Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30,
2009
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12 b - 2 of the Exchange Act) Yes
No
Commission
File Number 0-25765
CHINA FORESTRY,
INC.
(Exact
name of Registrant as specified in its charter)
|
Nevada
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87-0429748
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|
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification
No.)
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Room
517, No. 18 Building
Nangangjizhong
District, High-Tech Development Zone
Harbin, Heilongjiang
Province, The People’s Republic of China
(Address
of principal executive offices)
(011) (86)
0451-87011257
(Registrant's
telephone number)
Check
whether the registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities 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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2
of the Exchange Act:
Large
Accelerated Filer o
Accelerated Filer o
Non-accelerated Filer o
Smaller Reporting Company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes o
No x
State the
number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: November 13, 2009, 56,000,000
shares.
CHINA
FORESTRY, INC.
Form
10-Q for the period ended September 30, 2009
TABLE
OF CONTENTS
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Page
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PART
I - FINANCIAL INFORMATION
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ITEM
1 - FINANCIAL STATEMENTS
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Unaudited
Consolidated Balance Sheets at September 30, 2009 and December
31,2008
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3
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||
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Unaudited
Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and 2008
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4
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||
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Unaudited
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2009 and 2008
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5
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Notes
to Unaudited Consolidated Financial Statements
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6
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ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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7
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ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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10
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ITEM
4 (A) - CONTROLS AND PROCEDURES
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10
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ITEM
4 (A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING
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10
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PART
II - OTHER INFORMATION
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ITEM
1 - LEGAL PROCEEDINGS
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11
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ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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11
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ITEM
3 - DEFAULTS UPON SENIOR SECURITIES
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11
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ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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11
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ITEM
5 - OTHER INFORMATION
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11
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ITEM
6 - EXHIBITS
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11
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SIGNATURES
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12
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- 2
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CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September
30,
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December
31,
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|||||||
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2009
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2008
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|||||||
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ASSETS
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||||||||
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Current
Assets
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||||||||
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Cash
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$ | 1,156 | $ | 2,652 | ||||
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Prepaid
expenses
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2,006 | |||||||
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Total
Current Assets
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1,156 | 4,658 | ||||||
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Timberlands
- net of accumulated amortization)
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832,960 | 845,047 | ||||||
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Total
Assets
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$ | 834,116 | $ | 849,705 | ||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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||||||||
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Current
Liabilities
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||||||||
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Accrued
expenses
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$ | 6,093 | $ | 5,463 | ||||
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Due
to related parties
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144,046 | 64,889 | ||||||
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Total
Current Liabilities and Total liabilities
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150,139 | 70,352 | ||||||
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Shareholders'
Equity
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||||||||
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Preferred
stock, $0.001 par value; 10,000,000 shares authorized;
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||||||||
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None
issued and outstanding
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- | - | ||||||
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Common
stock, $0.001 par value; 200,000,000 shares authorized,
56,000,000 shares issued and outstanding
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56,000 | 56,000 | ||||||
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Additional
paid-in capital
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1,938,764 | 1,938,764 | ||||||
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Accumulated
Deficit
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(1,365,692 | ) | (1,271,176 | ) | ||||
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Accumulated
other comprehensive income
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54,905 | 55,765 | ||||||
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Total
Shareholders' Equity
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683,977 | 779,353 | ||||||
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Total
Liabilities and Shareholders' Equity
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$ | 834,116 | $ | 849, 705 | ||||
See
accompanying notes to the unaudited consolidated financial
statements.
- 3
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CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
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For
the Three Months Ended
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For
the Nine Months Ended
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September 30,
2009
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September
30,
2008
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September
30,
2009
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September
30,
2008
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Expenses
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General
and administrative expenses
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$
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19,477
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$
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1,097,558
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$
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94,516
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$
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1,156,149
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Net
loss
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$
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(19,477
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)
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$
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(1,097,558
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)
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$
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(94,516
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)
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$
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(1,156,149
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)
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Other
comprehensive income (loss) - Foreign exchange gain (loss)
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(805)
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2,093
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(859)
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51,742
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Comprehensive
loss
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$
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(20,282
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)
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$
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(1,095,465
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)
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$
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(95,375
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)
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$
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(1,104,407)
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)
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Net
Loss per share - basic and diluted
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$
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(0.00
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)
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$
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(0.02)
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)
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$
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(0.00
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)
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$
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(0.02
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)
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Weighted
average shares outstanding- basic and diluted
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56,000,000
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52,804,348
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56,000,000
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50,941,606
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See
accompanying notes to the unaudited consolidated financial
statements.
- 4
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CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)|
For
the Nine Months Ended
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||||||||
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September
30,
2009
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September
30,
2008
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Cash flows from operating
activities:
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Net
loss
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$ | (94,516 | ) | $ | (1,156,149 | ) | ||
| Adjustments to reconcile income (loss) to net cash used in operations | ||||||||
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Amortization expense
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13,272 | 13,264 | ||||||
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Stock Based Compensation
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1,090,500 | |||||||
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Changes
in operating assets and liabilities:
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||||||||
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Prepaid expenses
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2,006 | 3,200 | ||||||
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Accounts payable and accrued expenses
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630 | 1,036 | ||||||
| Net cash used in operating activities | (78,608 | ) | (48,149 | ) | ||||
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Cash flows from financing
activities
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Advances from related parties
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79,157 | 47,374 | ||||||
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Net
cash provided by financing activities
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79,157 | 47,374 | ||||||
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Effect
of exchange rate changes on cash
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(2,045 | ) | (174 | ) | ||||
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Decrease in
cash
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(1,496 | ) | (949 | ) | ||||
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Cash
at beginning of period
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2,652 | 2,660 | ||||||
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Cash
at end of period
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1,156 | 1,711 | ||||||
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Supplemental
cash flow information:
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Interest
paid
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$ | - | $ | - | ||||
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Income tax paid
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$ | - | $ | - | ||||
See
accompanying notes to the unaudited consolidated financial
statements
- 5
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CHINA
FORESTRY, INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
UNAUDITED
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited interim consolidated financial statements of China
Forestry, Inc. and Subsidiaries, have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission and should be read in
conjunction with the audited financial statements and notes thereto contained in
China Forestry’s latest Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
consolidated financial statements that would substantially duplicate the
disclosure contained in the audited financial statements for the most recent
fiscal year as reported in Form 10-K, have been omitted.
NOTE
2 - GOING CONCERN
The
Company’s ability to continue as a going concern is ultimately contingent upon
its ability to attain profitable operations through the successful development
of its business plan. As shown in the accompanying consolidated financial
statements, the Company has incurred an accumulated deficit of $1,365,692 as of
September 30, 2009 through its limited operations. These conditions raise
substantial doubt as to the Company's ability to continue as a going concern.
The Company is actively pursuing additional funding and a potential merger or
acquisition candidate and strategic partners, which would enhance owners’
investment. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Timberlands
We
carried timberland at historical cost less accumulated amortization. Since
private ownership of timberland is not allowed in the People’s Republic of
China, the Company acquired the user right of timberland from the government. We
capitalized the acquisition costs of the user right and allocated that cost to
the timberland. The user right is good for from 50 to 70 years and
with the user right, the timber on the timberland is under the Company’s
ownership. Amortization of the use right on timberland is primarily determined
using the straight-line method over the life of usage right.
We
capitalized reforestation costs incurred in developing viable seedling
plantations (up to two years from planting), such as site preparation,
seedlings, planting, fertilization, insect and wildlife control, thinning and
herbicide application. We expensed all other costs, such as property taxes and
costs of forest management personnel, as incurred. Once the seedling plantation
was viable, we expensed all costs to maintain the viable plantations, such as
fertilization, herbicide application, insect and wildlife control, and thinning,
as incurred. We capitalized costs incurred to initially build roads as land
improvements, and we expensed as incurred costs to maintain these
roads.
- 6
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ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
DESCRIPTION OF BUSINESS
Introduction
The
Registrant was originally incorporated in Nevada on January 13, 1986. Since
inception, it has not had active business operations and was considered a
development stage company. In 1993, the Registrant entered into an agreement
with Bradley S. Shepherd in which Mr. Shepherd agreed to become an officer and
director and use his best efforts to organize and update the Company’s books and
records and to seek business opportunities for acquisition or participation. The
acquisition of the share capital of Hong Kong Jin Yuan was such an
opportunity.
As a
result of a Share Exchange, Hong Kong Jin Yuan became a wholly-owned subsidiary
of the Registrant, Harbin SenRun became an indirect wholly-owned subsidiary of
the Registrant, and the Registrant succeeded to the business of Harbin SenRun
Forestry Development Co., Ltd., a producer of forest products with approximately
1,561 hectares of State forest assets located mainly over the Small Xing An
Mountains, Jin Yin County, and the Harbin Wu Chang District of Heilongjiang
Province of Northern China.
Harbin
SenRun was founded in 2004. It currently has a workforce of 8 full time
employees, mainly in sales, administration and in supporting services. It
recruits temporary part-time workers to carry out felling, cutting and forestry
plantation and protection.
Harbin
SenRun engages in the business of conserving and managing forests and forest
lands to provide a sustained supply of forest products, forest conditions, and
other forest values desired by its position as a forest user. Its primary
operations are felling trees and selling the logs. Its principal revenue
producer is log sales.
Harbin
SenRun plans to expand into paper and pulp manufacturing over the next ten
years. The company also plans to develop a service industry in its forests,
providing hunting, fishing, boating, riding, mountaineering, exploration,
photography and the like. Finally, subject to its receipt of additional capital,
Harbin SenRun plans to invest $4.0 million in forest resource management and for
a forest acquisition program for the year 2009, with an additional $1.0 million
to be invested for capital construction, nursery construction, equipment and
other overhead. Harbin SenRun will require substantial additional debt or equity
capital in order to make such investments and fund such activities and, as of
the date hereof, Harbin SenRun has not entered into any agreement or arrangement
for the provision of such funding and no assurances can be given that it will be
successful in obtaining such funding.
Philosophy
& Values
Since its
inception, Harbin SenRun’s founders and management team have been committed to
the philosophy of “the forest as an independent ecosystem,” and believe this
focus will continue to help Harbin SenRun grow and develop as a strong and
lasting enterprise.
Holding
true to its values, Harbin SenRun treats the forest as a renewable resource, a
sustainable resource, a storable resource, and a beneficial resource, yielding
economic benefits, ecosystem benefits and social benefits.
- 7
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Competition
Log
Sales
There are
no strong competitors to the Company in the Heilongjiang Province. The Company
believes that any logging operation that might compete with Harbin SenRun
produces products that are lesser in quality than the Company’s products.
Moreover, most of these competitors produce products that are considered lower
grade than the Company’s products. The Company’s logs include alley woods (20%),
the highly demanded charcoal wood material used for construction materials
(35%), and thick woods (45%).
Cellulose
Fibers (Pulp) and Paper
Although
the Company does not sell cellulose fibers or paper at this point in time, the
Company has identified competitors.
The first
one is Da Xing An Ling Sen Gong (Lin Ye) Ji Tuan Company Ltd., a company which
is directly owned by the State Forestry Administration. This company
manufactures and produces all forest products and some natural products, and is
the manufacturing arm of the Central government. It has sales and distribution
networks set up all over China. Its products cover the high-end as well as the
low-end in terms of use and value. Logs, pulp and paper are primary
offerings of the company.
A second
competitor is Heilongjiang Yichun County Guang Ming Furniture Manufacturing
Group. The group was organized in 1986 and now employs over 4,000 workers with
17 manufacturing facilities around Heilongjiang Province. Some of their wood
products are exported to the overseas market.
A third
competitor is BeiDaHuang ZhiYe. This company used to be a state owned enterprise
which was set up in 1958, but in 2003 it was reorganized as a private company
and its subsidiary was listed on the PRC stock market. Their pulp and paper
manufacturing section has over 1,200 workers and annual output of over 14,000
tons of pulp and over 18,000 tons of paper.
A well
known problem for a state owned or quasi-state owned enterprise in China is its
inflexibility to react to market driven trends in production, manufacturing,
timing of output, pricing and sales support. It is customary for employees of
these companies not to embrace the risks associated with market driven changes
and the globalization of the world market. In short, we believe they are not
competitive with many smaller, more agile privately held companies.
RESULTS OF
OPERATIONS
The
following discussion should be read in conjunction with the financial statements
included in this report and is qualified in its entirety by the
foregoing.
- 8
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FORWARD
LOOKING STATEMENTS
Certain
statements in this report, including statements of our expectations, intentions,
plans and beliefs, including those contained in or implied by "Management's
Discussion and Analysis" and the Notes to Financial Statements, are
"forward-looking statements", within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
subject to certain events, risks and uncertainties that may be outside our
control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. We undertake no obligation to
update or revise any forward-looking statements. These forward-looking
statements include statements of management's plans and objectives for our
future operations and statements of future economic performance, information
regarding our expansion and possible results from expansion, our expected
growth, our capital budget and future capital requirements, the availability of
funds and our ability to meet future capital needs, the realization of our
deferred tax assets, and the assumptions described in this report underlying
such forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements.
RESULTS
OF OPERATIONS
Three Months Ended September
30, 2009 Compared to the Three Months Ended September 30,
2008
Net
Sales
The
company had no sales for the three months ended September 30, 2009 and
2008. This result is a function of a lack of
business during these periods since the company does not have the wood-cutting
quota for log sales from the local government.
Net
Loss
Net loss
was approximately $20,282 for the three months ended September 30, 2009, as
compared to a net loss of $1,095,465 for the same corresponding period in year
2008. The decrease in net loss was due to the company incurred
expense related to issuing S-8 shares in the three months ended September 30,
2008, whereas there was no such activity during the three months ended September
30, 2009.
Nine Months Ended September
30, 2009 Compared to the Nine Months Ended September 30,
2008
Net
Sales
The
company had no sales for the nine months ended September 30, 2009 and 2008. This
result is a function of a lack of business during these periods since the
company does not have the wood-cutting quota for log sales from the local
government.
Net
Loss
Net loss was approximately $94,516 for
the nine months ended September 30, 2009, as compared to a net loss of
$1,156,149 for the same corresponding period in year 2008. The decrease in net
loss was due to the company incurred expense related to issuing S-8 shares in
the nine months ended September 30, 2008. Whereas there was no such activity
during the nine months ended September 30, 2009
- 9
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Liquidity
and Capital Resources
The
Company’s ability to continue as a going concern is ultimately contingent upon
its ability to attain profitable operations through the successful development
of its business plan. As shown in the accompanying consolidated financial
statements, the Company has incurred an accumulated deficit of $1,365,692 as of
September 30, 2009
through its limited operations. It has working capital deficits and negative
operating cash flows. These conditions raise substantial doubt as to the
Company's ability to continue as a going concern. The Company is actively
pursuing additional funding and a potential merger or acquisition candidate and
strategic partners, which would enhance owners’ investment.
As of
September 30, 2009, cash
and cash equivalents totaled $1,156. This cash position was the result of a
combination of cash at beginning of period in the amount of $2,652 and net
cash provided by financing activities in the amount of $79,157, offset by net
cash used in operating activities in the amount of
$78,608.
We
believe that said level of financial resources is a significant factor for our
future development and accordingly may choose at any time to raise capital
through private debt or equity financing to strengthen our financial position,
facilitate growth and provide us with additional flexibility to take advantage
of business opportunities.
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the
normal course of business, operations of the Company are exposed to fluctuations
in interest rates. These fluctuations can vary the costs of financing and
investing yields. During the first three months of 2009, the Company has not
utilized any financing arrangements or investing arrangements and is not
currently subject to any market risk.
ITEM
4(A) - CONTROLS AND PROCEDURES
The Chief
Executive Officer and Chief Financial Officer (the principal executive officer
and principal financial officer, respectively) of the Company have concluded,
based on their evaluation as of September 30, 2009, that the design and
operation of the Company's "disclosure controls and procedures" (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange
Act")) are not effective to ensure that information required to be disclosed in
the reports filed or submitted by the Company under the Exchange Act is
accumulated, recorded, processed, summarized and reported to the management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding whether or not disclosure is
required.
During
the quarter ended September 30, 2009, there were no changes in the internal
controls of the Company over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that have materially affected, or are reasonably likely
to materially affect, the internal controls of the Company over financial
reporting.
ITEM
4(A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING
(a) The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934, as amended). Management conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting based on the criteria set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management has concluded that the
Company’s internal control over financial reporting was not effective as of
September 30, 2009. See the discussion under Item 4(A) above.
(b) This
quarterly report does not include an attestation report of the company’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the company’s
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management’s
report in this quarterly report.
(c) There
were no changes in the Company's internal controls over financial reporting,
known to the chief executive officer or the chief financial officer that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
- 10
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PART
II - OTHER INFORMATION
ITEM
1 - LEGAL PROCEEDINGS
None.
ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5 - OTHER INFORMATION
None.
ITEM
6 – EXHIBITS
|
31.1
|
Certification
of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
|
|
31.2
|
Certification
of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
|
|
32.1
|
Certification
of the Company's Chief Executive Officer Pursuant to 18 U.S.C. SS. 1350
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. SS. 1350 Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
- 11
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SIGNATURES
Pursuant
to the requirements of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA
FORESTRY, INC.
(Registrant)
|
November
13, 2009
|
/s/Yuan
Tian
|
|
Yuan
Tian
|
|
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
November 13,
2009
|
/s/Man
Ha
|
|
Man
Ha
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Accounting
Officer)
|
- 12
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