CHINA HEALTH RESOURCE, INC. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - CHINA HEALTH RESOURCE, INC.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - CHINA HEALTH RESOURCE, INC.	v363443_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - CHINA HEALTH RESOURCE, INC.	v363443_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - CHINA HEALTH RESOURCE, INC.	v363443_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - CHINA HEALTH RESOURCE, INC.	v363443_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2013

Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

000-50029

(Commission file number)

CHINA HEALTH RESOURCE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		73-1629948
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)

343 Sui Zhou Zhong Road
Suining, Sichuan Province, P.R. China	629000
(Address of principal executive offices)	(zip code)

+(86-825) 239-1788

(Registrant’s telephone number, including area code)

N/A

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

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

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes x No ¨

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. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(Do not check if a smaller reporting company)

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

Yes ¨ No x

Indicate the number of shares of the Registrant’s ordinary stock outstanding as of the latest practicable date:

On September 30, 2013, 227,435,953 shares of the registrant's ordinary stock, par value $0.001 were outstanding.

TABLE OF CONTENTS

		Page

	PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	4

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37

ITEM 4T.	CONTROLS AND PROCEDURES	37

	PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	39

ITEM 1A.	RISK FACTORS AFFECTING FUTURE RESULTS	39

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	39

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	39

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	39

ITEM 5.	OTHER INFORMATION	40

ITEM 6.	EXHIBITS	40

SIGNATURES		41

INDEX TO EXHIBITS

	2

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

CERTAIN TERMS USED IN THIS REPORT

When this report uses the words “we,” “us,” “our,” “CHRI,” and the “Company,” they refer to China Health Resource, Inc. and its subsidiaries. “SEC” refers to the Securities and Exchange Commission.

	3

PART I – FINANCIAL INFORMATION

China Health Resource, Inc.

Unaudited Consolidated Financial Statements

September 30, 2013 and December 31, 2012

(Stated in US Dollars)

	4

China Health Resource, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

As of September 30, 2013 and December 31, 2012

(Expressed in USD)

		September 30 ,2013		December 31 2012
	Note	(Unaudited)
ASSETS

Current Assets
Cash and Cash Equivalents	2(h)	$	1,111,456	$	1,295,149
Accounts Receivable	2(i), 3		5,635,754		6,036,252
Other receivables and Advance to Suppliers	2(j), 4		10,523,344		4,291,635
Prepayment for Land Usage	5		5,598,493		3,520,020
Deferred Inventory Cost	6		5,370,159		8,253,292
Inventory	2(k), 7		1,853,949		1,648,759
Total Current Assets			30,093,155		25,045,107

Fixed Assets
Property, Plant and Equipment, Net	2(l), 8		788,012		786,097
Investment	9		487,108		-
Total Assets		$	31,368,275	$	25,831,204

LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities	10	$	5,803,168	$	5,665,986
Other Payable	11		3,374,974		326,781
Due to Shareholder			432,580		376,457
Taxes Payable			681,411		684,559
Short-Term Loan Payable	12		7,137,754		5,395,883
Total Current Liabilities		$	17,429,887	$	12,449,666

Total Liabilities		$	17,429,887	$	12,449,666
STOCKHOLDERS' EQUITY

Common Stock Class A (500,000,000 shares authorized, 227,435,953 and 177,435,953 issued and outstanding, par value US$0.001) at September 30, 2013 and December 31, 2012.		$	227,436	$	177,436
Preferred Stock (50,000,000 shares authorized , 0 issued and outstanding)			-		-
Additional Paid in Capital			2,036,497		1,736,497
Retained Earnings			982,775		662,205
Accumulated Other Comprehensive Income			10,691,680		10,805,400
Total Stockholders’ Equity			13,938,388		13,381,538

Total Liabilities & Stockholders’ Equity		$	31,368,275	$	25,831,204

See Accompanying Notes to the Financial Statements and Accountant’s Report

	5

China Health Resource, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

For theperiod ended September 30, 2013 and 2012

(Expressed in USD)

	For the three months ended September 30,				For the nine months ended September 30,
		2013		2012	2013		2012
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
REVENUES
Sales	$	1,974,909	$	4,397,402	$	5,139,265	$	19,657,963
Cost of Sales		1,444,036		4,018,164		3,956,964		15,881,780
Gross Profit		530,873		379,238		1,182,301		3,776,183

Operating Expenses
Selling, General and Administrative Expense		160,005		277,723		893,371		770,582
Interest Expense		142,790		128,009		345,603		157,752
Total Operating Expenses		302,795		405,732		1,238,974		928,334

Operating Income (Loss)		228,078		(26,494)		(56,673)		2,847,849

OTHER INCOME / (EXPENSES)
Other Expense		(57,046)		-		(57,046)		(1)
Total Other Income/(Expense)		(57,046)		-		(57,046)		(1)

Net Income (Loss) Before Taxes		171,032		(26,494)		(113,719)		2,847,848

Provision( Benefit ) Income Tax		-		(4,623)		-		720,345

Net Income (Loss)		171,032		(21,871)		(113,719)		2,127,503

Other Comprehensive Income (Loss)
Foreign Currency Translation (Gain (Loss)		49,903		34,515		327,784		(37,980)

Comprehensive Income	$	220,935	$	12,644	$	214,064	$	2,089,523

Weighted Average Common Shares Outstanding
Basic		217,545,843		177,435,953		190,855,071		177,435,953
Fully diluted		217,545,843		177,435,953		190,855,071		177,435,953

Net Gain(Loss) Per Common Share
Basic	$	0.00	$	(0.00)	$	(0.00)	$	0.01
Fully diluted	$	0.00	$	(0.00)	$	(0.00)	$	0.01

See Accompanying Notes to the Financial Statements and Accountant’s Report

	6

China Health Resource, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

For the period ended September 30, 2013 and 2012

(Expressed in USD)

	For the nine months ended September 30,
	2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)	$	(113,719)	$	2,127,503
Adjusted to reconcile net income to net cash used in operating activities
Depreciation		45,640		43,224
Bad debt expenses		329,382		-
Stock-based compensation		-		7,958
Accounts receivable		205,564		(745,650)
Other receivable and advance to suppliers		(8,928,508)		(1,372,825)
Prepayment for land usage		3,923,540		(5,637,977)
Inventory		(165,541)		(687,228)
Accounts payable and accrued liabilities		15,135		2,553,960
Other payable		3,012,452		(70,107)
Due to shareholders		43,000		-
Others		7,842		5,149
Tax Payable		(18,593)		841,433
Net Cash used in Operating Activities		(1,643,806)		(2,934,560)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of long term investment		(482,579)		-
Purchase of property, plant, and equipment		(37,385)		-
Net Cash Used in Investing Activities		(519,964)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Proceeds from issuance of common stock		350,000		-
Proceed on short-term loan		1,602,162		5,069,675
Repayment from short-term notes payment		-		(1,204,048)
Net Cash Provided by Financing Activities		1,952,162		3,865,628

Net Increase (Decrease)in Cash and Equivalents		(211,608)		931,068

Foreign Currency Translation		27,915		(1,719)

CASH AND CASH EQUIVALENTS:
Beginning of period		1,295,149		241,755
End of period	$	1,111,456	$	1,171,103

Supplementary cash flow information:
Income taxes paid	$	-	$	700,582
Interest paid	$	341,576	$	157,752

See Accompanying Notes to the Financial Statements and Accountant’s Report

	7

China Health Resource, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

For the nine-month ended September 30, 2013 and 2012

(Expressed in USD)

ORGANIZATION AND BUSINESS BACKGROUND

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

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

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

Accordingly, the consolidated financial statements include the following:

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

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

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China Health Resource, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

For the nine-month ended September 30, 2013 and 2012

(Expressed in USD)

A GAP certificate means that the planning, quality, and manufacturing of DAR meet a high and certifiable standard. The GAP certificate is in the name of Sichuan and the company manages the processing and sales of DAR.

In 2011, Suining Yinfa DAR Industrial Co, Ltd. had invested 95,223 USD (600,000 RMB) to establish an agricultural planting business entity called Suining Yinfa DAR Planting Co, Ltd. This Yinfa DAR Planting Company is in process of obtaining business approval and certificate from different government departments, and no business activity has occurred.

CHRI and its wholly owned subsidiaries, Suining Yinfa DAR Industrial Co, Ltd. and Suining Yinfa DAR Planting Co, Ltd, are hereafter referred to as (the “Company”)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

(b) Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company and subsidiary have been eliminated upon consolidation.

(c) Management’s Use of Estimates

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

(d) Revenue Recognition

Revenue is recognized at the time the product is delivered and title has passed to the customer. Cash discounts are recognized as an expense in the period in which it actually occurs. Sales allowances are recorded as a reduction of revenue in the period in which they occur. Revenue is presented net of return.

	9

China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

(e) Comprehensive Income

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

(f) Foreign Currencies

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

(g) Company’s Future Operations Are Dependent on Foreign Operations

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

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

(h) Cash and Cash Equivalents

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

	10

China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

(i) Accounts Receivable

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining the collectability of the account, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowance which is 90 days. Bad debt provision is made if fail to collect the balance after the allowance period. And the uncollectable amount last more than one year, it will automatically account for bad debt.

(j) Advances to Suppliers

Advances to suppliers represent the cash paid in advance for purchasing raw materials. The advances to suppliers are interest free and unsecured.

(k) Inventory

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

(l) Property, Plant, and Equipment

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

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

	11

China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

	Equipment	Straight-line for 5 to 20 years with a 3% salvage value
	Building	Straight-line for 20 years with a 5% salvage value
	Machinery	Straight-line for 10 years with a 5% salvage value

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

(m) Long term investment

Long term investment with equity interest of less than 20% is recorded at cost and carried at that amount until it is sold or otherwise disposed of or until it is written down. A write-down from original cost is appropriate when dividends received represent a dividend received in excess of earnings subsequent to the investment date. Otherwise, dividends received are recorded as investment income.

(n) Income Taxes

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

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

(o) Earnings (Loss) Per Common Share

Basic earnings (loss) per share are computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period.

(p) Fair Value of Financial Instruments

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

	12

China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

(q) Impairment of Long-Lived Assets

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

(r) Stock-Based Compensation

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

(s) Subsequent Events

SFAS No. 165 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. SFAS No. 165 became effective for interim or annual periods ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.

	13

China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

(t) Recently Issued Accounting Pronouncements

In January 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”).The Update clarifies that ordinary trade receivables and receivables are not in the scope of Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification® or subject to a master netting arrangement or similar agreement. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Management does not expect the adoption of this standard has a significant effect on the Company’s consolidated financial position or results of operations.

In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”).The amendments require an organization to:

a) Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income–but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.

b) Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Management does not expect the adoption of this standard has a significant effect on the Company’s consolidated financial position or results of operations.

In February 2013, the FASB issued ASU No. 2013-03, “Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities” (“ASU 2013-03”). The amendment clarifies that the requirement to disclose the level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (as Level 1, Level 2, or Level 3) does not apply to private companies and nonpublic not-for-profits for items that are not measured at fair value in the statement of financial position, but for which fair value is disclosed. The amendments are effective upon issuance. Management does not expect the adoption of this standard has a significant effect on the Company’s consolidated financial position or results of operations.

	14

China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

In March 2013, the FASB issued ASU No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). The update provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in US GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Management does not expect the adoption of this standard will have a significant effect on the Company’s consolidated financial position or results of operations.

In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The ASU clarifies that when a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Accounting Standards Codification 830-30 to release any related cumulative translation adjustment into net income. The ASU provides that the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The amendments take effect prospectively for public companies for fiscal years beginning after December 15, 2013, and interim reporting periods within those years. Management does not expect the adoption of this standard will have a significant effect on the Company’s consolidated financial position or results of operations.

On July 18, 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carry forward Exists” (a consensus of the FASB Emerging Issues Task Force), which requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for an net operating loss (NOL) carry forward, or similar tax loss or tax credit carry forward, rather than as a liability when (1) the uncertain tax position would reduce the NOL or other carry forward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. The ASU does not require new recurring disclosures. It is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013 and December 15, 2014, for public and nonpublic entities, respectively. Early adoption and retrospective application are permitted. Management does not expect the adoption of this standard will have a significant effect on the Company’s consolidated financial position or results of operation.

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

ACCOUNTS RECEIVABLE

The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. Accounts receivable as of September 30, 2013 and December 31, 2012 consist of the following:

	September 30, 2013 Unaudited		December 31 , 2012
Accounts receivable, gross	$	5,968,227	$	6,036,252
Less: Allowance for doubtful accounts		(332,473)		-
Account receivable, net	$	5,635,754	$	6,036,252

Allowance for doubtful accounts :	September 30, 2013 Unaudited		December 31 , 2012
Beginning balance	$	-	$	-
Allowance provided		(329,382)		-
Foreign currency effect		(3,091)		-
Ending balance	$	(332,473)	$	-

OTHER RECEIVABLES AND ADVANCES TO SUPPLIERS

Due to the high demand of DAR product, the company advances money to third party suppliers to secure more DAR supply. These advances bear no interest and will be applied as the payment when purchases are received. The balance of other receivables and advances to suppliers as of September 30, 2013 and December 31, 2012 are $10,523,344 and $4,291,635, respectively.

PREPAYMENT FOR LAND USAGE

In November 2011, the company entered land usage agreement with 12 local village unions for future raw material DAR production. Prepayment for land usage as of September 30, 2013 and December 31, 2012 consist of the following:

	September 30, 2013 Unaudited		December 31 , 2012
DAR production villages	$	5,598,493	$	3,520,020
Total	$	5,598,493	$	3,520,020

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

DEFERRED INVENTORY COSTS

The deferred inventory costs represented prepayment to suppliers for future inventory delivery. As of September 30, 2013 and December 31, 2012, the balances of deferred inventory costs are $5,370,159 and $8,253,292 respectively. These costs will be transferred to inventories at the time of inventory delivery.

INVENTORY

Inventories as of September 30, 2013 and December 31, 2012 consist of the following:

	September 30, 2013 Unaudited		December 31 , 2012
Raw Materials	$	1,853,949	$	1,648,759
Low Value Consumables		-		-
Inventory	$	1,853,949	$	1,648,759

As of September 30, 2013 and December 31, 2012, no provision for obsolete inventories was recorded by the Company. The large amount of raw material are due to more TCM business started, larger volume demand of DAR, and higher purchasing than previous year. The company has largely increased its inventory in current period to take advantage of the increasing market demand. Low value consumables are the materials for the process of finished goods. Due to the different outsourcing process adopted for the same period in 2012, the processing party is having all the materials and processing cost in its total fees. The finished goods, Bailing Capsules, had been changed to process by order due to the upgrade of the sales strategy.

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net as of September 30, 2013 and December 31, 2012 consists of the following:

	September 30, 2013 Unaudited		December 31, 2012

Property, Plant and Equipment	$	1,093,149	$	1,039,950
Less: accumulated depreciation		(305,137)		(253,853)
Property, Plant and Equipment, net	$	788,012	$	786,097

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

LONG TERM INVESTMENT

On July 11, 2013, Suining Yinfa DAR Industrial Co, Ltd, a subsidiary of China Health Resource, Inc., invested in Suining Fengfa Modern Agricultural Credit Guarantee Co., Ltd. for a 1.984% equity interest for long term investment. The investment is accounted for under the cost method, as the Company does not have a significant influence over the business and operations of Suining Fengfa Modern Agricultural Credit Guarantee Co., Ltd.

The Company did not receive any dividends in 2013, and has not received any dividends in excess of the proportionate share of accumulated earnings since the date of acquisition, as a reduction of the cost of the investment.

10.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of September 30, 2013 and December 31, 2012 consist of the following:

	September 30, 2013 Unaudited		December 31 , 2012
Accounts payable	$	3,025,309	$	2,984,811
Accrued liabilities		2,777,859		2,681,175
Total accounts payable and accrued liabilities	$	5,803,168	$	5,665,986

Accrued liabilities include accrued wage payable, accrued welfare payable, other taxes payable, and receipt in advance.

11.

OTHER PAYABLE

As of September 30, 2013 and December 31, 2012, other payable consist of the following:

	September 30, 2013 Unaudited		December 31 , 2012
Labor Union Fee	$	13,857	$	10,907
Pension Fund		43,452		28,337
Social Insurance		62,262		90,175
Risk Fund		162		159
Other non-related payables		3,255,241		197,203
Total	$	3,374,974	$	326,781

The advances from those non-related payables are unsecured, interest free and repayable on demand.

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

12.

SHORT TERM LOAN

As of September 30, 2013 and December 31, 2012, short term loan consist of the following:

Name	Note	September 30, 2013		December 31, 2012
Loan from Shanghai Pudong Development Bank
-Interest rate at 6.90% per annum; due 8/14/2014		$	1,623,693	$	-
-Interest rate at 6.90% per annum; due 7/4/2014			1,292,459		-
-Interest rate at 6.90% per annum; due 7/3/2014			1,948,432		-
-Interest rate at 6.60% per annum; due 9/18/2013			-		1,587,024
-Interest rate at 6.60% per annum; due 8/16/2013			-		1,587,024
-Interest rate at 6.48% per annum; due 7/12/2013			-		1,587,024

SuiNing City Commercial Bank
-Interest rate at 9.00% per annum; due 9/30/2014			1,623,693		-

Loan from Wang Lijun
-Interest rate at 24% per annum; due 5/13/2014	2		-		317,405

Loan from Wang Li
-Interest rate at 24% per annum; due 9/11/2014			243,554		-
-Interest rate at 24% per annum; due 7/4/2014			81,185		-
-Interest rate at 24% per annum; due 10/1/2013	1		324,738		317,405
Total		$	7,137,754	$	5,395,883

	1)	The loan provided by Wang Li was guaranteed by the CEO Mr. Jiayin’s Wang’s and Mrs. Sulan Deng’s household assets.

	2)	The loan provided by Wang Lijun was guaranteed by the CEO Mr. Jiayin’s Wang’s and Mrs. Sulan Deng’s household assets.

13.

INCOME TAXES

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

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

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

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

The Company generated substantially its net income from its PRC operation and has recorded income tax provision for the year ended September 30, 2013 and December 31, 2012.

The components of (loss) income before income taxes separating U.S. and PRC operations are as follows:

	September 30, 2013		September 30, 2012
Loss subject to U.S. operation	$	(24,000)	$	(33,531)
Income(Loss) subject to PRC operation		(89,719)		2,881,379
Income(Loss) before income taxes	$	(113,719)	$	2,847,848

United States of America

The Company is registered in the State of Delaware and is subject to United States of America tax law.

For the nine- month period ended September 30, 2013, the U.S. operation had $ 24,000 of net operating losses available for federal tax purposes, which are available to offset future taxable income. The net operating loss carry forwards begin to expire in 2030. The Company has provided for a full valuation allowance for any future tax benefits from the net operating loss carry forwards as the management believes it is more likely than not that these assets will not be realized in the future.

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

The PRC

The reconciliation of income tax rate to the effective income tax rate based on income before income taxes stated in the consolidated statement of operations for period ended September 30, 2013 and 2012 is as follows:

	September 30, 2013 (Unaudited)			September 30, 2012
Income (loss) before income taxes	$	(13,719)		$	2,881,379
Statutory income tax rate		25	%		25	%
		-			720,345
Expenses not deductible for tax purposes:
- Provisions		-			-
Income tax	$	-		$	720,345

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

	September 30, 2013 (Unaudited)			September 30, 2012
U.S. Statutory rate		34	%		34	%
Foreign income not recognized in USA		(34)	%		(34)	%
China income taxes		25	%		25	%
Total provision for income taxes		25	%		25	%

The Company applies FASB ASC 740-10, “Accounting for Income Taxes”, which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes. Because the Company has no operations within the United States, there is no provision for US income taxes and there are no deferred tax amounts as of the nine-month period ended September 30, 2013 and September 30, 2012.

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

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

Deferred taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred taxes are charged or credited in the income statement, except when they relate to items credited or charged directly to equity, in which case the deferred taxes are also recorded in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption of FIN 48 had no effect on the Company’s financial statements.

14.

MAJOR CUSTOMER/VENDOR AND CONCENTRATION

(a)

Sale breakdown

For the nine-month period ended September 30, 2013, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues were derived from customers located in the PRC.

All customers are all non-related parties, mostly located in Sichuan province or southern China. The sole business relationship with Yinfa is to purchase raw DAR, other TCM, or Yishen Capsule. For the nine-month period ended September 30, 2013, 88% of the total revenue is contributed by DAR, 12% of the total revenue is contributed by other TCM, and none of total revenue is contributed by Yishen Capsule.

(b)

Credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.

15.

Stockholders’ equity

Effective August 20, 2010, the Company’s Board of Directors appointed Mr. Jiayin Wang Chief Executive Officer of the Company. The Board of Directors has approved the following compensation for Mr. Wang in his capacity as the Company’s Chief Executive Officer:

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

	(a)	No annual base salary will be paid until such time as the Company achieves $1,000,000 in annual net income, whereupon Mr. Wang will receive an annual base salary of based upon the Company’s market capitalization and fair market rate of a public company chief executive officer;

	(b)	A signing bonus totaling $50,000, payable on August 20, 2010 in shares of the Company's Class A common stock (the "Common Stock") based on a price per share of $0.00782, the average of the closing prices of the Common Stock as quoted on the OTC Bulletin Board for the five (5) trading days ending on such date. Mr. Wang received 6,393,862 shares of Common Stock as a signing bonus which shares are not registered under the U.S. Securities Act of 1933, as amended (the "1933 Act");

	(c)	A grant of stock options to purchase 6,000,000 shares of Common Stock at an exercise price of $0.02 per share, vesting over 18 months in equal monthly installments. The stock options were granted pursuant to the Company’s 2009 Omnibus Incentive Plan and have a grant date of August 20, 2010; and

	(d)	Performance bonuses payable in shares of the Common Stock (which shares will not registered under the 1933 Act) based upon milestones and terms as follows:

	i.	If the Company achieves $500,000 in net income for the three-month period ended September 30, 2010 as shown in the Company's financial statements contained in the Quarterly Report on Form 10-Q for such period, Mr. Wang will receive a bonus of $40,000 payable in shares of Common Stock valued at $0.02 per share.

	ii.	If the Company achieves $1,000,000 in net income for the nine-month period ended December 31, 2010, Mr. Wang will receive a bonus of $100,000 payable in shares of Common Stock valued at $0.05 per share.

	iii.	If the Company achieves $1,500,000 in net income for the nine-month period ended March 31, 2011, Mr. Wang will receive a bonus of $160,000 payable in shares of Common Stock valued at $0.08 per share.

Mr. Wang will also be eligible to receive periodic stock grants and participate in the Company's incentive plans and benefit plans for which he is eligible.

In recognition of Mr. Wang's contributions to the Company's achievement of various corporate and financial milestones, effective August 20, 2010, the Board of Directors approved a bonus for Mr. Wang in the amount of $88,000 payable in shares of Common Stock based on a price per share of $0.00782, the average of the closing prices of the Common Stock as quoted on the OTC Bulletin Board for the five (5) trading days ending on such date. Mr. Wang received 11,253,197 shares of Common Stock that are not registered under the 1933 Act under this bonus.

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China Health Resource, Inc. and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2013 and 2012

(Expressed in USD)

For the year ended December 31, 2010, total 17,647,059 shares of Common Stock in amount of $138,000 was issued and recognized as share-based compensation. $7,958 was recognized as option expenses for vested option as of December 31, 2010. The company has also accrued $140,000 expenses relating to CEO’s performance bonus as of December 31, 2010.

On July 15, 2011, the Company issued 6,000,000 shares of common stock to Jiayin Wang to settle his performance bonuses payable accrued pursuant to his employment offer letter signed August 20, 2010 (see above (d) i, ii, and iii). Jiayin Wang has achieved the milestones pursuant to the employment offer letter and therefore was awarded accordingly.

On October 30, 2011, the Company entered an investment banking service agreement with a third party and issued 1,500,000 shares of comment stock for the service rendered. These common stocks were valued and recorded at market price ($0.02 per share) at the issuance.

For the year ended December 31, 2011, the company recognized $31,831 as option expenses for vested option (see above (c)).

For the year ended December 31, 2011, the company recognized $30,063 imputed interest expense from non-interest bearing shareholder’s loan as additional paid-in capital from shareholder.

For the year ended December 31, 2012, the company recognized $7,985 as option expenses for vested option (see above (c)).

On June 19, 2013, the Board of Directors of the Company approved a securities purchase agreement with certain accredited investor pursuant to which the Company issued the Investor an aggregate of 50,000,000 shares of our common stock, par value $0.007 per share in exchange for aggregate consideration of $350,000.

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

The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Forward Looking Statements

Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to Consolidated Financial Statements, are “forward-looking statements”, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are subject to certain events, risks and uncertainties that may be outside our control.

The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion and acquisition strategy, our ability to achieve operating efficiencies, our ability to successfully develop, manufacture and deliver Dahurian Angelica Root and related products on a timely basis and in the prescribed condition, evolving standards in the Traditional Chinese Medicine industry, domestic and international regulatory matters, general economic and business conditions, the strength and financial resources of our competitors, our ability to raise sufficient capital in order to effectuate our business plan, our ability to find and retain skilled personnel and key executives, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the “Commission”).

COMPANY OVERVIEW

General

We were incorporated in the State of Delaware on February 26, 2002. In June and July 2002, we acquired approximately 99% of the outstanding shares of Voice Diary Ltd., an Israeli corporation (“VDL”), through an exchange of shares of the Company with shareholders of VDL. On June 13, 2006, we, as the acquirer, executed a Plan of Exchange with Yinfa (acquiree), the shareholders of Yinfa and the Company’s then majority shareholders, pursuant to which we issued 30,000,000 (pre-forward split) new shares of our Class A Common Stock to the Yinfa shareholders in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance upon Regulation S thereunder, in exchange for all of their shares of registered capital of Yinfa. As a result, Yinfa became our wholly-owned subsidiary. Yinfa was founded on April 24, 2001, with registered capital of US $125,500 (RMB 1,000,000) and total assets of US $1,475,795. Yinfa’s business incorporates a self-owned production base and a network of DAR (as defined below) associates, farmers and research and development affiliates. The transaction was treated for accounting purposes as a capital transaction and recapitalization by the accounting acquirer and as a re-organization by the accounting acquiree. We disposed of VDL on August 22, 2006 pursuant to the agreement between the Company, VDL and Arie Hinkis, our former president. On May 21, 2007, we changed our name to China Health Resource, Inc. to more accurately reflect our business operations. In 2011, Yinfa had invested 95,223 USD (600,000 RMB) to establish an agricultural planting business entity called Suining Yinfa DAR Planting Co, Ltd. (“Yinfa DAR Planting”). Yinfa DAR Planting is in process of obtaining business approval and certificate from different government departments, and no business activity has occurred.

	25

We are engaged in the production, manufacturing and distribution in China of herbal pharmaceuticals based on traditional Chinese medicine, which we refer to herein as Traditional Chinese Medicine, or TCM. We are based in the city of Suining, Sichuan Province, China and our operations are exclusively in China. Our subsidiary Yinfa is a Chinese pharmaceutical company focused on producing, processing and commercializing TCM products to pharmaceutical manufacturers and wholesale markets.

Our products include Dahurian Angelica Root (“DAR”) which is a popular herb employed extensively as an ingredient in food, medicine and cosmetics for the treatment of pain, swelling and pustule. Our products are developed through extensive research and development efforts to determine effective uses for the plants grown under our control and cultivated in areas where unique local climates and soil properties result in the finest quality.

We obtained Good Agricultural Practice (“GAP”) certification for our DAR products and received the exclusive rights to the “Sichuan Angelica” certified trademark from the Chinese State Administration of Industry and Commerce through December 13, 2016.

Our Business

Our core business is herbal pharmaceuticals and supplements based upon TCM. Our subsidiary Yinfa is a Chinese pharmaceutical company focused on producing, processing and commercializing TCM products to pharmaceutical manufacturers and wholesale markets. Our products include DAR, which is a popular herb employed extensively as an ingredient in food, medicine and cosmetics for the treatment of pain, swelling and pustule. Our products are developed through extensive research and development efforts to determine effective uses for the plants grown under our control and cultivated in areas where unique local climates and soil properties result in the finest quality.

In year 2006, we obtained GAP certification for DAR, in partnership with Sichuan Yinfa Resource Development Group Co. Ltd., (“Yinfa Resource”). The standards which must be met to obtain GAP certification include the study of our environment quality including water, and soil samples, seed quality, use of pesticides and use of fertilizers. These standards were approved by the Chinese State Food and Drug Administration (the “SFDA”). Our GAP farm production base includes approximately 133,334 square meters of experimental planting fields, and 1,333,340 square meters of contracted farm production bases, all of which passed inspection by the SFDA on February 26, 2006. The GAP standards are inspected annually. The GAP certificate has been issued in name of our partner, Yinfa Resource. Our exclusive GAP certification for DAR demonstrates the high quality standards of our DAR and DAR-related products.

In 2007, the Company achieved cooperation with the Sichuan Province Suining City DAR Association (“Association”) and received the exclusive rights to the “Sichuan Angelica” certified trademark from the Chinese State Administration of Industry and Commerce through December 13, 2016. As holder of the rights to the trademark, the Company is receives a management fee of 1RMB (or approximately US $0.14) per kilogram of DAR (including packaging fees) from any user of the trademark, of which 60% may be used by Yinfa for further development and investment of its DAR business and the remaining 40% is paid for related expenses. In addition, the Company receives 100% of the revenue stream from the use of the DAR trademark through December 13, 2016 and 95% of the revenue stream thereafter. There are approximately 235 regional certification trademarks in China, including 65 for natural resources, of which over 20 are for natural herb resources. In addition to the DAR Association, in 2010, Yinfa received the exclusive license to use and manage the “Sichuan Angelica” trademark by the General Administration of Quality Supervision, Inspection and Quarantine of People’s Republic of China.

Currently, raw DAR in both its original root form and processed form (both sliced and powder) is one of our major products and it is sold to pharmaceutical manufacturers (80%) or wholesalers (20%). Our DAR-related product offerings also include Yisheng Capsule, which has been certified by the SFDA and sold to regional distributors throughout China to treat fatigue by improving blood circulation. It increases oxygen levels in regions of the body that do not get an adequate supply. Fatigue in the workplace costs $136B per year in health-related lost productivity according to a report in the Journal of Occupational and Environmental Medicine. (February 2012 - Volume 54 - Issue 2 - P231 - 258)

In addition, in 2011 the Company has added Rhizoma Gastrodia (“Gastrodia”) along with various other raw TCM products to the Company’s product offering. Gastrodia, along with various other raw TCM products are sold to pharmaceutical manufacturers (80%) or wholesalers (20%). With the expansion of TCM to markets in the United States and other countries, we expect to continue to identify unique TCM products of the highest quality to add to our markets.

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The company’s TCM migraine medication called Toufeng Migraine tablet. Results released in 2012 demonstrated an effective rate of 96.5% in clinical observations. The new product was developed utilizing the company's proprietary DAR as one the key ingredients and, unlike most current treatments, it is not merely a pain killer and thus avoids the serious side effects and risk of dependency or addiction. The company is now moving forward with the approval process world-wide and is working to develop and expand commercialization through strategic partnerships.

We believe our business model will help facilitate the process of growing and commercializing all of our products with through research and development of added uses of our products in a range of foods, medicines and cosmetics to increase our revenues and enhance shareholder value. These opportunities may include, but are not limited to, acquisitions or licensing of additional products in synergistic or complementary industries.

Seasonality

The planting of DAR is subject to seasonal fluctuations. DAR is planted during the winter months and is suitable for harvest in the summer. The prime season for harvest is typically from July through November, subject to climate conditions. As a result, we typically enter into contracts with farmers during the first quarter of the fiscal year for the purchase of raw DAR, and purchase raw DAR from farmers during the Third and Forth quarters. We then process the harvested DAR and sell products to our customers throughout the year. Therefore, our revenues occur throughout the year.

Revenue recognition

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

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

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. We generally extend unsecured credit up to three months to our customers in the ordinary course of business and mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on management’s assessment of known requirements, such as aging of receivables, payment history, the customer's current creditworthiness, and the economic environment. When a specific account receivable balance is deemed uncollectible, a charge is taken to the statement of income. Recoveries of balances previously written off are reflected as income in the statement of income.

Inventory

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

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Property, Plant, and Equipment

Equipment	Straight-line for 5 to 20 years with a 0% salvage value
Building	Straight-line for 20 years with a 5% salvage value
Useful life of land	Straight-line for 15 years with a 0% salvage value

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

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Foreign Currency Transaction

We maintain our books and accounting records in RMB, which is determined as the functional currency. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (“PBOC”) prevailing at the date of the transactions. Monetary assets and liabilities denominated in currencies other than RMB are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. Gain and losses resulting from foreign currency transactions are included in operations.

Our financial statements are translated into USD, which is our reporting currency. Assets and liabilities are translated at the prevailing exchange rate at each reporting period end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from translation of these financial statements are reflected as other comprehensive income in the statements of operations and accumulated other comprehensive income in the statements of changes in shareholders' equity.

The translation rates are as follows:

	09/30/2013	06/30/2013	12/31/2012	09/30/2012	06/30/2012
Year/quarter end RMB : US$ exchange rate	6.1588	6.1787	6.3011	6.3190	6.3249
Average yearly/quarterly RMB : US$ exchange rate	6.2166	6.2422	6.3057	6.3120	6.3069

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Recently Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”).The amendments require an organization to:

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income–but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

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Significant Factors Affecting Our Results of Operation

We believe that the following factors will continue to affect our financial performance:

Price Control of Drugs by PRC Government and SDRC

The State Development and Reform Commission of the PRC (“SDRC”) and the price administration bureaus of the relevant provinces of the PRC in which the pharmaceutical products are manufactured are responsible for the retail price control over our pharmaceutical products. The SDRC sets the price ceilings for certain pharmaceutical products in the PRC. All of our products except those under the protection periods are subject to such price controls and could affect our future revenue growth. However, due to the direct support of TCM by the Chinese government, China’s immense market, and our protected drugs, we are optimistic regarding our continuous growth potential for TCM in China.

Principal Components of Our Income Statement

Sales

Our sales are derived from sales of our products net of value-added taxes. The most significant factors that affect our sales are shipment volume and average selling prices. Our collection practices vary from customer to customer, they consist of (i) cash payment on delivery for small orders and new customer and (ii) credit for 30 days to 90 days to our established regular customers who have long term cooperative relationship.

Cost of sales

Our cost of sales primarily consists of direct material costs, and direct labor costs and manufacturing overhead costs. Direct material costs generally accounted for the majority of our cost of sales.

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Gross Profit

Our gross profit of our TCM products is affected primarily by the cost of raw materials, which is defined with reference to the cost of DAR. We are also able to price our TCM products based on the market price for materials plus mark-up, which is essentially our gross profit.

Operating expenses

Our operating expenses consist of selling, general and administrative expenses including research and development expenses.

Selling, General, and Administrative, Interest and other expenses

Our selling expenses include shipping expenses, salaries and traveling expenses for our sales personnel. Our general and administrative expenses include administrative staff costs and other benefits, depreciation of office equipment, professional service fees, research and development expenditures and other miscellaneous expenses related to our administrative activities.

Our sales activities are conducted through direct selling by our internal sales staff. Because of the strong demand for our products and continuing improvement on efficiency, it is not necessary for us to add sales forces to start to aggressively market and distribute our products. Our selling expenses have been relatively small as a percentage of our revenues.

With the anticipated expansion of business, we anticipate the absolute dollars of selling, and administrative expenses will increase. But comparing to the stronger growth of business, we estimate they will still account for a similar percentage against revenues to the present.

Other comprehensive income

Other comprehensive income reflects foreign currency translation adjustment according to our accounting policies.

Three Months Period Ended September 30, 2013 Compared to the Three Months Period Ended September 30, 2012

Balance Sheet

Our total assets increased by US $5,096,518 for the three months period ended September 30, 2013 to US $31,368,275 from June 30, 2013 which was US $26,271,757. Total liabilities increased by US 4,532,798 to US $17,429,887 for the three months period ended September 30, 2013 from US $12,897,089 as of June 30, 2013. Those changes are principally due to an increase of prepaid expenses, inventory, accounts payable, other payable, short term loan payable and taxes payable.

Balance Sheet	September 30, 2013 (USD)		June 30, 2013 (USD)
Total Assets	$	31,368,275	$	26,271,757
Total Liabilities	$	17,429,887	$	12,897,089
Net Assets	$	13,938,388	$	13,374,668

Results of Operations

The following table presents the unaudited consolidated results of operations of the Company for the three months period ended September 30, 2013 as compared to the results of operations for the three months period ended September 30, 2012.

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	For the Three Months Ended September 30 (USD)
	2013		2012
	Unaudited		Unaudited
Revenue	$	1,974,909	$	4,397,402
Cost of Sales		1,444,036		4,018,164
Gross Profit		530,873		379,238
Selling, General, and Administrative		160,005		277,723
Interest Expenses		142,790		128,009
Total Operating Expenses		302,795		405,732
Operating Income(Loss)		228,078		(26,494)
Other Income (loss)		(57,046)		-
Provision Income Tax		-		4,623
Net Income (Loss)		171,032		(21,871)
Foreign Currency Translation Gain		49,903		34,515

Total comprehensive income	$	220,935	$	12,644

Revenues

Our revenues for the three months period ended September 30, 2013 were US $ 1,974,909, a decrease of 55% over revenues of US $4,397,402 for the three months period ended September 30, 2012. The decrease in sales revenues was due primarily to the decrease in demand for non-branded raw products and the Yishen capsule. This reduction in sales quantities and unit price is within a broader slowdown in demand for China’s TCM market. Management considers the long term trend remains intact but the softening of China’s market has had an effect in our sales. This softening in demand contributed to a significant reduction in the volume of sales in raw TCM herbs and Yinshen capsules. The company also faced in period an increase in competition of non-branded products and in particular for raw non-branded products. Our sales arrangements are not subject to any warranties. In this period, TCM prices including DAR retail prices decreased due to the macro TCM market condition.

Cost of Sales; Gross Profit

Cost of sales are expenses directly related to manufacturing and selling our products, including costs of raw materials purchased from farmers, product delivery and direct labor cost. The cost of sales for the three months period ended September 30, 2013 were US $1,444,036, representing a decrease of 64% over the cost of sales of US $4,018,164 for the three months period ended September 30, 2012. The decreased costs of sales and comparatively lower gross profit rate were principally due to the decline in demand of products and increase in the price of other raw materials.

Gross profit for the three months period ended September 30, 2013 increased by approximately 40% to US $530,873 from US $379,238 for the three months period ended September 30, 2012. Gross profit margin for the three months ended September 30, 2013 was 27% compared to 9% for the three months ended September 30, 2012. The increase in profit margin was mainly attributed to the increase in the gross margin derived from increase in relative mix of sales of higher profit margin products, such as DAR.

Operating Expenses

The operating expenses for the three months ended September 30, 2013 were US $302,795, representing a decrease of 25% over operating expenses of US $405,732 for the three months period ended September 30, 2012. The operating expenses included selling, general and administrative (“SG&A”) expense and interest cost. The largest component of operating expenses is attributable to selling, general and administrative (“SG&A”) expense consisting primarily of administrative expenses. The SG&A expenses for the three months period ended September 30, 2013 were US $160,005, representing decrease of 42% over SG&A expenses of US $277,723 for the three months period ended September 30, 2012. And the interest costs for the three months period ended September 30, 2013 were US $142,790, representing an increase of 12% over interest costs of US $128,009 for the three months period ended September 30, 2012.

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The decrease of SG&A expenses for the recent quarter is due to the decrease competition in the market particularly in the non-branded products category; making operations relatively more expensive in the third quarter in 2013, comparing to the same period in 2012. And the increase of interest costs because the Company had more loan that it had in September 30, 2012.

Other Comprehensive Income

For the three months period ended September 30, 2013, we had a total other comprehensive income of US $49,903, compared to other comprehensive income of US $34,515 for the three months period ended September 30, 2012. The change in total other comprehensive income was due primarily related to foreign currency translation between RMB and USD.

Impact of Inflation

We believe that inflation has had a negligible effect on operations for the three months period ended September 30, 2013. The inflation rate in the Sichuan Province has been lower than the average national inflation rate for China. In the third quarter of 2013, the TCM market inflation was relatively in a stable condition.

Taxes

According to the Corporate Income Tax Law of China, companies without any tax abatement programs are charged at a 25% income tax rate. There is no credit for income tax for the three months period ended September 30, 2013 and the income tax for the three months period ended September 30,2013 were US $0 while the income tax benefit for the same period ending September 30, 2012 were US $4,623.

Net Income/Loss

We had net profit for the three months period ended September 30, 2013 of US $171,032, while net loss for the three months period ended September 30, 2012 of were US $21,871. The increase in our net income for the three months period ended September 30, 2013 is attributable principally to a decreased cost of operation, cost of good combined with the reduction in sales especially in the non-branded TCM raw products and general and selling, general and administrative expense. The company believes through advertisement, an increase in awareness, along with focus on branded product net income can be further increased. We are working to strengthen our internal management processes and to grow our sales revenues by expanding our product line, while maintaining an efficient cost structure. However, there can be no assurance that we will achieve or maintain continuing profitability, or that revenue growth will continue in the future.

Nine Months Period Ended September 30, 2013 Compared to the Nine Months Period Ended September 30, 2012

Balance Sheet

Our total assets increased by US $5,537,071 for the nine months period ended September 30, 2013 to US $31,368,275 from December 31, 2012 which was US $25,831,204. Total liabilities increased by US $4,980,221 to US $17,429,887 for the nine months period ended September 30, 2013 from US $12,449,666 as of December 31, 2012. Those changes are principally due to an increase of prepayment for land usage, inventory, accounts payable and accrued liabilities, other payable, due to shareholder, taxes payable and short-term loan payable.

Balance Sheet	September 30, 2013 (USD)		December 31, 2012 (USD)
Total Assets	$	31,368,275	$	25,831,204
Total Liabilities	$	17,429,887	$	12,449,666
Net Assets	$	13,938,388	$	13,381,538

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Results of Operations

The following table presents the unaudited consolidated results of operations of the Company for the nine months period ended September 30, 2013 as compared to the results of operations for the nine months period ended September 30, 2012.

	For the Nine Months Ended September 30 (USD)
	2013		2012
	Unaudited		Unaudited
Revenue	$	5,139,265	$	19,657,963
Cost of Sales		3,956,964		15,881,780
Gross Profit		1,182,301		3,776,183
Selling, General, and Administrative		893,371		770,582
Interest Expenses		345,603		157,752
Total Operating Expenses		1,238,974		928,334
Operating Income(Loss)		(56,673)		2,847,849
Other expenses		(57,046)		(1)
Provision Income Tax		-		720,345
Net Income (Loss)		(113,719)		2,127,503
Foreign Currency Translation (Loss) & Gain		327,784		(37,980)

Total comprehensive income	$	214,064	$	2,089,523

Revenues

Our revenues for the nine months period ended September 30, 2013 were US $5,139,265, a decrease of 74% over revenues of US $19,657,963 for the nine months period ended September 30, 2012. The decrease in sales revenues was due primarily to the decrease in demand for non-branded raw products and the Yishen capsule. This reduction in sales is within a broader slowdown in demand for China’s TCM market. Management considers the long term trend remains intact but the softening of China’s market has had an effect in our sales. This softening in demand contributed to a significant reduction in the volume of sales in raw TCM herbs and Yinshen capsules. The company also faced in period an increase in competition of non-branded products and in particular for raw non-branded products. Our sales arrangements are not subject to any warranties. In this period, TCM prices including DAR retail prices decreased due to the macro TCM market condition.

Cost of Sales; Gross Profit

Cost of sales are expenses directly related to manufacturing and selling our products, including costs of raw materials purchased from farmers, product delivery and direct labor cost. The cost of sales for the nine months period ended September 30, 2013 were US $3,956,964, representing a decrease of 75% over the cost of sales of US $15,881,780 for the nine months period ended September 30, 2012. The decreased costs of sales and comparatively lower gross profit rate were principally due to the decline in demand of products and increase in the price of other raw materials.

Gross profit for the nine months period ended September 30, 2013 decreased by approximately 69% to US $1,182,301 from US $3,776,183 for the nine months period ended September 30, 2012. Gross profit margin for the nine months period ended September 30, 2013 was 23% compared to 19% for the nine months period ended September 30, 2012. The increase in profit margin was mainly attributed to the increase in the gross margin derived from the decline in demand of products and the increase in relative mix of sales of higher profit margin products.

Operating Expenses

The operating expenses for the nine months period ended September 30, 2013 were US $1,238,974, representing an increase of 33% over operating expenses of US $928,334 for the nine months period ended September 30, 2012. The operating expenses included selling, general and administrative (“SG&A”) expense and interest cost. The largest component of operating expenses is attributable to selling, general and administrative (“SG&A”) expense consisting primarily of administrative expenses. The SG&A expenses for the nine months period ended September 30, 2013 were US $893,371, representing an increase of 16% over SG&A expenses of US $770,582 for the nine months period ended September 30, 2012. And the interest costs for the nine months period ended September 30,2013 were US $345,603, representing an increase of 2 times over interest costs of US $157,752 for the nine months period ended September 30, 2012

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The increase of SG&A is primarily due to an increase in allowance of bad debt first three quarters in 2013, comparing to the same period in 2012. And the increase of interest cost because the Company had more loan that it had in September 30, 2012.

Other Comprehensive Income/Loss

For the nine months period ended September 30, 2013, we had a total other comprehensive income of US $327,784, compared to other comprehensive loss of US $37,980 for the nine months period ended September 30, 2012. The change in total other comprehensive income (loss) was due primarily related to foreign currency translation between RMB and USD.

Impact of Inflation

We believe that inflation has had a negligible effect on operations for the nine months period ended September 30, 2013. The inflation rate in the Sichuan Province has been lower than the average national inflation rate for China. In the first three quarters of 2013, the TCM market inflation was relatively in a stable condition.

Taxes

According to the Corporate Income Tax Law of China, companies without any tax abatement programs are charged at a 25% income tax rate. There is no credit for income tax for the nine months period ended September 30,2013 and the income tax for the nine months period ended September 30,2013 were US $0 while the income tax for the same period ending September 30, 2012 were US $720,345.

Net Income/Loss

We had net loss for the nine months period ended September 30, 2013 of US $113,719, while net income for the nine months period ended September 30, 2012 of were US $2,127,503. The decrease in our net income for the nine months period ended September 30, 2013 is attributable principally to a decrease in demand for non-branded raw products and the Yishen capsule. This reduction in sales is within a broader slowdown in demand for China’s TCM market and allowance of bad debt. However the company believes through advertisement, an increase in awareness, along with focus on branded product net income can be increased. We are working to strengthen our internal management processes and to grow our sales revenues by expanding our product line, while maintaining an efficient cost structure. However, there can be no assurance that we will achieve or maintain continuing profitability, or that revenue growth will continue in the future.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash. As of September 30, 2013, we had cash and cash equivalents of $1,111,456, substantially almost all of which is located in financial institutions in China. The following table provides detailed information about our net cash flow for financial statement periods presented in this report:

Summary of Cash Flow Statements (USD)

	For the nine months ended
	September 30

	2013 Unaudited		2012 Audited
Net cash used in operating activities	$	(1,643,806)	$	(2,934,560)
Net cash used in investing activities		(519,964)		-
Net cash provided by financing activities		1,952,162		3,865,628
Net increase (decrease) in cash and cash equivalent	$	(211,608)	$	931,068

Effect of foreign currency translation on cash and cash equivalents		27,915		(1,719)

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Cash flows used in operating activities were US $1,643,806 during the nine months period ended on September 30, 2013, compared to US$ 2,934,560 of net cash used in the operating activities during the nine months period ended September 30, 2012.

This was due to a decrease of US $2,241,222 in net loss of US $113,719 for the nine months period ended September 30, 2013 from a net income of US $2,127,503 for the nine months period ended September 30, 2012. Net expenditures for inventory were US $165,541 for the nine months period ended September 30, 2013 compared to US $687,228 for the nine months period ended September 30, 2012. The cash flow provided from accounts receivables was US$ 205,564 for the nine months period ended September 30, 2013, compared to US $745,650 of net cash used in accounts receivable for the nine months period ended September 30, 2012. The cash flow used in other receivables and advance to suppliers was US$ 8,928,508 for the nine months period ended September 30, 2013, compared to US $1,372,825 of net cash used in other receivables and advance to suppliers for the nine months period ended September 30, 2012. The cash flow provided from accounts payable and accrued liabilities was US$ 15,135 for the nine months period ended September 30, 2013, compared to US $2,553,960 of net cash provided from accounts payable and accrued liabilities for the nine months period ended September 30, 2012.

Cash flows used in investing activities was US $519,964 for the nine months period ended September 30, 2013, compared to $0 for the nine months period ended September 30, 2012.

Cash flows provided from financing activities was US $1,952,162 for the nine months period ended September 30, 2013, compared to US $3,865,628 of net cash provided from the financing activities for the nine months period ended September 30, 2012.

In July, 2013, the Company subsidiary corporation, Suining Shi Yinfa Bai Zhi Chan Ye You Xian Gong Si (“Yinfa”), entered into a short-term loan agreement with Shanghai Pudong Development Bank. The Bank Loan provides the amount of for 12,000,000 RMB, ($1,948,432USD) for a term from July 2, 2013 to July 3, 2014 at a fixed annual interest rate of 6.90 %, with interest is payable monthly. As part of this transaction, the Company entered into a bank loan security agreement (“Bank Collateral Agreement”) which provide for the collateralization of its office building located at ground floor, the 2nd floor and the 3 rd floor of the Estate Management Building of Yinhejiayuan (address: No. 188 Xishan Road, Suining. A second short-term loan under the same collateral agreements was executed in August of 2013 10,000,000 RMB, ($1,623,693USD) bearing 6.90% interest with a term from August 15, 2013 to August 14, 2014. A third short-term loan was executed in July of 2013 7,960,000 RMB, ($1,292,549 USD) bearing 6.90% interest with a term from July 3, 2013 to July 4, 2013.

In September, 2013, the Company subsidiary corporation, Suining Shi Yinfa Bai Zhi Chan Ye You Xian Gong Si (“Yinfa”), entered into a short-term loan agreement with SuiNing City Commercial Bank. The Bank Loan provides the amount of for 10,000,000 RMB ($ 1,623,693 USD) for a term from September 29, 2013 to September 30, 2014 at a fixed annual interest rate of 9.00% with interest is payable monthly.

In October, 2012, the Company subsidiary corporation, Suining Shi Yinfa Bai Zhi Chan Ye You Xian Gong Si (“Yinfa”), entered into an unsecured short-term loan agreement with unrelated party Wang Li (Wang Li Loan). Wang Li Loan provides the amount of for 2,000,000 RMB, ($317,405 USD) for a term from October 1, 2012 to September 30, 2013 at fixed annual interest rate of 24%, with interest is payable monthly. A second unsecured short term loan agreement was executed in July of 2013 500,000RMB, (81,185 USD) bearing 24% interest with a term from July 3, 2013 to July 4, 2014 at a fixed annual interest rate of 24% with interest is payable monthly. A third unsecured short term loan agreement was executed in September of 2013 1,500,000 RMB, (243,554 USD) bearing 24% interest with a term from September 10, 2013 to September 11, 2014 at a fixed annual interest rate of 24% with interest is payable monthly.

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Overall, we have funded our cash needs from inception through September 30, 2013 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.

We had cash of US $1,111,456 on hand for the nine months period ended September 30, 2013, a decrease of US $183,693 from the beginning of the year of 2013.

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

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

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

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required pursuant to Item 305(e) of Regulation S-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer (who is also our Chief Executive Officer) and principal financial officer (who is also our Chief Financial Officer), we conducted an evaluation of the effectiveness, as of September 30,2013, of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are not effective due to the material weakness and significant deficiency in internal controls over financial reporting described below.

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Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The material weakness and significant deficiency identified by our management as of September 30,2013 relates to the ability of the Company to record transactions and provide disclosures in accordance with U.S. GAAP. We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of U.S. GAAP commensurate with our financial reporting requirements. For example, our staff members do not hold licenses such as Certified Public Accountant in the U.S., have not attended U.S. institutions for training as accountants, and have not attended extended educational programs that would provide sufficient relevant education relating to U.S. GAAP. Our staff needs substantial training to meet the demands of a U.S. public company and our staff’s understanding of the requirements of U.S. GAAP-based reporting is inadequate.

Remediation Initiative

We previously began to provide U.S. GAAP training sessions to our accounting team and intend to increase the amount of training that each member of our accounting team receives. The training sessions will be organized to help our corporate accounting team gain experience in U.S. GAAP reporting and to enhance their awareness of new and emerging pronouncements with potential impact over our financial reporting.

Inherent Limitations Over Internal Controls

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Management, including our principal executive officer and principal financial officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are aware that any system of controls, however well designed and operated, can only provide reasonable, and not absolute, assurance that the objectives of the system are met, and that maintenance of disclosure controls and procedures is an ongoing process that may change over time.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not required.

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

On June 19, 2013, the Board of Directors approved a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited investor (the “Investor”) pursuant to which we issued the Investor an aggregate of 50,000,000 shares (the “Investor Shares”) of our common stock, par value $0.001 per share (“Common Stock”) in exchange for aggregate consideration of $350,000 (the “Private Placement”). The Company entered the Securities Purchase Agreement with the Investor on June 19, 2013.

The Securities Purchase Agreement allows for the sale of up to $350,000 of shares of Common Stock in one closing until July 19, 2013. The Securities Purchase Agreement contains representations, warranties and covenants of the Investors and us that are typical for transactions of this type.

The Investor Shares issued to the Investors were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act, provided by Section 4(2) and Regulation D (Rule 506) and Regulation S under the Securities Act. Each Investor was an accredited investor (as defined by Rule 501 under the Securities Act) and a non-U.S. person, as defined in Rule 902(k) of Regulation S at the time of such Investor’s respective Private Placement. In addition, the Company’s shares will be issued without registration under Section 5 of the Securities Act in reliance on the exemption from registration contained in Section 4(2) of the Securities Act. Specifically, (1) the Company had determined that the Investor was knowledgeable and experienced in finance and business matters and thus they are able to evaluate the risks and merits of acquiring the Investor Shares; (2) the Investor had advised the Company that the Investor was able to bear the economic risk of purchasing the Company’s common stock; (3) the Company had provided the Investor with access to the type of information normally provided in a prospectus; and (4) the Company did not use any form of public solicitation or general advertising in connection with the issuance of the shares.

On August 7, 2013, the Company filed with the Securities and Exchange Commission an exemption from registration offering on Form D. As of December 19, 2013, the Company has sold 50,000,000 shares of our common stock to the private investor at a fixed price of $0.007 per share for total proceeds of $350,000 under the above securities purchase agreement.

The foregoing summaries of the Securities Purchase Agreement are not complete, and are qualified in their entirety by reference to the full text of the agreements that were attached as exhibits to the Current Report on Form 8-K filed on June 25, 2013 and Form D filed on August 7, 2013. Readers should review those agreements for a more complete understanding of the terms and conditions associated with this transaction.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

Exhibit Number		Description of Exhibit

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

101		Interactive Data Files (XBRL).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	China Health Resource, Inc.

December 30, 2013	By: /s/ Jiayin Wang
	Name: Jiayin Wang
	Title: Chief Executive Officer and Director

	China Health Resource, Inc.

December 30, 2013	By: /s/ Weihai Liu
	Name: Weihai Liu
	Title: Chief Financial Officer

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CHINA HEALTH RESOURCE, INC. - FORM 10-Q - December 30, 2013

Attached files

CHINA HEALTH RESOURCE, INC. Reports