ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2011

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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.

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.

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.

- Definition

The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

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North China Horticulture, Inc. 10-Q