U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

[xX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~November~~February 3028, ~~2014~~2015

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 0-54843

CHINA TIANFEIHONG WINE, INC.

(Name of Registrant in its Charter)

~~Delaware~~	Delaware	~~99-0360626~~	99-0360626
(State of Other Jursidiction of incorporation or organization)		(I.R.S. Employer I.D. No.)
	(State of Other Jurisdiction of incorporation or organization)		(I.R.S. Employer I.D. No.)

1849 Licheng Middle Avenue, Longqiao Street, Chengxiang District

Putian City, Fujian Province, P.R. China 351100

(Address of Principal Executive Offices)

Issuer's Telephone Number: 86-~~0594~~1359-~~6258386~~9873098

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 [xX] 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 period that the registrant was required to submit and post such files.) Yes [xX] No [ ]

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

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 ~~Smaller~~ [ ] Smaller reporting company [xX]

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

~~January~~April 820, 2015

Common Voting Stock: 34,396,680

CHINA TIANFEIHONG WINE, INC.

QUARTERLY report on Form 10-Q

for the fiscal QUARTER ended ~~NOVEMBER~~FEBRUARY 3028, ~~2014~~2015

Table of Contents

		Page No
Part I	Financial Information	Page No.
Part I	Financial Information
Item 1	Financial Statements (unaudited):
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets – February 28, 2015 and August 31, 2014	1
	Consolidated Balance Sheets – November 30, 2014 and August 31, 2014	1
	Consolidated Statements of Income and Other Comprehensive Income - for the Three and Six Month Periods Ended February 28, 2015 and 2013	2
	Consolidated Statements of Income and Other Comprehensive Income - for the Three Month Periods Ended November 30, 2014 and 2013	2
	Consolidated Statements of Changes in Stockholders’ Equity – for the Six Months Ended February 28, 2015	3
	Consolidated Statements of Changes in Stockholders’ Equity – for the Three Months Ended November 30, 2014	3
	Consolidated Statements of Cash Flows – for the Six Months Ended February 28, 2015 and 2013	4
	Consolidated Statements of Cash Flows – for the Three Months Ended November 30, 2014 and 2013	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2022
Item 3	Quantitative and Qualitative Disclosures about Market Risk	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	2630
Part II	Other Information	31
Item 1.	Legal Proceedings	28
Item 1	Legal Proceedings	31
Items 1A.	Risk Factors	28
Item 1 A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2831
Item 3.	Defaults upon Senior Securities	2831
Item 4.	Mine Safety Disclosures	2831
Item 5.	Other Information	2831
Item 6.	Exhibits	2832

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN U.S. $)

	November 30,		August 31,
	February 28,		August 31,
	2014		2014
	2015		2014
	(Unaudited)
ASSETS
Current assets:
Cash	$	56,~~865~~798,~~101~~855	$	5,229,261
Accounts receivable		12,~~556~~879,~~605~~217		431,940
Inventory, net		~~972~~1,~~599~~734,300		375,750
Prepaid income taxes		—		50,348
Prepaid expenses		2821,~~508~~073		40,625
Total current assets		811,~~422~~433,~~813~~445		6,127,924
Fixed assets, net		3633,~~312~~979		48,113
Total Assets	$	811,~~459~~467,~~125~~424	$	6,176,037
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,~~408~~069,~~543~~472	$	682,030
Taxes payable		97284,~~798~~977		19,465
Loans from stockholder		6270,~~152~~502		24,339
Accrued liabilities and other payables		6483,~~851~~258		72,981
Total current liabilities		24,~~633~~508,~~344~~209		798,815
Stockholders’ equity:
Common stock, $0.0006 par value per share, 80,000,000 shares authorized; 34,396,680 shares issued and outstanding as of November 30, 2014 and August 31, 2014		20,638		20,638
Common stock, $0.0006 par value per share, 80,000,000 shares authorized; 34,396,680 shares issued and outstanding as of February 28, 2015 and August 31, 2014		20,638		20,638
Additional paid-in capital		726,548		726,548
Statutory reserve fund		~~462~~420,~~194~~406		420,406
Retained earnings		45,~~241~~395,~~376~~991		3,865,318
Other comprehensive income		~~211~~175,~~920~~790		203,702
Stockholders’ equity before noncontrolling interests		56,~~662~~739,~~676~~373		5,236,612
Noncontrolling interests		~~163~~219,~~105~~842		140,610
Total stockholders’ equity		56,~~825~~959,~~781~~215		5,377,222
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	811,~~459~~467,~~125~~424	$	6,176,037

See accompanying notes to the consolidated financial statements.

Table of Contents

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND ~~OTHER~~ COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND SIX MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2014~~2015 AND ~~2013~~ 2014 (UNAUDITED) (IN U.S. $)

	Three Months ended November 30,
	Three Months Ended						Six Months Ended
	2014			2013
	February 28,						February 28,
Revenue	$	3,136,386		$	1,932,378
	2015			2014			2015			2014
Cost of goods sold		(2,095,040	)		(1,311,260	)
Revenue	$	7,639,171		$	2,882,195		$	10,775,557		$	4,814,573
Gross profit		1,041,346			621,118
Cost of goods sold		(5,089,375	)		(1,889,147	)		(7,184,415	)		(3,200,407	)
Operating expenses
Gross profit		2,549,796			993,048			3,591,142			1,614,166
Selling and marketing		387,331			197,537
Operating expenses
General and administrative		72,925			47,273
Selling and marketing		872,087			312,077			1,259,418			509,614
Total operating expenses		460,256			244,810
General and administrative		121,674			154,162			194,599			201,435
Income from operations		581,090			376,308
Total operating expenses		993,761			466,239			1,454,017			711,049
Interest income		5,117			3,502
Income from operations		1,556,035			526,809			2,137,125			903,117
Income before provision for income taxes		586,207			379,810
Interest income		5,577			4,130			10,694			7,632
Provision for income taxes		146,555			94,625
Income before provision for income taxes		1,561,612			530,939			2,147,819			910,749
Net income		439,652			285,185
Provision for income taxes		390,401			128,977			536,956			223,602
Noncontrolling interests		(21,806	)		(9,375	)
Net income		1,171,211			401,962			1,610,863			687,147
Net income attributable to common stockholders	$	417,846		$	275,810
Noncontrolling interests		(58,384	)		(24,986	)		(80,190	)		(34,361	)
Earnings per common share, basic and diluted	$	0.01		$	0.01
Net income attributable to common stockholders	$	1,112,827		$	376,976		$	1,530,673		$	652,786
Weighted average shares outstanding, basic and diluted		34,396,680			32,000,000
Earnings per common share, basic and diluted	$	0		$	0		$	0		$	0
Comprehensive income :
Weighted average shares outstanding, basic and diluted		34,396,680			33,597,787			34,396,680			32,798,893
Net income	$	439,652		$	285,185
Comprehensive Income:
Foreign currency translation adjustment		8,907			32,756
Net Income	$	1,171,211		$	401,962		$	1,610,863		$	687,147
Comprehensive income		448,559			317,941
Foreign currency translation adjustment		(37,777	)		76,490			(28,870	)		109,246
Comprehensive income attributable to noncontrolling interests		(22,495	)		(9,390	)
Comprehensive income		1,133,434			478,452			1,581,993			796,393
Comprehensive income attributable to common stockholders	$	426,064		$	308,551
Comprehensive income attributable to noncontrolling interests		(56,737	)		(40,574	)		(79,232	)		(40,589	)
Net comprehensive income attributable to common stockholders	$	1,076,697		$	437,878		$	1,502,761		$	755,804

See accompanying notes to the consolidated financial statements.

Table of Contents

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE ~~THREE~~SIX MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2014~~2015 (UNAUDITED) (IN U.S. $)

	Common Stock		Additional Paid-in Capital		Statutory Reserve Fund		Retained Earnings			Other Comprehensive Income			Noncontrolling Interests			Total
Balance, August 31, 2014	$	20,638	$	726,548	$	420,406	$	3,865,318		$	203,702		$	140,610		$	5,377,222
Net income		—		—		—		~~417~~1,~~846~~530,673			—			2180,~~806~~190			~~439~~1,~~652~~610,863
Appropriation for statutory reserve		—		—		41,788		(41,788	)		—			—			—
Foreign currency translation adjustment		—		—		—		—			(27,912	)		(958	)		(28,870	)
Foreign currency translation adjustment		—		—		—		—			8,218			689			8,907
Balance, February 28, 2015 (Unaudited)	$	20,638	$	726,548	$	420,406	$	5,395,991		$	175,790		$	219,842		$	6,959,215
Balance, November 30, 2014 - Unaudited	$	20,638	$	726,548	$	462,194	$	4,241,376		$	211,920		$	163,105		$	5,825,781

See accompanying notes to the consolidated financial statements.

Table of Contents

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

~~NOTES~~CONSOLIDATED TOSTATEMENTS ~~THE~~OF ~~CONSOLIDATED~~CASH ~~FINANCIAL STATEMENTS~~FLOWS

FOR THE ~~THREE~~SIX MONTHS ENDED ~~NOVEMBER~~FEBRUARY 3028, ~~2014~~2015 AND ~~2013~~ 2014 (UNAUDITED) (IN U.S. $)

	Three Months Ended November 30,
	Six Months Ended February 28,
	2014			2013
	2015			2014
Cash flows from operating activities:
Net income	$	~~439~~1,~~652~~610,863		$	~~275~~687,~~810~~147
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1123,~~904~~761			1033,~~591~~260
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(1,124,665	)		22,570
(Increase) in accounts receivable		(2,447,277	)		(301,677	)
(Increase) decrease in inventory		(596,849	)		26,654
(Increase) in inventory		(1,358,550	)		(47,411	)
Decrease in prepaid income tax		50,348			—
Decrease (Increase) in prepaid expenses		69,900			(15,795	)
Decrease in prepaid expenses		12,117			—
Decrease in advances to suppliers		—			45,670
Decrease in advances to suppliers		—			15,037
Increase in accounts payable		3,387,442			790,579
Increase (decrease) in accounts payable		1,726,513			(59,126	)
Increase in taxes payable		265,512			41,408
Increase in taxes payable		78,333			13,600
Increase in accrued liabilities and other payables		10,277			24,316
(Decrease) in accrued liabilities and other payables		(8,130	)		(35	)
Net cash provided by operating activities		1,561,928			1,257,497
Net cash provided by operating activities		589,223			305,101
Cash flows from investing activities:
Purchase of equipment		(9,694	)		(852	)
Net cash (used in) investing activities		(9,694	)		(852	)
Cash flows from financing activities:
Proceeds from stockholder loans		3746,~~630~~312			—26,880
Net cash provided by financing activities		3746,~~630~~312			—26,880
Effect of exchange rate changes on cash		8(28,~~987~~952	)		2124,~~413~~394
Net change in cash		~~635~~1,~~840~~569,594			~~326~~1,~~514~~307,919
Cash, beginning		5,229,261			3,994,502
Cash, end	$	56,~~865~~798,~~101~~855		$	4$$5,~~321~~302,~~016~~421
Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	—		$	—
Income taxes	$	53300,~~967~~527		$	89187,~~645~~213

See accompanying notes to the consolidated financial statements.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

1.(UNAUDITED) ~~ORGANIZATION~~(IN U.S. $)

~~China~~NOTE ~~Tianfeihong Wine, Inc~~1. (the “Company”), formerly known as Zenitech Corporation, was incorporated under the laws of the State of Delaware on July 28, 2005. Since its inception until the closing of the reverse acquisition transaction, the Company was a development-stage company in the business of developing, manufacturing, distributing and marketing of environmentally friendly floral sleeves and wrappers for the floriculture industry.ORGANIZATION

~~On August 1, 2013, the Company filed a certificate of amendment to its articles of incorporation to change its name from “Zenitech Corporation” to “~~China Tianfeihong Wine, Inc. ” (~~the~~ “~~Name Change~~China Tianfeihong”), ~~and~~formerly toknown ~~effect~~as aZenitech 1Corporation, ~~for~~was ~~6 reverse~~incorporated ~~stock~~under ~~split (~~the ~~“Reverse~~laws ~~Split”)~~ of ~~its~~the ~~outstanding~~State ~~shares~~ of ~~common~~Delaware ~~stock. The~~on ~~Name~~July 28, ~~Change~~2005. ~~and~~From ~~the~~its ~~Reserve~~inception ~~Split~~until ~~were effective on August 12, 2013. Upon~~ the ~~effectiveness~~closing of the ~~Reverse~~reverse ~~Split~~acquisition transaction, the ~~number~~Company ofwas ~~outstanding~~a ~~shares~~development-stage ofcompany in the ~~Company’s~~business ~~common~~of ~~stock decreased from 14~~developing,~~380,266~~ ~~to 2~~manufacturing,~~396,680~~ ~~shares.~~distributing ~~The~~and ~~number~~marketing ofenvironmentally ~~authorized~~friendly ~~shares~~floral ofsleeves ~~common~~and ~~stock~~wrappers for ~~remained~~the atfloriculture ~~80,000,000 shares~~industry.

On ~~December~~August 301, 2013, ~~the~~China ~~Company~~Tianfeihong ~~completed a reverse acquisition~~filed ~~transaction through~~ a ~~share~~certificate ~~exchange~~of ~~with~~amendment ~~the~~to ~~stockholders~~its articles of ~~Fanwei~~incorporation ~~Hengchang~~to ~~Co.,~~change ~~Ltd~~its ~~(BVI)~~name (from “~~Fanwei~~Zenitech ~~Hengchang~~Corporation”~~), whereby~~ ~~the~~to ~~Company~~“China Tianfeihong ~~acquired~~Wine ~~100%~~Inc. of” (the ~~outstanding~~“Name ~~shares~~Change”) ofand ~~Fanwei~~to ~~Hengchang~~effect ina ~~exchange~~1 for ~~the~~6 reverse ~~issuance~~stock ofsplit ~~32,000,000~~(the ~~shares~~“Reverse ofSplit”) ~~the Company’s common stock, representing 93.03%~~ of ~~the~~its ~~issued and~~ outstanding shares of common stock. The AsName aChange ~~result~~and of the ~~reverse~~Reserve ~~acquisition,~~Split ~~Fanwei~~were ~~Hengchang~~effective ~~became~~on ~~the Company’s wholly-owned subsidiary and the former Fanwei Hengchang’s~~August ~~stockholders~~12, ~~became our controlling stockholders~~2013. Upon ~~The share exchange transaction was treated as a reverse acquisition, with Fanwei Hengchang as~~ the ~~acquirer~~effectiveness ~~and~~of the ~~Company~~Reverse ~~as the acquired party for accounting purposes. Unless the context suggests otherwise~~Split, ~~when~~ ~~we refer in this report to~~ the ~~business~~number ~~and~~of ~~financial~~outstanding ~~information~~shares ~~for periods prior to the consummation~~ of ~~the~~China ~~reverse~~Tianfeihong’s ~~acquisition,~~common westock decreased ~~are~~from ~~referring~~14,380,266 to ~~the~~2,396,680 ~~business~~shares. ~~and~~The ~~financial~~number ~~information~~ of ~~Fanwei~~authorized ~~Hengchang~~shares ~~and~~of ~~its~~common ~~consolidated~~stock ~~subsidiaries~~remained ~~and~~at ~~variable~~80,000,000 ~~interest entity~~shares.

AsOn December 30, 2013, China Tianfeihong completed a ~~result~~reverse ofacquisition transaction through a share exchange with the ~~acquisition~~stockholders of Fanwei Hengchang Co., ~~the~~Ltd ~~Company~~(BVI) (“Fanwei ~~now~~Hengchang”), ~~indirectly~~whereby ~~owns~~China ~~all~~Tianfeihong acquired 100% of the ~~issued and~~ outstanding ~~capital~~shares ~~stock~~ of ~~Changshi~~Fanwei ~~Tongrong~~Hengchang ~~Limited~~in ~~(Hong~~exchange ~~Kong)~~for ~~(“Changshi~~the issuance ~~Tongrong”)~~of 32,000,000 ~~which~~shares inof ~~turn~~China ~~owns~~Tianfeihong’s ~~all~~common stock, representing 93.03% of the issued and outstanding ~~capital~~shares of common stock. As a result of ~~Changshitong~~the ~~Consulting~~reverse ~~(Shenzhen)~~acquisition, ~~Co.~~Fanwei Hengchang became China Tianfeihong’s wholly-owned subsidiary and the ~~Ltd~~former ~~(“Changshitong~~Fanwei ~~Consulting”)~~Hengchang’s stockholders became our controlling stockholders. InThe ~~addition~~share exchange transaction was treated as a reverse acquisition, with Fanwei Hengchang as the ~~Company~~acquirer ~~effectively~~and China Tianfeihong as the acquired party for accounting purposes. Unless the context suggests otherwise, when we refer in this report to the business and ~~substantially~~financial ~~controls~~information ~~Fujian~~for ~~Tianfeihong~~periods prior ~~Wine~~to ~~Co.~~the consummation of the reverse acquisition, ~~Ltd~~we ~~(“Fujian~~are ~~Tianfeihong”)~~referring ~~through~~to athe ~~series~~business and financial information of ~~agreements~~Fanwei ~~with~~Hengchang and ~~Changshitong~~its ~~Consulting~~consolidated subsidiaries and variable interest entity.

~~Subsequent~~As toa result of the ~~closing~~acquisition of Fanwei Hengchang, China Tianfeihong now owns all of the ~~Share~~issued ~~Exchange~~and ~~Agreement~~outstanding capital stock of Changshi Tongrong Limited (Hong Kong) (“Changshi Tongrong”), which in turn owns all of the ~~Company~~ ~~conducts~~issued ~~operations~~and ~~through~~outstanding ~~its~~capital ~~controlled~~stock ~~consolidated~~of ~~affiliate~~Changshitong Consulting (Shenzhen) Co. Ltd (“Changshitong Consulting”). In addition, ~~Fujian~~China Tianfeihong. effectively and substantially controls Fujian Tianfeihong Wine isCo., ~~primarily engaged~~Ltd in(“Fujian ~~distributing~~Tianfeihong”) ~~fruit~~through ~~wine,~~a ~~including~~series ~~green~~of ~~plum~~captive ~~wine,~~agreements ~~loquat~~with ~~wine,~~Changshitong ~~olive~~Consulting. ~~wine~~China ~~and~~Tianfeihong with ~~pomegranate~~its ~~wine,~~wholly toowned ~~supermarkets~~subsidiaries, and ~~liquor~~ ~~stores~~its inVIE, ~~the~~Fujian ~~People’s~~Tianfeihong, ~~Republic~~are ofcollectively ~~China~~the (“~~PRC~~Company”).

Subsequent to the closing of the reverse acquisition transaction, the Company conducts operations through its controlled consolidated affiliate, Fujian Tianfeihong. Fujian Tianfeihong is primarily engaged in distributing fruit wine including green plum wine, loquat wine, olive wine and pomegranate wine to supermarkets and liquor stores in the People’s Republic of China (“PRC”).

On November 26, 2013, prior to the reverse acquisition transaction, Changshitong Consulting and Fujian Tianfeihong and its shareholders Jinxiang Fang and Zhiliang Fang entered into a series of agreements known as variable interest agreements (the “VIE Agreements”) pursuant to which Fujian Tianfeihong became Changshitong Consulting’s contractually controlled affiliate. The VIE Agreements included:

Exclusive Technical Service and Business Consulting Agreement: Pursuant to the Exclusive Technical Service and Business Consulting Agreement, Changshitong Consulting (“WFOE”) is is to provide technical support and consulting services to Fujian Tianfeihong in exchange for (i) 95% of the total annual net ~~profit~~ profit of Fujian Tianfeihong plus (ii) RMB10,000 per month (U.S.$1,627). The Agreement has an unlimited term and only ~~can~~ can be terminated upon written ~~agreement~~notice ofagreed to by both parties.

Proxy Agreement: Pursuant to the Proxy Agreement, Zhiliang Fang and Jinxiang Fang, each authorize Changshitong Consulting to designate someone to exercise their entire stockholder decision rights with respect to Fujian Tianfeihong. The Agreement has an unlimited term and can only be terminated upon written agreement of both parties.

Table of Contents

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

1.(UNAUDITED) ~~ORGANIZATION~~ (~~continued~~IN U.S. $)

~~Call~~Proxy ~~Option~~ Agreement: APursuant ~~Call~~to ~~Option~~the ~~Agreement~~Proxy ~~among Zhiliang~~Agreement, Zhiliang Fang and Jinxiang Fang ~~(together referred to as “Fujian Tianfeihong Shareholders”)~~, ~~and~~each authorize Changshitong Consulting ~~under which they have granted~~ to ~~Changshitong~~designate ~~Consulting~~someone ~~the irrevocable right and option~~ to ~~acquire~~exercise ~~all~~their ofentire ~~the~~shareholder decision ~~equity~~rights ~~interests~~with ~~in Fujian~~respect ~~Tianfeihong~~ to ~~the extent permitted by PRC law. If PRC law limits the percentage of~~ Fujian Tianfeihong ~~that Changshitong Consulting may purchase at any time, then Changshitong Consulting may repeatedly exercise its option in such increments as may be allowed by PRC law~~. The ~~exercise~~Agreement ~~price~~has ofan ~~the~~unlimited ~~option~~term isand ~~RMB1.00~~only ~~(US$0.16)~~can orbe ~~the~~terminated ~~minimum~~upon ~~price required by PRC laws if at that~~written ~~time~~notice ~~there is any PRC laws regulating the minimum price. The Fujian Tianfeihong Stockholders~~ agreed to ~~refrain~~by ~~from~~both ~~taking certain actions which might harm the value of Fujian Tianfeihong or Changshitong Consulting’s option~~parties. ~~This Agreement remains effective until all equity interests under the Agreement have been transferred to Changshitong Consulting or its designated entities or natural persons.~~

~~Share~~Call ~~Pledge~~Option Agreement: Aa ~~Share~~Call ~~Pledge~~Option Agreement ~~among~~ among Zhiliang Fang and Jinxiang Fang, (together referred to as “Fujian Tianfeihong Shareholders”), and Changshitong Consulting under which they have granted to Changshitong Consulting the ~~Fujian~~irrevocable ~~Tianfeihong~~right ~~Shareholders agree~~and option to ~~pledge~~acquire all of ~~their~~the equity interests in Fujian Tianfeihong to ~~Changshitong~~the ~~Consulting~~extent topermitted ~~guarantee~~by PRC law. If PRC law limits the percentage of Fujian Tianfeihong’s ~~and~~that Changshitong Consulting may purchase at any time, then Changshitong Consulting may repeatedly exercise its ~~stockholders’~~ ~~performance~~option ofin ~~their~~such ~~obligations~~increments as ~~under~~may be allowed by PRC law. The exercise price of the ~~Exclusive~~option ~~Technical~~is ~~Service~~RMB1.00 ~~and~~(US$0.16) ~~Business~~or ~~Consulting~~the ~~Agreement,~~minimum price required by PRC laws ~~the~~if ~~Call~~at ~~Option~~that ~~Agreement~~time ~~and~~there is any regulatory PRC laws regulating the ~~Proxy~~minimum ~~Agreement~~price. ~~This~~The ~~Agreement~~Fujian ~~remains~~Tianfeihong ~~effective~~Shareholders ~~until~~agreed ~~the~~to ~~obligations~~refrain from ~~under~~taking certain actions which might harm the ~~Exclusive Technical~~value ~~Service~~of ~~and~~Fujian ~~Business~~Tianfeihong or Changshitong Consulting’s option. This Agreement, remains ~~Call~~effective ~~Option~~until ~~Agreement~~all ~~and~~equity ~~Proxy~~interest under the Agreement have been ~~fulfilled~~transferred to Changshitong Consulting or ~~terminated~~its designated entities or natural persons.

~~The~~Share ~~VIE~~Pledge ~~Agreements~~Agreement: ~~with~~a ~~the~~Share ~~Company’s~~Pledge ~~Chinese affiliate~~Agreement among Zhiliang Fang and ~~its~~Jinxiang ~~stockholders~~Fang, Fujian Tianfeihong, and Changshitong Consulting under which ~~relate~~the Fujian Tianfeihong Shareholders agree to ~~critical~~pledge ~~aspects~~all of ~~the~~their ~~Company~~equity in Fujian Tianfeihong to Changshitong Consulting to guarantee Fujian Tianfeihong’s ~~operations,~~and its shareholders’ ~~may~~performance ~~not~~of betheir asobligations ~~effective~~under inthe ~~providing~~Exclusive Technical Service and Business Consulting Agreement, ~~operational~~the ~~control~~Call asOption ~~direct~~Agreement ~~ownership~~and the Proxy Agreement. InThis ~~addition,~~Agreement ~~these~~remains ~~arrangements~~effective ~~may~~until bethe ~~difficult~~obligations under the Exclusive Technical Service and ~~costly~~Business toConsulting ~~enforce~~Agreement, ~~under~~Call ~~PRC~~Option ~~law~~Agreement and Proxy Agreement have been fulfilled or terminated.

The VIE Agreements with the Company’s Chinese affiliate and its shareholders, which relate to critical aspects of the Company’s 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.

As a result of the entry into the foregoing agreements, the Company has a corporate structure which is set forth as follows:

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

(UNAUDITED) (IN U.S. $)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING AND PRESENTATION

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. The unaudited consolidated financial statements for the three ~~month~~and ~~periods~~six months ended ~~November~~February 3028, ~~2014~~2015 and ~~2013~~2014 include China Tianfeihong Wine, Inc., Fanwei Hengchang, Changshi Tongrong ~~and its wholly owned subsidiary~~, Changshitong Consulting and its VIE, Fujian Tianfeihong. All significant intercompany accounts and transactions have been eliminated in consolidation.

~~The~~Table ~~unaudited interim consolidated financial statements~~ of ~~the Company~~Contents as of November 30, 2014 and for the three months periods ended November 30, 2014 and 2013, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to interim financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K filed with the SEC. The results of operations for the three months ended November 30, 2014 are not necessarily indicative of the results to be expected for future quarters or for the year ending August 31, 2015.7

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2015 AND 2014

(UNAUDITED) (IN U.S. $)

The unaudited interim consolidated financial statements of the Company as of February 28, 2015 and for the three and six months periods ended February 28, 2015 and 2014 have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to interim financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K filed with the SEC. The results of operations for the three and six months ended February 28, 2015 are not necessarily indicative of the results to be expected for future quarters or for the year ending August 31, 2015.

All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US Dollar” or “US$” or “$”).

VARIABLE INTEREST ENTITY

Pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de facto agents, have the unilateral ability to exercise those rights. Fujian Tianfeihong’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.

Through the VIE agreements disclosed in Note 1, the Company is deemed the primary beneficiary of Fujian Tianfeihong. Accordingly, the results of Fujian Tianfeihong have been included in the accompanying consolidated financial statements. Fujian Tianfeihong has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Fujian Tianfeihong do not have recourse to the Company’s general credit.

The following financial statement amounts and balances of Fujian Tianfeihong have been included in the accompanying consolidated financial statements.

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	February 28, 2015		August 31, 2014
	(Unaudited)

TOTAL ASSETS(1)	$	11,467,054	$	6,175,646
TOTAL LIABILITIES(1)	$	4,478,205	$	781,126

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED NOVEMBER 30, 2014 AND 2013 (UNAUDITED) (IN U.S.$)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

VARIABLE INTEREST ENTITY (continued)

	November 30, 2014		August 31, 2014
	(Unaudited)
TOTAL ASSETS(1)	$	8,458,755	$	6,175,646
TOTAL LIABILITIES(1)	$	2,627,782	$	781,126

(1)

Total assets and liabilities of the VIE are reported net of intercompany balances that have been eliminated with the VIE consolidation.

	Three Months Ended November 30,
	2014		2013
	(Unaudited)		(Unaudited)
Revenue	$	3,136,386	$	1,932,378
Net income (2)	$	436,129	$	275,810

(2) Under the Exclusive Technical Service and Business Consulting Agreement, 95% of the net income is to be remitted to WFOE.

	Three Months Ended November 30,
	2014		2013
	(Unaudited)		(Unaudited)
Net cash provided by operating activities	$	584,370	$	305,101
Net cash provided by financing activities		37,630		—
Effect of exchange rate changes on cash		13,859		21,413
Net increase in cash	$	635,859	$	326,514

The Company believes that Changshitong Consulting’s contractual agreements with Fujian Tianfeihong are in compliance with PRC law and are legally enforceable. The stockholders of Fujian Tianfeihong are also the senior management of the Company and therefore the Company believes that they have no current interest in seeking to act contrary to the contractual arrangements. However, Fujian Tianfeihong and its stockholders may fail to take certain actions required for the Company’s business or to follow the Company’s instructions despite their contractual obligations to do so. Furthermore, if Fujian Tianfeihong or its stockholders do not act in the best interests of the Company under the contractual arrangements and any dispute relating to these contractual arrangements remains unresolved, the Company will have to enforce its rights under these contractual arrangements through PRC law and courts and therefore will be subject to uncertainties in the PRC legal system.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 2(IN U.S. ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued~~$)

VARIABLE INTEREST ENTITY (continued)

	For the three months ended February 28,				For the six months ended February 28,
	2015		2014		2015		2014
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Revenue	$	7,639,171	$	2,882,195		10,775,557	$	4,814,573
Net income (2)	$	1,167,667	$	398,663		1,603,796	$	687,211

(2)

Under the Exclusive Technical Service and Business Consulting Agreement, 95% of the net income is to be remitted to WFOE.

	For the six months ended February 28,
	2015			2014
	(Unaudited)			(Unaudited)

Net cash provided by operating activities	$	1,552,236		$	1,265,516
Net cash (used in) investing activities		(9,694	)		(852	)
Net cash provided by financing activities		46,312			26,880
Effect of exchange rate changes on cash		(19,240	)		15,875
Net increase in cash		1,569,615			$$1,307,419

All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements, which may make it difficult to exert effective control over Fujian Tianfeihong, and its ability to conduct the Company’s business may be adversely affected.

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 certain 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 periods. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSLATION

Almost all Company assets are located in the PRC. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”). The Company uses the United States Dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The financial statements of the Company have been translated into US Dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”

All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Company’s consolidated financial statements are recorded as other comprehensive income (loss).

The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the consolidated financial statements are as follows:

		November 30, 2014				August 31, 2014
Consolidated balance sheet items, except for stockholders’ equity, as of the periods end			0.1629				0.1625

	For the three months ended November 30,
	2014		2013
Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the periods		0.1627		0.1628

For the three months ended November 30, 2014 and 2013, foreign currency translation adjustments of $8,907 and $32,756, respectively, have been reported as other comprehensive income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 2(IN U.S. ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued~~$)

FOREIGN CURRENCY TRANSLATION ~~(continued)~~

Almost all Company assets are located in the PRC. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”). The Company uses the United States Dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”

All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Company’s financial statements are recorded as other comprehensive income (loss).

The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the financial statements are as follows:

	February 28, 2015		August 31, 2014

Consolidated balance sheet items, except for stockholders’ equity, as of the periods end		0.1621		0.1625

	For the three months ended February 28,				For the six months ended February 28,
	2015		2014		2015		2014

Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the periods		0.1626		0.1636		0.1627		0.1632

For the three months ended February 28, 2015 and 2014, foreign currency translation adjustments of $(37,777) and $76,490, respectively, have been reported as other comprehensive (loss) income. For the six months ended February 28, 2015 and 2014, foreign currency translation adjustments of $(28,870) and $109,246 have been reported as other comprehensive income. Other comprehensive income of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

Although government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain. Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.

The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US dollar reporting.

~~CHANGE~~Table OFof ~~FISCAL~~Contents ~~YEAR END DATE~~10

~~On December~~CHINA ~~30,~~TIANFEIHONG ~~2013~~WINE, ~~the~~INC. ~~Board~~AND ~~of Directors of the Company approved changing the fiscal year-end of the Company from December 31 to August 31 as a result of the Fanwei Hengchang Acquisition.~~SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2015 AND 2014

(UNAUDITED) (IN U.S. $)

REVENUE RECOGNITION

Revenues are primarily derived from selling fruit wines to contract distributors and retail establishments. The Company’s revenue recognition policies comply with FASB ASC 605 “Revenue Recognition.” The Company recognizes product revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. The Company recognizes revenue for product sales upon transfer of title to the customer. Customer purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and the completion of any customer acceptance requirements, when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.

The Company has no product returns or sales discounts and allowances because goods delivered and accepted by customers are normally not returnable.

The Company recognizes gift sample products as cost of goods sold in compliance with ASC 605-50-S99. As such, when the Company gives a customer a free product, the expense associated with this free product at the time of sale is classified as cost of goods sold.

SHIPPING COSTS

Shipping costs incurred by the Company are recorded in selling ~~and~~ ~~marketing~~ expenses. Shipping costs for the three months ended ~~November~~February 3028, 2015 and 2014 were $320,972 and ~~2013~~$125,154, respectively; shipping costs for the six months ended February 28, 2015 and 2014 were $~~133~~454,~~642~~812 and $84210,~~994~~148, respectively.

CASH AND CASH EQUIVALENTS

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED NOVEMBER 30, 2014 AND 2013 (UNAUDITED) (IN U.S.$)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ACCOUNTS RECEIVABLE

Accounts receivable are recorded at the contract amount after deduction of trade discounts, ~~and~~ allowances, if any, and do not bear interest. The allowance for doubtful accounts, when necessary, is the Company’s best estimate of the amount of probable credit losses of accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions.

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of ~~November~~February 3028, ~~2014~~2015 and August 31, 2014, the Company considers accounts receivable of ~~$1,556,605~~to ~~and~~be ~~$431,940, respectively,~~ fully collectible and has no allowance. For the periods presented, the Company did not write off any accounts receivable as bad debts.

INVENTORY

Inventory, comprised principally of bottled wine, is valued at the lower of cost or market value. The value of ~~inventory~~inventories is determined using the first-in, first-out method.

The Company periodically estimates an inventory allowance for estimated unmarketable inventory. Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of November 30, 2014 and August 31, 2014.

FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC 820, “Fair Value Measurement,” defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company applies FASB ASC 360, “Property, Plant and Equipment,” which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company may recognize the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets. No impairment of long-lived assets was recognized for the periods presented.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 2(IN U.S. ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued~~$)

The Company periodically estimates an inventory allowance for estimated unmarketable inventories. Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of February 28, 2015 and August 31, 2014.

FAIR VALUE OF FINANCIAL INSTRUMENTS

FIXED ASSETS

Fixed assets are recorded at cost, less accumulated depreciation. Cost includes the ~~price~~prices paid to acquire the ~~asset~~assets, and any expenditures that substantially increase the asset’s value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated ~~useful~~ useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity ~~are~~ are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred. The estimated useful lives for fixed asset categories are as follows:

Computers and equipment 3 years

Motor vehicles 4 years

Fixture and ~~furniture~~furnitures 5 years

IMPAIRMENT OF LONG-LIVED ASSETS

INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred income taxes ~~for~~ for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets ~~and~~ and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the ~~assets~~ assets and liabilities are recovered or settled. As of ~~November~~February 3028, ~~2014~~2015 and August 31, 2014, the Company ~~had~~has no deferred tax ~~assets~~ assets or liabilities.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of November 30, 2014 and August 31, 2014, the Company does not have accruals for uncertain tax positions.

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

United States

The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income taxes in the United States has been made as the Company had no U.S. taxable income for the three months ended November 30, 2014 and 2013 because it is the Company's intention to indefinitely reinvest such earnings in its foreign subsidiaries. If such earnings were distributed, the Company would be subject to additional U.S. income tax expense. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

PRC

Changshitong Consulting and its VIE, Fujian Tianfeihong are subject to an Enterprise Income Tax at 25% and file their own tax returns. Consolidated tax returns are not permitted in China.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 2(IN U.S. ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued~~$)

~~INCOME~~ASC ~~TAXES~~740 ~~(continued)~~addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of February 28, 2015 and August 31, 2014, the Company does not have accruals for uncertain tax positions.

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

United States

The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income taxes in the United States has been made as the Company had no U.S. taxable income for the three and six months ended February 28, 2015 and 2014 because it is the Company's intention to indefinitely reinvest such earnings in its foreign subsidiaries. If such earnings were distributed, the Company would be subject to additional U.S. income tax expense. Determination of the amount of the unrecognized deferred income tax liability related to these earnings is not practicable.

PRC

Changshitong Consulting and its VIE, Fujian Tianfeihong are subject to an Enterprise Income Tax of 25% and file their own tax returns. Consolidated tax returns are not permitted in China.

BVI

Fanwei Hengchang is incorporated in the BVI and is governed by the income tax laws of the BVI. According to the current BVI income tax law, the applicable income tax rate for the Company is 0%.

Hong Kong

Changshi Tongrong is incorporated in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.

Advertising Costs

Advertising costs are charged to operations when incurred. For the three months ended ~~November~~February 3028, 2015 and 2014, advertising expense was $375,606 and ~~2013~~$94,888, respectively. For the six months ended February 28, 2015 and 2014, advertising expense was $~~154~~530,~~565~~402 and $41135,~~026~~782, respectively.

Statutory Reserve Fund

Pursuant to the corporate law of the PRC, the Company is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the Company’s registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after use is not less than 25% of registered capital. For the three months ended November 30, 2014 and 2013, a statutory reserve of $41,788 and $29,012 was required to be allocated by the Company, respectively.

NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS

In August 2014, the FASB issued authoritative guidance that requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and requires additional disclosures if certain criteria are met. This guidance is effective for fiscal periods ending after December 15, 2016, with early adoption permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12). ASU 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 3(IN U.S. ~~RECENTLY ISSUED ACCOUNTING STANDARDS (continued~~$)

~~In May 2014, the FASB issued ASU No. 2014-09, “Revenue~~Statutory ~~from~~Reserve Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Companies are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted. The Company has not yet determined the potential impacts of this updated authoritative guidance on its consolidated financial statements.Funds

Pursuant to corporate law of the PRC, a company is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the company’s registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after use is not less than 25% of registered capital. As of August 31, 2014, the statutory reserves for Fujian Tianfeihong had been fully funded.

NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12). ASU 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for our first quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Companies are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted. The Company has not yet determined the potential impact of this updated authoritative guidance on its consolidated financial statements.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2015 AND 2014

(UNAUDITED) (IN U.S. $)

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which amends the requirements for reporting discontinued operations. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale or when the component or group of components is disposed of by sale or other than by sale. In addition, this ASU requires additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The guidance is effective for annual and interim periods beginning after December 15, 2014, with early adoption permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, FASB issued ASU No. 2013-11, Presentation of an Unrecognized Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. An exception exists to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax of the applicable jurisdiction does not require the entity to use, and entity does not intend to use, the deferred tax asset for such a purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013 and did not have a material impact on the Company's consolidated financial statements.

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC 820, “Fair Value Measurement,” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

Level 1 Inputs -		Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 Inputs -		Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3 Inputs -		Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

~~Table~~ASC 820 requires the use of observable ~~Contents~~market 14data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of February 28, 2015 and August 31, 2014, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, accounts receivable, payables and accrued liabilities, approximate their fair values due to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 4(IN U.S. ~~FAIR VALUE OF FINANCIAL INSTRUMENTS (continued~~$)

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of November 30, 2014 and August 31, 2014, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities, approximate their fair values due to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.

NOTE 5. FIXED ASSETS

Fixed assets are summarized as follows:

	November 30, 2014			August 31, 2014
	February 28, 2015			August 31, 2014
	(Unaudited)
Computers and equipment	$	2434,~~678~~216		$	24,618
Motor vehicles		148,~~870~~138			148,504
Fixture and furniture		13,912			13,878
Fixtures and furniture		13,844			13,878
		187,460			187,000
		196,198			187,000
Less: Accumulated depreciation		(~~151~~162,~~148~~219	)		(138,887	)
Fixed assets, net	$	36,312		$	48,113
Fixed Assets - net	$	33,979		$	48,113

For the three months ended ~~November~~February 3028, 2015 and 2014, depreciation expense was $11,850 and ~~2013~~$22,700, respectively. For the six months ended February 28, 2015 and 2014, depreciation expense was $1123,~~904~~761 and $1033,~~591~~260, respectively.

NOTE 6. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables ~~consist~~consisted of the following:

	November 30, 2014		August 31, 2014
	February 28, 2015		August 31, 2014
	(Unaudited)
Accrued payroll	$	912,~~272~~040	$	9,250
Professional fees		2833,~~546~~802		47,941
Other		2737,~~033~~416		15,790
Accrued liabilities and other payables	$	64,851	$	72,981
	$	83,258	$	72,981

NOTE 7. LEASES

The Company leases office space under an eight-year ~~operating~~ operating lease from an unrelated third party, expiring on June 30, 2017. This lease has a renewal option. ~~This~~and ~~lease~~ requires the Company to pay the ~~total~~year's rent in advance ~~for one year of RMB 264,000 (US$43,006)~~. ~~The monthly rent charge was increased from RMB 22,000 (USD $3,579) to RMB 25,000 (USD $4,068) commencing July 2014.~~

~~Table~~The Company leases another office space from an unrelated third party, expiring on December 31, 2016. This lease has a renewal option. This lease requires the Company to pay the total rent in advance for one year from Jan 1, 2015 to December 31, 2015 of ~~Contents~~RMB 1536,000 (US$5,854). The annual rent charge will be increased to RMB 39,600 (US$ 6,439) for the year ended December 31, 2016.

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 7(IN U.S. ~~LEASES (continued~~$)

The minimum future rentals under this lease as of ~~November~~February 3028, ~~2014~~ 2015 are as follows:

Period Ending
August 31,		Amount
	2015	$	854,~~145~~600
	2016		4865,~~870~~000
	2017		40,725
		$	119,600
		$	97,740

Rent expense for the three months ended ~~November 30~~February 28, ~~2014~~2015 and ~~2013~~ 2014 was $1213,~~204~~171 and $15,~~037~~109, respectively, and for the six months ended February 28, 2015 and 2014 was $25,381 and $30,144 respectively.

NOTE 8. INCOME TAXES

The provision for income taxes consisted of the following:

	For the three month ended November 30,
	For the three months ended February 28,				For the six months ended February 28,
	2014		2013
	2015		2014		2015		2014
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Current	$	~~146~~390,~~555~~401	$	94128,~~625~~977	$	536,956	$	223,602
Deferred		—		—		—		—
	$	~~146~~390,~~555~~401	$	94128,~~625~~977	$	536,956	$	223,602

The Company isdid ~~required~~not togenerate ~~file~~any income ~~tax~~in the ~~returns~~United inStates ~~both~~or ~~the PRC~~otherwise ~~and~~have ~~the~~any ~~United~~U.S. ~~States~~taxable income. ~~PRC~~ ~~tax~~The ~~filings~~Company ~~for~~does ~~the~~not ~~tax~~believe ~~year~~that ~~ended~~it ~~December~~has ~~31,~~any ~~2013~~U.S. ~~were~~federal ~~examined~~income tax byliabilities with respect to any transactions that the ~~PRC~~Company ~~tax~~or ~~authorities~~ any of its subsidiaries may have engaged in ~~May~~ ~~2014.~~through ~~The~~February 28, ~~tax~~2015. ~~filings~~However, ~~were~~there ~~accepted~~can ~~and~~be no ~~adjustments~~assurance ~~were~~that ~~proposed~~the byIRS will agree with this position, and therefore the ~~PRC~~Company ~~tax~~ultimately could ~~authorities~~be liable for U.S. federal income taxes, interest and penalties. (See Note 10)

The Company did not generate any income in the United States or otherwise have any U.S. taxable income. The Company does not believe that it has any U.S. federal income tax liabilities with respect to any transactions that the Company or any of its subsidiaries may have engaged in through November 30, 2014. However, there can be no assurance that the IRS will agree with this position, and therefore the Company ultimately could be liable for U.S. federal income taxes, interest and penalties (See Note 10).

NOTE 9. RELATED PARTY TRANSACTIONS

The majority stockholder ~~loans~~has ~~money~~loaned money to the Company, primarily to meet the non-RMB cash requirements. The loans are non-interest bearing and are due on demand. The balance of $6270,~~152~~502 and $24,339 at ~~November~~February 3028, ~~2014~~2015 and August 31, 2014, respectively, represents professional and legal fees incurred in the U.S. paid by this stockholder. The balance is reflected as loans from stockholder on the consolidated balance ~~sheet~~ sheets.

Table of Contents 1617

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

(UNAUDITED) (IN U.S. $)

NOTE 10. CONTINGENCIES

The Company did not file its U.S. ~~federal~~ Federal income tax returns, including, without limitation, information returns on Internal Revenue Service (“IRS”) Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations” for the fiscal year ended December 31, 2013. In addition, the Company did not file with the ~~U.S.~~IRS ~~Internal Revenue Service~~ the information report for the year ended December 31, 2013 concerning its interest in foreign bank accounts on Form TDF 90-22.1, “Report of Foreign Bank and Financial Accounts” (“FBAR”). Not complying with the FBAR reporting and recordkeeping requirements will subject the Company to civil penalties up to $10,000 for each of its foreign bank accounts. The Company has not determined the amount of any penalties that may be assessed at this time and believes that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

NOTE 11. CONCENTRATION OF CREDIT AND BUSINESS RISKS

Substantially all of the Company’s assets and bank accounts are in banks located in the PRC and are not covered by protection similar to that provided by the FDIC on funds held in United States banks.

As of ~~November~~February 3028, ~~2014~~2015 and August 31, 2014, no customer accounted for more than 10% of accounts receivable. There were no major customers which accounted for 10% or more of the total net revenue for the three months and six months ended ~~November~~February 3028, ~~2014~~2015 and ~~2013~~2014. The Company extends credit to its customers based upon its assessment of their credit worthiness and generally does not require collateral. Credit losses have not been significant. Four vendors individually accounted for 2332%, 2922%, 1819% and 1110% of purchases for the three months ended ~~November 30~~February 28, ~~2014~~2015.

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent and effective or that it will continue.

~~NOTE~~Under 12PRC laws and regulations, the Company’s PRC subsidiary and VIE are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. ~~CONDENSED~~ ~~FINANCIAL~~The ~~INFORMATION~~restricted OFnet assets of the Company’s PRC subsidiary and VIE amounted to $6,739,373 and ~~REGISTRANT~~$5,236,612 as of February 28, 2015 and August 31, 2014, respectively.

Under PRC laws and regulations, the Company’s PRC subsidiary and VIE are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC subsidiary and VIE amounted to $5,662,676 and $5,236,612 as of November 30, 2014 and August 31, 2014, respectively.

In addition, the Company’s operations and revenues are conducted and generated in the PRC; all of the Company’s revenues being earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulations in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into US Dollars.

~~Schedule~~Table I of ~~Article~~Contents 5-04 of Regulation S-X requires the condensed financial information of the Company to be filed when the restricted net assets of consolidated subsidiaries and VIE’s exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of this test, restricted net assets of consolidated subsidiaries and VIEs shall mean that amount of the registrant’s proportionate share of net assets of its consolidated subsidiaries and VIEs (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company in the form of loans, advances or cash dividends without the consent of a third party. The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s PRC subsidiary and VIE exceed 25% of the consolidated net assets of the Company.18

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CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 12(IN U. ~~CONDENSED~~S. ~~FINANCIAL INFORMATION OF REGISTRANT (continued~~$)

~~The~~NOTE ~~following~~12. CONDENSED ~~condensed financial information of the Company includes~~FINANCIAL ~~the~~INFORMATION USOF ~~parent~~THE ~~only~~PARENT ~~balance sheets as of November 30, 2014 and August 31, 2014, and the US parent company only statements of operations, and cash flows for the three months ended November 30, 2014 and 2013:~~COMPANY

Schedule I of Article 5-04 of Regulation S-X requires the condensed financial information of China Tianfeihong Wine, Inc. (“Parent Company”) to be filed when the restricted net assets of consolidated subsidiaries and VIE’s exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of this test, restricted net assets of consolidated subsidiaries and VIEs shall mean that amount of the registrant’s proportionate share of net assets of its consolidated subsidiaries and VIEs (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company in the form of loans, advances or cash dividends without the consent of a third party. The condensed Parent Company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s PRC subsidiary and VIE exceed 25% of the consolidated net assets of the Company.

The following condensed financial information of the Parent Company includes the balance sheets as of February 28, 2015 and August 31, 2014, and the statements of operations, and cash flows for the three months and the six months ended February 28, 2015 and 2014:

Condensed Balance Sheets

	November 30, 2014		August 31, 2014
	February 28, 2015		August 31, 2014
	(Unaudited)
ASSETS
Investment in subsidiaries and VIEs	$	5,662,676	$	5,236,612
Other Receivable from VIE		1,523,606	$	941,154
TOTAL ASSETS	$	5,662,676	$	5,236,612
Investment in subsidiaries and VIEs		5,215,767		4,295,458
TOTAL ASSETS		6,739,373	$	5,236,612
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accrued expenses and other payables	$	—	$	—
Liabilities
Total liabilities	$	—	$	—
Accrued expenses and other payables		—	$	—
Total liabilities		—		—
Stockholders’ equity
Common stock, $0.0006 par value per share, 80,000,000 shares authorized; 34,396,680 shares issued and outstanding as of November 30, 2014 and August 31, 2014	$	20,638	$	20,638
Common stock, $0.0006 par value per share, 80,000,000 shares authorized; 34,396,680 shares issued and outstanding shares issued and outstanding as of February 28, 2015 and August 31, 2014		20,638		20,638
Additional paid-in capital		726,548		726,548
Retained earnings		45,~~915~~992,~~490~~187		4,489,426
Total stockholders’ equity		56,~~662~~739,~~676~~393		5,236,612
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	56,~~662~~739,~~676~~393	$	5,236,612

~~Condensed~~Table ~~Statements~~ of ~~Operations~~Contents 19

	Three Months Ended November 30,
	2014		2013
	(Unaudited)		(Unaudited)
Revenues
Share of earnings from investment in subsidiaries and VIE	$	426,064	$	308,551
Operating expenses
General and administrative		—		—
Net income	$	426,064	$	308,551

Table of Contents 18

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY ~~NOVEMBER 30~~28, ~~2014~~2015 AND ~~2013 (UNAUDITED) (IN U.S.$)~~2014

~~NOTE~~(UNAUDITED) 12(IN U. ~~CONDENSED~~S. ~~FINANCIAL INFORMATION OF REGISTRANT (continued~~$)

Condensed Statements of Operations

	For the three months ended February 28,				For the six months ended February 28,
	2015		2014		2015		2014
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Revenues
Share of earnings from investment in subsidiaries and VIE	$	1,076,696	$	437,878		1,502,761	$	755,804
Operating expenses
General and administrative		—		—		—		—
Net income	$	1,076,696	$	437,878		1,502,761	$	755,804

Condensed Statements of Cash Flows

	Three Months Ended November 30,
	For the three months ended February 28,
	2014			2013
	2015			2014
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income	$	~~426~~1,~~064~~076,696		$	~~308~~437,~~551~~878
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Share of earnings from investment in subsidiaries and VIE		(~~426~~1,~~064~~076,696	)		(~~308~~437,~~551~~878	)
Net cash (used in) operating activities		—			—
Net increase in cash		—			—
Cash, beginning of year		—			—
Cash, end of year	$	—		$	—

	For the six months ended February 28,
	2015			2014
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income	$	1,502,761		$	755,804
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Share of earnings from investment in subsidiaries and VIE		(1,502,761	)		(755,804	)
Net cash (used in) operating activities		—			—
Net increase in cash		—			—
Cash, beginning of year		—			—
Cash, end of year	$	—		$	—

Table of Contents

CHINA TIANFEIHONG WINE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2015 AND 2014

(UNAUDITED) (IN U.S. $)

Basis of Presentation

The Company records its investment in its subsidiaries and VIEs under the equity method of accounting. Such investment is presented as “Investment in subsidiaries and VIE” on the condensed balance sheets and shares of the subsidiaries and VIE’s profits are presented as “Share of earnings from investment in subsidiaries and VIE” in the condensed statements of operations.

Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. The parent only financial information has been derived from the Company’s consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements.

Table of Contents 1921

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

Overview

We conduct our operations through our consolidated affiliate, Fujian Tianfeihong Wine, Co., Ltd. (hereinafter referred to as “Fujian Tianfeihong”). Fujian Tianfeihong, founded in April 2009, is primarily engaged in distributing a wide variety of fruit wine, including green plum wine, loquat wine, olive wine, and pomegranate wine, to supermarkets and liquor stores. The headquarters of Fujian Tianfeihong are located at 1600 Tai'an Block, Licheng Road, Chengxiang District, Putian City, Fujian Province, China.

Our U.S parent corporation was incorporated in the state of of Delaware on July 28, 2005. ~~Until~~Since its inception and until its acquisition of Fanwei Hengchang, China Tianfeihong Wine, Inc. was an ainactive ~~development stage~~ company without significant assets or any revenue.

On December 30, 2013, we completed a reverse acquisition transaction through a share exchange with the stockholders of Fanwei Hengchang Co., Ltd. (BVI) (“Fanwei Hengchang”), whereby we acquired 100% of the outstanding shares of Fanwei Hengchang in exchange for ~~a total of~~ 32,000,000 shares of our common stock, ~~representing~~ representing 93.03% of our issued and outstanding shares of common stock. As a result of the reverse acquisition, Fanwei ~~Hengchang~~ Hengchang became our wholly-owned subsidiary and the former Fanwei Hengchang stockholders became our controlling stockholders. The share exchange transaction was treated as a reverse acquisition, with Fanwei Hengchang as the acquirer and China Tianfeihong Wine, Inc. as the acquired party for accounting purposes. 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 Fanwei Hengchang and its consolidated subsidiaries and variable interest entity (“VIE”).

As a result of our acquisition of Fanwei Hengchang and its wholly owned subsidiaries, we now own all of the issued and outstanding capital stock of Changshi Tongrong, which in turn owns all of the issued and outstanding capital stock of Changshitong Information Consulting (Shenzhen) Co., Ltd. ("Changshitong Consulting"). In addition, we effectively and substantially control Fujian Tianfeihong ~~(the "VIE")~~ through a series of agreements between Changshitong Consulting and Fujian Tianfeihong and its stockholders. The consolidated group, including the VIE, is hereafter referred to as the “Company”.

Fanwei Hengchang was established in the British Virgin Islands on on May 29, 2013. It is a holding company whose sole asset is the capital stock of Changshi Tongrong Limited (Hong Kong), a holding company established in Hong Kong on August 10, 2012 whose sole asset is all of the registered equity of Changshitong ~~Information~~ Consulting ~~(Shenzhen) Co~~., ~~Ltd. (“~~Changshitong Consulting~~”).~~ ~~Changshitong Consulting~~ was established by Changshi Tongrong as a wholly foreign owned enterprise (the “WFOE”) in the People's Republic of China (“PRC”) on September 23, 2013.

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 have been 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.

Contractual Arrangements with our Controlled Consolidated Affiliate and its ~~Stockholders~~Shareholders

On November 26, 2013, prior to the reverse acquisition transaction, Changshitong Consulting and Fujian Tianfeihong and its shareholders, Jinxiang Fang and Zhiliang Fang, entered into a series of agreements (the “VIE Agreements”) pursuant to which Fujian Tianfeihong became Changshitong Consulting’s contractually controlled affiliate. The VIE Agreements included:

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(1)

an Exclusive Technical Service and Business Consulting Agreement between Changshitong Consulting and Fujian Tianfeihong pursuant to which Changshitong Consulting is to provide technical support and consulting services to Fujian Tianfeihong in exchange for (i) 95% of the total annual net profit of Fujian Tianfeihong plus (ii) RMB10,000 per month (U.S.$1,627);

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(2)

a Call Option Agreement among Zhiliang Fang and Jinxiang Fang (together referred to as “Fujian Tianfeihong Stockholders”) and Changshitong Consulting under which the Fujian Tianfeihong Stockholders have granted to Changshitong Consulting the irrevocable right and option to acquire all of the equity interests in Fujian Tianfeihong to the extent permitted by PRC law. If PRC law limits the percentage of Fujian Tianfeihong that Changshitong Consulting may purchase at any time, then Changshitong Consulting may repeatedly exercise its option in such increments as may be allowed by PRC law. The exercise price of the option is RMB1.00 (U.S. $0.16) or the minimum price permitted by PRC laws if at that time there are any PRC laws regulating the minimum purchase price. The Fujian Tianfeihong Stockholders agreed to refrain from taking certain actions which might harm the value of Fujian Tianfeihong or Changshitong Consulting’s option;

(3)

a Proxy Agreement by Zhiliang Fang, Jinxiang Fang, Changshitong Consulting and Fujian Tianfeihong pursuant to which the Fujian Tianfeihong Stockholders authorize Changshitong Consulting to designate someone to exercise all of their stockholder decision rights with respect to Fujian Tianfeihong; and

(4)

a Share Pledge Agreement among Zhiliang Fang and Jinxiang Fang, Fujian Tianfeihong, and Changshitong Consulting under which the Fujian Tianfeihong Stockholders pledge all of their equity in Fujian Tianfeihong to Changshitong Consulting to guarantee Fujian Tianfeihong’s and its stockholders’ performance of their obligations under the Exclusive Technical Service and Business Consulting Agreement, the Call Option Agreement and the Proxy Agreement.

The accounting effect of the VIE Agreements between Changshitong Consulting and Fujian Tianfeihong is to cause the balance sheets and financial results of Fujian Tianfeihong to be consolidated with those of Changshitong Consulting, with respect to which Fujian Tianfeihong is now a variable interest entity.

~~Results~~Table of ~~Operations~~Contents 23

~~The following table sets forth key components~~ Comparison of ~~our~~three ~~results~~month ~~of operations~~and ~~during~~six ~~three~~month ~~months~~periods ended ~~November~~Feb 3028, ~~2014~~2015 and ~~2013, and the percentage changes between~~ 2014 ~~and 2013.~~

	November 30,			November 30,
	2014			2013			Change
	(US $)			(US $)			%
Revenue	$	3,136,386		$	1,932,378			62	%
Cost of Sales		(2,095,040	)		(1,311,260	)		60	%
Gross profit		1,041,346			621,118			68	%
Selling and marketing expenses		387,331			197,537			96	%
General and administrative expenses		72,925			47,273			54	%
Total operating expenses		460,256			244,810			88	%
Income from operations		581,090			376,308			54	%
Other income		5,117			3,502			46	%
Income before provision for income taxes		586,207			379,810			54	%
Provision for income taxes		146,555			94,625			55	%
Net income		439,652			285,185			54	%
Less: Non controlling interests		21,806			9,375			133	%
Net income attributable to common stockholders	$	417,846		$	275,810			51	%
Comprehensive income:
Net income	$	439,652		$	285,185			54	%
Foreign currency translation adjustment		8,907			32,756			(73	)%
Total comprehensive income	$	448,559		$	317,941			41	%
Less: Comprehensive income attributable to noncontrolling interests	$	22,495		$	9,390			140	%
Comprehensive income attributable to common stockholders	$	426,064		$	308,551			38	%

The following table sets forth key components of our results of operations during three months ended February 28, 2015 and 2014, and the percentage changes between 2015 and 2014.

Table of Contents 21

	Feb. 28,			Feb. 28,
	2015			2014			Change
	$			$			%

Revenue	$	7,639,171		$	2,882,195			165	%
Cost of Sales		(5,089,375	)		(1,889,147	)		169	%
Gross profit		2,549,796			993,048			157	%
Selling and marketing expenses		872,087			312,077			179	%
General and administrative expenses		121,674			154,162			(21	)%
Total operating expenses		993,761			466,239			113	%
Income from operations		1,556,035			526,809			195	%
Interest Income		5,577			4,130			35	%
Income before provision for income taxes		1,561,612			530,939			194	%
Provision for income taxes		390,401			128,977			203	%
Net income		1,171,211			401,962			191	%
Less: Non controlling interests		(58,384	)		(24,986	)		134	%
Net income attributable to the Common Stockholders		1,112,827			376,976			195	%
Comprehensive Income: Net Income:		1,171,211			401,962

Foreign currency translation adjustment		(37,777	)		76,490			149	%
Total comprehensive income		1,133,434			478,452			137	%
Less: Comprehensive income attributable to non-controlling interests		(56,737	)		(40,574	)		40	%
Comprehensive income attributable to common stockholders		1,076,697			437,878			146	%

~~Sales. Our~~Table ~~sales increased to $3,136,386 for the three months ended November 30, 2014 from $1,932,378 for the three months ended November 30, 2013, an increase~~ of ~~62%.~~Contents The increase was primarily attributable to our marketing efforts, which yielded a 47% increase in the quantity of cases sold, to 65,300 for three months ended November 30, 2014 from 44,403 for the three months ended November 30, 2013. In addition, the average selling price per case of wine increased to $48.03 for three months ended November 30, 2014 from $43.52 in fiscal year 2013, an increase of 10%. While the factors that caused a drop in sales from fiscal year 2013 to fiscal year 2014 (increased competition, reduced market demand) remain as obstacles to growth, the surge in sales in the recent quarter indicates that our efforts to overcome these obstacles have met with some success.24

~~Gross Profit. Our cost of sales primarily consists~~The offollowing ~~the~~table ~~cost~~sets ~~for~~forth ~~wine~~key ~~purchases~~components and the VAT surcharge. In addition, to stimulate new distribution channels, Fujian Tianfeihong has been aggressively offering rewards to customers, so that when the customer contracts to purchase a certain amount, we give the customer a certain amount of ~~free~~our ~~goods.~~results ~~These rewards are recorded as an additional cost~~ of ~~sales.~~operations ~~Rewards added $200,381 to cost of revenue~~ during the ~~three~~six ~~months~~month periods ended ~~November~~February 3028, ~~2014~~2015 and ~~$132~~ 2014,~~197~~ ~~during~~and the ~~three~~percentage ~~months~~change ~~ended~~between ~~November~~2015 ~~30,~~and ~~2013~~2014.

Our unit box purchase price increased by 9% to $28.79 for the three months ended November 30, 2014 from $26.41 for the three months ended November 30, 2013. However, as the rewards expense was smaller relative to sales in the recent quarter, gross margin increased from 32.1% in the three months ended November 30, 2013 to 33.2% in the three months ended November 30, 2014. Due to the increase in revenue and increased gross margin, our gross profit increased to $1,041,346 for the three months ended November 30, 2014 from $621,118 for the three months ended November 30, 2013, representing an increase of 68%.

	Feb. 28,			Feb. 28,
	2015			2014			Change
	$			$			%

Revenue	$	10,775,557		$	4,814,573			124	%
Cost of Sales		(7,184,415	)		(3,200,407	)		124	%
Gross profit		3,591,142			1,614,166			122	%
Selling and marketing expenses		1,259,418			509,614			147	%
General and administrative expenses		194,599			201,435			(3	%)
Total operating expenses		1,454,017			711,049			104	%
Income from operations		2,137,125			903,117			137	%
Interest Income		10,694			7,632			40	%
Income before provision for income taxes		2,147,819			910,749			136	%
Provision for income taxes		536,956			223,602			140	%
Net income		1,610,863			687,147			134	%
Less: Non controlling interests		(80,190	)		(34,361	)		133	%
Net income attributable to the Common Stockholders		1,530,673			652,786			134	%
Comprehensive Income: Net Income:		1,610,863			687,147			134	%

Foreign currency translation adjustment		(28,870	)		109,246			(126	%)
Total comprehensive income		1,581,993			796,393			99	%
Less: Comprehensive income attributable to non-controlling interests		79,232			(40,589	)		(295	%)
Comprehensive income attributable to common stockholders		1,502,761			755,804			99	%

~~Impact of Exchange Rates~~Sales. InOur ~~preparing~~sales ~~our financial~~have ~~statements~~increased ~~for inclusion~~ dramatically in ~~our SEC filings, we translate from~~ the ~~Chinese~~first ~~Renminbi~~half ~~to U.S. dollars the elements~~ of ~~our~~ ~~balance~~fiscal ~~sheets~~2015. atSales ~~the~~for ~~exchange~~three ~~rate~~months onended ~~the~~February ~~balance date~~28, ~~except~~2015 ~~for~~and ~~stockholders’~~2014 ~~equity~~were $7,639,171 and ~~our~~$2,882,195, ~~statements of income. Accordingly~~respectively, representing ~~our~~a ~~year~~period-to-~~year~~period ~~comparisons~~increase ~~may~~of be165%. ~~influenced~~Our bysales ~~changes~~for in the ~~average~~six ~~exchange~~months ~~rate,~~ended ~~resulting~~February in28, ~~increases~~2015 ~~or decreases~~and ~~that~~2014 dowere ~~not~~$10,775,557 and ~~reflect~~$4,814,573, ~~actual~~respectively, ~~changes~~an inincrease ~~operating~~of ~~results~~124%. ~~The~~In ~~exchange~~each ~~rates~~case, ~~used to translate Renminbi into Dollars in~~ the ~~financial~~primary ~~statements~~reason ~~included~~for inincreased ~~this~~sales ~~report~~was ~~were~~the ~~all~~increased ~~within 0.25% of each other. (See: Note 2 to The Consolidated Financial~~effectiveness ~~Statements: "Summary~~ of ~~Significant~~our ~~Accounting~~marketing ~~Policies - Foreign Currency Translation"). Accordingly~~efforts, ~~changes~~as inper-unit ~~exchange rates~~increases ~~did~~were ~~not have a material impact on the comparison of financial results~~modest.

~~Selling~~Gross ~~expenses~~Profit. Our ~~selling~~cost ~~expenses~~of ~~increased~~sales primarily consists of the cost for wine purchases and the VAT surcharge. Our per-unit cost of goods sold decreased by 9614% in both the second quarter and first half of fiscal 2015. Nevertheless, our gross margins decreased slightly, to ~~$387~~33.4% from 34.5% quarter-to-quarter and from to 33.3% in the first half of fiscal 2015 from 33.5% in the first half of fiscal 2014. The decrease,~~331~~ ~~for~~notwithstanding lower per-unit costs, was attributable to our aggressive marketing promotions. To stimulate new distribution channels, Fujian Tianfeihong has been offering rewards to customers, so that when the ~~three~~customer ~~months~~contracts ~~ended~~to ~~November~~purchase 30a certain amount, ~~2014~~we ~~from~~give the customer a certain amount of free goods. These rewards are recorded as an additional cost of sales. Rewards added $~~197~~488,~~537~~478 ~~for~~and $688,859 to the cost of goods sold during the three and six months ended ~~November~~February 3028, ~~2013~~2015, ~~primarily due~~while toadding anonly ~~increase~~$183,375 ofand $48315,~~660~~572 into ~~transportation~~cost ~~expenses~~of goods sold during the three and ansix ~~increase~~months ofended ~~$113~~February 28,~~539~~ in2014. ~~marketing~~The ~~expenses~~increase ~~related~~in torewards caused the ~~increase~~ reduction in ~~sales~~our gross margin. Nevertheless, ~~Our~~due ~~selling~~to ~~expenses~~the ~~primarily~~marked ~~consist~~increase ofin ~~transportation~~our ~~expenses~~revenue, ~~marketing~~gross ~~expenses~~profit increased by 157% quarter-to-quarter and ~~expenses~~by ~~incurred~~122% ~~for~~in the first ~~sales~~half ~~function,~~of ~~such~~fiscal as2015 ~~salaries,~~from ~~travel~~the ~~expenses,~~first ~~entertainment~~half ~~and~~of ~~rent~~fiscal 2015.

~~General~~Table and administrative expenses. Our general and administrative (“G&A”) expenses increased by 54%, to $72,925 for the three months ended November 30, 2014 from $47,273 for three months ended November 30, 2013. Our G&A expenses primarily consist of ~~office~~Contents expenses, entertainment expenses, travel expenses, depreciation expenses, rent, professional fees, and salaries. The change in G&A expenses occurred in all categories, and was not attributable to any single situation.25

~~Other~~Impact ~~income~~of Exchange Rates. ~~Our~~In ~~other~~preparing ~~income~~our ~~consisted entirely~~financial statements for inclusion in our SEC filings, we translate from the Chinese Renminbi to U.S. dollars the elements of ~~interest~~our ~~income~~balance sheets ~~earned~~at the exchange rate on the balance date, except for stockholders’ equity and our ~~bank~~statements ~~balances~~of income and cash flows. Accordingly, ~~Due~~our year-to-year comparisons may be influenced by changes in the ~~increase~~average exchange rate, resulting in ~~our~~increases ~~cash~~or decreases ~~position~~that ~~and~~do anot ~~modest~~reflect ~~increase~~actual changes in ~~prevailing~~operating ~~interest rates,~~results. ~~interest~~The ~~income~~exchange ~~increased~~rates used to ~~$5,117~~translate ~~for~~Renminbi into Dollars in the ~~three~~financial ~~months~~statements ~~ended~~included ~~November~~in ~~30,~~this ~~2014~~report ~~from~~were ~~$3,502~~all ~~for~~within ~~the~~0.6% ~~three~~of ~~months~~each ~~ended~~other. (See: Note 2 to The Consolidated Financial ~~November~~Statements: 30"Summary of Significant Accounting Policies - Foreign Currency Translation"). Accordingly, ~~2013~~changes in exchange rates did not have a material impact on the comparison of financial results.

~~Provision~~Selling ~~for income tax~~expenses. ~~Due~~Our selling toexpenses ~~the~~increased 54by 179% ~~increase in~~to ~~our~~$872,087 ~~pre-tax~~for ~~income,~~the ~~our~~three ~~provision~~months ~~for~~ended ~~income~~February ~~tax~~28, ~~increased~~2015, and by 147% to $~~146~~1,~~555~~259,418 for the six ~~three~~ months ended ~~November~~February 3028, ~~2014~~2015. ~~from~~Our ~~$94~~selling expenses are primarily comprised of transportation expenses,~~625~~ marketing expenses ~~for~~and ~~the~~any ~~three~~daily ~~months~~expenses ~~ended~~incurred ~~November~~for ~~30,~~sales ~~2013~~functions, ~~representing~~such aas ~~55%~~salaries, ~~increase. Our~~travelling ~~effective~~expenses, ~~tax~~entertainment ~~rate~~and ~~was~~rent. ~~the~~The ~~same~~main asreason for the ~~statutory rate~~increase ofin ~~25%~~selling ~~for~~expenses was the ~~three~~period-to-period ~~months~~increase ~~ended~~in ~~November~~goods 30sold, ~~2014~~which caused the increase in transportation and ~~2013~~other sales expenses.

~~Table~~General and administrative expenses. Despite the increase in our revenue, our general and administrative (“G&A”) expenses decreased by 21% to $121,674 for the three months ended February 28, 2015, and by 3% to $194,599 for the six months ended February 28, 2015. Our G&A expenses are primarily comprised of ~~Contents~~office 22expenses, entertainment expenses, travelling expenses, depreciation expenses, rent and salaries. The period-to-period decreases in G&A expenses were attributable to a sizeable attorney fee incurred in the second quarter of fiscal 2014, related to our preparation for the reverse merger that enabled us to list our common stock for trading in the U.S.

~~Net income~~. After deducting income tax, the Company reported net income of $439,652 and $285,185 for the three months ended November 30, 2014 and 2013, respectively. The VIE agreements assign to Changshitong Consulting only 95% of the net profit generated from Fujian Tianfeihong. For that reason, we deducted a “non-controlling interest” of $21,806 and $9,375, respectively, before recognizing net income attributable to the Company’s common stockholders on our Consolidated Statements of Income and Comprehensive Income. After that deduction, our net income attributable to the Company for the three months ended November 30, 2014 was $417,846, an increase of 51% from the net income of $275,810 for the three months ended November 30, 2013.

~~Foreign~~Other ~~Currency Translation Adjustment~~income. ~~Our reporting~~As ~~currency~~we ishave ~~the~~no ~~U.S. dollar. Our local currency~~interest-bearing debts, ~~Renminbi (RMB), is~~ our ~~functional~~other ~~currency.~~income ~~Results~~consisted ofentirely operations and cash flow are translated at average exchange rates during the period being reported upon, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of ~~China~~interest atincome ~~the~~earned ~~end~~on ofour ~~the~~bank ~~period~~balances. ~~Translation~~Due ~~adjustments~~to ~~resulting from~~the ~~this~~increase ~~process are included~~ in ~~accumulated~~our ~~other~~cash ~~comprehensive income in the statement of stockholders’ equity. Transaction~~position ~~gains~~ and ~~losses that arise from exchange rate fluctuations on transactions denominated in~~ a ~~currency~~modest ~~other~~increase ~~than the functional currency are included~~ in ~~the~~prevailing ~~results~~interest ofrates, ~~operations~~interest asincome ~~incurred. RMB~~increased isto ~~not~~$5,577 ~~freely~~for ~~convertible into~~ the ~~currency~~three ofmonths ~~other nations.~~ended ~~All~~February ~~such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts~~28, ~~could~~2015 ~~have~~from ~~been~~$4,130 orfor ~~could be, converted into US dollars at rates used in translation. For~~ the three months ended ~~November 30~~February 28, 2014, and ~~2013,~~increased ~~foreign~~to ~~currency translation adjustments of~~ $810,~~907~~694 ~~and~~for ~~$32,756,~~the ~~respectively,~~six ~~have~~months ~~been~~ended ~~reported~~February as28, ~~other comprehensive~~2015 ~~income~~from in$7,632 for the ~~consolidated~~six ~~statements~~months ofended ~~income~~February ~~and~~28, ~~other comprehensive income~~2014.

Provision for income tax. Due to the 194% increase in our pre-tax income, our provision for income tax increased to $390,401 for the three months ended February 28, 2015 from $128,977 for the three months ended February 28, 2014, representing a 203% increase. Due to the 136% increase in our pre-tax income, our provision for income tax increased to $536,956 for the six months ended February 28, 2015 from $223,602 for the six months ended February 28, 2014, representing a 140% increase. Our effective tax rate was the same as the statutory rate of 25% for the three and six months ended February 28, 2015 and 2014.

Net income. After deducting income tax, the Company reported net income of $1,171,211 and $401,962 for the three months ended February 28, 2015 and 2014, respectively, and $1,610,863 and $687,147 for the six months ended February 28, 2015 and 2014, respectively. The VIE agreements assign to Changshitong Consulting only 95% of the net profit generated from Fujian Tianfeihong. For that reason, we deducted a “non-controlling interest” of $58,384 and $24,986, respectively, and $80,190 and $34,361, respectively, before recognizing net income attributable to the Company on our Consolidated Statements of Operations and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income attributable to common shareholders for the three months ended February 28, 2015 and 2014 was $1,112,827 and $376,976, respectively, a increase of 195%. and for the six months ended February 28, 2015 and 2014 was $1,530,673 and $652,786, respectively, an increase of 134%

Table of Contents

Foreign Currency Translation Adjustment. Our reporting currency is the U.S. dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flows are translated at average exchange rates during the periods being reported upon, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the balance sheet date. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of stockholders’ equity. 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. RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation. For the three months ended February 28, 2015 and 2014, we recorded foreign currency translation adjustments of $(37,777) and $76,490, respectively. For the six months ended February 28, 2015 and 2014, foreign currency translation adjustments of $(28,870) and $109,246 have been reported as other comprehensive income in the consolidated statements of income and other comprehensive income.

Liquidity and Capital Resources

As of ~~November~~February 3028, ~~2014~~2015, our working capital totaled $56,~~789~~925,~~469~~236, an increase of $~~460~~1,~~360~~596,127 since August 31, 2014. The increase was isapproximately aequal ~~little~~to ~~bit more than~~ our net income for the ~~three~~ six months ended ~~November~~February 3028, ~~2014~~2015, ~~due~~as to the ~~fact~~funds ~~that~~used wefor ~~have~~capital ~~very~~investing ~~little in fixed or intangible assets on our balance sheet~~ and, ~~accordingly,~~financing ~~little~~activities ~~depreciation~~was ~~or amortization expense~~insignificant. Cash and cash equivalents represented ~~almost~~approximately 7059% of our current assets at ~~November~~Feb 3028, ~~2014~~ 2015.

Since our ~~operating~~operations ~~activities~~ provided approximately $~~589,223~~1.56 million in cash during the ~~three~~six months ended ~~November~~February 3028, ~~2014~~2015, and wethe ~~have~~Company has been cash flow positive for the past two years, we believe that our liquid assets are adequate to finance our operations for the next ~~foreseeable~~twelve ~~future~~months.

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

Cash Flow

(all amounts in U.S. dollars)

	Three months Ended November 30, 2014			Three months Ended November 30, 2013
	Six Months Ended Feb. 28, 2015			Six Months Ended Feb. 28, 2014
Net cash provided by operating activities	$	~~589~~1,~~223~~561,928		$	~~305~~1,~~101~~257,497
Net cash provided by financing activities		37,630			—
Net cash (used in) investing activities		(9,694	)		(852	)
Effects of Exchange Rate Change in Cash		8,987			21,413
Net cash provided by financing activities		46,312			26,880
Net Increase in Cash		635,840			326,514
Effects of Exchange Rate Change in Cash		(28,952	)		24,394
Cash at Beginning of the Period		5,229,261			3,994,502
Net Increase in Cash and Cash Equivalents		1,569,594			1,307,919
Cash at End of the Period	$	5,865,101		$	4,321,016
Cash and Cash Equivalent at Beginning of the Period		5,229,261			3,994,502
Cash and Cash Equivalent at End of the Period		6,798,855			5,302,421

Table of Contents 23

Operating activities

Cash provided by operating activities was $~~589~~1,~~223~~561,928 for the ~~three~~ six months ended ~~November 30~~February 28, ~~2014~~2015, as compared to $~~305~~1,~~101~~257,497 for the ~~three~~six months ended ~~November~~February 3028, ~~2013~~2014. InCash provided ~~both~~by ~~periods,~~operation ~~cash~~activities ~~provided by~~was ~~operations~~approximately ~~was~~equal ~~more~~to ~~than~~our net income, asprimarily wedue ~~record~~to ~~little~~the ~~depreciation~~fact ~~and~~that ~~amortization and control~~ our ~~cash~~increase ~~flow~~in ~~by balancing~~inventory and accounts ~~payable~~receivable ~~against~~offset ~~changes~~the increase in ~~our~~ accounts ~~receivable~~ and ~~inventory~~taxes payable.

Our operations provided cash in excess of our net income for the six months ended February 28, 2014 primarily as a result of the $790,579 increase in our trade accounts payable, as well as increases in advances to suppliers and taxes payable.

Table of Contents

Investing activities

WeCash ~~did~~used ~~not~~in ~~have any~~ investing activities for ~~the three months~~six months ended ~~November~~February 3028, ~~2014~~2015 and ~~2013. The net book value of our fixed assets at November 30,~~ 2014 was $369,~~312,~~694 ~~reflecting~~and ~~the fact~~$ ~~that~~852, ~~our business activities do not need significant fixed assets. Accordingly~~respectively, ~~unless~~all weof ~~expand~~which ~~our~~was ~~business activities~~incurred infor the ~~future,~~purchase ~~investing activities should involve similarly insignificant amounts~~ of ~~cash~~equipment.

The net book value of our fixed assets at February 28, 2015 was $33,979, reflecting the fact that our business activities do not require a significant investment in fixed assets. Accordingly, unless we expand our business activities in the future, investing activities will involve similarly insignificant amounts of cash.

Financing activities

Cash provided by financing activities was $3746,~~630~~312 and $26,880 for the ~~three~~ six months ended ~~November~~February 3028, 2015 and 2014, respectively, which represented aloans ~~loan~~ from a related party. From time to time, we will take modest loans from related parties, primarily to provide the dollars needed to pay expenses incurred by our parent company in the U.S. ~~During the~~Because ~~three~~of ~~months~~our ~~ended~~ample ~~November~~cash ~~30,~~position ~~2013~~and the profitability of our operations, we ~~did~~do not ~~have~~anticipate ~~any~~incurring ~~financing~~significant ~~activities~~additional debt. Therefore, our liquidity should be adequate to sustain the full implementation of our business plan for the foreseeable future.

Because of our ample cash position and the profitability of our operations, we do not anticipate incurring significant additional debt. Therefore, our liquidity should be adequate to sustain the full implementation of our business plan for the foreseeable future.

Transfer of Cash

All of our ~~sales~~revenue ~~are~~is generated by Fujian Tianfeihong in the PRC, and often the payment of the monthly fee to Changshitong Consulting, 95% of the net income, is then assigned to Changshitong Consulting. PRC regulations restrict the ability of our PRC subsidiary, Changshitong Consulting, to make dividend and other payments to its offshore parent company. PRC legal restrictions permit payments of dividends by our PRC subsidiary only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiary is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amount of said fund reaches 50% of its registered capital. Allocations to this statutory reserve fund can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our PRC subsidiary to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

The Chinese government strictly regulates conversion of RMB into foreign currencies. Currently, Fujian Tianfeihong and Changshitong Consulting may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange (“SAFE”), by complying with certain procedural requirements. Pursuant to applicable Chinese laws and regulations, foreign invested enterprises incorporated in China, such as Changshitong Consulting, are required to apply for “Foreign Exchange Registration Certificates.” Currently, conversion within the scope of the “current account” (e.g. remittance of foreign currencies for payment of dividends, trade and service-related foreign exchange transactions, etc.) can be effected without requiring the approval of SAFE, but must be effected through authorized Chinese banks in accordance with regulatory procedures. However, conversion of currency in the “capital account” (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE. Compliance with those procedural requirements can result in delays in obtaining foreign exchange, which could interfere with offshore activities by the Company, such as acquisitions, offshore investments, or the payment of dividends to the Company’s stockholders.

Chinese regulations also limit the ability of our parent company to transfer money into China, as needed to fund the operations of Fujian Tianfeihong. If in the future, China Tianfeihong raises funds and wishes to utilize them in the operations of Fujian Tianfeihong, one of the following methods will have to be employed:

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Acquisition. China Tianfeihong could transfer capital to Fujian Tianfeihong by causing its Hong Kong subsidiary, Changshi Tongrong Limited, to apply to MOFCOM for approval of an acquisition of Fujian Tianfeihong by Changshi Tongrong Limited. MOFCOM would approve such an acquisition only after a lengthy review process, and only if it determined that the price paid by Changshi Tongrong Limited for Fujian Tianfeihong represented a commercially fair price.

2. Joint venture. If China Tianfeihong Wine, Inc. obtained capital that was less than the purchase price for Fujian Tianfeihong deemed acceptable by MOFCOM, Changshi Tongrong Limited could still inject the funds into Fujian Tianfeihong by complying with the provisions of the PRC Sino-Foreign Equity Joint Venture Law. To accomplish this capital transfer, we would be required to apply to the Chinese government for approval to convert Fujian Tianfeihong into an equity joint venture, in which Changshi Tongrong Limited would be its equity joint venture partner. If approved, Changshi Tongrong would then own a portion of the equity in Fujian Tianfeihong, and the VIE agreements between Fujian Tianfeihong and Changshitong Consulting would be modified accordingly to reduce the portion of net income payable by Fujian Tianfeihong to Changshitong Consulting.

We have no current plans for China Tianfeihong Wine, Inc. to fund Fujian Tianfeihong, and expect the VIE structure to remain in place for the foreseeable future.

Critical Accounting Policies and Estimates

In preparing our financial statements we are required to formulate policies. In our preparation of the financial statements for three ~~months~~and six month periods ended ~~November~~February 3028, 2015 and 2014, there was one determination made which was (a) subject to a high degree of uncertainty and (b) material to our results. This was the determination reflected in Note 2 to the financial statements to consolidate the balance sheet and historical financials of our variable interest entity, Fujian Tianfeihong.

Through the VIE agreements, our subsidiary, Changshitong Consulting, is deemed the primary beneficiary of Fujian Tianfeihong. Fujian Tianfeihong has no assets that are collateral for or restricted solely to settle its own obligations. The creditors of Fujian Tianfeihong do not have recourse to the Company’s general credit. Fujian Tianfeihong’s actual stockholders do not hold any kick-out rights that will affect the consolidation determination. Accordingly, the financials of Fujian Tianfeihong have been included in the accompanying consolidated financial statements.

There is a degree of uncertainty as to whether the VIE agreements would be enforceable within the Chinese legal system if, for any reason, we found it necessary to seek legal enforcement. To date, there has been very limited judicial comment on such agreements, and nothing that would serve as binding precedent if the enforceability of our VIE agreements were to be adjudicated. We believe that, if adjudicated, each of the four VIE agreements would be found enforceable by the Chinese legal system. Our bases for this conclusion are:

·• The Exclusive Technical Service and Business Consulting Agreement provides an exchange of money for services that is a fair and reasonable exchange and does not violate any principal of Chinese law.

·• The Call Option Agreement is, essentially, a stand-still agreement under which the parties agree to take no action that would prejudice the other pending an acquisition of Fujian Tianfeihong by Changshitong Consulting on terms that comply with Chinese law. A standstill agreement, in contemplation of a subsequent transfer is commonly enforced in China, where the transfer process can be lengthy.

·• The Proxy Agreement conforms to Chinese corporate law that permits equity holders to appoint proxies to exercise their voting rights.

·• The Share Pledge Agreement conforms to Chinese law that permits a pledge of equity to secure obligations.

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The most likely challenge to the VIE agreements would arise under the New M&A Rules, which are designed to regulate foreign acquisitions of Chinese entities. Our analysis of the New M&A Rules, however, indicates that the New M&A Rules do not invalidate our VIE Agreements. The New M&A Rules require offshore “special purpose vehicles,” that are (1) formed for the purpose of overseas listing of the equity interests of Chinese companies via acquisition and (2) are controlled directly or indirectly by Chinese companies and/or Chinese individuals, to obtain the approval of the China Securities Regulatory Commission (“CSRC”) prior to the listing and trading of their securities on overseas stock exchanges. Our review of the New M&A Rules persuades us that this provision does not apply to our Company. We reached that conclusion by observing that:

Changshitong Consulting was incorporated by a foreign investor and therefore has no Chinese shareholders;

the share exchange between Fanwei Hengchang and China Tianfeihong Wine, Inc., is between two offshore companies and is not deemed as a transaction to acquire equity or assets of a “Chinese domestic company” as defined under the New M&A Rules; and

no provision in the New M&A Rules clearly classifies the contractual arrangements between Changshitong Consulting and Fujian Tianfeihong as a type of transaction falling within the New M&A Rules.

We believe, therefore, that under prevailing laws and policies, our VIE Agreements are enforceable in Chinese courts. Consideration must be given, however, to the possibility that the Chinese government could create a policy adverse to such arrangements, which would be likely to affect future adjudication of the enforceability of entrusted-management-type arrangements. Moreover, as there are no judicial decisions known to us regarding the enforceability of VIE agreements, it is possible that our analysis of their enforceability may not prevail in a Chinese court. There is a risk, therefore, that if it occurred that the counterparties to the VIE agreements failed to abide by the VIE agreements, we would be unable to secure effective relief in the Chinese legal system. In that eventuality, we would be required to de-consolidate Fujian Tianfeihong from the Company’s financial statements, and the Company would report no revenue nor earnings and only nominal assets.

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 or results of operations.

Recent accounting pronouncements

There were no recent accounting pronouncements that we believe have or will have a material effect on the Company’s financial position or results of operations.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) promulgated by the Securities and Exchange Commission) as of ~~November~~February 3028, ~~2014~~2015. The evaluation revealed that there are material weaknesses in our disclosure controls, specifically:

•

The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system.

•

Our accounting personnel lack expertise in identifying and addressing complex accounting issues under U.S. Generally Accepted Accounting Principles.

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Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of ~~November 30~~February 28, ~~2014~~2015.

Changes in Internal Controls. There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during the Company’s ~~first~~second fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

Table of Contents 27

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A Risk Factors

There have been no material changes from the risk factors included in Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2014.

Item 2. Unregistered Sale of Securities and Use of Proceeds

(a) Unregistered sales of equity securities

None.

The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the ~~1st~~2nd quarter of fiscal 2015.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information.

None.

Table of Contents

Item 6. Exhibits

31.1		Rule 13a-14(a) Certification – CEO
31.2		Rule 13a-14(a) Certification – CFO
32		Rule 13a-14(b) Certification
101.INS		XBRL Instance
101.SCH		XBRL Schema
101.CAL		XBRL Calculation
101.DEF		XBRL Definition
101.LAB		XBRL Label
101.PRE		XBRL Presentation

31.1

Rule 13a-14(a) Certification – CEO

~~Table~~31.2 ofRule ~~Contents~~13a-14(a) 28Certification – CFO

Rule 13a-14(b) Certification

101.INS

XBRL Instance

101.SCH

XBRL Schema

101.CAL

XBRL Calculation

101.DEF

XBRL Definition

101.LAB

XBRL Label

101.PRE

XBRL Presentation

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.

		CHINA TIANFEIHONG WINE, INC.	~~CHINA TIANFEIHONG WINE, INC.~~
Date:	January 8, 2015		By:	/s/ Zhiliang Fang
Date: April 20, 2015	By:	/s/ Zhiliang Fang
		Zhiliang Fang, Chief Executive Officer		~~Zhiliang Fang, Chief Executive Officer~~
	By:	/s/ Lirong Zheng	~~By:~~	~~/s/ Lirong Zheng~~
		Lirong Zheng, Chief Financial Officer, Chief Accounting Officer		~~Lirong Zheng, Chief Financial Officer, Chief Accounting Officer~~

Table of Contents 2932

Filing Compare · China Tianfeihong Wine Inc