- Quarterly Report (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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)

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

Room 517, No. 18 Building

Nangangjizhong District, High-Tech Development Zone

Harbin, Heilongjiang Province, The People’s Republic of China

(Address of principal executive offices)

(011) (86) 0451-87011257

(Registrant's telephone number)

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes  x       No o

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

Large Accelerated Filer o        Accelerated Filer o        Non-accelerated Filer o        Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):   Yes  o       No x

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable, date: May 20, 2009, 56,000,000 shares.

 

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CH INA FORESTRY, INC.

Form 10-Q for the period ended March 31, 2009

TABLE OF CONTENTS

			Page
PART I - FINANCIAL INFORMATION
	ITEM 1 - FINANCIAL STATEMENTS
		Unaudited Consolidated Balance Sheets at March 31, 2009 and  December 31, 2008	3
		Unaudited Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2009 and 2008	4
		Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008	5
		Notes to Unaudited Consolidated Financial Statements	6
	ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		7
	ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		12
	ITEM 4 (A) - CONTROLS AND PROCEDURES		12
	ITEM 4 (A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING		12
PART II - OTHER INFORMATION
	ITEM 1 - LEGAL PROCEEDINGS		13
	ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		13
	ITEM 3 - DEFAULTS UPON SENIOR SECURITIES		13
	ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		13
	ITEM 5 - OTHER INFORMATION		13
	ITEM 6 - EXHIBITS		13
		SIGNATURES	14

 

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CHINA FORESTRY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

		March 31,				December 31,
		2009				2008
		(Unaudited)				(Audited)
ASSETS
Current Assets
Cash		$	1,369			$	2,652
Prepaid expenses			803				2,006
Total Current Assets			2,172				4,658
Timberlands - net  of accumulated amortization			841,687				845,047
Total Assets		$	843,859			$	849,705
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accrued expenses		$	6,020			$	5,463
Due to shareholders			112,430				64,889
Total Current Liabilities and total liabilities			118,450				70,352
Shareholders' Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized;      None issued and outstanding			-				-
Common stock, $0.001 par value; 200,000,000 shares authorized,      56,000,000 and 56,000,000 shares issued and outstanding			56,000				56,000
Additional paid-in capital			1,938,764				1,938,764
Accumulated Deficit			(1,326,145	)			(1,271,176	)
Accumulated other comprehensive income			56,790				55,765
Total  Shareholders' Equity			725,409				779,353
Total  Liabilities and Shareholders' Equity		$	843,859			$	849,705

 

See accompanying notes to the unaudited consolidated financial statements.

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CHINA FORESTRY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

		For the Three Month Ended
		March 31,
		2009				2008
Expenses
General and administrative expenses		$	54,969			$	7,283
Net Loss		$	(54,969	)		$	(7,283	)
Other comprehensive income-Foreign exchange gain			1,025				33,517
Comprehensive loss		$	(53,944	)		$	26,234
Net Loss per share - basic and diluted		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding- basic and diluted			56,000,000				50,000,000

 

See accompanying notes to the unaudited consolidated financial statements.

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CHINA FORESTRY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		For the Three Month Ended
		March 31, 2009				March 31, 2008
Operating activities:
Net income (loss)		$	(54,969	)		$	(7,283	)
Adjustments to reconcile income (loss) to net cash provided by (used in) operations:
Amortization expense			4,422				4,231
Changes in operating assets and liabilities:
Prepaid expenses			1,203				911
Accounts payable and accrued expenses			557				423
Net cash provided by (used in) operating activities			(48,787	)			(1,718	)
Financing activities
Advances from related parties			47,541				2,795
Net cash provided by financing activities			47,541				2,795
Effect of exchange rate changes on cash			(37	)			153
Increase (decrease)  in cash			(1,283	)			1,230
Cash at beginning of period			2,652				2,660
Cash at end of period		$	1,369			$	3,890
Supplemental cash flow information:
Interest paid		$	-			$	-
Income tax paid		$	-			$	-

See accompanying notes to the unaudited consolidated financial statements.

 

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CHINA FORESTRY, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

UNAUDITED

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of China Forestry, Inc. and Subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited financial statements and notes thereto contained in China Forestry’s latest Annual Report filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements that would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year as reported in Form 10-K, have been omitted.

NOTE 2 - GOING CONCERN

The Company’s ability to continue as a going concern is ultimately contingent upon its ability to attain profitable operations through the successful development of its business plan. As shown in the accompanying consolidated financial statements, the Company has incurred an accumulated deficit of $1,326,145 as of March 31, 2009 through its limited operations. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The Company is actively pursuing additional funding and a potential merger or acquisition candidate and strategic partners, which would enhance owners’ investment. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

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

GENERAL DESCRIPTION OF BUSINESS

Introduction

The Registrant was originally incorporated in Nevada on January 13, 1986. Since inception, it has not had active business operations and was considered a development stage company. In 1993, the Registrant entered into an agreement with Bradley S. Shepherd in which Mr. Shepherd agreed to become an officer and director and use his best efforts to organize and update the Company’s books and records and to seek business opportunities for acquisition or participation. The acquisition of the share capital of Hong Kong Jin Yuan was such an opportunity.

As a result of a Share Exchange, Hong Kong Jin Yuan became a wholly-owned subsidiary of the Registrant, Harbin SenRun became an indirect wholly-owned subsidiary of the Registrant, and the Registrant succeeded to the business of Harbin SenRun Forestry Development Co., Ltd., a producer of forest products with approximately 1,561 hectares of State forest assets located mainly over the Small Xing An Mountains, Jin Yin County, and the Harbin Wu Chang District of Heilongjiang Province of Northern China.

Harbin SenRun was founded in 2004. It currently has a workforce of 8 full time employees, mainly in sales, administration and in supporting services. It recruits temporary part-time workers to carry out felling, cutting and forestry plantation and protection.

Harbin SenRun engages in the business of conserving and managing forests and forest lands to provide a sustained supply of forest products, forest conditions, and other forest values desired by its position as a forest user. Its primary operations are felling trees and selling the logs. Its principal revenue producer is log sales.

Harbin SenRun plans to expand into paper and pulp manufacturing over the next ten years. The company also plans to develop a service industry in its forests, providing hunting, fishing, boating, riding, mountaineering, exploration, photography and the like. Finally, subject to its receipt of additional capital, Harbin SenRun plans to invest $4.0 million in forest resource management and for a forest acquisition program for the year 2009, with an additional $1.0 million to be invested for capital construction, nursery construction, equipment and other overhead. Harbin SenRun will require substantial additional debt or equity capital in order to make such investments and fund such activities and, as of the date hereof, Harbin SenRun has not entered into any agreement or arrangement for the provision of such funding and no assurances can be given that it will be successful in obtaining such funding.

 

Forest User Right Certificates Letters of Intent

 

On November 17, 2008, December 11, 2008 and January 28, 2009, the Company entered into three separate letters of intent to acquire forest user right certificates representing 933 hectares, 233 hectares and 1,333 hectares, respectively, of forest land.   The Company’s consummation of the acquisitions contemplated by the first two letters of intent are subject to the Company’s ability to secure adequate financing to pay the purchase price.  The first letter of intent has a purchase price of approximately US$1,242, 857 and the second letter of intent has a purchase price of approximately US$1,080,000, in each case at an exchange rate of 1US$=7RMB.  The purchase price of the user right certificate under the third letter of intent has not been agreed upon to date, since the value depends on an appraisal of virgin forest land, but it is estimated to approximate US$5.0 million.  The purchase price of the user certificate under the third letter of intent will be paid by the delivery of new investment shares of common stock of the Company.  In the first two cases, the Company has not been able to obtain sufficient financing to pay the purchase price, so the acquisitions have been postponed.   The Company is pursuing debt financing from local banks and the government, and is also considering an equity financing with investors, in order to raise the necessary capital, if the terms and conditions are satisfactory.  There can be no assurances that the Company will be able to successfully raise the necessary capital to complete the first two letters of intent or that an agreement will be reached on the number of shares of common stock of the Company to be issued to complete the third letter of intent.

 

Developments with Respect to  Wood-Cutting Quotes

In 2008, the Company failed to achieve wood-cutting quotas from the government, and, as a result, we were unable to cut and sell any logs or generate any revenue.  In the future, if we continue to fail to achieve wood-cutting quotas, our business will not be successful and we may have no revenues, negative earnings, negative cash flow and we could have to terminate our operations and be unable to recover our timberlands.

Nonetheless, based on the progress of our wood-cutting quota application to date, management estimates that it will receive a wood cutting quota of 6,000 square meters in 2009.  Further, based on the fact that wood prices are projected to be approximately US$115 per cubic meter, management estimates that revenues of the Company for 2009 could be approximately US$685,000.  This level of revenue would cover all costs and generate positive cash flow.  However, there can be no assurances that this wood-cutting quota will be achieved, or that the market price of wood will approximate US$115 per cubic meter, particularly given uncertain market conditions in the wood market.

It is important to emphasize that without wood-cutting quotas, the growth of the forest land continues at a rate of approximately 8-10% per year, which means that the value of the forest land owned by the Company continues to grow, even though it is not harvested.

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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. Management notes that the global forest products market grew by 5.3% in 2005 to reach a value of $283.7 billion.

 

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.

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In addition, pursuant to the terms and conditions of the Share Exchange Agreement:

·

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.

·

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.

·	Following Shepherd’s exchange of shares, Everwin converted its Series A Convertible Preferred Stock into 47,530,000 shares of common stock.

·	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.

·	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.

·

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.

·

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.

·	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.

 

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.

 

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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 March 31, 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 March 31, 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 March 31, 2009, the Company has determined that no reserves are necessary.

 

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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 March 31, 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 months ended March 31, 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

Net loss was approximately $54,969 for the three months ended March 31, 2009, as compared to a net loss of $7,283 for the same corresponding period in year 2008. The increase in net loss was the result of having no revenues for the period and failing to sell log products without the wood-cutting quota from 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 $1,326,145 as of March 31, 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 March 31, 2009, cash and cash equivalents totaled $1,369. This cash position was the result of a combination of cash at beginning of period in the amount of $2,652 and net cash provided by financing activities in the amount of $47,541, offset by net cash used in operating activities in the amount of $48,787. 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.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, operations of the Company are exposed to fluctuations in interest rates. These fluctuations can vary the costs of financing and investing yields. During the first three months of 2009, the Company has not utilized any financing arrangements or investing arrangements and is not currently subject to any market risk.

ITEM 4(A) - CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) of the Company have concluded, based on their evaluation as of March 31, 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 March 31, 2009, there were no changes in the internal controls of the Company over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the internal controls of the Company over financial reporting.

ITEM 4(A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING

(a)           The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was not effective as of March 31, 2009.

(b)           This quarterly report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this quarterly report.

(c)           There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

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PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

 

31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
32.1	Certification of the Company's Chief Executive Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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)

May 20, 2009	/s/Yuan Tian
	Yuan Tian
	Chief Executive Officer
	(Principal Executive Officer)
May 20, 2009	/s/Man Ha
	Man Ha
	Chief Financial Officer
	(Principal Accounting Officer)

 

 

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