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
June 30,
2009
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12 b - 2 of the Exchange Act) Yes
o
No
x
Commission
File Number
0-25765
CHINA FORESTRY,
INC
.
(Exact
name of Registrant as specified in its charter)
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Nevada
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87-0429748
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification
No.)
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Room
517, No. 18 Building
Nangangjizhong
District, High-Tech Development Zone
Harbin, Heilongjiang
Province, The People’s Republic of China
(Address
of principal executive offices)
(011) (86)
0451-87011257
(Registrant's
telephone number)
Check
whether the registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90
days. Yes 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
definition of “accelerated filer and large accelerated filer” in Rule 12b-2
of the Exchange Act:
Large
Accelerated Filer
o
Accelerated Filer
o
Non-accelerated Filer
o
Smaller Reporting Company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes
o
No
x
State the
number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: August 10, 2009, 56,000,000
shares.
CHINA
FORESTRY, INC.
Form
10-Q for the period ended June 30, 2009
TABLE
OF CONTENTS
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Page
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PART
I - FINANCIAL INFORMATION
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ITEM
1 - FINANCIAL STATEMENTS
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Unaudited
Consolidated Balance Sheets at June 30, 2009 and December 31,
2008
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3
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Unaudited
Consolidated Statements of Operations and Comprehensive Loss for the three
and six months ended June 30, 2009 and 2008
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4
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Unaudited
Consolidated Statements of Cash Flows for the six months ended June
30, 2009 and 2008
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5
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Notes
to Unaudited Consolidated Financial Statements
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6
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ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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7
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ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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11
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ITEM
4 - CONTROLS AND PROCEDURES
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11
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ITEM
4T – INTERNAL CONTROL OVER FINANCIAL REPORTING
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11
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PART
II - OTHER INFORMATION
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ITEM
6 - EXHIBITS
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11
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SIGNATURES
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12
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CHINA
FORESTRY, INC. AND SUBSIDIARIES
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CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
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June
30,
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December
31,
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2009
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2008
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ASSETS
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Current
Assets
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Cash
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$
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2,683
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$
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2,652
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Prepaid
expenses
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2,006
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Total
Current Assets
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2,683
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4,658
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Timberlands
- net of accumulated amortization
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837,383
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845,047
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Total
Assets
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$
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840,066
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$
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849,705
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
Liabilities
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Accrued
expenses
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$
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5,728
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$
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5,463
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Due
to related parties
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130,078
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64,889
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Total
Current Liabilities and Total liabilities
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135,806
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70,352
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Shareholders'
Equity
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Preferred stock, $0.001 par value; 10,000,000 shares authorized;
None
issued and outstanding
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-
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-
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Common
stock, $0.001 par value; 200,000,000 shares
authorized,
56,000,000 shares issued and outstanding
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56,000
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56,000
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Additional paid-in capital
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1,938,764
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1,938,764
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Accumulated Deficit
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(1,346,215
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(1,271,176
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Accumulated other comprehensive income
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55,711
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55,765
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Total
Shareholders' Equity
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704,260
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779,353
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Total
Liabilities and Shareholders' Equity
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$
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840,066
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$
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849,
705
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See
accompanying notes to the unaudited consolidated financial
statements.
CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
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For
the Three Months Ended
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For
the Six Months Ended
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June
30,
2009
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June
30,
2008
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June
30,
2009
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June
30,
2008
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Expenses
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General
and administrative expenses
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$
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20,070
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$
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51,308
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$
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75,039
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$
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58,590
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Net
loss
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$
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(20,070
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$
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(51,308
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$
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(75,039
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$
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(58,590
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Other
comprehensive income (loss) - Foreign exchange gain (loss)
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(1,079
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16,131
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(54
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49,649
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Comprehensive
loss
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$
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(21,149
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$
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(35,177
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$
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(75,093
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$
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(8,941
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Net
Loss per share - basic and diluted
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$
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(0.00
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$
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(0.00
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$
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(0.00
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$
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(0.00
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Weighted
average shares outstanding- basic and diluted
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56,000,000
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50,000,000
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56,000,000
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50,000,000
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See
accompanying notes to the unaudited consolidated financial
statements.
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CHINA
FORESTRY, INC. AND SUBSIDIARIES
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CONSOLIDATED
STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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For
the Six Month Ended
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June
30,
2009
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June
30,
2008
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Operating activities:
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Net loss
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$
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(75,039
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$
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(58,590
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Adjustments
to reconcile net loss to net cash provided by (used in)
operations
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Amortization expense
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8,845
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9,999
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Changes
in operating assets and liabilities:
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Prepaid expenses
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2,009
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2,007
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Accounts payable and accrued expenses
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257
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767
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Net
cash provided by (used in) operating activities
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(63,928
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(45,817
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Financing activities
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Advances from related parties
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65,177
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47,119
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Net
cash provided by financing activities
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65,177
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47,119
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Effect
of exchange rate changes on cash
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(1,218
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(1,330
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Increase
(decrease) in cash
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31
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(28
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Cash
at beginning of period
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2,652
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2,660
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Cash
at end of period
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2,683
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2,632
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Supplemental
cash flow information:
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Interest paid
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$
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-
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$
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-
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Income tax paid
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$
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-
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$
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-
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See
accompanying notes to the unaudited consolidated financial
statements.
CHINA
FORESTRY, INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
UNAUDITED
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited interim consolidated financial statements of China
Forestry, Inc. and Subsidiaries, have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission and should be read in
conjunction with the audited financial statements and notes thereto contained in
China Forestry’s latest Annual Report filed with the SEC on Form 10-K. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
consolidated financial statements that would substantially duplicate the
disclosure contained in the audited financial statements for the most recent
fiscal year as reported in Form 10-K, have been omitted.
NOTE
2 - GOING CONCERN
The
Company’s ability to continue as a going concern is ultimately contingent upon
its ability to attain profitable operations through the successful development
of its business plan. As shown in the accompanying consolidated financial
statements, the Company has incurred an accumulated deficit of $1,346,215 as of
June 30, 2009 through its limited operations. These conditions raise
substantial doubt as to the Company's ability to continue as a going concern.
The Company is actively pursuing additional funding and a potential merger or
acquisition candidate and strategic partners, which would enhance
shareholders’ investment. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Timberlands
We
carried timberland at historical cost less accumulated amortization. Since
private ownership of timberland is not allowed in the People’s Republic of
China, the Company acquired the user right of timberland from the government. We
capitalized the acquisition costs of the user right and allocated that cost to
the timberland. The user right is good for from 50 to 70 years and
with the user right, the timber on the timberland is under the Company’s
ownership. Amortization of the use right on timberland is primarily determined
using the straight-line method over the life of usage right.
We
capitalized reforestation costs incurred in developing viable seedling
plantations (up to two years from planting), such as site preparation,
seedlings, planting, fertilization, insect and wildlife control, thinning and
herbicide application. We expensed all other costs, such as property taxes and
costs of forest management personnel, as incurred. Once the seedling plantation
was viable, we expensed all costs to maintain the viable plantations, such as
fertilization, herbicide application, insect and wildlife control, and thinning,
as incurred. We capitalized costs incurred to initially build roads as land
improvements, and we expensed as incurred costs to maintain these
roads.
ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
DESCRIPTION OF BUSINESS
Introduction
The
Registrant was originally incorporated in Nevada on January 13, 1986. Since
inception, it has not had active business operations and was considered a
development stage company. In 1993, the Registrant entered into an agreement
with Bradley S. Shepherd in which Mr. Shepherd agreed to become an officer and
director and use his best efforts to organize and update the Company’s books and
records and to seek business opportunities for acquisition or participation. The
acquisition of the share capital of Hong Kong Jin Yuan was such an
opportunity.
As a
result of a Share Exchange, Hong Kong Jin Yuan became a wholly-owned subsidiary
of the Registrant, Harbin SenRun became an indirect wholly-owned subsidiary of
the Registrant, and the Registrant succeeded to the business of Harbin SenRun
Forestry Development Co., Ltd., a producer of forest products with approximately
1,561 hectares of State forest assets located mainly over the Small Xing An
Mountains, Jin Yin County, and the Harbin Wu Chang District of Heilongjiang
Province of Northern China.
Harbin
SenRun was founded in 2004. It currently has a workforce of 8 full time
employees, mainly in sales, administration and in supporting services. It
recruits temporary part-time workers to carry out felling, cutting and forestry
plantation and protection.
Harbin
SenRun engages in the business of conserving and managing forests and forest
lands to provide a sustained supply of forest products, forest conditions, and
other forest values desired by its position as a forest user. Its primary
operations are felling trees and selling the logs. Its principal revenue
producer is log sales.
Harbin
SenRun plans to expand into paper and pulp manufacturing over the next ten
years. The company also plans to develop a service industry in its forests,
providing hunting, fishing, boating, riding, mountaineering, exploration,
photography and the like. Finally, subject to its receipt of additional capital,
Harbin SenRun plans to invest $4.0 million in forest resource management and for
a forest acquisition program for the year 2009, with an additional $1.0 million
to be invested for capital construction, nursery construction, equipment and
other overhead. Harbin SenRun will require substantial additional debt or equity
capital in order to make such investments and fund such activities and, as of
the date hereof, Harbin SenRun has not entered into any agreement or arrangement
for the provision of such funding and no assurances can be given that it will be
successful in obtaining such funding.
Philosophy
& Values
Since its
inception, Harbin SenRun’s founders and management team have been committed to
the philosophy of “the forest as an independent ecosystem,” and believe this
focus will continue to help Harbin SenRun grow and develop as a strong and
lasting enterprise.
Holding
true to its values, Harbin SenRun treats the forest as a renewable resource, a
sustainable resource, a storable resource, and a beneficial resource, yielding
economic benefits, ecosystem benefits and social benefits.
Competition
Log
Sales
There are
no strong competitors to the Company in the Heilongjiang Province. The Company
believes that any logging operation that might compete with Harbin SenRun
produces products that are lesser in quality than the Company’s products.
Moreover, most of these competitors produce products that are considered lower
grade than the Company’s products. The Company’s logs include alley woods (20%),
the highly demanded charcoal wood material used for construction materials
(35%), and thick woods (45%).
Cellulose
Fibers (Pulp) and Paper
Although
the Company does not sell cellulose fibers or paper at this point in time, the
Company has identified competitors.
The first
one is Da Xing An Ling Sen Gong (Lin Ye) Ji Tuan Company Ltd., a company which
is directly owned by the State Forestry Administration. This company
manufactures and produces all forest products and some natural products, and is
the manufacturing arm of the Central government. It has sales and distribution
networks set up all over China. Its products cover the high-end as well as the
low-end in terms of use and value. Logs, pulp and paper are primary
offerings of the company.
A second
competitor is Heilongjiang Yichun County Guang Ming Furniture Manufacturing
Group. The group was organized in 1986 and now employs over 4,000 workers with
17 manufacturing facilities around Heilongjiang Province. Some of their wood
products are exported to the overseas market.
A third
competitor is BeiDaHuang ZhiYe. This company used to be a state owned enterprise
which was set up in 1958, but in 2003 it was reorganized as a private company
and its subsidiary was listed on the PRC stock market. Their pulp and paper
manufacturing section has over 1,200 workers and annual output of over 14,000
tons of pulp and over 18,000 tons of paper.
A well
known problem for a state owned or quasi-state owned enterprise in China is its
inflexibility to react to market driven trends in production, manufacturing,
timing of output, pricing and sales support. It is customary for employees of
these companies not to embrace the risks associated with market driven changes
and the globalization of the world market. In short, we believe they are not
competitive with many smaller, more agile privately held companies.
Material
Terms and Conditions of the Share Exchange Agreement
On June
26, 2007, the Registrant simultaneously entered into, and closed under, a Share
Exchange Agreement, by and among the Registrant, Harbin SenRun, Bradley
Shepherd, the President and majority shareholder of the Registrant (“Shepherd”),
Everwin Development Ltd., a corporation organized under the laws of the British
Virgin Islands (“Everwin”), and beneficial owner of 100% of the share capital of
Hong Kong Jin Yuan, and the Jin Yuan Global Limited Trust, a Hong Kong trust
created pursuant to a Declaration of Trust and a Trust and Indemnity Agreement
dated March 10, 2007 (the “Jin Yuan Global Limited Trust”). The transactions
contemplated by the Share Exchange Agreement are herein referred to as the
“Share Exchange.” At the closing of the Share Exchange, Everwin transferred all
of its share capital of Hong Kong Jin Yuan together with the sum of $610,000 in
cash, plus $25,000 in proceeds of a cash deposit that was retained by
the Registrant, to the Registrant in exchange for an aggregate of
10,000,000 shares of Series A Convertible Preferred Stock, which preferred
shares were converted into 47,530,000 shares of common stock of the Registrant,
thus causing Hong Kong Jin Yuan to become a wholly-owned subsidiary of the
Registrant and Harbin SenRun to become an indirect wholly-owned subsidiary of
the Registrant.
In
addition, pursuant to the terms and conditions of the Share Exchange
Agreement:
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On
the Closing Date, the Registrant declared a cash dividend to the holders
of its common stock in an amount equal to $ 0.01227 per share to holders
of record on July 6, 2007, representing the cash payment received from
Everwin less the outstanding liabilities of the Registrant which were to
be paid off before the cash dividend was
made.
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·
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After
the dividend payment date on July 16, 2007, Shepherd will exchange
44,751,500 of his shares of common stock of the Registrant for 221,500
shares of common stock of the Registrant, and Todd Gee will exchange
100,000 of his shares for 100,000 shares of common stock, with Mr.
Shepherd ending up owning 507,500 shares of common stock and Mr. Gee
ending up owning 100,000 shares of common
stock.
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·
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Following
Shepherd’s exchange of shares, Everwin converted its Series A Convertible
Preferred Stock into 47,530,000 shares of common
stock.
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·
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Demand
and piggy-back registration rights were granted to Everwin and piggy-back
registration rights were granted to Messrs. Shepherd and Gee with respect
to shares of the Company’s restricted common stock to be acquired by them
following the closing.
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·
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Everwin
agreed for a period of one year following the closing that it will not
cause or permit the Registrant to affect any reverse stock splits or
register more than 6,000,000 shares of the Registrant’s common stock
pursuant to a registration statement on Form
S-8.
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·
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On
the Closing Date, the current officers of the Registrant resigned from
such positions and the persons designed by Everwin were appointed as the
officers of the Registrant, notably Chunman Zhang as CEO, CFO and
Treasurer and Degong Han as President and Secretary, and Todd Gee resigned
as a director of the Registrant and a person designated by Everwin was
appointed to fill the vacancy created by such resignation, notably Man
Ha.
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·
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On
the Closing Date, Shepherd resigned from his position as a director
effective upon the expiration of the ten day notice period required by
Rule 14f-1, at which time two persons designated by Everwin will be
appointed as directors of the Registrant, notably Degong Han and Kunlun
Wang. This notice period has expired and Shepherd has resigned, and Degong
Han and Kunlun Wang were appointed as directors of the
Registrant.
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|
·
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On
the Closing Date, the Registrant paid and satisfied all of its
“liabilities” as such term is defined by U.S. GAAP as of the
closing.
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As of the
date of the Share Exchange Agreement there are no material relationships between
the Registrant or any of its affiliates and Everwin, Hong Kong Jin Yuan or
Harbin SenRun, other than in respect of the Share Exchange
Agreement.
The
foregoing description of the Share Exchange Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Share Exchange Agreement, which is attached as Exhibit 2.1 to a Current
Report on Form 8-K, filed with the Commission on July 2, 2007, and which is
incorporated herein by reference.
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.
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.
CRITICAL
ACCOUNTING POLICIES
For
purposes of this section entitled “Critical Accounting Policies,” Harbin SenRun
and Hong Kong Jin Yuan shall hereafter together be referred to as “Harbin
SenRun.” During the preparation of the financial statements Harbin
SenRun is required to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, Harbin SenRun
evaluates its estimates and judgments, including those related to sales,
returns, pricing concessions, bad debts, inventories, investments, fixed assets,
intangible assets, income taxes and other contingencies. Harbin SenRun bases its
estimates on historical experience and on various other assumptions that it
believes are reasonable under current conditions. Actual results may
differ from these estimates under different assumptions or
conditions.
In
response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policy,” Harbin SenRun identified the most
critical accounting principles upon which its financial status depends.
Harbin SenRun determined that those critical accounting principles are
related to the use of estimates, inventory valuation, revenue recognition,
income tax and impairment of intangibles and other long-lived assets. Harbin
SenRun presents these accounting policies in the relevant sections in this
management’s discussion and analysis, including the Recently Issued Accounting
Pronouncements discussed below.
Revenue Recognition
. Harbin
SenRun recognizes sales when the revenue is realized or realizable, and has been
earned, in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue
Recognition in Financial Statements”. Harbin SenRun’s sales are related to sales
of product. Revenue for product sales is recognized as risk and title to the
product transfer to the customer, which usually occurs at the time shipment is
made. Substantially all of Harbin SenRun’s products are sold FOB (“free on
board”) shipping point. Title to the product passes when the product is
delivered to the freight carrier.
Sales
revenue represents the invoiced value of goods, net of a value-added tax (VAT).
All of Harbin SenRun’s products that are sold in the China are subject to
a Chinese value-added tax at a rate of 17% of the gross sales price or at a rate
approved by the Chinese local government. This VAT may be offset by VAT
paid by Harbin SenRun on raw materials and other materials included in the cost
of producing their finished product.
Accounts Receivable, Trade and
Allowance for Doubtful Accounts.
Harbin SenRun’s business operations are
conducted in the People's Republic of China. During the normal course of
business, Harbin SenRun extends unsecured credit to its customers. There is a
zero balance for accounts receivable, trade outstanding at June 30, 2009.
Management reviews accounts receivable on a regular basis to determine if the
allowance for doubtful accounts is adequate. An estimate for doubtful accounts
is recorded when collection of the full amount is no longer probable. Since
there is no balance for accounts receivable as of June 30, 2009, no allowances
for doubtful accounts were accrued.
Inventories.
Inventories are
stated at the lower of cost or market using the weighted average method. Harbin
SenRun reviews its inventory on a regular basis for possible obsolete goods or
to determine if any reserves are necessary for potential obsolescence. As
of June 30, 2009, the Company has determined that no reserves are
necessary.
Timberlands.
We carried
timberland at historical cost less accumulated amortization. Since private
ownership of timberland is not allowed in the People’s Republic of China, the
Company acquired the user right of timberland from the government. We
capitalized the acquisition costs of the user right and allocated that cost to
the timberland. The user right is good for from 50 to 70 years and
with the user right, the timber on the timberland is under the Company’s
ownership. Amortization of the use right on timberland is primarily determined
using the straight-line method over the life of usage right.
We
capitalized reforestation costs incurred in developing viable seedling
plantations (up to two years from planting), such as site preparation,
seedlings, planting, fertilization, insect and wildlife control, thinning and
herbicide application. We expensed all other costs, such as property taxes and
costs of forest management personnel, as incurred. Once the seedling plantation
was viable, we expensed all costs to maintain the viable plantations, such as
fertilization, herbicide application, insect and wildlife control, and thinning,
as incurred. We capitalized costs incurred to initially build roads as land
improvements, and we expensed as incurred costs to maintain these
roads.
Off-Balance Sheet
Arrangements
. Harbin SenRun has not entered into any financial guarantees
or other commitments to guarantee the payment obligations of any third parties.
Harbin SenRun has not entered into any derivative contracts that are indexed to
Harbin SenRun’s shares and classified as shareholder’s equity or that are not
reflected in Harbin SenRun’s financial statements. Furthermore, Harbin SenRun
does not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to
such entity. Harbin SenRun does not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit
support to the Company or engages in leasing, hedging or research and
development services with Harbin SenRun.
Inflation
. Harbin SenRun
believes that inflation has not had a material effect on its operations to
date.
Income Taxes
. Harbin SenRun
has adopted Statement of Financial Accounting Standards No. 109, “Accounting for
Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred
income tax liabilities and assets for the expected future tax consequences of
temporary differences between income tax basis and financial reporting basis of
assets and liabilities. Provision for income taxes consist of taxes
currently due plus deferred taxes. Since Harbin SenRun had no operations within
the United States there is no provision for US income taxes and there are no
deferred tax amounts at June 30, 2009. The charge for taxation is based on the
results for the quarter as adjusted for items, which are non-assessable or
disallowed. It is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred
tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit. In principle, deferred
tax liabilities are recognized for all taxable temporary differences, and
deferred tax assets are recognized to the extent that it is probably that
taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated at the tax rates that are expected
to apply to the period when the asset is realized or the liability is settled.
Deferred tax is charged or credited in the income statement, except when it
related to items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax assets and liabilities
are offset when they related to income taxes levied by the same taxation
authority and the Company intends to settle current tax assets and liabilities
on a net basis.
RESULTS
OF OPERATIONS
Net
Sales
The
company had no sales for the three and six months ended June 30, 2009 and 2008.
This result is a function of lack of business during these periods since the
company does not have the wood-cutting quota for log sales from the local
government.
Net
Loss
Our net
loss was approximately $20,070 and $51,308 for the three months ended
June 30,
2009 and 2008,
respectively. The net losses in these periods were due to primarily to general
and administrative expenses, which were $20,070 and $51,308 for the three months
ended June 30, 2009 and 2008, respectively. The increase in net loss
was the result of being unable to sell log products without the wood-cutting
quota from the local Bureau of Forestry.
Our net loss was approximately $75,039
and $58,590 for the six months ended
June 30,
2009 and 2008, respectively. The net
losses in these periods were due to primarily to general and administrative
expenses, which were $75,039 and $58,590 for the six months ended June 30, 2009
and 2008, respectively. The increase in net loss was the result of
being unable to sell log products without the wood-cutting quota from the local
Bureau of Forestry.
Liquidity
and Capital Resources
The
Company’s ability to continue as a going concern is ultimately contingent upon
its ability to attain profitable operations through the successful development
of its business plan. As shown in the accompanying consolidated financial
statements, the Company has incurred an accumulated deficit of $1,346,215 as of
June 30, 2009 through its limited operations. It has working capital
deficits and negative operating cash flows. These conditions raise substantial
doubt as to the Company's ability to continue as a going concern. The Company is
actively pursuing additional funding and a potential merger or acquisition
candidate and strategic partners, which would enhance owners’
investment.
As of
June 30, 2009, cash and cash equivalents totaled $2,683. This cash position was
the result of a combination of cash at the beginning of the period in the amount
of $2,652 and net cash provided by financing activities in the amount of
$65,177, offset by net cash used in operating activities in the amount of
$63,928. We believe that said level of financial resources is a
significant factor for our future development and accordingly may choose at any
time to raise capital through private debt or equity financing to strengthen our
financial position, facilitate growth and provide us with additional flexibility
to take advantage of business opportunities.
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the
normal course of business, operations of the Company are exposed to fluctuations
in interest rates. These fluctuations can vary the costs of financing and
investing yields. During the first six months of 2009, the Company has not
utilized any financing arrangements or investing arrangements and is not
currently subject to any market risk.
ITEM
4 - CONTROLS AND PROCEDURES
The Chief
Executive Officer and Chief Financial Officer (the principal executive officer
and principal financial officer, respectively) of the Company have concluded,
based on their evaluation as of June 30, 2009, that the design and operation of
the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are not
effective to ensure that information required to be disclosed in the reports
filed or submitted by the Company under the Exchange Act is accumulated,
recorded, processed, summarized and reported to the management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding whether or not disclosure is required.
During
the quarter ended June 30, 2009, there were no changes in the internal controls
of the Company over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that have materially affected, or are reasonably likely to
materially affect, the internal controls of the Company over financial
reporting.
ITEM
4T – INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934, as amended). Management conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting based on the criteria set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management has concluded that the
Company’s internal control over financial reporting was not effective as of June
30, 2009. See the discussion under Item 4(A) above.
There
were no changes in the Company's internal controls over financial reporting,
known to the chief executive officer or the chief financial officer that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART
II - OTHER INFORMATION
ITEM
6 – EXHIBITS
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31.1
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Certification
of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
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31.2
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Certification
of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
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32.1
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Certification
of the Company's Chief Executive Officer Pursuant to 18 U.S.C. SS. 1350
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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32.2
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Certification
of the Chief Financial Officer Pursuant to 18 U.S.C. SS. 1350 Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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SIGNATURES
Pursuant
to the requirements of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA
FORESTRY, INC.
(Registrant)
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August
12 , 2009
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/s/Yuan
Tian
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Yuan
Tian
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Chief
Executive Officer
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(Principal
Executive Officer)
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August
12, 2009
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/s/Man
Ha
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Man
Ha
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Chief
Financial Officer
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(Principal
Accounting Officer)
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