| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 Companys
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 Companys 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 Companys wholly owned subsidiary, is the primary beneficiary.
The Companys 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 (2) Business
Operating Agreement (3) Equity Pledge
Agreement. (4) Exclusive
Option Agreement. (5) Voting Right
Proxy Agreement. 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 XiAn Qi Ying Bio-Tech Limited,
a company organized and existing under the laws of the Peoples Republic of China (XiAn 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 XiAn 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 Peoples
Republic of China (Spone), acquired all of the capital stock of XiAn 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 XiAn
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. 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 Companys 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 liabilitys 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 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 Companys 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 assets (or asset groups) 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. 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 Companys current operations are carried out in China. s. Foreign
Currency Translation The Companys 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, 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 periods 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 entitys 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
Companys 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 standards 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 ASUs impact on the Companys 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 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
Companys 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. |
