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Form 10-K NORTH AMERICAN GAMING & ENTERTAINMENT CORP - NAGM Filed: April 16, 2010 (period: December 31, 2009) Annual report filed by small businesses |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark10-K
(Mark One)
[X]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008
2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________________ to _________________
Commission file number 0-5474
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
---------------------------------------------------
(Name
(Name of small business issuer in its charter)
Delaware 75-2571032
------------------------------- -------------------
(State
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Seventeen Floor, Xinhui Mansion, Gaoxin Road,
Hi-Tech Zone, Xi'An P. R. China 710075
-----------------------------------------------------
(Address
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (86) 29-88331685
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. Yes [ ] No [X]
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or
(or for such shorter period that the issuer was required to file such
reports),and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained herein, and none will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ]No [X]
The issuer's revenues for its most recent fiscal year were: $-0-.
$1,097,872.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer, based on the average bid and asked price of such stock, was
$242,161
$484,321 at December 31, 2008.
2009and the number of voting series C preferred stock
issued was 500,000.
At December 31, 2008,2009, the registrant had outstanding 24,216,058 shares of par
value $.01 common stock.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes ___ No X
FOR FISCAL YEAR ENDED DECEMBER 31, 2008
FORM 10-KSB ANNUAL REPORT
INDEX
PART I
Item 1. DESCRIPTION OF BUSINESS 1
Item 2. DESCRIPTION OF PROPERTY 19
Item 3. LEGAL PROCEEDINGS 20
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
PART II
Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES 21
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 21
Item 7. FINANCIAL STATEMENTS 29
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 30
Item 8A(T). CONTROLS AND PROCEDURES 31
Item 8B. OTHER INFORMATION 32
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 33
Item 10. EXECUTIVE COMPENSATION 34
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS 36
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 38
Item 13. EXHIBITS 40
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 41
SIGNATURES 43
FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
FOR FISCAL YEAR ENDED DECEMBER 31, 2009
FORM 10-KSB ANNUAL REPORT
INDEX
PART I
Item 1.
DESCRIPTION OF BUSINESS
1
Item 2.
DESCRIPTION OF PROPERTY
15
Item 3.
LEGAL PROCEEDINGS
16
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
17
PART II
Item 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY 17
Item 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
17
Item 7.
FINANCIAL STATEMENTS
22
Item 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
32
Item 8A(T).
CONTROLS AND PROCEDURES
32
Item 8B.
OTHER INFORMATION
32
PART III
Item 9.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
33
Item 10.
EXECUTIVE COMPENSATION
33
Item 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 35
Item 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
36
Item 13.
EXIBIT
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
36
SIGNATURES
36
PART I
ITEM 1.DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS
GENERAL
North American Gaming and Entertainment Corporation ("North American") was
incorporated under the laws of the State of Delaware in 1969. The Company
changed its name from Western Natural Gas Company to North American Gaming and
Entertainment Corporation on October 17, 1994 in connection with its merger
with OM Investors, Inc. Until August 20, 2001, the Company was engaged in the
video gaming business through its partial ownership of three operating
companies that operated video poker machines located in truck stops inLouisiana.in
Louisiana. Effective August 20, 2001, the Company sold all of the Company's
interest in the three operating companies. The Company did not liquidate as a
result of the sale of its assets but began to seek business and acquisition
opportunities, leading to the Transactions. Effective February 4, 2008, we
acquired a controlling interest in Shaanxi Chang Jiang Si You Neng Yuan Fa Zhang
Gu Feng You Xian Gong Si ("Chang Jiang"), a China corporation, in exchange for
a controlling interest in the Company.
Since our acquisition of Chang Jiang our primary business activity is
exploration and we expect to begin mining, processing and distributing gold,
zinc, and lead in 2009. Currently all of our business is in the Shaanxi
Province, China . We have engaged in exploration and expect to begin to
operate mines in the Qinba Mountain Area at a geologic junction of "Shan, Zha,
Zhen, Xun", which are the four primary metallogenic prospective areas in the
Shaanxi Province. This region has historically contained reserves of high-grade
minerals of gold, lead and zinc. As this has traditionally been a mining area,
we believe we can meet our requirements for experienced miners and general
labor teams at an attractive cost.
Chang Jiang was incorporated in the name of Weinan Industrial and Commercial
Company Limited as a limited liability company in the PRC on March 19, 1999.The1999.
The Company became a joint stock company in January 2006 with its business
activities as an investment holding company and development of theme park in
Xi'An, PRC. Beginning in August 2005, Chang Jiang contributed $7,928,532 by
injection of certain land use rights in lieu of cash to the registered capital
of Shaanxi Huanghe Wetland Park Company Limited ("Huanghe"), representing
92.93% of the equity of Huanghe. 1
Later this interest was swapped for a 20% interest in Dongfeng Mining.
The Company also leases a portion of the land to Huanghe Wet Land Park Co. Ltd which is substantively occupied for the development and operation of a theme park. The Huanghe Wet Land Park Co. Ltd is a related company. Rental income was derived from this lease of $1,097,872 (rmb 7,500,000) for the year ended December 31, 2009, which represents all of the revenues of the Company for the year ended December 31, 2009. The said lease only cover the 2009, The lease payment will be completed in 2010.
Shaanxi Changjiang Mining & New Energy Co., Ltd. (Changjiang) holds Land use right on 5,706,666.67㎡(57,066.67acre) of the land in Huanghe Nantan,Heyang County, Shaanxi province. Land use right certification No.Heyang State owned(2006) 3240001.
After the first-stage construction of Biopark Projectcompleted and puts into operation in May, another lease for 2010 and afterwaod with price, duration will be fixed by both parties according to the lease marketing and the actual land using square.
The company did not owed the Huanghe Wet Land Park Co. Ltd, and also had no equity relationship with Huanghe, the
Leasing of Land use right is the only business with Huanghe.
In 2007 Chang Jiang engaged in a series of acquisitions, divestitures and
exchanges that reorganized the company so that its operations are now
principally mining lead, zinc and gold in an 67.82 sq. km area in Jiao Shan
Zhai, Guo Jia Ling, Xunyang County, in the Shaanxi Province of China. The
transactions and history of the Company is as follows.
On February 5, 2007, Chang Jiang entered into an agreement with a third party
to acquire 40% of the equity interest in Dongfang Mining Company Limited
("
("Dongfang Mining") at a consideration of $3,117,267 payable in cash. Dongfang
Mining has engaged in exploration for lead, zinc and gold mining near the city
of Xi'An in the Shaanxi Province of the, PRC.
On March 22, 2007, Chang Jiang entered into an agreement with a related party
of the Company to exchange its 92.93% interest in Huanghe for 20% equity
interest in Dongfang Mining owned by the related party.
On August 15, 2007, 97.2% of the stockholders of Chang Jiang entered into a
definitive agreement with Tai Ping Yang and the stockholders of Tai Ping Yang
in which they disposed their ownership in Chang Jiang to Tai Ping Yang for 98%
of ownership in Tai Ping Yang and cash of $1,328,940 payable on or before
December 31, 2007.
Hongkong Wah Bon Enterprise Limited ("Wah Bon") was incorporated in Hong Kong
on July 7, 2006 as an investment holding company and wholly owned foreign
enterprise ("WOFE".) On September 2, 2007, Wah Bon acquired 100% ownership of
Tai Ping Yang at a consideration of $128,205 in cash.
As a result of these various transactions, the resulting company as of 31/12/2008 2009
is as follows:
a.
Wah Bon owns 100% of Tai Ping Yang;
b.
Tai Ping Yang owns 97.2% of Chang Jiang; and
c.
Chang Jiang owns 60% of Dongfang Mining.
The members have limited liability for the obligations or debts of the entity.
The resulting corporate structure is diagrammed below:
--------------------
Wah Bon
--------------------
/ 100%
/
--------------------
Tai Ping Yang
--------------------
/ 97.2%
/
-------------------- --------------------
Weinan Industrial ___________ Changjing
Commercial Co. Name Change Petroleum
-------------------- --------------------
/ / 60%
/ /
Vent Out/ /
----------------- --------------------
Huanghe ______________ DongFang
Weland Share Exchange
In addttion, the sharelders of NAGM set up a new Company, name China Changjiang Mining ----------------- --------------------
2
& New energy Co.Ltd (China Chiangjiang),
in the State of Nevada on September 19, 2008.China Changjiang shall be mergerred with NAGM,and replace the name of “NAGM”
in the future. There is no asset or liability for China Changjiang so far.
1 |Page
On February 4, 2008, we completed the Exchange pursuant to the Plan of Exchange
(the
(the "Exchange"), by and among us, Chang Jiang, and the Chang Jiang
Shareholders. Under the Agreement, the Wah Bon shareholders received 500,000
shares of Series C Convertible Preferred Stock. The shares of Series C
Preferred Stock each carry the right to 1,218 votes per share and will be
convertible into common stock at a rate sufficient to yield an aggregate of 609
Million pre-split common shares upon conversion, as set forth in the
Certificate of Designations.
To comply with requirements of Chinese law (referred to as "WOFE"), we
established the acquisition of Wah Bon and Tai Ping Yang to serve as offshore
foreign entities for the purpose of consummating the acquisition. In the
opinion of our Chinese counsel this permits the transfer of at least 97.2%
shares of Chang Jiang to the first WOFE entity (Tai Ping Yang), then 100%
shares of Tai Ping Yang to the second WOFE entity (Wah Bon.) Then 100% of the
shares of Wah Bon can be conveyed to NAGM, indirectly making Chang Jiang a
foreign entity. For purposes of the acquisition, all of Chang Jiang's rights,
responsibilities and benefits are assigned to and assumed by Wah Bon. This
procedure requires several stages of governmental approval by provincial
authorities in the PRC. As of the Closing Date all required approvals had been
obtained.
North American, Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining are
hereafter referred to as (the "Company").
On September 19, 2008, the Company reincorporated to the state of Nevada under the name “China Changjiang Mining and New Energy Company, Ltd.” The Company authorized 100,000,000 shares at a par value of $0.001 in anticipation of the 10 for 1 reverse split following the conversion of its Series C Preferred stock, which shall yield a net fully diluted amount of 60,900,000 new common shares. In December, 2009 an application was made on behalf of the Company to FINRA for approval of corporate changes, including the corporate name, the symbol, the recapitalization of the reverse split and the conversion of the Series C Preferred Shares. The Company has received two letters of comment from FINRA, to which it has responded, but the corporate changes have not yet been approved as of this filing.
Sales and Marketing
Although we have not yet begun to extract minerals from the property we have
established a sales and marketing department. These persons have focused on
identifying and establishing relationships with Companies that are likely to
require our products. Lead and zinc can be freely sold and marketed throughout
the PRC. As China remains a net importer of these metals, we believe a customer
base exists within China.
Mining Industry
General
Our primary business activity is anticipated to be mining, processing and
distributing gold, zinc, lead, and other mineral products for which China's
modernizing economy has experienced rapid growth in its manufacturing capacity.
Despite high rankings in world production of nonferrous metals, China is still
a net importer of nonferrous metals including lead and zinc. China's natural
resources include coal, iron ore, petroleum, natural gas, mercury, tin,
tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead,
zinc, and uranium. There are governmental restrictions on foreign ownership of
mines for gold and an outright ban on foreign ownership of mines for uranium.
We believe the increasing industrial capacity of China will continue to cause
increased demand for industrial raw materials such as non-ferrous metals. We
expect the price of zinc and lead will rebound in the near future, and continue
to increase although prices may experience significant fluctuation.
Mineral Deposits
Dongfang
Mining obtainedarea:Guo Jia Ling---Jiao Shan Zhai mining area is located in eastern Xunyang county, under the exploration rightsjurisdiction of Gouyuan villiage, Guankou town and Shuhe town. It covers an area of 61.27 square kilometres. Its length from east to west is 15.4 kilometers, and its width from south to north is 2.3 kilometers.
The mineral deposits within this area are mainly including: Si Ren Gou, Da Ni Gou, Huo Shao Gou, Guan Zi Gou, Nan Sha Gou, Xiao Shui He mineral deposit.
Traffic condition: the mining area is 19.5 kilometers far away from the county town. The Xiang-yu Railway and 316 State Highway along the Hanjing pass through the southern side of this area. In addition, Xunyang—Shuhe—Xiaohe North Ring Road passes through the southern side and eastern margin. We have simply-built highway within our working area which is closely linked with 316 State Highway. Accordingly, the transportation here is convenient.
Industry within the area: There are cash crops such as yellow ginger, pepper, cured tobacoo,etc, abundant water resources electric power resources and labour resources, as well as various crop varieties, which isfavourable to develop the economies with distinct characteristics.
Previous working situation within mining area:
From Fifties to the Dongfang Parcel on Sep.
19th, 2003. Inbeginning of Eighties, Shaanxi Regional Geological Survey Team, Geology & Mineral Bureau, the same year, they finished 1/10,000first geological rough survey,
geochemical profile surveyteam and trenchother exploration on lead & zincunits have successively carried out a lot of exploration work in this area. The results and gold minesmaterials achieved have been used for fundamental material in Dong Er Gou, Xunyang County withincompany’s mining and development. Since the area of 1.15 sq.km. by consigning mid- Eighties,the first geological team of Shaanxi Provincial Geology and& Mineral Bureau have begun to conduct the geophysical prospecting and geochemical prospecting in this area. By this way, they have found the distribution of Shaanxi. Lead &various minerals such as lead, zinc mineralization clues had been found and efforts began to evaluate
reconnaissancegold, and prospecting.
During 2005-2006,have fixed distribution characteristics of tens of lead-zinc ore body, which provide the company dug a prospecting hole with a spatial depth of
more than 60 meters and a test trench with 240m3direction for company’s prospecting.
Especially in the regionmid- Eighties, the first geological team of Jiao Shan
Zhai,Shaanxi Provincial Geology & Mineral Bureau have conducted the general investigation for Si Ren Gou—Nan Sha Gou area and discovered five gold mine veins, each with a length of over 30
meters. Analyzed on the mineral information obtained, there are still
relatively large gold deposits in this mining area. At the end of August 2007,
threehave found:
Si Ren Gou: 19 lead and zinc ore bodies. They have ascertained 186,600 tons of lead-zinc metal D+E reserves, and 4,235,500 tons of mineral reserves in total. These ore bodies are shown in the -200 meters below in this mining area, and a goldthe general zinc grade is 1.56%——3.80%.
Lan Tan Gou: 5 lead-zinc ore bodies, the grade of zinc is 2.75%——11.60%, the grade of lead is 0.00——7.27%. These ore bodies are shown in 400 meters elevation below in this mining area.
Huo Shao Gou: 5 lead-zinc ore bodies, the grade of zinc is 4.65%——9.51%, the grade of lead is 2.32——6.04% accompanied by 5——70g/t silver. They have ascertained 44,400 tons of lead-zinc metal 333+334 resources, and 300,000 tons of mineral reserves in total. These ore bodies are shown in 500 meters elevation below in this mining area.
There are more ore bodies found in Guan Zi Gou. The K4—K8 ore body was preliminarily proven up,
as indicated in the exploration information200 meters below in deep part are the main mineral deposit in this area. They have ascertained 180,000 tons of lead-zinc metal 333+334 resources, and 2,540,000 tons of mineral reserves in total. These ore bodies are shown in 100 meters elevation ablve in this mining area.
They have found three ore bodies in Nan Sha Gou, that is K1、K2、K4. The grade of zinc is 9.99%——11.59%, the geological team.
Atgrade of lead is 1.70——5.96%. The mining elevation is 300 meters above in sea level. They have ascertained 290,000 tons of lead-zinc metal 333+334 resources, and 2,330,000 tons of mineral reserves in total. These ore bodies are shown in 0 meter elevation in this mining area.
Until the end of 2008, the company finished the round survey ofhas found 15 gold ore bodies within the
total area of .6.8 sq.km. And Began the particular survey on Feb 2009 by
signing agreement with the No.1 exploration team of the geologic and mining
exploration bureau of Shaanxi Province During the year,three valuable gold
mines,located in the Jiao shan zhai have been indentified. The design of the
particular survey on these 3 gold mines has been prepared and the company
commenced the gold lode exploration before the year end.
The Company were on the rough survey stage on the zinc and lead in 2008. In Wei
jia shan, Jiao shan zhai, and Shun jia he, where the rough survey had
finished, 5 valuable Zinc and lead mines had identified to further survey. In
other location within the Area, survey route had been identified and general
forecast had been concluded.
The mining area covered by the Dongfang Parcel can be divided into three areas.
Gold deposits are known in the area and management has estimated gold reserves
at about 3-5 tons. Total reserves of lead and zinc ore in this region is 3-5
million tons, whose average grade is 8-15% and some even can reach as high as
45% based on the geologic studies
According to the report of May 16,2008, compiled by the No.1 exploration team
of the geologic and mining exploration bureau of Shaanxi Province. the gold mine in Jiao shan zhaiShan Zhai and 7 gold mineralized bodies. According to the investigation on thickness and grade of K1、K2、K3 ore bodies, we speculated that the gold metal resources we can reachobtain is 1150.64 kilogram, and its value will be$33,700,000(230,000,000 RMB). The speculated lead-zinc resources in deep part of Si Ren Gou and Lan Tan Gou is100, 000 tons, the speculated lead-zinc resources in Huo Shao Gou—Guan Zi Gou and Xiao Shui He—Nan Sha Gou is both 100,000 tons. In addition, the speculated resources in exploration area is 300,000 tons, and its potential value of RMB 230,000,000 with the latest
unit price of RMB 200 per gram.is$ 702,000,000(4,800,000,000 RMB). The potential value of gold, lead-zinc resources in the zincmining area is over$ 730,000,000(5,000,000,000 RMB).
All of these miners will be the guarantee of generating benefit and lead
withinbasis of building the area can reach
RMB 4,800,000,000 with the latest unit price of 16,000 per ton.
As a result, the total potential valueenergy base of the mines can reach RMB
5,000,000,000.
3
company.
Nonferrous Metals - Zinc
Lead and zinc resources are relatively abundant around the world. There is no
deposit only of zinc under natural conditions, and ordinarily zinc exists with
metals such as lead, copper, or gold, in the form of polymetallic ore. China's
mining sector has experienced strong growth since 2001. Investment in miningexplorationmining
exploration totaled 316.2 billion yuan (42.6 billion U.S. dollars) in the first
nine months of 2007 according to Wang Min, Vice Minister of Land and Resources.
At the China Mining Conference 2007 (sponsored by China's Ministry of Land and
Resources), it was reported that China's mining output doubled to $190 Billion
for the period 2000-2005. Iron ore production increased 38% to 406 Million tons
and nonferrous metals increased 18% during that period. Nonetheless, China is
still a net importer of lead and zinc.
Zinc is a soft metal used to makes brass when mixed with Copper. Zinc is used
in the automotive and construction industries to galvanize steel, create metal
alloys and in certain chemical processes. Research is being conducted in the
area of zinc-air batteries.
According to the NONFERROUS METALS OUTLOOK, YEAR 2007 published by the
Department of Natural Resources for the Canada Ministry of Public Works,
deficits have occurred in each of the past five years for concentrate.
Stockpiles have fallen and prices have risen as a result. In September 2006
China eliminated its 5% export rebate on refined lead and zinc in September,
resulting in increased costs for metal exported from China. Chinese exports had
increased 16% in 2006 from the same ten months period in 2005.
On August 1, 2008, China eliminated the 5% export tax rebate on #0 zinc, which
decreases the export of zinc, increases the provide and ultimately worsen the market.
4
2 |Page
In 2007 China ranked 1st in the world both in zinc and lead production. The zinc
output in China reached 3.72 million tons in 2007. increasing 17.8% compared to
that of 2006 Calculated by the data in 2007, zinc output in China took up about
32.55% of the total global output
Worldwide zinc usage has increased from approximately 6.1 Million tons in 1985
to 11 Million tons in 2005. But only slightly increased to 11.4 million in 2007, and
11.75 million tons in 2008.Refers to the report of institute, CHR, the demand of zinc
in 2010 may slightly decrease to 11.1 million tons.
The recession of zinc partly because of the financial crisis, partly came from the
immoderate Development in the past several year. And the recession was considered the
natural adjustment Of the industry. In the long run ,the demand increase will recover.
Actually, the price of zinc has increase in a large range during 2009.
Average settlement prices for high grade zinc are listed below.
LONDON METAL EXCHANGE FOR HIGH GRADE ZINC (ANNUAL AVERAGE SETTLEMENT PRICES
2004 $1047.83
2005 $1381.55
2006 $3275.00
2007 $3250.00
$3250.00
2008 $1925.00
(US
$1925.00
2009
$2596.00
(US DOLLARS PER TON)
The 3 months zinc closing price of London metal exchange in March 12, 2009 was
only April 4, 2010 has reached
$ 1,2152,400 per ton, decreasing 46%8%, comparing that of 2008.
2009.
The bid/ask price for 15 months zinc the London Metals Exchange on May 17,
2009 April 4, 2010
was $1,320$2,438 for bid and $1,325$2,433 for ask. Source -– London Metal Exchange
There are 433 above-surface mine enterprises in China, distributing in 24
provinces, cities and autonomous regions all over the country, including 37
enterprises whose respective annual output of zinc concentrate is more than 10
thousand tons and the total output of which takes up 45% of the nation's total.
In the first half of year 2008, zinc concentrate output of China was 1,430,700 tons
and zinc output was 1,920,200 tons, increasing 6.11% and 21.13% respectively compared
to those of 2007.
5
In 2009, the price of zinc in China increase rapidaly. The range of increase rank the top 3 amongNonferrous Metals.
We expected that the price of zinc shall go up for 2010, because the demand of zince increase
In the world, especially in USA and Europ and the economic are recovering from the 2008
Financial crisis.
Lead
Lead is the heaviest common metal known for malleability. Lead is resistant to
corrosion and used for protection against harmful X-Rays and radiation.
According to the Nonferrous Metals Outlook published by the Department of
Natural Resources for the Canada Ministry of Public Works, 75 % of the world's
demand for lead is for lead acid batteries for use in the automobile,
industrial and consumer sectors. It is also used to attenuate radiation from
radioactive sources and to provide corrosive resistant finishes to roofing.
World lead usage has increased from 4 Million Tons in 1985 to 5 1/2 Million
Tons in 2001. The forecasts are for increased usage up to approximately 6
Million tons. Usage slowed slightly from 1999 to 2004 as lawsuits in the U. S.
over lead based paints and emissions forced closures and damages. Exide, a U.S.U.
S. lead acid battery producer, was forced into bankruptcy and the Lead
Industries Association in the U. S. ceased its operations. Both cited the
lawsuits as the primary factor.
In 2007 China ranked the first in the production of lead with the total output
Of 2,757,400 tons which accounted for 34% of the global output.Theoutput. The Worldwide demand
is expected to be stable in the future several years.
In the first half of 2008, the lead output of China reached 1,453,500 ton,
slightly increasing 7.42% comparing those of 2007.
The average closing prices for lead on the London Metals exchange are as
follows:
LONDON METAL EXCHANGE FOR LEAD
2006
2007
2008
$1,355 $2,375 $2,175
(ANNUAL
2009
$2,375
$2,175
$2,595
(ANNUAL AVERAGE SETTLEMENT PRICES, (US DOLLARS PER TON)
Though the average settlement prices in 20082009 still stayed above $ 2,000 per ton, actually the price at the end of 2008 has lower than $1,000, and fluctuate between $950 and $ 1,300 during the first quarter of 2009. The settlement price is $1,230 at marchMarch 12,2009.
The bid/ask price for 15 months lead on the London Metals Exchange on May 17,
2009 April 4, 2010
was $1,312$2,228 for bid and $1,317$2,223 for ask. Source - london Metal Exchange.
6
As the tele industry is still booming in the future 10 year, the demand of lead shall be push up, but the supply of lead can not catch the demand, which may support the
price in the future 3 year.
Gold
In 2008, the gross industrial output value realized by gold enterprises over
the country was 282 ton, with a growth of 4.26% compared to the same period
of last year; and the gross production had growed for 2005,2006 and 2007, with
the grow rate of 5.51%,7.15% and 12.67%.
Gold is the rare metal, which makes it impossible to fluctuate much higher or lower
in supply. The market forcasts the slight increase of supply in the near future.
It is estimated that gold consumption in China will increase from previous 200
tons per year to 400-500 tons over the next several years, which may influence
the international gold market price to a certain extent.
Despite the recession of the global economy in 2008, the gold price increased from $833
$833 per ounce in the beginning year to $880 per ounce at year end, with the higest
Price of $1,032 per ounce. Going with the economy depression, more and more investors
choose the gold as the priority.
More and more investor consider the gold as a stable investment in the inflation.
The demand is expected to be further increase.
In 2009, the price of gold continue to increase, reache $1,096 per ounce, abount 25%
Increase comparing that of 2008. the price still keep slightly increase in the 1 quarter
Of 2010.
LONDON METAL EXCHANGE FOR GOLD
2004 2005 2006
2007
2008
$435 $513 $632 $833 $880
2009
$833
$880
$1096
Competition
Our competitors in the nonferrous metals markets are expected to be local and
regional mining enterprise. Other companies in China that mine lead and zinc
include Dongshengmiao Mining Industry Co, Ltd, Wancheng Trading & Mining
Co., Ltd., Xinjiang Wuqia Tianzhen Mining Co., Ltd., and Wulatehouqi Qingshan
Nonferrous Metal Development Co., Ltd. These competitors have more experience
in the operation of mines and mining activities and have superior financial
resources than we do. China is still a net importer of lead and zinc along with
the markets for many other non-ferrous metals. Since supply in general cannot
meet demand we do not expect that we will have difficulty selling our
ore for the near future. The gold market on a worldwide basis has seen large
increases in demand since 2001, resulting in more than threefold increase in
prices per ounce, from $435 in 2004 to $872 in 2008, according to the London
Metals Exchange.ChinaExchange. China has traditionally protected its metallurgy industry
with high tariffs,import quotas and restrictions on foreign ownership.
These tariffs and import quotas were adopted to provide protections to
companies such as ours that were part of the domestic industry in China.
Due to WTO membership, China will lower tariffs, eliminate import quotas and
permit more foreign competition, resulting in reduced protection for Chinese
companies against foreign competitors. To maintain its WTO membership, China
must gradually reduce these tariffs and quotas and commitments and permit
foreign enterprises opportunities to sell and distribute in China. Eventually
they will be eliminated altogether. This is expected to increase the effect
of foreign competition and the importation of foreign products. We are unable
to predict the effect these changes may have on our business, earnings,
financial condition or the value of our properties and securities.
7
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Government Regulation
We are subject to strict regulations imposed on mining companies in China.
Regulations are issued or implemented by the Ministry of Land and Resources, a
division of the China State Council, and similar land use offices at the local
level. These regulations cover virtually all aspects of exploration and mining
of natural resources in China.
Chinese mining companies must obtain two separate permits from the land
resource divisions of the Provincial government. The first permit must be
obtained before a mining enterprise can conduct exploring activities. The
Company has obtained this license. The regulations also require a second mining
license for extraction activities. We have obtained the first license for zinc,
lead and gold.Togold. To maintain the licenses the Company must follow prescribed
procedures in its exploring or mining activities. During the period of obtaining
mining license,we can also gain the revenues from the sales of ores deriving from
exploration. Mining license will guarantee for our extraction activities.
On Dec. 31, 2009,The Ministry of Land and Resources Ministry issues a notice” to futher regulate the
management of theexploration right”. It regulates and fixed a more high level on entry
conditions for the Mineral resources exploration which makes a more detailed requirements
for the newly approval, continuation, Merger, division, transfer and application of mining
upgrades. It requires to establish the public exploration right trading market to avoid the
self-dealing to protect the benefit of the Lawful holders. Based on this requirement, the
company will complete the valid applications of the lawful rights and interests to get the
approval.
It is hard to predict the length of time to get the mining license,. Though it is the third year that we are in the process of obtaining the
License, we are confident of getting the license in these years because we are now performing the detail survey.
Chinese regulations governing Work Safety require that we have a safety
certification. These are administered by the Administration of Work Safety
before it can engage in either mining or extracting activities. All of our
operating subsidiaries have obtained appropriate safety certification from the
Administration of Work Safety of local governments. We also have been granted
environmental certification from China Bureau of Environmental Protection.
Regulations governing the mining business in China include:
Exploration and Mining Regulation (1958), amended to allow foreign
investment in 1996;
Exploration and Mining and Transfer of Rights Regulation (1998);
as well as numerous regulations governing safety by the China Mine Safety Law
and environmental feasibility studies required by China Environmental Law.
The Chinese legal system is still developing and there is often confusion and
uncertainty about the scope, interpretation and enforcement of its laws and
regulations. The mining industry has been under scrutiny for its safety and
environmental record and we cannot predict whether new laws or changes in
interpretation and scope of existing laws may adversely affect our intended
operations.
The Company has applied for excavation licenses in area for gold zinc and lead
mining within the land use area. The geographical locations for these sites are:
Eastern longitude: 109* 26' 30'' - 109* 38' 30''
Northern latitude: 32* 55' 45'' - 33 * 01 ' 00 ''
We expect to make application for the final required permits of gold by and expect to
obtain final approval during 2009.this year. Upon approval, we will have the right to
mine the specified areas. We expect to apply for additional
extractionadditionalmining licenses
within the land use area that have yielded positive results upon the conclusion
of the exploration.
Summary of the Exploration Works in the Dongfang Mining
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4 |Page
Geological Survey
The company commissioned a geological report from the First Geological Research
Team of Shaanxi Geological and Mineral Department. A report dated October 26,
2007 was obtained that showed favorable results in several areas of the land
use area. The report is summarized as follows:
1, Summary of the Geological Survey Report by the First Geological Research
Team of Shaanxi Geological and Mineral Department dated January 13, 2008.
GEOLOGICAL CHARACTERISTICS OF THE MINING AREA
a. Stratum
The surveyed area is mainly composed of metamorphic rock formed in
middle-to-upper Silurian period and lower Devonian period. Most of the
rocks are phyllite, sandstone, calcirudite rock, lime and dolomite.
b. Structure
The surveyed area is situated in the northern margin of the draped belt
formed by Baishui River and Bai River. The frame of the structure is
composed by Tizi Rock-Shuhe faultage, which extends by an east-west
position. The Nan Yangshan faultage runs through the northern part of
the surveyed area. The main structure consists of on-growing fractures
and draped belts.
CHARACTERISTICS OF ORE / MINERALIZING ORE
Ore -containing layer of lead- zinc ore is explored out through the
stratigraphic identified by 1:10000 Geological Survey. In the fourth
lithologic section of middle Silurian period at Shuanghe town and the
merger layers of upper Silurian period at Shuidong channel, the mining
sections are mainly composed of brown ferruginous sandstone, siltstone
and grey-yellow powder phyllite containing sodium.. According to the
survey, three lead-zinc mines and one gold mine were pitched:
a. Lead zinc mine
Mine KH1 situates at Guan Men Zi Ya-Cai Miao Ya district and it's
1.0-1.5 meters wide, 700 meters long and averagely 0.76 meters thick.
The average grade of mineralization is Pb1.22%, Zn0.67%. Control
Engineering: TC9, TC3, YK1, TC6, TC18. The shape of the area is : 215
o -32 o {angle} 12 o -32 o.
Mine KH2 is shown in the Wang Jia Cao area and its 2.10 meters wide,
100 meters long and averagely2.06 meters thick. The average grade of
mineralization is Pb0.85% Zn0.23%. Control Engineering: CK1. The
shape of the area is: 325 o {angle} 16 o. (Note: Single engineering
control)
Mine KH3 is shown in the Gangou area and its 1-2 meters wide, 100
meters long and averagely1.19 meters thick. The average grade of
mineralization is Pb0.71% Zn0.02%. Control Engineering: D34 sampling
point. The shape of the area is: 350 o {angle} 32 o. (Note: single
engineering control)
b. Gold Mine
Mine KH is shown in the Dong Gou area and its 0.50 meter wide, 100
meters long and averagely 0.50 meter thick. The average grade of
mineralization is Au1.01g / t. Control Engineering: sampling point,
20 meter in the North of D206. The shape of the area is : 340 o
{angle}
{angle} 17 o. (Note: single engineering control)
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5 |Page
THE CHARACTERISTICS OF THE PROPOSED MINES
The study revealed approximately 16 gold minerals, primarily in 4 large
deposits located at areas denoted as K1, K2 ,K3 and K11. Samplings in
others areas are all single engineering control sites:
a. K1
The surface is controlled by six trenching structures. The length
are 360 meters and the thickness is 0.29-4.30 m, with an average
thickness of 1.23 m. Ore body grade is 1.24 - 10.06 g / t ,the average
grade of mineralization is 2.7 g/t and the ore body occurrence is1* -
356 * {angle} 11 * - 50 *.
b. K2
Being controlled by three trenching structures. The length are 130
meters and the thickness is 0.22-0.89 m, with an average thickness of
0.55 m. Ore body grade is 1.29-9.51 g / t. , the average grade is 5.71
g / t and the ore body occurrence is 24 * - 320 * {angle} 9 * - 24 * .
c. K3
Being controlled by two trenching structures. The length are 100
meters and the thickness is 0.43-3.48 m, with an average thickness
of1.96
of 1.96 m. The Ore body grade is 5.10-12.94 g / t , the average grade
is 2.7 g / t and the ore body occurrence is -310 * - 320 * {angle} 20
* - 24 *.
d. K11
Being controlled by 1 trenching engineering and 2 pitting structures.
The length are 100 meters and the thickness is 0.13-1.62 m, with an
average thickness of0.86 m. The average grade is 4.86-7.76 g / t,
and the ore body occurrence is 225 * -255 * {angle} 16 * -24 *
GEOLOGICAL CONDITIONS OF THE ENGINEERING
The roof and floor of the mines in the area mainly consist of sericite
phyllite and sandstone. The fresh bedrock structure is dense. The cracks
and holes show minimal changes, indicating a stable rock layer. This layer
provides a very suitable foundation for excavation. During the course of
construction there may be some small-scale breaks and cracks that need to
be fortified. The transportation system is convenient and the water,
electricity resources are sufficient to meet the construction needs.
ESTIMATION OF RESOURCES
Chang Jiang Shi You Neng Yuan Gong Si currently owns 3 main rich mining
areas with large-scale gold reserves. It is primarily estimated that there
are3-5 tons of gold reserves and there are 300 - 500 million tons of lead-
zinc reserves. The average grade is 8-15%, with some ranging as high as
45%.
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6 |Page
BASIS
The estimation of resources methods and requirements of this exploration
is based on GB/T17766-1999" CLASSIFICATION FOR RESOURCES/RESERVES OF
SOLID FUELS AND MINERAL COMMODITIES " and GB/T13908-2002 " General
requirements for solid mineral exploration" DZ/T0214-2002 " Geological
prospecting criterion for copper, lead, zinc, silver, nickel and
molybdenum ore", "Reference manual of the mineral resource standard "and
combined with the "opinion to the gold ore industry standard in `Shaan Xi
Xun Yang Guo Jia Ling- Jiao Shan Zhai lead, zinc,gold ore exploration'" by
Shaan Dong Kuang Fa*2007*002.to make out the industry standard to Jiao Jin
Shan gold ore exploration.
Cutoff Grade 0.5 g / t
Minimum Industrial Grade 1.2 g / t
The average grade of ore deposit 1.6 g / t
The Minimum Mining Thickness *0.8 M
Thickness of the Interlayer to be Eliminated *2.0 M
When the ore body thickness is smaller than the Minimum Mining Thickness,
using m {multiply} g / t.
RESOURCE ESTIMATION RESULTS
As mines K2 and K11 are relatively small, so we just made resource
estimation to K1 and K3 getting the intrinsic economic resources (334) .The
ore is 69460.43 tons and the metal is 244.31 kg. The ore in K1 is 43639.07
TONS, AND THE metal is103.26 kg; The ore in K3 is 25821.36 TONS, AND THE
metal is 141.05 kg;
MINERALIZATION FORECAST
The exploration area is located in the northern margin of southern
Qinling, Indo- Fold Belt Baishui Jiang- Bai He Fold Belt; the South East
edge of Shan Zha Xun Chen Ji Pen Di. The area mainly exposes the sedimentary
of paleozoic shallow metamorphised clastic rocks and carbonate rocks. Da
Yang Synclinorium, Xun Yang anticline and Nan Yang Shan fault, Da Ling-Shu
He fault form the the backbone of this area. The structure line lies from
east to west. The characteristics of the rocks are easy of deformation and
weak of metamorphism.
1:50000 stream sediment survey and 1:10000 soil measurement fix a 5 km long,
four km wide gold anomalies area around Jiao Yang Shan Zhai about 15 square
kilometres, and the anomaly area is about 0.11-3.15 square kilometers with
abnormal value as high as 2900 PPbin the centrel concentration and 277.1ppb
for an average value.
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7 |Page
Environmental Regulation
Environmental protection laws in China are established on a national basis by
the State Environmental Protection Administration. Provincial and local
authorities can set local regulations which may be more restrictive than the
national standards. Environmental standards govern a variety of matters
including disposal of solid waste, discharge of contaminated water and handling
of gases, and emissions. The local authorities generally monitor and enforce
the regulations, including the assessment and collection of fees, fines and
administrative orders.
We have only been engaged in exploration efforts to date so our environmental
impact has been limited. If we are successful in commencing our extraction
operations, we expect to generate waste water, gases and solid waste. We will
therefore be subject to all national and local regulations governing these
activities.
We will likely require a license for the disposal of water and solid wastes.
Licenses must be renewed annually. We expect to be able to comply with the
regulations including the rules governing water and solid waste disposal.
Research and Development
With the acquisition of Dong Fang we now have land use rightsin 67.82mineral explorationin 61.27 sq.km
parcel located in Xunyang County, Shaanxi Province, PRC. We believe we can use
a portion of the surface of the Dong Fang parcel to grow agricultural products
which would be available for processing.
Employees
As of MarchDecember 31, 2009, we have 16 full-time employees. This includes 2
people in marketing, 1 in manufacturing, 4 in research and development and
quality control, 2 in financial and accounting, and 7 in general management.
A breakdown of employees by subsidiary is below.
RISK FACTORS
Our Company and its securities are subject to significant risks to its
business, operations and financial condition. You should carefully consider the
risks described in this section as well as the remainder of the information in
this report. If we are unable to manage these risks or if any of the risks are
realized, our business, operations, and financial condition and the value of
our stock would likely suffer. In that event our investors and stockholders
could lose all or part of their investment.
RISKS RELATING TO OUR BUSINESS
WE ARE AN EARLY STAGE EXPLORATION COMPANY FACING SIGNIFICANT FINANCIAL AND
OPERATING RISKS.
We operate in two segments: the development of a theme parkreal estate and an exploration
stage mining company that has acquired land use rights and exploration permits
to a tract of land in an area traditionally associated with mining in the
Shaanxi Province of central China. We are currently focused on the mining
segment, determining the degree of mineralization of lead, zinc and gold within
our properties. While we believe that there may be an opportunity to obtain
commercially viable amounts of lead, zinc and gold from our property, we still
face substantial hurdles. The exploration and extraction of mineral deposits
such as lead, zinc and gold incur significant financial risks. The results of
exploratory investigations are not always reliable or accurate even if
conducted in strict compliance with professional guidelines. Furthermore, the
investment must occur over a significant period of time even though the
quantity of minerals within any property is always finite. Many properties are
unable to develop commercially viable mines even with positive exploration
results. Successful extraction depends on very expensive processes such as
drilling, mine construction and establishment of processing facilities. Mines
are also hazardous and only a limited number of qualified, experienced miners
exist. The Company must obtain additional permits and must ramp up operations
after permitting to begin extraction. We are unable to assure you that we will
ultimately be successful in meeting these challenges or, even if so, it will
result in our mining operations becoming a commercial viable or profitable
enterprise.
OUR INDEPENDENT AUDITORS HAVE NOTED THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent auditors have noted that there is substantial doubt that we can
continue as a going concernconcern. Thouth we have generate the rental income in 2009,
and are expecting to receive the cash in 2010 As reflected in the accompanying consolidated
financial statements, the Company has an accumulated deficit during the
exploration stage of $13,352,228$13,366,785 at December 31, 20082009 which includes a net loss
of $1,557,424$104,557 for the year ended December 31, 2007.2009. The Company's current
liabilities exceed its current assets by $7,713,247$7,787,760 and the Company used cash
in operation of $922,059.$531,480. These factors raise substantial doubt about its
ability to continue as a going concern. In view of the matters described
above, recoverability of a major portion of the recorded asset amounts shown in
the accompanying consolidated balance sheet is dependent upon continued
operations of the company, which in turn is dependent upon the Company's
ability to raise additional capital, obtain financing and succeed in its future
operations. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
12
WE
8 |Page
WE HAVE NOT YET OBTAINED ALL OF THE LICENSESEXTRACTION LICENSE NEWLY
REQUIRED BY THE CHINA NATURAL RESOURCES MINISTRYDURING THE
PRIOD OF GAINING THE REVENUE FROM THE CHINESE GOVERNMENT THAT
WE WILL NEED TO EXPLOIT ANY MINERALS ON OUR PROPERTIES.
EXPLORATION
China employs a two stage permitting process for permission to explore and
extract minerals. The first permit allows a mining company to engage in
exploration activities, such as boring exploratory holes, conducting mineral
assays, field testing and so on. The Company's subsidiary, Dongfang Mining,
acquired this license in 2003 and has since engaged in activities to determine
the estimated mineralization of the property and relative cost and process
needed to extract.
extract.
.
The second permit is for exploitation, which permits excavation and sale of
extracted minerals. The Company are ready to apply for the gold exploitation
permit, but has not yet obtained. While government officials have informally
suggested that the permit will be approved, there can be no assurance that the
Company will successfully obtain the required permit. In that event, the value
of our interest in the properties would be seriously impaired and would like
result in a significant loss of value for the Company's assets as well as its
securities. Although the revenues from the exploration would not be absolutely
prevented, the beneficial interest of the company would be obviously impaired.
We have not meet all of the conditions of getting the exploitation permit,the important
Factor of approval is the enough content of zinc, lead or gold. With the help of professional
Instruction from the team 1 of shaanxi geology exploration bureau, we are confident of
geting the permit in these years.
THERE IS NO ASSURANCE THAT OUR PROPERTY WILL CONTAIN SUFFICIENT QUANTITIES OF
COMMERCIALLY MARKETABLE MINERALS FOR US TO BECOME COMMERCIALLY VIABLE OR THAT
WE WILL BE ABLE TO ECONOMICALLY EXTRACT THE MINERALS.
We are an exploration stage Company and have not yet begun the process of
excavating minerals from our property.propertyin scale.. We have engaged in limited investigation
and geologic testing. Based on our preliminary findings, we believe there is
sufficient mineralization to begin a commercially viable mining business. There
can be no assurance however that our exploratory efforts will prove correct or
that a commercially mineable mineralization exists on our property. Even if the
conclusion that a sufficient quantity of minerals exists proves correct, it
still may not be economically feasible to profitably extract the minerals for a
wide variety of reasons, many of which are beyond the Company's ability to
control. Therefore we can offer no assurance that a profitable mining business
will result from our efforts.
WE ARE AN EXPLORATION STAGE COMPANY AND WE HAVE HAD NO REVENUES, A LIMITED OPERATING HISTORY AND A
HISTORY OF OPERATING
LOSSES.
13
The Company was a "shell company" as defined by 2005 amendments to the
Securities Exchange Act. We had no operations and no significant assets and
existed only for the purpose of locating a business or business opportunity
with which to join forces. FINANCIAL LOSSES RESULTED FROM CURRENCY AND EQUITY.
9 |Page
We acquired a Chinese corporationmining company that has begun attempts to the complete operation and revenue in the establish a mine for lead, zinc and gold in February 2008.
The Company, through its subsidiaries, obtained a permit to begin exploratory efforts in 2003 and has not yet commenced actual mining of the land. We intend to commence gold extractions in 2009.this year. We therefore have a very limited
operating
historyexpect to obtain certain revenues in the future upon which to base an evaluation of our business and prospects.
We have had nolimited revenues and do not anticipate significant revenues until the exploitation permits are obtained, the mine infrastructure has been completed and the extraction of minerals has begun. AsThe Company leases a portion of the land to Huanghe Wet Land Park Co. Ltd, a company under the control of the same parent company, which is substantively occupied for the development and operation of a theme park. Rental income was derived from this lease of $1,097,872 (rmb 7,500,000) for the year ended December 31, 2008 and2009, which represents all of the revenues of the Company for the year ended December 31, 2007,2009.
During the years ended December 31, 2009 and 2008, we had an operating lossesprofit (loss) of $1,231,537 $254,963
and $746,461($1,141,537), respectively. Net losses atduring the years ended December 31, 2009 and 2008 were $104,557 and $1,467,426,respectively. During the years ended December 31, 2007 were $1,557,4242009 and $8,959,472, respectively. As of December 31, 2008, and December 31,
2007, we had comprehensive losses of $492,512 $143,508
and $7,788,802,$402,514. respectively.
These losses resulted from our exploration activities and corporate expenses including the amortization of our land use right s which must be amortized over each year of its 50 year life, whether or not exploitation has occurred.
Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of development. There can be no assurance that we will be successful in addressing
such risks and any failure to do so may have a material adverse effect on our business, prospects, financial condition, and results of operations.
There is no assurance that we will be able to successfully complete the
construction of our theme park and the value of our land use right may be
impaired.
The Company operates incompany’s business contains two segments: mining and a proposed theme park businessreal estate. The using of the involved land is in compliance with theLand Use Rights provisions. The company is concentrating their strength and resources on the land that is subjectmining. Due to the impact of financial crisis, the world wide non-ferrous metal industry is in its trough in 2008 and the commodity value raising back slowly .China is a top tourism destination.One of the Eighth Wonder of the World---- terra-cotta warriors is in the province which ourproject lies in. The Yellow River wet land possessed by the company is the “transfer station”forSiberia migratory birds. In or der to make sure that the company owns a good future prospect and can develop the business well, the company participated inthe Yellow River wet land project by shares and the project is in constructionstage.
The Land use rights. Currentlyright has been leased out for the Hechuan ecologic park from the end of 2008 by the Huanghe Wet land park Company.Ltd. As the wet land park is underconstruction during 2009, there is no cash flow for the rental revenue of $ 1,097,872 (rmb7,500,000) in 2009. But the Wet land park is going to open in May 2010, and the Company is
focusing its efforts and resources exclusivelywas promised to be paid the rental in the mining segment. There are
many risks and uncertainties associated with the intended construction of a
theme park such as financing, permitting, contracting, and all of the risks of
a new, start up enterprise. We cannot assure you that we will ever be
successful in developing our intended theme park.
In addition, the Company's largest asset is the net land use rights which was
valued at $17,508,609. If we do not successfully develop the theme park
segment, there is a risk that the value of our land use rights would be
impaired or possibly even forfeited.
There are a significant number of risks associated with operating a theme park
such as risk of injury., any of which would adversely affect revenues.
Theme park operations are subject to a number of factors over which the Company
will have little control. These factors include competition from other area
entertainment sources, weather, local events, civil unrest and others. There is
a risk of injury associated with many attractions at theme parks, which could
give rise to liability. Any of these factors could negatively affect our
revenues and earnings, if we commence theme park operations.
Theme parks have historically been subject to weather and seasonality over
which we have no control.
In the event that we begin operations in the theme park industry, our revenues
will be subject to a variety of caprices, such as inclement weather and
seasonality. The vast majority of theme park patrons attend only in fair
weather. Since we expect to operate only one theme park the risks associated
with inclement weather are not spread over a number of differing geographical
areas. Therefore, we expect that inclement weather will have a significantly
adverse impact our revenues.
14
2010.
DUE TO OUR LIMITED OPERATING HISTORY, WE WILL BE UNABLE TO ACCURATELY FORECAST
MINING REVENUES.
Due to our limited operating history and our planned growth through increased
sales, we are currently unable to accurately forecast our future mining revenues. Our
current and future expense levels are largely based on our investment plans and
estimates of future revenues, which are expected to increase. Revenues and
operating results generally depend on the effectiveness of our marketing
strategies to penetrate the market and the success of our research and
development efforts which are difficult to forecast as we are in a relatively
new company. We may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to our planned expenditures would have an
immediate adverse effect on our business, prospects, financial condition, and
results of operations. Furthermore, as a strategic response to changes in our
competitive environment, we may from time to time make certain pricing or
marketing decisions that could have a material adverse effect on our business,
prospects, financial condition, or results of operations.
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10 |Page
WE WILL NEED ADDITIONAL CAPITAL TO FUND OUR GROWING OPERATIONS, AND WE MAY NOT
BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF
OUR OPERATIONS.
As of December 31, 20082009 and December 31, 2007,2008, we had current assets of
$2,008,108
$1,159,435 and $1,685,789$253,521, respectively. The remainder of our assets consists of
land use rights that are illiquid. As we begin to implement our strategies to
excavate the property and exploit the minerals, we will likely experience cash
flow deficits and increased capital needs that may exceed our available
capital. We may need to fund our future operations with additional funding. Our
capital needs will depend on numerous factors affecting our profitability,
including (i) the time and expense of ramp up of the extraction activities,
(ii) the amount and quality of minerals extracted, (iii) our ability to contain
expenditures, especially for administrative and transportation costs, and (iv)
the amount of our expenditures. We cannot assure you that we will be able to
obtain funding in the future to meet our needs.
We currently have no lines of credit or other arrangements for capital and
cannot provide any assurance that additional funds will be available to us.
Even if we locate available capital, it may be on unfavorable terms. Any future
capital investments could dilute or otherwise materially and adversely affect
the holdings or rights of our existing shareholders.
FLUCTUATION OF THE CHINESE CURRENCY COULD MATERIALLY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
We have not yet commenced mining operations and do not have mining revenues. Since all
of our revenues are expected to be derived and expenses and liabilities
incurred are in China, by exchange rate fluctuations of the Chinese currency
will affect our revenues and operating results. Presently we do not expect to
sell our products outside of China but we could sell to foreign interests as a
result of competitive forces or changes to our business plan.
15
11 |Page
For over a decade the value of the Chinese currency was pegged to the U. S.
Dollar and fluctuations in value were therefore relatively mild. In July 2005,
China abandoned the peg and changed to a floating exchange rate. The new rates
are market based compared to a basket of foreign currencies. These changes
would likely strengthen the RMB as compared to the U. S. Dollar and would
likely make our products more expensive for U. S. and foreign buyers. We cannot
give any assurance that the value of the RMB will continue to remain stable
against the US dollar or any other foreign currency. Accordingly, we may
experience economic losses and negative impacts on earnings and equity as a
result of foreign exchange rate fluctuations. Furthermore, any devaluation of
the RMB may adversely affect the dividends we may pay to our parent, thereby
adversely affecting the value of, and dividends payable on, our common stock.
We expect our revenues to consist almost entirely of Renminbi or "RMB", which
is the Chinese currency. The RMB is currently not a fully convertible currency.
The Chinese government may restrict future access to foreign currencies for
current account transactions. This may make it difficult for us to transfer
money from China to other countries on an economically advantageous basis or
even at all. It may also make it difficult for us to provide a return on the
investment of foreign capital on a liquid basis.
WE MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL REGULATIONS.
We are subject to PRC national and local environmental protection regulations
which currently impose fees for the discharge of waste substances, require the
payment of fines for pollution, and provide for the closure by the PRC
government of any facility that fails to comply with orders requiring us to
cease or improve upon certain activities causing environmental damage. Due to
the nature of our business, we produce significant amounts of waste water, gas,
and solid waste materials during the course of our production. We believe our
environmental protection facilities and systems are adequate for us to comply
with the existing national, provincial, and local environmental protection
regulations. However, PRC national, provincial, or local authorities may impose
additional or more stringent regulations which would require additional
expenditure on environmental matters or changes in our processes or systems.
WE DEPEND ON OUR SENIOR MANAGEMENT AND KEY EMPLOYEES, THE LOSS OF WHICH COULD
ADVERSELY AFFECT OUR OPERATIONS.
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12 |Page
Much of our success will depend to a large degree upon our ability to identify,
hire, and retain additional personnel, particular experienced miners and
persons familiar with the marketing, manufacturing and administrative processes
associated with mining. We depend on the skills of our management team and
current key employees, such as Mr. Chen Wei Dong, our Chairman, President, and
Chief Executive Officer. We may be unable to retain our existing key personnel
or attract and retain additional key personnel.
The loss of any of our key employees or the failure to attract, and retain
experienced miners or additional key employees could have a material adverse
effect on our business and financial condition.
OUR SENIOR MANAGEMENT TEAM DOES NOT HAVE ENOUGH EXPERIENCE IN RUNNING A
PUBLIC COMPANY AND WILL NEED TO PROCURE ASSISTANCE FROM PROFESSIONAL ADVISERS
AND THIRD PARTIES AT ADDITIONAL EXPENSE.
Our management team and current key employees have not been engaged in similar
capacities with other public reporting companies and are not familiar with the
multitude of filings, regulations and requirements applicable to a public
company. We will require the assistance of outside counsel and accountants and
perhaps other third party advisers as well. We have no assurance that we will
successfully find qualified, experienced people to perform these tasks. Even if
successful, the fees and expense for these third parties will be an additional
administrative cost that may not be shared by our competitors. In addition, if
the advice given or work performed by these outside advisers proves to be
inadequate or incorrect, the Company and its management will nonetheless bear
the brunt of the costs and penalties assessed, with limited avenues of redress
against the outside advisers.
RISKS RELATED TO OUR INDUSTRY
RISKS ASSOCIATED WITH MINING.
The Company's operations are subject to all of the hazards and risks normally
incident to the exploration for and development and production of precious
minerals, any of which could result in damage for which the Company may be held
responsible. Many hazards are beyond our control, such as unusual or unexpected
rock formations, bad weather, landslides, cave-ins, high water tables, flooding
or other unfavorable conditions that are unknown until we begin extraction of
minerals. If we experience losses from these or other risks, it may cause
substantial delays and require significant additional expenditures. These
conditions would likely adversely affect the Company's business, financial
condition and the value of our securities.
China has recently experienced a number of serious incidents in its mining
industry that resulted in loss of life and serious personal injury. Some mines
have collapsed or were otherwise forced to close due to unsafe conditions. We
would likely suffer material losses if any of these events were to occur, and
the effect on our business and the price of our securities would be adverse and
maybe irreversible.
16
RISKS ASSOCIATED WITH THE REAL ESTATE INDUSTRY
The Yellow River wet land project—Hechuan ecologic park lies in the Yellow River south beach, Heyang County, Shaanxi Province, China. Hechuan ecologic park contains six main functional areas: rural tourism & leisure resort, agricultural sightseeing demonstration plot,traditional aquaculture area, eco wet land recreation area, wet land aquaculture area and eco wet land protection area.
Our rental income depends on the operation of the them park. And the theme park located in the wild area,whose future income is unpredictable. We can not change the usage of purpose for the land use right because it is limited in the purpose of tourism and crop farming which may increase our risk in the rental income.
13 |Page
MARKET PRICES FOR NON-FERROUS METALS FLUCTUATE AND COULD ADVERSELY AFFECT THE
VALUE OF OUR COMPANY AND OUR SECURITIES.
Market prices for lead, zinc and gold, the metals we primarily intend to mine
experience significant fluctuations in price. We are entering the business at a
time that the prices of lead and zinc are extraordinarily low,going uo again, and just one year
ago the price were still on the extraordinarily highlow level, which means the value
of the lead and zinc shrank 2/3increase 1 time in a year. The profitability of our operations will
be directly related to the prices we will be able to obtain in the marketplace.
The market prices of lead, zinc, gold and non-ferrous metals are subject to factors
beyond our control. These factors include changes in legal and regulatory
requirements, changes in the exchange rates of the Renminbi and other currencies,
worldwide economic recession, political and economic factors and variations in
production costs among a number of other factors. A reduction in the price or demand
for our metals would adversely impact our expected revenues.
THE CHINESE GOVERNMENT OWNS ALL LANDS IN CHINA, AND CHINA ISSUES LAND USE
RIGHTS INSTEAD OF LEGAL TITLE TO THE PROPERTIES. THERE IS NO ASSURANCE THAT OUR
RIGHTS TO THE PROPERTIES WILL NOT BE SUBJECT TO IMPAIRMENT OR LOSS.
Despite modernization efforts in many areas, China still adheres to a communist
scheme for ownership of property that essentially vests title to the entire
country in the Central Government. Rather than deeds or other evidence of
ownership, land use rights are always subject to fixed periods of permitted
land use. These periods are frequently 50 years and may be renewable under some
circumstances. Our land use right is 50 years and is amortized over its life.
We recorded accumulated amortization expense of $2,049,710 and $1,638,232 and
$1,148,124 at
December 31, 2009 and 2008, and 2007 respectively.
Disputes over mining claims are common. A loss of our property rights or mining
rights would likely cause irreversible damage to the Company and the price of
its securities and could result in the loss of the entire value of our Company.
NONFERROUS MINERALS ARE FINITE AND EACH MINE HAS A LIMITED USEFUL LIFE. WE HAVE
PERFORMED ONLY LIMITED GEOLOGICAL STUDIES, AND OUR PLANS TO EXPLOIT OUR CURRENT
PROPERTIES FOR NONFERROUS METALS MAY BE CURTAILED OR EXHAUSTED. WE HAVE NOT
ENGAGED IN EFFORTS TO INVESTIGATE THE ACQUISITION OF OTHER AREAS OR ANY
EXPANDED POTENTIAL FOR OUR PARCEL.
Mines have limited lives and usually cannot be re-commissioned after exhaustion
of the economically extractable minerals. We must continually seek to replace
and expand our mineralization and reserves through the acquisition of new
properties. Significant competition exists for the acquisition of properties
producing or capable of producing gold and non-ferrous metals. We may be at a
competitive disadvantage in acquiring additional mining properties because we
must compete with other individuals and companies, many of which may have
greater financial resources and larger technical staffs than we have. As a
result of this competition, we may be unable to acquire attractive mining
properties on acceptable terms.
CHINA'S GROWTH HAD BEEN RAPIDLY ACCELERATING FOR THE PAST SEVERAL YEARS AND THE
FINANCIAL CRISIS DIRECTLY DEPRESS THE ECONOMY CURRENTLY,LAST YEAR, WHICH IMPLYS THE COMING
OF CONTRACTION BUSINESS CYCLE.
Essentially all of our business is located in China and will be conducted in
China. We expect to sell all of our extracted minerals in China. The need for
these minerals throughout the world is affected by the increasing demand in
China. We are therefore depending on the continuation of the economic growth in
China to maintain demand for our lead and zinc and, to a lesser extent, gold.
The financial crisis abruptly and sharply slow down China'sChina’s growth pace. The economy
Contraction has adversely affected the non-ferrous metals industry. The stock price
Came down with a great extent in a short time. Many Company in the industry had to
Stock up the metals in order to lessen the impact.
Though the Chinese central government has recently stimulated the economy in all
means, which may counteract some adverse effect. But the majority expected that
the lower growth is unavoidable and the bottom of the economy has not yet reached.
If the economic growth in China continue to slows or even reverses it would likely
have an adverse effect on our business, its revenues and financial condition, and
the value of our properties and securities. We cannot assure you when the economic
turning point will come.
SHORTAGES OF CRITICAL PARTS, EQUIPMENT AND SKILLED LABOR MAY ADVERSELY AFFECT
OUR DEVELOPMENT PROJECTS.
The industry has been impacted by increased worldwide demand for critical
resources such as input commodities, drilling equipment, tires and skilled
labor. These shortages have caused and may continue to cause unanticipated cost
increases and delays in delivery times, potentially impacting operating costs,
capital expenditures and production schedules.
RISKS RELATING TO DOING BUSINESS IN THE PEOPLE'S REPUBLIC OF CHINA
WE ARE SUBJECT TO THE POLITICAL AND ECONOMIC POLICIES OF THE PEOPLES REPUBLIC
OF CHINA, AND GOVERNMENT REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
INTENDED BUSINESS.
All of our assets and operations are in the PRC. As a result our operating
results and financial performance as well as the value of our securities could
be affected by any adverse changes in economic, political and social conditions
in China.
The Chinese government adopted an "open door" policy to transition from a
planned economy to a market driven economy in 1978. Since then the economy of
the PRC has undergone rapid modernization although the Chinese government still
exerts a dominant force in the nation's economy. This continues to include
reservation to the state of land use rights or mining and exploration rights
and includes controls on foreign exchange rates and restrictions or
prohibitions on foreign ownership in various industries including mining. All
lands in China are state owned and only restricted "land use rights" are
conveyed to business enterprises or individuals.
All of our intended exploration and mining activities require approvals from
the local government authorities in China. Obtaining governmental approval is
typically a lengthy and difficult process with no guaranty of success. Since
the lands where our mines are located were acquired through the grant of a land
use right, changes in government policy could adversely affect our business.
This process may adversely affect our future business expansion.
The Chinese government operates the economy in many industries through various
five-year plans and even annual plans. A large degree of uncertainty is
associated with potential changes in these plans. Since the economic reforms
have no precedent, there can be no assurance that future changes will not
create materially adverse conditions on our business.
Some of the measures of The People's Republic of China are anticipated to
negatively affect on us. For example, the government maintains control over
capital investments in the mining of various 3preciousprecious metals, including gold.
While we believe we currently comply with all applicable regulations, changes
could be materially adverse. Also China has recently pronounced changes to tax
regulations and regulations pertaining to business acquisitions.
Due to the limited effectiveness of judicial review, public opinion and popular
voting there are few avenues available if the governmental action has a
negative effect. Any adverse changes in the economic conditions, in government
policies, or in laws and regulations in China could have a material adverse
effect on the overall economic growth, which in turn could lead to a reduction
in demand for our products and consequently have a material adverse effect on
our business.
THERE ARE RISKS INHERENT IN DOING BUSINESS IN CHINA OVER WHICH WE HAVE NO
CONTROL.
The political and economic systems of the PRC are very different from the
United States and more developed countries. China remains volatile in its
social, economic and political issues which could lead to revocation or
adjustment of reforms. There are also issues between China and the United
States that could result in disputes or instabilities. Both domestically and
internationally the role of China and its government remain in flux and could
suffer shocks, or setbacks that may adversely affect our business.
THE CHINESE LEGAL SYSTEM IS MUCH DIFFERENT FROM THAT OF THE UNITED STATES WITH
CONSIDERABLY LESS PROTECTION FOR INVESTORS, AND IT MAY BE EXTREMELY DIFFICULT
FOR INVESTORS TO SEEK LEGAL REDRESS IN CHINA AGAINST US OR OUR OFFICERS AND
DIRECTORS, INCLUDING CLAIMS THAT ARE BASED UPON U.S. SECURITIES LAWS.
All of our current operations are conducted in China. All of our current
directors and officers are nationals or residents of China. All of the assets
of these persons are located outside the United States in China. The PRC legal
system is a civil law system. Unlike the common law system, the civil law
system is based on written statutes in which decided legal cases have little
value as precedents. As a result there is no established body of law that has
precedential value as is the case in most western legal systems. Differences in
interpretations and rulings can occur with little or no opportunity for redress
or appeal.
As a result, it may not be possible to effect service of process within the
United States or elsewhere outside China upon our officers and directors. Even
if service of process was successful, considerable uncertainty exists as to
whether Chinese courts would enforce U. S. laws or judgments obtained in the
United States. Federal and state securities laws in the U. S. confer
substantial rights to investors and shareholders that have no equivalent in
China. Therefore a claim against us or our officers and/or directors or even a
final judgment in the U. S. based on U. S. may not be heard or enforced by the
Chinese courts.
In 1979, the PRC began to adopt a complex and comprehensive system legal system
and has approved many laws regulating economic and business practices in the
PRC including foreign investment. Currently many of the approvals required for
our business can be obtained at a local or provincial level. We believe that
it is generally easier and faster to obtain provincial approval than central
government approval. Changes to existing laws that repeal or alter the local
regulatory authority and replacements by national laws could negatively affect
our business and the value of our securities.
China's regulations and policies include limits on foreign investments
including investment in mining businesses and are still evolving. Definitive
regulations and may affect percentage ownership allowed to foreign investment
or even controls on the return on equity. Further, the various proposals are
conflicting and we may not be aware of possible violations.
NEW CHINESE LAWS MAY RESTRICT OUR ABILITY TO CONTINUE TO MAKE ACQUISITIONS OF
BUSINESSES IN CHINA.
New regulations on the acquisition of businesses commonly referred to as "SAFE"
regulations (State Administration of Foreign Exchange) were jointly adopted on
August 8, 2006 by six Chinese regulatory agencies with jurisdictional
authority. Known as the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors the new Rule requires creation of offshore
Special Purpose Ventures, or SPVs, for overseas listing purposes. Acquisitions
of domestic Chinese companies require approval prior to listing securities on
foreign exchanges.
We obtained the approvals that we believe are required in making the
acquisitions that formed the present company. Nonetheless, our growth has
largely been by acquisition and we intend to continue to make acquisitions of
Chinese businesses. Since the "SAFE" rules are very recent there are many
ambiguities and uncertainties as to interpretation and requirements. These
uncertainties and any changes or revisions to the regulations could limit or
eliminate our ability to make new acquisitions of Chinese businesses in the
future.
WE MAY BE AFFECTED BY RECENT CHANGES TO CHINA'S FOREIGN INVESTMENT POLICY,
WHICH WILL CHANGE THE INCOME TAX RATE FOR FOREIGN ENTERPRISES.
On January 1, 2008, a new Enterprise Income Tax Law took effect. The new law
revises income tax policy and sets a unified income tax rate for domestic and
foreign companies at 25 percent. It also abolishes favorable treatment for
foreign invested enterprises. When the new law takes effect, foreign invested
enterprises will no longer receive favorable tax treatment. Any earnings we
may obtain may be adversely affected by the new law.
CHINA CONTROLS THE CURRENCY CONVERSION AND EXCHANGE RATE OF ITS CURRENCY, WHICH
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
The Chinese government imposes control over the conversion of the Chinese
currency, the Renminbi, into foreign currencies, although recent pronouncements
indicate that this policy may be relaxed. Under the current system, the
People's Bank of China publishes a daily exchange rate based on the prior day's
activity which controls the inter-bank foreign exchange market. Financial
institutions are permitted a narrow range above or below the exchange rate
based on then current market conditions. Since 1977 the State Council has
prohibited restrictions on certain international payments or transfers for
current account items. The regulations also permit conversion for distributions
of dividends to foreign investors. Investment in securities, direct investment,
and loans, and security investment, are still subject to certain restrictions.
For more than a decade the exchange rate for the Renminbi ("RMB") was pegged
against the United States dollar leaving the exchange rates relatively stable
at roughly 8 RMB for 1 US Dollar. The Chinese government announced in 2005 that
it would begin pegging the Renminbi exchange rate against a basket of
currencies, instead of relying solely on the U.S. dollar. This has recently
caused the dollar to depreciate as against the RMB. As of December 31, 2008,
2009,
the rate was 6.83466.8282 RMB for 1 US Dollar. Since all of our expected operations
are in China, significant fluctuations in the exchange rate may materially and
adversely affect our revenues, cash flow and overall financial condition.
CHINESE LAW REQUIRES APPROVAL BY CHINESE GOVERNMENT AGENCIES AND COULD LIMIT OR
PROHIBIT THE PAYMENT OF DIVIDENDS FROM ANY PROCEEDS OBTAINED FROM LIQUIDATION
OF OUR ASSETS.
All of our assets are located inside the Peoples Republic of China. Chinese law
governs the distributions that can be made in the event of liquidation of
assets of foreign invested enterprises. While dividend distribution is allowed
it is subject to governmental approval. Liquidation proceeds would also be
subject to foreign exchange control. We are unable to predict the outcome in
the event of liquidation insofar as it affects dividend payment to non- Chinese
nationals.
CHINA HAS BEEN THE LOCALE FOR THE OUTBREAK OF VARIOUS DISEASES AND A PANDEMIC
CAUSED BY DISEASES SUCH AS SARS, THE AVIAN FLU, OR SIMILAR DISEASES COULD HAVE
A MATERIALLY ADVERSE EFFECT ON OUR WORKERS AND EVEN THE CHINESE ECONOMY IN
GENERAL, WHICH MAY ADVERSELY AFFECT BUSINESS.
17
The World Health Organization reported in 2004 that large scale outbreaks of
avian flu throughout most of Asia, including China, had nearly caused a
pandemic that would have resulted in high mortality rates and which could cause
wholesale civil and societal disruption. There have also been several
potential outbreaks of similar pathogens in China with the potential to cause
large scale disruptions, such as SARS, pneumonia and influenza. Any future
outbreak which infiltrates the areas of our operations would likely have an
adverse effect on our ability to conduct normal business operations.
RISKS RELATING TO OUR COMMON STOCK
THERE IS CURRENTLY A LARGE MARKET OVERHANG IN OUR COMMON STOCK AND FUTURE
CONVERSIONS AND SALES OF OUR COMMON STOCK COULD DEPRESS THE MARKET PRICE AND
DIMINISH THE VALUE OF YOUR INVESTMENT.
The Company has issued 500,000 shares of Series C Convertible Preferred
Stock in the exchange of securities that acquired our current assets and
operations. Each share of Series C Preferred Stock carries the right to 1,218
votes per share. If each share is converted, the Series C Convertible Preferred
Stock will be convertible into common stock at a rate sufficient to yield an
aggregate of approximately 609Million609 Million common shares.After the pending reverse split at 1:10,
the company will issue 63,321,605.8 common shares. Future conversion and
sales of shares of our common stock or securities that are convertible into our
common stock, could adversely affect the market price of our common stock. If
any of our principal stockholders sells a large number of shares or if we issue
a large number of shares, the market price of our common stock could
significantly decline. Moreover, the perception in the public market that our
principal stockholders might sell shares of common stock could further depress
the market for our common stock.
THERE IS A LARGE NUMBER OF PREFERRED SHARES OUTSTANDING THAT WILL RECEIVE
PREFERENCES OVER THE COMMON STOCK IN THE DISTRIBUTION OF DIVIDENDS OR
LIQUIDATED ASSETS AND VOTING RIGHTS, WHICH WILL LIMIT THE ABILITY OF THE COMMON
STOCKHOLDERS TO HAVE AN EFFECTIVE VOICE IN THE MANAGEMENT OF THE COMPANY.
The Company hasshareholders of HongKong Wah Bon and its subsidiary, Shaanxi Changjiang Mining & New Energy Co., Ltd. (“CHAN JIANG”) as of February 4, 2008 acquired 500,000 shares of Series C Convertible Preferred stock outstanding at
in exchange for all of the year end.outstanding stock of Chang Jiang.. Each of the preferred shares is entitled to receive
preferential treatment in connection with the payment of dividends,
distributions upon liquidation and voting rights. Each preferred share carries
the right to vote the equivalent of 1,218 votes of common shares. Each
preferred share will be automatically converted into 1,218 common shares upon
approval and an amendment to the Certificate of Incorporation to increase the
number of authorized shares. This effectively eliminates the ability of the
common stock holders to participate in the management of the Company, such as
the election of directors and corporate changes or conversions.
THE MARKET FOR SHARES OF OUR COMMON STOCK HAS BEEN LIMITED AND SPORADIC, AND
THERE IS NO GUARANTEE THAT A MARKET WILL BE AVAILABLE FOR YOU TO SELL YOUR
SHARES.
Shares of our common stock are not listed on any exchange but are sporadically
traded in over the counter transactions or in inter-dealer quotations from time
to time. Currently there are several market makers who have posted bid and ask
prices for our shares but there is no guarantee that they or any other brokers
will continue any activities. Our stock has been very thinly traded and there
are many days or weeks that the shares have not traded at all. There is no
assurance that any market will exist at the time that a shareholder wishes to
sell the shares and there is no assurance that any market will continue.
OUR COMMON STOCK PRICE COULD BE VOLATILE AND MAY NOT APPRECIATE IN VALUE.
The market price of shares of our common stock has fluctuated and is likely to
continue to fluctuate significantly. Fluctuations could be rapid and severe and
may provide investors little opportunity to react. Factors such as changes in
commodity prices, conversion of our preferred shares, results from our
operations, and a variety of other factors, many of which are beyond the
control of the Company, could cause the market price of our common stock to
fluctuate substantially. Also, stock markets in penny stock shares tend to have
extreme price and volume volatility. The market prices of shares of many
smaller public companies securities are subject to volatility for reasons that
frequently unrelated to the actual operating performance, earnings or other
recognized measurements of value. This volatility may cause declines including
very sudden and sharp declines in the market price of our common stock. We
cannot assure investors that the stock price will appreciate in value, that a
market will be available to resell your securities or that the shares will
retain any value at all.
BECAUSE OUR SHARES ARE DEEMED HIGH RISK "PENNY STOCKS," YOU MAY HAVE DIFFICULTY
SELLING THEM IN THE SECONDARY TRADING MARKET.
The Commission has adopted regulations which generally define a "penny stock"
to be any equity security that has a market price (as therein defined) less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. Additionally, if the equity security is not
registered or authorized on a national securities exchange, the equity security
also constitutes a "penny stock." As our common stock falls within the
definition of penny stock, these regulations require the delivery, prior to any
transaction involving our common stock, of a risk disclosure schedule
explaining the penny stock market and the risks associated with it. These
regulations generally require broker-dealers who sell penny stocks to persons
other than established customers and accredited investors to deliver a
disclosure schedule explaining the penny stock market and the risks associated
with that market. Disclosure is also required to be made about compensation
payable to both the broker-dealer and the registered representative and current
quotations for the securities. These regulations also impose various sales
practice requirements on broker-dealers. In addition, monthly statements are
required to be sent disclosing recent price information for the penny stocks.
The ability of broker/dealers to sell our common stock and the ability of
shareholders to sell our common stock in the secondary market is limited. As a
result, the market liquidity for our common stock is severely and adversely
affected. We can provide no assurance that trading in our common stock will not
be subject to these or other regulations in the future, which would negatively
affect the market for our common stock.
18
14 |Page
WE MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH U.S. CORPORATE
GOVERNANCE AND ACCOUNTING REQUIREMENTS.
We expect to incur significant costs associated with our public company
reporting requirements, costs associated with newly applicable corporate
governance requirements, including requirements under the Sarbanes-Oxley Act of
2002 and other rules implemented by the SEC. We expect all of these applicable
rules and regulations to increase our legal and financial compliance costs and
to make some activities more time-consuming and costly. We also expect that
these applicable rules and regulations may make it more difficult and more
expensive for us to obtain director and officer liability insurance and we may
be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be
more difficult for us to attract and retain qualified individuals to serve on
our board of directors or as executive officers. We are currently evaluating
and monitoring developments with respect to these newly applicable rules, and
we cannot predict or estimate the amount of additional costs we may incur or
the timing of such costs.
WE DO NOT FORESEE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid cash dividends on our stock and we do not plan to pay cash
dividends on our stock in the foreseeable future. We intend to retain any
earnings to expand our operations and explore additional areas and
opportunities in our industry. Therefore an investment in our common stock is
not appropriate for investors who require regular and periodic returns on their
investments.
DESCRIPTION OF PROPERTIES
All land in China is owned by the State. Individuals and companies are
permitted to acquire rights to use land or land use rights for specific
purposes. In the case of land used for commercial purposes, the land use rights
are granted for a period of 50 years. This period may be renewed at the
expiration of the initial and any subsequent terms. Granted land use rights are
transferable and may be used as security for borrowings and other obligations.
CORPORATE HEADQUARTERS Because of the maturity of the old lease, Our corporate
headquarters removed to the the opposite mansion. The new location consists
of 554 square meters located at Seventeen Floor, Xinhui Mansion, Gaoxin Road,
Hi-tech Zone, Xi'An, Shaanxi Provence PRC, Postcode:710075. Our Telephone number
Still is (86) 29-88331685 and our fax number of (86)29-88332335 has not changed.
The headquarters are leased from Feb 30,February, 2009 to JanJanuary 31, 2011 at a rental rate $11,029
$11,029 per year.
19
15 |Page
THE DONGFANG PARCEL
Xunyang County in the Shaanxi Province of southwestern China has an extensive
history in mining. Called the "Golden State" in ancient times it is located in
the Qinba Mountain Area at a geologic junction of "Shan, Zha, Zhen, Xun", which
are the four primary metallogenic prospective areas in the Shaanxi Province.
This area, having been likened to China's "Ural" is the resources reserve area
of several metals in China including gold, silver, copper, iron, lead, and
zinc. Over 30 different minerals have been proven up in Xunyang County,
including reserves of basic raw materials such as lead & zinc, gold, mercury &
antimony, and limestone.
Our subsidiary Dongfang Mining, obtained the mining rights to a 67.8261.27 sq.km
parcel in the Jiao Shan Zhai Mining Area, located in Xunyang County-Guo Jia
Ling, Xunyang County, Shaanxi Province (the "Donfang Parcel.") Approval of the
exploration rights was granted by appropriate authorities in certificate number
is 6100000720386.
The Dongfang Parcel is located in the Guo Jia Ling- Jiao Shan Zhai Mining Area
is located in eastern Xunyang County, under the jurisdiction of Shuhe Town,
Guankou Town and Gouyuan Village, Xunyang County, and Shaanxi Province
according to its administrative division. The North end of this mining area
starts at Cai Jia Gou, at the south end at Cai Miao Ya. It begins in the east
from Shi Jia Gou Nao and ends at Si Ren Gou in the west, with a whole area of
67.82 sq.km. Longitude, 109*26*30*--109*38*30*, and North Latitude, 32*55*45*--
33*01*00*.
Mineral Deposits
Dongfang Mining obtained
The government was authorized the exploration rights toExploration Right for the Dongfang Parcel onappved mining area that the company applied for in September 19, 2003. InAt the same year, they finished 1/10,000 geological rough
survey, geochemical profile survey and trench exploration on lead & zinc and
gold mines in Dong Er Gou, Xunyang County within the areayearThe First Geological Team of 1.15 sq.km. by
consigning the first geological teamShaanxi Provincial Bureau of Geology and Mineral Resources took commission from the company and started preliminary survey (1:10,000), geographical profile survey and trenching in 1.15 square kilometers. They found lead-zinc orebody in the survied area and evalueated. Yunnan Nonferrous Geological Institute Physical Branch was also committed to make survey by geophysical transient electromagnetic method. There are 12 TEMabnormalisms, 3 A class abnormalisms, 7 B class abnormalisms and 2 C class abnormalisms. A class abnormalism: located in the orebody known and its extension; B class abnormalisms: abnormalism shows great chance to find mineral deposite; C class abnormalisms: unkown its characteristcs and needs m ore research.
The First Geological Team of Shaanxi Provincial Bureau of Shaanxi.
Lead & zinc mineralization clues had been foundGeology and efforts began
to evaluateMineral Resources did mineral exploration in 2005. Changan University send a geographical research group did the field work on range of reconnaissance and prospecting.
During 2005-2006,remotesensing and geochemistry for gold exploitation in Jiaoshan Zhai. The group evaluated mining deposite in the synclinal basin, contains high percentage of Au、Ag、Cu、Pb、Zn、As、Sb、Bi、Hg. The group also pointing out 3 lead-zinc orebodes and 5 goldorebodies and evaluated the rough survey and the knownorebodies.
The company bored drilling in Jiaojia Shan which named ZK1 and ZK2in Jan. 2007 and 2006. There are lead orebody and the orebody is partly rich in Ferrum、Sillicon and gypsum. Siluric layer through drillings. 3 lead orebodies were found. At the same year, the company dug a prospecting hole with a spatial depth offound 5 gold orebidies, more than 60 meters30m for each of them, after the 60m for exploratory tunnel excavating and a test trench with 240m324cube trenching. The possibility of bigger goldorebody still exists.
The company did rough survey in the region of JiaoGuojia Ling ---Jiaojia Shan Zhai,gold field during 2007,2008 and discovered five gold mine veins, each with a length of over 30
meters. Analyzed on the mineral information obtained, there are still
relatively large gold deposits in this mining area.2009. At the end of AugustAugest, 2007, three leadthey found 3 lead---zinc deposits and zincone gold deposit. 3 lead---zinc deposits in Weijia Shan, 15gold deposits in Jiaojia Zhai. K1、K2、K3 deposits contain 1150.64kg worthing $ 33,700,000（230,000,000RMB）. Lead---zinc deposit in Siren Gou indicates 10,000t ore, bodiesHuoshao Gou---Guanzi Gou depositindicates 10,000t ore and aXiaoshui He---Nansha Gou 10,000t ore for indication and all of their potential value will reach $702,000,000（4,800,000,000RMB）.The potencial value of the gold ore body was preliminarily proven up,
as indicatedandlead-zinc resource in the exploration information of the geological team.
The mining area covered byis more than $730,000,000(5,000,000,000RMB). Lead---zinc 679.39t estimated, including 371.84t zinc and 162.52t Lead.
The company finished rough survey over 6.8 sq KM. In 2010 the Dongfang Parcel can be divided into three areas.
Gold deposits are known in the areacompany planned to do further survey and management has estimated gold reserves
at about 3-5 tons. Total reserves of lead and zinc ore in this region is 3-5
million tons, whose average grade is 8-15% and some even can reach as high as
45% based on geologic studies.
gets ready for mining.
ITEM 3.
LEGAL PROCEEDINGS
We are not presently involved in any litigation that is material to our
business. We are not aware of any pending or threatened legal proceedings. In
addition, none of our officers, directors, promoters or control persons has
filed or been involved for the past five years:
- in any bankruptcy petition,
- in any conviction of a criminal proceeding or involved in a pending
criminal proceeding (excluding traffic violations and minor offenses),
- is subject to any order, judgment or decree enjoining, barring
suspending or otherwise limiting their involvement in any type of
business, securities, or banking activities,
- or has been found to have violated a federal or state securities or
commodities law.
20
16 |Page
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock is traded over-the-counter and quoted from time to
time in the OTC Bulletin Board under the trading symbol "NAGM.OB".
Consequently, there is currently no established public trading market for the
Company's Common Stock. The following table sets forth the range of high and
low bid prices as reported by the OTC Bulletin Board for the periods indicated.
Such quotations represent inter-dealer prices without retail markup, markdown,
or commission, and may not necessarily represent actual transactions
CALENDAR YEARS
BY QUARTER
BID PRICE
-
--------------
----------
--------------
HIGH
LOW
------
-----
-----
2009
First
$0.035
0.01
Second
0.07
0.01
Third
0.14
0.02
Fourth
0.03
0.018
2008
First $0.035
$0.035
0.01
Second
0.07
0.01
Third 0.14
0.014
0.05
Fourth
0.09
0.015
2007 First $0.023 0.08
Second 0.023 0.48
Third 0.03 0.10
Fourth 0.02 0.065
Item 66. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Forward Looking Statements
We make certain forward-looking statements in this report. Statements that
are not historical facts included in this Form 8-K10-K are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties that could cause actual
results to differ from projected results. Such statements address activities,
events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, debt restructuring, pending legal proceedings, business
strategies, expansion and growth of the Company's operations, and cash flow.
Factors that could cause actual results to differ materially ("Cautionary
Disclosures") are described throughout this Form 8-K.10-K. Cautionary Disclosures
include, among others: general economic conditions in China and elsewhere,
the Company's ability to license, extract, refine and sell minerals and
precious metals through our intended operations in China, the strength and
financial resources of the Company's competitors, environmental and
governmental regulation, labor relations, availability and cost of employees,
material and equipment, regulatory developments and compliance,
fluctuations in currency exchange rates and legal proceedings. Statements
concerning our future operations, prospects, strategies, financial condition,
future economic performance (including growth and earnings), demand for our
services, and other statements of our plans, beliefs, or expectations,
including the statements contained under the captions "Risk Factors,"
"Management's
"Management's Discussion and Analysis or Plan of Operation," "Description of
Business," as well as captions elsewhere in this document, are forward-looking
statements. In some cases these statements are identifiable through the use of
words such as "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"project,
"project," "target," "can,""could," "may," "should," "will," "would," and
similar expressions. We intend such forward-looking statements to be covered by
the safe harbor provisions contained in Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and in Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). All written and oral
forward-looking statements attributable to the Company are expressly
qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the
occurrence of anticipated or unanticipated events.
21
17 |Page
The nature of our business makes predicting the future trends of our revenues,
expenses, and net income difficult. Thus, our ability to predict results or the
actual effect of our future plans or strategies is inherently uncertain. The
risks and uncertainties involved in our business could affect the matters
referred to in any forward-looking statements and it is possible that our
actual results may differ materially from the anticipated results indicated in
these forward-looking statements. Important factors that could cause actual
results to differ from those in the forward-looking statements include, without
limitation, the factors discussed in the section entitled "Risk Factors" and
the following:
* the effect of political, economic, and market conditions and geopolitical
events;
* legislative and regulatory changes that affect our business;
* the availability of funds and working capital;
* the actions and initiatives of current and potential competitors;
* investor sentiment; and
* our reputation.
We do not undertake any responsibility to publicly release any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this report. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by any
forward-looking statements.
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this Form 10-K.
OVERVIEW
We operate in two segments. We are an exploration stage mining company andalthough we have had no mining revenues and do not expect mining revenues until we begin the process of extracting minerals which
will not start until 2009,2010, if at all. We have sustained considerable losses
from our exploration and other activities to date.
Effective August 20, 2001, the Company sold its interests in video gaming
business for cash and notes receivable. During 2003, the Company sold the notes
receivable for cash. As a result, the Company had no on-going operations or
revenues. Thereafter the Company was a "shell" as defined by Rule 405 under
the Securities Act and Rule 12b-2 under the Exchange Act. Its only activity was
to explore for acquisition opportunities and the financing required buying and
supporting an operating business.
On February 4, 2008, (the "Closing Date") we acquired HONGKONG WAH BON
ENTERPRISE LIMITED ("Wah Bon") and its three subsidiaries: SHAANXI TAI PING
YANG XIN NENG YUAN DEVELOPMENT COMPANY LIMITED ("Tai Ping Yang "); SHAANXI
CHANG JIANG SI YOU NENG YUAN FA ZHANG GU FENG YOU XIANG GONG SI ("Chang
Jiang") and DONGFANG MINING COMPANY LIMITED ("Dongfang Mining".) Wah Bon owns
100% of Tai Ping Yang. Tai Ping Yang owns 97.2% of Chang Jiang; and Chang Jiang
owns 60% of Dongfang Mining. The minority interests represent the minority
shareholders' 2.8% and 41.68% share of the results of Chang Jiang and Dongfang
Mining respectively.
22
Our subsidiary, Chang Jiang, had acquired a 60% interest in Dongfang Mining in
two separate transactions. On February 5, 2007 we acquired 40% of the net
assets of Dongfang Mining. The acquisition of 40% of Dongfang Mining was
accounted for as a purchase under SFAS No. 141, Business Combinations.
Accordingly, the 40% of operating results of Dongfang Mining have been included
in the consolidated statements of operation and comprehensive losses after the
effective date of the acquisition of February 5, 2007.
The preliminary allocation of 40% of the net assets of Dongfang Mining
acquired is as follows:
Cash and cash equivalents $ 227,233
Other receivables and prepaid expenses 46,309
----------------
Total current assets 273,542
Fixed assets, net 7,432
Total assets 280,974
Less: Accounts payable and accrued liabilities (3,223)
Due to a stockholder (273,444)
----------------
Net assets acquired 4,307
Minority interests (1,723)
Additional paid in capital (861)
Less: Consideration for acquisition (3,117,267)
----------------
18 |Page
Goodwill $ (3,115,544)
================
Analysis of the net outflow of cash and cash equivalents in respect of the
business combination is as follows:
Total cash consideration $ 3,117,267
Less: cash consideration payable (1,872,131)
------------------
Cash consideration paid 1,245,136
Less: cash and cash equivalents acquired (227,233)
------------------
Net cash outflow $ 1,017,903
==================
The acquisition of 40% of Dongfang Mining was accounted for as a purchase
under SFAS No. 141, Business Combinations. Accordingly, the 40% of
operating results of Dongfang Mining have been included in the consolidated
statements of operation and comprehensive loss after the effective date of the
acquisition of February 5, 2007.
The following table reflects the unaudited pro forma combined results of
operations for the year ended December 31, 2007 and 2006, assuming the
acquisition had occurred at the beginning of 2007 and 2006.
22
2008 2007 2006
----------- ----------- -----------
Revenues $ - $ -
----------- ----------- -----------
Net loss $(1,557,424) $(9,247,007) $(1,676,333)
----------- ----------- -----------
Net loss per share - basic $ (0.06) $ - $ -
----------- ----------- -----------
Net loss per share - diluted $ (0.02) $ -
----------- ----------- -----------
In accordance with SFAS No. 142 "Goodwill and other intangible assets",
goodwill is not amortized but is supposed to be tested for impairment. The Company are
is
going to perform an assessment on goodwill arising from the acquisition of
Dongfang Mining as the price of non-ferrous metals are going down and the
whole industry are stagnant. We can not concludedcannot conclude that there was no impairment
to the carrying value of the goodwill in this reporting period.
On March 22, 2007, the Company entered into an agreement with a principal
stockholder of the Company to exchange the Company's 92.93% interest in Huanghe
for 20% equity interest in Dongfang Mining owned by the stockholder. The
acquisition of 20% of Dongfang Mining from the related party was accounted for
as a purchase under common control. As a result of these transactions we
recorded goodwill of $3,115,544 in the balance sheet of the Company.
The operations of Huanghe have been reclassified as discontinued operations
in the accompanying consolidated statements of operations for the year ended
December 31, 2006 and are summarized as follows:
Operating expenses $ (282,728)
Loss from operations $ (291,885)
Net loss $ (291,885)
The detailed information on the loss on disposal of Huanghe is as follows:
Cash and cash equivalents $ 1,406,430
Other current assets 31,687
Fixed assets, net 349,024
Land use rights 8,987,826
-----------
Total assets 10,774,967
Less: Accounts payable and accrued liabilities (205,800)
Due to related parties (1,618,037)
Due to a stockholder (4,726)
Minority interests (918,343)
-----------
Book value of net assets disposed 8,028,061
20% of book value of net assets of Dongfang Mining exchanged (827)
-----------
Loss on disposal of Huanghe $ 8,027,234
===========
Net cash outflow on disposal of subsidiary
Proceed from disposal $ -
Cash and cash equivalent disposed (1,406,430)
-----------
Net cash outflow $(1,406,430)
===========
We have land useexploration rights for a 67.8261.27 sq.km parcel in the Jiao Shan Zhai Mining
Area, located in Xunyang County in the Shaanxi Province of China. Our land use
rights are amortized over fifty years of the term of the leases. We have
performed tests on the site but we have not begun mining activity. We
originally Weoriginally
planned to constructparticipating in constructing a theme park business on the parcel but have
delayed those plans while we direct our resources on the mining opportunities.
Therefore most of
Nowaday, we decided to lease out our assets are recordedLand use right to Huanghe wet land park
Co.Ltd.Therefore we can focue our management in the theme park segment of
financial statements although this is no longer the primary focus of the
Company.
23mining segment.
The following is a summary of land use rights at December 31, 2008:
2009:
Cost
$ 19,146,841
Less: accumulated amortization (1,638,232)
(2,049,710)
-------------------
Land use rights, net
$ 17,508,609
�� 17,115,077
===================
The land use rights are amortized over fifty years of the term of leases. The
amortization expense for the year ended December 31, 20082009 and December 31, 2007
31,2008
was $490,108$409,750 and $367,480395,944, respectively.
From 2003 until the present, Dongfang Mining has held licenses for the
exploration of minerals and precious metals in the Shaanxi Province of the
People's Republic of China. Dongfang Mining was granted an exploration right
to the lead, zinc and gold mines located at Gan Gou and Guan Zi Gou, Xunyang
County, Shaanxi Province, PRC, on December 31, 2006. The Company engaged
Geology and Mineral Bureau of Shaanxi to conduct a preliminary survey which
reported preliminary positive findings for gold, lead and zinc deposits in the
mines.
As reflected in the accompanying consolidated financial statements, the Company
has an accumulated deficit during the exploration stage of $13,352,228$13,366,785 at
December 31, 20082009, which includes a net loss of $1,557,424$104,557 for the year ended
December 31, 2008.2009. The Company's current liabilities exceed its current assets
by $5,958,661$7,787,760 and the Company used cash of $916,535$531,480 in operations. These
factors raise substantial doubt about its ability to continue as a going
concern. In view of the matters described above, recoverability of a major
portion of the recorded asset amounts shown in the accompanying consolidated
balance sheet is dependent upon continued operations of the company, which in
turn is dependent upon the Company's ability to raise additional capital,
obtain financing and succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
Theme Park Segment
We planned to become a shareholder of a theme park business before the first
half year of 2009, but the theme park business shall not occupy much of our
resources for it shall not be controlled by us. The Huanghe, a related
Company, is one of our target enterprise. After about 4 years construction on
the theme park located in the wetland of Huanghe River, the Company was
expected to generate revenue in 2009.
PLAN OF OPERATIONS
Our efforts over the next twelve months will be directed towards completing the
licensure process to begin the extraction operations from the mines and to
acquire the equipment and personnel necessary to commence mining operations. We
have applied for, but not yet obtained, an additional license that will permit
the excavation and extraction of the parcel. We expect to obtain that license
before the end of 20092010 and expect to commence extraction operations shortly
thereafter.
To date we have financed our activities from loans received from related
parties. Until we begin to generate revenues we expect to continue to rely on
loans from our directors and related parties. Our directors have indicated that
they will continue to make loans for the next twelve (12) months, or until the
Company begins to generate revenues, whichever first occurs. Otheralthough we have
made revenue of $1,097,872 in 2009.other than the oral assurances given by the directors,
we have no other sources of capital and there can be no guarantee that the Company will be
able to meet its obligations or obtain sufficient capital to complete its plan of
operations for the next twelve (12) months.
Our plan for 20092010 is to finish reconnaissance and evaluation and begin
prospecting the known ore bodies and controlling the trench exploration, in
addition, enter in to new energy industry by acquisition ,such as electric
power. We intend to stress deep drilling and tunnel exploration validation.
We hope this will allow us to enlarge the ore body scale and prove up the anomalous
regions. We expect to accomplish this primarily with drilling and tunnel exploration.
Specific implementation methods are as follows:
- Enhance the validation of geophysical prospecting abnormities,
especially of the I and II class abnormities, make a conclusion on them
as soon as possible to provide basis for next work;
- Carry out geological investigation in adjacent regions, with
attention to the lead & zinc ore bodies;
- Investigate other metallogenic areas, mainly through surface work,
which may be combined with limited tunnel exploration and drilling;
- Finish the rough survey of lead and zinc over the 6.8 square meter area;
-
Complete the particular survey of gold and obtain the exploitation licence
Before year end.
Enter into electric power industry by controlling the Changjiang electric
Power & new emerge Co., ltd.
We believe we can find adequate skilled mining personnel in the region. We are
also exploring possible joint venture or similar arrangements with one of the
existing, competitive mining companies that are already operating in the mining
area near our parcel. If so, we would reduce our need for the initial
expenditures and the delay in commencing mining operations may be shortened.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 20082009 AND DECEMBER 31, 2007
2008
The Company is an exploration stage company and has not yet generated any revenuemining revenue.
As the Land use right was substantively occupied by the Huanghe wet land park Co. Ltd for 2009.
The rental income of $1,097,872 (rmb 7,500,000) was produced for 2009 compairing zero for 2008.
The amortization of the land use right was $409,750, compairing
$395,944 of 2008, both of which have been showed in the operating expense. The business tax and consequently hasaddition
of $57,089 was also not generated any gross profit.
calculated in 2009 compairing zero for 2008.
OPERATING EXPENSES. Total operating expenses for the year ended December
31, 2008 increased2009 decreased to $1,231,537,$842,909 from $746,461$1,141,537 for the year ended December 31, 2007.
2008. Overall expenses before,before taxes and minoritynon-controlling interests for the year ended
December 31, 20082009 was $1,616,198$1,277,371 as compared to the year ended December 31, 2007, 2008,
of $988,673.$1,526,199. The difference of $625,186$248,828 or approximately 67% over16% under the prior
period, the overall increasedecrease in expenses is due to the following
increases in:
. A reduction$353,629 decrease of generallegal and administrative expenses from $349,269 for
the year ended December 21, 2007 to $260,590 for the year ended December
31, 2008.
A $539,224 increase of Legal and
professional for 20082009 comparing with that of 2007.
. other expense, which increased from $242,212 for the year ended
December 31, 2007 to $384,661 for the year ended December 31, 2008.
. an increase in imputed interest expense from $243,337 to $353,951 which
is reflected in the increase in other expenses. Total imputed interest
recorded as additional paid-in capital amounted to $353,951 and
$243,337 for the years ended December 31, 2008 and 2007.
. Depreciation increased slightly from $29,712 for the year ended December
31, 2007 to $35,779 for the year ended December 31, 2008
. Amortization of land use rights increased from $367,480 for the year
ended December 31, 2007 to $395,944 for the year ended December 31, 2008.
25
NET LOSS. Our net loss for the year ended December 31, 20082009 decreased to
$1,557,424
$104,557 from $8,959,472$1,467,426 for the year ended December 31, 2007.2008. The overall
decrease in net loss of $7,402,048, almost a five fold decrease, $1,362,869,over the prior year period, is primarily
due to $8,027,234 loss on disposal of
subsidiary
occurred in 2007.$1,097,872 rental income from the Land use right.
COMPREHENSIVE LOSS.GAIN. Our comprehensive loss for the year ended December
31, 2008 decreased to $492,5162009 was $38,951 from $7,788,802 As the $ 1,064,909 foreign
currency Translation gains of 2008 just slightly decreased comparing with $1,170,802comprehensive gain of 2007 $1,064,912 in 2008.
The reason for great decrease of comprehensive gain/loss came to that the same reason for the net loss.
exchange
rate of rmb to usd rised from 7.3 to 6.8346 in 2008, but kept stable during 2009.
STOCKHOLDERS' EQUITY. Stockholders' equity increased by $171,681 to
$ 716,072 to
$14,849,56214,570,192 as of December 31, 2008,2009, or approximately 5.1%1.2 % from $14,133,490$14,398,511 as
of December 31, 2007.2008. The increase was primarily due to a $489,258
repurchasingthe rental
income of common stock during the year ended December 31, 2007.In
addition, the $353,951 imputed interest was adjusted to the paid-in capital,
which also help to increase the stockholders' equity.
year.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Overall, we had an increasedecrease in net loss of $1,557,424$104,557 for the
year ended December 31, 20082009. Net cash used in operating activities of $388,012, $531,480,
net used in investing activities of $1,379,396$19,096 and net cash provided by
financing activities of $ 872,762.$566,703. At December 31, 2008,2009, our cash balance was $23,961
$27,279 as compared to $ 479,241$23,961 for the prior year, a decline of
$ 455,280 or approximately 95%.in almost the same level.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used in operating
activities of $388,012$531,480 for the year ended December 31, 20082009 was primarily
attributable to a net loss from the operations.rental income of $1,097,872 without cashflow. The adjustments
to reconcile the net loss to net cash, including the said rental income without
cash flow, depreciation expense of $35,779,$36,755, amortization of land use rights
of $395,944,$409,750, imputed interest expense of $353,951, $346,453, deferred tax benefit of $3,652,
adjustment for minoritynon-controlling interests of $(58,773),an$71,290,
a decrease in currentoperating assets of $122,722 and prepaymentsa decrease in operating liability of $ 303,023 and other payables of $49,489.$242,981.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities of $1,512,396$19,096 for the year ended December 31, 20082009 was primarily
attributable to:
- Net cash outflow from the acquisition of a subsidiary of
$292,629
- $1,213,622$17,044 due from related parties;and
- Purchase of furniture and equipment of $6,145.$2,052.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash of $ 1,445,908$566,703 provided by
financing activities in the year ended December 31, 20082009 was primarily due to 538,343
$19,980 and 935,268 increase$546,723 advances from shareholders and related parties,
respectively.
FINANCING. Though we have generated the rental revenues of due to shareholder and due to related
parties respectively
FINANCING. We have not generated any revenues$1,097,872 as of December
31, 2008
and so2009, we are still considered an exploration stage company. We ended 20082009 with $23,961
$27,279
of cash and equivalents on our balance sheet. Given our current cash usage
rate, a risk exists that our available cash on hand and the cash we anticipate
generating from operating activities will be insufficient to sustain our
operations. Our auditors have expressed substantial concern as to our ability
to continue as a going concern.
We have historically been able to issue shares, preferred stock or stock
options to pay for certain operating expenses. We believe that our pro-forma
working capital on hand as of the date of this report, along with our rental income and ability
to raise capital and meet certain operating expense obligations through the
issuance of stock or stock equivalents, will provide us with the capital we
need through year end 2009.2010. In addition, our directors have indicated a
willingness to make loans to the Company to cover expenses, although there is
no assurance that they will do so. However, we believe that our ability to
operate beyond the end of 20092010 will require us to raise additional capital, of
which there can be no assurance. We are, therefore, actively seeking additional
debt or equity financing until we become cash flow positive.
INTERNAL SOURCES OF LIQUIDITY. There is no assurance that funds from our
operations, if and when they commence,such as the rental income, will meet the requirements of our daily
operations in the future. In the event that funds from our operations are
insufficient to meet our operating requirements, we will need to seek other
sources of financing to maintain liquidity.
26
19 |Page
EXTERNAL SOURCES OF LIQUIDITY. We intend to pursue all potential
financing options in 20092010 as we look to secure additional funds to both
stabilize and grow our business operations and begin extraction. Our management
will review any financing options at their disposal and will judge each
potential source of funds on its individual merits. We cannot assure you that
we will be able to secure additional funds from debt or equity financing, as
and when we need to or if we can, that the terms of such financing will be
favorable to us or our existing shareholders.
INFLATION. Our management believes that inflation has not had a material
effect on our results of operations, and does not expect that it will in fiscal
year 2009.2010.
OFF-BALANCE SHEET ARRANGEMENTS. We do not have any off-balance sheet
arrangements.
RECENT DEVELOPMENTS
On February 4, 2008, we closed an acquisition of Hongkong Wah Bon Enterprise
Limited ("Wah Bon"). On September 2, 2007, Wah Bon had acquired 100% ownership
of Tai Ping Yang at a consideration of $128,205 in cash. We issued 500,000
shares of series C convertible preferred stock in exchange for all of the
outstanding shares of Wah Bon. This transaction was treated as a reverse
merger for accounting purposes and we have therefore presented all financial
data in consolidated form, except where otherwise noted.
On March 18, 2010 we filed a Form 8-K and an amended Form 10-K for the period ending December 31, 2008. In consultation with Brock, Schechter and Polakoff LLP (“Brock”), our independent registered public accounting firm, we concluded on February 22, 2010 that the financial statements for the fiscal year ended December 31, 2008, as presented in our Annual Report on Form 10-K, should no longer be relied upon due to the accounting issues set forth below.
The accounting issues relate to:
1.The report of the prior auditor (Jimmy Cheung) was not included with the first 10k.
2.Our report did not have the dates filled in properly.
3.The amounts in the going concern paragraph were changed to tie to the F/S.
4.The cash flow statement properly included the non-cash increase in additional paid in capital.
5. Various amounts in MD&A section of the 10k were changed to agree to the issued F/S.
Accordingly, the Company restated its financial statements for the fiscal year ended December 31, 2008 by disclosing the effect of these accounting issues in an amended Form 10-K for the fiscal year ended December 31, 2008.
On September 19, 2008, the Company reincorporated to the state of Nevada under the name “China Changjiang Mining and New Energy Company, Ltd.” The Company authorized 100,000,000 shares at a par value of $0.001 in anticipation of the 10 for 1 reverse split following the conversion of its Series C Preferred stock, which shall yield a net fully diluted amount of 60,900,000 new common shares. In December, 2009 an application was made on behalf of the Company to FINRA for approval of corporate changes, including the corporate name, the symbol, the recapitalization of the reverse split and the conversion of the Series C Preferred Shares. The Company has received two letters of comment from FINRA, to which it has responded, but the corporate changes have not yet been approved as of this filing.
Financial Condition
We had total assets of $ 23,379,26923,517,387 and $21,797,756$22,799,417 as of December 31, 20082009 and
December 31, 2007. Most of this reduction was the result of an adjustment for
discontinued operations and disposal of a subsidiary.
2008, respectively.
The largest part of our assets is the Land Use Rights we hold. Net land use
rights were $17,508,609$17,115,077 as of December 31, 2008, increased2009, decreased from $16,743,482$17,508,609 for
the year ended December 31, 2007.2008. The reason for this increasedecrease was that the
appreciation amortization
of RMB contributed more to the balance than the depreciation of
the Land Use Right did.
2009.
In order to carry out the Corporate Strategy of developing the Petroleuem and
New Energy, the Company invested RMB 2,000,000($293,328) to establish a new
company named Shaanxi Changjiang miningpower and New Energy Co., Ltd in
September, 2008, with Shaanxi Changfa Industry Stock Co.,Ltd (the "Changfa"),
The registered capital totals RMB 10,000,000(USD 293,328), in which the
Company owns 20%.,and Changfa the other 80% share.share when all the capital
Was contributed. According to the contract The changfa shall contribute it’s last
capital till the end of 2011, at the end of current year, the net asset was rmb
6,586,417 ($964,591), which means the company held 31% shares of the changjiang
electricity. Practically, The Company has significant influence on the new
Company as it assigned finance and Other directors in the new Company,and has
recorded the investment under the equity method. The new Company had no income for
the year ended December 30,200831,2009 and as the expense of rmb41,000 was not material, immaterial,
no adjustment has been made .
Our current liabilities were $8,400,906liability was $8,947,195 as of December 31, 2008. $3,446,1602009. $3,996,369 and
$434,137 are Notes payable and oweddue to related companies respectivley,and notes payable, respectively, along with $2,396,560
$2,418,796 due to stockholders. Our other payables and accrued expenses were $2,124,050.
27
$1,882,945.
Tax Liabilities
Neither North American Gaming nor Wah Bon had income for income tax purposes in 2008the years ended December 31,
2009 and 2007.2008. Wah Bon is a Hong Kong corporation and therefore is subject to
Hong Kong profits tax. All of the subsidiaries of Wah Bon are incorporated in
the PRC and therefore are subject to income tax law in China. The current
applicable tax rate has been 25% and no tax benefit is expected from the tax
credits in the future. There is no provision for income tax expense for the
years ended December 31, 2008 and December 31, 2007.
The Company has deferred tax assets at December 31, 20082009 which consist of net
operating loss carry forwards calculated using statutory effective tax rates.
Due
As the rental income has been recognized and it is expected to its history of losses, realization of its net deferred tax assets is
unlikely. Consequently,generate rental income
in the future which may recover the loss carryforwards. The Company did not recordrecorded the deferred
tax asset at the year end of 2007 & 2008ended December 31, 2009 in the balance sheet. According to the China Tax
Regulations, the
Regulations. The operating loss carryforwards can be deducted in the taxable profit within 5 years.
The reconciliation of income taxes computed at the statutory income tax rates
to total income taxes for the year ended December 31, 20082009 is as follows:
North American
Income tax computed at the federal statutory rate
34%
State income taxes, net of federal tax benefit
0%
---
Valuation allowance
(34%)
===
Wah Bon
Profits tax computed at the applicable tax rate
17%
---
Valuation allowance
(17%)
===
Tai Ping Yang, Chang Jiang and Dongfang Mining
Income tax computed at the applicable tax rate
25%
---
Valuation allowance
(25%)
===
Total deferred tax asset 0%
===
Other payables and accrued liabilities at December 31, 20082009 consist of the
following:
Other payables
$ 159,440
6,126
Consideration payable to a former owner of Dongfang Mining 1,827,898
1,829,611
Accrued wages 1,990
1,674
Statutory staff welfare 1,876
506
Other tax payable 58
28
Accrued expense
45,000
---------------
$ 2,124,050
1,882,945
===============
28
20 |Page
Lease
The Company moved to a new office located in Floor 17,Block B, Xinhui Building, #33
Gaoxin Road, Gaoxin District, Xi'anXi’an in Feb, 2009. The new office consists of 554
square meters, bears RMB75,000($10,974)11,029) per year from Feb 1,2009 to Jan 31,2011
As of
By December 31, 2009 and 2010,31,2010, the Company had outstanding commitments of $13,717 and $10,974$11,029, with
respect to above operating leases.
Critical Accounting Policies
Impairment:
OFF BALANCE SHEET ARRANGEMENTS
None.
We review all assets to be held and used in the Company's business
for impairment, whenever events or changes in circumstances indicate that the
related carrying amount maydo not be recoverable. When required, impairment
losses on assets to be held and used are recognized based on the fair value of
the assets.
RECENT FINANCIAL ACCOUNTING PRONOUNCEMENTS
In September 2006, FASB issued Statement 157, "Fair Value measurements". This
statement defines fair value and establishes a framework for measuring fair
value in generally accepted accounting principles ("GAAP"). More precisely,
this statement sets forth a standard definition of fair value as it applies to
assets or liabilities, the principal market (or most advantageous market) for
determining fair value (price), the market participants, inputs and the
application of the derived fair value to those assets and liabilities. The
effective date of this pronouncement is for all full fiscal and interim periods
beginning after November 15, 2007. The Company does not expect the adoption of
SFAS 157 to have an impact on the Company's results of operations or financial
condition.
In February 2007, the FASB issued Statement 159, "The Fair Value Option for
Financial Assets and Financial Liabilities", which permits entities to choose
to measure manyemploy derivative financial instruments and certain other items at fair valuehave no foreign exchange contracts. Our financial instruments are primarily cash and cash equivalents, but also include receivables, payables, long term debts, and short term notes. We do not try to manage risk of foreign exchange rates or engage in hedging activities.
Foreign Exchange Rates
All of our sales are in the Chinese currency, Remnimbi (RMB) but our financial reporting is in U. S. dollars. We are therefore subject to the fluctuations in foreign exchange rates in our reporting requirements. While exchange rates between RMB and USD have been relatively stable, there can be no assurance that are not currently required to be measured at fair value. SFAS 159 will
become effective on January 1, 2008. The Company is currently evaluating the
impact this new Standard, but believes that itchanges in foreign exchange rates will not have a material impact
on the Company's financial position.
In December 2007, FASB issued Statement 141 (Revised 2007), "Business
Combinations". This statement provides guidance on improving the relevance,
representational faithfulness, and comparability of information that a
reporting entity provides in its financial reports about a business combination
and its effects. This Statement will become effective where is the acquisition
date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The Company is currently evaluating
the impact this new Standard, but believes that it will not have a material
impact on the Company's financial position.
In December 2007, FASB issued Statement 160, "Noncontrolling Interests in
Consolidated Financial Statement - an amendment of ARB No. 51", which
establishes accounting and reporting standards to improve the relevance,
comparability, and transparency of financial information in its consolidated
financial statements that include an outstanding noncontrolling interest in one
or more subsidiaries. This effective will effective for all full fiscal and
interim periods beginning after December 15, 2008. The Company is currently
evaluating the impact this new Standard, but believes that it will not have a
material impact on the Company's financial position.
29
OFF BALANCE SHEET ARRANGEMENTS
None.
Item 7. FINANCIAL STATEMENTS
The full text of our audited consolidated financial statements for the fiscal
years ended December 31, 2008 and 2007 begin on F-1 of this report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previous Principal Independent Accountants
Began from the second quarter, we dismissed Jimmy C.H. Cheung & Co.as our
principal independent accountants, and engaged BROCK,SCHECHTER & POLAKOFF,LLP
as our new principal independent accountants to perform procedures related
to our financial statements for the fiscal year ending December 31,
2008, to be included on our Form 10-KSB under Section 13(a) or 15(d) under the
Exchange Act of 1934, as amended, and for the fiscal quarterly reports. As
described below, the change in our principal independent accountants was not
the result of any disagreement with Jimmy C.H. Cheung & Co In July 2008,
pursuant to approval by management and the Board of Directors, we
dismissed Sartain Fischbein & Company, CPA as our principal independent
accounting firm. Management and the Board of Directors at that time
participated in and approved the decision to change principal independent
accounts. Our financial statements for as of December 31, 2007,were
prepared by Jimmy C.H. Cheung & Co. And that as of December 31,2006, 2005,
2004 and 2003 were prepared by Sartain Fischbein & Company, CPA.
Jimmy C.H. Cheung & Co's reports on the financial statements did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope, or accounting principles, except that the reports
contained an explanatory paragraph indicating that substantial doubt exists
about our ability to continue as a going concern.
We have had no disagreements with Jimmy C.H. Cheung & Co on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction
of Jimmy C.H. Cheung & Co would have caused it to make reference to the
subject matter of any such disagreements in
their reports on the financial statement for the periods ended December 31,
2007. We requested that Jimmy C.H. Cheung & Co furnish a letter addressed to
the Securities and Exchange Commission stating that it is not in a position to
agree or disagree with the above statements.
New Principal Independent Accountants
Effective as of the closing date of August 11, 2008, our Board of Directors
engaged BROCK,SCHECHTER & POLAKOFF,LLP as our new independent registered
public accounting firm. The Company had not consulted with BROCK,SCHECHTER
& POLAKOFF,LLP prior to that time regarding (i) the application of accounting
principles to a specific completed or contemplated transaction, the type of
audit opinion that might be renderedimpact on our financial statements,reporting. The impact could express itself in reduced revenues and reduced or any
written or oral advice that was an important factor considered by us in
reaching a decision as to an accounting, auditing or financial reporting
issue; or (ii) any matter that was the subject of a disagreement.
30
ITEM 8A.
See below.
ITEM 8B. OTHER INFORMATION.
None.
32
Item 9.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the existing officers and directors of the
Company.
DIRECTOR AGE POSITION AND OFFICE TO BE HELD WITH THE COMPANY
NAME OF PERSON
- -------------- --- -----------------------------------------------
Chen Wei Dong 39 President, Chief Executive Officer and Chairman
of the Board
Xu Wei 33 Financial Supervisor
Zhang Hong Jun 42 Director
Wang Sheng Li 42 Director
Li Pin 33 Director and Chief Financial Officer
Tian Hai Long 36 Director
Each director of the Company will serve until its next annual shareholders'
meeting and until his successor is appointed. Subject to employment agreements
that they may have, the officers serve at the discretion of the board of
directors of the respective companies.
BIOGRAPHICAL INFORMATION OF-OFFICERS AND DIRECTORS OF THE COMPANY
Listed below is biographical information for each of the foregoing designated
new directors and officers of the Company following the Exchange, including
their principal occupations during the past five (5) years and other
affiliations:
CHEN WEI DONG - President and Chief Executive Officer
Mr. Chen serves as our President and Chief Executive Officer and as a Director.
Mr. Chen was named as Chairman of Changjiang mining & new energy in March 2006.
Prior to that, he was General Manager of Du Kang Trading Company from 2001 to
2006 and was a Bank Director of Branch Bank of China Agriculture Bank from
May 1991 to January 2001. He served in the army of the People's Republic of
China from October 1985 to March 1990. Mr. Chen studied in Northern West
University Management School, majoring in Enterprise Management.
XU WEI - Financial Supervisor
Ms. Wei was named as CFO of Changjiang mining & new energy Energy Development
Stock Co.Ltd. in March 2006. From 1900 to 1998, she was deputy section
chief of the accounting department of Shaanxi Weinan Textile Factory. In
1999, she worked in Shaanxi Hui Huang Construction and Building Material
Company as manager of the accounting department. She passed the Adult Self
Study Examination in Shaanxi Province in 1990 with a major in Accounting.
33
ZHANG HONG JUN - Director
Mr. Zhang was named as a director of Changjiang mining & new energy in April
2006. Prior to that, he was Chairman and CEO of Shaanxi Baishui Dukang
Liquor Co. since 2002-2005. He is the Executive Commissioner of
Shaanxi Federation of Industry & Commerce, an academician of the China
Academy of Management of Science, the Shaanxi Deputy of the National
People's Congress, Shaanxi Executive Commission of the Political Consultation
Committee, the Vice Chairman of Wei Nan Federation of Industry & Commerce,
the Vice Chairman of Beijing Federation of Shaanxi Commerce and the Chairman
of Shaanxi Du Kang Alcohol Co.Ltd. Education.
On April 2, 2007, Mr. Zhang was named as Executive Commission of Shaanxi
Federation of Industry & Commerce, academician of China Academy of Management
of Science, Shaanxi Deputy of the NPC, Shaanxi Executive Commission of the
Political Consultation Committee, Vice Chairman of Wei Nan Federation of
Industry & Commerce, Vice Chairman of Beijing Federation of Shaanxi Commerce
and named as Chairman of Shaanxi Du Kang Alcohol Co. Ltd.
He received his MBA from the China Academy of Management of Science.
WANG SHENG LI - Director
Mr. Wang was named a director of Changjiang mining & new energy in March 2006.
Prior to that, he was the manager of Xi Deng Hui Alcohol Co. Ltd. from 1998 to
2006. He studied in Xi'an Petroleum University Electron Construction School
from 1995 to 1998, majoring in computers.
LI PIN - Director
Mr. Li was named a director and Chief Financial Officer of Changjiang mining &
new energy in March 2006. He was an officer of Wei Nan branch company of
China
1. Life Insurance Company from 2000 to Mr. Li studied in the Shaanxi Finance
2. and Economics from 1994 to 1996, majoring in Finance and Economics
Management.
TIAN HAI LONG - Director
Mr. Tian was named as director of Changjiang mining & new energy in March
2006. He was the sales manager of Xi Deng Hui Alcohol Co. Ltd. from
1998 to 2006. He studied in the West Industry University Electronic
Information School, majoring in e-commerce.
Item 10. EXECUTIVE COMPENSATION
No compensation was awarded to, earned by, or paid to any executive officer or
director of the Company during the years 2008* 2007, 2006, and 2005.
The following table and the accompanying notes provide summary information for
each of the last three fiscal years concerning cash and non-cash compensation
paid or accrued.
SUMMARY COMPENSATION TABLE
34
Name and Year Salary Bonus Other Restricted Securities LTIP Other
Principal Position (5) Annual Stock Award(s) Underlying Options Payouts
($) ($) Compensation ($)($) (#) ($) ($)
`
Chen Wei Dong 2006 675 0 0 0 0 0 0
(Chariman of board & CEO) 2007 0 0 0 0 0 0 0
2008 585 0 0 0 0 0
Xu Wei, Financial officer 2006 257 0 0 0 0 0 0
2007 0 0 0 0 0 0 0
2008 298 0 0 0 0 0 0
Yang Yi Jun 2006 0 0 0 0 0 0 0
2007 406 0 0 0 0 0 0
2008 439 0 0 0 0 0 0
E. H. Hawes 2006 0 0 0 0 0 0 0
2007 0 0 0 0 0 0 0
2008 0 0 0 0 0 0 0
Richard Crane 2006 0 0 0 0 0 0 0
2007 0 0 28,000 0 0 0
2008 0 0 0 0 0 0 0
1. Compensation paid in RMB has been converted at the rate of $1 USD =
7.398 RMB.
2. Mr. Crane was granted options on January 20, 2000 to purchase
1,000,000 shares of common stock at an exercise price of $.03125
per share, the approximate fair market value on such date, with
such options vesting immediately and having a term of five years from
the date of grant. In March 2006, the options were extended for an
additional five year period, expiring March 29, 2011. This resulted in
compensation expense of $28,000, representing the estimated fair value
of these options at the date these options were extended. The options
were fully vested at the date of this award.
3. The Company reimburses the directors for their expenses (if any)
incurred in connection with their duties as directors.
4. No cash compensation has been paid to any of our directors during these
periods other than the stock option grantseliminated earnings, which were commenced in 2000
and extended in 2005... The compensation of the Board of Directors has
not been established by any policy or amount. We have no standard
arrangements under which we will compensate our directors for their
services provided to us.
35
EMPLOYMENT AGREEMENTS
The Company has no employment agreements.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock, as of the Closing Date, by (i) each person,
including any "group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, who is known by us to own beneficially 5% or
more of our preferred and common stock, (ii) each of our directors and named
executive officers, and (iii) all of our directors and executive officers
as a group. Unless otherwise indicated, all persons listed below have sole
voting power and investment power with respect to the shares owned by them.
SERIES C PREFERRED STOCK OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE PERCENTAGE
(1) OF BENEFICIAL OWNERSHIP
(2)(3)
CHEN WEI DONG 499,630 96%
VOTING POWER OF SERIES C PREFERRED STOCK OWNERSHIP AND BENEFICIAL OWNERSHIP
ASSUMING FULL CONVERSION OF ALL PREFERRED SHARES AND GIVING EFFECT TO A ONE FOR
TEN REVERSE STOCK SPLIT
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE PERCENTAGE
(1) OF BENEFICIAL OWNERSHIP
(2)(3)
(Class Series C Preferred Stock )
CHEN WEI DONG 608,549 1%
ZHANG HONG JUN 35,174,152 57.8%
WANG SHENG LI 7,442,558 12.23%
LI PIN 6,079,408 9.99%
TIAN HAI LONG 6,079,408 9.99%
XU WEI 0 0
CHEN MIN 5,470,859 8.99%
OFFICERS AND DIRECTORS AS A GROUP (6PERSONS)60,854,934 100%
36
(See Footnotes Below)
(1) The address for each beneficial owner is attached. Each of these
persons can also be reached through the Company's address which is listed c/o
North American Gaming and Entertainment Company, Fifth Floor, High-Tech
Mansion, Gaoxin Road, Hi-tech Zone, Xi'an P.R. China. Chen Wei Dong, Address:
BeitangXi'Ang 11#, Linwei District, Weinan City, Shaanxi, China. Xu Wei
Address: Xi'An Ning Zhong Lu 5#, Xi'an, Shaanxi, China Zhang Hong Jun, Address:
Duqiao Paichusuo, Xiyi Road, Linwei District, Weinan City, Shaanxi, China. Wang
Sheng Li, Address: Yun Yang, Jin Yang Xi'An, Wei Nan City, Shaanxi, China. Li
Pin Address: Jie Fang Lu 132#, Wei Nan City, Shaanxi, China Tian Hai Long,
Address:, Sinancun Erzu, Jiaqv Xiang Lin Wei District, Wei Nan City, Shaanxi,
China.
(2) As used herein, a person is deemed to be the "beneficial owner" of a
security if he or she has or shares voting or investment power with
respect to such security, or has the right to acquire such ownership within
sixty (60) days. As used herein, "voting power" includes the power to vote
or to direct the voting of shares, and "investment power" includes the power to
dispose or to direct the disposition of shares, irrespective of any economic
interest therein.
(3) Except as otherwise indicated by footnote, the persons named in the table
have sole voting and investment power with respect to all Common Stock
beneficially owned by them.
37
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the
Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2008 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The related parties owed the Company $1,754,586 as of December 31, 2008
including nine related companies and four related persons owed the
Company amounts totaling $1,355,694 and $398,892 respectively for advances
made on an unsecured basis, repayable on demand and interest free.
The Company owed $2,396,560 to two former stockholders of Chang Jiang as of
December 31, 2008 for advances made on an unsecured basis, repayable on demand
and interest free. Imputed interest is charged at 7% per annum on the amounts
due.
38
The Company owed $3,446,160 to seven related parties as of December 31,
2008 including six related companies and one related person owed the
Company amounts totaling $2,086,486 and $1,359,674 respectively for advances
made on an unsecured basis, repayable on demand and interest free. Imputed
interest is charged at 7% per annum on the amount due.
Total imputed interest recorded as additional paid-in capital amounted to
$353,951 and $243,337 for the years ended December 31, 2008 and 2007.
Consulting Fees. E.H. Hawes, II is the former Chairman of the Board, President
and Chief Executive Officer of the Company. Mr. Hawes has provided consulting
services to the Company and was paid $-0- in consulting fees during 2008,2007,
2006 and $-0- in 2005. He did not receive a salary from the Company and had
been owed a maximum of $50,000 for consulting services and expense
reimbursements.
At closing the sum of $170,000 was paid to eliminate any outstanding debts of
the Company with the balance payable to Mr. Hawes in satisfaction of all sums
due him as well as any other claims. Mr. Hawes retained the assignment of a
note payable from Daylighting, Inc.
At closing the Company paid Capital Advisory Services, Inc. $200,000 and 370
shares of Series C Preferred Stock. Stanley F. Wilson, Esq. is the CEO of
Capital Advisory Services and a licensed attorney at law with 30 years of
experience. From 2006 until closing, Capital Advisory Services provided
consultation to the Company in connection with its business plan, evaluation of
companies for potential mergers, and assistance to management in completing
required tasks necessary for securities law compliance.
All shares exchanged are restricted securities and may not be resold without
registration or an exemption from registration from the Securities Act of 1933.
39
Item 13. EXHIBITS
Exhibit Exhibit Description Footnote Reference
- ------- ------------------- ------------------
3.1.3 Articles of Amendment to Articles of Incorporation (1)
4.1 Certificate of Designation (1)
10.1 Plan of Exchange dated May 30, 2008 by and among North
American Gaming and Entertainment Company, and SHAANXI
CHAN JIANG SI YOU NENG YUAN FA ZHANG GUFENG YOU XIAN
GONG SI (1)
10.2 Lock Up Agreement among North American Gaming and
Entertainment Company, Steven Case and James Bowyer (1)
10.3 Lock-up Agreement *
10.4 Mining Exploration Certificate (1)
10.5 Land Use Right (1)
10.6 Lease Agreement (1)
21 Subsidiaries *
31.1 Certification of Chief Executive Officer under Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer under Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer under 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer under 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed herewith.
(1) Incorporated by reference from the Information Statement on Form 8-K
of North American Gaming and Entertainment Company filed with the Securities
and Exchange Commission on February 6, 2008.
40
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
On August 12, 2008, the Company filed a Form 8-K which, in part, disclosed a
change in auditors as of the closing date. The Company intended to replace its
previous auditors, Jimmy C.H. Cheung & Co. and engage BROCK, SCHECHTER &
POLAKOFF,LLP as our new principal independent accountants to perform
procedures related to our financial statements for the fiscal year ending
December 31, 2008, to be included on our Form 10-KSB under Section 13(a) or
15(d) under the Exchange Act.
Jimmy C.H. Cheung & Co's reports on the financial statements did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope, or accounting principles, except that the reports
contained an explanatory paragraph indicating that substantial doubt exists
about our ability to continue as a going concern.
We have had no disagreements with Jimmy C.H. Cheung & Co on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction
of Jimmy C.H. Cheung & Co would have caused it to make reference to
the subject matter of any such disagreements in their reports on the financial
statement for the periods ended December 31, 2007.
Jimmy C.H. Cheung & Co furnish a letter addressed to the Securities and
Exchange Commission stating that it is not in a position to agree or
disagree with the above statements, dated September 12, 2008. Jimmy C.H.
Cheung & Co took issue with the following disclosures in the 8-K A as follows:
The report of Cheung on NAGM's consolidated financial statements for the fiscal
years ended December 31, 2006 and December 31, 2007 dated March 22, 2008
noted that the accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 18 to the consolidated financial statements, the
Company had a net loss of $8,959,472, an accumulated deficit during the
exploration stage of $11,794,802 and a working capital deficiency of
$5,358,730 and used cash in operations of $442,727. These factors raise
substantial doubt about its ability to continue as a going concern. Except
as stated, the report did not contain any other adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope
or accounting principle. Additionally, Cheung's review of our interim periods
ending March31, 2007 and first quarter ended March 31, 2008 did not contain
any adverse opinion or disclaimer of opinion and was not qualified or modified
as to uncertainty, audit scope or accounting principle except as stated.
Jimmy C.H. Cheung & Co billed the Company $30,000 for 2007 audit. Our Board
of Directors engaged Jimmy C.H. Cheung & Co. as our new independent
registered public accounting firm. The Company had not consulted with Jimmy
C.H. Cheung & Co. prior to that time regarding (i) the application of
accounting principles to a specific completed or contemplated transaction, the
type of audit opinion that might be rendered on our financial statements, or
any written or oral advice that was an important factor considered by us in
reaching a decision as to an accounting, auditing or financial reporting
issue; or (ii) any matter that was the subject of a disagreement. The Company
has paid Brock, Schechter & Polakoff, LLP fees totaling $37,000 for its
services for audit work of the fiscal year 2008, report of internal control
over financial reporting and the review of the 2nd and 3rd quarters.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Ac t of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 2009
North American Gaming and Entertainment Company
By:
/s/ Chen Weidong
- ----------------
Chen Weidong,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the following capacities on the dates indicated.
Name & Title Date
/s/ Chen Weidong
- -----------------
Chief Executive Officer (Principal
Executive Officer), President, and Director April 15, 2009
/s/ Li Pin
- -----------
Chief Financial Officer (Principal
Financial Officer) April 15, 2009
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for establishing and maintaining adequate internal control
over financial reporting for North American Gaming and Entertainment (an
exploration company) and subsidiaries ("we" and "our"), as that term is
defined in Exchange Act Rules 13a-15(f). We conducted an evaluation of the
effectiveness of our internal control over our financial reporting as of
December 31, 2008 based on the framework in "Internal Control-Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, we concluded that our internal control
over financial Reporting is effective as of December 31, 2008.
Brock, Schechter & Polakoff, LLP, an independent registered public accounting
firm, has audited the consolidated financial statements included in this Annual
Report and has issued a report on the effectiveness of our internal control
over financial reporting. Their reports follow this statement.
Chen Weidong Li Pin
- ------------ ------
President and Chief Executive Officer Chief Financial Officer
April 15, 2009 April 15, 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
North American Gaming and Entertainment Corporation
(An Exploration Stage Company)
We have audited North American Gaming and Entertainment Corporation (an
exploration stage company) and subsidiaries internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on
Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a materialnegative effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
North American Gaming and Entertainment Corporation (an exploration stage
company) and subsidiaries as of December 31, 2008, and the related consolidated
statements of operations and comprehensive
loss, changes in stockholders' equity, and cash flows for the year ended
December 31, 2008, and our report dated April __, 2009 expressed a qualified
opinion on those consolidated financial statements.
Brock, Schechter & Polakoff, LLP
Certified Public Accountants
Buffalo, New York
April __, 2009
43
FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2008
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(An Exploration Stage Company)
CONTENTS
PAGES
_____________________________________________________________________________
Report of Independent Registered Public Accounting Firm 1
_____________________________________________________________________________
Consolidated Balance Sheet as of December 31, 2007 2
_____________________________________________________________________________
Consolidated Statements of Operations and Comprehensive
loss for the years ended December 31, 2007 and 2006 3
_____________________________________________________________________________
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2007 and 2006 4
_____________________________________________________________________________
Consolidated Statements of Cash Flows for the years
ended December 31, 2007 and 2006 6
_____________________________________________________________________________
Notes to Consolidated Financial Statements as of December 31, 2007 7 - 16
_____________________________________________________________________________
Brock, Schechter & Polakoff, LLP
Certified Public Accountants
Registered with the Public Company Accounting Oversight Board
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
North American Gaming and Entertainment Corporation
(An Exploration Stage Company)
We have audited the accompanying consolidated balance sheet of North American
Gaming and Entertainment Corporation (an exploration stage company) and
subsidiaries as of December 31, 2008 and the related consolidated statements of
operations and comprehensive loss, stockholders' equity and cash flows for the
year ended December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of North American Gaming and Entertainment Corporation and its
subsidiaries for the year ended December 31, 2007 were audited by other
auditors whose report thereon, dated March 22, 2008, expressed an unqualified
opinion.
Except as discussed in the following paragraph, we conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit of the financial statements provides a reasonable basisprices for our opinion.
We were unable to obtain sufficient evidential matter in connection with the
balance of the Company's goodwill as of December 31, 2008, and we were unable
to satisfy ourselves of the balance by performing other audit procedures. Any
impairment of this balance would effect the results of operations for the year
ended December 31, 2008.
In our opinion, except for the effects of such adjustments discussed in the
previous paragraph, the financial statements referred to above present fairly,
in all material respects, the financial position of North American Gaming and
Entertainment Corporation (an exploration stage company) and subsidiaries, as
of December 31, 2008, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 19 to
the consolidated financial statements, the Company had a net loss of
$1,467,426, an accumulated deficit during the exploration stage of $13,262,228
and a working capital deficiency of $7,713,248 and used cash in operations of
$388,011. These factors raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning this matter are also
described in Note 19. The accompanying consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company's internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated April __, 2009 expressed an unqualified opinion on
the effectiveness of the Company's internal control over financial reporting.
Brock, Schechter & Polakoff, LLP
Certified Public Accountants
New York
Date: April 15, 2009
726 Exchange Street Suit 822 Buffalo, New York 14210
Tel: (716) 854-5034 Fax: (716) 854-7195
Email: rs@bspcpa.com
Website:
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
ASSETS 2008 2007
----------- -----------
CURRENT ASSETS
Cash and cash equivalents 23,961 479,241
Note receivable - 133,000
Other current assets and prepayments 229,560 532,584
Due from related companies - 540,964
----------- -----------
Total Current Assets 253,521 1,685,789
FURNITURE AND EQUIPMENT, NET 235,800 252,941
LONG TERM INVESTMENTS 292,629 -
LAND USE RIGHTS, NET 17,508,609 16,743,482
GOODWILL 3,334,124 3,115,544
LONG TERM RECEIVABLE 1,754,586 -
----------- -----------
TOTAL ASSETS 23,379,269 21,797,756
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Other payables and accrued expenses 2,124,049 2,074,561
Notes payable 434,137 573,146
Due to stockholders 2,396,560 1,858,217
Due to related companies 3,446,160 2,510,892
Preferred stock debenture - 12,700
Preferred stock dividends payable - 15,003
----------- -----------
Total Current Liabilities 8,400,906 7,044,519
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
MINORITY INTERESTS 562,938 619,747
----------- -----------
STOCKHOLDERS' EQUITY
Series C convertible preferred stock ($0.01 par value,
10,000,000 shares authorized, 500,000 shares
issued and outstanding as of December 31, 2008) 5,000 -
Preferential treatment in distributions upon liquidation
Common stock ($0.01 par value, 200,000,000 shares
authorized, 24,216,058 shares issued, 24,216,058 shares
outstanding as of both December 31, 2008 and December
31, 2007) 417,886 417,886
Additional paid-in capital 24,208,127 23,528,678
Treasury stock (489,258) (489,258)
Accumulated deficits during the exploration stage *13,262,228* (11,794,802)
Accumulated other comprehensive income 3,535,898 2,470,986
----------- -----------
Total Stockholders' Equity 14,415,425 14,133,490
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 23,379,269 21,797,756
=========== ===========
The accompanying notes are an integral part of these financial statements
F-2
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008 2007 Accumulated
------------ ------------ -----------
OPERATING EXPENSES
General and administrative expenses 260,590 349,269 609,859
Legal and professional fee 449,224 - 449,224
Depreciation 35,779 29,712 65,491
Amortization of land use rights 395,944 367,480 763,424
------------ ------------ -----------
Total Operating Expenses 1,141,537 746,461 1,887,998
------------ ------------ -----------
LOSS FROM OPERATIONS (1,141,537) (746,461) (1,887,998)
OTHER INCOME (EXPENSES)
Interest income 2,229 2,692 4,921
Interest expenses (1,357) - (1,357)
Imputed interest expenses (353,951) (243,337) (597,288)
Other expenses (31,583) (1,567) (33,150)
----------- ------------ -----------
Total Other Expenses (384,662) (242,212) (626,874)
----------- ------------ -----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
EXPENSE AND MINORITY INTERESTS (1,526,199) (988,673) (2,514,872)
INCOME TAX EXPENSE - - -
MINORITY INTERESTS 58,773 56,435 115,208
----------- ------------ -----------
LOSS FROM CONTINUING OPERATIONS (1,467,426) (932,238) (2,399,664)
DISCONTINUED OPERATIONS
Loss on disposal of subsidiary - (8,027,234) (8,027,234)
----------- ------------ -----------
NET LOSS (1,467,426) (8,959,472) (10,426,898)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain 1,064,912 1,170,670 2,235,582
----------- ------------ -----------
COMPREHENSIVE LOSS $ (402,514) $ (7,788,802) (8,191,316)
=========== ============ ===========
Net loss per share-basic $ (0.061) $ (0.37) $ (0.434)
=========== ============ ===========
Net loss per share-diluted $ - $ - $ -
=========== ============ ===========
Weighted average number of shares outstanding
during the year-basic 24,216,058 24,216,058 24,216,058
=========== ============ ===========
Weighted average number of shares outstanding
during the year-diluted 609,000,000 609,000,000 609,000,000
=========== ============ ===========
The accompanying notes are an integral part of these financial statements
F-3
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
Treasury stock Series C
Convertible
Preferred Stock Common Stock
Share Amount Shares Amount Shares Amount
---------- -------- ------ ------ ---------- --------
Balance at
January 1,2007 - $ - - $ - - $ -
Imputed interest
expenses on due
to stockholders and
related companies - $ - - $ - - $ -
Stock issued in
recapitalization 17,572,494 (489,258) - $ - 24,216,058 417,886
Foreign currency
translation gain - $ - - $ - - $ -
Comprehensive income
---------- -------- ------ ------ ---------- --------
Balance at
December 31, 2007 17,572,494 (489,258) - $ - 24,216,058 417,886
Contribution by
stockholders - $ - - $ - - $ -
Stock issued in
recapitalization 500,000 5,000 - $ -
Imputed interest
expenses on due
to stockholders and
related companies - $ - - $ - - $ -
Comprehensive income
---------- -------- ------ ------ ---------- --------
Balance at
December 31, 2008 17,572,494 (489,258) 500,000 $5,000 24,216,058 $417,886
========== ======== ======= ====== ========== ========
The accompanying notes are an integral part of these financial statements
F-4
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
(CONTINUED)
Accumulated
Additional other
paid-in Accumulated comprehensive
capital deficits income Total
----------- ------------ ------------- -----------
Balance at January 1, 2007 $23,633,613 $ (2,835,330) $ 1,300,316 $22,098,599
Contribution by stockholders 128,205 - - 128,205
Stock issued in recapitalization 522,214 (998,691) - (547,849)
Recapitalization (998,691) 998,691 - -
Imputed interest expenses on
due to stockholders and
related companies 243,337 - - 243,337
Foreign currency translation gain - - 1,170,670 1,170,670
Net loss for the year (8,959,472) (8,959,472)
----------- ------------ ------------- -----------
Balance at December 31, 2007 23,528,678 (11,794,802) 2,470,986 14,133,490
=========== ============ ============= ===========
Contribution by stockholders 325,498 - - 325,498
Stock issued in recapitalization 5,000
Imputed interest expenses on
due to stockholders and
related companies 353,951 353,951
Net loss for the year (1,467,426) (1,467,426)
Foreign currency translation gain - - 1,064,912 1,064,912
----------- ------------ ------------- -----------
Balance at December 31, 2008 $24,208,127 $(13,262,228) $ 3,535,898 $14,415,425
=========== ============ ============= ===========
The accompanying notes are an integral part of these financial statements
F-5
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008 2007 Accumulated
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $(1,467,424) $ (932,238) (2,399,662)
Net loss from discontinued operations - (8,027,234) (8,027,234)
----------- ----------- -----------
Total net loss (1,467,424) (8,959,472) (10,426,896)
Adjusted to reconcile net loss to cash used
in operating activities:
Loss on disposal of subsidiary - 8,027,234 8,027,234
Depreciation 35,779 29,712 65,491
Amortization of land use rights 395,944 367,480 763,424
Imputed interest expense 353,951 243,337 597,288
Minority interests (58,773) (56,435) (115,208)
Changes in operating assets and liabilities
(Increase) decrease in:
Other current assets and prepayments 303,024 (254,098) 48,924
Increase (decrease) in:
Other payables and accrued expenses 49,488 159,515 209,003
Discontinued operations, net - -
----------- ----------- -----------
Net cash used in operating activities (388,011) (442,727) (830,738)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of note receivable - (133,000) (133,000)
Purchases of furniture and equipment (6,145) (42,954) (49,099)
Due from stockholder - 25,584 25,584
Due from related parties (888,124) (537,126) (1,425,250)
Payment for acquisition of long-term investment (292,629) (1,017,903) (1,310,532)
Net cash outflow from disposal of discontinued
operations - (1,406,430) (1,406,430)
Discontinued operations, net - - -
----------- ----------- -----------
Net cash used in investing activities (1,186,898) (3,111,829) (4,298,727)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by stockholders (325,498) 128,205 197,293
Proceeds from notes payable - 573,146 573,146
Proceeds from (repayments of) preferred stock debenture (12,700) 12,700
Proceeds from (repayments of) preferred stock dividends
payable (15,003) 15,003 -
Payments for recapitalization - (71,372) (71,372)
Additional paid-in capital - (481,477) (481,477)
Advances from (payments to) stockholders 538,343 (249,189) 289,154
Advances from related parties 935,268 2,146,708 3,081,976
Investment from minority stockholders - (619,747) (619,747)
Discontinued operations, net - - -
----------- ----------- -----------
Net cash provided by financing activities 1,120,410 1,453,977 2,574,387
----------- ----------- -----------
EFFECT OF EXCHANGE RATES ON CASH (781) 513,842 513,061
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (455,280) (1,586,737) (2,042,017)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 479,241 2,065,978 2,545,219
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,961 $ 479,241 503,202
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest expenses $ 1,357 $ - 1,357
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In Feburay, 2008 the Company offset the $ 133,000 notes receivable against the
Notes payable.
The accompanying notes are an integral part of these financial statements
F-6
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
North American Gaming and Entertainment Corporation ("North American")
was incorporated under the laws of the State of Delaware in 1969. North
American has had no operations or significant assets since incorporation to the
year ended December 31, 2006.
Hongkong Wah Bon Enterprise Limited ("Wah Bon") was incorporated in Hong Kong
on July 7, 2006 as an investment holding company.
Shaanxi Tai Ping Yang Xin Neng Yuan Development Company Limited ("Tai Ping
Yang") was incorporated as a limited liability company in the People's Republic
of China ("PRC") on July 20, 2007 as an investment holding company.
Chang Jiang Si You Neng Yuan Fa Zhang Gu Feng You Xiang Gong Si ("Chang Jiang")
(formerly Weinan Industrial and Commercial Company Limited) was incorporated as
a limited liability company in the PRC on March 19, 1999. Chang Jiang became a
joint stock company in January 2006 with its business activities in mining and
new energy development in Shaanxi PRC. In July, 2008, Chang Jiang change its
name to Shaanxi Chang Jiang Mining & New Energy Stock Company Ltd.
In August 2005, Chang Jiang contributed a piece of land valued at $7,928,532 in
lieu of cash to the registered capital of Shaanxi Huanghe Wetland Park Company
Limited ("Huanghe"), representing 92.93% of the equity of Huanghe. Huanghe was
incorporated as a limited liability company in the PRC on August 9, 2005 as
Shaanxi Chang Jiang Mining and New Energy Co., Limited and is engaged in the
development of a theme park in Xian, PRC.
On February 5, 2007, Chang Jiang entered into an agreement with a third party
to acquire 40% of the equity interest in Dongfang Mining Company Limited
("Dongfang Mining") at a consideration of $3,117,267 payable in cash. Dongfang
Mining is engaged in the exploration of lead, zinc and gold for mining in Xian,
PRC.
On March 22, 2007, Chang Jiang entered into an agreement with the majority
stockholder of Chang Jiang to exchange its 92.93% interest in Huanghe for 20%
equity interest in Dongfang Mining, which is owned by this Related party.
On August 15, 2007, 97.2% of the stockholders of Chang Jiang entered into a
definitive agreement with Tai Ping Yang and the stockholders of Tai Ping Yang
in which they disposed of their ownership in Chang Jiang to Tai Ping Yang for
98% of the ownership in Tai Ping Yang and cash of $1,328, 940, payable on or
before December 31, 2007.
On September 2, 2007, Wah Bon acquired 100% ownership of Tai Ping Yang for a
cash consideration of $128,205.
The acquisitions of Tai Ping Yang and Chang Jiang were accounted for as a
reorganization of entities under common control. Accordingly, the operations
of Wah Bon, Tai Ping Yang and Chang Jiang for the year ended December 31, 2007
were included in the consolidated financial statements as if the transactions
had occurred retroactively.
On May 30, 2007, amended to July 5, 2007, North American entered into a
Material Definitive Agreement, pursuant to which the shareholders of Chang
Jiang exchanged all their shares in Chang Jiang for 500,000 shares of series C
convertible preferred stock ("series C shares") in North American, which
carries the right of 1,218 votes per share and is convertible to 609,000,000
(pre a one for ten reverse split) common shares. North American will affect a
one for ten reverse stock splits after the closing of this transaction and upon
obtaining regulatory approval and approval of the North American shareholders.
The holders will not convert its series C convertible preferred stock until
after the completion of the reverse stock split. In connection with the
exchange, Chang Jiang will also deliver $370,000 to North American and certain
non-affiliates of North American will transfer to North American or its
designee a total of 3,800,000 shares of common stock with a par value of $0.01
per share, of North American which had been held for longer than 2 years by
such non-affiliates, in exchange for the issuance by North American to each of
such non-affiliates of 2,250,000 shares of common stock of North American.
Issued and outstanding shares of series C preferred stock shall automatically
be converted into that number of fully paid and non-assessable shares of common
stock based upon the conversion rate upon the filing by the Company of an
amendment to its Certificate of Incorporation, increasing the number of
authorized shares of common stock to 800,000,000 shares, changing the Company's
name to China Changjiang Mining and New Energy Company Limited and implementing
a one for ten reverse stock split. The transaction was closed on February 4,
2008 and Wah Bon became a wholly owned subsidiary of North American.
F-7
The members have limited liability for the obligations or debts of the entity.
The merger of North American and Wah Bon was treated for accounting purposes as
a capital transaction and recapitalization by Wah Bon ("the accounting
acquirer") and re-organization by North American ("the accounting acquiree").
The consolidated financial statements have been prepared as if the
reorganization had occurred retroactively.
Accordingly, the consolidated financial statements include the
following:
(1) The balance sheets consisting of the net assets of the acquirer at
historical cost and the net assets of the acquiree at historical
cost.
(2) The statements of operations including the operations of the
acquirer for the periods presented and the operations of the
acquiree from the date of the merger.
North American, Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining are
hereafter referred to as (the "Company").
The Company is considered to be an exploration stage company. This requires
that information is presented to show the cumulative results of the Company
since its inception as an exploration stage company. Even though members of
the Company have been in existence prior to 2007, the Company considers itself
to have become an exploration stage company when it acquired Dongfang Mining on
March 22, 2007. The accumulated columns shown on the consolidated statements
of operations and comprehensive loss and the consolidated statements cash flows
have been provided to show cumulative balances from March 22, 2007 through
December 31, 2008.
(B)Use of estimates
The preparation of the consolidated financial statements in Conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affects the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
(C)Principles of consolidation
The accompanying consolidated financial statements as of December 31, 2008 and
2007 consolidate the financial statements of North American and its 100% owned
subsidiary Wah Bon, 100% owned subsidiary Tai Ping Yang, 97.2% owned subsidiary
Chang Jiang and 60% owned subsidiary Dongfang Mining. The minority interests
represent the minority shareholders' 2.8% and 40% shares of the results of
Chang Jiang and Dongfang Mining, respectively.
All significant inter-company balances and transactions have been eliminated in
consolidation.
(D) Business combinations between entities under common control
On August 15, 2007, 97.2% of the stockholders of Chang Jiang entered into a
definitive agreement with Tai Ping Yang and the stockholders of Tai Ping Yang
in which they disposed their ownership in Chang Jiang to Tai Ping Yang for
98% of ownership in Tai Ping Yang and a cash consideration of $1,328,940,
payable on or before December 31, 2007. On September 2, 2007, Wah Bon acquired
100% ownership of Tai Ping Yang at a consideration of $128,205, payable
entirely in cash. All the entities were either under common ownership or shared
common management.
These transactions were accounted for as a reorganization of entities under
common control. Accordingly, the operations of Tai Ping Yang for the period
from inception to December 31, 2008 and the operations of Chang Jiang for the
years ended December 31, 2008 and 2007 were included in the consolidated
financial statements as if the transactions had occurred at the beginning of
the first period presented, with each account stated at its historical cost.
In this regard, the prior year's consolidated financial statements and
financial information have been adjusted retroactively to combine the
previously separate entities to furnish comparative financial information.
F-8
(E)Cash and cash equivalents
For purpose of the consolidated statements of cash flows, cash and cash
equivalents include cash on hand and demand deposits with a bank with a
maturity of less than three months.
(F)Furniture and equipment
Furniture and equipment are stated at cost, less accumulated
depreciation. Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged to expense
as incurred.
Depreciation is provided on a straight-line basis, less estimated residual
value, over the assets' estimated useful lives. The estimated useful lives
are as follows:
Buildings 10 Years
Motor vehicles 10 Years
Furniture and office equipment 5 Years
Land use rights are stated at cost less accumulated amortization and are
amortized over the term of the relevant land-use rights.
(G)Long-lived assets
The Company accounts for long-lived assets under the Statements of
Financial Accounting Standards Nos. 142 and 144 "Accounting for Goodwill and
Other Intangible Assets" and "Accounting for Impairment or Disposal of Long-
Lived Assets" ("SFAS No. 142 and 144"). In accordance with SFAS No. 142 and
144, long-lived assets, goodwill and certain identifiable intangible assets
held and used by the Company are reviewed for impairment annually or
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. For purposes of evaluating the
recoverability of long-lived assets, when undiscounted future cash flows
will not be sufficient to recover an asset's carrying amount, the asset is
written down to its fair value. The Company believes that no impairment of
furniture and equipment or land use rights existed at December 31, 2008 and
2007.
(H)Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," requires certain disclosures regarding the
fair value of financial instruments. Fair value of financial
instruments is made at a specific point in time, based on relevant
information about financial markets and specific financial instruments. As
these estimates are subjective in nature, involving uncertainties and
matters of significant judgment, they cannot be determined with
precision. Changes in assumptions can significantly affect estimated fair
values.
The carrying value of other current assets and prepaid expenses, other
payables and accrued liabilities approximate their fair value because of the
short-term nature of these instruments.
F-9
The Company's major operation is in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between the United States dollars
("US$") and the Chinese Renminbi ("RMB"). securities.
At December 31, 2008,2009, the new RMB rate against the US$ was approximately 6.8346. Historically, the PRC government
has benchmarked the RMB exchange ratio against the US$, thereby
mitigating the associated foreign currency exchange rate fluctuation risk.
The Company does not believe that its foreign currency exchange rate
fluctuation risk is significant, especially if the PRC government continues
to benchmark the RMB against the US$.
(I)Income taxes
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, 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. 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.
Under Statement 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that included
the enactment date.
In addition, we account for uncertain tax positions in accordance with FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109", ("FIN 48") which was issued in July
2006. FIN 48 prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return and also provides guidance on various
related matters such as de-recognition, interest, penalties and disclosures
required. We recognize interest and penalties, if any, related to unrecognized
tax benefits in income tax expense.
(J)Foreign currency translation
North American, Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining
maintain their accounting records in their functional currencies of US$ and RMB
respectively.
Foreign currency transactions during the year are translated to the
functional currency at the approximate rates of exchange on the dates of
transactions. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the approximate rates
of exchange at that date. Non-monetary assets and liabilities are translated
at the rates of exchange prevailing at the time the asset or liability was
acquired. Exchange gains or losses are recorded in the statement
operations.
The consolidated financial statements of Wah Bon (whose functional currency is
RMB), Tai Ping Yang, Chang Jiang and Dongfang mining (whose functional
currency is RMB) are translated into US$ using the closing rate method. The
balance sheet items are translated into US$ using the exchange rates at the
respective balance sheet dates. The capital and various reserves are
translated at historical exchange rates prevailing at the time of the
transactions while income and expenses items are translated at the average
exchange rate for the year. All exchange differences are recorded within
equity.
The translation gain recorded for the years ended December 31, 2008 and 2007
was $1,064,912 and $1,170,670 respectively.
F-10
(K)Comprehensive loss6.8282. The foreign currency translation gain or loss resulting from translation of the consolidated financial statements expressed in RMB to US$ is reported as other comprehensive income in the consolidated statements of operations and comprehensive loss and stockholders'stockholders’ equity. The foreign currency translation gain (loss) recorded for the years ended December 31, 2009 and 2008 was ($ 38,951) and $1,064,912 respectively. The equity accounts were stated at their historical rate.
21 |Page
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 and 2008
22 |Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(An Exploration Stage Company)
CONTENTS
PAGES
Report of the Independent Registered Public Accounting Firm
1
Consolidated Balance Sheets as of December 31, 2009 and 2008
2
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 2009 and 2008
3
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2009 and 2008
4-5
Consolidated Statements of Cash Flows for the years
ended December 31, 2009 and 2008
6
Notes to Consolidated Financial Statements
7 - 16
Brock, Schechter & Polakoff, LLP
Certified Public Accountants
Registered with the Public Company Accounting Oversight Board
23 |Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
North American Gaming and Entertainment Corporation
(An Exploration Stage Company)
We have audited the accompanying consolidated balance sheets of North American Gaming and Entertainment Corporation (an exploration stage company) and subsidiaries as of December 31, 2009 and December 31, 2008 and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
Except as discussed in the following paragraph, 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits of the consolidated financial statements provide a reasonable basis for our opinion.
We were unable to obtain sufficient evidential matter in connection with the balances of the Company’s goodwill as of December 31, 2009 and December 31, 2008, and we were unable to satisfy ourselves of the balances by performing other audit procedures. Any impairment of these balances would affect the results of operations for the years ended December 31, 2009 and December 31, 2008.
We were unable to obtain sufficient evidential matter in connection with the Company’s common stock as of December 31, 2009 and December 31, 2008, and we were unable to satisfy ourselves as to the balances or amounts of shares authorized, issued,and outstanding by performing other audit procedures.
In our opinion, except for the effects of any adjustments and additional disclosures that might have resulted had we been able to obtain sufficient audit evidence in connection with the Company’s goodwill and common stock, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North American Gaming and Entertainment Corporation (an exploration stage company) and subsidiaries as of December 31, 2009 and December 31, 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 16 to the consolidated financial statements, the Company had a net loss of $104,557 for the year ended December 31, 2009, an accumulated deficit during the exploration stage and a working capital deficiency of $13,366,785 and $7,787,760, respectively, at December 31, 2009, and used cash in operations of $531,480 during the year ended December 31, 2009. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning this matter are also described in Note 16. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Brock, Schechter & Polakoff, LLP
Certified Public Accountants
Buffalo, New York
Date: April 16, 2010
726 Exchange Street, Suite 822, Buffalo, New York 14210
Tel: (716) 854-5034 Fax: (716) 854-7195
Email: JRW@bspcpa.com
Website: www.bspcpa.com
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
ASSETS
2009
2008
CURRENT ASSETS
Cash and cash equivalents
27,279
23,961
Note receivable
1,098,386
-
Other current assets and prepayments
33,770
229,560
---------------------
Total Current Assets
1,159,435
253,521
PROPERTY AND EQUIPMENT, NET
200,690
235,800
LONG TERM INVESTMENTS
292,903
292,629
LAND USE RIGHTS, NET
17,115,077
17,508,609
GOODWILL
3,337,249
3,334,124
LONG TERM RECEIVABLE
1,193,431
1,174,734
DEFERRED TAX ASSET
218,602
-
-----------------------------
TOTAL ASSETS
23,517,387
22,799,417
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Other payables and accrued expenses
1,882,945
2,124,049
Notes payable – related party
434,137
434,137
Due to related Parties
3,996,369
3,446,160
Due to stockholders
2,418,796
2,396,560
Deferred tax liability
214,948
-
-----------------------------
Total Current Liabilities
8,947,195
8,400,906
-----------------------------
COMMITMENTS AND CONTINGENCIES
-
-
---------------------------
STOCKHOLDERS' EQUITY
Series C convertible preferred stock ($0.01 par value,
10,000,000 shares authorized, 500,000 shares
issued and outstanding as of December 31, 2008)5,000
5,000
Common stock ($0.01 par value, 200,000,000 shares
authorized, 41,788,552 shares issued,
24,216,058 shares outstanding as of both
December 31, 2009 and December 31, 2008) 417,886
417,886
Additional paid-in capital
23,974,728
23,628,275
Treasury stock, 17,572,494 shares, at cost
(489,258)
(489,258)
Non-controlling interests
531,674
562,938
Accumulated deficits during the exploration stage
(13,366,785）
(13,262,228)
Accumulated other comprehensive income
3,496,947
3,535,898
----------------------------
Total Stockholders' Equity
14,570,192
14,398,511
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
23,517,387
22,799,417
============================
The accompanying notes are an integral part of these financial statements
24 |Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
2008
Accumulated
------------
------------
------------
REVENUE
1,097,872
-
1,097,872
------------
------------
------------
OPERATING EXPENSES
General and administrative expenses
300,809
260,590
910,668
Legal and professional fees
95,595
449,224
544,819
Depreciation
36,755
35,779
102,246
Amortization of land use rights
409,750
395,944
1,173,174
------------
------------
------------
Total Operating Expenses
842,909
1,141,537
2,730,907
------------
------------
------------
INCOME (LOSS) FROM OPERATIONS
254,963
(1,141,537)
(1,633,035）
OTHER INCOME (EXPENSES)
Interest income
152
2,229
5,073
Interest expenses
(12,028)
(1,357)
(13,385）
Imputed interest expenses
(346,453)
(353,951)
(943,741）
Bad debt expense
(73,192)
-
(73,192)
Other expenses
(2,942)
(31,583)
（36,092）
------------
------------
------------
Total Other Expenses
(434,462)
(384,662)
(1,061,336）
------------
------------
------------
LOSS BEFORE INCOME TAX
AND NON-CONTROLLING INTERESTS
(179,499)
(1,526,199)
(2,694,371）
DEFERRED INCOME TAX BENEFIT
3,652
-
3,652
NON-CONTROLLING INTERESTS
71,290
58,773
186,498
------------
------------
------------
LOSS FROM CONTINUING OPERATIONS
(104,557)
(1,467,426)
(2,504,221）
DISCONTINUED OPERATIONS
Loss on disposal of subsidiary
-
-
(8,027,234）
------------
------------
------------
NET LOSS
(104,557)
(1,467,426)
(10,531,455）
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain (loss)
(38,951)
1,064,912
3,496,947
------------
------------
------------
COMPREHENSIVE LOSS
$(143,508)
$ (402,514)
(7,034,508）
============
============
============
Net loss per share-basic
$ (0.0043)
$(0.0606)
============
============
Net loss per share-diluted
$ (0.0002)
$ (0.0024)
============
============
Weighted average number of shares outstanding
during the year-basic
24,216,058
24,216,058
============
============
Weighted average number of shares outstanding
during the year-diluted
609,000,000
609,000,000
============
============
The accompanying notes are an integral part of these financial statements
25 |Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Treasury stock
Series C
Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Shares
Amount
-------
-------
-------
------
----------
--------
Balance at
January 1, 2008
17,572,494
$(489,258)
500,000
$5,000
41,788,552
$417,886
Imputed interest
expenses on due
to stockholders and
related companies
-
-
-
-
-
-
Net loss for year
-
-
-
-
-
-
Foreign currency
translation gain
-
-
-
-
-
-
Comprehensive income
----------
----------
----------
--------
-----------
---------
Balance at
December 31, 2007
17,572,494
(489,258)
500,000
5,000
41,788,552
417,886
Imputed interest
expenses on due
to stockholders and
related companies
-
-
-
-
-
-
Net loss for the year
-
-
-
-
-
-
Foreign currency
translation gain
-
-
-
-
-
-
----------
-------
----------
--------
-----------
---------
Balance at
December 31, 2008
17,572,494
$(489,258)
500,000
$5,000
41,788,552
417,886
=======
=======
=======
======
==========
========
During the year ended December 31, 2007, the Company recapitalized its equity. During the recapitalization process, 41,788,552 common shares were issued for $417,886 and 17,572,494 shares were repurchased into treasury at a cost of $489,258.
The accompanying notes are an integral part of these financial statements
26 |Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(CONTINUED)
Accumulated
Additional
Non-
other
paid-in
Controlling
Accumulated
comprehensive
capital
Interests
deficits
income
Total
-----------
--------
------------
-------------
-----------
Balance at January 1, 2008
$23,274,324
$619,747
$(11,794,802)
$2,470,986
$14,503,883
Imputed interest expenses on
due to stockholders and
related companies
353,951
-
-
-
353,951
Net loss for the year
-
(58,773)
(1,467,426)
-
(1,526,199)
Foreign currency translation gain -
1,964
-
1,064,912
1,066,876
-----------
-----------
------------
-------------
-----------
Balance at December 31, 2008
23,628,275
562,938
(13,262,228)
3,535,898
14,398,511
Imputed interest expenses on
due to stockholders and
related companies
346,453
-
-
-
346,453
Net loss for the year
-
(71,290)
(104,557)
-
(175,847)
Foreign currency translation
gain (loss)
-
40,026
-
(38,951)
1,075
-----------
------------
------------
-------------
-----------
Balance at December 31, 2009
$23,974,728
$531,674
$(13,366,785)
$3,496,947
$14,570,192
===========
============
============
=============
===========
The accompanying notes are an integral part of these financial statements
27 |Page
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
2008
Accumulated
-----------
-----------
-----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations
$(104,557)
$(1,467,426)
(2,504,221）
Net loss from discontinued operations
-
-
(8,027,234）
-----------
-----------
-----------
Total net loss
(104,557)
(1,467,426)
(10,531,455）
Adjusted to reconcile net loss to cash used
in operating activities:
Loss on disposal of subsidiary
-
-
8,027,234
Depreciation
36,755
35,779
102,246
Amortization of land use rights
409,750
395,944
1,173,174
Imputed interest expense
346,453
353,951
943,740
Bad debt provision
73,192
-
73,192
Deferred tax benefit
(3,652)
-
(3,652)
Non-controlling interests
(71,290)
(58,773)
(186,498）
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable
(1,097,872)
-
(1,097,872)
Other current assets and prepayments
122,722
303,024
171,648
Increase (decrease) in:
Other payables and accrued expenses
(242,981)
49,488
(33,978)
-----------
-----------
-----------
Net cash used in operating activities
(531,480)
(388,013)
(1,362,221)
-----------
-----------
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of note receivable
-
-
(133,000)
Purchases of property and equipment
(2,052)
(6,145)
(51,151）
Due from stockholder
-
-
25,584
Due from related parties
(17,044)
(883,124)
(1,437,294）
Payment for acquisition of long-term investment
-
(292,629)
(1,310,532）
Net cash outflow from disposal of discontinued
Operations
-
-
(1,406,430）
-----------
-----------
-----------
Net cash used in investing activities
(19,096)
(1,181,898)
(4,312,823）
-----------
-----------
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by stockholders
-
-
128,205
Proceeds from notes payable
-
-
573,146
Repayments of preferred stock debenture
-
(12,700)
-
Repayments of preferred stock dividends payable
-
(15,003)
-
Payments for recapitalization
-
-
(71,372）
Additional paid-in capital
-
-
(481,477）
Advances from stockholders
19,980
538,343
309,134
Advances from related parties
546,723
935,268
3,628,699
Investment from minority stockholders
-
-
(619,747）
-----------
-----------
-----------
Net cash provided by financing activities
566,703
1,445,908
3,466,588
-----------
-----------
-----------
EFFECT OF EXCHANGE RATES ON CASH
(12,809)
(331,277)
169,757
-----------
-----------
-----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
3,318
(455,280)
(2,038,699）
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
23,961
479,241
2,065,978
-----------
-----------
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 27,279
$ 23,961
$ 27,279 = =========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest
$ 12,028
$ 1,357
$ 13,385
===========
===========
===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In 2009， the Company increased additional paid-in capital by $346,453 with non-cash interest.
In 2008, the Company increased additional paid-in capital by $353,951 with non-cash interest.
The accompanying notes are an integral part of these financial statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
North American Gaming and Entertainment Corporation ("North American")
was incorporated under the laws of the State of Delaware in 1969. North
American has had no operations or significant assets since incorporation
to the year ended December 31, 2006.
Hongkong Wah Bon Enterprise Limited ("Wah Bon") was incorporated in Hong
Kong on July 7, 2006 as an investment holding company.
Shaanxi Tai Ping Yang Xin Neng Yuan Development Company Limited ("Tai
Ping Yang") was incorporated as a limited liability company in the
People's Republic of China ("PRC") on July 20, 2007 as an investment
holding company.
Chang Jiang Si You Neng Yuan Fa Zhang Gu Feng You Xiang Gong Si ("Chang
Jiang") (formerly Weinan Industrial and Commercial Company Limited) was
incorporated as a limited liability company in the PRC on March 19,
1999. Chang Jiang became a joint stock company in January 2006 with its
business activities in mining and new energy development in Shaanxi PRC.
In July, 2008, Chang Jiang change its name to Shaanxi Chang Jiang Mining
& New Energy Stock Company Ltd.
In August 2005, Chang Jiang contributed a piece of land valued at
$7,928,532 in lieu of cash to the registered capital of Shaanxi Huanghe
Wetland Park Company Limited ("Huanghe"), representing 92.93% of the
equity of Huanghe. Huanghe was incorporated as a limited liability
company in the PRC on August 9, 2005 as Shaanxi Chang Jiang Mining
and New Energy Co., Limited and is engaged in the development of
a theme park in Xian, PRC.
On February 5, 2007, Chang Jiang entered into an agreement with a third
party to acquire 40% of the equity interest in Dongfang Mining Company
Limited ("Dongfang Mining") at a consideration of $3,117,267 payable in
cash. Dongfang Mining is engaged in the exploration of lead, zinc and
gold for mining in Xian, PRC.
On March 22, 2007, Chang Jiang entered into an agreement with the
majority stockholder of Chang Jiang to exchange its 92.93% interest in
Huanghe for 20% equity interest in Dongfang Mining, which is owned by this
Related party.
On August 15, 2007, 97.2% of the stockholders of Chang Jiang entered
into a definitive agreement with Tai Ping Yang and the stockholders of
Tai Ping Yang in which they disposed of their ownership in Chang Jiang to
Tai Ping Yang for 98% of the ownership in Tai Ping Yang and cash of
$1,328, 940, payable on or before December 31, 2007.
On September 2, 2007, Wah Bon acquired 100% ownership of Tai Ping Yang
for a cash consideration of $128,205.
The acquisitions of Tai Ping Yang and Chang Jiang were accounted for as
a reorganization of entities under common control. Accordingly, the
operations of Wah Bon, Tai Ping Yang and Chang Jiang for the year ended
December 31, 2007 were included in
the consolidated financial statements as if the transactions had
occurred retroactively.
On May 30, 2007, amended to July 5, 2007, North American entered into a
Material Definitive Agreement, pursuant to which the shareholders of
Chang Jiang exchanged all their shares in Chang Jiang for 500,000 shares
of series C convertible preferred stock ("series C shares") in North
American, which carries the right of 1,218 votes per share and is
convertible to 609,000,000 (pre a one for ten reverse split) common
shares. North American will affect a one for ten reverse stock splits
after the closing of this transaction and upon obtaining regulatory
approval and approval of the North American shareholders. The holders
will not convert its series C convertible preferred stock until after
the completion of the reverse stock split. In connection with the
exchange, Chang Jiang will also deliver $370,000 to North American and
certain non-affiliates of North American will transfer to North American
or its designee a total of 3,800,000 shares of common stock with a par value
of $0.01 per share, of North American which had been held for longer
than 2 years by such non-affiliates, in exchange for the issuance by
North American to each of such non-affiliates of 2,250,000 shares of
common stock of North American. Issued and outstanding shares of series C
preferred stock shall automatically be converted into that number of
fully paid and non-assessable shares of common stock based upon the
conversion rate upon the filing by the Company of an amendment to its
Certificate of Incorporation, increasing the number of authorized shares
of common stock to 800,000,000 shares, changing the Company's name to
China Changjiang Mining and New Energy Company Limited and implementing
a one for ten reverse stock split. The transaction was closed on
February 4, 2008 and Wah Bon became a wholly owned subsidiary of North
American.
The members have limited liability for the obligations or debts of the entity.
The merger of North American and Wah Bon was treated for accounting
purposes as a capital transaction and recapitalization by Wah Bon ("the
accounting acquirer") and re-organization by North American ("the
accounting acquiree"). The consolidated financial statements
have been prepared as if the reorganization had occurred retroactively.
Accordingly, the consolidated financial statements include the following:
(1) The balance sheets consisting of the net assets of the acquirer at
historical cost and the net assets of the acquiree at historical
cost.
(2) The statements of operations including the operations of the
acquirer for the periods presented and the operations of the
acquiree from the date of the merger.
North American, Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining
are hereafter referred to as (the "Company").
The Company has operations in the real estate and mining segments. All revenues
have been generated from the Company’s real estate operations in the Peoples
Republic of China (“PRC”).
The Company is considered to be an exploration stage company. This requires
that information is presented to show the cumulative results of the Company since
its inception as an exploration stage company. Even though members of the Company
have been in existence prior to 2007, the Company considers itself to have become
an exploration stage company when it acquired Dongfang Mining on March 22, 2007.
The accumulated columns shown on the consolidated statements of operations and comprehensive
loss and the consolidated statements cash flows have been provided to show cumulative
balances from March 22, 2007 through December 31, 2009.
The sharelders of NAGM set up a new Company, name China Changjiang Mining & New Energy Co.Ltd
(China Chiangjiang),in the State of Nevada on September 19, 2008.China Changjiang shall be merged
with NAGM,and replace the name of “NAGM” in the future. There is no asset or liability for China
Changjiang so far.
(B)Use of estimates
The preparation of the consolidated financial statements in
conformity with U.S. generally accepted accounting principles requires management
to make estimates and assumptions that affects the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at
the dates of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
(C)Principles of consolidation
The accompanying consolidated financial statements as of December 31,
2009 and 2008 consolidate the financial statements of North American and
its 100% owned subsidiary Wah Bon, 100% owned subsidiary Tai Ping Yang,
97.2% owned subsidiary Chang Jiang and 60% owned subsidiary Dongfang
Mining. The minority interests represent the minority shareholders' 2.8%
and 40% shares of the results of Chang Jiang and Dongfang Mining,
respectively.
All significant inter-company balances and transactions have been
eliminated in consolidation.
(D)Cash and cash equivalents
For purpose of the consolidated statements of cash flows, cash and cash equivalents
include cash on hand and demand deposits with a bank with a maturity of
less than three months.
28 |Page
(E)Property and equipment
Property and equipment are stated at cost, less accumulated
depreciation. Ex-penditures for additions, major renewals and betterments
are capitalized and expenditures for maintenance and repairs are charged
to expense as incurred.
Depreciation is provided on a straight-line basis, less estimated
residual value, over the assets' estimated useful lives. The estimated
useful lives are as follows:
Buildings
10 Years
Motor vehicles
10 Years
Furniture and office equipment
5 Years
Land use rights are stated at cost less accumulated amortization and
are amortized over the term of the relevant land-use rights.
(F)Long-lived assets
Long-lived assets, goodwill and certain identifiable
intangible assets held and used by the Company are reviewed for
impairment annually or whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets, when
undiscounted future cash flows will not be sufficient to recover an
asset's carrying amount, the asset is written down to its fair value.
The Company believes that no impairment of property and equipment or land
use rights existed at December 31, 2009 and 2008.
(G) Receivables
Accounts receivable are carried at their estimated collectible amounts. Trade
credit is generally extended on a short-term absis, thus accounts receivable
do not bear interest, though a finance charge may be applied to such receivables
that are past due.
The long term receivable refers to the receivable from customers
or other parties that is not expected to be coolected within the next year. If the receivable bears interest
according to the agreement, the long term receivable shall be stated in present value.
An allowance for doubtful accounts is established and determined based on
management’s assessment of known requirements, aging of receivables, payment
history, the customer’s current credit worthiness and the economic environment.
(H)Fair value of financial instruments
The fair value of financial instruments is made at a specific point in time, based on
relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be
determined with precision. Changes in assumptions can significantly
affect estimated fair values.
The carrying value of other current assets and prepaid expenses, other
payables and accrued liabilities approximate their fair value because of
the short-term nature of these instruments.
The Company's major operation is in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between the United States dollars
("US$") and the Chinese Renminbi ("RMB"). At December 31, 2009, the new RMB
�� rate against the US$ was approximately 6.8282. Historically, the PRC government
has benchmarked the RMB exchange ratio against the US$, thereby
mitigating the associated foreign currency exchange rate fluctuation
risk. The Company does not believe that its foreign currency exchange
rate fluctuation risk is significant, especially if the PRC government
continues to benchmark the RMB against the US$.
29 |Page
(I) Revenue Recognition
Revenue from mining operations is recognized when all of the following criteria are met:
-
Persuasive evidence of an arrangement exists;
-
Delivery has occurred;
-
The seller's price to the buyer is fixed or determinable; and
-
Collectability is reasonably assured. Payments have been established.
As the Company is still in the exploration stage, no mining revenue has been generated.
Our present revenues for year ended December 31, 2009 were generated from the rental of the land use right. We recognize rental revenues because the land was occupied during the year ended December 31, 2009, the fees we charged were fixed or determinable, we and our customers understand the specific nature and terms of the agreed-upon transactions and collectability is reasonably assured. The revenue recognized only
related to the rental of the land use rights in the year ended December 31, 2009.
(J) Mining Costs
The costs of mining consists of power expense, salary and welfare of the workers, carring expense within the mining area, the depreciation of equimpment,and the expense for disposal of waste ore. These costs are charged to expense as they are incurred.
(K)Taxes Assessed by Governmental Units
The Company presents revenue and taxes assessed by governmental units on revenue producing transactions on a gross basis in the consolidated statements of operations and comprehensive loss.
(L)Income taxes
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. 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. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment date.
In addition, we account for uncertain tax positions
using a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return and also provides guidance on various related
matters such as de-recognition, interest, penalties and disclosures required. We
recognize interest and penalties, if any, related to unrecognized tax benefits
in income tax expense.
(M)Foreign currency translation
North American maintaine it’s according records in its functional curreny of US.dollars,
Wah Bon, Tai Ping Yang, Chang Jiang and Dongfang Mining maintain their accounting
records in their functional currency of Chinese reminbi (rmb).
Foreign currency transactions during the year are translated to the
functional currency at the approximate rates of exchange on the dates of
transactions. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the approximate
rates of exchange at that date. Non-monetary assets and liabilities are
translated at the rates of exchange prevailing at the time the asset or
liability was acquired. Exchange gains or losses are recorded in the
statement operations.
The consolidated financial statements of Wah Bon, Tai Ping Yang, Chang
Jiang and Dongfang Mining (whose functional currency is RMB) are
translated into US$ using the closing rate method. The balance sheet
items are translated into US$ using the exchange rates at the respective
balance sheet dates. The capital and various reserves are translated
at historical exchange rates prevailing at the time of the transactions
while income and expenses items are translated at the average exchange
rate for the year. All exchange differences are recorded within equity.
The translation gain (loss) recorded for the years ended December 31, 2009 and
2008 was $38,951 and $1,064,912 respectively.
(N)Comprehensive loss
The foreign currency translation gain or loss resulting from translation
of the consolidated financial statements expressed in RMB to US$ is reported
as other comprehensive income in the consolidated statements of operations
and $1,170,670comprehensive loss and stockholders’ equity.
The foreign currency translation gain (loss) for the years ended December 31, 2009
and 2008 was $38,951 and $1,064,912 respectively.
(L)
30 |Page
(O)Subsequent events
The Company has evaluated for subsequent events through April 15, 2010, the date the financial statements
were made available to be issued.
(P)Loss per share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted loss per share is computed similar to basic
loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common
shares were dilutive.
(M)
(Q)Segments
As of December 31, 2008,2009, the Company operates in only onetwo reportable segment, mining for mineral ores,
which is still at an exploration stage. As of
December 31, 2007,stage, and the Company operated in two reportable segments, theme
parks and mining for mineral ores.
Currently, and in the near future, the Company is and will be engaged in the
mining. But the Company also tried to develop other business, for example, the
new energy business. The Company invested in the Changjiang Electric in
September,2008.
real estate.
All of the assets and business is located in China, and all of the operating losses have come
from the foreign operations*operations（outside United States*States）.
(N)
(R) Recent Accounting Pronouncements
In 2007, the Financial Accounting Standards Board (“FASB”) released revised guidance surrounding the accounting for business combinations. This revised guidance requires an acquiror to recognize the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at acquisition date, measured at their fair values as of that date, with limited exceptions. The revised guidance also requires that certain acquisition related costs and restructuring costs be expensed as incurred, and eliminates the recognition of a separate valuation allowance, such as an allowance for credit losses, as of the acquisition date for assets acquired in a business combination that are measured at their acquisition date fair values because the effects of uncertainty about future cash flows are included in the fair value measurement of those assets. This guidance was effective for business combinations consummated in fiscal years beginning on or after December 15, 2008, and therefore we are required to apply this guidance for any business combinations entered into during 2009 and beyond.
In May 2008,2009, the FASB issued guidance related to subsequent events. This guidance establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued and was effective for interim and annual periods ending after June 15, 2009. The Company has implemented this guidance in the December 31, 2009 consolidated financial statements.
In June 2009, the FASB released SFAS No. 162, "The Hierarchynew guidance which addresses the effects on certain provisions of Generally Accepted Accounting Principles". This statement identifiescurrent accounting guidance relating to the sourcesconsolidation of variable interest entities, as a result of the elimination of the qualifying special-purpose entity concept. It addresses concerns about the application of certain key provisions of current accounting principles and the framework for selectingguidance, including those in which the accounting principles usedand disclosures do not always provide timely and useful information about a company’s involvement in a variable interest entity. This guidance requires us to perform an analysis to determine whether any of our variable interests give us a controlling financial interest in a variable interest entity. In addition, this guidance requires ongoing assessments of whether we are the preparationprimary beneficiary of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. SFAS No. 162a variable interest entity. This guidance is effective 60 daysfor fiscal years, and i nterim periods within those fiscal years, beginning after the SEC's 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". The Company doesNovember 15, 2009. This guidance is not expect the implementation of this
guidanceexpected to have a material impact on the consolidated financial
statements.
our Consolidated Financial Statements
In March 2008,January 2010, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement No.
133". SFAS No. 161 gives financial statement users better information
about the reporting entity's hedges by providing for qualitativereleased new guidance requiring entities to make new disclosures about the objectivesrecurring and strategies for using derivatives,
quantitative data about thenonrecurring fair value measurements, including significant transfers into and out of Level 1 and gainsLevel 2 fair value measurements. This guidance also requires information on purchases, sales, issuances, and lossessettlements on derivative contracts, and detailsa gross basis in the reconciliation of credit-risk-related contingent
features in their hedged positions. SFAS No. 161Level 3 fair value measurements. This guidance is effective for financial statements issued for fiscal years, beginning after November 15,
2008 and interim periods within those years. The Company does not expect
the adoption of SFAS No. 161 to have a material effect on the consolidated
financial statements.
In September 2006, FASB issued Statement 157, "Fair Value Measurements".
This statement defines fair value and establishes a framework for
measuring fair value in generally accepted accounting principles
("GAAP"). More precisely, this statement sets forth a standard
definition of fair value as it applies to assets or liabilities, the
principal market (or most advantageous market) for determining fair
value (price), the market participants, inputs and the application of
the derived fair value to those assets and liabilities. The effective
date of this pronouncement is for all full fiscal and interim periods
beginning after November 15, 2007. The Company does not expect the
adoption of SFAS No. 157 to have an impact on the Company's results
of operations or financial condition.
In February 2007, the FASB released SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities". The standard is effective
for fiscal years, beginning after NovemberDecember 15, 2007. The standard provides
entities the ability, on an elective basis, to report most financial
assets and financial liabilities at fair value, with corresponding gains
and losses recognized in current earnings. The Company did not elect the
fair value option under SFAS 159 as of January 1, 2008 for any of our
financial assets and liabilities that were not already fair valued. The
Company will consider applying the fair value option to future
transactions as provided by the standard. The Company does not expect SFAS
159 to have a material impact on the consolidated financial statements.
In December 2007, the FASB released SFAS No. 141(R), "Business
Combinations". This standard revises and enhances the guidance set forth
in SFAS No. 141(R) by establishing a definition2009, except for the "acquirer,"
providing additional guidance on the recognition of acquired contingencies
and non-controlling interests, and broadening the scope of the standard to
include all transactions involving a transfer in control, irrespective of
the consideration involved in the transfer. SFAS No. 141(R) is effective
for business combinations fordetailed Level 3 rollforward disclosures, which the acquisition date occurs in a
fiscal year beginning on or after December 15, 2008. Although the standard
will not have any impact on the current consolidated financial statements,
application of the new guidance could be significant to the Company in the
context of future merger and acquisition activity.
In December 2007, the FASB released SFAS No. 160, "Non-Controlling
Interests in Consolidated Financial Statements-an amendment of ARB No.
51". This statement amends ARB 51 to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect2010. Early adoption is permitted. We intend to comply with the standard todisclosure provisions of this new guidance.
(S)Reclassifications
Reclassifications have a material impact
on the consolidated financial statements.
F-11
2. BUSINESS COMBINATION
On February 5, 2007, Chang Jiang entered into an agreement with a third
party to acquire 40% of the equity interest in Dongfang Mining at a
consideration of $3,117,267 payable in cash. On March 22, 2007, Chang Jiang
entered into an agreement with a related party of the Company to exchange
Chang Jiang's 92.93% interest in Huanghe for 20% equity interest in Dongfang
Mining, which is owned by the related party.
Dongfang Mining is principally engaged in the exploration, development,
mining and processing of lead, zinc and gold in Xian, PRC. Dongfang Mining was
granted rights to explore for lead, zinc and gold at mines located at Gan
Gou and Guan Zi Gou, Xunyang County, Shaanxi Province, PRC, from December
31, 2006 to October 31, 2008, subject to further renewal upon expiration.
The Company engaged the Geology and Mineral Bureau of Shaanxi to conduct a
preliminary survey from which it was reported that there are gold, lead
and zinc deposits in the mines.
The following is a detail of the acquisition of Dongfang Mining by Chang
Jiangbeen made during the year ended December 31, 2007:
Cash and cash equivalents $ 27,233
Other receivables and prepaid expenses 46,309
-----------
Total current assets 273,542
Fixed assets, net 7,432
-----------
Total assets 280,974
Less: Accounts payable and accrued liabilities (3,223)
Due to a stockholder (273,444)
-----------
Net assets acquired 4,307
Minority interests (1,723)
Additional paid in capital (861)
Less: Consideration for acquisition (3,117,267)
-----------
Goodwill $(3,115,544)
===========
Analysis of the net outflow of cash and cash equivalents with respect to the business combination is as follows:
Total cash consideration $ 3,117,267
Less: cash consideration payable (1,872,131)
-----------
Cash consideration paid 1,245,136
Less: cash and cash equivalents acquired (227,233)
-----------
Net cash outflow $ 1,017,903
===========
The acquisition of 40% of Dongfang Mining was accounted for as a purchase
under SFAS No. 141, Business Combinations. Accordingly,2008 comparative financial statements in order to conform to the 40% of
operating results of Dongfang Mining have been included in the consolidated
statements of operations and comprehensive loss after the effective date of
the acquisition of February 5, 2007.
In accordance with SFAS No. 142 "Goodwill and other intangible assets",
goodwill2009 presenation.
2. Goodwill
Goodwill is not amortized but is tested for impairment.impairment on at least an annual basis. The Company is
going todid
not perform an assessment on goodwill arising from the acquisition of
Dongfang Mining as the price of non-ferrous metals are going down and the
whole industry is stagnant.December 31, 2009 or December 31, 2008. We cannot concluded that there was no impairment
to the carrying value of the goodwill in this reporting period.
as of December 31, 2009 and December 31, 2008.
There was no change forin the balance of the goodwill as ofDecember 31, 2009, as compared with
the balance at the year end of 2008, comparing with
that at the year end of 2007, whose balance was RMB 22,787,401.December 31, 2008. The $218,579$3,125 increase is due to the exchange gain when translating the financial
report from RMB to USD.
F-12
3. DISCONTINUED OPERATIONS
On March 22, 2007, the Company disposed a subsidiary Huanghe in exchange of 20%
interest in Dongfang Mining. The operations of Huanghe were reclassified
as discontinued operations in the consolidated statements of operations
for the year ended December 31, 2006 and were summarized as follows:
Operating expenses $(282,728)
Loss from operations $(291,885)
Net loss $(291,885)
4. DISPOSAL OF SUBSIDIARY
On March 22, 2007, Chang Jiang entered into an agreement with a related
party of the Company to exchange Chang Jiang's 90.3% interest in Huanghe for
20% equity interest in Dongfang Mining owned by the related party.
The detailed information on the loss on disposal of Huanghe is as follows:
Cash and cash equivalents $ 1,406,430
Other current assets 31,687
Fixed assets, net 349,024
Land use rights 8,987,826
-----------
Total assets 10,774,967
Less: Accounts payable and accrued liabilities (205,800)
Due to related parties (1,618,037)
Due to a stockholder (4,726)
Minority interests (918,343)
-----------
Book value of net assets disposed 8,028,061
20% of book value of net assets of
Dongfang Mining exchanged (827)
-----------
Loss on disposal of Huanghe $ 8,027,234
===========
Net cash outflow on disposal of subsidiary
Proceed from disposal $ -
Cash and cash equivalent disposed (1,406,430)
-----------
Net cash outflow $(1,406,430)
===========
5. NOTE RECEIVABLE
The Company had a note receivable at December 31, 2007 of $133,000. This note
bore interest at 9% per annum and was secured by membership interests.
F-13
6. OTHER CURRENT ASSETS AND PREPAID EXPENSES
Other current assets and prepaid expenses consisted of
the following:
December 31,
2009
2008 2007
Rental and other deposits
$ 13,23
$11,756 $ 8,231
Short-term advances to third parties
-
82,697 276,179
Prepaid consulting fee for reverse merger - 115,591
Interest receivable from note receivable - 45,560
Prepaid expense
-
115,800 80,694
Advances to staff
20,474
19,307 6,329
---------
Other receivable
64
-
--------
--------
$ 33,770
$229,560 $532,584
=========
========
7. FURNITURE AND
========
4. PROPERTY & EQUIPMENT, NET
The following is a summary of furnitureproperty and equipment:
December 31,
2009
2008 2007
Motor vehicles $277,988 $259,764
$278,249
$277,988
Furniture and office equipment
52,579
55,066 50,717
Building
5,249
5,244 -
Construction in progress - 3,913
--------
-------- --------
336,077
338,298 314,394
Less: accumulated depreciation
(135,387)
(102,498) (61,453)
--------
--------
Furniture
Property and equipment, net $235,800 252,941
$200,690
235,800
========
========
Depreciation expense for the years ended December 31, 2009 and 2008 was
$36,755 and 2007 was $35,779,
and $29,712, respectively .
8.
5. LONG TERM INVESTMENT
In September 2008, the Company, along with Shaanxi Changfa Industry Stock Co.,Ltd.
("Changfa"),established a new company named Shaanxi Changjiang MiningPower & New Energy
Co., Ltd.("Shaanxi"(“Changjiang power”). The Company owns a 20% share of the registered capital of Shaanxi
Changjiang power while Changfa owns the remaining 80% share.
Theshare, when all the capital
was contributed. According to the contract, the Changfa shall contribute it’s last
capital until the end of 2011. At December 31, 2009, the net asset was rmb
6,586,417 ($964,591), which means the Company held 31% share of the Changjiang
Power. Practically, the Company has significant influence on ShaanxiChangjiang Power as it
has assigned finance and other directors in Shaanxi.Changjiang Power. The Company has recorded this
investment under the equity method. ShaanxiChangjiang Power had no incomerevenue for the year ended December 31,200831,2009 and
since the expense of $6,004 was not material, no adjustment has been made. As of December
31, 2009 and 2008, the balance of this investment was $292,628.
F-14
9.$292,903 and $292,629, respectively.
The information of Changjiang Power is showed as follows:
December 31,
2009
2008
Current assets
282,126
293,065
Non current assets
964,591
-
Current liabilities
-
5,524
Net assets
964,591
293,065
6. LAND USE RIGHTS
The following is a summary of land use rights:
December 31,
2009
2008 2007
Cost $19,146,841 $17,891,607
$19,164,787
$19,146,841
Less: accumulated amortization
(2,049,710)
(1,638,232) (1,148,125)
-----------
-----------
Land use rights, net $17,508,609 $16,743,482
$17,115,077
$17,508,609
===========
===========
The land use rights are being amortized over the lease term of fifty years.
Amortization expense for the years ended December 31, 2009 and 2008 was
$409,750 and 2007 was
$395,943 and $367,480,$395,944, respectively.
Amortization expense for the next five years ending December 31 is as follows:
2009 $1,638,232
2010 1,638,232
$ 409,750
2011 1,638,232
409,750
2012 1,638,232
409,750
2013 1,638,232
10.
409.750
2014
409,750
7. OTHER PAYABLES AND ACCRUED EXPENSES
Other payables and accrued liabilities consist of the
following:
December 31,
2009
2008
Other payables
$ 6,126
$247,228
Consideration payable to a former owner of Dongfang Mining
1,829,611
1,827,898
Accrued wages
506
1,990
Statutory staff welfare
1,674
1,876
Other tax payable
28
57
Other accrued expenses
45,000
45,000
-------------
---------------
$ 1,882,945
$2,124,049
=============
===============
8. NOTES PAYABLE
The balance of notes payable at December 31, 2008 & 2007 consisted of the following:
December 31,
2009 2008 2007
Note payable to a third party, interest rate of
12% per annum, guaranteed by a stockholder, due
February 2008 0 $114,634
Note payable to a related party, interest rate of
8% per annum, collateralized by note receivable
from a third party. 434,137 458,512
------- --------
Current maturities at year end 434,137 $573,146
======= ========
12.
9. INCOME TAXES
a. North American was incorporated in the United States and has incurred
net operating losses as for income tax purposes for the years ended December
31, 20082009 and 2007.2008. Wah Bon was incorporated in Hong Kong and subject to
Hong Kong profits tax. No provision for income tax expense was made for the
years ended December 31, 20082009 and 20072008 as Wah Bon incurred net operating losses.
Tai Ping Yang , Chang Jiang and Dongfang Mining were incorporated in
the PRC and subject to PRC income tax, which is computed according to the
relevant laws and regulations in the PRC. No provision for income tax
expense for the years ended December 31, 20082009 and 20072008 was made as Tai Ping Yang,
Chang Jiang and Dongfang Mining incurred net operating losses during those years.
b. The Company's deferred tax asset at December 31, 20082009 consisted of net
operating loss carry forwards calculated using statutory effective tax
rates. DueSince the company began to its historygenerate rental revenue from 2009, the deferred
tax asset of losses, $218,600 from the loss carryforwards was recognized
without allowance.
c. The rental income of $1,097,872 was recognized as revenue in 2009 without
cash flow, which could not be confirmed as revenue by tax regulations in the current
period. Thereforce,the Company determined that realizationhad to bear the total business and EIT of its$214,948,
showed as current liability in B/S, in the next period.
d. Net operating loss carryfoward are $1,001,900 as of December 31,2009. These consist of
$844,431 from Chang Jiang and $ 157,469 from Dongfang. Chang Jiang’s loss carryfoward
expires in 2012, while Dongfang’s expires in 2013.
The allowance for the deferred tax asset is currently judged to be unlikely. Consequently,$221,009 at December 31, 2009.
As of December 31,2008, the Company recorded a valuation allowance for the entire balance of the deferred tax asset at December 31, 2008 and 2007. According to the China Tax
Regulations, the operating loss carryforwards can be deducted in the taxable
profit within 5 years.
c.was $718,778.
e. The reconciliation of income taxes computed at the statutory income tax
rates to total income taxes for the years ended December 31 is as
follows:
North American
2009
2008 2007
Income tax computed at the federal statutory rate
34%
34%
State income taxes, net of federal tax benefit
0%
0%
---- ----
Valuation allowance
(34%)
(34%)
==== ====
Wah Bon
Profits tax computed at the applicable tax rate
17%
17%
---- ----
Valuation allowance
(17%)
(17%)
==== ====
Tai Ping Yang, Chang Jiang and Dongfang Mining
Income tax computed at the applicable tax rate
25% 33%
25%
---- ----
Valuation allowance
(25%) (33%
(25%)
==== ====
Total deferred tax asset 0% 0%
---- ----
F-16
13.
10. NET LOSS PER SHARE
The following is net loss per share information at December 31:
2009
2008
-------------
------------
Net loss - basic and diluted
$ (104,557)
$ (1,467,426)
-------------
------------
Basic weighted-average common stock outstanding
24,216,058
24,216,058
Effect of dilutive securities
Series C convertible preferred stock
609,000,000
609,000,000
-------------
------------
Diluted weighted-average common stock outstanding
609,000,000
609,000,000
-------------
------------
Net loss per share – basic
$ (0.0043)
$ (0.0606)
-------------
------------
Net loss per share – diluted
$ (.0002)
$ (0.0024)
--------------
------------
11. COMMITMENTS AND CONTINGENCIES
(A)Capital commitments
The Company'sCompany’s cash balances with financial institutions in the U.S are insured up to
FDIC limits.
As of December 31, 2007,the Company had capital commitments of $2,190,630 with
two suppliers for contracts in respect to the exploration of lead, zinc and
gold for mining in Xian, PRC. As the permit of mining for gold, lead and zinc
has not yet been obtained as of December 31, 2008, the contract was not
implemented in 2008 but will still be effective in 2009.
In August 2008, The Company signed the Contract of Specific Survey of Gold with The First
Geological Team, Bureau of Geology and Minerals Exploration & Exploitation of Shaanxi Province.
The total amount of the project at December
31, 2008 is $323,018, of which $142,480 was paid in 2009.
The remaining $180,538 is expected to be paid in full during the year ended
December 31, 2009.
2010.
(B)Operating lease commitments
The prior headquarters, formerly located in the 5th5th floor of High-Tech Mansion, Gaoxin Road,High-Tech
Zone,Xi'An,Xi’An, had a rental lease of approximately $3,500 (RMB25,000) per month, from June, 2006 to January, 2009.
The new headquarters office is removed to the Xinhui Mansion, Gaoxin Road, High-Tech Zone, Xi'An,Xi’An,PRC
with the rental lease from February, 2009 to January, 2011 at a rental rate $11,029 per year.
The rental expense of headquarters for the years ended December 31,200831,2009 and 20072008 was $15,502 and $42,568, and $48,481, respectively. For
Future lease commitments for the years endedending December 31, 2009 and are as follows:
2010 the Company has outstanding
commitments of approximately $13,717 and $10,974, respectively, with regards to
the operating leases of its facilities.
F-17
15.
$ 11,029
2011
919
12. STOCKHOLDERS' EQUITY
Stock issuances
On May 30, 2007, amended to July 5, 2007, North American entered into a
Material Definitive Agreement to acquire 97.2% of Chang Jiang equity
through the acquisition of Wah Bon. The Company issued 500,000 shares of
series C convertible preferred stock which was convertible to 609,000,000
(prior to a one for ten reverse stock split) common shares, in exchange for 100% of
Wah Bon's outstanding shares.
In order to complete the merger, the Company has authorized up to 10,000,000
shares of preferred stock with a par value of $0.01 per share. The
preferred stock can be issued from time to time in one or more series. As
of December 31, 2008, there are 500,000 shares of preferred stock issued and outstanding.
On February 4, 2008, the Company issued 500,000 shares of series C
convertible preferred stock to Wah Bon's shareholder.
Each of the preferred shares is entitled to receive
preferential treatment in connection with the payment of dividends,
distributions upon liquidation and voting rights. Each preferred share carries
the right to vote the equivalent of 1,218 votes of common shares. Each
preferred share will be automatically converted into 1,218 common shares upon
approval and an amendment to the Certificate of Incorporation to increase the
number of authorized shares.
There are no preferred dividends in arrears at the year end of 2008.
No called or redeemed conditions prescribed for the preferred stock.
16.
On Jan 10th and 21st, 2010, the CEO of NAGM signed the stock issuance resolutions
to Mr. Donald R. Monroe and Mr. Stanley F. Wilson, exchanging the preferred stock for
4,500,000 shares of common stock according to the agreement.
The amount of common shares shown in the consolidated financial statements differs from the amount of common shares on record with our stock transfer agent. The records of the stock transfer agent show 900,000,000 common shares authorized and 37,716,588 common shares issued and outstanding as of December 31, 2009. As of April 15, 2010, we have been unable to determine the accurate number of common shares authorized, issued and outstanding. However, we believe the common share information disclosed in the consolidated financial statements to be correct.
13. RELATED PARTY TRANSACTIONS
The related parties owed the Company $1,754,586$1,193,431 as of December 31, 2009
including five related companies and three related persons owed the Company
amounts totaling $801,544 and $391,887, respectively, for advances made on an
unsecured basis, repayable on demand and interest free.
The Company owed $2,418,796 to two former stockholders of Chang Jiang as of
December 31, 2009 for advances made on an unsecured basis, repayable on demand
and interest free. Imputed interest is charged at 5.94 % per year on the amounts
due.
The Company owed $3,996,369 to seven related parties as of December 31, 2009
including six related companies and three related person owed the Company
amounts totaling $363,369 and $3,633,000, respectively, for advances made on an
unsecured basis, repayable on demand and interest free. Imputed interest is
charged at 5.94% per year on the amount due.
The related parties owed the Company $1,174,734 as of December 31, 2008,
which consisted of nineseven related companies and four related persons, each owing the Company
amounts totaling $1,355,694$775,842 and $398,892, respectively, for advances made on an
unsecured basis, repayable on demand and interest free.
The Company owed $2,396,560 to two former stockholders of Chang Jiang as of
December 31, 2008, for advances made on an unsecured basis, repayable on demand
and interest free. Interest was imputed at a rate of 7% per annum on the amounts
due.
The Company owed a total of $3,446,160 to six related parties as of December 31,
2008. This consisted of five related companies and one related person, each
of whom owed the Company amounts totaling $2,086,486 and $1,359,674, respectively,
for the advances that were made on an unsecured basis, repayable on demand and
interest free. Interest was imputed at a rate of 7% per annum on the amount due.
Seven related parties owed the Company $540,964 as of December 31, 2007,
which consisted of five related companies and two related persons, each owing
the Company amounts totaling $417,914 and $123,050, respectively, for advances
made on an unsecured basis, repayable on demand and interest free.
The Company owed $1,858,217 to two former stockholders of Chang Jiang as of
December 31, 2007 for advances made on an unsecured basis, repayable on
demand and interest free. Imputed interest is charged at 6% per annum on
the amounts due.
The Company owed $2,510,892 to five related parties as of December 31,
2007,which consisted of four related companies and one related person, each
owing the Company amounts totaling $1,640,134 and $870,758, respectively , for
advances made on an unsecured basis, repayable on demand and interest free.
Imputed interest is charged at 6% per annum on the amount due.
Total imputed interest recorded as additional paid-in capital amounted to
$346,453 and $353,951 and $243,337 for the years ended December 31, 2009 and 2008, respectively.
100% of the Company’s accounts receivable balance of $1,098,386 and 2007,
respectively.
F-18
17.revenue earned during the year ended
December 31, 2009 was from a related party.
14. SEGMENTS REPORTING
The Company operatesoperated in two reportable segments theme park(mining and mining, before
March 22,2007, the date exchanging 92.93% interestreal estate) in Huanghe for 20%
equity interest in Dongfang Mining The accounting policies of the segments are
the same as described in the summary of significant accounting policies.
2009.
The Company evaluates segment performance based on income from operations.
As a result, the components of operating income for one segment may not be comparable
to another segment. For
Segments key financial information for the whole yearyears ended December 31,2009 and 2008 is
as follows:
Real Estate
Mining
Total
-----------
----------
-----------
2009
Revenue
$1,097,872
$0
$1,097,872
Loss from continuing operations before income
tax expense and minority interests
688,123
(867,622)
(104,557)
Depreciation of fixed assets
0
36,755
36,755
Amortization of intangible assets
409,750
0
409,750
Imputed interest expense
0
346,453
346,453
Interest income
0
152
152
Deferred income tax gain (expense)
(214,948)
218,602
3,654
Additions to long-lived assets
0
0
0
Land use rights
17,115,077
0
17,115,077
Total identifiable assets
$17,115,077
$6,402,310
$23,517,387
2008 only one
reportable segment, the mining, operated, whose Financial information can be
showed as follows, comparative
Revenue
$0
$0
$0
Loss from continuing operations before income
tax expense and minority interests
(395,944)
(1,130,255)
(1,526,199)
Depreciation of fixed assets
0
35,779
35,779
Amortization of intangible assets
395,944
0
395,944
Imputed interest expense
0
2,229
2,229
Interest income
0
0
0
Deferred income tax gain (expense)
0
0
0
Additions to 2007:
0
6,145
6,145
Land use rights
17,508,609
0
17,508,609
Total identifiable assets
$17,508,609
$5,290,808
$22,799,417
All of the Company's long-lived assets are located in the PRC. Accordingly,
no geographic information is presented.
18.
15. CONCENTRATIONS AND RISKS
As of December 31, 2009 and 2008, and 2007, 99% and 1%100% of the Company's assets were located in China
the Peoples Republic of China.
100% of the Company’s accounts receivable balance of $1,098,386 and United States, respectively.
19.revenues earned during the year ended
December 31, 2009 were from one customer, a related party of the Company.
16. GOING CONCERN
As reflected in the accompanying consolidated financial statements,
the Company has an accumulated deficit during the exploration stage of
$13,262,228
$13,366,785 at December 31, 2008,2009, which included a net loss of $1,467,426$104,557
for the year ended December 31, 2008.2009. The Company's current liabilities
exceed
exceeded its current assets by $7,713,248$7,787,760 and the Company used cash in
operations of $388,011.$531,480. These factors raise substantial doubt about its
ability to continue as a going concern. In view of the matters described
above, recoverability of a major portion of the recorded asset amounts
shown in the accompanying consolidated balance sheets is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to raise additional capital, obtain financing and succeed
in its future operations. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with
the ability to continue as a going concern. TheThough the Company began to generate
revenue in 2009, the Company is also actively pursuing additional funding and potential merger or acquisition candidates and
strategic
partners, which would enhance stockholders' investments. Management believes
that the above actions will allow the Company to continue operations through
the next fiscal year.
F-19
31 |Page
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previous Principal Independent Accountants
Began from the second quarter of 2008, we dismissed Jimmy C.H. Cheung & Co. as our
principal independent accountants, and engaged BROCK,SCHECHTER & POLAKOFF,LLP
as our new principal independent accountants to perform procedures related
to our financial statements for the fiscal year ended December 31, 2009 and 2008,
to be included on our Form 10-KSB under Section 13(a) or 15(d) under the Exchange
Act of 1934, as amended, and for the fiscal quarterly reports.
As described below, the change in our principal independent accountants was not
the result of any disagreement with Jimmy C.H. Cheung & Co.
In July 2008, pursuant to approval by management and the Board of Directors,
we dismissed Jimmy C.H. Cheung & Co. as our principal independent
accounting firm. Management and the Board of Directors at that time participated
in and approved the decision to change principal independent accounts. Our financial
statements for as of December 31, 2007,were prepared by Jimmy C.H. Cheung & Co.
And that as of December 31,2006, 2005, 2004 and 2003 were prepared by Sartain Fischbein &
Company, CPA.
Jimmy C.H. Cheung & Co.’s reports on the financial statements did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope, or accounting principles, except that the reports
contained an explanatory paragraph indicating that substantial doubt exists
about our ability to continue as a going concern.
We have had no disagreements with Jimmy C.H. Cheung & Co. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Jimmy C.H. Cheung & Co. would
have caused it to make reference to the subject matter of any such disagreements in
their reports on the financial statement for the periods ended December 31, 2007.
We requested that Jimmy C.H. Cheung & Co. furnish a letter addressed to the Securities and
Exchange Commission stating that it is not in a position to agree or disagree with the
above statements.
New Principal Independent Accountants
Effective as of the closing date of August 11, 2008, our Board of Directors
engaged BROCK,SCHECHTER & POLAKOFF,LLP as our new independent registered public
accounting firm. The Company had not consulted with BROCK,SCHECHTER & POLAKOFF,LLP
prior to that time regarding (i) the application of accounting principles to a
specific completed or contemplated transaction, the type of audit opinion that
might be rendered on our financial statements, or any written or oral advice
that was an important factor considered by us in reaching a decision as to an
accounting, auditing or financial reporting issue; or (ii) any matter that was
the subject of a disagreement.
32 |Page
Item 9.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the existing officers and directors of the
Company.
DIRECTOR
AGE
POSITION AND OFFICE TO BE HELD WITH THE COMPANY
NAME OF PERSON
Chen Wei Dong
40
President, Chief Executive Officer and Chairman
of the Board
Xu Wei
34
Financial Supervisor
Zhang Hong Jun
43
Director
Wang Sheng Li
43
Director
Li Pin
34
Director and Chief Financial Officer
Tian Hai Long
37
Director
Each director of the Company will serve until its next annual shareholders'
meeting and until his successor is appointed. Subject to employment agreements
that they may have, the officers serve at the discretion of the board of
directors of the respective companies.
BIOGRAPHICAL INFORMATION OF-OFFICERS AND DIRECTORS OF THE COMPANY
Listed below is biographical information for each of the foregoing designated
new directors and officers of the Company following the Exchange, including
their principal occupations during the past five (5) years and other
affiliations:
CHEN WEI DONG - President and Chief Executive Officer
Mr. Chen serves as our President and Chief Executive Officer and as a Director.
Mr. Chen was named as Chairman of Changjiang Mining & New Energy in March 2006.
Prior to that, he was General Manager of Du Kang Trading Company from 2001 to
2006 and was a Bank Director of Branch Bank of China Agriculture Bank from May
1991 to January 2001. He served in the army of the People's Republic of China
from October 1985 to March 1990. Mr. Chen studied in Northern West University
Management School, majoring in Enterprise Management.
GAO LILING - Financial Supervisor
Ms. Wei was named as CFO of Changjiang Mining & New Energy Development
Stock Co. Ltd. in March 2006. From 1900 to 1998, she was deputy section chief
of the accounting department of Shaanxi Weinan Textile Factory. In 1999, she
worked in Shaanxi Hui Huang Construction and Building Material Company as manager
of the accounting department. She passed the Adult Self Study Examination in
Shaanxi Province in 1990 with a major in Accounting.
33 |Page
ZHANG HONG JUN - Director
Mr. Zhang was named as a director of Changjiang Mining & New Energy in April 2006. Prior
to that, he was Chairman and CEO of Shaanxi Baishui Dukang Liquor Co. since
2002-2005. He is the Executive Commissioner of Shaanxi Federation of
Industry & Commerce, an academician of the China Academy of Management of
Science, the Shaanxi Deputy of the National People's Congress, Shaanxi
Executive Commission of the Political Consultation Committee, the Vice Chairman
of Wei Nan Federation of Industry & Commerce, the Vice Chairman of Beijing
Federation of Shaanxi Commerce and the Chairman of Shaanxi Du Kang Alcohol Co.
Ltd. Education.
On April 2, 2007, Mr. Zhang was named as Executive Commission of Shaanxi
Federation of Industry & Commerce, academician of China Academy of Management
of Science, Shaanxi Deputy of the NPC, Shaanxi Executive Commission of the
Political Consultation Committee, Vice Chairman of Wei Nan Federation of
Industry & Commerce, Vice Chairman of Beijing Federation of Shaanxi Commerce
and named as Chairman of Shaanxi Du Kang Alcohol Co. Ltd.
He received his MBA from the China Academy of Management of Science.
WANG SHENG LI - Director
Mr. Wang was named a director of Changjiang mining & new energy in March 2006. Prior to
that, he was the manager of Xi Deng Hui Alcohol Co. Ltd. from 1998 to 2006. He
studied in Xi'an Petroleum University Electron Construction School from 1995 to
1998, majoring in computers.
LI PING - Director
Mr. Ping was named a director and Chief Financial Officer of Changjiang Mining &
New Energy in March 2006. He was an officer of Wei Nan branch company of China
2005.
Life Insurance Company from 2000 to Mr. Li studied in the Shaanxi Finance
2006.
and Economics from 1994 to 1996, majoring in Finance and Economics Management.
TIAN HAI LONG - Director
Mr. Tian was named as director of Changjiang mining & new energy in March 2006. He was
the sales manager of Xi Deng Hui Alcohol Co. Ltd. from 1998 to 2006. He
studied in the West Industry University Electronic Information School, majoring
in e-commerce.
Audit Committee
We do not have a separately designated standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit committee for the purpose of overseeing the accounting and financial reporting processes, and audits of our financial statements. The Commission recently adopted new regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these new requirements, our Board of Directors examined the Commission's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. We have had minimal operations for the past two (2) years. Presently, there are only four (4) directors serving on our Board, and us are not in a position at this time to attract, ret ain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current directors meets the qualifications of an "audit committee financial expert", each of our directors, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current directors capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.
Code of Ethics
We have adopted a code of ethic (the "Code of Ethics") that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is being designed with the intent to deter wrongdoing, and to promote the following:
• | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships |
• | Full, fair, accurate, timely and understandable disclosure in reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by the small business issuer |
Compliance with applicable governmental laws, rules and regulations
·
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code
• Accountability for adherence to the code
Item 10. EXECUTIVE COMPENSATION
No compensation was awarded to, earned by, or paid to any executive officer or
director of the Company during the years 2009 or 2008..
The following table and the accompanying notes provide summary information for
each of the last three fiscal years concerning cash and non-cash compensation
paid or accrued.
34 |Page
SUMMARY COMPENSATION TABLE
Name and
Year
Salary
Bonus
Stock
Option
Non-Equity
Nonqualified
All Other
Principal Position
(5)
Awards
Awards
Incentive Plan
Deferred
Compensation
Compensation
Compensation
Total
($)
($)
($)
($)
($)
($)
($)
($)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Chen Wei Dong
2008
585
0
0
0
0
0
0
0
(Chariman of board & CEO)
2009
680
0
0
0
0
0
0
0
Gao Liling,
2008
298
0
0
0
0
0
0
0
Financial officer
2009
300
0
0
0
0
0
0
0
Yang Yi Jun
2008
439
0
0
0
0
0
0
0
2009
439
0
0
0
0
0
0
0
1. Compensation paid in RMB has been converted at the rate of $1 USD = 6.8282RMB.
2 Unless stated otherwise, the business address for each person named is c/o North American Gaming and Entertainment Company.
(3) Calculated pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934
(4) We believe that each individual or entity named has sole investment and voting power with respect to the shares of common stock indicated as beneficially owned by them (subject to community property laws where applicable) and except where otherwise noted.
We have not entered into any other employment agreements with our employees, Officers or Directors. We have no standard arrangements to compensate our directors for their services to us.
Stock Option Plan
We have not implemented a stock option plan at this time and since inception, have issued no stock options, SARs or other compensation. We may decide, at a later date, and reserve the right to, initiate such a plan as deemed necessary by the Board.
No cash compensation has been paid to any of our directors during these periods other than the stock option grants which were commenced in 2000 and extended in 2005. The compensation of the Board of Directors has not been established by any policy or amount. We have no standard arrangements under which we will compensate our directors for their services provided to us.
The Company reimburses the directors for their expenses (if any)incurred in connection with their duties as directors.
Tax and Accounting Considerations
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as amended, restricts deductibility of executive compensation paid to our Chief Executive Officer and each of the three other most highly compensated executive officers holding office at the end of any year (except for our Chief Financial Officer) to the extent such compensation exceeds $1,000,000 for any of such officers in any year and does not qualify for an exception under Section 162(m) or related regulations. The Compensation Committee’s policy is to qualify its executive compensation for deductibility under applicable tax laws to the extent practicable. In the future, the Compensation Committee will continue to evaluate the advisability of qualifying its executive compensation for full deductibility, in particular in light of the recent IRS Revenue Ruling 2008-13.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock, as of the Closing Date, by (i) each person,
including any "group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, who is known by us to own beneficially 5% or
more of
our preferred and common stock, (ii) each of our directors and named executive
officers, and (iii) all of our directors and executive officers as a group.
Unless otherwise indicated, all persons listed below have sole voting power and
investment power with respect to the shares owned by them.
SERIES C PREFERRED STOCK OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER
AMOUNT AND NATURE
PERCENTAGE
OF BENEFICIAL OWNERSHIP
(2)(3)
CHEN WEI DONG
499,630
96%
VOTING POWER OF SERIES C PREFERRED STOCK OWNERSHIP AND BENEFICIAL OWNERSHIP
ASSUMING FULL CONVERSION OF ALL PREFERRED SHARES AND GIVING EFFECT TO A ONE FOR
TEN REVERSE STOCK SPLIT
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE PERCENTAGE
(1) OF BENEFICIAL OWNERSHIP
(2)(3)
(Class Series C Preferred Stock )
CHEN WEI DONG
608,549
1%
ZHANG HONG JUN
35,174,152
57.8%
WANG SHENG LI
7,442,558
12.23%
LI PING
6,079,408
9.99%
TIAN HAI LONG
6,079,408
9.99%
GAO LILING
0
0
CHEN MIN
5,470,859
8.99%
OFFICERS AND DIRECTORS AS A GROUP (6PERSONS)
60,854,934
100%
35 |Page
(See Footnotes Below)
(1) The address for each beneficial owner is stated below. Each of these persons can also be reached through the Company's address
which is listed c/o North American Gaming and Entertainment Company, Fifth Floor, High-Tech Mansion, Gaoxin Road, Hi-tech
Zone, Xi'an P.R. China.
Chen Wei Dong, Address: BeitangXi'Ang 11#, Linwei District, Weinan City, Shaanxi, China.
GAO LILING Address: Xi'An Zhao Yuan Dong Lu 31#, Xi'an, Shaanxi, China
Zhang Hong Jun, Address: Duqiao Paichusuo, Xiyi Road, Linwei District, Weinan City, Shaanxi, China.
Wang Sheng Li, Address: Yun Yang, Jin Yang Xi'An, Wei Nan City, Shaanxi, China.
Li Ping Address: Jie Fang Lu 132#, Wei Nan City, Shaanxi, China
Tian Hai Long, Address:, Sinancun Erzu, Jiaqv Xiang Lin Wei District, Wei Nan City, Shaanxi, China.
(2) As used herein, a person is deemed to be the "beneficial owner" of a security if he or she has or shares voting or
investment power with respect to such security, or has the right to acquire such ownership within sixty (60) days. As used
herein, "voting power" includes the power to vote or to direct the voting of shares, and "investment power" includes the
power to dispose or to direct the disposition of shares, irrespective of any economic interest therein.
(3) Except as otherwise indicated by footnote, the persons named in the table have sole voting and investment power with respect
to all Common Stock beneficially owned by them.
The directors, executive officers, their affiliates, and related parties own, directly or indirectly, beneficially and in the aggregate, the majority of the voting power of the outstanding capital of the Company. Accordingly, directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital and the dissolution, merger or sale of the Company's assets.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The related parties owed the Company $1,193,431 as of December 31, 2009
including five related companies and three related persons owed the Company
amounts totaling $801,544 and $391,887, respectively, for advances made on an
unsecured basis, repayable on demand and interest free.
The Company owed $2,418,796 to two former stockholders of Chang Jiang as of
December 31, 2009 for advances made on an unsecured basis, repayable on demand
and interest free. Imputed interest is charged at 5.94 % per year on the amounts
due.
The Company owed $3,996,369 to seven related parties as of December 31, 2009
including six related companies and three related person owed the Company
amounts totaling $363,369 and $3,633,000, respectively, for advances made on an
unsecured basis, repayable on demand and interest free. Imputed interest is
charged at 5.94% per year on the amount due.
Total imputed interest recorded as additional paid-in capital amounted to
$346,453 and $353,951 for the years ended December 31, 2009 and 2008, respectively.
100% of the Company’s accounts receivable balance of $1,098,386 and revenue earned during the year ended
December 31, 2009 was from a related party.
Consulting Fees. E.H. Hawes, II is the former Chairman of the Board, President
and Chief Executive Officer of the Company. Mr. Hawes has provided consulting
services to the Company and was paid $-0- in consulting fees during 2008,2007, 2006
and $-0- in 2005. He did not receive a salary from the Company and had been
owed a maximum of $50,000 for consulting services and expense reimbursements.
At closing the sum of $170,000 was paid to eliminate any outstanding debts of
the Company with the balance payable to Mr. Hawes in satisfaction of all sums
due him as well as any other claims. Mr. Hawes retained the assignment of a
note payable from Daylighting, Inc.
At closing the Company paid Capital Advisory Services, Inc. $200,000 and 370
shares of Series C Preferred Stock. Stanley F. Wilson, Esq. is the CEO of
Capital Advisory Services and a licensed attorney at law with 30 years of
experience. From 2006 until closing, Capital Advisory Services provided
consultation to the Company in connection with its business plan, evaluation of
companies for potential mergers, and assistance to management in completing
required tasks necessary for securities law compliance. On Jan 10th and 21st 2010,
the CEO of NAGM signed the stock issurance resolutions to Mr Donald R.Monroe
and Mr Stanley F. Wilson, exchanging preferred stock for 4,500,000 common stock
according to the agreement.
All shares exchanged are restricted securities and may not be resold without
registration or an exemption from registration from the Securities Act of 1933.
ITEM 13.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | Financial Statements |
1. The following financial statements of North American Gaming and Entertainment Company. are included in Part II, Item 7:
Report of Independent Registered Public Accounting Firm,
Consolidated Balance Sheets at December 31, 2009 and 2008.
Consolidated Statements of Operations and comprehensive loss - for the years ended December 31, 2009 and 2008
Consolidated Statements of Cash Flows - for the years ended December 31, 2009 and 2008
Consolidated Statements of Stockholders’ Equity - for the years ended December 31, 2009 and 2008
Notes to Consolidated Financial Statements
2. Exhibits
Exhibit
Number
Exhibit Description
Footnote Reference
-------
-------------------
------------------
3.1.3
Articles of Amendment to Articles of Incorporation
(1)
4.1
Certificate of Designation
(1)
10.1
Plan of Exchange dated May 30, 2008 by and among North
American Gaming and Entertainment Company, and SHAANXI
CHAN JIANG SI YOU NENG YUAN FA ZHANG GUFENG YOU XIAN
GONG SI
(1)
10.2
Lock Up Agreement among North American Gaming and
Entertainment Company, Steven Case and James Bowyer
(1)
10.3
Lock-up Agreement
*
10.4
Mining Exploration Certificate
(1)
10.5
Land Use Right
(1)
10.6
Lease Agreement
(1)
21
Subsidiaries
*
31.1
Certification of Chief Executive Officer under Section
302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer under Section
302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer under 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer under 18 U.S.C.
ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
o
Filed herewith.
(1) Incorporated by reference from the Information Statement on Form 8-K
of North American Gaming and Entertainment Company filed with the Securities
and Exchange Commission on February 6, 2008.
39
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees Billed For Audit and Non-Audit Services
The following table represents the aggregate fees billed for professional audit services rendered to the independent auditor, Brock, Schechter & Polakoff, LLP for our audit of the annual financial statements for the years ended December 31, 2009 and 2008. Audit fees and other fees of auditors are listed as follows:
Year Ended December 31 |
| 2009(2) |
|
| 2008(2) |
| ||
|
|
|
|
|
|
| ||
Audit Fees (1) |
| $ | 33,000 |
|
| $ | 30,000 |
|
Audit-Related Fees (4) |
|
| -- |
|
|
| 7,000- |
|
Tax Fees (5) |
|
| -- |
|
|
| -- |
|
All Other Fees (6) |
|
| -- |
|
|
| -- |
|
Total Accounting Fees and Services |
| $ | 33,000 |
|
| $ | 37,000 |
|
(1) | Audit Fees. These are fees for professional services for the audit of our annual financial statements, , and for services that are normally provided in connection with statutory and regulatory filings or engagements. |
(2) | The amounts shown in 2009 and 2008 relate to (i) the audit of our annual financial statements for the fiscal years ended December 31, 2009 and 2008. |
(4) | Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements. |
(5) | Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning. |
(6) | All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees. |
Pre-Approval Policy for Audit and Non-Audit Services
We do not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services before we engage an accountant. All of the services rendered to us by Brock, Schechter & Polakoff, LLP were pre-approved by our Board of Directors.
The new policies and procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that our new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy and proce dures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.
(a) On December 31, 2009, our Chief Executive Officer and Chief Financial Officer made an evaluation of our disclosure controls and procedures. In our opinion, the disclosure controls and procedures are adequate because the systems of controls and procedures are designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows for the respective periods being presented. Moreover, the evaluation did not reveal any significant deficiencies or material weaknesses in our disclosure controls and procedures.
(b) There have been no significant changes in our internal controls or in other factors that could significantly affect these controls since the last evaluation.
ITEM 14 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Ac t of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 2010
North American Gaming and Entertainment Company
By:
/s/ Chen Weidong
----------------
Chen Weidong,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the following capacities on the dates indicated.
Name & Title
Date
/s/ Chen Weidong
-----------------
Chief Executive Officer (Principal
Executive Officer), President, and Director
April 16, 2010
/s/ Li Ping
-----------
Chief Financial Officer (Principal
Financial Officer)
April 16, 2010
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