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UNITED
STATES FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-16283 Issuer's telephone number, including area code: (852)
2537-3613 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. [X] YES [ ] NO Indicate by check mark whether the registrant is a shell company
(as defined in Role 12b-2 of the Exchange Act). APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of the issuer's common stock as
at November 8, 2006 was 18,890,579. Transitional Small Business Disclosure Format (check one): [ ]
YES [X] NO Forward Looking Statements Certain
statements contained in this quarterly report and other written material and
oral statements made from time to time by us do not relate strictly to historical
or current facts. As such, they are considered "forward-looking statements"
that provide current expectations or forecasts of future events. Such statements
are typically characterized by terminology such as "believe", "anticipate",
"should", "intend", "plan", "expect", "estimate", "project", "strategy" and
similar expressions. Our forward-looking statements generally relate to the
prospects for our ability to identify new business opportunities, develop new
business strategies and execute such business strategies. These statements are
based upon assumptions and assessments made by our management in light of its
experience and its perception of historical trends, current conditions, expected
future developments and other factors our management believes to be appropriate.
These forward-looking statements are subject to a number of risks and uncertainties,
including the following: our ability to identify and evaluate business opportunities
that will achieve profitable operations while maintaining sufficient cash to
operate our business and meet our liquidity requirements: our ability to obtain
financing, if required, on terms acceptable to us, if at all; our ability to
successfully attract strategic partners and to market both new and existing
products and services domestically and internationally; exposure to lawsuits
and regulatory proceedings; governmental laws and regulations affecting domestic
and foreign operations; our ability to identify and complete diversification
opportunities; and the impact of acquisitions, divestitures, restructurings,
product withdrawals and other unusual items. Except as required by applicable
law, our company undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise. 2 See accompanying notes. 3 See accompanying notes. 4 See accompanying notes. 5 See accompanying notes. 6
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
For the quarterly period ended September 30, 2006
For the Transition Period From ____ to _____
CATHAY MERCHANT GROUP,
INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE
04-2608713
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Unit 803, Dina House, Ruttonjee Centre, 11 Duddell
Street, Central,
Hong Kong SAR, China
(Address of principal executive offices)
[ ] YES [X] NO
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT - FORM 10-QSB
NINE MONTHS ENDED SEPTEMBER 30, 2006
PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30,
DECEMBER 31,
2006
2005
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents
$
5,211
$
3,843
Restricted cash
70
65
Receivables
1,732
1,391
Due from affiliates
1,635
67
Inventories
12,813
9,554
Prepaid expenses and other
62
41
Deferred tax benefits
598
558
Total current assets
22,121
15,519
Non-current Assets:
Deferred credit facility costs
203
264
Property, plant and equipment
1,294
1,011
Purchase option agreements
15,579
14,540
Goodwill
5,331
5,244
Deferred tax benefits
62
58
Total
non-current assets
22,469
21,117
Total assets
$
44,590
$
36,636
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses
$
12,967
$
13,672
Due to affiliates
10,294
2,453
Debt
-
237
Total current
liabilities
23,261
16,362
Long-term Liabilities:
Debt
10,611
9,904
Other liabilities
44
38
Total long-term
liabilities
10,655
9,942
Total liabilities
33,916
26,304
Stockholders' Equity:
Common stock
2,039
2,029
Additional paid-in capital
28,031
28,008
Accumulated deficit
(14,763
)
(14,098
)
Treasury stock, at cost
(5,313
)
(5,313
)
Cumulative translation adjustment
680
(294
)
Total
stockholders' equity
10,674
10,332
Total liabilities and
stockholders' equity
$
44,590
$
36,636
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED
September 30,
September 30,
2006
2005
(UNAUDITED)
Product sales, net
$
72,997
$
18,490
Cost of goods sold
69,482
17,666
3,515
824
General and administrative expenses
3,866
3,435
Operating loss
(351
)
(2,611
)
Other income (expense):
Interest and financing charges, net
(455
)
(276
)
Miscellaneous
147
118
(308
)
(158
)
Loss before income tax
(659
)
(2,769
)
Income tax benefit (expenses)
(6
)
2,432
Net loss
$
(665
)
$
(337
)
Loss per common share, basic and diluted
$
(0.04
)
$
(0.02
)
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
September 30, 2006
September 30, 2005
(UNAUDITED)
Product sales, net
$
27,407
$
18,490
Cost of goods sold
25,928
17,666
1,479
824
General and administrative expenses
1,061
1,078
Operating income (loss)
418
(254
)
Other income (expense):
Interest and financing charges, net
(138
)
(182
)
Miscellaneous
49
118
(89
)
(64
)
Income (loss) before income tax
329
(318
)
Income tax benefit
4
2,432
Net income
$
333
$
2,114
Earnings per common share, basic and
diluted
$
0.02
$
0.11
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
September 30, 2006
September 30, 2005
(UNAUDITED)
Net loss
$
(665
)
$
(337
)
Other comprehensive gain(loss), foreign
currency translation adjustment
974
(38
)
Comprehensive income (loss)
$
309
$
(375
)
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
September 30, 2006
September 30, 2005
(UNAUDITED)
Net loss
$
333
$
2,114
Other comprehensive loss, foreign currency
translation adjustment
(103
)
(38
)
Comprehensive income
$
230
$
2,076
See accompanying notes.
7
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES |
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(DOLLARS IN THOUSANDS) |
NINE MONTHS ENDED | ||||||
SEPTEMBER 30, | ||||||
2006 | 2005 | |||||
(UNAUDITED) | ||||||
OPERATING ACTIVITIES: | ||||||
Net loss | $ | (665 | ) | $ | (337 | ) |
Adjustments to reconcile net loss to net cash | ||||||
provided by (used in) operating activities: | ||||||
Depreciation and amortization | 274 | 118 | ||||
Foreign exchange | 599 | (28 | ) | |||
Income tax benefit | - | (2,432 | ) | |||
Changes in operating assets and liabilities: | ||||||
Receivables | (538 | ) | 98 | |||
Due from affiliates | (1,241 | ) | (418 | ) | ||
Inventories | (2,527 | ) | 370 | |||
Prepaid expenses and other current assets | (18 | ) | (3 | ) | ||
Accounts payable and accrued expenses | (1,964 | ) | (514 | ) | ||
Due to affiliates | 7,745 | 597 | ||||
Net cash provided by (used in) operating activities | 1,665 | (2,549 | ) | |||
INVESTING ACTIVITIES: | ||||||
Purchase of subsidiaries, net of cash acquired | - | (8,200 | ) | |||
Purchase of fixed assets | (421 | ) | (99 | ) | ||
Net cash used in investing activities | (421 | ) | (8,299 | ) | ||
FINANCING ACTIVITIES: | ||||||
Proceeds from exercise of stock options | 32 | - | ||||
Net cash provided by financing activities | 32 | - | ||||
Effects of foreign exchange on cash and cash equivalents | 92 | 3 | ||||
Changes in cash and cash equivalents | 1,368 | (10,845 | ) | |||
Cash and cash equivalents, beginning of period | 3,843 | 14,961 | ||||
Cash and cash equivalents, end of period | $ | 5,211 | $ | 4,116 | ||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||
Income taxes paid | $ | --- | $ | --- | ||
Interest expenses paid | $ | 392 | $ | --- |
See accompanying notes.
8
CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(UNAUDITED) |
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The notes to these consolidated financial statements are presented in United States Dollars, unless otherwise indicated. Euro is a legal tender used by the majority of the member states of the European Union. With the exception of per share amounts, amounts are presented in thousands.
Description of Business
Cathay Merchant Group, Inc. (the Company or Cathay) is primarily an aluminum manufacturing and trading company.
On June 30, 2005, the Company, acting through its wholly-owned subsidiary, Cathay Merchant Group Limited (CMG), acquired all of the shares of MAW Mansfelder Aluminiumwerk GmbH (MAW formerly AWP Aluminium Walzprodukte GmbH) and AFM Aluminiumfolie Merseburg GmbH (AFM). MAW and AFM are incorporated under the laws of Germany.
Basis of Presentation
The unaudited interim period consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. The interim period consolidated financial statements should be read together with the audited consolidated financial statements and accompanying notes included in the Company's latest annual report on Form 10-KSB for the five months ended December 31, 2005. In the opinion of the Company, the unaudited consolidated financial statements contained herein contain all adjustments (which are of a normal recurring nature) necessary to present a fair statement of the results of the interim periods presented. The results for the periods presented herein may not be indicative of the results for any subsequent period or the entire year.
2. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the effect of dilutive securities, if any, principally stock options and warrants. Dilutive securities were not included in the calculation of diluted weighted average shares for the nine months ended September 30, 2006 and 2005, due to their anti-dilutive effect. Diluted weighted average shares for the three months ended September 30, 2006 and 2005 were 18,895 and 18,797, respectively.
The following table sets forth the computation of basic and diluted earnings (loss) per share:
NINE MONTHS ENDED | THREE MONTHS ENDED | |||||||||||
SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
(UNAUDITED) | (UNAUDITED) | |||||||||||
Net income (loss) | $ | (665 | ) | $ | (337 | ) | $ | 333 | $ | 2,114 | ||
Weighted-average shares | 18,872 | 18,797 | 18,895 | 18,797 | ||||||||
Earnings (loss) per share, basic and diluted | $ | (0.04 | ) | $ | (0.02 | ) | $ | 0.02 | $ | 0.11 |
9
3. INVENTORIES
Inventories consist of raw materials, work-in-process, and finished goods. Inventories are recorded at the lower of cost (specific identification and first-in first out methods) or market and consist of the following at September 30, 2006:
Raw materials | $ | 5,080 | |
Work in progress | 5,301 | ||
Finished goods | 2,432 | ||
$ | 12,813 |
4. BUSINESS SEGMENT INFORMATION
During the nine and three months ended September 30, 2006, the Company operated in one reportable business segment: manufacturing and trading of aluminum products.
The following tables disclose the Companys sales by product types for the nine and three months ended September 30, 2006:
NINE MONTHS ENDED | THREE MONTHS ENDED | ||||||
SEPTEMBER 30,2006 | SEPTEMBER 30,2006 | ||||||
By product types | |||||||
Sheets | $ | 8,122 | $ | 3,334 | |||
Strips | 18,749 | 6,077 | |||||
Blanks | 10,885 | 4,397 | |||||
Foils | 32,241 | 11,651 | |||||
Other | 3,000 | 1,948 | |||||
$ | 72,997 | $ | 27,407 |
As of September 30, 2006, there was no material change in total assets from December 31, 2005.
5. RELATED PARTIES TRANSACTIONS
During the nine months ended September 30, 2006, the Company had the following transactions with MFC Merchant Bank S.A.(MFC Bank), MFC Commodities GmbH and its parent company Mass Financial Corp. (Mass). MFC Bank is a wholly-owned subsidiary of KHD Humboldt Wedag International Ltd. (KHD). Mass was a wholly-owned subsidiary of KHD until January 31, 2006 when KHD distributed its common shares in Mass to the shareholders of KHD. KHD was a former significant shareholder of the Company until KHD transferred its shareholding in the Company to Mass in January 2006. Currently, there are common directors among Cathay, KHD and Mass.
a) |
Accrued or Paid fee of $335 to MFC Bank. | |
b) |
Deposited its cash and cash equivalents with MFC Bank. Interest income on the deposit was $29. Such deposit amounted to $2,964 as at September 30, 2006. | |
c) |
Sold products $56,791 (representing 78% of total sales of products) and paid marketing fee of $1,206 to MFC Commodities GmbH. | |
d) | Accrued or Paid interest of $320 to Mass. |
6. RECENT ACCOUNTING PRONOUNCEMENTS
Management has analyzed all recent accounting pronouncements and believes there are no new pronouncements that have been approved (but are not yet effective) that, when adopted, will have a significant impact on the Companys financial statements.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview
Our primary business involves the manufacturing and trading of aluminum products.
On June 30, 2005, we acquired all of the shares of MAW Mansfelder Aluminiumwerk GmbH (formerly AWP Aluminium Walzprodukte GmbH) and AFM Alumiumfolie Merseburg GmbH.
MAW Mansfelder Aluminiumwerk is based in Hettstedt, Germany, and operates an aluminum rolling mill. Its products include aluminum sheets, strips and blanks for use by industrial and commercial fabricators of aluminum products, principally for the European market.
AFM Alumiumfolie Merseburg is based in Merseburg, Germany, and also operates an aluminum rolling mill. It produces aluminum foil for flexible (food and beverage) packaging, pharmaceutical packaging and technical applications. AFM Alumiumfolie Merseburgs principal market is also Europe.
All of our revenues to date have been generated by our two aluminum rolling mills.
The following discussion and analysis of the results of operations and financial condition of our company for the nine and three months ended September 30, 2006 should be read in conjunction with the consolidated financial statements and related notes included in this quarterly report, as well as our most recent annual report on Form 10-KSB for the five months ended December 31, 2005 filed with the United States Securities and Exchange Commission.
Results Of Operations Nine Months Ended September 30, 2006
Net product sales for the nine months ended September 30, 2006 were $73.0 million, compared to $18.5 million in the same period in 2005. Cost of goods sold for the nine months ended September 30, 2006 were $69.5 million, compared to $17.7 million in the same period in 2005. The results of operations from our two aluminum mills have been included in 2005 consolidated financial statements since June 30, 2005.
General and administrative expenses for the nine months ended September 30, 2006 were $3.9 million, compared to $3.4 million for the same period in 2005. We paid $0.3 million for reimbursement of expenses and administrative and management fees to MFC Merchant Bank S.A.(MFC Bank) for the nine months ended September 30, 2006, compared to $0.7 million for the same period in 2005. This agreement was terminated in the last quarter because of the continuing losses and cost reduction measures.
We reported a net loss of $0.7 million, or $0.04 per common share, for the nine months ended September 30, 2006, compared to $0.3 million, or $0.02 per common share, in the same period in 2005.
The primary driver of our gross profit margin is the price of aluminum. We are unable to effectively hedge the gross margin in an upward or downward market. This has caused our margins to be reduced to a point where profitability is difficult to obtain. We are unable to predict when the price of aluminum will stay in the range where our margins may allow for profitability.
Results Of Operations Three Months Ended September 30, 2006
Net product sales for the three months ended September 30, 2006 were $27.4 million, compared to $18.5 million in the same period in 2005. Cost of goods sold for the three months ended September 30, 2006 were $25.9 million, compared to $17.7 million in the same period in 2005. The results of operations from our two aluminum mills have been included in 2005 consolidated financial statements since June 30, 2005.
General and administrative expenses for the three months ended September 30, 2006 and 2005 were $1.1 million. We paid $nil for reimbursement of expenses and administrative and management fees to MFC Bank for the three months ended September 30, 2006, compared to $0.2 million for the same period in 2005. This agreement was terminated in the last quarter because of the continuing losses and cost reduction measures.
11
We reported a net income of $0.3 million, or $0.02 per common share, for the three months ended September 30, 2006, compared to $2.1 million, or $0.11 per common share, in the same period in 2005.
The primary driver of our gross profit margin is the price of aluminum. We are unable to effectively hedge the gross margin in an upward or downward market. This has caused our margins to be reduced to a point where profitability is difficult to obtain. We are unable to predict when the price of aluminum will stay in the range where our margins may allow for profitability.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2006, the Company had a working capital deficiency of $1.1 million, compared to $0.8 million at December 31, 2005.
We entered into a five-year $20 million revolving credit facility dated April 26, 2004 with MFC Bank, which is to mature in March 2009. In August 2004, MFC Bank converted $1,575,000 of the principal that we have drawn under the credit facility into 3,150,000 shares of our common stock at the exercise price of $0.50 per share. As of September 30, 2006, we have an unused portion of a credit facility of $18,425,000. We are required to pay interest on any outstanding principal amount that we have drawn down under the credit facility on the first banking day of each calendar month, at an annual rate of Libor (being the one month London Inter-Bank Offered Rate fixed daily by the British Bankers Association) plus 3.5%, based on a 360 day year. The credit facility is secured by a first fixed and specific charge and security interest on all of our property, assets and undertakings imposed under our promissory note in the aggregate principal amount of $20,000,000, and a floating charge on all of our companys other property, assets and undertakings not specifically mortgaged and charged under the promissory note, including after-acquired assets or the proceeds of any and all assets. Our obligations under the credit facility are also secured by a pledge agreement in the aggregate principal amount of $20,000,000, pursuant to which we have pledged to MFC Bank all or our existing and future pecuniary claims against third parties.
As a result of our revenues from our aluminum rolling mills combined with the funds available for use under the MFC Bank credit facility, we believe that we have sufficient liquidity to meet operating expenses.
We are moving to reduce all expenses during this period of eroding margins and have an agreement with MFC Bank to cancel the management fees payable to MFC Bank for the balance of the 2006 year.
There is no assurance that management will find suitable opportunities or effect the necessary financial arrangements for such investments, or provide the capital needed for the acquired activities.
Operating Activities
Operating activities provided cash of $1.7 million for the nine months ended September 30, 2006, compared to operating activities used cash of $2.5 million in the same period in 2005.
Investing Activities
Investing activities used cash of $0.4 million for the nine months ended September 30, 2006, compared to $8.3 million in the same period in 2005, primarily due to the purchase of two subsidiaries in 2005.
Financing Activities
Financing activities provided cash of $32,000 for the nine months ended September 30, 2006, compared to $nil in the same period in 2005.
12
Off-Balance Sheet Arrangements
The following table sets forth our best estimates for material long-term obligations as at December 31, 2005. Operating leases include commitments for office space, computers and office equipment. The table excludes commitments such as open purchase orders under long-term agreements with customers and suppliers. We have no minimum purchase or supply arrangements in place. Our contractual obligations as of December 31, 2005 were:
Payments Due by Period | |||||||||||||||
(in $000s ) | |||||||||||||||
Contractual | Less Than | 4-5 | After | ||||||||||||
Obligations(1) | Total | One Year | 2-3 Years | Years | 5 Years | ||||||||||
Capital Lease Obligations | $ | 82 | $ | 46 | $ | 35 | $ | 1 | $ | - | |||||
Operating Leases | 2,760 | 569 | 1,128 | 827 | 236 | ||||||||||
Total Contractual Obligations | $ | 2,842 | $ | 615 | $ | 1,163 | $ | 828 | $ | 236 |
(1) | There have been no material changes to the contractual obligations (summarized in the above table of contractual obligations at December 31, 2005) during the nine months ended September 30, 2006 that are outside the ordinary course of our business. |
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles requires management of our company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We are currently in the aluminium manufacturing and trading business and have identified certain accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations.
Revenue Recognition
Our revenue comes from the sales of aluminium products produced and sold, and recognized when the amounts of the revenues are fixed, agreed or determinable and collectibility is reasonably assured.
Goodwill Impairment
A goodwill impairment loss should be recognized when the carrying amount of the goodwill exceeds the fair value of the goodwill. An impairment loss should not be reversed if the fair value subsequently increases. We consider, but such consideration is not limited to, the following factors to determine the goodwill impairment:
a significant adverse change in legal factors or in the business climate;
unanticipated competition;
loss of key personnel;
a more-likely-than-not expectation that a significant portion or all of a reporting unit will be sold or otherwise disposed of;
the testing for write-down or impairment of a significant asset group within a reporting unit; or
13
Impairment of Long-Lived Assets
We periodically evaluate long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review of recoverability, we estimate future cash flows expected to result from the use of the asset and its eventual disposition. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require our management to make subjective judgements. In addition, the time periods for estimating future cash flows is often lengthy, which increases the sensitivity of the assumptions made. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. Our management considers the likelihood of possible outcomes in determining the best estimate of future cash flows.
ITEM 3. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of September 30, 2006, the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There have been no significant changes in our internal controls over financial reporting that occurred during our most recent quarter that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of conducting our business, we may become subject to litigation and claims regarding various matters. There was no outstanding litigation as of September 30, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY 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.
14
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits Required by Item 601 of Regulation SB
Exhibit Number |
Exhibit Title |
Filed Herewith |
Form |
Filing Date |
(3)(i) | Articles of Incorporation | |||
3.1.1 | Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation | S-1 | April 13, 1981 | |
3.1.2 | Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation | 10-Q | January 31, 1987 | |
3.1.3 | Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation | 10-K | July 28, 1990 | |
3.1.4 | Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation | 10-KSB | July 31, 1997 | |
3.1.5 | Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation | 8-K | June 5, 1998 | |
3.1.6 | Certificate of Designations of Series A Convertible Preferred Stock of Cathay Merchant Group, Inc., a Delaware Corporation | 8-K | June 5, 1998 | |
3.1.7 | Certificate of Designations of Series B 5% Convertible Preferred Stock of Cathay Merchant Group, Inc., a Delaware Corporation | 8-K | February 9, 1999 | |
3.1.8 | Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation | 8-K | January 10, 2000 | |
3.1.9 | Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation | 8-K | October 7, 2004 |
15
Exhibit Number |
Exhibit Title |
Filed Herewith |
Form |
Filing Date |
3(ii) | By-laws | |||
3.2.1 | Amended Bylaws of Cathay Merchant Group, Inc., a Delaware corporation | 8-K | May 17, 2000 | |
(10) | Material contracts | |||
10.1 | Credit Facility Agreement dated as of April 26, 2004, between Cathay Merchant Group, Inc. and MFC Merchant Bank S.A. | 8-K | April 30, 2004 | |
10.2 | Financial Advisory Agreement dated January 1, 2004, between Cathay Merchant Group, Inc. and MFC Merchant Bank S.A. | 10-KSB | October 29, 2004 | |
10.3 | Memorandum of Understanding dated January 28, 2005, between Cathay Merchant Group (Shanghai) Wind Energy Co., Ltd. and Kangbao County Government of Hebei Province and Chuzhangdi Town Government. | 10-KSB | October 31, 2005 | |
10.4 | Wind Park Project Land Use Rights Agreement dated February 23, 2005, between Cathay Merchant Group (Shanghai) Wind Energy Co., Ltd. and Kangbao County Government. | 10-KSB | October 31, 2005 | |
10.5 | Share Purchase Agreement dated June 30, 2005, between Cathay Merchant Group Limited and Blake International Limited. | 8-K | June 30, 2005 | |
10.6 | Promissory Note dated June 30, 2005, between Cathay Merchant Group Limited and Cathay Merchant Group, Inc. | 8-K | June 30, 2005 | |
10.7 | Share Purchase Agreement dated June 30, 2005, between Cathay Merchant Group Limited and Universal Metals Limited. | 8-K | June 30, 2005 | |
10.8 | Promissory Note dated June 30, 2005, between Cathay Merchant Group Limited and Cathay Merchant Group, Inc. | 8-K | June 30, 2005 |
16
Exhibit Number |
Exhibit Title |
Filed Herewith |
Form |
Filing Date |
(31) | Section 302 Certifications | |||
31.1 | Chief Executive Officer and Chief Financial Officer | X | ||
(32) | Section 906 Certifications | |||
32.1 | Chief Executive Officer and Chief Financial Officer | X |
17
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.
Dated: November 14, 2006 | CATHAY MERCHANT GROUP, INC. | |
By: | /s/ Michael J. Smith | |
Michael J. Smith | ||
Chief Executive Officer, President and | ||
Chief Financial Officer | ||
(Principal Executive Officer, | ||
Principal Accounting Officer and | ||
Principal Financial Officer) |
18
EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael J. Smith, certify that:
1. |
I have reviewed this quarterly report on Form 10-QSB of Cathay Merchant Group, Inc.; | |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: | |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Dated: November 14, 2006
By: /s/ Michael J. Smith
Michael J. Smith
Chief
Executive Officer and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL
OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Cathay Merchant Group, Inc. (the Company) hereby certifies, to such officers knowledge, that:
(1) |
the Quarterly Report on Form 10-QSB of the Company for the three month period ended September 30, 2006 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and | |
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 14, 2006 | By: | /s/ Michael J. Smith |
Michael J. Smith | ||
Principal Executive Officer, Principal Financial and | ||
Principal Accounting Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cathay Merchant Group, Inc. and will be retained by Cathay Merchant Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.