DESCRIPTION OF BUSINESS

Canaf Group Inc., (the “Company”) is incorporated in the Province of Alberta and wholly owns a company in South Africa, Quantum Screening and Crushing (Proprietary) Limited (“Quantum”). Quantum processes anthracite coal into de-volatised (calcined) anthracite for sale mostly to steel and ferromanganese manufacturers as a substitute product for coke.


OVERALL PERFORMANCE AND OUTLOOK

The results for the year to October 31, 2013, reflect a continued improvement in the operating and financial performance of the company. The Company recorded record revenues of $14,969,633, a 37.6% increase over the prior year, despite a challenging external environment for the resources sector as a whole. The Company also recorded record profits and our net income after tax was up 256% over the previous year to $838,537; our gross margin also improved to 10.9%

During the past year, the management focused on driving up sales and increasing margins, and the Company is pleased to that this is reflected in the results. The Company significantly invested in its kilns by replacing an entire section of one kiln and replacing a rider ring, expenses that were written off in the year as maintenance and were funded through working capital. Total maintenance cost for the year was, $585,145, an increase of $362,071 compared to the previous year. As well as continuing to focus on maintaining positive free cash flow from Quantum, the Company is actively looking to expand into related businesses within the reluctant and anthracite market in South Africa through potential investments in existing operations and anthracite mines.

The Company remains confident that orders for its product of calcined anthracite will now remain strong, and the Company continues to receive strong interest in its product. The Company is now looking to widen its customer base and expects to send out two to three trial loads to new customers during the first quarter of the next fiscal year.

Calcined anthracite is considered as a more secure source of reductant as industries in South Africa become concerned at the future availability of coke. Over the past few years, high-quality anthracites, and calcined anthracite have gained more interest as a replacement to the more expensive reluctant, coke, in the sintering and smelting industries.