Attached files
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EX-31.1 - CERTIFICATION - Grand China Energy Group Ltd | f10q0614ex31i_grandchina.htm |
EX-32 - CERTIFICATION - Grand China Energy Group Ltd | f10q0614ex32_grandchina.htm |
EX-31.2 - CERTIFICATION - Grand China Energy Group Ltd | f10q0614ex31ii_grandchina.htm |
EXCEL - IDEA: XBRL DOCUMENT - Grand China Energy Group Ltd | Financial_Report.xls |
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 | ||
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
Room
1601, 16/F, China Taiping Tower Phase II,
8 Sunning Road, Causeway Bay
Hong Kong
(Address of principal executive offices) (zip code)
(852)
3691-8831
(Registrant’s telephone number, including area code)
SGB
INTERNATIONAL HOLDINGS, INC.
(Former name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ 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 shell company (as defined in Rule 12b-2 of the Exchange Act).
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.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☒ |
(Do not check if a smaller reporting company) |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
373,793,578 shares of common stock outstanding as of August 18, 2014.
GRAND
CHINA ENERGY GROUP LIMITED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30,
2014
Table of Contents
Page | ||
Number | ||
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 | 21 |
ITEM 4. | Controls and Procedures | 21 |
PART II. OTHER INFORMATION | ||
ITEM 1. | Legal Proceedings | 22 |
ITEM 1A. | Risk Factors | 22 |
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
ITEM 3. | Defaults Upon Senior Securities | 22 |
ITEM 4. | Mine Safety Disclosures | 22 |
ITEM 5. | Other Information | 23 |
ITEM 6. | Exhibits | 23 |
SIGNATURES | 24 |
2 |
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.
3 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRAND CHINA ENERGY GROUP LTD
(FORMERLY KNOWN AS “SGB INTERNATIONAL
HOLDINGS INC.”)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2014
4 |
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 | December 31 | |||||||||||
2014 | 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 | 22,590 | 1,793 | |||||||||
Receivables | 6 | 626,613 | 330,799 | |||||||||
Total Current Assets | 649,203 | 332,592 | ||||||||||
Total Assets | 883,808 | 332,592 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIENCY) | ||||||||||||
Current Liabilities | ||||||||||||
Account payable and accrued liabilities | 7 | 686,319 | 286,372 | |||||||||
Amounts due to a related party | 8 | 12,191 | 12,212 | |||||||||
Income tax payable | 130,700 | 20,000 | ||||||||||
Loan payable – current | 9 | 59,763 | 56,340 | |||||||||
Total Current Liabilities | 888,973 | 374,924 | ||||||||||
Total Liabilities | 888,973 | 374,924 | ||||||||||
Stockholders’ Equity (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 | (9,310,870 | ) | (9,347,096 | ) | ||||||||
Accumulated other comprehensive income | (32,839 | ) | (33,780 | ) | ||||||||
Total Stockholders’ Equity/(Deficiency) | (5,165 | ) | (42,332 | ) | ||||||||
Total Liabilities and Stockholders’ Equity/(Deficiency) | 883,808 | 332,592 |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
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 | 2013 (restated) | 2014 | 2013 (restated) | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue | 580,000 | - | 1,078,015 | - | ||||||||||||
Cost of revenue | (456,180 | ) | - | (719,680 | ) | - | ||||||||||
Gross profit | 123,820 | - | 358,335 | - | ||||||||||||
Selling expenses | (66,234 | ) | - | (66,234 | ) | (632 | ) | |||||||||
Depreciation & Amortization | (3,856 | ) | - | (3,856 | ) | - | ||||||||||
General and administrative | (55,870 | ) | (94,581 | ) | (143,156 | ) | (127,671 | ) | ||||||||
Total operating expenses | (125,960 | ) | (94,581 | ) | (213,246 | ) | (128,303 | ) | ||||||||
Net income(loss) from operations | (2,140 | ) | (94,581 | ) | 145,089 | (128,303 | ) | |||||||||
Other items: | ||||||||||||||||
Interest expense | (1,730 | ) | (3,458 | ) | - | |||||||||||
Exchange gain | 1,187 | 5,295 | - | |||||||||||||
(543 | ) | - | 1,837 | - | ||||||||||||
Income(loss) before tax | (2,683 | ) | (94,581 | ) | 146,926 | (128,303 | ) | |||||||||
Income tax expense | (58,000 | ) | (110,700 | ) | - | |||||||||||
Net income(loss) from continuing operations; | (60,683 | ) | (94,581 | ) | 36,226 | (128,303 | ) | |||||||||
Net income from discontinued operations | - | (368,887 | ) | - | (258,606 | ) | ||||||||||
Net income(loss) for the period | (60,683 | ) | (463,468 | ) | 36,226 | (386,909 | ) | |||||||||
Foreign currency translation adjustment | (5,758 | ) | 182,822 | 941 | 232,169 | |||||||||||
Comprehensive income(loss) | (66,441 | ) | (280,646 | ) | 37,167 | (154,740 | ) | |||||||||
Earnings Per Share (cents) | ||||||||||||||||
– Basic and diluted | (0.02 | ) | (0.12 | ) | 0.01 | (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
6 |
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 | 2013 | |||||||
Cash flows from operating activities | $ | $ | ||||||
Net income for the period –continuing and discontinued operations: | 36,226 | (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 | (295,938 | ) | (22,902 | ) | ||||
Prepaid expenses, deposit and other receivables | - | 88,136 | ||||||
Accounts payable , accrued liabilities and income tax payables | 511,658 | (551,680 | ) | |||||
Inventory | - | (184,480 | ) | |||||
Net cash used in operating activities | 259,260 | 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 | 20,799 | (159,479 | ) | |||||
Effect of exchange rate changes on cash | (2 | ) | (21,210 | ) | ||||
Cash and cash equivalents – beginning of period | 1,793 | 440,308 | ||||||
Cash and cash equivalents – end of period | 22,590 | 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
7 |
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 be | Contributed | Additional Paid-in | Retained
earnings (Accumulated | Accumulated other comprehensive | Total
Stockholders’ 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 income for the period | - | - | - | - | - | - | 36,226 | - | 36,226 | |||||||||||||||||||||||||||
Currency translation | - | - | - | - | - | - | - | 941 | 941 | |||||||||||||||||||||||||||
Balance at March 31, 2014 | 373,793,578 | 9,138,544 | - | 100,000 | 100,000 | - | (9,310,870 | ) | (32,839 | ) | (5,165 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
8 |
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, 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 June 30, 2014 and December 31, 2013, the Company had stockholders’ deficit of $5,165 and $42,332 respectively. As at June 30, 2014 and December 31, 2013, the Company had working capital deficiency of $239,770 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.
9 |
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 | ) |
10 |
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 | 20,800 | - | ||||||
Cash denominated in Canadian Dollars | 1,790 | 1,793 | ||||||
Total | 22,590 | 1,793 |
6 RECEIVABLES
June 30, | December 31, | |||||||
2014 | 2013 | |||||||
$ | $ | |||||||
Trades receivable (i) (ii) | 198,600 | - | ||||||
Receivable from disposal of subsidiaries(ii) | 134,733 | 129,509 | ||||||
Others (ii) | 293,280 | 201,290 | ||||||
626,613 | 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. |
11 |
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 | 457,157 | 22,019 | ||||||
Other payable | 194,587 | 194,853 | ||||||
686,319 | 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 | - | - |
12 |
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.
13 |
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 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 | ) |
14 |
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 | ) |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the six months ended June 30, 2014, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2013 included in our Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2014 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K. Aside from certain information as of December 31, 2013, all amounts herein are unaudited. Unless the context otherwise indicates, references to “SGB,” “we,” “our,” “us” and the “Company” refer to GRAND CHINA ENERGY GROUP LIMITED (former name: SGB International Holdings Inc.) and its subsidiaries on a consolidated basis.
Forward-Looking Statements
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” of our most recent Form 10-K.
Foreign Private Issuer Status
We are a foreign private issuer as defined under Rule 3b-4 promulgated under the Exchange Act, but voluntarily file our periodic reports on U.S. domestic forms Form 10-K, Form 10-Q, and Form 8-K.
As a foreign private issuer, we are not required to use U.S. domestic company forms such as Form 10-K, Form 10-K or Form 8-K to comply with our reporting requirements under Section 13 of the Exchange Act. Instead, we can file an annual report on Form 20-F each year with the Securities and Exchange Commission and furnish our interim financial statements and management’s discussion and analysis and reports about material changes to our Company, in the forms required by Canadian securities legislation, with the Securities and Exchange Commission on Form 6-K.
We have elected to voluntarily file our annual, quarterly, and current reports on U.S. domestic company forms and, we intend to continue to comply with our reporting requirements under Section 13 of the Exchange Act using the U.S. domestic company forms.
Corporate Overview
We were incorporated in the province of British Columbia, Canada under the name “Slocan Valley Minerals Ltd.” on November 6, 1997 with an authorized share capital of 10,000,000 common shares without par value. Following our incorporation we were not actively engaged in any business activities.
On June 1, 2004 we increased our authorized share capital from 10,000,000 common shares without par value to an unlimited number of common shares without par value. On June 11, 2004 we changed our name to “Orca International Language Schools Inc.”
Effective March 3, 2009, we changed our name from “Orca International Language Schools Inc.” to “SGB International Holdings Inc.” and we created a new class of preferred stock. As a result, our authorized capital consists of an unlimited amount of common shares without par value and an unlimited amount of preferred shares without par value. We have not issued any preferred shares.
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On May 11, 2011, we completed a reverse acquisition transaction with Dragon International Resources Group Co., Limited (the “Dragon International”), the shareholders of Dragon International, and the subsidiary of Dragon International, Fujian Huilong Coal Mine Co., Ltd. (formerly Yongding Shangzhai Coal Mine Co., Ltd.) (“Fujian Huilong”), pursuant to which we acquired 100% of the issued and outstanding capital stock of Dragon International in exchange for an aggregate of 220,522,000 common shares of our company, which constituted 90% of our issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the reverse acquisition.
Prior to the date of our reverse acquisition, we were considered as a “shell company” under the Rule 405 promulgated under the Securities Act of 1933 and Rule 12b-2 promulgated under the Securities Exchange Act of 1934 because we had nominal operations and nominal assets.
Dragon International was incorporated in the Hong Kong on October 5, 2010, and is a holding company for Fujian Huilong. Fujian Huilong was incorporated in the People’s Republic of China on August 4, 2005.
On December 19, 2013, the Company sold its 100% equity interest in Dragon International and its wholly owned subsidiary Fujian Huilong to an independent third party at a cash consideration of US$129,509 equal to HKD 1,000,000.
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.
Our Business
Prior to our reverse acquisition of Dragon International, our goal originally was to provide management services to schools in the international education industry. We searched for a school as the initial client but we were not successful in finding any client. Because we incurred losses since November 6, 1997, in March 2009 our board of directors decided to explore the possibility of adopting a different business plan.
As a result of the above described reverse acquisition, we have assumed the business and operations of Fujian Huilong, a wholly-owned subsidiary of Dragon International. Fujian Huilong is engaged in coal production and sales by exploring, developing and mining 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.
After the sale of 100% equity interest in Dragon International and Fujian Huilong on December 19, 2013, the Company is looking for new mining area to develop. Before the new area is developed to manufacture coal for the clients, the Company remains its operation by buying coal from external market to serve the existing clients. The Company derives its revenues from sales of coal to 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 continuous 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 county, it is expected that the supply and demand of coal in the domestic markets will generally remain in a relaxed trend and coal price will fluctuate at a low level.
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Revenue Recognition
After disposing the Dragon International and Fujian Huilong on December 19, 2013, the company continues its sales activities for their existing clients through the sourcing network. The current revenue is generated from the same source of coal sales activities with the existing clients same as before the disposal of the Dragon International and Fuijian Huilong.
For three months ended June 30, 2014 and 2013
30-Jun-14 | 30-Jun-13 | |||||||
$ | $ | |||||||
Revenue | 580,000 | - | ||||||
Revenue from discontinued activities | - | 3,361,934 | ||||||
Total | 580,000 | 3,361,934 | ||||||
Cost of sales | 456,180 | - | ||||||
Cost of sales from discontinued activities | - | 2,495,178 | ||||||
Total | 456,180 | 2,495,178 | ||||||
Gross Profit | 123,820 | - | ||||||
Operating Expenses | 125,960 | 502,767 |
For six months ended June 30, 2014 and 2013
30-Jun-14 | 30-Jun-13 | |||||||
$ | $ | |||||||
Revenue | 1,078,015 | - | ||||||
Revenue from discontinued activities | - | 5,234,484 | ||||||
Total | 1,078,015 | 5,234,484 | ||||||
Cost of sales | 719,680 | - | ||||||
Cost of sales from discontinued activities | - | 3,860,394 | ||||||
Total | 719,680 | 3,860,394 | ||||||
Gross Profit | 358,335 | - | ||||||
Operating Expenses | 213,246 | 950,688 |
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Results of Operations
For the three months ended June 30, 2014 and 2013
The following table sets forth the consolidated results of our operations for our Company in the three months ended June 30, 2014 (“2014 Q2”) and June 30, 2013 (“2013 Q2”):
2014 Q2 | 2013 Q2 | |||||||||||||||
$ | % of Sales | $ | % of Sales | |||||||||||||
Revenues | 580,000 | 100 | % | 3,361,934 | 100 | % | ||||||||||
Cost of sales | 456,180 | 79 | % | 2,495,178 | 74 | % | ||||||||||
Gross profit | 123,820 | 21 | % | 866,756 | 26 | % | ||||||||||
Operating expenses | 125,960 | 22 | % | 502,767 | 15 | % | ||||||||||
Profit (loss) from operations | (2,140 | ) | -0 | % | 363,989 | 10 | % | |||||||||
Other expenses and income tax | (58,000 | ) | 10 | % | 827,457 | 25 | % | |||||||||
Net (loss) income | (60,683 | ) | N/M | (463,468 | ) | N/M |
Revenues
Our revenues are derived from the sales of coal. The overall revenue decreased by 2,781,934 or 83% from $3.36 million in 2013
Q2 to $0.58 million in 2014 Q2, principally due to the restructuring the company after disposal of Dragon International and Fujian
Huilong on December 19, 2013.
Cost
of Sales and Gross Profit
Our cost of sales decreased by $2,038,998 or 82% from $2.50 million in 2013 Q2 to $0.46 million in 2014 Q2. Gross profit margin
dropped by 26% to 21% was mainly due to the restructure of the business model from coal mining to coal trading.
Operating Expenses
Our
operating expenses decreased by $376,807 or 74% from $0.50 million in 2013 Q2 to $0.12 million in 2014 Q2.
Net ( Loss) Income
As a result of the above, our net loss decreased by $0.40 million from $0.46 million in 2013 Q2 to $0.06 million in 2014 Q2.
For the six months ended June 30, 2014 and 2013
The following table sets forth the consolidated results of our operations for our Company in the six months ended June 30, 2014 (“2014 Q2”) and June 30, 2013 (“2013 Q2”):
2014 Q2 | 2013 Q2 | |||||||||||||||
$ | % of Sales | $ | % of Sales | |||||||||||||
Revenues | 1,078,015 | 100 | % | 5,234,484 | 100 | % | ||||||||||
Cost of sales | 719,680 | 67 | % | 3,860,394 | 74 | % | ||||||||||
Gross profit | 358,335 | 33 | % | 1,374,090 | 26 | % | ||||||||||
Operating expenses | 213,246 | 22 | % | 920,688 | 18 | % | ||||||||||
Profit (loss) from operations | 145,089 | 20 | % | 453,402 | 9 | % | ||||||||||
Other expenses and income tax | (110,700 | ) | -10 | % | 840,311 | 16 | % | |||||||||
Net (loss) income | (36,226 | ) | N/M | (386,909 | ) | N/M |
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Revenues
Our revenues are derived from the sales of coal. The overall revenue decreased by 4,156,469 or 79% from $5.23 million in 2013
Q2 to $1.07 million in 2014 Q2, principally due to the restructuring the company after disposal of Dragon International and Fujian
Huilong on December 19, 2013.
Cost
of Sales and Gross Profit
Our cost of sales decreased by $3,140,714 or 82% from $3.86 million in 2013 Q2 to $0.72 million in 2014 Q2. Gross profit margin
raised by 26% to 33% was mainly due to the restructure of the business model from coal mining to coal trading.
Operating Expenses
Our operating
expenses decreased by $707,442 or 74% from $0.92 million in 2013 Q2 to $0.21 million in 2014 Q2.
Net ( Loss) Income
As a result of the above, our net loss decreased by $0.35 million from $0.38 million in 2013 Q2 to $0.03 million in 2014 Q2.
Liquidity
and Capital Resources
Working Capital as at June 30, 2014 and December 31, 2013
June 30, 2014 | December 31, 2013 | |||||||
Cash | $ | 22,590 | $ | 1,793 | ||||
Current Assets | $ | 649,203 | $ | 332,592 | ||||
Current Liabilities | $ | 888,973 | $ | 374,924 | ||||
Working Capital | $ | (239,770 | ) | $ | (42,332 | ) |
Current asset increased by $316,611 or 95% from $332,592 as at December 31,2013 to $649,203 as at June 30, 2014, principally due to the increase of the trade receivable arise from the normal operations.
Current
liabilities increased by $514,049 or 137% from $374,924 as at December 31, 2013 to $888,973 as at June 30,2014, mainly due to
the increase of accrual liabilities.
As a result of the above, working capital decreased to net loss $239,770 as at June 30,2014 from the net loss $42,332 as at December.
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Cash Flows
For the three months ended June 30, 2014 and 2013 respectively:
The following summarizes cash provided by or used in each of the indicated types of activities during the three months ended June 30, 2014 and 2013:
2014 Q2 $ | 2013 Q2 $ | |||||||
Net cash generated from operating activities | $ | 259,260 | $ | 528,540 | ||||
Net cash used in investing activities | $ | (238,461 | ) | $ | (3,468,364 | ) | ||
Net cash generated from financing activities | $ | - | $ | 2,780,345 | ||||
Cash and cash equivalents at end of period | $ | 22,590 | $ | 259,619 |
The net
cash inflow from operating activities decreased by $269,279 or 49% compared to $528,540 in 2013 Q2.
The cash used in investing activities was decreased from the $3,468,364 in 2013 Q2 to $238,416 in 2014 Q2.
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 4T. 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.
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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.
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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 | |
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 is furnished and not filed.
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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: August 18, 2014 |
By: | /s/ Peifeng Huang | |
Peifeng Huang Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) Date: August 18, 2014 |
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