China Liaoning Dingxu Ecological Agriculture Development, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - China Liaoning Dingxu Ecological Agriculture Development, Inc.	Financial_Report.xls
EX-31.1 - CERTIFICATION - China Liaoning Dingxu Ecological Agriculture Development, Inc.	clad_ex311.htm
EX-32.2 - CERTIFICATION - China Liaoning Dingxu Ecological Agriculture Development, Inc.	clad_ex322.htm
EX-32.1 - CERTIFICATION - China Liaoning Dingxu Ecological Agriculture Development, Inc.	clad_ex321.htm
EX-31.2 - CERTIFICATION - China Liaoning Dingxu Ecological Agriculture Development, Inc.	clad_ex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE EXCHANGE ACT

For the transition period from ___________ to _____________

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC.

(Exact name of small business issuer as specified in its charter)

Commission File No. 333-170480

Nevada	80-0638212
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Room 2119 Mingyong Building, No. 60 Xian Road.

Shahekou District, Dalian, China 116021

(Address of Principal Executive Offices)

0086-13909840703

(Issuer’s telephone number)

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 the past 90 days. Yes ¨ No ý *

* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding 12 months had it been subject to such filing requirements during the entirety of such period.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý 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.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý

As of April 29, 2014 there were 46,450,000 shares of common stock of the registrant outstanding.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	F-1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3. Quantitative and Qualitative Disclosures About Market Risk	9
Item 4. Controls and Procedures	9

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	10
Item 1A. Risk Factors	10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3. Defaults Upon Senior Securities	10
Item 4. Mine Safety Disclosures	10
Item 5. Other Information	10
Item 6. Exhibits	10

SIGNATURES	11

Forward-Looking Statements

Various statements contained in this report constitute “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “plan,” “intend” or “anticipate” or the negative thereof or comparable terminology, or by discussion of strategy. Forward-looking statements represent as of the date of this report our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements and general industry and business conditions applicable to us. Such forward-looking statements are based largely on our current expectations and are inherently subject to risks and uncertainties. Our actual results could differ materially from those that are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, a number of factors, such as: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles and the other risks and uncertainties that are set forth in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the Securities and Exchange Commission (“SEC”) pursuant to the SEC's rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this report will in fact transpire.

As used in this Quarterly Report on Form 10-Q, unless the context requires or is otherwise indicated, the terms “we,” “us,” “our,” the “Registrant,” the “Company,” “our company” and similar expressions include the following entities (as defined below):

(i) China Liaoning Dingxu Ecological Agriculture Development, Inc. (“CLAD”), formerly known as

Hazlo! Technologies, Inc., a Nevada corporation;

(ii) China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (“DingXu BVI”), a wholly-owned subsidiary of CLAD;

(iii) Panjin Hengrun Biological Technology Development Co., Ltd. 盘锦恒润生物技术开发有限公司, a limited liability company organized under the laws of the People’s Republic of China and a ninety-nine percent owned subsidiary of DingXu BVI (“Panjin Hengrun”);

(iv) Liaoning Dingxu Ecological Agriculture Development Co., Ltd.辽宁鼎旭生态农业发展有限公司, a limited liability company organized under the laws of the People’s Republic of China and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”).

“China” or “PRC” refers to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan.

“RMB” or “Renminbi” refers to the legal currency of China and “$” or “U.S. Dollars” refers to the legal currency of the United States. We make no representation that the RMB or U.S. Dollar amounts referred to in this report could have been or could be converted into U.S. Dollars or RMB, as the case may be, at any particular rate or at all.

“GAAP” unless otherwise indicated refers to accounting principles generally accepted in the United States.

Item 1. Financial Statements

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(AMOUNTS EXPRESSED IN US DOLLARS)

	As of		As of
	March 31, 2014 (Unaudited)		December 31, 2013
ASSETS

Cash and cash equivalents		1,220,407		11,797
Inventories		105,747		103,913
Advances to suppliers		85,104		82,195
Other receivables, net		-		166,310
Other current assets		89,373		90,182
Total Current Assets		1,500,631		454,397

Property and equipment, net		10,733,368		11,015,908
Construction in progress		888,395		896,438
Land use right		5,610,597		5,721,651
Prepaid lease for land		1,792,246		1,836,789
Total Assets	$	20,525,237	$	19,925,183

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Account payable		3,806		3,842
Accrued expenses		18,977		18,539
Other payable		653		1,148
Due to related parties		2,185,152		2,181,401
Total Current Liabilities		2,208,588		2,204,930

Long term payable		1,548,644		1,548,644

Total Liabilities		3,757,232		3,753,574

Stockholders' Equity:

Common stock ($0.001 par value; 75,000,000 shares authorized; 46,450,000 and 46,450,00 shares issued and outstanding at March 31, 2014 and December 31, 2013)		46,450		46,450
Additional paid-in capital		8,576,709		8,533,116
Retained earnings		7,254,072		6,499,673
Accumulated other comprehensive income		725,242		933,042
Non-controlling interests		165,532		159,328
Total Stockholders' Equity		16,768,005		16,171,609

Total Liabilities and Stockholders' Equity	$	20,525,237	$	19,925,183

See accompanying notes to unaudited consolidated financial statements

F-1

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(AMOUNTS EXPRESSED IN US DOLLARS)

(Unaudited)

	The three months ended			The three months ended
	March 31, 2014			March 31, 2013

NET REVENUES	$	3,447,548		$	3,348,006

COST OF REVENUES		1,235,343			1,535,050

GROSS PROFIT		2,212,205			1,812,956

OPERATING EXPENSES:
Depreciation and amortization		187,469			174,038
Bad debt		1,141,225			-
General and administrative		93,590			59,842
Total Operating Expenses		1,422,284			233,880

INCOME FROM OPERATIONS		789,921			1,579,076

OTHER INCOME (EXPENSE):
Interest expense		(43,648	)		(106,043	)
Other income		16,426			-

INCOME BEFORE PROVISION FOR INCOME TAX		762,699			1,473,033

PROVISION FOR INCOME TAXES		-			-

NET INCOME (LOSS) BEFORE NON-CONTROLLING INTERESTS	$	762,699		$	1,473,033

LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		8,300			15,132

NET INCOME (LOSS)	$	754,399		$	1,457,901

OTHER COMPREHENSIVE INCOME:
Unrealized foreign currency translation gain(loss)		(209,899	)		37,391

LESS: OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		(2,099	)		314

COMPREHENSIVE INCOME	$	546,599		$	1,494,978

NET INCOME PER COMMON SHARE:
Basic	$	0.02		$	0.03
Diluted	$	0.02		$	0.03

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		46,450,000			48,005,556
Diluted		46,450,000			48,005,556

See accompanying notes to unaudited consolidated financial statements

F-2

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS EXPRESSED IN US DOLLARS)

(Unaudited)

	For the three months Ended
	March 31,
	2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		754,399			1,457,901
Net income attributable to non-controlling interests		8,300			15,132
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt		1,141,225			-
Depreciation and amortization		228,486			218,792
Imputed interest		43,596			105,942
Changes in assets and liabilities:
Inventories		(1,834	)		63,547
Other receivables		166,310			8,662
Other current assets		809			(786	)
Prepaid expense		41,634			9,582
Accounts payable and accrued liabilities		173,058			(1,410,235	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		2,555,983			468,537

CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to related parties		(1,141,225	)		-
NET CASH USED IN INVESTING ACTIVITIES		(1,141,225	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related parties		30,989			-
Proceeds to related parties		(27,238	)		(8,944	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		3,751			(8,944	)

EFFECT OF EXCHANGE RATE ON CASH		(209,899	)		37,391

NET INCREASE IN CASH AND CASH EQUIVALENTS		1,208,610			496,984

CASH AND CASH EQUIVALENTS - beginning of period		11,797			21,245

CASH AND CASH EQUIVALENTS - end of period		1,220,407			518,229

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cancellation of common shares by shareholder		-			20,000

See accompanying notes to unaudited consolidated financial statements

F-3

CHINA LIAONING DINGXU ECOLOGICAL AGRICULTURE DEVELOPMENT INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2014

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

China Liaoning Dingxu Ecological Agriculture Development Inc. (the "Company") was incorporated under the laws of State of Nevada on August 19, 2010. The Company is primarily engaged in the growing, marketing, producing and selling of agriculture products in People’s Republic of China (“PRC”).

On December 12, 2011, the Company entered a Share Exchange Agreement with DingXu BVI Shareholder (Chin Yung Kong) under which the Company issued 60,000,000 shares of common stock to Chin Yung Kong to acquire 100% of the issued and outstanding shares of DingXu BVI.

China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (“DingXu BVI”) was incorporated under the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.

On July 5, 2011, DingXu BVI formed Panjin Hengrun Biological Technology Development Co, Ltd., a limited liability company organized under the laws of the PRC (“Panjin Hengrun”). DingXu BVI owns 99% of the total ownership of Panjing Hengrun.

On November 28, 2011, Panjin Hengrun entered into a set of contractual arrangements with Liaoning Dingxu Ecological Agriculture Development Co., Ltd., a limited liability company organized under the laws of the PRC and an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). The contractual arrangements are comprised of a series of agreements, including a Consulting Service Agreement and an Operating Agreement, through which Panjin Hengrun has the right to advise, consult, manage and operate Liaoning Dingxu and to collect and own all of Liaoning Dingxu’s net profits and net losses. Additionally, under a Proxy Agreement, the shareholders of Liaoning Dingxu have vested their voting control over Liaoning Dingxu to Panjin Hengrun. In order to further reinforce Panjin Hengrun’s rights to control and operate Liaoning Dingxu. Liaoning Dingxu and its shareholders have granted Panjin Hengrun, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in Liaoning Dingxu, or, alternatively, all of the assets of Liaoning Dingxu. Further, the shareholders of Liaoning Dingxu agreed to pledge all of their rights, titles and interests in Liaoning Dingxu under an Equity Pledge Agreement.

Upon entry of these contractual arrangements, Liaoning Dingxu became the Variable Interest Entity (“VIE”) of Panjin Hengrun pursuant to ASC-810-10-05 and Panjin Hengrun was able to carry out business operations through Liaoning Dingxu.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The company maintains its books and accounting records in Renminbi (“RMB”), and its reporting currency is United States dollars.

ACCOUNTING METHOD

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.

USE OF ESTIMATES

The preparation of financial statements in conformity with US GAAP 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. The Company had cash balances of $1,220,407 and $11,797 as of March 31, 2014 and December 31, 2013, respectively. The Company had no cash equivalent as of March 31, 2014 and December 31, 2013.

INVENTORIES

Inventories are stated at the lower of cost or market value. Cost is determined using moving weighted average method. Inventories consist of raw materials, finished goods and growing crops. Cost of finished goods comprises direct material and direct production cost based on normal operating capacity.

F-4

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:

Building	20 years
Plant equipment	5-10 years
Office equipment	3-5 years
Vehicles	4 years

Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises original cost of plant and equipment, installation, construction and other direct costs prior to the date of reaching the expected usable condition. Construction in progress is transferred to the property, plant and equipment and depreciation commences when the asset has been substantially completed and reaches the expected usable condition.

LAND USE RIGHTS

The Company states land use right at cost less accumulated amortization. The land use right is amortized on straight line method during the contract period.

The Company has land use rights to 24,806 square meters of land. The term of the land use rights is 50 years, starting in March 2011. The land use right in the amount of $579,580 was fully paid during 2011. For the three months ended March 31, 2014 and 2013, the Company recorded amortization expense of $2,979 and $2,913, respectively. The Company recorded the land use right net value of $557,987 and $566,028 as of March 31, 2014 and December 31, 2013, respectively.

The Company has land use rights to 56,139 square meters of land. The term of the land use rights is 46 years, starting in March 2011. The land use right in the amount of $2,698,027 was fully paid during 2013. For the three months ended March 31, 2014 and 2013, the Company recorded amortization expense of $14,913 and $14,553, respectively. The Company recorded the land use right net value of $2,585,327 and $2,623,698 as of March 31, 2014 and December 31, 2013, respectively.

The Company has land use rights to 428,214 square meters of land. The term of the land use rights is 18 years, starting in January 2012. For the three months ended March 31, 2014 and 2013, the Company recorded amortization expense of $39,133 and $38,404, respectively. The Company recorded the land use right net value of $2,467,283 and $2,531,925 as of March 31, 2014 and December 31, 2013, respectively. As the land use right was not yet fully paid for as of March 31, 2014, the Company recorded long term liabilities related to this land use right in the amount of $1,548,644 and $1,548,644 as of March 31, 2014 and December 31, 2013, respectively.

LONG TERM PREPAID LEASE

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

The Company records lease payments at cost less accumulated rent. The Company entered into a long term agreement with certain unrelated parties to rent land in 2010. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years beginning at January 1, 2010. The lease payments for the entire contract period of $1,030,000 were prepaid. For the three months ended March 31, 2014 and 2013, the Company recorded lease expense of $13,980 and $13,643, respectively.

The Company entered into a long term agreement with certain unrelated parties to rent land in 2013. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 17 years beginning at December 25, 2013. The lease payments for the entire contract period $984,107 were prepaid. For the three months ended March 31, 2014 and 2013, the Company recorded lease expense of $13,621 and $nil, respectively.

REVENUE RECOGNITION

The Company engages in the business of growing, producing, marketing and selling fresh mushrooms, dried mushrooms, and mushroom seeds through its affiliated VIE, LiaoNing DingXu.

Sales revenue is recognized at the date of shipment from the Company’s facilities to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, ownership has passed, no other significant obligations of the Company exist and collectability is reasonably assured.

The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).

F-5

FAIR VALUE OF FINANCIAL INSTRUMENTS

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no other items that required fair value measurement on a recurring basis.

BASIC AND DILUTED 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 periods presented, there were no outstanding potential common stock equivalents and therefore basic and diluted earnings per share result in the same figure.

STOCK-BASED COMPENSATION

The Company adopted FASB guidance on stock based compensation upon inception on September 9, 2010. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company did not issue any share-based payments for services or compensation to employees, or otherwise for the periods presented.

TAXATION

Taxation on profits earned in the PRC has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC where the Company operates after taking into account the benefits from any special tax credits or “tax holidays” allowed in the county of operations.

The Company does not accrue United States income tax since it has no operating income in the United States. The operating subsidiary is organized and located in the PRC and does not conduct any business in the United States.

Enterprise income tax

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the operating subsidiary is exempted from enterprise income tax from 2010 to 2014. Accordingly, the Company statutory rate was 0% and 0% for the three months ended March 31, 2014 and 2013, respectively.

Value added tax

The Provisional Regulations of The PRC concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT from 2010 to 2014.

FOREIGN CURRENCY TRANSLATION

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries and variable interest entities is the RMB. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

In accordance with ASC Topic 230, cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.

F-6

NEW ACCOUNTING PRONOUNCEMENTS

In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

NOTE 3. ADVANCES TO SUPPLIER

Advance to supplier was mainly used to record the advance paid as deposit on raw materials being purchased. Advance to supplier at March 31, 2014 and December 31, 2013 consists of the following:

	March 31, 2014		December 31, 2013

Au Rui Jin Packaing Co., LTD	$	40,474	$	40,840
Chaoyang Co., LTD		32,509		32,804
Others		12,121		8,551
		85,104		82,195

NOTE 4. RECEIVABLES

Receivables consisted of account receivable due from sales of mushroom products and advances made to Company employee for future business related expenses, balance as of March 31, 2014 and December 31, 2013 are as following:

	March 31, 2014		December 31, 2013

Account receivable	$	-	$	150,832
Employee advances		-		15,478
		-		166,310

NOTE 5. INVENTORIES

Inventories consist of raw materials, finished goods, growing crops and others.

Raw materials that were not put into production as of period end were stated at the lower of cost or market.

F-7

As fresh mushrooms were perishable goods, finished goods consist of dried mushrooms at period end.

Growing crops consist of expenditures valued at the lower of cost or market and are deferred and charged to cost of goods sold when the related crop is harvested and sold. The deferred growing costs included in inventories in the consolidated balance sheets consist primarily of raw material of the crops, direct labor, depreciation of fixed assets used directly in growing, land lease payment for the field used to grow crops, and utilities used in the production site. Cost included in growing crops related to the current crop year.

Inventories at March 31, 2014 and December 31, 2013 consisted of the following:

	March 31, 2014		December 31, 2013

Raw materials and supplies	$	7,833	$	8,145
Growing crops		95,050		91,860
Others		2,864		3,908
		105,747		103,913

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment at March 31, 2014 and December 31, 2013 consists of the following:

	March 31, 2014		December 31, 2013

Building	$	11,594,445	$	11,699,426
Plant		564,423		569,533
Vehicles		34,096		34,405
Office equipment		75,178		75,857
		12,268,142		12,379,221

Less: Accumulated depreciation		1,534,774		1,363,313
Property, plant and equipment, net		10,733,368		11,015,908

For the three months ended March 31, 2014 and 2013, the Company recorded depreciation expense of $171,461 and $162,598, respectively.

NOTE 7. CONSTRUCTION IN PROGRESS

Construction in progress activities for the period ended March 31, 2014 and December 31, 2013 as following:

	March 31, 2014		December 31, 2013
The beginning balance:
Greenhouse and planting structures	$	145,237	$	354,943
Factory workshop		751,201		728,661
		896,438		1,083,604
Activities:
Add : Investment this year		-		-
Unrealized foreign currency translation gain		(8,043)		33,521
Less: Transfer to fixed assets				(220,687)
		(8,043)		(187,166)
The ending balance:
Greenhouse and planting structures		143,934		145,237
Factory workshop		744,461		751,201
		888,395		896,438

F-8

NOTE 8. RELATED PARTY TRANSACTIONS

Due to related parties: The total amount due to related parties consisted of borrowing from certain shareholders to purchase land use rights, to build greenhouses and planting structures, and to pay for professional services. The balance was $2,185,152 and $2,181,401 as of March 31, 2014 and December 31, 2013, respectively.

During the three months ended March 31, 2014, the Company advanced a loan in the amount of $1,141,225 to the director of the Company’s operating VIE, Liaoning Dingxu. This loan has no stated term of repayment or interest rate. The Company conservatively recorded a full allowance for the loan and recorded bad debt expenses of $1,141,225 as of March 31, 2014

Imputed interest: Certain stockholders advanced funds to the Company with no stated interest rate. The interest is imputed at 8% annually. The Company recorded imputed interest in the amount of $43,596 and $105,942 for the three months ended March 31, 2014 and 2013, respectively.

NOTE 9. COMMON STOCK

During the years ended December 31, 2013 and 2012, the Company recorded imputed interest on outstanding due to related parties balance as a contribution of paid-in capital in the amount of $43,596 and $105,942, respectively.

On January 8, 2013, majority shareholder, Chin Yung Kong, cancelled 20,000,000 common shares.

The Company’s capitalization is 75,000,000 common shares with a par value of $0.001 per share. There are a total of 46,450,000 common shares issued and outstanding both at March 31, 2014 and December 31, 2013. No preferred shares have been authorized or issued. The Company has not granted any stock options and has not recorded any stock-based compensation since inception.

NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

The following table provides a summary of the fair values of assets and liabilities as of March 31, 2014:

Fair Value Measurements at

Balance as of March 31, 2014

Level 1

Level 2

Level 3

The following table provides a summary of the fair values of assets and liabilities as of December 31, 2013:

Fair Value Measurements at

Balance as of December 31, 2013

Level 1

Level 2

Level 3

F-9

NOTE 11. NON-CONTROLLING INTEREST

Non-controlling interest represents the 1% interest in the subsidiaries. The net income, unrealized foreign currency translation gain and imputed interest attributable to the non-controlling interest total $6,204 and $15,446 for the three months ended March 31, 2014 and 2013, respectively. The Company recorded $165,532 and $159,328 non-controlling interest as of March 31, 2014 and December 31, 2013, respectively.

NOTE 12. COMMITMENT AND CONTINGENCIES

The Company had a long term payable for the acquisition of a land use right. Based on the contract agreement, the future minimum rental payments required for the coming years are as follows:

Years ending December 31:
2019		16,544
2020		153,210
2021		153,210
2022		153,210
2023		153,210
Remaining payments		919,260
Total future minimum payments	$	1,548,644

Besides the long term payable for land use right, the Company will make payment to shareholders time to time.

There are no payments due for the years 2014 through 2018 due to the fact that the Company prepaid the amount due.

The Company did not have other significant capital commitments, or significant guarantees as of March 31, 2014 and December 31, 2013, respectively.

NOTE 13. CONCENTRATION

For the three months ended March 31, 2014, seven of the Company’s customers accounted for 100% of revenues. Each of the seven customers had sales range from 12% - 21%.

For the year ended December 31, 2013, seven of the Company’s customers accounted for 100% of revenues. Each of the seven customers had sales range from 12% - 20%. As of December 31, 2013, six of the Company’s customers accounted for approximately 95% of the accounts receivable balance. Each of the six customers had an account receivable balance range from 10% - 17%. An adverse change in the Company’s relationship with these customers could negatively affect the Company’s revenues and their results of operations.

NOTE 14. BUSINESS COMBINATION

China Liaoning DingXu Ecological Agriculture Development Co, Ltd., a BVI company (the “DingXu BVI”) was incorporated under the laws of British Virgin Islands on April 15, 2011. Chin Yung Kong was the sole shareholder and director of DingXu BVI.

On November 28, 2011, Panjin Hengrun entered into a set of contractual arrangements with Liaoning Dingxu Ecological Agriculture Development Co., Ltd., a limited liability company organized under the laws of the PRCand an affiliated entity of Panjin Hengrun through contractual arrangements (“Liaoning Dingxu”). The contractual arrangements are comprised of a series of agreements, including a Consulting Service Agreement and an Operating Agreement, through which Panjin Hengrun has the right to advise, consult, manage and operate Liaoning Dingxu to collect and own all of Liaoning Dingxu’s net profits and net losses. Additionally, under a Proxy Agreement, the shareholders of Liaoning Dingxu have vested their voting control over Liaoning Dingxu to Panjin Hengrun. In order to further reinforce Panjin Hengrun’s rights to control and operate Liaoning Dingxu. Liaoning Dingxu and its shareholders have granted Panjin Hengrun, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in Liaoning Dingxu, or, alternatively, all of the assets of Liaoning Dingxu. Further, the shareholders of Liaoning Dingxu agreed to pledge all of their rights, titles and interests in Liaoning Dingxu under an Equity Pledge Agreement.

Upon entry of these contractual arrangements, Liaoning Dingxu became the Variable Interest Entities (“VIE”) of Panjin Hengrun pursuant to ASC-805-10-05 and Panjin Hengrun was able to carry out business operations through Liaoning Dingxu.

Per ASC-805-50-45,”Transactions Between Entities Under Common Control”, the presentation of the financial statements pertain to financial statements of all consolidating subsidiaries for the period January 1, 2013 through December 31, 2013 for fiscal year 2013, January 1, 2013 through March 31, 2013 for the first three month of 2013, and for the period January 1, 2014 through March 31, 2014 for first three months of 2014.

NOTE 15. SUBSEQUENT EVENTS

The Company has performed an evaluation of subsequent events in accordance with ASC Topic 855 and the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

F-10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

We mainly engage in the business of growing mushrooms and marketing, producing and selling mushrooms and related agricultural products through our affiliated VIE Liaoning Dingxu.

We mainly produce and sell three types of products:

(1) Fresh mushrooms. We grow fresh mushrooms in our greenhouses and sell them to stores that sell products directly to individual customers. Our fresh mushrooms include oyster mushrooms, king oyster mushrooms, shiitake mushrooms, king trumpet mushrooms and button mushrooms.

The revenues from the sales of fresh mushrooms constitute approximately 62% and 62% of our total revenues in the first three months of 2014 and 2013, respectively.

(2) Mushroom seeds. We sell mushroom seeds to farmers in the form of stick shaped containers filled with fertilizers on which the mushrooms grow and bottles of mushroom seeds which are also used to grow mushrooms.

The revenues from the sales of mushroom seeds was approximately 10% and 11% of our total revenues in the first three months of 2014 and 2013, respectively.

(3) Dried Mushrooms. We dry and package fresh mushrooms and sell them to stores that sell products directly to individual customers. Our dried mushrooms include eryngii mushrooms, white mushrooms, jade mushrooms, white king oyster mushrooms and ganoderma.

The revenue from the sales of dried mushrooms was approximately 28% and 27% of our total revenues in the first three months of 2014 and 2013, respectively.

SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.

Inventories

Property, Plant and Equipment

Building	20 years
Plant equipment	5-10 years
Office equipment	3-5 years
Vehicles	4 years

Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

Land Use Rights

The Company states land use right at cost less accumulated amortization. The land use right is amortized on straight line method during the contract period.

Long Term Prepaid Lease

The Company records lease payments at cost less accumulated rent.

Revenue Recognition

The Company engages in the business of growing, producing, marketing and selling fresh mushrooms, dried mushrooms, and mushroom seeds through its affiliated VIE, LiaoNing DingXu.

The Company’s revenue consists of the invoiced value of goods, net of value-added tax (“VAT”).

Fair Value of Financial Instruments

Basic and Diluted Loss Per Share

Stock-Based Compensation

Taxation

Enterprise income tax

Value added tax

In accordance with the relevant tax laws in the PRC, as an agriculture growing enterprise, the Company is exempted from VAT from 2010 to 2014.

Foreign Currency Translation

Accumulated and Other Comprehensive Income

Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.

FINANCIAL CONDITION

Current assets:

1. Inventory

Inventories consist of raw materials, finished goods, growing crops and others. The balance of inventories at March 31, 2014 and December 31, 2013 consists of the following:

	March 31, 2014		December 31, 2013

Raw materials and supplies	$	7,833	$	8,145
Growing crops		95,050		91,860
Others		2,864		3,908
		105,747		103,913

The balance of raw materials, growing crops and others have no significant changes.

2. Property, plant and equipment and Construction in progress

Property, Plant and Equipment consists of the following:

	March 31, 2014		December 31, 2013
Building	a	11,594,445	a	11,699,426
Plant equipment	b	564,423	b	569,533
Vehicles	c	34,096	c	34,405
Office equipment	d	75,178	d	75,857
Less: Accumulated depreciation	e	1,534,774	e	1,363,313
Property, plant and equipment, net		10,733,368		11,015,908
Construction in progress	f	888,395	f	896,438
Total property, plant & equipment		11,621,763		11,912,346

a. The building mainly represented the greenhouses, manufacturing workshops, warehouse, office building and supporting facilities, most of which were transferred from the construction in progress (CIP). The decrease in the first three months of 2014 resulted from the unrealized foreign currency translation loss as the exchange rate changed.

b. The plant equipment represented the production equipment purchased from third parties. The decrease in the first three months of 2014 resulted from the unrealized foreign currency translation loss as the exchange rate changed.

c. The vehicles were the trucks for transporting raw materials or finish goods. The decrease in the first three months of 2014 resulted from the unrealized foreign currency translation loss as the exchange rate changed.

d. The office equipment represented for office computers, printers, desks and other office appliances. The decrease in the first three months of 2014 resulted from the unrealized foreign currency translation loss as the exchange rate changed.

e. For the three months ended March 31, 2014 and 2013, the Company recorded depreciation expense of $171,461 and $162,598, respectively.

f. The detailed information of the construction projects in progress which was not yet transferred to fixed assets is below:

	March 31, 2014		December 31, 2013
Factory workshop		744,461		751,201
Greenhouse and Planting structures		143,934		145,237
Total amount of CIP		888,395		896,438

3. Land use right

The land use right was used to build up greenhouses and planting structures, manufacturing workshops and other buildings. As of March 31, 2014 and December 31, 2013, the net values of land use rights were $5,610,597 and $5,721,651, respectively.

For the three months ended March 31, 2014 and 2013, amortization expense amounted to $57,025 and $55,870, respectively.

4. Long-term prepaid lease

The Company entered into a long term agreement with certain unrelated parties to rent land in 2010. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 20 years began at January 1, 2010. The lease payments for the entire contract period totaled $1,030,900.

The Company entered into a long term agreement with certain unrelated parties to rent land in 2013. The lease payments are recorded as operating lease expenses using the straight line method during the contract period of 17 years began at December 25, 2013. The lease payments for the entire contract period totaled $984,107.

Lease expense of $27,601 and $13,643 were recorded for the three months ended March 31, 2014 and 2013, respectively.

Liabilities:

5. Due to related parties

The amount due to related parties consisted of the borrowing from shareholders used mainly to purchase the land use rights and to build greenhouses and planting structures. As of March 31, 2014 due to related parties balance increased by $3,751 as compared to December 31, 2013 resulting from advances made by related parties to the Company in the amount of $30,989 to pay for business expenses and repayment made to related parties in the amount of $27,238.

The borrowings from related parties had no stated interest rate. The Company imputed interest at 8% annually. The Company recorded imputed interest of $43,596 and $105,942 for the three months ended March 31, 2014 and 2013, respectively. The imputed interest was reflected in the statement of income and comprehensive income as interest expenses with a corresponding contribution of paid-in capital and non-controlling interests.

6. Long term payable

The Company had a long term payable for the acquisition of land use right. Based on the contract agreement, the future minimum rental payments required for the coming years are as follows:

Years ending December 31:
2019		16,544
2020		153,210
2021		153,210
2022		153,210
2023		153,210
Remaining payments		919,260
Total future minimum payments	$	1,548,644

Shareholders’ equity

7. Shareholders’ Equity

The shareholders’ equity changed by net income for the three months ended March 31, 2014, unrealized foreign currency translation loss and imputed interest on the borrowing from shareholders.

Results of Operations for the three months ended March 31, 2014 and 2013

1. Revenue

The following table sets forth the breakdown of our revenue for the three months ended March 31, 2014 and 2013, respectively:

	2014		2013
Fresh Mushrooms		2,142,407		2,080,603
Mushroom seeds		357,804		347,469
Dried mushrooms		947,337		919,934
Net revenue		3,447,548		3,348,006

We derived our revenues predominantly from sales of our mushroom products. For the three months ended March 31, 2014 and 2013, net revenues were $3,447,548 and $3,348,006, respectively, representing an increase of $99,542.

Revenue from sales of fresh mushrooms increased $61,804 resulting from increase in production capacity as more greenhouses were completed during 2013.

Revenue from sales of mushroom seeds increased $10,335, representing an increase of approximately 3%. The increase represented a normal operational fluctuation.

Revenue from sales of dried mushrooms increased $27,403, resulting from an increase in sales volume of 14% and a decrease in sales price of 9% as we engaged in growing our market share through moderate price reduction.

2. Cost of revenue

The following table presents a breakdown of our cost of revenue of our mushroom products for the three months ended March 31, 2014 and 2013.

	2014		2013

Cost of fresh mushroom sales		903,540		1,215,048

Cost of mushroom seed sales		138,632		150,066

Cost of dried mushroom sales		193,171		169,936

Total		1,235,343		1,535,050

For the three months ended March 31, 2014 and 2013, cost of fresh mushroom sales were $903,540 and $1,215,048, respectively, representing a decrease of $311,508. The decrease in cost was mainly related to a decrease in in-house manufacturing cost as we improved our production skill.

For the three months ended March 31, 2014 and 2013, cost of mushroom seed sales were $138,632 and $150,066, respectively, representing a decrease of $11,434. The decrease in cost was also mainly related to decrease in in-house manufacturing cost with improved production skill.

For the three months ended March 31, 2014 and 2013, cost of dried mushroom sales were $193,171 and $169,936, respectively, representing an increase of $23,235. The increase in cost was consistent with the increase in sales volume of dried mushrooms in the first quarter of 2014.

3. Gross profit

The following table presents the gross profit of our businesses for the three months ended March 31, 2014 and 2013:

Production Category	2014		2013

Fresh mushrooms sales		1,238,867		865,555

Mushroom crops and seeds sales		219,172		197,403

Dried Mushroom sales		754,166		749,998

Total gross profit		2,212,205		1,812,956

Gross profit from our mushroom growing business increased $399,249 for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Gross profit of our fresh mushrooms and mushroom seeds increased $395,081. The increase primarily resulted from an increase in production and sales volume and reduction in manufacturing cost due to improvement in our production skill. We completed additional new greenhouses during 2013, which allowed us to further expand our business and to improve our production skill. The gross profit of dried mushrooms increased $4,168 mainly resulting from the effects of an increase in sales volume of 14% and a decrease in sales price of 9% as we engaged in growing our market shares through moderate price reduction.

4. Depreciation and amortization

For the three months ended March 31, 2014, our depreciation and amortization was $187,469, representing an increase of $13,431 compared to the three months ended March 31, 2013. The increase was primarily a result of increased fixed assets transferred from CIP in fourth quarter of 2013.

5. Bad debt

The bad debt represented an allowance for doubtful receivable accounts. For the three months ended March 31, 2014, our bad debt was $1,141,225, representing an increase of $1,141,225 compared to the three months ended March 31, 2013 resulting from the total $1,141,225 loan due from the VIE shareholder that was written off.

6. Other income

Other income is used to record the Company’s non-operating income, such as government grants and adjustments of allowance for doubtful receivable accounts. For the three months ended March 31, 2014, the other income was $16,426, representing an increase of $16,426 compared to the three months ended March 31, 2013 because the Company collected $16,426 other receivable which was reserved as allowance for doubtful account.

7. Income taxes

In accordance with the relevant tax laws, the Company statutory rate was 0% and 0% for the three months ended March 31, 2014 and 2013, respectively.

Liquidity and Capital Resources:

To date, our operations have been funded by contributions from “due to related parties” and the net cash provided by operations. As a result, at March 31, 2014 we had current assets of $1,500,631 and current liabilities of $2,208,588. Current liabilities mainly consisted of the $2,185,152 due to related parties and other payables and accrued expenses. We had a working capital deficit of $707,957 as of March 31, 2014. Therefore, there is a liquidity risk for the coming period. Although we believe management will continue to fund the Company on an as needed basis, we do not have a written agreement requiring such funding. For the due to related party, the shareholders promised that they would not demand repayment from the Company with in next fiscal year.

We believe that our operations will provide sufficient net cash to fund our business for the next 12 months. During the three months ended March 31, 2014, we had net income before non-controlling interest of $762,699 and cash provided by operating activities of $2,555,983. Over the long term, our expectation is to see steadily growing sales of our mushroom products as we continue to invest in and to develop our mushroom planting greenhouses, structures, and workshops, and begin to manufacture processed products such as canned mushrooms and mushroom drinks resulting from our investment in manufacturing equipment and increase the number of categories and total quantities of our products.

Cash flow for the three months ended March 31, 2014 and 2013

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2014 was $2,555,983, which was primarily due to (i) net income before non-controlling interests of $762,699, (ii) depreciation and amortization of fixed assets and land use rights in the amount of $228,486, (iii) bad debt of $1,141,225, (iv) imputed interest of $43,596 and (v) a total increase of $379,977 in assets and liabilities.

Net cash provided by operating activities for the three months ended March 31, 2013 was $468,537 which was primarily due to (i) net income before non-controlling interests of $1,473,033, (ii) depreciation and amortization of fixed assets and land use rights in the amount of $218,792, (iii) imputed interest of $105,942 and (iv) a total decrease of $1,329,230 in assets and liabilities.

Investing Activities

Net cash used in investing activities was $1,141,225 for the three months ended March 31, 2014, which was primarily attributable to the loan to the director of our VIE.

Financing activities

Net cash provided by financing activities was $3,751 for the three months ended March 31, 2014, which was mainly attributable to advances made by related parties to the Company in the amount of $30,989 to pay for business expenses and repayment made to related parties in the amount of $27,238.

Net cash used in financing activities was $8,944 for the three months ended March 31, 2013, which was mainly attributable to the $8,944 repayment made to related parties.

Impact of inflation

We are subject to commodity price risks arising from price fluctuations in the market prices of the raw materials. We have generally been able to pass on cost increases through price adjustments. However, the ability to pass on these increases depends on market conditions influenced by the overall economic conditions in China. We manage our price risks through productivity improvements and cost-containment measures. We do not believe that inflation risk is material to our business or our financial position, results of operations or cash flows.

Impact of foreign currency fluctuations

The reporting currency of the Company is the U.S. dollar. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Financial Instruments

We have not used any financial instruments to manage funding or treasury since our inception.

Commitments for Capital Expenditures

We have no commitments for capital expenditures. For our business, we plan to obtain land use rights to more farmland and build additional greenhouses to expand our mushroom farms and increase the production of our fresh mushrooms. We have purchased, installed and tested equipment to be used in the production of dried-processed mushroom products, such as canned mushrooms and mushroom drinks. Our production of mushrooms is not sufficient to begin production of such products. We intend to begin production as soon as we purchase additional mushrooms and hire additional employees.

Research and Development

We have not incurred any research and development expenses since our inception.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for a Smaller Reporting Company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. 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 a company have been detected.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2014 in ensuring that information required to be disclosed by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the Exchange Act rules and forms due to the material weakness described below. As a result, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, management believes the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Material Weaknesses

Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2013. In making the assessment, management used the framework in “Internal Control –Integrated Framework” promulgated in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on that assessment, our principal executive officer and principal financial and accounting officer concluded that our internal control over financial reporting was not effective as of December 31, 2013 because a material weakness existed in our internal control over financial reporting related to the classification of certain costs and expenses.

As a result, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, management believes the consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. This quarterly report on Form 10-Q does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Description of Material Weaknesses at December 31, 2013

In 2013 the Company had pervasive material weaknesses existed in our internal control over financial reporting. Specifically, the Company does not have an independent board of directors or audit committee or adequate segregation of duties. All of our financial reporting is carried out by our financial consultant. We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company.

Remediation of Material Weakness

The Company intends to establish the following remediation efforts:

(1)	Commence a process and procedure to locate, and nominate for election to the Company’s board of directors, independent directors, including at least one individual qualified to be an audit committee financial expert;

(2)	At such time as independent directors are elected to the Company’s board of directors, establish an independent audit committee;

(3)	Commence a process and procedure to locate and hire qualified individuals to act as Chief Financial Officer and/or Chief Accounting Officer; and

(4)

Under the supervision of the Audit Committee and with the assistance of the Chief Executive Officer and Chief Financial Officer procure the resources, appoint additional personnel and establish the procedures necessary to produce Internal Controls over Financial Reporting that will be effective as evaluated under the framework in “Internal Control – Integrated Framework” promulgated in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.

Conclusion

We believe the measures described above will remediate the material weaknesses we have identified and will continue to strengthen our internal controls over financial reporting. We are committed to continually improving our internal control processes and will diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal controls over financial reporting, we may determine that additional measures are necessary to address control deficiencies. Moreover, we may decide to modify certain of the remediation measures described above.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the first quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any legal proceedings and nor are we aware of any proceedings threatened against us.

Item 1A. Risk Factors

Not required for Smaller Reporting Company.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.		Description

31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (6)

31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (6)

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)

101***		The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.
		101.INS**** XBRL Instance
		101.SCH*** XBRL Taxonomy Extension Schema
		101.CAL*** XBRL Taxonomy Extension Calculation
		101.DEF*** XBRL Taxonomy Extension Definition
		101.LAB*** XBRL Taxonomy Extension Labels
		101.PRE*** XBRL Taxonomy Extension Presentation

*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

In accordance with 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.

May 15, 2014	China Liaoning Dingxu Ecological Agriculture Development, Inc.

	By:	/s/ Chin Yung Kong
		Chin Yung Kong Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer (Principal Executive, Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (6)

31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (6)

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)

101***		The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.
		101.INS**** XBRL Instance
		101.SCH*** XBRL Taxonomy Extension Schema
		101.CAL*** XBRL Taxonomy Extension Calculation
		101.DEF*** XBRL Taxonomy Extension Definition
		101.LAB*** XBRL Taxonomy Extension Labels
		101.PRE*** XBRL Taxonomy Extension Presentation

China Liaoning Dingxu Ecological Agriculture Development, Inc. - FORM 10-Q - May 15, 2014

Attached files

China Liaoning Dingxu Ecological Agriculture Development, Inc. Reports