Edgar Filing: CHINA PHARMA HOLDINGS, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
Of 1934
For the Quarterly Period Ended June 30, 2007

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT Of 1934

For the Transition Period from _________ to _________

Commission file number: 000-29523

China Pharma Holdings, Inc.
(Exact name of registrant as specified on its charter)

Delaware 73-1564807
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

2nd Floor, No. 17, Jinpan Road, Haikou, Hainan Province, China
(Address of principle executive offices)

0086-898-66811730 (China)
(Registrant's telephone number, including area code)
Copies to:

Charles Law
King and Wood LLP
Suite 1175, 125 S Market Street,
San Jose, CA 95113

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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 shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes [ ] No [X]

As of June 30, 2007, 37,228,938 shares of China Pharma Holdings, Inc. common
stock, par value $0.001 per share, were outstanding.

Transitional Small Business disclosure format: Yes [ ] No [X]

China Pharma Holdings, Inc.

TABLE OF CONTENTS

Part I Financial Information 1

Item 1. Financial Statements 1

Condensed Consolidated Balance Sheets - June 30, 2007 and December
31, 2006 (unaudited) 1

Condensed Consolidated Statements of Operations and Comprehensive
Income- Three months ended June 30, 2007 and 2006 (unaudited) 2

Condensed Consolidated Statements of Cash Flows -Three months
ended June 30, 2007 and 2006 (unaudited) 3

Notes to Condensed Consolidated Financial Statements (unaudited) 4

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7

Item 3. Controls and Procedures 20

Part II Other Information 20

Item 1 Legal proceedings 20

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

Item 3 Defaults upon senior securities 20

Item 4 Submission of matters to a vote of security holders 21

Item 5 Other information 21

Item 6. Exhibits 21

Signatures 22

Item 1 Financial Statements

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2007 2006
----------- -----------

ASSETS
Current Assets:
Cash and cash equivalents .......................................... $ 2,436,105 $ 656,441
Trade accounts receivable, less allowance for doubtful
accounts of $2,548,926 and $1,562,494, respectively ................ 16,538,297 12,101,979
Other receivables, less allowance for doubtful
accounts of $54,427 and $27,517, respectively ...................... 706,632 355,554
Deferred offering costs ............................................ -- 59,390
Advances to suppliers .............................................. 4,421,107 2,255,877
Inventory .......................................................... 12,391,586 10,277,887
----------- -----------
Total Current Assets ............................................... 36,493,727 25,707,128
----------- -----------
Non-current Assets:
Property and equipment, net of accumulated depreciation of
$713,323 and $619,649, respectively ................................ 2,629,785 2,725,173
Intangible assets, net of accumulated amortization of
$202,600 and $135,656, respectively ................................ 53,224 65,344
Deferred tax assets ................................................ 17,159 16,736
----------- -----------
Total Non-current Assets ........................................... 2,700,168 2,807,253
----------- -----------
TOTAL ASSETS ....................................................... $39,193,895 $28,514,381
----------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ............................................. $ 835,347 $ 477,291
Accrued expenses ................................................... 165,386 104,216
Accrued taxes payable .............................................. 168,897 167,419
Other payables ..................................................... 113,827 185,096
Advances from customers ............................................ 179,625 141,871
Accounts payable -related parties .................................. -- 22,650
Short-term notes payable ........................................... 6,698,773 6,533,649
----------- -----------
Total Current Liabilities .......................................... 8,161,855 7,632,192
----------- -----------
Research and development commitments ............................... 32,788 31,980
----------- -----------
Total Liabilities .................................................. 8,194,643 7,664,172
----------- -----------
Stockholders' Equity:
Common stock, $0.001 par value, 60,000,000 shares
authorized, 37,228,938 and 34,723,056 shares issued and outstanding;
respectively ....................................................... 37,229 34,723
Additional paid-in capital ......................................... 11,559,656 7,764,979
Foreign currency translation adjustment ............................ 1,315,554 663,871
Retained earnings .................................................. 18,086,813 12,386,636
----------- -----------
Total Stockholders' Equity ......................................... 30,999,252 20,850,209
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $39,193,895 $28,514,381
----------- -----------

See the accompanying notes to the unaudited condensed consolidated financial
statements.

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
and COMPREHENSIVE INCOME
(unaudited)

For the three months For the six months
ended June 30, ended June 30,
---------------------------- ---------------------------
2007 2006 2007 2006
------------- ------------- ------------ -------------

Revenue $ 8,570,256 $ 3,975,569 $15,804,024 $ 8,709,334
Cost of revenue 4,670,685 2,105,082 8,605,524 4,631,549
------------- ------------- ------------ -------------
Gross profit 3,899,571 1,870,487 7,198,500 4,077,785
------------- ------------- ------------ -------------

Operating expenses:
Selling expenses 326,147 82,133 474,030 170,161
General and administrative 203,447 436,340 1,583,523 680,321
Research and development 4,477 - 840,881 -
------------- ------------- ------------ -------------
Total operating expenses 534,071 518,473 2,898,434 850,482
------------- ------------- ------------ -------------

Income from operations 3,365,500 1,352,014 4,300,066 3,227,303
------------- ------------- ------------ -------------

Non-operating income (expenses):
Interest income 11,633 87 25,408 182
Interest expense (58,942) (24,103) (115,841) (47,898)
Other income 7,937 120,803 1,490,544 120,461
Bad debt recovery - 627,861 - 626,580
------------- ------------- ------------ -------------
Total non-operating income (expense) (39,372) 724,648 1,400,111 699,325
------------- ------------- ------------ -------------

Income before taxes 3,326,128 2,076,662 5,700,177 3,926,628
Income tax expense - (246,200) - (525,022)
------------- ------------- ------------ -------------
Net income $ 3,326,128 $ 1,830,462 $ 5,700,177 $ 3,401,606
------------- ------------- ------------ -------------
Comprehensive income - foreign currency 216,416 62,557 651,683 221,558
translation adjustments ------------- ------------- ------------ -------------
Comprehensive income $ 3,542,544 $ 1,893,019 $ 6,351,860 $ 3,623,164
------------- ------------- ------------ -------------

Basic and diluted earnings per common $ 0.09 $ 0.05 $ 0.15 $ 0.10
share ------------- ------------- ------------ -------------

Weighted-average common shares 37,228,938 34,723,056 36,785,909 34,723,056
outstanding ------------- ------------- ------------ -------------

See the accompanying notes to the unaudited condensed consolidated financial
statements.

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

For the six For the six
months ended months ended
June 30, June 30,
2007 2006
------------- ------------
Cash Flows from Operating Activities:
Net income ..................................... $ 5,700,177 $ 3,401,606
Depreciation and amortization .................. 201,540 193,065
Changes in assets and liabilities:
Trade accounts receivable ...................... (4,074,259) (3,348,145)
Other receivables .............................. (337,438) (97,112)
Advances to suppliers .......................... (2,079,529) 161,868
Inventory ...................................... (1,828,719) (945,068)
Deferred tax assets ............................ -- 24,387
Deferred offering costs ........................ 60,062 --
Trade accounts payable ......................... 341,285 526,675
Accrued expenses ............................... 57,740 84,810
Accrued taxes payable .......................... (2,715) (122,285)
Other payables ................................. (75,127) --
Advances from customers ........................ 33,704 17,670
----------- -----------
Net Cash Used in Operating Activities .......... (2,003,279) (102,529)
----------- -----------

Cash Flows from Investing Activities:
Purchase of property and equipment ............. (25,931) (144,790)
Purchase of intangible assets .................. -- (2,477)
----------- -----------
Net Cash (Used) by Investing Activities ........ (25,931) (147,267)
----------- -----------

Cash Flows from Financing Activities:
Proceeds from sale of common stock and warrants 3,797,183 --
Proceeds from short term notes payable ......... -- 31,653
----------- -----------
Net Cash Proceeds from Financing Activities .... 3,797,183 31,653
----------- -----------

Effect of Exchange Rate Changes on Cash ........ 11,691 (47,853)
----------- -----------
Net Change in Cash ............................. 1,779,664 (265,996)
Cash and Cash Equivalents at Beginning of Period 656,441 461,220
----------- -----------
Cash and Cash Equivalents at End of Period ..... $ 2,436,105 $ 195,224
----------- -----------

See the accompanying notes to the unaudited condensed consolidated financial
statements.

CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of China
Pharma Holdings, Inc. (the Company) and its subsidiaries were prepared pursuant
to the rules and regulations of the United States Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations. Management of the Company (Management) believes
that the following disclosures are adequate to make the information presented
not misleading. These condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and the notes
thereto included in the Company's Form 10-KSB report for the year ended December
31, 2006.

These unaudited condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) that, in the
opinion of Management, are necessary to present fairly the consolidated
financial position and results of operations of the Company for the periods
presented. Operating results for the six months ended June 30, 2007 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2007.

Organization - Onny Investment Limited (Onny) was incorporated in the British
Virgin Islands on January 12, 2005 and was a development stage enterprise
through June 15, 2005. On June 16, 2005, Onny acquired all of the outstanding
shares of Hainan Helpson Medical & Biotechnology Co., Ltd, a privately held
Chinese joint venture (Helpson) and emerged from the development stage.

On October 19, 2005, Onny was reorganized as a wholly owned subsidiary of China
Pharma Holdings, Inc., formerly TS Electronics (the Company).

Nature of Operations - Helpson manufactures and markets several Western and
Chinese medicines sold mainly to hospitals and private retailers in The People's
Republic of China (PRC), through its marketing department located in Hainan
Province. There are also nine other offices, with sales representatives in other
provinces and cities throughout the PRC. Helpson's other operating activities
include biochemical products, health products, and cosmetics.

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

Basic and Diluted Earnings per Common Share - Basic and diluted earnings per
common share are computed by dividing net income by the weighted-average number
of common shares outstanding. As of June 30, 2007 potentially dilutive
securities includes warrants outstanding to purchase a total of 1,252,941 shares

of Company common stock at an exercise price of $2.38 per share. These are not
included in the computation of fully diluted earnings per share as the effect is
anti-dilutive due to the exercise price of the warrants exceeding the market
price of the stock at June 30, 2007. There are no anti-dilutive securities
outstanding at June 30, 2006.

Recently Issued Accounting Pronouncements - In September 2006, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157), which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and requires
additional disclosures about fair value measurements. SFAS 157 aims to improve
the consistency and comparability of fair value measurements by creating a
single definition of fair value. The Statement emphasizes that fair value is not
entity-specific, but instead is a market-based measurement of an asset or
liability. SFAS 157 upholds the requirements of previously issued pronouncements
concerning fair value measurements and expands the required disclosures. This
Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, however earlier application is permitted
provided the reporting entity has not yet issued financial statements for that
fiscal year. The Company does not believe that the adoption of SFAS 157 will
have a material effect on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115 (SFAS 159). This pronouncement permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. SFAS 159 is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007. The impact of adopting SFAS 159 on the Company's consolidated
financial statements, if any, has not yet been determined.

NOTE 2 - INVENTORY

Inventory consisted of the following:

June 30, December 31,
2007 2006
------------------ ------------------
Raw materials $ 9,293,117 $ 8,458,181
Work in progress 57,942 1,579,410
Finished goods 3,040,527 240,296
------------------ ------------------
Total Inventory $ 12,391,586 $ 10,277,887
------------------ ------------------

NOTE 3 - INCOME TAXES

The Company accounts for its income taxes in accordance with SFAS No. 109, which
requires recognition of deferred tax assets and liabilities and their respective
tax bases and any tax credit carry forwards available. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

According to federal law in the People's Republic of China (PRC), enterprises
with foreign investment and foreign enterprises doing business in the PRC are
generally subject to federal enterprise income tax at a rate of 30%. Effective
at the beginning of 2006 and extending through 2007, the PRC granted the Company

a tax holiday that allows the Company to be exempt from income taxes for the
first two profitable years. This tax holiday further allows the Company to be
exempt from 50% of income taxes during the third through the fifth years. The
reduced tax rate for 2008 through 2010 is 15%. Additionally, Hainan province is
considered a developing economic region which has a reduced statutory tax rate
of 15%, which results in a tax holiday rate of 7.5% during the third through the
fifth years of profitability.

The Company has a deferred tax asset based upon the temporary differences from
the allowance for bad debt. The Company has also incurred various other taxes,
comprised primarily of business taxes, value-added taxes, urban construction
taxes, education surcharges and others. Any unpaid amounts are reflected on the
balance sheets as accrued taxes payable.

NOTE 4 - NOTES PAYABLE

Short Term Notes Payable - During the third quarter of 2006, the Company
borrowed a total of $2,196,113 from a bank. The loans bore interest with a range
of 6.45% to 6.77%, principal and accrued interest were due July and August of
2007 and were collateralized by land use rights, machinery and equipment. On
July 13, 2007 the Company renewed the loans with the bank. The renewed loan
principal and accrued interest are due on April 25, 2008.

Short Term Notes Payable to Former Shareholders - In January 2006, the Company
converted its dividend payable of $4,402,147 into short-term notes bearing
interest at a rate of 2.25% per annum. As of June 30, 2007 these notes and
accrued interest remain outstanding.

NOTE 5 - STOCKHOLDERS' EQUITY

On February 1, 2007, the Company completed an offering of units priced at $1.70
per unit consisting of one share of Company common stock and a warrant to
purchase one-half of a share of Company common stock at an exercise price of
$2.38 per share. The Company received gross proceeds in the aggregate amount of
$4,259,900. The net proceeds, after deduction of related offering expenses of
$462,717 amounted to $3,797,183. The Company issued an aggregate of 2,505,882
shares of common stock and issued three-year warrants to purchase an aggregate
of 1,252,941 shares of Company's common stock to 17 accredited investors. The
proceeds were allocated to the warrants based upon their fair value or
$2,010,219, and the balance of the proceeds was allocated to the shares of
common stock. The fair value of the warrants, determined using the Black-Scholes
Option Pricing Model, was calculated using the following assumptions: risk free
interest rate of 4.80%, expected dividend yield of 0%, expected volatility of
124.39% and an expected life of 3 years.

The common shares and the shares underlying the warrants have registration
rights and, accordingly a registration statement was filed with the Securities
Exchange Commission on March 30, 2007 within the 60 day period prescribed by the
registration rights agreement. The registration statement was declared effective
on May 4, 2007.

NOTE 6 - TRANSFERS OF TECHNOLOGY

During the first quarter of 2007, the Company entered into agreements to sell
certain pharmaceutical formulas presently in the research and development stage
with two separate transactions to third parties for an aggregate sales price of
$1,479,792 which is recorded as other income, transfer (sales) tax of $73,990,
which has been recorded as part of general and administrative expenses and
$836,404 recorded as research and development expense in the accompanying
statement of operations and comprehensive income for the six months ended June

30, 2007. The amounts due under the contracts were collected during the second
quarter of 2007.

NOTE 7 - CONTINGENCIES

Economic environment - Significantly all of the Company's operations are
conducted in the PRC, and therefore the Company is subject to special
considerations and significant risks not typically associated with companies
operating in the United States of America. These risks include, among others,
the political, economic and legal environments and fluctuations in the foreign
currency exchange rate. The Company's results may be adversely affected by
changes in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.

In addition, all of the Company's revenue is denominated in the PRC's currency
of Renminbi (CNY or (Y)), which must be converted into other currencies before
remittance out of the PRC. Both the conversion of CNY into foreign currencies
and the remittance of foreign currencies abroad require approval of the PRC
government.

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

The following discussion should be read in conjunction with China Pharma Inc.'s
consolidated financial statements and related notes included elsewhere in this
Current Report on Form 10-QSB.

This filing contains forward-looking statements. The words "anticipated",
"believe", "expect", "plan", "intend", "seek", "estimate", "project", "could",
"may" and similar expressions are intended to identify forward-looking
statements. These statements include, among others, information regarding future
operations, future capital expenditures, and future net cash flow. Such
statements reflect China Pharma management's current views with respect to
future events and financial performance and involve risks and uncertainties,
including but not limited to changes in general economic and business
conditions, changes in foreign, political, social, and economic conditions,
regulatory initiatives and compliance with governmental regulations, the ability
to increase market share, and various other matters, many of which are beyond
China Pharma's control. Should one or more of these risks or uncertainties
occur, or should underlying assumptions prove to be incorrect, actual results
may vary materially and adversely from those anticipated, believed, estimated or
otherwise indicated. Consequently, all of the forward-looking statements made in
this filing are qualified by these cautionary statements and there can be no
assurance of the actual results or developments.

I. The Six Months Ended June 30, 2007 In Brief

During the six months ended June 30, 2007, China Pharma continued to show sound
growth and outstanding financial performance. For the six months ended June 30,
2007, the Company's total revenue increased by over 81.46% to a record high of
$15.8 million compared to $8.7 million for the six months ended June 30, 2006.
This rapid growth was due to increased sales of existing products and the
products that were developed during the second half year of 2006. This was
consistent with China Pharma's strategy of launching new products in an
increasingly competitive market and exploring potential domestic markets.

The financial performance for the six months ended June 30, 2007 improved
compared to the six months ended June 30, 2006. Gross profit increased 76.53% to
$7.2 million and net income, not including foreign currency translation
adjustment, increased 67.57% to $5.7 million. This growth was attributable to
the development of new product processes and new marketing activities.

For the six months ended June 30, 2007, earnings per common share increased
58.18% to $0.15 per share compared to $0.10 per share for the six months ended
June 30, 2006. China Pharma started working closely with a variety of
professional pharmaceutical research institutions to deliver more functional
products tailored to the demands of the end-user. Management's goals are
centered on achieving stable profit growth. Accordingly, we operate the business
based on strategic principles, which have proven successful. Thoroughly
exploring the potential in the pharmaceutical field is the key to our success.

We are also concerned with corporate governance as a modern enterprise. In the
near future, we will establish a more systematic and long lasting internal
controls process for prospective development and the benefit of our
shareholders.

II. Business Overview

China Pharma is primarily engaged in the research, development, manufacture, and
marketing of pharmaceutical and nutritional supplements. During 2006, we
launched two new products, Ozagrel Sodium for Injection and Gastrodin Injection.

We plan to expand our biotechnology product series. Based on the foundation
established by some of Helpson's widely recognized medicine labels such as
Neurotrophicpeptide, we have launched and will continue to launch a variety of
biological medicine, including the injected hepatocyte growth-promoting factors,
which are expected to fuel additional growth beyond that of Neurotrophicpeptide.

One of our products, Buflomedil Hydrochloride (including raw material, injection
and troche) has been recognized in the following ways:

o Designated as the key technology project in Hainan in 2003 by Hai'kou
Municipality.

o Received the best commercialized technology award in Hainan in 2004 by Hainan
Scientific and Technological Result Examination Committee.

o Awarded the national key new products certificate in 2003 by the State Science
and Technology Department, State Taxation Bureau, Ministry of Commerce, State
Bureau of Quality Supervision, Inspection and Quarantine, and State
Environmental Protection Bureau.

In 2003, Helpson attained GMP authentication and the prize as the best
enterprise for supporting SARS medicine awarded by Hainan Food and Drug
Administration, demonstrating our industry leadership. For the six months ended
June 30, 2007, our products have been distributed to more than 29 provinces,
sovereignties, and autonomous regions around China. Our products have been sold
in more than 29 provinces, sovereignties, and autonomous regions. We have 16
sales offices and approximately 550 proxy agents throughout the PRC. The main

channels we use to deliver our products are as follows: (1) Distribution system
(Proxy Agents); (2) Direct sale system to hospitals; (3) Distribution of
products to end-market through local medical companies.

Onny Investment Limited (Onny) was incorporated in the British Virgin Islands on
January 12, 2005 and was a development stage enterprise through June 15, 2005.
On June 16, 2005, Onny acquired all of theF outstanding shares of Hainan Helpson
Medical & Biotechnology Co., Ltd, a privately held Chinese joint venture
(Helpson) and emerged from the development stage. On October 19, 2005, Onny was
reorganized as a wholly owned subsidiary of China Pharma Holdings, Inc. formerly
TS Electronics, (the Company).

Additionally, on February 1, 2007, China Pharma fulfilled a fund raising equity
offering of units priced at $1.70 each consisting of one share of common stock
and a warrant to purchase one-half of a share of common stock at an exercise
price of $2.38 per share. China Pharma received gross proceeds in the aggregate
amount of $4,259,900. The net proceeds, after deducting the related offering
expenses of $462,717 amounted to $3,797,183. In total, we issued 2,505,882
shares of common stock and issued three-year warrants to purchase an aggregate
of 1,252,941 shares of common stock to 17 accredited investors.

III. Trend in the Market.

Studies show that due to the expansion and aging of the world's population,
ever-growing numbers of people have age-related diseases, such as cancer,
Alzheimer's disease, diabetes and rheumatoid arthritis. These diseases have
already become prevalent, especially in developed areas. In a growing and aging
population, people need to find more effective methods of treatment.

Patient empowerment has been a factor in high-quality healthcare. Many are
better informed about the importance of health issues and medical advancement.
Naturally, people today are demanding greater care and access to the latest
medical procedures and medicines.

Helpson views this market trend as an opportunity. However, the best way to take
advantage of this opportunity is to identify our business risks beforehand.
Generally speaking, there are three aspects of risks:

o External Risk
In recent years, the Chinese medical system has been reformed, resulting in the
State Department's establishment of a basic medical insurance system for
employees. Considering the social environment and the governmental policy in the
pharmaceutical industry in PRC, a large increase in sales can be expected due to
local government involvement in the industry. Competition will also be strong
across the industry overall. Currently, the Company's existing products are
competitive in the market and possess growth potential. However, from a
long-term perspective, some major western medicine producers are also seeking
Chinese market share. This will make the Company face strong competition in the
natural medicine market sector.

o Operation Risk
One of the major uncertainties in the Company is the purchase of raw materials.
Raw materials are primarily affected by the geographical, island environment of

Hainan Province. Because of high transportation costs and the need to supply
production requirements, the Company has to store large amounts of inventory to
maintain consistent production levels. In addition, partial raw materials need
to be specially ordered which further increases the need to store inventory.
Finally, due to the increasing sales, the Company must store a large volume of
packaging material.

o Foreign Currency Risk
Substantially all of our operations are conducted in the PRC. Our sales and
purchases are conducted within the PRC in Chinese Renminbi. As a result, the
effect of the exchange rate fluctuation would inevitably be considered to be
material to our business operations.

All of our revenues and expenses are accounted for in Renminbi. But we use the
United States dollar (USD) for financial reporting purposes. Conversion of
Renminbi into foreign currencies is regulated by the People's Bank of China
through a unified floating exchange rate system. Although the PRC government has
stated its intention to support the value of the Renminbi, there could be no
assurance that such exchange rate will not become volatile again or that the
Renminbi will not devalue significantly against the USD. Exchange rate
fluctuations may adversely affect the value, in USD terms, of our net assets and
income derived from its operations in the PRC.

IV. Analysis to the Financial Performance

The following table presents the operations of the Company for the three months
ended June 30, 2007 and June 30, 2006; both are denominated in USD.

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
and COMPREHENSIVE INCOME
(unaudited)

For the three months
ended June 30, Change Variance
----------------------------

2007 2006
------------ ------------

Revenue ................................... $ 8,570,256 $ 3,975,569 $ 4,594,687 115.57%
Cost of revenue ........................... 4,670,685 2,105,082 2,565,603 121.88%
------------ ------------ ------------ --------

Gross profit .............................. 3,899,571 1,870,487 2,029,084 108.48%
------------ ------------ ------------ --------

Operating expenses:
Selling expenses .......................... 326,147 82,133 244,014 297.10%
General and administrative ................ 203,447 436,340 (232,893) -53.37%
Research and development .................. 4,477 -- 4,477
------------ ------------ ------------ --------
Total operating expenses .................. 534,071 518,473 15,598 3.01%
------------ ------------ ------------ --------

Income from operations .................... 3,365,500 1,352,014 2,013,486 148.92%
------------ ------------ ------------ --------

Non-operating income (expenses):
Interest income ........................... 11,633 87 11,546 13271.26%
Interest expense .......................... (58,942) (24,103) (34,839) 144.54%
Other income .............................. 7,937 120,803 (112,866) -93.43%
Bad debt recovery ......................... -- 627,861 (627,861) -100.00%
------------ ------------ ------------ --------
Total non-operating income (expense) ...... (39,372) 724,648 (764,020) -105.43%
------------ ------------ ------------ --------

Income before taxes ....................... 3,326,128 2,076,662 1,249,466 60.17%
Income tax expense ........................ -- (246,200) 246,200 -100.00%
------------ ------------ ------------ --------
Net income ................................ $ 3,326,128 $ 1,830,462 $ 1,495,666 81.71%
------------ ------------ ------------ --------
Comprehensive income - foreign currency ... 216,416 62,557 153,859 245.95%
translation adjustments ................... -- -- -- --
Comprehensive income ...................... $ 3,542,544 $ 1,893,019 $ 1,649,525 87.14%
------------ ------------ ------------ --------

Basic and diluted earnings per common share $ 0.09 $ 0.05 $ 0.04 69.48%
------------ ------------ ------------ --------

Weighted-average common shares outstanding 37,228,938 34,723,056 2,505,882 7.22%
------------ ------------ ------------ --------

Analysis for the Three Months Ended June 30, 2007

Revenues

Revenues increased to approximately $8.57 million for the three months ended
June 30, 2007 as compared to approximately $3.98 million for the three months
ended June 30, 2006. This represents an increase of approximately $4.59 million
or 115.57%. This increase was due largely to the increased sales of new products
for the three months ended June 30, 2007. In the second quarter, PuSenOK (TM), a
Gastrodin injection, which reached the market expectation, increased market
share and increased revenues by approximately $1.18 million more than the

corresponding period in 2006. In addition, the mature products of Cefaclor
dispersible tablets and Neoandrographolade (Chinese plant medicine) revenues
dramatically increase by $1.14 million in the second quarter. The new products
of Hepatocyte growth-promoting factor for injection, Ozagrel, a Granisetron
Hydrochloride injection which was issued after June 2006 boosted the revenue by
$1.32 million. On the other hand, because of Chinese medical control, the
medicine market is a good marketing environment. The distribution network has
been further developed over a majority of the 29 provinces or regions in China.
Furthermore, with the improvement of production capacity, a significant increase
in sales has been made possible by an increased yield capacity, both in new and
existing products.

Cost of Revenue

Cost of revenue for the three months ended June 30, 2007 was approximately $4.67
million or 54.50% of revenues as compared to $2.10 million or 52.95% of revenues
for the three months ended June 30, 2006. The increased cost of revenue was due
primarily to the increased revenue for the three months ended June 30, 2007.

Gross Profit

Gross profit for the three months ended June 30, 2007 was approximately $3.90
million or 45.50% of revenues as compared to $1.87 million or 47.05% of revenues
for the three months ended June 30, 2006. The gross profit for the three months
ended June 30, 2007 was higher than that for the corresponding period by $2.03
million, representing a 108.48% increase. The increase was primarily due to the
higher revenue for the three months ended June 30, 2007.

Selling Expenses

Selling expenses have increased due to an increase in distribution cost.
Relative to the total operating expenses, selling expenses accounted for
approximately 61% of total operating expenses for the three months ended June
30, 2007. The two reasons are the expense for the printing and distributing of
throwaway materials increased and increased salary, travel, and office expenses
from employing 35 additional sales representatives.

General & Administrative Expenses

General and administrative expenses decreased from approximately $0.4 million
for the three months ended June 30, 2006 to approximately $0.2 million for the
three months ended June 30, 2007. The slight decrease is mainly from the Company
spending less on entertainment expenses, travel expenses, and office expenses.

Income from Operations

There was an increase in income from operations from approximately $1.35 million
for the three months ended June 30, 2006 to approximately $3.37 million for the
three months ended June 30, 2007. The increase was primarily due to an increase
in capacity and customers for the three months ended June 30, 2007.

Other Income

The amount of other income decreased for the three months ended June 30, 2007.
It was approximately $7,937 which was decrease of 93.43% compared to $120,803 or
3% of revenues for the corresponding period in 2006. The decrease is from a tax
subsidy for the corresponding period in 2006, but no subsidy was received for
the three months ended June 30, 2007.

Bad Debt Recovery

For the three months ended June 30, 2006, the Company collected trade
receivables which were past due and were accrued in the allowance for bad debt
at March 31, 2006, the result was a bad debt recovery of $627,861 for these
trade receivables. For the three months ended June 30, 2007, there were no trade
receivables collected that had been previously allowed against.

Income Tax Expense

For the three months ended June 30, 2007, the Company had no tax expense. The
People's Republic of China granted the Company a tax holiday that allowed the
Company to be exempt from income taxes in 2007.

Net Income

Net income, excluding the effect of foreign currency translation, was $3,326,128
for the three months ended June 30, 2007. It was 81.71% higher than the net
income of $1,830,462 for the three months ended June 30, 2006. The corresponding
growth in operations resulting in revenue increases caused the cost of revenue
and related expenses, as a percentage of total revenues, to increase.

Analysis for the Six Months Ended June 30, 2007

The following table presents the operations of the Company for the six months
ended June 30, 2007 and June 30, 2006; both are denominated in USD.

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
and COMPREHENSIVE INCOME
(unaudited)

For the six months
ended June 30, Change Variance
--------------------------------
2007 2006
------------ ------------

Revenue ................................... $ 15,804,024 $ 8,709,334 $ 7,094,690 81.46%
------------ ------------ ------------ --------
Cost of revenue ........................... 8,605,524 4,631,549 3,973,975 85.80%
------------ ------------ ------------ --------

Gross profit .............................. 7,198,500 4,077,785 3,120,715 76.53%
------------ ------------ ------------ --------

Operating expenses:
Selling expenses .......................... 474,030 170,161 303,869 178.58%
General and administrative ................ 1,583,523 680,321 903,202 132.76%
Research and development .................. 840,881 -- 840,881
------------ ------------ ------------ --------
Total operating expenses .................. 2,898,434 850,482 2,047,952 240.80%
------------ ------------ ------------ --------

Income from operations .................... 4,300,066 3,227,303 1,072,763 33.24%
------------ ------------ ------------ --------

Non-operating income (expenses):
Interest income ........................... 25,408 182 25,226 13860.44%
Interest expense .......................... (115,841) (47,898) (67,943) 141.85%
Other income .............................. 1,490,544 120,461 1,370,083 1137.37%
Bad debt recovery ......................... -- 626,580 (626,580) -100.00%
------------ ------------ ------------ --------
Total non-operating income (expense) ...... 1,400,111 699,325 700,786 100.21%
------------ ------------ ------------ --------

Income before taxes ....................... 5,700,177 3,926,628 1,773,549 45.17%
Income tax expense ........................ -- (525,022) 525,022 -100.00%
------------ ------------ ------------ --------
Net income ................................ $ 5,700,177 $ 3,401,606 $ 2,298,571 67.57%
------------ ------------ --------
Comprehensive income - foreign currency ... 651,683 221,558 430,125 194.14%
translation adjustments ................... -- -- --
Comprehensive income ...................... $ 6,351,860 $ 3,623,164 $ 2,728,696 75.31%
------------ ------------ ------------ --------

Basic and diluted earnings per common share $ 0.15 $ 0.10 $ 0.06 58.18%
------------ ------------ ------------ --------

Weighted-average common shares outstanding 36,785,909 34,723,056 2,062,853 5.94%
------------ ------------ ------------ --------

Revenues

Revenues increased to approximately $15.80 million for the six months ended June
30, 2007 as compared to approximately $8.71 million for the six months ended
June 30, 2006. This represents an increase of approximately $7.09 million or
81.46%. In the second quarter, PuSenOK (TM), a Gastrodin injection, which
reached the market expectation, increased market share and increased revenues by
approximately $2.65 million more than the corresponding period in 2006. In
addition, the mature products of Cefaclor dispersible tablets and
Neoandrographolade (Chinese plant medicine) revenues dramatically increase by

$2.06 million in the second quarter. The new products of Hepatocyte
growth-promoting factor for injection, Ozagrel, a Granisetron Hydrochloride
injection, which issued after June 2006 boosted the revenue by $2.72 million.
Additionally, because of Chinese medical control, the medicine market runs in a
better marketing environment. The distribution network has been further
developed over a majority of the 29 provinces or regions in China. Further, with
the improvement of production capacity, a significant increase in sales has been
made possible by an increased yield capacity, both in new and existing products.

Cost of Revenue

Cost of revenue for the six months ended June 30, 2007 was approximately $8.61
million or 54.45% of revenues as compared to $4.63 million or 53.18% of revenues
for the six months ended June 30, 2006. The increased cost of revenue was due
primarily to the increased revenue for the six months ended June 30, 2007.

Gross Profit

Gross profit for the six months ended June 30, 2007 was approximately $7.20
million or 45.55% of revenues as compared to $4.07 million or 46.82% of revenues
for the six months ended June 30, 2006. The gross profit the for six months
ended June 30, 2007 was higher than that for the corresponding period by $3.12
million, representing a 76.53% increase. The increase was primarily due to the
higher revenue for the six months ended June 30, 2007.

Selling Expenses

Selling expenses have increased due to an increase in distribution cost.
Relative to the total operating expenses, selling expenses accounted for
approximately 16.35% of total operating expenses for the six months ended June
30, 2007.Thereasons are that the expense for the printing and distributing of
throwaway materials increased and due to the salary, travel expenses, and office
expenses from employing 35 additional sales representatives.

General & Administrative Expenses

General and administrative expenses increase from approximately $0.6 million for
the six months ended June 30, 2006 to approximately $1.58 million for the six
months ended June 30, 2007. The allowance for doubtful accounts was increased as
a result of an increase in trade receivable for the six months ended June 30,
2007.

Research and Development

As one of our strategies, selling certain formulas to other pharmaceutical
companies is not an expedient tactic; instead, it is an organic part of our
overall strategy for development. We have solid R&D capabilities, and selling
some formulas out of our newly developed formulas can make greater profits than
otherwise maturing them into final products for marketing. Selling of such
formulas won't pose any unfavorable impact upon the Company.

Income from Operations

There was an increase in income from operations from approximately $3.23 million
for the six months ended June 30, 2006 to approximately $4.30 million for the
six months ended June 30, 2007.The increase was primarily due to the higher
revenue for the six months ended June 30, 2007.

Other Income

The amount of other income increased for the six months ended June 30, 2007. It
was approximately $1.49 million or 9.43% of revenue which was an increase of
1137.37% compared to $120,461 or 1.38% of revenues for the corresponding period
in 2006.The increase came from the sale of the drug formula.

Income Tax Expense

For the six months ended June 30, 2007, the Company had no tax expense. The
People's Republic of China granted the Company a tax holiday that allowed the
Company to be exempt from income taxes in 2007.

Net Income

Net income, excluding the effect of foreign currency translation, was $5,700,177
for the six months ended June 30, 2007. It was 67.57% higher than the net income
of $3,401,606 for the six months ended June 30, 2006. The corresponding growth
in operations resulting in revenue increases caused the cost of revenue and
related expenses, as a percentage of total revenues, to increase.

V. Analysis of Fthe Financial Position

Liquidity and Capital Resource

As of June 30, 2007, the Company had cash and cash equivalents of $2,436,105.
This represents a 271.11% increase over the December 31, 2006 balance of
$656,441. During the six months ended June 30, 2007, the proceeds from sale of
common stock and warrants increased by approximately $3,797,183. (Figure 2)

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Net cash used in operating activities was $2,003,279 for the six months ended
June 30, 2007, nearly twenty times more than the $102,529 used for the period
ended at June 30, 2006. This large decrease was due to the increase in trade
account receivable, inventory and advance to suppliers. The collection term of
trade account receivable was long relatively in Chinese medicine industry. The
Company had to pay in cash to purchase raw materials for production to meet the
large amount of sales in the coming half year. Net cash used in investing
activities, for purchase of property and equipment decreased to $25,931 at the
end of June 2007. Net cash proceeds for financing activities increased to
$3,797,183 as of June 30, 2007. The increase was primarily due to the proceeds
from sale of common stock and warrants.

of 1,252,941 shares of Company's common stock to 17 accredited investors. The
proceeds were allocated to the warrants based upon their fair value or
$2,010,219, and the balance of the proceeds was allocated to the shares of
common stock. The fair value of the warrants, determined using the Black-Scholes
Option Pricing Model, was calculated using the following assumptions: risk free
interest rate of 4.80%, expected dividend yield of 0%, expected volatility of
124.39% and an expected life of 3 years.

VI. Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements in the Company.

VII. Commitments

At June 30, 2007, the Company had no material commitments for capital
expenditures other than for those expenditures incurred in the ordinary course
of business.

VIII. Recently Enacted Accounting Pronouncements

On January 1, 2006, we adopted SFAS No. 151, Inventory Costs - An Amendment of
ARB No. 43, Chapter 4 (SFAS 151). SFAS 151 amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material (spoilage).
Among other provisions, the new rule requires that items such as idle facility
expense, excessive spoilage, double freight, and re-handling costs be recognized
as current-period charges. Additionally, SFAS 151 requires that the allocation
of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The effects of adoption of SFAS 151 were
not material.

On January 1, 2006, we adopted SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), which revises SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS 123R also superseded APB 25, Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash Flows. Under SFAS 123R,
share-based payments to employees, including the fair value of grants of
employee stock options, are recognized in the income statement at their fair
value, generally over the option vesting period. The effects of adoption of SFAS
123R were not material.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Non-monetary
Transactions (SFAS 153). SFAS 153 eliminated the exception from fair value
measurement for non-monetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, Accounting for Non-monetary Transactions, and
replaced it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a non-monetary exchange has commercial

substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The effects of adoption of SFAS 153
were not material.

In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB
No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement
154 applies to all voluntary changes in accounting principle, and changes the
requirements for accounting for and reporting of a change in accounting
principle. Statement 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impracticable. It is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. Earlier application is
permitted for accounting changes and corrections of errors made occurring in
fiscal years beginning after June 1, 2005. The effects of adoption of SFAS 154
were not material.

In June 2005, the FASB Emerging Issues Task Force (EITF) reached a consensus on
Issue No.05-6, determining the Amortization Period for Leasehold Improvements.
The guidance requires that leasehold improvements acquired in a business
combination or purchased subsequent to the inception of a lease be amortized
over the lesser of the useful life of the assets or a term that includes
renewals that are reasonably assured at the date of the business combination or
purchase. The guidance is effective for periods beginning after June 29, 2005.
The effects of adoption of EITF No. 05-6 were not material.

In February 2006, the FASB issued SFAS No. 155, accounting for Certain Hybrid
Financial Instruments -- an amendment of FASB Statements No. 133 and 140 (SFAS
155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities and SFAS No.140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and related
interpretations. SFAS155 permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation and clarifies which interest-only strips and principal-only
strips are not subject to recognition as liabilities. SFAS 155 eliminates the
prohibition on a qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. SFAS 155 is effective for the Company for all
financial instruments acquired or issued beginning January 1, 2007. The impact
of adoption of this statement on the Company's consolidated financial
statements, if any, has not yet been determined.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140 (SFAS 140). SFAS 156
amends SFAS 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities and related interpretations. SFAS 156 requires an
entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset. It also requires all
separately recognized servicing assets and servicing liabilities to be initially
measured at fair value, if practicable. SFAS 156 permits an entity to use either
the amortization method or the fair value measurement method for each class of
separately recognized servicing assets and servicing liabilities. SFAS 156 is
effective for the Company as of January 1, 2007. The impact of adoption of this
statement on our consolidated financial statements, if any, has not yet been
determined.

IX. Conclusion

The overall performance during the six months ended June 30, 2007 was
outstanding. As a public company in the pharmaceutical industry, we focused on
product innovation. In order to create products that are innovative and tailored
to the end user, we must concentrate on R&D. As a result, the Company will
continue to actively pursue the development and distribution of high-quality
products to the market.

Item 3 - Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's President
and Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, the Company's President and Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There have been no significant changes in the
Company's internal controls or in other factors, which could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.

Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive and Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure.

PART II. OTHER INFORMATION

Item 1 Legal Proceedings

From time to time, the company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. The company is
currently not aware of any such legal proceeding or claims that the company
believe will have, individually or in the aggregate, a material adverse effect
on our business, financial condition or operating results.

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

None.

Item 3 - Defaults upon Senior Securities

Not Applicable.

Item 4 - Submission of Matters to a Vote of Security Holders

None.

Item 5 - Other Information

None.

Item 6 - Exhibits

(a) Exhibits

31.1 - Certification of Chief Executive Officer pursuant to Rule
13a-14 and Rule 15d-14(a) of the Exchange Act.

31.2 - Certification of Chief Financial Officer pursuant to Rule
13a-14 and Rule 15d-14(a) of the Exchange Act.

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

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

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 Pharma Holdings, Inc.

Dated: August 10, 2007 By: /s/ Zhilin Li
-----------------------
Zhilin Li
Chief Executive Officer,
President and Director

Dated: August 10, 2007 By: /s/ Xinhua Wu
---------------------
Xinhua Wu
Chief Financial Officer,
and Director