Grand China Energy Group Ltd - FORM 10-Q - May 13, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2014
 
or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________
 
Commission File Number: 000-53490
 
SGB INTERNATIONAL HOLDINGS INC.
(Exact name of registrant as specified in its charter)
 
British Columbia
  
 
(State or other jurisdiction
  
(I.R.S. Employer
of incorporation or organization)
  
Identification No.)
 
Room 1601, 16/F, China Taiping Tower Phase II,
8 Sunning Road, Causeway Bay
Hong Kong
(Address of principal executive offices) (zip code)
 
(852) 3691-8831
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes o No x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
Accelerated filer                   o
Non-accelerated filer   o
Smaller reporting company x
(Do not check if a smaller reporting company)
  
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
373,793,578 shares of common stock outstanding as of May 9, 2014.
 
 
 
 
 
SGB INTERNATIONAL HOLDINGS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2014 
 
Table of Contents
 
 
 
2
 
 
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
 
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
 
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.
 
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
 
 
3
 
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
SGB INTERNATIONAL HOLDINGS INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014
 
SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 2014 AND DECEMBER 31, 2013
(STATED IN US DOLLARS)
 
         
March 31
    
December 31
  
   
Note
    
2014
    
2013
  
          $     $  
ASSETS
                  
Current Assets
                  
   Cash and cash equivalents
   4       1,728       1,793  
   Receivables
   5       473,676       330,799  
                       
Total Current Assets
           475,404       332,592  
                       
Total Assets
           475,404       332,592  
                       
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
                      
Current Liabilities
                      
   Account payable and accrued liabilities
   6       273,665       286,372  
   Amounts due to a related party
   7       11,769       12,212  
   Income tax payable
           72,700       20,000  
   Loan payable – current
   8       55,994       56,340  
                       
Total Current Liabilities
           414,128       374,924  
                       
Total Liabilities
           414,128       374,924  
                       
Stockholders’ Equity(Deficiency)
                      
   Common stocks
   9       9,138,544       9,138,544  
   Contributed surplus
           100,000       100,000  
   Additional paid-in capital
           100,000       100,000  
   Accumulated deficit
           (9,250,187 )     (9,347,096 )
   Accumulated other comprehensive income
           (27,081 )     (33,780 )
Total Stockholders’ Equity/(Deficiency)
           61,276       (42,332 )
                       
Total Liabilities and Stockholders’ Equity/ (Deficiency)
           475,404       332,592  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4
 
 
SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)
(STATED IN US DOLLARS)

   
Three months ended 31 March
  
   
2014
    
2013(restated)
  
     $     $  
Revenue, net of sales tax
     498,015       -  
Cost of revenue
     (263,500 )     -  
Gross profit
     234,515       -  
Selling expenses
     -       (642 )
General and administrative
     (87,285 )     (32,419 )
Total operating expenses
     (87,285 )     (33,061 )
Net income(loss) from operations
     147,230       (33,061 )
Other items:
                
Interest expense
     (1,729 )     -  
Exchange gain
     4,108       -  
Income(loss) before tax
     149,609       (33,061 )
                 
Income tax expense
     (52,700 )     -  
                 
Net income(loss) from continuing operations;
     96,909       (33,061 )
Net income  from discontinued operations
     -       109,361  
Net income(loss) for the period
     96,909       76,300  
Foreign currency translation adjustment
     6,699       49,347  
Comprehensive income(loss)
     103,608       125,647  
Earnings Per Share (cents)
                
     – Basic and diluted
     0.03       0.02  
                 
Weighted Average Shares Outstanding – Basic and diluted
     373,793,578       373,793,578  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
5
 
 
SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN US DOLLARS)

   
Three months Ended 31 March
  
   
2014
    
2013
  
Cash flows from operating activities
   $     $  
Net income for the period –continuing and discontinued operations:
     96,909       76,300  
Items not involving cash:
                
Depreciation & amortization
     -       312,814  
Interest expense
     1,729       5,350  
Changes in non-cash working capital:
                
Receivables
     (147,649 )     50,732  
Prepaid expenses, deposit and other receivables
             80,683  
Accounts payable , accrued liabilities and income tax payables
     49,011       (625,421 )
Net cash used in operating activities
     -       (99,542 )
Cash flows from investing activities
                
Purchase of property, equipment and mine development costs
     -       (249,175 )
Net cash used in investing activities
             (249,175 )
Cash flows from financing activities
                
Amounts advanced from a related party
     -       362,371  
Net cash used in financing activities
     -       362,371  
Increase/(decrease) in cash and cash equivalents
     -       13,654  
Effect of exchange rate changes on cash
     (65 )     432  
Cash and cash equivalents – beginning of period
     1,793       440,308  
Cash and cash equivalents – end of period
     1,728       454,394  
Supplemental disclosure of cash flow information:
                
Income tax
     -       15,151  
Interest expense
     -       -  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
6
 
 
SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIENCY)
AS AT MARCH 31, 2014
(STATED IN US DOLLARS)
 
   
Common shares
    
Stocks to
    
Contributed
    
Additional
Paid-in
          
Retained
earnings
(Accumulated
    
Accumulated other comprehensive
    
Total
Stockholders’ equity
  
   
Shares
    
Amount
    
be issued
    
surplus
    
capital
    
Reserve
    
Deficit)
    
income
    
(deficiency)
  
          $     $     $     $     $     $     $     $  
Balance at December 31, 2012
     373,793,578       9,138,544       -       100,000       -       650,182       7,527,909       565,982       17,982,617  
                                                                         
Net loss for the year
     -       -       -       -       -       -       (16,875,005 )     -       (16,875,005 )
Disposal of subsidiaries
     -       -       -       -               (650,182 )     -       -       (650,182 )
Imputed interest
     -       -       -       -       100,000       -       -       -       100,000  
Currency translation
     -       -       -       -       -       -       -       (599,762 )     (599,762 )
Balance at December 31, 2013
     373,793,578       9,138,544       -       100,000       100,000       -       (9,347,096 )     (33,780 )     (42,332 )
                                                                         
Net income for the period
     -       -       -       -       -       -       96,909       -       96,909  
Currency translation
     -       -       -       -               -       -       6,699       6,699  
Balance at March  31, 2014
     373,793,578       9,138,544       -       100,000       100,000       -       (9,250,187 )     (27,081 )     61,276  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
7
 
 
1       ORGANIZATION AND PRINCIPAL ACTIVITIES
 
SGB International Holdings Inc. (“SGB” or the “Company”) was incorporated in British Columbia, Canada on November 6, 1997. Through its subsidiary, the Company is engaged in providing services in relation of the coal business in People’s Republic of China.
 
On May 11, 2011, the Company completed the acquisition of Dragon International Resources Group Co., Limited (“Dragon International”), a Hong Kong corporation incorporated on October 5, 2010, and its wholly-owned subsidiary through a share exchange which resulted in the former shareholders of Dragon International acquiring the control of SGB. This transaction was accounted for as a reverse takeover transaction (“RTO”) for accounting purpose, as Dragon International was deemed to be the acquirer, and these consolidated financial statements are a continuation of the consolidated financial statements of Dragon International. The carrying amounts of SGB’s assets and liabilities are included in these consolidated financial statements.
 
Prior to the above noted RTO, and on February 21, 2011, pursuant to a share transfer agreement, Dragon International completed the acquisition of Fujian Huilong Coal Mine Co., Ltd. (“Fujian Huilong”) (formerly known as Yongding Shangzhai Coal Mine Co., Ltd.), a People’s Republic of China corporation and was incorporated on August 4 2005. Upon the completion of the acquisition, Fujian Huilong became the wholly-owned subsidiary of Dragon International and the control in substance was not changed. For accounting purposes, the acquisition has been accounted for using the continuity of interest method, which recognizes Fujian Huilong as the successor. The net assets of Dragon International prior to the acquisition has been accounted as recapitalization as at the date of acquisition.
 
On October 3, 2013, a wholly owned subsidiary of SGB-SGB Investment Limited was incorporated.
 
On December 19, 2013, the Company disposed Dragon International and Fujian Huilong.(See note 3)
 
The Company and its subsidiaries are considered to be operating in one segment based on its organizational structure and strategic decision making method.
 
These financial statements have been prepared in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As at December 31, 2013, the Company had working capital deficiency of $42,332, and requires additional funds to maintain its operations. In view of the working capital deficiency, the management has reviewed the cash position as at the balance sheet date and the cash flow forecast for the next twelve months and taken into factors that (i) to raise equity financing as required; and (ii) to obtain the principle shareholder’s support in funding the required working capital. After taking the above circumstances and facts into consideration, the management of the Company is satisfied that the Company will have sufficient funds to complete the current development and to meet in full its financial obligation and operations or capital expenditure as they fall due for the foreseeable future.
 
 
8
 
 
2       SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation and preparation
 
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all of the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or of future years.
 
These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and follow the same accounting policies and methods of their application as the most recent annual financial statements. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2013.
 
 
9
 
 
3      DISCONTINUED OPERATIONS
 
On December 19, 2013, the Company sold its 100% equity interest in Dragon International and its wholly owned subsidiary Fujian Huilong to an independent third party at a cash consideration of HKD 1,000,000 (approximately USD 129,000). The results for the disposed subsidiaries for the three months ended March 31, 2013 are as follows:
 
   
2013
  
    $  
Revenue
     1,876,749  
Income before tax
     124,512  
Income tax
     (15,151 )
Net income from discontinued operations
     109,361  
 
4      CASH AND CASH EQUIVALENTS
 
   
March 31,
    
December 31,
  
   
2014
    
2013
  
    $     $  
             
Cash denominated in Canadian Dollars
     1,728       1,793  
 
5       RECEIVABLES
 
   
March 31,
    
December 31,
  
   
2014
    
2013
  
    $     $  
             
Trades receivable (i) (ii)
     100,000       -  
Receivable from disposal of subsidiaries(ii)
     128,886       129,509  
Others (ii)
     244,790       201,290  
                 
      473,676       330,799  
 
Notes:
 
(i)
The Company does not hold any collateral over these balances. The average age of these receivable are 30 days.
   
(ii)
Unsecured, interest free and repayable on demand.
 
 
10
 
 
6      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
The following is a summary of accounts payable and accrued liabilities:
 
   
March 31,
    
December 31,
  
   
2014
    
2013
  
    $     $  
Accounts payable
     6,317       39,874  
Staff costs / wage payable
     28,552       29,626  
Accrued liabilities
     50,966       22,019  
Other payable
     187,830       194,853  
      273,665       286,372  
 
7     AMOUNTS DUE TO A RELATED PARTY
 
   
March 31,
    
December 31,
  
   
2014
    
2013
  
    $     $  
Amounts due to a related party
     11,769       12,212  

As at March 31, 2014 and  December 31, 2013, the amounts are due to the Company’s related Party SGB C&C Investments. The amounts as at March 31, 2014 and December 31, 2013 are unsecured, non-interest bearing and due on demand.
 
8    LOAN PAYABLE
 
The following is a summary of term loan:
 
   
March 31,
    
December 31,
  
   
2014
     2013  
    $     $  
                 
Interest bearing loan at 15% per annum, unsecured and due on demand
     55,994       56,340  
                 
Total
     55,994       56,340  
                 
Current portion
     55,994       56,340  
                 
Non-current
     -       -  
 
 
11
 
 
9     STOCKHOLDERS’ EQUITY
 
Authorized:
 
Unlimited number of common shares without par value
 
Unlimited number of preferred shares without par value
 
Issued and outstanding
 
As at March 31, 2014 and December 31, 2013, 373,793,578 common stocks issued and outstanding which were derived from the following transactions:
 
Prior to the RTO with Dragon International and as at May 11, 2011, SGB had 24,502,446 common shares issued and outstanding.
 
On May 11, 2011, SGB completed a reverse acquisition transaction with the shareholders of Dragon International pursuant to which SGB acquired 100% of the issued and outstanding capital stock of Dragon International in exchange for an aggregate of 220,522,000 common shares of SGB, which constituted 90% of SGB’s issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the reverse acquisition. Prior to the acquisition, SGB has no business with a minimal assets and liabilities which did not meet the definition of a business, therefore, the reverse take-over of SGB by Dragon International has been accounted for as a capital transaction which is deemed Dragon International acquired SGB by issuance of 24,502,446 common shares (issued and outstanding prior to the RTO) for its net assets of $10,789.
 
Prior to the RTO and on February 21, 2011, Dragon International completed the acquisition of Fujian Huilong and for accounting purpose, the acquisition has been accounted for using the continuity of interest method, which recognizes Fujian Huilong as the successor. The net assets of Dragon International totaling $1,277,694 as at the date of acquisition have been accounted as recapitalization into Fujian Huilong.
 
Fujian Huilong has a registered and paid-in capital of $123,913 (RMB 1,000,000) prior to being acquired by Dragon International.
 
As the consolidated financial statements is the continuation of Fujian Huilong, therefore, the share capital of Fujian Huilong has been restated to reflect the 220,522,000 common shares that effected the RTO for the purpose of financial statements presentation and earnings per share calculation.
 
On September 21, 2011, Fujian Huilong’s registered and paid-in capital was increased by $1,925,447 (RMB 12,278,945) to a total of $2,049,360 (RMB 13,278,945) as at December 31, 2012.
 
On December 29, 2011, the Company settled $7,726,148 by agreeing to issue 128,769,132 shares of the common stock of the Company at a deemed price of $0.06 per share. The Company has allotted and issued the shares in 2012.
 
 
12
 
 
10    RELATED PARTY TRANSACTIONS
 
During the quarter ended March 31, 2014 and 2013, the Company engaged following related party transactions:
 
 
·
Accrued or paid $ nil (March 31 2013: $65,523) in salaries and bonus to senior officers and directors of the Company;
 
As at March 31, 2014 and December 31, 2013, following receivable and payable were outstanding:
 
 
·
Included in accounts payable and accrued liabilities, $Nil (December 31, 2013: $Nil) were payable to the senior officers and directors of the Company
 
 
·
Included in receivable, $nil was receivable (December 31, 2013: $Nil) from a senior officer and director of the Company.
 
11    COMMITMENTS
 
As at December 31, 2013, the company doesn’t have any capital or operating commitments.
 
12     COMPARATIVE FIGURE
 
 As disclosed in note 3, the Company disposed Dragon International and Fujian Huilong on December 19, 2013, for comparative purposes, the Consolidated statement of operations for the three months ended March 31, 2013 was restated. A reconciliation of the restated figures is presented as follows
 
   
Previously
reported
    
Discontinued
adjustment
    
Restated
  
    $     $     $  
Revenue
     1,876,749       (1,876,749 )     -  
Cost of revenue
     (1,368,401 )     1,368,401       -  
Gross Profit
     508,348       (508,348 )     -  
                         
Selling expenses
     (64,183 )     63,541       (642 )
General and administrative
     (352,714 )     320,295       (32,419 )
Total operating expenses
     (416,897 )     383,836       (33,061 )
                         
Net income from operations
     91,451       (124,512 )     (33,061 )
                         
Income before income tax expenses
     91,451       (124,512 )     (33,061 )
                         
Income tax
     (15,151 )     15,151       -  
                         
Net income
     76,300       (109,361 )     (33,061 )
 
 
13
 
 
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2014, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2013 included in our Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2014 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K. Aside from certain information as of December 31, 2013, all amounts herein are unaudited. Unless the context otherwise indicates, references to “SGB,” “we,” “our,” “us” and the “Company” refer to SGB International Holdings Inc.and its subsidiaries on a consolidated basis.
 
Forward-Looking Statements
 
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” of our most recent Form 10-K.
 
Foreign Private Issuer Status
 
We are a foreign private issuer as defined under Rule 3b-4 promulgated under the Exchange Act, but voluntarily file our periodic reports on U.S. domestic forms Form 10-K, Form 10-Q, and Form 8-K.
 
As a foreign private issuer, we are not required to use U.S. domestic company forms such as Form 10-K, Form 10-K or Form 8-K to comply with our reporting requirements under Section 13 of the Exchange Act. Instead, we can file an annual report on Form 20-F each year with the Securities and Exchange Commission and furnish our interim financial statements and management’s discussion and analysis and reports about material changes to our Company, in the forms required by Canadian securities legislation, with the Securities and Exchange Commission on Form 6-K.
 
We have elected to voluntarily file our annual, quarterly, and current reports on U.S. domestic company forms and, we intend to continue to comply with our reporting requirements under Section 13 of the Exchange Act using the U.S. domestic company forms.
 
Corporate Overview
 
We were incorporated in the province of British Columbia, Canada under the name “Slocan Valley Minerals Ltd.” on November 6, 1997 with an authorized share capital of 10,000,000 common shares without par value. Following our incorporation we were not actively engaged in any business activities.
 
On June 1, 2004 we increased our authorized share capital from 10,000,000 common shares without par value to an unlimited number of common shares without par value. On June 11, 2004 we changed our name to “Orca International Language Schools Inc.”
 
Effective March 3, 2009, we changed our name from “Orca International Language Schools Inc.” to “SGB International Holdings Inc.” and we created a new class of preferred stock. As a result, our authorized capital consists of an unlimited amount of common shares without par value and an unlimited amount of preferred shares without par value. We have not issued any preferred shares.
 
 
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On May 11, 2011, we completed a reverse acquisition transaction with Dragon International Resources Group Co., Limited (the “Dragon International”), the shareholders of Dragon International, and the subsidiary of Dragon International, Fujian Huilong Coal Mine Co., Ltd. (formerly Yongding Shangzhai Coal Mine Co., Ltd.) (“Fujian Huilong”), pursuant to which we acquired 100% of the issued and outstanding capital stock of Dragon International in exchange for an aggregate of 220,522,000 common shares of our company, which constituted 90% of our issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the reverse acquisition.
 
Prior to the date of our reverse acquisition, we were considered as a “shell company” under the Rule 405 promulgated under the Securities Act of 1933 and Rule 12b-2 promulgated under the Securities Exchange Act of 1934 because we had nominal operations and nominal assets.
 
Dragon International was incorporated in the Hong Kong on October 5, 2010, and is a holding company for Fujian Huilong. Fujian Huilong was incorporated in the People’s Republic of China on August 4, 2005.
 
Our Business
 
Prior to our reverse acquisition of Dragon International, our goal originally was to provide management services to schools in the international education industry. We searched for a school as the initial client but we were not successful in finding any client. Because we incurred losses since November 6, 1997, in March 2009 our board of directors decided to explore the possibility of adopting a different business plan.
 
As a result of the above described reverse acquisition, we have assumed the business and operations of Fujian Huilong, a wholly-owned subsidiary of Dragon International. Fujian Huilong is engaged in coal production and sales by exploring, developing and mining coal properties. Fujian Huilong owns and operates a coal mine, located in Shangzhai Village, Yongding County, Longyan City of Fujian Province, People’s Republic of China.
 
Results of Operations
 
For the three months ended March 31, 2014 and 2013
 
The following table sets forth the consolidated results of our operations for our Company in the three months ended March 31, 2014 (“2014 Q1”) and March 31, 2013 (“2013 Q1”):
 
    2014 Q1    
% of Sales
      2013 Q1    
% of Sales
  
    $                   $  
Revenues
     498,015       100 %     1,876,749       100 %
Cost of sales
     263,500       53 %     1,368,401       73 %
Gross profit
     234,515       47 %     508,348       27 %
Operating expenses
     87,285       17 %     416,897       22 %
Profit from operations
     147,230       26 %     91451       5 %
Other expenses and income tax
     50,320       10 %     15151       2 %
Net income/(loss)
     96,909       19 %     76,300       3 %
 
Revenues
 
Our revenues are derived from the sales of coal. The overall revenue decreased by $1,378,734 or 74% from $1.88 million in 2013 Q1 to $0.49 million in 2014 Q19, principally due to the restructuring the company after disposal the fixed asset as a result of decrease the revenue.
 
 
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Cost of Sales and Gross Profit
 
In line with the decreased revenue, our cost of sales decreased by $1,104,901 or 81% from $1.37 million in 2013 Q1 to $0.26 million in 2014 Q1. Due to the higher labor and material costs, our company recorded there is a decrease in gross profit by $273,833 or 54% from $508,348 in 2013 Q1 as compared to $234,515 in 2014 Q1.
 
Operating Expenses
 
Our operating expenses decreased by $329,611or 23% from $419,897 in 2013 Q1 to $98,236 in 2014 Q1, principally due to the cost control effect by the management.
 
Other Expenses and Income Tax
 
Our other expenses and income tax increased by $35,169 from $15,151 in Q1 2013 to $50,320 in Q1 2014.
 
Net Income/(Loss)
 
As a result of the above, our net income increased by $20,609 from a net income of $76,300 in 2013 Q1 to $96,909 in 2014 Q1.
 
Impact of Inflation
 
We believe that inflation has had a net negative impact on our results of operations in 2014 Q1, especially on the labor costs and raw materials. The inflation risk remained relatively high in China during 2013 Q3. Chinese government has carried out a serial of financial and monetary policies to control the increasing inflation.
 
Liquidity and Capital Resources
 
Working Capital as at March 31, 2014 and December 31, 2013
 
   
March 31,
    
December 31,
  
   
2014
    
2013
  
Cash
   $ 1,728     $ 1,793  
Current Assets
   $ 475,404     $ 332,592  
Current Liabilities
   $ 414,128     $ 374,924  
Working Capital
   $ 61,276     $ (42,332 )
 
Current asset increased by $142,812 or 30% from $332,592 as at December 31, 2013 to $475,404 as at March  31, 2014, principally due to the increase of the cash balance directly related to the payment of the capital expenditures on the daily operation.
 
Current liabilities increased by $39,204 or 10% from $374,924 as at December 31, 2013 to $414,128 at March 31, 2014, principally a result of the account payable and accrued liabilities by the proceeds from the sales of the fixed assets.
 
As a result of the above, we have increased the working capital $61,276 as at March 31, 2014 as compared to the net loss of $42,332 as at December 31, 2012.
 
In view of the working capital, our management has reviewed the cash position as at the balance sheet date and the cash flow forecast for the next twelve months and taken into factors that (1) the current mining operation is able to continue in generating positive operating cash flows; (2) we are looking for opportunity to raise equity or debt financing; and (4) we are seeking the principal shareholder’s support in funding the required working capital. After taking the above circumstances and facts into consideration, the management of the Company believes that the Company will have sufficient funds to complete the current development and to meet in full its financial obligation and operations.
 
 
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Cash Flows
 
For the three months ended March31, 2014 and 2013 respectively:
 
The following summarizes cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2014 and 2013:
 
 
2014 Q1
     2013 Q1  
 
$
     $  
Net cash generated from operating activities
0
      
(99,542
 )
Net cash used in investing activities
0
      
(249,175
 )
Net cash generated from financing activities
0
      
362,371
  
Cash and cash equivalents at end of period
1,728
      
454,394
  
 
Due to the disposal of the fixed asset in 2013 Q3, the net cash from operating activities increased from the net loss of $99,542 in Q1 2013 as compared to $0 in Q1 2014.
 
The net cash used in investing activities also increased from the net loss of $249,175 in Q1 2013 to $0 in Q1 2014.
 
The net cash generated from financing activities of $1,728 inQ1 2014 was principally due to the decrease of term loan, the amount advanced from the third party and the disposal of the fixed asset.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 
 
Smaller reporting companies are not required to provide the information required by this item.
 
 
Disclosure Controls and Procedures
 
We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
 
As required by paragraph (b) of Rules 13a-15 under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were effective.
 
 
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Our management continues to review processes and intend make necessary changes to strengthen our system of internal controls over financial reporting.
 
A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
 
Limitations on Effectiveness of Controls
 
Our principal executive officer and principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2014 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
To the best of our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject or proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
 
 
There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013. For more information concerning our risk factors, please see “Item 1A. Risk Factors” of our Annual Report on Form 10-K.
 
 
None.
 
 
None.
 
 
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Not applicable.
 
 
On April 20, 2014, Mr. Peifeng Huang resigned as a director of our Company.
 
Also on April 20, 2014, the Board of Directors appointed Mr. Quan Gu, Mr. Wei Gu and Mr. Chang Gu as directors of the Company.
 
Quan Gu
 
Mr. Quan Gu, 39 years old, has been our director since April 20, 2014. Mr. Gu graduated from National University of Kyrhyz Republic major in international business. Mr. Gu has focused on mining advisory and exploration since 2004. He served as project management director at Xinjing Zhonghai Mining Company Limited and currently as an executive director and founding member of Beijing Shuntianying Project Management Co. Ltd. Mr.Gu has extensive experience in mining industry and strong networking in the industry.
 
Wei Gu
 
Mr. Wei Gu, 47 years old, has been our director since April 20, 2014. Mr. Gu graduated from Xian Institute of Physical Education in sports medicine. Mr. Gu has focused on marketing and human resources development since 1995. He served as the human resources director at Beijing Zhonghai Ziguang Co. Limited and currently serves as the senior project manager in Beijing Shuntianing Project Manage Co. Ltd.
 
Chang Gu
 
Chang Gu, 45 years old, has been our director since April 20, 2014. Mr. Gu graduated from Xinjing Normal University in Bachelor of Education. Mr. Gu has focused on marketing and human resources development since 1992. He served in Xinjiang Institute of Politics and Law from 1991 to 1994 and as senior project officer in charge of project schedule management and human resources management from 1994 to 2006. He is currently the executive director of Beijing Shuntianing Project Manage Co. Ltd.
 
 
Exhibits required by Item 601 of Regulation S-K:

Exhibit
Number
  
 
Description
31.1
  
Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2
  
Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*
  
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
101.INS
  
XBRL INSTANCE DOCUMENT
101.SCH
  
XBRL TAXONOMY EXTENSION SCHEMA
101.CAL
  
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF
  
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB
  
XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE
  
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
 
* In accordance with SEC Release 33-8238, Exhibits 32.1 is furnished and not filed.
 
 
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
SGB INTERNATIONAL HOLDINGS INC.
  
     
By:
/s/ Shibi Chen
  
 
Shibi Chen
  
 
President, Chief Executive Officer and Director 
  
 
(Principal Executive Officer)
  
 
Date: May 13, 2014
  
 
By:
/s/ Peifeng Huang
  
 
Peifeng Huang
  
 
Chief Financial Officer and  Secretary
  
 
(Principal Financial Officer and Principal Accounting Officer)
  
 
Date: May 13, 2014
  
 
 
 
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Grand China Energy Group Ltd Reports