UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934: |
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For the Quarterly Period ended: March 31, 2010 |
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT |
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| For the transition period from __________________ to __________________ |
Commission File Number: 000-50029
CHINA HEALTH RESOURCE, INC.
(Name of Small Business Issuer in its Charter)
| Delaware | 73-1629948 |
| (State or Other Jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
343 Sui Zhou Zhong Road
Suining, Sichuan Province, P.R. China
(Address of Principal Executive Offices)
+(86-825) 239-1788
(Issuer’s Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer o | Accelerated filer o |
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Non-accelerated filer o | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares outstanding of each of the issuer’s classes of common equity, as of March 31, 2010: 142,288,894 shares of Common Stock of par value US $0.001
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer’s actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “the Company believes,” “management believes” and similar language, including those set forth in the discussions under “Notes to Financial Statements” and “Management’s Discussion and Analysis or Plan of Operation” as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the “safe harbor” created by the Private Securities Litigation Reform Act of 1995.
EXPLANATORY NOTE
We are filing this Amendment No. 1 on Form 10-Q/A (the “Amendment”) to the Quarterly Report on Form 10-Q of China Health Resource, Inc. (the “Company”) for the fiscal quarter ended March 31, 2010 previously filed with the Securities and Exchange Commission (the “SEC”) on May 24, 2010 (the “First Quarter 2010 Form 10-Q”) to effect the following amendment:
| (a) | Part I, Item 4T - Controls and Procedures. The disclosure in this Item has been amended in light of the material weakness in internal control over financial reporting identified in connection with the restatement ("Restatement") of the registrant’s financial statements contained in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2009 (the "Third Quarter 2009 Form 10-Q"), as described below. |
Except as described above, this Amendment does not revise, update, or in any way affect any information or disclosure contained in the First Quarter 2010 Form 10-Q and we have not updated the disclosures contained herein to reflect events that occurred at a later date. Accordingly, this Amendment should be read in conjunction with our SEC filings made subsequent to the First Quarter 2010 Form 10-Q.
Background of the Restatement of the Company's Financial Statements
Effective July 30, 2009, the Company and Mr. Lei Guo, as Trustee for the Sichuan Yinfa Resource Co., Ltd. (“Trustee”), terminated the following agreements: (1) Contract of Lease of Property entered into between CHRI and Trustee, dated December 19, 2008 (the “Property Lease”), with respect to the 3,262 acres of leased forest area property, license number B5103185981, located in Heiwengtang Valley, Xianping Forestry, Pingwu County, Mianyang City, Sichuan Province, the People’s Republic of China; and (2) the Amended and Restated Convertible Promissory Note (the “Note”), issued on January 21, 2009 and effective as of December 31, 2008, as rent for the Lease Property. In connection with the termination of the Lease Property and Note, the 12,605,615 shares of the Company's Class A common stock ("Class A Common Stock"), issued to the Trustee on March 30, 2009, were withdrawn and cancelled and the Trustee was allowed to retain the 43,000,000 shares of Class A Common Stock issued to the Trustee on December 30, 2008.
The Company disclosed these matters in a Current Report on Form 8-K filed August 11, 2009.
During the preparation of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the "2009 Form 10-K"), we discovered that the Third Quarter 2009 Form 10-Q erroneously reported 43,000,000 shares of Class A Common Stock had been withdrawn and cancelled. The financial statements contained in the Third Quarter 2009 Form 10-Q should have recorded that, as of September 30, 2009, the Company had 142,288,894 shares of Class A Common Stock outstanding.
The Company's audited financial statements contained in the 2009 10-K correctly reflect the withdrawn and cancelled shares of Class A Common Stock.
During the preparation of the Restatement, we identified the following additional errors (the "Additional Errors") in the Third Quarter 2009 Form 10-Q regarding the description of the Company's capital stock:
| · | The report erroneously stated the par value of the Company's Class A Common Stock to be $0.01 per share. Effective April 15, 2009, the Company amended and restated its Certificate of Incorporation to decrease the Class A Common Stock’s par value to $0.001 per share. |
| · | The report erroneously stated that there were 8,344 shares of Class B common stock ("Class B Common Stock") authorized as of September 30, 2009. Effective April 15, 2009, the Company amended and restated its Certificate of Incorporation to eliminate the Class B Common Stock. |
| · | The report failed to state that the Company is authorized to issue 50,000,000 shares of undesignated preferred stock ("Preferred Stock"). Effective April 15, 2009, the Company amended and restated its Certificate of Incorporation to authorize the issuance of 50,000,000 shares of Preferred Stock. |
We also discovered that the Additional Errors appeared in the audited financial statements contained in the 2009 10-K filed on April 15, 2010.
The Additional Errors are not significant, individually or in the aggregate.
The unaudited financial statements contained in the First Quarter 2010 Form 10-Q correctly describe the Company's capital stock; however, we are filing this Amendment due to the Company's determination that its disclosure controls and procedures were not effective as of March 31, 2010.
Determinations of the Board of Directors
We announced on April 15, 2010 that the Board of Directors had determined that we would restate our financial statements for the fiscal quarter ended September 30, 2009 as a result of errors in those financial statements. The Restatement results from our Board of Director’s determination subsequent to the issuance of our financial statements for the quarter ended September 30, 2009 that there were errors in the recording of the number of shares of Class A Common Stock issued and outstanding and, therefore, our unaudited consolidated financial statements required restatement. Our Board of Directors and senior management, assisted by outside consultants and Lake & Associates, CPA, the Company’s independent registered public accounting firm, commenced, and have now completed, a review of the facts and circumstances that gave rise to the erroneous recording of the withdrawal and cancellation of 43,000,000 Class A Common Shares and the Additional Errors appearing in the financial statements as described above.
As a result of the review and as described in Part I, Item 4T, Controls and Procedures, in this report, the Company identified a material weakness in our internal control over financial reporting due to a shortage of experienced accounting staff, and the lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by the Chief Financial Officer with no oversight by other members of management with appropriate accounting experience. Our President does possess accounting expertise, but the Board of Directors does not have an audit committee. This material weakness was due to the Company's lack of working capital to hire additional staff. The Company also concluded that its disclosure controls and procedures were not effective as of March 31, 2010. As of the date of this report, we have remediated the material weakness in our internal control over financial reporting and deficiencies in our disclosure controls and procedures.
Concurrently with the filing of this report, we are also amending the following previously-filed reports:
2009 Form 10-K
Part II: Item 9A(T): Controls and Procedures
Part IV: Item 15: Exhibits and Financial Statement Schedules
Third Quarter 2009 Form 10-Q - Part I:
Item 1: Financial Statements (Unaudited)
Item 4T: Controls and Procedures
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures (As Revised)
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the Restatement described in the Explanatory Note, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of our disclosure controls and procedures and determined that there was a material weakness in our internal control over financial reporting as of December 31, 2009 as more fully described in “Management’s Report on Internal Control over Financial Reporting (As Revised)” in Amendment No. 1 to our Annual Report on 10-K on Form 10-K/A filed concurrently with this report. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Based on the re-evaluation and because of the material weakness in internal control, our Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2010.
As of the date of the filing of this report, we have remedied this deficiency in our disclosure controls and procedures by implementing additional controls and procedures, as described below.
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 report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the second quarter of 2010, certain remedial efforts to address the material weakness in our internal control and deficiency in our disclosure controls and procedures have been undertaken, or will be undertaken, as described below.
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. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
Remediation
Subsequent to April 15, 2010 through the filing date of this report, we have undertaken or will undertake the following remedial efforts to address the material weakness in our internal control over financial reporting and deficiencies in our disclosure controls and procedures:
| · | We have hired an accountant experienced with generally accepted accounting principles in the United States of America and related reporting requirements to assist the Chief Financial Officer with the preparation of the Company's financial statements. |
| · | We intend to raise additional capital to hire additional accountant staff where needed to assist with financial reporting as soon as our finances will allow. |
| · | We have implemented a revised review process by using the internal control worksheet we developed to insure that disclosure of all required information is included in future company regulatory filings. |
| · | We have provided guidance and additional training to the Chief Financial Officer regarding the appropriate accounting treatment for complex transactions of the type involved in the Restatement and the proper recording of changes in the Company's capital stock. |
| · | We have hired additional, outside consultants and accounting professionals to assist management with the preparation of financial statements to be included in reports required under U.S. securities law. |
| · | The Company's outside consultants and Lake & Associates, CPA’s LLC, the Company’s independent registered public accounting firm, have reviewed applicable reporting obligations required under U.S. securities law with the Chief Financial Officer and other members of senior management and have developed an internal control worksheet designed to ensure that required disclosures are made on a timely basis. |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | CHINA HEALTH RESOURCE, INC. |
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| Dated: July 15, 2010 | By: /s/ Chen, Jiang |
| | Chen, Jiang |
| | Chief Executive Officer and Director |
| | (Principal Executive Officer) |
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| Dated: July 15, 2010 | By: /s/ Zhou, Yi |
| | Zhou, Yi |
| | Chief Financial Officer and Director (Principal Financial Officer) |
Exhibit No. | Description | Incorporated Herein by Reference to | Filed Herewith |
| 31.1 | | | X |
| 31.2 | | | X |
| 32.1 | | | X |
