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, 2004.
/_/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED
(Name of small business in its charter)
Nevada
(State or other jurisdiction of incorporation)
033-02441- D
(Commission File Number)
87-0638750
(IRS Employer Identification No.)
Room 3505-06, 35F Edinburgh Tower
The Landmark
15 Queen's Road Central
Hong Kong
(Address of Principal Executive Office)
Issuer's telephone number: 852-2736-2111
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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. Yes X No
Applicable only to issuers involved in bankruptcy proceedings during the past
five years.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes .X 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. At November 30, 2004, 19,989,080
shares were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
CONTENTS
Page
Consolidated balance sheet 4
Consolidated statements of operations 5
Consolidated statements of cash flows 6
Notes to unaudited consolidated financial statements 7
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004 (UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 935
Other receivable and prepaids 1,430,353
Materials and supplies 44,720
----------
TOTAL CURRENT ASSETS 1,476,008
----------
PROPERTY AND EQUIPMENT:
Oil and gas properties, using full cost method accounting 4,357,835
Other property and equipment 105,560
----------
4,463,395
Accumulated depreciation (471,579)
----------
NET PROPERTY AND EQUIPMENT 3,991,816
---------
OTHER ASSETS:
Construction in progress 42,215
Deferred expenditure, net 482,713
---------
TOTAL OTHER ASSETS 524,928
---------
TOTAL ASSETS $ 5,992,752
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable 619,786
Due to non-operating interest owner 2,242,391
Accrued expenses 19,773
Due to a director 1,399,541
Income tax payable 16,796
TOTAL CURRENT LIABILITIES 4,298,287
DEFERRED INCOME TAXES 131,279
TOTAL LIABILITIES 4,429,566
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value, 50,000,000 shares authorized:
19,989,080 issued and outstanding) 19,989
Additional paid-in-capital 1,167,410
Retained earnings 376,452
Cumulative foreign currency translation amount
(665)
TOTAL STOCKHOLDERS' EQUITY 1,563,186
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,992,752
The accompanying notes are an integral part of these financial statements
-3-
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
===============================================================================================================
Three Months Ended September 30, Nine Months Ended September 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
REVENUE:
Sales $ 337,858 $ 179,484 $ 1,138,095 $ 253,0233
OPERATING EXPENSES:
Production expense 210,476 119,424 355,458 131,213
Depreciation, depletion and amortization 161,118 905 482,316 905
General and administrative 38,461 45,087 117,131 79,841
Consulting - - 99,900 -
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 410,055 165,416 1,054,805 211,959
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (72,197) 14,068 83,290 41,064
------------ ------------ ------------ ------------
INCOME TAXES 2,195 2,224 8,378 2,224
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (74,392) $ 11,844 $ 74,912 $ 38,840
============ ============ ============ ============
Basic & fully diluted loss per share ** ** ** **
============ ============ ============ ============
Weighted average common
shares outstanding 19,899,080 19,899,080 19,909,080 19,899,080
============ ============ ============ ============
** less than $0.01.
The accompanying notes are an integral part of these consolidated financial
statements
-4-
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
=============================================================================================
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 74,912 $ 38,840
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 482,316 905
Common stock issued for services 99,900 -
(Increase) decrease in operating assets:
Other receivable and prepaids (1,336,103) (670,665)
Materials and supplies 763 (8,026)
Increase (decrease) in operating liabilities:
Accounts payable 58,147 97,497
Due to non-operating interest owner (3,648) 130,509
Accrued expenses 9,743 3,285
Due to director 135,679 -
Income tax payable (206) -
Deferred income taxes (214) -
Foreign currency translation (665) -
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (479,376) (407,655)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditure for property and equipment (7,792) (85,836)
Expenditure for construction in progress (2,295) (91,108)
------------ ------------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES (10,087) (176,944)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital injection 482,699 604,070
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES 482,699 604,070
------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (6,764) 19,471
CASH AND CASH EQUIVALENTS:
Beginning of period 7,699 -
------------ ------------
End of period $ 935 $ 19,471
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES AND NON-CASH
INVESTING INFORMATION:
Common stock issued to others for services $ 99,900 $ -
============ ============
Cash paid during the year for interest $ - $ -
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
-5-
1. CHANGE OF COMPANY NAME
On July 27,2004, the name of the Company was changed from Draco Holding
Corporation ("DCHO") to China North East Petroleum Holdings Limited. ("CNEH"),
with all the required filings submitted to the United States Securities and
Exchange Commission.
2. BASES OF PRESENTATION
(i) The accompanying unaudited condensed consolidated financial statements of
CNEH have been prepared in accordance with generally accepted accounting
principles in the United States of America for interim financial information.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements.
In the opinion of the management of CNEH, all adjustments, which are of a normal
recurring nature, necessary for a fair presentation of the operating results for
the three months and nine months ended September 30, 2004 have been made.
Results for the quarter and interim periods presented are not necessarily
indicative of the results that might be expected for the entire fiscal year.
These financial statements should be read in conjunction with the Company's
annual report on Form 10-KSB as filed with the Securities and Exchange
Commission.
(ii) On April 30, 2004, CNEH completed a share exchange (the "Exchange") with
the stakeholders of Hong Xiang Petroleum Group Limited ("HXP"), a British Virgin
Islands corporation pursuant to the terms of an Agreement for Share Exchange,
dated March 29, 2004. The Exchange resulted in a change of control of the CNEHE.
Upon completion of the Exchange and the related share issuance, CNEH has a total
of 19,989,080 shares issued and outstanding, of which 18,700,000, or
approximately 94%, are owned by persons who were previously stockholders of Hong
Xiang. The Exchange has been treated as a reverse takeover with HXP as the
accounting acquiree and CNEH as the accounting acquirer. Accordingly, the
purchase method under reverse merger accounting has been applied except that no
goodwill is recorded on the consolidated balance sheet.
The consolidated financial statements are issued under the name of the legal
parent, DCHO, but are a continuation of the financial statements of HXP. The
---
comparative figures are those of HXP.
-----------------------------------------
In addition to completion of the Exchange, on April 30, 2004, the DCHO executed
a Distribution Agreement with its wholly-owned subsidiary, Jump'n Jax, a Utah
corporation ("Jump'n Jax, Inc.") pursuant to which the Company agreed to
distribute all of the outstanding shares of Jump'n Jax, Inc., as a dividend to
the shareholders of record of the DCHO as of March 8, 2004. Under the
Distribution Agreement, the effective date of the dividend was also April 30,
2004.
3. DESCRIPTION OF BUSINESS
HXP is the parent company of Hong Xiang Petroleum Technology Company (HXPT), a
company established in the People's Republic of China ("the PRC") with limited
liability. HXPT owns entirely the shareholding of an independent company, Hong
Xiang Petroleum Qianan Exploration Company (HXPQ), a PRC incorporated company
with limited liability engaged in the development and production of crude oil in
Jilin oil region, the PRC.
Subsequent to the Production Sharing Contract (PSC) entered by the non-operating
interest owner (the "Head Lessee") and the Jinlin Division Company of PetroChina
Limited in December 2002, HXPQ entered another Production Sharing Contract (the
"Contract") with the Head Lessee in respect of the development right of the
proven Qian 112 Zone (the "Zone") in Jinlin oil region for 20 years (the
"Contract Period"), in similar terms and conditions of the PSC.
In accordance with the Contract, HXP was responsible for fund raising and
developing the Zone. Production from the Zone is shared in the following
manner:-
Contract Period For Head Lessee For HXPQ
First 10 years 20% 80%
Remaining Years 40% 60%
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company balances and transactions are
eliminated in consolidation.
Use of estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the dates of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Significant estimates required to be made by management include the
recoverability of long lived assets and recognition of revenue under long term
contracts. Actual results could differ from those estimates.
Concentration of credit risk
HXPQ solely sells the oil to its non-operating interest owner. HXPQ has not
experienced significant credit risk and is not aware of any significant
uncollectible accounts. The carrying amount of cash and cash equivalents
represents the Company's maximum exposure to credit risk in relation to
financial assets.
Cash and cash equivalents
Cash and cash equivalents include all demand deposits and cash with original
maturities of three months or less.
Materials and supplies
Inventories, consisting primarily of tubular goods and oil field materials and
supplies, are stated at cost or market, cost being determined by the average
cost method.
Oil and gas properties
HXPQ follows the full cost method of accounting for oil and gas properties.
According, all costs associated with acquisition of development rights, and
development of oil reserves, including directly related overhead costs, is
capitalized.
Depreciation, depletion and amortization of capitalized costs, excluding
unproved properties, are based on the unit-of-production methods based on proved
reserves. Investments in unproved properties and major development projects are
not amortized until proved reserves associated with the projects can be
determined or until impairment occurs. If the results of an assessment indicate
that the properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test", which
basically limits such costs to the aggregate of the "estimated present value",
discounted at a 10-percent interest rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties.
Sales of portion of development rights and other proved and unproved properties
are accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustment would significantly alter the relationship
between capitalized costs and proved reserved of oil and gas, in which case the
gain or loss is recognized income.
Abandonment of oil and gas properties other than the development rights are
accounted for as adjustments of capitalized costs with no loss recognized.
Other properties and equipment
Other property, including support equipment, and equipment are recorded on the
basis of costs. Depreciation of other property and equipment, after considering
estimated residual salvage values, is provided over the estimated useful lives
of four to ten years using the straight-line method. Major renewals and
betterments are recorded as additions to the property and equipment accounts.
Repairs that do not improve or extend the useful lives of assets are expensed.
Deferred expenditure
The Deferred expenditure was inccurred in April 2003. HXPQ signed a
complementary agreement with SongYuan YuQiao Petroleum & Gas Development Co.,
Ltd in March 5, 2003. HXPQ agreed to pay the transfer fee of the Qian 112 Zone.
The total amount of transfer fee was 6 million RMB, which would be paid by two
times. HXP treated the transfer fee as a deferred expenditure according to the
advice from auditor in December 2003. It should be depreciated in 10 years.
Foreign currency translation and transactions
HXPQ uses China Renminbi ("RMB") as the functional currency, which is not freely
convertible into foreign currencies. Transactions denominated in currencies
other than RMB are translated into RMB at the applicable rates of exchange
prevailing at the dates of the transactions, quoted by the People's Bank of
China ("the PBOC"). Monetary assets and liabilities denominated in other
currencies are translated into RMB at rates of exchange quoted by the PBOC
prevailing at the balance sheet date. Exchange gains or losses arising from
changes in exchange rates subsequent to the transactions dates for monetary
assets and liabilities denominated in other currencies are included in the
determination of net income for the respective period.
For financial reporting purposes, RMB has been translated into United States
dollars ("US$") as the reporting currency. Assets and liabilities are translated
at the exchange rate in effect at period end. Income statement accounts are
translated at the average rate of exchange prevailing during the period.
Translation adjustments arising from the use of different exchange rates from
period to period are included as a component of stockholders' equity as
"Accumulated other comprehensive income - foreign currency translation
adjustments' Gains and losses resulting from currency transactions are included
in other comprehensive income (expenses). Foreign currency translation
adjustment was not material.
Revenue recognition
Revenues represent the sales of share of allocable share oil that are lifted to
the Sub-Owner. Sales are recognized when the significant risks and rewards of
ownership of oil have been transferred to customers.
Management fee
In connection with the arrangement of production activities, the Company pays a
management fee of 2 percent on sales to the non-operating interest owner, which
is debited to income as incurred.
Income taxes
HXPQ uses the liability method of accounting for income taxes under which
deferred tax assets and liabilities are recognized for the future tax
consequences. Accordingly, deferred tax liabilities and assets are determined
based on the temporary differences between the financial statements and tax
basis of assets and liabilities, using the enacted tax rates in effect for the
year in which the differences are expected to reverse. As changes in tax laws or
rate are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Environmental costs
The PRC has adopted extensive environmental laws and regulations that affect the
operation of the oil and gas industry. The outcome of environmental liabilities
under proposed or future environmental legislation cannot reasonably be
estimated at present, and could be material. Under existing legislation,
however, management believes that there are no probable liabilities that will
have a material adverse effect on the financial position of the Company.
Fair values of financial instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, receivable, payable and accrued expenses approximate their fair
values due to the short maturity of these instruments.
5. RELATED PARTY TRANSACTIONS
All the amounts due to non-operating interest owner and a director are
interest-free, unsecured and have no fixed terms of repayment.
6. INCOME TAXES
The standard enterprise income tax rate in the PRC is 33%. HXPQ's provision for
income taxes as of September 30, 2004 is detailed as follows:
US$
Current 8,378
Deferred 131,279
-------
139,657
-------
7. COMMON STOCK ISSURANCES
During the nine months ended September 30, 2004, the Company issued 90,000
shares of common stock for consulting services. The stock was valued at the
closing price on the date of grant, or at $1.11 per share, yielding an aggregate
value of $99, 900. The expense of the services was charged to operations in the
accompany financial statements.
8. RESERVES
Pursuant to the PRC regulations and the Company's Articles of Association, HXPQ
is required to transfer 10% and 5% of its net profit, as determined under the
PRC accounting regulations, to statutory reserve fund until the fund aggregates
to 50% of HXPQ's registered capital and to the statutory welfare fund
respectively. The transfer to this reserve must be made before profit
distribution to equity holders.
The statutory reserve fund shall only be used to make good previous years'
losses to expand HXPQ's production operations, or to increase the capital of
HXPQ. Upon approval by a resolution of equity holders' general meeting, HXP may
convert its statutory reserve fund into paid-up capital in proportion to the
existing paid-up capital holding, provided that the balance of the reserve fund
after such conversion is not less than 25% of the registered capital.
The statutory welfare fund can only be used to provide common facilities, of
which HXP retains the titles, and other collective benefits to HXPQ's employees.
This fund is non-distributable than in liquidation.
As of September 30, 2004, HXPQ had no distributable reserve under the PRC
accounting regulations and there were no appropriation to the statutory funds
during the period.
9. DEFINED CONTRIBUTION PLAN
HXPQ provides defined contribution plan based on local laws and regulations for
all qualified employees in the PRC. The PRC government is responsible for the
pension liabilities to these retired employees. HXPQ is required to make annual
contributions to the government-regulated pension at 21% of the employees' basic
salaries. HXPQ's contributions to defined contributions plans are charged to
expenses in the year to which they relate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains certain statements that may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Any statements that refer to expectations,
projections or other characterization of future events or circumstances, and
especially those which include variations of the words "believes," "intends,"
"estimates," "anticipates," "expects," "plans," or similar words or variations
thereof, are likely to be forward-looking statements, and as such, are likely to
concern matters involving risk, uncertainty, unpredictability and other factors
that could materially and adversely affect the outcome or results indicated by
or inferred from the statements themselves. Therefore, the reader is advised
that the following discussion should be considered in light of the discussion of
risks and other factors contained in this Form 10QSB and in the Company's other
filings with the Securities and Exchange Commission, and that no statements
contained in the following discussion or in this Form 10QSB should be construed
as a guarantee or assurance of future performance or future results.
RESULTS OF OPERATIONS
For the 3 months and 9 months ended September 30, 2004, we had gross revenues of
$337,858 and $1,138,095, respectively. The Company had a net loss of ($74,392)
for the 3 months ended September 30, 2004, and net income of $74,912 for the 9
months ended September 30, 2004. For the period ended September 30, 2003, we
had gross revenues of $179,484 and net income of $11,844. However, no
meaningful comparison can be made between the results of operations for the
periods ended September 30, 2003 and September 30, 2004, because we did not
commence its oil and gas operations until April 1, 2003, and as of September 30,
2003, had only been operational for five months.
We expect gross revenue and net income to continue to increase on a
quarter-by-quarter basis throughout the remainder of 2004 as a result of placing
additional wells into production.
LIQUIDITY AND CAPITAL RESOURCES
During the 9 months ended September 30, 2004, we had net income from operations
of $74,912 and also received $482,699 in new capital investments. However,
during this period, cash used in operations was $479,376 and we had capital
expenditures of $10,087 for purchases and development of properties and
equipment and for construction in progress. As a result, as of September 30,
2004, we had cash on hand of $935, as compared to cash on hand of $19,471 as of
September 30, 2003.
Management plans to rely on net cash from operations to maintain its current
level of operations and to fund a gradual increase in the level of operations
throughout the remainder of 2004. Although management currently anticipates
that substantially all cash generated form operations will be used to fund
current operations and for purposes of drilling new wells and seeking to place
additional wells into service, management believes we have adequate cash
resources on hand for those purposes. However, management also hopes raise
additional capital which will enable us to expand operations more rapidly by
drilling more new wells on its current property as well as by seeking to acquire
interests in additional properties and drill new wells on those properties.
Management is currently considering the options which may be available for the
purpose of raising additional working capital. These may include debt financing
as well as the potential for either private or public offering and sale of our
securities. However, there is no assurance that we will be able to raise
additional working capital for such purposes.
OUTLOOK
During the remainder of 2004, we plans to focus its efforts on drilling and
completion of additional wells on its property in the Qian 112 zone in the
Jinlin Oil region, as well as on raising the capital necessary to acquire
interests in additional properties. Management believes that our gross revenues
will continue to increase on a quarter-by-quarter basis throughout the remainder
of 2004 as the number of producing wells increases. However, Management also
expects our expenses to increase as a result of using substantially all of the
cash flow generated from operations to drill additional wells.
ITEM 3.
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 Chief Executive Officer ("CEO") and Chief
Financial Officer Wang Hong Jun. In this section, we present the conclusions of
our CEO and CFO 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.
CEO and CFO Certifications
Attached to this annual report, as Exhibits 31.1 and 31.2, 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?4(a) Certifications"). This section of the annual report contains
the information concerning the Evaluation referred to in the Rule
13a-14(a)/15d?4(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d?4(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 annual 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) the Company's
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
principals generally accepted in the United States
.
Limitations on the Effectiveness of Controls
Our management does not expect that our Disclosure Controls or our Internal
Controls will prevent all error and all fraud. A control system, no matter how
well developed and operated, can provide only reasonable, but not absolute
assurance that the objectives of the control system are met. Further, the design
of the control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances so of
fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision -making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of a system
of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated objectives under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, or because
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Scope of the Evaluation
The CEO and CFO's evaluation of our Disclosure Controls and Internal
Controls included a review of the controls' (i) objectives, (ii) design, (iii)
implementation, and (iv) the effect of the controls on the information
generated for use in this annual 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
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
None.
ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.
OTHER INFORMATION
None
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed herewith:
31.1
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED
By /s/
Wang Hong Jun
Chief Executive Officer
By /s/
Wang Hong Jun
Chief Financial Officer