31, 2012, we have not paid interest and we plan to pay all outstanding interest in June, 2013 provided that we have sufficient cash.
	●	Repay the principal by installments according to the following repayment plan: principal payment of RMB1M (approximately USD $159,096) on September 20, 2012, RMB 1M (approximately USD $159,096) on August 29, 2013, RMB 1M (approximately USD $159,096) on December 20, 2013 and RMB 5M (approximately USD $795,481) on August 29, 2014. The payment due in September 2012 was not made by the Company and the note is thus in default.

As of March 31, 2013, there was no change in our loan payments compared to March 31, 2012, since the loans remained constant. Since the lender, Ji’An Qingshi Credit Cooperative has verbally agreed not to call the loan, we can repay this loan at our own discretion when funds are available. Thus, the debt in Tonghua Linyuan acquisition will not have impact on our liquidity and capital resource before we start to repay the lender.

As of March 31, 2013 and March 31, 2012, we had notes payable of approximately $1,728,467 and $1,667,047 to individual lenders, respectively. These amounts are mainly due to the working capital demands of the business and are interest free.

As of March 31, 2013 we had no material commitments for capital expenditures other than for those expenditures incurred in the ordinary course of business. We started our ginseng beverage production in August 2010 and sales in October 2010. The Company plan to continue to recruit distributors in different cities; the deposit from our distributors is another capital resource for our ginseng beverage and wine business.

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 4.

Controls and Procedures.

(a)	Evaluation of disclosure controls and procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were ineffective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b)	Management’s assessment of internal control over financial reporting

We do not expect that our controls and procedures will prevent all errors and all instances of fraud. Controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls and procedures are met. Further, the design of controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all controls and procedures, no evaluation of controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of controls and procedures also is based partly on 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.

Management is responsible for establishing and managing adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and may find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the Company’s operations and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

Management has assessed the effectiveness of our internal control over financial reporting as of June 30, 2012. In making this assessment, management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The objective of this assessment is to determine whether our internal control over financial reporting was effective as of June 30, 2012. Based on our assessment utilizing the criteria issued by COSO, management has concluded that our internal control over financial reporting was not effective as of June 30, 2012 due to the existence of the following material weaknesses:

–	As of June 30, 2012, there was a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles (“GAAP”) in the U.S. and financial reporting requirements of the Securities and Exchange Commission;

–	As of June 30, 2012, there were insufficient written polities and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements.

–	As of June 30, 2012, there was a lack of segregation of duties, in that we only had one person performing all accounting related duties;

–	As of June 30, 2012, there was no independent audit committee.

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented. We continue to evaluate the effectiveness of internal controls and procedures on an on-going basis. Once our cash flows from operations improve to a level where we are able to hire additional personnel in financial reporting, we plan to improve our internal controls and procedures by hiring an experienced controller and building an internal accounting team with sufficient in-house expertise in US GAAP reporting. However, due to the limited cash flow we are currently having, we can not assure you when we will be able to implement those remediation methods.

(c)	Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings.

None.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

(a)	Unregistered Sales of Equity Securities.

None.

(b)	Use of Proceeds.

Not applicable.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not Applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.

(a)

Exhibits.

Exhibit No.		Document Description

31.1		CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

31.2		CERTIFICATION of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

32.1		CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002.

32.2		CERTIFICATION of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002.

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

China Ginseng Holdings, Inc.,

Title		Name		Date		Signature
Principal Executive Officer		Changzhen Liu		May 20, 2013		/s/ Changzhen Liu

In accordance with the Exchange Act, 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	NAME	TITLE	DATE
/s/ Changzhen Liu	Changzhen Liu	Principal Executive Officer and Director	May 20, 2013
/s/ Ren Ying	Ren Ying	Principal Financial Officer and Principal Accounting Officer	May 20, 2013

China Ginseng Holdings Inc - FORM 10-Q - May 20, 2013

Attached files

China Ginseng Holdings Inc Reports