UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

Or

☐ 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 Incorporation or Organization)		(I.R.S. Employer Identification No.)
Room 1601, 16/F, China Taiping Tower, Phase II, 8 Sunning Road, Causeway Bay, Hong Kong		852.3691.8831
(Address of Principal Executive Offices; Zip Code)		(Registrant’s Telephone Number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

(Check one):
Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller 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 Exchange Act). Yes ¨ No x

 

At November 17, 2014, the registrant had outstanding 373,793,578 shares of common stock.

 

 

GRAND CHINA ENERGY GROUP LIMITED

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS

		Page
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION		3
PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	4
ITEM 2.	MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4.	CONTROLS AND PROCEDURES	19
PART II. OTHER INFORMATION

 

ITEM 1.	LEGAL PROCEEDINGS	21
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4.	MINE SAFETY DISCLOSURES	21
ITEM 5.	OTHER INFORMATION	21
ITEM 6.	EXHIBITS	21
SIGNATURES		23
EX-31.1 (CERTIFICATION)
EX-31.2 (CERTIFICATION)
EX-32.1 (CERTIFICATION)
EX-32.2 (CERTIFICATION)

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

PART 1. FINANCIAL INFORMATION 

ITEM 1. FINANCIAL STATEMENTS

GRAND CHINA ENERGY GROUP LIMITED

FINANCIAL STATEMENTS

	PAGE
Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013	5
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and September 30, 2013 (Unaudited)	6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and September 30, 2013 (Unaudited)	7
Consolidated Statements of Stockholders Equity (Deficiency) as at September 30, 2014 (Unaudited)	8
Notes to Consolidated Financial Statements (Unaudited)	9

 

GRAND CHINA ENERGY GROUP LTD (FORMERLY KNOWN AS “SGB INTERNATIONAL HOLDINGS INC.”)

CONSOLIDATED BALANCE SHEETS

AS AT SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

(STATED IN US DOLLARS)

 

						September 30				December 31
						2014				2013
		Note				$				$
ASSETS
Non-current assets
Property, plant and equipment, net			4				230,751				-
Total non-current assets							230,751				-
Current Assets
Cash and cash equivalents			5				1,709				1,793
Receivables			6				935,363				330,799
Total Current Assets							937,072				332,592
Total Assets							1,167,823				332,592
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIENCY)
Current Liabilities
Account payable and accrued liabilities			7				966,834				286,372
Amount due to a related party			8				11,644				12,212
Income tax payable							190,700				20,000
Loan payable – current			9				58,758				56,340
Total Current Liabilities							1,227,936				374,924
Total Liabilities							1,227,936				374,924
Stockholders’ Equity(Deficiency)
Common stock			10				9,138,544				9,138,544
Contributed surplus							100,000				100,000
Additional paid-in capital							100,000				100,000
Accumulated deficit							(9,373,304	)			(9,347,096	)
Accumulated other comprehensive income							(25,353	)			(33,780	)
Total Stockholders’ Equity(Deficiency)							(60,113	)			(42,332	)
Total Liabilities and Stockholders’ Equity(Deficiency)							1,167,823				332,592

 

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

 

 

GRAND CHINA ENERGY GROUP LTD (FORMERLY KNOWN AS “SGB INTERNATIONAL HOLDINGS INC.”)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)

(STATED IN US DOLLARS)

  

		Three months ended 30 September								Nine months ended 30 September
		2014				2013(restated)				2014				2013(restated)
		$				$				$				$
Revenue			600,000				-				1,707,000				-
Cost of revenue			(447,869	)			-				(1,196,534	)			-
Gross profit			152,131				-				510,466				-
Selling expenses			(82,431	)			-				(148,665	)			(641	)
Depreciation & amortization			(3,855	)			-				(7,710	)			-
General and administrative			(66,550	)			(5,228	)			(209,707	)			(134,829	)
Total operating expenses			(152,836	)			(5,228	)			(366,082	)			(135,470	)
Net income (loss) from operations			(705	)			(5,228	)			144,384				(135,470	)
Other items:
Interest expense			(1,729	)			-				(5,187	)			-
Exchange gain							-				5,295				-
Income (loss) before tax			(2,434	)			(5,228	)			144,492				(135,470	)
Income tax expense			(60,000	)			-				(170,700	)			-
Net loss from continuing operations;			(62,434	)			(5,228	)			(26,208	)			(135,470	)
Net loss from discontinued operations			-				(16,769,790	)			-				(16,929,732	)
Net loss for the period			(62,434	)			(16,775,018	)			(26,208	)			(17,065,202	)
Foreign currency translation adjustment			7,486				105,964				8,427				241,409
Comprehensive loss			(54,948	)			(16,669,054	)			(17,781	)			(16,823,793	)
Earnings Per Share (cents) – Basic and diluted			(0.00	)			(4.49	)			(0.00	)			(4.57	)
Weighted Average Shares Outstanding – Basic and diluted			373,793,578				373,793,578				373,793,578				373,793,578

  

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

 

 

 

GRAND CHINA ENERGY GROUP LTD (FORMERLY KNOWN AS “SGB INTERNATIONAL HOLDINGS INC.”)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(STATED IN US DOLLARS)

 

		Nine months Ended 30 September
		2014				2013
Cash flows from operating activities			$				$
Net income for the period –continuing and discontinued operations:			(26,208	)			(17,065,202	)
Items not involving cash:
Depreciation & amortization			7,710				1,077,460
Loss on retirement of fixed assets			-				1,699,609
Impairment loss			-				12,433,281
Interest expense			5,187				16,229
Changes in non-cash working capital:
Receivables			(610,738	)			45,174
Prepaid expenses, deposit and other receivables			-				80,049
Accounts payable , accrued liabilities and income tax payables			862,508				2,563,799
Net cash used in operating activities			238,459				621,899
Cash flows from investing activities
Purchase of property, equipment and mine development costs			(238,461	)			(725,777	)
Net cash used in investing activities			(238,461	)			(725,777	)
Cash flows from financing activities
Increase (decrease) of term loan			-				102,211
Amount advanced from a third part			-				121,380
Amount advanced from a related party			-				(476,641	)
Net cash used in financing activities			-				(253,050	)
Decrease in cash and cash equivalents			(2	)			(359,928	)
Effect of exchange rate changes on cash			(82	)			(18,043	)
Cash and cash equivalents – beginning of period			1,793				440,308
Cash and cash equivalents – end of period			1,709				65,337
Supplemental disclosure of cash flow information:
Income tax			-				59,914
Interest expense			-				-

 

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

 

 

GRAND CHINA ENERGY GROUP LTD (FORMERLY KNOWN AS “SGB INTERNATIONAL HOLDINGS INC.”)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIENCY)

AS AT SEPTEMBER 30, 2014

(STATED IN US DOLLARS)

 

		Common shares								Stock to be				Contributed				Additional paid-in								Retained earnings (accumulated				Accumulated other Comprehensive				Total Stockholder’s equity
		Shares				Amount				issued				surplus				capital				Reserve				deficit)				income				(deficiency)
							$				$				$				$				$				$				$				$
Balance at December 31, 2012			373,793,578				9,138,544				-				100,000				-				650,182				7,527,909				565,982				17,982,617
Net loss for the year			-				-				-				-				-				-				(16,875,005	)			-				(16,875,005	)
Disposal of subsidiaries			-				-				-				-				-				(650,182	)			-				-				(650,182	)
Imputed interest			-				-				-				-				100,000				-				-				-				100,000
Currency translation			-				-				-				-				-				-				-				(599,762	)			(599,762	)
Balance at December 31, 2013			373,793,578				9,138,544				-				100,000				100,000				-				(9,347,096	)			(33,780	)			(42,332	)
Net loss for the period			-				-				-				-				-				-				(26,208	)			-				(26,208	)
Currency translation			-				-				-				-				-				-				-				8,427				8,427
Balance at September 30, 2014			373,793,578				9,138,544				-				100,000				100,000				-				(9,373,304	)			(25,353	)			(60,113	)

 

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

 

 

1       ORGANIZATION AND PRINCIPAL ACTIVITIES

 

Grand China Energy Group Ltd (formerly known as “SGB International Holdings Inc.”) (“Grand China” or “SGB” or the “Company”) was incorporated in British Columbia, Canada on November 6, 1997. Through its subsidiary, the Company is engaged in providing services in relation of the coal business in People’s Republic of China.

 

On May 11, 2011, the Company completed the acquisition of Dragon International Resources Group Co., Limited (“Dragon International”), a Hong Kong corporation incorporated on October 5, 2010, and its wholly-owned subsidiary through a share exchange which resulted in the former shareholders of Dragon International acquiring the control of SGB. This transaction was accounted for as a reverse takeover transaction (“RTO”) for accounting purpose, as Dragon International was deemed to be the acquirer.

 

Prior to the above noted RTO, and on February 21, 2011, pursuant to a share transfer agreement, Dragon International completed the acquisition of Fujian Huilong Coal Mine Co., Ltd. (“Fujian Huilong”) (formerly known as Yongding Shangzhai Coal Mine Co., Ltd.), a People’s Republic of China corporation and was incorporated on August 4 2005. Upon the completion of the acquisition, Fujian Huilong became the wholly-owned subsidiary of Dragon International and the control in substance was not changed. For accounting purposes, the acquisition has been accounted for using the continuity of interest method, which recognizes Fujian Huilong as the successor. The net assets of Dragon International prior to the acquisition has been accounted as recapitalization as at the date of acquisition.

 

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

 

On December 19, 2013, the Company disposed Dragon International and Fujian Huilong. (See note 3)

 

On August 6, 2014, the Company filed a Notice of Alteration and Certificate of Name Change to its Notice of Articles with the Registry of British Columbia to change the Company’s name to Grand China Energy Group Limited. The name change became legally effective as of such date.

 

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 September 30, 2014 and December 31, 2013, the Company had stockholders’ deficit of $60,113 and $42,332 respectively .As at September 30, 2014 and December 31, 2013, the Company had working capital deficiency of $290,864 and $42,332 respectively, and requires additional funds to maintain its operations. In view of the stockholder deficit and 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.

 

 

 

After disposing the Dragon International and Fujian Huilong, 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.

 

2       SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and preparation

 

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all of the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or of future years.

 

These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and follow the same accounting policies and methods of their application as the most recent annual financial statements. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2013.

 

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 cash consideration of HKD 1,000,000 (approximately USD 129,000). The results for the disposed subsidiaries for the three and nine months ended September 30, 2013 are as follows:

 

		Three months ended September 30, 2013				Nine months ended September 30, 2013
		$				$
Revenue			1,724,690				7,008,929
Loss before tax			(16,753,906	)			(16,868,818	)
Income tax			(15,884	)			(59,914	)
Net loss from discontinued operations			(16,769,790	)			(16,929,732	)

 

 

 

4      PROPERTY PLANT AND EQUIPMENT

 

						Accumulated,				Net book
		Cost				depreciation				value
		$				$				$
September 30, 2014
Motor Vehicles			238,461				7,710				230,751

 

5      CASH AND CASH EQUIVALENTS

 

		September 30,				December 31,
		2014				2013
		$				$
Cash denominated in USD			-				-
Cash denominated in Canadian Dollars			1,709				1,793
Total			1,709				1,793

 

6       RECEIVABLES

		September 30,				December 31,
		2014				2013
		$				$
Trade receivable (i) (ii)			100,000				-
Receivable from disposal of subsidiaries(ii)			128,683				129,509
Others(ii)(iii)			706,680				201,290
			935,363				330,799

 

Notes:

 

(i)	The Company does not hold any collateral over these balances. The average age of these receivable are 30 days.
(ii)	Unsecured, interest free and repayable on demand.
(iii)	The amount mainly represents the deposits held by employees for the purchases, and day to day operations.

 

 

 

7      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

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

 

		September 30,				December 31,
		2014				2013
		$				$
Accounts payable			4,774				39,874
Staff costs / wage payable			28,249				29,626
Accrued liabilities			747,962				22,019
Other payable			185,849				194,853
			966,834				286,372

 

8      AMOUNT DUE TO A RELATED PARTY

 

		September 30,				December 31,
		2014				2013
		$				$
Amount due to a related party			11,644				12,212

 

As at September 30, 2014 and December 31, 2013, the amount is due to the Company’s related party, namely SGB C&C Investments. The amount as at September 30, 2014 and December 31, 2013 was unsecured, non-interest bearing and due on demand.

 

9      LOAN PAYABLE

 

The following is a summary of term loan:

 

		September 30,				December 31,
		2014				2013
		$				$
Interest bearing loan at 15% per annum, unsecured and due on demand			58,758				56,340
Total			58,758				56,340
Current portion			58,758				56,340
Non-current			-				-

 

 

10     STOCKHOLDERS’ EQUITY

 

Authorized:

 

Unlimited number of common shares without par value

 

Unlimited number of preferred shares without par value

 

Issued and outstanding

 

As at September 30, 2014 and December 31, 2013, 373,793,578 common stocks issued and outstanding which were derived from the following transactions:

 

Prior to the RTO with Dragon International and as at May 11, 2011, SGB had 24,502,446 common shares issued and outstanding.

 

On May 11, 2011, SGB completed a reverse acquisition transaction with the shareholders of Dragon International pursuant to which SGB acquired 100% of the issued and outstanding capital stock of Dragon International in exchange for an aggregate of 220,522,000 common shares of SGB, which constituted 90% of SGB’s issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the reverse acquisition. Prior to the acquisition, SGB has no business with a minimal assets and liabilities which did not meet the definition of a business, therefore, the reverse take-over of SGB by Dragon International has been accounted for as a capital transaction which is deemed Dragon International acquired SGB by issuance of 24,502,446 common shares (issued and outstanding prior to the RTO) for its net assets of $10,789.

 

Prior to the RTO and on February 21, 2011, Dragon International completed the acquisition of Fujian Huilong and for accounting purpose, the acquisition has been accounted for using the continuity of interest method, which recognizes Fujian Huilong as the successor. The net assets of Dragon International totaling $1,277,694 as at the date of acquisition have been accounted as recapitalization into Fujian Huilong.

 

Fujian Huilong has a registered and paid-in capital of $123,913 (RMB 1,000,000) prior to being acquired by Dragon International.

 

As the consolidated financial statements is the continuation of Fujian Huilong, therefore, the share capital of Fujian Huilong has been restated to reflect the 220,522,000 common shares that effected the RTO for the purpose of financial statements presentation and earnings per share calculation.

 

On September 21, 2011, Fujian Huilong’s registered and paid-in capital was increased by $1,925,447 (RMB 12,278,945) to a total of $2,049,360 (RMB 13,278,945) as at December 31, 2012.

 

On December 29, 2011, the Company settled $7,726,148 by agreeing to issue 128,769,132 shares of the common stock of the Company at a deemed price of $0.06 per share. The Company has allotted and issued the shares in 2012.

 

 

11    RELATED PARTY TRANSACTIONS

 

During the period ended September 30, 2014 and 2013, the Company engaged following related party transactions:

 

●

Accrued or paid $nil (September 30 2013: $Nil) in salaries and bonus to senior officers and directors of the Company;

 

As at September 30, 2014 and December 31, 2013, the following receivable and payable were outstanding:

 

	●	Included in accounts payable and accrued liabilities, $Nil (December 31, 2013: $Nil) were payable to the senior officers and directors of the Company.

●

Included in receivable, $3,253was receivable (December 31, 2013: $Nil) from a senior officer and director of the Company.

 

12     COMMITMENTS

 

As at September 30, 2014, the company does not have any capital or operating commitments.

 

13     COMPARATIVE FIGURE

 

As disclosed in note 3, the Company disposed Dragon International and Fujian Huilong on December 19, 2013, for comparative purposes, the consolidated statement of operations for the three and nine months ended September 30, 2013 was restated. A reconciliation of the restated figures is presented as follows

 

Three months ended September 30, 2013

 

		Previously reported				Discontinued adjustment				Restated
		$				$				$
Revenue			1,724,690				(1,724,690	)			-
Cost of revenue			(1,597,902	)			1,597,902				-
Gross Profit			126,788				(126,788	)			-
Selling expenses			(13,515	)			13,515				-
General and administrative			(676,515	)			671,287				(5,228	)
Depreciation and amortization			(40,397	)			40,397				-
Total operating expenses			(730,427	)			730,427				(5,228	)
Net income from operations			(603,639	)			603,639				(5,228	)
Interest expense			(64,317	)			64,317				-
Loss on non-collectible deposit for investment			(2,912,793	)			2,912,793				-
Loss on disposal			(901,806	)			901,806				-
Gain on debt waiver			239,903				239,903				-
Impairment loss			(12,516,482	)			12,516,482				-
			(16,155,495	)			16,155,495				-
Income before income tax expenses			(16,759,134	)			16,753,906				(5,228	)
Income tax			(15,884	)			15,884				-
Net income			(16,775,018	)			16,775,018				(5,228	)

 

 

Nine months ended September 30, 2013

 

		Previously reported				Discontinued adjustment				Restated
		$				$				$
Revenue			7,008,929				(7,008,929	)			-
Cost of revenue			(5,497,795	)			5,497,795				-
Gross Profit			1,511,134				(1,511,134	)			-
Selling expenses			(136,977	)			136,336				(641	)
General and administrative			(1,376,401	)			1,241,572				(134,829	)
Depreciation and amortization			(137,719	)			137,719				-
Total operating expenses			(1,651,097	)			1,515,627				(135,470	)
Net income from operations			(139,963	)			139,963				-
Interest expense			(65,177	)			65,177				-
Loss on non-collectible deposit for investment			(2,895,758	)			2,895,758				-
Loss on disposal			(1,699,609	)			1,699,609				-
Gain on debt waiver			238,500				(238,500	)			-
Impairment loss			(12,443,281	)			12,443,281				-
			(16,865,325	)			16,865,325				-
Income before income tax expenses			(17,005,288	)			17,005,288				(135,470	)
Income tax			(59,914	)			59,914				-
Net income			(17,065,202	)			17,065,202				(135,470	)

 

 

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

 

Our Business

 

After disposing of Dragon International and Fujian Huilong on December 19, 2013, the Company is now looking for new mining areas to develop. The Company’s present operations consist of buying coal from external markets to serve its existing clients. The Company derives its revenues from sales of coal through a number of major clients as in previous years. All of the revenues are generated outside Canada. Our results, as reported in U.S. dollars, will be impacted by foreign currency fluctuations. 

 

Business Overview

 

In view of a continuing modest recovery in the world’s economy in the second half of 2014, China will strengthen its economic restructuring. The energy consumption structure is expected to change. Being the largest coal consumption country, it is expected that the supply and demand of coal in the domestic markets will generally remain in a relaxed trend and coal prices will fluctuate at a low level.

 

Revenue Recognition

 

After disposing of Dragon International and Fujian Huilong on December 19, 2013, the Company has continued its sales activities for its existing clients through the sourcing network. Current revenues are generated from the same source of coal sale activities with existing clients similar to what it was before the disposal of Dragon International and Fuijian Huilong.

 

For three months ended September 30, 2014 and 2013

 

		30-Sep-14				30-Sep-13
		$				$
Revenue			600,000
Revenue from discontinued activities							1,724,690
Total			600,000				1,724,690
Cost of sales			(447,869	)
Cost of sales from discontinued activities							(1,597,902	)
Total			(447,869	)			(1,597,902	)
Gross Profit			151,131				126,788
Operating Expenses			(152,836	)			(730,427	)

 

 

For nine months ended September 30, 2014 and 2013

 

		30-Sep-14				30-Sep-13
		$				$
Revenue			1,707,000
Revenue from discontinued activities							7,008,929
Total			1,707,000				7,008,929
Cost of sales			(1,196,534	)
Cost of sales from discontinued activities							(5,497,795	)
Total			(1,196,534	)			(5,497,795	)
Gross Profit			510,466				1,511,134
Operating Expenses			(366,082	)			(1,651,097	)

 

Results of Operations

 

For the three months ended September 30, 2014 and 2013

 

The following table sets forth the consolidated results of our operations in the three months ended September 30, 2014 (“2014 Q3”) and September 30, 2013 (“2013 Q3”):

 

		2014 Q3								2013 Q3
		$				% of Sales				$				% of Sales
Revenues			600,000				100	%			1,724,690				100	%
Cost of sales			(447,869	)			(75	)%			(1,597,902	)			(93	)%
Gross profit			152,131				25	%			126,788				7	%
Operating expenses			(152,836	)			(25	)%			(730,427	)			(42	)%
Loss from operations			(705	)			(0	)%			(603,639	)			(35	)%
Other expenses and income tax			(61,729	)			(0	)%			(16,171,379	)			(938	)%
Net loss			(62,434	)			(0	)%			(16,775,018	)			(973	)%

 

Revenues

 

Our revenues are derived from the sale of coal. Overall revenue decreased by 1,124,690 or 65% from $1.72 million in 2013 Q3 to $0.6million in 2014 Q3, principally due to the restructuring of the Company after the disposal of Dragon International and Fujian Huilong on December 19, 2013.

 

Cost of Sales and Gross Profit

 

Our cost of sales decreased by $1,150,033 or 72% from $1.60 million in 2013 Q3 to $0.44 million in 2014 Q3. The decrease was mainly due to the restructuring of the business model from coal mining to coal trading. As a result, our gross profit margin increased to 25% with a profit of US$0.15 million.

 

Operating Expenses

 

Our operating expenses decreased by $577,591 or 79% from $0.73 million in 2013 Q3to $0.15 million in 2014 Q3.

 

 

Net Loss

 

As a result of the above, our net loss decreased by $16 million from $16.78 million in 2013 Q3 to $0.06 million in 2014 Q3.

 

For the nine months ended September30, 2014 and 2013

 

The following table sets forth the consolidated results of our operations in the nine months ended September30, 2014 (“2014 Q3”) and September30, 2013 (“2013 Q3”):

 

		2014 Q3								2013 Q3
		$				% of Sales				$				% of Sales
Revenues			1,707,000				100	%			7,008,929				100	%
Cost of sales			(1,196,534	)			(70	)%			(5,437,795	)			(78	)%
Gross profit			510,466				30	%			1,511,134				22	%
Operating expenses			(366,082	)			(21	)%			(1,651,097	)			(24	)%
Profit (loss) from operations			144,384				8	%			(139,963	)			(2	)%
Other expenses and income tax			(176,892	)			(7	)%			(16,683,830	)			(238	)%
Net loss			(26,208	)			(2	)%			(16,823,793	)			(240	)%

 

Revenues

 

Our revenues are derived from the sale of coal. Overall revenue decreased by 5,301,929 or 76% from $7 million in 2013 Q3 to $1.7 million in 2014 Q3, principally due to the restructuring of the Company after the disposal of Dragon International and Fujian Huilong on December 19, 2013.

 

Cost of Sales and Gross Profit\

 

Our cost of sales decreased by $4,241,261 or 76% from $5.44 million in 2013 Q3 to $1.20 million in 2014 Q3. Our gross profit margin increased by 22% to 30% which was mainly due to the restructuring of the business model from coal mining to coal trading.

 

Operating Expenses

 

Our operating expenses decreased by $1,285,015 or 78% from $1.65 million in 2013 Q3to $0.37million in 2014 Q3.

 

Net Loss

 

Our net loss decreased by $16.86 million from $16.79 million in 2013 Q3 to net loss of $0.03 million in 2014 Q3.

 

Liquidity and Capital Resources

 

Working Capital as at September 30, 2014 and December 31, 2013

 

		September 30, 2014				December 31, 2013
Cash		$	1,709			$	1,793
Current Assets		$	937,072			$	332,592
Current Liabilities		$	1,227,936			$	374,924
Working Capital		$	(290,864	)		$	(42,332	)

 

 

Current assets increased by $604,480 or 182% from $332,592 as at December 31,2013 to $937,072 as at September30, 2014, principally due to an increase in trade receivables arising from normal operations.

 

Current liabilities increased by $853,012 or 228% from $374,924 as at December 31, 2013 to $1,227,936 as at September30,2014, mainly due to the increase in accrued liabilities.

 

As a result of the above, working capital decreased to$(290,864)as at September 30,2014from $(42,332) as at December 31, 2013.

 

Cash Flows

 

For the nine months ended September30, 2014 and 2013 respectively:

 

The following summarizes cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2014 and 2013:

 

		2014 Q3				2013 Q3
		$				$
Net cash generated from operating activities		$	238,459			$	621,899
Net cash used in investing activities		$	(238,461	)		$	(725,777	)
Net cash used in financing activities		$	-			$	(253,050	)
Cash and cash equivalents at end of period		$	1,709			$	65,337

 

The net cash inflow from operating activities decreased by $383,440 or 61.7% compared to $621,899 in 2013 Q3.

 

The cash used in investing activities decreased from the $725,777 in 2013 Q3to $238,461in 2014 Q3.

 

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

In connection with the preparation of this Quarterly Report on Form10-Q, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2014. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

 

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2014.

 

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Controls

 

During the fiscal quarter ended September 30, 2014, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us. 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We made no sales of unregistered securities during the quarter ended September 30, 2014.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 

	●	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

	●	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

	●	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

●

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

 

The following exhibits are included as part of this report:

 

Exhibit No.		Description
31.1		Certification of Principal Executive Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer 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 Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

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.

 

	CHINA CHANGJIANG MINING AND NEW ENERGY COMPANY, LTD.
	(Registrant)
Date: November 19, 2014	By:	/s/ Shibi Chen
	Name:	Shibi Chen
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)
Date: November 19, 2014	By:	/s/ Peifeng Huang
	Name:	Peifeng Huang
	Title:	Chief Financial Officer
		(Principal Financial Officer)

 

 

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