China Health Resource 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended March 31, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT

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 [  ]

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o                                                                          Accelerated filer o

Non-accelerated filer o                                                                            Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares outstanding of each of the issuer’s classes of

common equity, as of May 15, 2009:

154,894,509shares 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.

  TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	1
Consolidated Balance Sheets	2
Consolidated Statements of Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statement of Equity (Deficit)	5
Notes to Consolidated Financial Statements	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS	8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
ITEM 4T. CONTROLS AND PROCEDURES	13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	14
ITEM 1A. RISK FACTORS AFFECTING FUTURE RESULTS	14
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	14
ITEM 5. OTHER INFORMATION	14
ITEM 6. EXHIBITS	14
SIGNATURES	15
INDEX TO EXHIBITS	16

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	1
Index to Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statement of Equity (Deficit)	5
Notes to Consolidated Financial Statements	6

1

China Health Resource, Inc. and Subsidiary

Unaudited Consolidated Balance Sheets

As of March 31, 2009 (unaudited) and December 31, 2008 (audited)

	March 31, 2009			December 31, 2008
ASSETS	(Unaudited)			(Audited)
CURRENT ASSETS
Cash and cash equivalents	$	9,713			101,497
Accounts receivable		699,634			441,047
Note receivable		364,817			378,054
Employee advances		740			3,016
Advances to suppliers		162,127			162,158
Bad debt provision		4,266			-
Prepaid expenses		38,597			59,649
Inventory		140,760			264,177
TOTAL CURRENT ASSETS		1,420,654			1,409,598
FIXED ASSETS
Property, plant, and equipment		6,912,018			6,912,234
Accumulated depreciation		(164,851	)		(154,759	)
TOTAL NET FIXED ASSETS		6,747,066			6,757,475
TOTAL ASSETS	$	8,167,721		$	8,167,073
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	251,415		$	238,275
Other payables		86,838			87,678
Notes payable – convertible debt		1,000,000			3,500,000
Due to shareholder		83,258			83,258
Taxes payable		221,554			241,493
Notes payable – current portion		426,546			412,773
TOTAL CURRENT LIABILITIES		2,069,612			4,563,476
LONG-TERM LIABILITIES
Notes payable – convertible debt		2,210,994			2,210,994
TOTAL LONG-TERM LIABILITIES		2,210,994			2,210,994
TOTAL LIABILITIES	$	4,280,606		$	6,774,470
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock (50,000,000 shares authorized, 0 issued and outstanding, par value $0.01)	$	-			-
Common stock (500,000,000 shares authorized, 154,835,717 issued and outstanding, par value $0.001)	$	154,836			1,422,888
Additional paid in capital	$	3,642,661			(134,767	)
Accumulated other comprehensive income	$	149,203			149,523
Retained earnings (deficit)	$	(59,584	)		(45,042	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		3,887,115			1,392,603
TOTAL LIABILITIES AND EQUITY	$	8,167,721			8,167,073

The accompanying notes are an integral part of these financial statements.

2

China Health Resource, Inc. and Subsidiary

Unaudited Consolidated Statements of Income

For the Three Months Ended March 31, 2009 and 2008

	For the Three Months Ended
	March 31, 2009			March 31, 2008
REVENUES
Sales	$	490,547		$	-
Cost of sales	$	(364,281	)	$	-
GROSS PROFIT	$	126,267		$	-
OPERATING EXPENSES
Selling, general, and administrative	$	98,464		$	68,445
Interest expense	$	27,423		$	12,433
Distribution costs	$	-		$	-
TOTAL OPERATING EXPENSES	$	125,887			80,878
OPERATING INCOME (LOSS)	$	379			(80,878	)
OTHER INCOME (EXPENSES)
Non-operating expenses	$	-		$	-
Government grants	$	-		$	14,396
Other	$	2,005		$	-
TOTAL OTHER INCOME (EXPENSE)	$	2,005		$	14,396
NET INCOME (LOSS) BEFORE TAXES	$	2,385		$	(66,482	)
INCOME TAX EXPENSE	$	(16,927	)	$	-
NET INCOME (LOSS)	$	(14,542	)	$	(66,482	)
INCOME FROM DISCONTINUED OPERATIONS	$	-		$	-
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation (loss) gain	$	(320	)		43,289
COMPREHENSIVE INCOME (LOSS)	$	(14,862	)		(23,193	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		142,428,252			99,288,842
Fully diluted		142,984,502			109,631,435
NET LOSS PER COMMON SHARE
Basic		**			**
Fully diluted		**			**
**Less than $.01

The accompanying notes are an integral part of these financial statements.

3

China Health Resource, Inc. and Subsidiary

Unaudited Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2009 and 2008

	For the Three Months Ended
	March 31, 2009			March 31, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income after income tax	$	(14,542	)		(66,482	)
Adjustments to reconcile net income to net cash used in operating activities:		-			-
Depreciation	$	10,193			5,534
Amortization of prepaid expenses	$	-			32,624
Accounts receivable	$	(262,853	)		(18,734	)
Employee advances	$	2,276			(176	)
Other receivable	$	31			-
Prepaid expenses	$	21,051			-
Inventory	$	123,417			(2,500	)
Notes receivable	$	13,238			-
Accounts payable and accrued liabilities	$	36,504			204,165
Other payable	$	(839	)		-
Tax payable	$	(19,939	)		(51,635	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(91,464	)		102,776
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of note receivable	$	-			(25,569	)
Disposal of property, plant, and equipment	$	-			(19,947	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	$	-			(45,516	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term-note payable	$	-			(114,540	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	$	-			(114,540	)
FOREIGN CURRENCY TRANSLATION	$	(320	)		43,289
NET INCREASE (DECREASE) IN CASH AND	$	(91,784	)		(13,991	)
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period	$	101,497			36,127
End of period	$	9,713			22,136
SUPPLEMENTAL CASH FLOW INFORMATION:
Common stock issued for settlement of convertible debt	$	2,500,000			-
Common stock issued for services	$	-			-

The accompanying notes are an integral part of these financial statements.

4

China Health Resource, Inc. and Subsidiary

Consolidated Statement of Equity (Deficit)

For the period ended March 31, 2009

	Common																	Accumulated
	Stock											Additional			Retained			Other
	Class A		par value			Class B			par value			Paid-in			Earnings			Comprehensive
	Shares		0.01			Shares			0.01			Capital			(Deficit)			Income			Total
Balances, December 31, 2006		63,603,604		636,036			2,000		$	20		$	(221,578	)	$	(75,894	)	$	15,292		$	353,875
Issuance for services rendered		13,000,000		130,000									569,554									699,554
Issuance for services rendered		2,000,000		20,000									31,225									51,225
Issuance of stock due to conversion		20,685,238		206,852			(2,000	)	$	(20	)		(206,832	)		-			-			-
Issuance for services		-		-			2,000			20			2,023,101			-			-			2,023,121
Net Income(Loss) for the period																(226,048	)		-			(226,048	)
Other comprehensive income																-			60,825			60,825
Balances, December 31, 2007		99,288,842	$	992,888		$	2,000		$	20		$	2,195,470		$	(301,942	)	$	76,117		$	2,962,553
Issuance for lease of property		43,000,000		430,000									(365,000	)								65,000
Cancellation of Class B common stock							(2,000	)	$	(20	)		(1,965,236	)								(1,965,256	)
Net Income(Loss) for the period															$	256,900						256,900
Other comprehensive income																		$	73,406			73,406
Balances, December 31, 2008		142,288,842		1,422,888			-			-		$	(134,767	)	$	(45,042	)	$	149,523		$	1,392,603
Conversion of Long-term Debt		12,546,875		125,469									2,383,906									2,509,375
Par value changes from $0.01 to $0.001				(1,393,521	)								1,393,521									-
Net Income(Loss) for the period																(14,542	)					(14,542	)
Other comprehensive income																			(320	)		(320	)
Balance, March 31, 2009		154,835,717	$	154,836			-			-		$	3,642,661		$	(59,584	)	$	149,203		$	3,887,115

5

CHINA HEALTH RESOURCE, INC. AND SUBSIDIARY

NOTES TO AUDITED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2009 and 2008

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim financial statements have been prepared in accordance with Form 10-Q instructions and, in the opinion of management, include all normal adjustments considered necessary to present fairly the financial position as of  March 31, 2009 and the results of operations for the three months ended March 31, 2009 and 2008.  The results have been determined on the basis of generally accepted accounting principles and practices and applied consistently with those used in the preparation of the Company's financial statements and notes for the year ended December 31, 2008, as filed on Form 10-K.

Certain information and footnote disclosures normally included in the financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that the accompanying unaudited interim financial statements be read in conjunction with the financial statements and notes thereto contained in the Company's 2008 Annual Report on Form 10-K. Our results for the three months ended March 31, 2009 may not be indicative of our results for the twelve months ended December 31, 2009.

Recently Issued Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (the “FASB”) issued FSP 107-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”), which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  FSP 107-1 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The Company is currently evaluating the potential impact of FSP 107-1 on its consolidated financial statement presentation and disclosures.

Management does not believe that any other recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

Earnings Per Share Proposed Accounting Standard

The FASB previously issued an exposure draft, revised in August 2008, on a proposed accounting standard that would amend SFAS No. 128, “Earnings per Share” (“SFAS 128”), to clarify guidance for mandatorily convertible instruments. The revised exposure draft states that a mandatorily convertible instrument should be included in basic EPS only if the holder has the present right or is deemed to have the present right to share current-period earnings with common shareholders.

Management believe that the mandatorily convertible debt issued in 2008 does not have any present right to share current-period earnings with common shareholders. Therefore, the Company’s mandatorily convertible debt is included in diluted EPS calculation instead of basic EPS calculation.  Management is continuing to monitor the FASB’s progress towards finalizing this proposed accounting standard.

NOTE B - SUPPLEMENTAL CASH FLOW INFORMATION

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

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

	2009		2008
Income Taxes	$	-0-		-0-
Interest	$	-0-		-0-

6

NOTE C - GOING CONCERN

As shown in the accompanying audited financial statements, the Company has a deficit book value and a negative cash flow from operations that have placed substantial doubt as to whether the Company can continue as a going concern. The ability of the Company to continue as a going concern is dependent on developing operations, increasing revenues, and obtaining new capital. Management has enacted a plan to raise capital and increase sales.

NOTE D –EQUITY TRANSACTION

On March 30, 2009, the Company issued 12,546,875 shares of Class A Common stock (pre-amendment) as payment on a convertible note payable of $2,500,000 and $9,375 of interest.  The total value of the shares converted was $2,509,375. The fair value of this stock issuance was determined using the fair value of the Company’s common stock in accordance with the specific terms of the applicable agreement.

On April 15, 2009, an Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware. Pursuant to this amendment the total number of shares of capital stock of all classes that the Company shall have the authority to issue is (i) 500,000,000 shares of common stock, $0.001 par value per share and (ii) 50,000,000 shares of undesignated preferred stock, $0.01 par value per share.

7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included in Item 1 of this report and is qualified in its entirety by the foregoing.

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”).

General

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

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

Our Business

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

8

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

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

In December 2008, we entered into a contract for the acquisition of land rights for approximately 3,262 acres located in Heiwengtang Valley, Xianping Forestry, Pingwu County, Mianyang City, Sichuan Province, People’s Republic of China (the “Property”). We intend to use the Property for commercial uses in order to expand our business. The lease period commenced December 30, 2008 and will expire on December 30, 2038. The fixed rent for the full lease period is US$5,775,994, of which US$5,710,994 is subject to a Convertible Promissory Note. The remaining balance was paid through the issuance of 43,000,000 shares of our Class A Common Stock to the trustee on December 30, 2008 in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance upon Regulation S thereunder.

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

Seasonality

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

9

Critical Accounting Policies

Revenue recognition

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

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

Inventory

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

Property, Plant, and Equipment

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

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

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

Building: Straight-line for 20 years with a 5% salvage value

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

10

Results of Operations for the Three Months Ended March 31, 2009 and 2008

Balance Sheet

Our total assets at March 31, 2009 were US $8,167,721 compared to US $8,167,073 at December 31, 2008. Our total liabilities were US $4,280,606 at March 31, 2009 compared to US $6,774,470 at December 31, 2008, principally due to a decrease in our current liabilities for our convertible note payable. As a result, net assets for the period under review have increased slightly from US $2,939,539 at March 31, 2008 to US $3,887,115 at March 31, 2009.

Balance Sheet	March 31, 2009		March 31, 2008
Total Assets		8,167,721		3,956,284
Total Liabilities		4,280,606		1,016,925
Net Assets		3,887,115		2,939,359

Results of Operations

Profit/Loss	For the Three Months ended
	March 31, 2009			March 31, 2008
Operating Income (Loss)		379			(80,878	)
Net Income (Loss) Before Tax		2,385			(66,482	)
Corp. Income Tax		(16,927	)		-0-
Net Income (Loss)		(14,542	)		(66,482	)

Revenues

Our revenues for the three months ended March 31, 2009 were US $490,547, a significant increase compared to revenues of US $0for the three months ended March 31, 2008. Unlike the first quarter of 2008, during the first quarter of 2009 we began selling our DAR-related products, such as the Yisheng Capsule, which accounts for this increase.

Cost of Sales; Gross Profit

Cost of sales includes expenses directly related to manufacturing and selling our products, including costs of raw materials purchased from farmers, product delivery and direct labor costs. Our cost of sales for the three months ended March 31, 2009 was US $364,281, or approximately 74% of revenues. No revenues were earned during the three months ended March 31, 2008 and consequently the cost of sales for such period was US $0. As discussed above, unlike during the first quarter of 2008, we received revenues from sales in the first quarter of 2009, thus increasing cost of sales accordingly.

Gross profit for the three months ended March 31, 2009 was US $126,267. No profit was earned from operations for the three months ended March 31, 2008.

Operating Expenses

Operating expenses for the three months ended March 31, 2009 increased by approximately 56% to US $125,887 from US $80,878for the three months ended March 31, 2008. The largest component of operating expenses is attributable to selling, general and administrative (“SG&A”) expense consisting primarily of administrative expenses, which totaled US $48,633. SG&A increased to US $98,464 for the three months ended March 31, 2009 compared to US $68,445for the three months ended March 31, 2008. The increase is primarily due to the increased expenses relating to the research, development and sales of our DAR-related products, specifically the Yisheng Capsule. Additionally, interest expense for the three months ended March 31, 2009 increased to US $27,423 from $12,433 for the three months ended March 31, 2008.

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Other Income/Expense

We received $2,005 in other income during the three months ended March 31, 2009. This income was derived from our rent income and related tax abatement of $1,559.26 and the income from our processing of DAR of $778.93. This amount was offset by a deferred tax penalty of $332.81. During the three months ended March 31, 2008, we received $14,396 in other income, however this income was derived from one-time government grants.

Impact of Inflation

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

Taxes

According to the Corporate Income Tax Law of China, companies without any tax abatement programs are charged at a 25% income tax rate. For the three months ended March 31, 2009, we accrued income taxes of US $16,927. This tax expense arises due to operating income earned by our subsidiary Yinfa. Due to operating losses, we accrued no income tax during the three months ended March 31, 2008.

Net Income

We had a net loss for the three months ended March 31, 2009 of US $14,542, compared to a net loss for the three months ended March 31, 2008 of US $66,482. We had a comprehensive loss for the three months ended March 31, 2009 of US $14,862, a 56% improvement from a comprehensive loss of US $23,193 for the three months ended March 31, 2008. The improvement in our operating results for the three months ended March 31, 2009 is attributable principally to earning revenues during the first quarter of 2009 and offset primarily increases in operating expenses and a foreign currency translation loss of US $320 during the three months ended March 31, 2009, compared to a foreign currency translation gain of US $43,289 during the three months ended March 31, 2008.

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

Liquidity and Capital Resources

Cash flows used in operating activities were US $91,464during the three months ended March 31, 2009, compared to cash flows provided by operating activities of US $102,776 during the three months ended March 31, 2008. The decline in cash flows during the three months ended March 31, 2009 was primarily due to a significant increase in accounts receivable and a significant decrease in accounts payable.

There were no cash flows provided by or used in investing activities during the three months ended March 31, 2009, nor was any cash provided by or used in financing activities during the period under review. During the three months ended March 31, 2008, US $45,516 was used in investing activities through the issuance of a note receivable and the disposal of property, plant and equipment and US $114,540 was used in financing activities, through the payment on a short-term note payable.

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

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We have cash of US $9,713 on hand as of March 31, 2009, a decrease of US $91,784from the beginning of the year and attributable in substantial part to a significant increase in accounts receivable and an unfavorable foreign currency translation. Currently, we have enough cash to fund our operations for about two (2) months. This is based on current cash flows from financing activities and projected revenues. If the projected revenues fall short of needed capital we may not be able to sustain our capital needs. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately US $100,000 to sustain operations through the year 2009 and each year thereafter.

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

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

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

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and our Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

During the first quarter of 2009, our Certifying Officers evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.

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

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

ITEM 2. UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(1)   Exhibits: Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits following the signature page of this Form 10-Q, which is incorporated herein by reference.

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SIGNATURES

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.
Dated: May 15, 2009	By:	/s/ Chen, Jiang
		Chen, Jiang
		Chief Executive Officer and Director
		(Principal Executive Officer)

Dated: May 15, 2009	By:	/s/ Zhou, Yi
		Zhou, Yi
		Chief Financial Officer and Director
		(Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation(1)
31.1	Certification of Chief Executive Officer
31.2	Certification of Chief Financial Officer
32.1	Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2	Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to the Company’s Definitive Information Statement on Schedule 14C filed with the SEC on March 12, 2009.

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