U.S.
Securities and Exchange Commission
 Washington,
D.C. 20549
  
 FORM
10-KSB
 
 
 
 
 x
    ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the year ended December 31, 2004
 
 o
    TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the transition period from _______ to
_______
 
 **COMMISSION
FILE NUMBER: 333-87992**
 
 SONGZAI
INTERNATIONAL HOLDING GROUP, INC.
 **(Exact
name of small business issuer as specified in its charter)**
  **Nevada**
      **(State or other jurisdiction
      of**
      **incorporation or
      organization)**
    **43-1932733**
      **(IRS Employer identification No.)******
    ********
      **5237
      Farago Avenue, Temple City, California 91780**
      **(Address
      of principal executive offices)******
    ********
      **(954)
      975-5643**
      **(Issuer's
      telephone number)**
  **Securities
registered under Section 12(b) of the Exchange Act:**
 
 **None.**
 
 **Securities
registered under Section 12(g) of the Exchange Act:**
 
 **Common
Stock, $.001 par value**
 
  
 
  
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the 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 o
  Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or an
amendment to this Form 10-KSB. x
 
 State
issuer's revenues for its most recent fiscal year: $824,948.
 
 As of
April 14, 2004, there were 68,873,748 common shares outstanding and the
aggregate market value of the common shares (based upon the closing price of
$.15 reported by brokers) held by non-affiliates was approximately $8,038,151.
 
 Transitional
Small Business Disclosure Format (check one): Yeso
Nox
 
 Number of
shares of common stock outstanding as of April 14, 2005: 68,873,748
 Number of
shares of preferred stock outstanding as of April 14, 2005: 400,000
  
 CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
 The
discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") contains forward-looking statements that
involve risks and uncertainties. The issuer's actual results could differ
significantly from those discussed herein. These include statements about our
expectations, beliefs, intentions or strategies for the future, which the
Company indicates by words or phrases such as "anticipate," "expect," "intend,"
"plan," "will," "we believe," "the Company believes," "management believes" and
similar language, including those set forth in the discussion under "Description
of Business," including the "Risk Factors" described in that section, and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-KSB. The Company bases their forward-looking
statements on information currently available to them, and the Company assumes
no obligation to update them. Statements contained in this Form 10-KSB that are
not historical facts are forward-looking statements that are subject to the
"safe harbor" created by the Private Securities Litigation Reform Act of
1995.
  2
 
 PART
I
 
 **ITEM
1.**  **Description
of Business**
 
 **History**
 
 Songzai
International Holding Group, Inc. ("SGZI" or the "Company") was incorporated in
the State of Nevada on June 7, 2001. The Company is a fully-reporting 1934 Act
company, with the Company's common stock quoted on the Over-the-Counter Bulletin
Board ("OTCBB") under the trading symbol "SGZI".
 
 On September
29, 2003, the Company executed a Plan of Exchange (the "Agreement"), between and
among the Company, Harbin Yong Heng Ke Ji Fa Zhan You Xian Ze Ren Gong Si, a
corporation organized and existing under the laws of the Peoples' Republic of
China ("Yong Heng"), the shareholders of Yong Heng (the "Yong Heng
Shareholders"), and Rohit Patel, former Chairman of the Company ("Patel").
Pursuant to and at the closing of the Agreement, the Yong Heng Shareholders
exchanged all their shares of capital stock for 67,000,000 shares of common
stock of the Company, or 98.4% of the Company’s then to be outstanding common
stock, and Mr. Patel returned his 1,188,088 shares of common stock to the
Company for cancellation for a payment of $450,000. Upon completion of the
exchange, Yong Heng became a wholly-owned subsidiary of the
Company.
 
 The Company
filed a report on Form 8-K with the Securities and Exchange Commission on
September 30, 2003 reporting the acquisition. On November 5, 2003, the Company
changed its name from Heritage Companies, Inc. to Songzai International Holding
Group, Inc.
  On September
23, 2004, the Company acquired a 75% interest in Heilongjiang Tong Gong Kuang Ye
You Xian Gong Si ("Tong Gong"), a corporation organized and existing under the
laws of the Peoples’ Republic of China, and owner of an operational coal mine
located near Heihe City in the People's Republic of China, pursuant to a
Purchase and Sales Agreement, dated April 5, 2004. In order to acquire 75% of
Tong Gong's registered capital of RMB 33,200,000, which is equal to approximate
US$4,009,662, the Company issued 400,000 shares of convertible preferred stock
which is convertible into 40,000,000 shares of common stock at the ratio of
1:100, which convertible preferred stock was part of a class of 8,000,000 shares
of so-called “blank check” preferred that was authorized on July 16, 2004. The
75% interest in Tong Gong was acquired from Mr. Hongwen Li, the Chairman of the
Company. In addition to the 75% capital stock of Tong Gong, the Company acquired
a 25% interest in the net profits of Tong Gong from the Harbin Green Ring
Biological Degradation Products Developing Co., Ltd., a corporation organized
and existing under the laws of the Peoples’ Republic of China (“Harbin Green”),
and the owner of 25% of the capital stock of Tong Gong. Harbin Green is
controlled by Mr. Hongwen Li.
 
 The initial
focus of the Company's efforts for the fiscal year 2003 was in the on-line gift
cards and related products business. This business activity was terminated in
October of 2004. This termination was effected by discontinuing the operations
of the Company’s Yong Heng subsidiary. Such subsidiary had not booked any
revenue since the quarter ended September 30, 2004.
 
 3
 ****
 **Description
of Business**
 
 *Introduction
to the Tong Gong coal mine*
 
 Tong Gong
coal mine is located approximately 175 km southwest of Heihe City of
Heilongjiang Province in northern China. The mine was originally established in
1995 under the name of the Jinchang Coal Mine, and produced coal from 1996
through 1998. In 1998, the year when production ceased, the mine reportedly had
produced 20,000 tons of coal.
 
 The Jinchang
coal mine was renamed the Tong Gong coal mine in June of 2004 and production
resumed. Hoisting equipment, slopes, surface facilities and mining equipment
have been refurbished or replaced.
 
 *Geology
of Tong Gong coal mine*
 
 It's reported
by the Provincial Geology and Mineral Bureau of the Peoples’ Republic of China
that the Coal-bearing strata in the mine area of Tong Gong is in Jiufengshan
Group (K 1 j), which
is divided into four sections in ascending order: I (K 1 j 1 ), II
(K 1 j 2 ), III
(K 1 j 3 ) and IV
(K 1 j 4 ). The
coal-bearing zones of interest lie in Sections II and III which are described
below.
 
 Section II
(K 1 j 2 ),
containing the No. 2 coal seam, is the major coal-bearing zone. Stratigraphy
above the No. 2 coal seam consists primarily of siltstones and mixed medium and
fine-grained sandstones. Under the No. 2 coal seam, tuff breccia forms the
majority of the lithology with slight amounts of siltstone and packsand. These
strata contain coal seams of II upper1 ,  II upper2 ,
II upper3 , II and
II lower , etc.
This zone thickens from west to east from 80 m to 156 m with little change in
the direction of dip.
 
 The No. 1
coal seam lies in the upper part of Section III (K 1 j 3 ). Strata
consist primarily of packsand and siltstone, but also include medium- and
fine-grained sandstones. A thin layer composed of pebbled sandstones is located
near the No. 1 coal seam and the No. 1 lower coal
horizon. The lower part of the layer is composed of variegated conglomerate of
composite components and pebbled sandstone with typical grain diameter of 5 cm
to 6 cm. Conglomerate in this layer, also called the “Intermediate
Conglomerate,” is a reliable marker for correlation of coal seams ranging in
thickness from 10 m to 80 m with typical thickness of 40 m. K 1 j 3 thickens
120 m to 203 m from west to east.
 
 Situated
above the No. 1 Seam, Section IV (K 1 j 4 ) is a
sandy conglomerate zone consisting mainly of sandy conglomerates and hard
coarse-grained sandstone, interbedded with fine siltstone and thin coal
seams.
 
 The mine area
of Tong Gong is located in the middle of the Heibaoshan-Muer gas coal basin, a
secondary sedimentary basin. The basin floor is a northeast trending, broad
synclinal structure with an axial direction of north-northeast and eastward
plunge. Defined by several faults with throws ranging from 20 m to 270 m, the
mine field is located on the north wing of the syncline in the form of a
monoclinal structure that outcrops along the strike of NE35o; the dip ranges
from 16o to 19o, and averages 18o.
 
 4
 **
 *Coal
Reserves*
 
 Fault
F 7 and the
seam outcrop define the western and northwestern reserve boundary. Fault
F 8 defines
the eastern and northeastern reserve boundary. Seam thinning cuts off the
reserve on the southern edge of the coal property. Tong Gong coal mine reserve
base is defined by eight drill holes within the mine property boundary. Based on
these drill holes, the No. 1 Seam varies in thickness in the mine area from less
than 3 m to nearly 5 m. The seam consists of 2 to 4 plies separated by bands of
rock partings with a combined thickness ranging from 0.4 m to 1.4 m. The coal
and rock parting breakdown by drill holes is shown as follows:
 
 Drill
      Hole
      Number
    
    No.
      1 Seam Thickness (Meters)Coal
    
    Parting
    
    TotalS6
      89-12
      89-13
      89-16
      90-16
      90-20
      91-16
      91-21
    
    4.30
      3.23
      2.90
      2.91
      2.00
      2.50
      2.44
      3.28
    
    0.56
      0.82
      0.60
      0.57
      1.45
      0.36
      0.84
      0.42
    
    4.86
      4.05
      3.50
      3.48
      3.45
      2.86
      3.28
      3.70
 
 
 The mine
floor is composed primarily of siltstone with areas of carbonaceous mudstone.
Immediate mine roof is composed of siltstone, fine sandstone and carbonaceous
mudstone. The main roof is comprised of conglomerate rock and sandy
conglomerate.
 
 Geological
(or in-place) coal reserves have been estimated by the Heilongjiang No. 5
Geological Exploration Institute of Geology and Mining Ministry for the mine
area. Except for the Tong Gong coal mine, no other mining is known to have
occurred below the elevation of the F 7 fault
line or seam outcrop. Since the coal seam gradient is greater than 15° but less
than 60 ° , the
actual coal thickness and the oblique surface area are used to calculate
reserves. The coal thickness is determined by arithmetic averaging. A constant
specific gravity of 1.41 is assumed for the coal volumes. A 20-m barrier is
maintained around the mine area boundary.
 
 The mine
area (excluding the existing mine workings) is subdivided into 5 sub-areas for
reserve estimate purposes. In-place coal reserves are estimated to be
4,417,000 tons. Reserves by sub-area are as follows:
 
 Reserve
      Block
      No.
    
    Mineable
      Area
      (m2)
    
    Average
      Coal
      Thickness
      (m)
    
    In-Place
      Tonnes
      (000)112
      b-1
      112
      b-2
      112
      b-3
      112
      b-4
      112
      b-5
    
    99,680
      3,574
      226,424
      391,107
      296,037
    
    2.71
      2.90
      2.86
      3.23
      3.18
    
    380.9
      14.6
      913.1
      1,781.2
      1,327.41,016,822
    
    3.08
    
    4,417.2
  
 5
 
 Assuming
a reserve safety factor of 1.4, the recoverable reserves are estimated at
3,157,000 tons.
 
 Within
the mine property boundary, the reserve is divided into a large block where most
of the reserve lies and a small block, Block 112 b-1, separated by a fault
(F A ) from
the main body of reserves. Existing mine workings are situated in the large
reserve block (Blocks 112 b-2, b-3, b-4, and b-5), which will be extracted
preferentially over the small block.
 
 *Coal
Quality*
 
 It is
anticipated that the coal will be sold as a raw product from the mine. The only
processing is screening to produce sized products. The coal can be sold for
steam coal for power generation, cement rotary kiln, industrial coal and house
coal purposes. The typical breakdown and use of the size fractions
are:
 
 Size
    
    Wt
      (%)
    
    Market+50
      mm
    
    20
    
    Home
      use and local cigarette factories50
      mm x 25 mm
    
    20
    
    Local
      industrial25
      mm x 0
    
    60
    
    Steam
      coal
 
 Average
raw (in situ) coal quality is expected to be:
 
 Air-Dried
      BasisMoisture
      (%)
    
    4.09Ash
      (%)
    
    22.1Volatile
      Matter (%)
    
    43.9Sulfur
      Content (%)
    
    1.71Heating
      (maf) (MJ/kg)
    
    24.95Phosphorus
      (%)
    
    0.05
 
 To the
extent practicable, coal is selectively separated from the parting bands during
the mining process to minimize product contamination.
 
 *Hydrologic
Issues*
 
 The mine
reserve area has significant potential for water inflows. At present the mine is
being dewatered of water inflows after cessation of operations in 1998.
According to data developed from exploration reports and historical mine
operating conditions, the normal water inflow into Tong Gong coal mine in the
existing workings is estimated to range from 80 m 3 /hr to
100 m 3 /hr.
Exploration drilling indicates the strata above the mine reserve area has
moderate potential for groundwater inflows. Potential water sources are a
water-bearing sand and gravel layer in Quaternary age strata overlying the mine
area, water-bearing weathered (fractured) layers in the main roof above the seam
included in the coal-bearing formation, and surface water from the Genli River.
The identified faults can also be conduits for water inflows, although
permeability testing indicated that the fault features generally had poor water
conduction abilities. The principal source for underground water flows is rain
and snow melts. Since the topography is relatively flat, surface runoff has a
tendency to penetrate and saturate the ground. Peak periods for water inflows
are anticipated to be generated by spring and summer monsoon rains. Underground
water inflows trend closely with surface precipitation.
 
 The
planned method of coal extraction (long wall) with its associated subsidence and
fracturing of roof layers also promotes water inflows. As the mine workings
expand and the extent of long wall mining areas increases, the groundwater
inflows can be anticipated to increase over time. Due to the significant
potential for water inflows, normal precautions are required to develop water
storage and pumping systems capable of adequately handling maximum potential
inflows.
 
 6
 **
 *Gas/Spontaneous
Combustion*
 
 Gas
content of the coal is reported to be relatively low with a typical content of
40% methane, 58% nitrogen and 2% carbon monoxide. Methane content increases with
depth. The coal seam is rated as prone to spontaneous combustion. Normal and
prudent precautions to handle coal dust are required as coal dust generated from
mining operation is explosive if ignited by an open flame source.
 
 *Production
Schedule*
 
 The mine
plan projects three entry drivage units and one long wall coal face. The first
long wall panel (on the left side of the inclines) begins producing coal in the
second quarter after mining operations are initiated. Proposed operating
schedule at full production is 330 working days annually, with two coal mining
shifts and one preparation/support shift per operating day. Standard shift
length is 8 hours. Net hoisting time is projected at 14 to 18 hours per
operating-day. Mine design capacity is estimated at 150,000 to 200,000 tpa based
on available hoisting capacity and mine operating conditions. The mine has
government approval for the 150,000 tpa capacity; increasing capacity will most
likely require new government approval. Maximum long wall production is
estimated by The John Boyd Company to be 182,000 tpa, assuming 3.1 m of coal
thickness, 80 m coal face length, 1.7 m of face retreat per day, and 93% face
recovery assuming a 150,000 tpa full production output capacity. Mine
service life, based on a recoverable reserve base of 3.0 Mt, is 20 years.
 
 The
production schedule proposed for the initial 12 months of mining operations is
summarized in the following table by quarters:
 
 Drivage
      Unit (meters)
    
    Coal
      Face
    
    Total
      Coal
      OutputPeriod
    
    1
    
    2
    
    3
    
    Total
    
    meters
    
    tonnes
    
    tonnesQ
      1-
      Coal
      -
      Rock
    
    190
      70
    
    180
      70
    
    40
      150
    
    410
      290
    
    -
    
    -
    
    3,490Q2-
      Coal
      -
      Rock
    
    80
      70
    
    120
      90
    
    370
      10
    
    570
      170
    
    120
    
    13,000
    
    17,850Q3-
      Coal
      -
      Rock
    
    350
      40
    
    480
      -
    
    100
      110
    
    930
      150
    
    108
    
    34,000
    
    41,900Q4-
      Coal
      -
      Rock
    
    525
      -
    
    -
      160
    
    525
      -
    
    1,050
      160
    
    108
    
    34,000
    
    42,930Total-Coal
      -Rock
    
    1,145
      180
    
    780
      320
    
    1,035
      270
    
    2,960
      770
    
    
    
    
    
    106,170
 
 Three
long wall panels are recovered on the left side before long wall mining begins
in the first long wall panel on the right side in Q6 after initiation of mine
operations. Initial entry drivage is anticipated in the May/June 2004 time
frame.
 
 7
 **
 *Markets*
 
 The
Company has identified several markets for Tong Gong mining
production:
 **Power
      Plants**Current
      Market Potential - 200,000 tpaCoal
      Quality Requirement:Heating
      value: > 5000/kg-Volatile:
      35% - 45%-Total
      moisture: <10%-Ash:
      <25%**Cement
      Factory**Current
      Market Potential - 100,000 tpaCoal
      Quality Requirement:-Heating
      value: > 5500/kg-Volatile:
      35% - 45%-Total
      moisture: <8%-Ash:
      <23%-Sulfur:
      <2%-Phosphorus:
      <0.09%**Home
      Use**Current
      Market Potential - 500,000 tpa
 The
industrial and home use coal is sold at the mine, and buyer provides required
transportation. Steam coal is trucked approximately 15 km to the nearest rail
siding and sold f.o.b. railcar.
 
 The
railroad is being extended and will pass within 500 m of the mine by 2006. At
that time, a siding will be installed with direct access from the mine via belt
conveyor, and the cost of trucking will be eliminated.
 
 8
 **
 *Environmental
Plans*
 
 Recognizing
the mine’s setting and need for environmental protection, several actions are
planned to minimize the impact of the mine’s operation on the surrounding area
and to comply with government standards:
 
 ·
    Installing
      water sprays at coal loading and transfer sites to suppress fugitive dust.
  ·
    Installing
      noise reduction boards to minimize noise level of surface fan
      operation.
  ·
    Installing
      a dust removal chamber between the boiler house and chimney house to
      reduce dust emissions.
  ·
    Planting
      trees and vegetation around the industrial
site.
  ·
    Constructing
      settling ponds for mine water discharge prior to release into the
      river.
 
 The mine is
expected to generate approximately 20,000 tons of waste rock annually including
ash and boiler slag. During the early years of operation, present plans are to
store the waste rock in a temporary stockpile near the pit mouth. In time, as
opportunities for disposal are identified, the waste rock would be transported
by truck to alternative disposal sites such as road paving, industrial site base
material, backfilling low-lying areas for land reclamation, backfilling surface
subsidence depressions, etc.
 ****
 **Competition**
  The Company
expects to encounter intense competition from other entities having a business
objective similar to what the Company is doing. Many of these entities are
well-established and have extensive experience in connection with identifying
and effecting business combinations directly or through affiliates. Many of
these competitors possess greater financial, marketing, technical, personnel and
other resources than the Company and there can be no assurances that the Company
will have the ability to compete successfully. The Company's financial resources
will be extremely limited in comparison to those of many of its competitors.
There can be no assurances that the Company will meet its stated business
objectives. Management believes, however, that the Company's status as a
reporting public entity could give the Company a competitive advantage over
privately held entities having a similar business objective, with significant
growth potential on favorable terms.
 ****
 **Employees**
  The Company
currently employs approximately 210 staff members, including 6 experts skilled
in coal mining. All of them are located in the Tong Gong coal mine in Northern
China. The need for employees and their availability will be addressed in
connection with the development of the coal mine.
 
 **Environmental
Law Compliance**
 ****
 There are
no current existing environmental concerns for our products and services. If
this changes in the future, we make every effort to comply with all such
applicable regulations.
 
 **Additional
Financing**
 
 The Company
may need to raise additional funds to meet operating requirements in the future.
If the Company raises additional funds through issuance of equity related or
debt securities, such securities may have rights to the Company's common stock,
such as warrants or options. Shareholders may experience additional dilution
from exercise of these equity instruments. The Company cannot be certain that
additional financing will be available when required or at all. (See "Liquidity
and Capital Resources" for further discussion).
 
 9
 ****
 **ITEM
2. Properties**
 
 The Company
has an operating office located at the Tong Gong coal mine, which it owns and
has a total area of approximately 32,000 square feet. The Company pays no rent
for use of this space. In addition the Company has no written agreement or
formal arrangement pertaining to the use of this space. No other businesses
operate from this office. The Company has no current plans to occupy other or
additional office space.
 
 **ITEM
3. Legal Proceedings**
 
 We are not
aware of any pending or threatened legal proceedings, in which we are involved.
In addition, we are not aware of any pending or threatened legal proceedings in
which entities affiliated with our officers, directors or beneficial owners are
involved
 
 **ITEM
4. Submission of Matters to a Vote of Security Holders**
 
 None.
 
 
 PART
II
 
 **ITEM
5. Market for the Registrant’s Common Stock and Related Security Holder
Matters**
 
 (a)
    The
      principal market in which the Company's common stock is traded is the
      Over-the-Counter Bulletin Board. The table below presents the high and low
      bid price for the Company's common stock each quarter in 2004 and reflects
      inter-dealer prices, without retail markup, markdown, or commission, and
      may not represent actual transactions. The Company obtained the following
      information from brokers who make a market in their securities.
  BidQuarter
      Ended
    Low
    High03/31/04
    1.52
    1.5206/30/04
    .70
    .7009/30/04
    .39
    .4212/31/04
    .36
    .38
  10
 
 (b)
Holders. The approximate number of holders of record of the Company's Common
Stock as of April 14, 2004 was 954.
 
 (c) The
Company has not paid dividends from inception to date and does not currently
intend to do so.
 
 Penny
Stock Characterization
 
 The Company's
Shares are "penny stocks" within the definition of that term as contained in the
Securities Exchange Act of 1934, which are generally equity securities with a
price of less than $5.00. The Company's shares will then be subject to rules
that impose sales practice and disclosure requirements on certain broker-dealers
who engage in certain transactions involving a penny stock. These will impose
restrictions on the marketability of the common stock.
 
 Under the
penny stock regulations, a broker-dealer selling penny stock to anyone other
than an established customer or "accredited investor" must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to the sale, unless the broker-dealer
is otherwise exempt. Generally, an individual with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 individually or $300,000 together
with his or her spouse is considered an accredited investor. In addition, unless
the broker-dealer or the transaction is otherwise exempt, the penny stock
regulations require the broker-dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. A broker-dealer is also
required to disclose commissions payable to the broker-dealer and the Registered
Representative and current bid and offer quotations for the securities. In
addition a broker-dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account, the account’s value and information regarding the limited market in
penny stocks. As a result of these regulations, the ability of broker-dealers to
sell the Company's stock may affect the ability of selling security holders or
other holders to sell their shares in the secondary market. In addition, the
penny stock rules generally require that prior to a transaction in a penny
stock, the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction.
 
 These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of the Company's securities, if the Company's securities become
publicly traded. In addition, the liquidity for the Company's securities may be
adversely affected, with concomitant adverse affects on the price of the
Company's securities. The Company's shares may someday be subject to such penny
stock rules and the Company's shareholders will, in all likelihood, find it
difficult to sell their securities.
 
 The
Company has no outstanding options and no outstanding warrants.
 
 11
 ****
 **ITEM
6.**  **Management’s
Discussion and Analysis**
 
 Introduction
 
 The
discussion contained in this prospectus contains “forward-looking statements”
that involve risk and uncertainties. These statements may be identified by the
use of terminology such as “believes”, “expects”, “may”, “will”, or “should”, or
“anticipates”, or expressing this terminology negatively or similar expressions
or by discussions of strategy. The cautionary statements made in this prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this prospectus. Our actual results could differ
materially from those discussed in this prospectus. Important factors that could
cause or contribute to such differences include those discussed under the
caption entitled “risk factors,” as well as those discussed elsewhere in this
prospectus.
 
 The
Company was incorporated in Nevada on June 7, 2001. Currently, the Company's
revenue streams come from Tong Gong, of which the Company acquired a 100%
interest on September 23, 2004. Tong Gong is an operational coal mine located
near Heihe City in the People's Republic of China, which has approximately
3,157,000 tons of recoverable coal at a maximum rate of 150,000 tons per year.
Since Yong Heng, the Company's wholly-owned subsidiary, had no sales
transactions for the period ended September 30, 2004, the Company decided to
discontinue the operations of Yong Heng.
  Selected
      financial dataYear
      Ended December 312004
    2003Net
      Sales
    $824,948
    $29,038Net
      (Loss)
    (320,240)
    (28,882)Net
      Loss per Common Share
    .01
    **Weighted
      AverageCommon
      Shares Outstanding
    68,656,426
    67,150,511As
      of December 31,2004
    2003Total
      Assets
    $5,171,058
    $325,179Working
      Capital (Deficit)
    (527,958)
    137,413Shareholders’
      Equity
    4,200,742
    162,718**
      Less than $.01
 No
dividends have been declared or paid for any of the periods
presented.
 
 12
 
 Results
of Operations
 
 For the years
ended December 31, 2004 and 2003.
 
 Sales.
 
 There was
sales revenue of $824,948 for the year ended December 31, 2004, of which
$819,761 was from coal mine segment and $5,187 was from Yong Heng, the
discontinued subsidiary, versus sales revenue of $29,038 for the same period
ended in 2003. The significant increase in sales revenue, which was $795,910,
was due primarily to the coal mine operations that did not significantly
commence until the year 2004. The sales revenue in 2003 was primarily
attributable to the on-line sales of gift cards and other related
products.
 
 Cost of
Goods Sold.
 
 There was
cost of sales of $597,084 for the year ended December 31, 2004, or approximately
72% of the sales, versus cost of sales of $11,053 for the same period ended in
2003, or approximately 38% of the sales. The cost of sales in 2004 included
$528,412 from coal mine segment and $68,672 from Yong Heng. The significant
increase in cost of sales, which was $586,031, was due primarily to the coal
mine operations that did not significantly commence until the year 2004. The
cost of sales in 2004 included the cost of coal production such as payroll,
power plus other direct costs associated with the coal mining operation such as
equipment installation, inspection and shipping fees, etc. It is customary to
experience variations in the cost of sales as a percentage of net sales based on
the types of products sold. The cost of sales in 2003 was primarily attributable
to the purchase price of gift cards and other related products plus the direct
costs associated with making the products available for resale.
 
 Cost of sales
as a percentage of sales is much higher than the Company's expectation which is
around 45% for fiscal year 2005. If the Company can successfully reduce the
production cost and grow the revenues through coal sales, the cost of sales as a
percentage of sales should be lower in future periods. In addition, high demand
for coal in China will be good for the Company in achieving sales growth in the
future, which will be further reduce the cost of sales as a percentage of
sales.
 
 Expenses.
 
 Operating expenses
for the year ended December 31, 2004 increased
to $490,584 from $46,867 in the
same period in 2003. An increase of $443,717 in selling, general and
administrative expense s in 2004
was due primarily to the increases in general and administrative expenses and
the depreciation as 2004 began the coal mine operations.
 
 The Company
expects increases in expenses through the year 2005 because the Company's core
business shifted from e-commence to coal mining operation and 2005 is the first full year
of operations
 
 Income /
Losses.
  The Company
had net loss o f
$320,240, o r $.01
per common share, for year ended December 31, 2004, versus net loss
o f
$28,882 , or less than
$.01 per
common share, fo r the
same period ended in 2003. The increase in net loss for 2004 from the prior year
was primarily due to an increase in operating expenses over an increase in gross
profit, plus the effects of general and administrative expenses.
 
 13
 
 Impact of
Inflation.
 
 The Company
believes that inflation has had a negative impact on our results of operations
since inception. Until the Company is able to significantly sell products and
generate revenue they will be unable to pass on inflationary increases in our
expenses through increases in revenue.
 
 Liquidity
and Capital Resources.
  Cash flows
provided by operating activities were $106,597 f or the
year ended December 31, 2004 versus cash used in operating activities of $97,060
in 2003. Cash flows provided were primarily attributable to the depreciation of
our machinery and equipments, common stock issuance for services, and accrued
expense payable, partially offset by the increase of accounts receivable and
other receivable.
 
 Cash flows
used in investing activities were $4,724,245 for the year ended December 31,
2004 versus $25,734 during the year ended in 2003. Cash flows used in investing
activities for the 2004 was primarily due to the purchase of machinery and
equipment related to coal mining operation,
  Cash flows
provided by financing activities were $4,615,137 for the year ended December 31,
2004 versus $176,701 during the year ended in 2003. Cash flows provided were due
primarily to the issuances of common stock related to the acquisition of
Tonggong and the loan from stockholders.
 
 The Company
had cash and cash equivalents on hand of $42,483 and a working capital deficit
of $527,958 as of December 31, 2004. The Company's working capital deficit is
primarily due to the loan from stockholders. The Company will rely on the
existence of revenue from their coal mine business; however, the Company's
current revenues are relatively small. Currently, the Company has enough cash to
fund their operations for at least the next twelve months. This is based on
current cash flows from operations and projected revenues. However, the Company
still needs to obtain additional capital through equity or debt financing to
sustain the investing activities for an additional year. According to a report
from John T. Boyd Company, Mining and Geological Consultants, dated March 31,
2004, the Company will have 150,000 tons per year of coal capable of being mined
at full production in Tong Gong. A lack of significant revenues in 2005 will
significantly affect the Company's cash position and move the Company towards a
position where the raising of additional funds through equity or debt financing
will be necessary. The Company's current level of operations would require
capital of approximately $50,000 to sustain operations through year 2005 and
approximately $50,000 per year thereafter. Modifications to the Company's
business plans or acquisition with other bigger coal mines may require
additional capital for them to operate. For example, if the Company is unable to
raise additional capital in the future they may need to curtail their number of
new acquisition or limit their marketing efforts to the most profitable
geographical areas. In addition, there can be no assurance that additional
capital will be available to us when needed or available on terms favorable to
Tong Gong.
 
 On a
long-term basis, liquidity is dependent on continuation and expansion of
operations, receipt of revenues, and additional infusions of capital and debt
financing. The funds raised from a follow on stock offering would also be used
to market our products and services as well as expand operations and contribute
to working capital. However, there can be no assurance that the Company will be
able to obtain additional equity or debt financing in the future, if at all. If
the Company is unable to raise additional capital, the Company's growth
potential will be adversely affected and the Company will have to significantly
modify our plans.
 
 The Company
expects that future revenues will keep increasing because the overall market for
coal as a use of fuel, particularly in the North China market, is under the
status of demand exceeding supply. In addition, the amount of coal that is able
to recover and sell will have a significant effect on our revenues.
 
 The Company's
success will be dependent upon implementing their plan of operations and the
risks associated with the Company's business plans. The Company plans to
strengthen their position in these markets. The Company also plans to expand
their operations through aggressively marketing their products and company
concept. ****
 
 ****
 14
 ****
 **ITEM
7. Financial Statements**
 
 ****
 **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **CONSOLIDATED
FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
   15
 **SONGZAI
      INTERNATIONAL HOLDING GROUP, INC.****AND
      SUBSIDIARIES****CONTENTS****Pages**Report
      of Independent Registered Public Accounting Firm
    1Consolidated
      Balance Sheets as of December 31, 2004 and 2003
    2Consolidated
      Statements of Operations and Comprehensive loss for the year ended
      December 31, 2004and
      for the period from September 12, 2003 (inception) to December 31,
      2003
    3Consolidated
      Statements of Stockholders’ Equity for the year ended December 31,
      2004and
      for the period from September 12, 2003 (inception) to December 31,
      2003
    4Consolidated
      Statements of Cash Flows for the year ended December 31, 2004 and for the
      period fromSeptember
      12, 2003 (inception) to December 31, 2003
    5Notes
      to Consolidated Financial Statements as of December 31, 2004 and
      2003
    6 -
      12
 16
   **Jimmy
      C.H. Cheung & Co**
      *Certified
      Public Accountants*
      *(A
      member of Kreston International)*
  
 
 **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** ****
 
 To the
Board of Directors of:
 Songzai
International Holding Group, Inc. and Subsidiaries
  
 We have
audited the accompanying consolidated balance sheets of Songzai International
Holding Group, Inc. and subsidiaries as of December 31, 2004 and 2003 and the
related consolidated statements of operations and comprehensive loss,
consolidated changes in stockholders’ equity and consolidated cash
flows for the
year ended December 31, 2004 and for
the period from September 12, 2003 (inception) to December 31, 2003. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits of the financial statements provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Songzai International
Holding Group, Inc. and subsidiaries, as of December 31, 2004 and 2003, and the
results of its operations and its cash flows for the year ended December 31,
2004 and for the period from September 12, 2003 (inception) to December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 12 to the
consolidated financial statements, the Company had a net loss of $320,240, an
accumulated deficit of $349,122 and a working capital deficiency of $527,958 and
used cash in operations of $106,597. These factors raise substantial doubt about
its ability to continue as a going concern. Management’s plans concerning this
matter are also described in Note 12. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
 **JIMMY
      C.H. CHEUNG & CO**
      Certified
      Public AccountantsDate: April 15,
2005
    By:JIMMY C.H. CHEUNGHong
Kong
 
 
 
 
 
  304
      Dominion Centre, 43 Queen’s Road East, Wanchai, Hong Kong
      Tel:
      (852) 25295500 Fax: (852) 28651067 Email:
      jchc@krestoninternational.com.hk
      Website:
      http://www.jimmycheungco.com
  17
  
 **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **CONSOLIDATED
BALANCE SHEETS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
 
 
  The
accompanying notes are an integral part of these financial
statements
  18
  
 **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **CONSOLIDATED
STATEMENTS OF OPERATIONS**
 **AND
COMPREHENSIVE LOSS**
 **FOR
THE YEAR ENDED DECEMBER 31, 2004**
 **AND
FOR THE PERIOD FROM SEPTEMBER 12, 2003 (INCEPTION)**
 **TO
DECEMBER 31, 2003**
 
 
  The
accompanying notes are an integral part of these financial
statements
 
 19
   **SONGZAI
INTERNATIONAL HOLDING GROUP, INC. AND SUBSIDIARIES**
 **STATEMENTS
OF STOCKHOLDERS’ EQUITY**
 **FOR
THE YEAR ENDED DECEMBER 31, 2004**
 **AND
FOR THE PERIOD FROM SEPTEMBER 12, 2003 (INCEPTION)**
 **TO
DECEMBER 31, 2003**
 
 
 
  The
accompanying notes are an integral part of these financial
statements
 
 20
 
 **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 **FOR
THE YEAR ENDED DECEMBER 31, 2004**
 **AND
FOR THE PERIOD FROM SEPTEMBER 12, 2003 (INCEPTION)**
 **TO
DECEMBER 31, 2003**
 
 
  
 The
accompanying notes are an integral part of these financial
statements
 
 21
   
 **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
  **1.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND
    ORGANIZATION**
 
 (A)
    Organization
 
 Songzai
International Holding Group, Inc. (“Songzai”) was incorporated in Nevada on June
7, 2001 under the name Heritage Companies, Inc. (“Heritage”). On November 5,
2003, the Articles of Incorporation were amended to change the name of the
Company to Songzai International Holding Group, Inc.
 
 Harbin
Yong Heng Ke Ji Fa Zhan You Xian Ze Ren Gong Si (“Yong Heng”) was incorporated
in People’s Republic of China (“PRC”) on September 12, 2003. The principal
activity of Yong Heng is the sale of e-commerce gift cards.
 
 On
December 16, 2003, pursuant to a Plan of Exchange Agreement, Songzai issued
67,000,000 shares of common stock to Yong Heng’s shareholders for exchange 100%
of Yong Heng’s registered capital of $241,600 (RMB2,000,000). In addition, Yong
Heng paid $450,000 to a Songzai shareholder to purchase and retire 1,188,088
shares of the Songzai’s common stock. The Songzai shareholder received $400,000
and transferred a $50,000 note payable to the Company in satisfaction of the
purchase price. The transaction was treated for accounting purposes as a
reorganization by the account acquirer (“Yong Heng”) and as a recapitalization
by the accounting acquiree (“Songzai”). The transactions with Yong Heng have
been accounted for as a reverse acquisition under the purchase method of
accounting since the shareholders of Yong Heng obtained control of the
consolidated entity.
 
 On
September 23, 2004, the Company acquired a 100% interest in Heilongjiang Tong
Gong Kuang Ye You Xian Gong Si (“Tong Gong”), an operational coal mine located
near Heihe City in the PRC. The Company issued 400,000 shares of “blank check”
preferred stock that is convertible into 40,000,000 (post a one for one hundred
reverse split) shares of common stock to exchange for a 100% interest in Tong
Gong’s registered capital of $4,009,662 (RMB33,200,000). To effect the payment
of the purchase price, the Company authorized a class of 8,000,000 convertible
preferred shares under Nevada law.
 
 During
October 2004, the Company discontinued the operations of Yong Heng.
 
 (B)
    Principles
      of consolidation
 
 The
accompanying 2004 consolidated financial statements include the accounts of
Songzai and its 100% owned subsidiary Yong Heng (discontinued) and 100% owned
subsidiary Tong Gong. The accounts of Yong Heng have been classified as
discontinued operations (See Note 2).
 
 The
accompanying 2003 financial statements include the accounts of Songzai and its
subsidiary Yong Heng. The accounts of Yong Heng have been classified as
discontinued operations (See Note 2).
 
 All
significant inter-company balances and transactions have been eliminated on
consolidation.
 
 (C)
    Use
      of estimates
 
 The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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 period.
Actual results could differ from those estimates.
 
 (D)
    Cash
      and cash equivalents
 
 For
purpose of the statements of cash flows, cash and cash equivalents include cash
on hand and demand deposits with a bank with a maturity of three months or
less.
  22
  **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
  1. **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)**
 
 (E)
    Accounts
      receivable
 
 The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and recorded based on managements’ assessment of the credit history
with the customer and current relationships with them. As of December 31, 2004
the Company considers all its accounts receivable to be collectable and no
provision for doubtful accounts has been made in the financial
statements.
 
 (F)
    Inventories
 
 Inventories
are stated at the lower of cost or market value, cost being determined on a
first in, first out method. The Company provides for inventory allowances based
on excess and obsolete inventories determined principally by customer
demand.
 
 (G)
    Property
      and equipment
 
 Property
and equipment are stated at cost, less accumulated depreciation. Expenditures
for additions, major renewals and betterments are capitalized and expenditures
for maintenance and repairs are charged to expense as incurred.
 
 Depreciation
is provided on a straight-line basis, less estimated residual value over the
assets’ estimated useful lives. The estimated useful lives are as
follows:
 
 Plant and
machinery 10 - 15
Years
 Motor
vehicles 5 Years
 Building
and mining
construction 30
years
 
 (H)
    Long-lived
      assets
 
 The
Company accounts for long-lived assets under the Statements of Financial
Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other
Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived
Assets” (“SFAS No. 142 and 144”). In accordance with SFAS No. 142 and 144,
long-lived assets, goodwill and certain identifiable intangible assets held and
used by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
goodwill and intangible assets, the recoverability test is performed using
undiscounted net cash follows related to the long-lived assets.
 
 
 (I)
    Fair
      value of financial instruments
 
 Statement
of Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments," requires certain disclosures regarding the fair value of
financial instruments. Trade accounts receivable, accounts payable, and accrued
liabilities are reflected in the financial statements at fair value because of
the short-term maturity of the instruments.
 
 (J)
    Revenue
      recognition
 
 The
Company recognizes revenue upon delivery or shipment of the products, at which
time title passes to the customer provided that: there are no uncertainties
regarding customer acceptance; persuasive evidence of an arrangement exists; the
sales price is fixed or determinable; and collectability is deemed
probable.
 
 23
  **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
  1. **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)**
 
 (K)
    Income
      taxes
 
 The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
Statement 109, deferred tax assets and liabilities are recognized fort the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that included the enactment
date.
 
 PRC
income tax is computed according to the relevant laws and regulations in the
PRC. The Company being registered as a new and high technology enterprise is
entitled to an income tax reduction. According to the document of reductions
approved by the local tax bureau, the income tax rate was reduced from 33% to
15%. The income tax expense for 2004 was $59,926.
 
 (L)
    Foreign
      currency translation
 
 The
functional currency of the Company is the Chinese Renminbi (“RMB”). Transactions
denominated in currencies other than RMB are translated into United States
dollars using year end exchange rates as to assets and liabilities and average
exchange rates as to revenues and expenses. Capital accounts are translated at
their historical exchange rates when the capital transaction occurred. Net gains
and losses resulting from foreign exchange translations are included in the
statements of operations and stockholder’s equity as other comprehensive loss.
Cumulative translation adjustment amounts were insignificant at and for the
years ended December 31, 2004 and 2003.
 
 (M)
    Comprehensive
      loss
 
 The
foreign currency translation gain or loss resulting from translation of the
financial statements expressed in RMB to United States Dollar is reported as
other comprehensive loss in the statements of operations and stockholders’
equity. Cumulative translation adjustment amounts were insignificant at and for
the years ended December 31, 2004 and 2003.
 
 (N)
    Loss
      per share
 
  Basic
loss per share is computed by dividing loss available to common shareholders by
the weighted average number of common shares outstanding during the period.
Diluted income per share is computed similar to basic loss 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. The effect of potentially
dilutive securities for 2004 and 2003 was anti-dilutive and not included in the
calculation of diluted loss per share.
  
 (O)
    Segments
 
 The
Company operated in two reportable segments; the sales of gift cards
(discontinued) and the production and sales of coal. The sales of gift cards
segment was held as discontinued operations in 2004 and 2003. All information
for this segment has been omitted from segment presentation and therefore
segment disclosure is not presented.
 
 (P)
    Recent
      Accounting Pronouncements
 
 Statement
of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs - an
amendment of ARB No. 43, Chapter 4 SFAS No. 152, “Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67,” SFAS
No. 153, “Exchanges of Non-monetary Assets - an amendment of APB Opinion No.
29,” and SFAS No. 123 (revised 2004), “Share-Based Payment,” were recently
issued. SFAS No. 151, 152, 153 and 123 (revised 2004) have no current
applicability to the Company and have no effect on the financial
statements.
  24
  **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
  2. **DISCONTINUED OPERATIONS**
 
 During
October 2004, the Company discontinued the operations of Yong Heng. The
financial statements for Yong Heng have been classified as discontinued
operations at December 31, 2004 and 2003. The amounts reported as assets and
liabilities of net assets held from discontinued operations at December 31, 2004
and 2003 are as follows:
 
 The
operations of Yong Heng have been reclassified as discontinued operations in the
accompanying consolidated statements of operations for the years ended December
31, 2004 and 2003 and are summarized as follows:
 
 
 3. **ACCOUNTS RECEIVABLE**
 
 Accounts
receivable at December 31, 2004 and 2003 consist of the following:
 
 As of
December 31, 2004 and 2003, the Company considered all accounts receivable
collectable and has not recorded a provision for doubtful accounts.
 
 4. **PROPERTY AND EQUIPMENT**
 
 The
following is a summary of property and equipment at December 31, 2004 and 2003:
 
 Depreciation
expenses for the years ended December 31, 2004 were $15,962.
 
 
 25
 
 **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
  **5.**
    **ACQUISITION**
 
 On
September 23, 2004, the Company acquired a 100% interest in Heilongjiang Tong
Gong Kuang Ye You Xian Gong Si (“Tong Gong”) from a stockholder at the
stockholder’s historical cost. The Company issued 400,000 shares of “blank
check” preferred stock that is convertible into 40,000,000 (post a one for one
hundred reverse split) shares of common stock to exchange for a 100% interest in
Tong Gong’s registered capital of $4,009,662 (RM33,200,000). The acquisition has
been treated as a purchase under common control for accounting
purposes.
 
 6.
    **OTHER
      PAYABLES AND ACCRUED EXPENSES**
 
 Other
payables and accrued liabilities at December 31, 2004 and 2003 consist of the
following:
 
 
 7.
    **CONVERTIBLE
      NOTE PAYABLE**
 
 Convertible
note payable at December 31, 2004 and 2003 consist of the
following:
 
  The
convertible note payable is unsecured and bears interest at a rate of
approximately 9% per annum. The Company scheduled monthly payments, each in the
amount of $1,000 starting December 25, 2003 with the balance of $38,000 due and
payable on November 25, 2004, at the option of the Company, in cash or in an
equivalent amount of Songzai stock.
 
 As of
December 31, 2004 the Company is in default on the note repayment schedule and
is liable for late interest charge of 5% of the amount of the installment of
principal and interest which is paid after the due date and all costs and fees
incurred by the note holder as a result of any collection effort thereon. As of
December 31, 2004 the default interest due has been accrued. See Note 8
(C).
 
 8. **COMMITMENTS AND CONTINGENCIES**
 
 (A)
    Employee
      benefits
 
 The full
time employees of the Company are entitled to employee benefits including
medical care,  welfare
subsidies, unemployment insurance and pension benefits through a Chinese
government  mandated
multi-employer defined contribution plan. The Company is required to accrue for
those  benefits
based on certain percentages of the employees’ salaries and make contributions
to the plans  out of
the amounts accrued for medical and pension benefits. The total provision and
contributions  made for
such employee benefits was $8,962 for the year ended December 31, 2004. The
Chinese government is responsible for the medical benefits and the pension
liability to be paid to these employees.
  26
  **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
 8.
    **COMMITMENTS
      AND CONTINGENCIES********(CONTINUED)**
 
 (B)
    Commitments
 
 
 On
November 26, 2004, the Company entered into an agreement to lease a train
platform from a third party under an operating lease which expires on November
26, 2007 at a yearly rental of $2,415.
 
 As of
December 31, 2004, the Company has outstanding commitments with respect to the
non-cancelable operating leases, which is due as follows:
 
 
  (C)
    Contingent
      liabilities
 
 Pursuant
to the default by the Company on the convertible note payable, the Company is
contingently liable for all future costs and fees incurred by the note holder as
a result of any collection effort. On December 31, 2004 the Company has not
received any notification of collection effort by the note holder.
 
 9.
    **SHAREHOLDERS’
      EQUITY**
 
 **(A)
Stock issuances**
 
 During
January 2004, the Company issued 400,000 shares of its common stock to
consultants for services having a fair value of $96,000. The Company recognized
consulting expense of $96,000 as of December 31, 2004.
 
 During
July 2004, the Company issued 220,000 shares of its common stock to consultants
and legal consultants having a fair value of $143,000. The Company recognized
consulting expense and legal expense of $78,000 and $65,000 as of December 31,
2004 respectively.
 
 During
July 2004, the Company issued its authorized shares of common from 200,000,000
to 1,000,000,000 shares and authorized 8,000,000 shares of “blank check”
preferred stock by filing Articles of Amendment with the Secretary of State of
Nevada.
 
 On
September 23, 2004, the Company issued 400,000 preferred stock that is
convertible into 40,000,000 (post a one for one hundred reverse split) shares of
common stock of the Company in exchange for a 100% interest in Heilongjiang Tong
Gong Kuang Ye You Xian Gong Si of Tong Gong’s registered capital of $4,009,662
(RM33,200,000).
 
 During
October 2004, the Company issued 150,000 shares of its common stock to
consultants having a fair value of $82,500. The Company recognized consulting
expense of $82,500 as of December 31, 2004.
 
 **(B)**
    **Appropriated
      retained earnings**
 
 The
Company is required to make appropriations to reserves funds, comprising the
statutory surplus reserve, statutory public welfare fund and discretionary
surplus reserve, based on after-tax net income determined in accordance with
generally accepted accounting principles of the People’s Republic of China (the
“PRC GAAP”). Appropriation to the statutory surplus reserve should be at least
10% of the after tax net income determined in accordance with the PRC GAAP until
the reserve is equal to 50% of the entities’ registered capital. Appropriations
to the statutory public welfare fund are at 5% to 10% of the after tax net
income determined in accordance with the PRC GAAP. The statutory public welfare
fund is established for the purpose of providing employee facilities and other
collective benefits to the employees and is non-distributable other than in
liquidation. Appropriations to the discretionary surplus reserve are made at the
discretion of the Board of Directors.
 
 During
2004, the Company appropriated $18,250 to the reserves funds based on its net
income under PRC GAAP.
  27
 **SONGZAI
INTERNATIONAL HOLDING GROUP, INC.**
 **AND
SUBSIDIARIES**
 **NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
OF DECEMBER 31, 2004 AND 2003**
 
 
 
 10.
    **RELATED
      PARTY TRANSACTIONS**
 
 Stockholders
had advanced funds totaling $456,395 to the Company as of December 31, 2004 as
short-term, unsecured loans free of interest payment.
 
 During
2004, the shareholders contributed capital to the Company totaling
$27,102.
 
 See Note
1 (A) for transactions with Songzai and its subsidiaries.
 
 
 11. **CONCENTRATIONS AND RISKS**
 
 During
2004 and 2003, 100% of the Company’s assets were located in China and 100% of
the Company’s revenues were derived from companies located in China.
 
 The
Company relied on two customers for approximately $181,694 and $298,127
respectively representing in aggregate 58% of sales in 2004. At December 31,
2004, accounts receivable from these customers totaled $163,043.
 
 
 12. **GOING CONCERN**
 
 As
reflected in the accompanying consolidated financial statements, the Company has
an accumulated deficit of $349,122 at December 31, 2004 which includes a net
loss of $320,240 for the year ended December 31, 2004. The Company’s current
liabilities exceed its current liabilities by $527,958 and the Company used cash
in operations of $106,597. These factors raise substantial doubt about its
ability to continue as a going concern. In view of the matters described above,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying consolidated balance sheet is dependent upon continued operations
of the company, which in turn is dependent up the Company’s ability to raise
additional capital, obtain financing and succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
 
 Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provided the Company with the
ability to continue as a going concern. The Company is actively pursuing
additional funding and potential merger or acquisition candidates and strategic
partners, which would enhance stockholders’ investment. Management believes that
the above actions will allow the Company to continue operations through the next
fiscal year.
   28
  **ITEM
8. Changes with and Disagreements With Accountants on Accounting And Financial
Disclosure**
 
 On or about
December 3, 2004, Perrella & Associates, P.A. resigned as the independent
auditors of the Company.
 
 Perrella
& Associates, P.A.'s reports on the Company's financial statements the years
ended December 31, 2003, contained no adverse opinion or disclaimer of opinion
nor were they qualified or modified as to the uncertainty, audit scope or
accounting principles. In connection with the audits for the fiscal years ended
December 31, 2003, and the review for the interim periods up to and including
December 3, 2004, there have been no disagreements with Perrella &
Associates, P.A. on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which if not resolved to
the satisfaction of Perrella & Associates, P.A. would have caused it to make
reference to the subject matter of the disagreement in connection with its
report on these financial statements for those periods.
 
 The Company's
Board of Directors has made the decision to engage another auditor. The Company
does not have an audit committee. On December 3, 2004, the Company engaged Jimmy
C.H. Cheung & Co., CPA as its independent auditors.
 
 Prior to
making the decision to retain Jimmy C.H. Cheung & Co., CPA, the Company has
had no prior relationship with Jimmy C.H. Cheung & Co., CPA's or any of its
members.
 
 **Item
8A. Controls and Procedures**
 
 Quarterly
Evaluation of Controls
 
 As of the end
of the period covered by this annual report on Form 10-KSB, the Company
evaluated the effectiveness of the design and operation of (i) their disclosure
controls and procedures (“Disclosure Controls”), and (ii) their internal control
over financial reporting (“Internal Controls”). This evaluation (“Evaluation”)
was performed by the Company's President and Acting Principal Accounting
Officer, Li, Hong Jun. In this section, the Company presents the conclusions of
their President and Acting Principal Accounting Officer based on and as of the
date of the Evaluation (i) with respect to the effectiveness of their Disclosure
Controls and (ii) with respect to any change in their Internal Controls that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect their Internal Controls.
 
 President
and Acting Principal Accounting Officer Certifications
 
 Attached to
this annual report, as Exhibits 31.1 and 31.2, are certain certifications of the
President and Acting Principal Accounting Officer, which are required in
accordance with the Exchange Act and the Commission's rules implementing such
section (the "Rule 13a-14(a)/15d-14(a) Certifications"). This section of the
annual report contains the information concerning the Evaluation referred to in
the Rule 13a-14(a)/15d-14(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.
 
 29
 
 Disclosure
Controls and Internal Controls
 
 Disclosure
Controls are procedures designed with the objective of ensuring that information
required to be disclosed in the Company's reports filed with the Securities and
Exchange Commission under the Securities 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 President and Acting Principal Accounting
Officer 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) the
Company's transactions are properly authorized, (ii) the Company’s assets are
safeguarded against unauthorized or improper use, and (iii) the Company's
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
 
 The Company's
management does not expect that their Disclosure Controls or their 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 President
and Acting Principal Accounting Officer’s evaluation of the Company's 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 President and Acting Principal Accounting Officer
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 the Company's controls can
be reported in their quarterly reports on Form 10-QSB and annual reports on Form
10-KSB. The overall goals of these various evaluation activities are to monitor
the Company's Disclosure Controls and the Company's Internal Controls, and to
make modifications if and as necessary. The Company's external auditors also
review Internal Controls in connection with their audit and review activities.
The Company's 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) as conditions warrant.
 
 30
 
 Among other
matters, the Company sought in their Evaluation to determine whether there were
any significant deficiencies or material weaknesses in our Internal Controls,
which are reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information, or whether the Company had
identified any acts of fraud, whether or not material, involving management or
other employees who have a significant role in their Internal Controls. This
information was important for both the Evaluation, generally, and because the
Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the President and
Acting Principal Accounting Officer disclose that information to our Board
(audit committee), and to the Company's independent auditors, and to report on
related matters in this section of the annual report. In the professional
auditing literature, “significant deficiencies” are referred to as “reportable
conditions”. These are control issues that could have significant adverse affect
on the ability to record, process, summarize and report financial data in the
financial statements. A “material weakness” is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce, to a relatively low level, the risk that misstatement
cause by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employee in the normal course of performing their assigned functions. The
Company also sought to deal with other controls matters in the Evaluation, and
in each case, if a problem was identified, the Company considered what
revisions, improvements and/or corrections to make in accordance with the
Company's ongoing procedures.
 
 **Conclusions**
 
 Based upon
the Evaluation, the Company’s President and Acting Principal Accounting Officer
have concluded that, subject to the limitations noted above, the Company's
Disclosure Controls are effective to ensure that material information relating
to the Company is made known to management, including the President and Acting
Principal Accounting Officer, particularly during the period when the Company's
periodic reports are being prepared, and that our Internal Controls are
effective to provide reasonable assurance that the Company's financial
statements are fairly presented inconformity with accounting principals
generally accepted in the United States. Additionally, there has been no change
in the Company's Internal Controls that occurred during their most recent fiscal
quarter that has materially affected, or is reasonably likely to affect, their
Internal Controls.
 
 **ITEM
9. Directors and Executive Officers of the Registrant**
 
 (a)
    Identification
      of Directors
 
 Directors
and Executive Officers.
 
 Our Bylaws
provide that we shall have that number of directors determined by the majority
vote of the board of directors. Currently we have five directors. Each director
will serve until our next annual shareholder meeting. Directors are elected for
one-year terms. Our Board of Directors elects our officers at the regular annual
meeting of the Board of Directors following the annual meeting of shareholders.
Vacancies may be filled by a majority vote of the remaining directors then in
office. Our directors and executive officers are as follows:




**Name**
    **Age**
    **Position**Li,
      Hong Wen
    48
    Chairman,
      DirectorLi,
      Hong Jun
    42
    President;
      Director


**
 *Mr. Li, Hong
Wen* has been
Chairman of Songzai since the acquisition with Yong Heng was completed on
December 16, 2003. Mr. Li, Hong Wen is the founder of Fellow Workers Group, the
holding company with subsidiaries in different industries such as HuaFeng
Trading Co. in the field of Chinese-Russian Trading, SongZai Metal in the field
of Heavy Industry, SenDa Hotel in the field of Real Estate, HeiHe JinChang Coal
Mine in the field of Mining, etc. In addition, Mr. Li, Hong Wen expanded his
business in the field of Finance and IT. Within several years, Mr. Li, Hong
Wen's company grew from a small corporation with several employees to a holding
company with more than 300 employees. Mr. Li, Hong Wen is the brother of Mr. Li,
Hong Jun.
 **
 *Mr. Li, Hong
Jun* had
studied International Business in Russia for 3 years. His knowledge in business
management was applied to his organization of Rui Gen Te Industrial Resources
Co. in the U.S. in 1996. He is the Registered Agent of the company. At the same
time, Mr. Li, Hong Jun set up Heilongjiang Song Zai Metal Co., Ltd., which is
another Chinese company in the business of trading metal parts between China and
Russia. Mr. Li, Hong Jun is the brother of Mr. Li, Hong Wen.
 
 31
 
 Legal
Proceedings.
 
 No officer,
director, or persons nominated for such positions and no promoter or significant
employee of the Company has been involved in legal proceedings that would be
material to an evaluation of the management.
 
 Audit
Committee Financial Expert
 
 The Company
does not have a separately designated standing audit committee. Pursuant to
Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as
an audit committee for the purpose of overseeing the accounting and financial
reporting processes, and audits of the financial statements of the Company. The
Commission recently adopted new regulations relating to audit committee
composition and functions, including disclosure requirements relating to the
presence of an "audit committee financial expert" serving on its audit
committee. In connection with these new requirements, the Company's Board of
Directors examined the Commission's definition of "audit committee financial
expert" and concluded that the Company does not currently have a person that
qualifies as such an expert. The Company has had minimal operations for the past
year. Presently, there are only two (2) directors serving on the Company's
Board, and the Company is not in a position at this time to attract, retain and
compensate additional directors in order to acquire a director who qualifies as
an "audit committee financial expert", but the Company intends to retain an
additional director who will qualify as such an expert, as soon as reasonably
practicable. While neither of our current directors meets the qualifications of
an "audit committee financial expert", each of the Company's directors, by
virtue of his past employment experience, has considerable knowledge of
financial statements, finance, and accounting, and has significant employment
experience involving financial oversight responsibilities. Accordingly, the
Company believes that its current directors capably fulfill the duties and
responsibilities of an audit committee in the absence of such an
expert.
 
 Code of
Ethics
 
 The Company
is presently working with its legal counsel to prepare and adopt a code of
ethics that applies to the Company’s principal chief executive officer,
principal financial officer, and principal accounting officer or controller, or
persons performing similar functions (the "Code of Ethics"). A draft of the Code
of Ethics is attached hereto as Exhibit
14.1 . The
Code of Ethics is being designed with the intent to deter wrongdoing, and to
promote the following:
 
 ·
    Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships
  ·
    Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that a small business issuer files with, or submits to, the
      Commission and in other public communications made by the small business
      issuer
  ·
    Compliance
      with applicable governmental laws, rules and
regulations
  ·
    The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code
  ·
    Accountability
      for adherence to the code
 
 Section
16(a) Beneficial Ownership Reporting Compliance
 
 Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of a
company that files reports pursuant to Section 12 of the Exchange Act, are
required to report the ownership of such common stock, options, and stock
appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have
been established, and the Company is required to report, in this Form 10-KSB,
any failure to comply therewith during the fiscal year ended December 2003. The
Company believes that all of these filing requirements were satisfied by its
executive officers, directors and by the beneficial owners of more than 10% of
the Company’s common stock. In making this statement, the Company has relied
solely on copies of any reporting forms received by it, and upon any written
representations received from reporting persons that no Form 5 (Annual Statement
of Changes in Beneficial Ownership) was required to be filed under applicable
rules of the Commission.
 
 32
 
 **ITEM
10. Executive Compensation**
 
 No
compensation in excess of $100,000 was awarded to, earned by, or paid to any
executive officer of the Company during the years 2004, 2003 and 2002. The
following table and the accompanying notes provide summary information for each
of the last three fiscal years concerning cash and non-cash compensation paid or
accrued.
 ****SUMMARY
COMPENSATION TABLE****
 ****


**Annual
      CompensationAwards
    PayoutsName
      and Principal Position
    Year
    Salary
      ($)
    Bonus
      ($)
    Other
      Annual Compensation
      ($)
    Restricted
      Stock Award(s)
      ($)
    Securities
      Underlying Options
      SARs(#)
    LTIP
      payouts
      ($)
    All
      Other Compensation
      ($)Li,
      Hong Wen
      Chairman
      
      Li,
      Hong Jun
      President
    2004
      2003
      2002
      
      2004
      2003
      2002
    -
      -
      -
      
      -
      -
      -
    -
      -
      -
      
      -
      -
      -
    -
      -
      -
      
      -
      -
      -
    -
      -
      -
      
      -
      -
      -
    -
      -
      -
      
      -
      -
      -
    -
      -
      -
      
      -
      -
      -
    -
      -
      -
      
      -
      -
      -** ****
 ****
 **Compensation
of Directors**


The Company
has not entered into any other employment agreements with the Company's
employees, Officers or Directors. The Company has no standard arrangements under
which the Company will compensate the directors for their services provided to
us.
 
 **Stock
Option Awards**
 
 There were no
options granted to the Company’s Chief Executive Officer during
2004.
 
 **Aggregated
Option Exercises and Fiscal Year End Option Values**
 
 There were no
options exercised by the Company’s Chief Executive Officer during
2004.
 
 **ITEM
11. Security Ownership of Certain Beneficial Owners and Management**
 
 The following
table sets forth certain information concerning the ownership of the Company's
Common Stock as of December 31, 2004, assuming conversion into common stock of
all shares of the newly issued convertible preferred stock, with respect to: (i)
each person known to the Company to be the beneficial owner of more than five
percent of the Company’ Common Stock, (ii) all directors; and (iii) directors
and executive officers of the Company as a group. The notes accompanying the
information in the table below are necessary for a complete understanding of the
figures provided below. As of April 14, 2004, there were 68,973,748 shares of
common stock outstanding. As of April 14, 2004, there were 400,000 shares of
preferred shares outstanding, which is convertible into 40,000,000 shares of
common stock at the ratio of 1:100.
 
 33
  Beneficial
Owners of 5% or more of our Common Stock (1)
 (1)
      Title
      of Class
    Name
      and Address of Beneficial Owner(s)
    Amount
      and Nature of Beneficial Ownership
    Percent
      of classCommon
      Stock
      ($.001
      par value)
    Li,
      Hong Wen
      5237
      Farago Ave.,
      Temple
      City, California 91780
    51,056,371
    46.9%Common
      Stock
      ($.001
      par value)
    Li,
      Hong Jun
      5237
      Farago Ave.,
      Temple
      City, California 91780
    4,229,703
    3.8%
 (1)
Assumes conversion of all 400,000 shares of convertible preferred stock into
common stock at a conversion ratio of 100:1 .
 
 
 The following
table sets forth the number of shares owned beneficially on April 5, 2004, by
each Director and by all Officers and Directors as a group. Information as to
the beneficial ownership is based upon statements furnished to the Company by
such persons.
 
 Ownership
of Directors and Officers (1)
 (2)
      Title
      of Class
    Name
      and Address of Beneficial Owner(s)
    Amount
      and Nature of Beneficial Ownership
    Percent
      of classCommon
      Stock
      ($.001
      par value)
    Li,
      Hong Wen
      5237
      Farago Ave.,
      Temple
      City, California 91780
    51,056,371
    46.9%Common
      Stock
      ($.001
      par value)
    Li,
      Hong Jun
      5237
      Farago Ave.,
      Temple
      City, California 91780
    4,229,703
    3.8%Common
      Stock
      ($.001
      par value)
    All
      Directors & Officers
    55,286,074
    50.7%
 Note to
the table:
 
 (1)
Assumes conversion of all 400,000 shares of convertible preferred stock into
common stock at a conversion ratio of 100:1.
 (2)
Unless otherwise indicated, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
  34
  (a)
    Changes
      in Control
 
 The
Company knows of no arrangements that may at a subsequent date result in a
change of control in the Company. Notwithstanding the foregoing, the Company
reports that the majority ownership of the common stock of the Company has
changed with the consummation of the acquisition of 75% of the capital stock of
Tong Gong, in which 400,000 shares of convertible preferred stock were issued to
Mr. Hongwen Li, Chairman of the Company. Such shares of convertible preferred
stock are convertible into 100 shares of common stock of the Company, and vote
on an as converted basis with the shares of common stock on all matters
presented to shareholders. The shareholdings of Mr. Hongwen Li, on a fully
converted basis, when added to those of Mr. Hongjun Li, amount to 50.7% of the
issued and outstanding shares of common stock of the Company on a
fully-converted basis. The Li brothers have not effected any changes in the
Board of Directors since acquiring these shares. However, they are the only two
directors that sit on the Company’s Board of Directors, and should be considered
to be in control of the Company.
 
 **ITEM
12. Certain Relationships and Related Transactions**
 
 The Company
has advanced funds totaling $nil and $176,042 to three related corporate
entities as of December 31, 2004 and 2003 respectively as short-term, unsecured
loans free of interest payment.
  Stockholders
have advanced funds totaling $456,395 and $111,143 to the Company as of December
31, 2004 and 2003, respectively, as short-term, unsecured loans free of interest
payment.
  During 2004,
the shareholders contributed capital to the Company totaling
$27,102.
 
 As described
elsewhere herein, Hong Wen Li, Chairman of the Company, and Songzai Metal
Products, Ltd., a company that he controls, agreed to sell the Heihe Jinchang
Coal Mine located in the Peoples’ Republic of China, to the Company in exchange
for 400,000 shares of convertible preferred stock, each share of which is
convertible into 100 shares of common stock of the Company. The Board of
Directors carefully evaluated this transaction and believes that in the exercise
of its informed business judgment, that the transaction is fair, from a
financial point of view, to the Company, and is in the best interests of the
Company.
 
 35
 ****
 **ITEM
13. Exhibits and Reports on Form 8-K**
 
 (a)
    Financial
      Statements
 
 1. The
following financial statements of Songzai International Holding Group, Inc. are
included in Part II, Item 7:
 
 Report of
Independent Registered Public Accounting
Firm.............................. F-1
 Consolidated
Balance Sheet-December 31, 2004 and 2003....................................  F-2
 Consolidated
Statements of Operations - year ended December 31, 2004
 and
period from September 12, 2003 (inception) to December 31, 2003.......... F-3
 Consolidated
Statements of Stockholders’ Equity - year ended December 31, 2004
 and
period from September 12, 2003 (inception) to December 31, 2003.......... F-4
 Consolidated
Statements of Cash Flows - year ended December 31, 2004
 and
period from September 12, 2003 (inception) to December 31, 2003.......... F-5
 Notes to
Consolidated Financial Statements
...............................................  F-6-10
 
 
 2.
Exhibits
 
 3  Articles
of incorporation, including amendments and bylaws incorporated by reference into
Form SB-2 filed by the Company on August 7, 2001.
  10.1 Plan
of Exchange, dated September 29, 2003 (Incorporated by Reference from the Form 8-K
filed by the Company on September 30, 2003.)
  10.2  Purchase
and Sale Agreement dated April 5, 2004 (Incorporated by Reference from the
Form 8-K filed by the Company on April 8, 2004.)
  14.1.
Code of Ethics*
 31.1. Rule 13a-14(a)/15d-14(a) Certifications of
President
 31.2. Rule 13a-14(a)/15d-14(a) Certifications of
Chairman
 32.1. Section 1350 Certifications of President
 32.2. Section 1350 Certifications of Chairman
 
 *
Indicates previously filed
 
 
 (b)
    Reports
      on Form 8-K
 
 (1)
    We
      filed a current report on Form 8-K, dated January 20, 2005, and an
      amendment of current report on Form 8-K/A, dated March 17, 2005 in order
      to report the changes in our certifying
accountant.
 
 
 (2)
    On
      April 15, 2005, we filed a current report on Form 8-K in order to report
      the completion of Tong Gong coal mine
acquisition.
 
 36
 ****
 **ITEM
14. Controls and Procedures**
 
 **Fees
Billed For Audit and Non-Audit Services**
 
 The
following table represents the aggregate fees billed for professional audit
services rendered to Jimmy C.H. Cheung & Co., CPA, the Company's current
independent auditor ("Cheung") for the audit of the Company's annual financial
statements for the years ended December 31, 2004, and Perrella & Associates,
P.A., the Company's previous independent auditor ("Perrella") for the audit of
the Company's annual financial statements for the years ended December 31,
2003.
 Year
      Ended December 31
    2004
    
    2003Cheung
    
    PerrellaAudit
      Fees(1)
    $
      25,000
    (2)
    $
      18,000
    (3)Audit-Related
      Fees(3)
    --
    
    --Tax
      Fees(4)
    --
    
    --All
      Other Fees(5)
    --
    
    --Total
      Accounting Fees and Services
    $
      25,000
    
    $
      18,000
 
 (1)
    *Audit
      Fees*.
      These are fees for professional services for the audit of the Company's
      annual financial statements, and for the review of the financial
      statements included in the Company's filings on Form 10-QSB, and for
      services that are normally provided in connection with statutory and
      regulatory filings or engagements.
  (2)
    The
      amounts shown for Cheung in 2004 relate to the audit of the Company's
      annual financial statements for the fiscal year ended December 31,
      2004.
  (3)
    The
      amounts shown for Perrella in 2003 relate to (i) the audit of the
      Company's annual financial statements for the fiscal year ended December
      31, 2003, and (ii) the review of the financial statements included in the
      Company's filings on Form 10-QSB for the first, second and third quarters
      of 2003.
  (4)
    *Audit-Related
      Fees*.
      These are fees for the assurance and related services reasonably related
      to the performance of the audit or the review of the Company's financial
      statements.
  (5)
    *Tax
      Fees*.
      These are fees for professional services with respect to tax compliance,
      tax advice, and tax planning.
  (6)
    *All
      Other Fees*.
      These are fees for permissible work that does not fall within any of the
      other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
      Fees.
 
 37
 ****
 **Pre-Approval
Policy For Audit and Non-Audit Services**
 
 The Company
does not have a standing audit committee, and the full Board performs all
functions of an audit committee, including the pre-approval of all audit and
non-audit services before the Company engages an accountant. All of the services
rendered to the Company by Jimmy C.H. Cheung & Co., CPA after December 2004
were pre-approved by the Board of Directors of the Company.
 
 The Company
is presently working with its legal counsel to establish formal pre-approval
policies and procedures for future engagements of the Company's accountants. The
new policies and procedures will be detailed as to the particular service, will
require that the Board or an audit committee thereof be informed of each
service, and will prohibit the delegation of pre-approval responsibilities to
management. It is currently anticipated that the Company's new policy will
provide (i) for an annual pre-approval, by the Board or audit committee, of all
audit, audit-related and non-audit services proposed to be rendered by the
independent auditor for the fiscal year, as specifically described in the
auditor's engagement letter, and (ii) that additional engagements of the
auditor, which were not approved in the annual pre-approval process, and
engagements that are anticipated to exceed previously approved thresholds, will
be presented on a case-by-case basis, by the President or Controller, for
pre-approval by the Board or audit committee, before management engages the
auditors for any such purposes. The new policy and procedures may authorize the
Board or audit committee to delegate, to one or more of its members, the
authority to pre-approve certain permitted services, *provided
that* the
estimated fee for any such service does not exceed a specified dollar amount (to
be determined). All pre-approvals shall be contingent on a finding, by the
Board, audit committee, or delegate, as the case may be, that the provision of
the proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.
 
 38
  SIGNATURES
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
  **SONGZAI INTERNATIONAL
      HOLDING** **GROUP, INC.**
      (Registrant)Date: April 21,
2005
    By:
    /s/ Li, Hong JunLi, Hong JunPresident
  39