UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB/A
Amendment
No. 1
x
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2007
o
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _________ to _________
Commission
file number 000-25765
CHINA FORESTRY,
INC.
(Exact
name of small business issuer as specified in its charter)
|
Nevada
(State
or other jurisdiction of
incorporation
or organization)
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87-0429748
(IRS
Employer Identification No.)
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Room
517, No. 18 Building
Nangangjizhoing
District
Hi-Tech
Development Zone
Harbin, Heilongjiang
Province, People’s Republic of China
(Address
of principal executive offices)
0086-0451–87011257
(Issuer's
telephone number)
Patriot
Investment Corporation
6269
Jamestown Court
Salt Lake City, UT
84121
(Former
name, address and fiscal year, if changed since last report)
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $.001 per share
(Title of
Class)
Check
whether the issuer: (1) filed all reports required to be filed by Sections 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
x
No
o
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
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
Issuer's
revenues for its most recent fiscal year were $0.
The
aggregate market value of the issuer's common stock held by non-affiliates was
approximately $21,503,423, based on the average closing bid and ask price for
the common stock on April 10, 2008.
As of
April 10, 2008, there were outstanding 50,000,000 shares of the issuer's
common stock, par value $.001.
Transitional
Small Business Disclosure Format (check one): Yes
o
No
x
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
The
discussion contained in this 10-KSB/A under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") contains forward-looking statements that
involve risks and uncertainties. The issuer's actual results could differ
significantly from those discussed herein. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "we believe," "the Company believes," "management believes" and similar
language, including those set forth in the discussion under "Description of
Business," including the "Risk Factors" described in that section, and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-KSB/A. We base our forward-looking
statements on information currently available to us, and we assume no obligation
to update them. Statements contained in this Form 10-KSB/A that are not
historical facts are forward-looking statements that are subject to the "safe
harbor" created by the Private Securities Litigation Reform Act of
1995.
CHINA
FORESTRY, INC.
TABLE OF CONTENTS
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Item
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Page
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Part
I
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1.
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Description
of Business
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4
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2.
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Description
of Property
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12
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3.
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Legal
Proceedings
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12
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4.
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Submission
of Matters to a Vote of Security Holders
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12
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Part
II
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5.
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Market
for Common Equity and Related Stockholder Matters
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12
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6.
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Management's
Discussion and Analysis or Plan of Operation
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14
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7.
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Financial
Statements
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17
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8.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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27
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8A.
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Disclosure
Controls and Procedures
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28
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8A(T)
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Controls
and Procedures
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29
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Part III
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9.
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Directors
and Executive Officers of the Registrant
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3
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10.
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Executive
Compensation
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3
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11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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3
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12.
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Certain
Relationships and Related Transactions
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32
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13.
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Exhibits,
Lists and Reports on Form 8-K
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33
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14.
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Principal
Accountant Fees and Services
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33
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Other
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Index
to Exhibits
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34
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Signature
Page
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34
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PART I
Item 1
. Description
of Business
History
of Our Company
Patriot
Investment Corporation, a Nevada corporation (“Patriot”), was originally
incorporated on January 13, 1986. It has not had active business
operations since inception and was considered a development stage company.
In 1993, Patriot 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.
On June
26, 2007, Patriot Investment Corporation simultaneously entered into, and
closed, a Share Exchange Agreement (the “Exchange Agreement”) by and among the
Company, Harbin SenRun Forestry Development Co., Ltd., a corporation organized
and existing under the laws of the People’s Republic of China (“Harbin SenRun”),
Bradley Shepherd, the President and majority shareholder of the Company
(“Shepherd”), Everwin Development Ltd., a corporation organized under the laws
of the British Virgin Islands (“Everwin”), and beneficial owner of 100% of the
share capital of Jin Yuan Global Limited, Jin Yuan Global Limited, a corporation
organized under the laws of the Hong Kong SAR of the People’s Republic of China
(“Hong Kong Jin Yuan”), and the Jin Yuan Global Limited Trust, a Hong Kong trust
created pursuant to a Declaration of Trust and a Trust and Indemnity Agreement
dated March 10, 2007 (the “Jin Yuan Global Limited Trust”) (Everwin, Hong Kong
Jin Yuan and the Jin Yuan Global Limited Trust being hereinafter referred to as
the “SenRun Shareholders”). At the closing of the share exchange
transaction contemplated under the Exchange Agreement (the “Share Exchange”),
Everwin transferred all of its share capital of Hong Kong Jin Yuan together with
the sum of $610,000 in cash, plus $25,000 in proceeds of a cash
deposit that was retained by the Company, to the Company in exchange for an
aggregate of 10,000,000 shares of Series A Convertible Preferred Stock, which
preferred shares are convertible into 47,530,000 shares of common stock of the
Company, thus causing Hong Kong Jin Yuan to become a wholly-owned subsidiary of
the Company and Harbin SenRun to become an indirect wholly-owned subsidiary of
the Company.
In
addition, pursuant to the terms and conditions of the Exchange
Agreement:
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·
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On
the Closing Date, the Company declared a cash dividend to the holders of
its common stock in an amount equal to $ 0.01227 per share to holders of
record on July 6, 2007, representing the cash payment received from
Everwin less the outstanding liabilities of the Company which were to be
paid off before the cash dividend was made.
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·
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After
the dividend payment date on July 16, 2007, Shepherd exchanged 44,751,500
of his shares of common stock of the Company for 221,500 shares of common
stock of the Registrant, and Todd Gee exchanged 100,000 of his shares for
100,000 shares of common stock, with Mr. Shepherd ending up owning 507,500
shares of common stock and Mr. Gee ending up owning 100,000 shares of
common stock.
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·
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Following
Shepherd’s exchange of shares, Everwin converted its Series A Convertible
Preferred Stock into 47,530,000 shares of common stock.
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Demand
and piggy-back registration rights were granted to Everwin and piggy-back
registration rights were granted to Messrs. Shepherd and Gee with respect
to shares of the Company’s restricted common stock acquired by them
following the closing.
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Everwin
agreed for a period of one year following the closing that it will not
cause or permit the Company to effect any reverse stock splits or register
more than 6,000,000 shares of the Company’s common stock pursuant to a
registration statement on Form S-8.
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·
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On
the Closing Date, the current officers of the Company resigned from such
positions and the persons designed by Everwin were appointed as the
officers of the Company, notably Chunman Zhang as CEO, CFO and Treasurer
and Degong Han as President and Secretary, and Todd Gee resigned as a
director of the Company and a person designated by Everwin was appointed
to fill the vacancy created by such resignation, notably Man
Ha.
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On
the Closing Date, Shepherd resigned from his position as a director
effective upon the expiration of the ten day notice period required by
Rule 14f-1, at which time two persons designated by Everwin were appointed
as directors of the Company, notably Degong Han and Kunlun
Wang.
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On
the Closing Date, the Company paid and satisfied all of its “liabilities”
as such term is defined by U.S. GAAP as of the closing.
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On
October 8, 2007, the Company announced the dismissal of Chunman Zhang from
the offices of Chief Executive Officer, Chief Financial Officer and
Treasurer, and the appointment of Yuan Tian as the Chief Executive Officer
and Director and Man Ha as the Chief Financial Officer and Treasurer of
the Company.
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As of the
date of the Exchange Agreement there were no material relationships between the
Company or any of its affiliates and Everwin and the SenRun Shareholders, other
than in respect of the Exchange Agreement.
The
foregoing description of the Exchange Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Exchange Agreement, which is filed as Exhibit 2.1 to a Form 8-K filed with the
Commission on July 2, 2007, and is incorporated herein by
reference.
We are a
Nevada corporation. We are a fully-reporting 1934 Act company, with our common
stock quoted on the Over the Counter Bulletin Board (OTCBB).
Everwin’s
Acquisition of Hong Kong Jin Yuan; the Share Exchange
During
January 2007, Mr. Degong Han, a citizen and resident of the People’s Republic of
China and the majority shareholder of Harbin SenRun (“Han”), contributed 51% of
the equity ownership of Harbin SenRun to Hong Kong Jin Yuan. Later, during March
2007, Han, who owned the remaining 49% equity interest in Harbin SenRun,
executed the Jin Yuan Global Limited Trust, and transferred his ownership
interest in trust and he became Trustee of the Trust. Simultaneously, the
Trustee assigned to Hong Kong Jin Yuan the beneficial ownership interest
in the Trust’s 49% ownership interest in Harbin SenRun. As a result
of these transactions, Hong Kong Jin Yuan became the beneficial owner of a 100%
interest in Harbin SenRun.
During
May 2007, Everwin acquired 100% of the equity interest in Hong Kong Jin Yuan in
exchange for shares of capital stock to be issued in the future by Everwin to
the shareholders of Hong Kong Jin Yuan. As a result of these transactions,
Everwin owns 100% of the equity interest in Hong Kong Jin Yuan, which, as
mentioned above, owns 100% of the equity interest in Harbin SenRun. Mr. Man Ha,
Chief Financial Officer of China World Trade Corporation, is the sole director,
secretary and sole shareholder of Everwin.
Pursuant
to the Share Exchange, 100% of the equity interest in Hong Kong Jin Yuan was
contributed to the Registrant, together with $610,000 in cash, plus $25,000 in
proceeds of a cash deposit that was retained by the Registrant, which made Hong
Kong Jin Yuan a wholly owned subsidiary of the Registrant, and Harbin SenRun a
wholly owned indirect subsidiary of the Registrant.
Organizational
Charts
Set forth
below is an organization chart of the entities that existed prior to the Share
Exchange and contribution of 100% of the share capital of Hong Kong Jin Yuan by
Everwin to Patriot, and an organizational chart showing the entities that
existed after the Share Exchange and contribution of 100% of the share capital
of Hong Kong Jin Yuan by Everwin to Patriot.
Before Share
Exchange
After Share
Exchange
Share
Exchange
The Share Exchange
. On June
26, 2007, the Registrant entered into the Exchange Agreement with Harbin SenRun,
Shepherd, and the SenRun Shareholders. Upon closing of the Share Exchange on
June 26, 2007, Everwin delivered 100% of the share capital in Hong Kong Jin Yuan
to the Registrant together with $610,000 in cash, plus $25,000 in proceeds of a
cash deposit that was retained by the Registrant, in exchange for 10,000,000
shares of Series A Convertible Preferred Stock of the Registrant which are
convertible into 47,530,000 shares of common stock of the Registrant, resulting
in Hong Kong Jin Yuan becoming a wholly-owned subsidiary of the Registrant, and
Harbin SenRun becoming an indirect wholly-owned subsidiary of the Registrant.
Each share of Series A Convertible Preferred Stock is entitled to 4.753 votes
and is convertible into 4.753 shares of common stock of the
Registrant.
As a
result, 47,000,000 shares of the Registrant’s common stock were outstanding
immediately prior to the closing of the Share Exchange, and, after giving effect
to the cancellation and exchange of shares, and the conversion of the Series A
Convertible Preferred Stock to common stock, 50,000,000 shares of the
Registrant’s common stock will be outstanding after the closing of the Share
Exchange. Of these shares, 1,862,500 shares of common stock represent the
Registrant’s “float” prior to and after the Share Exchange. The 10,000,000
shares of Series A Common Stock and the 47,530,000 shares of common stock into
which they are convertible were issued in reliance upon an exemption from
registration pursuant to Regulation S under the Securities Act of 1933, as
amended (the “Securities Act”). The 1,862,500 shares of common stock in the
Registrant’s float will continue to represent the shares of the Registrant’s
common stock held for resale without further registration by the holders
thereof.
Neither
the Registrant nor Everwin had any options or warrants to purchase shares of
capital stock outstanding immediately prior to or following the Share
Exchange.
Prior to
the announcement by the Registrant relating to the entry into the Share
Exchange, there were no material relationships between the Registrant, Everwin,
Hong Kong Jin Yuan or Harbin SenRun, or any of their respective affiliates,
directors or officers, or any associates of their respective officers or
directors.
Changes Resulting from the Share
Exchange
. At this time, the Company intends to carry on Harbin SenRun’s
business as its sole line of business. The Registrant has relocated its
executive offices to Room 517, No. 18 Building, Nangangjizhoing District,
Hi-Tech Development Zone, Harbin, Heilongjiang, People’s Republic of China, and
its telephone number is 86-0451-87011257.
Changes to the Officers and Board of
Directors
: At closing, the former officers of the Registrant resigned
from such positions and the persons designated by Everwin were appointed to the
following offices by Everwin, Chunman Zhang as CEO, CFO and Treasurer, and
Degong Han as President and Secretary, have been designated as officers of the
Registrant. In addition, at closing Todd Gee resigned as a director
of the Registrant and Man Ha was appointed to fill the vacancy created by such
resignation. Further, at closing Bradley Shepherd resigned from his position as
a director effective upon the expiration of the ten day notice period required
by Rule 14f-1 promulgated under the Securities Exchange Act of 1934, as amended,
at which time the board will be increased and Kunlun Wang and Degong Han will be
appointed directors. As mentioned above, on October 8, 2007, the
Company announced the dismissal of Chunman Zhang from all of his offices, and
the appointment of Yuan Tian to the position of Chief Executive Officer and Man
Ha to the position of Chief Financial Officer and Treasurer.
Description of the
Company
Overview
The
Registrant was originally incorporated in Nevada on January 13, 1986. Since
inception, it has not had active business operations and was considered a
development stage company. In 1993, the Registrant entered into an agreement
with Bradley S. Shepherd in which Mr. Shepherd agreed to become an officer and
director and use his best efforts to organize and update the Company’s books and
records and to seek business opportunities for acquisition or participation. The
acquisition of the share capital of Hong Kong Jin Yuan was such an
opportunity.
As a
result of the Share Exchange, Hong Kong Jin Yuan became a wholly-owned
subsidiary of the Registrant, Harbin SenRun became an indirect wholly-owned
subsidiary of the Registrant, and the Registrant succeeded to the business of
Harbin SenRun Forestry Development Co., Ltd., a producer of forest products with
approximately 1,561 hectares of State forest assets located mainly over the
Small Xing An Mountains, Jin Yin County, and the Harbin Wu Chang District of
Heilongjiang Province of Northern China.
Harbin
SenRun was founded in 2004. It currently has a workforce of 8 full
time employees, mainly in sales, administration and in supporting services. It
recruits temporary part-time workers to carry out felling, cutting and forestry
plantation and protection.
Harbin
SenRun engages in the business of conserving and managing forests and forest
lands to provide a sustained supply of forest products, forest conditions, and
other forest values desired by its position as a forest user. Its primary
operations are felling trees and selling the logs.
Harbin
SenRun plans to expand into paper and pulp manufacturing over the next ten
years. The company also plans to develop a service industry in its forests,
providing hunting, fishing, boating, riding, mountaineering, exploration,
photography and the like. Finally, subject to its receipt of additional capital,
Harbin SenRun plans to invest $3.0 million in forest acquisition for the year
2008, and $4.0 million in forest resource management and for a forest
acquisition program for the year 2009, with an additional $1.0 million to be
invested for capital construction, nursery construction, equipment and other
overhead. Harbin SenRun will require substantial additional debt or equity
capital in order to make such investments and fund such activities and, as of
the date hereof, Harbin SenRun has not entered into any agreement or arrangement
for the provision of such funding and no assurances can be given that it will be
successful in obtaining such funding.
Philosophy
& Values
Since its
inception, Harbin SenRun’s founders and management team have been committed to
the philosophy of
“the forest
as an independent ecosystem,”
and believe this focus will continue to
help Harbin SenRun grow and develop as a strong and lasting
enterprise.
Holding
true to its values, Harbin SenRun treats the forest as a renewable resource, a
sustainable resource, a storable resource, and a beneficial resource, yielding
economic benefits, ecosystem benefits and social benefits. Management notes that
the global forest products market grew by 5.3% in 2005 to reach a value of
$283.7 billion.
DESCRIPTION
OF OUR BUSINESS
All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the Share Exchange refer to Harbin SenRun, and references to the
“Company,” “we,” “our” and “us” for periods subsequent to the closing of the
Share Exchange and Stock Purchase refer to the Registrant and its
subsidiaries.
Company
Overview
Forestry
Our
forestry business manages 1,561 hectares of private commercial forestland in
Heilongjiang Province, the People’s Republic of China. We have the right to use
all of those hectares pursuant to a usage lease for a term of years from the
provincial government. Our forest lands are as follows:
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1.
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Ping
Yang He Forestry Center – The forest land locates near Small Xing An
Mountains, Jin Yin County, Heilongjiang Province, with a total of 191
hectares. We have the woodland use right up to February 9,
2074.
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2.
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Jin
Lien Forestry Center – The forest land locates near Harbin Wu Chang
District of Heilongjiang Province, with a total of 571 hectares. We have
the woodland use right up to September 8,
2056.
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3.
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Wei
Xing Forestry Center – The forest land locates near Harbin Wu Chang
District of Heilongjiang Province, with a total of 555 hectares. We have
the woodland use right up to August 30,
2056.
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4.
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Mao
Lin Forestry Center – The forest land locates near Harbin Wu Change
District of Heilongjiang Province, with a total of 244 hectares. We have
the woodland use right up to December 1,
2056
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What
we do
We grow
and harvest trees, felling them and selling the logs to commercial customers.
After harvest, we typically plant seedlings to reforest the harvested areas
using the most effective regeneration method for the site and species. We
monitor and care for the new trees as they grow to maturity. We seek to sustain
and maximize the timber supply from our forestlands, while keeping the health of
our environment a key priority.
The goal
of our business is to maximize return by selling logs and stumpage to commercial
customers. We focus on solid softwood and seek to improve forest
productivity and returns, while managing the forests on a sustainable basis to
meet both customer and public expectations.
How
much we sell
Our net
sales to customers in 2006 were approximately $68,329 and $0 in
2007.
Where
we are headed
Our
strategies for achieving continued success include:
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·
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managing
forests on a sustainable basis to meet customer and public
expectations
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reducing
the time it takes to realize returns by practicing intensive forest
management and focusing on the most advantageous
markets
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building
long term relationships with our customers who rely on a consistent supply
of high quality raw material
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continuously
reviewing our portfolio to create the greatest value for the
company
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we
have plans to build a pulp and paper plant over the next ten
years
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The
Future - Cellulose fiber (Pulp) and white papers
We are
not currently active in the cellulose fiber (pulp) and white paper product
business. However, we do have a ten year plan to compete in a wide range of fine
paper products, which are sold to customers through a variety of networks and
distribution chains.
Our
Business Plan
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We
plan to raise adequate capital over the next ten years and build a pulp
and paper plant
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We
plan to acquire sufficient forestry assets to serve as the raw material to
our plant
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We
will provide cellulose fibers (pulp) for targeted specialty markets,
working closely with our customers to develop unique or specialized
applications for cellulose fibers.
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We
will produce uncoated freeseet and coated ground wood papers used in
various printing and publishing applications.
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We
will manufacture liquid packaging board used primarily for the production
of containers.
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Where
we will do it
We plan
to build a pulp and paper mill in a strategic location on our existing timber
facilities.
Source
of revenues
The
projected revenues of our Cellulose Fiber and White Papers business will come
from sales to customers who use the products for further manufacturing or
distribution, or for direct use.
Factors
that affect sales volumes for Cellulose Fiber products
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World
gross domestic product growth and
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Paper
production and diaper demand
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Factors
that affect the prices for Cellulose Fiber products
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World
economic environment
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Industry
operating rate, which is based on the supply and demand
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Relative
strength of the Chinese RMB
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Factors
that affect sales volume for fine paper products include
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Chinese
economic environment
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Displacement
of paper needs due to electronic applications and
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Competition
from other paper grades
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Factors
that may affect the prices of our fine paper products include
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·
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Industry
operating rate, which is based on the balance of supply and
demand
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Chinese
and world economic environments
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Our
strategies for achieving success in cellulose fiber products and fine paper
products
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Focusing
our cellulose fiber business on value-added pulp
products
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·
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Focusing
research and development resources on new ways to expand and improve the
range of applications for cellulose fiber, including chemically modified
fibers to enhance performance; and on new product opportunities for liquid
packaging and newsprint
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Improving
cost competitiveness
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Focusing
capital investment on new and improved product capabilities and cost
reduction opportunities.
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Service
Industry
We do not
currently provide a service industry in our forests, but our business plan
includes laying out the forest to provide for activities like sightseeing,
hunting, fishing, boating, riding, mountaineering, exploration, photography and
the like. We would make these economic activities for the company.
Sales
by Product Category
The
Company sells logs, which is its sole product category at present; the log sales
was $0 for the fiscal year ended December 31, 2007.
The
Market for Logs
The
World Log Market
Many
countries in the world are starting programs to protect their domestic forest
industries, reduce illegal logging, protect deforestation, all of which reduces
supply. The reduction of supply has lead to increasing log prices in the world
market, and this trend has continued over the last several years.
The
Log Market in China
According
to the International Tropical Timber Organization, which was established in 1986
under the auspices of the United Nations, the total output value of China’s
forestry industry was RMB1.065 trillion in 2006, up by RMB219 billion or 26%
from 2005. Of this total, the output value of the primary forestry industry
amounted to RMB471 billion, which equals 44% of the national total, up 8% from
2005.
The
products of our primary forestry industry consist of logs, sawn wood, veneer and
plywood. The selling prices for China’s major forestry products rose generally
in 2006.
The
Log Market in Heilongjiang Province, China
According
to the China Statistics Yearbook issued by the National Bureau of Statistics of
China, the gross output value of the forestry industry rose from RMB5,009
million in 2003 to RMB6,730 million in 2005.
The
forestry industry products are mainly composed of the felling and transport of
timber and bamboo and the collection of forest products.
It
appears that the continuous demand for high quality wood products is increasing
the demand for logs in China. Further, we believe the rising standard of living
in China will provide a higher demand for quality wood products for local
consumption.
Competition
Log
Sales
There are
no strong competitors to the Company in the Heilongjiang Province. The Company
believes that any logging operation that might compete with Harbin SenRun
produces products that are lesser in quality than the Company’s products.
Moreover, most of these competitors produce products that are considered lower
grade than the Company’s products. The Company’s logs include alley woods (20%),
the highly demanded charcoal wood material used for construction materials
(35%), and thick woods (45%).
Cellulose
Fibers (Pulp) and Paper
Although
the Company does not sell cellulose fibers or paper at this point in time, the
Company has identified competitors.
The first
one is Da Xing An Ling Sen Gong (Lin Ye) Ji Tuan Company Ltd., a company which
is directly owned by the State Forestry Administration. This company
manufactures and produces all forest products and some natural products, and is
the manufacturing arm of the Central government. It has sales and distribution
networks set up all over China. Its products cover the high-end as well as the
low-end in terms of use and value. Logs, pulp and paper are primary offerings of
the company.
A second
competitor is Heilongjiang Yichun County Guang Ming Furniture Manufacturing
Group. The group was organized in 1986 and now employs over 4,000 workers with
17 manufacturing facilities around Heilongjiang Province. Some of their wood
products are exported to the overseas market.
A third
competitor is BeiDaHuang ZhiYe. This company used to be a state owned enterprise
which was set up in 1958, but in 2003 it was reorganized as a private company
and its subsidiary was listed on the PRC stock market. Their pulp and paper
manufacturing section has over 1,200 workers and annual output of over 14,000
tons of pulp and over 18,000 tons of paper.
A well
known problem for a state owned or quasi-state owned enterprise in China is its
inflexibility to react to market driven trends in production, manufacturing,
timing of output, pricing and sales support. It is customary for employees of
these companies not to embrace the risks associated with market driven changes
and the globalization of the world market. In short, we believe they are not
competitive with many smaller, more agile privately held companies.
Competitive
Advantages and Strategy
Log
sales
The
Company believes that its product formulations, price points, lower costs,
relationships, infrastructure, proven quality control standards, and reputation
represent substantial competitive advantages. The Company is currently able to
maintain a substantially lower cost structure than competitors based in the
Heilongjiang Province. Furthermore, the Company believes its competitive
advantage in China is protected by significant knowledge of government
regulations, business practices, and strong relationships.
In
comparison to Chinese competitors, the Company believes it possesses superior
technological expertise, products, marketing knowledge, and global
relationships.
Cellulose
Fiber (Pulp) and White Papers
The
Company is not currently competing in this market segment although it plans to
build a pulp and paper mill over the next ten years.
Growth
Strategy
The
Company’s vision is to be and integrated forestry operation. Management intends
to grow the Company’s business by pursuing the following
strategies:
|
·
|
Grow
capacity and capabilities in line with market demand
increases
|
|
·
|
Enhance
leading-edge technology through continuous innovation, research and
study
|
|
·
|
Continue
to improve operational efficiencies and use of nearly all resource
by-products
|
|
·
|
Further
expand into higher value-added segments of the forestry
industry
|
|
·
|
Build
a strong market reputation to foster and capture future growth in
China
|
Existing
Facilities in Heilongjiang Province
The
Company uses tractors for collection of its logs, and trucks for delivery to
customers. In the past, the Company rented trucks from the Forestry Bureau. In
the future, the Company plans to purchase two tractors and three trucks. In
addition, it plans to acquire ten more felling saws and other small sized
equipment.
The
Company anticipates that building of its planned paper plant over the next ten
years will be completed with minimal disruption to current infrastructure and
production schedules, subject to its receipt of the substantial additional
capital required to construct the plant.
Sales
and Marketing
Log
sales
To date,
the Company has developed relationships with current and future potential
customers primarily through its small but effective sales force. The Company
will continue to build on its success by expanding its sales force in China as
may be appropriate. The Company’s sales strategy is designed to capitalize on
its reputation, current industry trends and new market segments that have shown
the most promise.
Intellectual
Property
None.
Customers
Log
sales
For the
twelve month period from January 1, 2007 through December 31, 2007, the Company
achieved revenues of $0, so the Company did not have any customer in
2007.
Regulation
According
to “The State of the World’s Forests 2007” issued by the Food and Agriculture
Organization of the United Nations, forest land in China is estimated to be 197
million hectares or 21.2% of its land area at the end of 2005
The
Company is subject to environmental regulation by both the PRC central
government and by local government agencies. Since its inception, the Company
has been in compliance with applicable regulations in all material
respects.
The main
statutes which govern matters related to forestry in China are set forth
below:
|
1.
|
The
Forest Law of the People’s Republic of China (the “Forest Law”) is the
most important piece of legislation that regulates the forestry
administrative management agencies at different levels and forest owners,
managers and utilizers’ legal rights and responsibilities on ownership,
management, protection, tree planting and forest
felling.
|
|
2.
|
The
Provisional Regulations on Forest Management provide for the major tasks
of responsible forestry agencies and local forest land management and
supervision agencies are implementing and executing relevant national and
local laws, regulations and policies concerning forest land
management.
|
|
3.
|
The
Regulations on the Protection of Terrestrial Wildlife was enacted to
provide better provisions for the protection of wild
life.
|
Legal
Proceedings
Harbin
SenRun is not aware of any significant pending legal proceedings against
it.
Property
Harbin
SenRun’s headquarters are currently located on leased office space at Room 517,
No. 18 Building, Nangangjizhoing District, Hi-Tech Development Zone, Harbin,
Heilongjian Province, People’s Republic of China.
In China,
the ownership of land belongs to the PRC government, and private entities and
individuals can acquire land use rights for a certain period of time. The land
use right can be transferred according to the relevant law. According to the
Forest Law, the woodland use right is transferable.
Harbin
SenRun has the following 4 major Forestry Centers:
1.
Ping Yang He Forestry
Center
The
forest land locates near Small Xing An Mountains, Jia Yin Country, Heilongjiang
Province. The site area of the forest was approximately 191 hectares
as recorded under the Forest Right Certificate.
We hold
the forest land use right, woodland ownership right and woodland use right for a
period of up to February 9, 2074 (approximately 66 years left).
There is
a timber stand forest in which the trees are mainly for timber production. The
major tree species are for timber product usage.
2.
Jin Lien Forestry
Center
The
forest land locates near Harbin Wu Chang District of Heilongjiang Province. The
site are of the forest was approximately 571 hectares as recorded un the Forest
right Certificate.
We hold
the forest land use right, woodland ownership right and woodland use right for a
period of up to September 8, 2056 (approximately 48 years left).
This is a
timber stand forest in which the trees are mainly for timber production. The
major tree species were for timber product usage.
3.
Wei Xing Forestry
Center
The
forest land locates near Harbin Wu Chang District of Heilongjiang Province. The
site area of the forest was approximately 55 hectares as recorded under the
Forest Right Certificate.
We hold
the forest land use right, woodland ownership right and woodland use right for a
period up to August 30, 2056 (approximately 48 years left).
This is a
timber stand forest in which the trees are mainly for timber production. The
major free species were Aspens, for timber product usage.
4.
Mao Lin Forestry
Center
The
forest land locates near Harbin Wu Chan District of Heilongjiang Province. The
site area of the forest was approximately 244 hectares as recorded under the
Forest Right Certificate.
We hold
the forest land use right, woodland ownership right and woodland use right for a
period up to December 1, 2056 (approximately 48 years left).
This is a
timber stand forest with the trees are used mainly for timber
production. The major tree species are for timber product
usage.
Employees
Harbin
SenRun has 8 full time employees, mainly in sales, administration and supporting
services. It recruits temporary part-time workers to carry out felling, cutting
and forestry plantation and protection. Harbin SenRun believes it is in
compliance with local prevailing wage, contractor licensing and insurance
regulations, and has good relations with its employees.
Forward-Looking
Statements
This
Current Report on Form 8-K contains forward-looking statements. To the
extent that any statements made in this Report contain information that is not
historical, these statements are essentially forward-looking. Forward-looking
statements can be identified by the use of words such as “expects,” “plans,”
“will,” “may,” “anticipates,” believes,” “should,” “intends,” “estimates,” and
other words of similar meaning. These statements are subject to risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties are outlined in
“Risk Factors” and include, without limitation, the Company’s ability to raise
additional capital to finance the Company’s activities; the effectiveness,
profitability, and the marketability of its products; legal and regulatory risks
associated with the Share Exchange; the future trading of the common stock of
the Company; the ability of the Company to operate as a public company; the
Company’s ability to protect its proprietary information; general economic and
business conditions; the volatility of the Company’s operating results and
financial condition; the Company’s ability to attract or retain qualified senior
management personnel and research and development staff; and other risks
detailed from time to time in the Company’s filings with the SEC, or
otherwise.
Information
regarding market and industry statistics contained in this Report is included
based on information available to the Company that it believes is accurate. It
is generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. The Company has not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this Report. Forecasts and
other forward-looking information obtained from these sources are subject to the
same qualifications and the additional uncertainties accompanying any estimates
of future market size, revenue and market acceptance of products and services.
The Company does not undertake any obligation to publicly update any
forward-looking statements. As a result, investors should not place undue
reliance on these forward-looking statements.
Item 2
. Description of Property
The
Company’s property holdings are described in item 1, above.
Item
3
. Legal Proceedings
We are
not aware of any pending or threatened legal proceedings in which we are
involved. In addition, we are not aware of any pending or threatened legal
proceedings in which entities affiliated with our officers, directors or
beneficial owners are involved.
Item 4
. Submission of Matters to a Vote of
Security Holders
The
majority shareholders of CHFY took unanimous action without a meeting in
November 2007 to approve the change of name from Patriot Investment Corporation
to China Forestry, Inc. and to increase the number of shares of authorized
common stock to 200,000,000 shares.
PART
II
|
Item 5.
|
Market for Common Equity and Related Stockholder
Matters
|
Market
Information
Our
common stock is currently quoted on a limited basis on the Over-the-Counter
Bulletin Board (“OTCBB”) under the symbol “CHFY”. The quotation of our common
stock on the OTCBB does not assure that a meaningful, consistent and liquid
trading market currently exists. We cannot predict whether a more
active market for our common stock will develop in the future. In the
absence of an active trading market:
(1)
Investors may have difficulty buying and selling or obtaining market
quotations;
(2)
Market visibility for our common stock may be limited; and
(3) A
lack of visibility of our common stock may have a depressive effect on the
market price for our common stock.
The
following table sets forth the range of high and low prices of our common stock
as quoted on the OTCBB during the periods indicated. The prices reported
represent prices between dealers, do not include markups, markdowns or
commissions and do not necessarily represent actual transactions.
|
|
|
|
High
(1)
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
First
Quarter
|
|
$
|
0.22
|
|
|
$
|
0.07
|
|
|
|
Second
Quarter
|
|
$
|
0.22
|
|
|
$
|
0.20
|
|
|
|
Third
Quarter
|
|
$
|
0.30
|
|
|
$
|
0.06
|
|
|
|
Fourth
Quarter
|
|
$
|
0.30
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
First
Quarter
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
|
Second
Quarter
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
|
Third
Quarter
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
|
Fourth
Quarter
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
The
transfer agent for our common stock is Interwest Transfer Co., Inc., 1981 East
4800 South, Ste 100, Salt Lake City, UT 84111, Attn Melinda Orth;
Tel: (801) 272-9294.
As of
December 31, 2007, there were 159 holders of record of 50,000,000 outstanding
shares of common stock of the Company.
Dividends
On July
16, 2007, the Company declared a cash dividend of $519,713 to the holders of its
common stock in an amount equal to $0.01227 per share to holders of record on
July 6, 2007, representing the cash payment received from Everwin less the
outstanding liabilities of the Registrant which were to be paid off before the
cash dividend was made. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on our results of
operation, financial condition, contractual and legal restrictions and other
factors the board of directors deem relevant.
Penny
Stock Characterization
Our
Shares are "penny stocks" within the definition of that term as contained in the
Securities Exchange Act of 1934, which are generally equity securities with a
price of less than $5.00. Our shares will then be subject to rules that impose
sales practice and disclosure requirements on certain broker-dealers who engage
in certain transactions involving a penny stock. These will impose restrictions
on the marketability of the common stock.
Under the
penny stock regulations, a broker-dealer selling penny stock to anyone other
than an established customer or "accredited investor" must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to the sale, unless the broker-dealer
is otherwise exempt. Generally, an individual with a net worth in excess of
$5,000,000 or annual income exceeding $200,000 individually or $300,000 together
with his or her spouse is considered an accredited investor. In addition, unless
the broker-dealer or the transaction is otherwise exempt, the penny stock
regulations require the broker-dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. A broker-dealer is also
required to disclose commissions payable to the broker-dealer and the Registered
Representative and current bid and offer quotations for the securities. In
addition a broker-dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account, the account’s value and information regarding the limited market in
penny stocks. As a result of these regulations, the ability of broker-dealers to
sell our stock may affect the Selling Stockholders or other or other holders
seeking to sell their shares in the secondary market. In addition, the penny
stock rules generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction.
These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of our securities. In addition, the liquidity for our securities
may be adversely affected, with concomitant adverse affects on the price of our
securities.
Agreements
to Register
On June
26, 2007, the Company simultaneously entered into, and closed, a Share
Exchange Agreement by and among the Company, Harbin SenRun, Bradley Shepherd,
Todd Gee, Everwin, and Jin Yuan. At the closing of the share exchange
transaction contemplated under the Exchange Agreement, the Company issued
Everwin an aggregate of 10,000,000 shares of Series A Convertible Preferred
Stock, which preferred shares are convertible into 47,530,000 shares of common
stock of the Company. Demand and piggy-back registration rights were granted to
Everwin with respect to the 47,530,000 shares of common stock, and piggy-back
registration rights were granted to Bradley Shepherd and Todd Gee with respect
to 507,500 shares and 100,000 shares, respectively, of the Company’s restricted
common stock to be granted to them following the closing. Only
Messrs. Shepherd’s and Gee’s piggy-back registration rights
survive.
Shares
Eligible for Future Sale
From time
to time, certain shares of common stock held by our stockholders will be freely
tradable without restrictions under the Securities Act of 1933, except for any
shares held by our "affiliates", which will be restricted by the resale
limitations of Rule 144 under the Securities Act of 1933.
In
general, under Rule 144 as currently in effect, any of our affiliates and any
person or persons who has beneficially owned his or her restricted shares for at
least six months, may be entitled to sell in the open market within any
three-month period a number of shares of common stock that does not exceed the
greater of (i) 1% of the then outstanding shares of our common stock, or (ii)
the average weekly trading volume in the common stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also affected by limitations
on manner of sale, notice requirements, and availability of current public
information about us. Non-affiliates who have held their restricted shares for
one year may be entitled to sell their shares under Rule 144 without regard to
any of the above limitations, provided they have not been affiliates for the
three months preceding such sale.
Further,
Rule 144A as currently in effect, in general, permits unlimited resales of
restricted securities of any issuer provided that the purchaser is an
institution that owns and invests on a discretionary basis at least $100 million
in securities or is a registered broker-dealer that owns and invests at least
$10 million in securities. Rule 144A allows our existing stockholders to sell
their shares of common stock to such institutions and registered broker-dealers
without regard to any volume or other restrictions. Unlike under Rule 144,
restricted securities sold under Rule 144A to non-affiliates do not lose their
status as restricted securities.
Changes
of Equity Securities During Period Covered By Report
None,
except as previously described in connection with Exchange
Agreement.
Item 6
. Management's Discussion and Analysis or
Plan of Operation
PRELIMINARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
discussion contains forward-looking statements. The reader should understand
that numerous factors govern whether any forward-looking statement contained
herein will be or can be achieved. Any one of those factors could cause actual
results to differ materially from those projected herein. These forward-looking
statements include plans and objectives of management for future operations,
including plans and objectives relating to the products and the future economic
performance of the company. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, future business decisions, and the time and money required to
successfully complete development projects, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
company. Although the company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of those
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in any of the forward-looking statements contained
herein will be realized. Based on actual experience and business development,
the company may alter its marketing, capital expenditure plans or other budgets,
which may in turn affect the company's results of operations. In light of the
significant uncertainties inherent in the forward-looking statements included
therein, the inclusion of any such statement should not be regarded as a
representation by the company or any other person that the objectives or plans
of the company will be achieved.
OVERVIEW
The Registrant was originally
incorporated in Nevada on January 13, 1986. Since inception, it has not had
active business operations and is considered a development stage company. In
1993, the Registrant entered into an agreement with Bradley S. Shepherd in which
Mr. Shepherd agreed to become an officer and director and use his best efforts
to organize and update our books and records and to seek business opportunities
for acquisition or participation. The acquisition of Hong Kong Jin Yuan, and,
indirectly, Harbin SenRun is such an opportunity.
As a
result of the Share Exchange, Hong Kong Jin Yuan became a direct wholly-owned
subsidiary of the Registrant, Harbin SenRun became an indirect wholly-owned
subsidiary of the Registrant and the Registrant succeeded to the business of
Harbin SenRun Forestry Development Co., Ltd., a producer of forest products with
forest assets located mainly over the Small Xing An Mountains, Jia Yin County,
and the Harbin Wu Chang District of Heilongjiang Province of Northern
China.
Harbin
SenRun was founded in 2004. It currently has a workforce of 8 full time
employees, in sales, administration and supporting services. It recruits
temporary part-time workers to carry out felling, cutting and forestry
plantation and protection.
RESULTS OF
OPERATIONS
The
following table shows the financial data of the consolidated statements of
operations of the Company and its subsidiaries for the years ended December 2007
and 2006. The data should be read in conjunction with the audited
consolidated financial statements of the Company and related notes
thereto.
Fiscal
Year Ended December 31, 2007.
|
Year
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
Net
Sales Revenue:
|
|
$
|
0
|
|
|
$
|
68,329
|
|
|
General
and Administrative Expenses:
|
|
$
|
103,155
|
|
|
$
|
59,018
|
|
|
Income
(Loss) Before Taxes:
|
|
$
|
(103,155
|
)
|
|
$
|
9,311
|
|
|
Net
Income (Loss):
|
|
$
|
(103,155
|
)
|
|
$
|
9,311
|
|
FISCAL
YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31,
2006.
OPERATING
REVENUE
Consolidated
net sales revenue for the twelve-month period ended December 31, 2007 was
$0, compared to $68,329 for the same corresponding period in year 2006, a
decrease of $68,329 or 100%. The decrease was mainly the result of failing to
acquire the wood-cutting quota from the local government department of Tieli
Bureau of Forestry and there were no production in 2007. The Company is
currently in the process of getting the wood-cutting quota from the
government.
Income
before taxes decreased by $112,466 for the twelve-month period ended
December 31, 2007, compared to the same corresponding period in year 2006.
The decrease was predominantly caused by failing to acquire log-cutting quota
from the local Bureau of Forestry. The local Tieli Bureau of Forestry was
undertaking a organization reform and didn’t issue any wood-cutting quota to
local timberlands in 2007.
Since the
Company didn’t get any sales revenue from selling log in 2007, the percentage of
total operating revenues, consolidated gross profit margins cannot be measured
in 2007.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
Selling,
general and administrative expenses increased by approximately $44,137 to
$103,155 for the year ended December 31, 2007 from $59,018 for the
same corresponding period in 2006. The increase was mainly due to the costs
incurred as the result of merger.
NET
LOSS
Net loss
was approximately $103,155 for the year ended December 31, 2007, as compared to
the same corresponding period in year 2006 for a net income of $9,311. The
decrease in net loss was the result of failing to sell log products without the
wood-cutting quota from local Bureau of Forestry.
LIQUIDITY
AND CAPITAL RESOURCES
As of
December 31, 2007, cash and cash equivalents totaled $2,660. This cash position
was the result of a combination of cash at beginning of period in the amount of
$6,588 and net cash provided by financing activities in the amount of
$136,568, offset by net cash used in operating activities in the amount of
$85,181. The increase in financing activities was mainly due to the
capital distribution of $648,291 and offset by Payment of cash dividends of
$519,713. There is no cash used in investing activities in year
2007.
We
believe that said level of financial resources is a significant factor for our
future development and accordingly may choose at any time to raise capital
through private debt or equity financing to strengthen our financial position,
facilitate growth and provide us with additional flexibility to take advantage
of business opportunities.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
discussion and analysis of China Forestry’s financial condition presented in
this section are based upon the audited financial statements of the company,
which have been prepared in accordance with the generally accepted accounting
principles in the United States. During the preparation of the financial
statements, the company was required to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, the
company evaluates its estimates and judgments, including those related to
investments, fixed assets, income taxes and other contingencies. The company
bases its estimates on historical experience and on various other assumptions
that it believes are reasonable under current conditions. Actual results may
differ from these estimates under different assumptions or
conditions.
In
response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policy,” China Forestry identified the most
critical accounting principles upon which its financial status depends. The
company determined that those critical accounting principles are related to the
use of estimates, revenue recognition, and income tax and impairment of
long-lived assets. The company presents these accounting policies in the
relevant sections in this management’s discussion and analysis, including the
Recently Issued Accounting Pronouncements discussed below.
Timberlands
We
carried timberland at historical cost less accumulated amortization. Since
private ownership of timberland is not allowed in the People’s Republic of
China, the Company acquired the user right of timberland from the government. We
capitalized the acquisition costs of the user right and allocated that cost to
the timberland. The user right is good for from 50 to 70 years and
with the user right, the timber on the timberland is under the Company’s
ownership. Amortization of the use right on timberland is primarily determined
using the straight-line method over the life of usage right.
We
capitalized reforestation costs incurred in developing viable seedling
plantations (up to two years from planting), such as site preparation,
seedlings, planting, fertilization, insect and wildlife control, thinning and
herbicide application. We expensed all other costs, such as property taxes and
costs of forest management personnel, as incurred. Once the seedling plantation
was viable, we expensed all costs to maintain the viable plantations, such as
fertilization, herbicide application, insect and wildlife control, and thinning,
as incurred. We capitalized costs incurred to initially build roads as land
improvements, and we expensed as incurred costs to maintain these
roads.
Off-Balance Sheet
Arrangements
. China Forestry has not entered into any financial
guarantees or other commitments to guarantee the payment obligations of any
third parties. China forestry has not entered into any derivative contracts that
are indexed to China Forestry’s shares and classified as equity or that are not
reflected in China Forestry’s financial statements. Furthermore, the company
does not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to
such entity. China Forestry does not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit
support to the Company or engages in leasing, hedging or research and
development services with the Company.
Inflation
. China Forestry
believes that inflation has not had a material effect on its operations to
date.
Income Taxes
. China Forestry
has adopted Statement of Financial Accounting Standards No. 109, “Accounting for
Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred income
tax liabilities and assets for the expected future tax consequences of temporary
differences between income tax basis and financial reporting basis of assets and
liabilities. Provision for income taxes consist of taxes currently due plus
deferred taxes. Since China forestry had no operations within the United States
there is no provision for US income taxes and there are no deferred tax amounts
as of December 31, 2007. The charge for taxation is based on the results for the
year as adjusted for items, which are non-assessable or disallowed. It is
calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred
tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit. In principle, deferred
tax liabilities are recognized for all taxable temporary differences, and
deferred tax assets are recognized to the extent that it is probable that
taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated at the tax rates that are expected
to apply to the period when the asset is realized or the liability is settled.
Deferred tax is charged or credited in the income statement, except when it
related to items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax assets and liabilities
are offset when they related to income taxes levied by the same taxation
authority and the Company intends to settle current tax assets and liabilities
on a net basis.
Recently
Issued Accounting Pronouncements
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”), which permits entities
to choose to measure financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. SFAS 159 will be
effective for the Company on January 1, 2008. The Company does not expect that
the adoption of SFAS 159 will have a material impact on its financial
statements.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No. 133" ("FAS 161"). FAS
161 changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
The guidance in FAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. This Statement encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The Company is
currently assessing the impact of FAS 161.
Item
7
. Financial Statements
CHINA
FORESTRY, INC. AND SUBSIDIARIES
INDEX
TO DECEMBER 31, 2007 FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
18
|
|
|
|
|
Consolidated
Balance Sheet
|
19
|
|
|
|
|
Consolidated
Statements of Operations
|
20
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
21
|
|
|
|
|
Consolidated
Statements of Shareholders’ Equity
|
22
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
23
- 26
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
China
Forestry, Inc. and Subsidiaries
(formerly
Patriot Investment Corp)
Harbin,
Heilongjiang Province, People’s Republic of China
We have
audited the accompanying consolidated balance sheet of China Forestry, Inc. and
Subsidiaries, as of December 31, 2007 and the related consolidated statements of
operations, changes in stockholders’ equity and cash flows for the years ended
December 31, 2007 and December 31, 2006. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatements. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 2007 and the consolidated results of its operations and its cash
flows for the periods described in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, The Company has suffered recurring losses
from operations, which raises substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters are described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MALONE
& BAILEY, PC
www.malone-bailey.com
Houston,
Texas
May 15,
2008
CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
|
|
$
|
2,660
|
|
|
Prepaid
expenses
|
|
|
6,409
|
|
|
Total
Current Assets
|
|
|
9,069
|
|
|
|
|
|
|
|
|
Timberlands
- net (Note 3)
|
|
|
810,701
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
819,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
4,171
|
|
|
Due
to shareholders
|
|
|
15,623
|
|
|
Total
Current Liabilities
|
|
|
19,794
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares
authorized;
0 shares issued and outstanding
|
|
|
-
|
|
|
Common stock, $0.001 par value; 200,000,000 shares
authorized,
50,000,000 shares issued and outstanding (Note 6)
|
|
|
50,000
|
|
|
Additional Paid-in Capital
|
|
|
854,264
|
|
|
Accumulated Deficit
|
|
|
(108,644
|
)
|
|
Accumulated comprehensive Loss
|
|
|
4,356
|
|
|
Shareholders'
Equity
|
|
|
799,976
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
819,770
|
|
See
Notes to Consolidated Financial Statements.
CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
68,329
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
103,155
|
|
|
|
59,018
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(103,155
|
)
|
|
|
9,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Fully Diluted Earnings (Loss) per Share
|
|
$
|
(0.00
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
48,802,219
|
|
|
|
-
|
|
See
Notes to Consolidated Financial Statements.
CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(103,155
|
)
|
|
$
|
9,311
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operations:
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
16,780
|
|
|
|
2,523
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease in prepaid expenses
|
|
|
3,815
|
|
|
|
(10,224
|
)
|
|
Increase/(decrease) in accrued expenses
|
|
|
(2,646
|
)
|
|
|
2,562
|
|
|
Increase/(decrease) in accounts payable
|
|
|
55
|
|
|
|
3,478
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(85,151
|
)
|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
Purchase of Timberland
|
|
|
-
|
|
|
|
(
775
,871
|
)
|
|
Net
cash provided by (used in) investing activities
|
|
|
-
|
|
|
|
(775,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
Proceeds from shareholder loans
|
|
|
13,137
|
|
|
|
529,774
|
|
|
Repay of loan to shareholders
|
|
|
(5,147
|
)
|
|
|
(11,358
|
)
|
|
Capital contribution
|
|
|
648,291
|
|
|
|
-
|
|
|
Payment of cash dividends
|
|
|
(519,713
|
)
|
|
|
-
|
|
|
Proceeds from long term loans
|
|
|
-
|
|
|
|
269,089
|
|
|
Repay of long term loans
|
|
|
-
|
|
|
|
(12,813
|
)
|
|
Net
cash provided by financing activities
|
|
|
136,568
|
|
|
|
774,692
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(55,345
|
)
|
|
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase(decrease) in
cash
|
|
|
(3,928
|
)
|
|
|
6,038
|
|
|
Cash
at beginning of period
|
|
|
6,588
|
|
|
|
550
|
|
|
Cash
at end of period
|
|
$
|
2,660
|
|
|
|
6,588
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
received (paid) during the year
|
|
$
|
-
|
|
|
$
|
-
|
|
See
Notes to Consolidated Financial Statements.
CHINA
FORESTRY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For
the years ended December 31, 2007 and 2006
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Addition
|
|
|
|
Retained
|
|
|
|
|
|
Shares
|
|
Par
(0.001)
|
|
Shares
|
|
Par
(0.001)
|
|
Paid
in Capital
|
|
OCI
|
|
Earnings
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2005
|
-
|
|
$
|
-
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,947
|
|
$
|
(14,800
|
)
|
$
|
(8,853
|
)
|
|
Currency
translation
|
|
|
|
|
|
|
|
|
|
|
|
(427
|
)
|
|
(130
|
)
|
|
|
|
|
(557
|
)
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,311
|
|
|
9,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2006
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
(427
|
)
|
|
5,817
|
|
|
(5,489
|
)
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
shares issued under merger
|
10,000,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Common
shares issued under merger
|
|
|
|
|
2,470,000
|
|
|
2,470
|
|
|
633,004
|
|
|
|
|
|
|
|
|
635,474
|
|
|
Conversion
of preferred to common
|
(10,000,000
|
)
|
|
(10,000
|
)
|
47,530,000
|
|
|
47,530
|
|
|
(47,530
|
)
|
|
|
|
|
|
|
|
-
|
|
|
Special
distribution
|
|
|
|
|
|
|
|
|
|
|
|
(635,475
|
)
|
|
|
|
|
|
|
|
(635,475
|
)
|
|
Contribution
of shareholder debt to equity
|
|
|
|
|
|
|
|
|
|
|
|
846,382
|
|
|
|
|
|
|
|
|
846,382
|
|
|
Cash
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
58,310
|
|
|
|
|
|
|
|
|
58,310
|
|
|
Currency
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,461
|
)
|
|
|
|
|
(1,461
|
)
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103,155
|
)
|
|
(103,155
|
)
|
|
Rounding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31 , 2007
|
-
|
|
$
|
-
|
|
50,000,000
|
|
$
|
50,000
|
|
$
|
854,264
|
|
$
|
4,356
|
|
$
|
(108,644
|
)
|
$
|
799,976
|
|
See
accompanying summary of accounting policies and notes to financial
statements
CHINA FORESTRY, INC. AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND BUSINESS BACKGROUND
Patriot
Investment Corp., (the “Company” or “Patriot”) was incorporated under the law of
the State of Nevada on January 13, 1986. 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 holding and subsidiaries,
Everwin Development Limited (“Everwin”) and Jin Yuan Global Limited (“Jin
Yuan”).
Everwin
was incorporated on April 25, 2007 in British Virgin Islands (“BVI”) under the
BVI Business Companies Act, 2004. Jin Yuan was incorporated as a Hong Kong
limited liability company on November 22, 2006. On May 25, 2007, Jin Yuan
transferred its sole share to Everwin. Both Everwin and Jin Yuan were formed to
facilitate a merger between a US company and a PRC business entity.
Harbin
Senrun Forestry Development Limited (“Senrun”) was incorporated as a company
with a limited liability in People’s Republic of China on August 2, 2004. Senrun
is located in Harbin, Heilongjiang and principally engaged in the growing and
harvesting of timber and the manufacture and marketing of
lumber. All Senrun’s business is currently in PRC.
On
January 10, 2007, Jin Yuan acquired 51% of the equity ownership in
Senrun.
On March
10, 2007, Mr. Han Degong (the “Trustee”), citizen of the PRC, who owns a
49% equity ownership interest in Senrun, executed Trust and Indemnity Agreements
with Jin Yuan Global Limited, pursuant which the Trustee assigned to Jin Yuan
Global Limited all of the beneficial interest in the Trustee’s equity ownership
in the Company. These arrangements have been undertaken solely to satisfy the
PRC regulations, which prohibits foreign companies from owning or operating the
forestry business in the PRC. Through the transaction and agreement
described in preceding paragraphs, Senrun is deemed a 100% subsidiary of Jin
Yuan.
On June
26, 2007, under the terms of the Share Exchange Agreement, Everwin exchanged all
share capital of Jin Yuan together with the sum of $635,000 for the Company’s
10,000,000 restricted shares of Series A Convertible Preferred Stock, $.001par
value. The Company’s 10,000,000 shares of Preferred Stock was converted
into 47,530,000 shares of the Company’s common stock.
As a
result of Share Exchange Agreement, the transaction was treated for accounting
purposes as a recapitalization and reverse merger by the accounting acquirer
(Senrun).
The
consolidated balance sheet consists of the net assets of the accounting
acquirer at historical cost; and the consolidated statements of operations
include the operations of the accounting acquirer for the years
presented
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of China
Forestry, Inc. and its wholly-owned subsidiaries, Everwin Development Limited
and Jin Yuan Global Limited. All significant inter-company accounts and balances
have been eliminated in consolidation.
Basis
of Presentation
These
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
and are presented in US dollars.
Use
of Estimates
In
preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheet and revenues and expenses during the year reported. Actual
results may differ from these estimates.
Foreign
Currency Translation
The
functional currency of the Company is the Renminbi (“RMB”). The accompanying
financial statements have been expressed in United States dollars, the reporting
currency of the Company. In accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation", foreign denominated monetary
assets and liabilities are translated to their United States dollar equivalents
using foreign exchange rates as of the balance sheet date. The statements of
operations are translated using a weighted average rate for the period.
Translation adjustments are reflected as accumulated comprehensive income in
shareholders’ equity.
CHINA FORESTRY,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND BUSINESS BACKGROUND (CONT.)
Concentrations
of Credit Risk
Financial
instruments that subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents. The Company maintains its cash and cash
equivalents with high-quality institutions. Deposits held with banks may exceed
the amount of insurance provided on such deposits. Generally these deposits may
be redeemed upon demand and therefore bear minimal risk.
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. There
can be no assurance; however, those changes in political and other conditions
will not result in any adverse impact.
Basic
and Diluted Net Loss per Share
The basic
net loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Diluted net loss per common share
is computed by dividing the net loss adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities. For the years ended December 31, 2007 and 2006, there were no
potential dilutive securities and therefore no diluted net loss per common share
was calculated.
Revenue
Recognition
Revenues
are recognized when products are shipped to customers, both title and the risks
and rewards of ownership are transferred or services have been rendered and
accepted, and collectability is reasonably assured.
Cash
and Cash Equivalents
Cash and
cash equivalents include all highly liquid investments with original maturities
of three months or less.
Timberland
The
Company carried timberland at historical cost less accumulated amortization.
Since private ownership of timberland is not allowed in the People’s Republic of
China, the Company acquired the user right of timberland from the government. We
capitalized the acquisition costs of the user right and allocated that cost to
the timberland. The user right is good for from 50 to 70 years and
with the user right, the timber on the timberland is under the Company’s
ownership. Amortization of the use right on timberland is primarily determined
using the straight-line method over the life of usage right.
The
Company reviews the carrying value of its long-lived assets annually or whenever
events or changes in circumstances indicate that the historical-cost carrying
value of an asset may no longer be appropriate. The Company assesses
recoverability of the asset by comparing the undiscounted future net cash flows
expected to result from the asset to its carrying value. If the carrying value
exceeds the undiscounted future net cash flows of the asset, an impairment loss
is measured and recognized. An impairment loss is measured as the difference
between the net book value and the fair value of the long-lived asset. Fair
value is estimated based upon either discounted cash flow analysis or estimated
salvage value.
The
Company capitalized reforestation costs incurred in developing viable seedling
plantations (up to two years from planting), such as site preparation,
seedlings, planting, fertilization, insect and wildlife control, thinning and
herbicide application. We expensed all other costs, such as property taxes and
costs of forest management personnel, as incurred. Once the seedling plantation
was viable, we expensed all costs to maintain the viable plantations, such as
fertilization, herbicide application, insect and wildlife control, and thinning,
as incurred. We capitalized costs incurred to initially build roads as land
improvements, and we expensed as incurred costs to maintain these
roads.
Income
Tax
Income
tax expense is based on reported income before income taxes. Deferred income
taxes reflect the effect of temporary differences between assets and liabilities
that are recognized for financial reporting purposes and the amounts that are
recognized for income tax purposes. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," these
deferred taxes are measured by applying currently enacted tax laws.
The
Company did not provide any current or deferred income tax provision or benefit
for any period presented to date because there is no income from operations,
with only minor timing differences with regard to the depreciation of fixed
assets. Management has determined that any deferred tax asset or liability is
inconsequential, and not material to the financial statements.
CHINA FORESTRY,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND BUSINESS BACKGROUND (CONT.)
Restricted
Retained Earnings
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). The
Company did not make any appropriations to the reserve funds mentioned above due
to lack of profit after tax since commencement of operations.
New
Accounting Pronouncements
There
were various accounting standards and interpretations issued during 2007 and
2006, none of which are expected to have a material impact on the Company’s
consolidated financial position, operations or cash flows.
NOTE
2 - GOING CONCERN
The
Company’s ability to continue as a going concern is ultimately contingent upon
its ability to attain profitable operations through the successful development
of its business plan. As shown in the accompanying consolidated financial
statements, the Company incurred losses and profit of $103,155 and $9,311 for
the years ended December 31, 2007 and 2006, respectively, and has an accumulated
deficit of $108,644 as of December 31, 2007 through its limited operations.
These conditions raise substantial doubt as to the Company's ability to continue
as a going concern. The Company is actively pursuing additional funding and a
potential merger or acquisition candidate and strategic partners, which would
enhance owners’ investment. The consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
NOTE
3 - TIMBERLANDS
Timberlands
consist of the following as of December 31, 2007:
As of
December 31, 2007:
|
Location
|
|
Usage
Right Effective Period
|
|
Amount
|
|
|
Ping
Yang He Forestry Center*
|
|
02/09/2004
- 02/09/2074
|
|
$
|
0
|
|
|
Jiu
Lien Forestry Center
|
|
09/08/2006
- 09/08/2056
|
|
|
336,101
|
|
|
Wei
Xing Forestry Center
|
|
08/30/2006
- 08/30/2056
|
|
|
320,745
|
|
|
Mao
Lin Forestry Center
|
|
12/01/2006
- 12/01/2056
|
|
|
173,214
|
|
|
Total
Cost
|
|
|
|
|
830,060
|
|
|
Less:
Accumulated Amortization
|
|
|
|
|
(19,359
|
)
|
|
Net
Timberlands
|
|
|
|
$
|
810,701
|
|
*Ping
Yang He Forestry Center was contributed by the shareholder valued at zero,
due to there was no cost associated with this contributed
asset.
The
expense was $82,523 and $16,780 for the years ended December 31, 2006 and 2007,
respectively.
NOTE 4
- RELATED PARTY TRANSACTIONS
Mr.
Degong Han and Mr. Guiying Niu are the majority shareholders of the Company
since inception and is provided funds in the form of non interest-bearing
shareholders’ loans to China Forestry Inc. Mr. Han and Mr. Niu
forgave the debt obligation of the Company for previously paid advances in the
amount of $846,382 as of December 31, 2007 and it was contributed to additional
paid in capital. $15,623 remained owed to these shareholders as of December 31,
2007.
CHINA FORESTRY,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 - INCOME TAXES
The
Company uses the liability method, where deferred tax assets and liabilities are
determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes. During the years ended December 31, 2007 and
2006, the Company incurred net losses and, therefore, has no tax expense. The
net deferred tax asset generated by the loss carry-forward has been fully
reserved.
At
December 31, 2007, deferred tax assets consisted of the following:
|
Deferred
Tax Assets
|
|
$
|
36,000
|
|
|
Valuation
Allowance
|
|
|
(36,000
|
)
|
|
Net
Deferred Tax Assets
|
|
$
|
0
|
|
NOTE
6 - PREFERRED AND COMMON STOCK
Preferred
Stock
Prior to
the reverse merger of the Company, there was no preferred stock issued and
outstanding. Pursuant to the Share Exchange Agreement on June 26, 2007,
10,000,000 shares of Series A Convertible Preferred Stock were issued to Everwin
Development Ltd., an incorporation under British Virgin Islands (“Everwin”) in
exchange for all outstanding share capital of Jin Yuan. The Preferred Stock was
subsequently converted into 47,530,000 shares of common stock on December 13,
2007, leaving none issued and outstanding as of December 31, 2007.
Common
Stock
Prior to
the reverse merger of the Company, there were 47,000,000 shares of common stock
issued and outstanding. Following the execution of Special Cash Distribution of
$635,475 provided by the Share Exchange Agreement on July 17, 2007 the share
certificates of Bradley Shepherd and Todd Gee totaled 44,851,500 shares of the
Company’s restricted common stock were cancelled and exchanged for 321,500 new
restricted shares of the Company’s common stock, making the number of total
outstanding common shares amounted 2,470,000. On December 13, 2007 Everwin
converted its 10,000,000 shares of Series A Convertible Preferred Stock into
47,530,000 shares of common stock, making the total outstanding common shares
50,000,000.
On
December 13, 2007, a simple majority of shareholders of the Company voted to
increase the authorized number of shares of common stock, $.001 par value, of
the Company from 50,000,000 shares to 200,000,000 shares.
Item
8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
(a) On
April 16, 2008, the Registrant terminated Turner Stone & Company as the
independent registered public accounting firm for the Registrant because Turner,
Stone failed to complete the Registrant's 2007 audit on a timely basis. The
dismissal of Turner, Stone was approved unanimously by the Board of Directors.
Additional disclosure with respect to this dismissal is contained in a Form 8-K
filed with the Commission on April 23, 2008 and in a Form 8-K/A filed with the
Commission on May 8, 2008, both of which are hereby incorporated by reference
herein.
(b) On
April 16, 2008, the Registrant engaged Malone & Bailey, PC as its
independent registered public accounting firm. The Registrant had not consulted
with Malone & Bailey regarding the application of accounting principles to
any contemplated or completed transactions, nor the type of audit opinion that
might be rendered on the Registrant's financial statements, and neither oral nor
written advice was provided that would be an important factor considered by the
Registrant in reaching a decision as to an accounting, auditing or financial
reporting issue.
(c) On
January 23, 2008, the Registrant dismissed Kempisty & Company, Certified
Public Accountants, as the independent registered public accounting firm for the
Registrant. Kempisty & Company, had been the independent registered public
accounting firm for and reviewed the balance sheets for the quarters
ended June 30, 2007 and September 30, 2007 of the Registrant and the
related consolidated statements of operations, cash flows and stockholders'
equity (deficit) for the quarters then ended. All of the foregoing unaudited
consolidated financial statements are hereinafter collectively referred to as
the “consolidated financial statements.” The review performed by Kempisty &
Company of the consolidated financial statements for the two quarters contained
no adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, scope or accounting principles. The dismissal of Kempisty
& Company was approved unanimously by the Board of Directors.
In
connection with Kempisty & Company’s reviews of the interim periods through
January 23, 2008, there have been no disagreements between the Registrant and
Kempisty & Company on any matter of accounting principles or practices,
financial statement disclosure, or scope or procedure, which, if not resolved to
the satisfaction of Kempisty & Company would have caused it to make
reference thereto in their review of the Registrant’s financial statements for
these periods.
The
Registrant has made the contents of this Form 8-K filing available to Kempisty
& Company and requested it to furnish a letter to the Securities and
Exchange Commission as to whether Kempisty & Company agrees or disagrees
with, or wishes to clarify Registrant’s expression of its views. A copy of
Kempisty & Company’s letter to the SEC is included as an exhibit to this
filing.
(d) On
January 23, 2008, the Registrant engaged Turner, Stone & Company, Certified
Public Accountants, as its independent registered public accounting firm. The
Registrant had not consulted with Turner, Stone regarding the application of
accounting principles to any contemplated or completed transactions nor the type
of audit opinion that might be rendered on the Registrant's financial
statements, and neither written nor oral advice was provided that would be an
important factor considered by the Registrant in reaching a decision as to an
accounting, auditing or financial reporting issue.
(e) On
June 26, 2007, the Registrant dismissed Michael J. Larsen, PC as the independent
registered public accounting firm for the Registrant. Michael J. Larsen, PC had
been the independent registered public accounting firm for and audited the
balance sheet of the Registrant as of December 31, 2006 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. All of the foregoing audited financial statements
are hereinafter collectively referred to as the “audited financial statements.”
The report of Michael J. Larsen, PC on the audited financial statements
contained no adverse opinion or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles, except for an
explanatory paragraph relating to the Registrant's ability to continue as a
"going concern." The dismissal of Michael J. Larsen, PC was approved unanimously
by the Board of Directors.
In
connection with the audit for the most recent fiscal year by Michael J. Larsen,
PC and in connection with Michael J. Larsen, PC’s review of the subsequent
interim periods through June 26, 2007, there have been no disagreements between
the Registrant and Michael J. Larsen, PC on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Michael J. Larsen, PC would have
caused it to make reference thereto in its report on the Registrant’s financial
statements for these periods.
The
Registrant has made the contents of this Form 8-K filing available to Michael J.
Larsen, PC and requested it to furnish a letter to the Securities and Exchange
Commission as to whether Michael J. Larsen, PC agrees or disagrees with, or
wishes to clarify the Registrant’s expression of its views. A copy of Michael J.
Larsen, PC’s letter to the SEC is included as an exhibit to this
filing. In the previous Form 8-K filing made on January 30, 2008, a
letter was included for Michael J. Larsen, PC which purported to express its
views on the filing. Michael J. Larsen, PC did not provide
nor did it author such letter and the filing of the letter was in
error. However, Michael J. Larsen, PC has reviewed this Form 8-K/A
filing and provided the letter which is attached hereto.
(f) On
June 26, 2007, the Registrant engaged Kempisty & Company, Certified Public
Accountants, as its independent registered public accounting firm. The
Registrant has not consulted with Kempisty & Company regarding the
application of accounting principles to any contemplated or completed
transactions nor the type of audit opinion that might be rendered on the
Registrant's financial statements, and neither written nor oral advice was
provided that would be an important factor considered by the Registrant in
reaching a decision as to an accounting, auditing or financial reporting
issue.
Item
8A. Controls and Procedures
Annual Evaluation of
Controls
. As of the end of the period covered by this annual
report on Form 10-KSB/A, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures ("Disclosure Controls").
This evaluation (“Evaluation”) was performed by our Chief Executive Officer,
Yuan Tian (our “CEO”), and our Chief Financial Officer, Man Ha (our
“CFO”). In addition, we have discussed these matters with our
securities counsel. In this section, we present the conclusions of
our CEO and CFO based on and as of the date of the Evaluation with respect to
the effectiveness of our Disclosure Controls.
CEO and CFO
Certifications
. Attached to this annual report are certain
certifications of the CEO and CFO, which are required in accordance with the
Exchange Act and the Commission's rules implementing such section (the "Rule
13a-14(a)/15d–14(a) Certifications"). This section of the annual report contains
the information concerning the Evaluation referred to in the Rule
13a-14(a)/15d–14(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d–14(a) Certifications for a more complete
understanding of the topic presented.
Disclosure Controls
.
Disclosure Controls are procedures designed with the objective of ensuring that
information required to be disclosed in our reports filed with the Commission
under the Exchange Act, such as this annual report, is recorded, processed,
summarized and reported within the time period specified in the Commission's
rules and forms. Disclosure Controls are also designed with the objective of
ensuring that material information relating to us is made known to the CEO and
the CFO by others, particularly during the period in which the applicable report
is being prepared.
Limitations on the Effectiveness of
Controls
. Our management does not expect that our Disclosure Controls
will prevent all error and all fraud. A control system, no matter how well
developed and operated, can provide only reasonable, but not absolute assurance
that the objectives of the control system are met. Further, the
design of the control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
design and monitoring costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of a system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated
objectives under all potential future conditions. Over time, control may become
inadequate because of changes in conditions, or because the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
Scope of the Evaluation
. The
CEO and CFO's evaluation of our Disclosure Controls included a review of the
controls' (i) objectives, (ii) design, (iii) implementation, and (iv) the effect
of the controls on the information generated for use in this annual report. In
the course of the Evaluation, the CEO and CFO sought to identify data errors,
control problems, acts of fraud, and they sought to confirm that appropriate
corrective action, including process improvements, was being undertaken. This
type of evaluation is done on a quarterly basis so that the conclusions
concerning the effectiveness of our controls can be reported in our quarterly
reports on Form 10-QSB and annual reports on Form 10-KSB. The overall goals of
these various evaluation activities are to monitor our Disclosure Controls, and
to make modifications if and as necessary. Our intent in this regard
is that the Disclosure Controls will be maintained as dynamic systems that
change (including improvements and corrections) as conditions
warrant.
Conclusions.
Based
upon the Evaluation, our disclosure controls and procedures are designed to
provide reasonable assurance of achieving our objectives. Our CEO and CFO have
concluded that our disclosure controls and procedures are not effective at that
reasonable assurance level to ensure that material information relating to the
Company is not made known to management, including the CEO and CFO, particularly
during the period when our periodic reports are being prepared, and that our
Internal Controls are not effective at that assurance level to provide
reasonable assurance that our financial statements are fairly presented
inconformity with accounting principals generally accepted in the United States.
Additionally, there has been no change in our Internal Controls that occurred
during our most recent fiscal quarter or fiscal year that has materially
affected, or is reasonably likely to affect, our Internal Controls.
The
material weakness relates to lack of segregation of duty, financial statements
disclosures and related party transactions. These deficiencies have been
disclosed to our Board of Directors. Additional effort is needed to fully remedy
these deficiencies and we are continuing our efforts to improve and strengthen
our control processes and procedures. We are in the process of improving our
internal control over financial reporting in an effort to remediate these
deficiencies by improving supervision and increasing training of our accounting
staff with our auditors and other outside advisors respect to generally accepted
accounting principles, providing additional training to ensure that our controls
management regarding use of estimates in accordance with generally accepted
accounting principles, increasing the use of contract accounting assistance and
procedures are adequate increasing the frequency of internal financial statement
review.
Item
8A(T). Controls and Procedures
(a) The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934, as amended). Management conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting based on the criteria set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management has concluded that the
Company’s internal control over financial reporting was not effective as of
December 31, 2007.
(b) This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report.
(c) There
were no changes in the Company's internal controls over financial reporting,
known to the chief executive officer or the chief financial officer, that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART
III
Item
9. Directors and Executive Officers of the Registrant
Directors
and Executive Officers
The
following table sets forth information regarding the members of our board of
directors and our executive officers and other significant employees. All
directors hold office for one-year terms until the election and qualification of
their successors. Officers are elected annually by the board of directors and
serve at the discretion of the board.
The table
below sets forth what our directors and executive officers will be upon the
expiration of the ten day notice period under Rule 14f-1, and, in that
connection, we filed with the Commission and mailed to our shareholders of
record a Schedule 14F-1, which serves to provide such notice on June 27, 2007.
Such notice period will expire on July 7, 2007. In the interim, all of the
officers of the Registrant serving at closing resigned from such positions and
the following persons were designated to the specified offices by Everwin,
namely, Chunman Zhang as CEO, CFO and Treasurer, and Degong Han as President and
Secretary. In addition, at closing Todd Gee resigned as a director of the
Registrant and Man Ha, a nominee of Everwin, was appointed to fill the vacancy
created by Mr. Gee’s resignation. Further, at closing Bradley Shepherd resigned
from his position as a director effective upon the expiration of the ten day
notice period required by Rule 14f-1, at which time the Registrant’s intends to
increase the board and Kunlun Wang and Degong Han will be appointed
directors
|
Name
|
|
Age
|
|
Position
|
|
Tian,
Yuan
|
|
34
|
|
CEO
and Director
|
|
Han,
Degong
|
|
52
|
|
President,
Secretary and Director
|
|
Wang,
Kunlun
|
|
39
|
|
Director
|
|
Ha,
Man
|
|
45
|
|
CFO,
Treasurer and Director
|
Backgrounds
of Directors and Officers
Yuan,
TIAN, Chief Executive Officer and Director - 34
Mr. Tian
graduated from the Institute of National Economic Management in Renmin
University of China with a Bachelors of Economics Degree in 1996, and attended
senior EMBA courses in Schenzhen Academy of Tsinghua University in
2001. In July 1996, Mr. Tian started his career in the Marketing
Department of Hainan Airline Co., Ltd. In 1998 he was appointed as
Project & Marketing Leader to establish the Hainan Airline Hotel
Group. After that, Mr. Tian was appointed as Assistant to the General
Manager, Marketing Department in Hainan Airline Hotel Group, and general manager
of Hainan Airline Commercial Tourism Co., Ltd. In October 1999, he
joined Guangdong Huajing Industrial (Group) Co., Ltd. as Assistant to the
General Manager. In April 2003, he joined Guangzhou Hengda Industrial
(Group) Co., Ltd. as the Officer to the President. From August 2005
to August 2006, he joined Guangdong New Generation Commercial Management Co.,
Ltd. and was appointed as General Manager of the marketing center, and Officer
of non-ticket section management office, and Director of Tourism Credit
Center. From 2006 to January 2007, he was appointed as CEO of Suzhou
Tongli International Tourism Development Co., Ltd. In February 2007,
Mr. Tian worked as the General Manager in the Network Payment Department in
Guangdong Tour Electric Commercial Traveling Service Co., Ltd.
Degong
HAN, President, Secretary and Director - 52
Mr. Han
used to work in YiChun Xinqing Forestry Bureau as a supervisor of the sales
department in 1979. After 4 years, he was promoted to the position of
administrator and in 1995, Han was the senior manager of the forestry bureau. In
August 1990, Han achieved the Reward Degree of Forestry Studies. From
1996 to 2003, Han began to research the innovation of the forestry industry. And
from 2004, he found Harbin Senrun Forestry Development Limited.
Kunlun
WANG, Director - 39
Ms Wang
graduated from Harbin Watercraft Engineering Institute in 1990, and majored in
Electron Engineering. From 1990 to 1992, Wang worked in the customer service
department in Panasonic Inc. (China), Heilongjiang Province Technique Supports.
In 1999, Wang began to work in Zhuhai Northeast Jincheng Estate Limited and
worked as an administrator for three years. From 1994 to 1997, she joined the
Orient Group (a public company in China) for International Trading. From 1997,
Ms. Wang founded the family company, Harbin Pingchuan Pharmaceutical, Inc, a
North Carolina corporation, and took the charge of the capital management. On
August 2, 2004, the company listed on the OTCBB in the USA. The company effected
a redomicile merger with Shandong Zhouyuan Seeds and Nursery Co., a Delaware
corporation, and listed on OTCBB in America again with a new ticker symbol. From
2005 to present, Ms. Wang cooperated with Mr. ZENG Zhixiong, the chairman of
China World Trade Corporate and founded the World Trade Full Capital (Beijing)
Investment Consultancy Limited. Ms. Wang was the Executive Director and the
General Manager.
Man
HA, Director - 45
Mr. Ha
was appointed as Chief Financial Officer of China World Trade Corporation on
February 28, 2006. He has over 20 years of experience in the areas of auditing,
transaction advisory services and commercial fields. In the past, he was
executive director, group financial controller and company secretary of several
publicly traded companies that were listed on the Hong Kong Stock Exchange. Mr.
Ha holds a Masters Degree in Professional Accounting from the Open University of
Hong Kong. He is also a fellow member of The Association of Chartered Certified
Accountants and The Hong Kong Institute of Certified Public
Accountants.
Meetings
of Our Board of Directors
The
Registrant’s Board of Directors held two meetings during the fiscal year ended
December 31, 2006.
There are
no familial relationships between or among our officers and
directors.
Meetings
of Our Board of Directors
The
Registrant’s Board of Directors took all actions by unanimous written consent
without a meeting during the fiscal year ended December 31, 2007.
Board
Committees
Audit Committee
.
The Company intends to
establish an audit committee of the board of directors, which will consist of
soon-to-be-nominated independent directors. The audit committee’s duties would
be to recommend to the Company’s Board of Directors the engagement of
independent auditors to audit the Company’s financial statements and to review
the Company’s accounting and auditing principles. The audit committee would
review the scope, timing and fees for the annual audit and the results of audit
examinations performed by the internal auditors and independent public
accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee would at all times be composed
exclusively of directors who are, in the opinion of the Company’s Board of
Directors, free from any relationship which would interfere with the exercise of
independent judgment as a committee member and who possess an understanding of
financial statements and generally accepted accounting principles.
Compensation Committee
.
The Company intends to
establish a compensation committee of the Board of Directors. The compensation
committee would review and approve the Company’s salary and benefits policies,
including compensation of executive officers.
Director
Compensation
The
Company paid nil to its directors for service as directors in 2007, and the
Company has not paid its directors any separate compensation in respect of their
services on the board. However, in the future, the Company intends to implement
a market-based director compensation program.
Code
of Ethics
The
Company has adopted a Code of Ethics that applies to the Company’s principal
chief executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, as well as other
employees (the "Code of Ethics"), a copy of which is attached as Exhibit 14.1 to
our Form 10-KSB for the fiscal year ended December 31, 2006, and is incorporated
herein by reference. The Code of Ethics is designed with the intent to deter
wrongdoing, and to promote the following:
|
·
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships
|
|
·
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that a small business issuer files with, or submits to, the
Commission and in other public communications made by the small business
issuer
|
|
·
|
Compliance
with applicable governmental laws, rules and
regulations
|
|
·
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code
|
|
·
|
Accountability
for adherence to the code
|
Section
16(a) Beneficial Ownership Reporting Compliance
Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of a
company that files reports pursuant to Section 12 of the Exchange Act, are
required to report the ownership of such common stock, options, and stock
appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have
been established, and the Company is required to report, in this Form 10-KSB/A,
any failure to comply therewith during the fiscal year ended December 2007. The
Company believes that all of these filing requirements were satisfied by its
executive officers, directors and by the beneficial owners of more than 10% of
the Company’s common stock. In making this statement, the Company has relied
solely on copies of any reporting forms received by it, and upon any written
representations received from reporting persons that no Form 5 (Annual Statement
of Changes in Beneficial Ownership) was required to be filed under applicable
rules of the Commission.
Item
10. Executive Compensation
The
following Summary Compensation Table sets forth, for the years indicated, all
cash compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by the Company’s chief executive
officer and all other executive officers who received or are entitled to receive
remuneration in excess of $100,000 during the stated periods.
SUMMARY
COMPENSATION TABLE
|
Name
of Officer
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive Plan Compensation
|
|
Nonqualified
Deferred Compensation
|
|
All Other
Compensation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tian,
Yuan
|
2007
|
|
|
0
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
|
--
|
|
|
|
2006
|
|
|
0
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
|
--
|
|
|
|
2005
|
|
|
0
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
|
--
|
|
|
Han,
Degong
|
2007
|
|
$
|
1,000
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
$
|
1,000
|
|
|
|
2006
|
|
|
0
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
|
--
|
|
|
|
2005
|
|
|
0
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
|
--
|
|
Option
Grants in Last Fiscal Year
There
were no options granted to any of the named executive officers during the year
ended December 31, 2007.
During
the year ended December 31, 2007, none of the named executive officers exercised
any stock options.
Employment
Agreements
The
Company has no employment agreements with any of its employees.
Equity
Compensation Plan Information
The
Company currently does not have any equity compensation plans; however the
Company is currently deliberating on implementing an equity compensation
plan.
Directors’
and Officers’ Liability Insurance
The
Company currently does not have insurance insuring directors and officers
against liability; however, the Company is in the process of investigating the
availability of such insurance.
|
Item
11.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
following table sets forth as of June 26, 2007, the number of shares of the
Registrant’s Common Stock and owned of record or beneficially by each person
known to be the beneficial owner of 5% or more of the issued and outstanding
shares of the Registrant’s voting stock, and by each of the Registrant’s
directors and executive officers and by all its directors and executive officers
as a group.
Except as
otherwise specified below, the address of each beneficial owner listed below is
Room 517, No. 18 Building, Nangangjizhoing District, Hi-Tech Development Zone,
Harbin, Heilongjiang Province, People’s Republic of China.
|
Title
of Class
|
|
Name
|
|
Number
of Shares Owned
|
|
Percent
of Voting Power
|
|
|
|
|
|
|
|
|
|
|
|
Other
Principal Stockholders (5%)
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Everwin
Development Limited(1)
|
|
9,513,743
|
|
19
|
%
|
|
Common
|
|
Tse
Wan Yi
|
|
2,815,026
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Tian,
Yuan
|
|
0
|
|
0
|
%
|
|
Common
|
|
Degong
Han
|
|
9,000,000
|
|
18
|
%
|
|
Common
|
|
Kunlun
Wang
|
|
0
|
|
0
|
%
|
|
Common
|
|
Man
Ha
|
|
9,513,743
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
All
Officers and Directors as a Group (4 persons)
|
|
18,513,743
|
|
37
|
%
|
(1) The
Sole owner and director of Everwin Development Limited is Man Ha, who is also
the Chief Financial Officer, Treasurer and a Director of the Company. Mr. Ha
deemed to be the beneficial owner of the shares of common stock owned by Everwin
Development Ltd.
Item
12. Certain Relationships and Related Transactions
The
Company utilized office space at the residence of Bradley Shepherd at no
charge.
For the
year ended December 31, 2006, Bradley Shepherd who was then president of the
Company advanced $5,100 to the Company. For the year ended December 31,
2005 and 2004, Mr. Shepherd advanced $9,600 and $6,375 to the Company,
respectively. During the year ended December 31, 2004 Mr. Shepherd cancelled and
returned to the Company 3,000,000 shares of common stock that had been issued to
him in exchange for cash advances in the amount of $3,000 in late 2004 and such
advances were reinstated. At Closing under the Exchange Agreement, the Company
paid Mr. Shepherd $34,950 in full satisfaction of all advances previously made
to the Company by Mr. Shepherd, including interest thereon, which had an
outstanding balance of approximately $37,491 on the Closing Date.
At
Closing under the Exchange Agreement, Bradley Shepherd and Todd Gee delivered
stock certificates representing 44,851,000 shares of the Company’s restricted
common stock to the Company’s transfer agent with irrevocable transfer
instructions instructing the transfer agent to cancel such shares on the day
following the payment date for the Special Cash Distribution of $.01227 per
share, and to issue in exchange for such shares 321,500 restricted shares of
Patriot common stock following the transactions contemplated by the Share
Exchange Agreement, with 221,500 of such shares being issued to Brad Shepherd
and 100,000 shares being issued to Todd Gee. The Share Exchange Agreement also
provided that during the period from the Closing Date until the date the above
share exchange has been completed Mr. Shepherd will vote all shares of Patriot
held by him in accordance with the instructions of Everwin.
The
Ping Yang He Forestry Center was owned by Mr. Degong Han, the president of the
Company. In 2004, Mr. Han contributed the timberland as the
registration capital to establish Harbin Senrun Forestry Development Co., Ltd.
in exchange for stock in the Company.
Mr.
Degong Han, the President, Secretary and a major shareholder of China Forestry
Inc., has loaned a total of $527,090 to the Harbin SenRun subsidiary of China
Forestry, Inc. for operating capital. The loan bears interest at 5% of the net
income generated from timberland sales. The principal and interest is due May
15, 2008. In the event of a default the principal plus 12% interest
is due on November 15, 2008. Mr. Man Ha is Chief Financial Officer and Director
of China Forestry, Inc. and also is a major shareholder of CHFY. As of December
31, 2007, the entire amount was contributed by converting to additional paid in
capital.
Except
for the transactions described above, there are no proposed transactions and no
transactions during the past two years to which the Company was (or is) a party,
and in which any officer, director, or principal stockholder, or their
affiliates or associates, was also a party.
Item
13. Exhibits and Reports on Form 8-K
(a)
Exhibits
. The exhibit
list required by Item 13 of Form 10-KSB is provided in the "
Index to Exhibits
"
located herein, immediately following Item 15.
(b)
Reports on Form 8-K Filed in
Last Quarter of 2007
|
(1)
|
Item
4.01 Form 8-K filed on January 30, 2008 relating to a change in
accountants.
|
|
(2)
|
Item
4.01 Form 8-K filed on January 30, 2008 relating to a change in
accountants.
|
|
(3)
|
Item
4.01 Form 8-K/A filed on February 4, 2008 relating to a change in
accountants.
|
Item
14. Principal Accountant Fees and Services
Fees
Billed For Audit and Non-Audit Services
The
following table represents the aggregate fees billed for professional audit
services rendered to the accounting firm of Malone & Bailey, Certified
Public Accountants, our current independent auditor, and all fees billed for
other services rendered by Malone & Bailey, Certified Public Accountants,
during those periods.
|
Year
Ended December 31
|
|
2007
|
|
|
|
|
|
|
|
Audit
Fees
(1)
|
|
$
|
31,000
|
|
|
Audit-Related
Fees ()
(2)
|
|
|
-
|
|
|
Tax
Fees
(3)
|
|
|
-
|
|
|
All
Other Fees
(4)
|
|
|
-
|
|
|
Total
Accounting Fees and Services
|
|
|
31,000
|
|
|
|
(1)
|
Audit Fees
. These are
fees for professional services for the audit of the Company's annual
financial statements, and for the review of the financial statements
included in the Company's filings on Form 10-QSB, and for services that
are normally provided in connection with statutory and regulatory filings
or engagements.
|
|
|
(2)
|
Audit-Related Fees
.
These are fees for the assurance and related services reasonably related
to the performance of the audit or the review of the Company's financial
statements.
|
|
|
(3)
|
Tax Fees
. These are
fees for professional services with respect to tax compliance, tax advice,
and tax planning.
|
|
|
(4)
|
All Other Fees
. These
are fees for permissible work that does not fall within any of the other
fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
Fees.
|
Pre-Approval
Policy For Audit and Non-Audit Services
The
Company does not have a standing audit committee, and the full Board performs
all functions of an audit committee, including the pre-approval of all audit and
non-audit services before the Company engages an accountant. All of the services
rendered to the Company by the accounting firm of Malone & Bailey, Certified
Public Accountants were pre-approved by the Board of Directors of the
Company.
The
Company is presently working with its legal counsel to establish formal
pre-approval policies and procedures for future engagements of the Company's
accountants. The new policies and procedures will be detailed as to the
particular service, will require that the Board or an audit committee thereof be
informed of each service, and will prohibit the delegation of pre-approval
responsibilities to management. It is currently anticipated that the Company's
new policy will provide (i) for an annual pre-approval, by the Board or audit
committee, of all audit, audit-related and non-audit services proposed to be
rendered by the independent auditor for the fiscal year, as specifically
described in the auditor's engagement letter, and (ii) that additional
engagements of the auditor, which were not approved in the annual pre-approval
process, and engagements that are anticipated to exceed previously approved
thresholds, will be presented on a case-by-case basis, by the President or
Controller, for pre-approval by the Board or audit committee, before management
engages the auditors for any such purposes. The new policy and procedures may
authorize the Board or audit committee to delegate, to one or more of its
members, the authority to pre-approve certain permitted services,
provided that
the estimated
fee for any such service does not exceed a specified dollar amount (to be
determined). All pre-approvals shall be contingent on a finding, by the Board,
audit committee, or delegate, as the case may be, that the provision of the
proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.
INDEX
TO EXHIBITS
The
following exhibits are filed as part of this report:
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
14.1
|
|
Code
of Ethics, incorporated by reference from our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2002, filed March 26,
2003
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) Certifications of Yuan Tian, CEO *
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) Certifications of Man Ha, Principal Financial Officer
*
|
|
32.1
|
|
Statement
Required By 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
The Sarbanes-Oxley Act of 2002*
|
|
32.2
|
|
Statement
Required By 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002*
|
*
Filed herewith.
SIGNATURES
In
accordance with the Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
November 17, 2008
|
|
CHINA
FORESTRY, INC.
|
|
|
|
|
|
|
|
By:
|
/s/Yuan
Tian
|
|
|
Yuan
Tian, Chief Executive Officer
|
Pursuant
to the requirements of the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Yuan Tian
|
|
Chief
Executive Officer And Director
|
|
November
17, 2008
|
|
Yuan
Tian
|
|
|
|
|
|
/s/
Degong Han
|
|
President
|
|
November
17, 2008
|
|
Degong
Han
|
|
|
|
|
|
/s/
Man Ha
|
|
CFO
and Director
|
|
November
17, 2008
|
|
Man
Ha
|
|
|
|
|
|
/s/
Kunlun, Wang
|
|
Director
|
|
November
17, 2008
|
|
Kunlun,
Wang
|
|
|
|
|
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