UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
Or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to_____________
Commission File Number: 000-52807
China Changjiang Mining & New Energy Co., Ltd.
(Exact name of registrant as specified in its charter)
| Nevada | | 75-2571032 |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | | |
Seventeenth Floor, Xinhui Mansion, Gaoxin Road Hi-Tech Zone, Xi’An P.R. China 71005 | | +86(29) 8833-1685 |
| (Address of Principal Executive Offices; Zip Code) | | (Registrant’s Telephone Number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | | Name of each exchange on which registered |
| None | | None |
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| (Check one): | | | |
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | x |
| (Do not check if a smaller reporting company) | | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
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 $484,321 at September 30, 2013.
At September 30, 2013, the registrant had outstanding 64,629,559 shares of common stock, $0.01 par value.
CHINA CHANGJIANG MINING AND NEW ENERGY COMPANY LTD.
For the Nine Months Ended September 30, 2013TABLE OF CONTENTS
PART I
| ITEM 1, | FINANCIAL STATEMENTS | | | 3 | |
| | | | | | |
| ITEM 2, | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION | | | 4 | |
| | | | | | |
| ITEM 3, | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | | | 9 | |
| | | | | | |
| ITEM 4, | CONTROLS AND PROCEDURES | | | 9 | |
PART II
| ITEM 1, | LEGAL PROCEEDINGS | | | 11 | |
| | | | | | |
| ITEM 2, | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | | | 11 | |
| | | | | | |
| ITEM 3, | DEFAULTS UPON SENIOR SECURITIES | | | 11 | |
| | | | | | |
| ITEM 4, | MINE SAFETY DISCLOSURES | | | 11 | |
| | | | | | |
| ITEM 5, | OTHER INFORMATION | | | 11 | |
| | | | | | |
| ITEM 6, | EXHIBITS | | | 11 | |
| | | | | | |
| SIGNATURES | | | 12 | |
| | | | | | |
| EX-31.1 (CERTIFICATION) | | | | |
| EX-31.2 (CERTIFICATION) | | | | |
| EX-32.1 (CERTIFICATION) | | | | |
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
FINANCIAL REPORT
At September 30, 2013 and December 31, 2012
For the Nine Months Ended September 30, 2013 and 2012
INDEX
| | | PAGE | |
| | | | |
| CONSOLIDATED BALANCE SHEETS (UNAUDITED) | | | F-1 - F-2 | |
| | | | | |
| CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | | | F-3 | |
| | | | | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | | | F-4 | |
| | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | | | F-5 - F-9 | |
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
(Stated in US Dollars)
| | | September 30, | | | December 31, | |
| | | 2013 | | | 2012 | |
| | | (Unaudited) | | | (Audited) | |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | $ | 537,834 | | | $ | 1,763,381 | |
| Restricted cash | | | - | | | | 1,113,674 | |
| Deferred tax assets | | | - | | | | 14,326 | |
| Other current assets and prepayments (Note 2) | | | 166,164 | | | | 107,217 | |
| Total Current Assets | | | 703,998 | | | | 2,998,598 | |
| | | | | | | | | |
| Property, plant and equipment, net (Note 3) | | | 394,590 | | | | 102,280 | |
| Construction in progress (Note 3) | | | - | | | | 280,178 | |
| Land use rights, net | | | 16,838,878 | | | | 16,775,962 | |
| Long-term investment | | | 316,954 | | | | 312,931 | |
| Due from related parties (Note 4) | | | 6,674,626 | | | | 2,863,074 | |
| TOTAL ASSETS | | $ | 24,929,046 | | | $ | 23,333,023 | |
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012 (Continued)
(Stated in US Dollars)
| | | September 30, | | | December 31, | |
| | | 2013 | | | 2012 | |
| | | (Unaudited) | | | (Audited) | |
| LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | |
| Current Liabilities | | | | | | |
| Other payables and accrued liabilities (Note 5) | | | 1,315,746 | | | | 705,132 | |
| Notes payable - related parties (Note 6) | | | 434,137 | | | | 434,137 | |
| Advance from customer | | | - | | | | 1,431,867 | |
| Total Current Liabilities | | | 1,749,883 | | | | 2,571,136 | |
| | | | | | | | | |
| Non-current liabilities | | | | | | | | |
| Due to related parties (Note 6) | | | 1,855,396 | | | | 1,858,861 | |
| Due to shareholders (Note 7) | | | 4,277,506 | | | | 4,186,907 | |
| Payable on acquisition of a subsidiary | | | 2,032,035 | | | | 1,987,583 | |
| Total Long-term Liabilities | | | 8,164,937 | | | | 8,033,351 | |
| | | | | | | | | |
| | | | | | | | | |
| SHAREHOLDERS’ EQUITY | | | | | | | | |
| Series C convertible preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares outstanding as of December 31, 2012 and September 30,2013) | | | - | | | | - | |
| Common stock ($0.01 par value, 250,000,000 shares authorized, 64,629,559 shares issued and outstanding as of December 31, 2012 and September 30,2013) | | | 646,295 | | | | 646,295 | |
| Treasury stock | | | (489,258 | ) | | | (489,258 | ) |
| Additional paid-in capital | | | 13,916,844 | | | | 13,916,844 | |
| Retained earnings | | | (3,683,319 | ) | | | (4,946,453 | ) |
| Non-controlling interests | | | 2,094,799 | | | | 1,389,550 | |
| Accumulated other comprehensive income | | | 2,528,865 | | | | 2,211,558 | |
| TOTAL SHAREHOLDERS’ EQUITY | | | 15,014,226 | | | | 12,728,536 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | | 24,929,046 | | | $ | 23,333,023 | |
See accompanying notes to the unaudited consolidated financial statement
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 (Stated in US Dollars)
| | | For the Three Months Ended September 30, | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | Unaudited | | | Unaudited | | | Unaudited | | | Unaudited | |
| | | | | | | | | | | | | |
| Sales revenue - related party (Note 8) | | $ | 303,091 | | | | 295,876 | | | $ | 904,814 | | | | 889,898 | |
| Cost of revenue | | | 16,973 | | | | 16,569 | | | | 50,670 | | | | 49,834 | |
| Gross Profit | | | 286,118 | | | | 279,307 | | | | 854,144 | | | | 840,064 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses (income) | | | | | | | | | | | | | | | | |
| Administrative expenses | | | 109,249 | | | | 111,041 | | | | 316,334 | | | | 199,347 | |
| Gain on disposal of asset (Note 9) | | | (5,628 | ) | | | - | | | | (2,284,956 | ) | | | - | |
| Depreciation | | | 11,730 | | | | 6,924 | | | | 25,261 | | | | 20,412 | |
| Amortization | | | 103,449 | | | | 100,986 | | | | 308,825 | | | | 303,734 | |
| Total operating expenses | | | 218,800 | | | | 218,951 | | | | (1,634,536 | ) | | | 523,493 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 67,318 | | | | 60,356 | | | | 2,488,680 | | | | 316,571 | |
| | | | | | | | | | | | | | | | | |
| Other Income (Expenses) | | | | | | | | | | | | | | | | |
| Interest income | | | 7,219 | | | | - | | | | 52,680 | | | | 73 | |
| Interest expenses | | | (805 | ) | | | 757 | | | | (1,635 | ) | | | 757 | |
| Other expenses | | | (99 | ) | | | (346 | ) | | | (7,687 | ) | | | (13,107 | ) |
| Total Other Income (Expense) | | | 6,315 | | | | 411 | | | | 43,358 | | | | (12,277 | ) |
| | | | | | | | | | | | | | | | | |
| Income (Loss) before tax | | | 73,633 | | | | 60,767 | | | | 2,532,038 | | | | 304,294 | |
| Income tax expense (benefit) (Note 10) | | | (23,721 | ) | | | (5,538 | ) | | | 563,655 | | | | (13,999 | ) |
| Net Income | | $ | 97,354 | | | | 66,305 | | | $ | 1,968,383 | | | | 318,293 | |
| | | | | | | | | | | | | | | | | |
| Net income attributable to: | | | | | | | | | | | | | | | | |
| Non-controlling interests | | | (8,150 | ) | | | (7,172 | ) | | | 705,249 | | | | (12,263 | ) |
| Common Stockholders | | | 105,504 | | | | 73,477 | | | | 1,263,134 | | | | 330,556 | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | | | |
| Foreign currency translation adjustments | | | 72,911 | | | | (32,283 | ) | | | 317,307 | | | | (82,555 | ) |
| Total Comprehensive Income | | $ | 170,265 | | | | 34,022 | | | $ | 2,285,690 | | | | 235,738 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares-Basic | | | 64,629,559 | | | | 64,629,559 | | | | 64,629,559 | | | | 64,629,559 | |
| Weighted average shares-Diluted | | | 64,629,559 | | | | 64,629,559 | | | | 64,629,559 | | | | 64,629,559 | |
| Earnings per share, | | | | | | | | | | | | | | | | |
| Basic | | | 0.00 | | | | 0.00 | | | | 0.03 | | | | 0.00 | |
| Diluted | | | 0.00 | | | | 0.00 | | | | 0.03 | | | | 0.00 | |
See accompanying notes to the unaudited consolidated financial statement
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(Stated in US Dollars)
| | | For the Nine Months Ended September 30, | |
| | | 2013 | | | 2012 | |
| | | Unaudited | | | Unaudited | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net income | | $ | 1,968,383 | | | $ | 318,293 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| | | | | | | | | |
| Depreciation and amortization | | | 334,086 | | | | 324,146 | |
| Deferred tax assets | | | 14,646 | | | | (13,867 | ) |
| Adjustment for gain on disposal of mine | | | (2,284,956 | ) | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Other current assets and prepayments | | | (56,550 | ) | | | 88,442 | |
| Other payables and accrued liabilities | | | 529,914 | | | | (42,355 | ) |
| Advance from customers | | | (321,712 | ) | | | 315,408 | |
| CASH PROVIDED BY OPERATING ACTIVITIES | | | 183,811 | | | | 990,067 | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Purchase of property, plant and equipment | | | (63,706 | ) | | | (1,004 | ) |
| Proceeds from disposal of mines | | | 2,412,836 | | | | - | |
| Due from related parties | | | (3,747,519 | ) | | | (313,239 | ) |
| CASH USED IN INVESTING ACTIVITIES | | | (1,398,389 | ) | | | (314,243 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from minority interest investment | | | - | | | | 774,593 | |
| Proceeds from (repayment to) related parties | | | (45,039 | ) | | | 292,209 | |
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | | | (45,039 | ) | | | 1,066,802 | |
| Effect of exchange rate changes on cash and cash equivalents | | | 34,070 | | | | 11,316 | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH | | | (1,225,547 | ) | | | 1,753,942 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | | $ | 1,763,381 | | | $ | 20,932 | |
| CASH AND CASH EQUIVALENTS AT END OF THE PERIOD | | $ | 537,834 | | | $ | 1,774,874 | |
| | | | | | | | | |
| Supplementary Disclosures for Cash Flow Information: | | | | | | | | |
| Income taxes paid | | $ | - | | | | - | |
| | | | | | | | | |
| NON-CASH INVESTING AND FINANCING ACTIVITIES | | | | | | | | |
| Changes in restricted cash related to advance from customer | | $ | - | | | | 1,103,927 | |
See accompanying notes to the unaudited consolidated financial statements
CHINA CHANGJIANG MINING & NEW ENERGY CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
The accounting policies and methods followed in preparing these unaudited condensed consolidated financial statements are those used by China Changjiang Mining And New Energy company Ltd (the ‘Company’) as described in Special Notes of the notes to consolidated financial statements included in Annual Report on Form 10-K for the year ended December 31,2012. The unaudited condensed consolidated financial statements for the nine-month period ended September 30, 2013 and 2012 have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and do not conform in all respects to the disclosure and information that is required for annual consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosure required by accounting principles generally accepted in the United States of America. These interim condensed consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements of the Company.
In the opinion of management, all adjustments, all of which are of a normal recurring nature, considered necessary for fair statement have been included in these interim condensed consolidated financial statements. Operating results for the nine-month period ended September 30, 2013 are not indicative of the results that may be expected for the full year ending December 31, 2013.
| (a) | Foreign Currency Translation | |
Exchange rates applied for the foreign currency translation during the period are as follows:
USD to RMB
| | | September 30, 2013 | | | December 31, 2012 | |
| Period end USD : RMB exchange rate | | | 6.1480 | | | | 6.2855 | |
| Average periodic USD : RMB exchange rate | | | 6.2168 | | | | 6.3125 | |
USD to HKD
| | | September 30, 2013 | | | December 31, 2012 | |
| Period end USD : HKD exchange rate | | | 7.7538 | | | | 7.7522 | |
| Average periodic USD : HKD exchange rate | | | 7.7531 | | | | 7.7986 | |
HKD is pegged to USD and hence there is no significant translation adjustment impact on these consolidated financial statements.
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
| (b) | Earning/Loss per share | |
Basic earning/loss per share is computed by dividing earning/loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earning/loss per share is computed in a manner similar to basic earning/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.
| 2. | OTHER CURRENT ASSETS AND PREPAYMENTS | |
Other current assets and prepayments of $166,164 mainly represent the small amount of advances to the employees.
| 3. | PROPERTY, PLANT AND EQUIPMENT | |
The following is a summary of property, plant and equipment:
| | | September 30, 2013 | | | December 31, 2012 | |
| | | | | | | |
| Cost | | $ | - | | | $ | - | |
| Motor vehicles | | | 264,047 | | | | 258,271 | |
| Office equipment | | | 61,654 | | | | 67,741 | |
| EPC projects equipment | | | 318,394 | | | | - | |
| Total | | | 644,095 | | | | 326,012 | |
| | | | | | | | | |
| Accumulated depreciation | | | (249,505) | | | | (223,732 | ) |
| | | | | | | | | |
| Property, plant & equipment, net | | | 394,590 | | | | 102,280 | |
The additional EPC projects equipment of $318,394 was the installed solar photovoltaic power generation equipments located in Huanghe Bay, Qiachuan County, Shaanxi Province, PRC. It was transferred from Construction In Progress in June, 2013.
| 4. | DUE FROM RELATED PARTIES – NON CURRENT | |
The balance of $6,674,626 due from related parties represents the loan owed from related parties, which are unsecured and repayable on demand.
Due from related parties consists of the following:
| | | September 30, 2013 | | | December 31, 2012 | | Interest |
| Du Kang Liquor Development Co., Ltd | | $ | 813,273 | | | | 795,482 | | interest free for the first year and bear interest in the benchmark lending rate over the same period afterwards |
| Shaanxi Du Kang Liquor Group Co., Ltd | | $ | 2,879,489 | | | | - | | bearing interest in the benchmark lending rate over the same period |
| Zhongke Aerospace & Agriculture Development Stock Co., Ltd | | $ | 459,499 | | | | 449,447 | | interest free |
| Shaanxi Huanghe Bay Springs Lake Theme Park Ltd | | $ | 2,134,841 | | | | 1,193,222 | | interest free |
| Shaanxi Changfa Industrial Co., LTD | | $ | 374,105 | | | | 365,922 | | interest free |
| Mr. Chen Weidong | | $ | - | | | | 45,876 | | interest free |
| Shaanxi Changjiang Zhongxiayou Investment Co.,Ltd | | $ | 13,419 | | | | 13,125 | | interest free |
| Total | | | 6,674,626 | | | | 2,863,074 | | |
The balance of $45,876 as of December 31, 2012 was the advance to our CEO for the Company's business.
| 5. | OTHER PAYABLES AND ACCRUED LIABILITIES |
The following is a summary of other payables and accrued liabilities:
| | | September 30, 2013 | | | December 31, 2012 | |
| | | | | | | |
| Tax payable | | $ | 1,135,420 | | | $ | 510,173 | |
| Salary and welfare payable | | | 25,288 | | | | 24,734 | |
| Other payable | | | 155,038 | | | | 170,225 | |
| | | $ | 1,315,746 | | | $ | 705,132 | |
The tax payable of $1,135,420 includes income tax payable of $849,030, business tax payable of $278,953 and other tax payable of $7,437.
The current liability related party notes payable of $434,137 represents the notes payable to a related party, interest rate of 8% per annum, guaranteed by a note receivable from a third party.
The non-current liability balance of $1,855,396 due to related parties represents the loan owed to related parties, which are interest free, unsecured and repayable on demand twelve months after September 30, 2013.
Due to related parties consists of the following.
| | | September 30, 2013 | | | December 31, 2012 | |
| | | | | | | |
| Due to Huiton World Property Superintendent Company | | $ | 406,637 | | | | 397,741 | |
| Due to Zhongke Lvxiang Development Stock Co., Ltd | | $ | 1,138,582 | | | | 1,113,674 | |
| Due to Shaanxi Changjiang Electricity & New Energy Co.,Ltd | | $ | 299,426 | | | | 292,876 | |
| Due to Baishui Du Kang Brand Management Co.,Ltd | | $ | 9,759 | | | | 9,546 | |
| Due to Shaanxi Xidenghui Technology Co. Ltd. | | $ | 992 | | | | 970 | |
| Due to Shaanxi Dukang Liquor Group Co.,Ltd | | $ | - | | | | 44,054 | |
| Total | | $ | 1,855,396 | | | | 1,858,861 | |
The balance of $4,277,506 due to shareholders represents the loan owed to the shareholders, which are interest free, unsecured and repayable on demand twelve months after September 30, 2013.
Due to shareholders consists of the following:
| | | September 30, 2013 | | | December 31, 2012 | |
| | | | | | | |
| Due to Wang Shengli | | $ | 2,242,011 | | | | 2,192,966 | |
| Due to Zhang Hongjun | | | 1,425,993 | | | | 1,394,798 | |
| Due to Chen Min | | $ | 609,502 | | | | 599,143 | |
| | | | 4,277,506 | | | | 4,186,907 | |
| 8. | SALES REVENUE – RELATED PARTY | |
The Company entered into a lease and complementary agreements with the related company Huanghe dated July 26, 2010. According to the agreements, a piece of land with the area of 5,706,666.67 square meters was leased to Huanghe for traveling and amusement from January 1, 2011 to December 31, 2029. The annual rent in US dollars is approximately $1.2 million (equivalent to RMB7, 500,000). The rent revenue of $904,814 was recognized for the nine months ended September 30, 2013, compared with the rent revenue of $889,898 for the nine months ended September 30, 2012.
| 9. | GAIN ON DISPOSAL OF ASSETS | |
At the beginning of 2013, the Company transferred its mines exploration rights to Xunyang County Yongjin Mining Co.,Ltd for business purpose with a consideration of $2,412,836 (RMB15,000,000). The transaction procedures were completed and the outstanding amount was settled as of September 30, 2013.
The gain on disposal of assets consists of the consideration and the total of $127,880 for the related business tax and the surcharges.
The provision for taxes on earnings consisted of:
| | For the three months ended September 30, | | For the nine months ended September 30, | |
| | 2013 | | | 2012 | | 2013 | | | 2012 | |
| | | | | | | | | | | | | | | | | |
| PRC Enterprise Income Tax (Benefit) | | $ | (23,721) | | | | (5,538) | | | $ | 563,655 | | | | (13,999) | |
| United States Federal Income Tax | | | | | | | - | | | | - | | | | - | |
| Income tax, net | | | (23,721) | | | | (5,538) | | | | 563,655 | | | | (13,999) | |
The income taxes expense (benefit), which is all incurred in PRC, consists of the following:
| | | For the three months ended September 30, | | | For the nine months ended September 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Current income tax expense | | $ | (23,721) | | | | - | | | $ | 563,655 | | | | - | |
| Deferred income tax expense (benefit) | | | | | | | (5,538) | | | | | | | | (13,999) | |
| Income tax, net | | | (23,721) | | | | (5,538) | | | | 563,655 | | | | (13,999) | |
| 11. | RELATED PARTY TRANSACTIONS - REVENUE | |
In addition to the other transactions and balances disclosed elsewhere in the financial statements, the Company leased the land use right to Huanghe, a company with the same controlling person, and generated rent revenue of $904,814 for the nine months ended September 30, 2013.
The Company operates in two reportable segments, land use right leasing and solar PV energy. Summarized information by business segment for the three and nine months ended September 31, 2013 and 2012 is as follows.
| | | For the three months ended September 30, | | | For the nine months ended September 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Revenue | | | | | | | | | | | | |
| Land use right leasing | | $ | 303,091 | | | | 295,876 | | | $ | 904,814 | | | | 889,898 | |
| Solar PV energy | | | | | | | | | | | | | | | | |
| Cost of revenue | | | | | | | | | | | | | | | | |
| Land use right leasing | | | 16,973 | | | | 16,569 | | | | 50,670 | | | | 49,834 | |
| Solar PV energy | | | | | | | | | | | | | | | | |
| Gross Profits | | | | | | | | | | | | | | | | |
| Land use right leasing | | | 286,118 | | | | 279,307 | | | | 854,144 | | | | 840,064 | |
| Solar PV energy | | | | | | | | | | | | | | | | |
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.
The Baisui Project was approved by the Development & Reform Commission of Baisui County, Weinan City, Shaanxi Province, and is applying for the approval of the Development & Reform Commission of Weinan City, Shaanxi Province as of the report date. The Company expects to commence construction upon obtaining the approval of Development & Reform Commission of Weinan City at the end of 2013.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to the historical information contained herein, we make statements in this Quarterly Report on Form 10-Q that are forward-looking statements. Sometimes these statements will contain words such as "believes," "expects," "intends," "should," "will," "plans," and other similar words. Forward-looking statements include, without limitation, assumptions about our future ability to increase income streams, reduce and control costs, to grow revenue and earnings, and our ability to obtain additional debt and/or equity capital on commercially reasonable terms, none of which is certain. These statements are only predictions and involve known and unknown risks, uncertainties and other factors included in our periodic reports with the SEC. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
The following discussion and analysis should be read in conjunction with our September 30, 2013 unaudited consolidated financial statements and related notes thereto included in the quarterly report and with our consolidated financial statements and notes thereto for the year ended December 31, 2012.
Overview
We have transitioned our business from mining to clean new energy in the middle of 2012, and mainly focused on the solar PV downstream market at the present stage. Though the solar PV business did not generate revenue for the nine months ended September 30, 2013, our Huanghe Bay Project was expected to begin the operation in 2013. And at the end of 2013, our Baisui Project is expected to commence its construction works. In the near future, we plan to gradually increase the resource devoted to marketing.
We also hold land use rights in a land parcel and we lease a portion of the land use rights on the 5.7 square kilometer parcel to Shaanxi Huanghe Bay Springs Lake Theme Park Ltd. (“Huanghe”), a company with a common control person. The term of the lease agreement is from January 1, 2011 to December 31, 2029. Our land use rights are amortized over their 50 year term. The land use right was not only our largest asset, but also the stable operating income to support our other business, with an annual rent of approximately $ 1.2 million (RMB7,500,000).
The following is a summary of the book value of our land use rights as of September 30, 2013:
| Cost | | $ | 20,818,543 | |
| Less: Accumulated amortization | | | (3,979,665) | |
| Land use rights, net | | $ | 16,838,878 | |
Amortization expenses were approximately $308,825 and $303,734 for the nine months ended September 30, 2013, and 2012, respectively.
As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $3,683,319 as of September 30, 2013, which includes net income for common stockholders of $1,263,134 for the nine months ended September 30, 2013. The Company’s operations provided cash of $183,811 for the nine months ended September 30, 2013.
We began to generate revenue for the year ended December 31, 2011, of which the revenue from land use right leasing was expected to provide stable cash flow. In the future, we expect that there will no longer be a need for us to continue to rely on loans from our directors and other related parties. We believe that we have adequate capital to assure that we will be able to meet our obligations or obtain sufficient capital to complete our plan of operations for the next twelve (12) months.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2013 and September 30, 2012
Sales revenue
We generated total revenue of $303,091 for the three months ended September 30, 2013, compared with the revenue of $295,876 for the three months ended September 30, 2012. The revenue was the rent of land use rights for both of the periods and was related party transactions.
Operating Expenses
Total operating expense for the three months ended September 30, 2013 was $218,800 compared with operating expense of $218,951 for the three months ended September 30, 2012. There was little fluctuation of administrative expense for the third quarter of 2013. The amortization expense for the three months ended September 30, 2013 remained stable, as no addition or disposal occurred for land use rights. The depreciation for the three months ended September 30, 2013 increased by $4,806 or 69%, compared with the same period of 2012, as the additional EPC project equipment of $318,394 began its depreciation in July, 2013.
Income before taxes for the three months ended September 30, 2013 was $73,633, compared to an income of $60,767 for the three months ended September 30, 2012.
Net Income
We achieved a net income of $97,354 for the three months ended September 30, 2013, compared to a net income of $66,305 for the three months ended September 30, 2012. The slight increase was primarily due to the 2% increase in revenue for the three months ended September 30, 2013.
Comprehensive Income
Our comprehensive income for the three months ended September 30, 2013 was $170,265 compared with comprehensive income of $34,022 for the three months ended September 30, 2012. The comprehensive income (loss) for each period only referred to the foreign currencies translation gain (loss), between the U.S. Dollar and the Chinese Yuan RMB (or Hong Kong Dollar for Wah Bon).
Comparison of the Nine Months Ended September 30, 2013 and September 30, 2012
Sales revenue
We generated total revenue of $904,814 for the nine months ended September 30, 2013, compared with the revenue of $889,898 for the nine months ended September 30, 2012. The revenue was the rent of land use rights for both of the periods and was related party transactions.
Operating Expenses
Total operating income for the nine months ended September 30, 2013 was $1,634,536 compared with operating expense of $523,493 for the nine months ended September 30, 2012. The increase was partially due to a gain of $2,284,956 recognized and an increase in the administrative expense, which increased to $316,334 from $199,347. The amortization expense for the nine months ended September 30, 2013 remained stable, as no addition or disposal occurred for land use rights. The depreciation for the nine months ended September 30, 2013 only increased by $4,849 or 24%, compared with the same period of 2012, as the additional EPC project equipment of $318,394 began its depreciation in July, 2013.
Income before taxes for the nine months ended September 30, 2013 was $2,532,038 compared to an income of $304,294 for the nine months ended September 30, 2012. The significant increase for our operating results was attributable to the transaction for the disposal of mines recognized in the first quarter of 2013.
Net Income
We achieved a net income of $1,968,383 for the nine months ended September 30, 2013, compared to a net income of $318,293 for the nine months ended September 30, 2012. The significant increase was primarily due to the transaction for the disposal of mines recognized in the first quarter of 2013. The Company transferred its mines exploration rights to Xunyang County Yongjin Mining Co.,Ltd for business purpose with a consideration of $2,412,836 (RMB15,000,000). The transaction was completed and the outstanding amount was settled as of September 30, 2013. The gain on disposal of assets consists of the considerations and the total of $127,880 for the related business tax and the surcharges.
Comprehensive Income
Our comprehensive income for the nine months ended September 30, 2013 was $2,285,690 compared with comprehensive income of $235,738 for the nine months ended September 30, 2012. The comprehensive income (loss) for each period only referred to the foreign currencies translation gain (loss), between the U.S. Dollar and the Chinese Yuan RMB (or Hong Kong Dollar for Wah Bon).
Stockholders’ Equity
Stockholders' equity increased to $15,014,226 as of September 30, 2013, or approximately 18%, from $12,728,536 as of December 31, 2012. The significant increase was primarily due to our net income of $1,968,383 generated for the nine months ended September 30, 2013.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Net cash provided by operating activities of $183,811 for the nine months ended September 30, 2013, decreased by $806,256,or 81%, compared with net cash provided of $990,067 for the nine months ended September 30, 2012. The decrease of net cash provided was primarily attributable to receiving a payment of $315,408 (RMB2,000,000) for the deposit of mines exploration rights transfer transaction for the nine months ended September 30,2012. The adjustments to reconcile our net income to net cash flow include adjustment for disposal proceeds of mine of $2,284,956, depreciation expense of $25,261, amortization of $308,825 for land use rights, an increase in operating assets of $56,550, an increase in operating liability of $529,914 and the decrease in advance from customers of $321,712.
Cash Flows From Investing Activities
Net cash used in investing activities of $1,398,389 for the nine months ended September 30, 2013 was the result of the proceeds from disposal of mine of $2,412,836, additional cash provided to the related parties of $3,747,519, and the cash paid for the EPC project of $63,706.
Cash Flows From Financing Activities
Net cash of $45,039 used in financing activities for the nine months ended September 30, 2013 resulted from the repayment to related parties.
General
Collectability of our account receivable for the land use right leasing is important to our continuation of operation. In addition, we have access to short and long term loans of cash from our directors or other related parties.
We provided loans of $3,747,519 to our related parties for the nine months ended September 30, 2013.
We returned cash of $45,039 to our related parties for the nine months ended September 30, 2013.
Our current assets decreased by $2,294,600 and total assets increased by $1,596,023 respectively.
We have cash of $537,834 and $1,763,381 as of September 30, 2013 and December 31, 2012 respectively.
We believe that we have sufficient cash to fund operations for the next 12 months.
FINANCING
We anticipated the cash generated from operating activities will be sufficient to sustain our daily operations for the next twelve months.
INFLATION
Our management believes that inflation did not have a material effect on our results of operations for the nine months ended September 30, 2013.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS
None
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities to comply with generally accepted accounting principles. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from our estimates, which would affect the related amounts reported in our financial statements.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the significant estimates and assumptions which are used in the preparation of the consolidated financial statements and affect our financial condition and results of operations.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete, both significant risks and rewards of ownership are transferred or services have been rendered and accepted, the selling price is fixed or determinable, and collectability is reasonably assured.
We are currently leasing the land use right to Huanghe for the development and operation of a theme park. We generally collect the annual rent every year, and then recognize land use right leasing revenue over the beneficial period described by the agreement, as the revenue is realized or realizable and earned.
Related Party
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, member of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting party might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
Our related parties are the following individuals and entities: (i) Mr. Wang Shengli (a director of the Company), Mr. Chen Weidong (our President, Chief Executive Officer and Chairman of the Board), Ms. Li Ping (a director of the Company), and Ms. Chen Min (a director of the Company), all of whom are shareholders of the Company; (ii) Mr. Zhang Hong Jun, who is currently a director of the Company; (iii) Ms. Li Ping (our Chief Financial Officer and who has the same name with our Director Ms. Li Ping); and (iv) the following companies: Du Kang Liquor Development Co., Ltd., Huiton World Property Superintendent Company, Xi Deng Hui Development Stock Co., Ltd., Zhongke Lvxiang Development Stock Co., Ltd., Shaanxi Du Kang Liquor Group Co., Ltd., Shaanxi Bai Shui Du Kang Brand Management Co., Ltd., Shaanxi Changjiang electricity & new energy Co.,Ltd, Shaanxi Huanghe Bay Springs Lake Theme Park Ltd., Shaanxi Changfa Industrial Co.,LTD., Shaanxi Tangrenjie Advertising Media Co.,Ltd. and Zhongke Aerospace & Agriculture Development Stock Co., Ltd.
Cash flows from due from related parties are classified as cash flows from investing activities. Cash flows from due to related parties are classified as cash flows from financing activities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form10-Q, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2013. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2013.
Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, 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.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework and Internal Control over Financial Reporting-Guidance for Smaller Public Companies. As a result of this assessment, management identified a material weakness in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We note the following deficiencies that management believes to be material weaknesses:
| a) | Various members of the Company’s executive management are also members of its board of directors, including the board’s chairman. This situation prevents a truly independent review of the actions of the Company’s management. |
| b) | The Company does not have an independent audit committee to oversee the external financial reporting process and the internal control over financial reporting as required by the Sarbanes-Oxley Act of 2002. This, in combination with the lack of an independent board of directors, creates a material weakness in the oversight of the Company’s management, its internal control and its financial reporting process. |
| c) | The Company does not have sufficient knowledge of all the necessary financial statement disclosures that are required to be made in accordance with U.S. generally accepted accounting principles. |
Based on the material weakness described above, management has concluded that, as of September 30, 2013, the Company's internal control over financial reporting was not effective based on the criteria in Internal control - Integrated framework issued by the COSO.
The Company intends to take the following steps as soon as practicable to remediate the material weaknesses we identified as follows:
| 1. | We intend to recruit independent directors such that at least a majority of our Board is independent. |
| 2. | We intend to constitute audit, nominating and compensation committees comprised entirely of independent directors and to adopt committee charters for those committees, in accordance with the corporate governance standards of the New York Stock Exchange. We intend that at least one member of our Audit Committee will qualify as an “Audit Committee financial expert.” |
Changes in Internal Controls over Financial Reporting
There has been no significant change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)- 15(f) of the Exchange Act) that occurred during the nine months ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
We received a document subpoena dated April 4, 2011, pursuant to which the Enforcement Division of the SEC informed us that it was conducting an investigation of the Company to determine whether the Company has committed a violation of the federal securities laws. The subpoena required us to produce certain documents to the SEC, and we complied and responded on May 2, 2011.
On June 7, 2011, the SEC issued another subpoena in furtherance of its investigation and required the Company to produce additional documents relating to its land use right. We complied with the subpoena and responded on June 24, 2011 to the Los Angeles Regional Office of the SEC.
On September 5, 2012, the Securities and Exchange Commission officially notified us of its termination of the investigation against us that began in April 2011. The SEC also confirmed that it had no intention of recommending any enforcement action by the Commission.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On December 25, 2009, the Company issued an aggregate of 4,500,000 shares of common stock to Messrs. Donald R. Monroe and Stanley F. Wilson, the principals of Capital Advisory Services, Inc., in connection with our share exchange transaction. To the best of our knowledge, each of them now holds 2,250,000 shares of common stock the shares were issued without registration in reliance on section 4(2) of the Securities Act. All issued and outstanding shares of series C Preferred Stock have been converted into an aggregate amount of 609 million shares of our common stock which were issued without registration in reliance on SEC Regulation S and section 3(a)(9) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
| 31.1 | | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule15d-14(a) of the Securities Exchange Act of 1934, as amended | Filed herewith. |
| | | | |
| 31.2 | | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended | Filed herewith. |
| | | | |
| 32.1 | | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith. |
| 101.INS ** | | XBRL Instance Document | Filed herewith. |
| | | | |
| 101.SCH ** | | XBRL Taxonomy Extension Schema Document | Filed herewith. |
| | | | |
| 101.CAL ** | | XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith. |
| | | | |
| 101.DEF ** | | XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith. |
| | | | |
| 101.LAB ** | | XBRL Taxonomy Extension Label Linkbase Document | Filed herewith. |
| | | | |
| 101.PRE ** | | XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith. |
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | CHINA CHANGJIANG MINING AND NEW ENERGY COMPANY, LTD. (Registrant) | |
| | | | |
| Date: November 14, 2013 | By | /s/ Chen Wei Dong | |
| | | Chen Wei Dong | |
| | | Chief Executive Officer and President | |
| | | | |
| Date: November 14, 2013 | By | /s/ Li Ping | |
| | | Li Ping | |
| | | Chief Financial Officer (Principal Financial Officer) | |
12
