Form 10-Q
NORTH AMERICAN GAMING & ENTERTAINMENT CORP - NAGM
Filed: August 15, 2009 (period: June 30, 2009)
Quarterly report which provides a continuing view of a company's
financial position
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File No. 000-05474
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
Delaware 75-2571032
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Seventeen Floor, Xinhui Mansion, Gaoxin Road,
Hi-Tech Zone, Xi'An P. R. China 710075
-----------------------------------------
(Address of principal executive offices)
(86) 29-88331685
--------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[X] YES [ ] NO
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act.
[ ] YES [X] NO
APPLICABLE TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the
distribution ofsecurities under a plan confirmed by a court.
[ ] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
June 30 2009: 24,216,058
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
Table of Contents
10-Q - NORTH AMERICAN GAMING AND ENTERAINMENT CORPORATION FORM 10-Q
PART I
ITEM 1. FINANCIAL STATEMENTS 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
ITEM 4T.CONTROLS AND PROCEDURES 21
PART II
Items 1 through 5 not applicable.
ITEM 6. EXHIBITS 23
SIGNATURES 24
EX-1 (EXHIBIT 31.1)
EX-2 (EXHIBIT 32.1)
ITEM 1. FINANCIAL STATEMENTS
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2009 2008
ASSETS
---------- -----------
CURRENT ASSETS
Cash and cash equivalents 68,571 23,961
Prepaid expenses 42,743 115,801
Other current assets 109,185 113,759
---------- -----------
TOTAL CURRENT ASSETS 220,499 253,521
---------- -----------
FURNITURE AND EQUIPMENT, NET 218,991 235,800
---------- -----------
LONG TERM INVESTMENT 292,744 292,629
---------- -----------
LAND USE RIGHTS 17,310,668 17,508,609
---------- -----------
GOODWILL 3,335,441 3,334,124
---------- -----------
LONG TERM RECEIVABLE (related parties) 1,768,479 1,754,586
---------- -----------
TOTAL ASSETS 23,146,822 23,379,269
========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Other payables and accrued expenses 1,882,538 2,124,049
Notes payable 434,137 434,137
Due to stockholders 2,402,996 2,396,560
Due to related companies 3,916,234 3,446,160
---------- -----------
TOTAL CURRENT LIABILITIES 8,635,905 8,400,906
---------- -----------
MINORITY INTEREST 495,359 562,938
---------- -----------
STOCKHOLDERS' EQUITY
Series C convertible preferred stock ($0.01 par value)
10,000,000 shares authorized, 500,000 shares issued
and outstanding 5,000 5,000
Common stock($0.01 par value, 200,000,000 shares
authorized, 24,216,058 shares issued and
outstanding 417,886 417,886
Additional paid-in capital 24,356,050 24,208,127
Treasury stock, 17,572,494 shares, at cost (489,258) (489,258)
Accumulated deficits during the exploration stage (13,736,607) (13,262,228)
Accumulated other comprehensive income 3,462,487 3,535,898
---------- -----------
TOTAL EQUITY 14,015,558 14,415,425
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY 23,146,822 23,379,269
========== ===========
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
1
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
Six months ended June 30, Three months ended June 30,
2009 2008 Accumulated 2009 2008
----------- ----------- ----------- ----------- ----------
OPERATING EXPENSES
General and administrative expenses 84,086 118,225 693,945 52,780 39,454
Legal and professional fees 57,509 672,794 506,733 46,502 27,067
Depreciation 18,665 18,270 84,156 9,201 9,352
Amortization of land use rights 204,778 198,410 968,202 102,399 100,887
----------- ----------- ---------- ----------- ----------
Total Operating Expenses 365,038 1,007,699 2,253,036 210,882 176,760
----------- ----------- ---------- ----------- ----------
LOSS FROM OPERATIONS (365,038) (1,007,699) (2,253,036) (210,882) (176,760)
----------- ----------- ---------- ----------- ----------
OTHER INCOME (EXPENSES)
Interest income 77 764 4,998 50 330
Interest expense (139) (22,842) (1,496) (139) (11,421)
Imputed interest expense (178,406) (145,018) (775,693) (78,186) (87,221)
Other expense (3,197) - (36,347) (2,926) -
----------- ----------- ---------- ----------- ----------
Total Other Expenses (181,665) (167,096) (808,538) (81,201) (98,312)
----------- ----------- ---------- ----------- ----------
LOSS BEFORE MINORITY INTEREST (546,703) (1,174,795) (3,061,574) (292,083) (275,072)
Minority interest 72,324 27,576 187,533 62,642 10,848
----------- ----------- ---------- ----------- ----------
LOSS FROM CONTINUING OPERATIONS (474,379) (1,147,219) (2,874,041) (229,441) (264,224)
Loss on disposal of subsidiary - - (8,027,234) - -
----------- ----------- ---------- ----------- ----------
NET LOSS (474,379) (1,147,219) (10,901,275) (229,441) (264,224)
OTHER COMPREHENSIVE INCOME (LOSS) (73,411) 955,649 2,162,171 (90,521) 344,791
----------- ----------- ---------- ----------- ----------
COMPREHENSIVE LOSS (547,790) (191,570) (8,739,104) (319,962) 80,567
=========== =========== ========== =========== ==========
NET LOSS PER SHARE
Basic (0.0196) (0.04335) (0.11868) (0.00947) (0.01340)
Diluted (0.0008) (0.00181) - - (0.00042)
Weighted average number of shares
outstanding
during the period - basic 24,216,058 26,466,904 24,216,058 24,216,058 19,717,750
during the period - diluted 633,216,058 633,216,058 - - 628,717,750
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
2
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Treasury stock Series C
Convertible
Preferred Stock Common Stock
Share Amount Shares Amount Shares Amount
---------- --------- ------- ------ ---------- --------
Balance at
January 1, 2008 17,572,494 $(489,258) 500,000 $5,000 24,216,058 $417,886
Contributed by shareholder - $ - - $ -
Stock issued in
recapitalization - -
Imputed interest expenses on
due to stockholders and
related companies
Foreign currency
translation gain - - $ - - $
Comprehensive income
---------- --------- ------- ------ ---------- --------
Balance at
December 31, 2008 17,572,494 (489,258) 500,000 $5,000 24,216,058 $417,886
Contribution by
stockholders - - $ - $ -
Imputed interest
expense on due
to stockholders and
related companies - - $ - $ -
Foreign currency
translation gain - - $ - - $
Net loss for the year
---------- --------- ------- ------ ---------- --------
Balance at
June 30, 2009 17,572,494 (489,258) 500,000 $5,000 24,216,058 $417,886
========== ========= ======= ====== ========== ========
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
3
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (An Exploration Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
Accumulated
Additional other
paid-in Accumulated comprehensive
capital deficits income Total
----------- ------------ ------------- -----------
Balance at January 1, 2008 $23,523,678 $(11,794,802) $ 2,470,986 $14,133,490
Contribution by stockholders 330,498 - - 330,498
Imputed interest expense on
due to stockholders and
related companies 353,951 - - 353,951
Foreign currency translation gain - - 1,064,912 1,064,912
Net loss for the year (1,467,426) (1,467,426)
----------- ------------ ------------- -----------
Balance at December 31, 2008 24,208,127 (13,262,228) 3,535,898 14,415,425
Contribution by stockholders - - - -
Stock issued in recapitalization -
Imputed interest expenses on
due to stockholders and
related companies 147,923 147,923
Foreign currency translation gain (73,411) 73,411
Net loss for the year (474,379) (474,379)
----------- ------------ ------------- -----------
Balance at June 30, 2009 $24,356,050 $(13,736,607) $ 3,462,487 $14,015,558
=========== ============ ============= ===========
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
4
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, Accumulated
2009 2008
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (570,124) (1,147,219) (10,997,020)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on disposal of discontinued operations - - 8,027,234
Stock issued for services - 90,000 -
Depreciation 18,665 18,270 84,156
Amortization of land use rights 204,778 198,410 968,202
Imputed interest expense 178,406 145,018 775,694
Minority interest (72,324) - (187,532)
Decrease (increase) in operating assets 77,700 (310,602) 126,624
Increase (decrease) in operating liabilities (242,257) (34,667) 106,367
---------- ---------- ----------
Net cash used in operating activities (405,156) (1,040,790) (1,096,275)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of note receivable - 133,000 (133,000)
Purchase of furniture and equipment (2,050) (6,054) (51,149)
Due from shareholder - - 25,584
Due from related parties (13,196) (543,758) (1,438,446)
Net cash outflow from acquisition - - (1,310,532)
Net cash outflow from disposal of discontinued operations - - (1,406,430)
---------- ---------- ----------
Net cash used in investing activities (15,246) (416,812) (4,313,973)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by shareholders - - 197,293
Proceeds from notes payable - - 573,146
Proceeds from recapitalization - - (71,372)
Additional paid-in capital - - (481,477)
Due to stockholders 5,487 751,968 315,127
Due to related parties 468,568 885,942 3,390,436
Investment from minority stockholders - - (619,747)
---------- ---------- ----------
Net cash provided by financing activities 474,055 1,637,910 3,303,406
---------- ---------- ----------
EFFECT OF EXCHANGE RATES ON CASH (9,043) (466,184) 109,415
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 44,610 (285,876) (1,997,427)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,961 479,241 2,569,180
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 68,571 193,365 571,773
========== ========== ==========
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
5
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company owed $2,403,312 to two former stockholders of Chang Jiang and
a total of $3,204,352 to seven related parties as of June 30, 2009, for
advances made on an unsecured basis, repayable on demand and interest
free. Interest was imputed at a rate of 5.4% per annum on the amounts due.
As a result, the interest imputed for the quarter was $78,186 (RMB
534,321) which increased the additional paid-in capital without cash flow.
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
5
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
accounting policies and methods of computation followed in these condensed
consolidated financial statements are the same as those applied in the
consolidated financial statements for the year ended December 31, 2008.
In the opinion of management, the unaudited condensed
consolidated financial statements contain all adjustments (consisting
only of normal recurring accruals) considered necessary to present
fairly the Company's financial position at June 30, 2009, the results
of operations for the three and six month periods ended June 30, 2009
and 2008, and cash flows for the three and six month periods
ended June 30, 2009 and 2008. The results for the three and six month
periods ended June 30, 2009 are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31, 2009.
These financial statements should be read in conjunction
with the Company's annual report on Form 10-KSB as filed with the
Securities and Exchange Commission.
NOTE 2 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.
Hong Kong Wah Bon Enterprise Limited ("Wah Bon") was incorporated in
Hong Kong on July 7, 2006 as an investment holding company.
Shanxi 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 with its
principal activity as an investment holding company.
Chang Jiang Mining &*New energy Co.Ltd ("Chang Jiang") (formerly
Chang Jiang Shi You Neng Yuan Fa Zhang Company Limited) was incorporated
as a limited liability company in the PRC on March 19, 1999. The
Company became a joint stock company in January 2006 with its
business activities in investment holding and the development of a
theme park in Xian,PRC.
In August 2005, Chang Jiang contributed a piece of land valued at
7,928,532 in lieu of cash to the registered capital of Shanxi
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 Shanxi Chang Jiang
Petroleum and Energy Development 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 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 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.
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.
6
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 effect a one for ten
reverse stock split after the closing of this transaction and
upon obtaining regulatory approval and approval of the North American
shareholders and 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, 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 share 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 becomes a wholly owned subsidiary of North American.
The Company was reincorporated from the state of Delaware to the state of
Nevada with the intent to effect a statutory merger of the Delaware
corporation "North American Gaming and Entertainment Corporation", into a
recently formed Nevada corporation under the name
"China Changjiang Mining & New Energy Co., Ltd.", and to swop all issued
and outstanding shares in the Delaware corporation for comparable shares
in the Nevada corporation and dissolve the Delaware corporation.
The said new corporation was filed on September 19, 2008 in Nevada. Up to
the present, the statutory merger is in progress.
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 financial statements have been
prepared as if the reorganization had occurred retroactively.
Accordingly, the financial statements include the following:
(1) The balance sheet consisting of the net assets of the
acquirer at historical cost and the net assets of the
acquiree at historical cost.
(2) The statement 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 June 30, 2009.
NOTE 3 PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements as
of June 30, 2009 and 2008 include the unaudited financial statements
of North American, 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% share of the results of
Chang Jiang and Dongfang Mining, respectively.
All significant inter-company accounts and transactions have been
eliminated in consolidation.
7
NOTE 4 COMMITMENTS AND CONTINGENCIES
(A)Capital commitments
The Company's cash balances with financial institutions in the U.S are
insured up to
FDIC limits.
As of December 31, 2008,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 June 30, 2009, the contract
was not implemented before the end of June 2009, but will still be
effective throughout 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 Shanxi Province. The total amount of the project at June
30, 2009 is $323,018, which is supposed to be paid in full during the next
six months ending December 31,2009.
(B)Operating lease commitments.
The prior headquarters, formerly located in the 5th floor of High-Tech
Mansion, Gaoxin Road,High-Tech Zone,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,PRC with the rental lease from
February, 2009 to January, 2011 at a rental rate of approximately $10,975
(RMB75,000)per year.
The rental expense of headquarters for the six months ended June 30,2009
and 2008 was $8,073 and $17,781, respectively.
For the next six months of 2009 and the whole year of 2010, the Company
has outstanding commitments of approximately $5,488 and $10,975,
respectively, with regards to the operating leases of its facilities.
NOTE 5 STOCKHOLDERS' EQUITY
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. According
to the management, the preferred shares conversion shall go into effect
next quarter.
There are no preferred dividends in arrears as of June 30, 2009.
No called or redeemed conditions prescribed for the preferred stock.
NOTE 6 RELATED PARTY TRANSACTIONS
The related parties owed the Company $1,768,479 as of June 30, 2009, which
consisted of six related companies and three related persons, each
owing the Company amounts totaling $1,380,593 and $387,886 respectively,
for advances made on an unsecured basis, repayable on demand and interest
free.
The Company owed $2,402,996 to two former stockholders of Chang Jiang as
of June 30, 2009, for advances made on an unsecured basis, repayable on
demand and interest free. Interest was imputed at a rate of 5.4% per
annum on the amounts due.
The Company owed a total of $3,916,234 to ten related parties as of June
30, 2009. This consisted of seven related companies and three related
person, each of whom owed the Company amounts totaling $2,373,077 and
$1,543,157, respectively, for the advances that were made on an
unsecured basis, repayable on demand and interest free. Interest was
imputed at a rate of 5.4% per annum on the amount due.
The related parties owed the Company $1,754,586 as of December 31, 2008,
which consisted of nine related companies and four related persons,
each owing 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. Interest was imputed at a rate of 7% per
annum on the amounts due.
8
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. Total imputed
interest recorded as additional paid-in capital amounted to $178,406 and
$169,286 for the six months ended June 30, 2009 and 2008, respectively.
NOTE 7 SEGMENTS REPORTING
The Company operates in only one reportable segment, mining for mineral
ores, which is still at an exploration stage. Though the land use
rights account for most of the assets owned by the Company, the
Company has targeted mining now and new energy in the near future.
All of the Company's long-lived assets and customers are located in the
PRC. Accordingly, no geographic information is presented.
NOTE 8 CONCENTRATIONS AND RISKS
During the six months ended June 30, 2009 and 2008, 100% of the
Company's business and assets were located in the PRC.
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, 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 qualitative
disclosures about the objectives and strategies for using derivatives,
quantitative data about the fair value of and gains and losses on
derivative contracts, and details of credit-risk-related contingent
features in their hedged positions. SFAS No. 161 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 condensed
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 definition 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 for 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 condensed 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 expect the standard to have a material impact
on the condensed consolidated financial statements.
In April 2009, the FASB released FSP FAS 157-4, "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly." This position provides additional guidance for estimating fair
value in accordance with SFAS No. 157, "Fair Value Measurements," when the
volume and level of activity for the asset or liability have significantly
decreased as well as identifying circumstances that indicate a transaction
is not orderly. The Company does not expect the standard to have a
material impact on the condensed consolidated financial statements.
In April 2009, the FASB released FSP FAS 115-2 and FAS 124-2, "Recognition
and Presentation of Other-Than-Temporary Impairments," which is intended
to provide greater clarity to investors about the credit and noncredit
component of an other than temporary impairment charge ("OTTI") and to
more effectively communicate when an OTTI event has occurred. This FSP
applies to debt securities and requires that the total OTTI be presented
in the consolidated statement of income with an offset for the amount of
impairment that is the noncredit component recognized in other
comprehensive income. Noncredit component losses are to be recorded in
other comprehensive income if an investor can assess that it does not have
the intent to sell the security or it is more likely than not that it will
not have to sell the security prior to its anticipated recovery. Also in
accordance with FSP FAS 115-2 and 124-2, prior periods' noncredit
component other than temporary impairment charges are reclassified as
additions to retained earnings and reductions in accumulated other
comprehensive income. The Company does not expect the standard to have a
material impact on the condensed consolidated financial statements.
In May 2009, the FASB released SFAS No. 165, "Subsequent Events," which
establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before the financial
statements are issued or available to be issued. Effective for our interim
financial statements as of June 30, 2009, we reviewed events occurring
through the filing date of this document.
9
In June 2009, the FASB released SFAS No. 166, "Accounting for Transfers of
Financial Assets - an Amendment of FASB Statement No. 140," to improve the
relevance, representational faithfulness, and comparability of the
information that we provide in our financial statements about a transfer
of financial assets; the effects of a transfer on our financial position,
financial performance, and cash flows; and our continuing involvement, if
any, in transferred financial assets. Additionally, this statement removes
the concept of a qualifying special-purpose entity from SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and removes the exception from applying
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities,"
to qualifying special-purpose entities. SFAS No. 166 is effective for
fiscal years, and interim periods within those fiscal years, beginning
after November 15, 2009. The Company does not expect the standard to have
a material impact on the condensed consolidated financial statements.
In June 2009, the FASB released SFAS No. 167, "Amendments to FASB
Interpretation No. 46(R)," which addresses the effects on certain
provisions of FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities," as a result of the elimination of the qualifying
special-purpose entity concept in SFAS No. 166, "Accounting for Transfers
of Financial Assets." It addresses concerns about the application of
certain key provisions of Interpretation 46(R), including those in which
the accounting and disclosures under the Interpretation do not always
provide timely and useful information about a company's involvement in a
variable interest entity. This statement 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 statement requires ongoing assessments of whether we are the primary
beneficiary of a variable interest entity. SFAS No. 167 is effective for
fiscal years, and interim periods within those fiscal years, beginning
after November 15, 2009. The Company does not expect the standard to have
a material impact on the condensed consolidated financial statements.
In June 2009, the FASB released SFAS No. 168, "The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles." This document replaces SFAS No. 162 "The Hierarchy of
Generally Accepted Accounting Principles". This statement identifies and
organizes the sources of accounting principles and the framework for
selecting the accounting principles used in the preparation of financial
statements of non-governmental entities that are presented in conformity
with generally accepted accounting principles in the United States. SFAS
No. 168 is effective for interim and annual periods ending after September
15, 2009. The Company does not expect the implementation of this guidance
to have a material impact on the condensed consolidated financial
statements.
NOTE 10 GOING CONCERN
As reflected in the accompanying consolidated financial statements, the
Company has an accumulated deficit during the exploration stage of
$13,736,607 at June 30, 2009 which includes a net loss of $474,379 for
the six months ended June 30, 2009. The Company's current liabilities
exceed its current assets by $8,415,406. 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.
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. The Company is also
actively pursuing additional funding and potential merger or acquisition
candidates and strategic partners, which would enhance stockholders'
investment. Management believes that the above actions will allow
the Company to continue operations through the 2009 fiscal year.
The Company has successfully replaced the old license of mining
exploration with a new one, whose exploration period ranges from Jan 1st
2009 to Jan 1st 2011.
NOTE 11 THE INVESTMENT
In order to carry out the Corporate Strategy of developing the Mining
and New Energy, the Company, along with Shanxi Changfa Industry Stock
Co.,Ltd. ("Changfa"),established a new company named Shanxi Changjiang
Mining & New Energy
Co., Ltd.("Shanxi").The Company owns a 20% share of the registered
capital of Shanxi while Changfa owns the remaining 80% share. The
Company has significant influence on Shanxi as it has assigned finance
and other directors in Shanxi. The Company has recorded this investment
under the equity method. Shanxi had no income for the six months ended
June 30,2009 and since the expense was not material, no adjustment has
been made. As of June 30, 2009, the balance of this investment was
$292,744.
10
ITEM 2. 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-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. 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 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," "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.
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 8-K.
11
OVERVIEW
We are an exploration stage mining company and we have had no revenues
and do not expect revenues until we begin the process of extracting
minerals which will not start until the end of 2009, 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: SHANXI
TAI PING YANG XIN NENG YUAN DEVELOPMENT COMPANY LIMITED ("Tai Ping
Yang"); SHANXI CHANG JIANG SI YOU NENG YUAN FA ZHANG GU FENG YOU
XIANG GONG SI ("Chang Jiang") and DONGFANG MINING COMPANY LIMITED
("Dongfang"). Wah Bon owns 100% of Tai Ping Yang. Tai Ping Yang
owns 97.2% of Chang Jiang; and Chang Jiang owns 60% of Dongfang.
The minority interests represent the minority shareholders' 2.8% and
40% share of the results of Chang Jiang and Dongfang
Mining respectively.
We replaced our Board of Directors and officers. A filing on Form
14F was filed with the Securities & Exchange Commission on
December 7, 2007. The new directors are all located in China, and the
officers of Dongfang are familiar with the mining industry in China. All
of our assets are in China.
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 interest (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 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
------------------
12
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 were included in the consolidated
statements of operations and comprehensive income 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 31,2008, 2007 and 2006,
assuming the acquisition had occurred at the beginning of 2006.
2008 2007 2006
----------- ----------- -----------
Revenues $ - $ - $ -
(1,467,426) $(8,959,472) $(1,676,333)
=========== =========== ===========
Net loss per share - basic (0.06) $ (.37) $ -
=========== =========== ===========
Net loss per share - diluted $ - $ - $ -
=========== =========== ===========
In accordance with SFAS No. 142 "Goodwill and other intangible
assets", goodwill is not amortized but is tested for impairment.
The Company are going to perform an assessment on goodwill arising from
the acquisition of Dongfang Mining as the market of non-ferrous metals
has changed and the whole industry are rebounding. We cannot concluded
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 Shanxi Huanghe Wetland Park Company Limited ("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 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 use rights for a 67.82 sq.km parcel in the Jiao Shan Zhai
Mining Area, located in Xunyang County in the Shanxi 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
yet begun mining activity. We originally planned to construct a
theme park business on the parcel, but have now directed our resources
to mining opportunities. Therefore, all of our assets are recorded in
the mining segment of the financial statements.
13
The following is a summary of land use rights at June 30, 2009:
Cost $ 19,154,408
Less: accumulated amortization (1,843,740)
----------------
Land use rights, net $ 17,310,668
================
The land use rights are amortized over fifty years of the term of
leases. The amortization expense for the six months ended June 30, 2009
and 2008 was $204,778 and $198,410, respectively.
From 2003 until the present, Dongfang Mining has held licenses
for the exploration of minerals and precious metals in the
Shanxi 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, Shanxi
Province, PRC, on December 31, 2006. The Company engaged Geology
and Mineral Bureau of Shanxi to conduct a preliminary survey
which reported preliminary positive findings for gold, lead and zinc
deposits in the mines.
PLAN OF OPERATIONS
Our efforts over the next six 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 the gold mining license in the near future 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
six months or until the Company begins to generate revenues, whichever
first occurs. 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 six months.
Our plan over the next six months is: 1.to obtain the gold mining
license and then to obtain the lead & zinc mining license; 2. to
finish reconnaissance and evaluation and begin prospecting the known
ore bodies and controlling the trench exploration. 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 Specific
implementation methods which 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;
- Finish the rough survey of lead and zinc over the 6.8 square meter
area;
- Investigate other metallogenic areas, mainly through surface work,
which may be combined with limited tunnel exploration and
drilling;
- Complete the particular survey of gold and obtain the exploitation
license
- 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.
14
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Overall, we had an increase in net loss of $ 474,379 for the six
months ended June 30, 2009. During the six months ended June 30, 2009, we
had net cash used in operating activities of $405,156, net cash used in
investing activities of $ 15,246 and net cash provided by financing
activities of $ 474,055. At June 30, 2009, our cash
balance was $68,571, as compared to $ 23,961 at the end of December
2008. This was an
increase of $ 44,610, or approximately 186%.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used in
operating activities of $405,156 for the six months ended June 30,
2009 was primarily attributable to the net loss from operations. The
adjustments to reconcile
the net loss to net cash, included depreciation expense of $18,665,
amortization of land use rights of $204,778, imputed interest
expense of $178,406, adjustment for minority interests of $72,324,a
decrease in current assets and prepayments of $77,700 and an decrease in
current liability of $242,257.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in
investing activities of $15,246 for the six months ended June 31, 2009
was primarily attributable to the $13,196 from related parties.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash of $ 474,055
provided by financing activities in the six months ended June 30, 2009
was primarily due to the $5,487 and $468,568 increases of due to
shareholder and due to related parties, respectively
FINANCING. We have not generated any revenues as of June 30,
2009 and so are considered an exploration stage company. We ended June
2009 with $68,571 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 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. 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 2009 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, 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.
EXTERNAL SOURCES OF LIQUIDITY. We intend to pursue all
potential financing options in 2009 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.
OFF-BALANCE SHEET ARRANGEMENTS. We do not have any off-balance
sheet arrangements.
RESULTS OF OPERATIONS
Comparison of the six months ended June 31, 2009, to the six
months ended June 31, 2008.
15
Operating Expense
The Company recorded an operating loss of $474,379 for the six
months ended June 30, 2009 compared to a loss of $1,147,219 for the six
months ended June 30, 2008. The loss was comprised of general and
administrative costs of $84,086 during the six months ended June
30, 2009, compared to general and administrative costs of $118,225
for the six months ended June 30, 2008. Legal and professional fees
decreased to $57,509 for the six months ended June 30, 2009, which
was the costs of the audit. Depreciation was $18,665 for the six months
ended June 30, 2009 as compared to $ 18,270 for the six months ended
June 30, 2008. Land use rights amortization was $204,778 for the six
months ended June 30, 2009. The operating loss decrease was largely
associated with the decrease of expenses for the legal and
professional fees.
Other Income (Expense)
Other expense increased from $167,096 for the six months ended June
30, 2008 to $181,665 for the six months ended June 30, 2009. The
Company incurred interest expense of $139 for the six months ended
June 31, 2009, compared to $22,842 for the six months ended June 30,
2008. Imputed interest expense increased from $ 145,018 for the six
months ended June 30,2008 to $178,406 for the six months ended June 30,
2009. The increase in interest expense is due to additional
borrowings from related and unrelated parties. The Company recorded
interest income of $77 for the six months ended June 30, 2009.
Net Loss
The net loss for the six months ended June 30, 2009 was $474,379 as
compared to a net loss of $1,147,219 for the six months ended
June 30, 2008. The decrease of loss for the six months ended June 30,
2009 mainly came from the decrease of $615,285 in legal and professional
fees compared with the quarter ended June 30, 2008.
Other Comprehensive Income
The exchange rate was stable during the first half year of 2009, and only
$73,410 of foreign exchange loss was recorded in the book for the first
half year. We converted the report in RMB to that in USD by the
exchange rate at June 30, 2009 (i.e. 6.8319 for the balance sheet) and by
average exchange rate of Quarter 1 & 2 (i.e. 6.834 for the income
statement).
As a result, the difference after the translation was concluded to be
recorded as foreign exchange translation gains in the balance sheet.
Comprehensive Loss
The comprehensive loss for the six months ended June 30, 2009
was $73,411 as compared to a comprehensive gain of $ 955,649 for
the six months ended June 31, 2008.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
CONTROLS AND PROCEDURES
Quarterly Evaluation of Controls
As of the end of the period covered by this quarterly report on Form 10-
QSB, we evaluated the effectiveness of the design and operation of (i)
our disclosure controls and procedures ("Disclosure Controls"), and (ii)
our internal control over financial reporting ("Internal Controls"). This
evaluation ("Evaluation") was performed by our President and Chief
Executive Officer for the quarter ending June 30 , 2009, Chen Weidong
("CEO") and by our Chief Financial Officer for the quarter ending June
30 , 2009. In this section, we present the conclusions of our
CEO based on and as of the date of the Evaluation, (i) with respect to
the effectiveness of our Disclosure Controls, and (ii) with respect to
any change in our Internal Controls that occurred during the most
recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect our Internal Controls.
Brock, Schechter & Polakoff, LLP, an independent registered public
accounting firm, has issued a report on the effectiveness of our internal
control over financial reporting. In the firm's opinion, the Company
maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008.
16
CEO and CFO Certifications
Attached to this quarterly report, as Exhibits 31.1 and 32.1, are
certain certifications of the CEO and CFO, which are required in
accordance with the Exchange Act and the Commission's rules
implementing such section (the "Rule 13a- 14(a)/15d-14(a)
Certifications"). This section of the quarterly report contains the
information concerning the Evaluation referred to in the Rule 13a-
14(a)/15d-14(a) Certifications. This information should be read
in conjunction with the Rule 13a- 14(a)/15d-14(a) Certifications for
a more complete understanding of the topic presented.
Disclosure Controls and Internal Controls
Disclosure Controls are procedures designed with the objective of ensuring
that information required to be disclosed in our reports filed with the
Commission under the Exchange Act, such as this quarterly report, is
recorded, processed, summarized and reported within the time period
specified in the Commission's rules and forms. Disclosure Controls are
also designed with the objective of ensuring that material information
relating to the Company is made known to the CEO and the CFO by
others, particularly during the period in which the applicable report
is being prepared. Internal Controls, on the other hand, are procedures
which are designed with the objective of providing reasonable
assurance that (i) our transactions are properly authorized, (ii) our
assets are safeguarded against unauthorized or improper use, and
(iii) our transactions are properly recorded and reported, all to permit
the preparation of complete and accurate financial statements in
conformity with accounting principles generally accepted in the United
States.
Limitations on the Effectiveness of Controls
Our management does not expect that our Disclosure Controls or our
Internal Controls will prevent all error and all fraud. A control system,
no matter how well developed and operated, can provide only reasonable,
but not absolute assurance that the objectives of the control
system are met. Further, the design of the control system must reflect the
fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances so of
fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision -making can
be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The design of a system of controls
also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed
in achieving its stated objectives under all potential future
conditions. Over time, control may become inadequate because of changes
in conditions, or because the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
Scope of the Evaluation
The CEO and CFO's evaluation of our Disclosure Controls and Internal
Controls included a review of the controls' (i) objectives, (ii)
design, (iii) implementation, and (iv) the effect of the controls
on the information generated for use in this quarterly report. In the
course of the Evaluation, the CEO and CFO sought to identify data
errors, control problems, acts of fraud, and they sought to confirm that
appropriate corrective action, including process improvements, was being
undertaken. This type of evaluation is done on a quarterly basis so that
the conclusions concerning the effectiveness of our controls can be
reported in our quarterly reports on Form 10-QSB and annual reports on
Form 10-KSB. The overall goals of these various evaluation
activities are to monitor our Disclosure Controls and our Internal
Controls, and to make modifications if and as necessary. Our external
auditors also review Internal Controls in connection with their audit
and review activities. Our intent in this regard is that the Disclosure
Controls and the Internal Controls will be maintained as dynamic
systems that change (including improvements and corrections) as
conditions warrant.
17
Among other matters, we sought in our Evaluation to determine whether
there were any significant deficiencies or material weaknesses in
our Internal Controls, which are reasonably likely to adversely
affect our ability to record, process, summarize and report financial
information, or whether we had identified any acts of fraud, whether or
not material, involving management or other employees who have a
significant role in our Internal Controls. This information was important
for both the Evaluation, generally, and because the
Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO
and CFO disclose that information to our Board (audit committee),
and to our independent auditors, and to report on related matters in
this section of the quarterly report. In the professional auditing
literature, "significant deficiencies" are referred to as "reportable
conditions". These are control issues that could have significant adverse
affect on the ability to record, process, summarize and report
financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively
low level, the risk that misstatement cause by error or fraud may occur
in amounts that would be material in relation to the financial statements
and not be detected within a timely period by employee in the normal
course of performing their assigned functions. We also sought to deal with
other controls matters in the Evaluation, and in each case, if a
problem was identified; we considered what revisions, improvements
and/or corrections to make in accordance with our ongoing procedures.
Conclusions
Based upon the Evaluation, our disclosure controls and procedures are
designed to provide reasonable assurance of achieving our objectives. Our
CEO and CFO have concluded that our disclosure controls and procedures
are effective at that reasonable assurance level to ensure that material
information relating to the Company is made known to management,
including the CEO and CFO, particularly during the period when our
periodic reports are being prepared, and that our Internal Controls are
effective at that assurance level to provide reasonable assurance that
our financial statements are fairly presented inconformity with
accounting principles generally accepted in the United States.
Additionally, there has been no change in our Internal Controls that
occurred during our most recent fiscal quarter that has materially
affected, or is reasonably likely to affect, our Internal Controls.
Forward Looking Statements
Certain statements contained in this Report on Form 10-QSB,
including statements of the Company's current expectations,
intentions, plans and beliefs, and statements containing the words
"believes", "anticipates," "estimates," "expects," or "may," are forward-
looking statements, as defined in Section 21D of the Securities
Exchange Act of 1934. Such forward-looking statements involve known
and unknown risk, uncertainties and other factors which may cause the
actual results, performance, timing or achievements of the Company to be
materially different from any results, performance, timing or
achievements expressed or implied by such forward-looking statements.
PART II - OTHER INFORMATION
Items 1 through 5 not applicable.
ITEM 6. EXHIBITS
(a) Exhibits required to be filed by Item 601 of Regulation S-B:
31.1 Certification of Chief Executive Officer and Chief Financial
Officer Under Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTH AMERICAN GAMING ANDENTERTAINMENT CORPORATION
August 15, 2009
/s/ Chen Weidong, President
- ---------------------------
Chen Weidong,
President and Chief Executive Officer
(Principal Executive Officer and Principal Financial and
Accounting Officer)