UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

AMENDMENT NO. 1

 

(Mark One)

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

 

For the quarterly period ended June 30, 2014

 

OR

☐ TRANSITION REPORT UNDER 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 of Incorporation)		(IRS Employer Identification No.)

 

Room 1601, 16/F, China Taoping Tower Phase II,

8 Sunning Road, Causeway Bay

Hong Kong

(852) 3691-8831

(Address of principal executive offices and telephone number)

 

Indicate whether the registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act 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 ☒   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 for such shorter period that the registrant was required to submit and post such files).   Yes ☒   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	☒
(Do not check if a smaller Reporting company)

 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

There were 373,793,578 shares of common stock issued and outstanding as of August 18, 2014.

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 to Form 10-Q (“Form 10-Q/A”) is being filed by Grand China Energy Group Limited (the “Company”) to amend its Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 filed with the United States Securities and Exchange Commission (“SEC”) on August 18, 2014 (the “Initial Form 10-Q”). Items 1 and 2 of Part 1 of our Initial Form 10-Q have been amended and restated in their entirety for the reasons described in Note 13 to the Consolidated Financial Statements. Other than the Items outlined above, no other changes were made to the Initial Form 10-Q, however, for the convenience of the reader, this Form 10-Q/A also includes those items in the Initial Form 10-Q that are not being amended. Except as otherwise specifically noted, all information contained herein is as of June 30, 2014 and does not reflect any events or changes that have occurred subsequent to that date. We are not required to and we have not updated any forward-looking statements previously included in the Initial Form 10-Q.

 

We have attached to this Form 10-Q/A updated certifications executed as of the date of this Form 10-Q/A by the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002. These updated certifications are attached as Exhibits 31.1/31.2 and 32.1/32.2 to this Form 10-Q/A.

 

 

GRAND CHINA ENERGY GROUP LTD

QUARTERLY REPORT ON FORM 10-Q/A

FOR THE QUARTER ENDED JUNE 30, 2014

 

Table of Contents

 

		Page
		Number
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	16
ITEM 4.	Controls and Procedures	16
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	17
ITEM 1A.	Risk Factors	17
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
ITEM 3.	Defaults Upon Senior Securities	17
ITEM 4.	Mine Safety Disclosures	17
ITEM 5.	Other Information	17
ITEM 6.	Exhibits	18
SIGNATURES		19

 

 

GRAND CHINA ENERGY GROUP LTD

(FORMERLY KNOWN AS “SGB INTERNATIONAL HOLDINGS INC.”)

 

CONSOLIDATED BALANCE SHEETS

AS AT JUNE 30, 2014 AND DECEMBER 31, 2013

(STATED IN US DOLLARS)

 

				June 30
				2014 (restated)				December 31 2013
		Note		$				$
ASSETS
Non-current assets
Property, plant and equipment, net		4			234,605				-
									-
Total non-current assets					234,605				-
Current Assets
Cash and cash equivalents		5			1,790				1,793
Receivables		6			336,023				330,799
Total Current Assets					337,813				332,592
Total Assets					572,418				332,592
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIENCY)
Current Liabilities
Account payable and accrued liabilities		7			645,810				286,372
Amounts due to a related party		8			12,191				12,212
Income tax payable					20,000				20,000
Loan payable – current		9			59,763				56,340
Total Current Liabilities					737,764				374,924
Total Liabilities					737,764				374,924
Stockholders’ Deficiency
Common stocks		10			9,138,544				9,138,544
Contributed surplus					100,000				100,000
Additional paid-in capital					100,000				100,000
Accumulated deficit					(9,471,051	)			(9,347,096	)
Accumulated other comprehensive income					(32,839	)			(33,780	)
Total Stockholders’ Deficiency					(165,346	)			(42,332	)
Total Liabilities and Stockholders’ Deficiency					572,418				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 month ended 30 June								Six months ended 30 June
		2014 (restated)				2013 (restated)				2014 (restated)				2013 (restated)
		$				$				$				$
Revenue			-				-				-				-
Cost of revenue			-				-				-				-
Gross profit			-				-				-				-
Selling expenses			-				-				-				(632	)
Depreciation & Amortization			(3,856	)			-				(3,856	)			-
General and administrative			(34,650	)			(94,581	)			(121,936	)			(127,671	)
Total operating expenses			(38,506	)			(94,581	)			(125,792	)			(128,303	)
Net loss from operations			(38,506	)			(94,581	)			(125,792	)			(128,303	)
Other items:
Interest expense			(1,730	)							(3,458	)			-
Exchange gain			1,187								5,295				-
			(543	)			-				1,837				-
Income(loss) before tax			(39,049	)			(94,581	)			(123,955	)			(128,303	)
Income tax expense			(39,049	)							-				-
Net loss from continuing operations;			(39,049	)			(94,581	)			(123,955	)			(128,303	)
Net income from discontinued operations			-				(368,887	)			-				(258,606	)
Net loss for the period			(39,049	)			(463,468	)			(123,955	)			(386,909	)
Foreign currency translation adjustment			(5,758	)			182,822				941				232,169
Comprehensive income(loss)			(44,807	)			(280,646	)			(123,014	)			(154,740	)
Earnings Per Share (cents) – Basic and diluted			(0.00	)			(0.12	)			(0.00	)			(0.10	)
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)

 

		Six months Ended 30 June
		2014  (restated)				2013
Cash flows from operating activities		$				$
Net income for the period – continuing and discontinued operations:			(123,955	)			(386,909	)
Items not involving cash:
Depreciation & amortization			3,856				779,097
Loss on retirement of fixed assets							796,547
Interest expense			3,458				10,731
Changes in non-cash working capital:
Receivables			(103,948	)			(22,902	)
Prepaid expenses, deposit and other receivables			-				88,136
Accounts payable , accrued liabilities and income tax payables			459,050				(551,680	)
Inventory			-				(184,480	)
Net cash generated from operating activities			238,461				528,540
Cash flows from investing activities
Purchase of property, equipment and mine development costs			(238,461	)			(596,153	)
Acquiring mining rights							(2,872,211	)
Net cash used in investing activities			(238,461	)			(3,468,364	)
Cash flows from financing activities
Increase (decrease) of term loan			-				2,984,021
Amounts advanced from a related party			-				(203,676	)
Net cash used in financing activities			-				2,780,345
Increase/(decrease) in cash and cash equivalents			-				(159,479	)
Effect of exchange rate changes on cash			(3	)			(21,210	)
Cash and cash equivalents – beginning of period			1,793				440,308
Cash and cash equivalents – end of period			1,790				259,619
Supplemental disclosure of cash flow information:
Income tax			-				43,764
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 JUNE 30, 2014

(STATED IN US DOLLARS)

 

		Common shares								Stocks to				Contributed				Additional Paid-in								Retained earnings (Accumulated				Accumulated other comprehensive				Total Stockholders’ equity
		Shares				Amount				be issued				surplus				capital				Reserve				Deficit)				income				(deficiency)
						$				$				$				$				$				$				$				$
Balance at December 31, 2012			373,793,578				9,138,544				-				100,000				-				650,182				7,527,909				565,982				17,982,617
Net loss for the year			-				-				-				-				-				-				(16,875,005	)			-				(16,875,005	)
Disposal of subsidiaries			-				-				-				-								(650,182	)			-				-				(650,182	)
Imputed interest			-				-				-				-				100,000				-				-				-				100,000
Currency translation			-				-				-				-				-				-				-				(599,762	)			(599,762	)
Balance at December 31, 2013			373,793,578				9,138,544				-				100,000				100,000				-				(9,347,096	)			(33,780	)			(42,332	)
Net income for the period			-				-				-				-				-				-				(123,955	)			-				(123,955	)
Currency translation			-				-				-				-								-				-				941				941
Balance at March 31, 2014			373,793,578				9,138,544				-				100,000				100,000				-				(9,471,051	)			(32,839	)			(165,346	)

 

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 FujianHuilong 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, we incorporated SGB Investment Limited, which is a wholly owned subsidiary. The principal business of SGB Investment Limited is providing mining related consulting work for the coal mine in Fujian Province as well as engaging in coal trading activities in Fujian Province, People’s Republic of China.

 

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 June 30, 2014 and December 31, 2013, the Company had stockholders’ deficit of $165,346 and $42,332 respectively. As at June 30, 2014 and December 31, 2013, the Company had working capital deficiency of $399,951 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.

 

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 six months ended June 30, 2013 are as follows:

 

		Three months ended June 30, 2013				Six months ended June 30, 2013
		$				$
Revenue			3,361,934				5,234,484
Loss before tax			(340,235	)			(214,842	)
Income tax			(28,652	)			(43,764	)
Net loss from discontinued operations			(368,887	)			(258,606	)

 

4.          PROPERTY PLANT AND EQUIPMENT

 

						Accumulated,				Net Book
		Cost				depreciation				Value
		$				$				$
June 30, 2014
Motor Vehicles			238,461				(3,856	)			234,605

 

5.          CASH AND CASH EQUIVALENTS

 

		June 30,				December 31,
		2014				2013
		$				$
Cash denominated in USD			-				-
Cash denominated in Canadian Dollars			1,790				1,793
Total			1,790				1,793

 

6.          RECEIVABLES

 

		June 30,				December 31,
		2014				2013
		$				$
Receivable from disposal of subsidiaries(i)			134,733				129,509
Others (i)			201,290				201,290
			336,023				330,799

 

Notes:

 

(i)	Unsecured, interest free and repayable on demand.

 

 

7.          ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

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

 

		June 30,				December 31,
		2014				2013
		$				$
Accounts payable			4,998				39,874
Staff costs / wage payable			29,577				29,626
Accrued liabilities			577,157				22,019
Other payable			34,078				194,853
			645,810				286,372

 

8.          AMOUNTS DUE TO A RELATED PARTY

 

		June 30,				December 31,
		2014				2013
		$				$
Amounts due to a related party			12,191				12,212

 

As at June 30, 2014 and December 31, 2013, the amounts are due to the Company’s related Party SGB C&C Investments. The amounts as at June 30, 2014 and December 31, 2013 are unsecured, non-interest bearing and due on demand.

 

9.          LOAN PAYABLE

 

The following is a summary of term loan:

 

		June 30,				December 31,
		2014				2013
		$				$
Interest bearing loan at 15% per annum, unsecured and due on demand			59,763				56,340
Total			59,763				56,340
Current portion			59,763				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 June 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 June 30, 2014 and 2013, the Company engaged following related party transactions:

 

●

Accrued or paid $nil (June 30 2013: $131,058) in salaries and bonus to senior officers and directors of the Company;

 

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

 

●

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

 

 

●

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

 

12.          COMMITMENTS

 

As at June 30,2014, the company doesn’t have any capital or operating commitments.

 

13.          RESTATEMENTS

 

In 2014, following the Company’s December 2013 sale of its equity interests in Dragon International Resources Group Co., Limited and Dragon’s wholly owned subsidiary, Fujian Huilong Coal Mine Co., Ltd, the Company commenced coal trading activities involving the purchase of coal in external markets for resale to the Company’s existing customers. In connection therewith, the Company signed sales and purchase contracts with customers and suppliers. However, the recognition of revenues and expenses by the Company related to these contracts was premature as the required performance obligations thereunder were not completed .Accordingly , the previously reported revenues ,expenses and associated receivables and payables from these contracts have been reversed and the related financial statements have been restated to reflect same

 

A reconciliation of the restated figures is presented as follows:

 

Income Statement

 

Three months ended 30 June 2014

 

		Previously reported				adjustment				Restated
		$				$				$
Revenue			580,000				(580,000	)			-
Cost of revenue			(456,180	)			456,180				-
Gross Profit			123,820				(123,820	)			-
Selling expenses			(66,234	)			66,234				-
Depreciation and amortization			(3,856	)			-				(3,856	)
General and administrative			(55,870	)			21,220				(34,650	)
Total operating expenses			(125,960	)			87,454				(38,506	)
Net loss from operations			(2,140	)			(36,366	)			(38,506	)
Interest expenses			(1,730	)			-				(1,730	)
Exchange gain			1,187				-				1,187
Income before income tax expenses			(2,683	)			(36,366	)			(39,049	)
Income tax			(58,000	)			58,000				-
Net income			(60,683	)			21,634				(39,049	)

 

 

Six months ended June 30, 2014

 

		Previously reported				adjustment				Restated
		$				$				$
Revenue			1,078,015				(1,078,015	)			-
Cost of revenue			(719,680	)			719,680				-
Gross Profit			358,335				(358,335	)			-
Selling expenses			(66,234	)			66,234				-
Depreciation and amortization			(3,856	)			-				(3,856	)
General and administrative			(143,156	)			21,220				(121,936	)
Total operating expenses			(213,246	)			87,454				(125,792	)
Net income/(loss) from operations			145,089				(270,881	)			(125,792	)
Interest expenses			(3,458	)			-				(3,458	)
Exchange gain			5,295				-				5,295
Income before income tax expenses			146,926				(270,881	)			(123,955	)
Income tax			(110,700	)			110,700				-
Net income			36,226				(160,181	)			(123,955	)

 

Balance Sheet as at June 30 2014

 

		Previously stated				adjustments				restated
										$
ASSETS
Current Assets
Cash and cash equivalents			22,590				(20,800	)			1,790
Receivables			626,613				(290,590	)			336,023
Total Current Assets			649,203				(311,390	)			337,813
Property, plant and equipment, net			234,605				-				234,605
Total Assets			883,808				(311,390	)			572,418
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current Liabilities
Account payable and accrued liabilities			686,319				(40,509	)			645,810
Amounts due to a related party			12,191				-				12,191
Income tax payable			130,700				(110,700	)			20,000
Loan payable – current			59,763				-				59,763
Total Current Liabilities			888,973				(151,209	)			737,764
Total Liabilities			888,973				(151,209	)			737,764
Stockholders’ Deficiency
Common stocks			9,138,544				-				9,138,544
Contributed surplus			100,000				-				100,000
Additional paid-in capital			100,000				-				100,000
Accumulated deficit			(9,310,870	)			(160,181	)			(9,471,051
Accumulated other comprehensive income			(32,839	)			-				(32,839	)
Total Stockholders’ Deficiency			(5,165	)			(160,181	)			(165,346	)
Total Liabilities and Stockholders’ Deficiency			883,808				(311,390	)			572,418

 

 

Cash flow statements for the six months ended June 30 2014.

 

		Previously reported				adjustments				restated
Cash flows from operating activities		$								$
Net income for the period – continuing and discontinued operations:			36,226				(160,181	)			(123,955	)
Items not involving cash:
Depreciation & amortization			3,856								3,856
Loss on retirement of fixed assets
Interest expense			3,458								3,458
Changes in non-cash working capital:
Receivables			(295,938	)			191,990				(103,948	)
Prepaid expenses, deposit and other receivables			-								-
Accounts payable , accrued liabilities and income tax payables			511,658				(52,608	)			459,050
Inventory			-								-
Net cash generated from operating activities			259,260				(20,799	)			238,461
Cash flows from investing activities
Purchase of property, equipment and mine development costs			(238,461	)							(238,461	)
Acquiring mining rights
Net cash used in investing activities			(238,461	)							(238,461	)
Cash flows from financing activities
Increase (decrease) of term loan			-								-
Amounts advanced from a related party			-								-
Net cash used in financing activities			-								-
Increase/(decrease) in cash and cash equivalents			20,799				(20,799	)			-
Effect of exchange rate changes on cash			(2	)			(1	)			(3	)
Cash and cash equivalents – beginning of period			1,793								1,793
Cash and cash equivalents – end of period			22,590								1,790
Supplemental disclosure of cash flow information:
Income tax			-								-
Interest expense			-

 

14.          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 six months ended June 30, 2013 was restated. A reconciliation of the restated figures is presented as follows

 

Three months ended June 30, 2013

 

		Previously reported				Discontinued adjustment				Restated
		$				$				$
Revenue			3,361,934				(3,361,934	)			-
Cost of revenue			(2,495,178	)			2,495,178				-
Gross Profit			866,756				(866,756	)			-
Selling expenses			(18,248	)			17,794				(454	)
General and administrative			(426,537	)			332,410				(94,127	)
Depreciation and amortization			(57,982	)			57,982				-
Total operating expenses			(502,767	)			408,186				(94,581	)
Net income from operations			363,989				(458,570	)			(94,581	)
Disposition Loss			(798,805	)			798,805				-
Income before income tax expenses			(434,816	)			340,235				(94,581	)
Income tax			(28,652	)			28,652				-
Net income			(463,468	)			368,887				(94,581	)

 

 

Six months ended June 30, 2013

 

		Previously reported				Discontinued adjustment				Restated
		$				$				$
Revenue			5,234,484				(5,234,484	)			-
Cost of revenue			(3,860,394	)			3,860,394				-
Gross Profit			1,374,090				(1,374,090	)			-
Selling expenses			(60,499	)			59,867				(632	)
General and administrative			(767,450	)			639,779				(127,671	)
Depreciation and amortization			(92,739	)			92,739
Total operating expenses			(920,688	)			792,385				(128,303	)
Net income from operations			453,402				(581,705	)			(128,303	)
Disposition Loss			(796,547	)			796,547				-
Income before income tax expenses			(343,145	)			214,842				(128,303	)
Income tax			(43,764	)			43,764				-
Net income			(386,909	)			258,606				(128,303	)

 

 

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

 

Our Business

 

Prior to the December 19, 2013 disposal of Dragon International and its subsidiary, Fujian Huilong, our principal operations were those of Fujian Huilong which was engaged in coal production and sales involving the exploration, development and mining of coal properties. Fujian Huilong owns and operates a coal mine, located in Shangzhai Village, Yongding County, Longyan City of Fujian Province, People’s Republic of China.

 

On October 3, 2013, we incorporated a wholly owned subsidiary, SGB Investment Limited. The principal business of SGB Investment Limited is providing mining related consulting work for the coal mine in Fujian Province as well as engaging in coal trading activities in Fujian Province, People’s Republic of China.

 

Results of Operations

 

For the three months ended June 30, 2014 compared with the three months ended June 30, 2013

 

Gross Revenues

 

The revenue for the three months ended June 30, 2014 and June 30, 2013 is nil respectively.

 

Operating Expenses

 

Operating expenses for the three months ended June 30, 2014 and three months ended June 30, 2013 is $38,506 and $94,581 respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

 

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of the business.

 

Net Loss

 

Net Loss for the three months ended June 30, 2014 and three months ended June 30, 2013 is $39,049 and $463,468 respectively

 

For the six months ended June 30, 2014 compared with the six months ended June 30, 2013

 

Gross Revenues

 

The revenue for the six months ended June 30, 2014 and June 30, 2013 is nil respectively.

 

Operating Expenses

 

Operating expenses for the six months ended June 30, 2014 and six months ended June 30, 2013 is $125,792 and $128,303 respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

 

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of the business.

 

Net Loss

 

Net Loss for the six months ended June 30, 2014 and six months ended June 30, 2013 is $123,955 and $386,909 respectively

 

 

Liquidity and Capital Resources

 

At June 30, 2014, we had working capital of ($165,346) consisting of cash on hand of $1,790 as compared to working capital of ($42,332) consisting of cash on hand of $1,793 at December 31, 2013.

 

Net cash generated from operating activities for the six months ended June 30, 2014 was $238,461 as compared to net cash generated from operating activities of $528,540 for the six months ended June 30, 2013

 

Net cash provided by (used in) investing activities for the six months ended June 30, 2014 was ($238,461) as compared to net cash used in investing activities ($3,468,364) for the six months ended June 30, 2013

 

Net cash provided by (used in) financing activities for the six months ended June 30, 2014 was nil as compared to net cash used in financing activities ($2,780,345) for the six months ended June 30, 2013

 

We will likely require additional capital to continue to operate our business, and to further expand our business. Sources of additional capital through various financing transactions or arrangements with third parties may include equity or debt financing, bank loans or revolving credit facilities. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. Our inability to raise additional funds when required may have a negative impact on our operations, business development and financial results. We will likely require additional capital to continue to operate our business, and to further expand our business. Sources of additional capital through various financing transactions or arrangements with third parties may include equity or debt financing, bank loans or revolving credit facilities. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. Our inability to raise additional funds when required may have a negative impact on our operations, business development and financial results.

 

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.

 

Smaller reporting companies are not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As required by paragraph (b) of Rules 13a-15 under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were effective.

 

Our management continues to review processes and intend make necessary changes to strengthen our system of internal controls over financial reporting.

 

 

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Limitations on Effectiveness of Controls

 

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

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

To the best of our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject or proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS.

 

There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013. For more information concerning our risk factors, please see “Item 1A. Risk Factors” of our Annual Report on Form 10-K.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

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.

 

 

ITEM 6. EXHIBITS

 

Exhibits required by Item 601 of Regulation S-K: 

 

Exhibit Number		Description
31.1		Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2		Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
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

 

* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

GRAND CHINA ENERGY GROUP LIMITED

 

By:	/s/ Shibi Chen
	Shibi Chen President, Chief Executive Officer and Director  (Principal Executive Officer) Date: June 24, 2015

  

By:	/s/ Peifeng Huang
	Peifeng Huang Chief Financial Officer and  Secretary (Principal Financial Officer and Principal Accounting Officer) Date: June 24, 2015

 

 

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