China Senior Living Industry International Holding (CHYL) 10-Q 2015 Q2 Quarterly report

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 1934For the quarterly period ended June 30, 2015

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:

For the transition period from______ to ______

Commission File Number 0-25765

CHINA FORESTRY, INC.

(Exact name of Registrant as specified in its charter)

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

Economic Development Zone of Hanzhong City,

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

(Address of principal executive offices)

(011) (86) 29-85257870

(Registrant's telephone number)

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

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 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 [  ] Accelerated Filer [  ] Non-accelerated Filer [  ] Smaller Reporting Company [X]

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: as of August 18, 2015,  19,680,007 shares of common stock.

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CHINA FORESTRY, INC.

FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2015

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

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

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4 - CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

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

ITEM 5.  OTHER INFORMATION

ITEM 6 - EXHIBITS

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
		June 30,	December 31,
		2015	2014
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	47,158	4,688
Accounts receivable, net (Note 5)		153,255	160,674
Other receivables		112,736	48,139
Inventories (Note 6)		2,276,181	2,316,713
Prepayment (Note 7)		42,531	86,043
Other receivables-related parties (Note 16)		34,725	-
Total Current Assets		2,666,586	2,616,257
Property, plant and equipment, net (Note 8)		92,777	87,637
Intangible assets (Note 9)		9,089	9,197
Total Assets	$	2,768,452	2,713,091
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term loans (Note 10)	$	1,102,202	1,047,771
Accounts payable		5,862	11,367
Other payables		615,246	494,320
Due to related parties (Note 16)		301,649	284,811
Accrued expenses		229,031	234,478
Interest payable		413,625	392,542
Advance from customers		103,026	19,276
Long-term loans due within one year (Note 11)		80,699	80,597
Total Current Liabilities		2,851,340	2,565,162
Convertible promissory note-shareholders (Note 12)		400,000	400,000
Contingent obligations (Note 17)		538,204	537,521
Total Liabilities		3,789,544	3,502,683
Shareholders' Deficit
Preferred stock, $0.001 par value; 10,000,000 shares authorized;
0 shares issued and outstanding		-	-
Common stock, $0.01 par value; 20,000,000  shares authorized,
19,680,000 shares issued and outstanding		196,800	196,800
Additional Paid-in Capital		2,172,804	2,172,804
Accumulated Deficit		(3,610,505)	(3,379,588)
Accumulated other comprehensive income		219,809	220,392
Shareholders' Deficit		(1,021,092)	(789,592)
Total Liabilities and Shareholders' Deficit	$	2,768,452	2,713,091
See Notes to Consolidated Financial Statements

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CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2015		2014		2015		2014
	Revenue
	Net sales	$	220,851	$	224,638	$	361,856	$	397,951
	Cost of Goods Sold		(169,259)		(148,539)		(274,943)		(315,102)
	Gross Profit		51,592		76,099		86,913		82,849
	Operating Expenses
	Selling expenses		11,620		14,400		46,406		42,556
	General and administrative expenses (Note 13)		100,432		81,766		172,070		156,069
	Total operating expenses		112,052		96,166		218,476		198,625
	Income (Loss) from operations		(60,460)		(20,067)		(131,563)		(115,776)
	Other Income (Expenses)
	Interest expense		(75,393)		(85,362)		(161,274)		(162,882)
	Other income		28,757		85,351		63,124		129,121
	Other loss		(3)		12		(1,204)		(1,093)
	Total other income (expenses)		(46,639)		1		(99,354)		(34,854)
	Income (Loss) before income taxes		(107,099)		(20,066)		(230,917)		(150,630)
	Income taxes		-		-		-		-
	Net Income (Loss)	$	(107,099)	$	(20,066)	$	(230,917)	$	(150,630)
	Net Loss per share - basic	$	(0.01)	$	(0.00)	$	(0.01)	$	(0.01)
	Weighted average shares outstanding- basic		19,680,000		15,600,000		19,680,000		15,600,000
	Net Loss per share - diluted	$	(0.01)	$	(0.00)	$	(0.01)	$	(0.01)
	Weighted average shares outstanding- diluted		19,680,000		15,600,000		19,680,000		15,600,000
	Comprehensive Income (loss)
	Net income (loss)	$	(107,099)	$	(20,066)	$	(230,917)	$	(150,630)
	Other comprehensive income (loss) - Foreign currency translation adjustment		(12)		(731)		(583)		(6,423)
	Comprehensive income (loss)	$	(107,111)	$	(20,797)	$	(231,500)	$	(157,053)
See Notes to Consolidated Financial Statements.

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CHINA FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
			For the Six Months Ended
			June 30,
			2014		2014
	Operating Activities:
	Net income (loss)	$	(230,917)	$	(150,630)
	Adjustments to reconcile income to net cash provided by operations
	Depreciation		8,318		8,772
	Provision (Recovery) for bad debts		4,986		(7,767)
	Amortization of intangible assets		119		120
	Loss on disposal of property, plant and equipment		1,204		1,093
	Changes in operating assets and liabilities:
	Accounts receivable, net		10,472		142,294
	Other receivables		(72,637)		(302,754)
	Inventories		40,533		103,959
	Prepayment		43,512		35,454
	Accounts payable		(5,504)		(48,017)
	Other payables		120,925		3,617
	Accrued expenses		17,231		(7,273)
	Interest payable		21,083		65,005
	Advance from customers		83,750		(10,313)
	Net cash provided by (used in) operating activities		43,075		(166,440)
	Investing Activities
	Purchase of properties, plant and equipment		(14,536)		(2,303)
	Proceeds from disposal of properties, plant and equipments		-		227
	Loan made to related parties		(34,725)		-
	Net cash provided by (used in) investing activities		(49,261)		(2,076)
	Financing Activities
	Proceeds from short-term and long-term loans		54,431		255,609
	Repayment to related parties		(5,840)		(27,232)
	Net cash provided by (used in) financing activities		48,591		228,377
	Effect of exchange rate changes on cash		65		(17,437)
	Increase in cash and cash equivalents		42,470		42,424
	Cash and cash equivalents at beginning of period		4,688		23,347
	Cash and cash equivalents at end of period	$	47,158	$	65,771
	Supplemental disclosure of cash flow information
	Interest paid	$	140,071	$	90,659
	Income taxes paid	$	-	$	-
	See Notes to Consolidated Financial Statements.

CHINA FORESTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.      ORGANIZATION AND BUSINESS BACKGROUND

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

On June 26, 2007, the Company closed the share exchange transaction and acquired 100% Jin Yuan Global Limited, HK Holding Company, who directly owns 51% of Harbin Senrun Forestry Development Co., Ltd. (“Harbin Senrun”) and indirectly owns 49% of Harbin SenRun  through a wholly 100% owned subsidiary Jin Yuan Global Limited Trust. Harbin Senrun was a PRC operating company that principally engaged in the growing and harvesting of timber and manufacture and marketing of lumber in the People’s Republic of China (“PRC”).

On July 15, 2010, the Company closed the transactions contemplated by the Share Exchange Agreement and acquired Financial International (Hong Kong) Holdings Co. (“FIHK”), a holding company organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China on January 8, 2009, as its wholly owned subsidiary. FIHK has no other material operations except it has entered into a series of contractual obligations with Hanzhong Hengtai Bio-Tech Limited (“Hengtai”), a company organized and existing under the laws of the People’s Republic of China on October 22, 2003.

Hanzhong Hengtai Bio-Tech Limited (“Hengtai”) is a company incorporated under the laws of the People’s Republic of China (“China”) that engaged in the plantation and sale of garden plants used in landscaping, such as Chinese Yews of the types Taxus chinensis var. mairei and Taxus media, as well as the holders of 100% of the voting shares of Hengtai.

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

On December 14, 2010, following the resolution of the Board of Directors to terminate the timber business, the Company closed a sale and purchase transaction contemplated by a Sale and Purchase Agreement and sold 100% of Jin Yuan Global Limited along with all its directly or indirectly owned subsidiaries Harbin Senrun for $2,000. A loss of $640,786 was recognized from the disposal.

On May 20, 2011, the Board of Directors of the Company authorized the termination of the VIE Agreements. In connection with the termination of the VIE Agreements, FIHK exercised its rights under the Exclusive Option Agreement to direct Xi’An Qi Ying Bio-

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Tech Limited, a company organized and existing under the laws of the People’s Republic of China (“Xi’An Qi Ying”), the indirect wholly owned subsidiary of FIHK, to acquire all of the equity capital of Hengtai.  As a result, Hengtai became an indirect wholly owned subsidiary of FIHK.

The Exclusive Option Agreement was exercised in a manner that the Hengtai Shareholders transferred all of their equity capital in Hengtai to Xi’An Qi Ying.  At or about the same time, Spone Limited, a company organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China (“Spone”), acquired all of the capital stock of Xi’An Qi Ying, so that it became a direct wholly owned subsidiary of Spone.  FIHK then acquired all of the capital stock of Spone, so that it became a direct wholly owned subsidiary of FIHK.

As a result of the termination of the VIE Agreements, Hengtai became an indirect wholly owned subsidiary of the Company, and a direct wholly owned subsidiary of Xi’An Qi Ying. Previously, the status of Hengtai under the VIE Agreements was a company that was controlled by FIHK pursuant to contractual provisions of the VIE Agreements whose equity capital was owned by the original Hentai Shareholders.

As a result of a series of reverse acquisition transactions above, the Company now owns all of the issued and outstanding capital stock of its subsidiaries. Since there is common control between the Company and all the subsidiaries, for accounting purposes, the acquisition of Xi’An Qi Ying and Henngtai has been treated as a recapitalization with no adjustment to the historical basis of the assets and liabilities of the consolidated company based on Financial Accounting Standards Board (FASB) rules on business combinations and transactions among entities under common control. The restructuring has been accounted for using the “as if” pooling method of accounting and the operations were consolidated as if the restructuring had occurred as of the beginning of the earliest period presented in our consolidated financial statements and the current corporate structure had been in existence throughout the periods covered by our consolidated financial statements.

China Forestry, Inc. (CHFY)
	100%
Financial International (Hong Kong) Holdings Company Limited (FIHK)
	100%
Spone Limited (Spone)
	100%
Xi'An Qi Ying Bio-Tech Limited (Xi'An Qi Ying)
	100%
Hanzhong Hengtai Biotech Limited (Hengtai)

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On June 15, 2012, the Company effected a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock. The par value and number of authorized shares of the common stock remained unchanged. All references to number of shares and per share amounts included in these consolidated financial statements and the accompanying notes have been adjusted to reflect the reverse stock split retroactively.

2.      GOING CONCERN

As reflected in the accompanying financial statements, the Company has accumulated deficits of $3,610,505 at June 30, 2015. The Company’s owners have funded the losses and cash shortfalls allowing management to develop sales and contingency plans. The Company is also arranging for additional funding. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

3.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.      Basis of Preparation

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

b.      Interim Financials

These interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. They do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto contained in its report on Form 10-K for the year ended December 31, 2014.

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at June 30, 2015, and the results of its operations and cash flows for the six month periods ended June 30, 2015 and 2014. The results of operations for the period ended June 30, 2015 are not necessarily indicative of the results to be expected for future quarters or the full year.

c.      Variable Interest Entities

Prior to May 11, 2011, Hengtai is considered a variable interest entity (“VIE”), and FIHK, the Company’s wholly owned subsidiary, is the primary beneficiary. The Company’s relationships with Hengtai and its shareholders are governed by a series of contractual arrangements between the Company and Hengtai, which is an operating company in the PRC. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On April 1, 2010, FIHK entered into the following contractual arrangements with Hengtai:

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

(2) Business Operating Agreement. Pursuant to the business operating agreement among FIHK and Hengtai, dated April 1, 2010, FIHK provides Hengtai guidance and instruction on Hengtai’s daily operations, financial management and employment issues. FIHK has the right to appoint or remove Hengtai’s directors and executive officers. In addition, FIHK agrees to guarantee Hengtai’s performance under any agreements or arrangements relating to its business arrangement with any third party. Upon the request of Hengtai, FIHK agrees to provide loans to support its operation’s capital requirements and to provide a guarantee if the Company needs to apply for loans from a third party. In return, Hengtai agrees to pledge its accounts receivable and all of its assets to FIHK. The term

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of this agreement is ten years; and may be extended or terminated only by 30-day prior written notice served by FIHK (or its designated party). FIHK is entitled to assign to a wholly-owned subsidiary, if one were set up in the future, all the rights to the Company as stipulated in this agreement.

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

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

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

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

On May 20, 2011, the Board of Directors of the Company authorized the termination of variable interest entities (“VIE”) contracts. In connection with the termination of the VIE Contracts, FIHK exercised its rights under the Exclusive Option Agreement to direct Xi’An Qi Ying Bio-Tech Limited, a company organized and existing under the laws of the People’s Republic of China (“Xi’An Qi Ying”), the indirect wholly owned subsidiary of FIHK, to acquire all of the equity capital of Hengtai.  As a result, Hengtai became an indirect wholly owned subsidiary of FIHK.

The Exclusive Option Agreement was exercised in a manner that the Selling Shareholders transferred all of their equity capital in Hengtai to Xi’An Qi Ying.  At or about the same time, Spone Limited, a company organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China (“Spone”), acquired all of the capital stock of Xi’An Qi Ying, so that it became a direct wholly owned subsidiary of Spone.  FIHK then acquired all of the capital stock of Spone, so that it became a direct wholly owned subsidiary of FIHK.

As a result of the termination of the VIE Agreements, Hengtai became an indirect wholly owned subsidiary of the Company, and a direct wholly owned subsidiary of Xi’An Qi Ying. Previously, the status of Hengtai under the VIE Agreements was a company that

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was controlled by FIHK pursuant to contractual provisions of the VIE Agreements whose equity capital was owned by the original Hentai Shareholders.

d.      Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.

e.      Use of Estimates

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

f.      Financial Instruments

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

g.      Fair Value Accounting

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

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

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3: Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

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

h.      Cash and Cash Equivalents

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

i.      Accounts Receivable

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

j.      Inventories

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

k.      Property, Plant, and Equipment

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

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

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

l.      Intangible Assets

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

Land use right                                           30-70 years

m.      Impairment of Long-Lived Assets

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

n.      Comprehensive Income

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

n.      Revenue Recognition

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

o.      Advertising expense

The advertising costs are expensed as incurred and included in selling expenses.

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p.      Income Taxes

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

The Company is exempt from paying income tax in China as it produces the products which fall into the tax exemption list issued by the Chinese government.

q.      Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period.  Diluted loss per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.  At June 30, 2015 and 2014, the Company has an outstanding convertible debenture that is convertible into 2,720,000 and 6,800,000 shares of common stock. The potential dilution associated with convertible debt was excluded from the calculation for the six months ended June 30, 2015 and 2014 as it will create an anti-dilutive effect. The basic and diluted loss per share for the six months ended June 30, 2015 and 2014 as follows:

	For the Six Months Ended
	June 30,
	2015		2014
Numerator
Net loss	$	(230,917)	$	(150,630)
Net loss without convertible interest expense	$	(211,081)	$	(101,041)
Denominator
Weighted average common shares outstanding – basic		19,680,000		15,600,000
Dilution associated with convertible debt		-		-
Weighted average common shares outstanding – diluted		19,680,000		15,600,000
Basic loss per share	$	(0.012)	$	(0.010)
Diluted loss per share	$	(0.012)	$	(0.010)

r.      Segment Information

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

s.      Foreign Currency Translation

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

The consolidated financial statements of the Company are translated into U.S. dollars in accordance with the standard, “Foreign Currency Translation,” codified with ASC 830, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency consolidated financial statements into U.S. dollars are included in determining comprehensive income. At June 30, 2015 and December 31, 2014, the cumulative translation adjustments of $219,809 and $220,392, respectively,

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were classified as items of accumulated other comprehensive income in the stockholders’ equity section of the balance sheet. For the six months ended June 30, 2015 and 2014, other comprehensive income (loss) was ($583) and ($6,423), respectively.

The exchange rates used to translate amounts in RMB into U.S. dollars for the purposes of preparing the consolidated financial statements were as follows:  As of June 30, 2015 and December 31, 2014, the Company used the period-end rates of exchange for assets and liabilities of $1 to RMB6.1988 and $1 to RMB6.2067, respectively. For the six months ended June 30, 2015 and 2014, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1 to RMB6.2186 and $1 to RMB6.1670, respectively. The Company used historical rates for equity.

t.      Related Parties

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

u.      Commitments and Contingencies 

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

v.      Recently Issued Accounting Pronouncements

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This standard will have the impact of reducing the frequency of disposals reported as discontinued operations, by requiring such a disposal to represent a strategic shift that has or will have a major effect on an entity’s operations and financial results. However, existing provisions that prohibit an entity from reporting a discontinued operation if it has certain continuing cash flows or involvement with the component after disposal are eliminated by this standard. The ASU also expands the disclosures for discontinued operations and requires new disclosures related to individually significant disposals that do not qualify as discontinued operations. This ASU is effective prospectively beginning January 1, 2015. Early adoption is, however, permitted. This ASU would impact the Company’s consolidated results of operations and financial condition only in the instance of a disposal as described above.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle the ASU includes provisions within a five step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when (or as) an entity satisfies a performance obligation. The standard also specifies the accounting for some costs to obtain or fulfill a contract with a customer and requires expanded disclosures about revenue recognition. The standard provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. This ASU is effective January 1, 2017. The Company is currently assessing this ASU’s impact on the Company’s consolidated results of operations and financial condition.

In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, which changes guidance related to both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models. With respect to the VIE model, the standard changes, among other things, the identification of variable interests associated with fees paid to a decision maker or service provider, the VIE characteristics for a limited partner or similar entity, and the primary beneficiary determination. With respect to the VOE model, the ASU eliminates the presumption that a general partner controls a limited partnership or similar entity unless the presumption can otherwise be overcome. Under the new guidance, a general partner would largely not consolidate a partnership or

15

similar entity under the VOE model. For the Company, this ASU is effective January 1, 2016, with early adoption permitted. The Company does not have significant involvement with entities subject to consolidation considerations impacted by the VIE model changes or with limited partnerships potentially impacted by the VOE model changes. As a result, the Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations and financial condition.

The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

4.      SIGNIFICANT CONCENTRATIONS

Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist of cash and accounts receivable as of June 30, 2015 and December 31, 2014. The Company performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.

The major part of the Company’s cash at June 30, 2015 and December 31, 2014 is maintained at one financial institution in the PRC which does not provide insurance for amounts on deposit.  The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk in this area.

Geographic Concentration

For six months ended June 30, 2015 and 2014 the Company’s sales were mainly made to customers located in the PRC. In addition, total accounts receivables as of June 30, 2015 and December 31, 2014 also arose from customers located in the PRC.

All net assets of the Company are also located in the PRC.

Customer Concentration

In 2009, the Company changed its sales strategy by switching the focused product in the market. This change resulted in concentration on certain customers for the Company’s sales. The following table sets forth information as to the revenue derived from those customers that accounted for more than 10% of our revenue for the six months ended June 30, 2015 and 2014:

	For the Six Months Ended			For the Six Months Ended
	June 30, 2015			June 30, 2014
	Amount		%	Amount	%
Tian Ye	$	110,370	31%
Jianxin Construction Investment Co., Ltd.				$ 102,856	26%

5.      ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	June 30			December 31
	2015			2014
Accounts receivable	$	258,258		$	268,604
Less: Allowance for doubtful accounts		(105,003	)		(107,930	)
Accounts receivable, net	$	153,255		$	160,674

Bad debt expense (recovery income) was $4,986 and $(7,767) for the six months ended June 30, 2015 and 2014, respectively.

6.      INVENTORIES

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Inventories consist of the following:

	June 30		December 31
	2015		2014
Inventories	$	2,331,351	$	2,371,813
Less: Allowance for obsolescence		(55,170)		(55,100	)
Inventories, net	$	2,276,181	$	2,316,713

7.      PREPAYMENT

As of June 30, 2015 and December 31, 2014, the Company made prepayment for rental of land, purchase of vehicle, and advance to suppliers for $42,531 and $86,043, respectively.

8.      PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment consist of the following:

	June 30			December 31
	2015			2014
Buildings	$	107,027		$	92,195
Machinery and equipment		12,528			12,264
Transportation equipment		94,803			94,683
Office equipment		20,336			20,964
Construction in progress		-			1,242
Total		234,694			221,348
Less: Accumulated depreciation		(141,917	)		(133,711	)
Property, plant, and equipment, net	$	92,777		$	87,637

The depreciation was $8,318 and $8,772 for the six months ended June 30, 2015 and 2014, respectively. They are broken down as follows:

	For the Six Months Ended
	June 30,
	2015		2014
Cost of goods	$	4,993	$	4,816
Operating expenses		3,325		3,956
Total	$	8,318	$	8,772

9.      INTANGIBLE ASSETS

Intangible assets consist of the following:

	June 30			December 31
	2015			2014
Land use right	$	11,776		$	11,762
Less: Accumulated amortization		(2,687	)		(2,565	)
Intangible assets, net	$	9,089		$	9,197

The amortization for land use right was $119 and $120 for the six months ended June 30, 2015 and 2014, respectively. They are broken down as follows:

	For the Six Months Ended
	June 30,
	2015		2014
Cost of goods	$	119	$	120
Operating expenses		-		-
Total	$	119	$	120

10.      SHORT-TERM LOANS

Short-term loans are loans from nonfinancial institutions and individuals. As of June 30, 2015 and December 31, 2014, short-term loans are $1,102,202 and 1,047,711, respectively.

Interest expense for short-term loans was $137,726 and $107,455 for the six months ended June 30, 2015 and 2014, respectively.

Loans from nonfinancial institutions and individuals are made for the Company’s operational need. The loans are unsecured, and have no fixed terms of repayment, and are therefore deem payable on demand. The interest rates for loans to nonfinancial institutions and individuals are from 10%~60%.

11.      LONG-TERM LOANS

Long-term loans consist of the following:

June 30, 2015

	Loan Amount			Duration	Annual Interest Rate	Collateral
The Bureau of Finance of Chenggu County	$	80,699		2006.3.9 - 2010.11.30	2.40%	Credit Loan
Less: principal due within one year		(80,699	)
Total, net	$	-

December 31, 2014

	Loan Amount			Duration	Annual Interest Rate	Collateral
The Bureau of Finance of Chenggu County	$	80,597		2006.3.9 - 2010.11.30	2.40%	Credit Loan
Less: principal due within one year		(80,597	)
Total, net	$	-

Total Interest expense for long-term loans was $965 and $973 for the six months ended June 30, 2015 and 2014, respectively.

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

12.      CONVERTIBLE PROMISSORY NOTE-SHAREHOLDERS

The $1,000,000 convertible promissory note was issued to FIHK’s prior shareholders to execute Shares Exchange Agreement between the Company and FIHK on July 15 2010. The outstanding principal amount of this Note, together with all accrued and unpaid interest due thereunder is convertible into Six Million and Eight Hundred Thousand (6,800,000) shares of the Company’s common stock. The note bears a 10% annual interest rate and its principal and accrued interest are due on June 3, 2015 or on such earlier date that the note is converted.

On September 15, 2012, $400,000 convertible promissory note as well as associated accrued interest was transferred to 8 individuals, 7of whom were not the Company’s shareholders as of June 30, 2015. On June 30, 2015, $50,000 and $350,000 convertible promissory note are held by one shareholder and 7 non-shareholders, respectively.

On August 20, 2014, $600,000 convertible promissory note as well as associated accrued interest of $251,836 was converted 4,080,000 common shares.

For the six months ended June 30, 2015 and 2014, the interest expense for this note was $19,836 and $49,589, respectively.

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13.      GERNERAL AND ADMINISTRATIVE

For the six months ended June 30, 2015 and 2014, the amount of general and administrative expenses mainly composed of the following events:

	For the Six Months Ended
	June 30,
	2015		2014
Office expense	$	9,560	$	10,604
Salary and welfare		29,120		30,980
Employee insurance		16,969		15,194
Audit and accounting		10,000		18,027
Legal service fee		15,000		15,000
Entertainment fee		21,458		9,597
Depreciation expense		3,325		3,956
Bad debt expense		4,986		-
Others		61,652		52,711
Total	$	172,070	$	156,069

14.      CHINA CONTRIBUTION PLAN

Full time employees of the Company participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s subsidiaries to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations. The Company has no further commitments beyond its monthly contribution. For the six months ended June 30, 2015 and 2014, the total provisions for such employee benefits were $16,969 and $15,194, respectively.

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

15.      STATUTORY RESERVES

Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC ("PRC GAAP") at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss. Therefore, the Company did not make any appropriations to the reserve funds mentioned above.

16.      RELATED PARTY TRANSACTION

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

Name	Relationship
Hanzhong Bashan God Grass Biological Development Co., Ltd.	A company controlled by relative of Hengtai's CEO
Yang, Yung Li	*Previous owner of Hengtai
Shau, Jen Heng	*Previous owner and CEO of Hengtai
Qinba Taxus Association	An organization controlled by the Company
Liu, Sheng Li	Chairman, President and Director,

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

Due to related parties

	June 30		December 31
Name	2015		2014
Yang, Yung Li	$	99,148	$	104,179
Shau, Jen Heng		-		810
Qinba Taxus Association		323		322
Liu, Shengli		202,178		179,500
Total	$	301,649	$	284,811

"Due to related parties" represents loans payable that are unsecured, and have no fixed terms of repayment, and are therefore deem payable on demand. Due to related parties is subject to interest rate from 8%~15%.

Interest expense for related party loans was $2,747 and $4,865 for the six months ended June 30, 2015 and 2014, respectively.

Due from related parties

	June 30		December 31
Name	2015		2014
Shao, Jen Heng	$	34,725	$	-

"Due from related parties" represents loans receivable that are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore deem receivable on demand.

17.      CONTINGENCIES, RISKS AND UNCERTAINTIES

Country Risk

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

Loss Contingencies

The Company guarantees a loan of Hanhuang group, related party of Shau, Jen Heng. On December 31, 2013, balance of the loan, including interest payable is $551,079. The loan was due on July 1, 2013 and Hanhuang Group has not made any payment. The contingent loss was accrued in 2013 since it is probable the liability has been incurred.

Loan to Officer

The Company made a loan to Shau, Jen Heng, CEO of Hengtai and $34,725 was outstanding on June 30, 2015. Section 402 of the Sarbanese-Oxley Act of 2002 prohibits loans or the extension of credit to officers and directors of a publicly traded company or any of its subsidiaries. The Company is currently in contravention of these provisions and might face possible regulatory action by the SEC.

18.      OPERATING LEASE COMMITMENT

The Company leases land under operating leases which are for 3~30 years and, expire beginning on April 30, 2011. The rents were $32,791 and $25,158 for the six months ended June 30, 2015 and 2014, respectively.

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They are broken down as follows:

	For the Six Months Ended
	June 30,
	2015		2014
Cost of goods	$	32,791	$	25,158
Operating expenses		-		-
Total	$	32,791	$	25,307

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

Year ending December 31,
2015	$	84,071
2016		76,511
2017		78,873
2018		53,953
2019		53,953
	$	347,361

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

FORWARD LOOKING STATEMENTS

Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements.

GENERAL DESCRIPTION OF BUSINESS

Introduction

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

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

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Harbin SenRun was founded in 2004. Historically, it had a workforce of approximately 8 full time employees, mainly in sales, administration and in supporting services. It recruited temporary part-time workers to carry out felling, cutting and forestry plantation and protection.  Its principal revenue was log sales.

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

On December 14, 2010, we simultaneously entered into and closed the transactions contemplated by a Sale and Purchase Agreement with Land Synergy Limited (as Purchaser), a company incorporated in the British Virgin Islands (“Land Synergy”) and sold to Land Synergy 100% of the share capital of Hong Kong Jin Yuan, including its wholly-owned subsidiary, Harbin SenRun, for US$2,000. As a result, we no longer engage in the timber business operations.

On July 15, 2010, we entered into a Share Exchange with Financial International (Hong Kong) Holdings Co. Limited (“FIHK”).  

From April 1, 2010 to May 20, 2011, FIHK had a series of contractual arrangements with Hanzhong Hengtai Bio-Tech Limited (“Hengtai”), a company organized and existing under the laws of the People’s Reuplic of China that is engaged in the plantation and sale of garden plants used for landscaping, including Chinese Yew, Aesculus, Dove Tree and Dendrobium.

In May 20, 2011, FIHK exercised its rights under the Exclusive Option Agreement to direct Xi’An Qi Ying Bio-Tech Limited, a company organized and existing under the laws of the People’s Republic of China (“Xi’An Qi Ying”), the indirect wholly owned subsidiary of FIHK, to acquire all of the equity capital of Hengtai.  The Exclusive Option Agreement was exercised in a manner that the shareholders of Hengtai transferred all of their equity capital in Hengtai to Xi’An Qi Ying.  At or about the same time, Spone Limited, a company organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China (“Spone”), acquired all of the capital stock of Xi’An Qi Ying, so that it became a direct wholly owned subsidiary of Spone.  FIHK then acquired all of the capital stock of Spone, so that it became a direct wholly owned subsidiary of FIHK. As a result, Hengtai became an indirect wholly owned subsidiary of FIHK and also accordingly became the indirect wholly owned subsidiary of us.

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

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

Hengtai currently has 29 full-time employees, including 3 members of management, 19 agricultural experts, 5 employees in sales and marketing, and 2 administrative employees.

On June 15, 2012, the Company effected a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock. The par value and number of authorized shares of the common stock remained unchanged. All references to number of shares and per share amounts included in these consolidated financial statements and the accompanying notes have been adjusted to reflect the reverse stock split retroactively.

Results of Operations

For the three months ended June 30, 2015 Compared to the three months ended June 30, 2014

For the Three Months ended June 30	2015		2014
Net Sales	$	220,851	$	224,638
Cost of Goods Sold	$	(169,259)	$	(148,539	)
Operating Expenses	$	112,052	$	96,166
Other Income (Expenses)	$	(46,639)	$	1
Income Taxes	$	-	$	-
Net Income	$	(107,099)	$	(20,066)

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Net Sales

We had net sales of $220,851 for the three months ended June 30, 2015 and $224,638 for the three months ended June 30, 2014. Our sales decreased by $3,787 or approximately 2%, the lower sales in 2015 is due to poor market condition in PRC.

Cost of Goods Sold and Gross Profit

For the three months ended June 30, 2015 and 2014, cost of goods sold amounted to $169,259 and $148,539. Gross profit for the three months ended June 30, 2015 was $51,592 as compared to $76,099 for the three months ended June 30, 2014. The gross margin percentage for the three months ended June 30, 2015 and 2014 were approximately 23.4% and 33.9%. The gross margin is much lower because Inventories are stated at the higher of cost, as determined on a standard cost basis, or net present value.

Operating Expenses

For the three months ended June 30, 2015, total operating expenses were $112,052 as compared to $96,166 for the three months ended June 30, 2014, an increase of $15,886, or approximately 16.5%. The general and administrative expenses increase as result of increase in employees’ salary and welfare expenses and entertainment fees.

The breakdown of the operating expenses as follows:

For the Three months ended June 30	2015		2014
Selling Expenses	$	11,620	$	14,400
General and Administrative Expenses	$	100,432	$	81,766
Total Operating Expenses	$	112,052	$	96,166

The breakdown of the general and administrative expenses as follows:

	For the Three months ended
	June 30,
	2015		2014
Office expense	$	7,018	$	6,781
Salary and welfare		19,853		11,571
Employee insurance		8,508		7,515
Audit and accounting		5,000		12,044
Legal service fee		7,500		7,500
Entertainment fee		13,204		7,622
Depreciation expense		1,667		1,957
Bad debt expense		210		(688)
Others		37,472		27,464
Total	$	100,432	$	81,766

Other Income (Expenses)

Our other income (expenses) during the three months ended June 30, 2015 amounted to $(46,639) as compared to $1 for the same period in 2014. The result was mainly due to contingent loss accrued in 2013. The interest expenses were $75,393 and $85,362 for the three months ended June 30, 2015 and 2014, respectively. The increase of other expenses resulted from lower other income to reduce interest expenses.

Net Income (Loss)

Net loss was $107,099 for the three months ended June 30, 2015, as compared to a net loss of $20,066 for the same period in 2014. The increase of net loss was due to lower sales, and the increase of cost of sales, operating expenses and other expenses.

For the six months ended June 30, 2015 Compared to the six months ended June 30, 2014

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For the Six Months ended June 30	2015		2014
Net Sales	$	361,856	$	397,951
Cost of Goods Sold	$	(274,943)	$	(315,102)
Operating Expenses	$	218,476	$	198,625
Other Income (Expenses)	$	(99,354)	$	(34,854)
Income Taxes	$	-	$	-
Net Income	$	(230,917)	$	(150,630)

Net Sales

We had net sales of $361,856 for the six months ended June 30, 2015 and $397,951 for the six months ended June 30, 2014. Our sales decreased by $36,095 or approximately 9%, the lower sales in 2015 is due to poor market condition in PRC.

Cost of Goods Sold and Gross Profit

For the six months ended June 30, 2015 and 2014, cost of goods sold amounted to $274,943 and $315,102. Gross profit for the six months ended June 30, 2015 was $86,913 as compared to $82,849 for the six months ended June 30, 2014. The gross margin percentage for the six months ended June 30, 2015 and 2014 were approximately 24% and 20.8%. The gross margin is much higher because lower sales revenue.

Operating Expenses

For the six months ended June 30, 2015, total operating expenses were $218,476 as compared to $198,625 for the six months ended June 30, 2014, an increase of $19,851, or approximately 10%. The selling expenses increased because the Company increased its spending in advertising and payroll expenses of sales employees. The general and administrative expenses increase as result of increase in entertainment fees.

The breakdown of the operating expenses as follows:

For the Six months ended June 30	2015		2014
Selling Expenses	$	46,406	$	42,556
General and Administrative Expenses	$	172,070	$	156,069
Total Operating Expenses	$	218,476	$	198,625

The breakdown of the general and administrative expenses as follows:

	For the Six months ended
	June 30,
	2015		2014
Office expense	$	9,560	$	10,604
Salary and welfare		29,120		30,980
Employee insurance		16,969		15,194
Audit and accounting		10,000		18,027
Legal service fee		15,000		15,000
Entertainment fee		21,458		9,597
Depreciation expense		3,325		3,956
Bad debt expense		4,986		-
Others		61,652		52,711
Total	$	172,070	$	156,069

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Other Income (Expenses)

Our other income (expenses) during the six months ended June 30, 2015 amounted to $(99,354) as compared to $(34,854) for the same period in 2014. The result was due to lower other income in 2014. The interest expenses were $161,274 and $162,882 for the six months ended June 30, 2015 and 2014, respectively.

Net Income (Loss)

Net loss was $230,917 for the six months ended June 30, 2015, as compared to a net loss of $150,630 for the same period in 2014. The increase of net loss was due to higher operating expenses and other expenses.

Liquidity and Capital Resources

At June 30, 2015, we had cash and cash equivalents of $47,158.

Working Capital

		At June 30, 2015			At December 31, 2014
Current assets	$	2,666,586		$	2,616,257
Current liabilities		2,851,340			2,565,162
Working capital (deficit)	$	(184,754	)	$	51,095

Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2015 was $43,075 as compared to net cash used in operating activities $166,440 for the six months ended June 30, 2014.

For the six months ended June 30, 2015, we had net loss of $230,917. Our inventories decreased by $40,533, accounts payable decreased by $5,504, accounts receivable decreased by $10,472, prepayments decreased by $43,512, other receivables increased by $72,637, interest payable increased by $21,083, accrued liabilities and other current liabilities increased by $221,906, offset by non-cash items such as depreciation and amortization of $8,437, bad debts provision of $4,986, and $1,204 loss on disposal of fixed assets.

For the six months ended June 30, 2014, we had net loss of $150,630. Our inventories decreased by $103,959, accounts payable decreased by $48,017, accounts receivable decreased by $142,294, prepayments decreased by $35,454, other receivables increased by $302,754, interest payable increased by $65,005, accrued liabilities and other current liabilities decreased by $13,969, offset by non-cash items such as depreciation and amortization of $8,892, bad debts recovery of $7,767, and $1,093 loss on disposal of fixed assets.

Investing Activities

Net cash used in investing activities for the six months year ended June 30, 2015 was $49,261 as compared to net cash used in investing activities of $2,076 for the six months ended June 30, 2014.

For the six months ended June 30, 2015, we spent $14,536 in acquisitions of properties, plant and equipment and lent related parties $34,725.

For the six months ended June 30, 2014, we spent $2,303 in acquisitions of properties, plant and received proceeds of $227 from sale of fixed assets.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2015 was $48,591. We have repaid $5,840 to our related parties. We also borrowed $54,431 in short and long term bank loans.

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Net cash provided by financing activities for the six months ended June 30, 2014 was $228,377. We have repaid $27,232 to our related parties. We also borrowed $255,609 in short and long term bank loans.

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

Related Parties Transactions

We have historically funded our cash needs through a series of debt transactions, primarily with related parties. Amounts due to related parties as of June 30, 2015 and December 31, 2014 were $301,649 and $284,811, respectively.

Interest expense for related party loans was $2,747 and $4,865 for the six months ended June 30, 2015 and 2014, respectively.

.

On August 20, 2014, $600,000 convertible promissory note as well as accrued interest of $251,836 was converted into 4,080,000 common shares.

The Company made a loan to Shau, Jen Heng, CEO of Hengtai and $34,725 was outstanding on June 30, 2015. Section 402 of the Sarbanese-Oxley Act of 2002 prohibits loans or the extension of credit to officers and directors of a publicly traded company or any of its subsidiaries. The Company is currently in contravention of these provisions and might face possible regulatory action by the SEC.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for Smaller Reporting Company.

ITEM 4 - CONTROLS AND PROCEDURES

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on the evaluation performed, our management concluded that during the period covered by this report, our internal controls over financial reporting were not effective based on those criteria and due to the deficiency described below.

During the three months ended June 30, 2015, our management identified a material weakness in our controls and procedures regarding our failure to timely prevent loan transactions made to related parties in violation of Section 402 of the Sarbanes-Oxley Act of 2002 (“Section 402”).

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of June 30, 2015, that the design and operation of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) were not effective to ensure that information required to be disclosed in the reports filed or submitted by us under the Exchange Act is accumulated, recorded, processed, summarized and reported to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding whether or not disclosure is required due to the deficiency described above.

Changes in internal control over financial reporting

During the quarter ended June 30, 2015, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls

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over financial reporting. However, our management is currently seeking resolutions to improve our controls and procedures in an effort to remediate the deficiency described above.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are not aware of any legal proceedings to which we are a party or of which our property is the subject. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.

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

On August 20, 2014, we converted the total balance of the outstanding convertible notes held by Wang Kejun, Xiao Xiuli and Xie Qing into 4,080,000 shares of commons stock for the price of $0.14706 per share. The issuance of these shares is pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933

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
101	The following materials from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

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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)

August 24, 2015	/s/ Shuncheng Ma
	Shuncheng Ma
	Chief Financial Officer
	(Principal Accounting Officer)

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