10-Q 1 v241028_10q.htm FORM 10-Q Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2011

OR
  
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from     to 

(Commission File Number) 000-51263

NORTH CHINA HORTICULTURE, INC.
(Exact Name of Registrant As Specified in Its Charter)

Nevada
20-4650531
(State or Other Jurisdiction of
Incorporation)
(IRS Employer
Identification No.)
 
LongSheng Village, Tangshan Town, Zhengan District
Dandong City, Liaoning, P.R.China

(Address of Principal Executive Offices)

86-0415-8176321

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 at least the past 90 days. Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter that the registrant was required to submit and post such files). Yes x  No ¨

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

Large accelerated filer ¨
Accelerated filer ¨
   
Non-accelerated filer ¨   (Do not check if a smaller reporting company)
Smaller reporting company x

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

As of November 1, 2011, the registrant had 51,750,144 shares of common stock outstanding.

 
 

 

NORTH CHINA HORTICULTURE, INC.
FORM 10-Q
Quarterly Period Ended September 30, 2011

INDEX

   
Page
 
PART I – FINANCIAL INFORMATION
 
     
ITEM 1.
Financial Statements
 
 
Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010
3
 
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2011 and 2010 (Unaudited)
4
 
Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months ended September 30, 2011 and 2010 (Unaudited)
5
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)
6
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
8
     
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
     
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
20
     
ITEM 4.
Controls and Procedures
21
     
 
PART II – OTHER INFORMATION
 
     
ITEM 1.
Legal Proceedings
21
     
ITEM 1A
Risk Factors
21
     
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
21
     
ITEM 3.
Defaults Upon Senior Securities
21
     
ITEM 5.
Other Information
21
     
ITEM 6.
Exhibits
22
 
 
 

 

NORTH CHINA HORTICULTURE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

   
September 30,
   
December 31,
 
   
2011
(Unaudited)
   
2010
 
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 5,633     $ 240,719  
Accounts receivable, net of allowance for doubtful accounts of $5,661,709 and $888,844 at September 30, 2011 and December 31, 2010, respectively
    4,975,705       1,392,020  
Inventories, net
    2,029,285       1,199,099  
Deposits and advances to suppliers
    16,973       93,658  
Prepaid rent and other current assets
    156,628       116,170  
Receivable from unaffiliated entities
    -       3,143,307  
Deposit to related party
    -       727,722  
Due from officer
    -       81,668  
                 
Total current assets
    7,184,224       6,994,363  
                 
Property and equipment, net
    337,801       139,997  
Land use right, net
    620,208       -  
Long term growing crops inventories
    2,002,661       -  
Deposit on greenhouse improvements
    -       211,743  
TOTAL ASSETS
  $ 10,144,894     $ 7,346,103  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Current liabilities
               
Accounts payable
  $ 235,206     $ 27,289  
Accrued expenses and other payables
    269,344       103,460  
Amount due to officer
    43,683       -  
Deferred sales
    2,148,861          
                 
Total current liabilities
    2,697,094       130,749  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
SHAREHOLDERS’ EQUITY
               
Common stock, $0.00001 par value; 51,750,144 and 50,000,139 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
    518       500  
Additional Paid-in capital
    2,639,840       14,850  
Accumulated other comprehensive income
    516,993       268,780  
Retained earnings
    4,290,449       6,931,224  
                 
TOTAL SHAREHOLDERS’ EQUITY
    7,447,800       7,215,354  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 10,144,894     $ 7,346,103  
The accompanying notes are an integral part of these condensed consolidated financial statements

 
3

 

NORTH CHINA HORTICULTURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

    
For the three months ended
September 30,
   
For the nine months ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net revenues
  $ 2,714,384     $ 1,398,403     $ 7,897,455     $ 5,051,948  
Cost of goods sold
    1,102,311       304,621       2,208,694       1,019,162  
                                 
Gross profit
    1,612,073       1,093,782       5,688,761       4,032,786  
                                 
Selling, general and administrative expenses
    430,376       1,280,385       1,035,739       1,348,185  
Share based consulting fee
    -       -       2,625,008       -  
Bad debt expenses
    3,261,279               4,668,789          
                                 
Net (loss) income
    (2,079,582 )     (186,603 )     (2,640,775 )     2,684,601  
                                 
Other comprehensive income - foreign currency translation gain
    57, 449       149,684       248,213       121,121  
                                 
Comprehensive (loss) income
  $ (2,022,133 )   $ (36,919 )   $ (2,392,562 )   $ 2,805,722  
                                 
Basic and diluted (loss) earnings per share
  $ (0.04 )   $ -     $ (0.05 )   $ 0.05  
                                 
Weighted average number of shares
    51,750,144       49,935,477       50,888,105       49,892,844  

The accompanying notes are an integral part of these condensed consolidated financial statements

 
4

 

NORTH CHINA HORTICULTURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED)

    
Common Stock
         
Accumulated
             
   
Shares
   
Par
value
$0.00001
   
Additional
Paid-in
Capital
   
Other
Comprehensive
Income
   
Retained
Earnings
   
Total
 
                                     
Balance- January 1, 2011
    50,000,139       500       14,850     $ 268,780       6,931,224       7,215,354  
                                                 
Issuance of shares for consulting fee
    1,750,005       18       2,624,990       -       -       2,625,008  
                                                 
Foreign currency translation gain
    -       -       -       248,213       -       248,213  
                                                 
Net loss
    -       -       -       -       (2,640,775 )     (2,640,775 )
                                                 
Balance- September 30, 2011
    51,750,144     $ 518     $ 2,639,840     $ 516,993     $ 4,290,449     $ 7,447,800  

The accompanying notes are an integral part of these condensed consolidated financial statements

 
5

 

NORTH CHINA HORTICULTURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

   
For the nine months ended September 30,
 
   
2011
   
2010
 
             
Cash flows from operating activities:
           
Net (loss) income
  $ (2,640,775 )   $ 2,684,601  
Adjustments to reconcile net income to cash (used in) provided by  operating activities:
               
Depreciation
    68,073       14,457  
Provision for bad debt
    4,668,789       180,223  
Provision for inventory reserves
    23,622       -  
Share based consulting fee
    2,625,008       -  
Changes in operating assets and liabilities:
               
Accounts receivable
    (8,249,390 )     1,703,981  
Inventories
    (823,082 )     (303,452 )
Long term growing crops inventories
    (1,971,950 )     -  
Due to outside parties
    -       36,063  
Deposit and Advance to suppliers
    76,685       (585,320 )
Prepaid rent and other current assets
    (40,458 )     (30,075 )
Accounts payable
    207,917       391,248  
Accrued expenses and other payables
    165,884       80,839  
Deferred sales
    2,115,577          
Net cash (used in) provided by operating activities
    (3,774,100 )     4,172,565  
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (2,420 )     (108,929 )
Purchase of land use right
    (610,628 )     -  
Deposit to related party
    716,497       -  
Received from unaffiliated entities
    3,216,960       (3,525,752 )
Net cash provided by (used in) investing activities
    3,320,409       (3,634,681 )
                 
Cash flows from financing activities:
               
Repayment and advances by officer
    125,351       (413,089 )
Due to outside parties
    -          
Due to employee
    -          
Contribution by former shareholder
    -       1,291  
Net cash provided by financing activities
    125,351       (411,789 )
                 
Effect of exchange rate changes on cash
    93,254       136,661  
                 
Net increase  in cash and cash equivalents
    (235,086 )     262,747  
                 
Cash and cash equivalents, beginning of the period
    240,719       11,300  
                 
Cash and cash equivalents, ending of the period
  $ 5,633     $ 274,047  
  
(continued)

 
6

 

NORTH CHINA HORTICULTURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(continued)

   
For the nine months ended September 30,
 
   
2011
   
2010
 
             
Supplemental disclosure of cash flow information:
           
             
Interest paid
  $ -     $ -  
Income tax paid
  $ -     $ -  
                 
Non-cash investing and financing activities
               
                 
Reclassification of deposit to Property and Equipment
  $ $211,743     $ -  

The accompanying notes are an integral part of these condensed consolidated financial statements

 
7

 

NORTH CHINA HORITICULTURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION
 
The accompanying unaudited condensed consolidated financial statements of North China Horticulture, Inc. (the “Company”, “We”, “Our”) and Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies.  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year.  The condensed consolidated balance sheet information as of December 31, 2010 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K filed with the SEC.  These interim financial statements should be read in conjunction with that report

The accompanying consolidated financial statements include the financial statements of the Company, it’s wholly owned subsidiaries, Honour Bond Limited ("Honour Bond") and Shenzhen ZhihaoDongbo Technology Co., Ltd. (“Zhihao”), and Zhihao’s VIE, Longsheng Horticulture Technology Co., Ltd.  (“Dandong Longsheng”).   Inter-company balances and transactions have been eliminated in consolidation.
 
NOTE 2 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
North China Horticulture, Inc. (the “Company”, “We”, “Our”), formerly known as iDcentrix, Inc., was incorporated in the State of Nevada on January 26, 2004.  The Company, along with its subsidiary and variable interest entity (“VIE”), is engaged in the cultivation and sales of blueberry seedlings.  The Company’s facilities are located in and around the city of Dandong in Liaoning Province, People’s Republic of China (“PRC”).  Our products consist of a number of blueberry seedling varietals.

On June 1, 2010 the Company effected a one for two hundred eighty-four (1:284) reverse stock split resulting in the Company having 240,269 (post-split) shares of common stock outstanding after the reverse stock split.  All share and per share amounts in the accompanying consolidated financial statements have been adjusted to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.

On July 16, 2010, the Company completed a share exchange transaction with Honour Bond Limited ("Honour Bond") and its shareholders, whereby the Company acquired 100% of the issued and outstanding capital stock of Honour Bond in exchange for 49,870,814 shares of our common stock which constituted 99.74% of our issued and outstanding capital stock as of and immediately after the consummation of the share exchange transaction.  As a result of the share exchange transaction, Honour Bond became our wholly-owned subsidiary and the former shareholders of Honour Bond became our controlling stockholders. 

For accounting purposes, the share exchange transaction is accounted for as a recapitalization (reverse merger), with Honour Bond treated as the accounting acquirer and iDcentrix treated as the legal acquirer.  The financial statements presented herein are those of the accounting acquirer given the effect of the issuance of 129,325 shares of common stock upon completion of the transaction.  In addition, the Company incurred expenses of $568,516 in connection with the reverse merger in 2010.
 
Honour Bond is a corporation organized under the laws of Hong Kong Special Administrative Region in January 2010 with registered capital of HKD 10,000 (approximately $1,291).  Honour Bond’s wholly owned subsidiary, Shenzhen ZhihaoDongbo Technology Co., Ltd. (“Zhihao”), is a limited liability company organized under the laws of the People’s Republic of China (“PRC”) in March 2010.  Honour Bond does not conduct any substantive operations of its own, but conducts its primary business operations through Zhihao’s variable interest entity (“VIE”), Longsheng Horticulture Technology Co., Ltd.  (“Dandong Longsheng”).  Dandong Longsheng was incorporated under the laws of the PRC in March 2008.

 
8

 

Honour Bond, through Zhihao, has entered into certain exclusive agreements with Dandong Longsheng, which obligate the Company to absorb a majority of the risk of loss from Dandong Longsheng’s activities and entitle it to receive a majority of its residual returns. In addition, Dandong Longsheng’s shareholders have pledged their equity interest in Dandong Longsheng to Zhihao, irrevocably granted Zhihao an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in Longsheng and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by Zhihao. Through these contractual arrangements, the Company is deemed to be the primary beneficiary of Longsheng.
 
Based on these contractual arrangements, the Company now accounts for Longsheng as a VIE  under authoritative guidance issued by the Financial Accounting Standards Board (“FASB”).  As the Company through Zhihao is deemed to be the primary beneficiary of Longsheng, the Company consolidates the assets, liabilities, and results of operations of Longsheng.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the reporting periods.  Items subject to such estimates and assumptions include the carrying value and estimated useful lives of long-lived assets and the valuation allowances for receivables and for unsecured advances to unaffiliated entities.  Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

Revenue recognition

The Company recognizes sales in accordance with the United States Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”. The Company recognizes revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured.  Revenue is not recognized until title and risk of loss is transferred to the customer, which generally occurs upon delivery of goods, and objective evidence exists that customer acceptance provisions have been met.  We assess collectability at the time of the sale and if collectability is not reasonably assured, the sale is not recognized until collectability is probable or payment is received.  Deposits or advance payments from customers prior to delivery of goods and passage of title of goods are recorded as advances from customers. For sales shipments which the Company has the legal right to collect but which management estimates the full accrual method criteria have not been met, these accounts receivable are offset by a credit to deferred sales in the same amount and will be recognized as revenue when the full accrual criteria are met.

Accounts receivable

Accounts receivable are recognized and carried at the original invoiced amount less an allowance for any uncollectible accounts. The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receivable balances. Under the aging method, bad debts are estimated by management based on its recent experience as well as the current economic climate and are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. The valuation allowance balance is adjusted to the amount computed as a result of the aging method. When facts subsequently become available to indicate that an adjustment to the allowance should be made, this is recorded as a change in estimate in the current year.  As of September 30, 2011 and 2010, the allowance for doubtful accounts amounted to $5,661,709 and $888,844 respectively.

 
9

 

Earnings (loss) per share

Earnings (loss) per share are calculated in accordance with the authoritative guidance issued by the FASB on earnings per share.  Basic net earnings (loss) per share are based upon the weighted average number of common shares outstanding, but excluding shares issued as compensation that have not yet vested. Diluted net earnings (loss) per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised, and that all unvested shares have vested.  Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  At September 30, 2011 and December 31, 2010, the Company did not have any dilutive convertible shares or stock options outstanding.

Foreign currency translation

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the period.

 
   
September
30, 2011
   
December 31,
2010
   
September 30,
2010
 
Period end RMB : US$ exchange rate
    6.3885       6.600          
                         
Average period end RMB : US$ exchange rate
    6.4884       6.769          

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.

Concentrations

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and unsecured trade accounts receivable.

Cash denominated in RMB with a US dollar equivalent of $5,633 and $240,719 at September 30, 2011 and December 31, 2010, respectively, was held in accounts at financial institutions located in the PRC.  The Company and its subsidiaries have not experienced any losses in such accounts and do not believe the cash is exposed to any significant risk.

For the nine months ended September 30, 2011, one customers accounted for 11% of sales and at September 30, 2011, the customers accounted for 6%, of accounts receivable.  For the nine months ended September 30, 2010, three customers accounted for 70% of sales (23%, 14%, 12%,11%and 10% respectively).  For the three months ended September 30, 2011, five customers accounted for 62% of sales (13%, 13%, 12%, 12% and 12% respectively).  For the three months ended September 30, 2010, four customers accounted for 89% of sales (27%, 25%, 21% and 16% respectively).

Economic and Political Risks

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.

 
10

 

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results of operations may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”.  ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required.  The ASU will affect the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”.  The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.  ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011.  The Company will adopt the ASU as required.  It will have no affect on the Company’s results of operations, financial condition or liquidity.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment.  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process.  It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.  The Company is currently evaluating the affects adoption of ASU 2011-08 may have on its goodwill impairment testing.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the Securities Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
 
NOTE 3 – RELATED PARTY TRANSACTIONS
 
At December 31, 2010, a balance of $81,668 of advances was due from the Company’s chairman and CEO.  The advances were made for Company business purposes and were repaid to the Company by March 10, 2011.  The amounts were unsecured, non-interest bearing, and due on demand. 
 
During the nine months ended September 30, 2011, the Company’s chairman and CEO made advances payment of $43,683 for the Company which was outstanding at September 30, 2011.  The amounts are unsecured, non-interest bearing, and are payable on demand.

 
11

 

NOTE 4 –DEPOSIT TO RELATED PARTY
 
At December 31, 2010, the Company had a deposit of approximately $727,722 (RMB 4,811,555) that had been paid to the father of the Company’s chairman and CEO for the purchase of certain farming real estate.  During the first quarter in 2011, the proposed acquisition was terminated and the deposit was returned to the Company.
 
NOTE 5 – ACCOUNTS RECEIVABLE

Accounts receivable consist of the following as of:

   
September 30,
2011
(Unaudited)
   
December 31,
2010
 
Accounts receivable
  $ 10,637,414     $ 2,280,864  
Less: Allowance for doubtful accounts
    (5,661,709 )     (888,844 )
                 
Accounts receivable, net
  $ 4,975,705     $ 1,392,020  

At September 30, 2011, net accounts receivable of $4,975,705 includes $2,327,307 for sales shipments which the Company has the legal right to collect but which management estimates the full accrual method criteria have not been met.  These accounts receivable are offset by a credit to deferred sales in the same amount and will be recognized as revenue when the full accrual criteria are met.

NOTE 6 – INVENTORIES

Inventories consist of the following as of:

   
September 30,
2011
(Unaudited)
   
December 31,
2010
 
Raw material
  $ 172,985     $ 61,746  
Work in process
    1,387,676       926,857  
Finished goods
    492,616       210,496  
Reserve
    (23,992 )     -  
Total
  $ 2,029,285     $ 1,199,099  

Costs of bringing blueberry seedlings crops to harvest are inventoried when incurred.  Such costs are usually expensed when the crops are sold.  For the three and nine months ended September 30, 2011, costs of goods of $304,399 and $511,601 related to deferred sales (see Note 5) are included in costs of goods sold as the related inventory, once shipped, is not returnable.

NOTE 7 – PREPAID LAND USE RIGHT AND LONG-TERM GROW CROP INVENTORIES

Prepaid land use right

On June 23, 2011, the Company entered into a lease with the Youhao Forestry Bureau, Heilongjiang Province (the “Bureau”) to lease 59 acres of blueberry fields from the Bureau (the “Youhao Land”).  The cost of land use right was $620,208, and is being amortized over the 50 year life of the lease.

 
12

 

Long term growth crop inventories

On August 27, 2011, the Company has signed an agreement with the Bureau and agreed to pay the Bureau for the blueberry plants growing on the Youhao Land when it was leased.  As of September 30, 2011, the total fair value of the blueberry plants was determined to be $1,376,661 and was paid to the Bureau.  As of September 30, 2011, the plants were approximately three years old.  A typical blueberry plant will mature in 6 years, after which it can be harvested.  The Company currently plans to maintain the plants and harvest them.

In addition, the Company has agreed to pay a management fee to the Bureau for four years services on behalf of the Company for growing the plants from July 2011 to June 2015.  The management fee is $857,966 for the first year, $260,793 for the second year, $288,923 for the third year, and $386,104 for the fourth year.

NOTE 8 – RECEIVABLE FROM UNAFFLIATED ENTITIES

In May 2010, the Company made advances totaling approximately $4,129,115 (RMB 27,950,000) to four unaffiliated entities.  The advances were initially made in anticipation of being equity investments and were subsequently restructured into term loans.  At December 31, 2010, the aggregate outstanding balance was approximately $3,143,307 (RMB 20,782,920).  The advances are unsecured, non-interest bearing, due in various installments, and any unpaid principal was due in full on September 30, 2011.  All the advances were repaid by August 19, 2011.

In March 2011, the Company made two more advances totaling approximately $75,837 (RMB 496,740) to two potential suppliers which were fully repaid on April 12, 2011.

NOTE 9 – SHAREHOLDERS’ EQUITY

Issuance of Common Stock for Services

On May 16, 2011, we issued 1,750,005 common shares to a consultant for services, and recorded $2,625,008 in consulting fees based on the market price $1.50 per share.  The consultant specializes in providing brokers, fund managers, institutions and the financial marketplace with investor relations for emerging growth companies in Asia and Latin America.

 
13

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operation.
  
The following discussion and analysis should be read together with the factors discussed in Part I. Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010,  and with the consolidated financial statements, including the notes thereto, and the other financial information appearing elsewhere in this Report. Period-to-period comparisons of financial data are not necessarily indicative, and therefore should not be relied upon as indicators, of the Company’s future performance. Words or phrases such
as “believes,” “does not believe,” “will,” “may,” “plan,” “estimate,” “anticipate,” “expect,” “intend” and similar expressions may identify “forward-looking statements.”
 
Business Overview and Basis of Presentation
   
On July 16, 2010, we completed a reverse acquisition transaction through a share exchange with Honour Bond Limited, a Hong Kong limited company (“Honour Bond”) and its shareholders (“Honour Bond Shareholders”), whereby we acquired 100% of the issued and outstanding capital stock of Honour Bond in exchange for 49,870,814 shares of our common stock which constituted 99.74% of our issued and outstanding capital stock as of and immediately after the consummation of the reverse acquisition.  As a result of the reverse acquisition, Honour Bond became our wholly-owned subsidiary and the Honour Bond Shareholders became our controlling stockholders.  The share exchange transaction with Honour Bond and the Honour Bond Shareholders was treated as a reverse acquisition, with Honour Bond as the acquirer and iDcentrix, Inc. as the acquired party.  Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Honour Bond and its consolidated subsidiaries and replace the historical financial results of iDcentrix, Inc. pre-acquisition.  iDcentrix, Inc. and its subsidiaries and controlled affiliates are referred to collectively as “we,” “us,” and the “Company.”
   
Upon the closing of the reverse acquisition, TsoiTik Man, our former President, Secretary and a director, submitted a resignation letter pursuant to which he resigned from all offices that he held effective immediately and from his position as our director that became effective on August 7, 2010.  In addition, our board of directors on July 16, 2010, appointed Guang Zhao to fill the vacancy created by such resignation, which appointment became effective on August 7, 2010.  In addition, our executive officer was replaced by Guang Zhao upon the closing of the reverse acquisition.
 
As a result of our acquisition of Honour Bond, we now own all of the issued and outstanding capital stock of Honour Bond, which in turn owns all of the issued and outstanding capital stock of ShengzhengZhihaoDongbo Technology Ltd., a Chinese limited company (“Dongbo Consulting”).  In addition, we effectively and substantially control Dandong LongSheng Horticulture Technology Co., Ltd., a Chinese limited company (“Dandong LongSheng”), through a series of captive agreements with Dongbo Consulting.  Dandong LongSheng is principally engaged in the production of blueberry seedlings in the PRC.

Honour Bond was established in Hong Kong on January 5, 2010 to serve as an intermediate holding company.  Dongbo Consulting was established in China on March 4, 2010. 

Dandong LongSheng was founded in March of 2008 in the People’s Republic of China to meet the strict supply chain demands of the food and beverage industry for quality high-end agricultural products.  Our offices and growing facilities are located in and around the city of Dandong in Liaoning Province.  Our products consist of a number of blueberry seedling varietals.  Currently, we have the capacity to grow approximately nine million seedlings per year in our 42 greenhouses on six acres of growing facilities.  We sell our seedlings to a number of agricultural enterprises throughout northern China, who then replant them and cultivate them to maturity in blueberry farms.
 
Our unique cultivation techniques allow us to produce multiple semi-mature blueberry plants from seedlings at far higher efficiencies, survival rates and in shorter periods of time than many of our competitors, contributing to our strong gross margins.  We currently employ approximately 208 individuals.

 
14

 

Contractual Arrangements with our Controlled Affiliate and its Shareholder

On March 10, 2010, prior to the reverse acquisition transaction, Dongbo Consulting and Dandong LongSheng and its sole shareholder Guang Zhao entered into a series of agreements known as variable interest agreements (the “VIE Agreements”) pursuant to which Dandong LongSheng became Dongbo Consulting’s contractually controlled affiliate.  The use of VIE agreements is a common structure used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government.  The VIE Agreements included:

(1)       an Exclusive Technical Consulting and Service Agreement between Dongbo Consulting and Dandong LongSheng pursuant to which Dongbo Consulting is to provide technical support and consulting services to Dandong LongSheng in exchange for all of the net income after taxes of Dandong LongSheng.

(2)       a Call Option and Cooperation Agreement among Guang Zhao, Dandong LongSheng and Dongbo Consulting under which the sole shareholder of Dandong LongSheng has granted to Dongbo Consulting the irrevocable right and option to acquire all of his equity interests in Dandong LongSheng to the extent permitted by PRC law.  If PRC law limits the percentage of Dandong LongSheng that Dongbo Consulting may purchase at any time, then Dongbo Consulting may repeatedly exercise its option in such increments as may be allowed by PRC law.  The exercise price of the option is the net asset value of Dandong LongSheng at the time of exercise, or the percentage of such net asset value which corresponds to any incremental exercise of the option, or any higher price required by PRC law.  Any such difference between such net asset value and such higher price required by PRC law is, subject to all applicable laws and regulations, to be paid over to Dandong LongSheng.  Dandong LongSheng and its owner agree to refrain from taking certain actions which might harm the value of Dandong LongSheng or Dongbo Consulting’s option, and Dongbo Consulting undertakes to offer necessary financial support to Dandong LongSheng with respect to any losses or capital requirements to the extent permitted by law;

(3)       a Power of Attorney by Guang Zhao pursuant to which Mr. Zhao authorizes Dongbo Consulting to designate someone to exercise all of his shareholder decision rights with respect to Dandong LongSheng, provided that Dandong LongSheng consents to such authorization; and

(4)      an Equity Pledge Agreement between Guang Zhao and Dongbo Consulting under which the sole shareholder of Dandong LongSheng has pledged all of his equity in Dandong LongSheng to Dongbo Consulting to guarantee Dandong LongSheng’s and Guang Zhao’s performance of their obligations under the Exclusive Technical Consulting and Service Agreement, the Call Option and Cooperation Agreement and the Equity Pledge Agreement.

The VIE Agreements with our Chinese affiliate and its shareholder, which relate to critical aspects of our operations, may not be as effective in providing operational control as direct ownership.  In addition, these arrangements may be difficult and costly to enforce under PRC law.  Furthermore, our failure to perform our obligations under the VIE Agreements could give Dandong LongSheng the right to cease performance under or terminate the VIE Agreements and thereby deprive us of the economic benefit of the VIE Agreements from which we derive all of our revenues.  See “Item 1. Risk Factors - Risks Relating to the VIE Agreements” of this report.
   
Because of the common control between Honour Bond, Dongbo Consulting and Dandong LongSheng, for accounting purposes, the acquisition of these entities has been treated as a recapitalization with no adjustment to the historical basis of their assets and liabilities.  The restructuring has been accounted for using the “as if” pooling method of accounting and the operations were consolidated as if the restructuring had occurred as of the beginning of the earliest period presented in our consolidated financial statements and the current corporate structure had been in existence throughout the periods covered by our consolidated financial statements.
 
Principal Factors Affecting Our Financial Performance
 
Our operating results are primarily affected by the following factors:

 
15

 

 
·
Growth in the Chinese Economy - We operate our agricultural facilities in China and derive the majority of our revenues from sales to customers in China. Economic conditions in China, therefore, affect virtually all aspects of our operations, including the demand for our products, the availability and prices of our raw materials and our other expenses. China has experienced significant economic growth, achieving a compound annual growth rate of over 10% in gross domestic product from 1996 through 2008. Concurrent with this growth, domestic demand for our products has also increased. China is expected to experience continued growth in all areas of investment and consumption, even in the face of a global economic recession.

 
·
Growth of Demand in the Agricultural Products Market – We believe that China’s recent rise in consumption of fruit has been due to China’s economic growth and increased health and wellness consciousness. Management believes that along with increases in disposable income, Chinese consumers will elect to purchase more health foods and fresh fruits, which will benefit our sales.

 
·
Fluctuations in Raw Material Supply, Prices and Demand for our Products - Our Company’s production costs depend largely on readily available supply price of necessary raw materials which include seedlings, fertilizer, and other growing equipment. Increases in the price of oil directly impact fertilizer prices. Blueberry demand impacts both our raw material costs as well as our sales price. We set our prices according to local market prices for seedlings, which are determined by supply and demand factors in Northern China.

 
·
PRC Government Policy Promoting the Development of the Agricultural Industry - As part of the PRC’s eleventh five-year plan, local and federal authorities have offered assistance in the form of a variety of subsidies and tax incentives to farmers and agricultural producers with the goal of modernizing China’s agriculture industry and promoting rural affluence.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Comparison of Nine Months Ended September 30, 2011 and 2010

The following tables set forth key components of our results of operations during the nine months ended September 30, 2011 and 2010, both in dollars and as a percentage of our net sales.

   
Nine Months Ended
   
Nine Months Ended
 
   
September 30, 2011
(Unaudited)
   
September 30, 2010
(Unaudited)
 
         
% of Net
         
% of Net
 
   
Amount
   
Sales
   
Amount
   
Sales
 
Net Sales
  $ 7,897,455       100 %   $ 5,051,948       100 %
Cost of sales
    (2,208,694 )     (28 )%     (1,019,162 )     (20 )%
Gross profit
    5,688,761       72 %     4,032,786       80 %
                                 
Selling, General and Administrative Expenses
    (1,035,739 )     (13 )%     (1,348,185 )     (27 )%
Share based consulting fee
    (2,625,008 )     (33 )%     -       -  
Bad debt expense
    (4,668,789 )     (59 )%     -       -  
(Loss) Income before income taxes
    (2,640,775 )     (33 )%     2,684,601       53 %
Income taxes
    -       -       -       -  
Net (loss) income
  $ (2,640,775 )     (33 )%   $ 2,684,601       53 %

Comparison of Three Months Ended September 30, 2011 and 2010

The following tables set forth key components of our results of operations during the three months ended September 30, 2011 and 2010, both in dollars and as a percentage of our net sales.

 
16

 

 
   
Three Months Ended
   
Three Months Ended
 
   
September 30, 2011
   
September 30, 2010
 
         
% of Net
         
% of Net
 
   
Amount
   
Sales
   
Amount
   
Sales
 
Net Sales
  $ 2,714,384       100 %   $ 1,398,403       100 %
Cost of sales
    (1,102,311 )     (41 )%     (304,621 )     (22 )%
Gross profit
    1,612,073       59 %     1,093,782       78 %
                                 
Selling, General and Administrative Expenses
    (430,376 )     (16 )%     (1,280,385 )     (91 )%
Bad debt expense
    (3,261,279 )     (120 )%     -       -  
                                 
Loss before income taxes
    (2,079,582 )     (77 )%     (186,603 )     (13 )%
Income taxes
    -       -       -       -  
Net loss
  $ (2,079,582 )     (77 )%   $ (186,603 )     (13 )%

Net Sales and Cost of Sales

Our net sales increased 56% to $7,897,455 in the nine months ended September 30, 2011 from $5,051,948 in the nine months ended September 30, 2010.  Our net sales increased 81% to $2,714,384 in the three months ended September 30, 2011 from $1,398,403 in the three months ended September 30, 2010. The cost of goods sold per sales ratio changed from 20% to 28% in the nine months ended September 30, 2011, and changed from 22% to 41% in the three months ended September 30, 2011.

The increase in net sales in the three and nine months ended September 30, 2011 was mainly attributed to the enhancement of the market recognition of the products of the Company and the expansion of the market.
 
Increasing cost of goods sold per sales ratio in nine and three months ended September 30, 2011 was mainly due to the higher cost of acquisition due to the age of the seeds.  Further, costs of other raw materials were also higher in 2011 compared to 2010.

Gross Profit and Gross Margin

Our gross profit increased 41% to $5,688,761 in the nine months ended September 30, 2011 from $4,032,786 in the same period 2010, and increased 47% to $1,612,073 in the three months ended September 30, 2011 from $1,093,782 in the same period 2010. Gross profit as a percentage of net revenue was 72% and 80% for the nine months ended September 30, 2011 and 2010 respectively, and 59% and 78% for the three months ended September 30, 2011 and 2010, respectively.

Most of the maturity seeding plants we sold in the first quarter of 2010 were aged over 1 or 2 years, with a price twice as typical, so the gross margin of the first half year in 2010 is higher than that of 2011.

Selling, General and Administrative Expenses

Our selling, general and administration expenses decreased to $1,035,739 in the nine months ended September 30, 2011 from $1,348,185 in 2010, and decreased to $430,376 in the three months ended September 30, 2011 from $1,280,385 in 2010. The main difference is that in 2010, the Company spent more money on the merger activities.

Share Based Consulting Fee

On May 16, 2011, we issued 1,750,005 common shares to NUWA Group, LLC (“NUWA”) for services, and recorded $2,625,008 in consulting fees based on the market price $1.50 per share.  NUWA specializes in providing brokers, fund managers, institutions and the financial marketplace with investor relations for emerging growth companies in Asia and Latin America.

 
17

 

Bad debt expense
 
Bad debt expense increased to $4,668,789 and $3,261,279 for the nine months and three months ending September 30, 2011, respectively, from zero for the same periods in 2010.  The business characteristic of our industry led the accounts receivables to age longer than that of other industries, so we accrued the provision for bad debt based on aging of or outstanding receivable balances.  We will continue to monitor the collection of accounts receivables to determine if additional adjustments are appropriate in the future.
 
Income Taxes

As all of our operations are conducted in China, according to the PRC’s new Enterprise Income Tax, we are exempt from paying income taxes because we operate our business in the agriculture industry, which the government encourages and offers special incentives. We benefited from the tax exemption in both 2011 and 2010.

Net (loss) income

Net loss reported at ($2,640,775) in the nine months ended September 30, 2011 from net income $2,684,601 in 2010. Net loss increased to ($2,079,582) in the three months ended September 30, 2011 from ($186,603) in 2010.  These changes was mainly due to the increase of G&A expenses, share based consulting fee, and bad debt expense in second quarter of 2011.  The share based consulting fee of $2,625,008 affected our current profit of nine months ended September 30, 2011, but for its strategic nature, we believe our financing activities may benefit from it in the future.
 
Liquidity and Capital Resources

As of September 30, 2011, we had cash and cash equivalents of $5,633, primarily consisting of cash on hand and demand deposits. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report. To date, we have financed our operations primarily through cash flows from operations and equity contributions by our shareholders.

The following table sets forth a summary of our cash flows for the periods indicated:

   
Nine Months Ended
 
   
September 30,
 
   
2011
   
2010
 
Net cash (used in) provided by operating activities
  $ (3,774,100 )   $ 4,172,565  
Net cash provided by (used in) investing activities
    3,320,409       (3,634,681 )
Net cash provided by (used in) financing activities
    125,351       (411,798 )
Effects of Exchange Rate Change in Cash
    93,254       136,661  
Net (Decrease) Increase in Cash and Cash Equivalents
    (235,086 )     262,747  
Cash and Cash Equivalent at Beginning of the Period
    240,719       11,300  
Cash and Cash Equivalent at End of the Period
  $ 5,633     $ 274,047  

Operating activities

Net cash used in operating activities was ($3,774,100) for the nine months ended September 30, 2011, as compared to net cash provided $4,172,565 for the nine months ended September 30, 2010. The change is attributable to the increase of the accounts receivable and deferred cost.  The accounts receivable contributed ($8,249,390) to the net cash outflow, and long term growing crops inventories led to ($1,971,950) net cash outflow.

 
18

 

Investing activities

Net cash provided by investing activities for the nine months ended September 30, 2011 was $3,320,409, as compared to net cash used in investing activities of ($3,634,681) during the same period of 2010. The change is attributable to receiving repayment of unsecured advances to unaffiliated entities in 2011 for receivables made in 2010.

Financing activities

Net cash provided by financing activities for the nine months ended September 30, 2011 was $125,351 due to the repayment of amounts due from office and advances from the officer.

Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change in travel industry and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Seasonality

Our products’ growth is subject to seasonal weather conditions.  During the winter our products are mostly dormant.

Critical Accounting Policies

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the reporting periods.  Items subject to such estimates and assumptions include the carrying value and estimated useful lives of long-lived assets and the valuation allowances for receivables and for unsecured advances to unaffiliated entities.  Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

Revenue recognition

The Company recognizes sales in accordance with the United States Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”. The Company recognizes revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured.  Revenue is not recognized until title and risk of loss is transferred to the customer, which generally occurs upon delivery of goods, and objective evidence exists that customer acceptance provisions have been met.  We assess collectability at the time of the sale and if collectability is not reasonably assured, the sale is not recognized until collectability is probable or payment is received.  Deposits or advance payments from customers prior to delivery of goods and passage of title of goods are recorded as advances from customers. For sales shipments which the Company has the legal right to collect but which management estimates the full accrual method criteria have not been met, these accounts receivable are offset by a credit to deferred sales in the same amount and will be recognized as revenue when the full accrual criteria are met.

 
19

 

Accounts receivable

Accounts receivable are recognized and carried at the original invoiced amount less an allowance for any uncollectible accounts. The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receivable balances. Under the aging method, bad debts are estimated by management based on its recent experience as well as the current economic climate and are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. The valuation allowance balance is adjusted to the amount computed as a result of the aging method. When facts subsequently become available to indicate that an adjustment to the allowance should be made, this is recorded as a change in estimate in the current year.  As of September 30, 2011 and December 31, 2010, the allowance for doubtful accounts amounted to $5,661,709 and $888,844 respectively.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”.  ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required.  The ASU will affect the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”.  The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.  ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011.  The Company will adopt the ASU as required.  It will have no affect on the Company’s results of operations, financial condition or liquidity.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment.  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process.  It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.  The Company is currently evaluating the affects adoption of ASU 2011-08 may have on its goodwill impairment testing.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the Securities Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.   

 
20

 

Item 4.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Guang Zhao, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2011, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.
 
Changes in internal control over financial reporting
 
During the nine months ended September 30, 2011, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 5. Other Information

Not applicable.

 
21

 

Item 6. Exhibits

Exhibit
Number
 
Description of Exhibit
31.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
 
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS*
 
XBRL Instance Document
101.SCH*
 
XBRL Taxonomy Extension Schema Document
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith

 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
North China Horticulture, Inc.,
   
Date: November 21, 2011
/s/ Guang Zhao
 
Guang Zhao
 
Chief Executive Officer
   
Date: November 21, 2011
/s/ Guang Zhao
 
Guang Zhao
 
Chief Financial Officer
 
 
23