Attached files
file | filename |
---|---|
8-K/A - FORM 8-K/A - Grand China Energy Group Ltd | form8ka.htm |
EX-99.6 - CONFLICT OF INTERESTS POLICY - Grand China Energy Group Ltd | exhibit99-6.htm |
EX-99.3 - AUDITED FINANCIAL STATEMENTS - Grand China Energy Group Ltd | exhibit99-3.htm |
EX-99.1 - AUDITED FINANCIAL STATEMENTS - Grand China Energy Group Ltd | exhibit99-1.htm |
EX-99.5 - PRO FORMA FINANCIAL STATEMENTS - Grand China Energy Group Ltd | exhibit99-5.htm |
EX-10.2 - LOAN AGREEMENTS - Grand China Energy Group Ltd | exhibit10-2.htm |
EX-10.1 - LOAN AGREEMENTS - Grand China Energy Group Ltd | exhibit10-1.htm |
EX-99.4 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Grand China Energy Group Ltd | exhibit99-4.htm |
YONGDING SHANGZHAI COAL MINE CO., LTD
FINANCIAL
STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
AND FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
(Stated in US Dollars)
YONGDING SHANGZHAI COAL MINE CO., LTD
INDEX TO
FINANCIAL STATEMENTS
CONTENTS
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Yongding
Shangzhai Coal Mine Co., Ltd
We have audited the accompanying balance sheets of Yongding Shangzhai Coal Mine Co., Ltd (the "Company") as of June 30, 2010, December 31, 2009 and 2008, and the statements of income and comprehensive income, shareholders equity and cash flows for the six months ended June 30, 2010 and 2009 and the years ended December 31, 2009 and 2008. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2010, December 31, 2009 and 2008, and the results of its operations and its cash flows for the six months ended June 30, 2010 and 2009, and for the years ended December 31, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.
Parker Randall CF (H.K.) CPA Limited
Certified Public
Accountants,
Hong Kong
April 12, 2011
3
YONGDING SHANGZHAI COAL MINE CO., LTD |
BALANCE SHEETS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND, |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
Notes | June 30, 2010 | December 31, | December 31, | |||||||||
2009 | 2008 | |||||||||||
ASSETS | $ | $ | $ | |||||||||
Current assets | ||||||||||||
Cash | 635,358 | 395,733 | 87,678 | |||||||||
Other receivables | 3 | 265,657 | 384,988 | 147,571 | ||||||||
Prepaid expenses | 4 | 732,284 | - | - | ||||||||
Total current assets | 1,633,299 | 780,721 | 235,249 | |||||||||
Non-current assets | ||||||||||||
Property, Plant and Equipment, net | 5 | 11,288,163 | 11,299,206 | 13,771,177 | ||||||||
Intangible asset, net | 6 | 382,151 | 412,182 | 475,973 | ||||||||
Total non-current assets | 11,670,314 | 11,711,388 | 14,247,150 | |||||||||
TOTAL ASSETS | 13,303,613 | 12,492,109 | 14,482,399 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Other payables and accrued liabilities | 7 | 2,191,876 | 2,146,897 | 1,737,921 | ||||||||
Due to a director | 9 | 1,064,660 | 1,468,908 | - | ||||||||
Total current liabilities | 3,256,536 | 3,615,805 | 1,737,921 | |||||||||
Non-current liabilities | ||||||||||||
Long-term borrowings | 8 | 6,775,785 | 7,532,538 | 10,378,615 | ||||||||
Due to a director | 9 | - | - | 2,883,856 | ||||||||
Total non -current liabilities | 6,775,785 | 7,532,538 | 13,262,471 | |||||||||
TOTAL LIABILITIES | 10,032,321 | 11,148,343 | 15,000,392 | |||||||||
STOCKHOLDERS EQUITY | ||||||||||||
Paid-in capital | 123,913 | 123,913 | 123,913 | |||||||||
Reserve | 73,191 | 73,191 | - | |||||||||
Retained earnings | 3,097,227 | 1,182,962 | (605,188 | ) | ||||||||
Effect of foreign currency translation | (23,039 | ) | (36,300 | ) | (36,718 | ) | ||||||
TOTAL STOCKHOLDERS EQUITY | 3,271,292 | 1,343,766 | (517,993 | ) | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 13,303,613 | 12,492,109 | 14,482,399 |
See accompanying notes to the financial statement
4
YONGDING SHANGZHAI COAL MINE CO., LTD |
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 AND, |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
Notes | 6 months ended | 6 months ended | Years ended | Years ended | |||||||||||
June 30, 2010 | June 30, 2009 | December 31, 2009 | December 31, 2008 | ||||||||||||
$ | $ | $ | $ | ||||||||||||
Sales | 6,345,124 | 6,469,933 | 15,483,419 | 3,192,369 | |||||||||||
Less: Sales Tax | 23,767 | 31,990 | 73,670 | 16,707 | |||||||||||
Net sales | 6,321,357 | 6,437,943 | 15,409,749 | 3,175,662 | |||||||||||
Cost of sales | (3,417,584 | ) | (4,186,289 | ) | (9,171,294 | ) | (1,744,633 | ) | |||||||
Gross profit | 2,903,773 | 2,251,654 | 6,238,455 | 1,431,029 | |||||||||||
Selling expenses | (563 | ) | (758 | ) | (1,746 | ) | (648 | ) | |||||||
Administrative expenses | (617,467 | ) | (496,937 | ) | (1,305,289 | ) | (900,322 | ) | |||||||
Depreciation and amortization | (56,784 | ) | (43,382 | ) | (91,816 | ) | (28,134 | ) | |||||||
Profit from operations | 2,228,959 | 1,710,577 | 4,839,604 | 501,925 | |||||||||||
Other non-operating expenses | (20,721 | ) | (2,493,684 | ) | (2,679,816 | ) | (4,739 | ) | |||||||
Other income | 39,802 | 65,297 | 397,727 | 15,348 | |||||||||||
Interest expense | (271,824 | ) | (253,759 | ) | (504,143 | ) | (536,593 | ) | |||||||
Income before tax | 1,976,216 | (971,569 | ) | 2,053,372 | (24,059 | ) | |||||||||
Income tax | 10 | (61,951 | ) | (83,385 | ) | (192,031 | ) | (43,548 | ) | ||||||
Net income | 1,914,265 | (1,054,954 | ) | 1,861,341 | (67,607 | ) | |||||||||
Other comprehensive income | |||||||||||||||
- Effects of foreign currency conversion | 13,261 | (412 | ) | 418 | (31,156 | ) | |||||||||
Comprehensive income | 1,927,526 | (1,055,366 | ) | 1,861,759 | (98,763 | ) |
See accompanying notes to the financial statements
5
YONGDING SHANGZHAI COAL MINE CO., LTD |
STATEMENTS OF SHAREHOLDERS EQUITY |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 AND, |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
Accumulated | |||||||||||||||
other | |||||||||||||||
Paid-in | Retained | comprehensive | |||||||||||||
capital | Reserve | earnings | income | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Balance at December 31, 2007 | 123,913 | - | (537,581 | ) | (5,562 | ) | (419,230 | ) | |||||||
Net income for the year | - | - | (67,607 | ) | - | (67,607 | ) | ||||||||
Foreign currency translation adjustment | - | - | - | (31,156 | ) | (31,156 | ) | ||||||||
Balance at December 31, 2008 | 123,913 | - | (605,188 | ) | (36,718 | ) | (517,993 | ) | |||||||
Net income for the period | - | - | (1,054,954 | ) | - | (1,054,954 | ) | ||||||||
Foreign currency translation adjustment | - | - | - | (412 | ) | (412 | ) | ||||||||
Balance at June 30, 2009 | 123,913 | - | (1,660,142 | ) | (37,130 | ) | (1,573,359 | ) | |||||||
Net income for the period | - | - | 2,916,295 | - | 2,916,295 | ||||||||||
Appropriation to statutory reserves | - | 73,191 | (73,191 | ) | - | - | |||||||||
Foreign currency translation adjustment | - | - | - | 830 | 830 | ||||||||||
Balance at December 31, 2009 | 123,913 | 73,191 | 1,182,962 | (36,300 | ) | 1,343,766 | |||||||||
Net income for the period | - | - | 1,914,265 | - | 1,914,265 | ||||||||||
Foreign currency translation adjustment | - | - | - | 13,261 | 13,261 | ||||||||||
Balance at June 30, 2010 | 123,913 | 73,191 | 3,097,227 | (23,039 | ) | 3,271,292 |
See accompanying notes to the financial statements
6
YONGDING SHANGZHAI COAL MINE CO., LTD |
STATEMENTS OF CASH FLOWS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 AND, |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
6 months | 6 months | Year ended | Year ended | |||||||||
ended June | ended June | December | December | |||||||||
30, 2010 | 30, 2009 | 31, 2009 | 31, 2008 | |||||||||
$ | $ | $ | $ | |||||||||
Cash Flows from Operating Activities | ||||||||||||
Net income | 1,914,265 | (1,054,954 | ) | 1,861,341 | (67,607 | ) | ||||||
Provided by operating activities: | ||||||||||||
Depreciation and amortization | 437,353 | 468,416 | 891,008 | 331,466 | ||||||||
loss on retirement of fixed assets | - | 2,488,343 | 2,673,302 | - | ||||||||
Changes in assets and liabilities: | ||||||||||||
Other receivables | (557,346 | ) | (149 | ) | (237,168 | ) | 7,723,980 | |||||
Prepaid expenses | (730,278 | ) | - | - | - | |||||||
Other payables and accrued liabilities | 33,718 | 447,922 | 407,185 | 199,756 | ||||||||
Net cash provided by operating activities | 1,097,712 | 2,349,578 | 5,595,668 | 8,187,595 | ||||||||
Cash Flows from Investing Activities | ||||||||||||
Purchase of property and equipment | (332,241 | ) | (504,244 | ) | (1,119,195 | ) | (9,909,630 | ) | ||||
Proceeds from disposal of property and equipment | - | - | 102,805 | - | ||||||||
Net cash used in investing activities | (332,241 | ) | (504,244 | ) | (1,016,390 | ) | (9,909,630 | ) | ||||
Cash flows from financing activities | ||||||||||||
Cash receipts from amounts borrowed | 2,702,088 | 731,716 | 731,916 | 2,163,125 | ||||||||
Cash repayments of amounts borrowed | (3,230,757 | ) | (2,004,903 | ) | (5,003,367 | ) | (777,979 | ) | ||||
Net cash provided by/(used in) financing activities | (528,669 | ) | (1,273,187 | ) | (4,271,451 | ) | 1,385,146 | |||||
Effect of foreign currency translation on cash and cash equivalents | 2,823 | 149 | 228 | 16,479 | ||||||||
Net increase in cash and cash equivalents | 239,625 | 572,296 | 308,055 | (320,410 | ) | |||||||
Cash and cash equivalents at beginning of year | 395,733 | 87,678 | 87,678 | 408,088 | ||||||||
Cash and cash equivalents at end of year | 635,358 | 659,974 | 395,733 | 87,678 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for interests | 143,894 | 270,589 | 519,513 | 1,273 | ||||||||
Cash paid for income taxes | 61,951 | 83,385 | 192,031 | 43,548 |
See accompanying notes to the financial statements
7
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES |
The Company was incorporated in the People's Republic of China ("PRC") on August 4, 2005 in Fujian province, with the principle business of coal mining and production.
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) Method of Accounting
The Company
maintains its general ledger and journals with the accrual method accounting for
financial reporting purposes. The financial statements and notes are
representations of management. Accounting policies adopted by the Company
conform to generally accepted accounting principles in the United States of
America and have been consistently applied in the presentation of financial
statements, which are compiled on the accrual basis of accounting.
(b) Basis of Presentation
The Company's financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States of America ("US GAAP").
This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC ("PRC GAAP"), the accounting standards used in the places of their domicile. The accompanying financial statements reflect necessary adjustments not recorded in the books of account of the Company to present them in conformity with US GAAP.
(c) Economic and Political Risks
The
Company's operations are conducted in the PRC. These include risks associated
with, among others, the political, economic and legal environment and foreign
currency exchange. The Company's results may be adversely affected by changes in
the political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion, remittances abroad, and rates and methods of taxation,
among other things.
8
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(d) Use of Estimates
In preparing of the financial
statements in conformity with accounting principles generally accepted in the
United States of America, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the dates of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting periods. These
accounts and estimates include, but are not limited to, the valuation of
accounts receivable, inventories, deferred income taxes and the estimation on
useful lives of plant and machinery. Actual results could differ from those
estimates.
(e) Concentrations of Credit Risk
Financial
instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash and cash equivalents and amounts due from a related
party. The Company places its cash with financial institutions with high-credit
ratings and quality. In addition, the Company conducts periodic reviews of the
related party financial conditions and payment practices.
During the six months ended June 30, 2010, five customers represented 14.2%, 14.1%, 14.0%, 14.0% and 13.8% of the total revenue, respectively. During the year ended December 31, 2009, five customers represented 15.4%, 15.3%, 15.2%, 15.1% and 15.0% of the total revenue, respectively. During the year ended December 31, 2008, five customers represented 17.3%, 14.8%, 14.5%, 13.6% and 13.0% of the total revenue, respectively. The Companys revenue is generated from buyers in mainland China.
(f) Cash and Cash Equivalents
The Company considers
all highly liquid investments with initial maturities of three months or less to
be cash equivalents.
(g) Property, plant and equipment
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. Maintenance,
repairs and betterments, including replacement of minor items, are charged to
expense; major additions to physical properties are capitalized.
9
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(g) Property, plant and equipment(Continued)
Depreciation of property, plant and equipment is calculated to written
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:
Buildings and facilities | 10~20 years |
Machinery | 10 years |
Motor vehicles | 5 years |
Office equipment | 5 years |
(h) Intangible asset
Intangible asset represents the
coal mining right and is recorded at cost less accumulated amortization.
Amortization is provided over the term of the right agreements on a
straight-line basis with the estimated useful lives of 10 years.
(i) Foreign Currency Translation
The Company
maintains its financial statements in the functional currency. The functional
currency of the Company is the Renminbi (RMB). Monetary assets and liabilities
denominated in currencies other than the functional currency are translated into
the functional currency at rates of exchange prevailing at the balance sheet
dates. Transactions denominated in currencies other than the functional currency
are translated into the functional currency at the exchanges rates prevailing at
the dates of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income for the
respective periods.
For financial reporting purposes, the financial statements of the Company which are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders equity.
10
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(i) Foreign Currency Translation(Continued)
2010.6.30 | 2009.6.30 | 2009.12.31 | 2008.12.31 | |||||||||
Period end US$ : RMB exchange rate | 6.7909 | 6.8319 | 6.8282 | 6.8346 | ||||||||
Average periodic US$ : RMB exchange rate | 6.8096 | 6.8333 | 6.8314 | 7.0696 |
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
(j) Revenue Recognition
The Companys 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.
(k) Cost of Revenue
Cost of revenue consists
primarily of labour cost, governmental charges of coal excavation and related
expenses which are directly attributable to coal excavation.
(l) Environmental Remediation Costs
The Company has
accrued costs yearly associated with environmental remediation obligations on
amount stipulated in an environmental recovery agreement signed with the
Ministry of LR. The accruals are settled yearly for actual payment on
environmental remediation costs. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
11
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(m) Income Taxes
The Company utilizes SFAS No. 109,
Accounting for Income Taxes, codified in FASB ASC Topic 740, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Deferred tax assets are
reduced by a valuation allowance to the extent management concludes it is more
likely than not that the assets will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
(n) Comprehensive Income
Comprehensive income is
defined to include all changes in equity except those resulting from investments
by owners and distributions to owners. Among other disclosures, all items that
are required to be recognized under current accounting standards as components
of comprehensive income are required to be reported in a financial statement
that is presented with the same prominence as other financial statements. The
Companys current components of other comprehensive income are the foreign
currency translation adjustment.
12
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(o) Recent Accounting Pronouncements
In April 2008,
the FASB issued FASB Staff Position No. 142-3, DETERMINATION OF THE USEFUL LIFE
OF INTANGIBLE ASSETS (FSP No. 142-3) to improve the consistency between the
useful life of a recognized intangible asset (under SFAS No. 142) and the period
of expected cash flows used to measure the fair value of the intangible asset
(under SFAS No. 141(R)). FSP No. 142-3 amends the factors to be considered when
developing renewal or extension assumptions that are used to estimate an
intangible assets useful life under SFAS No. 142. The guidance in the new staff
position is to be applied prospectively to intangible assets acquired after
December 31, 2008. In addition, FSP No.142-3 increases the disclosure
requirements related to renewal or extension assumptions. The Company does not
believe implementation of FSP No. 142-3 have a material impact on its financial
statements.
In May 2008, the FASB issued statement No. 162, THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This statement is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, the Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.
In April 2009, the FASB issued FSP 157-4, DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY (FSP 157-4). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP 157-4 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP 157-4 requires comparative disclosures only for periods ending after initial adoption. The adoption of the provisions of FSP 157-4 is not anticipated to materially impact on the Companys results of operations or the fair values of its assets and liabilities.
13
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(o) Recent Accounting Pronouncements (Continued)
In
May 2009, the FASB issued FSP SFAS 165 Subsequent Events. The objective of
this Statement is to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 is
effective for the interim and annual periods ending after June 15, 2009, which
is now codified as FASB ASC 855 Subsequent Events. The adoption of FASB ASC
855 did not have a material impact on the Companys financial position, results
of operations and cash flows. Effective February 24, 2010, the Company adopted
Accounting Standards Update (ASU) No. 2010-09, Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements, which removes
the requirement to disclose the date through which subsequent events have been
evaluated. The adoption of the ASU did not have a material impact on the
Companys financial position, results of operations and cash flows.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No 162, which supersedes all existing non-SEC accounting and reporting standards. The codification does not change GAAP but rather organizes it into a new hierarchy with two levels: authoritative and non-authoritative. All authoritative GAAP carries equal weight and is organized in a topical structure. The adoption of SFAS 168 did not have a material impact on the Companys financial position, results of operations and cash flows.
In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value, which is codified as ASC 820, Fair Value Measurements and Disclosures. This Update provides amendments to ASC 820-10, Fair Value Measurements and Disclosures Overall, for the fair value measurement of liabilities. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or that is consistent with the principles of ASC 820. The amendments in this Update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents transfer of the liability.
14
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(o) Recent Accounting Pronouncements (Continued)
The
amendments in this Update clarify that both a quoted price in an active market
for the identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the assets are required are Level 1 fair
value measurements. ASC 820 is effective for the first reporting period
(including interim periods) beginning after August 28, 2009. The amendments of
ASC 820 did not have a material impact on the Companys financial position,
results of operations and cash flows.
In September 2009, the FASB issued ASU No. 2009-06, Income Taxes (Topic 740)Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities, and it provides implementation guidance on accounting for uncertainty in income taxes effective for interim and annual reporting period ending on or after September 15, 2009. The adoption of ASU No. 2009-06 did not have any impact on the Company's financial position, results of operations and cash flows.
In October 2009, the FASB issued ASU No. 2009-13 Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. The ASU is effective beginning January 1, 2011. While the Company does not believe this Update will have a material impact, it is currently evaluating the impact of this update on the Company's financial statements.
15
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
3. |
OTHER RECEIVABLES |
Other receivables mainly consist of loans to third parties, which are interest free, unsecured and repayable on demand.
4. |
PREPAID EXPENSES |
Prepaid expenses mainly consist of construction fee advance to third-party contractors, which will be transferred to construction in progress once the material arrived or expenses occurred.
5. |
PROPERTY, PLANT AND EQUIPMENT |
The following is a summary of property, plant and equipment:
June 30, 2010 | December 31, 2009 | December 31, 2008 | |||||||
$ | $ | $ | |||||||
Cost | |||||||||
Buildings and facilities | 8,233,506 | 8,081,950 | 10,496,635 | ||||||
Machineries | 4,156,901 | 4,020,200 | 3,925,108 | ||||||
Motor vehicles | 95,631 | 95,110 | - | ||||||
Office equipments | 4,879 | 3,907 | - | ||||||
Construction in progress | 110,420 | - | - | ||||||
Total | 12,601,337 | 12,201,167 | 14,421,743 | ||||||
Accumulated depreciation | (1,313,174 | ) | (901,961 | ) | (650,566 | ) | |||
Property, plant and equipment, net | 11,288,163 | 11,299,206 | 13,771,177 |
Depreciation expenses for the six months ended June 30, 2010 and the years ended December 31, 2009 and 2008 were $405,147, $826,801 and $269,422, respectively.
16
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
6. |
INTANGIBLE ASSET |
The following is a summary of intangible asset:
June 30, 2010 | December 31, 2009 | December 31, 2008 | |||||||
$ | $ | $ | |||||||
Cost | |||||||||
Coal mining right | 645,893 | 642,365 | 641,764 | ||||||
Accumulated Amortization | (263,742 | ) | (230,183 | ) | (165,791 | ) | |||
Intangible asset, net | 382,151 | 412,182 | 475,973 |
On April 6, 2006, the Company applied to the Fujian Ministry of Land and Resources PRC (Ministry of LR), for the underground coal mining right in Shangzhai Village, Yongding Town, Fujian Province, southwestern of China, covering an area of around 5,741.3 square metres. The mine is accessible by both railway and public roads. At the end of 2006, total remained coal resources were estimated by the Huaxia Institute to be 5.535 million tons within the valid mining permit and the remained mineable coal reserve was estimated to be 3.098 million tons. At the end of 2009, total remaining coal reserve was estimated by Wardrop Engineering Inc. to be 1.354 million tons, including proven reserve 416K tons and Probable reserve 938K tons with 15-year mine life. The existing mining licence area is estimated to contain about 621K tons of measured resources, 1.4 million tonnes of indicated resource and 1.6 million tons of inferred resources. The proposed expansion licence area is estimated to contain about 3.1 million tons of measured resources, 9.3 million tons of indicated resources and 32.5 million tons of inferred resources.
As of December 28, 2006, the governmental reply from Fujian Economic and Trade Committee stated the retain reserve of the mine is 6.32 million tons and the legally producible reserve for the Company is 3.59 million tons, with the annual capacity of 90K tons for 26.6 years.
The total consideration for the coal mining right is RMB4.39 million by installment for the available period from April, 2006 to April 2016. The Company can apply for the extension on coal mining right 30 days before the maturity. The price is determined by the local mining bureau from which the Company acquired its mining rights, based in part on market price set by the Ministry of LR. As of June 30, 2010 and December 31, 2009 and 2008, the balances of coal mining right payable for the Company were $412,316, $410,064 and $512,100. See additional disclosure in Note 7, OTHER PAYABLES. The Company has obtained the Safe Production Certificate from November 10, 2008 to December 14, 2011 and Coal Production Certificate from December 18, 2008 to December 1, 2031.
17
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
6. |
INTANGIBLE ASSET(Continued) |
Amortization expenses were approximately $32,207, $64,207 and $62,044 for the 6 months ended June 30, 2010 and the years ended December 31, 2009 and 2008, respectively.
7. |
OTHER PAYABLES |
The following is a summary of other payables and accrued liabilities:
June 30, | December 31, | December 31, | |||||||
2010 | 2009 | 2008 | |||||||
$ | $ | $ | |||||||
Interest payable | 926,716 | 794,072 | 819,665 | ||||||
Coal mining right payable | 412,316 | 410,064 | 512,100 | ||||||
Environmental protection and Safety payable | 302,825 | 313,396 | 222,770 | ||||||
Salary and welfare payable | 200,181 | 88,768 | - | ||||||
Construction fee payable | 168,830 | 390,908 | 81,374 | ||||||
Accrued audit and consultant fee | 75,678 | 86,886 | 39,744 | ||||||
Other payable | 105,330 | 62,803 | 62,268 | ||||||
2,191,876 | 2,146,897 | 1,737,921 |
As of December 27, 2010, the Company applied for the postponed payment of the coal mining right within the available period. As of January 12, 2011, the Company had received the approved certificate from the Fujian Ministry of LR.
8. |
LONG -TERM BORROWINGS |
The following is a summary of Long-term borowings:
June 30, | December 31, | December 31, | |||||||
2010 | 2009 | 2008 | |||||||
$ | $ | $ | |||||||
Loans from personal bearing interest at 1.5% per month, unsecured | 1,325,303 | 2,562,901 | 2,662,922 | ||||||
Loans from personal with no interest, unsecured | 5,450,482 | 4,969,637 | 7,715,693 | ||||||
6,775,785 | 7,532,538 | 10,378,615 | |||||||
Less: Current portion | - | - | - | ||||||
Long-term borrowings | 6,775,785 | 7,532,538 | 10,378,615 |
The long-term borrowings were obtained from Mr. Chen Yongle and Lin Longwen, a third party to the Company and all the borrowings had been extended as of July 1, 2010. See additional disclosure in Note 14, SUBSEQUENT EVENT.
18
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
9. |
Due to a director |
The amount due to a director was mainly obtained from Mr. Shi Qingdong by RMB23,560,000 from September 2007 to July 1, 2010. The loan is interest free, unsecured and repayable on demand.
10. |
INCOME TAX |
According to the local tax law in Yongding Town, Fujian Province, PRC, the income tax of coal industry is calculated by weight of exploitation, claiming $0.8(RMB5.5) per ton since March 31, 2008.
11. |
RELATED PARTY TRANSACTIONS |
Apart from the transactions and balances disclosed elsewhere in the financial statements, the Company had no material transactions with its related parties during the periods presented.
12. |
SEGMENT INFORMATION |
No segment information is disclosed as the Company is engaged in the sales of coal. The nature of the products, the type of their customers and their distribution methods are substantially similar. The Company operates in a single segment in the PRC. SFAS 131, codified in FASB ASC Topic 280, has no effect on the Companys financial statements as substantially all of its operations are conducted in one industry segment - coal mining.
13. |
ENVIRONMENTAL CONCERN |
The Company obtained the eight commercial seams, numbered 3, 5, 7, 9, 23, 24, 28 and 28#, located in the coal mine zone in Shangzhai village, Fujian Province with no water on the earths surface and the residential area is far from the coal mine zone. As of November 25, 2009, the Ministry of LR signed the environmental recovery agreement with the Company for the management of environmental recovery of the coal mine in time, with the deposit by RMB3.86 million. As of 6 months ended 30 June 2010 and 2009 and the years ended December 31, 2009 and 2008, the amounts of environmental protection fee for the Company was $70,260, $84,020, $168,085 and $162,422.
19
YONGDING SHANGZHAI COAL MINE LTD |
NOTES TO THE FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Stated in US Dollars) |
14. |
SUBSEQUENT EVENT |
Share capital transfer
As of November 1, 2010, Mr. Lin Chuanzheng, Mr. Lin Wensi and
Mr. Shi Qingdong, the shareholders of the Company have signed the share capital
transfer agreement with Dragon International Resources Group Co, Limited
(Dragon International), a company registered in Hong Kong, for the total
equity interest transfer by 50%, 25% and 25%. As of December 20, 2010, the
Company has been approved for the change as foreign investment company in RPC
with the same aggregate investment, registered capital and paid-in capital by
RMB1 million. Upon the acquisition capital received from Dragon International in
acquiring the equity interest of the Company as of February 21, 2011, the
Company has became a wholly-owned foreign investment subsidiary of Dragon
International.
Long-term borrowings
As of July 1, 2010, Mr. Chen Yongle signed the agreement to
extend all the loans lending period from July 1, 2010 to July 30, 2013, target
at all the remaining borrowings lent to the Company and bearing a new interest
rate at 2.5% per month. As of July 1, 2010, the long-term borrowings obtained
from Mr. Chen Yongle was $7,657,306, including the remaining balance brought
forward from June 30, 2010 by $5,689,037 and a new borrowing started from July
1, 2010 by $1,968,269.
20