Form 10-Q
NORTH AMERICAN GAMING & ENTERTAINMENT CORP - NAGM
Filed: August 15, 2009 (period: September 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 September 30, 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:
September 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 18
ITEM 4T.CONTROLS AND PROCEDURES 18
PART II
Items 1 through 5 not applicable.
ITEM 6. EXHIBITS 20
SIGNATURES 21
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
September 30, December 31,
2009 2008
ASSETS
---------- -----------
CURRENT ASSETS
Cash and cash equivalents 45,213 23,961
Prepaid expenses 62 115,801
Other current assets 191,483 113,759
---------- -----------
TOTAL CURRENT ASSETS 236,758 253,521
---------- -----------
FURNITURE AND EQUIPMENT, NET 209,875 235,800
---------- -----------
LONG TERM INVESTMENT 292,869 292,629
---------- -----------
LAND USE RIGHTS 17,215,546 17,508,609
---------- -----------
GOODWILL 3,336,858 3,334,124
---------- -----------
LONG TERM RECEIVABLE (related parties) 1,770,868 1,754,586
---------- -----------
TOTAL ASSETS 23,062,774 23,379,269
========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Other payables and accrued expenses 1,883,395 2,124,049
Notes payable 434,137 434,137
Due to stockholders 2,404,016 2,396,560
Due to related companies 3,974,510 3,446,160
---------- -----------
TOTAL CURRENT LIABILITIES 8,696,058 8,400,906
---------- -----------
MINORITY INTEREST 510,743 562,938
---------- -----------
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 24,465,803 24,208,127
Treasury stock, 17,572,494 shares, at cost (489,258) (489,258)
Accumulated deficits during the exploration stage (13,970,124) (13,262,228)
Accumulated other comprehensive income 3,426,666 3,535,898
---------- -----------
TOTAL EQUITY 13,855,973 14,415,425
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY 23,062,774 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
Nine months ended September 30, Three months ended September 30,
2009 2008 Accumulated 2009 2008
----------- ----------- ----------- ----------- ----------
OPERATING EXPENSES
General and administrative expenses 123,520 226,292 733,379 39,434 108,067
Legal and professional fees 80,392 672,882 529,616 22,883 88
Depreciation 27,872 27,749 93,363 9,207 9,479
Amortization of land use rights 307,230 300,725 1,070,654 102,452 102,315
----------- ----------- ---------- ----------- ----------
Total Operating Expenses 539,014 1,227,648 2,427,012 173,976 219,949
----------- ----------- ---------- ----------- ----------
LOSS FROM OPERATIONS (539,014) (1,227,648) (2,427,012) (173,976) (219,949)
----------- ----------- ---------- ----------- ----------
OTHER INCOME (EXPENSES)
Interest income 132 1,339 5,053 55 575
Interest expense (139) (23,004) (1,496) - (163)
Imputed interest expense (257,676) (238,775) (854,963) (79,270) (93,757)
Other expense (3,324) - (36,474) (127) -
----------- ----------- ---------- ----------- ----------
Total Other Expenses (261,007) (260,440) (887,880) (79,342) (93,345)
----------- ----------- ---------- ----------- ----------
LOSS BEFORE NONCONTROLLING INTEREST (800,021) (1,488,088) (3,314,892) (253,318) (313,294)
NONCONTROLLING INTEREST 92,125 42,226 207,334 19,801 14,650
----------- ----------- ---------- ----------- ----------
LOSS FROM CONTINUING OPERATIONS (707,896) (1,445,862) (3,107,558) (233,517) (298,644)
LOSS ON DISPOSAL OF SUBSIDIARY - - (8,027,234) - -
----------- ----------- ---------- ----------- ----------
NET LOSS (707,896) (1,445,862) (11,134,792) (233,517) (298,644)
OTHER COMPREHENSIVE INCOME (LOSS) (109,232) 1,051,148 2,126,350 (35,821) 95,499
----------- ----------- ---------- ----------- ----------
COMPREHENSIVE LOSS (817,129) (394,714) (9,008,442) (269,338) (203,143)
=========== =========== ========== =========== ==========
NET LOSS PER SHARE
Basic (0.03) (0.05) (0.01) (0.01)
Diluted
Weighted average number of shares (0.0012) (0.0023) (0.0004) (0.0004)
outstanding
during the period - basic 24,216,058 26,466,904 24,216,058 26,466,904
during the period - diluted 609,000,000 635,466,904 609,000,000
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 stockholders - - - - - -
Imputed interest expenses on
due to stockholders and
related companies - - - - - -
Foreign currency
translation gain - - - - -
Net loss - - - - - -
---------- --------- ------- ------ ---------- --------
Balance at
December 31, 2008 17,572,494 (489,258) 500,000 5,000 24,216,058 417,886
Imputed interest
expense on due
to stockholders and
related companies - - - - - -
Foreign currency
translation gain - - - - - -
Net loss - - - - - -
---------- --------- ------- ------ ---------- --------
Balance at
September 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 - (1,467,426) - (1,467,426)
----------- ------------ ------------- -----------
Balance at December 31, 2008 24,208,127 (13,262,228) 3,535,898 14,415,425
Imputed interest expenses on
due to stockholders and
related companies 257,676 - - 147,923
Foreign currency translation gain - - (109,232) (109,232)
Net loss - (707,896) - (707,896)
----------- ------------ ------------- -----------
Balance at September 30, 2009 $24,465,803 $(13,970,124) $ 3,462,666 $13,855,973
=========== ============ ============= ===========
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
Nine months ended September 30, Accumulated
2009 2008
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (707,896) (1,445,862) (11,134,792)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on discontinued operations - - 8,027,234
Stock issued for services - 90,000 -
Depreciation 27,872 27,749 93,363
Amortization of land use rights 307,230 300,725 1,070,654
Imputed interest expense 257,676 238,775 854,964
Noncontrolling interest (92,125) - (207,333)
Decrease (increase) in operating assets 38,250 (323,098) 87,174
Increase (decrease) in operating liabilities (242,260) (167,238) (33,257)
---------- ---------- ----------
Net cash used in operating activities (411,253) (1,278,949) (1,175,479)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of note receivable - 133,000 (133,000)
Purchase of furniture and equipment (2,051) (8,044) (51,150)
Advances to stockholder - (636,621) 25,584
Advances to related parties (13,200) - (1,438,450)
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 (15,251) (511,665) (4,313,978)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution by stockholders - - 197,293
Proceeds from issuance of notes payable - - 573,146
Proceeds from recapitalization - - (71,372)
Additional paid-in capital - - (481,477)
Advances from stockholders 5,489 736,347 294,643
Advances from related parties 525,308 1,498,317 3,607,284
Investment from minority stockholders - - (619,747)
---------- ---------- ----------
Net cash provided by financing activities 530,797 2,234,664 3,499,770
---------- ---------- ----------
EFFECT OF EXCHANGE RATES ON CASH (83,041) (804,772) (510,319)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,252 (360,722) (2,500,006)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,961 479,241 2,545,219
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 45,213 118,519 45,213
========== ========== ==========
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 as of September 30, 2009, the results of operations for the three and
nine month periods ended September 30, 2009 and September 30, 2008, and cash
flows for the three and nine month periods ended September 30, 2009 and
September 30, 2008. The results for the three and nine month periods ended
September 30, 2009 are not necessarily indicative of the results to be expected
for the entire fiscal year ending December 30, 2009.
These unaudited condensed consolidated 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 from incorporation through 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.
Page 6
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.
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 into 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 & New Energy Co., Ltd. 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
September 30, 2009.
Page 7
NOTE 3 PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements as of
September 30, 2009 and 2008 include the unaudited condensed consolidated
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.
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 September 30, 2009, the contract was not
implemented before the end of September 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 September
30, 2009 is $323,018, which is supposed to be paid in full during the next
fiscal year.
(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 nine months ended September 30,2009
and 2008 was $746 and $10,965, respectively.
For the next three months of 2009 and the whole year of 2010, the Company has
outstanding commitments of approximately $ 2,744 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.
There are no preferred dividends in arrears as of September 30, 2009.
No called or redeemed conditions were prescribed for the preferred stock.
NOTE 6 RELATED PARTY TRANSACTIONS
The related parties owed the Company $1,770,868 as of September 30, 2009, which
consisted of eight related companies and four related persons, each owing the
Company amounts totaling $ 1,383,271 and $387,597, respectively, for advances
made on an unsecured basis, repayable on demand and interest free.
The Company owed $2,404,016 to two former stockholders of Chang Jiang as of
September 30, 2009, for advances with no stated interest rates, made on an
unsecured basis and repayable on demand. Interest was imputed at a rate of 5.4%
per annum on the amounts due.
Page 8
The Company owed a total of $3,974,510 to ten related parties as of September
30, 2009. This consisted of nine related companies and four related person,
each of whom owed the Company amounts totaling $2,369,413 and $1,605,097,
respectively, for the advances with no stated interest rates, that were made on
an unsecured basis and repayable on demand. 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 with no stated interest rates, made on an
unsecured basis and repayableon demand. Interest was imputed at a rate of 7%
per annum on the amounts due.
The Company owed a total of $3,446,160 to six related parties as of December
31, 2008. This consisted of five related companies and one related person, each
of whom owed the Company amounts totaling $2,086,486 and $1,359,674,
respectively, for the advances with no stated interest rates, made on an
unsecured basis and repayable on demand. 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
$257,676 and $238,775 for the nine months ended September 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 nine months ended September 30, 2009 and 2008, 100% of the
Company's business and assets were located in the PRC.
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the interim condensed consolidated financial statements as of
September 30, 2009, the Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) became the primary source of authoritative
accounting principles recognized by the FASB to be applied in the preparation
of financial statements in accordance with GAAP. Rules and interpretations of
the SEC and are also sources of authoritative GAAP for SEC registrants. The ASC
supersedes all existing non-SEC accounting and reporting standards but does not
change GAAP. The adoption of ASC did not have a material effect on the
condensed consolidated financial statements.
In March 2008, the FASB issued ASC 815 (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 ASC 805 (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.
Page 9
In December 2007, the FASB released ASC 810 (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 May 2009, the FASB released ASC 855 (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 September 30, 2009, we reviewed events occurring through the
filing date of this document.
In June 2009, the FASB released ASC 860 (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 ASC 810 (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.
NOTE 10 GOING CONCERN
As reflected in the accompanying condensed consolidated financial statements,
the Company has an accumulated deficit during the exploration stage of
$13,970,124 at September 30, 2009, which includes a net loss of $707,896 for
the nine months ended September 30, 2009. The Company's current liabilities
exceed its current assets by $8,459,300. 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 condensed 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 condensed consolidated financial
statements do not include any adjustments relating to the recoverability and
classifications of recorded asset amounts or amounts and classifications 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.
Page 10
The Company has successfully replaced the old license of mining exploration
with a new one, whose exploration period ranges from January 1, 2009 to January
1, 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.
Snce the income and expense was immaterial for the nine months ended September
30, 2009, no adjustment has been made. As of September 30, 2009, the balance of
this investment was $292,869.
Page 11
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.
Page 12
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.
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
Noncontrolling interest (1,723)
Additional paid in capital (861)
Less: Consideration for acquisition (3,117,267)
-----------
Goodwill $(3,115,544)
-----------
Page 13
Analysis of the net outflow of cash and cash equivalents in respect of
the business combination is as follows:
Total cash consideration $3,117,267
Less: cash consideration payable (1,872,131)
----------
Cash consideration paid 1,245,136
Less: cash and cash equivalents acquired (227,233)
----------
Net cash outflow $1,017,903
----------
The acquisition of 40% of Dongfang Mining was accounted for as a
purchase under SFAS No. 141, Business Combinations. Accordingly, the 40%
of operating results of Dongfang Mining 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 years 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 is 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
is rebounding. We cannot conclude that there was no impairment to the carrying
value of the goodwill in this reporting period.
On March 22, 2007, the Company entered into an agreement with a principal
stockholder of the Company to exchange the Company's 92.93% interest in Shanxi
Huanghe Wetland Park Company Limited ("Huanghe") for 20% equity interest in
Dongfang Mining, which is 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)
Noncontrolling 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
==========
Page 14
Net cash outflow on disposal of subsidiary
Proceeds from disposal $ -
Cash and cash equivalents 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. 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.
The following is a summary of land use rights at September 30, 2009:
Cost $19,162,542
Less: accumulated amortization (1,946,996)
-----------
Land use rights, net $17,215,546
===========
The land use rights are amortized over the fifty year terms of the leases. The
amortization expense for the three months ended September 30, 2009 and 2008 was
$102,452 and $102,315, 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 twelve months will be directed towards completing the
licensure process to begin the extraction operations from the mines and to
acquire the equipment and personnel necessary to commence mining operations. We
have applied for, but not yet obtained, an additional license that will permit
the excavation and extraction of the parcel. We expect to obtain 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 twelve 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
twelve months.
Our plan over the next twelve 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;
Page 15
- 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.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Overall, we had an increase in net loss of $707,896 for the nine
months ended September 30, 2009. During the nine months ended September 30,
2009, we had net cash used in operating activities of $411,253, net cash used
in investing activities of $ 15,251 and net cash provided by financing
activities of $ 530,797. At September 30, 2009, our cash balance was $45,213,
as compared to $ 23,961 at the end of December 2008. This was an increase of $
21,252, or approximately 89%.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used in operating
activities of $411,253 for the nine months ended September 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 $27,872,
amortization of land use rights of $307,230, imputed interest expense of
$257,676, adjustment for noncontrolling interests of $92,125,a decrease in
current assets and prepayments of $107,351 and a decrease in current
liabilities of $242,260.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing
activities of $15,251 for the nine months ended September 30, 2009 was
primarily attributable to the $13,200 from related parties.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash of $ 530,797 provided by
financing activities in the nine months ended September 30, 2009 was primarily
due to the $5,489 and $525,308 increases of due to shareholder and due to
related parties, respectively.
FINANCING. We have not generated any revenues as of September 30, 2009 and
so are considered an exploration stage company. We ended September 2009 with
$45,213 of cash and cash 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.
Page 16
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 nine months ended September 30, 2009, to the nine months
ended September 30, 2008:
Operating Expense
The Company recorded an operating loss of $707,896 for the nine months ended
September 30, 2009 compared to a loss of $1,445,862 for the nine months ended
September 30, 2008. The loss was comprised of general and administrative costs
of $123,520 during the nine months ended September 30, 2009, compared to
general and administrative costs of $226,292 for the nine months ended
September 30, 2008. Legal and professional fees decreased to $80,392 for the
nine months ended September 30, 2009, which was the costs of the audit.
Depreciation was $27,872 for the nine months ended September 30, 2009 as
compared to $ 27,749 for the nine months ended September 30, 2008. Land use
rights amortization was $307,230 for the nine months ended September 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 $260,440 for the nine months ended September 30,
2008 to $261,007 for the nine months ended September 30, 2009. The Company
incurred interest expense of $139 for the nine months ended September 30, 2009,
compared to $23,004 for the nine months ended September 30, 2008. Imputed
interest expense increased from $238,775 for the nine months ended September
30,2008 to $257,676 for the nine months ended September 30, 2009. The increase
in interest expense is due to additional borrowings from related and unrelated
parties. The Company recorded interest income of $132 for the nine months ended
September 30, 2009.
Net Loss
The net loss for the nine months ended September 30, 2009 was $707,896 as
compared to a net loss of $1,445,862 for the nine months ended September 30,
2008. The decrease of loss for the nine months ended September 30, 2009 mainly
came from the decrease of $592,490 in legal and professional fees compared with
the nine months ended September 30, 2008.
Other Comprehensive Income
The exchange rate was stable during the nine months ended September 30, 2009,
and only $109,232 of foreign exchange loss was recorded for the nine months
ended September 30, 2009. We converted the report in RMB to that in USD by the
exchange rate at September 30, 2009 (i.e. 6.829 for the condensed consolidated
balance sheet at September 30 ,2009) and by the average exchange rate of the
nine months (i.e. 6.83045 for the condensed consolidated statement of
operations and comprehensive loss for the period ended September 30 ,2009).
As a result, the difference after the translation was concluded to be recorded
as foreign exchange translation losses in the balance sheets.
Comprehensive Loss
The comprehensive loss for the nine months ended September 30, 2009 was
$109,232, as compared to a comprehensive gain of $ 1,051,148 for the nine
months ended September 30, 2008.
Page 17
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 ended September 30 , 2009, Chen Weidong ("CEO") and by
our Chief Financial Officer for the quarter ended September 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.
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
Page 18
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.
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.
Page 19
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.
Page 20
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
November 16, 2009
/s/ Chen Weidong, President
- ---------------------------
Chen Weidong,
President and Chief Executive Officer
(Principal Executive Officer and Principal Financial and
Accounting Officer)
Page 21