U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER:
Asian Alliance Ventures, Inc.
(Exact name of small business issuer as specified in its charter)
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<CAPTION>
<S> <C> <C>
Nevada 98-0204780
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
Suite 1000-355 Burrard Street, Vancouver, British Columbia, Canada V6C 2G8
(Address of principal executive offices) Zip Code)
604.482.1288
(Issuer's Telephone Number, including Area Code)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
Telephone: 949.660.9700
Facsimile: 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of September 30, 2000, there were
5,000,000 shares of the issuer's $.001 par value common stock issued and
outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Grant Thornton LLP [LOGO]
Chartered Accountants Grant Thornton
Management Consultants
Canadian Member Firm of
Grant Thornton International
Notice to Reader
We have compiled the balance sheet of Asian Alliance Ventures Inc. (a
Development Stage Company) as at September 30, 2000 and the statements of
operations, cash flows and stockholders' equity for the period then ended from
information provided by management. We have not audited, reviewed or otherwise
attempted to verify the accuracy or completeness of such information. Readers
are cautioned that these statements may not be appropriate for their purposes.
Kelowna, B.C.
November 16, 2000 Chartered Accountants
247 Lawrence Avenue
Kelowna
British Columbia
V1Y 6L
Tel: (250) 762-4434
Fax: (250) 762-8896
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Asian Alliance Ventures Inc.
(a Development Stage Company)
Balance Sheet - Unaudited
September 30 December 31
(See Notice to Reader) 2000 1999
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Assets
Current
Cash $ 6,803 $ 14,890
========= =========
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Liabilities
Current
Accounts payable $ 920 $ 1,297
Accrued liabilities 1,000 3,000
Due to related parties (Note 3) 115,651 41,178
Loan payable (Note 4) 220,000 220,000
--------- ---------
337,571 265,475
--------- ---------
Stockholders' Equity
Capital stock (Note 5) 5,000 5,000
Authorized:
50,000,000 common shares of $0.001 par value
10,000,000 preferred shares of $0.001 par value
Issued:
5,000,000 common shares (1999 - 5,000,000)
Additional paid-in capital 5,000
Deficit accumulated during the development stage (340,768) (260,585)
--------- ---------
(330,768) (250,585)
--------- ---------
$ 6,803 $ 14,890
========= =========
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On behalf of the Board
____________________________Director____________________________Director
See accompanying notes to the financial statements.
Grant Thornton [LOGO]
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Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Operations - Unaudited
(See Notice to Reader)
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<CAPTION>
For the For the For the For the For the
period of three months three months nine months nine months
inception to ended ended ended ended
September 30 September 30 September 30 September 30 September 30
2000 2000 1999 2000 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Bank charges and exchange $ 18,499 26 $ 4,583 $ 95 $ 4,590
Investor relations 274,975 $ 2,961 55,000 42,862 55,000
Licenses and permits 1,439 -- 85 1,354 85
Office 23,926 5,450 -- 21,371 --
Professional fees 18,559 2,567 -- 11,131 3,063
----------- ----------- ----------- ----------- -----------
Travel 3,370 3,370 -- 3,370 --
Total expenses $ 340,768 $ 14,374 $ 59,668 $ 80,183 $ 62,738
=========== =========== =========== =========== ============
Net loss $ (340,768) $ (14,474) (59,668) $ (80,183) $ (62,738)
Weighted average number
of shares outstanding 5,000,000 5,000,000 5,000,000 3,754,579
=========== =========== =========== ============
Loss per share -
basic and diluted Nil $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== ============
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See accompanying notes to the financial statements.
Grant Thornton [LOGO]
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Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Cash Flows - Unaudited
(See Notice to Reader)
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<CAPTION>
For the For the For the
period from nine months nine months
inception to ended ended
September 30 September 30 September 30
2000 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows derived from
Operating Activities
Net loss $(340,768) $ (80,183) $ (62,738)
Changes in non-cash operating
working capital
Accounts payable 920 (377) 1,733
Accrued liabilities 1,000 (2,000) --
--------- --------- ---------
(338,848) (82,560) (61,005)
--------- --------- ---------
Financing Activities
Advances from related parties 115,651 74,473 10,280
Issue of loan payable 220,000 -- 55,000
Capital stock issued for cash 10,000 -- 10,000
--------- --------- ---------
345,651 74,473 75,280
--------- --------- ---------
Net increase in cash 6,803 (8,087) 14,275
Cash, beginning of period Nil 14,890 Nil
--------- --------- ---------
Cash, end of period $ 6,803 $ 6,803 $ 14,275
========= ========= =========
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Grant Thornton [LOGO]
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See accompanying notes to the financial statements.
Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Stockholders' Equity - Unaudited
From inception to September 30, 2000
(See Notice to Reader)
--------------------------------------------------------------------------------
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<CAPTION>
Common Shares Additional
------------- Paid-In
Shares Amount Capital Deficit Total
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss for the period
from inception to
December 31, 1999 $ (260,585) $ (260,585)
----------- -----------
Balance,
December 31, 1999 5,000,000 $ 5,000 $ 5,000 (260,585) (250,585)
Net loss
for the nine months
ended September 30, 2000 (80,183) (80,183)
--------- ----------- ----------- ----------- -----------
Balance,
September 30, 2000 5,000,000 $ 5,000 $ 5,000 $ (340,768) $ (330,768)
========= =========== =========== =========== ===========
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Grant Thornton [LOGO]
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See accompanying notes to the financial statements.
Asian Alliance Ventures Inc.
(a Development Stage Company)
Notes to the Financial Statements - Unaudited
September 30, 2000
(See Notice to Reader)
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1. Operations and going concern
The Company was incorporated under the laws of the State of Nevada on October 2,
1998 to engage in international business.
The Company has not yet commenced its planned principal operations and it has
not yet earned any revenue. In accordance with SFAS #7 it is considered a
development stage company. The Company's current focus is to build a power and
urea business in China. Management is devoting substantially all the resources
of the Company to marketing and developing this project.
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern which assumes the realization of assets
and settlement of liabilities in the normal course of business. Since its
inception, the Company has been engaged in organizational and pre-operating
activities. Further, the Company has generated no revenues and incurred losses.
Continuation of the Company's existence is dependent upon its ability to obtain
additional capital and sustain profitable operations. The uncertainty related to
these conditions raises substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management's plans include completion of an offering to raise additional
capital.
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2. Summary of significant accounting policies
These financial statements are presented in U.S. dollars and in accordance with
accounting principles generally accepted in the United States.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Financial instruments
Grant Thornton [LOGO]
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The Company has various financial instruments that include cash, payables and
amounts due to related parties. It was not practicable to estimate the fair
value of the amounts due to related parties. The carrying values of other
financial instruments approximate their fair value.
Asian Alliance Ventures Inc.
(a Development Stage Company)
Notes to the Financial Statements - Unaudited
September 30, 2000
(See Notice to Reader)
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2. Summary of significant accounting policies (Continued)
Deferred income taxes
Deferred income taxes are provided for significant carryforwards and temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets or liabilities are determined by
applying presently enacted tax rates and laws. A valuation allowance is required
when it is more likely than not that some portion or all of the deferred tax
asset will not be realized.
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3. Related party transactions
The Company had the following transactions, recorded at their exchange amount,
with related parties:
a) Incurred $220,000 during 1999 for marketing services provided by companies
in which certain officers and/or shareholders have a controlling interest.
At September 30, 2000 the following balances with companies controlled by
certain officers and/or shareholders were outstanding:
Due to Access International Capital Corporation $70,929
Due to Axon Management Inc. $14,800
Due to D.N. Larsen $29,922
The balances are expected to be repaid when funds become available from equity
financing, interest is payable at 9% per annum and has been waived until 2001.
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4. Loan payable
The Company has entered into a Joint Venture Agreement with Shandong Hengtong
Chemical Industrial Company Ltd. of the Peoples Republic of China to acquire and
expand an established chemical fertilizer (urea) and power generation facility.
The
Grant Thornton [LOGO]
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joint venture partner has advanced the Company $220,000 for investment
marketing purposes. The loan is non-interest bearing and is repayable on demand.
The Company will require approximately $16 Million in order to fulfil its
obligations under the joint venture agreement which it expects to raise in the
North American equity market.
Asian Alliance Ventures Inc.
(a Development Stage Company)
Notes to the Financial Statements - Unaudited
September 30, 2000
(See Notice to Reader)
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5. Capital stock
Private placement
On March 6, 1999 the Company completed an offering of its common stock under
Regulation "D", Rule 504 for 5,000,000 common shares of stock at $.002 per share
totalling $10,000.
Stock options
The Company has not issued any stock options.
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6. Income taxes
The potential tax benefits of the losses carried forward are offset by a
valuation allowance of the same amount as there is substantial uncertainty that
the losses carried forward will be utilized before their expiry.
Grant Thornton [LOGO]
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Item 2. Management's Discussion and Analysis or Plan of Operation
The Company was originally incorporated with the purpose of carrying on business
in China. During 1998 and 1999 we examined the feasibility of numerous Chinese
prospects.
Following extensive research and feasibility studies, in August, 1999, we
finalized a Joint Venture Agreement ("Agreement") with Shandong Hengtong
Chemical Industrial Company, Ltd. ("Shandong Industrial"), a large, well
established company in Linyi City, partially owned by the Peoples Republic of
China ("PRC") located in the Southeast of Shandong Province, adjacent to the
Beijing-Shanghai highway. This is an advantageous geographical position with a
rich coal and water supply, and access to the heartland of China's agricultural
output. Shandong Industrial was incorporated in China in 1993. It was
restructured from a state-owned enterprise to a joint-stock ownership company in
1996. Its authorized share capital is $15,164,082.00. The Tancheng state-owned
Assets Management Bureau holds 64.25% of the equity interest and 35.75% is held
by the workers of Shandong Industrial's fertilizer plant. Shandong Industrial
owns and operates three plants in Linyi: Chemical Fertilizer, Chemical and
Thermoelectricity. The Chemical Fertilizer Plant and the Thermoelectricity Plant
are to be sold to Shandong Development. The Fertilizer Plant manufactures urea
and refined methyl alcohol for sale to customers. The Thermoelectricity Plant
generates electricity and steam for sale to the local power grid and for
Shandong Industrial's own use. All sales are made to customers in China.
Shandong Industrial is registered with the Shandong Provincial Administrative
Bureau for Industry and Commerce. Its business license number is 26717136-X-1.
The Agreement provides for the establishment of Shandong Hengtong Development
Chemical Co. Ltd ("Shandong Development") as a majority-owned subsidiary of the
Company. The Agreement provides for Shandong Development to acquire all the
assets of Shandong Industrial necessary to manufacture chemical fertilizer
("Urea") and thermoelectricity. Current Urea produced by Shandong Industrial
amounts to 200,000 tons per year. We hope to increase that production to 300,000
tons per year. Current levels of thermoelectricity produced by Shandong
Industrial amounts to 200 Million KWh per year. We anticipate that the
thermoelectricity can be increased to 375,000 KWh per year.
Under the Agreement, Shandong Industrial will contribute its existing
manufacturing facilities for a 49% interest in the Joint Venture. In exchange
for a 51% ownership interest in Shandong Development, we will infuse
approximately Thirteen Million Dollars ($13,000,000) into Shandong Development.
Negotiations have begun with several international companies interested in
providing the necessary funds for our initial capital infusion in Shandong
Development. All discussions are preliminary, however, and we have not executed
any written agreements. We anticipate that we will enter into such written
agreements with these private investors by the end of the second quarter of
2000. The initial funds provided by us will be used to increase Urea and
thermoelectric power production capacity in order to meet existing market
demand. The balance of our capital infusion will be used for financing expenses,
project development and working capital.
Plan of Operation. The Agreement was drafted and entered into in accordance with
the Chinese-Foreign Co-operative Joint Venture Law of the People's Republic of
China, its implementation regulations and other relevant Chinese laws and
regulations. In the Agreement, Shandong Industrial and the Company agreed to set
up Shandong Development in Shandong, China to operate as a majority-owned
subsidiary of the Company. Shandong Development has the status of a Chinese
legal person and is subject to the jurisdiction of, and protected by the laws of
the PRC. The Agreement specifically provides that all activities of Shandong
Development shall be governed by the relevant laws, rules and regulations of the
PRC.
Shandong Development is a limited liability company. Our liability to Shandong
Development is limited to the capital invested in Shandong Development. We shall
share profits, risks and losses of Shandong Development with Shandong Industrial
in proportion to our respective contributions to the registered capital of
Shandong Development.
The business scope of Shandong Development shall be to develop, produce and
distribute chemical fertilizer, power and steam and other related products. The
initial production scale of Shandong Development is anticipated to be an annual
output of 200,000 tons of Urea and 2X12 thousand KW thermal power.
2
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The total amount of capital we are required to contribute to Shandong
Development will be $29,928,916 ("Total Contribution"). The registered capital
of Shandong Development is $25,600,000 ("Registered Capital").
We have agreed to contribute a total of $13,000,000.00 towards the Registered
Capital, representing a 51% ownership interest. Within three months of Shandong
Development obtaining its business license (the "Business License"), we have
agreed to deliver $6,500,000.00 to Shandong Development. The remaining
$6,500,000.00 will be delivered to Shandong Development within eight months of
the issuance of the Business License to Shandong Development. Within three
months of the date that Shandong Development obtains the Business License,
Shandong Industrial will contribute equipment, facilities and materials valued
at $12,600,000.00 for a 49% ownership interest in Shandong Development. The
difference between the Total Contribution and Registered Capital of Shandong
Development shall be raised by assuming current liabilities of $4,328,000.00 of
Shandong Industrial.
The Agreement provides that Shandong Development shall lease the land, factory
and facilities and the remaining equipment, facilities and materials within
three months from the date the Business License is issued.
Should one of the parties to the Agreement fail to make its Registered Capital
contribution in full within the time prescribed under the Agreement, that party
shall be deemed to have breached the Agreement. Upon the request of the
non-breaching party, the defaulting party shall consent to the termination of
the Agreement without prejudice.
The Agreement provides that when more funds are raised by one party from time to
time by agreement of each party, and the other party cannot raise enough funds
to keep its original equity proportion, such other party shall, upon the former
party's request, be obligated to transfer its comparable equity interests in
Shandong Development to the former party or the former party's associated
companies, parent companies, or subsidiaries.
Distribution of Profits. The Agreement provides that the profits of Shandong
Development shall not be distributed unless the losses of previous fiscal years
have been paid in full. Otherwise, no less than 80% of profits of Shandong
Development shall be distributed annually. Shandong Industrial shall receive 49%
of distributed profits, and we shall receive 51% of distributed profit.
For the fiscal year ended 1998, Shandong Industrial earned revenue of
$38,500,000.00. For the fiscal year ended 1999, Shandong Industrial earned
revenue of approximately $48,500,000.00 Shandong Industrial projects
approximately $55,000,000.00 in revenue for the fiscal year ended 2000.
Duration of the Joint Venture. The term of the Agreement is thirty (30) years
from the date on which the Business License is issued. The term may be extended
upon the agreement of all parties.
Liquidity. At September 30, 1999, we had cash resources of $14,275.00. At
September 30, 2000, we had cash resources of $6,803.00. At September 30, 1999,
we had total current assets of $14,275.00 and total current liabilities of
$67,264.00. At September 30, 1999, total current liabilities exceeded total
current assets by $52,989.00. At September 30, 2000, the Company had total
current assets of $6,803.00 and total current liabilities of $337,571.00. At
September 30, 2000, total current liabilities exceeded total current assets by
$330,768.00. The cash and equivalents constitute our present internal sources of
liquidity. Because we are not generating any revenues, our only external source
of liquidity is the sale of its capital stock.
We have not yet realized any significant revenue from operations. For the
nine-months ended September 30, 1999, we experienced a net loss of $62,738.00.
For the nine months ended September 30, 2000, we experienced a net loss of
$80,183.00. The increase in the loss for the specified periods was primarily due
to increased office expenses and increased professional fees.
We will require additional cash to implement our business strategies, including
cash for (i) payment of increased operating expenses and (ii) further
implementation of those business strategies. No assurance can be given, however,
that we will have access to the capital markets in the future, or that financing
will be available on acceptable terms to satisfy our cash requirements to
implement our business strategies. Our inability to access the capital markets
or obtain acceptable financing could have a material adverse effect on our
results of operations and our financial condition.
Our forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary as a result of a number
of factors.
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We will need to raise additional capital within the next 12 months in order to
implement our business strategies. Such additional capital may be raised through
additional public or private financings, as well as borrowings and other
resources. To the extent that additional capital is raised through the sale of
equity or equity-related securities, the issuance of such securities could
result in dilution of our stockholders. There can be no assurance that
additional funding will be available on favorable terms, if at all. If adequate
funds are not available within the next 12 months, we will be required to
curtail its operations significantly or to obtain funds through entering into
arrangements with collaborative partners or others that may require us to
relinquish rights that we would not otherwise relinquish.
We do not anticipate any significant research and development within the next 12
months, nor do we anticipate that we will lease or purchase any significant
equipment within the next 12 months. We do not anticipate a significant change
in the number of our employees within the next 12 months.
We anticipate that we will begin to realize a positive revenue stream beginning
in or about the first quarter of Shandong Development's operations as a result
of the profit sharing provided for under the Agreement. Specifically, the
Company believes that the historical financial data provided by Shandong
Industrial demonstrates that we will begin to realize a positive revenue stream
very soon after the terms and conditions of the Agreement are met.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 20, 2000 ASIAN ALLIANCE VENTURES, INC.
By: /s/ John Fraser
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John Fraser
Its: President
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