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 March 31, 2010
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________to______________________
Commission File Number 0-25765
CHINA FORESTRY, INC.
(Exact name of Registrant as specified in its charter)
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Nevada
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87-0429748
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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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. 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: May 14, 2010, 56,000,000 shares.
CHINA FORESTRY, INC.
Form 10-Q for the period ended March 31, 2010
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
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9
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9
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PART II - OTHER INFORMATION
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10
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10
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CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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March 31,
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December 31,
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2010
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2009
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ASSETS
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Current Assets
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Cash
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$ | 311 | $ | 1,599 | ||||
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Prepaid expenses
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- | - | ||||||
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Total Current Assets
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311 | 1,599 | ||||||
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Timberlands - net of accumulated amortization
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825,130 | 829,445 | ||||||
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Total Assets
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$ | 825,441 | $ | 831,044 | ||||
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities
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Accounts payable and accrued expenses
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$ | 6,346 | $ | 10,126 | ||||
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Due to related parties
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177,777 | 154,628 | ||||||
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Total Current Liabilities and Total Liabilities
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184,123 | 164,754 | ||||||
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Shareholders' Equity
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Preferred stock, $0.001 par value; 10,000,000 shares authorized; None issued and outstanding
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- | - | ||||||
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Common stock, $0.001 par value; 200,000,000 shares authorized, 56,000,000 shares issued and outstanding
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56,000 | 56,000 | ||||||
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Additional paid-in capital
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1,938,764 | 1,938,764 | ||||||
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Accumulated Deficit
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(1,413,482 | ) | (1,384,354 | ) | ||||
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Accumulated other comprehensive income
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60,036 | 55,880 | ||||||
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Total Shareholders' Equity
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641,318 | 666,290 | ||||||
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Total Liabilities and Shareholders' Equity
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$ | 825,441 | $ | 831,044 | ||||
See accompanying notes to the unaudited consolidated financial statements.
CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
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For the Three Months Ended
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March 31,
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2010
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2009
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Expenses
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General and administrative expenses
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$ | 29,128 | 54,969 | |||||
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Net Loss
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$ | (29,128 | ) | $ | (54,969 | ) | ||
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Other comprehensive income (loss)-Foreign exchange gain (loss)
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(4,156 | ) | 1,025 | |||||
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Comprehensive gain (loss)
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$ | (33,284 | ) | $ | (53,944 | ) | ||
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Net Loss per share - basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | ||
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Weighted average shares outstanding-
basic and diluted
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56,000,000 | 56,000,000 | ||||||
See accompanying notes to the unaudited consolidated financial statements.
CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Three Month Ended
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March 31,
2010
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March 31,
2009
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Operating activities:
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Net income (loss)
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$ | (29,128 | ) | $ | (54,969 | ) |
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Amortization expense
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4,428 | 4,422 | ||||
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Changes in operating assets and liabilities:
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Prepaid expenses
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- | 1,203 | ||||
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Accounts payable and accrued expenses
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(98 | ) | 557 | |||
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Net cash provided by (used in) operating activities
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(24,798 | ) | (48,787 | ) | ||
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Financing activities
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Advances from related parties
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19,437 | 47,541 | ||||
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Net cash provided by financing activities
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19,437 | 47,541 | ||||
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Effect of exchange rate changes on cash
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4,073 | (37 | ) | |||
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Increase (decrease) in cash
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(1,288 | ) | (1,283 | ) | ||
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Cash at beginning of period
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1,599 | 2,652 | ||||
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Cash at end of period
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$ | 311 | $ | 1,369 | ||
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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.
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-K. 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 $1,413,482 as of March 31, 2010 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.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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.
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.
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%).
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited consolidated financial statements included in this report and related notes thereto.
CRITICAL ACCOUNTING POLICIES
For purposes of this section entitled “Critical Accounting Policies,” Harbin SenRun and Hong Kong Jin Yuan shall hereafter together be referred to as “Harbin SenRun.” During the preparation of the financial statements Harbin SenRun is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, Harbin SenRun evaluates its estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies. Harbin SenRun bases its estimates on historical experience and on various other assumptions that it believes are reasonable under current conditions. Actual results may differ from these estimates under different assumptions or conditions.
In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policy,” Harbin SenRun identified the most critical accounting principles upon which its financial status depends. Harbin SenRun determined that those critical accounting principles are related to the use of estimates, inventory valuation, revenue recognition, income tax and impairment of intangibles and other long-lived assets. Harbin SenRun presents these accounting policies in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.
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 review the carrying value of our long-lived assets annually or whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. We assess recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Fair value is estimated based upon either discounted cash flow analysis or estimated salvage value.
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.
Income Taxes. China Forestry has adopted Statement of Financial Accounting Standards No. 109, “Accounting for
Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes. Since China forestry had no operations within the United States there is no provision for US income taxes and there are no deferred tax amounts as of December 31, 2009. The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and the Company intends to settle current tax assets and liabilities on a net basis.
Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009
Net Sales
The company had no sales for the three months ended March 31, 2010 and 2009. This result is a function of 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 $29,128 for the three months ended March 31, 2010, as compared to a net loss of $54,969 for the same corresponding period in 2009. The decrease in net loss was attributable to a reduction of the general administrative expenses and having no revenues for the period and failing to sell products without the wood-cutting quota from the local Bureau of Forestry.
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 $1,413,482 as of March 31, 2010 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 March 31, 2010, cash and cash equivalents totaled $311. This cash position was the result of a combination of cash at beginning of period in the amount of $1,599 and net cash provided by financing activities in the amount of $19,437, offset by net cash used in operating activities in the amount of $(24,798).
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 2010, the Company has not utilized any financing arrangements or investing arrangements and is not currently subject to any market risk.
ITEM 4 - 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 March 31, 2010, 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 March 31, 2010, there were no changes in the Company's internal controls 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 Company's internal controls over financial reporting.
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 – REMOVED AND RESERVED
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 – EXHIBITS
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31.1
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Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
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31.2
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Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
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32.1
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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
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32.2
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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
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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)
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May 14, 2010
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/s/Yuan Tian
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Yuan Tian
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Chief Executive Officer
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(Principal Executive Officer)
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May 14, 2010
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/s/Man Ha
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Man Ha
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Chief Financial Officer
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(Principal Accounting Officer)
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