Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. U.S. China Mining Group, Inc. (1145761) 10-Q published on May 20, 2014 at 3:48 pm
Reporting Period: Mar 30, 2014
In January 2014, FASB issued, Accounting Standards Update 2014-05, Service Concession Arrangements (Topic 853), The objective of this Update is to specify that an operating entity should not account for a service concession arrangement within the scope of this Update as a lease in accordance with Topic 840, Leases. Service concession arrangements may become more prevalent in the United States as public-sector entities seek alternative ways to provide public services on a more efficient and cost-effective basis. The amendments apply to an operating entity of a service concession arrangement entered into with a public-sector entity grantor when the arrangement meets certain conditions. The amendments in this Update should be applied on a modified retrospective basis to service concession arrangements that exist at the beginning of an entity’s fiscal year of adoption. The modified retrospective approach requires the cumulative effect of applying this Update to arrangements existing at the beginning of the period of adoption to be recognized as an adjustment to the opening retained earnings balance for the annual period of adoption. The amendments are effective for a public business entity for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this ASU will not affect the Company’s financial statements.
Accrued liabilities were mainly for accrued mining rights of $22,046, accrued payroll, consulting and legal and audit expense. Transportation infrastructure construction fee was a fee for Tong Gong and Xing An levied by the provincial government at RMB 10 ($1.60) per ton based on sales volume. Others mainly consisted of payables for employees’ welfare, social security and personal income tax withholding.
The Company’s rental expense for the three months ended March 31, 2014 and 2013 was $0, as the principal shareholder temporarily waived Xing An’s lease payments until further notification, as a result of the temporary cessation of the Xing An mines’ operation.
Cost of Goods Sold. Cost of goods sold (“COGS”) for the three months ended March 31, 2014 was $0.32 million, a decrease of $0.17 million or 35%, from $0.48 million for the corresponding period in 2013. Our total production for the three months ended March 31, 2014 was 4,670 tons, compared to 8,750 tons for the corresponding period in 2013, a decrease of 4,080 tons, resulting from the changing geological conditions of Tong Gong mine’s under-shaft with increased rock zone as a result of our having to mine into the deeper areas of the underground mine, which limits the lifting capacity and results in higher extraction costs. In addition, commencing during the second quarter of 2012, Xing An temporarily ceased production due to the mine retrofit project and the government’s inspection requirements. COGS as a percentage of sales was 104% for the three months ended March 31, 2014, compared to 90% for the same period in 2013. Our average cost per ton was $67.86 in the three months ended March 31, 2014, compared to $55.40 for the corresponding period in 2013. This increase was primarily attributable to higher infrastructure, safety and environmental standards requirements and overall inflation in China resulting in increased direct labor cost by 25% in the three months ended March 31, 2014, certain materials and energy costs used for mining and processing. In addition, decreased production/sales volume caused relatively higher depreciation and amortization cost resulting in higher unit cost on average.
Net cash provided by operating activities was $4.22 million for the three months ended March 31, 2014, compared to net cash used in operating activities of $0.85 million for the comparable period in 2013. In 2014, the increase in cash flow was primarily due to the $4.91 million in cash received as a refund of our advance to the Guizhou mine. We had previously advanced $4.91 million to the Guizhou mine to assist it with coal mine technical transformation and passing inspection; however, the technical transformation did not meet the Company’s requirements, and accordingly, the Guizhou mine returned such advance to us in February 2014.