Property, machinery and mining assets

Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives.

Mineral exploration costs are expensed according to the term of the license granted to the Company.  Extraction rights are stated at the lower of cost and recoverable amount.  When extraction rights are obtained from the government according to the mining industry practice in the PRC, extraction rights and other costs incurred prospectively to develop the property are capitalized as incurred and are amortized using the units-of-production (“UOP”) method over the estimated life of the mineralized body based on estimated recoverable volume through to the end of the period over which the Company has extraction rights.  At the Company’s underground mines, these costs include the cost of building access ways, shaft sinking and access, lateral development, drift development, ramps and infrastructure development.   Major development costs incurred after the commencement of production are amortized using the UOP method based on estimated recoverable volume in mineralized material.  To the extent that these costs benefit the entire mineralized body, they are amortized over the estimated life of the mineralized body.  Costs incurred to access specific mineralized blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific mineralized block or area.  Interest cost allocable to the cost of developing mining properties and to constructing new facilities, if any, is capitalized until assets are ready for their intended use.

Impairment of long-lived assets

The Company accounts for the impairment of long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.  Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable.  For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.  Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

No impairment loss is recorded for the three months ended March 31, 2009 and 2008.

 

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Deferred income taxes

The Company accounts for income tax under the provisions of SFAS No.109 "Accounting for Income Taxes", which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  In addition, SFAS 109 requires recognition of future tax benefits, such as carryforwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax assets will not be realized.

 

Currency translation

Since the Company operates in the PRC, the Company’s functional currency is the RMB.  Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of owners’ equity.  Gains and losses from foreign currency transactions are recognized in current operations.

Fair value of financial instruments

Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” requires that the Company disclose estimated fair value of financial statements.

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, taxes payable, and other related party advances and borrowings, and short-term loans.

As of the balance sheet date, the estimated fair values of financial instruments were not materially different from their carrying values as presented on the balance sheet.  This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available from loans of similar remaining maturity and risk profile at the respective balance sheet dates.

Segment reporting

Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting.  The management approach model is based on the way a company’s management organized segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

Revenue recognition

Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, and no other significant obligations of the Company exist and collectability is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are satisfied and recorded as advances from customers.

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Comprehensive income

 

Comprehensive income is defined to include all changes in equity except those resulting from investments by shareholders and distributions to shareholders.  Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.  Comprehensive income includes net income and the foreign currency translation gain, net of tax.

Earnings per share

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There are no such additional common shares available for dilution purposes as of March 31, 2009 and 2008.

Recently issued accounting pronouncements

 

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2007.  The Company has not determined the effect that the application of SFAS 160 will have on its consolidated financial statements.

In December 2007, Statement of Financial Accounting Standards No. 141(R), Business Combinations, was issued (“SFAS 141R”). SFAS No. 141R replaces SFAS No. 141, Business Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This replaces SFAS 141’s cost-allocation process, which required the cost of acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141R also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141R). SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2007 An entity may not apply it before that date. The Company is currently evaluating the impact that adopting SFAS No. 141R will have on its financial statements.

 

3           INVENTORIES

Inventories consist of the following: 

                                                                                                                     

			March 31, 2009				December 31, 2008
Raw Materials		$	3,931,637			$	4,351,326
Work in process			957,141				1,080,390
Finished goods			2,437,695				2,064,761
		$	7,326,473			$	7,496,477

 

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4           DUE FROM RELATED PARTY

Amounts due from related party consist of amounts due from a related company partially owned by a majority shareholder of the Apollo.  This loan is non-interest bearing and due on demand.

5           NON-MARKETABLE INVESTMENT

On March 12, 2009 the Company entered into a letter of intent to invest RMB 300,000 ($43,900 USD at the date of signing) for a 6% interest with two non-affiliates to set up a new company engaged in the green energy industry.  The Company intends to account for this investment using the cost method of accounting.

6           SHORT-TERM LOAN

 

On January 1, 2009, the Company signed a contract with Chengdu Zihang Gang Construction & Investment Co., Ltd. (“Xihang Gang”), an unaffiliated company, for the amount of RMB 11,300,000 ($1,652,165 USD at the date of signing).  The term is from February 6, 2009 to February 5, 2010, with interest at 6.903% per annum and collateralized by the buildings and land use right of Diye. On February 2, 2009 the Company signed a loan agreement with Communicationbank of China, Sichuan branch, for RMB 2,000,000 (equivalent to $292,028 at the date of signing).  The term is from February 6, 2009 to February 5, 2010 bearing interest at 6.903% per annum, collateralized by the building and land use right of Diye.

 

7           DUE TO STOCKHOLDERS

Due to stockholders consist of non-interest bearing notes due as follows:

 

 

			March 31, 2009		December 31, 2008
		March 2009	$0			$3,800,000
		July 2009	4,805,418			2,912,558
		November 2009	1,463,358			1,465,738
		On Demand	37,109			854,086
			$6,305,885			$9,032,382

8           LONG-TERM DEBT

Long-term debt consist of a note payable bearing interest at 6.57% per annum through May 31, 2009 and at Bank of China’s rate for a three-year loan thereafter.  $2,926,716 is due June 5, 2010 and $1,463,357 is due July 16, 2010.

9           TAXES

Corporation income tax

 

The Company is governed by the Income Tax Law of the PRC concerning the privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

The comparison of income tax expense at the U.S. statutory rate of 35% in 2008 and 2007, to the Company’s effective tax rate is as follows:

 

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		March 31
		2009		2008
	U.S. statutory rate	35%		35%
	Tax rate difference between PRC and U.S.	-10%		-2%
	Net loss carryforward from prior period	0%		-14%
	GAAP and Chinese tax law difference on     amortization of intangibles	2%		-8%
	Valuation allowance	-29%		14%
	Effective tax rate	-2%		25%

 

Value added tax (“VAT”)

Enterprises or individuals who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with the PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.

As of March 31, 2009 and December 31, 2008, the Company had a tax receivable of $346,173 and $494,387, respectively.

10             PRC STATUTORY RESERVES

In accordance with the PRC Companies Law, the Company was required to transfer 10% of its profit after tax, as determined in accordance with accounting standards and regulations of the PRC, to the statutory surplus reserve. The statutory surplus reserve is non-distributable.  As of March 31, 2009 and December 31, 2008, the Company did not accumulate any statutory reserve due to the accumulated deficit.

11           SEGMENT OF BUSINESS

THREE MONTHS ENDED MARCH 31, 2009

                                                       Manufacturing        Refining            Mining         Corporate and Other           Consolidated Total

Revenue		$	-			$	2,308,619			$	-			$	-			$	2,308,619
Operating profit (loss)			(279,042	)			100,008				(14,438	)			(359,706	)			(553,178	)
Depreciation and amortization			319,575				45,082				4,063				-				368,720
Capital expenditures			1,647,667				706,774				2,589				-				2,537,030