UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-KSB/A
 Amendment No. 1|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2005      Commission File Number 333-66994SONGZAI INTERNATIONAL HOLDING GROUP, INC.  (Name of small business issuer in its charter)Nevada  (State or other jurisdiction of incorporation or organization)43-1932733  (I.R.S. Employer Identification No.)20337 Rimview PlaceWalnut, California 91789Tel: (909) 468-2840  (Address, including zip code, and telephone number,including area code, of registrant'sprincipal executive offices)Securities registered pursuant to Section 12(b) of the Act: NONESecurities registered pursuant to Section 12(g) of the Act:Title of Each ClassCommon Stock, $.01 Par Value   Check whether the issuer (1) has filed all reports 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
xNO
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 any amendment to this Form 10-KSB.
o
The issuer's revenues for the fiscal year ended December 31, 2005 were $3,170,445.
The aggregate market value of the voting stock held by non-affiliates of the registrant on March 27, 2006 was approximately $17,280,937, based on the closing price of such stock of $0.25 on such date. The number of
shares outstanding of the registrant's Common Stock, $.01 par value, as of March 27, 2006 was 69,123,748.
Transitional Small Business Disclosure format (Check one): YES
oNOx




SONGZAI INTERNATIONAL HOLDING GROUP, INC.ANNUAL REPORT ON FORM 1 0-KSB/A FOR THE YEAR ENDED DECEMBER 31, 2005TABLE OF CONTENTS
Forward Looking StatementsPART IItems 1. and 2. Description of
Business and Property
3Item 3.  Legal Proceedings
18Item 4.  Submission of Matters to
a Vote of Security Holders
18PART IIItem 5.
Market Price for Common Equity, Related
Stockholder Matters and Small Business Issuer Purchases of Equity
Securities
19Item 6.
Management's Discussion and Analysis
or Plan of Operation
20Item 7.
Financial Statements
25Item 8.
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
25Item 8B.
Controls and Procedures
26PART IIIItem 9.
Directors and Executive Officers of
the Registrant
27Item 10.
Executive Compensation
29Item 11.
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
32Item 12.
Certain Relationships and Related
Matters
33Item 13.
Exhibits, List and Reports on Form 8-K
34Item 14.
Principal Accountant Fees and Services
35SIGNATURES
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this report contains predictions, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934 that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. These risks and other factors include those listed under "Risk Factors" and
elsewhere in this report, and some of which we may not know. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue" or the negative of these terms or other comparable terminology.
Forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking
statements. We discuss many of these risks in this report in greater detail
under the heading "Risk Factors." Given these uncertainties, you should not
place undue reliance on these forward-looking statements. Also, forward-looking
statements represent our management's beliefs and assumptions only as of the
date of this report. You should read this annual report on Form 10-KSB/A and the documents that we have filed as exhibits to
this annual report completely and with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking
statements, even if new information becomes available in the future.
PART I
ITEMS 1. AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES.
History and Organization
Songzai International Holding Group, Inc. ("SGZI", we or the "Company") is a company engaged in coal production by locating, assembling, assessing, permitting and developing coal properties in the PRC, or the
PRC. After obtaining permits from the National Land and Resources Officer and Heilongjiang Province Economy Committee, we mine our properties for the extraction of coal minerals, and then sell most the coal on a per ton basis in cash on delivery,
primarily to power plants, cement factories, whole sellers and individuals for home heating. We currently operate the Tong Gong coal mine in northern PRC, located approximately 175 km southwest of Heihe City of Heilongjiang Province.
Sonzai was incorporated in the State of Nevada on June 7, 2001, under the name Heritage Companies, Inc., and initially engaged in the on-line gift cards and related products business. The company continued to operate this
business through October 2004 .
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On September 29, 2003, we 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 PRC
("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. We 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, we 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 PRC, and owner of an operational coal mine
located near Heihe City in the PRC, 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 $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 Hongwen Li, the Chairman and Chief Executive officer of the Company. In addition to the 75% capital stock of Tong Gong, we 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 PRC (Harbin Green), and the owner of 25% of the capital stock of Tong Gong.
Harbin Green is controlled by Hongwen Li. In November 2004, Harbin Green assigned all of its interest in the registered capital of Tong Gong to the Company. Therefore, we now own 100% or the equity interests in the registered capital of Tong Gong.
Our on-line gift cards and related products 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 earned any revenue since the quarter ended September 30, 2004.  On
December 28, 2005, pursuant to a Purchase and Sale Agreement, the Company sold
100% interest in its subsidiary - Yong Heng to a third party at the
consideration of $241,000, the Company recorded a gain of $107,798 on the sale.
The Company is a fully-reporting 1934 Act company, with the Company's common stock quoted on the National Association of Securities Dealers Over-the-Counter Bulletin Board ("OTCBB") under the trading symbol
"SGZI."
The Tong Gong Coal Mine
Initial exploration of the Tong Gong Coal Mine dates back to 1958-1959 when geological surveys performed by Provincial Geology and Mineral Bureau teams. A regional geologic survey
was conducted in 1972-1974 to determine coal bearing stratigraphy. An exploratory drilling program was undertaken in 1986 and continued through 1991. The Tong Gong coal mine was originally established in 1995 under the name Jinchang Coal Mine, and
produced coal from 1996 through 1998. Tong Gong purchased the mining rights for the Jinchang Coal Mine in June of 2004 from
Hongwen Li and renamed the mine Tong Gong Coal Mine.
The Tong Gong Coal Mine is an underground coal mine located in the western slope of the Xiaoqinganling Mountain in northern PRC. The mine is accessible by both railway and public roads. The coal reserves are located in the middle of the
Heibaoshan-Muer coal basin, as secondary sedimentary basin. Several faults occur in, and define the coal fields with throws ranging from 20 meters to 270 meters. Coal bearing strata in the mine area are contained in the Jiufengshan Group.
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The land on which the Tong Gong Coal Mine is located, as well as the land on which most of our mining facilities is located and all mineral rights, are owned by the PRC. We operate the Tong Gong Coal Mine pursuant to a Coal
Production Right Permit issued by the Heilongjiang Province Economy Committee. The Coal Production Right Permit provides authorization for the Company to mine up to 150,000 tons of coal per year in a 1.1193 square kilometer area, which comprises the
entire area of the mine. The effective period of the current Coal Production Right Permit is from January 25, 2006 through April 30, 2015. Any material change or revocation in the permit by the PRC or the Heilongjiang Province Economy Committee
could materially and adversely affect our operations and financial condition.
There are two coal seams in the mine area. Based on information as of December 31, 2005 from John T. Boyd Company, mining and geological consultants, as well as core drillings and surface exploration as well as mine maps,
management estimates that the Tong Gong Coal Mine has in-place resources in excess of 3 million tons. In-place resources include proven and probably product reserves, as well as product that is not currently mineable. The first seam is the
stratigraphically lowest seam and is 2 meters to 5 meters thick and typically contains two to three partings. The other seam overlies the first seam and is thin and split and is generally not considered to be mineable. Reserves in the mine are only
considered from the first seam. Based on information as of December 31, 2005 from John T. Boyd Company, as well as core drillings and surface exploration as well as mine maps, management estimates that there is in excess of 1.53 million tons of
reserves, 1.36 million tons of which are proven and the remainder of which are probable. Management believes that the reserve estimates have been classified in accordance with the Securities and Exchange Commissions Industry Guide
7.
Currently all of the property and equipment of the TongGong coal mine is in safe working condition, and all the equipment and machines are under constant maintenance. In addition, every quarter the Company has budgeted the
use of approximately 18% of the total retained profit for the acquisition of new equipments and maintenance.
The TongGong coal mines have been commended by  local government officials and the coal mine administrating bureau during its annual coal mine production safety inspections.
Our Mining FacilitiesThe TongGong Coal Mine is located in the western slope of the Xiaoxinganling Mountain in the Heilongjiang Province in Northeastern China. The mine, which was originally installed in 1995 as the Jinchang Coal Mine, was
purchased by Songzai in 2003 and renamed TongGong Coal Mine.
The Tong Gong Coal Mine was rehabilitated for production in mid-2004 and hoisting equipment, slopes, surface facilities and mining equipment were then refurbished or replaced.
Hongwen Li paid approximately $456,000 in
equipment replacement and refurbishment costs. The Company reimbursed Hongwen Li for all of such expenses during 2005. We also incurred approximately $600,000 of additional equipment purchase expenses in 2005.
The industrial and home use coal is sold at the mine. Steam coal is trucked to a nearby railroad cargo station, which is approximately 500 meters from the mine. The 500 meter road from the coal mine to the railroad cargo
station is being improved to reduce trucking time. A conveyer belt to cover the 500 meter road is also being installed. By the time of completion, the coal will be transported in a ceaseless process from the coal mine to the railroad cargo
station.
Mine design capacity is estimated at 150,000 to 200,000 tpa based on mine operating conditions. The mine has government approval for the 150,000 tpa capacity. Mine service life, based on a reserve base of 3 million tones
(Mt), is 20 years.
The longwall coal mining method employed at the Tong Gong Coal Mine, typical for the Chinese coal mining industry, uses longwall panels and retreating face methods to produce approximately 80%-90% of the mines output.
Incline development and longwall gate entries account for the remaining output. The general mine layout is a series of longwall panels extending from the left and right of three parallel inclines. The inclines currently extend for approximately
1,100 meters following the coal seam. The main incline houses compressed air lines, telephone and signal lines, high voltage cable and rail for hoisting operations. A service incline houses surface water supplies for fire fighting and underground
water discharge lines. A secondary parallel intake incline adjacent to the main incline assists in ventilation. Longwall panels extend from the inclines to the reserve boundaries defined by property limits or geological features. The entire main
block reserve area is currently recovered from the present inclines and planned extensions.
The longwall technique in use at the mine is semi-mechanized sublevel caving. It consists of single hydraulic supports and a small capacity AFC with a 40 kilowatt motor. Drilling and blasting methods are used to break up
the coal face and sublevel caving recovers the remaining coal. As the face line retreats along the strike of a seam, the roof strata collapses and allows the coal face to operate under manageable stresses. Sublevel caving techniques are widely used
in the PRC.
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All raw coal is hand loaded in the AFC and transported down the face line by a chain convey or by coal cars. Rock material is used for floor ballast with the excess sent to the surface for disposal. The mine is equipped with a 2 meter-diameter hoist that is capable of hoisting eight coal cars, each with a 1 ton capacity. Hoisting capacity based on 14 hour days and 330 operating days a year is 150,000 tons per year,
which is the maximum capacity for which the mine currently has regulatory clearance. Higher levels of hoisting output are possible if additional hoisting hours are utilized. Two air compressors are provided for underground air tool use. Diesel
locomotives, 3 and 5 ton capacity, are used for underground haulage. We receive our electrical power from PRC controlled power lines as well as local power lines. Power is supplied to underground workings through a high voltage cable.
Normal water inflow into the mine is controlled by three multistage centrifugal pumping units and dual discharge lines. During high water periods all three pumps can be utilize. The mines ventilation system includes
an exhaustive fan on the surface of the main incline. Auxiliary fans are used as needed. The present mine fan is capable of satisfying projected ventilation demands. We plan to purchase an additional water pump, but we do not believe that additional
material water removal costs will be material in the next 12 months.
The mine is expected to generate approximately 20,000 tons of waste rock annually including ash and boiler slag. We currently store the waste rock in a temporary stockpile near the pit mouth. In time, as opportunities for
disposal are identified, the waste rock we propose to transport waste rock 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. We believe that disposal costs will not be material.
The mine operates 330 working days per year, with three coal mining shifts operating per day. Mine design capacity is 150,000 to 200,000 tons per year based on our available hoisting
capacity and mine operating conditions. Coal output typically ranges from 150 to 200 raw tons per shift.
Currently the coal mine is applying to increase the annual production capacity under its Coal Production rights Permits from 150,000 tons to 210,000 tons. The costs for such application are approximately $200,000 and we
expect the application to be approved by the end of this year.
In addition, the coal mine is applying to increase its permitted reserves from 4.5 million tons to 6 million tons. The costs for such application is $1.5 million and we expect the application to be approved by the end
of this year.
Most of the equipment in the TongGong coal mine utilizes the latest technology available for use in the Chinese coal mining industry. All equipment is technologically sufficient to support the mines production
capacity. In addition, every quarter the Company has budgeted the use of approximately 18% of the total retained profit for the acquisition of new equipments and maintenance. The usable life of equipment in the mine, which was replaced or refurbished in 2004, is approximately 10-15 years. We may acquire additional driving belts and up to four diesel trailers in order to increase our operating
efficiency, but we do not believe that there will be any required material equipment purchase costs in the next 12 months.
Our Administrative FacilitiesOur principle headquarters are located in an approximately 36,000 square foot facility in Harbin, China. The Company has no written agreement or formal arrangement pertaining to the use of this space and currently pays no
rent. These headquarters house all of our administrative and clerical staff. If necessary, we believe that we would be able to find replacement office space without unreasonable expense or delay.
We also have an operating office located at the Tong Gong Coal Mine that has a total area of approximately 32,000 square feet. Most mining operations are controlled from this office and housing is provided for mine workers.
We do not own the land on which this office is located, but we currently pay no rent for use of this space. We have no written agreement or formal arrangement pertaining to the use of this space, but we believe that use of the land and office space
is authorized by the Coal Production Right Permit. No other businesses operate from this office. If necessary, we believe that we would be able to find replacement office space without unreasonable expense or delay.
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We have no current plans to occupy other or additional office space. We do, however, intend to acquire one or more additional mines located on the same property as its existing mine.
Demand for Coal in the PRCCoal is one of the world's most abundant, efficient and affordable natural resources, and is used primarily as fuel for the generation of electricity steel and cement making. According to a July 2005 report issued by the
Energy Information Administration, or EIA, a division of the United Stares Department of Energy, coal consumption in the PRC is expected to increase from approximately 1.4 billion short tons in 2002, to 2.3 billion in 2010, 2.7 billion in 2015, 3
billion in 2020 and 3.2 billion in 2025. We believe that the increased construction in the PRC to meet the needs for 2008 Olympic Games in Beijing has also increased the demand for steel and cement, which requires more coal as energy
source.
According to the EIA, limited supply of export coal is the primary explanation given for the substantial rise in coal prices (both steam and coking). Some of the factors that restrained supply during 2004 included
(1) substantial shipping delays at Australian coal ports, as expansions in port infrastructure have not kept pace with the recent surge in the PRCs demand for iron ore and
coking coal; (2) reduced exports of steam coal out of South Africa, mostly due to rail-related shipping delays; and (3) reduced exports and increased imports of coking coal by the PRC. Relative to 2003, the PRC imported an additional 4 million tons
of coking coal in 2004 and exported 8 million tons less. Other factors affecting coal export prices in 2003 and 2004 were the effects of higher freight rates on international coal markets, increasing concentration in the ownership of coal export
supply, and increasing importance of coal-on-gas competition in international power supply.
Regulatory ConsiderationsThe land on which the Tong Gong Coal Mine is located, as well as the land on which most of our mining facilities is located and all mineral rights, are owned by the PRC. We operate the Tong Gong Coal Mine pursuant to a Coal
Production Right Permit issued by the Heilongjiang Province Economy Committee
and the National Land and Resources Officer. The Coal Production Right Permits provide authorization for the Company to mine up to 150,000 tons of coal per year in a 1.1193 square kilometer area, which comprises the
entire area of the mine. The effective period of the current Coal Production Right Permits
extend until April  2015. We own the mining equipment and other physical assets of the mine.
The coal industry in the PRC operates under significantly less developed regulatory regime governing mining and mine safety activities than that in the United States. However, more attention has been paid by the regulators
in recent years; more than 10,000 small-size coal mines were forced to close for safety consideration by the central government in 2005, which, in turn, shifts the supply curve further up and drives the coal price higher. We were granted a
Certificate of Safety Production by the Heilongjiang Coal Safety Inspection Bureau in February 2006.
We believe that the Coal Production Right Permits, together with the Certificate of Safety Production, are the only authorizations or permits that we currently require to operate the Long Gong Coal Mine. See
Risk Factors.
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Environmental Law Compliance
The coal mining industry in China to date has not been subject to the type and scope of regulation seen in Europe and the United States. We have planned several actions to minimize the impact of the mines operation on
the surrounding area and to comply with existing government standards:
Install water sprays at coal loading and transfer sites to suppress fugitive dust.
Install noise reduction boards to minimize noise level of surface fan operation.
Install a dust removal chamber between the boiler house and chimney house to reduce dust emissions.
Plant trees and vegetation around the industrial site.
Construct settling ponds for mine water discharge prior to release into the river.We believe that the aggregate cost of satisfying the requirements listed above is currently approximately $45,000. Although there is no specific time period in which we must satisfy these items, we are subject to
governmental review on an annual basis. We are not aware of any required governmental permits regarding environmental law or rule compliance. The possibility exists that new legislation or regulations may be adopted or that the enforcement of
existing laws could become more stringent. We will make all reasonable efforts to comply with both existing and any new applicable regulations, either of which may have a significant impact on our mining operations.
Our ProductsThere are four types of coal: lignite, sub-bituminous, bituminous and anthracite. Each has characteristics that make it more or less suitable for different end uses. In general, coal of all geological composition is
characterized by end use as either "steam coal" or "metallurgical coal," sometimes known as "met coal." Steam coal is used by electricity generators and by industrial facilities to produce steam, electricity or both. Metallurgical coal is refined
into coking coal, which is used in the production of steel. Heat value and sulfur content, the two most important coal characteristics, determine the best end use of particular types of coal. The heat value of coal is commonly measured in Btu per
pound of coal. Sulfur content can vary from seam to seam and sometimes within each seam. Coal combustion produces sulfur dioxide, the amount of which varies depending on the chemical composition and the concentration of sulfur in the coal. Also, ash
is the inorganic residue remaining after the combustion of coal. As with sulfur content, ash content varies from seam to seam. Ash content is an important characteristic of coal because electric generating plants must handle and dispose of ash
following combustion. Moisture content of coal varies by the type of coal, the region where it is mined and the location of coal within a seam. In general, high moisture content decreases the heat value and increases the weight of the coal, thereby
making it more expensive to transport. Moisture content in coal, as sold, can range from approximately 5% to 30% of the coal's weight. When some types of coal are super-heated in the absence of oxygen, they form a hard, dry, caking form of coal
called "coke." Steel production uses coke as a fuel and reducing agent to smelt iron ore in a blast furnace.
The Tong Gong Coal Mine production is sold on a raw product basis. The raw coal stream is screened to produce sized products sold as steam coal for power generation, cement rotary kilns and other industrial and home
heating uses. A typical breakdown and use of the size fractions are:
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Coal Size
Market+50 mm
Home use and local factories50 mm to 25 mm
Local industrial25 mm to 0 mm
Steam coalThe mine is currently screening product at 250 mm with manual hand-cleaning to remove larger impurities. To the extent practicable, coal is selectively separated from the parting bands during the mining process to minimize
product contamination.
We have also recently completed the final phase of testing on a new environmentally-friendly briquette for use in both industrial and consumer applications. However, we have not begun production or marketing of the new
product. We believe that the new briquette produces higher calories per kilogram ("cpk") and burns longer than the existing briquette introduced by the Environmental Protection Bureau of Harbin, China. The current briquette, though
environmentally-friendly, does not produce enough calories for industrial use and is generally used for residential heating. We currently anticipate that we will begin to market this new product within the next 9-12 months.
We had no research and development cost in 2004, but had research and development expenses in 2005 of
approximately $32,000, primarily related to development of our new environmentally-friendly briquette. We currently have no plans
for additional research and development activities and do not anticipate any further material research and development costs.
We have no material patents, licenses or other intellectual property.
Our Distribution MethodsWe sell our coal on a per ton basis in cash on delivery, primarily to power plants, cement factories, whole sellers and individuals for home heating. Industrial and home use coal is sold directly to customers at the mine,
and the buyer provides required transportation. We currently require that most
of our customers pay for their coal purchases in advance, and we rarely extend
credit to customers due to high demand for coal.  We currently are not required to provide distribution or delivery services in order to meet the demand for industrial or home use coal.  
Once our coal is extracted, is it typically picked up immediately by customers or
loaded immediately for delivery to customers so we do not currently maintain an
inventory or extracted coal products.  Steam coal is trucked approximately 15 kilometers to the nearest
rail siding and sold f.o.b. railcar. The railroad was extended in 2005 and now passes within 500 meters of the mine. In October 2004, a siding was installed with direct access from the mine via belt conveyor, and the cost of trucking our product to
railcar was substantially reduced.
We currently do not have any material long term supply contracts. We intend to avoid long-term contracts because we believe coal prices will continue to increase during the next 12 months and we wish to maintain the
flexibility to raise prices in the future. Coal price increased by 38% in the
PRC during 2004 and 46% during 2005.  We sold approximately $425,177 or our products, representing in aggregate 15% of sales in 2005, to one customer and two customers accounted for approximately $181,694 and $298,127 of sales,
respectively, representing in aggregate 58% of sales in 2004. At December 31, 2005 and 2004, accounts receivable from these customers totaled $0 and $163,043 respectively. Due to the increased demand for coal, our customers are currently
required to pre-pay for their purchases of coal and we no longer extend credit to any of our customers.
CompetitionThere are many coal producers and coal mines in the area in which we operate. However, the demand for coal currently exceeds the supply so we do not face any meaningful competition for the sale of our coal.
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Employees
The Company currently employs approximately 306 employees, all of whom are employed full-time.
RISK FACTORS
Our business is subject to certain risks, and we want you to review these risks while you are evaluating our business and our historical results. Please keep in mind, that any of the following risks discussed below and
elsewhere in this Annual Report could materially and adversely affect us, our operating results, our financial condition and our projections and beliefs as to our future performance. As such, our results could differ materially from those projected
in our forward-looking statements. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business.
RISKS RELATED TO OUR BUSINESSOur mining operations are inherently subject to changing conditions that can affect our profitability.
Our mining operations are inherently subject to changing conditions that can affect levels of production and production costs for varying lengths of time and can result in decreases in our
profitability. We are exposed to commodity price risk related to our purchase of diesel fuel, explosives and steel. In addition, weather conditions, equipment replacement or repair, fires, variations in thickness of the layer, or seam, of coal,
amounts of overburden, rock and other natural materials and other geological conditions can be expected in the future to have, a significant impact on our operating results. Prolonged disruption of production at our mine would result in a decrease
in our revenues and profitability, which could be material. Other factors affecting the production and sale of our coal that could result in decreases in our profitability include:
continued high pricing environment for our raw materials, including, among other things, diesel fuel, explosives and steel;
changes in laws or regulations, including permitting requirements;
litigation;
work stoppages or other labor difficulties;
labor shortages;
changes in coal market and general economic conditions.The land on which the Tong Gong Coal Mine is located, as well as the land on which most of our mining facilities is located and all mineral rights, are owned by the PRC.
We operate the Tong Gong Coal Mine pursuant to a Coal Production Right Permit
issued by the Heilongjiang Province Economy Committee. The Coal Production Right
Permit provides authorization for the Company to mine up to 150,000 tons of coal
per
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year in a 1.1193 square kilometer area, which comprises the
entire area of the mine. The effective period of the current Coal Production Right Permit is from January 25, 2006 through April 30, 2015. Any material change or revocation in the permit by the PRC or the Heilongjiang Province
Economy Committee could materially and adversely affect our operations and financial condition.
Our operations may become subject to regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.
The coal mining industry in China to date has not been subject to the type and scope of regulation seen in Europe and the United States. Similarly, the electric generating industry
in China, which is the most significant end-user of our coal, is not subject to the same extensive regulation experienced by electric plants in Europe or the United States. However,
management believes that the PRC government has recently become increasingly
concerned with workplace safety and environmental issues, particularly in light
of several recent accidental explosions in coal mines due to poor internal
safety measures.  Therefore, the possibility exists that new legislation or regulations may be
adopted or that the enforcement of existing laws could become more stringent, either of which may have a significant impact on our mining operations or our customers ability to use coal and may require us or our customers to significantly
change operations or to incur substantial costs.  In fact, the PRC
government has recently announced that private mines that do not comply with
safety standards may be subject to closure.
We believe that our operations in the PRC are in compliance with applicable legal and regulatory requirements. However, there can be no assurance that
the central or local governments
in the PRC will not impose new,
stricter regulations or interpretations of existing regulations that would require additional expenditures.
Demand for coal and coal prices are closely linked to consumption patterns of the electric industry in China. Any changes in consumption patterns could affect our operations and profitability.
Demand for coal and the prices that we will be able to obtain for our coal are closely linked to coal consumption patterns of the electric generation industry in China, which has accounted for approximately 58% of overall
coal consumption in China in recent years. These coal consumption patterns are influenced by factors beyond our control, including the demand for electricity (which is dependent to a significant extent on summer and winter temperatures and the
strength of the economy); government regulation; technological developments and the location, availability, quality and price of competing sources of coal; other fuels such as natural gas, oil and nuclear; and alternative energy sources such as
hydroelectric power. Any reduction in the demand for our coal by the domestic electric generation industry may cause a decline in profitability.
If transportation for our coal becomes unavailable or uneconomic for our customers, our ability to sell coal could suffer.
Transportation costs represent a significant portion of the total cost of coal and, as a result, the cost of transportation is a critical factor in a customers purchasing decision. Increases in transportation costs
could make coal a less competitive source of energy or could make some of our operations less competitive than other sources of coal.
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Our future success depends upon our ability to continue acquiring and developing coal reserves that are economically recoverable.
Our recoverable reserves decline as we produce coal. We may not be able to mine all of our reserves as profitably as we do at our current operations. Our profitability depends substantially on our ability to mine coal
reserves that have the geological characteristics that enable them to be mined at competitive costs. Replacement reserves may not be available when required or, if available, may not be capable of being mined at costs comparable to those
characteristics of the depleting mines. We may in the future acquire coal reserves from third parties. We may not be able to accurately assess the geological characteristics of any reserves that we acquire, which may adversely affect our
profitability and financial condition. Exhaustion of reserves at the Tong Gong mine and at mines that we may acquire in the future can also have an adverse effect on operating results that is disproportionate to the percentage of overall production
represented by such mines. Tong Gong mine is estimated to exhaust its mineable reserves in approximately 30 years at current production levels.
Risks inherent to mining could increase the cost of operating our business.
Our mining operations are subject to conditions beyond our control that can delay coal deliveries or increase the cost of mining at particular mines for varying lengths of time. These conditions include weather and natural
disasters, unexpected maintenance problems, key equipment failures, variations in coal seam thickness, variations in the amount of rock and soil overlying the coal deposit, variations in rock and other natural materials and variations in geologic
conditions.
Our estimates of coal reserves are based on estimates that may not be correct.
We base our reserve information on geological data assembled and analyzed by our staff, which includes various engineers and geologists, and periodically reviewed by outside firms. The reserve estimates are annually updated
to reflect production of coal from the reserves and new drilling or other data received. There are numerous uncertainties inherent in estimating quantities of recoverable reserves, including many factors beyond our control. Estimates of economically
recoverable coal reserves and net cash flows necessarily depend upon a number of variable factors and assumptions, such as geological and mining conditions which may not be fully identified by available exploration data or may differ from experience
in current operations, historical production from the area compared with production from other producing areas, the assumed effects of regulation by governmental agencies, and assumptions concerning coal prices, operating costs, taxes, development
costs, and reclamation costs, all of which may cause estimates to vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities attributable to any particular group of properties, classifications of
such reserves based on risk of recovery and estimates of net cash flows expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. Actual coal tonnage recovered from identified reserve
areas or properties, and revenues and expenditures with respect to our reserves, may vary from estimates, and such variances may be material. These estimates thus may not accurately reflect our actual reserves.
If we are unable to expand our operations through acquisitions of other business or assets, our profitability may be negatively affected.
We are seeking to expand our operations and coal reserves in the regions in which we operate through acquisitions of businesses and assets, including leases of coal reserves. Acquisition transactions involve inherent risks,
such as:
uncertainties in assessing the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition or other transaction candidates;12



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the potential loss of key personnel of an acquired business;
the ability to achieve identified operating and financial synergies anticipated to result from an acquisition or other transaction;
problems that could arise from the integration of the acquired business;
unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the acquisition or other transaction rationale; and
unexpected development costs, that adversely affect our profitability.In addition, we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves or maintain our leasehold interests in properties on which mining operations are not
commenced during the term of the lease.
Our ability to operate our company effectively could be impaired if we lose key personnel or fail to attract qualified personnel.
We manage our business with a number of key personnel, the loss of a number of whom could have a material adverse effect on us. In addition, as our business develops and expands, we believe that our future success will
depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. We cannot assure you that key personnel will continue to be employed by us or that we will be able to attract and retain qualified personnel in the
future. We do not have key person life insurance to cover our executive officers. Failure to retain or attract key personnel could have a material adverse effect on us.
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RISKS RELATED TO DOING BUSINESS IN CHINA
Our operations are primarily located in China and may be adversely affected by changes in the policies of the Chinese government.
The political environment in the PRC may adversely affect the Companys business operations. The PRC has operated as a socialist state since 1949 and is controlled by the Communist Party of China. In recent years,
however, the government has introduced reforms aimed at creating a socialist market economy and policies have been implemented to allow business enterprises greater autonomy in their operations. Changes in the political leadership of the
PRC may have a significant effect on laws and policies related to the current economic reforms program, other policies affecting business and the general political, economic and social environment in the PRC, including the introduction of measures
to control inflation, changes in the rate or method of taxation, the imposition of additional restrictions on currency conversion and remittances abroad, and foreign investment. These effects could substantially impair the Companys business,
profits or prospects in China. Moreover, economic reforms and growth in the PRC have been more successful in certain provinces than in others, and the continuation or increases of such disparities could affect the political or social stability of
the PRC.
The Chinese government exerts substantial influence over the manner in which the company must conduct its business activities.
The PRC only recently has permitted greater provincial and local economic autonomy and private economic activities. The government of the PRC has exercised and continues to exercise substantial control over virtually every
sector of the Chinese economy through regulation and state ownership. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or
regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in the PRC or particular regions thereof, and could require the Company to divest the interests it then holds in Chinese
properties or joint ventures. Any such developments could have a material adverse effect on the business, operations, financial condition and prospects of the Company.
Future inflation in China may inhibit economic activity and adversely affect the Companys operations.
In recent years, the Chinese economy has experienced periods of rapid expansion and within which some years with high rates of inflation and deflation, which have led to the adoption by the PRC government, from time to
time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. While inflation has moderated since 1995, high inflation may in the future cause the PRC government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby adversely affect the Companys business operations and prospects in the PRC.
14



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We may be restricted from freely converting the Renminbi to other currencies in a timely manner.
The Renminbi is not a freely convertible currency at present. The Company receives all of its revenue in Renminbi, which may need to be converted to other currencies, primarily U.S. dollars, and remitted outside of the PRC.
Effective July 1, 1996, foreign currency current account transactions by foreign investment enterprises, including Sino-foreign joint ventures, are no longer subject to the approval of State Administration of Foreign Exchange
(SAFE, formerly, State Administration of Exchange Control), but need only a ministerial review, according to the Administration of the Settlement, Sale and Payment of Foreign Exchange Provisions promulgated in 1996 (the
FX regulations). Current account items include international commercial transactions, which occur on a regular basis, such as those relating to trade and provision of services. Distributions to joint venture parties also are
considered a current account transaction. Other non-current account items, known as capital account items, remain subject to SAFE approval. Under current regulations, the Company can obtain foreign currency in exchange for Renminbi from swap centers authorized by the government. The Company does not anticipate problems in obtaining foreign currency to satisfy its requirements; however, there
is no assurance that foreign currency shortages or changes in currency exchange laws and regulations by the Chinese government will not restrict the Company from freely converting Renminbi in a timely manner. If such shortages or change in laws and
regulations occur, the Company may accept Renminbi, which can be held or re-invested in other projects.
Future fluctuation in the value of the Renminbi may negatively affect the Companys ability to convert its return on operations to U.S. dollars in a profitable manner and its sales globally.
Until 1994, the Renminbi experienced a gradual but significant devaluation against most major currencies, including U.S. dollars, and there was a significant devaluation of the Renminbi on January 1, 1994 in connection with
the replacement of the dual exchange rate system with a unified managed floating rate foreign exchange system. Since 1994, the value of the Renminbi relative to the U.S. Dollar has remained stable and has appreciated slightly against the U.S.
dollar. Countries, including the U.S., have argued that the Renminbi is artificially undervalued due to Chinas current monetary policies and have pressured China to allow the Renminbi to float freely in world markets.
We may be unable to enforce our rights due to policies regarding the regulation of foreign investments in China.
The PRCs legal system is a civil law system based on written statutes in which decided legal cases have little value as precedents, unlike the common law system prevalent in the United States. The PRC does not have a
well-developed, consolidated body of laws governing foreign investment enterprises. As a result, the administration of laws and regulations by government agencies may be subject to considerable discretion and variation, and may be subject to
influence by external forces unrelated to the legal merits of a particular matter. Chinas regulations and policies with respect to foreign investments are evolving. Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity returns have not yet been published. Statements regarding these evolving policies have been conflicting and any such policies, as administered, are likely to be subject to
broad interpretation and discretion and to be modified, perhaps on a case-by-case basis. The uncertainties regarding such regulations and policies present risks that the Company will not be able to achieve its business objectives. There can be no
assurance that the Company will be able to enforce any legal rights it may have under its contracts or otherwise.
15



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Risks from the recent outbreak of severe acute respiratory syndrome in various parts of mainland China, Hong Kong and elsewhere.
Since early 2003, Mainland China, Hong Kong and certain other countries, largely in Asia, have been experiencing an outbreak of a new and highly contagious form of atypical pneumonia, now known as severe acute respiratory
syndrome, or SARS. This outbreak has resulted in significant disruption to the lifestyles of the affected population and business and economic activity generally in the affected areas. Areas in Mainland China that have been affected include areas
where the Company has business and management operations. Although the outbreak is now generally under control in China, the Company cannot predict at this time whether the situation may again deteriorate or the extent of its effect
on the Companys business and operations. The Company cannot assure that this outbreak, particularly if the situation worsens, will not significantly reduce the Companys hotel and travel related revenues, disrupt the Companys
staffing or otherwise generally disrupt the Companys operations, result in higher operating expenses, severely restrict the level of economic activity generally, or otherwise adversely affect products, services and usage levels of the
Companys services in affected areas, all of which may result in a material adverse effect on the Companys business and prospects.
RISKS RELATED TO CORPORATE AND STOCK MATTERS
We have a limited operating history and if we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.
Our company has a limited operating history and must be considered in the development stage. Our companys operations will be subject to all the risks inherent in the establishment of a developing enterprise and the
uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties
normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
All of our directors and officers are outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or
officers.
All of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons assets are located outside the United States. As a result,
it may be difficult for investors to effect service of process on our directors or officers, or enforce within the United States or Canada any judgments obtained against us or our officers or directors, including judgments predicated upon the civil
liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against them. In addition, investors may not be able to
commence an action in a Canadian court predicated upon the civil liability provisions of the securities laws of the United States. The foregoing risks also apply to those experts identified in this prospectus that are not residents of the United
States.
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If we issue additional shares in the future this may result in dilution to our existing stockholders.
Our Certificate of Incorporation authorizes the issuance of 1,000,000,000 shares of common stock and 8,000,000 shares of preferred stock. Our Board of Directors have the authority to issue additional shares up to the
authorized capital stated in the certificate of incorporation. Our Board of Directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares
may result in a reduction of the book value or market price of the outstanding shares of our common stock. If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all
other stockholders. Further, any such issuance may result in a change of control of our corporation.
The authorized preferred stock constitutes what is commonly referred to as "blank check" preferred stock. This type of preferred stock allows the Board of Directors to divide the preferred stock into series, to designate
each series, to fix and determine separately for each series any one or more relative rights and preferences and to issue shares of any series without further stockholder approval. Preferred stock authorized in series allows our Board of Directors
to hinder or discourage an attempt to gain control of us by a merger, tender offer at a control premium price, proxy contest or otherwise. Consequently, the preferred stock could entrench our management. In addition, the market price of our common
stock could be materially and adversely affected by the existence of the preferred stock.
Our stock is a penny stock. Trading of our stock may be restricted by the SECs penny stock regulations which may limit a stockholders ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than
established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document
in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customers confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must 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 the stock that is subject to these penny stock rules. Consequently, these
penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
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NASD sales practice requirements may also limit a stockholders ability to buy and sell our stock.
In addition to the penny stock rules described above, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status, tax
status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD
requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Stockholders Should Have No Expectation Of Any Dividends.
The holders of our common stock are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefore. To date, we have not declared nor paid any cash dividends. The
board of directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in our business operations.
ITEM 3. LEGAL PROCEEDINGSThe Company has been threatened with litigation arising from contracts with financial consultant Greentree Financial Group, Inc. (Greentree). Greentree contends the Company breached agreements to provide
compensation for financial services rendered. The Company claims Greentree never provided the services for which it now seeks compensation. Greentree claims damages in an amount exceeding $200,000 but, to the Companys knowledge, has not
filed a lawsuit.
We know of no other material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None18




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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the National Association of Securities Dealers OTC Bulletin Board under the symbol "SGZI.OB". As of March 27, 2006, we had approximately 899 holders of record and 69,123,748 shares of common
stock outstanding. Presented below is the high and low bid information of SGZI's common stock for the periods indicated. The source of the following information is MSN Money. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
OTC Bulletin
Board(1)(2)SGZI
COMMON
STOCKHIGH
LOWFISCAL YEAR ENDING DECEMBER 31, 2005:First Quarter
$.46
$.15Second Quarter
$.40
$.15Third Quarter
$.45
$.16Fourth Quarter
$.50
$.14FISCAL YEAR ENDING DECEMBER 31, 2004:First Quarter
$1.70
$.20Second Quarter
$1.35
$.61Third Quarter
$.88
$.30Fourth Quarter
$.85
$.33(1)Our common stock began being quoted for trading on the OTC Bulletin Board in October 2003.
(2)        Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
Our common shares are issued in registered form. Gayle
Terry of Interwest Transfer Company, Inc (Telephone: 801-272-9294; Facsimile: 801-277-3147) is the registrar and transfer agent for our common shares.
We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our
intention is to retain future earnings for use in our operations and the expansion of our business.
RECENT SALES OF UNREGISTERED SECURITIES
None
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EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2005 with respect to compensation plans, under which securities are authorized for issuance, aggregated as to (i) compensation plans previously approved by stockholders, and (ii) compensation plans not previously approved by stockholders.
PLAN CATEGORY
NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a))Equity compensation plans approved by security holders
0
$0.00
0Equity compensation plans not approved by security holders
50,000
$0.25
0Total
50,000(1)
$0.25
0(1)         Of these options, warrants and rights, 50,000 were granted to SGZIs legal counsel with an exercise price equal to the fair market value of SGZIs common stock as of the effective date of the companys
retainer agreement with such counsel. For purposes of determining the fair market value of SGZIs common stock as of the effective date, fair market value was calculated based on the closing sale price of one share of SGZI Common Stock on the
OTC Bulletin Board on the last trading day prior to the date of the execution of the retainer agreement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes included
elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts.
They use words such as anticipate, estimate, project, intend, plan, believe and other words and terms of similar meaning in connection with any discussion of future operating or
financial performance. In particular, these include statements relating to:
Our expectation of continued growth in the demand for our coal;
Our expectation that we will continue to have adequate liquidity from cash flow from operations;
A variety of market, operational, geologic, permitting, labor and weather related factors; and
The other risks and uncertainties which are described below under RISK FACTORS, including, but not limited to, the following:
A reduction in consumption may cause our profitability to decline.20



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Unanticipated mining conditions may cause profitability to fluctuate.
Decreases in purchases of coal by our largest customers could adversely affect our revenues.Results of OperationsYear Ended December 31, 2005 Compared To Year Ended December 31, 2004
Year Ended December 31
		2005
		
		
		
		2004$
		
		%
		
		$
		
		%Sales
		3,170,445
		
		100%
		
		819,761
		
		100%Gross Profit
		1,020,091
		
		32%
		
		276,674
		
		34%Operating
		Expenses
		410,583
		
		13%
		
		460,478
		
		56%Income from Operations
		609,508
		
		19%
		
		(183,804)
		
		-22%Other
		Income (Expenses)
		8,244
		
		0.3%
		
		2,406
		
		0.3%Net Income
		725,550
		
		23%
		
		(320,240)
		
		-39%We commenced coal mining operations in September 2004 and discontinued the on-line gift cards and related products business. As a result, comparison of our results of operations in 2004, during which year we had only three
months of coal mining results, and 2005 may not be meaningful.
Net Sales.Net sales for 2005, our first full year of coal mining operations, were approximately $3.2 million, while our net sales in 2004 were approximately $820,000. The
increase in revenues is primarily due to the increased period of coal mining operations together with an increase in coal price from
$16 per ton to $30 per ton at year end 2004 and 2005, respectively, in the PRC.From the statistics published by the China Development and Revolution Committee,
at the beginning of 2005 there were approximately 26,000 legal coal mines in the PRC and the government was planning to close approximately 5,000 coal
mines in total. As of the end of 2005, approximately 2,000 coal mines were closed and the
government announced that the rest of the coal mines will be closed during 2006. As a
result, the aggregate output of coal decreased during 2005, which contributed to the
increase in coal prices.
Cost of sales.Our cost of sales currently consists of cost of coal sales and all depreciation, depletion and amortization attributable to mining operations. Cost of sales increased
from approximately $543,000 during 2004 to approximately $2.2 million for 2005. The increase in cost of sales resulted from increased production during our first full year of operations. Our cost of sales will continue to increase as we
increases production to meet expected increased demand.
Cost of sales as a percentage of sales was approximately 68% for 2005 and was
approximately 66% during 2004. We believe the price of coal in the PRC will continue to rise over the next 12 months and that we will be able to reduce
the cost of sales as a percentage of sales.
Selling and distribution.Selling and distribution expenses consist primarily of costs associated with the accommodation of the Companys customers while purchasing and loading
coal, including food and housing. Selling and distribution expenses were approximately $4,510 in 2004 and approximately $86,000 for 2005. The increase in selling and distribution expenses resulted from increased sales and the longer period
of coal mining operations.
General and administrative. General and administrative expense consists primarily of salaries and related expenses for executive, finance, accounting, legal, information technology,
facilities and human resources personnel. General and administrative expenses decreased from approximately $455,000 in 2004 to approximately $314,000 in 2005. The decrease in general and administrative expenses resulted from a reduction in
personnel as the Company focused on increasing the efficiency of its administrative functions.In addition, we paid legal and consultancy fees of approximately $320,000 in
2004, while similar fees in 2005 were only approximately $25,000.
Depreciation. Depreciation increased from approximately $1,200 for 2004 to approximately $11,000 for 2005 as the Company did not begin its coal mining operations until
September 2004.
Other Income (expenses). As a foreign joint venture company in the PRC, we are exempt from income tax for the first two years after our date of establishment. In addition, for the
three years subsequent to the initial two year period, our tax liability is reduced by 50%. Other income includes the amount related to this tax holiday. Our other income was not material in either 2004 or 2005.
Discontinued Operations. We discontinued the on-line gift cards and related products business previously conducted by our Yong Heng subsidiary in 2005 and sold the subsidiary in December 2004. Our discontinued operations lost approximately $79,000 in 2004, but we generated a gain from the disposal of the subsidiary of approximately $108,000.
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Liquidity and Capital Resources
As of December 31, 2005, the Company had cash and cash equivalents of approximately $82,000, other current assets of approximately $777,000 and current liabilities of approximately $1 million.
The following is a summary of cash provided by or
used in each of the indicated types of activities during year ended December 31,
2005 and 2004:
Year Ended
December 312005

2004Cash provided by (used in):Operating Activities
$
1,538,659

$
106,597Investing Activities

(867,434)


(4,724,245)Financing Activities

(628,123)


4,615,137Cash provided by operating activities increased during 2005 compared to 2004 primarily as a result of the increased period of coal mining operations and increased sales, and were augmented by the repayment by a stockholder
of an outstanding loan, gain on disposal of discontinued operations and higher prices for our coal.
Cash used in investing activities during 2004 was primarily related to the acquisition of a subsidiary which operates a coal mine located near Heihe City in the PRC. Cash used in investing activities for 2005 was primarily related to capital expenditures such as the
purchase of approximately $600,000 of additional mining equipment, most of which has a 10-15 year usable life, as well as construction of our office building and a ventilation incline in the mine.  In addition, we paid approximately $250,000 for the using right for mining as
the intangible assets of the company and has acquired the Coal Production Right
Permit from the PRC Government as the result of payment. The effective period of the
current Coal Production Right Permit extends until April 2015. We own the mining equipment
and other physical assets of the mine.
Cash used in financing activities in 2005 was
related to the repayment of loan by a stockholder as Tong Gong Coal Mine was rehabilitated
for production in mid-2004 and hoisting equipment, slopes, surface facilities and mining
equipment were then refurbished or replaced. The stockholder paid for the equipment
replacement and refurbishment costs.  Cash received from financing activities in 2004 was
primarily related to the issuance of securities in connection with the acquisition of the
Tong Gong Coal Mine.
We believe we have sufficient cash to continue our current business throughout 2005 due to increased sales revenue and net income. We do not believe that we will be required to make any material capital expenditures in
2005. We may elect to purchase additional equipment in order to increase efficiency, such as additional driving belts and up to four diesel trailers, at an approximate cost of $350,000, and additional water pumps and electrical machinery, at an
approximate cost of $45,000, but such purchases will be made using cash generated from operations. In addition, if we would like to acquire additional coal mine assets, we will finance such acquisitions through the issuance of debt or equity
securities. Failure to obtain such financing could have a material adverse effect on our business expansion.
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We believe that we have successfully developed a new environmentally-friendly briquette for use in both industrial and consumer applications. This new briquette will be produced utilizing our proprietary technology from byproducts and wastes of coal production, crude oil production and other materials. We anticipate that we will commence production of this new product within the next 12-18 months following
construction of production facilities. We believe that the cost of construction facilities will require capital expenditure of approximately $20,000, which will be financed through cash generated through operations.
We do not anticipate any additional material research and development expenses during the next 12 months.
We do not believe that inflation had a significant negative impact on our results of operation
during 2005.
Critical Accounting Policies and Estimates
We suggest that our
significant accounting policies, as described in or consolidated financial
statements in the Summary of Significant Accounting Policies, be read in
conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations.We have identified one
accounting policy area as critical to the understanding of our consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting periods.Costs to obtain
coal lands and leased mineral rights are capitalized and amortized to operations as
depletion expense on the units-of-production method utilizing only proven and probable
reserves in the depletion base. Depletion expense is included in depreciation, depletion
and amortization on the accompanying statements of consolidated operations and
comprehensive income (loss). Costs of mine development, expansion of the capacity of or
extending the life of our mine are capitalized and principally amortized using the
units-of-production method over proven and probable reserves directly benefiting from the
capital expenditure. Mobile mining equipment and other fixed assets are stated at cost and
depreciated on a straight-line basis over the estimated useful lives or on a units-of-production basis. Leasehold improvements are amortized over their
estimated useful lives or the term of the lease, whichever is shorter. Major repairs and
betterments that significantly extend original useful lives or improve productivity are
capitalized and depreciated over the period benefited. Maintenance and repairs are
generally expensed as incurred.
There
are numerous uncertainties inherent in estimating quantities of economically recoverable
coal reserves. Many of which are beyond our control. As a result, estimates of
economically recoverable coal reserves are by their nature uncertain. Information about
our reserves consists of estimates based on engineering, economic and geological data
assembled by our internal engineers and geologists. We also recently received a report
regarding reserves as of the end of 2005 from a third party consultant. Some of the
factors and assumptions that impact economically recoverable reserve estimates include:
-
geological
and mining conditions;
               
-    historical production from the area; 
               
-    the assumed
effects of regulations and taxes by governmental agencies;
               
-    assumptions
governing future prices;
               
-    future operating costs; and
               
-     mining
technology improvements.
Each of these factors may in fact vary considerably from the assumptions used in
estimating reserves. For these reasons, estimates of the economically recoverable
quantities of coal from our mine may vary substantially. Actual production, revenues and
expenditures with respect to reserves will likely vary from estimates, and these variances
may be material.
With respect to net realizable
value of the Company's accounts receivable and inventories, significant
estimation judgments are made and actual results could differ materially from
these estimates.


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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Changes in United States' interest rates would affect the interest earned on our cash and cash equivalents. Based on our overall interest rate exposure at June 30, 2005, a near-term change in interest
rates, based on historical movements, would not materially affect the fair value of interest rate sensitive instruments.
OFF-BALANCE SHEET ARRANGEMENTSWe do no have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to our investors.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123R Share-Based Payment (SFAS 123R), a revision to SFAS No. 123 Accounting for Stock-Based Compensation (SFAS 123), and superseding APB Opinion No. 25 Accounting for Stock Issued to Employees and its
related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, including obtaining employee services in share-based payment
transactions. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. Adoption of the provisions of SFAS 123R is effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005. The Company does not expect the adoption of this statement will have any material impact on its results or financial position.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -- an amendment of ARB No. 43, Chapter 4"(SFAS 151) This statement clarifies the criteria of "abnormal amounts" of freight, handling costs, and
spoilage that are required to be expensed as current period charges rather than deferred in inventory. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of
the production facilities. SFAS 151 is effective for the Company July 1, 2005. The Company does not expect the adoption of this statement will have any material impact on its results or financial position.
In December 2004, the FASB issued SFAS no. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. This Statement addresses the measurement of exchanges of nonmonetary assets. It eliminates the exception
from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial
substance. This Statement specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company does not expect the adoption of this statement will have any material impact on its results or financial position.
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In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate TimeSharing Transactions an amendment of FASB Statements No. 66 and 67. This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance
for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005.
The guidelines of this statement are not applicable to the Company.
SFAS No. 154 (SFAS 154), Accounting Changes and Error Corrections, was issued in May 2005 and replaces APB Opinion No. 20 and SFAS No. 3 (SFAS 3). SFAS No. 154 requires retrospective application for
voluntary changes in accounting principle in most instances and is required to be applied to all accounting changes made in fiscal years beginning after December 15, 2005. The Companys expected January 1, 2006 adoption of SFAS No. 154 is not
expected to have any material impact on its results or financial position.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments (SFAS 155), which amends SFAS No. 133, Accounting for
Derivatives Instruments and Hedging Activities (SFAS 133) and SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities (SFAS 140). SFAS 155 amends SFAS 133 to narrow the scope
exception for interest-only and principal-only strips on debt instruments to include only
such strips representing rights to receive a specified portion of the contractual interest
or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose
entities to hold a passive derivative financial instrument pertaining to beneficial
interests that itself is a derivative instruments. The Company is currently evaluating the
impact this new Standard, but believes that will not have that it will not have a material
impact on the Companys financial position.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of Company's Independent Auditor appears at Page F-1 hereof, the Financial Statements of the Company appear at Page F-2 through F-13 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this annual report, being December 31, 2005, we have carried out an evaluation of the effectiveness of the design and operation of
our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company's management, including our company's President along with our company's Chief Financial Officer. Based
upon that evaluation, our company's President along with our company's Chief Financial Officer concluded that our company's disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no
significant changes in our company's internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial
reporting.
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 Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our President and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
ITEM 8B. OTHER INFORMATION
None
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions of our directors and executive officers:
Name
Age
PositionLi Hongwen
49
Chairman of the BoardLi Hongjun
43
President and DirectorYang Yu
24
Chief Financial OfficerEach Director will hold office until the next annual meeting of stockholders and until his successor has been elected and qualified.
LI HONGWENhas served as Chairman of the Company since the acquisition with Yong Heng was completed on December 16, 2003. Mr. Li is the founder of
Fellow Workers Group, a 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, and HeiHe
JinChang Coal Mine in the field of mining, etc. Within several years, Mr. Li, Hongwen's company grew from a small corporation with several employees to a holding company with more than 300 employees. Mr. Li, Hongwen is the brother of Mr. Li,
Hongjun.
LI HONGJUN has served as Director and President of the Company since the acquisition with Yong Heng was completed on December 16, 2003.  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, Hongjun 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, Hongjun is the brother of Mr. Li, Hongwen.
YANG YU has served as Chief Financial Officer of the Company since September 2005. Prior to joining the Company, Mr. Yu served as manager of Harbin Yinhais Investment and Development Department, overseeing financial
operations.  He holds an accounting and finance degree from London South Bank University.
There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or
officer.
Involvement in Certain Legal ProceedingsOur directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1.     any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
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2.     any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.     being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or
4.     being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not
been reversed, suspended, or vacated.
Corporate Governance MattersAudit Committee. The board of directors has not yet established an audit committee, and the functions of the audit committee are currently performed by our Chief Financial Officer, with assistance by expert independent
accounting personnel and oversight by the entire board of directors. We are not currently subject to any law, rule or regulation requiring that we establish or maintain an audit committee. We may establish an audit committee in the future if the
board determines it to be advisable or we are otherwise required to do so by applicable law, rule or regulation.
Board of Directors Independence. Our board of directors consists of two members. We are not currently subject to any law, rule or regulation requiring that all or any portion of our board of directors include "independent"
directors.
Audit Committee Financial Expert. Our Board of Directors has determined that it does not have a member of its audit committee that qualifies as an audit committee financial expert as defined in Item 401(e) of
Regulation S-B, and is independent as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.
We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we
believe that retaining an independent director who would qualify as an audit committee financial expert would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the
fact that we have not generated revenues to date.
Code of Ethics. We have not yet adopted a Code of Business Conduct and Ethics applicable to all of our Officers, Directors and Employees. A Code of Business Conduct and Ethics is a written standard designed to deter
wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with applicable laws, rules and regulations, (d) the prompt
reporting violation of the code and (e) accountability for adherence to the Code. We are not currently subject to any law, rule or regulation requiring that we adopt a Code of Ethics. However, a draft of the proposed Code of Ethics is attached
hereto as Exhibit 14.1. We anticipate adopting a Code of Ethics during the first half of the current fiscal year. To the extent that we adopt a Code of Ethics, we will file a copy of the Code of Ethics with the Securities and Exchange Commission,
and will provide a copy, without charge, to any person desiring a copy of the Code of Ethics, by written request to us at our principal offices.
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Nominating Committee. We have not yet established a nominating committee. Our board of directors, sitting as a board, performs the role of a nominating committee. We are not currently subject to any law, rule or regulation
requiring that we establish a nominating committee.
Compensation Committee. We have not yet established a compensation committee. Our board of directors, sitting as a board, performs the role of a compensation committee. We are not currently subject to any law, rule or
regulation requiring that we establish a compensation committee.
At this stage of our development, we have elected not to expend our limited financial resources to implement these measures. It is possible that if we were to adopt some or all of the corporate governance measures described
in this section, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made pursuant to objective criteria, by disinterested directors and that policies had been implemented to define responsible
conduct.
SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities
and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers,
directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.
To the best of our knowledge, all executive officers, directors and greater than 10% shareholders filed the required reports in a timely manner.
ITEM 10. EXECUTIVE COMPENSATION.
Particulars of compensation awarded to, earned by or paid to:
(a)     our chief executive officer;
(b)     each of our four most highly compensated executive officers who were serving as executive officers at the end of the most recently completed fiscal year and whose total salary and bonus exceeds $100,000 per year; or
(c)     any additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer of our company at the end of the most recently completed
fiscal year;
(the Named Executive Officers) are set out in the summary compensation table below.
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SUMMARY COMPENSATION TABLE
Annual 
Compensation
Long-Term
CompensationName and Principal Position
Year
Salary ($)(1)
Bonus
Securities 
Underlying
Options/SARS (#)
All Other Compensation ($)Li Hongjun, President and
2005
$0.00
$0.00
0
$0.00Chief Executive Officer2004
$0.00
$0.00
0
$0.002003
$0.00
$0.00
0
$0.00(1) All compensation is paid in RMB. The amounts in the foregoing table have been converted to U.S. dollars at the conversion rate of 0.123.
No deferred compensation or long-term incentive plan awards were issued or granted to the Company's management during the years ended December 31, 2005, 2004 or 2003. No employee, director, or executive officer has been
granted any option or stock appreciation rights; accordingly, no tables relating to such items have been included within this Item.
Director and Executive Officer CompensationWe have no current plans to
pay compensation to any director or officer.
Employment Contracts and Termination of Employment and Change-In-Control Arrangements
There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company, with respect to any director or executive officer of the Company which would in any way result in
payments to any such person because of his resignation, retirement or other termination of employment with the Company, any change in control of the Company, or a change in the person's responsibilities following a change in control of the Company.
Securities Authorized for Issuance under Equity Compensation Plans
In March 2006, our Board of Directors authorized and approved the 2006 Stock Option/Stock Issuance Plan. The plan was not yet been approved and ratified by our shareholders. Under the plan, we have reserved a total of
5,000,000 shares of our common stock for issuance upon exercise of incentive and non-qualified stock options, stock bonuses and rights to purchase awarded from time-to-time, to our officers, directors, employees and consultants. As of December 31,
2005, no shares or options to purchase shares were granted or were outstanding under the plan.
The plan is currently administered by our board of directors. Under the plan, the board determines which of our employees, officers, directors and consultants are to be granted awards, as well as the material terms if
each award, including whether options are to be incentive stock options or non-qualified stock options.
Subject to the provisions of the plan, and the Internal Revenue Code with respect to incentive stock options, the Board determines who shall receive awards, the number of shares of common stock that may be
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purchased under the awards, the time and manner of exercise of options and
exercise prices. At its discretion, the Board also determines the form of consideration to be received upon exercise and may permit the exercise price of options granted under the plan to be paid in whole or in part with previously
acquired shares and/or the surrender of options. The term of options granted under the stock option plan may not exceed ten years, or five years for an incentive stock option granted to an optionee owning more than 10% of our voting stock. The
exercise price for incentive stock options may not be less than 100% of the fair market value of our common stock at the time the option is granted. However, incentive stock options granted to a 10% holder of our voting stock may not be exercisable
at less than 110% of the fair market value of our common stock on the date of the grant. The exercise price for non-qualified options will be set by the board, in its discretion, but in no event shall the exercise price be less than 85% of the fair
market value of our common stock on the date of grant.
Absent registration under the Securities Act of 1933, as amended, or the availability of an applicable exemption therefrom, shares of common stock issued upon the exercise of options or as restricted stock awards will be
subject to restrictions on sale or transfer.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following tables set forth information as of February 17, 2006 regarding the beneficial ownership of stock by (a) class, (b) each stockholder who is known by Songzai to own beneficially in excess of 5% of Songzai's
outstanding stock of the class; (c) each director known to hold stock of the class; (d) the Company's chief executive officer; and (d) the executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i)
sole voting power and investment power with respect to their shares of common stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of stock. The
percentage of beneficial ownership is based upon 69,123,748 shares of common stock and 400,000 shares of preferred stock outstanding, as of February 17, 2006. Unless otherwise indicated, the address of the following stockholders is c/o Songzai
International Holding Group, Inc. 20337 Rimview Place, Walnut, California, 91789.
Security Ownership Of Certain Beneficial Owners, Directors And Executive Officers In Common Stock
Name and Address of Beneficial Owner(1)
Number of Shares(2)
% of Class of Stock Outstanding(3)Common Stock
Preferred
Stock(4)
Common
Stock
Preferred
StockHongjun Li
4,229,703
-
6.0%
-Hongwen Li
10,920,371
400,000
16.0%
100%All Directors and Executive Officers as a
Group (2) persons
15,150,074
400,000
22.0%
100%(1)
Unless otherwise indicated, the address of the following stockholders is 20337 Rimview Place, Walnut, California, 91789.(2)
Security ownership information for beneficial owners is taken from statements filed with the Securities and Exchange Commission pursuant to information made known by the Company. There are no shares issuable to any beneficial owner, director or executive officer pursuant to stock options that are/or will become exercisable within 60 days of February 17, 2006.(3)
Based on 69,123,748 shares of Common Stock and Preferred Stock outstanding on February 17, 2006.(4)
Each share of Preferred Stock is convertible into 100 shares of Common Stock 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.Option Exercises and Holdings
None of the persons listed in the Summary Compensation Table hold options for our common or preferred stock.
Changes in ControlWe are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.
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Equity Compensation Plan Information
None
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company had a shareholder loan payable to our Chairman, Hongwen Li in December 2003, which bore interest at 8% and was due on demand. As of December 31, 2005, the balance dueMr. Li was fully repaid.
Hongwen Li, Chairman of the Company, and Songzai Metal Products, Ltd., a company that he controls, agreed to sell the Heihe Jinchange 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 determined it to be in the best interests of the
Company.
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PART IV
ITEM 13. EXHIBITS.
(a)
The following financial statements are filed as a part of this Form 10-KSB in Appendix
A hereto:i.
Report Independent Registered Public Accounting Firmii.
Consolidated balance sheet as of December 31, 2005iii.
Consolidated statements of operations for the years ended December 31, 2005 and 2004iv.
Consolidated statements of shareholders' equity for the years ended December 31, 2005 and 2004v.
Consolidated statements of cash flows for the years ended December 31, 2005 and 2004vi.
Notes to consolidated financial statements.(b)
The following Exhibits are filed as part of this Report on Form 10-KSB:(III) INDEX OF EXHIBITS:EXHIBIT NO.
DESCRIPTION3.1
Articles of Incorporation dated June 7, 2001 is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.3.2
Certificate of Amendment to Articles of Incorporation dated October 23, 2003is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.3.3
Articles of Exchange among Harbin Yong Heng Ke Ji Fa Zhan You Xian Ze Reng Gong Si and Songzai International Holding Group, Inc. is incorporated herein by reference from Registrants Current Report on Form 8-K/A filed with the SEC on May 14, 2004.3.4
Certificates of Amendments to Articles of Incorporation, dated October 23, 2003 is incorporated herein by reference from Registrants Current Report on Form 8-K/A filed with the SEC on May 14, 2004.3.5
Certificate of Amendment to Articles of Incorporation dated July 16, 2004 is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.3.6
Certificate of Designation, Preference and Rights of Convertible Preferred Stock dated January 9, 20063.7
By-laws is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.10.1
2006 Stock Option/Stock Issuance Plan is incorporated herein by reference from
Registrants Registration Statement on Form S-8 filed with the SEC on March 8, 200610.2
Plan of Exchange, dated September 23, 2004 by which Heritage Companies, Inc. shall acquire Harbin Yong Heng Ke Ji Fa Zhan You Xian Ze Reng Gong Si is incorporated herein by reference from Registrants Current Report on Form 8-K filed with the SEC on January 2, 2004.

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10.3
Purchase and Sale Agreement By and Among Songzai Metal Products Co. Ltd and Songzai International Holding Group, Inc covering the acquisition of certain assets formerly owned by Heihe Jinchang Coal Mine Company, LLC is
incorporated herein by reference from Registrants Current Report on Form 8-K filed with the SEC on April 8, 2004.14.1
Draft Code of Ethics of Songzai International Holding Group, Inc. is incorporated herein by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on April 12, 2004.16.2
Letter Regarding Change in Certifying Accountant is incorporated herein by reference from Registrants Current Report on Form 8-K filed with the SEC on January 20, 2005.21
List of subsidiaries is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.23.1
Consent of independent auditors Jimmy C.H. Cheung & Co.24.1
Power of Attorney (included in the Signatures section of this report)31.1
Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer31.2
Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer \32.1
Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
Certification of the Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
Coal Mining Right Permit issued by the Heilongjiang Province
National Land and Resources Officer, dated December 31, 2005 is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.99.2
Coal Mining Right Permit issued by the Heilongjiang Province
Economy Committee, dated December 31, 2005 is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.99.3
Safe Production Certificate issued by the Heilongjiang Coal
Safety Inspection Bureau, dated February 16, 2006 is incorporated by reference from Registrants Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Jimmy Cheung & Co., Certified Public Accountants, are Songzai's independent auditors engaged to examine the financial statements of Songzai for the fiscal years ended December 31, 2004 and December 31, 2005. The
following table shows the fees that we paid or accrued for the audit and other services provided by Jimmy Cheung & Co., for the fiscal years ended December 31, 2005 and December 31, 2004.
Years Ended December 31,2005
2004Audit Fees
$35,000
$25,000Audit-Related Fees
--
--Tax Fees
--
--Other Fees
--
--
Audit Fees
This category includes the audit of our annual financial statements, review of financial statements included in our annual and quarterly reports and services that are normally provided by the independent auditors in
connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
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Audit-Related Fees
This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit
Fees." The services for the fees disclosed under this category include services relating to our registration statement and consultation regarding our correspondence with the SEC.
Tax Fees
This category consists of professional services rendered for tax compliance and tax advice.
All Other Fees
This category consists of fees for other miscellaneous items.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Songzai International Holding Group, Inc. has duly caused this annual report on Form 10-KSB/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: January 31, 2007SONGZAI INTERNATIONAL HOLDING GROUP, INC.By:
/s/ Hongjun LiName:
Hongjun Li,Title:
PresidentEach person whose signature appears below appoints Hongjun Li his or her attorney-in-fact, with full power of substitution and resubstitution, to sign any and all amendments to this
report on Form 10-KSB/A of Songzai International Holding Group, Inc., and to file them, with all their exhibits and other related documents, with the Securities and Exchange Commission, ratifying and confirming all that their attorney-in-fact and
agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue of this appointment. In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Issuer and in the
capacities and on the dates indicated.
Name
Title
Date/s/ Hongwen Li
Chairman of the Board
January 31, 2007Hongwen LiPresident, Chief Financial Officer and Director/s/ Hongjun Li
(Principal Executive Officer)
January 31, 2007Hongjun Li 37



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APPENDIX A
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm, together with consolidated financial statements for the Company and subsidiary, including:
a.
Consolidated balance sheet as of December 31, 2005b.
Consolidated statements of operations for the years ended December 31, 2005 and 2004c.
Consolidated statements of changes in stockholders' deficit for the years ended December 31, 2005 and 2004d.
Consolidated statements of cash flows for the years ended December 31, 2005 and 2004e.
Notes to consolidated financial statements.38



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Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005 AND 2004



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SONGZAI INTERNATIONAL HOLDING GROUP, INC.
AND SUBSIDIARIES
CONTENTS
PagesReport of Independent Registered Public Accounting Firm
F-1Consolidated Balance Sheets as of December 31, 2005 and 2004
F-2Consolidated Statements of Operations and Comprehensive loss for the years ended December 31, 2005 and 2004
F-3Consolidated Statements of Stockholders Equity for the years ended December 31, 2005 and 2004
F-4Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004
F-5Notes to Consolidated Financial Statements as of December 31, 2005 and 2004
F-6  18

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Jimmy C.H. Cheung & CoCertified Public Accountants
Registered with the Public Company(A member of Kreston International)
Accounting Oversight Board
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, 2005 and 2004 and the related consolidated statements of operations and
comprehensive loss, consolidated changes in stockholders equity and consolidated cash flows for the years ended December 31, 2005 and 2004. 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,
2005 and 2004, and the results of its operations and its cash flows for the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.
 JIMMY C.H. CHEUNG & COCertified Public Accountants
Hong Kong
Date: March 15, 2006
1607 Dominion Centre, 43 Queens Road East, Wanchai, Hong KongTel: (852) 25295500   Fax: (852) 28651067   Email: jchc@krestoninternational.com.hkWebsite: http://www.jimmycheungco.comF-1



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAS OF DECEMBER 31, 2005 AND 2004
ASSETS2005

2004CURRENT ASSETSCash and cash equivalents
$
82,561
$
42,483Accounts receivable, net of allowances

-

170,011Other receivables and prepayments

777,496

220,921Discontinued operations

-

8,943Total Current Assets

860,057

442,358PROPERTY AND EQUIPMENT, NET

4,875,691

4,708,283FIXED ASSETS OF DISCONTINUED OPERATIONS

-

20,417INTANGIBLE ASSETS, NET

245,462

-TOTAL ASSETS
$
5,981,210
$
5,171,058LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable
$
185,169
$
131,347Other payables and accrued expenses

755,406

131,324Taxes payable

39,143

142,853Due to shareholders

-

456,395Convertible note payable

41,101

48,492Liabilities of discontinued operations

-

59,905Total Current Liabilities

1,020,819

970,316COMMITMENTS AND CONTINGENCIES

-

-STOCKHOLDERS' EQUITYConvertible preferred stock, ($Nil par value, 8,000,000 sharesauthorized, 400,000 shares issued and outstanding )

-

-Common stock, ($0.001 par value, 1,000,000,000 shares authorized,69,123,748 shares issued and outstanding 
	as of  December
           31, 2005;
	68,873,748 shares issued and outstanding as of 
           December 31, 2004)

69,124

68,874Additional paid-in capital

4,526,766

4,480,990Retained earnings (deficit)Unappropriated

200,857

(367,372)Appropriated

175,571

18,250Accumulated other comprehensive loss

(11,927)

-Total Stockholders' Equity

4,960,391

4,200,742TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
5,981,210
$
5,171,058The accompanying notes are an integral part of these financial statements
F-2



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE LOSSFOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

2005

2004NET SALES
$
3,170,445
$
819,761COST OF SALES

(2,150,354)

(543,087)GROSS PROFIT

1,020,091

276,674OPERATING EXPENSESSelling expenses and distribution expenses

85,931

4,510General and administrative expenses

314,095

454,681Depreciation

10,557

1,287Total Operating Expenses

410,583

460,478INCOME (LOSS) FROM OPERATIONS

609,503

(183,804)OTHER INCOME (EXPENSE)Interest expense, net

(11,260)

(2,438)Other (expense) income, net

(30,080)

4,844Overprovision for income tax expense

49,584

-Total Other Income

8,244

2,406INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
617,752

(181,398)INCOME TAX EXPENSE

-

(59,926)NET INCOME (LOSS) FROM CONTINUING OPERATIONS

617,752

(241,324)DISCONTINUED OPERATIONSLoss from discontinued operations

-

(78,916)GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS

107,798

-NET INCOME (LOSS)

725,550

(320,240)OTHER COMPREHENSIVE LOSSForeign currency translation loss

(11,927)

-.COMPREHENSIVE INCOME (LOSS)
$
713,623
$
(320,240)Net income (loss) per share-basic and dilutedNet income (loss) per common share from continuing operationsBasic
$
0.010
$
(0.004)Diluted
$
0.007
$
(0.003)Net loss per common share from discontinued operationsBasic
$
-
$
(0.001)Diluted
$
-
$
(0.001)Net income (loss) per common shareBasic
$
0.010
$
(0.005)Diluted
$
0.007
$
(0.004)Weighted average number of shares outstanding during the yearBasic

68,875,118

68,656,426Diluted

108,875,118

79,585,388The accompanying notes are an integral part of these financial statements

F-3



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC. AND SUBSIDIARIESSTATEMENTS OF STOCKHOLDERS EQUITYFOR THE YEARS ENDED DECEMBER 31, 2005
AND 2004
Additional

Unappropriated

Appropriated

Accumulated otherPreferred Stock

Common Stock

paid-in

retained

retained

ComprehensiveShares

Amount

Shares

Amount

capital

deficit

earnings

loss

TotalBalance at January 1, 2004
-
$
-

68,103,748
$
68,104
$
123,496
$
(28,882)
$
-
$
-
$
162,718Issuances of common stock for services
-

-

400,000

400

95,600

-

-

-

96,000Issuances of common stock for services
-

-

220,000

220

142,780

-

-

-

143,000Issuances of common stock for services
-

-

150,000

150

82,350

-

-

-

82,500Contribution by shareholders
-

-

-

-

27,102

-

-

-

27,102Issuances of preferred stock for acquisition
400,000

-

-

-

4,009,662

-

-

-

4,009,662Net loss for the year
-

-

-

-

-

(320,240)

-

-

(320,240)Transfer from retained earnings tostatutory and staff welfare reserves
-

-

-

-

-

(18,250)

18,250

-

-Balance at December 31, 2004
400,000

-

68,873,748

68,874

4,480,990

(367,372)

18,250

-

4,200,742Imputed interest on advances from stockholders
-

-

-

-

6,026

-

-

-

6,026Issuances of common stock for services
-

-

250,000

250

39,750

-

-

-

40,000Comprehensive income
-

-

-

-

-

725,550

-

(11,927)

713,623Transfer from retained earnings tostatutory and staff welfare reserves
-

-

-

-

-

(157,321)

157,321

-

-Balance at December 31, 2005
400,000
$
-

69,123,748
$
69,124
$
4,526,766
$
200,857
$
175,571
$
(11,927)
$
4,960,391The accompanying notes are an integral part of these financial statements
F-4


Table of Contents
SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
2005

2004CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss) from continuing operations
$
725,550
$
(241,324)Net loss from discontinued operations

-

(78,916)Total net income (loss)

725,550

(320,240)Adjusted to reconcile net income to net cash providedby (used in) operating activities:Gain on disposal of discontinued operations

(107,798)

-Depreciation - cost of sales

433,031

14,675Depreciation

10,557

1,287Amortization on mining rights

2,063

-Issuance of common stock for services

40,000

321,500Imputed interest

6,026

-Changes in operating assets and liabilities(Increase) in:Accounts receivable, net

170,011

(170,011)Other receivables

(314,975)

(220,921)Increase (decrease) in:Accounts payable

53,822

131,347Other payables and accrued expenses

624,082

131,324Income tax and other taxes payable

(103,710)

142,853Discontinued operations, net

-

74,783Net cash provided by operating activities

1,538,659

106,597CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment

(610,996)

(4,724,245)Acquisition of intangible assets

(247,525)

-Discontinued operations, net

(8,913)

-Net cash used in investing activities

(867,434)

(4,724,245)CASH FLOWS FROM FINANCING ACTIVITIESIssuance of preferred stock for acquisition

-

4,009,662Contribution by stockholders

-

27,102(Decrease) increase in due to stockholders

(620,742)

456,395Decrease in convertible note payable

(7,391)

(1,508)Discontinued operations, net

-

123,486Net cash (used in) provided by financing activities

(628,133)

4,615,137NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

43,092

(2,511)EFFECT OF EXCHANGE RATE ON CASH

(11,927)

-CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

51,396

53,907CASH AND CASH EQUIVALENTS AT END OF YEAR

82,561

51,396Continuing operations
$
82,561
$
42,483Discontinued operations
$
-
$
8,913SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the year for:Income taxes
$
10,289
$
24,143Interest expenses
$
4,751
$
-SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES:During 2005, the Company issued 250,000 shares of common stock with a fair value of $40,000 for services.
The accompanying notes are an integral part of these financial statements
F-5



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.
AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION(A)
OrganizationSongzai International Holding Group, Inc. (Songzai
or the "Company") 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 September 23, 2004, the Company acquired a 75% 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 shares of common stock to exchange for a 75% 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. In addition to the 75% interest in Tong Gong, Harbin Green Ring Biological Degradation Products Developing Co., Ltd. (Harbin
Green) transferred a 25% net profits interest in Tong Gong to the Company. Harbin Green is controlled by Li Hong Wen, Chairman and Chief Executive officer of the company.Subsequently, Harbin Green assigned all of its interest in the registered capital of Tong Gong to the Company. Therefore, the Company now owns 100% interest in the registered capital of Tong Gong. During October 2004,
the Company discontinued the operations of Yong Heng, those are recorded as discontinued operations in 2005 and 2004.On December 28, 2005, pursuant to a Purchase and Sale Agreement, the Company sold 100% interest in its subsidiary - Yong Heng to a third party for $241,000. See Note 2.(B)
Principles of consolidationThe accompanying 2005 consolidated financial statements include the financial statements of Songzai and its 100% owned subsidiary Tong Gong.The accompanying 2004 financial statements include the financial statements of Songzai and its 100% owned subsidiary Yong Heng and 100% owned subsidiary Tong Gong. The financial statement of Yong Heng has been
classified as discontinued operations. See Note 3. On December 28, 2005, the Companys 100% owned subsidiary  Yong Hong was disposed to a third party. See Note 2.All significant inter-company balances and transactions have been eliminated on consolidation.(C)
Use of estimatesThe 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 equivalentsFor 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.F-6



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SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(E)
Accounts receivableThe Company extends unsecured credit to its customers in the ordinary course of business but seeks to mitigate 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. All accounts receivable in 2005 and 2004 were considered collectable and the Company has
not recorded any allowances for doubtful debts.(F)
InventoriesInventories consists of coal extracted from the ground that is available for delivery to customers, as well as extracted coal which has been removed from the ground but not yet processed through a wash plant.
Inventories of coal are valued at the lower of average cost or market, cost being determined on a first in, first out method and includes labor and benefits and all expenditures directly related to the removal of coal.(G)
Property and equipmentProperty 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 YearsMotor vehicles
5 YearsBuildings and mining structure
10 yearsBuildings and mining structure includes the main and auxiliary mine shafts and underground tunnels. Depreciation is provided to write off the cost of the mining structure using the units of production method based on the estimated production volume for which the structure was designed.Based on updated geological report and new
estimated production volume, the estimated useful life of  buildings and
mining structure was changed during the year from 30 years in 2004 to 10 years
commencing 2005.Assets under construction are not depreciated until they are completed and put into commercial operation.(H)
Long-lived assetsThe 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.F-7



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(I)
Fair value of financial instrumentsStatement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. Fair value of financial
instruments is made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they
cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.The carrying value of cash and cash equivalents, accounts receivable (trade and others), accounts payable (trade and related party) and accrued liabilities approximate their fair value because of the short-term nature
of these instruments. The Company places its cash and cash equivalents with what it believes to be high credit quality financial institutions. The Company has a diversified customer base, most of which are in the PRC. The Company controls credit
risk related to accounts receivable through credit approvals, credit limit and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an
allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.All of the Companys operation is in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the United States dollars
(US$) and the Chinese Renminbi (RMB). On July 21, 2005, the PRC allowed the RMB to fluctuate, ending its decade-old valuation peg to the US$. The new RMB rate reflects an approximately 2% increase in value against the
US$. Historically, the PRC government has benchmarked the RMB exchange ratio against the US$, thereby mitigating the associated foreign currency exchange rate fluctuation risk. The Company does not believe that its foreign currency exchange
rate fluctuation risk is significant, especially if the PRC government continues to benchmark the RMB against the US$.(J)
Revenue recognitionThe 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.(K)
Income taxesThe 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.F-8



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(L)
Foreign currency translationThe functional currency of the Company is the Chinese Renminbi (RMB). Foreign currency transactions during the year are translated to RMB at the approximate rates of exchange on the dates of transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the approximate rates of exchange at that date. Non-monetary assets and liabilities are translated at the rates of exchange prevailing at
the time the asset or liability was acquired. Exchange gains or losses are recorded in the statement operations.The financial statements are translated into United States dollars (US$) using the closing rate method. The balance sheet items are translated into US$ using the exchange rates at the respective
balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the year. All exchange
differences are recorded within equity.The translation loss recorded for the years ended December 31, 2005 and 2004 was $11,927 and $0 respectively.(M)
Comprehensive lossThe 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. The foreign currency loss translation for the years ended December 31, 2005 and 2004 was $11,927 and $0 respectively.(N)
Income (loss) per shareBasic income (loss) per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is
computed similar to basic net income (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.(O)
SegmentsThe Company operated in one reportable segment and
therefore segment disclosure is not presented.(P)
Recent Accounting PronouncementsIn December 2004, the FASB issued SFAS No. 123R Share-Based Payment (SFAS 123R), a revision to SFAS No. 123 Accounting for Stock-Based Compensation (SFAS 123), and
superseding APB Opinion No. 25 Accounting for Stock Issued to Employees and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, including obtaining employee services in share-based payment transactions.  SFAS 123R applies to all awards granted after the required
effective date and to awards modified, repurchased, or cancelled after that date. Adoption of the provisions of SFAS 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company
does not expect the adoption of this statement will have any material impact on its results or financial position.F-9



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)(P)
Recent Accounting Pronouncements (continued)In November 2004, the FASB issued SFAS No. 151, "Inventory Costs --
an amendment of ARB No. 43, Chapter 4"(SFAS 151) This statement clarifies the criteria of "abnormal amounts" of freight, handling costs, and spoilage that are required to be expensed as current period charges rather than deferred
in inventory. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for the Company July 1, 2005. The Company
does not expect the adoption of this statement will have any material impact on its results or financial position.In December 2004, the FASB issued SFAS no. 153,Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29.This Statement
addresses the measurement of exchanges of nonmonetary assets. It eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,Accounting for Nonmonetary Transactions,and replaces it with an exception for exchanges that do not have commercial substance. This Statement specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company does not expect the adoption of this statement will have any material impact on its results or financial
position.InDecember
2004, the FASB issued SFAS No. 152,Accounting for Real Estate Time-Sharing Transactions an amendment of FASB Statements No. 66 and 67.
This Statement amends FASB Statement No. 66,Accounting for Sales of Real Estate,
to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position
(SOP) 04-2,Accounting for Real Estate Time-Sharing Transactions.
This Statement also amends
FASB Statement No. 67,
Accounting for Costs and Initial Rental Operations of Real
Estate Projects,to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is
effective for financial statements for fiscal years beginning after June 15, 2005. The guidelines of this statement are not applicable to the Company.SFAS No. 154 (SFAS 154),Accounting Changes and Error Corrections,was issued in May 2005 and replaces APB Opinion No. 20
and SFAS No. 3 (SFAS 3). SFAS No. 154 requires retrospective application for voluntary changes in accounting principle in most instances and is required to be applied to all accounting changes made in fiscal years beginning after
December 15, 2005. The Companys expected January 1, 2006 adoption of SFAS No. 154 is not expected to have any material impact on its results or financial position.In
February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments (SFAS 155), which amends SFAS No. 133, Accounting for
Derivatives Instruments and Hedging Activities (SFAS 133) and SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities (SFAS 140). SFAS 155 amends SFAS 133 to narrow the scope
exception for interest-only and principal-only strips on debt instruments to include only
such strips representing rights to receive a specified portion of the contractual interest
or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose
entities to hold a passive derivative financial instrument pertaining to beneficial
interests that itself is a derivative instruments. The Company is currently evaluating the
impact this new Standard, but believes that will not have that it will not have a material
impact on the Companys financial position.F-10



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
2.
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONSOn December 28, 2005, pursuant to a Purchase and Sale Agreement, the Company sold 100% interest in its subsidiary Yong Heng to a third party for $241,000. The gain on the disposal of discontinued operations are
summarized as follows:2005Net assets disposed of:
$Fixtures and equipment

20,417Cash at bank

8,913Due from related companies

164,377Other payables

(1,318)Due to a stockholder

(58,587)133,802Consideration by cash of:

(241,600)Gain on disposal of discontinued operations
$
(107,798)Analysis of the net outflow of cash and cash equivalent in respect of the disposal of discontinued operations is as follows:2005Cash consideration received
$
-Less: cash and cash equivalents disposed

(8,913)Net cash outflow
$
(8,913)As of December 31, 2005 the total cash consideration in respect of the sale of a subsidiary of $241,600 was still outstanding and has been included in
"Other Receivables and Prepayments." See Note 5.3.
DISCONTINUED OPERATIONSDuring 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. The amounts reported as assets and
liabilities of net assets held from discontinued operations at December 31, 2004 are as follows:


2004Current assets
$
8,943Property and equipment

20,417Assets of discontinued operations

29,360Current portion of liabilities of discontinued operations
$
59,905F-11



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
3.
DISCONTINUED OPERATIONS (CONTINUED)The operations of Yong Heng have been reclassified as discontinued operations in the accompanying consolidated statements of operations for the year ended December 31, 2004 and are summarized as follows:2004Net revenues
$
5,187Cost of sales
$
68,672Operating expenses
$
15,431Loss from operations
$
(78,916)Net loss
$
(78,916)4.
ACCOUNTS RECEIVABLEAccounts receivable at December 31, 2005 and 2004 consist of the following:2005

2004Accounts receivable
$
-
$
170,011Less: allowance for doubtful accounts

-

-Accounts receivable, net
$
-
$
170,011
As of December 31, 2005 and 2004, the Company considered all accounts receivable collectable and has not recorded a provision for doubtful accounts.5.
OTHER RECEIVABLES AND PREPAYMENTSOther receivables and prepayments at December 31, 2005 and 2004 consist of the following:2005

2004Other receivables
$
43,862
$
34,786Consideration receivable on disposal of subsidiary

241,600

-Deposits paid to suppliers

290,429

-Prepaid production materials

201,605

186,135$
777,496
$
220,921
F-12



Table of Contents


SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
6.
PROPERTY AND EQUIPMENTThe following is a summary of property and equipment at December 31, 2005 and 2004:2005

2004Plant and machinery
$
298,296
$
246,403Motor vehicles

74,048

12,216Buildings and mining structure

4,951,648

3,976,108Construction in progress

11,250

489,5185,335,241

4,724,245Less: accumulated depreciation

459,550

15,962Property and equipment, net
$
4,875,691
$
4,708,283
 Depreciation expenses for the years ended December 31, 2005 and 2004 were $443,588 and $15,962.7.
INTANGIBLE ASSETSIntangible assets at December 31, 2005 and 2004 consist of the following:2005

2004Mining rights
$
247,525
$
-Less: Accumulated amortization

2,063

-Intangible Assets, net
$
245,462
$
-
Intangible assets represent the renewal of mining rights from the PRC government on December 31, 2005.Intangible assets are stated at cost, less accumulated amortization and will be amortized on a straight line basis over the estimated useful live of 10 years from the date of acquisition. Amortization expenses for the
years ended December 31, 2005 and 2004 were $2,063 and $0 respectively.8.
ACQUISITIONOn September 23, 2004, the Company acquired a 75% 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 shares of common stock to exchange for a 75% interest in Tong Gongs registered capital of $4,009,662 (RMB 33,200,000). To effect the payment of
the purchase price, the Company authorized a class of 8,000,000 convertible preferred shares under Nevada law, such preferred stock being convertible based on the terms and conditions as set out by the Board of Directors from time to time. Under the
purchase method of accounting, the total purchase price was allocated to the subsidiarys net assets based upon the estimated fair values of the assets at the completion date of the acquisition by the Company. In addition to the 75% interest in
Tong Gong, Harbin Green Ring Biological Degradation Products Developing Co., Ltd. (Harbin Green) transferred its 25% net profits interest in Tong Gong to the Company. Harbin Green is controlled by the Companys Chairman and Chief
Executive Officer.Subsequently, Harbin Green assigned all of its interest in the registered capital of Tong Gong to the Company. Consequently, the Company now owns 100% interest in the registered capital of Tong Gong.Two
directors who are the major beneficial owners of the Company held approximately
16.05% and 6.14% interest in the Company respectively before the acquisition of
Tong Gong. Subsequent to the acquisition of Tong Gong and upon the full
conversion of issued preferred stock be made, these two directors and
stockholders would each hold 46.90% and 3.88% interest of the Company. No
changes in control of the Company before and after the conversion of issued
preferred stocks would occur as these two directors are presently the only two
directors of the Company.F-13



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SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
8.
	ACQUISITION (CONTINUED)As of December 31, 2005 and 2004, the 400,000 convertible preferred stock issued has not been converted to common stock.The preliminary allocation of the net assets acquired is as follows:Property and Equipment, net
	$
	4,009,662Net assets acquired
	
	4,009,662Consideration for acquisition
	
	(4,009,662
	)Goodwill
	$
	-Analysis of the net outflow of cash and cash
equivalents in respect to the acquisition is as follow:Cash consideration paid
	$
	-Less: Cash and cash equivalents acquired
	
	-Net cash flow
	$
	-The unaudited pro forma information of the consolidated results of operations of the Company assuming the acquisition of the subsidiary occurred at the beginning of each of the following year is as follows:2004
	
	
	2003Revenues
	$
	819,761
	
	$
	-Net loss
	$
	(320,240
	)
	$
	(28,882
	)9.
OTHER PAYABLES AND ACCRUED EXPENSESOther payables and accrued liabilities at December 31, 2005 and 2004 consist of the following:2005

2004Other payables
$
117,178
$
51,946Accrued expenses

204,544

79,143Deposits received from customers

433,684

235$
755,406
$
131,32410.
CONVERTIBLE NOTE PAYABLEConvertible note payable at December 31, 2005 and 2004 consist of the following:2005

2004Convertible note payable
$
41,101
$
48,492The 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.F-14



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SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
10.CONVERTIBLE NOTE PAYABLE (CONTINUED)As of December 31, 2005 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, 2005 the default interest due has been accrued. See Note 11 (B).11.
COMMITMENTS AND CONTINGENCIES(A)
Employee benefitsThe 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 for the years ended December 31,
2005 and 2004 were $55,122 and $8,962 respectively. The Chinese government is responsible for the medical benefits and the pension liability to be paid to these employees.(B)Contingent liabilitiesPursuant 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,
2005, the Company has not received any notification of collection effort by the note holder.12.
INCOME TAXa.
The Company was incorporated in the United States and has incurred net operating loss for income tax purposes for 2005 and 2004.Yong Heng, wholly owned subsidiary of the Company, was incorporated in the PRC and is subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. The Company discontinued its
operations since October 2004 and has incurred net operating loss as for income tax purposes for 2004.Tong Gong is a Sino-foreign joint venture enterprise formed in the PRC that is subject to PRC income tax computed according to the relevant laws and regulations in the PRC. According to the PRC government local tax
bureau, the Company is entitled to full income tax relief for the first two years commencing on January 2005 and a reduction in income tax rate from 33% to 15% for the subsequent three years from 2007 to 2009.The income tax expenses for 2005 and 2004 are summarized as follows:PRC Income Tax

2005

2004Current (benefit) expense
$
(49,584)
$
59,926
b.
The Companys deferred tax assets at December 31, 2005 and 2004 consist of net operating loss carry forwards calculated using statutory effective tax rates. Due to its history of losses, the Company
determined
that realization of its net deferred tax assets is currently judged to be unlikely rather than not. Consequently, the Company has provided a valuation allowance covering 100% of its net deferred tax assets.F-15



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SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
12.
INCOME TAX (CONTINUED)As of December 31, 2005 and 2004, the Company had net operating loss carry forwards of approximately $447,734 and $362,992 respectively for U.S. income tax purposes available for offset against future taxable
U.S. income, which expire in 2025. The net changes in the valuation allowance for 2005 and 2004 were increase of $28,812 and $123,417 respectively.

c.
The reconciliation of income taxes computed at the statutory income tax rates to total income taxes for the years ended December 31, 2005 and 2004 is as follows:2005

2004SongzaiIncome tax computed at the federal statutory rate
34%

34%State income taxes, net of federal tax benefit
0%

0%Valuation allowance
(34%)

(34%)Total deferred tax asset
0%

0%
13.
NET INCOME PER SHAREThe following is net income per share information at December 31:2005

2004Net income (loss)
$
725,550
$
(320,240)Basic weighted-average common stock outstanding

68,875,118

68,656,426Effect of dilutive securitiesConvertible Preferred Stock

40,000,000

10,928,962Diluted weighted-average common stock outstanding

108,875,118

79,585,388Net income (loss) per share - basic
$
0.010
$
(0.005)Net income (loss) per share - diluted
$
0.007
$
(0.004)14.
	STOCKHOLDERS EQUITY(i)   Convertible Preferred StockDuring July 2004, the Company authorized a class of 8,000,000 shares of blank check preferred stock without par value, such preferred stock may be converted to common stock on terms and conditions as set
out by the Board of Directors from time to time.  Such class of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the
Board of Directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights.On September 23, 2004, the Company issued 400,000 preferred stock that is convertible into 40,000,000 shares of common stock of the Company in exchange for a 75% interest in Heilongjiang Tong Gong Kuang Ye You Xian
Gong Sis (Tong Gong) registered capital of $4,009,662 (RM33,200,000). As the 400,000 convertible preferred stock issued has no par value, it was recorded as additional paid in capital.F-16



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SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
14.
	STOCKHOLDERS EQUITY (CONTINUED)(A)
	Stock issuances (continued)(ii)
	Common StockDuring July 2004, the Company increased its authorized shares of common stock from 200,000,000 to 1,000,000,000 shares by filing Articles of Amendment with the Secretary of State of Nevada.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 value of the common stock issued was determined based on the closing market
price of $0.24 per share on January 7, 2004. 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 value of the common stock issued was determined based on the closing
market price of $0.65 per share on July 6, 2004. The Company recognized consulting expense and legal expense of $78,000 and $65,000 as of December 31, 2004 respectively.During October 2004, the Company issued 150,000 shares of its common stock to consultants having a fair value of $82,500. The value of the common stock issued was determined based on the closing market price of
$0.55 per share on October 19, 2004. The Company recognized consulting expense of $82,500 as of December 31, 2004.During December 2005, the Company issued 250,000 shares of its common stock to consultants having a fair value of $40,000. The value of the common stock issued was determined based on the closing market price of
$0.16 per share on December 30, 2005. The Company recognized consulting expense of $17,309 and prepayments of $22,691 as of December 31, 2005.(B)
	Appropriated retained earningsThe 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 2005, the Company appropriated $157,321 to the reserves funds based on its net income under PRC GAAP.15.
	RELATED PARTY TRANSACTIONSStockholders had advanced funds totaling $0 and $456,395 to the Company as of December 31, 2005 and 2004 respectively as short-term, unsecured loans and accruing imputed interest at a rate of 6% per annum. The
advances are payable upon demand. Total imputed interest included as additional paid in capital amounted to $6,026 and $0 for the years ended December 31, 2005 and 2004 respectively.During 2004, the stockholders contributed capital to the Company totaling $27,102.See Note 1 (A) for transactions with Songzai and its subsidiaries.F-17



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SONGZAI INTERNATIONAL HOLDING GROUP, INC.AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2005 AND 2004
16.
	CONCENTRATION AND RISKSDuring 2005 and 2004, 100% of the Companys assets were located in China and 100% of the Companys revenues were derived from companies in China.The Company relied on one customer for approximately $425,177 representing in aggregate 15% of sales in 2005, and two customers for approximately $181,694 and $298,127 respectively representing in aggregate
58% of sales in 2004. At December 31, 2005 and 2004, accounts receivable from these customers totaled $0 and $163,043 respectively.F-18