Attached files
file | filename |
---|---|
EX-32 - CHINA CHANGJIANG MINING & NEW ENERGY COMPANY, LTD. | ex32_1.htm |
EX-31 - CHINA CHANGJIANG MINING & NEW ENERGY COMPANY, LTD. | ex31_1.htm |
|
|
Form 10KSB NORTH AMERICAN GAMING & ENTERTAINMENT CORP - NAGM Filed: November 14, 2009 (period: December 31, 2008) Annual report filed by small businesses |
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________________ to _________________
Commission file number 0-5474
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
---------------------------------------------------
(Name of small business issuer in its charter)
Delaware 75-2571032
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Seventeen Floor, Xinhui Mansion, Gaoxin Road,
Hi-Tech Zone, Xi'An P. R. China 710075
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (86) 29-88331685
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. Yes [ ] No [X]
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the issuer was required to file such
reports),and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained herein, and none will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ]No [X]
The issuer's revenues for its most recent fiscal year were: $-0-.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer, based on the average bid and asked price of such stock, was
$242,161 at December 31, 2008.
At December 31, 2008, the registrant had outstanding 24,216,058 shares of par
value $.01 common stock.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes ___ No X
1 | Page
FOR FISCAL YEAR ENDED DECEMBER 31, 2008
FORM 10-KSB ANNUAL REPORT
INDEX
PART I
Item 1. DESCRIPTION OF BUSINESS
2
Item 2. DESCRIPTION OF PROPERTY
20
Item 3. LEGAL PROCEEDINGS
21
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
21
PART II
Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
21
SECURITIES
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
21
Item 7. FINANCIAL STATEMENTS
30
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
30
Item 8A(T). CONTROLS AND PROCEDURES
31
Item 8B. OTHER INFORMATION
31
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
31
Item 10. EXECUTIVE COMPENSATION
32
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
33
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
35
Item 13. EXHIBITS
36
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
37
SIGNATURES
43
FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms
F-1
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Stockholders' Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
PART I
ITEM 1.DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS
GENERAL
North American Gaming and Entertainment Corporation ("North American") was
incorporated under the laws of the State of Delaware in 1969. The Company
changed its name from Western Natural Gas Company to North American Gaming and
Entertainment Corporation on October 17, 1994 in connection with its merger
with OM Investors, Inc. Until August 20, 2001, the Company was engaged in the
video gaming business through its partial ownership of three operating
companies that operated video poker machines located in truck stops in
Louisiana. Effective August 20, 2001, the Company sold all of the Company's
interest in the three operating companies. The Company did not liquidate as a
result of the sale of its assets but began to seek business and acquisition
opportunities, leading to the Transactions. Effective February 4, 2008, we
acquired a controlling interest in Shaanxi Chang Jiang Si You Neng Yuan Fa Zhang
Gu Feng You Xian Gong Si ("Chang Jiang"), a China corporation, in exchange for
a controlling interest in the Company.
Since our acquisition of Chang Jiang our primary business activity is
exploration and we expect to begin mining, processing and distributing gold,
zinc, and lead in 2009. Currently all of our business is in the Shaanxi
Province, China . We have engaged in exploration and expect to begin to
operate mines in the Qinba Mountain Area at a geologic junction of "Shan, Zha,
Zhen, Xun", which are the four primary metallogenic prospective areas in the
Shaanxi Province. This region has historically contained reserves of high-grade
minerals of gold, lead and zinc. As this has traditionally been a mining area,
we believe we can meet our requirements for experienced miners and general
labor teams at an attractive cost.
Chang Jiang was incorporated in the name of Weinan Industrial and Commercial
Company Limited as a limited liability company in the PRC on March 19, 1999.
The Company became a joint stock company in January 2006 with its business
activities as an investment holding company and development of theme park in
Xi'An, PRC. Beginning in August 2005, Chang Jiang contributed $7,928,532 by
injection of certain land use rights in lieu of cash to the registered capital
of Shaanxi Huanghe Wetland Park Company Limited ("Huanghe"), representing
92.93% of the equity of Huanghe.
In 2007 Chang Jiang engaged in a series of acquisitions, divestitures and
exchanges that reorganized the company so that its operations are now
principally mining lead, zinc and gold in an 67.82 sq. km area in Jiao Shan
Zhai, Guo Jia Ling, Xunyang County, in the Shaanxi Province of China. The
transactions and history of the Company is as follows.
On February 5, 2007, Chang Jiang entered into an agreement with a third party
to acquire 40% of the equity interest in Dongfang Mining Company Limited
("Dongfang Mining") at a consideration of $3,117,267 payable in cash. Dongfang
Mining has engaged in exploration for lead, zinc and gold mining near the city
of Xi'An in the Shaanxi Province of the, PRC.
On March 22, 2007, Chang Jiang entered into an agreement with a related party
of the Company to exchange its 92.93% interest in Huanghe for 20% equity
interest in Dongfang Mining owned by the related party.
On August 15, 2007, 97.2% of the stockholders of Chang Jiang entered into a
definitive agreement with Tai Ping Yang and the stockholders of Tai Ping Yang
in which they disposed their ownership in Chang Jiang to Tai Ping Yang for 98%
of ownership in Tai Ping Yang and cash of $1,328,940 payable on or before
December 31, 2007.
Hongkong Wah Bon Enterprise Limited ("Wah Bon") was incorporated in Hong Kong
on July 7, 2006 as an investment holding company and wholly owned foreign
enterprise ("WOFE".) On September 2, 2007, Wah Bon acquired 100% ownership of
Tai Ping Yang at a consideration of $128,205 in cash.
As a result of these various transactions, the resulting company as of 31/12/2008
is as follows:
a. Wah Bon owns 100% of Tai Ping Yang;
b. Tai Ping Yang owns 97.2% of Chang Jiang; and
c. Chang Jiang owns 60% of Dongfang Mining.
The members have limited liability for the obligations or debts of the entity.
The resulting corporate structure is diagrammed below:
2 | Page
On February 4, 2008, we completed the Exchange pursuant to the Plan of Exchange
(the "Exchange"), by and among us, Chang Jiang, and the Chang Jiang
Shareholders. Under the Agreement, the Wah Bon shareholders received 500,000
shares of Series C Convertible Preferred Stock. The shares of Series C
Preferred Stock each carry the right to 1,218 votes per share and will be
convertible into common stock at a rate sufficient to yield an aggregate of 609
Million pre-split common shares upon conversion, as set forth in the
Certificate of Designations.
To comply with requirements of Chinese law (referred to as "WOFE"), we
established the acquisition of Wah Bon and Tai Ping Yang to serve as offshore
foreign entities for the purpose of consummating the acquisition. In the
opinion of our Chinese counsel this permits the transfer of at least 97.2%
shares of Chang Jiang to the first WOFE entity (Tai Ping Yang), then 100%
shares of Tai Ping Yang to the second WOFE entity (Wah Bon.) Then 100% of the
shares of Wah Bon can be conveyed to NAGM, indirectly making Chang Jiang a
foreign entity. For purposes of the acquisition, all of Chang Jiang's rights,
responsibilities and benefits are assigned to and assumed by Wah Bon. This
procedure requires several stages of governmental approval by provincial
authorities in the PRC. As of the Closing Date all required approvals had been
obtained.
North American, Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining are
hereafter referred to as (the "Company").
Sales and Marketing
Although we have not yet begun to extract minerals from the property we have
established a sales and marketing department. These persons have focused on
identifying and establishing relationships with Companies that are likely to
require our products. Lead and zinc can be freely sold and marketed throughout
the PRC. As China remains a net importer of these metals, we believe a customer
base exists within China.
Industry
General
Our primary business activity is anticipated to be mining, processing and
distributing gold, zinc, lead, and other mineral products for which China's
modernizing economy has experienced rapid growth in its manufacturing capacity.
Despite high rankings in world production of nonferrous metals, China is still
a net importer of nonferrous metals including lead and zinc. China's natural
resources include coal, iron ore, petroleum, natural gas, mercury, tin,
tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead,
zinc, and uranium. There are governmental restrictions on foreign ownership of
mines for gold and an outright ban on foreign ownership of mines for uranium.
We believe the increasing industrial capacity of China will continue to cause
increased demand for industrial raw materials such as non-ferrous metals. We
expect the price of zinc and lead will rebound in the near future, and continue
to increase although prices may experience significant fluctuation.
Mineral Deposits
Dongfang Mining obtained the exploration rights to the Dongfang Parcel on Sep.
19th, 2003. In the same year, they finished 1/10,000 geological rough survey,
geochemical profile survey and trench exploration on lead & zinc and gold mines
in Dong Er Gou, Xunyang County within the area of 1.15 sq.km. by consigning the
first geological team of Geology and Mineral Bureau of Shaanxi. Lead & zinc
mineralization clues had been found and efforts began to evaluate
reconnaissance and prospecting.
During 2005-2006, the company dug a prospecting hole with a spatial depth of
more than 60 meters and a test trench with 240m3 in the region of Jiao Shan
Zhai, and discovered five gold mine veins, each with a length of over 30
meters. Analyzed on the mineral information obtained, there are still
relatively large gold deposits in this mining area. At the end of August 2007,
three lead and zinc ore bodies and a gold ore body was preliminarily proven up,
as indicated in the exploration information of the geological team.
At the end of 2008, the company finished the round survey of gold within the total
area of .6.8 sq.km. And Began the particular survey on Feb 2009 by signing agreement
with the No.1 exploration team of the geologic and mining exploration bureau of Shaanxi
Province During the year, three valuable gold mines, located in the Jiao shan zhai
have been identified. The design of the particular survey on these 3 gold mines
has been prepared and the company commenced the gold lode exploration before the year end.
The Company were on the rough survey stage on the zinc and lead in 2008. In Wei jia shan,
Jiao shan zhai, and Shun jia he, where the rough survey had finished, 5 valuable
Zinc and lead mines had identified to further survey. In other location within the
Area, survey route had been identified and general forecast had been concluded.
The mining area covered by the Dongfang Parcel can be divided into three areas.
Gold deposits are known in the area and management has estimated gold reserves
at about 3-5 tons. Total reserves of lead and zinc ore in this region is 3-5
million tons, whose average grade is 8-15% and some even can reach as high as
45% based on the geologic studies
According to the report of May 16,2008, compiled by the No.1 exploration team of the
geologic and mining exploration bureau of Shaanxi Province. the gold mine in Jiao
shan zhai can reach the value of RMB 230,000,000 with the latest unit price of RMB 200
per gram. The potential value of the zinc and lead within the area can reach
RMB 4,800,000,000 with the latest unit price of 16,000 per ton.
As a result, the total potential value of the mines can reach RMB 5,000,000,000.
3 | Page
Nonferrous Metals - Zinc
Lead and zinc resources are relatively abundant around the world. There is no
deposit only of zinc under natural conditions, and ordinarily zinc exists with
metals such as lead, copper, or gold, in the form of polymetallic ore. China's
mining sector has experienced strong growth since 2001. Investment in mining
exploration totaled 316.2 billion yuan (42.6 billion U.S. dollars) in the first
nine months of 2007 according to Wang Min, Vice Minister of Land and Resources.
At the China Mining Conference 2007 (sponsored by China's Ministry of Land and
Resources), it was reported that China's mining output doubled to $190 Billion
for the period 2000-2005. Iron ore production increased 38% to 406 Million tons
and nonferrous metals increased 18% during that period. Nonetheless, China is
still a net importer of lead and zinc.
Zinc is a soft metal used to makes brass when mixed with Copper. Zinc is used
in the automotive and construction industries to galvanize steel, create metal
alloys and in certain chemical processes. Research is being conducted in the
area of zinc-air batteries.
According to the NONFERROUS METALS OUTLOOK, YEAR 2007 published by the
Department of Natural Resources for the Canada Ministry of Public Works,
deficits have occurred in each of the past five years for concentrate.
Stockpiles have fallen and prices have risen as a result. In September 2006
China eliminated its 5% export rebate on refined lead and zinc in September,
resulting in increased costs for metal exported from China. Chinese exports had
increased 16% in 2006 from the same ten months period in 2005.
On August 1, 2008, China eliminated the 5% export tax rebate on #0 zinc, which
decreases the export of zinc, increases the provide and ultimately worsen the market.
4 | Page
In 2007 China ranked 1st in the world both in zinc and lead production. The zinc
output in China reached 3.72 million tons in 2007. increasing 17.8% compared to
that of 2006 Calculated by the data in 2007, zinc output in China took up about
32.55% of the total global output
Worldwide zinc usage has increased from approximately 6.1 Million tons in 1985
to 11 Million tons in 2005. But only slightly increased to 11.4 million in 2007, and
11.75 million tons in 2008.Refers to the report of institute, CHR, the demand of zinc
in 2010 may slightly decrease to 11.1 million tons.
The recession of zinc partly because of the financial crisis, partly came from the
immoderate Development in the past several year. And the recession was considered the
natural adjustment Of the industry. In the long run ,the demand increase will recover.
Average settlement prices for high grade zinc are listed below.
LONDON METAL EXCHANGE FOR HIGH GRADE ZINC (ANNUAL AVERAGE SETTLEMENT PRICES
2004 $1047.83
2005 $1381.55
2006 $3275.00
2007 $3250.00
2008 $1925.00
(US DOLLARS PER TON)
The 3 months zinc closing price of London metal exchange in March 12, 2009 was only
$ 1,215 per ton, decreasing 46%, comparing that of 2008.
The bid/ask price for 15 months zinc the London Metals Exchange on May 17, 2009
was $1,320 for bid and $1,325 for ask. Source London Metal Exchange
There are 433 above-surface mine enterprises in China, distributing in 24
provinces, cities and autonomous regions all over the country, including 37
enterprises whose respective annual output of zinc concentrate is more than 10
thousand tons and the total output of which takes up 45% of the nation's total.
In the first half of year 2008, zinc concentrate output of China was 1,430,700 tons
and zinc output was 1,920,200 tons, increasing 6.11% and 21.13% respectively compared
to those of 2007.
5 | Page
Lead
Lead is the heaviest common metal known for malleability. Lead is resistant to
corrosion and used for protection against harmful X-Rays and radiation.
According to the Nonferrous Metals Outlook published by the Department of
Natural Resources for the Canada Ministry of Public Works, 75 % of the world's
demand for lead is for lead acid batteries for use in the automobile,
industrial and consumer sectors. It is also used to attenuate radiation from
radioactive sources and to provide corrosive resistant finishes to roofing.
World lead usage has increased from 4 Million Tons in 1985 to 5 1/2 Million
Tons in 2001. The forecasts are for increased usage up to approximately 6
Million tons. Usage slowed slightly from 1999 to 2004 as lawsuits in the U. S.
over lead based paints and emissions forced closures and damages. Exide, a U.
S. lead acid battery producer, was forced into bankruptcy and the Lead
Industries Association in the U. S. ceased its operations. Both cited the
lawsuits as the primary factor.
In 2007 China ranked the first in the production of lead with the total output
Of 2,757,400 tons which accounted for 34% of the global output. The Worldwide demand
is expected to be stable in the future several years.
In the first half of 2008, the lead output of China reached 1,453,500 ton, slightly increasing 7.42% comparing those of 2007.
The average closing prices for lead on the London Metals exchange are as
follows:
LONDON METAL EXCHANGE FOR LEAD
2006 2007 2008
$1,355 $2,375 $2,175
(ANNUAL AVERAGE SETTLEMENT PRICES, (US DOLLARS PER TON)
Though the average settlement prices in 2008 still stayed above $ 2,000 per ton, actually the price at the end of 2008
has lower than $1,000, and fluctuate between $950 and $ 1,300 during the first quarter of 2009. The settlement price is
$1,230 at March 12,2009.
The bid/ask price for 15 months lead on the London Metals Exchange on May 17, 2009
was $1,312 for bid and $1,317 for ask. Source - london Metal Exchange.
6 | Page
Gold
In 2008, the gross industrial output value realized by gold enterprises over
the country was 282 ton, with a growth of 4.26% compared to the same period
of last year; and the gross production had growed for 2005,2006 and 2007, with
the grow rate of 5.51%,7.15% and 12.67%.
Gold is the rare metal, which makes it impossible to fluctuate much higher or lower
in supply. The market forcasts the slight increase of supply in the near future.
It is estimated that gold consumption in China will increase from previous 200
tons per year to 400-500 tons over the next several years, which may influence
the international gold market price to a certain extent.
Despite the recession of the global economy in 2008, the gold price increased from
$833 per ounce in the beginning year to $880 per ounce at year end, with the higest
Price of $1,032 per ounce. Going with the economy depression, more and more investors
choose the gold as the priority.
LONDON METAL EXCHANGE FOR GOLD
2004 2005 2006 2007 2008
$435 $513 $632 $833 $880
Competition
Our competitors in the nonferrous metals markets are expected to be local and
regional mining enterprise. Other companies in China that mine lead and zinc
include Dongshengmiao Mining Industry Co, Ltd, Wancheng Trading & Mining
Co., Ltd., Xinjiang Wuqia Tianzhen Mining Co., Ltd., and Wulatehouqi Qingshan
Nonferrous Metal Development Co., Ltd. These competitors have more experience
in the operation of mines and mining activities and have superior financial
resources than we do. China is still a net importer of lead and zinc along with
the markets for many other non-ferrous metals. Since supply in general cannot
meet demand we do not expect that we will have difficulty selling our
ore for the near future. The gold market on a worldwide basis has seen large
increases in demand since 2001, resulting in more than threefold increase in
prices per ounce, from $435 in 2004 to $872 in 2008, according to the London
Metals Exchange. China has traditionally protected its metallurgy industry
with high tariffs, import quotas and restrictions on foreign ownership.
These tariffs and import quotas were adopted to provide protections to
companies such as ours that were part of the domestic industry in China.
Due to WTO membership, China will lower tariffs, eliminate import quotas and
permit more foreign competition, resulting in reduced protection for Chinese
companies against foreign competitors. To maintain its WTO membership, China
must gradually reduce these tariffs and quotas and commitments and permit
foreign enterprises opportunities to sell and distribute in China. Eventually
they will be eliminated altogether. This is expected to increase the effect
of foreign competition and the importation of foreign products. We are unable
to predict the effect these changes may have on our business, earnings,
financial condition or the value of our properties and securities.
7 | Page
Government Regulation
We are subject to strict regulations imposed on mining companies in China.
Regulations are issued or implemented by the Ministry of Land and Resources, a
division of the China State Council, and similar land use offices at the local
level. These regulations cover virtually all aspects of exploration and mining
of natural resources in China.
Chinese mining companies must obtain two separate permits from the land
resource divisions of the Provincial government. The first permit must be
obtained before a mining enterprise can conduct exploring activities. The
Company has obtained this license. The regulations also require a second mining
license for extraction activities. We have obtained the first license for zinc,
lead and gold. To maintain the licenses the Company must follow prescribed
procedures in its exploring or mining activities.
Chinese regulations governing Work Safety require that we have a safety
certification. These are administered by the Administration of Work Safety
before it can engage in either mining or extracting activities. All of our
operating subsidiaries have obtained appropriate safety certification from the
Administration of Work Safety of local governments. We also have been granted
environmental certification from China Bureau of Environmental Protection.
Regulations governing the mining business in China include:
Exploration and Mining Regulation (1958), amended to allow foreign
investment in 1996;
Exploration and Mining and Transfer of Rights Regulation (1998);
as well as numerous regulations governing safety by the China Mine Safety Law
and environmental feasibility studies required by China Environmental Law.
The Chinese legal system is still developing and there is often confusion and
uncertainty about the scope, interpretation and enforcement of its laws and
regulations. The mining industry has been under scrutiny for its safety and
environmental record and we cannot predict whether new laws or changes in
interpretation and scope of existing laws may adversely affect our intended
operations.
The Company has applied for excavation licenses in area for gold zinc and lead
mining within the land use area. The geographical locations for these sites are:
Eastern longitude: 109* 26' 30'' - 109* 38' 30''
Northern latitude: 32* 55' 45'' - 33 * 01 ' 00 ''
We expect to make application for the final required permits of gold by and expect to
obtain final approval during 2009. Upon approval, we will have the right to
mine the specified areas. We expect to apply for additional extraction licenses
within the land use area that have yielded positive results upon the conclusion
of the exploration.
Summary of the Exploration Works in the Dongfang Mining
8 | Page
Geological Survey
The company commissioned a geological report from the First Geological Research
Team of Shaanxi Geological and Mineral Department. A report dated October 26,
2007 was obtained that showed favorable results in several areas of the land
use area. The report is summarized as follows:
1, Summary of the Geological Survey Report by the First Geological Research
Team of Shaanxi Geological and Mineral Department dated January 13, 2008.
GEOLOGICAL CHARACTERISTICS OF THE MINING AREA
a. Stratum
The surveyed area is mainly composed of metamorphic rock formed in
middle-to-upper Silurian period and lower Devonian period. Most of the
rocks are phyllite, sandstone, calcirudite rock, lime and dolomite.
b. Structure
The surveyed area is situated in the northern margin of the draped belt
formed by Baishui River and Bai River. The frame of the structure is
composed by Tizi Rock-Shuhe faultage, which extends by an east-west
position. The Nan Yangshan faultage runs through the northern part of
the surveyed area. The main structure consists of on-growing fractures
and draped belts.
CHARACTERISTICS OF ORE / MINERALIZING ORE
Ore -containing layer of lead- zinc ore is explored out through the
stratigraphic identified by 1:10000 Geological Survey. In the fourth
lithologic section of middle Silurian period at Shuanghe town and the
merger layers of upper Silurian period at Shuidong channel, the mining
sections are mainly composed of brown ferruginous sandstone, siltstone
and grey-yellow powder phyllite containing sodium.. According to the
survey, three lead-zinc mines and one gold mine were pitched:
a. Lead zinc mine
Mine KH1 situates at Guan Men Zi Ya-Cai Miao Ya district and it's
1.0-1.5 meters wide, 700 meters long and averagely 0.76 meters thick.
The average grade of mineralization is Pb1.22%, Zn0.67%. Control
Engineering: TC9, TC3, YK1, TC6, TC18. The shape of the area is : 215
o -32 o {angle} 12 o -32 o.
Mine KH2 is shown in the Wang Jia Cao area and its 2.10 meters wide,
100 meters long and averagely2.06 meters thick. The average grade of
mineralization is Pb0.85% Zn0.23%. Control Engineering: CK1. The
shape of the area is: 325 o {angle} 16 o. (Note: Single engineering
control)
Mine KH3 is shown in the Gangou area and its 1-2 meters wide, 100
meters long and averagely1.19 meters thick. The average grade of
mineralization is Pb0.71% Zn0.02%. Control Engineering: D34 sampling
point. The shape of the area is: 350 o {angle} 32 o. (Note: single
engineering control)
b. Gold Mine
Mine KH is shown in the Dong Gou area and its 0.50 meter wide, 100
meters long and averagely 0.50 meter thick. The average grade of
mineralization is Au1.01g / t. Control Engineering: sampling point,
20 meter in the North of D206. The shape of the area is : 340 o
{angle} 17 o. (Note: single engineering control)
9 | Page
THE CHARACTERISTICS OF THE PROPOSED MINES
The study revealed approximately 16 gold minerals, primarily in 4 large
deposits located at areas denoted as K1, K2 ,K3 and K11. Samplings in
others areas are all single engineering control sites:
a. K1
The surface is controlled by six trenching structures. The length
are 360 meters and the thickness is 0.29-4.30 m, with an average
thickness of 1.23 m. Ore body grade is 1.24 - 10.06 g / t ,the average
grade of mineralization is 2.7 g/t and the ore body occurrence is1* -
356 * {angle} 11 * - 50 *.
b. K2
Being controlled by three trenching structures. The length are 130
meters and the thickness is 0.22-0.89 m, with an average thickness of
0.55 m. Ore body grade is 1.29-9.51 g / t. , the average grade is 5.71
g / t and the ore body occurrence is 24 * - 320 * {angle} 9 * - 24 * .
c. K3
Being controlled by two trenching structures. The length are 100
meters and the thickness is 0.43-3.48 m, with an average thickness
of1.96 m. The Ore body grade is 5.10-12.94 g / t , the average grade
is 2.7 g / t and the ore body occurrence is -310 * - 320 * {angle} 20
* - 24 *.
d. K11
Being controlled by 1 trenching engineering and 2 pitting structures.
The length are 100 meters and the thickness is 0.13-1.62 m, with an
average thickness of0.86 m. The average grade is 4.86-7.76 g / t,
and the ore body occurrence is 225 * -255 * {angle} 16 * -24 *
GEOLOGICAL CONDITIONS OF THE ENGINEERING
The roof and floor of the mines in the area mainly consist of sericite
phyllite and sandstone. The fresh bedrock structure is dense. The cracks
and holes show minimal changes, indicating a stable rock layer. This layer
provides a very suitable foundation for excavation. During the course of
construction there may be some small-scale breaks and cracks that need to
be fortified. The transportation system is convenient and the water,
electricity resources are sufficient to meet the construction needs.
ESTIMATION OF RESOURCES
Chang Jiang Shi You Neng Yuan Gong Si currently owns 3 main rich mining
areas with large-scale gold reserves. It is primarily estimated that there
are3-5 tons of gold reserves and there are 300 - 500 million tons of lead-
zinc reserves. The average grade is 8-15%, with some ranging as high as
45%.
10 | Page
BASIS
The estimation of resources methods and requirements of this exploration
is based on GB/T17766-1999" CLASSIFICATION FOR RESOURCES/RESERVES OF
SOLID FUELS AND MINERAL COMMODITIES " and GB/T13908-2002 " General
requirements for solid mineral exploration" DZ/T0214-2002 " Geological
prospecting criterion for copper, lead, zinc, silver, nickel and
molybdenum ore", "Reference manual of the mineral resource standard "and
combined with the "opinion to the gold ore industry standard in `Shaan Xi
Xun Yang Guo Jia Ling- Jiao Shan Zhai lead, zinc, gold ore exploration'" by
Shaan Dong Kuang Fa*2007*002.to make out the industry standard to Jiao Jin
Shan gold ore exploration.
Cutoff Grade 0.5 g / t
Minimum Industrial Grade 1.2 g / t
The average grade of ore deposit 1.6 g / t
The Minimum Mining Thickness *0.8 M
Thickness of the Interlayer to be Eliminated *2.0 M
When the ore body thickness is smaller than the Minimum Mining Thickness,
using m {multiply} g / t.
RESOURCE ESTIMATION RESULTS
As mines K2 and K11 are relatively small, so we just made resource
estimation to K1 and K3 getting the intrinsic economic resources (334) .The
ore is 69460.43 tons and the metal is 244.31 kg. The ore in K1 is 43639.07
TONS, AND THE metal is103.26 kg; The ore in K3 is 25821.36 TONS, AND THE
metal is 141.05 kg;
MINERALIZATION FORECAST
The exploration area is located in the northern margin of southern
Qinling, Indo- Fold Belt Baishui Jiang- Bai He Fold Belt; the South East
edge of Shan Zha Xun Chen Ji Pen Di. The area mainly exposes the sedimentary
of paleozoic shallow metamorphised clastic rocks and carbonate rocks. Da
Yang Synclinorium, Xun Yang anticline and Nan Yang Shan fault, Da Ling-Shu
He fault form the the backbone of this area. The structure line lies from
east to west. The characteristics of the rocks are easy of deformation and
weak of metamorphism.
1:50000 stream sediment survey and 1:10000 soil measurement fix a 5 km long,
four km wide gold anomalies area around Jiao Yang Shan Zhai about 15 square
kilometres, and the anomaly area is about 0.11-3.15 square kilometers with
abnormal value as high as 2900 PPbin the centrel concentration and 277.1ppb
for an average value.
11 | Page
Environmental Regulation
Environmental protection laws in China are established on a national basis by
the State Environmental Protection Administration. Provincial and local
authorities can set local regulations which may be more restrictive than the
national standards. Environmental standards govern a variety of matters
including disposal of solid waste, discharge of contaminated water and handling
of gases, and emissions. The local authorities generally monitor and enforce
the regulations, including the assessment and collection of fees, fines and
administrative orders.
We have only been engaged in exploration efforts to date so our environmental
impact has been limited. If we are successful in commencing our extraction
operations, we expect to generate waste water, gases and solid waste. We will
therefore be subject to all national and local regulations governing these
activities.
We will likely require a license for the disposal of water and solid wastes.
Licenses must be renewed annually. We expect to be able to comply with the
regulations including the rules governing water and solid waste disposal.
Research and Development
With the acquisition of Dong Fang we now have land use rights in 67.82 sq.km
parcel located in Xunyang County, Shaanxi Province, PRC. We believe we can use
a portion of the surface of the Dong Fang parcel to grow agricultural products
which would be available for processing.
Employees
As of March 31, 2009, we have 16 full-time employees. This includes 2
people in marketing, 1 in manufacturing, 4 in research and development and
quality control, 2 in financial and accounting, and 7 in general management.
A breakdown of employees by subsidiary is below.
Full-time
Marketing
Research and
Financial and
Manufacturing
Management
development accounting
CHANG JIANG
10
2
0
2
0
6
DONG FANG
6
0
4
0
1
1
TAI PIN YANG
0
0
0
0
0
0
WAHBON
0
0
0
0
0
0
TOTAL
16
2
4
2
1
7
RISK FACTORS
Our Company and its securities are subject to significant risks to its
business, operations and financial condition. You should carefully consider the
risks described in this section as well as the remainder of the information in
this report. If we are unable to manage these risks or if any of the risks are
realized, our business, operations, and financial condition and the value of
our stock would likely suffer. In that event our investors and stockholders
could lose all or part of their investment.
RISKS RELATING TO OUR BUSINESS
WE ARE AN EARLY STAGE EXPLORATION COMPANY FACING SIGNIFICANT FINANCIAL AND
OPERATING RISKS.
We operate in two segments: the development of a theme park and an exploration
stage mining company that has acquired land use rights and exploration permits
to a tract of land in an area traditionally associated with mining in the
Shaanxi Province of central China. We are currently focused on the mining
segment, determining the degree of mineralization of lead, zinc and gold within
our properties. While we believe that there may be an opportunity to obtain
commercially viable amounts of lead, zinc and gold from our property, we still
face substantial hurdles. The exploration and extraction of mineral deposits
such as lead, zinc and gold incur significant financial risks. The results of
exploratory investigations are not always reliable or accurate even if
conducted in strict compliance with professional guidelines. Furthermore, the
investment must occur over a significant period of time even though the
quantity of minerals within any property is always finite. Many properties are
unable to develop commercially viable mines even with positive exploration
results. Successful extraction depends on very expensive processes such as
drilling, mine construction and establishment of processing facilities. Mines
are also hazardous and only a limited number of qualified, experienced miners
exist. The Company must obtain additional permits and must ramp up operations
after permitting to begin extraction. We are unable to assure you that we will
ultimately be successful in meeting these challenges or, even if so, it will
result in our mining operations becoming a commercial viable or profitable
enterprise.
OUR INDEPENDENT AUDITORS HAVE NOTED THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent auditors have noted that there is substantial doubt that we can
continue as a going concern As reflected in the accompanying consolidated
financial statements, the Company has an accumulated deficit during the
exploration stage of $13,262,228 at December 31, 2008 which includes a net loss
of $1,467,426 for the year ended December 31, 2008. The Company's current
liabilities exceed its current assets by $8,147,385 and the Company used cash
in operation of $388,013. These factors raise substantial doubt about its
ability to continue as a going concern. In view of the matters described
above, recoverability of a major portion of the recorded asset amounts shown in
the accompanying consolidated balance sheet is dependent upon continued
operations of the company, which in turn is dependent upon the Company's
ability to raise additional capital, obtain financing and succeed in its future
operations. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
12 | Page
WE HAVE NOT YET OBTAINED ALL OF THE LICENSES FROM THE CHINESE GOVERNMENT THAT
WE WILL NEED TO EXPLOIT ANY MINERALS ON OUR PROPERTIES.
China employs a two stage permitting process for permission to explore and
extract minerals. The first permit allows a mining company to engage in
exploration activities, such as boring exploratory holes, conducting mineral
assays, field testing and so on. The Company's subsidiary, Dongfang Mining,
acquired this license in 2003 and has since engaged in activities to determine
the estimated mineralization of the property and relative cost and process
needed to extract.
The second permit is for exploitation, which permits excavation and sale of
extracted minerals. The Company are ready to apply for the gold exploitation
permit, but has not yet obtained. While government officials have informally
suggested that the permit will be approved, there can be no assurance that the
Company will successfully obtain the required permit. In that event, the value
of our interest in the properties would be seriously impaired and would like
result in a significant loss of value for the Company's assets as well as its
securities.
THERE IS NO ASSURANCE THAT OUR PROPERTY WILL CONTAIN SUFFICIENT QUANTITIES OF
COMMERCIALLY MARKETABLE MINERALS FOR US TO BECOME COMMERCIALLY VIABLE OR THAT
WE WILL BE ABLE TO ECONOMICALLY EXTRACT THE MINERALS.
We are an exploration stage Company and have not yet begun the process of
excavating minerals from our property. We have engaged in limited investigation
and geologic testing. Based on our preliminary findings, we believe there is
sufficient mineralization to begin a commercially viable mining business. There
can be no assurance however that our exploratory efforts will prove correct or
that a commercially mineable mineralization exists on our property. Even if the
conclusion that a sufficient quantity of minerals exists proves correct, it
still may not be economically feasible to profitably extract the minerals for a
wide variety of reasons, many of which are beyond the Company's ability to
control. Therefore we can offer no assurance that a profitable mining business
will result from our efforts.
WE HAVE HAD NO REVENUES, A LIMITED OPERATING HISTORY AND A HISTORY OF OPERATING
LOSSES.
13 | Page
The Company was a "shell company" as defined by 2005 amendments to the
Securities Exchange Act. We had no operations and no significant assets and
existed only for the purpose of locating a business or business opportunity
with which to join forces. We acquired a Chinese corporation that has begun
attempts to establish a mine for lead, zinc and gold in February 2008.
The Company, through its subsidiaries, obtained a permit to begin exploratory
efforts in 2003 and has not yet commenced actual mining of the land. We intend
to commence gold extractions in 2009. We therefore have a very limited operating
history upon which to base an evaluation of our business and prospects.
We have had no revenues and do not anticipate revenues until the exploitation
permits are obtained, the mine infrastructure has been completed and the
extraction of minerals has begun. As of December 31, 2008 and December 31,
2007, we had operating losses of $1,141,537 and $746,461, respectively. Net losses
at December 31, 2008 and December 31, 2007 were $1,467,426 and $8,959,472,
respectively. As of December 31, 2008 and December 31, 2007, we had
comprehensive losses of $402,514 and $7,788,802, respectively.
These losses resulted from our exploration activities and corporate expenses
including the amortization of our land use right s which must be amortized over
each year of its 50 year life, whether or not exploitation has occurred.
Our prospects must be considered in light of the risks, expenses, and
difficulties frequently encountered by companies in their early stage of
development. There can be no assurance that we will be successful in addressing
such risks and any failure to do so may have a material adverse effect on our
business, prospects, financial condition, and results of operations.
There is no assurance that we will be able to successfully complete the
construction of our theme park and the value of our land use right may be
impaired.
The Company operates in two segments: mining and a proposed theme park business
on the land that is subject to the land use rights. Currently the Company is
focusing its efforts and resources exclusively in the mining segment. There are
many risks and uncertainties associated with the intended construction of a
theme park such as financing, permitting, contracting, and all of the risks of
a new, start up enterprise. We cannot assure you that we will ever be
successful in developing our intended theme park.
In addition, the Company's largest asset is the net land use rights which was
valued at $17,508,609. If we do not successfully develop the theme park
segment, there is a risk that the value of our land use rights would be
impaired or possibly even forfeited.
There are a significant number of risks associated with operating a theme park
such as risk of injury., any of which would adversely affect revenues.
Theme park operations are subject to a number of factors over which the Company
will have little control. These factors include competition from other area
entertainment sources, weather, local events, civil unrest and others. There is
a risk of injury associated with many attractions at theme parks, which could
give rise to liability. Any of these factors could negatively affect our
revenues and earnings, if we commence theme park operations.
Theme parks have historically been subject to weather and seasonality over
which we have no control.
In the event that we begin operations in the theme park industry, our revenues
will be subject to a variety of caprices, such as inclement weather and
seasonality. The vast majority of theme park patrons attend only in fair
weather. Since we expect to operate only one theme park the risks associated
with inclement weather are not spread over a number of differing geographical
areas. Therefore, we expect that inclement weather will have a significantly
adverse impact our revenues.
14 | Page
DUE TO OUR LIMITED OPERATING HISTORY, WE WILL BE UNABLE TO ACCURATELY FORECAST
REVENUES.
Due to our limited operating history and our planned growth through increased
sales, we are currently unable to accurately forecast our future revenues. Our
current and future expense levels are largely based on our investment plans and
estimates of future revenues, which are expected to increase. Revenues and
operating results generally depend on the effectiveness of our marketing
strategies to penetrate the market and the success of our research and
development efforts which are difficult to forecast as we are in a relatively
new company. We may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to our planned expenditures would have an
immediate adverse effect on our business, prospects, financial condition, and
results of operations. Furthermore, as a strategic response to changes in our
competitive environment, we may from time to time make certain pricing or
marketing decisions that could have a material adverse effect on our business,
prospects, financial condition, or results of operations.
15 | Page
WE WILL NEED ADDITIONAL CAPITAL TO FUND OUR GROWING OPERATIONS, AND WE MAY NOT
BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF
OUR OPERATIONS.
As of December 31, 2008 and December 31, 2007, we had current assets of
$253,521 and $1,685,789, respectively. The remainder of our assets consists of
land use rights that are illiquid. As we begin to implement our strategies to
excavate the property and exploit the minerals, we will likely experience cash
flow deficits and increased capital needs that may exceed our available
capital. We may need to fund our future operations with additional funding. Our
capital needs will depend on numerous factors affecting our profitability,
including (i) the time and expense of ramp up of the extraction activities,
(ii) the amount and quality of minerals extracted, (iii) our ability to contain
expenditures, especially for administrative and transportation costs, and (iv)
the amount of our expenditures. We cannot assure you that we will be able to
obtain funding in the future to meet our needs.
We currently have no lines of credit or other arrangements for capital and
cannot provide any assurance that additional funds will be available to us.
Even if we locate available capital, it may be on unfavorable terms. Any future
capital investments could dilute or otherwise materially and adversely affect
the holdings or rights of our existing shareholders.
FLUCTUATION OF THE CHINESE CURRENCY COULD MATERIALLY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
We have not yet commenced mining operations and do not have revenues. Since all
of our revenues are expected to be derived and expenses and liabilities
incurred are in China, by exchange rate fluctuations of the Chinese currency
will affect our revenues and operating results. Presently we do not expect to
sell our products outside of China but we could sell to foreign interests as a
result of competitive forces or changes to our business plan.
16 | Page
For over a decade the value of the Chinese currency was pegged to the U. S.
Dollar and fluctuations in value were therefore relatively mild. In July 2005,
China abandoned the peg and changed to a floating exchange rate. The new rates
are market based compared to a basket of foreign currencies. These changes
would likely strengthen the RMB as compared to the U. S. Dollar and would
likely make our products more expensive for U. S. and foreign buyers. We cannot
give any assurance that the value of the RMB will continue to remain stable
against the US dollar or any other foreign currency. Accordingly, we may
experience economic losses and negative impacts on earnings and equity as a
result of foreign exchange rate fluctuations. Furthermore, any devaluation of
the RMB may adversely affect the dividends we may pay to our parent, thereby
adversely affecting the value of, and dividends payable on, our common stock.
We expect our revenues to consist almost entirely of Renminbi or "RMB", which
is the Chinese currency. The RMB is currently not a fully convertible currency.
The Chinese government may restrict future access to foreign currencies for
current account transactions. This may make it difficult for us to transfer
money from China to other countries on an economically advantageous basis or
even at all. It may also make it difficult for us to provide a return on the
investment of foreign capital on a liquid basis.
WE MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL REGULATIONS.
We are subject to PRC national and local environmental protection regulations
which currently impose fees for the discharge of waste substances, require the
payment of fines for pollution, and provide for the closure by the PRC
government of any facility that fails to comply with orders requiring us to
cease or improve upon certain activities causing environmental damage. Due to
the nature of our business, we produce significant amounts of waste water, gas,
and solid waste materials during the course of our production. We believe our
environmental protection facilities and systems are adequate for us to comply
with the existing national, provincial, and local environmental protection
regulations. However, PRC national, provincial, or local authorities may impose
additional or more stringent regulations which would require additional
expenditure on environmental matters or changes in our processes or systems.
WE DEPEND ON OUR SENIOR MANAGEMENT AND KEY EMPLOYEES, THE LOSS OF WHICH COULD
ADVERSELY AFFECT OUR OPERATIONS.
17 | Page
Much of our success will depend to a large degree upon our ability to identify,
hire, and retain additional personnel, particular experienced miners and
persons familiar with the marketing, manufacturing and administrative processes
associated with mining. We depend on the skills of our management team and
current key employees, such as Mr. Chen Wei Dong, our Chairman, President, and
Chief Executive Officer. We may be unable to retain our existing key personnel
or attract and retain additional key personnel.
The loss of any of our key employees or the failure to attract, and retain
experienced miners or additional key employees could have a material adverse
effect on our business and financial condition.
OUR SENIOR MANAGEMENT TEAM DOES NOT HAVE ENOUGH EXPERIENCE IN RUNNING A PUBLIC
COMPANY AND WILL NEED TO PROCURE ASSISTANCE FROM PROFESSIONAL ADVISERS AND THIRD
PARTIES AT ADDITIONAL EXPENSE.
Our management team and current key employees have not been engaged in similar
capacities with other public reporting companies and are not familiar with the
multitude of filings, regulations and requirements applicable to a public
company. We will require the assistance of outside counsel and accountants and
perhaps other third party advisers as well. We have no assurance that we will
successfully find qualified, experienced people to perform these tasks. Even if
successful, the fees and expense for these third parties will be an additional
administrative cost that may not be shared by our competitors. In addition, if
the advice given or work performed by these outside advisers proves to be
inadequate or incorrect, the Company and its management will nonetheless bear
the brunt of the costs and penalties assessed, with limited avenues of redress
against the outside advisers.
RISKS RELATED TO OUR INDUSTRY
RISKS ASSOCIATED WITH MINING.
The Company's operations are subject to all of the hazards and risks normally
incident to the exploration for and development and production of precious
minerals, any of which could result in damage for which the Company may be held
responsible. Many hazards are beyond our control, such as unusual or unexpected
rock formations, bad weather, landslides, cave-ins, high water tables, flooding
or other unfavorable conditions that are unknown until we begin extraction of
minerals. If we experience losses from these or other risks, it may cause
substantial delays and require significant additional expenditures. These
conditions would likely adversely affect the Company's business, financial
condition and the value of our securities.
China has recently experienced a number of serious incidents in its mining
industry that resulted in loss of life and serious personal injury. Some mines
have collapsed or were otherwise forced to close due to unsafe conditions. We
would likely suffer material losses if any of these events were to occur, and
the effect on our business and the price of our securities would be adverse and
maybe irreversible.
18 | Page
MARKET PRICES FOR NON-FERROUS METALS FLUCTUATE AND COULD ADVERSELY AFFECT THE
VALUE OF OUR COMPANY AND OUR SECURITIES.
Market prices for lead, zinc and gold, the metals we primarily intend to mine
experience significant fluctuations in price. We are entering the business at a
time that the prices of lead and zinc are extraordinarily low, and just one year
ago the price were still on the extraordinarily high level, which means the value
of the lead and zinc shrank 2/3 in a year. The profitability of our operations will
be directly related to the prices we will be able to obtain in the marketplace.
The market prices of lead, zinc, gold and non-ferrous metals are subject to factors
beyond our control. These factors include changes in legal and regulatory
requirements, changes in the exchange rates of the Renminbi and other currencies,
worldwide economic recession, political and economic factors and variations in
production costs among a number of other factors. A reduction in the price or demand
for our metals would adversely impact our expected revenues.
THE CHINESE GOVERNMENT OWNS ALL LANDS IN CHINA, AND CHINA ISSUES LAND USE
RIGHTS INSTEAD OF LEGAL TITLE TO THE PROPERTIES. THERE IS NO ASSURANCE THAT OUR
RIGHTS TO THE PROPERTIES WILL NOT BE SUBJECT TO IMPAIRMENT OR LOSS.
Despite modernization efforts in many areas, China still adheres to a communist
scheme for ownership of property that essentially vests title to the entire
country in the Central Government. Rather than deeds or other evidence of
ownership, land use rights are always subject to fixed periods of permitted
land use. These periods are frequently 50 years and may be renewable under some
circumstances. Our land use right is 50 years and is amortized over its life.
We recorded accumulated amortization expense of $1,638,232 and $1,148,125 at
December 31, 2008 and 2007, respectively.
Disputes over mining claims are common. A loss of our property rights or mining
rights would likely cause irreversible damage to the Company and the price of
its securities and could result in the loss of the entire value of our Company.
NONFERROUS MINERALS ARE FINITE AND EACH MINE HAS A LIMITED USEFUL LIFE. WE HAVE
PERFORMED ONLY LIMITED GEOLOGICAL STUDIES, AND OUR PLANS TO EXPLOIT OUR CURRENT
PROPERTIES FOR NONFERROUS METALS MAY BE CURTAILED OR EXHAUSTED. WE HAVE NOT
ENGAGED IN EFFORTS TO INVESTIGATE THE ACQUISITION OF OTHER AREAS OR ANY
EXPANDED POTENTIAL FOR OUR PARCEL.
Mines have limited lives and usually cannot be re-commissioned after exhaustion
of the economically extractable minerals. We must continually seek to replace
and expand our mineralization and reserves through the acquisition of new
properties. Significant competition exists for the acquisition of properties
producing or capable of producing gold and non-ferrous metals. We may be at a
competitive disadvantage in acquiring additional mining properties because we
must compete with other individuals and companies, many of which may have
greater financial resources and larger technical staffs than we have. As a
result of this competition, we may be unable to acquire attractive mining
properties on acceptable terms.
CHINA'S GROWTH HAD BEEN RAPIDLY ACCELERATING FOR THE PAST SEVERAL YEARS AND THE
FINANCIAL CRISIS DIRECTLY DEPRESS THE ECONOMY CURRENTLY, WHICH IMPLYS THE COMING
OF CONTRACTION BUSINESS CYCLE.
Essentially all of our business is located in China and will be conducted in
China. We expect to sell all of our extracted minerals in China. The need for
these minerals throughout the world is affected by the increasing demand in
China. We are therefore depending on the continuation of the economic growth in
China to maintain demand for our lead and zinc and, to a lesser extent, gold.
The financial crisis abruptly and sharply slow down Chinas growth pace. The economy
Contraction has adversely affected the non-ferrous metals industry. The stock price
Came down with a great extent in a short time. Many Company in the industry had to
Stock up the metals in order to lessen the impact.
Though the Chinese central government has recently stimulated the economy in all
means, which may counteract some adverse effect. But the majority expected that
the lower growth is unavoidable and the bottom of the economy has not yet reached.
If the economic growth in China continue to slows or even reverses it would likely
have an adverse effect on our business, its revenues and financial condition, and
the value of our properties and securities. We cannot assure you when the economic
turning point will come.
SHORTAGES OF CRITICAL PARTS, EQUIPMENT AND SKILLED LABOR MAY ADVERSELY AFFECT
OUR DEVELOPMENT PROJECTS.
The industry has been impacted by increased worldwide demand for critical
resources such as input commodities, drilling equipment, tires and skilled
labor. These shortages have caused and may continue to cause unanticipated cost
increases and delays in delivery times, potentially impacting operating costs,
capital expenditures and production schedules.
RISKS RELATING TO DOING BUSINESS IN THE PEOPLE'S REPUBLIC OF CHINA
WE ARE SUBJECT TO THE POLITICAL AND ECONOMIC POLICIES OF THE PEOPLES REPUBLIC
OF CHINA, AND GOVERNMENT REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
INTENDED BUSINESS.
All of our assets and operations are in the PRC. As a result our operating
results and financial performance as well as the value of our securities could
be affected by any adverse changes in economic, political and social conditions
in China.
The Chinese government adopted an "open door" policy to transition from a
planned economy to a market driven economy in 1978. Since then the economy of
the PRC has undergone rapid modernization although the Chinese government still
exerts a dominant force in the nation's economy. This continues to include
reservation to the state of land use rights or mining and exploration rights
and includes controls on foreign exchange rates and restrictions or
prohibitions on foreign ownership in various industries including mining. All
lands in China are state owned and only restricted "land use rights" are
conveyed to business enterprises or individuals.
All of our intended exploration and mining activities require approvals from
the local government authorities in China. Obtaining governmental approval is
typically a lengthy and difficult process with no guaranty of success. Since
the lands where our mines are located were acquired through the grant of a land
use right, changes in government policy could adversely affect our business.
This process may adversely affect our future business expansion.
The Chinese government operates the economy in many industries through various
five-year plans and even annual plans. A large degree of uncertainty is
associated with potential changes in these plans. Since the economic reforms
have no precedent, there can be no assurance that future changes will not
create materially adverse conditions on our business.
Some of the measures of The People's Republic of China are anticipated to
negatively affect on us. For example, the government maintains control over
capital investments in the mining of various precious metals, including gold.
While we believe we currently comply with all applicable regulations, changes
could be materially adverse. Also China has recently pronounced changes to tax
regulations and regulations pertaining to business acquisitions.
Due to the limited effectiveness of judicial review, public opinion and popular
voting there are few avenues available if the governmental action has a
negative effect. Any adverse changes in the economic conditions, in government
policies, or in laws and regulations in China could have a material adverse
effect on the overall economic growth, which in turn could lead to a reduction
in demand for our products and consequently have a material adverse effect on
our business.
THERE ARE RISKS INHERENT IN DOING BUSINESS IN CHINA OVER WHICH WE HAVE NO
CONTROL.
The political and economic systems of the PRC are very different from the
United States and more developed countries. China remains volatile in its
social, economic and political issues which could lead to revocation or
adjustment of reforms. There are also issues between China and the United
States that could result in disputes or instabilities. Both domestically and
internationally the role of China and its government remain in flux and could
suffer shocks, or setbacks that may adversely affect our business.
THE CHINESE LEGAL SYSTEM IS MUCH DIFFERENT FROM THAT OF THE UNITED STATES WITH
CONSIDERABLY LESS PROTECTION FOR INVESTORS, AND IT MAY BE EXTREMELY DIFFICULT
FOR INVESTORS TO SEEK LEGAL REDRESS IN CHINA AGAINST US OR OUR OFFICERS AND
DIRECTORS, INCLUDING CLAIMS THAT ARE BASED UPON U.S. SECURITIES LAWS.
All of our current operations are conducted in China. All of our current
directors and officers are nationals or residents of China. All of the assets
of these persons are located outside the United States in China. The PRC legal
system is a civil law system. Unlike the common law system, the civil law
system is based on written statutes in which decided legal cases have little
value as precedents. As a result there is no established body of law that has
precedential value as is the case in most western legal systems. Differences in
interpretations and rulings can occur with little or no opportunity for redress
or appeal.
As a result, it may not be possible to effect service of process within the
United States or elsewhere outside China upon our officers and directors. Even
if service of process was successful, considerable uncertainty exists as to
whether Chinese courts would enforce U. S. laws or judgments obtained in the
United States. Federal and state securities laws in the U. S. confer
substantial rights to investors and shareholders that have no equivalent in
China. Therefore a claim against us or our officers and/or directors or even a
final judgment in the U. S. based on U. S. may not be heard or enforced by the
Chinese courts.
In 1979, the PRC began to adopt a complex and comprehensive system legal system
and has approved many laws regulating economic and business practices in the
PRC including foreign investment. Currently many of the approvals required for
our business can be obtained at a local or provincial level. We believe that
it is generally easier and faster to obtain provincial approval than central
government approval. Changes to existing laws that repeal or alter the local
regulatory authority and replacements by national laws could negatively affect
our business and the value of our securities.
China's regulations and policies include limits on foreign investments
including investment in mining businesses and are still evolving. Definitive
regulations and may affect percentage ownership allowed to foreign investment
or even controls on the return on equity. Further, the various proposals are
conflicting and we may not be aware of possible violations.
NEW CHINESE LAWS MAY RESTRICT OUR ABILITY TO CONTINUE TO MAKE ACQUISITIONS OF
BUSINESSES IN CHINA.
New regulations on the acquisition of businesses commonly referred to as "SAFE"
regulations (State Administration of Foreign Exchange) were jointly adopted on
August 8, 2006 by six Chinese regulatory agencies with jurisdictional
authority. Known as the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors the new Rule requires creation of offshore
Special Purpose Ventures, or SPVs, for overseas listing purposes. Acquisitions
of domestic Chinese companies require approval prior to listing securities on
foreign exchanges.
We obtained the approvals that we believe are required in making the
acquisitions that formed the present company. Nonetheless, our growth has
largely been by acquisition and we intend to continue to make acquisitions of
Chinese businesses. Since the "SAFE" rules are very recent there are many
ambiguities and uncertainties as to interpretation and requirements. These
uncertainties and any changes or revisions to the regulations could limit or
eliminate our ability to make new acquisitions of Chinese businesses in the
future.
WE MAY BE AFFECTED BY RECENT CHANGES TO CHINA'S FOREIGN INVESTMENT POLICY,
WHICH WILL CHANGE THE INCOME TAX RATE FOR FOREIGN ENTERPRISES.
On January 1, 2008, a new Enterprise Income Tax Law took effect. The new law
revises income tax policy and sets a unified income tax rate for domestic and
foreign companies at 25 percent. It also abolishes favorable treatment for
foreign invested enterprises. When the new law takes effect, foreign invested
enterprises will no longer receive favorable tax treatment. Any earnings we
may obtain may be adversely affected by the new law.
CHINA CONTROLS THE CURRENCY CONVERSION AND EXCHANGE RATE OF ITS CURRENCY, WHICH
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
The Chinese government imposes control over the conversion of the Chinese
currency, the Renminbi, into foreign currencies, although recent pronouncements
indicate that this policy may be relaxed. Under the current system, the
People's Bank of China publishes a daily exchange rate based on the prior day's
activity which controls the inter-bank foreign exchange market. Financial
institutions are permitted a narrow range above or below the exchange rate
based on then current market conditions. Since 1977 the State Council has
prohibited restrictions on certain international payments or transfers for
current account items. The regulations also permit conversion for distributions
of dividends to foreign investors. Investment in securities, direct investment,
and loans, and security investment, are still subject to certain restrictions.
For more than a decade the exchange rate for the Renminbi ("RMB") was pegged
against the United States dollar leaving the exchange rates relatively stable
at roughly 8 RMB for 1 US Dollar. The Chinese government announced in 2005 that
it would begin pegging the Renminbi exchange rate against a basket of
currencies, instead of relying solely on the U.S. dollar. This has recently
caused the dollar to depreciate as against the RMB. As of December 31, 2008,
the rate was 6.8346 RMB for 1 US Dollar. Since all of our expected operations
are in China, significant fluctuations in the exchange rate may materially and
adversely affect our revenues, cash flow and overall financial condition.
CHINESE LAW REQUIRES APPROVAL BY CHINESE GOVERNMENT AGENCIES AND COULD LIMIT OR
PROHIBIT THE PAYMENT OF DIVIDENDS FROM ANY PROCEEDS OBTAINED FROM LIQUIDATION
OF OUR ASSETS.
All of our assets are located inside the Peoples Republic of China. Chinese law
governs the distributions that can be made in the event of liquidation of
assets of foreign invested enterprises. While dividend distribution is allowed
it is subject to governmental approval. Liquidation proceeds would also be
subject to foreign exchange control. We are unable to predict the outcome in
the event of liquidation insofar as it affects dividend payment to non- Chinese
nationals.
CHINA HAS BEEN THE LOCALE FOR THE OUTBREAK OF VARIOUS DISEASES AND A PANDEMIC
CAUSED BY DISEASES SUCH AS SARS, THE AVIAN FLU, OR SIMILAR DISEASES COULD HAVE
A MATERIALLY ADVERSE EFFECT ON OUR WORKERS AND EVEN THE CHINESE ECONOMY IN
GENERAL, WHICH MAY ADVERSELY AFFECT BUSINESS.
The World Health Organization reported in 2004 that large scale outbreaks of
avian flu throughout most of Asia, including China, had nearly caused a
pandemic that would have resulted in high mortality rates and which could cause
wholesale civil and societal disruption. There have also been several
potential outbreaks of similar pathogens in China with the potential to cause
large scale disruptions, such as SARS, pneumonia and influenza. Any future
outbreak which infiltrates the areas of our operations would likely have an
adverse effect on our ability to conduct normal business operations.
RISKS RELATING TO OUR COMMON STOCK
THERE IS CURRENTLY A LARGE MARKET OVERHANG IN OUR COMMON STOCK AND FUTURE
CONVERSIONS AND SALES OF OUR COMMON STOCK COULD DEPRESS THE MARKET PRICE AND
DIMINISH THE VALUE OF YOUR INVESTMENT.
The Company has issued 500,000 shares of Series C Convertible Preferred
Stock in the exchange of securities that acquired our current assets and
operations. Each share of Series C Preferred Stock carries the right to 1,218
votes per share. If each share is converted, the Series C Convertible Preferred
Stock will be convertible into common stock at a rate sufficient to yield an
aggregate of approximately 609 Million common shares. Future conversion and
sales of shares of our common stock or securities that are convertible into our
common stock, could adversely affect the market price of our common stock. If
any of our principal stockholders sells a large number of shares or if we issue
a large number of shares, the market price of our common stock could
significantly decline. Moreover, the perception in the public market that our
principal stockholders might sell shares of common stock could further depress
the market for our common stock.
THERE IS A LARGE NUMBER OF PREFERRED SHARES OUTSTANDING THAT WILL RECEIVE
PREFERENCES OVER THE COMMON STOCK IN THE DISTRIBUTION OF DIVIDENDS OR
LIQUIDATED ASSETS AND VOTING RIGHTS, WHICH WILL LIMIT THE ABILITY OF THE COMMON
STOCKHOLDERS TO HAVE AN EFFECTIVE VOICE IN THE MANAGEMENT OF THE COMPANY.
The Company has 500,000 shares of Series C Convertible Preferred stock outstanding
at the year end. Each of the preferred shares is entitled to receive
preferential treatment in connection with the payment of dividends,
distributions upon liquidation and voting rights. Each preferred share carries
the right to vote the equivalent of 1,218 votes of common shares. Each
preferred share will be automatically converted into 1,218 common shares upon
approval and an amendment to the Certificate of Incorporation to increase the
number of authorized shares. This effectively eliminates the ability of the
common stock holders to participate in the management of the Company, such as
the election of directors and corporate changes or conversions.
THE MARKET FOR SHARES OF OUR COMMON STOCK HAS BEEN LIMITED AND SPORADIC, AND
THERE IS NO GUARANTEE THAT A MARKET WILL BE AVAILABLE FOR YOU TO SELL YOUR
SHARES.
Shares of our common stock are not listed on any exchange but are sporadically
traded in over the counter transactions or in inter-dealer quotations from time
to time. Currently there are several market makers who have posted bid and ask
prices for our shares but there is no guarantee that they or any other brokers
will continue any activities. Our stock has been very thinly traded and there
are many days or weeks that the shares have not traded at all. There is no
assurance that any market will exist at the time that a shareholder wishes to
sell the shares and there is no assurance that any market will continue.
OUR COMMON STOCK PRICE COULD BE VOLATILE AND MAY NOT APPRECIATE IN VALUE.
The market price of shares of our common stock has fluctuated and is likely to
continue to fluctuate significantly. Fluctuations could be rapid and severe and
may provide investors little opportunity to react. Factors such as changes in
commodity prices, conversion of our preferred shares, results from our
operations, and a variety of other factors, many of which are beyond the
control of the Company, could cause the market price of our common stock to
fluctuate substantially. Also, stock markets in penny stock shares tend to have
extreme price and volume volatility. The market prices of shares of many
smaller public companies securities are subject to volatility for reasons that
frequently unrelated to the actual operating performance, earnings or other
recognized measurements of value. This volatility may cause declines including
very sudden and sharp declines in the market price of our common stock. We
cannot assure investors that the stock price will appreciate in value, that a
market will be available to resell your securities or that the shares will
retain any value at all.
BECAUSE OUR SHARES ARE DEEMED HIGH RISK "PENNY STOCKS," YOU MAY HAVE DIFFICULTY
SELLING THEM IN THE SECONDARY TRADING MARKET.
The Commission has adopted regulations which generally define a "penny stock"
to be any equity security that has a market price (as therein defined) less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. Additionally, if the equity security is not
registered or authorized on a national securities exchange, the equity security
also constitutes a "penny stock." As our common stock falls within the
definition of penny stock, these regulations require the delivery, prior to any
transaction involving our common stock, of a risk disclosure schedule
explaining the penny stock market and the risks associated with it. These
regulations generally require broker-dealers who sell penny stocks to persons
other than established customers and accredited investors to deliver a
disclosure schedule explaining the penny stock market and the risks associated
with that market. Disclosure is also required to be made about compensation
payable to both the broker-dealer and the registered representative and current
quotations for the securities. These regulations also impose various sales
practice requirements on broker-dealers. In addition, monthly statements are
required to be sent disclosing recent price information for the penny stocks.
The ability of broker/dealers to sell our common stock and the ability of
shareholders to sell our common stock in the secondary market is limited. As a
result, the market liquidity for our common stock is severely and adversely
affected. We can provide no assurance that trading in our common stock will not
be subject to these or other regulations in the future, which would negatively
affect the market for our common stock.
19 | Page
WE MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH U.S. CORPORATE
GOVERNANCE AND ACCOUNTING REQUIREMENTS.
We expect to incur significant costs associated with our public company
reporting requirements, costs associated with newly applicable corporate
governance requirements, including requirements under the Sarbanes-Oxley Act of
2002 and other rules implemented by the SEC. We expect all of these applicable
rules and regulations to increase our legal and financial compliance costs and
to make some activities more time-consuming and costly. We also expect that
these applicable rules and regulations may make it more difficult and more
expensive for us to obtain director and officer liability insurance and we may
be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be
more difficult for us to attract and retain qualified individuals to serve on
our board of directors or as executive officers. We are currently evaluating
and monitoring developments with respect to these newly applicable rules, and
we cannot predict or estimate the amount of additional costs we may incur or
the timing of such costs.
WE DO NOT FORESEE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid cash dividends on our stock and we do not plan to pay cash
dividends on our stock in the foreseeable future. We intend to retain any
earnings to expand our operations and explore additional areas and
opportunities in our industry. Therefore an investment in our common stock is
not appropriate for investors who require regular and periodic returns on their
investments.
DESCRIPTION OF PROPERTIES
All land in China is owned by the State. Individuals and companies are
permitted to acquire rights to use land or land use rights for specific
purposes. In the case of land used for commercial purposes, the land use rights
are granted for a period of 50 years. This period may be renewed at the
expiration of the initial and any subsequent terms. Granted land use rights are
transferable and may be used as security for borrowings and other obligations.
CORPORATE HEADQUARTERS Because of the maturity of the old lease, Our corporate
headquarters removed to the the opposite mansion. The new location consists
of 554 square meters located at Seventeen Floor, Xinhui Mansion, Gaoxin Road,
Hi-tech Zone, Xi'An, Shaanxi Provence PRC, Postcode:710075. Our Telephone number
Still is (86) 29-88331685 and our fax number of (86)29-88332335 has not changed.
The headquarters are leased from February, 2009 to January 31, 2011 at a rental rate
$11,029 per year.
20 | Page
THE DONGFANG PARCEL
Xunyang County in the Shaanxi Province of southwestern China has an extensive
history in mining. Called the "Golden State" in ancient times it is located in
the Qinba Mountain Area at a geologic junction of "Shan, Zha, Zhen, Xun", which
are the four primary metallogenic prospective areas in the Shaanxi Province.
This area, having been likened to China's "Ural" is the resources reserve area
of several metals in China including gold, silver, copper, iron, lead, and
zinc. Over 30 different minerals have been proven up in Xunyang County,
including reserves of basic raw materials such as lead & zinc, gold, mercury &
antimony, and limestone.
Our subsidiary Dongfang Mining, obtained the mining rights to a 67.82 sq.km
parcel in the Jiao Shan Zhai Mining Area, located in Xunyang County-Guo Jia
Ling, Xunyang County, Shaanxi Province (the "Donfang Parcel.") Approval of the
exploration rights was granted by appropriate authorities in certificate number
is 6100000720386.
The Dongfang Parcel is located in the Guo Jia Ling- Jiao Shan Zhai Mining Area
is located in eastern Xunyang County, under the jurisdiction of Shuhe Town,
Guankou Town and Gouyuan Village, Xunyang County, and Shaanxi Province
according to its administrative division. The North end of this mining area
starts at Cai Jia Gou, at the south end at Cai Miao Ya. It begins in the east
from Shi Jia Gou Nao and ends at Si Ren Gou in the west, with a whole area of
67.82 sq.km. Longitude, 109*26*30*--109*38*30*, and North Latitude, 32*55*45*--
33*01*00*.
Mineral Deposits
Dongfang Mining obtained the exploration rights to the Dongfang Parcel on
September 19, 2003. In the same year, they finished 1/10,000 geological rough
survey, geochemical profile survey and trench exploration on lead & zinc and
gold mines in Dong Er Gou, Xunyang County within the area of 1.15 sq.km. by
consigning the first geological team of Geology and Mineral Bureau of Shaanxi.
Lead & zinc mineralization clues had been found and efforts began
to evaluate reconnaissance and prospecting.
During 2005-2006, the company dug a prospecting hole with a spatial depth of
more than 60 meters and a test trench with 240m3 in the region of Jiao Shan
Zhai, and discovered five gold mine veins, each with a length of over 30
meters. Analyzed on the mineral information obtained, there are still
relatively large gold deposits in this mining area. At the end of August 2007,
three lead and zinc ore bodies and a gold ore body was preliminarily proven up,
as indicated in the exploration information of the geological team.
The mining area covered by the Dongfang Parcel can be divided into three areas.
Gold deposits are known in the area and management has estimated gold reserves
at about 3-5 tons. Total reserves of lead and zinc ore in this region is 3-5
million tons, whose average grade is 8-15% and some even can reach as high as
45% based on geologic studies.
ITEM 3.
LEGAL PROCEEDINGS
We are not presently involved in any litigation that is material to our
business. We are not aware of any pending or threatened legal proceedings. In
addition, none of our officers, directors, promoters or control persons has
filed or been involved for the past five years:
- in any bankruptcy petition,
- in any conviction of a criminal proceeding or involved in a pending
criminal proceeding (excluding traffic violations and minor offenses),
- is subject to any order, judgment or decree enjoining, barring
suspending or otherwise limiting their involvement in any type of
business, securities, or banking activities,
- or has been found to have violated a federal or state securities or
commodities law.
21 | Page
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock is traded over-the-counter and quoted from time to
time in the OTC Bulletin Board under the trading symbol "NAGM.OB".
Consequently, there is currently no established public trading market for the
Company's Common Stock. The following table sets forth the range of high and
low bid prices as reported by the OTC Bulletin Board for the periods indicated.
Such quotations represent inter-dealer prices without retail markup, markdown,
or commission, and may not necessarily represent actual transactions
CALENDAR YEARS
BY QUARTER
BID PRICE
--------------
----------
--------------
HIGH
LOW
-----
-----
2008
First
$0.035
0.01
Second
0.07
0.01
Third
0.14
0.05
Fourth
0.09
0.015
2007
First
$0.023
0.08
Second
0.023
0.48
Third
0.03
0.10
Fourth
0.02
0.065
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Forward Looking Statements
We make certain forward-looking statements in this report. Statements that
are not historical facts included in this Form 8-K are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties that could cause actual
results to differ from projected results. Such statements address activities,
events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, debt restructuring, pending legal proceedings, business
strategies, expansion and growth of the Company's operations, and cash flow.
Factors that could cause actual results to differ materially ("Cautionary
Disclosures") are described throughout this Form 8-K. Cautionary Disclosures
include, among others: general economic conditions in China and elsewhere,
the Company's ability to license, extract, refine and sell minerals and
precious metals through our intended operations in China, the strength and
financial resources of the Company's competitors, environmental and
governmental regulation, labor relations, availability and cost of employees,
material and equipment, regulatory developments and compliance,
fluctuations in currency exchange rates and legal proceedings. Statements
concerning our future operations, prospects, strategies, financial condition,
future economic performance (including growth and earnings), demand for our
services, and other statements of our plans, beliefs, or expectations,
including the statements contained under the captions "Risk Factors,"
"Management's Discussion and Analysis or Plan of Operation," "Description of
Business," as well as captions elsewhere in this document, are forward-looking
statements. In some cases these statements are identifiable through the use of
words such as "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"project," "target," "can,""could," "may," "should," "will," "would," and
similar expressions. We intend such forward-looking statements to be covered by
the safe harbor provisions contained in Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and in Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). All written and oral
forward-looking statements attributable to the Company are expressly
qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the
occurrence of anticipated or unanticipated events.
22 | Page
The nature of our business makes predicting the future trends of our revenues,
expenses, and net income difficult. Thus, our ability to predict results or the
actual effect of our future plans or strategies is inherently uncertain. The
risks and uncertainties involved in our business could affect the matters
referred to in any forward-looking statements and it is possible that our
actual results may differ materially from the anticipated results indicated in
these forward-looking statements. Important factors that could cause actual
results to differ from those in the forward-looking statements include, without
limitation, the factors discussed in the section entitled "Risk Factors" and
the following:
* the effect of political, economic, and market conditions and geopolitical
events;
* legislative and regulatory changes that affect our business;
* the availability of funds and working capital;
* the actions and initiatives of current and potential competitors;
* investor sentiment; and
* our reputation.
We do not undertake any responsibility to publicly release any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this report. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by any
forward-looking statements.
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this Form 10-K.
OVERVIEW
We are an exploration stage mining company and we have had no revenues and do
not expect revenues until we begin the process of extracting minerals which
will not start until 2009, if at all. We have sustained considerable losses
from our exploration and other activities to date.
Effective August 20, 2001, the Company sold its interests in video gaming
business for cash and notes receivable. During 2003, the Company sold the notes
receivable for cash. As a result, the Company had no on-going operations or
revenues. Thereafter the Company was a "shell" as defined by Rule 405 under
the Securities Act and Rule 12b-2 under the Exchange Act. Its only activity was
to explore for acquisition opportunities and the financing required buying and
supporting an operating business.
On February 4, 2008, (the "Closing Date") we acquired HONGKONG WAH BON
ENTERPRISE LIMITED ("Wah Bon") and its three subsidiaries: SHAANXI TAI PING
YANG XIN NENG YUAN DEVELOPMENT COMPANY LIMITED ("Tai Ping Yang "); SHAANXI
CHANG JIANG SI YOU NENG YUAN FA ZHANG GU FENG YOU XIANG GONG SI ("Chang
Jiang") and DONGFANG MINING COMPANY LIMITED ("Dongfang Mining".) Wah Bon owns
100% of Tai Ping Yang. Tai Ping Yang owns 97.2% of Chang Jiang; and Chang Jiang
owns 60% of Dongfang Mining. The minority interests represent the minority
shareholders' 2.8% and 41.68% share of the results of Chang Jiang and Dongfang
Mining respectively.
23 | Page
Our subsidiary, Chang Jiang, had acquired a 60% interest in Dongfang Mining in
two separate transactions. On February 5, 2007 we acquired 40% of the net
assets of Dongfang Mining. The acquisition of 40% of Dongfang Mining was
accounted for as a purchase under SFAS No. 141, Business Combinations.
Accordingly, the 40% of operating results of Dongfang Mining have been included
in the consolidated statements of operation and comprehensive losses after the
effective date of the acquisition of February 5, 2007.
The preliminary allocation of 40% of the net assets of Dongfang Mining
acquired is as follows:
Cash and cash equivalents
$
227,233
Other receivables and prepaid expenses
46,309
----------------
Total current assets
273,542
Fixed assets, net
7,432
Total assets
280,974
Less: Accounts payable and accrued liabilities
(3,223)
Due to a stockholder
(273,444)
----------------
Net assets acquired
4,307
Minority interests
(1,723)
Additional paid in capital
(861)
Less: Consideration for acquisition
(3,117,267)
----------------
Goodwill
$ (3,115,544)
================
Analysis of the net outflow of cash and cash equivalents in respect of the
business combination is as follows:
Total cash consideration
$ 3,117,267
Less: cash consideration payable
(1,872,131)
------------------
Cash consideration paid
1,245,136
Less: cash and cash equivalents acquired
(227,233)
------------------
Net cash outflow
$ 1,017,903
==================
The acquisition of 40% of Dongfang Mining was accounted for as a purchase
under SFAS No. 141, Business Combinations. Accordingly, the 40% of
operating results of Dongfang Mining have been included in the consolidated
statements of operation and comprehensive loss after the effective date of
the acquisition of February 5, 2007.
The following table reflects the unaudited pro forma combined results of
operations for the years ended December 31, 2007 and 2006, assuming the
acquisition had occurred at the beginning of 2007 and 2006.
24 | Page
2008
2007
2006
-----------
-----------
-----------
Revenues
$ -
$ -
$ -
-----------
-----------
Net loss
$(1,467,426)
$(8,959,472)
$(1,676,333)
-----------
-----------
Net loss per share basic
$(0.061)
$ -
$ -
-----------
-----------
Net loss per share diluted
$ -
$ (0.02)
$ -
-----------
-----------
In accordance with SFAS No. 142 "Goodwill and other intangible assets",
goodwill is not amortized but is tested for impairment. The Company are
going to perform an assessment on goodwill arising from the acquisition of
Dongfang Mining as the price of non-ferrous metals are going down and the
whole industry are stagnant. We cannot conclude that there was no impairment
to the carrying value of the goodwill in this reporting period.
On March 22, 2007, the Company entered into an agreement with a principal
stockholder of the Company to exchange the Company's 92.93% interest in Huanghe
for 20% equity interest in Dongfang Mining owned by the stockholder. The
acquisition of 20% of Dongfang Mining from the related party was accounted for
as a purchase under common control. As a result of these transactions, we
recorded goodwill of $3,115,544 in the balance sheet of the Company.
The operations of Huanghe have been reclassified as discontinued operations
in the consolidated statements of operations for the year ended
December 31, 2006 and are summarized as follows:
Operating expenses
$
(282,728)
Loss from operations
$
(291,885)
Net loss
$
(291,885)
The detailed information on the loss on disposal of Huanghe is as follows:
Cash and cash equivalents
$ 1,406,430
Other current assets
31,687
Fixed assets, net
349,024
Land use rights
8,987,826
-----------
Total assets
10,774,967
Less: Accounts payable and accrued liabilities
(205,800)
Due to related parties
(1,618,037)
Due to a stockholder
(4,726)
Minority interests
(918,343)
-----------
Book value of net assets disposed
8,028,061
20% of book value of net assets of Dongfang Mining exchanged
(827)
-----------
Loss on disposal of Huanghe
$ 8,027,234
===========
Net cash outflow on disposal of subsidiary
Proceed from disposal
$ -
Cash and cash equivalent disposed
(1,406,430)
-----------
Net cash outflow
$(1,406,430)
===========
We have land use rights for a 67.82 sq.km parcel in the Jiao Shan Zhai Mining
Area, located in Xunyang County in the Shaanxi Province of China. Our land use
rights are amortized over fifty years of the term of the leases. We have
performed tests on the site but we have not begun mining activity. We
originally planned to construct a theme park business on the parcel but have
delayed those plans while we direct our resources on the mining opportunities.
Therefore most of our assets are recorded in the theme park segment of
financial statements although this is no longer the primary focus of the
Company.
25 | Page
The following is a summary of land use rights at December 31, 2008:
Cost
$ 19,146,841
Less: accumulated amortization
(1,638,232)
-------------------
Land use rights, net
$ 17,508,609
===================
The land use rights are amortized over fifty years of the term of leases. The
amortization expense for the year ended December 31, 2008 and December 31, 2007
was $490,108 and $367,480, respectively.
From 2003 until the present, Dongfang Mining has held licenses for the
exploration of minerals and precious metals in the Shaanxi Province of the
People's Republic of China. Dongfang Mining was granted an exploration right
to the lead, zinc and gold mines located at Gan Gou and Guan Zi Gou, Xunyang
County, Shaanxi Province, PRC, on December 31, 2006. The Company engaged
Geology and Mineral Bureau of Shaanxi to conduct a preliminary survey which
reported preliminary positive findings for gold, lead and zinc deposits in the
mines.
As reflected in the accompanying consolidated financial statements, the Company
has an accumulated deficit during the exploration stage of $13,262,228 at
December 31, 2008, which includes a net loss of $1,467,426 for the year ended
December 31, 2008. The Company's current liabilities exceed its current assets
by $8,147,385 and the Company used cash of $388,013 in operations. These
factors raise substantial doubt about its ability to continue as a going
concern. In view of the matters described above, recoverability of a major
portion of the recorded asset amounts shown in the accompanying consolidated
balance sheet is dependent upon continued operations of the company, which in
turn is dependent upon the Company's ability to raise additional capital,
obtain financing and succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
Theme Park Segment
We planned to become a shareholder of a theme park business before the first
half year of 2009, but the theme park business shall not occupy much of our
resources for it shall not be controlled by us.
The Huanghe, a related Company, is one of our target enterprise. After about 4
years construction on the theme park located in the wetland of Huanghe River,
the Company was expected to generate revenue in 2009.
PLAN OF OPERATIONS
Our efforts over the next twelve months will be directed towards completing the
licensure process to begin the extraction operations from the mines and to
acquire the equipment and personnel necessary to commence mining operations. We
have applied for, but not yet obtained, an additional license that will permit
the excavation and extraction of the parcel. We expect to obtain that license
before the end of 2009 and expect to commence extraction operations shortly
thereafter.
To date we have financed our activities from loans received from related
parties. Until we begin to generate revenues we expect to continue to rely on
loans from our directors and related parties. Our directors have indicated that
they will continue to make loans for the next twelve (12) months or until the
Company begins to generate revenues, whichever first occurs. Other than the
oral assurances given by the directors, we have no other sources of capital and
there can be no guarantee that the Company will be able to meet its obligations
or obtain sufficient capital to complete its plan of operations for the next
twelve (12) months.
Our plan for 2009 is to finish reconnaissance and evaluation and begin
prospecting the known ore bodies and controlling the trench exploration, in
addition, enter in to new energy industry by acquisition ,such as electric
power. We intend to stress deep drilling and tunnel exploration validation.
We hope this will allow us to enlarge the ore body scale and prove up the anomalous
regions. We expect to accomplish this primarily with drilling and tunnel exploration.
Specific implementation methods are as follows:
- Enhance the validation of geophysical prospecting abnormities,
especially of the I and II class abnormities, make a conclusion on them
as soon as possible to provide basis for next work;
- Carry out geological investigation in adjacent regions, with
attention to the lead & zinc ore bodies;
- Investigate other metallogenic areas, mainly through surface work,
which may be combined with limited tunnel exploration and drilling;
- Finish the rough survey of lead and zinc over the 6.8 square meter area;
-
Complete the particular survey of gold and obtain the exploitation licence
Before year end.
Enter into electric power industry by controlling the Changjiang electric
Power & new emerge Co., ltd.
We believe we can find adequate skilled mining personnel in the region. We are
also exploring possible joint venture or similar arrangements with one of the
existing, competitive mining companies that are already operating in the mining
area near our parcel. If so, we would reduce our need for the initial
expenditures and the delay in commencing mining operations may be shortened.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007
The Company is an exploration stage company and has not yet generated
any revenue and consequently has also not generated any gross profit.
OPERATING EXPENSES. Total operating expenses for the year ended December
31, 2008 increased to $1,141,537,from $746,461 for the year ended December 31,
2007. Overall expenses before taxes and minority interests, for the year ended
December 31, 2008 was $1,526,199 as compared to the year ended December 31, 2007,
of $988,673. The difference of $537,526 or approximately 54% over the prior
period, the overall increase in expenses is due to the following increases in:
. A reduction of general and administrative expenses from $349,269 for
the year ended December 21, 2007 to $260,590 for the year ended December
31, 2008.
A $449,224 increase of legal and professional for 2008 comparing with that
of 2007.
. Other expense, which increased from $242,212 for the year ended December
31, 2007 to $384,662 for the year ended December 31, 2008.
. An increase in imputed interest expense from $243,337 to $353,951 which is
reflected in the increase in other expenses. Total imputed interest
recorded as additional paid-in capital amounted to $353,951 and $243,337
for the years ended December 31, 2008 and 2007, respectively.
. Depreciation increased slightly from $29,712 for the year ended December
31, 2007 to $35,779 for the year ended December 31, 2008.
. Amortization of land use rights increased from $367,480 for the year
ended December 31, 2007 to $395,944 for the year ended December 31, 2008.
26 | Page
NET LOSS. Our net loss for the year ended December 31, 2008 decreased to
$1,467,426 from $8,959,472 for the year ended December 31, 2007. The overall
decrease in net loss of $7,492,046, almost a five fold decrease, over the
prior year period, is primarily due to $8,027,234 loss on disposal of subsidiary
occurred in 2007.
COMPREHENSIVE LOSS. Our comprehensive loss for the year ended December
31, 2008 decreased to $402,514 from $7,788,802 As the $ 1,064,912 foreign currency
Translation gains of 2008 just slightly decreased comparing with $1,170,670 of 2007.
The reason for great decrease of comprehensive loss came to the same reason for the
net loss.
STOCKHOLDERS' EQUITY. Stockholders' equity increased by $281,935 to
$14,415,425 as of December 31, 2008, or approximately 2% from $14,133,490 as
of December 31, 2007. The increase was primarily due to a $489,258 repurchasing
of common stock during the year ended December 31, 2007. In addition, the $353,951
imputed interest was adjusted to the paid-in capital, which also help to increase the
stockholders equity.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Overall, we had an increase in net loss of $1,467,426 for the
year ended December 31, 2008. Net cash used in operating activities of $388,013,
net used in investing activities of $1,512,396 and net cash provided by
financing activities of $1,115,410. At December 31, 2008, our cash balance was
$23,961 as compared to $479,241 for the prior year, a decline of $455,280
or approximately 95%.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used in operating
activities of $388,013 for the year ended December 31, 2008 was primarily
attributable to a net loss from the operations. The adjustments to reconcile
the net loss to net cash, including depreciation expense of $35,779,
amortization of land use rights of $395,944, imputed interest expense
of $353,951, adjustment for minority interests of $(58,773), a decrease in current
assets and prepayments of $303,024 and other payables of $49,488.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities of $1,181,898 for the year ended December 31, 2008 was primarily
attributable to:
- Net cash outflow from the acquisition of a subsidiary of $292,629
- $883,124 from related parties; and
- Purchase of furniture and equipment of $6,145.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash of $1,445,908 provided by
financing activities in the year ended December 31, 2008 was primarily due to a
$538,343 and a $935,268 increase of due to shareholder and due to related parties,
respectively.
FINANCING. We have not generated any revenues as of December 31, 2008
and so are considered an exploration stage company. We ended 2008 with $23,961
of cash and equivalents on our balance sheet. Given our current cash usage
rate, a risk exists that our available cash on hand and the cash we anticipate
generating from operating activities will be insufficient to sustain our
operations. Our auditors have expressed substantial concern as to our ability
to continue as a going concern.
We have historically been able to issue shares, preferred stock or stock
options to pay for certain operating expenses. We believe that our pro-forma
working capital on hand as of the date of this report, along with our ability
to raise capital and meet certain operating expense obligations through the
issuance of stock or stock equivalents, will provide us with the capital we
need through year end 2009. In addition, our directors have indicated a
willingness to make loans to the Company to cover expenses, although there is
no assurance that they will do so. However, we believe that our ability to
operate beyond the end of 2009 will require us to raise additional capital, of
which there can be no assurance. We are, therefore, actively seeking additional
debt or equity financing until we become cash flow positive.
INTERNAL SOURCES OF LIQUIDITY. There is no assurance that funds from our
operations, if and when they commence, will meet the requirements of our daily
operations in the future. In the event that funds from our operations are
insufficient to meet our operating requirements, we will need to seek other
sources of financing to maintain liquidity.
EXTERNAL SOURCES OF LIQUIDITY. We intend to pursue all potential
financing options in 2009 as we look to secure additional funds to both
stabilize and grow our business operations and begin extraction. Our management
will review any financing options at their disposal and will judge each
potential source of funds on its individual merits. We cannot assure you that
we will be able to secure additional funds from debt or equity financing, as
and when we need to or if we can, that the terms of such financing will be
favorable to us or our existing shareholders.
INFLATION. Our management believes that inflation has not had a material
effect on our results of operations, and does not expect that it will in fiscal
year 2009.
OFF-BALANCE SHEET ARRANGEMENTS. We do not have any off-balance sheet
arrangements.
RECENT DEVELOPMENTS
On February 4, 2008, we closed an acquisition of Hongkong Wah Bon Enterprise
Limited ("Wah Bon"). On September 2, 2007, Wah Bon had acquired 100% ownership
of Tai Ping Yang at a consideration of $128,205 in cash. We issued 500,000
shares of series C convertible preferred stock in exchange for all of the
outstanding shares of Wah Bon. This transaction was treated as a reverse
merger for accounting purposes and we have therefore presented all financial
data in consolidated form, except where otherwise noted.
Financial Condition
We had total assets of $ 23,379,269 and $21,797,756 as of December 31, 2008 and
December 31, 2007, respectively. Most of this reduction was the result of an adjustment for
discontinued operations and disposal of a subsidiary.
The largest part of our assets is the Land Use Rights we hold. Net land use
rights were $17,508,609 as of December 31, 2008, increased from $16,743,482 for
the year ended December 31, 2007. The reason for this increase was that the
appreciation of RMB contributed more to the balance than the depreciation of
the Land Use Right did.
In order to carry out the Corporate Strategy of developing the Petroleuem and
New Energy, the Company invested RMB 2,000,000($293,328) to establish a new
company named Shaanxi Changjiang mining and New Energy Co., Ltd in
September, 2008, with Shaanxi Changfa Industry Stock Co.,Ltd (the "Changfa"),
The registered capital totals RMB 10,000,000(USD 293,328), in which the
Company owns 20%, and Changfa the other 80% share. The Company has
significant influence on the new Company as it assigned finance and Other
directors in the new Company, and has recorded the investment under the equity
method. The new Company had no income for the year ended December 31,2008 and
as the expense was not material, no adjustment has been made .
Our current liabilities were $8,400,906 as of December 31, 2008. $3,446,160 and
$434,137 are due to related companies and notes payable, respectively, along with
$2,396,560 due to stockholders. Our other payables and accrued expenses were
$2,124,049.
27 | Page
Tax Liabilities
Neither North American Gaming nor Wah Bon had income for income tax purposes in
2008 and 2007. Wah Bon is a Hong Kong corporation and therefore is subject to
Hong Kong profits tax. All of the subsidiaries of Wah Bon are incorporated in
the PRC and therefore are subject to income tax in China. The current
applicable tax rate has been 25% and no tax benefit is expected from the tax
credits in the future. There is no provision for income tax expense for the
years ended December 31, 2008 and December 31, 2007.
The Company has deferred tax assets at December 31, 2008 which consist of net
operating loss carry forwards calculated using statutory effective tax rates.
Due to its history of losses, realization of its net deferred tax assets is
unlikely. Consequently, the Company did not record the deferred tax asset
at the year end of 2007 & 2008 in the balance sheet. According to the China Tax
Regulations, the operating loss carryforwards can be deducted in the taxable
profit within 5 years.
The reconciliation of income taxes computed at the statutory income tax rates
to total income taxes for the year ended December 31, 2008 is as follows:
North American
Income tax computed at the federal statutory rate
34%
State income taxes, net of federal tax benefit
0%
---
Valuation allowance
(34%)
===
Wah Bon
Profits tax computed at the applicable tax rate
17%
---
Valuation allowance
(17%)
===
Tai Ping Yang, Chang Jiang and Dongfang Mining
Income tax computed at the applicable tax rate
25%
---
Valuation allowance
(25%)
===
Total deferred tax asset
0%
===
Other payables and accrued liabilities at December 31, 2008 consist of the
following:
Other payables
$
159,440
Consideration payable to a former owner of Dongfang Mining
1,827,898
Accrued wages
1,990
Statutory staff welfare
1,876
Other tax payable
57
Accrued expense
45,000
---------------
$ 2,124,049
===============
28 | Page
Lease
The Company moved to a new office located in Floor 17,Block B, Xinhui Building, #33
Gaoxin Road, Gaoxin District, Xian in Feb, 2009. The new office consists of 554
square meters, bears RMB75,000($10,974) per year from Feb 1, 2009 to Jan 31,2011
As of December 31, 2009 and 2010, the Company had outstanding commitments of
$13,717 and $10,974, respectively, with respect to above operating leases.
Critical Accounting Policies
Impairment: We review all assets to be held and used in the Company's business
for impairment, whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable. When required, impairment
losses on assets to be held and used are recognized based on the fair value of
the assets.
RECENT FINANCIAL ACCOUNTING PRONOUNCEMENTS
In May 2008, the FASB released SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. This statement identifies the sources of accounting principles and the framework
for selecting the accounting principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting
principles in the United States. SFAS No. 162 is effective 60 days after the SECs approval
of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company
does not expect the implementation of this guidance to have a material impact on the consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133. SFAS No. 161 gives financial statement users better information about the reporting entity's hedges by providing for qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in their hedged positions. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008 and interim periods within those years. The Company does not expect the adoption of SFAS No. 161 to have a material effect on the consolidated financial statements.
In September 2006, FASB issued Statement 157, "Fair Value Measurements. This statement
defines fair value and establishes a framework for measuring fair value in generally
accepted accounting principles ("GAAP"). More precisely, this statement sets
forth a standard definition of fair value as it applies to assets or liabilities, the
principal market (or most advantageous market) for determining fair value (price), the market
participants, inputs and the application of the derived fair value to those assets and
liabilities. The effective date of this pronouncement is for all full fiscal and interim
periods beginning after November 15, 2007. The Company does not expect the adoption of
SFAS No. 157 to have an impact on the Company's results of operations or financial condition.
In February 2007, the FASB released SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The standard is effective for fiscal years beginning after November 15, 2007. The standard provides entities the ability, on an elective basis, to report most financial assets and financial liabilities at fair value, with corresponding gains and losses recognized in current earnings. The Company did not elect the fair value option under SFAS 159 as of January 1, 2008 for any of our financial assets and liabilities that were not already fair valued. The Company will consider applying the fair value option to future transactions as provided by the standard. The Company does not expect SFAS 159 to have a material impact on the consolidated financial statements.
In December 2007, the FASB released SFAS No. 141(R), Business Combinations. This standard revises and enhances the guidance set forth in SFAS No. 141(R) by establishing a definition for the acquirer, providing additional guidance on the recognition of acquired contingencies and non-controlling interests, and broadening the scope of the standard to include all transactions involving a transfer in control, irrespective of the consideration involved in the transfer. SFAS No. 141(R) is effective for business combinations for which the acquisition date occurs in a fiscal year beginning on or after December 15, 2008. Although the standard will not have any impact on the current consolidated financial statements, application of the new guidance could be significant to the Company in the context of future merger and acquisition activity.
In December 2007, the FASB released SFAS No. 160, Non-Controlling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the standard to have a material impact on the consolidated financial statements.
29 | Page
OFF BALANCE SHEET ARRANGEMENTS
None.
The full text of our audited consolidated financial statements for the fiscal
years ended December 31, 2008 and 2007 begin on F-1 of this report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previous Principal Independent Accountants
Began from the second quarter, we dismissed Jimmy C.H. Cheung & Co. as our
principal independent accountants, and engaged BROCK,SCHECHTER & POLAKOFF,LLP
as our new principal independent accountants to perform procedures related
to our financial statements for the fiscal year ended December 31, 2008,
to be included on our Form 10-KSB under Section 13(a) or 15(d) under the Exchange
Act of 1934, as amended, and for the fiscal quarterly reports.
As described below, the change in our principal independent accountants was not
the result of any disagreement with Jimmy C.H. Cheung & Co.
In July 2008, pursuant to approval by management and the Board of Directors,
we dismissed Jimmy C.H. Cheung & Co. as our principal independent
accounting firm. Management and the Board of Directors at that time participated
in and approved the decision to change principal independent accounts. Our financial
statements for as of December 31, 2007,were prepared by Jimmy C.H. Cheung & Co.
And that as of December 31,2006, 2005, 2004 and 2003 were prepared by Sartain Fischbein &
Company, CPA.
Jimmy C.H. Cheung & Co.s reports on the financial statements did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope, or accounting principles, except that the reports
contained an explanatory paragraph indicating that substantial doubt exists
about our ability to continue as a going concern.
We have had no disagreements with Jimmy C.H. Cheung & Co. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Jimmy C.H. Cheung & Co. would
have caused it to make reference to the subject matter of any such disagreements in
their reports on the financial statement for the periods ended December 31, 2007.
We requested that Jimmy C.H. Cheung & Co. furnish a letter addressed to the Securities and
Exchange Commission stating that it is not in a position to agree or disagree with the
above statements.
New Principal Independent Accountants
Effective as of the closing date of August 11, 2008, our Board of Directors
engaged BROCK,SCHECHTER & POLAKOFF,LLP as our new independent registered public
accounting firm. The Company had not consulted with BROCK,SCHECHTER & POLAKOFF,LLP
prior to that time regarding (i) the application of accounting principles to a
specific completed or contemplated transaction, the type of audit opinion that
might be rendered on our financial statements, or any written or oral advice
that was an important factor considered by us in reaching a decision as to an
accounting, auditing or financial reporting issue; or (ii) any matter that was
the subject of a disagreement.
30 | Page
ITEM 8A.
See below.
ITEM 8B. OTHER INFORMATION.
None.
32
Item 9.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the existing officers and directors of the
Company.
DIRECTOR
AGE
POSITION AND OFFICE TO BE HELD WITH THE COMPANY
NAME OF PERSON
Chen Wei Dong
39
President, Chief Executive Officer and Chairman
of the Board
Xu Wei
33
Financial Supervisor
Zhang Hong Jun
42
Director
Wang Sheng Li
42
Director
Li Pin
33
Director and Chief Financial Officer
Tian Hai Long
36
Director
Each director of the Company will serve until its next annual shareholders'
meeting and until his successor is appointed. Subject to employment agreements
that they may have, the officers serve at the discretion of the board of
directors of the respective companies.
BIOGRAPHICAL INFORMATION OF-OFFICERS AND DIRECTORS OF THE COMPANY
Listed below is biographical information for each of the foregoing designated
new directors and officers of the Company following the Exchange, including
their principal occupations during the past five (5) years and other
affiliations:
CHEN WEI DONG - President and Chief Executive Officer
Mr. Chen serves as our President and Chief Executive Officer and as a Director.
Mr. Chen was named as Chairman of Changjiang Mining & New Energy in March 2006.
Prior to that, he was General Manager of Du Kang Trading Company from 2001 to
2006 and was a Bank Director of Branch Bank of China Agriculture Bank from May
1991 to January 2001. He served in the army of the People's Republic of China
from October 1985 to March 1990. Mr. Chen studied in Northern West University
Management School, majoring in Enterprise Management.
XU WEI - Financial Supervisor
Ms. Wei was named as CFO of Changjiang Mining & New Energy Development
Stock Co. Ltd. in March 2006. From 1900 to 1998, she was deputy section chief
of the accounting department of Shaanxi Weinan Textile Factory. In 1999, she
worked in Shaanxi Hui Huang Construction and Building Material Company as manager
of the accounting department. She passed the Adult Self Study Examination in
Shaanxi Province in 1990 with a major in Accounting.
31 | Page
ZHANG HONG JUN - Director
Mr. Zhang was named as a director of Changjiang Mining & New Energy in April 2006. Prior
to that, he was Chairman and CEO of Shaanxi Baishui Dukang Liquor Co. since
2002-2005. He is the Executive Commissioner of Shaanxi Federation of
Industry & Commerce, an academician of the China Academy of Management of
Science, the Shaanxi Deputy of the National People's Congress, Shaanxi
Executive Commission of the Political Consultation Committee, the Vice Chairman
of Wei Nan Federation of Industry & Commerce, the Vice Chairman of Beijing
Federation of Shaanxi Commerce and the Chairman of Shaanxi Du Kang Alcohol Co.
Ltd. Education.
On April 2, 2007, Mr. Zhang was named as Executive Commission of Shaanxi
Federation of Industry & Commerce, academician of China Academy of Management
of Science, Shaanxi Deputy of the NPC, Shaanxi Executive Commission of the
Political Consultation Committee, Vice Chairman of Wei Nan Federation of
Industry & Commerce, Vice Chairman of Beijing Federation of Shaanxi Commerce
and named as Chairman of Shaanxi Du Kang Alcohol Co. Ltd.
He received his MBA from the China Academy of Management of Science.
WANG SHENG LI - Director
Mr. Wang was named a director of Changjiang mining & new energy in March 2006. Prior to
that, he was the manager of Xi Deng Hui Alcohol Co. Ltd. from 1998 to 2006. He
studied in Xi'an Petroleum University Electron Construction School from 1995 to
1998, majoring in computers.
LI PIN - Director
Mr. Li was named a director and Chief Financial Officer of Changjiang Mining &
New Energy in March 2006. He was an officer of Wei Nan branch company of China
2005.
Life Insurance Company from 2000 to Mr. Li studied in the Shaanxi Finance
2006.
and Economics from 1994 to 1996, majoring in Finance and Economics Management.
TIAN HAI LONG - Director
Mr. Tian was named as director of Changjiang mining & new energy in March 2006. He was
the sales manager of Xi Deng Hui Alcohol Co. Ltd. from 1998 to 2006. He
studied in the West Industry University Electronic Information School, majoring
in e-commerce.
Item 10. EXECUTIVE COMPENSATION
No compensation was awarded to, earned by, or paid to any executive officer or
director of the Company during the years 2008, 2007, 2006, and 2005.
The following table and the accompanying notes provide summary information for
each of the last three fiscal years concerning cash and non-cash compensation
paid or accrued.
SUMMARY COMPENSATION TABLE
Name and
Year
Salary
Bonus
Other
Restricted
Securities
LTIP
Other
Principal Position
(5)
Annual
Stock Award(s)
Underlying Options
Payouts
($)
($)
Compensation ($)($) (#) ($) ($)
Chen Wei Dong
2006
675
0
0
0
0
0
0
(Chariman of board & CEO)
2007
0
0
0
0
0
0
0
2008
585
0
0
0
0
0
0
Xu Wei, Financial officer
2006
257
0
0
0
0
0
0
2007
0
0
0
0
0
0
0
2008
298
0
0
0
0
0
0
Yang Yi Jun
2006
0
0
0
0
0
0
0
2007
406
0
0
0
0
0
0
2008
439
0
0
0
0
0
0
E. H. Hawes
2006
0
0
0
0
0
0
0
2007
0
0
0
0
0
0
0
2008
0
0
0
0
0
0
0
Richard Crane
2006
0
0
0
0
0
0
0
2007
0
0
0
28,000
0
0
0
2008
0
0
0
0
0
0
0
1. Compensation paid in RMB has been converted at the rate of $1 USD =
7.398 RMB.
2. Mr. Crane was granted options on January 20, 2000 to purchase
1,000,000 shares of common stock at an exercise price of $.03125
per share, the approximate fair market value on such date, with
such options vesting immediately and having a term of five years from
the date of grant. In March 2006, the options were extended for an
additional five year period, expiring March 29, 2011. This resulted in
compensation expense of $28,000, representing the estimated fair value
of these options at the date these options were extended. The options
were fully vested at the date of this award.
3. The Company reimburses the directors for their expenses (if any)
incurred in connection with their duties as directors.
4. No cash compensation has been paid to any of our directors during these
periods other than the stock option grants which were commenced in 2000
and extended in 2005... The compensation of the Board of Directors has
not been established by any policy or amount. We have no standard
arrangements under which we will compensate our directors for their
services provided to us.
32 | Page
EMPLOYMENT AGREEMENTS
The Company has no employment agreements.
Item 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock, as of the Closing Date, by (i) each person,
including any "group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, who is known by us to own beneficially 5% or
more of
our preferred and common stock, (ii) each of our directors and named executive
officers, and (iii) all of our directors and executive officers as a group.
Unless otherwise indicated, all persons listed below have sole voting power and
investment power with respect to the shares owned by them.
SERIES C PREFERRED STOCK OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER
AMOUNT AND NATURE
PERCENTAGE
OF BENEFICIAL OWNERSHIP
(2)(3)
CHEN WEI DONG
499,630
96%
VOTING POWER OF SERIES C PREFERRED STOCK OWNERSHIP AND BENEFICIAL OWNERSHIP
ASSUMING FULL CONVERSION OF ALL PREFERRED SHARES AND GIVING EFFECT TO A ONE FOR
TEN REVERSE STOCK SPLIT
NAME AND ADDRESS OF BENEFICIAL OWNER
AMOUNT AND NATURE
PERCENTAGE
OF BENEFICIAL OWNERSHIP
(2)(3)
(Class Series C Preferred Stock )
CHEN WEI DONG
608,549
1%
ZHANG HONG JUN
35,174,152
57.8%
WANG SHENG LI
7,442,558
12.23%
LI PIN
6,079,408
9.99%
TIAN HAI LONG
6,079,408
9.99%
XU WEI
0
0
CHEN MIN
5,470,859
8.99%
OFFICERS AND DIRECTORS AS A GROUP (6PERSONS)
60,854,934
100%
33 | Page
(See Footnotes Below)
(1) The address for each beneficial owner is attached. Each of these persons can also be reached through the Company's address
which is listed c/o North American Gaming and Entertainment Company, Fifth Floor, High-Tech Mansion, Gaoxin Road, Hi-tech
Zone, Xi'an P.R. China.
Chen Wei Dong, Address: BeitangXi'Ang 11#, Linwei District, Weinan City, Shaanxi, China.
Xu Wei Address: Xi'An Ning Zhong Lu 5#, Xi'an, Shaanxi, China
Zhang Hong Jun, Address: Duqiao Paichusuo, Xiyi Road, Linwei District, Weinan City, Shaanxi, China.
Wang Sheng Li, Address: Yun Yang, Jin Yang Xi'An, Wei Nan City, Shaanxi, China.
Li Pin Address: Jie Fang Lu 132#, Wei Nan City, Shaanxi, China
Tian Hai Long, Address:, Sinancun Erzu, Jiaqv Xiang Lin Wei District, Wei Nan City, Shaanxi, China.
(2) As used herein, a person is deemed to be the "beneficial owner" of a security if he or she has or shares voting or
investment power with respect to such security, or has the right to acquire such ownership within sixty (60) days. As used
herein, "voting power" includes the power to vote or to direct the voting of shares, and "investment power" includes the
power to dispose or to direct the disposition of shares, irrespective of any economic interest therein.
(3) Except as otherwise indicated by footnote, the persons named in the table have sole voting and investment power with respect
to all Common Stock beneficially owned by them.
34 | Page
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the
Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2008 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The related parties owed the Company $1,754,586 as of December 31, 2008
including nine related companies and four related persons owed the Company
amounts totaling $1,355,694 and $398,892, respectively, for advances made on an
unsecured basis, repayable on demand and interest free.
The Company owed $2,396,560 to two former stockholders of Chang Jiang as of
December 31, 2008 for advances made on an unsecured basis, repayable on demand
and interest free. Imputed interest is charged at 7% per annum on the amounts
due.
38
The Company owed $3,446,160 to seven related parties as of December 31, 2008
including six related companies and one related person owed the Company
amounts totaling $2,086,486 and $1,359,674, respectively, for advances made on an
unsecured basis, repayable on demand and interest free. Imputed interest is
charged at 7% per annum on the amount due.
Total imputed interest recorded as additional paid-in capital amounted to
$353,951 and $243,337 for the years ended December 31, 2008 and 2007, respectively.
Consulting Fees. E.H. Hawes, II is the former Chairman of the Board, President
and Chief Executive Officer of the Company. Mr. Hawes has provided consulting
services to the Company and was paid $-0- in consulting fees during 2008,2007, 2006
and $-0- in 2005. He did not receive a salary from the Company and had been
owed a maximum of $50,000 for consulting services and expense reimbursements.
At closing the sum of $170,000 was paid to eliminate any outstanding debts of
the Company with the balance payable to Mr. Hawes in satisfaction of all sums
due him as well as any other claims. Mr. Hawes retained the assignment of a
note payable from Daylighting, Inc.
At closing the Company paid Capital Advisory Services, Inc. $200,000 and 370
shares of Series C Preferred Stock. Stanley F. Wilson, Esq. is the CEO of
Capital Advisory Services and a licensed attorney at law with 30 years of
experience. From 2006 until closing, Capital Advisory Services provided
consultation to the Company in connection with its business plan, evaluation of
companies for potential mergers, and assistance to management in completing
required tasks necessary for securities law compliance.
All shares exchanged are restricted securities and may not be resold without
registration or an exemption from registration from the Securities Act of 1933.
35 | Page
Item 13.
EXHIBITS
Exhibit
Number
Exhibit Description
Footnote Reference
-------
-------------------
------------------
3.1.3
Articles of Amendment to Articles of Incorporation
(1)
4.1
Certificate of Designation
(1)
10.1
Plan of Exchange dated May 30, 2008 by and among North
American Gaming and Entertainment Company, and SHAANXI
CHAN JIANG SI YOU NENG YUAN FA ZHANG GUFENG YOU XIAN
GONG SI
(1)
10.2
Lock Up Agreement among North American Gaming and
Entertainment Company, Steven Case and James Bowyer
(1)
10.3
Lock-up Agreement
*
10.4
Mining Exploration Certificate
(1)
10.5
Land Use Right
(1)
10.6
Lease Agreement
(1)
21
Subsidiaries
*
31.1
Certification of Chief Executive Officer under Section
302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer under Section
302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer under 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer under 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Filed herewith.
(1) Incorporated by reference from the Information Statement on Form 8-K
of North American Gaming and Entertainment Company filed with the Securities
and Exchange Commission on February 6, 2008.
36 | Page
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
On August 12, 2008, the Company filed a Form 8-K which, in part, disclosed a
change in auditors as of the closing date. The Company intended to replace its
previous auditors, Jimmy C.H. Cheung & Co. and engage BROCK, SCHECHTER & POLAKOFF,LLP
as our new principal independent accountants to perform procedures
related to our financial statements for the fiscal year ending December 31,
2008, to be included on our Form 10-KSB under Section 13(a) or 15(d) under the
Exchange Act.
Jimmy C.H. Cheung & Cos reports on the financial statements did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope, or accounting principles, except that the reports
contained an explanatory paragraph indicating that substantial doubt exists
about our ability to continue as a going concern.
We have had no disagreements with Jimmy C.H. Cheung & Co on any matter of
accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Jimmy C.H. Cheung & Co would have caused it to make
reference to the subject matter of any such disagreements in their reports on
the financial statement for the periods ended December 31, 2007.
Jimmy C.H. Cheung & Co furnish a letter addressed to the Securities
and Exchange Commission stating that it is not in a position to agree or
disagree with the above statements, dated September 12, 2008. Jimmy C.H. Cheung
& Co took issue with the following disclosures in the 8-K A as follows:
The report of Cheung on NAGM's consolidated financial statements for the fiscal
years ended December 31, 2006 and December 31, 2007 dated March 22, 2008
noted that the accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 18 to the consolidated financial statements, the
Company had a net loss of $8,959,472, an accumulated deficit during the
exploration stage of $11,794,802 and a working capital deficiency of
$5,358,730 and used cash in operations of $442,727. These factors raise
substantial doubt about its ability to continue as a going concern. Except
as stated, the report did not contain any other adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope
or accounting principle. Additionally, Cheung's review of our interim periods
ending March 31, 2007 and first quarter ended March 31, 2008 did not contain
any adverse opinion or disclaimer of opinion and was not qualified or modified
as to uncertainty, audit scope or accounting principle except as stated.
Jimmy C.H. Cheung & Co billed the Company $30,000 for 2007 audit. Our Board of
Directors engaged Jimmy C.H. Cheung & Co. as our new independent registered
public accounting firm. The Company had not consulted with Jimmy C.H. Cheung &
Co. prior to that time regarding (i) the application of accounting principles
to a specific completed or contemplated transaction, the type of audit opinion
that might be rendered on our financial statements, or any written or oral
advice that was an important factor considered by us in reaching a decision
as to an accounting, auditing or financial reporting issue; or (ii) any matter
that was the subject of a disagreement. Began from the second quarter, we dismissed Jimmy C.H. Cheung & Co. as our
principal independent accountants, and engaged BROCK,SCHECHTER & POLAKOFF,LLP
as our new principal independent accountants to perform procedures related
to our financial statements for the fiscal year ended December 31, 2008,
to be included on our Form 10-KSB under Section 13(a) or 15(d) under the Exchange
Act of 1934, as amended, and for the fiscal quarterly reports.
As described below, the change in our principal independent accountants was not
the result of any disagreement with Jimmy C.H. Cheung & Co. The Company has paid Brock, Schechter
& Polakoff, LLP fees totaling $37,000 for its services for audit work of the
fiscal year 2008, report of internal control over financial reporting, and the
review of the 2nd and 3rd quarters.
37 | Page
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Ac t of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 2009
North American Gaming and Entertainment Company
By:
/s/ Chen Weidong
----------------
Chen Weidong,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the following capacities on the dates indicated.
Name & Title Date
/s/ Chen Weidong
-----------------
Chief Executive Officer (Principal
Executive Officer), President, and Director April 15, 2009
/s/ Li Pin
-----------
Chief Financial Officer (Principal
Financial Officer) April 15, 2009
Managements Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal
control over financial reporting for North American Gaming and Entertainment
(an exploration company) and subsidiaries (we and our), as that term is
defined in Exchange Act Rules 13a-15(f). We conducted an evaluation of the
effectiveness of our internal control over our financial reporting as of December
31, 2008 based on the framework in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that evaluation, we concluded that our internal control over financial
Reporting is effective as of December 31, 2008.
Brock, Schechter & Polakoff, LLP, an independent registered public accounting firm,
has audited the consolidated financial statements included in this Annual Report
and has issued a report on the effectiveness of our internal control over financial
reporting. Their reports follow this statement.
Chen Weridong |
| Li Pin |
President and Chief Executive Officer |
| Chief Financial Officer |
April 15, 2009 |
| April 15, 2009 |
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
North American Gaming and Entertainment Corporation
(An Exploration Stage Company)
We have audited North American Gaming and Entertainment Corporation (an exploration
stage company) and subsidiaries internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the companys assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of North American
Gaming and Entertainment Corporation (an exploration stage company) and subsidiaries
as of December 31, 2008, and the related consolidated statements of operations and comprehensive
loss, changes in stockholders equity, and cash flows for the year ended December 31, 2008, and our
report dated April 15, 2009 expressed a qualified opinion on those consolidated financial statements.
/s/Brock, Schechter & Polakoff, LLP
Certified Public Accountants
Buffalo, New York
April 15, 2009
38 | Page
43
FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2008
39 | Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(An Exploration Stage Company)
CONTENTS
PAGES
_____________________________________________________________________________
Reports of the Independent Registered Public Accounting Firms
1
_____________________________________________________________________________
Consolidated Balance Sheets as of December 31, 2008 and 2007
3
_____________________________________________________________________________
Consolidated Statements of Operations and Comprehensive
Loss for the years ended December 31, 2008 and 2007
4
_____________________________________________________________________________
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2008 and 2007
5-6
_____________________________________________________________________________
Consolidated Statements of Cash Flows for the years
ended December 31, 2008 and 2007
7
_____________________________________________________________________________
Notes to Consolidated Financial Statements
8 - 17
_____________________________________________________________________________
Brock, Schechter & Polakoff, LLP
Certified Public Accountants
Registered with the Public Company Accounting Oversight Board
40 | Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
North American Gaming and Entertainment Corporation
(An Exploration Stage Company)
We have audited the accompanying consolidated balance sheet of North American
Gaming and Entertainment Corporation (an exploration stage company) and subsidiaries
as of December 31, 2008 and the related consolidated statements of operations and
comprehensive loss, stockholders' equity and cash flows for the year ended December
31, 2008. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our
audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit of the financial statements provides a reasonable basis for our opinion.
We were unable to obtain sufficient evidential matter in connection with the balance of
the Companys goodwill as of December 31, 2008, and we were unable to satisfy ourselves of
the balance by performing other audit procedures. Any impairment of this balance would effect
the results of operations for the year ended December 31, 2008.
In our opinion, except for the effects of such adjustments discussed in the previous
paragraph, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of North American Gaming and
Entertainment Corporation(an exploration stage company) and subsidiaries,
as of December 31, 2008, and the results of its operations and its
cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 19 to the consolidated financial statements, the Company had a net loss of $1,467,426 for the year ended December 31, 2008, an accumulated deficit during the exploration stage and a working capital deficiency of $13,262,228 and $8,147,385, respectively, at December 31, 2008, and used cash in operations of $388,013 during the year ended December 31, 2008. These factors raise substantial doubt about its ability to continue as a going concern. Managements plans concerning this matter are also described in Note 19. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated April 15, 2009 expressed an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.
/s/Brock, Schechter & Polakoff, LLP
Certified Public Accountants
Buffalo, New York
Date: April 15, 2009
726 Exchange Street, Suite 822, Buffalo, New York 14210
Tel: (716) 854-5034 Fax: (716) 854-7195
Email: JRW@bspcpa.com
Website: www.bspcpa.com
JIMMY C.H. CHEUNG & CO
Certified Public Accountants
(A member of Kreston International)
Registered with the Public Company Accounting Oversight Board
<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
North American Gaming and Entertainment Corporation
(An Exploration Stage Company)
We have audited the accompanying consolidated balance sheet of North American
Gaming and Entertainment Corporation (an exploration stage company) and its
subsidiaries as of December 31, 2007 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December
31, 2007 and 2006. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits of the financial statements provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North American Gaming and
Entertainment Corporation (an exploration stage company) and its subsidiaries,
as of December 31, 2007, and the consolidated results of its operations and its
cash flows for the years ended December 31, 2007 and 2006, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 18 to
the consolidated financial statements, the Company had a net loss of
$8,959,472, an accumulated deficit during the exploration stage of $11,794,802
and a working capital deficiency of $5,358,730 and used cash in operations of
$442,727. These factors raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning this matter are also
described in Note 18. The accompanying consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ JIMMY C.H. CHEUNG & CO
Certified Public Accountants
Hong Kong
Date: March 22, 2008
1607 Dominion Centre, 43 Queen's Road East, Wanchai, Hong Kong
Tel: (852) 25295500 Fax: (852) 28651067 Email:
jchc@krestoninternational.com.hk
Website: http://www.jimmycheungco.com
41 | Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
ASSETS
2008
2007
CURRENT ASSETS
Cash and cash equivalents
23,961
479,241
Note receivable
-
133,000
Other current assets and prepayments
229,560
532,584
Due from related companies
-
540,964
-------------------------
Total Current Assets
253,521
1,685,789
FURNITURE AND EQUIPMENT, NET
235,800
252,941
LONG TERM INVESTMENTS
292,629
-
LAND USE RIGHTS, NET
17,508,609
16,743,482
GOODWILL
3,334,124
3,115,544
LONG TERM RECEIVABLE
1,754,586
-
-----------------------------
TOTAL ASSETS
23,379,269
21,797,756
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Other payables and accrued expenses
2,124,049
2,074,561
Notes payable
434,137
573,146
Due to stockholders
2,396,560
1,858,217
Due to related companies
3,446,160
2,510,892
Preferred stock debenture
-
12,700
Preferred stock dividends payable
-
15,003
-----------------------------
Total Current Liabilities
8,400,906
7,044,519
-----------------------------
COMMITMENTS AND CONTINGENCIES
-
-
---------------------------
MINORITY INTERESTS
562,938
619,747
---------------------------
STOCKHOLDERS' EQUITY
Series C convertible preferred stock ($0.01 par value,
10,000,000 shares authorized, 500,000 shares
issued and outstanding as of December 31, 2008)5,000
5,000
Preferential treatment in distributions upon
liquidation
Common stock ($0.01 par value, 200,000,000 shares
authorized, 24,216,058 shares issued,
24,216,058 shares outstanding as of both
December 31, 2008 and December 31, 2007) 417,886
417,886
Additional paid-in capital
24,208,127
23,523,678
Treasury stock, 17,572,494 shares, at cost
(489,258)
(489,258)
Accumulated deficits during the exploration stage
(13,262,228)
(11,794,802)
Accumulated other comprehensive income
3,535,898
2,470,986
----------------------------
Total Stockholders' Equity
14,415,425
14,133,490
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
23,379,269
21,797,756
============================
The accompanying notes are an integral part of these financial statements
42 | Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
2007
Accumulated
------------
------------
------------
OPERATING EXPENSES
General and administrative expenses
260,590
349,269
609,859
Legal and professional fee
449,224
-
449,224
Depreciation
35,779
29,712
65,491
Amortization of land use rights
395,944
367,480
763,424
------------
------------
------------
Total Operating Expenses
1,141,537
746,461
1,887,998
------------
------------
------------
LOSS FROM OPERATIONS
(1,141,537)
(746,461)
(1,887,998)
OTHER INCOME (EXPENSES)
Interest income
2,229
2,692
4,921
Interest expenses
(1,357)
-
(1,357)
Imputed interest expenses
(353,951)
(243,337)
(597,288)
Other expenses
(31,583)
(1,567)
(33,150)
------------
------------
------------
Total Other Expenses
(384,662)
(242,212)
(626,874)
------------
------------
------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
EXPENSE AND MINORITY INTERESTS
(1,526,199)
(988,673)
(2,514,872)
INCOME TAX EXPENSE
-
-
-
MINORITY INTERESTS
58,773
56,435
115,208
------------
------------
------------
LOSS FROM CONTINUING OPERATIONS
(1,467,426)
(932,238)
(2,399,664)
DISCONTINUED OPERATIONS
Loss on disposal of subsidiary
-
(8,027,234)
(8,027,234)
------------
------------
------------
NET LOSS
(1,467,426)
(8,959,472)
(10,426,898)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain
1,064,912
1,170,670
2,235,582
------------
------------
------------
COMPREHENSIVE LOSS
$ (402,514)
$ (7,788,802)
(8,191,316)
============
============
============
Net loss per share-basic
$ (0.061)
$ -
$(0.434)
============
============
============
Net loss per share-diluted
$ (.0024)
$ (0.01)
$ -
============
============
============
Weighted average number of shares outstanding
during the year-basic
24,216,058
-
24,216,058
============
============
============
Weighted average number of shares outstanding
during the year-diluted
609,000,000
609,000,000
609,000,000
============
============
============
The accompanying notes are an integral part of these financial statements
43 | Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
Treasury stock
Series C
Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Shares
Amount
-------
-------
-------
------
----------
--------
Balance at
January 1, 2007
-
$ -
500,000
$5,000
-
$ -
Imputed interest
expenses on due
to stockholders and
related companies
-
-
-
-
-
-
Stock issued in
Recapitalization
17,572,494
(489,258)
-
-
24,216,058
417,886
Foreign currency
translation gain
-
-
-
-
-
-
Comprehensive income
----------
----------
----------
--------
-----------
---------
Balance at
December 31, 2007
17,572,494
(489,258)
500,000
5,000
24,216,058
417,886
Contribution by
Stockholders
-
-
-
-
-
-
Imputed interest
expenses on due
to stockholders and
related companies
-
-
-
-
-
-
Net loss for the year
-
-
-
-
-
-
Foreign currency
translation gain
-
-
-
-
-
-
----------
-------
----------
--------
-----------
---------
Balance at
December 31, 2008
17,572,494
$(489,258)
500,000
$5,000
24,216,058
$417,886
=======
=======
=======
======
==========
========
The accompanying notes are an integral part of these financial statements
44 | Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
(CONTINUED)
Accumulated
Additional
other
paid-in
Accumulated
comprehensive
capital
deficits
income
Total
-----------
------------
-------------
-----------
Balance at January 1, 2007
$23,633,613
$(2,835,330)
$1,300,316
$22,103,599
Contribution by stockholders
128,205
-
-
128,205
Stock issued in recapitalization
517,214
(998,691)
-
(552,849)
Recapitalization
(998,691)
998,691
-
-
Imputed interest expenses on
due to stockholders and
related companies
243,337
-
-
243,337
Foreign currency translation gain
-
-
1,170,670
1,170,670
Net loss for the year
-
(8,959,472)
-
(8,959,472)
-----------
------------
-------------
-----------
Balance at December 31, 2007
23,523,678
(11,794,802)
2,470,986
14,133,490
Contribution by stockholders
330,498
-
-
330,498
Imputed interest expenses on
due to stockholders and
related companies
353,951
-
-
353,951
Net loss for the year
-
(1,467,426)
-
(1,467,426)
Foreign currency translation gain
-
-
1,064,912
1,064,912
-----------
------------
-------------
-----------
Balance at December 31, 2008
$24,208,127
$(13,262,228)
$ 3,535,898
$14,415,425
===========
============
=============
===========
The accompanying notes are an integral part of these financial statements
45 | Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
2007
Accumulated
-----------
-----------
-----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations
$(1,467,426)
$(932,238)
(2,399,664)
Net loss from discontinued operations
-
(8,027,234)
(8,027,234)
-----------
-----------
-----------
Total net loss
(1,467,426)
(8,959,472)
(10,426,898)
Adjusted to reconcile net loss to cash used
in operating activities:
Loss on disposal of subsidiary
-
8,027,234
8,027,234
Depreciation
35,779
29,712
65,491
Amortization of land use rights
395,944
367,480
763,424
Imputed interest expense
353,951
243,337
597,288
Minority interests
(58,773)
(56,435)
(115,208)
Changes in operating assets and liabilities
(Increase) decrease in:
Other current assets and prepayments
303,024
(254,098)
48,926
Increase (decrease) in:
Other payables and accrued expenses
49,488
159,515
209,003
-----------
-----------
-----------
Net cash used in operating activities
(388,013)
(442,727)
(830,740)
-----------
-----------
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of note receivable
-
(133,000)
(133,000)
Purchases of furniture and equipment
(6,145)
(42,954)
(49,099)
Due from stockholder
-
25,584
25,584
Due from related parties
(883,124)
(537,126)
(1,420,250)
Payment for acquisition of long-term investment
(292,629)
(1,017,903)
(1,310,532)
Net cash outflow from disposal of discontinued
Operations
-
(1,406,430)
(1,406,430)
-----------
-----------
-----------
Net cash used in investing activities
(1,181,898)
(3,111,829)
(4,293,727)
-----------
-----------
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by stockholders
-
128,205
128,205
Proceeds from notes payable
-
573,146
573,146
Proceeds from (repayments of) preferred stock debenture (12,700)
12,700
-
Proceeds from (repayments of) preferred stock dividends
Payable
(15,003)
15,003
-
Payments for recapitalization
-
(71,372)
(71,372)
Additional paid-in capital
-
(481,477)
(481,477)
Advances from (payments to) stockholders
538,343
(249,189)
289,154
Advances from related parties
935,268
2,146,708
3,081,976
Investment from minority stockholders
-
(619,747)
(619,747)
-----------
-----------
-----------
Net cash provided by financing activities
1,445,908
1,453,977
2,899,885
-----------
-----------
-----------
EFFECT OF EXCHANGE RATES ON CASH
(331,277)
513,842
182,565
-----------
-----------
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(455,280)
(1,586,737)
(2,042,017)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
479,241
2,065,978
2,065,978
-----------
-----------
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 23,961
$ 479,241
23,961 =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest expenses
$ 1,357
$ -
1,357
===========
===========
===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In February, 2008, the Company offset the $133,000 note receivable against the notes payable.
In 2008, the Company increased additional paid-in capital by $330,498 with amounts due from related parties.
The accompanying notes are an integral part of these financial statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
North American Gaming and Entertainment Corporation ("North American")
was incorporated under the laws of the State of Delaware in 1969. North
American has had no operations or significant assets since incorporation
to the year ended December 31, 2006.
Hongkong Wah Bon Enterprise Limited ("Wah Bon") was incorporated in Hong
Kong on July 7, 2006 as an investment holding company.
Shaanxi Tai Ping Yang Xin Neng Yuan Development Company Limited ("Tai
Ping Yang") was incorporated as a limited liability company in the
People's Republic of China ("PRC") on July 20, 2007 as an investment
holding company.
Chang Jiang Si You Neng Yuan Fa Zhang Gu Feng You Xiang Gong Si ("Chang
Jiang") (formerly Weinan Industrial and Commercial Company Limited) was
incorporated as a limited liability company in the PRC on March 19,
1999. Chang Jiang became a joint stock company in January 2006 with its
business activities in mining and new energy development in Shaanxi PRC.
In July, 2008, Chang Jiang change its name to Shaanxi Chang Jiang Mining
& New Energy Stock Company Ltd.
In August 2005, Chang Jiang contributed a piece of land valued at
$7,928,532 in lieu of cash to the registered capital of Shaanxi Huanghe
Wetland Park Company Limited ("Huanghe"), representing 92.93% of the
equity of Huanghe. Huanghe was incorporated as a limited liability
company in the PRC on August 9, 2005 as Shaanxi Chang Jiang Mining
and New Energy Co., Limited and is engaged in the development of
a theme park in Xian, PRC.
On February 5, 2007, Chang Jiang entered into an agreement with a third
party to acquire 40% of the equity interest in Dongfang Mining Company
Limited ("Dongfang Mining") at a consideration of $3,117,267 payable in
cash. Dongfang Mining is engaged in the exploration of lead, zinc and
gold for mining in Xian, PRC.
On March 22, 2007, Chang Jiang entered into an agreement with the
majority stockholder of Chang Jiang to exchange its 92.93% interest in
Huanghe for 20% equity interest in Dongfang Mining, which is owned by this
Related party.
On August 15, 2007, 97.2% of the stockholders of Chang Jiang entered
into a definitive agreement with Tai Ping Yang and the stockholders of
Tai Ping Yang in which they disposed of their ownership in Chang Jiang to
Tai Ping Yang for 98% of the ownership in Tai Ping Yang and cash of
$1,328, 940, payable on or before December 31, 2007.
On September 2, 2007, Wah Bon acquired 100% ownership of Tai Ping Yang
for a cash consideration of $128,205.
The acquisitions of Tai Ping Yang and Chang Jiang were accounted for as
a reorganization of entities under common control. Accordingly, the
operations of Wah Bon, Tai Ping Yang and Chang Jiang for the year ended
December 31, 2007 were included in
the consolidated financial statements as if the transactions had
occurred retroactively.
On May 30, 2007, amended to July 5, 2007, North American entered into a
Material Definitive Agreement, pursuant to which the shareholders of
Chang Jiang exchanged all their shares in Chang Jiang for 500,000 shares
of series C convertible preferred stock ("series C shares") in North
American, which carries the right of 1,218 votes per share and is
convertible to 609,000,000 (pre a one for ten reverse split) common
shares. North American will affect a one for ten reverse stock splits
after the closing of this transaction and upon obtaining regulatory
approval and approval of the North American shareholders. The holders
will not convert its series C convertible preferred stock until after
the completion of the reverse stock split. In connection with the
exchange, Chang Jiang will also deliver $370,000 to North American and
certain non-affiliates of North American will transfer to North American
or its designee a total of 3,800,000 shares of common stock with a par value
of $0.01 per share, of North American which had been held for longer
than 2 years by such non-affiliates, in exchange for the issuance by
North American to each of such non-affiliates of 2,250,000 shares of
common stock of North American. Issued and outstanding shares of series C
preferred stock shall automatically be converted into that number of
fully paid and non-assessable shares of common stock based upon the
conversion rate upon the filing by the Company of an amendment to its
Certificate of Incorporation, increasing the number of authorized shares
of common stock to 800,000,000 shares, changing the Company's name to
China Changjiang Mining and New Energy Company Limited and implementing
a one for ten reverse stock split. The transaction was closed on
February 4, 2008 and Wah Bon became a wholly owned subsidiary of North
American.
The members have limited liability for the obligations or debts of the entity.
The merger of North American and Wah Bon was treated for accounting
purposes as a capital transaction and recapitalization by Wah Bon ("the
accounting acquirer") and re-organization by North American ("the
accounting acquiree"). The consolidated financial statements
have been prepared as if the reorganization had occurred retroactively.
Accordingly, the consolidated financial statements include the following:
(1) The balance sheets consisting of the net assets of the acquirer at
historical cost and the net assets of the acquiree at historical
cost.
(2) The statements of operations including the operations of the
acquirer for the periods presented and the operations of the
acquiree from the date of the merger.
North American, Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining
are hereafter referred to as (the "Company").
The Company is considered to be an exploration stage company. This requires
that information is presented to show the cumulative results of the Company since
its inception as an exploration stage company. Even though members of the Company
have been in existence prior to 2007, the Company considers itself to have become
an exploration stage company when it acquired Dongfang Mining on March 22, 2007.
The accumulated columns shown on the consolidated statements of operations and comprehensive
loss and the consolidated statements cash flows have been provided to show cumulative
balances from March 22, 2007 through December 31, 2008.
(B)Use of estimates
The preparation of the consolidated financial statements in
Conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affects the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at
the dates of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
(C)Principles of consolidation
The accompanying consolidated financial statements as of December 31,
2008 and 2007 consolidate the financial statements of North American and
its 100% owned subsidiary Wah Bon, 100% owned subsidiary Tai Ping Yang,
97.2% owned subsidiary Chang Jiang and 60% owned subsidiary Dongfang
Mining. The minority interests represent the minority shareholders' 2.8%
and 40% shares of the results of Chang Jiang and Dongfang Mining,
respectively.
All significant inter-company balances and transactions have been
eliminated in consolidation.
(D) Business combinations between entities under common control
On August 15, 2007, 97.2% of the stockholders of Chang Jiang entered
into a definitive agreement with Tai Ping Yang and the stockholders of
Tai Ping Yang in which they disposed their ownership in Chang Jiang to
Tai Ping Yang for 98% of ownership in Tai Ping Yang and a cash
consideration of $1,328,940, payable on or before December 31, 2007. On
September 2, 2007, Wah Bon acquired 100% ownership of Tai Ping Yang at a
consideration of $128,205, payable entirely in cash. All the entities were
either under common ownership or shared common management.
These transactions were accounted for as a reorganization of entities
under common control. Accordingly, the operations of Tai Ping Yang for
the period from inception to December 31, 2008 and the operations of
Chang Jiang for the years ended December 31, 2008 and 2007 were included
in the consolidated financial statements as if the transactions had
occurred at the beginning of the first period presented, with each account
stated at its historical cost. In this regard, the prior year's
consolidated financial statements and financial information have been
adjusted retroactively to combine the previously separate entities to
furnish comparative financial information.
46 | Page
(E)Cash and cash equivalents
For purpose of the consolidated statements of cash flows, cash and cash equivalents
include cash on hand and demand deposits with a bank with a maturity of
less than three months.
(F)Furniture and equipment
Furniture and equipment are stated at cost, less accumulated
depreciation. Expenditures for additions, major renewals and betterments
are capitalized and expenditures for maintenance and repairs are charged
to expense as incurred.
Depreciation is provided on a straight-line basis, less estimated
residual value, over the assets' estimated useful lives. The estimated
useful lives are as follows:
Buildings
10 Years
Motor vehicles
10 Years
Furniture and office equipment
5 Years
Land use rights are stated at cost less accumulated amortization and
are amortized over the term of the relevant land-use rights.
(G)Long-lived assets
The Company accounts for long-lived assets under the Statements of
Financial Accounting Standards Nos. 142 and 144 "Accounting for Goodwill
and Other Intangible Assets" and "Accounting for Impairment or Disposal
of Long-Lived Assets" ("SFAS No. 142 and 144"). In accordance with SFAS
No. 142 and 144, long-lived assets, goodwill and certain identifiable
intangible assets held and used by the Company are reviewed for
impairment annually or whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets, when
undiscounted future cash flows will not be sufficient to recover an
asset's carrying amount, the asset is written down to its fair value.
The Company believes that no impairment of furniture and equipment or land
use rights existed at December 31, 2008 and 2007.
(H)Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosure About
Fair Value of Financial Instruments," requires certain disclosures
regarding the fair value of financial instruments. Fair value of
financial instruments is made at a specific point in time, based on
relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be
determined with precision. Changes in assumptions can significantly
affect estimated fair values.
The carrying value of other current assets and prepaid expenses, other
payables and accrued liabilities approximate their fair value because of
the short-term nature of these instruments.
The Company's major operation is in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between the United States dollars
("US$") and the Chinese Renminbi ("RMB"). At December 31, 2008, the new RMB
rate against the US$ was approximately 6.8346. Historically, the PRC government
has benchmarked the RMB exchange ratio against the US$, thereby
mitigating the associated foreign currency exchange rate fluctuation
risk. The Company does not believe that its foreign currency exchange
rate fluctuation risk is significant, especially if the PRC government
continues to benchmark the RMB against the US$.
(I)Income taxes
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement
109"). Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment date.
In addition, we account for uncertain tax positions in accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109, FIN 48 which was issued in July
2006. FIN 48 prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return and also provides guidance on various related
matters such as de-recognition, interest, penalties and disclosures required. We
recognize interest and penalties, if any, related to unrecognized tax benefits
in income tax expense.
(J)Foreign currency translation
North American, Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining
maintain their accounting records in their functional currencies of US$
and RMB respectively.
Foreign currency transactions during the year are translated to the
functional currency at the approximate rates of exchange on the dates of
transactions. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the approximate
rates of exchange at that date. Non-monetary assets and liabilities are
translated at the rates of exchange prevailing at the time the asset or
liability was acquired. Exchange gains or losses are recorded in the
statement operations.
The consolidated financial statements of Wah Bon (whose functional currency
is RMB),
Tai Ping Yang, Chang Jiang and Dongfang mining (whose functional
currency is RMB) are translated into US$ using the closing rate method.
The balance sheet items are translated into US$ using the exchange rates
at the respective balance sheet dates. The capital and various reserves
are translated at historical exchange rates prevailing at the time of
the transactions while income and expenses items are translated at the
average exchange rate for the year. All exchange differences are
recorded within equity.
The translation gain recorded for the years ended December 31, 2008 and
2007 was $1,064,912 and $1,170,670 respectively.
(K)Comprehensive loss
The foreign currency translation gain or loss resulting from translation
of the consolidated financial statements expressed in RMB to US$ is reported
as other comprehensive income in the consolidated statements of operations
and comprehensive loss and stockholders equity. The foreign currency
translation
gain for the years ended December 31, 2008 and 2007 was $1,064,912 and $1,170,670
respectively.
(L)Loss per share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted loss per share is computed similar to basic
loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common
shares were dilutive.
(M)Segments
As of December 31, 2008, the Company operates in only one reportable segment, mining
for mineral ores, which is still at an exploration stage. As of December 31, 2007, the
Company operated in two reportable segments, theme parks and mining for mineral ores.
Currently, and in the near future, the Company is and will be engaged in the mining.
But the Company also tried to develop other business, for example, the new energy business.
The Company invested in the Changjiang Electric in September,2008.
All of the assets and business is located in China, and all of the operating losses have come
from the foreign operations(outside United States).
(N)Reclassifications
Certain reclassifications have been made to the 2007 comparative totals to conform to the 2008 presentation.
(O) Recent Accounting Pronouncements
In May 2008, the FASB released SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles. This statement identifies the sources of accounting principles and the framework
for selecting the accounting principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting
principles in the United States. SFAS No. 162 is effective 60 days after the SECs approval
of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company
does not expect the implementation of this guidance to have a material impact on the consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133. SFAS No. 161 gives financial statement users better information about the reporting entity's hedges by providing for qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in their hedged positions. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008 and interim periods within those years. The Company does not expect the adoption of SFAS No. 161 to have a material effect on the consolidated financial statements.
In September 2006, FASB issued Statement 157, "Fair Value Measurements. This statement
defines fair value and establishes a framework for measuring fair value in generally
accepted accounting principles ("GAAP"). More precisely, this statement sets
forth a standard definition of fair value as it applies to assets or liabilities, the
principal market (or most advantageous market) for determining fair value (price), the market
participants, inputs and the application of the derived fair value to those assets and
liabilities. The effective date of this pronouncement is for all full fiscal and interim
periods beginning after November 15, 2007. The Company does not expect the adoption of
SFAS No. 157 to have an impact on the Company's results of operations or financial condition.
In February 2007, the FASB released SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The standard is effective for fiscal years beginning after November 15, 2007. The standard provides entities the ability, on an elective basis, to report most financial assets and financial liabilities at fair value, with corresponding gains and losses recognized in current earnings. The Company did not elect the fair value option under SFAS 159 as of January 1, 2008 for any of our financial assets and liabilities that were not already fair valued. The Company will consider applying the fair value option to future transactions as provided by the standard. The Company does not expect SFAS 159 to have a material impact on the consolidated financial statements.
In December 2007, the FASB released SFAS No. 141(R), Business Combinations. This standard revises and enhances the guidance set forth in SFAS No. 141(R) by establishing a definition for the acquirer, providing additional guidance on the recognition of acquired contingencies and non-controlling interests, and broadening the scope of the standard to include all transactions involving a transfer in control, irrespective of the consideration involved in the transfer. SFAS No. 141(R) is effective for business combinations for which the acquisition date occurs in a fiscal year beginning on or after December 15, 2008. Although the standard will not have any impact on the current consolidated financial statements, application of the new guidance could be significant to the Company in the context of future merger and acquisition activity.
In December 2007, the FASB released SFAS No. 160, Non-Controlling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the standard to have a material impact on the consolidated financial statements.
2. BUSINESS COMBINATION
On February 5, 2007, Chang Jiang entered into an agreement with a third
party to acquire 40% of the equity interest in Dongfang Mining at a
consideration of $3,117,267 payable in cash. On March 22, 2007, Chang Jiang
entered into an agreement with a related party of the Company to exchange
Chang Jiang's 92.93% interest in Huanghe for 20% equity interest in Dongfang
Mining, which is owned by the related party.
Dongfang Mining is principally engaged in the exploration, development,
mining and processing of lead, zinc and gold in Xian, PRC. Dongfang Mining
was granted rights to explore for lead, zinc and gold at mines located at
Gan Gou and Guan Zi Gou, Xunyang County, Shaanxi Province, PRC, from
December 31, 2006 to October 31, 2008, subject to further renewal upon
expiration. The Company engaged the Geology and Mineral Bureau of Shaanxi to
conduct a preliminary survey from which it was reported that there are
gold, lead and zinc deposits in the mines.
The following is a detail of the acquisition of Dongfang Mining by Chang Jiang made during the year ended December 31, 2007:
Cash and cash equivalents
$
27,233
Other receivables and prepaid expenses
46,309
-----------
Total current assets
273,542
Fixed assets, net
7,432
-----------
Total assets
280,974
Less: Accounts payable and accrued liabilities
(3,223)
Due to a stockholder
(273,444)
-----------
Net assets acquired
4,307
Minority interests
(1,723)
Additional paid in capital
(861)
Less: Consideration for acquisition
(3,117,267)
-----------
Goodwill
$(3,115,544)
===========
Analysis of the net outflow of cash and cash equivalents with respect to the
business combination is as follows:
Total cash consideration
$ 3,117,267
Less: cash consideration payable
(1,872,131)
-----------
Cash consideration paid
1,245,136
Less: cash and cash equivalents acquired
(227,233)
-----------
Net cash outflow
$ 1,017,903
===========
The acquisition of 40% of Dongfang Mining was accounted for as a purchase
under SFAS No. 141, Business Combinations. Accordingly, the 40% of
operating results of Dongfang Mining have been included in the consolidated
statements of operations and comprehensive loss after the effective date
of the acquisition of February 5, 2007.
In accordance with SFAS No. 142 "Goodwill and other intangible assets",
goodwill is not amortized but is tested for impairment. The Company is
going to perform an assessment on goodwill arising from the acquisition of
Dongfang Mining as the price of non-ferrous metals are going down and the
whole industry is stagnant. We cannot concluded that there was no impairment
to the carrying value of the goodwill in this reporting period.
There was no change for the goodwill at the year end of 2008, comparing with
that at the year end of 2007, whose balance was RMB 22,787,401. The $218,579
increase is due to the exchange gain when translating the financial report
from RMB to USD.
3. DISCONTINUED OPERATIONS
On March 22, 2007, the Company disposed a subsidiary Huanghe in exchange of
20% interest in Dongfang Mining. The operations of Huanghe were
reclassified as discontinued operations in the consolidated
statements of operations for the year ended December 31, 2006 and were
summarized as follows:
Operating expenses
$(282,728)
Loss from operations
$(291,885)
Net loss
$(291,885)
4. DISPOSAL OF SUBSIDIARY
On March 22, 2007, Chang Jiang entered into an agreement with a related
party of the Company to exchange Chang Jiang's 90.3% interest in Huanghe
for 20% equity interest in Dongfang Mining owned by the related party.
The detailed information on the loss on disposal of Huanghe is as follows:
Cash and cash equivalents
$
1,406,430
Other current assets
31,687
Fixed assets, net
349,024
Land use rights
8,987,826
----------
Total assets
10,774,967
Less: Accounts payable and accrued liabilities
(205,800)
Due to related parties
(1,618,037)
Due to a stockholder
(4,726)
Minority interests
(918,343)
-----------
Book value of net assets disposed
8,028,061
20% of book value of net assets of
Dongfang Mining exchanged
(827)
-----------
Loss on disposal of Huanghe
$
8,027,234
===========
Net cash outflow on disposal of subsidiary
Proceed from disposal
$
-
Cash and cash equivalent disposed
(1,406,430)
-----------
Net cash outflow
$(1,406,430)
===========
5. NOTE RECEIVABLE
The Company had a note receivable at December 31, 2007 of $133,000. This note
bore interest at 9% per annum and was secured by membership interests.
6. OTHER CURRENT ASSETS AND PREPAID EXPENSES
Other current assets and prepaid expenses consisted of
the following:
December 31,
2008
2007
Rental and other deposits
$
11,756
$
8,231
Short-term advances to third parties
82,697
276,179
Prepaid consulting fee for reverse merger
-
115,591
Interest receivable from note receivable
-
45,560
Prepaid expense
115,800
80,694
Advances to staff
19,307
6,329
--------
--------
$229,560
$532,584
========
========
7. FURNITURE AND EQUIPMENT
The following is a summary of furniture and equipment:
December 31,
2008
2007
Motor vehicles
$277,988
$259,764
Furniture and office equipment
55,066
50,717
Building
5,244
-
Construction in progress
-
3,913
--------
--------
338,298
314,394
Less: accumulated depreciation
(102,498)
(61,453)
--------
--------
Furniture and equipment, net
$235,800
252,941
========
========
Depreciation expense for the years ended December 31, 2008 and 2007 was
$35,779 and $29,712, respectively .
8. LONG TERM INVESTMENT
In September 2008, the Company, along with Shaanxi Changfa Industry Stock Co.,Ltd.
("Changfa"),established a new company named Shaanxi Changjiang Mining & New Energy
Co., Ltd.(Shaanxi). The Company owns a 20% share of the registered capital of
Shaanxi while Changfa owns the remaining 80% share. The Company has
significant influence on Shaanxi as it has assigned finance and other
directors in Shaanxi. The Company has recorded this investment under the equity
method. Shaanxi had no income for the year ended December 31,2008 and
since the expense was not material, no adjustment has been made. As of December
31, 2008, the balance of this investment was $292,628.
9. LAND USE RIGHTS
The following is a summary of land use rights:
December 31,
2008
2007
Cost
$19,146,841
$17,891,607
Less: accumulated amortization
(1,638,232)
(1,148,125)
-----------
-----------
Land use rights, net
$17,508,609
$16,743,482
===========
===========
The land use rights are being amortized over the lease term of fifty years.
Amortization expense for the years ended December 31, 2008 and 2007 was
$395,943 and $367,480, respectively.
Amortization expense for the next five years ending December 31 is as follows:
2009
$1,638,232
2010
1,638,232
2011
1,638,232
2012
1,638,232
2013
1,638,232
10. OTHER PAYABLES AND ACCRUED EXPENSES
Other payables and accrued liabilities consist of the
following:
December 31,
2008
2007
Other payables
$
247,228
$65,432
Consideration payable to a former owner of Dongfang Mining
1,827,898
1,872,131
Accrued wages
1,990
-
Statutory staff welfare
1,876
5,884
Other tax payable
57
Accrued interest payable
-
75,434
Other accrued expenses
45,000
55,680
-------------
---------------
$
2,124,049
$2,074,561
==============
===============
11. NOTES PAYABLE
The balance of notes payable consisted of the following:
December 31,
2008
2007
Note payable to a third party, interest rate of
12% per annum, guaranteed by a stockholder, due
February 2008
-
$114,634
Note payable to a related party, interest rate of
8% per annum, collateralized by note receivable
from a third party.
434,137
458,512
--------
--------
Current maturities at year end
434,137
$573,146
=======
========
12. INCOME TAXES
a. North American was incorporated in the United States and has incurred
net operating losses as for income tax purposes for the years ended December
31, 2008 and 2007. Wah Bon was incorporated in Hong Kong and subject to
Hong Kong profits tax. No provision for income tax expense was made for the
years ended December 31, 2008 and 2007 as Wah Bon incurred net operating losses.
Tai Ping Yang , Chang Jiang and Dongfang Mining were incorporated in
the PRC and subject to PRC income tax, which is computed according to the
relevant laws and regulations in the PRC. No provision for income tax
expense for the years ended December 31, 2008 and 2007 was made as Tai Ping Yang,
Chang Jiang and Dongfang Mining incurred net operating losses during those years.
b. The Company's deferred tax asset at December 31, 2008 consisted of net
operating loss carry forwards calculated using statutory effective tax
rates. Due to its history of losses, the Company determined that
realization of its deferred tax asset is currently judged to be
unlikely. Consequently, the Company recorded a valuation allowance for the entire balance of the deferred tax asset
at December 31, 2008 and 2007.
At December 31, 2008, the Company has available net operating loss carryforwards of approximately $13,000,000. According to the China Tax Regulations, the operating loss carryforwards can
be deducted in the taxable profit within 5 years.
c. The reconciliation of income taxes computed at the statutory income tax
rates to total income taxes for the years ended December 31 is as
follows:
North American
2008
2007
Income tax computed at the federal statutory rate
34%
34%
State income taxes, net of federal tax benefit
0%
0%
----
Valuation allowance
(34%)
(34%)
====
Wah Bon
Profits tax computed at the applicable tax rate
17%
17%
----
Valuation allowance
(17%)
(17%)
====
Tai Ping Yang, Chang Jiang and Dongfang Mining
Income tax computed at the applicable tax rate
25%
33%
----
Valuation allowance
(25%)
(33%)
====
Total deferred tax asset
0%
0%
----
13. NET LOSS PER SHARE
The following is net loss per share information at December 31:
2008
2007
-------------
------------
Net loss - basic and diluted
$ (1,467,426)
$ (8,959,472)
-------------
------------
Basic weighted-average common stock outstanding
24,216,058
-
Effect of dilutive securities
Series C convertible preferred stock
609,000,000
609,000,000
-------------
------------
Diluted weighted-average common stock outstanding
609,000,000
609,000,000
-------------
------------
Net loss per share basic
$ (0.061)
$ -
-------------
------------
Net loss per share diluted
$ (.0024)
$ (0.01)
--------------
------------
14. COMMITMENTS AND CONTINGENCIES
(A)Capital commitments
The Companys cash balances with financial institutions in the U.S are insured up to
FDIC limits.
As of December 31, 2007,the Company had capital commitments of $2,190,630 with two
suppliers for contracts in respect to the exploration of lead, zinc and gold for mining
in Xian, PRC. As the permit of mining for gold, lead and zinc has not yet been obtained as of December 31, 2008,
the contract was not implemented in 2008, but will still be effective in 2009.
In August 2008, The Company signed the Contract of Specific Survey of Gold with The First
Geological Team, Bureau of Geology and Minerals Exploration & Exploitation of Shaanxi Province.
The total amount of the project at December 31, 2008 is $323,018, which is to be paid in full
during the year ended December 31, 2009.
(B)Operating lease commitments
The prior headquarters, formerly located in the 5th floor of High-Tech Mansion, Gaoxin Road,High-Tech
Zone,XiAn, had a rental lease of approximately $3,500 (RMB25,000) per month, from June, 2006 to January, 2009.
The new headquarters office is removed to the Xinhui Mansion, Gaoxin Road, High-Tech Zone, XiAn,PRC
with the rental lease from February, 2009 to January, 2011 at a rental rate $11,029 per year.
The rental expense of headquarters for the years ended December 31,2008 and 2007 was $42,568 and $48,481, respectively.
For the years ended December 31, 2009 and 2010, the Company has outstanding commitments of approximately
$13,717 and $10,974, respectively, with regards to the operating leases of its facilities.
15. STOCKHOLDERS' EQUITY
Stock issuances
On May 30, 2007, amended to July 5, 2007, North American entered into a
Material Definitive Agreement to acquire 97.2% of Chang Jiang equity
through the acquisition of Wah Bon. The Company issued 500,000 shares of
series C convertible preferred stock which was convertible to 609,000,000
(prior to a one for ten reverse stock split) common shares, in exchange for 100% of
Wah Bon's outstanding shares.
In order to complete the merger, the Company has authorized up to 10,000,000
shares of preferred stock with a par value of $0.01 per share. The
preferred stock can be issued from time to time in one or more series. As
of December 31, 2008, there are 500,000 shares of preferred stock issued and outstanding.
On February 4, 2008, the Company issued 500,000 shares of series C
convertible preferred stock to Wah Bon's shareholder.
Each of the preferred shares is entitled to receive
preferential treatment in connection with the payment of dividends,
distributions upon liquidation and voting rights. Each preferred share carries
the right to vote the equivalent of 1,218 votes of common shares. Each
preferred share will be automatically converted into 1,218 common shares upon
approval and an amendment to the Certificate of Incorporation to increase the
number of authorized shares.
There are no preferred dividends in arrears at the year end of 2008.
No called or redeemed conditions prescribed for the preferred stock.
16. RELATED PARTY TRANSACTIONS
The related parties owed the Company $1,754,586 as of December 31, 2008,
which consisted of nine related companies and four related persons, each owing the Company
amounts totaling $1,355,694 and $398,892, respectively, for advances made on an
unsecured basis, repayable on demand and interest free.
The Company owed $2,396,560 to two former stockholders of Chang Jiang as of
December 31, 2008, for advances made on an unsecured basis, repayable on demand
and interest free. Interest was imputed at a rate of 7% per annum on the amounts
due.
The Company owed a total of $3,446,160 to six related parties as of December 31,
2008. This consisted of five related companies and one related person, each
of whom owed the Company amounts totaling $2,086,486 and $1,359,674, respectively,
for the advances that were made on an unsecured basis, repayable on demand and
interest free. Interest was imputed at a rate of 7% per annum on the amount due.
Seven related parties owed the Company $540,964 as of December 31, 2007,
which consisted of five related companies and two related persons, each owing the Company
amounts totaling $417,914 and $123,050, respectively, for advances made on an
unsecured basis, repayable on demand and interest free.
The Company owed $1,858,217 to two former stockholders of Chang Jiang as of
December 31, 2007 for advances made on an unsecured basis, repayable on
demand and interest free. Imputed interest is charged at 6% per annum on
the amounts due.
The Company owed $2,510,892 to five related parties as of December 31, 2007,which consisted of
four related companies and one related person, each owing the Company
amounts totaling $1,640,134 and $870,758, respectively , for advances made on
an unsecured basis, repayable on demand and interest free. Imputed interest
is charged at 6% per annum on the amount due.
Total imputed interest recorded as additional paid-in capital amounted to
$353,951 and $243,337 for the years ended December 31, 2008 and 2007, respectively.
17. SEGMENTS REPORTING
The Company operates in two reportable segments, theme park and mining, before
March 22,2007, the date exchanging 92.93% interest in Huanghe for 20% equity
interest in Dongfang Mining The accounting policies of the segments are the same
as described in the summary of significant accounting policies. The Company
evaluates segment performance based on income from operations. As a result, the
components of operating income for one segment may not be comparable to another
segment.
For the whole year of 2008, only one reportable segment, the mining, operated, whose
Financial information can be showed as follows, comparative to 2007:
Theme park
Mining
Total
-----------
----------
-----------
2008
Loss from continuing operations before income
tax expense and minority interests
$0
$1,526,199
$1,526,199
Depreciation of fixed assets
0
35,779
35,779
Amortization of intangible assets
0
395,944
395,944
Imputed interest expense
0
353,951
353,951
Interest income
0
(2,229)
(2,229)
Loss on disposal of discontinued operations
0
0
0
Additions to long-lived assets
0
6,145
6,145
Land use rights
0
17,508,609
17,508,609
Total identifiable assets
$0
$23,379,269
$23,379,269
2007
Loss from continuing operations before income
tax expense and minority interests
$945,055
$43,618
$988,673
Depreciation of fixed assets
28,825
887
29,712
Amortization of intangible assets
367,480
-
367,480
Imputed interest expense
243,337
-
243,337
Interest income
(1,514)
(1,178)
(2,692)
Loss on disposal of discontinued operations
8,027,234
-
8,027,234
Additions to long-lived assets
36,415
6,539
42,954
Land use rights
16,743,482
-
16,743,482
Total identifiable assets
$21,556,605
$241,151
$21,797,756
All of the Company's long-lived assets are located in the PRC. Accordingly,
no geographic information is presented.
18. CONCENTRATIONS AND RISKS
As of December 31, 2008 and 2007, 99% and 1% of the Company's assets were located in
China and United States, respectively.
19. GOING CONCERN
As reflected in the accompanying consolidated financial statements,
the Company has an accumulated deficit during the exploration stage of
$13,262,228 at December 31, 2008, which included a net loss of $1,467,426
for the year ended December 31, 2008. The Company's current liabilities
exceeded its current assets by $8,147,385 and the Company used cash in
operations of $388,013. These factors raise substantial doubt about its
ability to continue as a going concern. In view of the matters described
above, recoverability of a major portion of the recorded asset amounts
shown in the accompanying consolidated balance sheets is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to raise additional capital, obtain financing and succeed
in its future operations. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with
the ability to continue as a going concern. The Company is also actively
pursuing additional funding and potential merger or acquisition candidates
and strategic partners, which would enhance stockholders' investments.
Management believes that the above actions will allow the Company to
continue operations through the next fiscal year.
47 | Page