Nevada
|
|
1311
|
|
87-0638750
|
(State
or other jurisdiction of
|
|
(Primary
Standard Industrial
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Classification
Code Number)
|
|
Identification
Number)
|
Large
accelerated filer o
|
Accelerated
filer box. o
|
Non-accelerated
filer o
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Smaller
reporting company x
|
|
PAGE
NO.
|
|||
SUMMARY
|
3
|
|||
ABOUT
THIS OFFERING
|
3
|
|||
RISK
FACTORS
|
4
|
|||
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
|
11
|
|||
USE
OF PROCEEDS
|
11
|
|||
MARKET
FOR COMMON EQUITY AND RELATED STOCHOLDER MATTERS
|
11
|
|||
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
12
|
|||
DESCRIPTION
OF BUSINESS
|
22
|
|||
DIRECTORS
AND EXECUTIVE OFFICERS
|
28
|
|||
EXECUTIVE
COMPENSATION
|
29
|
|||
CERTAIN
RELATIONSIHIPS AND RELATED TRANSACTIONS
|
31
|
|||
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
32
|
|||
DESCRIPTION
OF SECURITIES
|
32
|
|||
SELLING
STOCKHOLDERS
|
34
|
|||
PLAN
OF DISTRIBUTION
|
35
|
|||
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
37
|
|||
LEGAL
MATTERS
|
37
|
|||
EXPERTS
|
37
|
|||
WHERE
YOU CAN FIND MORE INFORMATION
|
37
|
Common
Stock Offered:
|
|
Up
to 4,800,000 shares of common stock, issuable upon the exercise of
common
stock purchase warrants, of which (i) 1,200,000 shares have an initial
exercise price equal to $0.01 per share (“Class A Warrants”), (ii)
1,500,000 shares have an initial exercise price equal to $3.20 per
share
(“Class B Warrants”) and (iii) 2,100,000 shares have an initial exercise
price equal to $3.45, all warrant exercise prices are subject to
certain
adjustments.
|
|
|
|
Common
Stock Outstanding at April 22, 2008:
|
|
19,224,080
|
|
|
|
Use
of Proceeds:
|
|
We
will not receive any proceeds from the sale of the 4,800,000 shares
of
common stock subject to sale by the selling stockholders under this
prospectus. However, we may receive the sale price of any common
stock we
sell to the selling stockholders upon exercise of the outstanding
warrants. Any net proceeds we receive from the Selling Stockholders
through the exercise of warrants will be used for general corporate
purposes.
|
|
|
|
OTC
Bulletin Board Symbol:
|
|
CNEH
|
|
•
|
The
price and availability of alternative
fuels;
|
|
•
|
disruptions
in supply and changes in demand caused by weather
conditions;
|
|
•
|
changes
in demand as a result of changes in
price;
|
|
•
|
political
conditions in oil and gas producing regions;
and
|
|
•
|
domestic
governmental regulations.
|
•
|
historical
production from an area compared with production from similar producing
areas;
|
•
|
assumed
effects of regulation by governmental
agencies;
|
•
|
assumptions
concerning future oil and natural gas prices, future operating costs
and
capital expenditures; and
|
•
|
estimates
of future severance and excise taxes, workover and remedial
costs.
|
|
•
|
uncertainties
in assessing the value, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition or other
transaction candidates;
|
|
|
|
|
•
|
the
potential loss of key personnel of an acquired business;
|
|
|
|
|
•
|
the
ability to achieve identified operating and financial synergies
anticipated to result from an acquisition or other transaction;
|
|
•
|
problems
that could arise from the integration of the acquired business;
|
|
•
|
unanticipated
changes in business, industry or general economic conditions that
affect
the assumptions underlying the acquisition or other transaction rationale;
and
|
|
•
|
Unexpected
development costs, that adversely affect our profitability.
|
|
CNEH
COMMON
STOCK
|
||||||
|
HIGH
|
LOW
|
|||||
FISCAL
YEAR ENDING DECEMBER 31, 2008:
|
|
|
|||||
First
Quarter
|
$
|
2.59
|
$
|
1.61
|
|||
FISCAL
YEAR ENDING DECEMBER 31, 2007:
|
|||||||
Fourth
Quarter
|
$
|
4.12
|
$
|
2.00
|
|||
Third
Quarter
|
$
|
4.24
|
$
|
0.37
|
|||
Second
Quarter
|
$
|
0.50
|
$
|
0.30
|
|||
First
Quarter
|
$
|
0.39
|
$
|
0.31
|
|||
FISCAL
YEAR ENDING DECEMBER 31, 2006:
|
|||||||
Fourth
Quarter
|
$
|
.51
|
$
|
.22
|
|||
Third
Quarter
|
$
|
.45
|
$
|
.25
|
|||
Second
Quarter
|
$
|
.55
|
$
|
.35
|
|||
First
Quarter
|
$
|
.84
|
$
|
.20
|
|
•
|
Our
expectation of continued growth in the demand for our
oil;
|
|
|
|
|
•
|
Our
expectation that we will continue to have adequate liquidity from
cash
flows from operations;
|
|
|
|
|
•
|
A
variety of market, operational, geologic, permitting, labor and weather
related factors; and
|
|
|
|
|
•
|
The
other risks and uncertainties which are described above under “RISK
FACTORS”, including, but not limited to, the following:
|
|
|
|
|
•
|
Unanticipated
conditions may cause profitability to fluctuate.
|
|
|
|
|
•
|
Decreases
in purchases of oil by our customer will adversely affect our revenues.
|
Field
|
Acreage
(Gross
developed
and
undeveloped)
|
Producing Oil
Wells
|
Proved
Reserves
(Bbls)
|
|||||||
Qian’an
112
|
5,115
|
140
|
1,963,319
|
|||||||
Daan
34
|
2,298
|
7
|
168,335
|
|||||||
Gudian
31
|
1,779
|
7
|
62,533
|
|||||||
Hetingbao
301
|
2,471
|
11
|
274,637
|
2007
|
2006
|
||||||
Revenues,
net
|
$
|
19,482,069
|
$
|
5,321,905
|
|||
Cost
and Expenses
|
$
|
10,236,486
|
$
|
3,957,655
|
|||
Income
from Operations
|
$
|
9,245,583
|
$
|
1,364,250
|
Oilfield
|
2007 wells
|
2006 wells
|
2007 Production
|
2006 Production
|
|||||||||
Qian’an112
|
133
|
73
|
253,116
|
80,306
|
|||||||||
Hetingbao
301
|
11
|
6
|
11,318
|
6,642
|
|||||||||
Gudian31
|
6
|
5
|
502
|
962
|
|||||||||
Daan
34
|
7
|
6
|
2,580
|
2,610
|
|||||||||
Total
|
157
|
90
|
267,516
|
90,520
|
Company
|
2007 wells
|
2006 wells
|
2007 Production
|
2006 Production
|
|||||||||
Yu
Qiao
|
146
|
84
|
256,198
|
83,878
|
|||||||||
LongDe
|
11
|
6
|
11,318
|
6,642
|
|
·
|
A
8.00% Secured Debenture due 2012;
|
|
·
|
A
registration rights agreement covering the shares of common stock
issuable
upon exercise of the Class A, Class B and Class C
Warrants;
|
|
·
|
A
share pledge agreement whereby the Company granted to the Investor
a
pledge on 66% of the Company’s equity interest in Song Yuan Technical as
collateral to secure the Debenture;
|
|
·
|
A
security agreement whereby the Company granted to the Investor a
security
interest in certain properties of the Company as collateral to secure
the
Debenture; and
|
|
·
|
An
option agreement whereby the Company grants the Investor an option
to
purchase up to 24% of the registered capital of Song Yuan Technical
at
fair market value, which option will vest immediately on the date
following the occurrence of an event of default which results in
the
acceleration of the Debenture.
|
Repayment
Date
|
Repayment of
Principal
Amount
|
|||
6
months from the issue date
|
$
|
750,000
|
||
12
months from the issue date
|
$
|
750,000
|
||
18
months from the issue date
|
$
|
1,875,000
|
||
24
months from the issue date
|
$
|
1,875,000
|
||
30
months from the issue date
|
$
|
3,375,000
|
||
36
months form the issue date
|
$
|
3,375,000
|
||
42
months from the issue date
|
$
|
1,500,000
|
||
48
months from the issue date
|
$
|
1,500,000
|
Field
|
Acreage
Gross
developed
and
undeveloped)
|
Producing Oil
Wells
|
Proved
Reserves
(Bbls)
|
|||||||
Qian’an
112
|
5,115
|
140
|
1,963,319
|
|||||||
Daan
34
|
2,298
|
7
|
168,335
|
|||||||
Gudian
31
|
1,779
|
7
|
62,533
|
|||||||
Hetingbao
301
|
2,471
|
11
|
274,637
|
|
2007
|
2006
|
|||||
|
(Bbls)
|
||||||
China
|
|
|
|||||
Crude
Oil
|
267,516
|
90,520
|
Qian’an
112 Oilfield
|
2007
|
2006
|
|||||
Average
annual sales price per barrel
|
$
|
70.03
|
$
|
64.45
|
|||
Aggregate
annual sales
|
$
|
18,466,325
|
$
|
4,686,747
|
|||
Average
annual production cost per barrel equivalent
|
$
|
10.50
|
$
|
12.41
|
Hetingbao
301 Oilfield
|
2007
|
2006
|
|||||
|
|
|
|||||
Average
annual sales price per barrel
|
$
|
70.03
|
$
|
64.45
|
|||
Aggregate
annual sales
|
$
|
797,696
|
$
|
442,466
|
|||
Average
annual production cost per barrel equivalent
|
$
|
16.05
|
$
|
9.32
|
Daan
34 Oilfield
|
2007
|
2006
|
|||||
|
|
|
|||||
Average
annual sales price per barrel
|
$
|
70.03
|
$
|
64.45
|
|||
Aggregate
annual sales
|
$
|
177,231
|
$
|
140,777
|
|||
Average
annual production cost per barrel equivalent
|
$
|
10.50
|
$
|
13.32
|
Gudian
31 Oilfield
|
2007
|
2006
|
|||||
|
|
||||||
Average
annual sales price per barrel
|
$
|
70.03
|
$
|
64.45
|
|||
Aggregate
annual sales
|
$
|
40,817
|
$
|
51,915
|
|||
Average
annual production cost per barrel equivalent
|
$
|
10.50
|
$
|
13.32
|
|
Net Exploratory
|
|
Net Development
|
|
|
|
||||||||||||||||
|
|
Productive
|
|
Dry
Holes
|
|
Total
|
|
Productive
|
|
Dry
Holes
|
|
Total
|
|
Total
|
|
|||||||
2007
|
0
|
0
|
0
|
157
|
0
|
157
|
157
|
|||||||||||||||
2006
|
0
|
0
|
0
|
90
|
0
|
90
|
90
|
Developed Lease (1)
|
Undeveloped Lease (2)
|
||||||||||||
Property
|
Gross
|
Net
|
Gross
|
Net
|
|||||||||
|
|
|
|
|
|||||||||
Qian’an
112
|
2894
|
2316
|
1275
|
1020
|
|||||||||
Hetingbao
301
|
475
|
380
|
432
|
346
|
|||||||||
Daan
34
|
173
|
139
|
497
|
398
|
|||||||||
Gudian
31
|
130
|
104
|
238
|
190
|
(1)
|
Developed
Proved Acres means the acres assigned to each productive well. Total
proved producing wells as of December 31, 2007
were 157.
|
(2)
|
Undeveloped
Proved Acres means the acres assigned to each undeveloped location
under
lease that contains proved oil
reserves.
|
|
•
|
|
we
are able to exert effective control over Yu Qiao and
LongDe;
|
|
•
|
|
substantially
all of the economic benefits of Yu Qiao and LongDe will be transferred
to
us; and
|
|
•
|
|
our
90% owned joint venture, Song Yuan Technical, has an exclusive option
to
purchase all or part of the equity interests in Yu Qiao and LongDe
to the
extent permitted by PRC law.
|
|
•
|
|
the
ownership structure of Yu Qiao and LongDe are in compliance with
existing
PRC laws and regulations;
|
|
•
|
|
the
contractual arrangements among Song Yuan Technical, Yu Qiao, Wang
Pingwu,
LongDe and Ai ChangShan are valid, binding and enforceable, and will
not
result in any violation of PRC laws or regulations currently in effect;
and
|
|
•
|
|
the
PRC business operations of Song Yuan Technical and Yu Qiao and LongDe
as
described in this annual report, are in compliance with existing
PRC laws
and regulations in all material
respects.
|
Name
|
|
Age
|
|
Position
|
Wang
Hong Jun
|
|
37
|
|
President
and Chairman of the Board
|
Wei
Guo Ping
|
|
41
|
|
Director
|
Yu
Li Guo
|
|
36
|
|
Director
|
Robert
C. Bruce
|
46
|
Director
|
||
Edward
M. Rule
|
61
|
Director
|
||
Li
Jing Fu
|
59
|
Director
|
||
Zhang
Yang
|
|
27
|
|
Chief
Financial Officer
|
Jiang
Chao
|
|
29
|
|
Secretary
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||
Wang
Hong Jun,
|
2007
|
5,922
|
$
|
0
|
$
|
0
|
$
|
0
|
0
|
$
|
0
|
$
|
0
|
5,922
|
||||||||||||||||||||
President,
and Chairman of the Board
|
2006
|
3,002
|
$
|
0
|
$
|
0
|
$
|
0
|
0
|
$
|
0
|
$
|
0
|
3,002
|
||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||
Zhang
Yang,
|
2007
|
6,580
|
0
|
0
|
0
|
0
|
0
|
0
|
6,580
|
|||||||||||||||||||||||||
Chief
Financial Officer
|
2006
|
3,075
|
0
|
0
|
0
|
0
|
0
|
0
|
3,075
|
|||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||
Jiang
Chao
|
2007
|
12,000
|
0
|
0
|
0
|
0
|
0
|
0
|
$
|
12,000
|
||||||||||||||||||||||||
|
2006
|
12,000
|
0
|
0
|
0
|
0
|
0
|
0
|
$
|
12,000
|
Name
|
Fees
Earned
or
Paid
in
Cash
($)
|
Stock
Awards
($)
|
Options
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||
Wang
Hong Jun
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||
Wei
Guo Ping
|
4,935
|
4,935
|
||||||||||||||||||||
Yu
Li Guo
|
4,935
|
0
|
0
|
0
|
0
|
0
|
4,935
|
|
a)
|
Pursuant
to an agreement entered into by a stockholder, a related party and
the
Company on June 29, 2007, the stockholder and the related party
unconditionally and irrevocably contributed all of the advances owed
by
the Company as of March 31, 2007 amounting to $1,746,128 and $5,451,685
respectively to the Company. These contributions were recorded as
additional paid-in capital by the
Company.
|
|
b)
|
On
January 26, 2007, Song Yuan Technical entered into an agreement with
a
related party and certain third parties who are stockholders of Yu
Qiao to
acquire 100% of the equity interest of Yu Qiao. In consideration
for the
acquisition, the Company will issue to the related party an aggregate
of
10,000,000 shares of the Company’s common stock (“the Acquisition Shares”)
having a fair value of $3,100,000.
|
|
|
On
June 29, 2007, the Company and the related party entered into an
agreement
pursuant to which the related party unconditionally and irrevocably
contributed the Acquisition Shares to the Company. The contribution
of the
Acquisition Shares was recorded as additional paid-in capital by
the
Company.
|
|
c)
|
In
2007 and 2006, the Company owed a related party $3,118,085 and $4,255,441
respectively for advances made without fixed repayment terms. Imputed
interest expense is computed at 7% and 6% per annum on the amount
due
respectively.
|
|
d)
|
In
2007 and 2006, the Company owed a related party $13,672 and $12,806
respectively which is repayable on demand. Imputed interest expense
is
computed at 7% and 6% per annum on the amount due
respectively.
|
|
e)
|
In
2007, the Company owed a related party $14,364 which is repayable
on
demand. Imputed interest expense is computed at 7% per annum on the
amount
due.
|
|
f)
|
In
2006, a related party owed the Company $64,031 which is interest
free and
repayable on demand.
|
|
g)
|
In
2006, the Company owed a related party $43,029 which is repayable
on
demand. Interest is charged at 24% per annum. Interest expense paid
for
the year ended December 31, 2006 was
$351.
|
|
h)
|
In
2007 and 2006, the Company owed a stockholder $123,105 and $1,656,935
respectively which is repayable on demand. Imputed interest expense
is
computed at 7% and 6% per annum on the amount due
respectively.
|
|
i)
|
Total
imputed interest expenses recorded as additional paid-in capital
amounted
to $200,165 and $349,393 for the years ended December 31, 2007 and
2006
respectively.
|
|
j)
|
The
Company paid a stockholder $12,603 and $12,027 for leased office
spaces
for the years ended December 31, 2007 and 2006
respectively.
|
|
k)
|
On
April 3, 2006, the Company issued 700,000 shares of common stock
to a
related party for consulting services. The stock was valued at the
closing
price on the date of grant of $0.31 per share, yielding an aggregate
value
of $217,000.
|
NAME
AND ADDRESS OF
BENEFICIAL
OWNER(1)
|
AMOUNT
OF
BENEFICIAL
OWNERSHIP
|
PERCENT
OF CLASS
OF STOCK OUTSTANDING
|
|||||
|
|
|
|||||
Officers
and Directors
|
|
|
|||||
Wang
Hong Jun
|
6,732,000
|
35.02
|
%
|
||||
Wei
Guo Ping
|
2,000
|
0.01
|
%
|
||||
Yu
Li Guo
|
0
|
0.00
|
%
|
||||
Robert
C. Bruce
|
19,000 | (3) | 0.10 | % | |||
Edward
M. Rule
|
10,000 | (3) | 0.05 | % | |||
Li
Jing Fu
|
10,000 | (3) | 0.05 | % | |||
Zhang
Yang
|
0
|
0.0
|
%
|
||||
Jiang
Chao
|
0
|
0.0
|
%
|
||||
|
|||||||
All
Officers and Directors as a Group (eight persons)
|
6,773,000
|
35.23
|
%
|
||||
|
|||||||
5%
Beneficial Owners
|
|||||||
N/A
|
|
(1)
|
Unless
otherwise indicated, the address of the stockholders is 445 Park
Avenue,
New York, NY 10022.
|
|
||
(2)
|
Security
ownership information for beneficial owners is taken from statements
filed
with the Securities and Exchange Commission pursuant to information
made
known by the Company. There are no shares issuable to any beneficial
owner, director or executive officer pursuant to stock options that
are/or
will become exercisable within 60 days of June 30, 2008.
|
|
(3)
|
Includes 10,000 shares issuable pursuant to options exercisable within 60 days of June 30, 2008. |
Shares of Common Stock
Beneficially Owned
Prior to Offering(1)
|
Shares
Being
|
Shares of Common
Stock
Beneficially Owned
After Offering(2)
|
||||||||||||||
Selling
Stockholder
|
Shares
|
|
%
|
|
Offered
|
|
Shares
|
|
%
|
|||||||
Lotusbox
Investments Limited(3)
|
4,800,000
|
25
|
4,800,000
|
0
|
*
|
|||||||||||
|
||||||||||||||||
Total
|
4,800,000
|
25%
|
|
4,800,000
|
0
|
*%
|
|
(1) |
This
table is based upon information supplied by the selling shareholder.
The
number and percentage of shares beneficially owned are based on
an
aggregate of 19,224,080 shares of our common stock outstanding
as of June
30, 2008.
|
(2) |
Because
the selling shareholder identified in this table may sell some,
all or
none of the shares owned by it that are registered under this registration
statement, and because, to our knowledge, there are currently no
agreements, arrangements or understandings with respect to the
sale of any
of the shares registered hereunder, no estimate can be given as
to the
number of shares available for resale hereby that will be held
by the
selling shareholders at the time of this registration statement.
Therefore, we have assumed for purposes of this table that the
selling
shareholder will sell all of the shares beneficially owned by
it.
|
(3) |
Harmony
Investment Fund Limited, through its directors Suresh Withana and
John
Robert Nicholls, exercises voting and investment over the securities
to be
offered for resale by the selling shareholder. The Selling Stockholder
has
advised the Company that it is not a registered broker-dealer or
an
affiliate of a registered
broker-dealer.
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
|
·
|
broker-dealers
may agree with the Selling Stockholder to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
·
|
a
combination of any such methods of sale;
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
|
March 31,
|
December 31,
|
|||||
|
2008
|
2007
|
|||||
|
(Unaudited)
|
(Audited)
|
|||||
ASSETS
|
|||||||
CURRENT
ASSETS
|
|
|
|||||
Cash
and cash equivalents
|
$
|
12,734,345
|
$
|
74,638
|
|||
Accounts
receivable, net
|
5,981,125
|
4,852,633
|
|||||
Prepaid
expenses and other current assets
|
682,928
|
398,046
|
|||||
Current
portion of deferred financing costs, net
|
296,557
|
-
|
|||||
Value
added tax recoverable
|
-
|
651,905
|
|||||
Total
Current Assets
|
19,694,955
|
5,977,222
|
|||||
|
|||||||
PROPERTY
AND EQUIPMENT
|
|||||||
Oil
and gas properties, net
|
42,616,236
|
40,345,008
|
|||||
Fixed
assets, net
|
1,046,714
|
885,474
|
|||||
Oil
and gas properties under construction
|
1,127,198
|
2,550,058
|
|||||
Total
Property and Equipment
|
44,790,148
|
43,780,540
|
|||||
|
|||||||
LAND
USE RIGHTS, NET
|
44,045
|
45,076
|
|||||
|
|||||||
LONG-TERM
DEFERRED FINANCING COSTS, NET
|
864,959
|
-
|
|||||
TOTAL
ASSETS
|
$
|
65,394,107
|
$
|
49,802,838
|
|||
|
|||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
CURRENT
LIABILITIES
|
|||||||
Accounts
payable
|
$
|
7,732,748
|
$
|
6,580,930
|
|||
Current
portion of secured debenture, net of discount
|
737,342
|
-
|
|||||
Other
payables and accrued liabilities
|
1,561,934
|
1,020,980
|
|||||
Due
to related parties
|
14,241
|
28,036
|
|||||
Note
payable
|
284,811
|
273,444
|
|||||
Income
tax and other taxes payable
|
5,001,942
|
2,687,449
|
|||||
Due
to a stockholder
|
131,387
|
123,105
|
|||||
Total
Current Liabilities
|
15,464,405
|
10,713,944
|
|||||
|
|||||||
LONG-TERM
LIABILITIES
|
|||||||
Accounts
payable
|
8,665,641
|
15,467,661
|
|||||
Secured
debenture, net of discount
|
6,636,074
|
-
|
|||||
Deferred
tax payable
|
475,445
|
543,100
|
|||||
Due
to a related party
|
1,579,572
|
3,118,085
|
|||||
Total
Long-term Liabilities
|
17,356,732
|
19,128,846
|
|||||
|
|||||||
TOTAL
LIABILITIES
|
32,821,137
|
29,842,790
|
|||||
|
|||||||
COMMITMENTS
AND CONTINGENCIES
|
-
|
-
|
|||||
|
|||||||
MINORITY
INTERESTS
|
1,646,440
|
1,124,964
|
|||||
|
|||||||
STOCKHOLDERS'
EQUITY
|
|||||||
Common
stock, $0.001 par value, 150,000,000 shares authorized,
|
|||||||
19,224,080
shares issued and outstanding
|
19,224
|
19,224
|
|||||
Additional
paid-in capital
|
19,207,082
|
11,361,579
|
|||||
Deferred
stock compensation
|
-
|
(27,125
|
)
|
||||
Retained
earnings
|
|||||||
Unappropriated
|
8,482,166
|
5,200,907
|
|||||
Appropriated
|
916,263
|
916,263
|
|||||
Accumulated
other comprehensive income
|
2,301,795
|
1,364,236
|
|||||
Total
Stockholders' Equity
|
30,926,530
|
18,835,084
|
|||||
|
|||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
65,394,107
|
$
|
49,802,838
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
(Unaudited)
|
||||||
|
Three months ended March 31,
|
||||||
|
2008
|
2007
|
|||||
|
|
|
|||||
NET
SALES
|
$
|
10,823,974
|
$
|
1,879,947
|
|||
|
|||||||
COST
OF SALES
|
|||||||
Production
costs
|
712,305
|
336,790
|
|||||
Depreciation
of oil and gas properties
|
1,874,692
|
389,227
|
|||||
Amortization
of land use rights
|
2,842
|
2,624
|
|||||
Government
oil surcharge
|
2,211,320
|
157,131
|
|||||
Total
Cost of Sales
|
4,801,159
|
885,772
|
|||||
|
|||||||
GROSS
PROFIT
|
6,022,815
|
994,175
|
|||||
|
|||||||
OPERATING
EXPENSES
|
|||||||
Selling,
general and administrative expenses
|
257,594
|
220,265
|
|||||
Professional
fees
|
57,512
|
16,000
|
|||||
Consulting
fees
|
81,630
|
27,125
|
|||||
Amortization
of deferred financing costs
|
24,713
|
-
|
|||||
Amortization
of discount on debenture
|
162,268
|
-
|
|||||
Depreciation
of fixed assets
|
52,232
|
36,027
|
|||||
Total
Operating Expenses
|
635,949
|
299,417
|
|||||
|
|||||||
INCOME
FROM OPERATIONS
|
5,386,866
|
694,758
|
|||||
|
|||||||
OTHER
INCOME (EXPENSE)
|
|||||||
Other
expense
|
(2,311
|
)
|
-
|
||||
Interest
expense
|
(119,697
|
)
|
(10,591
|
)
|
|||
Imputed
interest expenses
|
(26,896
|
)
|
(131,846
|
)
|
|||
Interest
income
|
4,042
|
248
|
|||||
Total
Other Expense, net
|
(144,862
|
)
|
(142,189
|
)
|
|||
|
|||||||
NET
INCOME BEFORE TAXES AND MINORITY INTERESTS
|
5,242,004
|
552,569
|
|||||
|
|||||||
Income
tax expense
|
(1,439,269
|
)
|
(221,407
|
)
|
|||
|
|||||||
Minority
interests
|
(521,476
|
)
|
(43,799
|
)
|
|||
|
|||||||
NET
INCOME
|
3,281,259
|
287,363
|
|||||
|
|||||||
OTHER
COMPREHENSIVE INCOME
|
|||||||
Foreign
currency translation gain
|
937,559
|
87,251
|
|||||
|
|||||||
COMPREHENSIVE
INCOME
|
$
|
4,218,818
|
$
|
374,614
|
|||
|
|||||||
Net
income per share
|
|||||||
-
basic
|
$
|
0.17
|
$
|
0.01
|
|||
-
diluted
|
$
|
0.17
|
$
|
0.01
|
|||
|
|||||||
Weighted
average number of shares outstanding during the period
|
|||||||
-
basic
|
19,224,080
|
29,224,080
|
|||||
-
diluted
|
20,537,854
|
29,224,080
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
|
2008
|
2007
|
|||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|||||
Net
income
|
$
|
3,281,259
|
$
|
287,363
|
|||
Adjusted
to reconcile net income to cash provided
|
|||||||
by
operating activities:
|
|||||||
Depreciation
of oil and gas properties
|
1,874,692
|
389,227
|
|||||
Depreciation
of fixed assets
|
52,232
|
36,027
|
|||||
Amortization
of land use rights
|
2,842
|
2,624
|
|||||
Amortization
of deferred financing costs
|
24,713
|
-
|
|||||
Amortization
of discount on debenture
|
162,268
|
-
|
|||||
Warrants
issued for services
|
29,755
|
-
|
|||||
Minority
interests
|
521,476
|
43,799
|
|||||
Stocks
issued for services
|
27,125
|
27,125
|
|||||
Imputed
interest expenses
|
26,896
|
131,846
|
|||||
Changes
in operating assets and liabilities
|
|||||||
(Increase)
decrease in:
|
|||||||
Accounts
receivable
|
(1,128,492
|
)
|
358,931
|
||||
Prepaid
expenses and other current assets
|
(284,882
|
)
|
(28,390
|
)
|
|||
Due
from related parties
|
-
|
(49,836
|
)
|
||||
Value
added tax recoverable
|
651,905
|
58,901
|
|||||
Deferred
financing costs
|
(1,186,229
|
)
|
-
|
||||
Increase
(decrease) in:
|
|||||||
Accounts
payable
|
(5,650,202
|
)
|
490,089
|
||||
Other
payables and accrued liabilities
|
540,954
|
2,296
|
|||||
Income
tax and other taxes payable
|
2,314,493
|
462,572
|
|||||
Deferred
tax payable
|
(67,655
|
)
|
-
|
||||
Net
cash provided by operating activities
|
1,193,150
|
2,212,574
|
|||||
|
|||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
Purchase
of oil and gas properties
|
(748,820
|
)
|
(2,742,832
|
)
|
|||
Purchase
of fixed assets
|
(174,005
|
)
|
(123,925
|
)
|
|||
Additions
to oil and gas properties under construction
|
(211,709
|
)
|
-
|
||||
Net
cash used in investing activities
|
(1,134,534
|
)
|
(2,866,757
|
)
|
|||
|
|||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
Proceeds
from the issuance of secured debenture
|
15,000,000
|
-
|
|||||
Decrease
in other loans payable
|
-
|
(25,612
|
)
|
||||
Increase
in amount due to a stockholder
|
8,282
|
89,193
|
|||||
(Decrease)
increase in amounts due to related parties
|
(1,552,308
|
)
|
1,170,121
|
||||
Net
cash provided by financing activities
|
13,455,974
|
1,233,702
|
|||||
|
|||||||
EFFECT
OF EXCHANGE RATE ON CASH
|
(854,883
|
)
|
(67,207
|
)
|
|||
|
|||||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
12,659,707
|
512,312
|
|||||
|
|||||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
74,638
|
13,746
|
|||||
|
|||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
12,734,345
|
$
|
526,058
|
|||
|
|||||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|||||||
Cash
paid during the period for:
|
|||||||
Income
tax expense
|
$
|
1,283,180
|
$
|
60,462
|
|||
|
|||||||
Interest
expense
|
$
|
11,204
|
$
|
10,591
|
|
March
31,
|
December
31,
|
|||||
|
2008
|
2007
|
|||||
|
(Unaudited)
|
(Audited)
|
|||||
|
|||||||
$15,000,000
8% Secured Debenture, net of unamortized
|
|
|
|||||
discount
of $7,626,584 as of March 31, 2008 at 8% interest
|
|
|
|||||
per
annum, secured by 66% of the Company's equity
|
|
|
|||||
interest
in Song Yuan Technical and certain properties of the Company and
6,732,000
shares of
common
stock of the Company owned by a stockholder, due on February 27,
2012
|
$
|
7,373,416
|
$
|
-
|
|||
|
7,373,416
|
-
|
|||||
Less:
current maturities
|
(737,342
|
)
|
-
|
||||
Long-term
portion
|
$
|
6,636,074
|
$
|
-
|
|
Three months ended March 31,
|
||||||
|
2008
|
2007
|
|||||
Numerator:
|
|
|
|||||
Net
income used in computing basis net income per share
|
$
|
3,281
|
$
|
287
|