China Senior Living Industry International Holding Corp - FORM 10-Q

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EX-32.2 - EXHIBIT 32.2 - China Senior Living Industry International Holding Corp	ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - China Senior Living Industry International Holding Corp	ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - China Senior Living Industry International Holding Corp	ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - China Senior Living Industry International Holding Corp	ex31-1.htm

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, 2011

o TRANSITION REPORT UNDER 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)

Nevada		87-0429748
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Economic Development Zone of Hanzhong City,

Shaan’xi Province, The People’s Republic of China

(Address of principal executive offices)

(011) (86) 29-85257870

(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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: May 12, 2011, 156,000,000 shares.

CHINA FORESTRY, INC.

Form 10-Q for the period ended March 31, 2011

TABLE OF CONTENTS

			Page

PART I - FINANCIAL INFORMATION

	ITEM 1 - FINANCIAL STATEMENTS

		Unaudited Consolidated Balance Sheets at March 31, 2011 and December 31,2010	3

		Unaudited Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010	4

		Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010	5

		Notes to Unaudited Consolidated Financial Statements	6 - 16

	ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		17

	ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		22

	ITEM 4 - CONTROLS AND PROCEDURES		22

PART II - OTHER INFORMATION

	ITEM 6 - EXHIBITS		23

		SIGNATURES	24

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	March 31,			December 31,
	2011			2010
ASSETS
Current Assets
Cash and cash equivalents	$	96,943			42,333
Restricted cash (Note 10)		29,015			28,833
Accounts receivable, net (Note 5)		63,428			99,216
Other receivables		51,898			51,090
Other receivables-related parties (Note 16)		53,711			29,226
Inventories (Note 6)		1,230,359			1,207,846
Prepayment (Note 7)		59,181			29,786
Total Current Assets		1,584,535			1,488,330

Property, plant and equipment, net (Note 8)		30,263			13,359
Intangible assets (Note 9)		9,585			9,561
Total Assets	$	1,624,383			1,511,250

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term loans (Note 10)	$	966,648			1,015,530
Accounts payable		26,005			35,196
Other payables		50,517			49,822
Due to related parties (Note 16)		152,525			91,482
Accrued expenses		82,453			98,198
Interest payable		175,092			132,665
Advance from customers		44,007			56,911
Long-term loans due within one year (Note 11)		76,391			75,912
Total Current Liabilities		1,573,638			1,555,716
Convertible promissory note-shareholders (Note 12)		1,000,000			1,000,000
Total Liabilities		2,573,638			2,555,716

Shareholders' Equity (Deficit)
Preferred stock, $0.001 par value; 10,000,000 shares authorized;
0 shares issued and outstanding		-			-
Common stock, $0.001 par value; 200,000,000 shares authorized,
156,000,000 shares issued and outstanding		156,000			156,000
Additional Paid-in Capital		1,287,640			1,287,640
Accumulated Deficit		(2,586,235	)		(2,680,580	)
Accumulated other comprehensive income		193,340			192,474
Shareholders' Equity (Deficit)		(949,255	)		(1,044,466	)
Total Liabilities and Shareholders' Equity	$	1,624,383			1,511,250

See Notes to Consolidated Financial Statements

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CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	For the Three Months Ended
	March 31,
	2011			2010

Revenue
Net sales	$	530,989		$	45,162

Cost of Godds Sold		(420,134	)		(39,699	)
Gross Profit		110,855			5,463

Operating Expenses
Selling expenses		8,369			-
General and administrative expenses (Note 13)		67,762			18,296
Total operating expenses		76,131			18,296
Loss from operations		34,724			(12,833	)

Other Income (Expenses)
Interest expense		(54,069	)		(22,415	)
Other income		113,690			9,735
Total other income (expenses)		59,621			(12,680	)

Loss before income taxes		94,345			(25,513	)
Income taxes		-			-
Net Income (Loss)	$	94,345		$	(25,513	)

Net Loss per share - basic and diluted	$	0.00		$	0.00

Weighted average shares outstanding- basic and diluted		156,000,000			100,000,000

See Notes to Consolidated Financial Statements.

Table of Contents

CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the Three Months Ended
	March 31,
	2011			2010

Operating Activities:
Net income (loss)	$	94,345		$	(25,513	)
Adjustments to reconcile income (loss) to net cash provided by operations

Depreication		915			691
Provision for bad debts		3,366			-
Amortization of intangible assets		48			47
Gain on disposal of property, plant and equipment		(608	)		(3,864	)
Changes in operating assets and liabilities:
Restricted cash		(182	)		(4	)
Accounts receivable, net		35,788			4,642
Other receivables		(3,894	)		(21,842	)
Inventories		(14,817	)		(12,223	)
Prepayment		(29,395	)		7,235
Accounts payable		(9,190	)		299
Other payables		694			7,732
Accrued expenses		(15,745	)		870
Interest payable		42,427			9,224
Advance from customers		(12,904	)		19,118
Net cash provided by (used in) operating activities		90,848			(13,588	)

Investing Activities
Purchase of properties, plant and equipment		(22,818	)		-
Proceeds from disposal of properties, plant and equipments		608			7,031
Proceeds from sale of capital share of subsidiary		-			-
Net cash provided by (used in) investing activities		(22,210	)		7,031

Financing Activities
Proceeds from related parties		61,043			10,273
Repayment to related parties		(24,765	)		-
Repayment of loans		(48,403	)		(4,948	)
Net cash provided by (used in) financing activities		(12,125	)		5,325

Effect of exchange rate changes on cash		(1,903	)		(1,416	)

Increase(decrease) in cash		54,610			(2,648	)
Cash at beginning of period		42,333			8,240
Cash at end of period	$	96,943		$	5,592

Supplemental disclosure of cash flow information
Interest paid	$	80,183		$	13,200
Income taxes paid	$	-		$	-

See Notes to Consolidated Financial Statements.

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CHINA FORESTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND BUSINESS BACKGROUND

The Company was incorporated under the name of Patriot Investment Corp. on February 13, 1986 under the laws of the State of Nevada. In January 2008, the Company filed an amendment to its articles of incorporation to change the name to China Forestry Inc.(“the Company”). The Company is principally engaged in the growing and harvesting of timber and manufacture and marketing of lumber in the People’s Republic of China (“PRC”) through its holdings and subsidiaries.

On July 15, 2010, the Company closed a reverse merger with Financial International (Hong Kong) Holdings Co. Limited (“FIHK”). FIHK has no other material operations except a series of contractual arrangements with Hanzhong Hengtai Bio-Tech Limited (“Hengtai”), a company organized and existing under the laws of the People’s Republic of China on October 22, 2003.

On July 15, 2010, the Company closed the transactions contemplated by the Share Exchange Agreement and acquired Financial International (Hong Kong) Holdings Co. (“FIHK”), a company organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China on January 8, 2009, as its wholly owned subsidiary. FIHK has entered into a series of contractual obligations with Hanzhong Hengtai Bio-Tech Limited (“Hengtai”), a company incorporated under the laws of the People’s Republic of China (“China”) that is engaged in the plantation and sale of garden plants used in landscaping, such as Chinese Yews of the types Taxus chinensis var. mairei and Taxus media, as well as the holders of 100% of the voting shares of Hengtai.

The Company’s relationship with Hengtai and its shareholders is governed by a series of contractual arrangements among FIHK, Hengtai and the 100% holders of the share capital of Hengtai (the “Hengtai Shareholders”) entered on April 1, 2010. The contractual arrangements include a Consulting Services Agreement, a Business Operating Agreement, an Equity Pledge Agreement, an Exclusive Option Agreement, and a Voting Rights Proxy Agreement. Under the laws of China, the contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of China.

On December 14, 2010, following the resolution of the Board of Directors to terminate the timber business, the Company sold share 100% of the share capital of Jin Yuan for $2,000. There was loss of $640,786 from this deposal.

2. GOING CONCERN

As reflected in the accompanying financial statements, the Company has accumulated deficits of $2,586,235 at March 31, 2011. The Company’s owners have funded the losses and cash shortfalls allowing management to develop sales and contingencies plans. The Company is also arranging for additional funding. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Preparation

The accompanying financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). All significant intercompany accounts and transactions have been eliminated in consolidation.

These interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. They do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto contained in its report on Form 10-K for the year ended December 31, 2010.

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at March 31, 2011, and the results of its operations and cash flows for the three month periods ended March 31, 2011 and 2010. The results of operations for the period ended March 31, 2011 are not necessarily indicative of the results to be expected for future quarters or the full year.

Hengtai is considered a variable interest entity (“VIE”), and FIHK, the Company’s wholly owned subsidiary, is the primary beneficiary. The Company’s relationships with Hengtai and its shareholders are governed by a series of contractual arrangements between the Company and Hengtai, which is an operating company in the PRC. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On April 1, 2010, FIHK entered into the following contractual arrangements with Hengtai:

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(1) Consulting Services Agreement. Pursuant to the consulting services agreement between FIHK and Hengtai, dated April 1, 2010, FIHK has the exclusive right to provide Hengtai with consulting services and daily operations, including general business operations in relation to business development, human resources, research and development, and business growth, and support the daily operation costs and daily expenses. Hengtai pays an annual consulting service fee to FIHK that is equal to 100% of Hengtai’s net revenue for such year, based on the annual financial statements. This agreement shall remain in force unless otherwise terminated. FIHK is entitled to assign to a wholly-owned subsidiary, if one were set up in the future, all the rights to the Company as stipulated in this agreement. All intercompany transactions, including this service fee, have been eliminated in the consolidated financial statements presented.

(2) Business Operating Agreement. Pursuant to the business operating agreement among FIHK and Hengtai, dated April 1, 2010, FIHK provides Hengtai guidance and instruction on Hengtai’s daily operations, financial management and employment issues. FIHK has the right to appoint or remove Hengtai’s directors and executive officers. In addition, FIHK agrees to guarantee Hengtai’s performance under any agreements or arrangements relating to its business arrangement with any third party. Upon the request of Hengtai, FIHK agrees to provide loans to support its operation’s capital requirements and to provide a guarantee if the Company needs to apply for loans from a third party. In return, Hengtai agrees to pledge its accounts receivable and all of its assets to FIHK. The term of this agreement is ten years; and may be extended or terminated only by 30-day prior written notice served by FIHK (or its designated party). FIHK is entitled to assign to a wholly-owned subsidiary, if one were set up in the future, all the rights to the Company as stipulated in this agreement.

(3) Equity Pledge Agreement. Under the equity pledge agreement between FIHK and Hengtai, dated April 1, 2010, Hengtai’s 100% shareholders pledged all of their equity interests in Hengtai to FIHK to guarantee its performance of its obligations under the Business Operating Agreement. If Hengtai or its shareholders breaches their respective contractual obligations, FIHK, as Pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The 100% shareholders of Hengtai also agreed that upon occurrence of any event of default, FIHK shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the 100% shareholders of Hengtai to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that FIHK may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The 100% shareholders of Hengtai agreed not to dispose of the pledged equity interests or take any actions that would prejudice FIHK’s interest. This equity pledge agreement shall expire two years after Hengtai’s obligations under the Consulting Services Agreement have been fulfilled. FIHK is entitled to assign to a wholly-owned subsidiary, if one were set up in the future, all the rights to the Company as stipulated in this agreement.

(4) Exclusive Option Agreement. Under the exclusive option agreement between FIHK and Hengtai, dated on April 1, 2010, all the shareholders of Hengtai irrevocably granted to FIHK (or its designated person) an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in Hengtai for the minimum amount of consideration permitted by applicable PRC law. FIHK (or its designated person) has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement is ten (10) years from April 15, 2009 and may be extended prior to its expiration by written agreement of the parties.

(5) Voting Right Proxy Agreement. Under the voting right proxy agreement between FIHK and Hengtai, dated on April 1, 2010, all shareholders of Hengtai agreed to irrevocably grant FIHK with the right to exercise the 100% shareholders of Hengtai’s voting rights and their other rights, including the attendance at and the voting of the all the shares held by 100% shareholders of Hengtai at shareholders’ meetings (or by written consent in lieu of such meetings) in accordance with applicable laws and its Articles of Association, including but not limited to the rights to sell or transfer all or any of his equity interests of the Hengtai, and appoint and vote for the directors and Chairman as the authorized representative of the shareholders of the Hengtai. The proxy agreement may be terminated by joint consent of the parties or upon 30-day written notice from FIHK.

Under Article 1.06(c) of the Share Exchange Agreement, if FIHK does not execute and deliver the Exclusive Option Agreement described above to acquire Hengtai on or before September 30, 2010, the Company has the option to rescind the Share Exchange Agreement by delivering notice of rescission to FIHK and the shareholders of FIHK. The parties are to be returned to such position that they were in prior to entering into the Share Exchange Agreement, including, but not limited to, the return to the Company of the share certificates for 100,000,000 shares of common stock of the Company and the $1.0 million convertible promissory note issued by the Company, and the return to the shareholders of FIHK of the share certificates representing the FIHK Share Capital. The $50,000 cash payment by Hengtai as part of the Share Exchange Agreement will not be returned by the Company. The option agreement has not been exercised to date. However, FIHK is going through the approval process with the Chinese government to exercise the option to acquire Hengtai and it intends to do so. Nonetheless, the Company still has a right of rescission under the Share Exchange Agreement until the exercise of that option. There can be no assurances that the Chinese government will approve the exercise by FIHK of the option agreement to acquire Hengtai.

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The accounts of Hengtai are consolidated in the accompanying financial statements pursuant to generally accepted accounting standards pertaining to variable interest entities (“VIE”). As a VIE, Hengtai’s sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of Hengtai’s net income. The Company does not have any non-controlling interest and accordingly, did not subtract any net income in calculating the net income attributable to the Company. Because of the contractual arrangements, the Company had a pecuniary interest in Hengtai that requires consolidation of the Company’s and Hengtai’s financial statements.

b. Use of Estimates

In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates. The Company regularly evaluates estimates and assumptions related to obsolete inventory, useful life and recoverability of long lived assets. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

c. Financial Instruments

The carrying amount reported in the balance sheet for cash, accounts receivable, inventory, other receivables, short-term loans, accounts payable, other payables, accrued expenses, interest payable and long-term loans approximate fair value because of the immediate or short-term maturity of these financial instruments.

d. Fair Value Accounting

The Company adopted the standard “Fair Value Measurements,” codified with ASC 820 and effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.

ASC 820 clarifies that fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e. the exit price at the measurement date). Under ASC 820, fair value measurements are not adjusted for transaction cost. ASC 820 provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

Level 1:

Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2:

Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3:

Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

e. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits with banks. Cash deposits with banks are held in financial institutions in China, which has no federally insured deposit protection. Accordingly, the Company has a concentration of credit risk related to these uninsured deposits.

f. Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollected amounts through a charge to earnings and a credit to an allowance for bad debts based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for bad debts and a credit to accounts receivable.

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g. Inventories

Inventories are stated at the lower of cost, as determined on a standard cost basis, or net present value. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Management also regularly evaluates the composition of the Company’s inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

h. Property, Plant, and Equipment

Property, plant and equipment are initially recognized recorded at cost. Gains or losses on disposals are reflected as gain or loss in the period of disposal. The cost of improvements that extend the life of plant and equipment are capitalized. These capitalized costs may include structural improvements, equipment and fixtures. All ordinary repairs and maintenance costs are expensed as incurred.

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

Buildings	10 years
Machinery and equipment	5 years
Transportation equipment	5 years
Office equipment	5 years

i. Intangible Assets

Intangible assets are stated in the balance sheet at cost less accumulated amortization. The costs of the intangible assets are amortized on a straight-line basis over their estimated useful lives. The respective amortization periods for the intangible assets are as follows:

Land use right 30-70 years

j. Impairment of Long-Lived Assets

The Company accounts for impairment of plant and equipment and amortizable intangible assets in accordance with the standard, “Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,” codified with ASC 360, which requires the Group to evaluate a long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.

k. Comprehensive Income

The standard, “Reporting Comprehensive Income,” codified with ASC 220, requires disclosure of all components of comprehensive income and loss on an annual and interim basis. Comprehensive income and loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income arose from the effect of foreign currency translation adjustments.

l. Revenue Recognition

The Company generates revenues from the sales of plants, such as Taxus mairei and etc. Sales are recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales are presented net of value added tax (VAT). No return allowance is made as products returns are insignificant based on historical experience.

m. Income Taxes

The Company accounts for income taxes in accordance with the standard, "Accounting for Income Taxes," codified with ASC 740. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or that future deductibility is uncertain.

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n. Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At March 31, 2011, the Company had no common stock equivalents that could potentially dilute future earnings per share; however, if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents would have been anti-dilutive due to the Company’s net loss.

o. Segment Information

The standard, “Disclosures about Segments of an Enterprise and Related Information,” codified with ASC 280, requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. The Company believes that it operates in one business segment (research, development, production, marketing and sales) and in one geographical segment (China), as all of the Company’s current operations are carried out in China.

p. Foreign Currency Translation

The Company’s functional currency is Chinese Renminbi (“RMB”) and its reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the date of the transactions. Exchange gains or losses on transactions are included in earnings.

The consolidated financial statements of the Company are translated into U.S. dollars in accordance with the standard, “Foreign Currency Translation,” codified with ASC 830, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency consolidated financial statements into U.S. dollars are included in determining comprehensive income. At March 31, 2011 and December 31, 2010, the cumulative translation adjustments of $193,340 and $192,794, respectively, were classified as items of accumulated other comprehensive income (loss) in the stockholders’ equity section of the balance sheet. For the three months ended March 31, 2011 and 2010, other comprehensive income (loss) was $866 and ($20), respectively.

The exchange rates used to translate amounts in RMB into U.S. dollars for the purposes of preparing the consolidated financial statements were as follows: As of March 31, 2011 and December 31, 2010, the Company used the period-end rates of exchange for assets and liabilities of $1 to RMB6.5484 and $1 to RMB6.5897, respectively. For the three months ended March 31, 2011 and 2010, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1 to RMB6.5828 and $1 to RMB6.8270, respectively. The Company used historical rates for equity.

q. Related Parties

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

r. Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

s. Recently Issued Accounting Pronouncements

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force,” that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding the application of the multiple-deliverable revenue arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. For the Company, ASU No. 2009-13 is effective beginning January 1, 2011. The Company elected to adopt the provisions of this standard prospectively to new or materially modified arrangements beginning on the effective date. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.

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In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force,” that reduces the types of transactions that fall within the current scope of software revenue recognition guidance. Existing software revenue recognition guidance requires that its provisions be applied to an entire arrangement when the sale of any products or services containing or utilizing software is considered more than incidental to the product or service. As a result of the amendments included in ASU No. 2009-14, many tangible products and services that rely on software will be accounted for under the multiple-element arrangements revenue recognition guidance rather than under the software revenue recognition guidance. Under the ASU, the following components would be excluded from the scope of software revenue recognition guidance: the tangible element of the product, software products bundled with tangible products where the software components and non-software components function together to deliver the product’s essential functionality, and undelivered components that relate to software that is essential to the tangible product’s functionality. The ASU also provides guidance on how to allocate transaction consideration when an arrangement contains both deliverables within the scope of software revenue guidance (software deliverables) and deliverables not within the scope of that guidance (non-software deliverables). For the Company, ASU No. 2009-14 is effective beginning January 1, 2011. The Company elected to adopt the provisions of this standard prospectively to new or materially modified arrangements beginning on the effective date. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.

In January 2010, the FASB issued ASU No. 2010-6, “Improving Disclosures About Fair Value Measurements”, that amends existing disclosure requirements under ASC 820 by adding required disclosures about items transferring into and out of Levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. For the Company, this ASU is effective for the first quarter of 2010, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of 2011. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on the Company’s consolidated results of operations or financial condition.

In April 2010, the FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition— a consensus of the FASB Emerging Issues Task Force that recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development arrangements. This standard would require its provisions be met in order for an entity to recognize consideration that is contingent upon achievement of a substantive milestone as revenue in its entirety in the period in which the milestone is achieved. In addition, this ASU would require disclosure of certain information with respect to arrangements that contain milestones. For the Company, this standard would be required prospectively beginning January 1, 2011. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.

4. SIGNIFICANT CONCENTRATIONS

Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist of cash and accounts receivable as of March 31, 2011 and December 31, 2010. The Company performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.

The major part of the Company’s cash at March 31, 2011 and December 31, 2010 is maintained at one financial institution in the PRC which does not provide insurance for amounts on deposit. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk in this area.

Geographic Concentration

For three months ended March 31, 2011 and 2010 the Company’s sales were mainly made to customers located in the PRC. In addition, total accounts receivables as of March 31, 2011 and December 31, 2010 also arose from customers located in the PRC.

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Customer Concentration

In 2009, the Company changed its sales strategy by switching the focused product in the market. This change resulted in concentration on certain customers for the Company’s sales. The following table sets forth information as to the revenue derived from those customers that accounted for more than 10% of our revenue for the three months ended March 31, 2011 and 2010:

	For the Three Months Ended						For the Three Months Ended
	March 31, 2011						March 31, 2010
	Amount			%			Amount		%
Cheng Junhui		$	61,339		12	%
Zhenhua Biological Technology Co., Ltd.								6,151		14	%

5. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	March 31		December 31
	2011		2010

Accounts receivable	$	63,428	$	99,216
Less: Allowance for doubtful accounts		-		-
Accounts receivable, net	$	63,428	$	99,216

6. INVENTORIES

Inventories consist of the following:

	March 31		December 31
	2011		2010

Inventories	$	1,230,359	$	1,207,846
Less: Allowance for obsolescence		-		-
Inventories, net	$	1,230,959	$	1,207,846

7. PREPAYMENT

As of December 31, 2010 and 2009 and as of March 31, 2011 and December 31, 2010, the Company made prepayment for rental of land and advance to suppliers for $59,181 and $29,786, respectively.

8. PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment consist of the following:

	March 31			December 31
	2011			2010

Buildings	$	18,084		$	17,970
Machinery and equipment		488			-
Transportation equipment		66,270			81,277
Office equipment		10,960			8,778
		95,802			108,025
Less: Accumulated depreciation		(80,270	)		(94,666	)
Add: Construction in process		14,731			-
Property, plant, and equipment, net	$	30,263		$	13,359

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The depreciation was $915 and $691 for the three months ended March 31, 2011 and 2010, respectively. They are broken down as follows:

	For the Three Months Ended
	March 31,
	2011		2010

Cost	$	159	$	480
Operating expenses		756		211
Total	$	915	$	691

9. INTANGIBLE ASSETS

Intangible assets consist of the following:

	March 31			December 31
	2011			2010

Land use right	$	11,148		$	11,078

Less: Accumulated amortization		(1,563	)		(1,517	)
Intangible assets, net	$	9,585		$	9,561

The amortization for land use right was $48 and $47 for the three months ended March 31, 2011 and 2010, respectively. They are broken down as follows:

	For the Three Months Ended
	March 31,
	2011		2010

Cost	$	48	$	47
Operating expenses		-		-
Total	$	48	$	47

As of March 31, 2011 and December 31 2010, land use right of the Company, was pledged as collateral under certain loan agreements (see Note 10)

10. SHORT-TERM LOANS

Short-term loans consist of the following:

March 31, 2011

	Loan Amount		Duration	Annual Interest Rate	Collateral
Agricultural Development Bank of China-Hanzhong Branch	$	554,334	2009.9.8-2010.9.7	8.51%	737 mu (491,357.9 square meters) of forest land use right
Chang'An Bank-Hanzhong Branch		213,793	2007.7.9- 2008.7.8	15.77%	Credit loan
		768,127
Loans from indivduals		198,521
	$	966,648

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December 31, 2010

	Loan Amount		Duration	Annual Interest Rate	Collateral
Agricultural Development Bank of China-Hanzhong Branch	$	576,658	2009.9.8-2010.9.7	6.51%	737 mu (491,357.9 square meters) of forest land use right
Chang'An Bank-Hanzhong Branch		227,628	2007.7.9- 2008.7.8	15.77%	Credit loan
		804,286
Loans from indivduals		211,244
	$	1,015,530

Interest expense for short-term loans and due to related parties was $28,955 and $21,861 for the three months ended March 31, 2011 and 2010, respectively.

Forest land use right secured for short-term loans is use right of 737 MU (491,357.9square meters) forest land granted from government with carrying value as the followings:

	March 31		December 31
	2011		2010

Land use right	$	351	$	310

Loans from individuals are made for the Company’s operational need. The loans are unsecured, and have no fixed terms of repayment, and are therefore deem payable on demand. The interest rates for loans to individuals are from 10%~15%

The both loans are currently past due and the related interest expenses have been accrued. The loan from Chang'An Bank-Hanzhong Branch accordingly increased interest rate due to default.

For the loan from Agricultural Development Bank of China-Hanzhong Branch, compensating balance is required. As of March 31, 2011 and December 31, 2010, compensating balance was $29,015 and $28,833, respectively. The compensating balance is classified as restricted cash.

11. LONG-TERM LOANS

Long-term loans consist of the following:

March 31, 2011

	Loan Amount			Duration	Annual Interest Rate	Collateral
The Bureau of Finance of Chenggu County	$	76,391		2006.3.9 - 2010.11.30	2.40%	Credit Loan
Less: principal due within one year		(76,391	)
	$	-

December 31, 2010

	Loan Amount			Duration	Annual Interest Rate	Collateral
The Bureau of Finance of Chenggu County	$	75,912		2006.3.9 - 2010.11.30	2.40%	Credit Loan
Less: principal due within one year		(75,912	)
	$	-

Total Interest expense for long-term loans was $456 and $554 for the three months ended March 31, 2011 and 2010, respectively.

The loan is currently past due and the related interest expense has been accrued. The Company is subject to related penalty from the Bureau of Finance of Chenggu County due to default.

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12. CONVERTIBLE PROMISSORY NOTE-SHAREHOLDERS

The $1,000,000 convertible promissory note was issued to FIHK’s prior shareholders to execute Shares Exchange Agreement between the Company and FIHK on July 15 2010. The note is convertible into 68,000,000 shares of the Company’s common stock. The note bears a 10% annual interest rate and its principal and accrued interest are due on June 10, 2015 or on such earlier date that the note is converted. For the three months ended March 31, 2011, the interest expense for this note was $24,658.

13. GERNERAL AND ADMINISTRATIVE

For the three months ended March 31, 2011 and 2010, the amount of general and administrative expenses mainly composed of the following events:

	For the Three Months Ended
	March 31,
	2011		2010

Office expense	$	6,208	$	1,441
Salary and welfare		17,468		2,636
Employee insurance		4,004		2,795
Audit and accounting		5,548		1,140
Legal service fee		4,019		732
Entertainment fee		9,280		1,471
Depreciation expense		756		211
Bad debts expense		3,366		-
Others		17,113		7,870
Total	$	67,762	$	18,296

14. CHINA CONTRIBUTION PLAN

Full time employees of the Company participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s subsidiaries to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution. For the three months ended March 31, 2011 and 2010, the total provisions for such employee benefits were $4,004 and $2,795, respectively.

Though provisions were made, the Company did not make full monthly contribution to these funds. In the event that any current or former employee files a complaint with the PRC government, the Company may be subject to administrative fines. As the Company believes that these fines would not be material, no accrual for such fines has been made in this regard.

15. STATUTORY RESERVES

Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC ("PRC GAAP") at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). The Company did not make any appropriations to the reserve funds mentioned above due to lack of profits after tax since commencement of operations.

16. RELATED PARTY TRANSACTION

All transactions associated with the following companies or individuals are considered to be related party transactions.

Name		Relationship

Hanzhong Bashan God Grass Biological Development Co., Ltd.		A company controlled by relative of Hengtai's CEO
Yang, Yung Li		*Previous owner of Hengtai
Shau, Jen Heng		CEO and *previous owner of Hengtai
Xian Qiying Bio-Tech Limited		*Owner of Hengtai
Qinba Taxus Association		An organization controlled by the Company

*In September 2010, Xian Qiying Bio-Tech Limited acquired 100% capital of Hengtai from previous owners.

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Due to related parties

	March 31		December 31
Name	2011		2010

Yang, Yung Li	$	77,246	$	76,762
Shau, Jen Heng		57,779		14,720
Xian Qiying Bio-Tech Limited		17,500		-
Total	$	152,525	$	91,482

"Due to related parties" represents loans payable that are unsecured, and have no fixed terms of repayment, and are therefore deem payable on demand. Approximately $63,500 of due to Shau, Jen Heng is subject to interest and the interest rate is from 10%~15%. Other due to related parties is not interest bearing.

Other receivables-related parties

	March 31		December 31
Name	2011		2010

Hanzhong Bashan God Grass Biological Development Co., Ltd.	$	53,711	$	24,674
Qinba Taxus Association		-		4,552
Total	$	53,711	$	29,226

17. CONTINGENCIES, RISKS AND UNCERTAINTIES

Country Risk

The Company has significant investments in the PRC. The operating results of the Company may be adversely affected by changes in the political and social conditions in the PRC and by changes in Chinese government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. The Company can give no assurance that those changes in political and other conditions will not result in have a material adverse effect upon the Company’s business and financial condition.

18. OPERATING LEASE COMMITMENT

The Company leases land under operating leases which are for 3~30 years and, expire beginning on April 30, 2011. The rents were $16,283, $1,756 for the three months ended March 31, 2011 and 2010, respectively. They are broken down as follows:

	For the Three Months Ended
	March 31,
	2011		2010

Cost	$	16,283	$	1,756
Operating expenses		-		-
Total	$	16,283	$	1,756

Future minimum lease payments for operating leases with initial or remaining noncancelable terms in excess of one year are as follows:

Year ending December 31,

2011	$	34,486
2012		34,486
2013		34,486
2014		34,486
2015		34,486
	$	172,430

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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

We were originally incorporated in Nevada on January 13, 1986. Since inception, we have not had active business operations and were considered a development stage company. In 1993, we 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 our 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 our wholly-owned subsidiary, Harbin SenRun became our indirect wholly-owned subsidiary, and we 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. Historically, it had a workforce of approximately 8 full time employees, mainly in sales, administration and in supporting services. It recruited temporary part-time workers to carry out felling, cutting and forestry plantation and protection. Its principal revenue was log sales.

Harbin SenRun lost its wood-cutting quota for log sales from the Bureau of Forestry for the year ended December 31, 2007, and, as a result, did not have any revenues for that period. While Harbin Senrun has applied for a wood cutting quota in subsequent years, it has not been successful in acquiring one.

On July 15, 2010, we entered into a Share Exchange with Financial International (Hong Kong) Holdings Co. Limited (“FIHK”). FIHK has no other material operations except a series of contractual arrangements with Hanzhong Hengtai Bio-Tech Limited (“Hengtai”), a company organized and existing under the laws of the People’s Reuplic of China that is engaged in the plantation and sale of garden plants used for landscaping, including Chinese Yew, Aesculus, Dove Tree and Dendrobium.

Hengtai was incorporated on October 22, 2003 with a registered capital of 15.0 million RMB. The registered address of Hengtai is in Economic Development Zone of Hanzhong City, Shaan’xi Province, China. Hengtai possesses several permits and licenses for its plantation business, including a Seedling Production Permit, a Forestry User Right, and a Seedling Operations Permit.

Chinese Yew is the major product of Hengtai and the company plants two types that carry the biological names Taxus chinensis var. mairei and Taxus media. Currently, they take up approximately 28% of the planting area of the company.

Hengtai currently has 36 full-time employees, including 6 members of management, 12 agricultural experts, 15 employees in sales and marketing, and 3 administrative employees.

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.

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CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition presented in this section are based upon our audited financial statements, which have been prepared in accordance with the generally accepted accounting principles in the United States. During the preparation of the financial statements, we were 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, we evaluate our estimates and judgments, including those related to investments, fixed assets, income taxes and other contingencies. We base our estimates on historical experience and on various other assumptions that we believes are reasonable under current conditions. Actual results may differ from these estimates under different assumptions or conditions.

Financial Instruments

Fair Value Accounting

We adopted the standard “Fair Value Measurements,” codified with ASC 820 and effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.

Level 1:

Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2:

Level 3:

Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits with banks. Cash deposits with banks are held in financial institutions in China, which has no federally insured deposit protection. Accordingly, we have a concentration of credit risk related to these uninsured deposits.

Accounts Receivable

Inventories

Inventories are stated at the lower of cost, as determined on a standard cost basis, or net present value. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Management also regularly evaluates the composition of our inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

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Property, Plant, and Equipment

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

Buildings	10 years
Machinery and equipment	5 years
Transportation equipment	5 years
Office equipment	5 years

Intangible Assets

Land use right 30-70 years

Impairment of Long-Lived Assets

We account for impairment of plant and equipment and amortizable intangible assets in accordance with the standard, “Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,” codified with ASC 360, which requires the Group to evaluate a long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.

Comprehensive Income

Revenue Recognition

We generate revenues from the sales of plants, such as Taxus mairei and etc. Sales are recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales are presented net of value added tax (VAT). No return allowance is made as products returns are insignificant based on historical experience.

Income Taxes

We account for income taxes in accordance with the standard, "Accounting for Income Taxes," codified with ASC 740. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or that future deductibility is uncertain.

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At March 31, 2011, we had no common stock equivalents that could potentially dilute future earnings per share; however, if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents would have been anti-dilutive due to our net loss.

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Segment Information

The standard, “Disclosures about Segments of an Enterprise and Related Information,” codified with ASC 280, requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. We believe that we operates in one business segment (research, development, production, marketing and sales) and in one geographical segment (China), as all of our current operations are carried out in China.

Foreign Currency Translation

Our functional currency is Chinese Renminbi (“RMB”) and our reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the date of the transactions. Exchange gains or losses on transactions are included in earnings.

Our consolidated financial statements are translated into U.S. dollars in accordance with the standard, “Foreign Currency Translation,” codified with ASC 830, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency consolidated financial statements into U.S. dollars are included in determining comprehensive income. At March 31, 2011 and December 31, 2010, the cumulative translation adjustments of $193,340 and $192,794, respectively, were classified as items of accumulated other comprehensive income (loss) in the stockholders’ equity section of the balance sheet. For the three months ended March 31, 2011 and 2010, other comprehensive income (loss) was $866 and ($20), respectively.

The exchange rates used to translate amounts in RMB into U.S. dollars for the purposes of preparing the consolidated financial statements were as follows: As of March 31, 2011 and December 31, 2010, we used the period-end rates of exchange for assets and liabilities of $1 to RMB6.5484 and $1 to RMB6.5897, respectively. For the three months ended March 31, 2011 and 2010, we used the period’s average rate of exchange to convert revenues, costs, and expenses of $1 to RMB6.5828 and $1 to RMB6.8270, respectively. We used historical rates for equity.

Related Parties

A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include our principal owners, our management, members of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

Commitments and Contingencies

RESULTS OF OPERATIONS

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

Net Sales

We had net sales of $530,989 for the three months ended March 31, 2011 as compared to $45,162 for the three months ended March 31, 2010, an increase of $485,827 or approximately 1,076%. This result is a function of increased sales to major customers by our subsidiary Hengtai.

Cost of Sales and Gross Profit

For the three months ended March 31, 2011, cost of sales amounted to $(420,134) as compared to cost of sales of $(39,699) for the three months ended March 31, 2010. We attribute the rise in cost of sales to the increase in the amount of goods sold. Gross profit for the three months ended March 31, 2011 was $110,855, as compared to $5,463 for the three months ended March 31, 2010.

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Operating Expenses

For the three months ended March 31, 2011, total operating expenses were $76,131 as compared to $18,296 for the three months ended March 31, 2010, an [increase] of $57,835, or approximately 316%. This result was mainly due to an increase of $49,466 in general and administrative expenses and an increase in selling expenses of $8,369.

For the three months ended March 31, 2011, interest expense was $(54,069) as compared to $(22,415) for the three months ended March 31, 2010. For the three months ended March 31, 2011, total other income was $59,621 as compared to total other expenses of $(12,680) for the three months ended March 31, 2010. The increase in other income for the three month period ended March 31, 2011 was attributable to income from waiver of VAT tax.

As a result of these factors, we reported net income of $94,345 or $0.00 per share for the three months ended March 31, 2011, as compared to a net loss of $(25,513) or $0.00 per share for the same period in 2010. The increase in net income was attributable to higher gross profit from increased sales.

Liquidity and Capital Resources

At March 31, we had cash and cash equivalents of $96,943.

Net cash provided by operating activities for the three months ended March 31, 2011 was $90,848 as compared to net cash used in operating activities of $13,588 for the three months ended March 31, 2010. For the three months ended March 31, 2011, we had net income of $94,345, our inventories increased by $14,817, accounts payable decreased by $9,190, accounts receivable decreased by $35,788, other receivables increased by $3,894, prepayments increased by $29,395, accrued liabilities and other current liabilities increased by $14,472, offset by non-cash items such as depreciation and amortization of $963, provision for bad debts of $3,366 and gain on disposal of property, plant and equipment of $608. For the three months ended March 31, 2010, we used cash to fund our loss of $25,513, our inventories increased by $12,223, accounts receivable decreased by $4,642, other receivables increased by $21,842, prepayments decreased by $7,235, accounts payable increased by $299, accrued expenses and other current liabilities increased by $36,944, offset by non-cash items such as depreciation and amortization of $738 and gain on disposal of property, plant and equipment of $3,864,

Net cash used in investing activities for the three months ended March 31, 2011 was $22,210 as compared to $7,031 net cash provided by investing activities for the three months ended March 31, 2010. For the three months ended March 31, 2011 and 2010, we used cash of $22,818 and $0 for purchase of property and equipment, respectively. For the three months ended March 31, 2011, we received net proceeds of $608 from the disposal of property, plant and equipment compared to $7,031 for the corresponding period in 2010.

Net cash used in financing activities for the three months ended March 31, 2011 was $12,125 as compared to net cash provided by financing activities for the three months ended March 31, 2010 of $5,325. For the three months ended March 31, 2011, we received proceeds of $61,043 from related parties and repaid $24,765 to related parties. We also made repayment of $48,403 for loans. For the three months ended March 31, 2010, we received proceeds of $10,273 from related parties, offset by repayment for loans of $4,948

We have not generated sufficient cash flows from operations. If we do not generate enough revenues from the sales of our products to meet our cash needs, we will need other financing to continue to operate. As we work to increase sales of our products, we expect to increase cash flows from operations. However, we may choose at any time to raise capital through private debt or equity financing to strengthen our financial position and facilitate growth.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements at March 31, 2011.

Recently Issued Accounting Pronouncements

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force,” that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding the application of the multiple-deliverable revenue arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. For us, ASU No. 2009-13 is effective beginning January 1, 2011. We elected to adopt the provisions of this standard prospectively to new or materially modified arrangements beginning on the effective date. The adoption of this standard did not have a material impact on our consolidated results of operations or financial condition.

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In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force,” that reduces the types of transactions that fall within the current scope of software revenue recognition guidance. Existing software revenue recognition guidance requires that its provisions be applied to an entire arrangement when the sale of any products or services containing or utilizing software is considered more than incidental to the product or service. As a result of the amendments included in ASU No. 2009-14, many tangible products and services that rely on software will be accounted for under the multiple-element arrangements revenue recognition guidance rather than under the software revenue recognition guidance. Under the ASU, the following components would be excluded from the scope of software revenue recognition guidance: the tangible element of the product, software products bundled with tangible products where the software components and non-software components function together to deliver the product’s essential functionality, and undelivered components that relate to software that is essential to the tangible product’s functionality. The ASU also provides guidance on how to allocate transaction consideration when an arrangement contains both deliverables within the scope of software revenue guidance (software deliverables) and deliverables not within the scope of that guidance (non-software deliverables). For us, ASU No. 2009-14 is effective beginning January 1, 2011. We elected to adopt the provisions of this standard prospectively to new or materially modified arrangements beginning on the effective date. The adoption of this standard did not have a material impact on our consolidated results of operations or financial condition.

In January 2010, the FASB issued ASU No. 2010-6, “Improving Disclosures About Fair Value Measurements”, that amends existing disclosure requirements under ASC 820 by adding required disclosures about items transferring into and out of Levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. For us, this ASU is effective for the first quarter of 2010, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of 2011. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on our consolidated results of operations or financial condition.

In April 2010, the FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition— a consensus of the FASB Emerging Issues Task Force that recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development arrangements. This standard would require its provisions be met in order for an entity to recognize consideration that is contingent upon achievement of a substantive milestone as revenue in its entirety in the period in which the milestone is achieved. In addition, this ASU would require disclosure of certain information with respect to arrangements that contain milestones. For us, this standard would be required prospectively beginning January 1, 2011. The adoption of this standard did not have a material impact on our consolidated results of operations or financial condition.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Credit Risk

Financial instruments which potentially expose us to concentrations of credit risk consist of cash and accounts receivable as of March 31, 2011 and December 31, 2010. We perform ongoing evaluations of our cash position and credit evaluations to ensure collections and minimize losses.

The major part of our cash at March 31, 2011 and December 31, 2010 is maintained at one financial institution in the PRC which does not provide insurance for amounts on deposit. We have not experienced any losses in such accounts and believe we are not exposed to significant credit risk in this area.

Operations

Substantially all of our operations are carried out and all of our assets are located in the PRC. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC. Our business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

ITEM 4 - CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of March 31, 2011, 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 effective to ensure that information required to be disclosed in the reports filed or submitted by us 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.

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During the quarter ended March 31, 2011, there were no changes in our 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, our internal controls over financial reporting.

PART II - OTHER INFORMATION

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

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SIGNATURES

Pursuant to the requirements of he 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)

May 13, 2011	/s/Yuan Tian
	Yuan Tian
	Chief Executive Officer
	(Principal Executive Officer)


May 13, 2011	/s/Man Ha
	Man Ha
	Chief Financial Officer
	(Principal Accounting Officer)

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