Washington, D.C. 20549

FORM 10-Q

Commission file number 000-52747

CHINA FOREST ENERGY CORP.  

 (Exact name of registrant as specified in its charter)

NEVADA
(State or other jurisdiction of incorporation or organization)

N/A

(IRS Employer Identification No.)

Jindi Garden, Boyage, Xihu District,

Hangzhou, Zhejiang, P.R. China

 (Address of principal executive offices, including zip code.)

011 86 571 8987 4187

(telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.
YES [X]   NO [   ]

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 [X]   NO []

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

YES [X]  NO [  ]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 18,081,000 as of December 9, 2011

ITEM 1.                FINANCIAL STATEMENTS

The financial statements of China Forest Energy Corp. (the “company”), included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission. Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the financial statements and notes thereto included in the audited financial statements of our company as included in our company’s Form 10-K for the year ended April 30, 2011.

(An Exploration Stage Company)

Notes to Financial Statements

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to donated expenses and deferred income tax asset valuation allowances. 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.

Earnings (Loss) Per Share

The Company computes earnings (loss) per share (“EPS”) in accordance with Accounting Standards Codification (“ASC”) 260, "Earnings per Share". Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method for options and warrants and the if-converted method for convertible preferred stock and convertible debt. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

Foreign Currency Translation

The Company’s functional and reporting currency is the United States dollar. Occasionally transactions may occur in a foreign currency. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.

Subsequent Events

The Company has evaluated subsequent events through the filing date of this Form 10-Q for recognition or disclose in these financial statements.

Recent Accounting Pronouncements

The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant effect on its financial position or results of operations.

(An Exploration Stage Company)

Notes to Financial Statements

(Unaudited)

NOTE 3 – GOING CONCERN

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. Since inception, the Company has not generated revenues and has not paid any dividends and is unlikely to either pay dividends or generate revenues in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing, the Company’s success in acquiring interests in properties that have economically recoverable reserves, and the attainment of profitable operations. As of October  31, 2011, the Company has a working capital deficit, generated no revenues since inception, and has an accumulated deficit totaling $244,118 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 4 – RELATED PARTY TRANSACTIONS

As of October 31, 2011 and April 30, 2011, the Company was indebted to a current director, a current CFO, the Treasurer and Secretary of the Company in the amount of $21,000 and $21,000, respectively, representing cash advances and expenses paid on behalf of the Company. The balances consist of advances that are non-interest bearing, unsecured and due on demand.

During the three months ended October 31, 2011 and 2010, the Company recognized $750 and $750, respectively, for donated rent and $1,500 and $1,500, respectively, for donated services. During the six months ended October 31, 2011 and 2010, the Company recognized $1,500 and $1,500, respectively, for donated rent and $3,000 and $3,000, respectively, for donated services. These amounts were charged to operations and recorded as additional paid-in capital.

NOTE 5 – NOTE PAYABLE

On December 20, 2010, the Company obtained a loan with a principal balance $16,565 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On April 1, 2011, the Company obtained a loan with a principal balance of $4,500 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On April 13, 2011, the Company obtained a loan with a principal balance of $4,435 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On April 30, 2011, the Company obtained a loan with a principal balance of $3,000 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On August 15, 2011, the Company obtained a loan with a principal balance of $5,000 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On September 9, 2011, the Company obtained a loan with a principal balance of $5,000 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

As of October 31, 2011 and April 30, 2011, the Company had non-interest bearing loans totaling $38,500 and $28,500, respectively. These loans are unsecured and due on demand. During the three months ended October 31, 2011, the Company recorded imputed interest in the amount of $898 on these non-interest bearing loans and recorded as additional paid-in capital.  During the six months ended October 31, 2011, the Company recorded imputed interest in the amount of $1,616 on these non-interest bearing loans and recorded as additional paid-in capital.

F-6

(An Exploration Stage Company)

Notes to Financial Statements

(Unaudited)

NOTE 6 – SUBSEQUENT EVENTS

On November 18, 2011, we received consent resolutions from the Company’s directors and officers, and holder of 54.3% of the Company’s issued and outstanding securities, to change the name of the Company to “Narnia Corp.”, to reduce the authorized capital to 400,000,000 shares of common stock with a par value $0.00001 and to effect a 9:1 forward stock split of the Company’s issued and outstanding shares of common stock.  Upon effect of the forward stock split, our issued and outstanding shares of common stock will increase to 162,729,000 shares of common stock with a par value of $0.00001; fractional shares will not be issued and will be rounded up. The Company expects to file amended articles of incorporation in late December 2011.

On November 22, 2011, the share exchange agreement between us, Zhejiang Forest Bamboo Tec Co., Ltd. (“Zhejiang Forest”) and Forest Energy Co., Ltd. (“Forest Energy “) was terminated. The parties mutually agreed to terminate the agreement.  There were no early termination penalties associated with the termination of the above agreement.

F-7

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

           Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

            Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

            In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

As used in this current report and unless otherwise indicated, the terms “we”, “us”, “our” and “our company” mean China Forest Energy Corp., unless otherwise stated.

General Overview

            We were incorporated in Nevada on January 26, 2006 under the name Henix Resources, Inc. On December 16, 2010, we changed our name to China Forest Energy Corp. by way of a merger with our wholly-owned subsidiary China Forest Energy Corp. which was formed for the sole purpose of the change of name. In addition to our change of name, we effected a 9 for one 1 forward split of our authorized and issued and outstanding common shares. Upon effect of the forward stock split, our authorized capital increased from 100,000,000 to 900,000,000 shares of common stock and, correspondingly, our issued and outstanding increased from 2,009,000 to 18,081,000 shares of common stock, with a par value of $0.00001. Our preferred stock was unaffected as a result of the forward split.

Our principal business address is Jindi Garden, Boyage, Xihu District, Hangzhou, Zhejiang, P.R. China. Our telephone number is 011 86 571 8987 4187.

Current Business

We are an exploration stage company in the business of the acquisition and exploration of mineral properties. As at the date of this quarterly report, we do not own or have any rights to any mineral property.

On January 12, 2011, we entered into share exchange agreement with Zhejiang Forest Bamboo Tec Co., Ltd. a People’s Republic of China corporation and Forest Energy Co., Ltd., a British Virgin Islands corporation. Forest Energy Co., Ltd. is the registered and beneficial owner of all of the issued and outstanding common shares in the capital of Sinoport Enterprises Limited, a British Virgin Islands corporation. Sinoport is the sole owner of all share capital of USCNHK Group Limited, a Hong Kong corporation and USCNHK is the owner of 95%, or 76,000,000 shares, of the share capital of Zhejiang Forest Bamboo Tec Co., Ltd. Our company has agreed to issue 15,919,000 common shares to the Forest Energy Co., Ltd.’s shareholder as consideration for the purchase of 50,000 common shares of Zhejiang Forest Bamboo Tec Co., Ltd. Upon closing of the share exchange, Yongfu Zhu, one of our current officers and directors, will cancel 9,000,000 shares of our common stock held in his name and we will have no more than 25,000,000 shares of common stock issued and outstanding. As of November 22, 2011, the share exchange agreement has been terminated.

            Since we were not able to close the share exchange agreement, we will continue with our original plan of acquisition and exploration of mineral properties. This business is further described below.

4

We are a start-up, exploration-stage mining corporation and have not yet generated or realized any revenues from our business operations. We raised $100,910 from our public offering and issued 9,081,000 common shares at $0.01 per share on November 16, 2006. We believe that further financing (either debt or equity financing) is required for us to acquire, explore and develop mineral properties.

We intend to acquire mineral properties; however, no acquisition has been materialized as of this report. We do not intend to buy or sell any plant or significant equipment during the next twelve months.

Our exploration target is to find properties containing gold. Our success depends upon finding mineralized material from such acquired properties. This includes a determination by a consultant if the property contains reserves. Although we successfully raised capital in 2006, we must raise additional capital to acquire other mineral properties for further exploration.

We intend to acquire a property and prospect for gold in China. Our target is mineralized material. Our success depends upon finding mineralized material. Mineralized material is a mineralized body which has been delineated by appropriate spaced drilling or underground sampling to support sufficient tonnage and average grade of metals to justify removal. If we do not find mineralized material or we cannot remove mineralized material, either because we do not have the money to do it or because it is not economically feasible to do it, we may cease operations.

In addition, we may not have enough capital to complete the exploration of our property. If it turns out that we have not raised enough capital to complete our exploration program, we will try to raise additional funds from a public offering, a private placement or loans. At the present time, we have not made any plans to raise additional capital and there is no assurance that we would be able to raise additional capital in the future. If we need additional capital and cannot raise it, we may have to suspend or cease operations.

After we acquire a property, we must conduct exploration to determine what amount of minerals, if any, exist on our properties and if any minerals which are found can be economically extracted and profitably processed. There is no assurance that we will ever acquire or option a property.

                We intend to seek out raw undeveloped property by retaining the services of a professional mining geologist to be selected. As of the date of this registration statement, we have not selected a geologist. Our properties will in all likelihood be undeveloped raw land. That is because raw undeveloped land is much cheaper than to try to acquire an existing developed property. A developed property is one with a defined ore body. Thereafter, exploration will be initiated. We do not know if we will find mineralized material.

Our exploration program is designed to economically explore any property we may obtain. Again, at the present time we do not own any interest in any properties. We do not claim to have any minerals or reserves whatsoever.

We intend to implement an exploration program which consists of rock sampling. Rock sampling is the collection of a series of small chips over a measured distance, which is then submitted for a chemical analysis, usually to determine the metallic content over the sampled interval, a pre-determined grid laid out on the property. If the rock sampling is successful, then further work by way of a controlled source magnetotelluric survey may be in order. This is an electromagnetic method used to map the variation of the Earth's resistivity (the resistance of the earth to conduct electricity) by measuring naturally occurring electric and magnetic fields at the Earth's surface. This process gives an indication of where drilling locations may be warranted. If drilling were to be indicated, then our first choice would be reverse circulation drilling. This is a less expensive form of drilling that does not allow for the recovery of a tube or core of rock. The material is brought up from depth as a series of small chips of rock that are then bagged and sent in for analysis. This is a quicker and cheaper method of drilling, but does not necessarily give one as much information about the underlying rocks. If warranted, core sampling would follow this stage. Core sampling is the process of drilling holes to a depth of up to 1,400 feet in order to extract samples of earth. Our mining engineer will determine where drilling will occur on the property. As of the date of this registration statement, we have not retained the services of any mining engineers, and would not entertain doing so until an appropriate property has been secured. The drill samples will be tested to determine if mineralized material is located on the property. Based upon the tests of the drill samples, we will determine if we will terminate operations; proceed with additional exploration of the property; or develop the property. Our current financial condition is designed to only fund the costs of rock sampling and testing.

5

Our plan of operation, time frames involved and costs are as follows:

We will allocate $10,000 for the securing of one property in China. We have not selected a property at this time. We intend to secure a property within the next twelve months, the cost of which should not exceed $10,000.

Exploration expenditures consist of fees to be paid for consulting services connected with exploration, the cost of rock sampling (the collection of a series of small chips over a measured distance, which is then submitted for a chemical analysis, usually to determine the metallic content over the sampled interval, a pre-determined location(s) on the property), and cost of analyzing these samples. Since we do not own an interest in any properties, we have not begun exploration. Consulting fees will not be paid except on an as needed basis and should not exceed $5,000 for the next 12 months.

We cannot be more specific about the application of proceeds for exploration, because we do not know what we will find.

We will allocate a range of money for exploration. That is because we do not know how much will ultimately be needed for exploration. If our initial exploration proves positive results, we will expand the exploration activities to include reverse circulation drilling. This is a less expensive form of drilling that does not allow for the recovery of a tube or core of rock. The material is brought up from depth as a series of small chips of rock that are then bagged and sent in for analysis. This is a quicker and cheaper method of drilling, but does not necessarily give one as much information about the underlying rocks. If warranted, core drilling would follow this stage.

If we discover significant quantities of mineralized material, we will begin technical and economic feasibility studies to determine if we have reserves. Only if we have reserves will we consider developing the property.

Once we have secured a property, and if through early stage exploration we find mineralized material and it is feasible to expand the exploration program, we will attempt to raise additional money through a subsequent private placement, public offering or through loans. If we do not raise all of the money we need, we will have to find alternative sources of funding, like a public offering, a private placement of securities, or loans from our officers or others.

We have discussed this matter with our officers and directors, however, our officers and directors are unwilling to make any commitment to loan us any significant amounts of money at this time. At the present time, we have not made any arrangements to raise additional cash. If we need additional cash and can't raise it we will either have to suspend operations until we do raise the cash, or cease operations entirely.

We will be conducting research in the form of exploration of the property we intend to secure. We are not going to buy or sell any plant or significant equipment during the next twelve months. We will not buy any equipment until we have located a body of minerals and we have determined they are economical to extract from the land.

The breakdown of estimated times and dollars was made in consultation with mining engineers in China. 

We do not intend to interest other companies in the property if we find mineralized materials. We intend to try to develop the reserves ourselves.
 

If we are unable to complete exploration because we do not have enough money, we will cease operations until we raise more money. If we cannot or do not raise more money, we will cease operations. If we cease operations, we don't know what we will do and we don't have any plans to do anything else.

We do not have a projection of future revenues for our company because we have not located an ore body yet and as such it is impossible to project future revenues.
 
Limited Operating History

                There is limited historical financial information about us upon which to base an evaluation of our performance. We are an exploration-stage corporation and have not generated any revenues from operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our properties, and possible cost overruns due to price and cost increases in services.

                To become profitable and competitive, we must find and acquire mineral properties and conduct more comprehensive exploration of such properties before we start development and production of any minerals we may find.

Results of Operations

            We have not generated any revenue since inception and are dependent upon obtaining financing to pursue our business activities. For these reasons, our auditors believe that there is substantial doubt that we will be able to continue as a going concern.

Our operating results for the three and six month periods ended October 31, 2011 and 2010 and the changes between those periods for the respective items are summarized as follows:

Working Capital

Cash Flows

As of October 31, 2011, our total current assets were $1,930 and our total current liabilities were $65,568 for a working capital deficit of $63,638. 

To meet our initial need for cash we raised $100,910 from our public offering. As of October  31, 2011, we have $1,930 in cash available.  If we acquire a property, find mineralized material, and it is economically feasible to remove the mineralized material, we will attempt to raise additional money through a subsequent private placement, public offering or through loans.

As of the date of this report we have yet to generate any revenues.

Since inception and up to October  31, 2011, we have issued 18,081,000 shares of our common stock and received $100,910.

In January 2006, we issued 9,000,000 shares of common stock pursuant to the exemption from registration set forth in section 4(2) of the Securities Act of 1933. In November 2006, we issued 9,081,000 shares of common stock pursuant to our registration statement.  The proceeds received of the shares issued in January and November were $10 and $100,900, respectively.

On December 20, 2010, we obtained a loan with a principal balance $16,565 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On April 1, 2011, we obtained a loan with a principal balance of $4,500 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On April 13, 2011, we obtained a loan with a principal balance of $4,435 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On April 30, 2011, we obtained a loan with a principal balance of $3,000 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On August 15, 2011, we obtained a loan with a principal balance of $5,000 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

On September 9, 2011, we obtained a loan with a principal balance of $5,000 from an unrelated party. The loan is non-interest bearing, unsecured and due on demand.

Our company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in a foreign currency. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.

ITEM 3.                QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

                As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 4.                CONTROLS AND PROCEDURES.

Management’s Report on Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (our principal executive officer) and our chief financial officer (our principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure.

As of the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president (our principal executive officer) and our chief financial officer (our principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (our principal executive officer) and our chief financial officer (our principal financial officer and principle accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended October 31, 2011 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.                LEGAL PROCEEDINGS

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 1A.             RISK FACTORS

                As a “smaller reporting company” we are not required to provide the information required by this Item.

ITEM 2.                UNREGISTERED SALES OF EQUITY SECURITIES

                None.

ITEM 3.                DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.                REMOVED AND RESERVED

                Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.