China Ginseng (CSNG) 10-Q 2011 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 EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

¨ TRANSITION REPORT UNDERSECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _____________________ to ______________

China Ginseng Holdings, Inc.

(Exact name of registrant as specified in its charter)

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

64 Jie Fang Da Road Ji Yu Building A, Suite 1208 Changchun City, China	130022
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone (01186) 43185790039

SEC File Number:  000-54072

N/A

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

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

Yes x  No ¨

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	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 ¨ No x

As of November 20, 2010 there were 40,661,047 shares issued and outstanding of the registrant’s common stock.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION	3
Item 2.   Management’s Discussion and Analysis or Plan of Operation.	22
Item 3.   Quantitative and Qualitative Disclosure about Market Risk	29
Item 4.   Controls and Procedures.	29
PART II — OTHER INFORMATION	30
Item 1.   Legal Proceedings.	30
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.	30
Item 3.   Defaults Upon Senior Securities	31
Item 4.   (Removed and Reserved).	31
Item 5.   Other Information.	31
Item 6.   Exhibits.	31

2

PART I — FINANCIAL INFORMATION

ITEM 1

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			June 30,
	2010			2010
	(Unaudited)			Audited
CURRENT ASSETS
Cash	$	190,311		$	171,111
Accounts receivable - net		71,426			45,245
Inventory		1,185,975			1,119,542
Ginseng crops, current portion		49,515			308,764
Due from related parties		38,170			23,475
Prepaid expenses		117,057			30,503
Total Current Assets		1,652,454			1,698,640
PROPERTY AND EQUIPMENT, net		2,611,330			2,563,317
OTHER ASSETS
Ginseng crops, non-current portion		3,850,355			3,527,967
Intangible assets-patents, net		9,326			9,225
Receivable from farmers		170,166			157,665
Deferred income tax asset		131,568			130,189
Total Assets	$	8,425,199		$	8,087,003
CURRENT LIABILITIES
Loan payable to financial institution	$	298,458		$	294,512
Note payable – building purchase		1,268,448			1,251,675
Notes payable – related parties		766,237			755,311
Accounts payable		795,892			887,945
Accrued expenses		351,146			350,652
Taxes payable		208,334			205,758
Payments received in advance		212,877			20,786
Total Current Liabilities		3,901,392			3,766,639
LONG-TERM PAYABLE – Farmers		453,775			420,440
Total Liabilities		4,355,167			4,187,079
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 50,000,000
shares authorized; 38,306,047 and 36,776,047
shares issued and outstanding at September 30 and June 30,
2010, respectively		38,306			36,777
Additional paid-in capital		5,531,820			5,125,683
Accumulated deficit		(2,036,045	)		(1,727,592	)
Accumulated other comprehensive income		535,951			465,056
Total Stockholders’ Equity		4,070,032			3,899,924
Total Liabilities and Stockholders’ Equity	$	8,425,199		$	8,087,003

See accompanying notes to consolidated financial statements.

3

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	For the Three Months Ended
	September 30,
	2010			2009
REVENUE	$	53,298		$	31,616
COSTS AND EXPENSES
Cost of goods sold		45,259			14,914
Selling, general and administrative expenses		278,381			(49,528	)
Depreciation and amortization		5,993			6,984
Total Costs and Expenses		329,633			(27,630	)
INCOME (LOSS) FROM OPERATIONS		(276,335	)		59,246
NON OPERATING (EXPENSE)
Interest expense		(32,118	)		(35,247	)
Net Other (Expense)		(32,118	)		(35,247	)
(LOSS) INCOME BEFORE INCOME TAXES	$	(308,453	)	$	23,999
PROVISION FOR INCOME TAXES		-			-
NET (LOSS) INCOME	$	(308,453	)	$	23,999
NET LOSS PER COMMON SHARE
Basic	$	(0.01	)	$	(0.00	)
Diluted	$	(0.01	)	$	(0.00	)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING –
Basic		37,298,087			34,397,297
Diluted		37,298,087			34,397,297

See accompanying notes to consolidated financial statements.

4

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Three Months Ended
	September 30,
	2010			2009
Cash Flows from Operating Activities:
Net income (loss)	$	(308,453	)	$	23,999
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		30,845			29,685
Imputed interest		26,958			30,128
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		(26,181	)		138,689
(Increase) decrease in inventory		(129,572	)		(90,830	)
(Increase) decrease in prepaid expense		(86,554	)
(Increase) decrease in due from related parties		(14,695	)		(9,798	)
(Increase) decrease in receivable from farmers		(12,501	)		(15,605	)
(Increase) decrease in payable to farmers		33,335			36,027
Increase (decrease) in accounts payable		(92,053	)		(652,866	)
Increase (decrease) payments received in advance		192,091
Increase (decrease) in accrued expenses		-			27,711
Net cash provided by (used in) operating activities		(386,780	)		(482,860	)
Cash Flows from Investing Activities:
Purchase of property and equipment		-			(3,186	)
Net cash provided by (used in) investing activities		-			(3,186	)
Cash Flows from Financing Activities:
Proceeds from sale of common stock for cash		380,708			-
Proceeds from loans payable to related parties		-			496,203
Net cash provided by (used in) financing activities		380,708			-
Effect of exchange rate on cash		25,272			(2,962	)
Increase (decrease) in cash		19,200			7,195
Cash at beginning of period		171,111			10,227
Cash at end of period	$	190,311		$	17,422

See accompanying notes to consolidated financial statements.

5

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Three Months Ended
	September 30,
	2010		2009
			(Restated)
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest		-		-
Income taxes		-		-

See accompanying notes to consolidated financial statements.

6

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED JUNE 30, 2010 AND 2009 (Unaudited)

										Accumulated
					Additional					Other		Total
	Common Stock				Paid-in		Accumulated			Comprehensive		Stockholders'
	Shares		Amount		Capital		Deficit			Income		Equity
Balance, June 30, 2009		34,397,297	$	34,398	$	4,420,548	$	(1,078,865	)	$	452,125	$	3,828,206
Issuance of private placement shares for cash at $0.2488 per share		2,378,750		2,379		589,523		-			-		591,902
Imputed interest for related party loans		-		-		115,612		-			-		115,612
Net loss for the year ended June 30, 2010		-		-		-		(648,727	)		-		(648,727	)
Translation adjustment		-		-		-		-			12,931		12,931
Total comprehensive loss		-		-		-		-					(635,796	)
Balance, June 30, 2010		36,776,047		36,777		5,125,683		(1,727,592	)		465,056		3,899,924
Imputed interest for related party loans		-		-		26,958		-			-		26,958
Issuance of private placement shares for cash at $0.2488 per share		1,530,000		1,529		379,179		-			-		380,708
Net loss for the three months ended September 30, 2010		-		-		-		(308,453	)		-		(308,453	)
Translation adjustment		-		-		-		-			70,895		70,895
Total comprehensive loss		-		-		-		-			-		(237,558	)
Balance, September 30, 2010 (Unaudited)		38,306,047	$	38,306	$	5,531,820	$	(2,036,045	)	$	535,951	$	4,070,032

See accompanying notes to consolidated financial statements.

7

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE A – PRESENTATION, NATURE OF BUSINESS AND GOING CONCERN

Basis of Presentation

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included.  Results for the three months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011.  For further information, refer to the financial statements and footnotes thereto included in the China Ginseng Holdings, Inc. on Form 10 for the year ended June 30, 2010 filed November 6, 2010.

Nature of Business

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

On November 24, 2004, the Company acquired 55% of Yanbian Huaxing Ginseng Industry Co. Limited (“Yanbian Huaxing”), which is located in China and, is in the business of farming, processing, distribution, and marketing of Asian Ginseng.  In 2010, the Company increased marketing Ginseng and is presently utilizing the harvest to produce a Ginseng beverage.  On November 24, 2005, the Company acquired the remaining 45% interest in Yanbian Huaxing.

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

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

On October 19, 2005, the Company incorporated a new company, Jilin Huamei Beverage Co. Limited (“Jilin Huamei”).  To date, Jilin Huamei has not had any significant operations.

On March 31, 2008 the Company acquired Tonghua Linyuan Grape Planting Co. Limited (“Tonghua Linyuan”) whose principal activity is the growing, cultivation and harvesting of a grape vineyard. The Company plans to produce wine and grape juice but to date has not commenced production. As of June 30, 2010, Tonghua Linyuan leased 750 acres of land on which the grape vines are planted. The lease expires on December 31, 2014. The Company anticipates that the lease will be renewed.

Going Concern

As indicated in the accompanying financial statements, the Company has accumulated deficits of $2,036,045 and $1,727,592 at June 30, 2010 and 2009, respectively, and there are existing uncertain conditions the Company foresees relating to its ability to obtain working capital and operate successfully.  At September 30, 2010, the Company had a negative working capital of $2,248,938. Management’s plans include the raising of capital through the equity markets to fund future operations and the generating of revenue through its businesses. Failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations.

8

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

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

Going Concern(Continued)

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

Consolidated Financial Statements

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

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Effective July 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10 Generally Accepted Accounting Principles-Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied to nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP for SEC registrants.  All guidance contained in the Codification carries an equal level of authority.  The Codification superseded all existing non-SEC accounting and reporting standards.  All other non-grandfathered, non-SEC accounting literature not included in the codification is non-authoritative.  The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts.  Instead, it will issue Accounting Standards Updates (“ASUs”).  The FASB will not consider ASUs as authoritative in their own right.  ASUs will serve only to update the Codification, provide background information about the guidance and provide the basis for conclusions on the change(s) in the Codification.  References made to FASB guidance throughout this document have been updated for the Codification.

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Foreign Currency Translation

The Company considers the Chinese Yuan Renminbi to be its functional currency.  The Company does not have any material transactions in foreign currencies other than the Chinese Yuan Renminbi. Assets and liabilities were translated into US dollars at period-end exchange rates.  Statement of operations amounts were translated using the average rate during the period.  Gains and losses resulting from translating foreign currency financial statements are included in accumulated other comprehensive income, a separate component of stockholders’ equity.

9

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash Equivalents

For purposes of reporting cash flows, cash equivalents include investment instruments purchased with an original maturity of three months or less.  There were no cash equivalents at June 30, 2010 and 2009.

Inventory

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

Ginseng Crops

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

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

Revenue Recognition

The Company’s primary source of revenue has been from the sale of fresh and dried Ginseng. Currently, the Company is processing the Ginseng and storing the stock for future juice production which it plans to commence in the later part of 2010.  The grape harvest for 2009 has been crushed and the juice produced has been stored in storage tanks.  The Company plans to do the same for 2010. Ginseng is planted in the Spring (March) and Fall (September) of each year and is generally harvested in September.  It usually takes 6 years for a Ginseng root to mature, although, senior maturity can be 8 years.

Harvested Ginseng can be sold in two ways: (1) fresh Ginseng which can be sold immediately and stored in refrigerators for up to 3 years and (2) dried Ginseng which is processed and dried via sunlight and steam machines. Drying is a two month process.  Dried Ginseng can be stored up to 5 years. The Company has focused on selling dried Ginseng as it is more profitable than selling fresh Ginseng. The Company has also been storing fresh Ginseng for future juice manufacturing.

When the Company sells Ginseng, it receives orders prior to harvest.  For major customers, 20% to 30% is paid upon delivery as payment in advance.  The balance is billed after the customer incurs a lengthy inspection process which can take up to 60 days.  Until the customer finalizes its inspection and deems the shipment acceptable, the shipment is still the property of the Company.  Upon customer completion of inspection and approval, the sale is then recorded and the balance of the invoice price is sent to the Company. For smaller sales, the customers pick up the Ginseng from the Company, pay in cash at time of pick up and receive an invoice with appropriate sales tax applied and a cash acknowledgement. On these orders, revenue is recognized upon payment. The Company had one bulk sale of crushed grape juice and recognized the sale when the tanker left the vineyard.

10

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist principally of trade receivables. When Ginseng is shipped to a customer, the customer is entitled to an inspection process which could take up to 60 days.  Upon completion of the inspection and approval process, the customer notifies the company and a sale is recorded. Receivables from sales are based upon contracted prices. The Company provides an allowance for doubtful accounts which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions.  Normal trade receivables are due 60 days after the date of sale.  Trade receivables past due more than 120 days are considered delinquent. Delinquent receivables are written off based upon individual credit evaluation and specific circumstances of the customer. The allowance for doubtful accounts was $8,500 and $9,471 at September 30 and June 30, 2010, respectively.

Property and Equipment

Property and equipment is recorded at cost and is depreciated using the straight line method over the estimated useful lives of the respective assets, as follows:

Biological assets – vineyard	40 years
Buildings and improvements	6 - 40 years
Machinery and equipment	5 - 15 years
Motor vehicles	5 - 10 years
Office equipment	5 - 10 years

Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life of the assets are capitalized.  When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized in operations.

Vineyard Development Costs

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

Amortization of vineyard development costs are included in capitalized crop costs that in turn are included in inventory costs and ultimately become a component of cost of goods sold. For the year ending June 30, 2010 and 2009, approximately $29,961 and $26,626, respectively, was amortized into inventory costs.

11

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Loss Per Common Share

The Company computes per share amounts in accordance with ASC Topic 260 Earnings per Share (EPS) which requires presentation of basic and diluted EPS.  Basic EPS is computed by dividing the income (loss) available to Common Stockholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS is based on the weighted-average number of shares of Common Stock and Common Stock equivalents outstanding during the periods. Diluted EPS is not presented as it would be antidilutive.

Stock Based Compensation

The Company accounts for stock issued for services in accordance with Topic ASC 718 Compensation-Stock Compensation (formerly SFAS No. 123R “Share Based Payments). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based upon the fair value of the equity instruments issued.

Comprehensive Income

The Company follows ASC 220-10, Reporting Comprehensive Income, (formerly SFAS No. 130). ASC 220-10 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.

Income Taxes

The Company accounts for income taxes utilizing the liability method of accounting.  Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.

Uncertainty in Income Taxes

The Company follows ASC 740-10 Accounting for Uncertainty in Income Taxes (“ASC 740-10”).  This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach.  ASC 740-10 is effective for fiscal years beginning after December 15, 2006.  Management has adopted ASC 740-10 for 2009, evaluates their tax positions on an annual basis, and has determined that as of June 30, 2010, no additional accrual for income taxes other than the foreign, federal and state provisions and related interest and estimated penalty accruals are considered necessary.

12

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of Long-Lived Assets

Long-lived assets, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable.  For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.

Fair Value Measurements

In September 2006, ASC issued 820, Fair Value Measurements.  ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements.

In February 2007, ASC issued 825-10 The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of ASC 320-10, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates.  A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

NOTE C - PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following at:

	September 30,		June 30,
	2010		2010
Buildings and improvements	$	1,583,957	$	1,539,557
Vineyards		1,128,355		1,128,355
Machinery and equipment		681,398		657,766
Motor vehicles		67,475		60,519
Office equipment		28,015		24,555
		3,489,200		3,410,752
Less accumulated depreciation		877,870		847,435
	$	2,611,330	$	2,563,317

Reference is made to Note I - Note Payable – Building Purchase

Total Depreciation was $30,845 and $29,685 for the three months ended September 30, 2010 and 2009, respectively.   Depreciation is recorded in the financial statements as follows:

	Three Months Ended
	September 30,
	2010		2009
Depreciation expense	$	5,583	$	6,574
Capitalized inventory		20,520		19,786
Capitalized Ginseng crops		4,332		2,915
	$	30,435	$	29,275

13

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE C - PROPERTY AND EQUIPMENT (CONTINUED)

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

NOTE D - INVENTORY

Inventory is comprised of the following at:

	September 30,		June 30,
	2010		2010
Fresh and dried harvested Ginseng	$	14,503	$	13,290
Raw materials		1,125,718		1,064,359
Operating supplies		45,754		41,893
	$	1,185,975	$	1,119,542

At September 30, and June 30, 2010, there were no shipments of Ginseng at customer locations awaiting inspection and approval that may be subject to invoicing.

NOTE E – GINSENG CROPS

The Company’s business, prior to June 30, 2009, was primarily to harvest and sell fresh and dried Ginseng.  The growth period takes approximately 6 years before harvest can commence and up to 8 years for improved harvest and seedling yields.  The Company is changing its business model to utilize the harvested Ginseng to manufacture Ginseng juice and other Ginseng beverages.  It plans to commence the juice operation in August 2010.  The Company plants selected areas each year and tracks the costs expended each year by planting area.  The Chinese government owns all the land in China. See Note P-Commitments and Contingencies.

Currently, the Company has land grants from the Chinese government for approximately 1,500 hectors of land (approximately 3,705 acres) to grow Ginseng which were awarded in April and May 2004.  These grants are for 20 years and the management of the Company believes that the grants will be renewed as the grants expire in different areas.  However, there are no assurances that the Chinese government will continue to renew these grants in the future. The planting of new Ginseng is dependent upon the Company’s cash flow and its ability to raise working capital.

During the past 5 years, the Company has planted approximately 518,000 square meters of land which represents approximately 3% of the total land grants.  The Company plans to plant over the next 5 years 420,000 square meters of Ginseng (2011-100,000 square meters, 2012-100,000 square meters, 2013-100,000 square meters, 2014-100,000 square meters and 2015-20,000 square meters).  At September 30, 2010, the Company has 208,182 square meters of Ginseng available for harvest and plans to harvest 11,132 square meters in 2010; 54,833 square meters in 2011 and 65,800 square meters in 2012 based upon their anticipated Ginseng feed stock requirements to produce the Ginseng juice beverages.

14

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE E – GINSENG CROPS (CONTINUED)

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

	September 30,			June 30,
	2010			2010
Beginning Crop Costs	$	3,836,731		$	3,842,812
Capitalized costs during year:
Fertilizer		-			-
Scaffolding		-			66,448
Drying costs		-			-
Field clearing and cultivation		1,114			48,061
Seedlings		-			-
Irrigation		-			-
Labor including farmer net costs		64,517			512,488
Freight		-			-
Depreciation		4,332			42
Other		386			1,026
		70,349			628,065
Less:
Cost of crops harvested		(7,210	)		(225,176	)
Adjustment to Ginseng crop write-downs for crops sold		-			(408,970	)
		7,210			(634,146	)
Ending Crop Costs		3,899,870			3,836,731
Less: Current portion		49,515			308,764
Non-Current Portion of Crop Costs	$	3,850,355		$	3,527,967

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

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

NOTE F – AGREEMENTS WITH FARMERS

The Company has executed agreements with a number of local farmers to grow, cultivate and harvest Ginseng utilizing the Company’s land grants.  The farming contracts commenced in January 2008.  In connection with these agreements, the Company (1) leases sections of the Ginseng land grants to the farmers at approximately $0.20 (1.5 RMB) per square meter per year, (2) provides the seeds and fertilizer to the farmers and clears the land of large debris. These costs are capitalized by the Company and included in the Ginseng Crop inventory, (3) pays the farmers a management fee of approximately $0.50 (4.00 RMB) per square meter per year and (4) the farmers are required to produce 2 kg of Ginseng for each square meter that they manage.  The company pays the farmers market price for their Ginseng.  If the harvest is below 2 kg per square meter, the difference will be deducted from the total payment for Ginseng purchased. If the harvest produces more than 2 kg per square meter, the Company pays a premium of $3.00 for every extra kilo.

15

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE F – AGREEMENTS WITH FARMERS (CONTINUED)

The Company has recorded a receivable from the farmers for the rental income of the leased Ginseng land grants of $170,166 and $157,665 at September 30 and June 30, 2010, respectively.  The Company has also recorded a long-term payable-farmers for the management fee due to the farmers. The liability at September 30 and June 30, 2010 was $453,775 and $420,440, respectively.  The receivable and liability balances for the respective areas will be settled at harvest time when the Company purchases the harvest at the current market value for Ginseng.

NOTE G – INTANGIBLE ASSETS

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

	September 30,			June 30,
	2010			2010
Cost	$	16,966		$	16,455
Less accumulated amortization		(7,640	)		(7,230	)
	$	9,326		$	9,225

Amortization expense was $410 for the three months ended September 30, June 30, 2010, respectively.

NOTE H – LOAN PAYABLE TO FINANCIAL INSTITUTION

In 2002, the Company’s subsidiary, Tonghua Linyuan Grape Co. Limited, borrowed 2,000,000 RMB from Ji’an Farmer’s Credit Union at an interest rate of 7% per annum with a maturity date of April 1, 2004. The loan is secured by the Company’s property and equipment with carrying values of $76,938 and $76,477 at September 30 and June 30, 2010, respectively, and currently is in default. Interest has been paid on the loan through June 30, 2009 and accrued in subsequent periods. The loan balance at September 30 and June 30, 2010 is $298,458 and $294,512, respectively.

NOTE I – NOTE PAYABLE – BUILDING PURCHASE

On March 2, 2010, the Company entered into an agreement with Meihekou Hang Yilk Tax Warehousing Logistics, an auctioneer, to purchase office and warehouse facilities.  The purchase price was $1,325,479 (RMB 9,000,000).  On June 24, 2010, the Company made payment of $73,804 (RMB 500,000) leaving a balance of $1,251,675 (RMB 8,500,000) which was to be paid by June 30, 2010.  As at the date of this report, the final payment has not been made in accordance with the agreement and the seller has the right to repossess the property and obtain an amount equivalent to 6 months rental expense for using the premises. The balance of the loan at September 30, 2010 and June 30, 2010 is $1,268,448 and $1,251,675, respectively.

NOTE J - RELATED PARTY TRANSACTIONS

The Company had been financing its operations from loans from individuals, principally residents of China, who are deemed to be related parties because of their ownership interest in the Company (shareholders).  The individuals have loaned the Company funds which are interest free, have no specific repayment date, and are unsecured.  The funds received are evidenced by receipt of cash acknowledgments.  At September 30 and June 30, 2010, funds borrowed to fund the current operations of the Company were $766,237 and $755,311, respectively.  In accordance with FASB ASC 835-30, the Company has imputed an interest charge of $26,958 and $30,128 for the three months ended September 30, 2010.

16

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE J - RELATED PARTY TRANSACTIONS (CONTINUED)

At June 30, 2010 and 2009, the Company had receivables from related parties aggregating $38,170 and $23,475. These balances relate to unsettled travel advances.

NOTE K - STOCKHOLDERS’ EQUITY

The Company, through an informal private placement under Registration S to Chinese national investors, is attempting to sell 10,000,000 shares of its common stock at $0.25 per share.  During the period April 1, 2010 to June 30, 2010, the Company sold 2,378,750 shares and received $591,902 in cash. During the three months ended September 30, 2010, the Company sold an additional 1,530,000 shares @ $0.2488 aggregating $380,708. As of this report date, the shares have not yet been issued but have been reflected in the accompanying financial statements as though they were issued.

NOTE L - WARRANT AGREEMENT

During the period August 2005 to October 2005, the Company issued 798,384 warrants in connection with a private placement.  The warrants vest immediately and are exercisable over a 5 year period.

The following summarizes the warrants issued in connection with the Company’s private placement:

	Warrants		Weighted Average
	Outstanding		Exercise Price
Balance, June 30, 2008		798,334	$	0.39
Granted		-		-
Exercised		-		-
Cancelled		-		-
Balance, June 30, 2009		798,334	$	0.39
Granted		-		-
Exercised		-		-
Cancelled		-		-
Balance, June 30 and September 30, 2010		798,334	$	0.39

The fair value of the warrants at date of grant was $0.0245, which was computed using the Black-Scholes option pricing model based upon the weighted average assumptions of:

Risk free interest rate		4.80	%
Volatility		16.79	%
Expected life	2.5 years
Dividend yield		0	%

At September 30, 2010, the weighted average life of the above warrants was 0.22 years. The weighted average exercise price was $0.39 for all periods.

17

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE M – PROVISION FOR INCOME TAXES

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

Deferred tax assets consist of the following at:

	September 30,			June 30,
	2010			2010
Timing difference related to inventory provisions	$	131,568		$	130,189
Net operating losses		490,000			350,000
Valuation allowance		(490,000	)		(350,000	)
Deferred tax asset	$	131,568		$	130,189

The deferred tax asset is the result of an inventory provision and related reserve of $843,000 (RMB 4,248,000 of which 2,130,310 RMB was recorded in 2010 and 2,117,776 RMB was recorded in 2009).  Under Chinese tax laws, the Company is not entitled to a deduction for the provision until the inventory is completely discarded. Accordingly, the liability has been recorded offset by a deferred tax asset representing a timing difference.

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

	September 30,		June 30,
	2010		2010
International (China)	$	1,018,600	$	949,600
United States		617,500		378,000
	$	1,636,100	$	1,327,600

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

The components of income before taxes are as follows:

	For the Three Months Ended
	September 30,
	2010			2009
United States	$	(239,487	)	$	7,753
International (China)		(68,966	)		16,236
	$	308,453		$	23,989

18

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE M – PROVISION FOR INCOME TAXES (CONTINUED)

The provision for income taxes consists of the following:

	For the Three Months Ended
	September 30,
	2010		2009
United States		-		-
International (China)		-		-
		-		-

A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and Federal statutory rate for the years ended June 30, 2010 and 2009, respectively, are as follows:

	For the Three Months Ended
	September 30,
	2010			2009
Federal statutory rate		(34.0	)%		(34.0	)%
State income taxes, net of federal benefit		3.3			3.3
Valuation allowance		30.7			30.7
Effective tax rate		-			-

NOTE N – FAIR VALUE MEASUREMENTS

The Company follows ASC 820 which defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements.  ASC 820’s valuation techniques are based on observable and unobservable inputs.  Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions.

ASC 820 classifies these inputs into the following hierarchy:

Level 1 inputs: Quoted prices for identical instruments in active markets.

Level 2 inputs:  Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 inputs:  Instruments with primarily unobservable value drivers.

NOTE O – COMMITMENTS AND CONTINGENCIES

The Company has a three year employment contract with the Chief Executive Officer expiring on January 1, 2011 aggregating $8,782 per year.

The Company has a three contract with the Chief Financial Officer and the Chief Marketing Officer expiring on February 11, 2011 aggregating $22,131 per year.

The Company has a three year employment contract with a staff accountant expiring on March 1, 2012 aggregating $3,162 per year.

19

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE O – COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company has a three year employment contract with five office employees expiring on January 1, 2011 aggregating $15,458 per year.

The Company has a three year employment contract with the President of the Company expiring on March 20, 2012 aggregating $17,564 per year.

The Company has a one year lease for its corporate offices in China aggregating $5,572 of which one half was due on signing on November 25, 2009 and the remaining balance to be paid on May 1, 2010.

The Company has a lease for office facilities related to its Tonghua Linyuan Grape Co. Limited facilities aggregating $1,760 per year. The lease expires January 1, 2022.

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

The Company has a 15 year lease with the Representative of Group One Farmer, Si’An City, Qingshi, Qingshi Town, Qingshi Village, China to lease 750 acres to grow and harvest grapes.  The lease expires December 31, 2014. The annual lease fee is 187,500 RMB or approximately $29,600 per year to lease the acreage.  The Company believes that the lease will be renewed.

Rent expense for the year ended June 30, 2010 and 2009, respectively was $10,646 and $1,752, respectively.

NOTE P – OPERATING SEGMENTS

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

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

Three months ended September 30, 2010:

	Parent Company			Ginseng			Wine			Total
Revenues	$	-		$	53,298		$	-		$	53,298
Net loss		(239,487	)		(63,698	)		(5,268	)		(308,453	)
Total Assets		224,058			6,002,143			2,198,998			8,425,199
Other significant items:
Depreciation and amortization		126			5,765			100			5,991
Interest expense		26,958			-			5,160			32,118
Expenditures for assets		-			-			-			-

20

CHINA GINSENG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2010

NOTE P – OPERATING SEGMENTS (CONTINUED)

Three months ended September

 30, 2009

	Parent Company		Ginseng		Wine		Total
Revenues	$	-	$	31,616	$	-	$	31,616
Net income (loss)		7,763		10,714		5,522		23,999
Total Assets		105,738		4,398,243		2,156,703		6,660,684
Other significant items:
Depreciation and amortization		247		5,693		-		5,940
Interest expense		30,123		-		5,124		35,247
Expenditures for assets		-		-		-		-

NOTE Q – SUBSEQUENT EVENTS

Since September 30, 2010, the Company under a Regulation S Private Placement sold 2,355,000 shares of its common stock at $0.25 per share .

Subsequent events were assessed through November 22, 2010, the date the financial statements and accompanying registration statements were filed with its Securities and Exchange Commission.

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

This 10−Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and accompanying notes and the other financial information appearing else where in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events. Refer also to "Cautionary Note Regarding Forward Looking Statements" and “Risk Factors” below.

Company Overview

Our company, China Ginseng Holdings Inc., was incorporated on June 24, 2004 in the State of Nevada.  The company conducts business through its four wholly owned subsidiaries located in Northeast China.  Through leases, we control 3,705 acres of land approved by the Chinese government for ginseng planting and approximately 750 acres of grape vineyards which are harvested annually.

Since our inception in 2004, we have been engaged in the business of farming, processing, distribution and marketing of fresh ginseng, dry ginseng, ginseng seeds, and seedlings.  In March 2008, we acquired Tonghua Linyuan Grape Planting Co, introducing wild mountain grapes to our existing ginseng farming business. Starting August 2010, China Ginseng has gradually shifted the business from farming to producing ginseng juice and wine with our crops as raw materials.

With the expansion of our planting area and the integration of our farming and beverage manufacturing business, we hope to build a world-class brand by taking advantage of our land resources, high-quality raw materials, patented product formula, unique manufacturing technology and growing distribution network.

The following discussion of our financial condition and operational results should be read in conjunction with our financial statements and related notes as well as other financial information included in this Form 10 Q.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain 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.  As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management’s initial estimates as reported.  The Company considers the following critical accounting policies to be critical:

Inventory

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

22

Ginseng Crops

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

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

Revenue Recognition

The Company’s primary source of revenue has been from the sale of fresh and dried Ginseng. Currently, the Company is processing the Ginseng and storing the stock for future juice production which it plans to commence in late 2010.  Ginseng is planted in the spring (March) and fall (September) of each year and is generally harvested in September.  It usually takes 6 years for a Ginseng root to mature, although, senior maturity can be 8 years.

Harvested Ginseng can be sold in two ways: (1) fresh Ginseng which can be sold immediately and stored in refrigerators for up to 3 years and (2) dried Ginseng which is processed and dried via sunlight and steam machines. Drying is a two month process.  Dried Ginseng can be stored up to 5 years. The Company has focused on selling dried Ginseng as it is more profitable than selling fresh Ginseng. The Company has also been storing fresh Ginseng for future juice manufacturing.

When the Company sells Ginseng, it receives orders prior to harvest.  For major customers, 20% to 30% is paid upon delivery as payment in advance.  The balance is billed after the customer incurs a lengthy inspection process which can take up to 60 days.  Until the customer finalizes its inspection and deems the shipment acceptable, the shipment is still the property of the Company.  Upon customer completion of inspection and approval, the sale is then recognized and the balance of the invoice price is sent to the Company. For smaller sales, the customers pick up the Ginseng from the Company, pay in cash at time of pick up and receive an invoice with appropriate sales tax applied and a cash acknowledgement. On these orders, revenue is recognized upon payment.

Accounts Receivable and Allowance for Doubtful Accounts

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

Vineyard Development Costs

Vineyard development costs consist primarily of the costs of the vines and expenditures related to labor and materials to prepare the land and construct vine trellises. The costs are capitalized within Property and Equipment. When the vineyard becomes commercially productive, annual amortization is recognized using the straight-line method over the estimated economic useful life of the vineyard, which is estimated to be 40 years. All of the company’s vineyards are considered commercially productive.  Amortization of vineyard development costs are included in capitalized crop costs that in turn are included in inventory costs and ultimately become a component of cost of goods sold.

23

Income Taxes

The Company accounts for income taxes utilizing the liability method of accounting.  Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse.

Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.

Result of Operations

For the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

Revenue

Products	September 30, 2010 Revenue		September 30, 2009 Revenue		2010-2009 Variance of Quantity			2010-2009 Variance of Unit Price		2010-2009 Dollar Variance
Ginseng (production)	$	9,937		-		-			-	$	9,937
Ginseng (purchase)	$	43,360	$	31,616	(1,556		)kg	$	5.79	$	11,744
Total	$	53,298	$	31,616						$	21,682

Our total revenue increased from $31,616 for the three months ended September 30, 2009 to $53,298 for the three months ended September 30, 2010, an increase of $21,682 or 69%.

Our ginseng sales revenue from our own farming production for the three months ended September 30, 2010 is $9,939.28 compared to zero during the same period of the previous year. In the three months ended September 30, 2009, we harvested Ginseng very late in September due to weather so we did not have ginseng sales from our own farming production during that period.

Part of our business is to purchase and resell ginseng based on orders we receive from our major customers. Our ginseng sales revenue from purchase and resale increased from $31,616 for the three months ended September 30, 2009 to $43,360 for the three months ended September 30, 2010, an increase of $11,744 or 37 %. Our revenue increased even though our order quantity decreased 1556 kg because of a significant change in the resale price. For the three months ended September 30, 2010, the selling price for our resale Ginseng increased $6 per kg compared to the same period in 2009.

Because the Chinese government restricted the amount of land available for ginseng farming, the supply of ginseng was restricted and the price of high-quality ginseng rose significantly during the three months ended September 30, 2010. (Land under our company’s control was not subject to the change in government restrictions.

24

Cost of Goods Sold

	009/30/2010		Unit Price		Quantity/ Kilo		09/30/2009		Unit Price		Quantity/ Kilo
Ginseng (Farming)	$	7,210		5.04		1,427		-
Ginseng Purchase for Resale	$	38,049		3.84		9,890	$	14,914		3.22		4,628
Total	$	45,259					$	14,914

Our total cost of goods sold increased from $14,914 for the three months ended September 30, 2009 to $45,259 for the three months ended September 30, 2010, an increase of $30,345. The primary reason for the increase was an increase in the cost of purchasing ginseng for resale. In addition, the company had a cost of $7,210 for ginseng production. There was no cost for ginseng production for the three months ended September 30, 2009 since there was no harvest during that period.

The harvest cost is based on the area of ginseng farmland harvested. It includes seeds, seedlings, plant sheds, woodland expenses, wages, fertilizer, pesticides, irrigation, transportation fees, and the building of pathways. These costs are capitalized to ginseng crop inventory and are prorated to the cost of the harvest. The cost is calculated based on the planting area and quantities of ginseng being harvested.

Our cost of purchasing ginseng for resale increased substantially from $14,914 in the first three months ended 30, 2009 to $38,049 in the three months ended Sept. 30, 2010 primarily because the quality of the ginseng we purchased increased. During the three months ended September 30, 2009, we purchased dry ginseng for resale. During the three months ended September 30, 2010, we purchased 9,890kg of fresh ginseng and processed it into dry ginseng to resale.

Selling General and Administration Expenses

Sales costs, general expenses and administrative expenses increased significantly from a negative $49,528 for the three months ended September 30, 2009 to $ 278,381 for the three months ended September 30, 2010, an increase of $327,963.  The increase is mainly from the rise in general administrative expenses and marketing expenses for our new business – the ginseng juice and grape wine operation. Additionally, the Company recovered approximately $125,000 of receivables which were considered a bad debt and charged to bad debt expense in 2009. In order to develop our new business and promote our new products, company representatives attended most national agriculture exhibitions and food exhibitions during the period.

Depreciation and Amortization

Depreciation and amortization was $5,993 for the three months ended September 30, 2010, compared to $6,984 for the three months ended September 30, 2009, a decrease of $991 or 14%.

25

Interest Expense

Our Interest expense decrease by $3,129, from $35,247 for the three months ended September 30, 2009 to $32,118 for the three months ended September 30, 2010, representing a 9% increase. The change in imputed interest is the primary reason for the decrease in interest expense.

Income Tax Expense

There was no income tax for either quarter.

Net Loss

The net loss for the three months ended September 30, 2010 was $308,453; an increase of $332,442 compared to a net profit of $23,989 for the three months ended September 30, 2009. The net loss is primarily due to the increase in operating expenses and administrative expenses. There also was an increase in the cost of producing ginseng and in purchasing ginseng for resale, offset by a reduction in bad debt expense of approximately $125,000 for receivables written off and recovered in 2009.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. We usually finance our operation and capital expenditures through cash from operations as well as loans from the members of our management group and through a Regulation S private placement.

As of the three months ended September 30, 2010, our working capital has a deficiency of $2,248,938 , increased $180,939 compared to the three months ended September 30, 2009.  In order to have sufficient funds to operate our existing business and start our new business, we will pursue additional equity financing. From June 30, 2010 to September 30, 2010 the company has raised an additional $380,708 through a Regulation S private placement. Management believes that through taking this series of actions, the Company will improve cash flow and move towards profitability in the future.

Discussion of Cash Flow

Cash flows results for the three months ended September 30, 2010 and the three months ended September 30, 2009 are summarized as follows:

	September 30, 2010			September 30, 2009
Net cash provided by(used in) operating activities	$	(386,780	)	$	(482,860	)
Net cash used in investing activities		-			(3,186	)
Net cash provided by financial activities		380,708			496,203

Operating activities

Negative cash flows from operating activities decreased by $96,080 for the three month ended September 30, 2010 compared to the same period of 2009. This change was primarily the result of an increase in net losses of $ 308,458 in addition to an increase in accounts receivable of $26,181, an increase in inventory of $129,572 and a decrease in accounts payable of $92,053. These amounts were offset by an increase in payments received in advance of $192,091. The increase in accounts receivable primary was due to the increase in sales. The inventory increased due to the stocking of more raw materials to avoid the potential material shortage in the near future. A decrease in our accounts payable was because we paid accounts payable with the cash generated from financial activities; and an increase payment received in advance is primary due to the deposit we received from our distributors.

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Investing activities

No cash was used in investing activities for the three months ended September 30, 2010 and $3,186 used in investing activities for the three months ended September 30, 2009.

Financing activities

Our cash flows provided by financing activities aggregated $380,708 for the three months ended September 30, 2010.   During the period June 30, 2010 to September 30, 2010, the Company raised $380,708 from a Regulation S Private Placement to Chinese Nationals to support our working capital needs and during the three months ended September 30, 2010,

Cash flows provided by financing activities for the three months ended September 30 2009 was $496,203, primarily from the proceeds of loans payable to related parties aggregating $496,203.

For the three months ended September 30, 2009 compared to the three months ended September30, 2008

Revenue

	Revenue 09/30/2009		Revenue 09/30/2008
Ginseng Production (Farming)		-	$	65,008
Ginseng Purchase & Resale	$	31,616		-
Seeds				-
Seedlings				-
Total Revenue	$	31,616	$	65,008

For the three months ended September 30, 2008, we generated total revenue of $65,008 from the farming and sale of ginseng. For the first three months ended September 30, 2009, we generated $31,616 from the purchase and resale of ginseng.

Our total revenues for the three months ended September 30, 2009 decreased by $33,392 (or 51%) compared to the three months ended September 30, 2008.  The decrease was primary due to the fact that we didn’t generate revenue from farming ginseng sales in three months ended September 30, 2009 because we harvested ginseng at the end of September, 2009 due to hot weather.

Cost of Goods Sold

Comparing the three months ended September 30, 2008 to the three months ended September 30, 2009, our cost of goods sold decreased by $44,070, a decrease of 75%. For the three months ended September 30, 2008, the cost of goods sold was $58,989 for ginseng production (farming) cost. For the three months ended Sept 30, 2009, our cost of goods sold was $14,919 for ginseng purchase (outsourcing) cost.

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The percentage of cost of goods sold as a percentage of revenues is 91% for the three months ended September 30, 2008 and 47% for the three months ended September 30, 2009.

There is no farming cost for the three months ended September 30 2009, only the purchase (outsourcing) cost. Since the harvest cost is based on the area of ginseng farmland harvested. It includes seeds, seedlings, plant sheds, woodland expenses, wages, fertilizer, pesticides, irrigation, transportation fees, and the building of pathways. These costs are capitalized to ginseng crop inventory and are prorated to the cost of the harvest. Therefore, the cost/revenue ratio is relatively higher with a smaller quantity of harvest.

Selling, General and Administrative Costs

Selling, general and administrative expenses were reduced from $111,150 for the three months ended September 30, 2008 to ($49,528) for the three months ended September 30, 2009. That is a decrease of $160,678 or 145% for the three months ended September 30, 2009 compared to the three months ended September 30, 2008.  The reduction is mainly from a decrease in general administrative expenses and a reduction in bad debt expense resulting from the recovery of accounts receivable previously written off.

Depreciation and Amortization

Depreciation and amortization was $6,984 for the three months ended September 30, 2009 compared to $6,956 for the three months ended September 30, 2008. There was no significant change.

Interest Expense

Our Interest expense increased from $31,920 for the three months ended September 30, 2008 to $35,247 for the three months ended September 30, 2009, a total of $3,327. Interest expense includes an amount for imputed interest relating to non-interest bearing loans to related parties and the interest related to the loan acquired in the Tonghua acquistion.

Income Taxes

We are subject to income tax laws of the US, while our subsidiaries are subject to the income tax laws of China.  Various subsidiaries in China receive different income tax incentives under Chinese tax laws.  There is no income tax incurred during the three months ended in 2009, 2008.

Net Income (Loss)

We had a net income of $23,989 for the three months ended September 30, 2009 and a net loss of $(141,433) for the three months ended September 30, 2008, an increase of $165,422.  The primary reason for turning net loss from 2008 to net profit in the three months ended September 30, 2009 was the reduction of operating expenses, the cost of goods sold and the reduction in bad debt expense from the recoverability of accounts receivable previously written off.

Commitments and Contingencies

The company has employment contacts with key individuals including the President of the Company.  The total commitment for the three months ended in September 30, 2009 is approximately $12,119.43

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The Chinese government owns all the land in China, Currently, the Company has grants from the Chinese government for approximately 1,500 hectares of land (3,705 acres) to grow ginseng.  These grants are for twenty years and are set to expire in 2025. These grants can be renewed, although there is no assurance that the Chinese government will renew them in the future.

The Company is obligated to pay back a loan of $292,492 to Ji’An Credit Cooperatives (the debt carried from Tonghua Linyuan).  The loan was due for repayment on February 4, 2003.  The company is currently in default on the loan and the lender has verbally agreed not to call the loan.  Interest is currently being paid on the loan.

The Company has a 15 year lease with the Representative of Group One Farmer, Si’An City, Qingshi, Qingshi Town, Qingshi Village, China to lease 750 acres to grow and harvest grapes.  The lease expires December 31, 2014. The annual lease fee is 187,500 RMB or approximately $29,600 per year to lease the acreage.  The Company believes that the lease will be renewed.

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act) during the fiscal quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.  Legal Proceedings.

None.

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

(a)                 Unregistered Sales of Equity Securities.

The Company commenced on March 5, 2010 a private placement under Regulation S to non-U.S. citizens or residents whereby the Company is trying to sell 10,000,000 shares of its common stock at $0.25 per share. As of June 30, 2010, we have raised $591,902 for our business development from this placement in China. As of September 30, 2010, we raised an additional $380,708 from this placement in China, for a total of $972,610. Sales were made to 128 non-U.S. citizens or residents at $0.25 per share. Since September 30, 2010, the Campany has sold an additional 2,355,000 shares of its common stock at $0.25 per share. 

We relied upon Regulation S of the Securities Act of 1933, as amended for the above issuances to non US citizens or residents.

We believed that Regulation S was available because:

· None of these issuances involved underwriters, underwriting discounts or commissions;

· We placed Regulation S required restrictive legends on all certificates issued;

· No offers or sales of stock under the Regulation S offering were made to persons in the United States;

· No direct selling efforts of the Regulation S offering were made in the United States.

In connection with the above transactions, although some of the investors may have also been accredited, we provided the following to all investors:

· Access to all our books and records.

· Access to all material contracts and documents relating to our operations.

· The opportunity to obtain any additional information, to the extent we possessed such information, necessary to verify the accuracy of the information to which the investors were given access.

Prospective investors were invited to review at our offices at any reasonable hour, after reasonable advance notice, any materials available to us concerning our business. Prospective Investors were also invited to visit our offices.

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(b)                 Use of Proceeds.

The Registrant has not sold any registered securities.

Item 3.  Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved).

Item 5.  Other Information.

Not applicable.

Item 6.  Exhibits.

(a) Exhibits.

Exhibit No.	Document Description
31.1	CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
31.2	CERTIFICATION of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1	CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002
32.2	CERTIFICATION of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

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

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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 Ginseng Holdings, Inc., a Nevada corporation

Title	Name	Date	Signature
Principal Executive Officer	Changzhen Liu	November 22, 2010	/s/ Changzhen Liu

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SIGNATURE	NAME	TITLE	DATE
/s/ Changzhen Liu	Changzhen Liu	Principal Executive Officer and Director	November 22, 2010
/s/ Ren Ying	Ren Ying	Principal Financial Officer and Principal Accounting Officer	November 22, 2010

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EXHIBIT INDEX

Exhibit No.	Document Description
31.1	CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
31.2	CERTIFICATION of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1	CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002
32.2	CERTIFICATION of CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

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

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