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EXCEL - IDEA: XBRL DOCUMENT - Grand China Energy Group Ltd | Financial_Report.xls |
EX-32.2 - CERTIFICATION - Grand China Energy Group Ltd | f10k2013a2ex32ii_grandchina.htm |
EX-32.1 - CERTIFICATION - Grand China Energy Group Ltd | f10k2013a2ex32i_grandchina.htm |
EX-31.2 - CERTIFICATION - Grand China Energy Group Ltd | f10k2013a2ex31ii_grandchina.htm |
EX-31.1 - CERTIFICATION - Grand China Energy Group Ltd | f10k2013a2ex31i_grandchina.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
(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: None
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark 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. (formerly known as SGB International Holdings Inc.) hereafter referred to as the “Company”, “SGB”, “we”, “us”, or “our” is filing this Amendment No. 2 to its Annual Report on Form 10-K for the year ended December 31, 2013 to amend Amendment No. 1 to its Form 10-K filed with the Securities and Exchange Commission on August 29, 2014 (“Amendment No. 1 to the Form 10-K”) to (i) include the audit report on MNL LLP as of and for the year ended December 31, 2012, modified to indicate that the audit report relates to the 2012 Financial Statements prior to the effect of adjustments made to the 2012 Financial Statements; (ii) include the revised audit report of Parker Randall CF (HK) CPA Limited as and for the year ended December 31,2013, to include the results of their audit of adjustments made to the 2012 Financial Statements; and (iii) to revise the December 31,2012 balance sheets to separately present the assets and liabilities of the Company’s discontinued operations. As the result of the adjustments to the 2012 Financial Statements, corresponding changes have been made to Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except for the foregoing amended and restated information, no other changes have been made to Amendment No. 1 to the Form 10-K. This Amendment continues to describe conditions as of the date of the initial filing of the Form 10-K on April 15, 2014 (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 II | |||
ITEM 7 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION | 2 | |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 4 | |
PART IV | |||
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. | 5 | |
SIGNATURES | 6 |
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report.
Results of Operations
On December 19, 2013, the Company sold its 100% equity interest in Dragon International Resources Group Co., Limited (“Dragon”), including Dragon’s wholly owned subsidiary, Fujian Huilong Coal Mine Co., Ltd. (“Huilong”), to an independent third party. After the sale of these entities, the Company continued making coal sales to its existing clients through other subsidiaries through the end of 2013. For comparison and analysis purposes the results of operations presented below include the discontinued activities related to Dragon and Huilong to provide a better understanding of the Company at 2013 versus 2012.
For the years ended December 31, 2013 and 2012
The following table sets forth the results of operations of the Company, including the discontinued activities before disposal, 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 (net of sales tax) | 7,227,626 | 100 | % | 12,718,068 | 100 | % | ||||||||||
Cost of sales | 5,598,006 | 78 | % | 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. Overall revenue decreased by $5.49 million or 43% from $12.72 million in 2012 to $7.23 million in 2013.
On December 19, 2013, the Company’s shareholders determined to sell off the old property, plant and equipment. The Company continued sales to its existing clients through other subsidiaries through the end 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 Dragon International. Dragon International ceased operating in September 2013 and was sold to third parties at the end of 2013.
Gross Profit
Due to the decrease in our net sales, 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 22% 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 a reduction in payroll expenses after the discontinuance of operations and subsequent sale of Dragon International.
Other items and income tax
Other items and income tax represent 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.
2 |
Net Income
With the impairment loss on receivable and the discontinued operations of Fujian Huilong Company recorded in 2013, 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 sold all of the equity of Dragon International and Fujian Huilong on December 19, 2013 for the reason of disposing the old property, plant and equipment and exchanging a new mining right. The Company continues to sell coal to its existing clients through sourcing in external networks. However, the Company no longer enjoys the mining rights associated with Fujian Huilong under this circumstance. The Company expects this is the only transition period and will develop new mining areas with new mining rights at the end of 2014 or 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 of 2.62% in 2012. The Chinese government has carried out a series 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 disposal of Dragon in December 2013. Excluding the asset held for sales, current assets went up $0.32 million from $8,784 to $332,592 reflecting sales to its existing clients through other subsidiaries during the remaining period of 2013
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. Excluding the liabilities held for sales, it increased 38% to $0.37 million reflecting the increase in accounts payable and accrued liabilities.
Taken as a whole, we registered a reduced working capital deficit of $0.04 million as at December 31, 2013 compared to $3.95 million as at December 31, 2012.
3 |
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 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 due to a reduction in construction of mine shafts and facilities.
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.
Going Concern
The Company’s financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company had a working capital deficiency of $42,332 and an accumulated deficit of $9,347,096 as of December 31, 2013. In view of the working capital deficiency, 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 account that the Company intends (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, management of the Company believes that the Company will have sufficient funds to complete the current development and to meet in full its financial obligations and operations and capital requirements as they fall due for the foreseeable future.
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.
4 |
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.
We also have audited the adjustments to the 2012 financial statements to re-present the 2012 financial statements for comparative purpose due to the reporting of discontinued operations as described in Note 3 and Note 18. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2012 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2012 financial statements taken as a whole.
/s/ PARKER RANDALL CF (H.K.) CPA LIMITED
PARKER RANDALL CF (H.K.) CPA LIMITED
Certified Public Accountants
Hong Kong
April 14, 2014, except for Note 3 and Note 18, as to which the date is September 15, 2014
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SGB International Holdings Inc.
We have audited, before the effects of the adjustments to retrospectively reflect the discontinued operations described in Note 3 and 18 to the consolidated financial statements, the consolidated balance sheet of SGB International Holdings Inc. (the “Company”) as at December 31, 2012, and the related consolidated statements of income and comprehensive income, cash flows and stockholders’ equity, for the year then ended (The 2012 consolidated financial statements before the effects of the adjustments discussed in Note 3 and 18 to the consolidated financial statements are not presented herein.). The 2012 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstance, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such 2012 consolidated financial statements, before the effects of the adjustments to retrospectively reflect the discontinued operations described in Note 3 and 18 to the consolidated financial statements, present fairly, in all material respects, the financial position of the Company as at December 31, 2012 and the result of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively reflect the discontinued operations described in Note 3 and 18 to the consolidated financial statements and accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by Parker Randall CF (H. K.) CPA Limited.
Vancouver, Canada | |
March 27, 2013 | Chartered Accountants |
F-2 |
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 | ||||||||||
(Restated) | ||||||||||||
$ | $ | |||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | 4 | 1,793 | 3,404 | |||||||||
Receivables | 5 | 330,799 | 5,276 | |||||||||
Prepaid expenses and deposits | 6 | - | 104 | |||||||||
Current assets associated with discontinued operations | 527,343 | |||||||||||
Total Current Assets | 332,592 | 536,127 | ||||||||||
Non-current Assets | ||||||||||||
Prepaid expenses, deposits and other receivables | 6 | - | - | |||||||||
Property, equipment and mine development costs | 7 | - | - | |||||||||
Intangible assets | 8 | - | - | |||||||||
Non-current assets associated with discontinued operations | 22,070,929 | |||||||||||
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 | 121,165 | |||||||||
Asset retirement obligation | 10 | - | - | |||||||||
Amounts due to a related party | 11 | 12,212 | 78,257 | |||||||||
Deferred revenue | 15 | - | - | |||||||||
Income tax payable | 20,000 | - | ||||||||||
Loan payable – current | 12 | 56,340 | 70,494 | |||||||||
Current liabilities associated with discontinued operations | 4,216,683 | |||||||||||
Total Current Liabilities | 374,924 | 4,486,599 | ||||||||||
Non-current Liabilities: | ||||||||||||
Asset retirement obligation | 10 | - | - | |||||||||
Loan payable | 12 | - | 10,060 | |||||||||
Non-current liabilities associated with discontinued operations | 127,780 | |||||||||||
Total Non-current Liabilities | - | 137,840 | ||||||||||
Total Liabilities | 374,924 | 4,624,439 | ||||||||||
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.
F-3 |
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.
F-4 |
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
F-5 |
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.
F-6 |
SGB INTERNATIONAL HOLDINGS INC. AND SUBSIDIARIES
NOTES TO 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 and its wholly owned subsidiary Fujian Huilong to an independent third party at cash consideration of HKD 1,000,000 (approximately USD 129,000). This is because the existing PPE are 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 out of the 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 its operation to buy coal in 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.
F-7 |
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).
F-8 |
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.
F-9 |
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.
F-10 |
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.
F-11 |
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.
F-12 |
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.
F-13 |
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 |
F-14 |
3 DISCONTINUED OPERATIONS (Continued)
Assets and liabilities of the discontinued operation as of the disposal date were summarized as follows:
$ | ||||
Cash and cash equivalents | 63,757 | |||
Receivables | 1,424,383 | |||
Property, Plant, equipment and mining rights | 1,201,195 | |||
Assets of discontinued operations | 2,689,335 | |||
Payables | 863,510 | |||
Asset retirement obligation | 414,293 | |||
Liabilities of discontinued operations | 1,277,803 | |||
Net assets of discontinued operations | 1,411,532 |
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 |
F-15 |
3 DISCONTINUED OPERATIONS (Continued)
Assets and liabilities of the company at the year ended December 31, 2012 due to the disposal were restated and summarized accordingly 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 |
F-16 |
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 |
F-17 |
4 CASH AND CASH EQUIVALENTS
December 31, | December 31, | |||||||
2013 | 2012 | |||||||
(restated) | ||||||||
$ | $ | |||||||
Cash denominated in Canadian or Hong Kong Dollars | 1,793 | 3,404 | ||||||
1,793 | 3,404 |
As at December 2013, the Company doesn’t have any cash and cash equivalents denominated in RMB due to disposal of subsidiaries.
5 RECEIVABLES
December 31, | December 31, | |||||||
2013 | 2012 | |||||||
(restated) | ||||||||
$ | $ | |||||||
Tax receivable | - | 5,276 | ||||||
Receivable from disposal of subsidiaries | 129,509 | - | ||||||
Others (i) | 201,290 | - | ||||||
330,799 | 5,276 |
Notes:
(i) Unsecured, interest free and repayable on demand.
F-18 |
6 PREPAID EXPENSES, DEPOSITS AND OTHER RECEIVABLES
December 31, 2013 | December 31, 2012 | |||||||
(restated) | ||||||||
$ | $ | |||||||
Other prepaid expense | - | 104 | ||||||
- | 104 |
7 PROPERTY, EQUIPMENT AND MINE DEVELOPMENT COSTS
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 $207,376 to the depreciation and amortization expenses, respectively.
The property, equipment and mine development costs were the assets of Dragon International and Fujian Huilong. On December 19, 2013, the Company disposed its subsidiaries Dragon International and Fujian Huilong and no property, equipment and mine developments were included in the consolidated balance sheets as at December 31 2013.
As disclosed in the Company’s Form 8-K dated October 4, 2013, during the year the board of the Company approved to dispose all of the fixed assets of Fujian Huilong. The disposal of the fixed assets, which includes but not limited to equipment and plants, is to set off the debts of Fujian Huilong. During the year, the Company recorded a loss of US$ 1,821,097 on disposal of the aforesaid fixed assets.
8 INTANGIBLE ASSETS
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 | |||||||
(restated) | ||||||||
$ | $ | |||||||
Accounts payable | 39,874 | - | ||||||
Staff costs / wage payable | 29,626 | 52,731 | ||||||
Accrued liabilities | 22,019 | - | ||||||
Other payable | 194,853 | 68,434 | ||||||
286,372 | 121,165 |
F-19 |
10 ASSET RETIREMENT OBLIGATION
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 | |||||||
(restated) | ||||||||
$ | $ | |||||||
Amounts due to a related party | 12,212 | 78,257 |
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 |
|||||||
(restated) | ||||||||
$ | $ | |||||||
Interest free loan, unsecured and due on demand (i) | - | - | ||||||
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 | 80,554 | ||||||
Current portion | 56,340 | 70,494 | ||||||
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%)
F-20 |
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.
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.
F-21 |
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: $3,175) from a senior officer and director of the Company. |
Also see note 11 and 12.
15 INCOME TAX
SGB and its subsidiaries are subject to income tax laws in their respective tax jurisdictions, which are the same as their respective place of incorporation. The income tax for the year ended December 31,2012 included income tax associated with the discontinued operations.
Income tax expenses represents the current tax expenses.
A reconciliation of the income tax expenses is as follows:
2013 | 2012 | |||||||
US$ | 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 |
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 $1,377,580. These losses, if unutilized, have expiration year until 2033.
During the years ended December 31, 2013 and 2012 and to the current date, the Company had not received any tax re-assessment from the federal and regional governmental authorities.
F-22 |
16 COMMITMENTS
As at December 31, 2013, the company doesn’t have any capital or operating commitments.
17 SEGMENT INFORMATION
Even though the Company disposed of certain subsidiaries on December 19, 2013 as disclosed in note 3, the Company continued to conduct business with its existing clients by procuring from external markets through the year end of 2013. The Company reassessed its operation and considers the company was still in one single operating segment and one geographical segment which is Canada as at December 31, 2013
The Company derives its revenues from one customer. The customers from which more than 10% of total revenue has been derived and the percentage of total revenue from those customers is summarized as follows:
2013
US$ | 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.
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 | ) |
F-23 |
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 Interest Transfer Agreement dated December 19, 2013 (incorporated by reference to Amendment No. 1 to Registrant’s Form 10-K for the year ended December 31, 2013 as filed on August 29, 2014) | |
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.
5 |
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: October 1, 2014 |
By: | /s/ Peifeng Huang | ||
Peifeng Huang | |||
Chief Financial Officer and Secretary | |||
(Principal Financial Officer and Principal Accounting Officer) | |||
Date: October 1, 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: October 1, 2014 |
By: | /s/ QuanGu | ||
QuanGu | |||
Director | |||
Date: October 1, 2014 |
By: | /s/ Wei Gu | ||
Wei Gu | |||
Director | |||
Date: October 1, 2014 |
By: | /s/ Chang Gu | ||
Chang Gu | |||
Director | |||
Date: October 1, 2014 |
By: | /s/ Wensi Chen | ||
Wensi Chen | |||
Director | |||
Date: October 1, 2014 |
By: | /s/ Vincent Xu | ||
Vincent Xu | |||
Director | |||
Date: October 1, 2014 |
By: | /s/ Baozhu Feng | ||
Baozhu Feng | |||
Director | |||
Date: October 1, 2014 |
6