UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

 

(Amendment No. 1)

 

(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, 2013

 

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

 

GRAND CHINA ENERGY GROUP LIMITED

(Exact name of registrant as specified in its charter)

 

British Columbia		N/A
State or other jurisdiction of		(I.R.S. Employer
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 and Zip Code)

 

Registrant's telephone number, including area code: (852) 3691-8831

 

SGB INTERNATIONAL HOLDINGS, INC.

(Former name or former address, if changed since last report) 

 

Securities registered pursuant to Section 12(b) of the Act

 

Title of Each Class		Name of each Exchange on which registered
Nil		N/A

 

Securities registered pursuant to Section 12(g) of the Act

 

Common Stock, no par value

(Title of Class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes o     No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o     No x

 

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 o    No x

 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K. o

 

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

Yes o     No x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

173,118,558 shares of common stock at a price of $0.01 per share for an aggregate market value of about $1,731,196.1

 

1 The aggregate market value of the voting stock held by non-affiliates is computed by reference to the price of shares of common stock sold on April 8, 2014.

 

APPLICABLE ONLY TO CORPORATE REGISTRANTS

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 

 

373,793,578 shares of common stock are issued and outstanding as of April 8, 2014.

 

 

Explanatory Note

 

Grand China Energy Group Limited. (Former name: SGB International Holdings Inc., the “Company”, “SGB”, “we”, “us”, “our”) is filing this Amendment No. 1 (Amendment) to its Annual Report on Form 10-K for the year ended December 31, 2013 (Original Form 10-K) filed with the Securities and Exchange Commission (SEC) on April 15, 2014 (Original Filing Date) to revise the Company’s disclosure related to the equity interest transfer of our subsidiaries in its Original Form 10-K.

 

Except for the foregoing amended and restated information, no other changes have been made to the Original Form 10-K. This Amendment continues to describe conditions as of the date of the Original Filing Date, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing Date, or to modify or update those disclosures affected by subsequent events. 

 

Accordingly, forward-looking statements included in this Amendment represent management’s views as of the Original Filing Date and should not be assumed to be accurate as of any date thereafter. This Amendment should be read in conjunction with the Company’s other filings with the SEC, together with any amendments to those filings.

 

TABLE OF CONTENTS

 

PART I
	ITEM 1.	BUSINESS	2
PART II
	ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	22
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	24
PART IV
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES.	25
SIGNATURES			26

 

 

PART I

 

ITEM 1. BUSINESS

 

Forward-Looking Statements

 

This report contains forward-looking statements. Forward-looking statements are statements that relate to future events or future financial performance. In some cases, you can identify forward-looking statements by the use of terminology such as “may”, “should”, “intend”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “project”, “predict”, “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements speak only as of the date of this report. Examples of forward-looking statements made in this annual report include statements pertaining to, among other things:

 

·	our future development programs and results;
·	our future capital expenditures;
·	our future investments in and acquisitions of mineral properties;
·	our financial and operating performance;
·	the estimation of mineral reserves and the realization of mineral reserve estimates;
·	operating expenditures;
·	governmental regulation of mining operations; and
·	our need for, and our ability to raise, capital.

 

The material assumptions supporting these forward-looking statements include, among other things:

 

·	our ability to obtain any necessary financing on acceptable terms, if and when needed;
·	timing and amount of capital expenditures;
·	our ability to obtain necessary drilling and related equipments in a timely and cost-effective manner to carry out operating activities;
·	retention of skilled personnel;
·	the timely receipt of required regulatory approvals;
·	continuation of current tax and regulatory regime;
·	current exchange rate and interest rates; and
·	general economic and financial market conditions.

 

 

Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

 

These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:

 

·	risks and uncertainties relating to the interpretation of sampling results, the geology, grade and continuity of mineral deposits;
·	statements respecting anticipated business activities;
·	planned expenditures;
·	corporate strategies;
·	proposed acquisitions and dispositions of assets;
·	anticipated capital expenditures;
·	future production;
·	expected mine life;
·	future exploration and expenditures on our company’s properties;
·	estimates of future Chinese demand for coal;
·	risks and uncertainties that results of initial sampling and mapping will not be consistent with our expectations;
·	mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;
·	the potential for delays in exploration, development, or production activities;
·	risks related to the inherent uncertainty of cost estimates and the potential for unexpected costs and expenses;
·	risks related to commodity price fluctuations;
·	risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our operations;
·	risks related to environmental regulation and liability;
·	risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;
·	risks related to tax assessments;
·	political and regulatory risks associated with mining development and exploration; and
·	the risks in the section entitled “Risk Factors”.

 

These risks, as well as risks that we cannot currently anticipate, could cause our company’s or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock. “RMB” or “Renminbi” refers to the legal currency of China and “$” or “US$” refers to the legal currency of the United States. “China” or “PRC” refers to the People’s Republic of China.

 

 

As used in this report, the terms “we”, “us”, and “ our” refer to SGB International Holdings Inc. and its newly acquired subsidiaries, Dragon International Resources Group Co., Limited, a Hong Kong corporation, and Fujian Huilong Coal Mine Co., Ltd. (formerly Yongding County Shangzhai Coal Mine Co., Ltd.), a People’s Republic of China corporation, unless the context clear indicates otherwise. As used in this report, the terms “Dragon International” and “Fujian Huilong” refer to Dragon International Resources Group Co., Limited and Fujian Huilong Coal Mine Co., Ltd., respectively.

 

Foreign Private Issuer Status

 

We are a foreign private issuer as defined under Rule 3b-4 promulgated under the Securities Exchange Act of 1934, but voluntarily file our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.

 

We have elected to voluntarily file our annual, quarterly, and current reports on U.S. domestic forms because we have used such forms ever since we began filing the reports under the Securities Exchange Act of 1934. Going forward, we intend to continue to comply with our reporting requirements under Section 13 of the Securities Exchange Act of 1934 using the Forms 10-K, 10-Q, and 8-K.

 

As a foreign private issuer, we are not required to use the U.S. domestic forms to comply with our reporting requirements under Section 13 of the Securities Exchange Act of 1934. Instead, we can file an annual report on Form 20-F each year with the Securities and Exchange Commission and file 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.

   

Corporate History

 

We were incorporated on November 6, 1997 in the province of British Columbia, Canada under the name “Slocan Valley Minerals Ltd.” 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 shares. As a result, our authorized capital consists of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value. We have not issued any preferred shares. Effective March 4, 2009, we effected a 4.5 for one forward split of our issued and outstanding common shares.

 

Our goal originally was to provide management services to schools in the international education industry based on the principles of: improving their administrative, operational, marketing, sales and human resources functions; building links with other schools worldwide to foster student exchange; and repositioning the schools to concentrate their curriculum on preparing students for one of the three major English proficiency tests. We have been searching for a school as the initial client but we have not been successful in finding any such school. Since we have incurred losses since November 6, 1997, in March 2009, our board of directors has decided to explore the possibility of adopting a different business plan to protect our shareholders’ value.

 

Prior to the date of our reverse acquisition, discussed below, 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.

 

As described above, on April 12, 2011, we entered into the share exchange agreement with Dragon International Resources Group Co., Limited, its shareholders and Fujian Huilong Coal Mine Co., Ltd. (formerly known as YongdingShangzhai Coal Mine Co., Ltd.) and as a result of the closing of this agreement on May 11, 2011, we adopted the business of Fujian Huilong Coal Mine Co., Ltd. and abandoned our prior business.

 

 

Reverse Acquisition of Dragon International Resources Group Co., Limited

 

On May 11, 2011, we completed a reverse acquisition transaction with the shareholders of Dragon International Resources Group Co., Limited pursuant to which we acquired 100% of the issued and outstanding capital stock of Dragon International Resources Group Co. 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.

 

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.

 

There was no material relationship that existed between our company, our former principal shareholders, and the shareholders of Dragon International prior to the time of the reverse acquisition other than in respect of the reverse acquisition. No third parties played a material role in arranging or facilitating the transactions and no third parties received benefits from arranging or facilitating the transaction between our company and the former shareholders of Dragon International.

  

Because we did not have any active business operations prior to the reverse take over of Dragon International and were considered a “shell company”, our previous management, including Mr. Xin Li, actively pursued opportunities for us to acquire an operating business to enhance shareholders value. Mr. Li met representatives of Fujian Huilong Coal Mine Co., Ltd. in a business meeting and learned that Fujian Huilong is contemplating going public in North America through its holding company in Hong Kong, Dragon International. The parties started negotiating the terms of the transaction and subsequently agreed to terms of the share exchange agreement entered into between our company and shareholders of Dragon International. Other than Mr. Li and principals of Dragon International, no third parties played a material role in arranging or facilitating the transactions. Mr. Li is considered a promoter of our company and he did not receive anything of value from our company for these transactions.

 

As a result of the reverse acquisition, we have assumed the business and operations of Fujian Huilong Coal Mine Co., Ltd., a wholly-owned subsidiary of Dragon International Resources Group Co., Limited. Fujian Huilong Coal Mine Co., Ltd. is a company engaged in coal production and sales by exploring, developing and mining coal properties. Fujian Huilong Coal Mine Co., Ltd. owns and operates a coal mine, located at Shangzhai Village, Yongding County, Longyan City of Fujian Province, People’s Republic of China, which has coal reserves of an estimated 1,354,000 t as of December 31, 2009, including 416,000 t proven coal reserve, and 938,000 t probable coal reserve. The current coal production was conducted within the parameter stated in the mining permit. The remaining coal reserve as of December 31, 2012 is still pending for the geological report to be issued from an independent and qualified Canada based geologist company, Wardrop Engineering Inc. (the “Wardrop”). Because the scope of Wardrop’s work on its May 2011 NI-43-101 technical report covered 5.7 km2 area of the mining permit numbered 3500000620055, which provides for an annual production rate of 90,000 t/a and is in good standing until April 2016, but Wardrop noted that Fujian Huilong production was over 200,000 t in year 2009 , over 150,000 t in year 2010, about 114,000 t in year 2012 and 67702t in year 2013. Because of the unique geological structure and coal deposits in the Fujian Province, coal productions require a higher level of human input together with machinery to achieve a desirable rate of return, which is unlike coal deposits in Northwestern China that are more suitable for larger production using mostly large machinery. Accordingly, when a new coal mining operation applies for a permit in the Fujian Province, the typical annual production rate granted would be in the range of 60,000 t/a to 90,000 t/a. This initial annual production rate, which may be considered as a trial period production rate, may be adjusted and increases can be applied for subsequently, depending on the development of a particular mine. We initially applied for an annual production rate of 90,000 t/a for our mining permit number 3500000620055 because of this practice in the Fujian Province. We are in the process of applying to increase our annual production rate to up to 300,000 t/a. As of May 13, 2011, Shangzhai has obtained another mining permit (C3500002011051120112047) for an area of 6.8 km2 that is adjacent to (and with a small overlapping area with) the 5.7 km2area covered by its existing mining permit, which also allows it to mine at different mining levels. With respect to the estimated 1,354,000 t reserves in the valid 5.7 km2 mining area, Shangzhai has confirmed that about 70% coal reserves have been assigned to the current mine shaft and mining equipment, while the rest 30% coal reserves will require sustaining capital for coal production.

 

The run of mine coal from underground are sold without further processing. The major application of the coal is used as solid fuel to produce heat and electricity. The coal product has a typical calorific value of around 7,000 kcal/kg, as received. The total sulfur contained in the product is typically about 0.6%, dry basis. The total moisture in the coal product is about 4.4%.

 

 

On October 3, 2013, a wholly owned subsidiary of SGB, SGB Investment Limited, was incorporated.

 

On December 19, 2013, the Company sold its 100% equity interest in Dragon International Resources Group Co and its wholly owned subsidiary Fujian Huilong Coal Mine Co., Ltd to an independent third party at cash consideration of HKD 1,000,000 (approximately USD 129,000). This is because the existing PPE are too old to be replaced and the current mining right cannot provide coal up to the quality to our existing clients.

After selling all the equity of Dragon International and Fujian Huilong for the purpose of disposing the old PPE, before the new mining area being developed with the new mining right, the Company and its subsidiaries remain to conduct its operation by procuring external market to serve its existing clients.

The Company and its subsidiaries are considered to be operating in one segment based on its organizational structure and strategic decision making method.

Corporate Structure

 

As a result of the consummation of the transactions contemplated under the share exchange agreement:

 

·	Dragon International Resources Group Co., Limited became our wholly-owned subsidiary and Fujian Huilong Coal Mine Co., Ltd., the wholly-owned subsidiary of Dragon International Resources Group Co., Limited became our wholly-owned subsidiary;
·	We issued an aggregate of 220,522,000 common shares of our company, representing approximately 90% of our issued and outstanding common shares on a fully diluted basis, in exchange for all of outstanding capital stock of Dragon International.

 

The organization and ownership structure of our company subsequent to the consummation of the reverse acquisition as summarized in the paragraphs above is as follows:

 

 

Fujian Huilong Coal Mine Co., Ltd. (formerly known as YongdingShanzahi Coal Ming Co., Ltd.) is a wholly foreign-owned limited liability company operating in China and is wholly owned by the foreign investor (Dragon International in our case). Dragon International was incorporated on October 5, 2010 in Hong Kong to acquire all of the equity interest in Fujian Huilong Coal Mine Co., Ltd. from its previous owners, Mr. Chuanzhen Lin, Mr. Wensi Lin, and Mr. Qingdong Shi, and to change the status of Fujian Huilong into a wholly foreign-owned subsidiary. Dragon International was also created to facilitate the share exchange between SGB International Holdings, Inc. and the shareholders of Dragon International as Chinese laws do not allow SGB International Holdings, Inc. to effect share exchanges directly with any owners of Fujian Huilong.

 

 

On November 1, 2010, Dragon International entered into a share transfer agreement with Mr. Chuanzhen Lin, Mr. Wensi Lin, and Mr. Qingdong Shi, under which Dragon International acquired all of the outstanding equity shares of Fujian Huilong. On February 21, 2011, Fujian Huilong received its new business license and became a WFOE under the People’s Republic of China (“PRC”) laws. Mr. Longwen Lin, a key management member of Fujian Huilong, subsequently acquired 90% of the Dragon International. At that time, Mr. Longwen Lin did not have other relationship with Dragon International, Fujian Huilong or these entities’ shareholders in connection with the reverse merger. Mr. Peifeng Huang was also a key management member of Fujian Huilong before its acquisition by Dragon International, but he did not have other relationship with Dragon International, Fujian Huilong or these entities’ shareholders in connection with the reverse merger. Mr. Thomas TzeKhern Yeo did not have other relationship with Dragon International, Fujian Huilong or these entities’ shareholders in connection with the reverse merger.

 

We anticipate that we will rely principally on dividends from our PRC subsidiary, Fujian Huilong, for our cash requirements outside of PRC, including servicing any debt we may incur outside of PRC and obtaining the funds necessary to pay dividends and other cash distributions to our shareholders and pay our operating expenses outside of PRC.

    

Under the PRC law, as a WFOE, the PRC subsidiary, Fujian Huilong, may pay dividends only out of its accumulated retained earnings determined in accordance with the PRC accounting standards and regulations and tax laws, which will subject to a withholding tax of 10%. Pursuant to a special arrangement between Hong Kong and the PRC government, known as the Arrangement between the Mainland and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, effective August 21, 2006 (the “Arrangement”), Dragon International may qualify for a lower rate of 5% for any dividends remitted from Fujian Huilong in Mainland China to Dragon International in Hong Kong. In October 2009, the State Administration of Taxation of China, or the SAT, further issued the Circular on How to Interpret and Recognize the “Beneficial Owner” in Tax Agreements, or Circular 601. According to Circular 601, non-resident enterprises that cannot provide valid supporting documents as “beneficial owners” may not be approved to enjoy the preferential tax rate under the Arrangement. “Beneficial owners” are individuals, enterprises or other organizations that are normally engaged in substantive operations. These rules also set forth certain adverse factors to the recognition of a “beneficial owner.” Specifically, they expressly exclude a “conduit company,” or any company established for the purposes of avoiding or reducing tax obligations or transferring or accumulating profits and not engaged in actual operations such as manufacturing, sales or management, from being a “beneficial owner.” As a result, although Fujian Huilong is a wholly owned subsidiary of Dragon International, Dragon International may not be able to enjoy the preferential withholding tax rate under the Arrangement and therefore be subject to withholding tax at a rate of 10% with respect to dividends to be paid by Fujian Huilong.

 

In accordance to the Article 167 of the PRC Company Law, the PRC subsidiary, Fujian Huilong, is required to set aside at least 10% of its after-tax profit based on PRC accounting standards to its statutory surplus reserve fund until the accumulative amount of such reserve reaches 50% of its respective registered capital. These reserves are not distributable as cash dividends. The board of directors of a WFOE has the discretion to allocate a portion of its after-tax profits to its staff welfare and bonus funds. After the allocation of relevant welfare and funds, the equity owners can distribute the remaining net after-tax profits after deducting the accumulated losses in the previous fiscal year. According to the PRC Company Law, companies may subject to a fine up to RMB5,000 for non-compliance with the above rules.

 

The registered capital of Fujian Huilong was RMB1 million as at December 31, 2010 and has been increased to and remains as RMB13.28 million as at December 31, 2011 and December 31, 2012 respectively. Fujian Huilong will set aside at least 10% of its after-tax profit until it reached the minimum 50% of its respective registered capital requirement.

 

After paying the withholding taxes applicable to Fujian Huilong, making appropriations for its statutory reserve funds and retaining any profits from accumulated profits, the remaining net profits of Fujian Huilong would be available for distribution to its sole shareholder, Dragon International, our wholly owned subsidiary in Hong Kong, and from Dragon International to us. Dragon International is subject to the uniform tax rate of 16.5% in Hong Kong. Under the Hong Kong tax laws, Dragon International is exempted from the Hong Kong income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

 

 

Our Business

 

As a result of the reverse acquisition, we are mainly engaged in coal production in the province of Fujian in the People’s Republic of China. Through our wholly owned subsidiary, Fujian Huilong Coal Minde Co., Ltd., we manage and operate the Shangzhai coal mine, which is located at Yongding County, Fujian Province, People’s Republic of China. The Shangzhai coal mine currently sells unprocessed coal.

 

On December 19, 2013, even the company has disposed its PPE and the new mining right are yet to be obtained, the company has remained its operation to source coal through external market to serve its existing clients.

 

Our Products

 

All of our coal is classified as anthracite. The coloring of this coal is dark gray to slightly silver-gray. The coal is of sufficient quality to be used for power generation, production of cement, as raw material for ammonia production, and for domestic uses.

 

Because the capacity of the screen system for coal processing is too small to be used, we sell the coal unprocessed. In addition, sale contractors are responsible for hauling coal from the mine site to customers. Therefore, there are no processing or hauling costs.

 

After December 19, 2013, we are still sourcing the coal at the same standard and quality to serve its existing clients. 

 

Our Customers

 

We sell our coal directly to local sale contractors, and are responsible only for loading contractors’ trucks at the mine site. Subsequently, sale contractors haul coal from the mine site to consumers. For the years ended December 31, 2012 and December 31, 2013, the Company had three (2012) and four (2013) customers accounted for more than 10% of total sales representing 73% (2012) and 55% (2013) of total sales, respectively:

 

Name		% of the sales in FY2012
Mr. Wei Mingji			29	%
Mr. Huang Jingyang			24	%
Mr. Lin Jinxiu			20	%
Mr. Ling Tianyun			0	%
Mr. Yan Dechang			0	%
Mr. Dai Jinsheng			0	%

 

Name		% of the sales in FY2013
Mr. Wei Mingji			23	%
Mr. Lu Liesheng			12	%
Mr. Lu Qiliang			10	%
Mr. Lai Linhai			10	%

 

 

As coal is currently a scarce commodity in Fujian province and demand is significantly higher than supply, we sell our coal on a per ton basis directly to our customers on cash basis or wire transfer payment. Our coal is generally sold to a few major individual customers and also on-site sales to other smaller customers on cash basis only. There was a significant increase of sales in 2007 through 2011 mainly driven by market demands and also due to the improvement on our productivity. Our sales personnel conduct routine customer visits and customer satisfaction surveys. We typically enter into contracts with our customers on a yearly basis, which contracts are renewable annually. These contracts do not provide for minimum purchase amount requirements. Once our coal is mined, it is typically picked up immediately by, or loaded immediately for delivery to, customers so we do not currently maintain an inventory of the mined coal.

 

Product Pricing

 

Coal prices are generally determined by market price or are based on contractual terms. The price for certain thermal coal used for power generation is determined among coal suppliers and power plant buyers in accordance with the pricing guideline published by the PRC Government. However, we are not required to abide by the government pricing guideline as our customer do not comprise of power plant buyers. In addition, we do not believe we will be required to abide by the government pricing guidelines because we are not obligated to determine to whom our customers will sell the coal they purchased from us and as such the government pricing guidelines do not apply to the purchase and sale of coal between our company and our customers. 

 

We set pricing by taking into account: (i) prices in the relevant local coal markets; (ii) grade and quality of the coal; and (iii) relationships with customers. Transportation costs are normally borne by the customers. The average price for raw coal from the Shangzhai coal mine in 2012 was about US$112 per ton, which is $31 or 29% higher than the average price of about US$81 per ton in 2013.

 

Sources and Availability of Raw Materials and the Principal Suppliers

 

We purchase certain materials in connection with our coal mining operations, including: (i) mining equipment and vehicles; (ii) lift cylinders; and (iii) iron boards, etc. Because these materials are readily available, we do not purchase them exclusively from any one supplier for our operation.

 

The price of these materials is set at market rates or determined through negotiations. We believe we have established stable cooperative relationships with the suppliers that we deal with to ensure a reliable supply of the materials required for our mining operations.

 

Research and Development

 

We had no research and development expenses in 2012 and in 2013. We currently have no plans for any research and development activities and do not anticipate any material research and development costs.

 

Intellectual Properties and Licenses

 

We have no material patents, licenses or other intellectual property.

 

Competition

 

In the area where we operate the Shangzhai coal mine, there are no other coal mine operating in the Shangzhai district but there are about 4 other licensed coal mines within the Yongding County which directly compete with us: Yongding County Dakedu coal mine, Yongding County Dawanke coal mine, Yongding County Huangyoukeng coal mine and Yongding County Jiaozhi coal mine. Yongding County Dakedu coal mine has an annual production capacity of about 90,000 tons/a and the remaining competitors have an annual production capacity of about 60,000 tons/a. However, because demand for coal currently outpaces supply, we do not face any meaningful competition for the sale of our coal from the Shangzhai coal mine.

 

 

The Coal Industry Policy, issued by the National Development and Reform Commission (NDRC) in November 2007, stipulates that new coal mines and expansions of existing coal mines in Fujian Province must have a minimum output of 90,000 t/a. The approved production capacity of the Shangzhai coal mine is 90,000 t/a, which is in accordance with this policy. According to the Circular on Assigning the Plan for Closing Small Scale Coal Mines in the Last Three Years of the ‘Eleventh Five Year’ Period issued by the NDRC, National Energy Bureau, State Administration of Work Safety, and the State Administration of Coal Mine Safety in October 2008, Chinese coal mines with an annual production capacity of less than 300,000 t/a are considered to be small-scale coal mines and will be closed, merged, or limited; there was plans to reduce the number of small-scale coal mines in Fujian Province and our mine is not expected to be one of the affected one.

 

Yongding County Coal Industry Management Bureau is the direct government agency responsible for implementing the “Circular on Assigning the Plan for Closing Small Scale Coal Mines in the Last Three Years of the ‘Eleventh Five Year’ Period’” in Yongding County and the officer with whom we had a conversion regarding effect of the Circular on our company was the deputy chief and he has the overall decision making power of this bureau. He indicated to us that because Fujian Province does not have sufficient coal production for use by local industries and relies heavily on import from other provinces, and because our mine has consistently demonstrated excellent safety records, we will not be one of the small-scale mines affected by the Circular. However, we have not received any written assurance regarding the applicability of the “Circular on Assigning the Plan for Closing Small Scale Coal Mines in the Last Three Years of the ‘Eleventh Five Year’ Period’” to our mine operations and it is possible that decisions regarding the Circular on the local level could be overruled at the national level. Our past coal production outside of the areas covered by our mining permit may not be considered in determining whether we have a coal production capacity of at least 300,000 t/a. However, after receiving the new mining permit covering additional 6.8 km2, we intend to conduct our mining operations only within the areas covered by our valid mining permits and our coal production in the future will be considered whether we have a coal production capacity of at least 300,000 t/a.

 

According to the Opinions of the NDRC on Expediting the Merger and Reorganization of Coal Mines, issued by the General Office of the State Council in October 2010, large-scale coal mining companies are encouraged to merge with or acquire small-scale coal mines in order to reduce the overall number of coal mining enterprises.

 

Regulatory Overview

 

Coal Law

 

On August 29, 1996, the PRC Government promulgated the People’s Republic of China Coal Law (the “Coal Law”), which became effective on December 1, 1996. The Coal Law sets forth requirements for all coal mines, including state-owned mines and privately owned mines, mainly providing for resource exploitation planning, approval of new mines, the issuance of mining and safety production permits, implementation of safety standards, processing of coal, business management, protection of mine areas from destructive exploitation, and safety protection for miners and administrative supervision.

 

According to the Coal Law, entities seeking to establish mining enterprises must apply to the relevant government office and obtain all necessary approvals. Upon obtaining such approvals, the entities concerned will be granted a mining permit from the Ministry of Land and Resources. Thereafter, an entity must obtain a coal production permit and a coal operation permit and other related quality permits in order to commence coal production and sell coal products in the PRC. We have applied for and received a mining permit valid until 2016 and a coal production permit valid until 2031. Our management believes that we have complied with the relevant provisions of the Coal Law. We will be forced to terminate our business if we do not have the necessary approvals from the relevant government offices. The PRC Government is in the process of amending the Coal Law, in response to concerns over the lack of a well-coordinated development plan for mining, which contributed to a significant amount of waste of valuable coal resources. The lack of effective penalty provisions or the lenient enforcement of existing provisions in the Coal Law has been cited as another important reason for the current rulemaking effort.

 

Mining activities in the PRC are also subject to the People’s Republic of China Mineral Resources Law (“Mineral Resources Law”), promulgated by the PRC Government on March 19, 1986 and amended on August 29, 1996. The Mineral Resources Law regulates matters relating to the planning or engaging in the exploration, exploitation and mining of mineral resources. According to the Mineral Resources Law all mineral resources, including coal, are owned by the state. Except under limited circumstances, any enterprise planning to engage in the exploration, exploitation and mining of mineral resources must first apply for and obtain exploration rights and mining rights before commencing the relevant activities. The Mineral Resources Law prohibits the transfer of exploration and exploitation rights in general unless the transfer falls within certain specified circumstances. Our management believes that we are in compliance with the Mineral Resources Law in this respect because we have applied for and obtained the mining permit and coal production permit.

 

 

We are principally subject to governmental supervision and regulation by the following agencies of the PRC Government:

 

·	the State Council, which is the highest level of the executive branch, is responsible for the examination and approval of major investment projects specified in the 2004 Catalogue of Investment Projects released by the PRC Government;
·	the National Development and Reform Commission, which formulates and implements major policies concerning China’s economic and social development, examines and approves investment projects exceeding certain capital expenditure amounts or in specified industry sectors, including examination and approval of foreign investment projects, oversees reform of state-owned enterprises and formulates industrial policies and investment guidelines for the natural resource industries, such as coal production. In addition, the NDRC administers coal export activities and export quotas jointly with the Ministry of Commerce. The NDRC is also responsible for the evaluation and implementation of the price-linking mechanism between the prices of coal and power;
·	the Ministry of Commerce of China (“MOFCOM”) and/or its local counterpart, which regulates foreign investment in China, such as review and approval of foreign invested companies in China and mergers and acquisitions of Chinese domestic enterprises by foreign investors;
·	the Ministry of Land and Resources of China (“MLR”) and/or its local counterpart, which has the authority to grant land use licenses and mining right permits, approves transfer and lease of mining rights, and reviews mining rights premium and reserve valuation;
·	the State Administration of Coal Mine Safety (“SACMS”) and/or its local counterpart, which is responsible for the implementation and supervision of the relevant safety laws and regulations applicable to coal mines and coal mining operations;
·	the Ministry of Environmental Protection of China (“MEP”) and/or its local counterpart, which supervises and controls environmental protection and monitors China’s environmental system;
·	the Ministry of Construction of China (“MOC”) and/or its local counterpart, which is responsible for the management of survey and design of construction projects, including but not limited to the survey and design of coal mines;
·	the National and State Tax Bureaus and/or their local counterparts, which are responsible for the federal and local income, VAT and other taxes;
·	the State Administration of Foreign Exchange of China (“SAFE”) and/or its local counterpart, which is responsible for the convertibility of RMB into foreign currencies, registration of foreign debt or loans of Chinese companies and, in certain cases, the remittance of currency out of the PRC, such as repayment of bank loans or dividends denominated in foreign currencies; and
·	the State Administration for Industry and Commerce of China (“SAIC”) and/or its local counterpart, which is responsible for review and approval of establishment of domestic and foreign invested companies in China and issuance of their business licenses.

 

The following is a brief summary of the principal laws, regulations, policies and administrative directives to which we are subject.

 

Pricing

 

Until 2002, the production and pricing of coal was largely subject to close control and supervision by the PRC Government, which centrally manages the production and pricing of coal. Previously, the price of coal was determined based on a government-devised pricing guideline which set out the suggested prices for coal. However, to effectuate the transformation from planned economy to market economy practices, from January 1, 2002 China eliminated the state guidance price for coal and allowed prices for all types of coal to be determined in accordance with market demand. However, as the PRC Government continues to maintain control over the national railway system, which is the primary means for coal transportation in China, the PRC Government still may exert influence over the pricing of coal through its allocation of railway transportation capacity for coal.

 

 

In addition, under the Price Law of the PRC, promulgated December 29, 1997, effective May 1, 1998, in the event of an actual increase or potential increase in the prices of important products such as coal, the State Council and the provincial governments, autonomous regions and municipalities directly under the PRC Government may adopt intervention measures, such as restricting the ratio of price differentials or of profits, and imposing price limits, etc. In August 2004, the NDRC issued a notice setting forth temporary measures to be imposed on thermal coal prices for certain regions. In December 2004, the NDRC issued a notice setting forth guidelines for pricing of thermal coal sales in 2005. Under these guidelines, the coal suppliers and their customers may not negotiate for the sale of coal at prices exceeding the government suggested price range.

 

Similar to coal pricing, the production and supply of coal, which is dictated by the PRC Government’s annual state coal allocation plan, has been gradually liberalized and largely subject to market forces. Major domestic coal suppliers and coal purchasers attend the Annual National Coal Trading Convention to negotiate and discuss the price and quantity of coal to be supplied and purchased for the coming year through the signing of letters of intent and short and long-term supply contracts.

 

On December 18, 2006, the National Development and Reform Committee issued the Notice Relating to the Good Preparation for Inter Provincial Coal Production Transportation Works (Fa Gai Yun Xing [2006] No. 2867). According to the notice, in 2007, policies were to be implemented to encourage the reform of the market system for determining coal prices by allowing parties to determine prices through discussions in accordance with market demand, and to encourage price determination based on quality. On December 27, 2006, the relevant government departments and units, such as the National Development and Reform Committee for railway operations, and the Transportation Department, convened a 2007 coal industry video and telephone conference. This symbolized the end of the Annual National Coal Trading Convention that has been in place for over 50 years. Under the State’s macroeconomic controls, the new mechanism for enterprises to freely determine prices through negotiations was put in place.

 

Fees and Taxes

 

There are various taxes and fees that are imposed upon coal producers in Fujian Province, as well as statutory reserves which coal producers are required to set aside. Such taxes, fees and statutory reserves as applicable to our company at December 31, 2013 which coal company has to purchase and pay RMB 165 per tons to the local Coal Management Authority that set out the relevant tax rate as follows:

 

Item		Base		Rate
Corporate income tax		Taxable income		About US$0.85 per ton  (equivalent to RMB 5.5 per ton)
VAT		Revenue from domestic sales		About US$3.62 per ton  (equivalent to RMB 23.4 per ton)
City construction tax		Amount of VAT and business tax		About US$0.18 per ton  (equivalent to RMB 1.17 per ton)
Education surcharge		Amount of VAT and business tax		About US$0.15 per ton  (equivalent to RMB 0.94 per ton)
Stamp duty fee		Proceeds from the sale of coal		About US$0.01 per ton  (equivalent to RMB 0.05 per ton)
Resource tax		Volume of raw coal produced		About US$0.39 per ton  (equivalent to RMB 2.5 per ton)
General fund (comprise of safety fund, maintenance fund, environmental fund and forestry fund)		Volume of raw coal produced		About US$19.93 per ton  (equivalent to RMB 128.94 per ton)
Individual income tax		Volume of raw coal produced		About US$0.39 per ton  (equivalent to RMB 2.5 per ton)

 

 

Under the Mineral Resources Law, if mining results in damage to arable land, grasslands or forest areas, the mining enterprise must take effective measures to return the land to an arable state, plant trees or grass or take other measures. The Mineral Resources Law and other applicable laws and regulations also state that anyone who causes others to suffer loss in terms of production or in terms of living standards is held liable for the loss under the law and is required to compensate the persons affected and to remedy the situation. In addition, the Mineral Resources Law also provides for (i) regulations concerning labor safety and hygiene and (ii) environmental protection.

 

All coal producers are subject to PRC environmental protection laws and regulations which currently impose fees for the discharge of waste substances, require the payment of fines for serious pollution and provide for the discretion of the PRC Government to close any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage. We have not been notified by the PRC Government authorities of any environmental damages.

 

Domestic Trading of Coal

 

Pursuant to the Measures for the Regulation of Coal Operations promulgated by the NDRC on December 27, 2004, the state implemented a system to examine coal operation qualifications in respect of coal operations, including the wholesale and retail of raw coal and processed coal products, and the processing and distribution of coal for civilian use. Before an enterprise can engage in coal operations, it must obtain a coal operation qualification certificate. A coal production enterprise that deals in coal products which it did not itself produce and process is required to obtain coal operation qualifications. The enterprise is also prohibited from dealing in coal products produced and/or processed by a coal mine enterprise that does not have a coal production permit. An enterprise is also prohibited from selling coal products to a coal operation enterprise that does not have coal operation qualifications. Our company has applied for and obtained a coal production permit and this permit is valid until December of 2031.

 

Although the PRC Government indirectly influences coal prices through its broad regulation of electricity prices and control over the allocation of national railway capacity, domestic coal prices have mainly been market-driven since 2002, when the PRC Government eliminated the price control measures for coal used in electric power generation.

 

Prior to 2006, however, the PRC Government continued to implement temporary measures to prevent and control any unusual fluctuations in thermal coal prices. This, among other reasons, has caused thermal coal contract prices for major users to be generally lower than spot market prices during this period. On January 1, 2006, the NDRC announced the elimination of such temporary intervention practices on thermal coal price, thus completely removing control over thermal coal prices, including contract prices for major users.

 

Environmental Protection Laws and Regulations

 

Pursuant to the Environmental Protection Law, MEP is empowered to formulate national environmental quality and discharge standards and to monitor China’s environmental system at the national level for the purpose of preventing and eliminating environmental pollution and damage to ecosystems. Environmental protection bureaus at the county level and above are responsible for environmental protection within their areas of jurisdiction.

 

Environmental regulations require companies to file an environmental impact report with the relevant environmental authority for approval before undertaking the construction of a new production facility or any major expansion or renovation of an existing production facility. New facilities built pursuant to this approval are not permitted to operate until the relevant environmental authority has performed an inspection and has found that the facilities are in compliance with environmental standards. Our current facilities are in compliance with environmental standards.

 

Mining operations, including both open pit mines and underground mines, may result in disturbances of surface and underground land and cause water pollution, landslides and other types of environmental damage. To manage the adverse effects that the coal industry has on the environment, China promulgated a series of laws and regulations. Through these laws and regulations, China established national and local environmental protection legal frameworks and issued standards applicable to emission controls, discharges of wastes and pollutants to the environment, generation, handling, storage, transportation, treatment and disposal of waste materials by production facilities, land rehabilitation and reforestation.

 

 

The Environmental Protection Law, promulgated by the National People’s Congress December 26, 1989, is the cardinal law for environmental protection in China. The law establishes the basic principle for coordinated advancement of economic growth, social progress and environmental protection, and defines the rights and duties of governments at all levels. Local environmental protection bureaus may set stricter local standards than the national standards and enterprises are required to comply with the stricter of the two sets of standards. The Environmental Protection Law requires any entity operating a facility that produces pollutants or other hazards to incorporate environmental protection measures into its operations and to establish an environmental protection responsibility system, which must adopt effective measures to control and properly dispose of waste gases, waste water, waste residue, dust or other waste materials.

 

New construction, expansion or reconstruction projects and other installations that directly or indirectly discharge pollutants to the environment shall be subject to relevant state regulations governing environmental protection for such projects. Entities undertaking such projects must submit a pollutant discharge declaration statement detailing the amount, type, location and method of treatment to the competent authorities for examination. The authorities will allow the construction project operator to release a certain amount of pollutants into the environment and will issue a pollutant discharge license for that amount of discharge subject to the payment of discharge fees. The release of pollutants is subject to monitoring by the competent environmental protection authorities. If an entity discharges more than the amount permitted by the pollutant discharge license, the local environmental protection bureau can fine the entity up to several times the discharge fees payable by the offending entity for its allowable discharge, require the offending entity to close its operations, or take other measures to remedy the problem. We have not received any notices from the relevant government authorities demanding us to pay any fines or threatening to close our operations.

 

In the environmental impact statement of a construction project, the project operator shall make an assessment regarding the pollution and environmental hazards the project is likely to produce and its impact on the ecosystem, and measures for their prevention and control. The operator shall submit the statement according to the specified procedure to the competent environmental protection authority for examination and approval. The building of sewage outlets within any water conservancy projects, such as canals, irrigation channels and reservoirs, shall be subject to the consent of the competent authority in charge of water conservancy projects.

 

The rehabilitation of mining sites is another important issue the PRC Government has sought to address. Under the Law of Land Administration of the People’s Republic of China, promulgated June 15, 1986, and amended on August 28, 2004, and the Land Rehabilitation Regulations, issued by the State Council in 1988 and effective January 1, 1989, coal producers must undertake measures to restore the mining site to its original state within a prescribed time frame if mining activities result in damage to arable land, grassland or forest. The rehabilitated land must meet rehabilitation standards, as required by law from time to time, and may only be subsequently used upon examination and approval by the land authorities. A coal producers’ failure to comply with this requirement or its failure to return the mining site to its original state will result in the imposition of fines, rehabilitation fees and/or rejection of applications for land use rights by the local bureau of land and resources.

  

Emissions of waste water by coal mines and coking plants are regulated by the Law on Prevention and Control of Water Pollution of the PRC, promulgated by the Standing Committee of National People’s Congress in May 1984 and as amended in May 1996 and February 2008, which became effective in June 2008, and the Administrative Regulations on the Levy and Use of Discharge Fees, issued by the State Council in January 2003 and effective in July 2003. Any new construction projects, such as coal mines and coking plants, must submit an environmental impact statement, which shall include an assessment of the water pollution hazards the project is likely to produce and its impact on the ecosystem. The environmental impact statement must also contain measures to prevent and control the water pollution hazards. Every new production facility must be equipped with waste water processing facilities which must be put in use together with the production facilities. Construction projects that discharge pollutants into water shall pay a pollutant discharge fee in accordance with state regulations.

 

 

Violators of the Environmental Protection Law and various environmental regulations may be subject to warnings, payment of damages and fines. Any entity undertaking construction work or manufacturing activities before the pollution and waste control and processing facilities are inspected and approved by the environmental protection department may be ordered to suspend production or operations and may be fined. The violators of relevant environmental protection laws and regulations may be exposed to criminal liability if violations result in severe loss of property, personal injuries or death. Our management is of the view that we are in compliance with the Environmental Protection Law and various environmental regulations. We have not received any notice from the relevant government authorities advising us that we are in violation of the Environmental Protection Law or various environmental regulations.

 

In addition to the PRC environmental laws and regulations, China is a signatory to the 1992 United Nations Framework Convention on Climate Change and the 1998 Kyoto Protocol, which propose emission targets to reduce greenhouse gas emissions. The Kyoto Protocol came into force on February 16, 2005. At present, the Kyoto Protocol has not set any specific emission targets for certain countries, including China.

 

Mineral Resources Laws and Regulations

 

Exploration, exploitation and mining operations must comply with the relevant provisions of the Mineral Resources Law and other relevant regulations, and are under the supervision of the Ministry of Land and Resources. Exploration and exploitation of mineral resources are also subject to examination and approval by the Ministry of Land and Resources and relevant local authorities. We have applied for and received our mining permit (*3500000620055) valid until April of 2016. Upon approval, a mining permit is issued by the relevant administrative authorities, which are responsible for supervision and inspection of mining exploitation in their jurisdictions. The holders of mining rights are required to file annual reports with the relevant administrative authorities. We have filed our annual reports with the relevant administrative authorities to maintain the validity of our mining permit.

 

The Mineral Resources Law governs, among other things, the assignment of mining rights. If the entity holding the mining rights is to be changed due to a sale of enterprise assets or other circumstances that may cause a change in the property rights to the assets of the enterprise, the enterprise may assign its mining rights, subject to approval according to the Coal Law, the Mineral Resources Law and other laws and regulations.

 

The PRC Government permits mine operators of collectively owned mines to exploit mineral resources in designated areas and individuals to mine scattered mineral resources. Such mine operators and individuals are subject to government regulation. Mining activities by individuals are restricted. Individuals are not permitted to exploit mineral reserves allocated for exploitation by a mining enterprise or company or protected reserves. Indiscriminate mining that damages mineral resources is prohibited.

 

It is unlawful for an entity or individual to conduct mining operations in areas designated for other legal mining operators. A mining operator whose exploitation causes harm to others in terms of production or in terms of living standards is liable for compensation and is required to take necessary remedial measures. When a mine is closed, a mine closure report and information concerning the mining facilities, hidden dangers, remediation and environmental protection must be submitted for examination and approval in accordance with the relevant law.

  

Mineral products illegally extracted and incomes derived from such activities may be confiscated and may result in fines, revocation of the mining permit and, in serious circumstances, criminal liability. Because we have mined and produced coal from an area beyond the area covered by our valid mining permit, we may be subject to fine or revocation of our mining permit. However, our management believes that the likelihood of any enforcement action is low as we have applied for and obtained in May of 2011 another mining permit covering an additional 6.8 km2 of mining area.

 

Mining safety

 

On June 7, 2005, the State Council promulgated Several Opinions on Promoting the Healthy Development of the Coal Industry (the “Opinions”), announcing the PRC Government’s policies with respect to the development and restructuring of the coal industry. The Opinions are consistent with the NDRC’s announcement on the revision of the Coal Law and reiterated the PRC Government’s policies with respect to the administration of coal reserves, enhancement of coal mine safety, encouragement of industry consolidation among coal producers, acceleration of the construction of large coal production bases, improvement of mining techniques and equipment for coal production and the organization and regulation of small coal mines.

 

 

The Measures for Implementing Work Safety Permits in Coal Mine Enterprises

 

The State Administration of Work Safety and the SACMS issued “The Measures for Implementing Work Safety Permits in Coal Mine Enterprises”, which came into effect on May 17, 2004. Pursuant to this document, a coal mine enterprise without a work safety permit may not engage in coal production activities. We have received a safety production permit ((2005)F107(G1)) that is valid until December of 2011. Coal mining enterprises and their mines that do not satisfy the safety conditions set forth in this document, or those that violate the provisions of this document, will be punished accordingly.

 

Special Regulations by the State Council on Preventing Work Safety Related Accidents in Coal Mines and Five Setsof Supplemental Rules and Regulations

 

The Special Regulations by the State Council on Preventing Work Safety Related Accidents in Coal Mines were promulgated and entered into effect on September 3, 2005. This regulation specifies that coal mine enterprises are responsible for preventing coal mine work safety-related accidents. If a coal mine has not obtained, in accordance with the law, a mining right permit, work safety permit, coal production permit or business license and if the mine manager has not obtained, in accordance with the law, a mine manager qualification certificate and a mine manager safety qualification certificate, the coal mine may not engage in production. As disclosed earlier, we have applied for and received a mining right permit, work safety permit, coal production permit. We also have a valid business license (350000100007198) and our mine manager has received a mine manager qualification certificate (MK350120043) and a mine manager safety qualification certificate (10035050100182). A coal mine should have adequate safety equipment, facilities and resources and should have in place measures to guard against the occurrence of work safety related accidents, as well as a sound contingency plan to deal with emergencies. Coal mining enterprises should establish a sound system for the detection, elimination, treatment and reporting of latent work safety-related dangers. If a major latent work safety-related danger as specified exists in a coal mine, the enterprise should immediately suspend production and eliminate the latent danger. Coal mining enterprises should provide their personnel working underground and their special operation personnel with safety education and training in accordance with relevant state regulations. The person in charge of a coal mine and the production and operation management personnel should go into mines and act as foremen on a rotating basis in accordance with state regulations, while a file recording their entry into the mine should be maintained. In addition, the State Administration of Work Safety issued five sets of supplemental measures:

 

	1.	The Measures for Determining Major Latent Work Safety Related Dangers in Coal Mines (for Trial Implementation) stipulates the specific criteria for determining major latent work safety-related dangers. It further defines each of the latent safety related dangers specified in the Special Regulations of the State Council on Preventing Work Safety Related Accidents in Coal Mines, and lists more than 60 major latent safety related dangers.
	2.	The Implementing Measures for the Detection and Elimination of Latent Dangers in Coal Mines and the Rectification and Closure of Such Mines (for Trial Implementation) specifies that coal mining enterprises are responsible for the detection and elimination of latent work safety-related dangers and that the main persons in charge of coal mining enterprises are fully responsible for the detection, elimination and treatment of latent work safety-related dangers in their enterprises.
	3.	The Measures for the Supervision and Inspection of Coal Mine Safety Training (for Trial Implementation) specifies that coal mining enterprises must arrange and provide safety education and training to all of their mining personnel in accordance with relevant regulations; select and send their principal persons in charge, work safety management personnel and special operations personnel to qualified coal mine safety training institutions for training in a timely manner; and obtain the corresponding qualification certificates.
	4.	The Guiding Opinions on Persons in Charge of Coal Mines and Production and Operation Management Personnel Going into Mines as Foremen requires the various types of coal mines to arrange for their persons in charge and production and operation management personnel to go into the mines to act as foremen and to ensure that each shift has at least one such person on site directing the operations. Coal mining enterprises are required to establish such procedures, clarify foremen’s duties and responsibilities and strictly implement internal management and performance appraisal.
	5.	The Measures for Rewarding the Reporting of Major Latent Work Safety Related Dangers in, and Violations of the Law by, Coal Mines (for Trial Implementation) specifies that all units or individuals have the right to report major latent work safety-related dangers in, and violations of law by, coal mines.

 

 

Special Regulation by the State Council on Shutting Down Small Coal Mines

 

The Special Regulation by the State Council on Shutting Down Small Coal Mines went into effect on September 28, 2006. The passage of regulation is the launch of a national campaign to close down small coal mines defined as having annual coal production capacity of 30,000 tons or less, as well as coal mines without proper licenses or permits. The intent of the regulation is to reduce both the high rate of accidents and pollution in the PRC coal mining industry. Under this regulation, 9,887 small and/or illegal coal mines were to have been shut down by the end of 2009. The regulation specifies that the Central Government will support the development of big coal mining operations, defined as having annual coal production capacity of 300,000 tons or more. However, the regulation is silent as to the PRC government’s position on coal mine operations having annual production capacity of more than 30,000 tons but less than 300,000 tons. We believe that the likelihood of our mining operation being shut down pursuant to The Special Regulation by the State Council on Shutting Down Small Coal Mines is relatively small because Fujian Province, where our mining operation is currently located, does not have sufficient coal production for use by local industries and relies heavily on import from other provinces. We have been advised by the County Coal Industry Management Bureau that we are not likely to be forced to shut down. Furthermore, our management also believes that, despite the fact that we have mined and produced coal beyond the area then covered by our valid mining permit, we will not likely be shut down because we have applied for and obtained in May 2011 another mining permit for an additional 6.8 km2 of mining area and that we have consistently demonstrated excellent safety records.

 

Our mining activities in the past had gone beyond the area covered by our mining permit and to a certain extent these activities have not met applicable regulatory requirements for permitting, inspections, conduct of operations, submission of information. However, we have not received any notice of penalty or fines for our past non-compliance. We believe the likelihood of our company being penalized or fined for past non-compliance is small as the Natural Resource Department of Fujian Province was made aware of our past non-compliance when we submitted our application for a new mining permit in May 2010 for an additional 7.5 km2 of mining area. As the coal deposit had been depleted by our past mining activities in some of the 7.5 km2 of mining area applied for, we were granted a mining permit for an area of 6.8 km2. As we have obtained in May 2011 the new mining permit for an additional 6.8 km2 of mining area, we intend to conduct our mining operation only within the areas covered by our valid mining permits.

  

We did not need to obtain additional environmental, health and safety permitting requirements when we applied for the new mining permit C3500002011051120112047 as our new mining permit was issued on the basis of our existing environmental, health and safety permitting approvals.

 

Laws and Regulations Applicable to Foreign Invested Enterprises (FIEs)

 

Under Chinese law, foreign invested enterprises refer to the enterprises jointly invested by Chinese investors and foreign investors or solely invested by foreign investors in China. Sino-foreign equity joint venture, Sino-foreign contractual joint venture and wholly foreign owned enterprise are the three types of foreign invested enterprises. Fujian Huilong, our operating subsidiary in China, is a wholly foreign owned enterprise invested by Dragon International and is a FIE under Chinese law.

  

 

The following is a brief summary of the principal law and regulations that apply to Fujian Huilong as a FIE.

 

Corporate Laws and Industry Catalogue Relating to Foreign Investment

 

The establishment, operation and management of corporate entities in China generally are governed by the Company Law of the PRC, or the Company Law, effective in 1994, as amended in 1999, 2004, 2005, respectively. The Company Law is applicable to, Fujian Huilong, our PRC Subsidiary, unless the PRC laws on foreign investment have stipulated otherwise.

 

The establishment, approval, registered capital requirement and day-to-day operational matters of WFOEs, such as our PRC Subsidiary, Fujian Huilong, is regulated by the Wholly Foreign Owned Enterprise Law of the PRC effective in 1986, as amended in 2000, and the Implementation Rules of the Wholly Foreign-owned Enterprise Law of the PRC effective in 1990, as amended in 2001. According to relevant provisions of the Wholly Foreign Owned Enterprise Law of the PRC and its Implementation Rules, MOFCOM Fujian branch issued the certificate of approval no. [2010] 0056 for the establishment of Fujian Huilong as a WFOE on December 21, 2010, and the SAIC Fujian branch issued the business license no. 350000100007198 for Fujian Huilong as a WFOE.

 

Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, which was promulgated and is amended from time to time by MOFOM and the National Development and Reform Commission, or the NDRC. The Catalogue divides industries into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations. The industry that Fujian Huilong is involved in is not listed in the Catalogue and is open to foreign investment.

 

Regulations of Taxation

 

On March 16, 2007, the Chinese government enacted the new Enterprise Income Tax Law, or the New EIT Law, and promulgated the New EIT Law Implementation Regulations. Both the New EIT Law and the New EIT Law Implementation Regulations became effective on January 1, 2008. Under the New EIT Law and the New EIT Law Implementation Regulations, foreign invested enterprises incorporated in the PRC, such as Fujian Huilong is subject to a uniform income tax rate of 25%.

 

Pursuant to the Provisional Regulations on Value-Added Tax of the PRC, promulgated by the State Council on December 13, 1993, as amended on November 5, 2008 (effective on January 1, 2009), and the Rules for Implementation of Provisional Regulations on Value-Added Tax of the PRC, promulgated on December 25, 1993 and amended on December 15, 2008 (effective on January 1, 2009), all entities and individuals engaged in selling goods, providing repair and placement services or importing goods into the PRC are generally subject to a value-added tax, or VAT, at a rate of 17% of the gross sales proceeds received (with the exception of certain goods which are subject to a rate of 13% or lower), less any VAT already paid or borne by the taxpayer on goods or services purchased and utilized in the production of goods or provision of services that have generated the gross sales proceeds. Fujian Huilong is subject to such value-added tax but according to local regulations, the local Coal Management Authority is the government authority responsible for collecting VAT as part of the approximately US$18.56 or RMB 120 per ton for all taxes, fees and statutory reserves payable by Fujian Huilong. The amount of VAT imposed by the local Coal Management Authority is about US$3.62 or RMB 23.4 per ton. The understanding of Fujian Huilong that the local Coal Management Authority is responsible for collecting VAT payment is for an indefinite period and rate is subject to adjustment by the local Coal Management Authority from time to time. For the last three years, the local Coal Management Authority has not adjusted the rate of VAT that they have imposed on our company. As compared to the rate of VAT applicable to other businesses subject to VAT rate of 17% on their gross proceeds received, our company’s effective VAT rates for the last years were 5.95% for 2008, 5.28% for 2009, 3.98% for 2010 and 3.41% for 2011. However, because the local Coal Management Authority is able to adjust the VAT rate unilaterally and arbitrarily, there is no assurance that the local Coal Management Authority will not impose materially higher VAT rate on our company in the future.

 

Regulations on Foreign Exchange

 

Foreign exchange activities of FIEs, such as Fujian Huilong, our PRC subsidiary, are primarily governed by the following regulations:

 

1.	Foreign Currency Administration Rules (2008), or the Exchange Rules; and
2.	Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

 

 

Under the Exchange Rules, if documents certifying the purposes of the conversion of RMB into foreign currency are submitted to the relevant foreign exchange conversion bank, the RMB will be convertible for current account items, including the distribution of dividends, interest and royalties payments, and trade and service-related foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loan, securities investment and repatriation of investment, however, is subject to the approval of the SAFE or its local counterpart.

 

Under the Administration Rules, FIEs may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE or its local counterpart.

 

On August 29, 2008, the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or Circular No. 142, was issued. Pursuant to Circular No. 142, the Renminbi capital from the settlement of foreign currency capital of a foreign-invested enterprise must be used within the business scope as approved by the applicable government authority and cannot be used for domestic equity investment, unless it is otherwise provided for. Fujian Huilong, as a FIE, is subject to the regulation of Circular 142. The business scope of Fujian Huilong currently includes coal mining and coal production.

 

Regulations on Dividend Distribution

 

The principal regulations governing dividend distributions of WFOEs include:

 

1.	Company Law (2005)
2.	Wholly Foreign-Owned Enterprise Law (2000); and
3.	Wholly Foreign-Owned Enterprise Law Implementing Rules (2001).

 

Under these regulations, WFOEs in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, WFOEs are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. At the discretion of the WFOEs, they may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. Fujian Huilong, as a WFOE, is in compliance with these regulations.

 

Labor Laws and Social Insurance

 

Pursuant to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must compensate their employees with wages equal to at least the local minimum wage standards. All employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide employees with workplace safety training. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative liabilities. Criminal liability may arise for serious violations.

 

In addition, employers in China are obliged to provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds. To comply with these laws and regulations, which Fujian Huilong is subject to, Fujian Huilong have caused its full-time employees, other than miners working underground who belong to third party sub-contractors, to enter into labor contracts with Fujian Huilong and provides its employees with the proper welfare and employment benefits.

 

 

Notice Concerning Foreign Exchange Controls on Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles

 

SAFE issued on October 21, 2005 the Notice Concerning Foreign Exchange Controls on Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or Circular75, which became effective on November 1, 2005. Circular 75 requires PRC resident legal persons or individual residents to register with the competent local SAFE branches before establishing or controlling any company outside of the PRC (offshore special purpose vehicles or offshore SPV) for the purpose of offshore capital financing by using assets or equities held by such PRC resident legal persons or individual residents in a PRC domestic enterprise. Our Chinese legal counsel has advised us that based on its understanding of Circular 75, our PRC resident beneficial owners are not subject to the registration requirement under Circular 75 because our PRC resident beneficial holders have never held and are not holding any assets or equities of Fujian Huilong and therefore are not the PRC individual residents as defined under Circular 75 who are required to register with SAFE, for establishing or controlling companies outside of the PRC.

 

We have also been advised by our Chinese legal counsel that the reverse acquisition of SGB International Holdings Inc. by Dragon International Resources Group Co., Limited complied with the PRC Mineral Resources Laws and was not subject to any restrictions by the Ministry of Commerce of China, or MOFCOM, and the State Administration for Industry and Commerce of China, or SAIC.

 

We believe that the provisions of “Mineral Resources Law of the People’s Republic of China” and “Regulations for Implementation of the Mineral Resources Law of the People’s Republic of China” applicable to the reverse acquisition of SGB International Holdings Inc. by Dragon International Resources Group Co., Limited include:

 

Article 3 of Mineral Resources Law of the People’s Republic of China, which provides that mineral resources belong to the State. The right of State ownership in mineral resources is exercised by the State Council. State ownership of mineral resources, either near the earth's surface or underground, shall not change with the alteration of ownership or right to the use of the land which the mineral resources are attached to.

 

The State safeguards the reasonable development and utilization of mineral resources. Seizing or damaging of mineral resources by any means and by any organization or individual shall be prohibited. People's governments at various levels must make serious efforts to protect mineral resources.

 

Anyone who wishes to explore or mine mineral resources shall separately make an application according to law and shall register after obtaining the right of exploration or mining upon approval, with the exception of the mining enterprises that have, in accordance with law, applied for and obtained the right of mining and are conducting exploration within the designated mining area for the purpose of their own production. The State protects the right of exploration and of mining from encroachment and protects the order of production and other work in the mining and exploration areas from interference and disruption. Anyone engaged in exploring and mining of mineral resources shall meet the prescribed qualifications.

 

Article 5 of Mineral Resources Law of the People’s Republic of China, which provides that the State practices a system wherein the exploration right and mining right shall be obtained with compensation; however, the State may, in light of specific conditions, prescribe reduction of or exemption from the compensation for acquiring the exploration right and mining right. Specific measures and implementation procedures shall be formulated by the State Council.

 

Anyone who mines mineral resources must pay resource tax and resource compensation in accordance with relevant regulations of the State.

 

Article 15 of Mineral Resources Law of the People’s Republic of China, which provides that anyone who wishes to establish a mining enterprise must meet the qualifications prescribed by the State, and the department in charge of examination and approval shall, in accordance with law and relevant State regulations examine the enterprise's mining area, its mining design or mining plan, production and technological conditions and safety and environmental protection measures. Only those that pass the examination shall be granted approval.

 

Article 4 of Regulations for Implementation of the Mineral Resources Law of the People’s Republic of China, which provides that the exploration and exploitation of the mineral resources within the territory of the People's Republic of China and other sea areas under its jurisdiction must abide by the Mineral Resources Law of the People's Republic of China (hereinafter referred to as the Mineral Resources Law) and these Regulations.

 

 

Article 7 of Regulations for Implementation of the Mineral Resources Law of the People’s Republic of China, which provides that the state allows foreign companies, enterprises and other economic organizations as well as individuals to invest in exploration and exploitation of the mineral resources within the territory of the People's Republic of China and other sea areas under its jurisdiction pursuant to the relevant laws and regulations of the People's Republic of China.

 

Because Fujian Huilong has the right of exploration, right of mining and pays resource tax and resource compensation in accordance with relevant regulations. Through the acquisition of Fujian Huilong by Dragon International, Fujian Huilong became a wholly foreign owned enterprise, for exploitation of the mineral resources within the territory of the People's Republic of China under its jurisdiction pursuant to the relevant laws and regulations of the People's Republic of China. As a result, the reverse acquisition of Dragon International by SGB International Holdings Inc. complied with the provisions of “Mineral Resources Law of the People’s Republic of China” and “Regulations for Implementation of the Mineral Resources Law of the People’s Republic of China”.

  

Under the Guidance Catalogue of Industries for Foreign Investment promulgated by the National Development and Reform Commission and MOFCOM, which became effective as of December 1, 2007, mining of special coals falls within restricted industry for foreign investment, while mining of other types of coal is permitted for foreign investment and a foreign invested enterprise engaged in mining of non-special coal may be 100% owned by foreign investors. The business of Fujian Huilong involves only mining of non-special coal. Thus, the acquisition by Dragon International of the 100% share capital of Fujian Huilong in November 2010 complies with PRC laws on foreign investment in the mineral resources sector of the PRC.

 

In accordance with the Provisions on M&A of a Domestic Enterprise by Foreign Investors, which was initially promulgated by MOFCOM and SAIC, on August 8, 2006 and became effective on September 8, 2006, as amended on June 22, 2009, which is commonly known as Decree No. 10, acquisition by foreign investors of share capital of a domestic enterprise shall be approved by MOFCOM and registered with SAIC. According to our Chinese legal counsel, the acquisition by Dragon International of the 100% share capital of Fujian Huilong in November 2010 has been properly approved by MOFCOM and registered with SAIC pursuant to Decree No. 10.

 

Because we believe that there was no material relationship that existed between SGB International, the former principal shareholders of SGB International prior to the reverse acquisition, and the shareholders of Dragon International prior to the time of the reverse acquisition other than in respect of the reverse acquisition, our Chinese legal counsel advised us that Dragon International was not a special purpose vehicle company and that the reverse acquisition of Dragon International by SGB International is not subject to approval of MOFCOM and registration with SAIC. Our Chinese counsel never mentioned in its legal opinion the PRC Mineral Resources Law, although it did specifically mention the “Regulations for Merger with and Acquisition of Domestic Enterprises by Foreign Investors,” Circular 75, MOFCOM and SAIC.

 

Employees

 

As of December 31, 2012 and 2013, we had approximately 112 and 87 respectively of management staff including our President, Chief Executive Officer and Chief Financial Officer, for our mine and administrative office located in Fujian Province. We also had about 900 and 600 miners respectively working underground who belong to third party sub-contractors. The working schedule for these contract miners is three shifts per day for 260 days per year. Production stopped in August this year. None of these employees are represented by any collective bargaining agreements. We have not experienced a work stoppage. Management believes that our relations with our employees are good. We do not have insurance for industry-related accident. For any accident-related costs below RMB50,000 is to be borne by the third party subcontractors. For any accident-related costs above RMB50,000, 95% of such costs is to be borne by our company and the remaining 5% is to be borne by the third party sub-contractors.

 

 

PART II

  

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Results of Operations of SGB International

 

For the years ended December 31, 2013 and 2012

 

The following table sets forth the consolidated financial statements of the Company for the years ended December 31, 2013 and 2012.

 

		Year Ended								Year Ended
		December 31, 2013								December 31, 2012
		$				% of Sales				$				% of Sales
Net sales			7,238,626				100	%			12,718,068				100	%
Cost of sales			5,598,006				75	%			9,068,615				71	%
Gross profit			1,606,537				22	%			3,649,453				29	%
Operating expenses			1,654,249				23	%			3,018,925				24	%
Profit from operations			(47,713	)			0.6	%			630,528				5	%
Other items and income tax			80,168				1	%			90,823				1	%
Net income			(16,875,005	)			-233	%			539,705				4	%

 

Net Sales

 

Our revenues are derived from the sales of coal. The overall revenue decreased by $5.48 million or 43% from $12.72 million in 2012 to $7.23 million in 2013.

 

On December 19, 2013, with the decision of the shareholder in the shareholder’s meeting to sell out the old PPE, the company has still remained to conduct its business to its existing clients through other subsidiaries to complete the fiscal year of 2013.

 

Cost of Sales

 

Cost of sales decreased by $3.5 million or 28% from $9.07 million in 2012 to $5.60 million in 2013, principally due to the discontinued operations of the Dragon international. As Dragon international only operated from January 2013 to September 2013, and sold to the third party at the end of the year 2013.

 

Gross Profit

 

In line with the higher costs registered, our gross profit decreased by $2.04 million or 56% from $3.65 million in 2012 to $1.61 million in 2013 which resulted in a lower gross profit margin of 23% registered in 2013 as compared to 29% in 2012.

 

Operating Expenses

 

Operating expenses decreased by $1.37 million or 45% from $3.02 million in 2012 to $1.65 million in 2013, due principally to the increase of salary for the management team and higher operating costs.

 

Other items and income tax

 

Other items and income tax represent the interest, other operating expenses and income tax which decreased by about $0.01 million or 13.3% from 0.09 million in 2012 to 0.08 million in 2013.

 

 

Net Income

 

With the  impairment loss on receivable and the discontinued operations of Fujian Huilong Company recorded in 2013, the net income decreased by about $16.5 million from $0.54 million in 2012 to the loss of $17.0 million in 2013.

 

Property Description

 

The Company has sold the 100% equity of Dragon International and Fujian Huilong on December 19, 2013 for the reason of disposing the old PPE and exchanging a new mining right. The Company is still in the operation through procuring of coal to its existing clients through sourcing in external network. However, the Company has no longer enjoy the mining right of Fujian Huilong under this circumstance. The Company expects this is the only transition period and will develop the new mining area with new mining right at the end of 2014 or the early 2015.

 

Impact of Inflation

 

We believe inflation has had a net negative impact on our results of operations in 2013. The average inflation rate in China was at 2.51% in 2013 relative to an average inflation rate in China during of 2.62% in 2012. Chinese government has carried out a serial of financial and monetary policies to control the increasing inflation.

 

Liquidity and Capital Resources

 

Working Capital at December 31, 2013 and 2012

 

		2013				2012
Current Assets		$	332,592			$	536,127
Non-Current Assets						$	22,070,929
Total Assets		$	332,592			$	22,607,056
Current Liabilities		$	374,924			$	4,486,599
Non-Current Liabilities						$	137,840
Total Liabilities		$	349,424			$	4,624,439
Working Capital (Deficit)		$	(42,332	)		$	(3,950,472	)

 

Current assets decreased by $0.20 million or 37% from $0.54 million as at December 31, 2012 to $0.33 million as at December 31, 2013, principally due to the decrease of cash and cash in bank which was mainly used as working capital for payment of the daily operating expenses and as capital expenditure for the on-going construction of the new shafts.

 

Current liabilities decreased by $4.11 million or 90% from $4.49 million as at December 31, 2012 to $0.37 million as at December 31, 2013, principally due to the settlement made by the Company during the year on the amounts due to a related party.

 

Taken as a whole of the above, we registered a reduced deficit working capital of $0.04 million in as at December 31, 2013 compared to $3.95 million as at December 31, 2012.

 

 

Cash Flows

 

For the years ended December 31, 2013 and 2012

 

		2013				2012
Net cash provided by operating activities		$	796,399			$	2,629,790
Net cash used in investing activities		$	(792,608	)		$	(1,992,125	)
Net cash provided by financing activities		$	(430,756	)		$	(803,032	)
Cash and cash equivalents at end of year		$	1,793			$	440,308

 

The net cash provided by operating activities decreased by $1.83 million or 68% from $2.63 million in 2012 to $0.80 million in 2013, due principally to the lower sales and higher operating costs registered in 2013.

 

Net cash used in investing activities decreased by $1.2 million or 60% from $1.99 million in 2012 to $0.79 million in 2013 as the construction of mine shafts and facilities is almost near completion.

 

We registered net cash used in financing activities of $0.43 million in 2013 vis-à-vis net cash generated by financing activities of about $0.80 million in 2012.

 

Taken as a whole, our cash and cash equivalents as at December 31, 2013 decreased by $438,515 or 99% from $440,308 as at December 31, 2012 to $1,793 as at December 31, 2013.

 

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.

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our audited consolidated financial statements are stated in United States dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

 

 

SGB INTERNATIONAL HOLDINGS INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2013

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and the Board of Directors of

SGB INTERNATIONAL HOLDINGS INC.

 

We have audited the accompanying consolidated balance sheet of SGB international holdings Inc. and subsidiaries (the “Company”) as of December 31, 2013 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficiency) and cash flows for the year ended December 31, 2013. 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.

 

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 provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and the results of its operations and its cash flows for the year ended December 31, 2013, 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 of December 31, 2013, the Company had negative working capital and stockholders’ deficit of US$42,332 and US$42,332 respectively, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ PARKER RANDALL CF (H.K.) CPA LIMITED

PARKER RANDALL CF (H.K.) CPA LIMITED

Certified Public Accountants

Hong Kong

 

April 14, 2014

 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCCOUNTING FIRM

 

We consent to the use of our report dated March 27, 2013, with respect to the consolidated balance sheet of SGB International Holdings Inc. as at December 31, 2012, and the related consolidated statements of income and comprehensive income, cash flows and shareholders’ equity for the year then ended, included in the Company’s annual report on Form 10-K, dated April 14, 2014.

 

Vancouver, BC Canada
April 14, 2014	Chartered Accountants

 

 

  

 

SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

AS AT DECEMBER 31, 2013 AND 2012

(STATED IN US DOLLARS) 

---

 

						December 31				December 31
		Note				2013				2012
						$				$
ASSETS
Current Assets
Cash and cash equivalents			4				1,793				440,308
Receivables			5				330,799				55,952
Prepaid expenses and deposits			6				-				39,867
Total Current Assets							332,592				536,127
Non-current Assets
Prepaid expenses, deposits and other receivables			6				-				672,704
Property, equipment and mine development costs			7				-				21,063,400
Intangible assets			8				-				334,825
Total Non-current Assets							-				22,070,929
Total Assets							332,592				22,607,056
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current Liabilities
Account payable and accrued liabilities			9				286,372				1,814,738
Asset retirement obligation			10				-				257,139
Amounts due to a related party			11				12,212				2,106,747
Deferred revenue			15				-				108,428
Income tax payable							20,000				-
Loan payable – current			12				56,340				199,547
Total Current Liabilities							374,924				4,486,599
Non-current Liabilities:
Asset retirement obligation			10				-				127,780
Loan payable			12				-				10,060
Total Non-current Liabilities							-				137,840
Total Liabilities							374,924				4,624,439

 

 

SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

AS AT DECEMBER 31, 2013 AND 2012

(STATED IN US DOLLARS)

---

 

						December 31				December 31
		Note				2013				2012
							$				$
Stockholders’ Equity(Deficiency)
Common stocks			13				9,138,544				9,138,544
Contributed surplus							100,000				100,000
Additional paid-in capital							100,000				-
Reserve							-				650,182
(Accumulated deficit)/Retained earnings							(9,347,096	)			7,527,909
Accumulated other comprehensive income							(33,780	)			565,982
Total Stockholders’ Equity/(Deficiency)							(42,332	)			17,982,617
Total Liabilities and Stockholders’ Equity/(Deficiency)							332,592				22,607,056

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)

(STATED IN US DOLLARS)

---

 

		Year ended December 31
		2013				2012 (restated)
		$				$
Revenue, net of sales tax			189,000				-
Cost of revenue			(100,000	)			-
Gross profit			89,000				-
Selling expenses			-				(11,129	)
General and administrative			(189,157	)			(451,040	)
Total operating expenses			(189,157	)			(462,169	)
Net loss from operations			(100,157	)			(462,169	)
Other items:
Interest expense			(1,744	)			(9,736	)
Loss before tax			(101,901	)			(471,905	)
Income tax expense			(20,000	)			-
Net loss from continuing operations;			(121,901	)			(471,905	)
Net (loss)/income from discontinued operations			(16,753,104	)			1,011,610
Net loss for the period			(16,875,005	)			539,705
Foreign currency translation adjustment			(599,762	)			(49,047	)
Comprehensive (loss)/income			(17,474,767	)			490,658
(Loss)/earnings Per Share (cents)
– Basic and diluted			(0.05	)			(0.00	)
Weighted Average Shares Outstanding
– Basic and diluted			373,793,578				323,344,302

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(STATED IN US DOLLARS)

---

 

		Year Ended December 31
		2013				2012
Cash flows from operating activities		$				$
Net income (loss) for the period – continuing and discontinued operations:			(16,875,005	)			539,705
Items not involving cash:
Depreciation & amortization			1,084,022				1,658,832
Impairment loss on fixed assets			12,496,003				-
Loss on retirement of fixed assets			1,821,097				28,224
Imputed cost			100,000				-
Interest accretion			16,297				-
Interest expense			63,977				27,142
Other non-cash item from discontinued operations			(223,635	)			-
Gain on disposal of subsidiaries			(321,695	)			-
Changes in non-cash working capital:
Receivables			(8,053	)			42,117
Prepaid expenses, deposit and other receivables			84,877				(175,529	)
Accounts payable, accrued liabilities and income tax payables			2,558,514				401,103
Deferred revenue			-				108,196
Net cash provided by operating activities			796,399				2,629,790
Cash flows from investing activities
Net cash outflow from disposal of subsidiaries			(63,756	)			-
Purchase of property, equipment and mine development costs			(728,852	)			(1,992,125	)
Net cash used in investing activities			(792,608	)			(1,992,125	)
Cash flows from financing activities
Increase (decrease) of term loan			(430,756	)			20,021
Amounts due to a related party			-				(823,053	)
Net cash used in financing activities			(430,756	)			(803,032	)
Increase/(decrease) in cash and cash equivalents			(426,965	)			(165,367	)
Effect of exchange rate changes on cash			(11,550	)			(8,770	)
Cash and cash equivalents – beginning of year			440,308				614,445
Cash and cash equivalents – end of year			1,793				440,308
Supplemental disclosure of cash flow information:
Income tax			60,169				99,319
Interest expense			1,744				9,736

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIENCY)

 

AS AT DECEMBER 31, 2013

(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, 2011			245,024,446				1,412,396				7,726,148			100,000			-				429,769				7,208,617				615,029				17,491,959
Net income for the year			-				-				-			-			-				-				539,705				-				539,705
Appropriation to reserve			-				-				-			-			-				220,413				(220,413	)			-				-
Shares issued			128,769,132				7,726,148				(7,726,148	)		-			-				-				-				-				-
Currency translation			-				-				-			-			-				-				-				-				-
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 period			-				-				-			-			-				-				(16,875,005	)			-				(16,875,005	)
Disposal of subsidiaries			-				-				-			-			-				(650,182	)			-				-				(650,182	)
Imputed cost			-				-				-			-			100,000				-				-				-				100,00
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	)

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

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 coal production and sales by exploring, developing, and mining coal properties 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 YongdingShangzhai 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 sold its 100% equity interest in Dragon International Resources Group Co and its wholly owned subsidiary Fujian Huilong Coal Mine Co., Ltd to an independent third party at cash consideration of HKD 1,000,000 (approximately USD 129,000). This is because the existing PPE are too old to be replaced and the current mining right cannot provide coal up to the quality to our existing clients.

After selling all the equity of Dragon International and Fujian Huilong for the purpose of disposing the old PPE, before the new mining area being developed with the new mining right, the Company and its subsidiaries remain to conduct its operation by procuring external market to serve its existing clients.

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 and December 31, 2012, the Company had working capital deficiency of $42,332and $3,950,472, respectively, 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.

 

 

2       SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include inventories; asset impairments; environmental and reclamation obligations; acquisition accounting; other employee benefit obligations; useful lives for depreciation, depletion, and amortization; current and deferred income taxes; and fair value of financial instruments. Estimates are based on facts and circumstances believed to be reasonable at the time; however, actual results could differ from those estimates.

 

Principles of consolidation

 

These consolidated financial statements included the accounts of the Company and its wholly-owned subsidiaries as follows:

 

Dragon International, a Hong Kong corporation incorporated on October 5, 2010 which was disposed on December 19, 2013.(See note3).

 

Fujian Huilong, a People’s Republic of China corporation incorporated on August 4, 2005 which was disposed on December 19, 2013(See note3).

 

All significant intercompany accounts and transactions have been eliminated upon consolidation.

 

Foreign currency translation

 

The Company’s functional currency and presentation currency is Canadian dollars (“CAD”) and U.S. dollars, respectively. The Company’s subsidiaries’ functional currencies are Hong Kong dollars (“HKD”) for Dragon International and Chinese RMB (“RMB”) for Fujian Huilong.

 

Transactions in a currency other than the functional currency (“foreign currency”) are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recorded in the statements of operations and comprehensive income (loss).

 

 

2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Foreign currency translation (Continued)

 

Assets and liabilities of the Company and its subsidiaries are translated into the U.S. dollars at exchange rates at the balance sheet date, equity accounts are translated at historical exchange rate and revenues and expenses are translated by using the average exchange rates. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income (loss) in the statements of stockholders’ equity(deficiency).

 

Cash and cash equivalents

 

Cash and cash equivalents include those short-term money market instruments which are highly-liquid investments and readily convertible into cash with a term to maturity of 90 days or less when acquired.

 

Inventories

 

Coal inventories are stated at the lower of average cost or market. The cost of coal inventories is determined based on average cost of production, which includes all costs incurred to extract, transport and process the coal. Market represents the estimated replacement cost, subject to a floor and ceiling, which considers the future sales price of the product as well as remaining estimated preparation and selling costs. Coal is reported as inventory at the point in time the coal is extracted from the mine and weighed at a loading facility.

 

As at December 31, 2013 and 2012, the Company carried no inventories.

 

Property, equipment and mine development costs

 

Property, plant and equipment, are stated at cost less depreciation and amortization and accumulated impairment loss. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Depreciation of property, plant and equipment is calculated to write off the cost, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. The estimated useful lives are as follows:

 

Machinery / Mobile mining equipment		10 years
Motor vehicles		5 years
Office equipment		5 years
Leasehold improvement		Lease term

 

Costs for mineral properties and mine development incurred to expand capacity of operating mines or to develop new mines are capitalized and charged to operations using the units-of-production method over the estimated proven and probable reserve tons directly benefiting from the capital expenditures but up to the Company’s allowable quotas set by the local government. Mine development costs include costs incurred for site preparation and development of the mines during the development stage.

 

 

2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Property, equipment and mine development costs (Continued)

 

Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefitted. Maintenance and repairs are expensed as incurred. When equipment is retired or disposed, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposal is recognized in cost of coal sales.

 

Intangible asset

 

Intangible asset represents the coal mining right and is recorded at cost less accumulated amortization. Amortization is provided using the units-of-production method over the estimated proven and probable reserve tons directly benefiting from the capital expenditures but up to the Company’s allowable quotas set by the local government.

 

Asset impairment and disposal of long-lived assets

 

Long-lived assets, such as property, equipment and mine development costs, owned and leased mineral rights and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed would separately be presented in the consolidated balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the consolidated balance sheets.

 

Asset Retirement Obligation

 

Minimum standards for mine reclamation have been established by various regulatory agencies and dictate the reclamation requirements at the Company's operations. The Company's asset retirement obligations consist principally of costs to reclaim acreage disturbed at surface operations and estimated costs to reclaim support acreage and perform other related functions at underground mines. The Company records these reclamation obligations at fair value in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset using the units-of-production method over the estimated proven and probable reserve tons directly benefiting from the capital expenditures but up to the Company’s allowable quotas set by the local government. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded. The Company annually reviews its estimated future cash flows for its asset retirement obligations.

 

 

2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Borrowing costs

 

Borrowing costs are capitalized as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalization of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalized until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

 

Income tax

 

The Company accounts for income taxes under the provisions of ASC Topic 740-10, Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in income tax rates is included in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.

 

Other comprehensive income

 

The Company accounts for comprehensive income under the provisions of ASC Topic 220-10, Comprehensive Income - Overall, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statements of operations and comprehensive income(loss). The Company’s comprehensive income(loss) consists of net earnings(loss) for the period and currency translation adjustments.

 

 

2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Earnings per share

 

Basic earnings per share is calculated using the weighted average number of shares outstanding during the year. The Company has adopted ASC Topic 260-10, Earnings per Share - Overall, and uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on earnings per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. As at December 31, 2013 and 2012, the basic earnings per share is equal to diluted earnings per share as there were no dilutive instruments outstanding as at December 31, 2013 and 2012.

 

Revenue recognition

 

The Company’s revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 480). Coal sales revenues represent sales to individual customers who sold the coal to coal processing companies, power stations and steel factories. Sales revenue is recognized when a formal arrangement exists, which is generally represented by a contract between the Company and the buyer; the price is fixed or determinable; title has passed to the buyer, which generally is at the time of delivery; no other significant obligations of the Company exist and collectability is reasonably assured.

 

Cost of revenue

 

Cost of revenue for the year ended December 31, 2012 consists primarily of labour cost, governmental charges of coal excavation and related expenses and overhead which are directly attributable to coal excavation. Cost of revenue for the year ended December 31, 2013 consists primarily of the market price for the service rendered.

 

Fair value of financial instruments

 

The estimated fair values for financial instruments under ASC Topic 825-10, Financial Instruments, are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of the Company’s financial instruments includes cash and cash equivalents, receivables, accounts payable and accrued liabilities, asset retirement obligation, due to a related party and term loan. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted.

 

The Company adopted ASC Topic 820-10, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in US GAAP, and expands disclosures about fair value measurements.

 

 

2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Fair value of financial instruments (Continued)

 

ASC Topic 820-10 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

 

Level one – Quoted market prices in active markets for identical assets or liabilities;

 

Level two – Inputs other than level one inputs that are either directly or indirectly observable; and

 

Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

 

For the years ended December 31, 2013 and 2012, the fair value of cash and cash equivalents was measured using Level one inputs.

 

The book values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and amounts due to a related party approximate their respective fair values due to the short-term nature of these instruments. Items identified are measured at fair value on a recurring basis.

 

There were no assets or liabilities measured at fair value on a non-recurring basis during the years ended December 31, 2013 and 2012.

 

Segment information

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker whose members are responsible for allocating resources and assessing performance of the operating segments.

 

Statutory reserves

 

Pursuant to the applicable laws in PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of the entity's registered capital.

 

The Company allocated $ nil and $220,413 from after-tax net earnings to statutory surplus reserve for the years ended December 31, 2013 and 2012, respectively.

 

 

2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recent accounting pronouncements

 

In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income". The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S.GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The pronouncement is effective for fiscal years and interim periods ending after December 15, 2012. The adoption of this pronouncement doesn’t  have a material effect on the Company's consolidated financial position or results of operations.

 

Other accounting pronouncements that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.

 

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 US$129,509 equal to HKD 1,000,000.

 

The Company recognized a gain on the disposal of Dragon International and Fujian Huilong of US$321,695 which has been included in consolidated statement of operations as net loss from discontinued operations for the year ended December 31, 2013.

 

Results of the discontinued operations are summarized as follows:

 

		2013				2012
		$				$
Revenue			7,038,626				12,718,068
(Loss)/income before tax			(17,014,630	)			1,110,929
Gain on disposal			321,695				-
Income tax			(60,169	)			(99,319	)
Net(loss)/income from discontinued operations			(16,753,104	)			1,011,610

 

 

3       DISCONTINUED OPERATIONS (Continued)

 

Assets and liabilities of the discontinued operation as of the disposal date were summarized as follows:

 

		December 31
		2012
			$
ASSETS
Current Assets
Cash and cash equivalents			3.404
Receivables			5,276
Prepaid expenses and deposits			104
Total Current Assets			8,784
Non-current Assets
Prepaid expenses, deposits and other receivables			-
Property, equipment and mine development costs			-
Intangible assets			-
Total Non-current Assets			-
Assets associated with discontinued operations			22,598,272
Total Assets			22,607,056
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current Liabilities
Account payable and accrued liabilities			121,165
Asset retirement obligation			-
Amounts due to a related party			78,257
Deferred revenue			-
Income tax payable			-
Loan payable – current			70,494
Total Current Liabilities			269,916
Non-current Liabilities:
Asset retirement obligation			-
Loan payable			10,060
Total Non-current Liabilities			10,060
Liabilities associated with discontinued operations			4,344,463
Total Liabilities			4,624,439
Stockholders’ Equity(Deficiency)
Common stocks			9,138,544
Contributed surplus			100,000
Additional paid-in capital			-
Reserve			650,182
(Accumulated deficit)/Retained earnings			7,527,909
Accumulated other comprehensive income			565,982
Total Stockholders’ Equity/(Deficiency)			17,982,617
Total Liabilities and Stockholders’ Equity/ (Deficiency)			22,607,056

 

3       DISCONTINUED OPERATIONS (Continued)

 

A reconciliation of the restated figures are presented as follows;

		Previously reported				Discontinued operations adjustment				Restated
			US$				US$				US$
Cash and cash equivalents			440,308				(436,904	)			3,404
Receivables			55,952				(50,676	)			5,276
Prepaid expenses and deposits			39,867				(39,763	)			104
Total current assets			536,127				(527,343	)			8,784
Prepaid expenses and deposits			672,704				(672,704	)			-
Property, equipment and mine development costs, net			21,063,400				(21,063,400	)			-
Intangible assets			334,825				(334,825	)			-
Total non-current assets			22,070,929				(22,070,929	)			-
Total assets			22,607,056				(22,598,272	)			8,784
Account payable and accrued liabilities			1,814,738				(1,693,573	)			121,165
Asset retirement obligation			257,139				(257,139	)			-
Amounts due to a related party			2,106,747				(2,028,490	)			78,257
Deferred revenue			108,428				(108,428	)			-
Loan payable-current			199,547				(129,053	)			70,494
Total current liabilities			4,486,599				(4,216,683	)			269,916
Asset retirement obligation			127,780				(127,780	)			-
Loan payable			10,060				-				10,060
Total noncurrent liabilities			137,840				(127,780	)			10,060
Total liabilities			4,624,439				(4,344,463	)			279,976

 

 

3       DISCONTINUED OPERATIONS (Continued)

 

Reconciliation of gain on disposal is as follows:

 

		US$
Fair value of consideration			129,509
Less: carry amount of net asset at date of disposal			1,411,532
Add: reclassification from reserve and other comprehensive income to profit and loss			1,603,718
Gain on disposal			321,695

 

4       CASH AND CASH EQUIVALENTS

 

		December 31,				December 31,
		2013				2012
		$				$
Cash denominated in Chinese RMB			-				435,267
Cash denominated in Canadian or Hong Kong Dollars			1,793				5,041
			1,793				440,308

 

As at December 2013, the Company doesn’t have any cash and cash equivalents denominated in RMB due to disposal of subsidiaries. As at December 31, 2012, the Company has cash and cash equivalents placed with banks or held by its subsidiary in the People’s Republic of China denominated in Chinese Renminbi (“RMB”). As at December 31, 2012 amounting to RMB 2,742,227 where the remittance of funds to jurisdictions outside the PRC is subject to certain government rules and regulations on foreign currency controls. Under the People’s Republic of China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Company is permitted to exchange RMB for foreign currencies but may require approval of governmental authorities or designated banks in the PRC.

 

5       RECEIVABLES

 

		December 31, 2013				December 31, 2012
		$				$
Trades receivable (i)			-				33,406
Employee receivable (ii)			-				13,174
Tax receivable			-				-
Receivable from disposal of subsidiaries			129,509				5,276
Others (ii)			201,290				4,096
			330,799				55,952

 

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.

 

 

6       PREPAID EXPENSES, DEPOSITS AND OTHER RECEIVABLES

 

		December 31, 2013				December 31, 2012
		$				$
Prepaid construction material and labour costs (i)			-				60,126
Safety risk deposit (ii)			-				158,728
Prepaid mining license fee (iii)			-				453,850
Prepaid rental fee			-				17,920
Other prepaid expense			-				21,947
Other receivable			-				-
Subtotal			-				712,571
Current portion			-				(39,867	)
Non-current			-				672,704

 

Notes:

 

(i)  The payment relates to the new shaft under construction as at December 31, 2012.

 

(ii)  On August 26, 2005, an one-off safety risk deposit equivalent to RMB 1 million was paid to the Yongding County Coal Development Company as a representative of the Yongding County Coal Industry Management Bureau according to the Yongding County Coal Mine Safety Risk Deposit Management Measures (effective as of July 1, 2005).

 

(iii)  The prepayment equivalent to 2,859,300 as at December 31, 2012 associated with issuance of the new mining permit on the new extended mining area obtained in May 2011.

 

7       PROPERTY, EQUIPMENT AND MINE DEVELOPMENT COSTS

 

		Cost				Accumulated amortization				Net book value
		$				$				$
December 31, 2012
Mine development costs			20,836,696				3.308,739			17,527,957
Machineries			5,094,328				1,774,782			3,319,546
Motor vehicles			196,758				79,822			116,936
Office equipment			143,113				44,152			98,961
Construction in progress			-				-			-
Total			26,270,895				5,207,495			21,063,400

 

 

7      PROPERTY, EQUIPMENT AND MINE DEVELOPMENT COSTS (Continued)

 

During the year ended December 31, 2013 and 2012, the Company charged amortization and depreciation expenses of $932,004 and $1,432,111 to the cost of revenue and $128,582 and $207,376 to the depreciation and amortization expenses, respectively.

 

The property, equipment and mine development costs were the assets of Dragon International and Fujian Huilong. On December 19, 2013, the Company disposed its subsidiaries Dragon International and Fujian Huilong and no property, equipment and mine developments were included in the consolidated balance sheets as at December 31 2013.

 

As disclosed in the Company’s filling from 8-K dated October 4, 2013, during the year the board of the Company approved to dispose all of the fixed assets of Fujian Huilong. The disposal of the fixed assets, which includes but not limited to equipment and plants, is to set off the debts of Fujian Huilong. During the year, the Company recorded a loss of US$ 1,821,097 on disposal of the aforesaid fixed assets.

 

8      INTANGIBLE ASSETS

 

The following is a summary of intangible asset:

 

		December 31, 2013				December 31, 2012
		$				$
Cost			-				696,211
Accumulated amortization			-				361,386
Net carrying value			-				334,825

 

During the year ended December 31, 2013 and 2012, the Company charged amortization expenses of $11,718 and $19,345 to the cost of revenue, respectively.

 

The intangible assets were the assets of Dragon International and Fujian Huilong. On December 19, 2013, the Company disposed its subsidiaries Dragon International and Fujian Huilong and no intangible assets were included in the consolidated balance sheets as at December 31 2013.

 

9      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

The following is a summary of accounts payable and accrued liabilities:

 

		December 31, 2013				December 31, 2012
		$				$
Accounts payable			39,874				-
Staff costs / wage payable			29,626				1,643,371
Accrued liabilities			22,019				89,286
Other payable			194,853				82,081
			286,372				1,814,738

 

 

10    ASSET RETIREMENT OBLIGATION

 

The following is a summary of asset retirement obligation:

 

		December 31, 2013				December 31, 2012
		$				$
Face value			-				429,014
Effective interest rate – 10%			-				(44,095	)
Subtotal			-				384,919
Current portion			-				257,139
Asset retirement obligation – long term			-				127,780

 

The Asset Retirement Obligation is associated with the Ecological Environment Rehabilitation fee of about RMB3.86 million payable to the Fujian Provincial Land and Resources Bureau for operating the coal mine. As of December 27, 2010, a payment extension has been applied and approved till April 2015 for the full settlement of approximately RMB2.7 million. The Company is not required to pay any interest on the postponed payment for the Ecological Environment Rehabilitation fee. The Company accounted the remaining asset retirement obligation by applying the relative discounted rate of 10%.

 

The Asset Retirement Obligation were the liabilities of Dragon International and Fujian Huilong. On December 19, 2013, the Company disposed its subsidiaries Dragon International and Fujian Huilong and no Asset Retirement Obligations were included in the consolidated balance sheets as at December 31 2013.

 

11    AMOUNTS DUE TO A RELATED PARTY

 

		December 31, 2013				December 31, 2012
		$				$
Amounts due to a related party			12,212				2,106,747

 

 

11    AMOUNTS DUE TO A RELATED PARTY (Continued)

 

As at December 31, 2013, the amounts are due to the Company’s related Party SGB C&C Investments. As at December 31, 2012, the amounts are due to the former Executive Chairman and Chief Executive Officer of the Company, Mr. Longwen Lin. The amounts as at December 31, 2013 and 2012 are unsecured, non-interest bearing and due on demand.

 

12    LOAN PAYABLE

 

The following is a summary of term loan:

 

		December 31, 2013				December 31, 2012
		$				$
Interest free loan, unsecured and due on demand (i)			-				129,053
Interest bearing loan at 15% per annum, unsecured and due on demand			56,340				50,353
Interest bearing loan at 3% per annum, unsecured and due on November 10, 2014:			-				10,060
Interest bearing loan at 15% per annum, unsecured and due on 15 March ,2013:			-				20,141
Total			56,340				209,607
Current portion			56,340				199,547
Non-current			-				10,060

 

During the years ended December 31, 2013 and 2012, the Company accrued or paid interest expense of $1,744 and $9,736 in connection with the term loan, respectively. During the year ended December 31, 2012, a total of unpaid $9,668 interest was forgiven by the former Chief Financial Officer of the Company and was netted off against the interest expense.

 

As of December 31, 2013, the weighted average interest rate on short-term obligations outstanding is 15% (2012: 5.3%)

 

13    STOCKHOLDERS’ EQUITY

 

Authorized:

 

Unlimited number of common shares without par value

Unlimited number of preferred shares without par value

 

Issued and outstanding

 

As at December 31, 2013 and 2012, 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.

 

 

13    STOCKHOLDERS’ EQUITY (Continued)

 

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.

 

14    RELATED PARTY TRANSACTIONS

 

During the year ended December 31, 2013 and 2012, the Company engaged following related party transactions:

 

●

Accrued or paid $ nil (December 31, 2012: $359,921) in salaries and bonus to senior officers and directors of the Company;

 

As at December 31, 2013 and December 31, 2012, following receivable and payable were outstanding:

 

●

Included in accounts payable and accrued liabilities, $Nil (December 31, 2012: $406,252) were payable to the senior officers and directors of the Company

 

●

Included in receivable, $nil was receivable (December 31, 2012: $3,175) from a senior officer and director of the Company.

 

Also see note 11 and 12.

 

15    INCOME TAX

 

SGB and its subsidiaries are subject to income tax laws in their respective tax jurisdictions, which are the same as their respective place of incorporation.

 

Income tax expenses represents the current tax expenses.

 

A reconciliation of the income tax expenses is as follows:

 

		2013				2012
		US$				US$
(Loss)/income before income taxes			(101,901	)			639,024
Expected income tax (credits)expenses			(26,494	)			159,756
Adjustments resulting from:
Non-deductible items			125,018				(859	)
Change in estimates			-				(146,978	)
Rate differences in other jurisdictions			(12,640	)			(253,130	)
Changes in enacted rates			-				(13,188	)
Other			-				43,134
Change in valuation allowance			(65,884	)			310,584
			20,000				99,319

 

 

15    INCOME TAX (Continued)

 

Deferred taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of deferred tax assets (liabilities) are as follows:

 

		2013 US$				2012 US$
Deferred tax assets(liabilities):
Operating tax losses carried forward			358,171				424,014
Equipment			-				211
Valuation allowance			358,171				424,055
			(358,171	)			(424,055	)
			-				-

 

As at December 31, 2013, the Company had available for deduction against future taxable income in Canada non-capital losses of approximately $1,377,580. These losses, if unutilized, have expiration year until 2033.

 

During the years ended December 31, 2013 and 2012 and to the current date, the Company had not received any tax re-assessment from the federal and regional governmental authorities.

 

16    COMMITMENTS

 

As at December 31, 2013, the company doesn’t have any capital or operating commitments.

 

17    SEGMENT INFORMATION

 

Even the Company disposed its subsidiaries on December 19, 2013 as disclosed in note 4, the Company has remained to conduct its business to the existing clients by procuring from external market through its subsidiary before the year end of 2013. The company reassessed its operation and considers the company was still in one single operating segment as at December 31, 2013

 

The Company derives its revenues from one customer. The customers from which more than 10% of total revenue has been derived and the percentage of total revenue from those customers is summarized as follows:

 

		2013 US$				2012 US$
Customer A			200,000				-
Percentage of total revenue			100	%			-

 

18    COMPARATIVE FIGURE

 

Certain comparative figures have been reclassified to conform to the presentation adopted in current period.

 

 

18     COMPARATIVE FIGURE (Continued)

 

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 year ended December 2012 was restated. A reconciliation of the restated figures are presented as follows;

 

		Previously reported				Discontinued operations adjustment				Restated
		US$				US$				US$
Revenue			12,718,068				(12,718,068	)			-
Cost of revenue			(9,068,615	)			9,068,615				-
Gross Profit			3,649,453				(3,649,453	)			-
Selling expenses			(280,466	)			269,337				(11,129	)
General and administrative			(2,738,459	)			2,287,419				(451,040	)
Total operating expenses			(3,018,925	)			2,556,756				(462,169	)
Net income from operations			630,528				(1,092,697	)			(462,169	)
Other items:
Interest expense			(8,956	)			(780	)			(9,736	)
Other expense			(37,811	)			37,811				-
Other income			55,263				(55,263	)			-
			8,496				(18,232	)			(9,736	)
Income before income tax expenses			639,024				(1,110,929	)			(471,905	)
Income tax			(99,319	)			99,319				-
Net income			539,705				(1,011,610	)			(471,905	)

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

Exhibit Number		Description
3.1		Articles of Incorporation (incorporated by reference to an exhibit to our registration statement on Form SB-2 filed on August 7, 2007)
3.2		Notice of Alteration filed with the Ministry of Finance, BC Registry Services effective March 3, 2009 (incorporated by reference to an exhibit to our current report on Form 8-K filed on March 5, 2009)
3.3		Amended and Restated Articles of Incorporation of SGB International Holdings Inc. (incorporated by reference to our current report on Form 8-K filed on March 5, 2009)
10.1		Form of stock option agreement (incorporated by reference to our current report on Form 8-K filed on January 21, 2011)
10.2		Loan agreements between YongdingShangzhai Coal Mine Co., Ltd. and Mr. Longwen Lin (incorporated by reference to Amendment No. 2 of our current report on Form 8-K/A filed on September 13, 2011)
10.3		Loan agreements between YongdingShangzhai Coal Mine Co., Ltd. and Mr. Longwen Lin (incorporated by reference to Amendment No. 3 of our current report on Form 8-K/A filed on October 24, 2011)
10.4*		Equity Transfer Agreement dated December 19, 2013
20.1		Notice of Annual and Special Meeting of Shareholders and Information Circular (incorporated by reference to our current report on Form 8-K filed on September 5, 2013)
20.2		Form of Proxy (incorporated by reference to our current report on Form 8-K filed on September 5, 2013)
20.3		Supplemental Mailing list form (incorporated by reference to our current report on Form 8-K filed on September 5, 2013)
21.1		Dragon International Resources Group. Co., Limited, a Hong Kong corporation
21.2		Fujian Huilong Mining Co., Ltd. (formerly YongdingShangzhai Coal Mine Co., Ltd.), a People’s Republic of China corporation
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
32.2*		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

 

* Filed herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

	GRAND CHINA ENERGY GROUP LIMITED
	By:	/s/ Shibi Chen
		Shibi Chen
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
		Date: August 26, 2014

 

	By:	/s/ Peifeng Huang
		Peifeng Huang
		Chief Financial Officer and Secretary
		(Principal Financial Officer and Principal Accounting Officer)
		Date: August 26, 2014

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

	By:	/s/ Shibi Chen
		Shibi Chen
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
		Date: August 26, 2014

 

	By:	/s/ QuanGu
		QuanGu
		Director
		Date: August 26, 2014

 

	By:	/s/ Wei Gu
		Wei Gu
		Director
		Date: August 26, 2014

 

	By:	/s/ Chang Gu
		Chang Gu
		Director
		Date: August 26, 2014

 

	By:	/s/ Wensi Chen
		Wensi Chen
		Director
		Date: August 26, 2014

 

	By:	/s/ Vincent Xu
		Vincent Xu
		Director
		Date: August 26, 2014

 

	By:	/s/ Baozhu Feng
		Baozhu Feng
		Director
		Date: August 26, 2014

 

 

 

26

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