U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
Asian Alliance Ventures, Inc.
(Exact name of registrant as specified in its charter)
NEVADA 98-0204780
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 1000-355 Burrard Street, Vancouver, British Columbia, Canada V6C 2G8
(Address of registrant's principal executive offices) (Zip Code)
604.482.1288
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
to be so Registered: Each Class is to be Registered:
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
(Title of Class)
Preferred Stock, Par Value $.001
(Title of Class)
Copies to:
Thomas E. Stepp, Jr.
Stepp & Beauchamp, LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile: 949.660.9010
Page 1 of 19
Exhibit Index is specified on Page 18
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Asian Alliance Ventures, Inc.,
a Nevada corporation
Index to Amendment No. 2 to Registration Statement on Form 10-SB
Item Number and Caption Page
1. Description of Business 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
3. Description of Property 12
4. Security Ownership of Certain Beneficial Owners and Management 13
5. Directors, Executive Officers, Promoters and Control Persons 13
6. Executive Compensation - Remuneration of Directors and Officers 14
7. Certain Relationships and Related Transactions 14
8. Description of Securities 14
PART II
1. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters 15
2. Legal Proceedings 15
3. Changes in and Disagreements with Accountants 16
4. Recent Sales of Unregistered Securities 16
5. Indemnification of Directors and Officers 16
PART F/S
Financial Statements F-1 through F-15
PART III
1(a). Index to Exhibits
Signatures 19
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Item 1. Description of Business.
Asian Alliance Ventures, Inc. (the "Company"), was incorporated in the State of
Nevada on October 2, 1998, and maintains its principal executive offices at 355
Burrard Street, Suite 1000, Vancouver, British Columbia, Canada V6C 2G8.
The Company. 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,
expiring on February 28, 2001.
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 first quarter of 2001.
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.
Urea. China is a large developing country, with a solid agricultural foundation
providing food for a population of 1.2 Billion people. In the past decade, the
traditional cultivation method, using manure, is rapidly being replaced by the
scientific method of fertilizer application. Nitrogenous fertilizer is a type of
fertilizer that is in demand for a great variety of crops. Nitrogen is an
important element of fertilizer. Nitrogen can help crops produce protein.
Unfortunately, Nitrogen is very easily washed out of the soil; therefore,
constant application of Nitrogen is required to maintain or expand a crops
yield. Urea occupies the first position in the list of nitrogenous fertilizers.
It contains 46% nitrogen which is the highest among solid fertilizers. It is
easy to handle, slow in release of nutrient nitrogen and non-toxic, factors that
are making it more and more popular among the Chinese farming community.
In general, the Chinese government has always promoted the fertilizer industry.
For years, they have subsidized power used for producing fertilizers; e.g., the
current "Subsidized Utility Price" is approximately 87% of the market rate
charged by the local state-owned Power Bureau. Moreover, the government offers
the chemical fertilizer manufacturers a tax exemption from the value-added tax
assessed on imports. The import tariff for chemical fertilizer in China is low,
about
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5%, which means that even if China is allowed to join the World Trade
Organization in the near future, we believe the advantages of the relationship
established by the Agreement will not be significantly reduced.
Geographically, the project is located on the Yellow River and Huaihe River
Valley flood plain, which has 6,000,000 hectare of cultivated land. Wheat, corn,
rice, beans, and malt are the main crops grown. The estimated demand for Urea is
more than 4,000,000 tons per year in Shandong, Shandong Industrial's prime
market area makes up about 10% of the China market. According to estimates from
the Statistic Bureau of Shandong Province, the consumption of nitrogen-based
chemical fertilizers in China has consistently exceeded production in recent
years. The shortage has been met by imports, mainly from Japan and Russia. This
supply shortage has allowed Shandong Industrial production at the near full
capacity of 200,000 tons of Urea in 1999. It also gives Shandong Development a
solid market for increased sales. Furthermore, with continuing education and
promotion, the market is growing larger year by year. As the biggest seller and
manufacturer of chemical fertilizer in the region, Shandong Industrial has
earned an outstanding reputation for its quality products, pricing, delivery and
customer services. Shandong Development will inherit this legacy and has a ready
market for its planned 100,000 tons per year increase in Urea production.
Prices, set by the international market, have been relatively stable and are
marginally higher in 1999 from 1998 levels.
We believe that our initial capital infusion will allow us the opportunity to
(i) participate in Chinese development in agriculture industry and power; (ii)
realize above average returns on our capital infusion; (iii) take advantage of
an established enterprise with a preferred competitive position; (iv) work with
premium Chinese partners and excellent management; (v) produce environmentally
positive products such as Urea and thermoelectricity; (vi) benefit from
immediate growth potential of existing and new products; and (vii) enjoy the
benefit of agreements and approvals already in place.
The Joint Venture Agreement. 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.
The total amount of capital contributed 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
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party, the defaulting party shall consent to the termination of the Agreement
without prejudice. Notwithstanding delays in making the required contributions,
neither party to the Agreement has requested termination nor has either party
indicated that they intend to terminate the Agreement.
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.
Specific Responsibilities of Shandong Industrial. Shandong Industrial has agreed
to (i) contribute the necessary equipment, facilities and materials to allow
Shandong Development to conduct operations; (ii) be responsible for applying to
the relevant authorities for approval of the Agreement and the registration of
Shandong Development; (iii) assist Shandong Development in importing and
obtaining importation license for all raw materials, machinery and equipment
necessary for the operation of business; obtaining effective insurance coverage
and renewing same in a timely manner; informing us of related Chinese laws,
regulations, notices and any other information affecting the operations of
Shandong Development; obtaining and providing to Shandong Development and us
with available information on the Chinese market necessary to facilitate
Shandong Development's operations; (iv) assist Shandong Development in
purchasing and handling all procedures of all necessary equipment and materials
in China; (v) assist Shandong Development in obtaining all necessary utilities
and supplies, including, but not limited to, water, electricity and
communication capabilities; (vi) recommend to Shandong Development (without
obligation on the part of Shandong Development to employ) persons suitable to
undertake managerial and technical positions, and render all assistance to
Shandong Development in the recruitment of such and other personnel; (vii)
assist foreign workers, staff and their family members in obtaining all entry
visas, work permits and other necessary travel documents; (viii) assist Shandong
Development in solving legal, administrative and other problems arising from
time to time with respect to the business operations of Shandong Development;
(ix) assist Shandong Development in obtaining the preferential status and
treatment that it should be entitled to from the Chinese government; (x) manage
Shandong Development according to the management agreement ("Management
Agreement") contemplated by Shandong Development, Shandong Industrial and us;
(xi) assist Shandong Development in convening meetings of the Board of Directors
of Shandong Development in China, such reasonable expenses to be borne by
Shandong Development; and (xii) use its best efforts to assist Shandong
Development in any other matters entrusted to it or reasonably requested by
Shandong Development.
Specific Responsibilities of the Company. We have agreed to (i) contribute the
cash contributions in United States Dollars; (ii) supervise the management and
financial affairs of Shandong Development pursuant to the Management Agreement;
(iii) recommend (without obligation on the part of Shandong Development to
employ) managerial and technical personnel to Shandong Development, and render
all assistance to Shandong Development in the recruitment of such personnel;
(iv) assist Shandong Development in convening meetings of the Board of Directors
in the United States of America whenever the Board of Directors of Shandong
Development shall decide to meet in the United States of America, such
reasonable expenses to be borne by Shandong Development; and (v) use our best
efforts to assist Shandong Development in any other matters entrusted to it or
reasonably requested by Shandong Development.
The parties to the Agreement have also agreed that the Board of Directors of
Shandong Development shall be comprised of 5 directors, of which 3 directors
shall be appointed by us and 2 directors shall be appointed by Shandong
Industrial, provided, however, that the ratio representation on Shandong
Development's Board of Directors shall reflect as near as practicable the
proportion of each party's contributions to the Registered Capital and the ratio
representation on Shandong Development's Board of Directors shall be adjusted to
take effect immediately upon the date of change in proportion of Registered
Capital contributions. The Chairman of the Board of Directors of Shandong
Development shall be appointed by the party that maintains a majority proportion
of the Registered Capital of Shandong Development.
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 and 1999, Shandong Industrial earned revenue of
$38,500,000.00 and $48,500.000.00 respectively.
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.
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Competition. Shandong Industrial is the largest chemical fertilizer manufacturer
in Southern Shandong, Northern Jiangsu, and the Northern Anhui provinces. Most
of the region's agricultural wholesalers have traded with Shandong Industrial
for many decades and have established long-term relationship. The nearest
domestic competitor is in Yucheng City at the outer edge of Shandong
Industrial's primary market area.
Shandong Industrial's urea products meet the quality standards laid down by the
Shandong Provincial Bureau of Standard and have received many awards. We believe
that price and quality are the major factors in the fertilizer industry in
China. Based on our research, we believe that Shandong Industrial has a
competitive advantage in both. We believe that Shandong Development can maintain
Shandong Industrial's dominant market position, remain competitive and grow with
the increasing demand in the region as (i) Shandong Industrial's brand name Urea
product has earned its quality image; (ii) cost of production is lower than the
competitors because of production volumes; (iii) high integration of resources,
for instance, raw material, by-products (steam), and co-product (power) avoids
damage from power shortages; (iv) excellent customer service; (v) proven sales
and marketing strategies; and (vi) highly qualified executive managers.
In order to maintain and increase the competitive advantage that Shandong
Industrial has established, Shandong Development must pre-empt competitors by
expanding present operations to improve cost structures and profitability.
Shandong Development must also capitalize on its capacity to develop other
refined chemical products which use urea as raw materials, and chemical products
which use, for example, local ginkgo as raw material.
There are several competitors such as Chin-I Chemical Fertilizer, Chin-Shun
Chemical Fertilizer, and Bo-Yong Chemical Fertilizer. However, we believe that
all of these competitors produce lower amounts of fertilizer with higher
production costs. Although most of these manufacturers are relatively small, and
struggling to survive, some do have expansion plans which have not yet been
fully approved and funded.
Japan and Russia are the principal countries that export urea to China. We
believe that such importers lack a competitive advantage in the Shandong region
because (i) long distance shipments can damage packaging and the products lose
visual appeal, are hard to handle and give rise to questions regarding quality;
(ii) transport costs add to the cost or price to customers; (iii) storage and
delivery costs are added; and (iv) customer service is practically non-existent.
The National government controls the import of chemical fertilizers into China,
through the requirement to obtain import licenses and the imposition of an
import tariff, which is currently levied at 5%. Based on historical experience
and the fact that the price of the imported urea is normally higher than that
produced within China, we believe that imports will have no material adverse
effect on its sales despite imported urea being generally of a higher quality.
Even if the 5% levy on imported fertilizers is eliminated after China joins the
World Trade Organization, imports should not adversely affect Shandong
Development's competitive position.
Employees. The Company does not currently have any employees. Shandong
Industrial currently has 2,300 employees.
Reports to Security Holders. The Company is filing this Registration Statement
on Form 10-SB in order to cause the Company to be listed on the Over-the-Counter
Bulletin Board Quotation Service ("OTCBB") maintained by the National
Association of Securities Dealers, Inc. As soon as this Registration Statement
on Form 10-SB becomes effective, the Company will be required to provide an
annual report to its security holders, which will include audited financial
statements, and quarterly reports, which will contain unaudited financial
statements. The Company is not yet a reporting company. The public may read and
copy any materials filed with the Securities and Exchange Commission ("SEC") at
the SEC's Public Reference Room at 450 Fifth Street NW, Washington, D.C. 20549.
The public may also obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Our hope is that we will become the dominant and most profitable supplier of
quality agricultural chemicals in Eastern China. Our short-term goals include
(i) secure Chinese and Foreign financing of about $30 Million during 1999 and
2000; (ii) acquire the chemical fertilizer and thermoelectric power assets and
business of Shandong Industrial; (iii) commence operations in or around the
second quarter of the year 2000; (iv) review and approve Shandong Industrial's
feasibility
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reports for expansion of Urea and power production at Linyi; (v) obtain all
necessary approvals and increase capacity of Urea from 200,000 tons per year to
300,000 tons per year, and power from 25,000 KW to 37,500 KW; (vi) achieve the
sales and profitability targets developed by Shandong Industrial; and (vii) earn
a reputation for quality and service. Our long-term goals include (i) develop
and market new products; (ii) acquire one or more new businesses with related
products; and (iii) expand customer base to all of Central and Western China.
Management of Shandong Industrial. The current managers of Shandong Industrial
will manage the day-to-day operations of Shandong Development. Shandong
Industrial has agreed to continue using its present management philosophy, which
focuses on financial management and includes comprehensive management of human,
financial and material resources. Shandong Industrial defines management in the
context of an enterprise with profit centers and cost control centers. Their
experienced executives have studied advanced projects from abroad, adopted the
double-zero management method (target: no interruptions and no rejects) and
implemented policies of Just-In-Time and exact credit check, thus reducing the
working capital and credit losses.
Shandong Industrial's Board of Directors has established a three member
Management Committee. The Management Committee is made up of individuals
appointed from the experienced and qualified executive staff of Shandong
Industrial. Those members include:
Mr. Wang Yongli is the President and General Manager. Mr. Wang was born in 1949.
He joined Shandong Industrial in 1970. He is a senior economist, and
successively held the posts of technician, workshop leader and President of
Shandong Industrial. Under Mr. Wang's leadership, Shandong Industrial has
expanded from a relatively small-scale operation into the largest chemical
fertilizer manufacturer regionally.
Mr. Wan Shanhua is a director and Vice General Manager of Shandong Industrial.
He was born in 1955 and joined Shandong Industrial in 1976. He has held
positions as workshop dispatcher, workshop leader, director of the dispatcher's
office, Vice President and President of the fertilizer factory branch.
Mr. Li Ruiqing is the Vice President and Vice Manager of Shandong Industrial. He
was born in 1950 and joined Shandong Industrial in 1968. He has held the
position as the director of the Political Work Department in the fertilizer
factory.
Ms. Qin is Shandong Industrial's Chief Accountant. She also heads the Finance
Department with about 20 accounting staff members. She has played a leading role
in developing the financial plan for Shandong Industrial and has effectively
managed the liaison with outside parties, including, but not limited to,
Shandong Industrial auditors Arthur Andersen & Co., Access International Capital
Corporation and Jun He Law Offices.
Product Production. Shandong Industrial's Linyi facility consists of a Thermo
power and Steam Plant, a Chemical Fertilizer Plant and office facilities. All
are relatively modern and well maintained. They are contiguous on a single site
of about 200 hectares of land in Tan Cheng County, occupied under a land use
right granted from the state. Linyi is located in southeastern Shandong Province
adjacent to the Beijing-Shanghai highway. Shandong Industrial has excellent
communication and transportation services, including high speed Internet, road,
rail and air transportation. Beijing is an hour by air to the north; Qingdao, on
the Pacific coast is five hours by road to the east. Qingdao is a hub city with
an International airport, rail and port facilities.
For every different technological stage during the manufacturing process, there
is a separate management level of accountability: Quality Control, Measurement
Control, Equipment and Power Management, Safety and Environmental Protection
Management, and Technology and Expenditure Reduction Control. These Professional
Management Offices are focus on the policy of "identify the reason, correct the
mistake, and learn the lesson" and "combine treatment with prevention". In order
to maintain quality of their products, Shandong Industrial has (i) installed
quality control detectors in the systems; and (ii) taken precautionary actions
to prevent down time and rejects. The plant has won awards for "Best
Management", "Expenditure Reduction", "Environmental Protection", "Clean Plant
Model", and "Golden Products for Customers" from the county and state.
Shandong Industrial places a strong emphasis on quality control. The quality
control department and production management department has approximately 30
staff members. This department is responsible for the quality control of
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incoming raw materials and the chemical fertilizer products. All raw materials
purchased by Shandong Industrial are subject to random inspections or testing in
accordance with quality standards set by Shandong Industrial. Shandong
Industrial also carries out random inspections or testing on its finished
products in accordance with standards that are set by Shandong Industrial with
reference to national quality standards.
Shandong Industrial's current equipment uses highly developed technology to
control industrial pollutants. It has recently solved a problem with "amino
nitrogen", and chilled water is now recycled in closed circuits. There are no
harmful gas emissions in Shandong Industrial's factory, and its slag from Urea
production has been used in the thermoelectricity plant. Shandong Industrial has
instituted safety policies and procedures, complete and effective safety
standards, and clear-cut duties. Full time safety inspectors supervise all
workshops everyday and check the fire prevention equipment regularly. The plant
has complete first-aid facilities. In its clinic, doctors, and nurses can give
health care service and inspections for each employee and family, and regularly
provide prevention treatments
Power and Steam. The Thermoelectricity Plant is tied into the regional power
grid which buys all the energy not needed by Shandong Industrial. It has two
generating sets of 15,000KW, capable of producing 200 million KWh of power
annually and heat generating capacity of 1.2 million tons of steam. Both power
units are relatively new; the latest was installed in 1997-1998. The Plant is
coal fired, using regional sources. We anticipate that a third power unit will
be added in 2000-2001 increasing capacity to 45,000KW and 375 million KWh per
year. The capital cost of the unit has been estimated at $7.2 Million.
Urea. The main product of the Chemical Fertilizer plant is "Caiyun" carbamide
(Urea) with an annual production capacity of about 230,000 tons. Ammonia and CO2
are the required raw materials for the production of Urea. Both these raw
materials are produced in the Shandong Industrial plant using coal as raw
material (some urea producers use natural gas as primary feedstock). Like many
such operations, Shandong Industrial has both ammonia and urea plants together
in one complex at the Linyi facility. Shandong Industrial's Urea has won the
gold prize in the national "Farmers Most Trusted Products" competition.
We anticipate that annual capacity will being increased from the 230,000-ton
range to 300,000 tons per annum during 2000-2001. The capital costs to generate
such an increase have been estimated at $7.8 Million.
New Products. The chemical fertilizer plant can also produce 20,000 tons of
carbinol per year which is widely used in medicine, pesticide production and
other products. This capability and other strategic investments may result in
some new products being introduced by Shandong Industrial in or around 2004.
Projected new products include (i) a new ionic film caustic soda system for
caustic soda production of 100,000 tons per year; (ii) development of a cyanic
uric acid system producing 10,000 tons annual output; (iii) the production of
100,000 tons of compound fertilizer; and (iv) the increased production of
chlorine cyanic uric acid.
After expanding Shandong Industrial's major existing production lines, we
anticipate that Shandong Development's focus will include developing its
by-products from the major lines, by using Shandong Industrial's superiority in
product markets, the combination of steam and power, high added value, and high
technology. Such by-products include (i) progesterone glycoside and ginkgo
products; (ii) lysine; (iii) chlorinated polypropylene; (iv) chlorinated
polyvinyl chloride; (v) Methane chloride; (vi) Furanidine; and (vi) Adipic acid.
New Chemical Products. Early planning has commenced to develop, produce and sell
significant volumes of caustic soda and chlorine and minor quantities of
methanol, hydrochloric acid, hydrogen and one kind of chlorinated polypropylene.
Resources. We believe that one of the most attractive aspects of acquiring the
well-established business from Shandong Industrial is the elimination of the
need to secure additional sources of resources. Sufficient quantities of coal,
power, water, buildings, equipment and people are already in place, with
increases readily available.
Urea's source material is coal. Coal is also the key input for steam and power
production. The coal is mainly supplied from the Shanxi Coal Mine, and refined
on site. Based on relevant studies, we believe that ample quantities of coal are
available. The price appears to be stable. Shandong Industrial currently pays
$47.00 a ton.
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Electricity for fertilizer production is purchased from the Power Bureau's
network, which offers preferred capacity at a subsidized price for agriculture
related production of 3.4 cents per KWh. All other power requirements are
supplied by Shandong Industrial's thermoelectric plant. The main resource for
power production is smoked coal, which is available locally for $25.00 a ton.
A local utility provides all the water needed by Shandong Industrial. Once used
in the manufacturing process, the industrial water is recycled through specially
constructed cooling towers.
We believe that all necessary buildings and equipment are in place for the
continuation of the business carried on by Shandong Industrial and to be
continued by Shandong Development.
Shandong Industrial will provide management, production and administrative
staff. As part of its contract to provide management services, Shandong
Industrial retains all personnel obligations, including those related to
housing, welfare, and pensions. Staffing proposed include many employees with
university level qualifications and extensive experience in the relevant
industries. Most employees are from Tancheng County.
Technology. In order to manage the facility effectively and efficiently,
Shandong Industrial has invested in a computer support system which has
integrated computer network technology, and information management to provide a
high quality, comprehensive information management platform for forecasting,
decision-making, operation, production control, and general management. Based on
the factory's current management system and method, we believe that the system
can precisely and effectively recognize changes in the external and internal
circumstances at different times and various places, implement uniform and
optimal management information, and form a decision support system, thus
speeding up the decision-making processes and saving administration costs.
The facility for power production is only 3-years old. The thermoelectricity
plant, a regional thermoelectricity station, integrates heat generation, heat
supply and environmental protection using modern processes and technology.
The Company has two sets of Urea equipment, which were recently improved.
Shandong Industrial was the first operator to combine two towers in China. With
this new combined system its annual output has risen. Shandong Industrial
further plans the output of the system with technology from Japan or France.
For new product development, Shandong Industrial has established a Product
Research Department. It has its own experienced research technicians and
engineers for developing new products and adding extra value to existing
products to meet the constantly changing demand of the markets. Shandong
Industrial has budgeted annual expenditures for technology transformation,
technology upgrade, employee development, and feasibility studies to improve
production quality and quantities.
Risks Associated with Operations in China. Shandong Development will be
conducting its operations in China and accordingly will be subject to risks not
typically associated with operations in the United States. These include risks
associated with the political, economic, and legal environment as well as the
foreign currency exchange.
9
<PAGE>
Political Environment. Shandong Development's results may be adversely affected
by changes in the political and social conditions in China and by, among other
things, changes in governmental policies with respect to laws and regulations,
inflationary measures, currency conversion and remittance abroad, and rates and
methods of taxation. While the Chinese government is expected to continue its
economic reform policies, many of the reforms are new or experimental and may be
refined or changed. It is also possible that a change in the Chinese leadership
could lead to changes in economic policy.
Economic Environment. The economy of the PRC differs significantly from the
United States economy in many respects, including its structure, levels of
development and capital reinvestment, growth rate, government involvement,
resource allocation, self-sufficiency, rate of inflation and balance of payments
position. The adoption of economic reform policies since 1978 has resulted in a
gradual reduction in the role of state economic plans in the allocation of
resources, pricing and management of such assets, an increased emphasis on the
utilization of market forces, and rapid growth in the PRC economy. However, such
growth has been uneven among various regions of the country and among various
sectors of the economy.
Legal System. The PRC Constitution promulgated by the National People's Congress
("NPC") is the backbone for the PRC's legal system and is the highest and most
authoritative set of laws in the country. National laws in the PRC are
promulgated by the NPC or its Standing Committee. The State Council also has the
power to formulate and promulgate administrative regulations, decisions and
orders based on the Constitution and laws.
The power to promulgate local laws, administrative regulations, rules and
regulations is vested in local People's Congresses at the provincial and
municipal levels. These administrative regulations, decisions or orders and any
local laws and administrative regulations, however, must be consistent with the
existing national laws.
Although the PRC is still developing a comprehensive system of laws, a
significant number of laws and regulations governing general economic matters,
foreign investment, protection of intellectual property, taxation, technology
transfer and trade have been developed since the start of its economic reform
policy in 1978. In 1982, the PRC adopted a new Constitution which, among other
things, authorized foreign investment and guaranteed the "lawful rights and
interests" of foreign investors in the PRC. This law was amended in 1988, 1993,
and March 1999 to provide for a "socialist market economy." The most recent
amendments also provide protection for private economic entities.
All foreign individuals, enterprises and other entities are given the same
rights and obligations as PRC citizens, enterprises and other entities in
instituting or defending proceedings in PRC courts. If, however, the rights and
obligations of PRC individuals, enterprises or other entities to institute or
defend legal proceedings are subject to any restrictions in a foreign
jurisdiction, then reciprocal restrictions shall be imposed by the PRC courts on
the rights and obligations of the individuals, enterprises and other entities of
such jurisdictions to institute or defend legal proceedings in the PRC. All
foreign individuals, enterprises and other entities may retain only lawyers
qualified in the PRC to institute or defend any proceedings in PRC courts.
Individuals, enterprises or other entities whose rights are infringed by the
legal acts or omissions of any administrative departments of the government or
any officials of such departments may proceed to litigation under the Law of the
People's Republic of China on Litigation. Under this law, individuals,
enterprises or other entities may ask the court to order the other party to
perform, or refrain from, some act and order the other party to pay damages.
In short, the PRC's legal system is based on written statutes under which prior
court decisions may be cited as authority but do not have binding precedence.
The PRC's legal system is relatively new, and the government is still in the
process of developing a comprehensive system of laws, a process that has been
ongoing since 1979. Considerable progress has been made in the promulgation of
laws and regulations dealing with economic matters such as corporate
organization and governance, foreign investment, commerce, taxation and trade.
Such legislation has significantly enhanced the protection afforded to foreign
investors. However, experience with respect to the implementation,
interpretation and enforcement of such laws is limited.
Foreign Currency Exchange. Renminbi ("RMB") is the Chinese currency. Renminbi is
not freely convertible into foreign currencies at this time. The State
Administration for Foreign Exchange ("SAFE") is responsible for the
administration of foreign exchange in China. Prior to January 1, 1994, China had
a dual foreign exchange system
10
<PAGE>
consisting of two independent exchange rates. Foreign exchange transactions
involving Renminbi were conducted either at the official exchange rate set from
time to time by SAFE or, with government permission, at official foreign
exchange adjustment centers ("Swap Centers") at rates largely determined by
supply and demand existing in the different Swap Centers' local markets.
Established in 1986, Swap Centers were designed to provide marketplaces for
importers and exporters to buy and sell foreign currency for use in Development
trade.
Effective January 1, 1994, a new unitary, managed floating-rate system was
introduced to replace the dual foreign exchange system. Under the new system,
the People's Bank of China ("PBOC") sets and publishes a daily exchange rate for
Renminbi ("PBOC Rate"). To determine this rate the PBOC primarily refers to the
supply and demand of Renminbi versus the United States dollar in the prior day's
market. The PBOC also takes into account factors such as general conditions in
the development foreign exchange markets. Authorized banks and financial
institutions are allowed to quote buy and sell rates for Renminbi within a
specific range around the daily PBOC Rate. Currently, SAFE Renminbi trading is
within a range of 0.15 percent above and below the daily PBOC Rate.
All foreign exchange transactions involving Renminbi must take place either
through the Bank of China or other institutions authorized to buy and sell
foreign currencies, or at swap centers. Sino-foreign equity joint venture
enterprises may also maintain foreign currency accounts. Payment for imported
materials and remittance of earnings outside the PROC are permitted but are
subject to the availability of foreign currencies. For capital transactions in
foreign currencies, approval is required from the State Administration of
Foreign Exchange.
Exchange Rate Fluctuations. Under the current system, the PBOC quotes a daily
exchange rate for Renminbi to United States dollars based on the market rate for
foreign exchange transactions conducted by the designated banks in the China
foreign exchange market during the preceding day. The PBOC also quotes the
exchange rates of Renminbi to other foreign currencies based on the Development
market rate. Since 1994 the exchange rate for Renminbi against United States
dollars has been relatively stable at approximately RMB 8.50 to US$1.00. Because
the exchange rate is based primarily on market forces, the exchange rates for
the Renminbi against other currencies, including United States dollars, are
susceptible to movements based on external factors and there can be no assurance
that the Renminbi may not be subject to devaluation. Any devaluation could
adversely affect the value of the Agreement since Shandong Development's
revenues will be received, and its profits and dividends will be expressed, in
Renminbi.
Liquidity and Capital Resources. At December 31, 1999, we had cash resources of
$14,890.00. At September 30, 2000, we had cash resources of $6,803.00. At
December 31, 1999, we had total current assets of $14,890.00 and total current
liabilities of $265,475.00. At December 31, 1999, total current liabilities
exceeded total current assets by $250,585.00. At September 30, 2000, we 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 the Company's present
internal sources of liquidity. Because the Company is not generating any
revenues, the Company's only external source of liquidity is the sale of its
capital stock.
Results of Operations. The Company has 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
corresponding periods was primarily due to increased office expenses and
increased professional fees.
We will require additional cash to implement its 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 the cash requirements of the
Company to implement our business strategies. Our inability to access the
capital markets or obtain acceptable financing could have a material adverse
effect on the results of operations and financial conditions of the Company.
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.
11
<PAGE>
We anticipate that 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 the Company's 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 may 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 under the Agreement are met.
Marketing. Shandong Industrial currently sells three main products from its
Linyi facility: urea, power and steam. The power and steam is mostly consumed in
urea production with the remainder sold to Shandong Industrial's chemical plant
and the regional Power Bureau. The urea is sold to the agricultural community,
primarily in eastern China.
The power produced by Shandong Industrial is used mainly for its chemical line
and urea production, and the excess has always been sold to the state utility
grid where it is highly in demand. Shandong Development will continue this
practice to use or sell all its power and earn some income from steam sales to
Shandong Industrial's chemical plant which will be reduced when more is required
by Shandong Development's own operations.
About ten full-time staff work on increasing the market share of Shandong
Industrial's Urea sales. They also handle the day-to-day sales and delivery
operation with the sales agents, authorized distributors, and other channel
partners. Independent contractors, mainly using trucks and tractors, through a
well-developed distribution network, handle delivery. They have articulated
sales and market strategies, target markets and key product and service
objectives. Prices, set by the international market, have been relatively stable
and are marginally higher in 1999 from 1998 levels.
Item 3. Description of Property.
Property held by the Company. As of the dates specified in the following table,
we held the following property in the following amounts:
================================================================================
Property December 31, 1999 September 30, 2000
--------------------------------------------------------------------------------
Cash $14,890.00 $6,803.00
================================================================================
We do not presently own any interests in real estate. We do not presently own
any inventory or equipment.
The Company's Facilities. The Company does not own any real or personal
property. However, the Company does lease office space from Automation Plus
located at Suite 1000, 355 Burrard Street, Vancouver, British Columbia, Canada
V6C 2G8. The Company leases the office space for $1,118.05 a month.
A director of the Company provides office services without charge.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners. Other than officers and
directors, there are no beneficial owners of 5% or more of the Company's issued
and outstanding common stock.
12
<PAGE>
(b) Security Ownership by Management. As of September 30, 2000, the directors
and principal executive officers of the Company beneficially owned, in the
aggregate, 773,500 shares of the Company's common stock, or approximately 15.5%
of the issued and outstanding shares, as set forth on the following table:
<TABLE>
<CAPTION>
Title of Class Name of Beneficial Owner Amount and Nature of Percent of Class
-------------- ------------------------ -------------------- ----------------
Beneficial Owner
----------------
<S> <C> <C> <C>
Robert Clarke
Common Stock 915 Leyland Street 225,000 4.5%
West Vancouver, British Columbia,
Canada V7T 2L6
Benjamin Leboe
Common Stock 16730 Carrs Landing Road 320,620 6.5%
Lake Country, British Columbia,
Canada V4R 1B2
---------------------------------------------------------------------------------------------------------------------------
Common Stock John Fraser 207,500 4.1%
104 Elm Avenue
Toronto, Ontario
Canada M4W 1P2
---------------------------------------------------------------------------------------------------------------------------
Common Stock Charlie Rodriguez 20,380 0.4%
1662 West Petunia Place
Tucson, Arizona 85737
--------------------- -----------------------
Totals 773,500 15.5%
</TABLE>
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403 of Regulation S-B.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and principal executive officers of the Company are as specified
on the following table:
<TABLE>
<CAPTION>
===================================================================================================================================
Name and Address Age Position Term as Director
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert Clarke 56 Director October 2, 1998 (inception) to
915 Leyland Street present.
West Vancouver, British Columbia,
Canada V7T 2L6
-----------------------------------------------------------------------------------------------------------------------------------
Benjamin Leboe 55 Secretary, Treasurer and a Director November 1999 to present.
16730 Carrs Landing Road
Lake Country, British Columbia, Canada
V4R 1B2
-----------------------------------------------------------------------------------------------------------------------------------
John Fraser 54 President and a Director From September 21, 2000 to the
104 Elm Avenue present.
Toronto, Ontario, Canada M4W 1P2
-----------------------------------------------------------------------------------------------------------------------------------
Charlie Rodriguez 56 Director From September 21, 2000 to the
1662 West Petunia Place present.
Tucson, Arizona 85737
===================================================================================================================================
</TABLE>
13
<PAGE>
Robert Clarke, age 56, is a director of the Company. Mr. Clarke has earned a
Bachelor of Commerce as well as a Masters Degree in Business Administration.
During portions of the last 5 years he has acted as an independent business
consultant for various companies. From January, 1997 to December, 1997, Mr.
Clarke was the President, Chief Executive Officer and a Director of Waverider
Communications Inc. which is listed on the OTCBB under Symbol "WAVC". From
September 18, 1995 to October 17, 1996, and again from February 11, 1998, to
October 11, 1999, Mr. Clarke was a Director of Global CT & T Telecommunications
Inc. a company that trades under the symbol "GLC" on the Vancouver Stock
Exchange. Mr. Clarke was the Secretary of Pacific Western Capital Corporation
(traded on Vancouver Stock Exchange) from August 15, 1995 to October 17, 1996.
Benjamin Leboe, age 55, is the Secretary, Treasurer and a director of the
Company. Mr. Leboe holds a Bachelor of Commerce and Business Administration from
the University of British Columbia. He is also a British Columbia Chartered
Accountant and Certified Management Consultant. From 1978 to 1981, Mr. Leboe was
a Partner in the accounting firm of KPMG. From in or around 1991 to June 1995,
he was the Vice-President and Chief Financial Officer of VECW Industries Ltd.
Mr. Leboe was a Director and the President of CPT Pemberton Technologies Ltd., a
company that trades on Vancouver Stock Exchange under the symbol of "CPT", from
March, 1995 to June, 1995. He is also the owner and manager of Independent
Management Consultants of British Columbia.
John Fraser, age 54, is the President and a director of the Company. In 1968,
Mr. Fraser earned an Economics Degree from the Victoria University of Wellington
in New Zealand. In 1970, Mr. Fraser earned a Business Degree from the University
of Pittsburgh. From 1938 to 1969, Mr. Fraser was the assistant manager at
Unkever Ltd. in New Zealand. From 1973 to 1976, Mr. Fraser was the Senior
Consultant for W.D. Scott & Co. From 1976 to 1980, Mr. Fraser was a principal in
Stevenson Kellogg as well as a principal in Thorne Riddell. From 1980 to 1983,
Mr. Fraser was the Vice President of Sungate Resources. From 1983 to 1998, Mr.
Fraser was the Vice Chairman of KPMG, Canada, responsible for the management
consulting division of that company. He has managed both development stage and
established businesses. He has worked in Europe, Africa, North America,
Australia and New Zealand. From 1998 to present, Mr. Fraser has been a principal
in Fraser Leishman. Mr. Fraser is a member of the Institute of Certified
Management Consultants of Ontario.
Charlie Rodriguez, age 56, is a director of the Company. He is responsible for
all of the North American regulatory aspects of 7bridge Systems. He has held
several senior positions with both public and private companies; including,
acting as President, Director, Chief Financial Officer and Treasurer. Mr.
Rodriguez has assisted in acquisitions, mergers, and several private and public
placements. Mr. Rodriguez was based in London for two years, where he was
President of the public telecommunications company. Mr. Rodriguez has also acted
as Vice President of Corporate Affairs for another public telecommunications
company where he was directly involved with the company's development from
start-up through expansion.
There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining Mr. Clarke, Mr. Fraser, Mr. Rodriguez or Mr. Leboe from engaging in
or continuing any conduct, practice or employment in connection with the
purchase or sale of securities, or convicting such person of any felony or
misdemeanor involving a security, or any aspect of the securities business or of
theft, nor are Mr. Clarke, Mr. Fraser, Mr. Rodriguez or Mr. Leboe the officers
or directors of any corporation or entity so enjoined.
Item 6. Executive Compensation - Remuneration of Directors and Officers.
Executive Compensation. Specified below, in tabular form, is the aggregate
annual remuneration of the Company's Chief Executive Officer and the four (4)
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at the end of the Company's last
completed fiscal year. The officers of the Company are reimbursed for expenses
incurred on behalf of the Company.
<TABLE>
<CAPTION>
==========================================================================================================
Name of Individual or Identity of Group Capacities in which Remuneration Aggregate Remuneration
was received
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Executive Officers None None
==========================================================================================================
</TABLE>
14
<PAGE>
Employment Contracts. We anticipate entering into an employment contract with
our President, John Fraser. However, the specific terms and conditions of such
agreement are currently being negotiated.
Directors' Compensation. The directors of the Company do not receive
compensation in their capacities as directors. However, the directors of the
Company are reimbursed for expenses incurred on behalf of the Company.
Item 7. Certain Relationships and Related Transactions.
Our joint venture partner, Shandong Industrial, has loaned us funds for
marketing activities. Shandong Industrial has agreed that the loan will be
repaid, when, and if, funds are available in the future. Shandong Industrial has
also agreed that any outstanding amounts will bear no interest.
During the 1999 fiscal year, we incurred expenses of $220,000.00 for marketing
services provided by a company controlled by related parties. A shareholder
advanced cash to the Company and certain administrative expenses were paid by
related parties on behalf of the Company. As of September 30, 2000, the
following parties were due the following amounts:
Access International Capital Corporation $70,929.00
Axon Management Inc. $14,800.00
D.N. Larsen $29,922.00
Access International Capital Corporation, Axon Management Inc. and D.N. Larsen
have agreed to accept payment for the amounts due when, and if, funds become
available. Interest shall accrue on such amounts at 9% per annum commencing in
2001 unless waived by the parties.
With regard to any future related party transaction, the Company plans to fully
disclose any and all related party transactions, including, but not limited to,
(i) disclosing such transactions in prospectus' where required; (ii) disclose in
any and all filings with the Securities and Exchange Commission, where required;
(iii) obtain uninterested directors consent; and (iv) obtain shareholder consent
where required.
Transactions with Promoters. The services of promoters have not been used.
Item 8. Description of Securities.
The Company is authorized to issue 50,000,000 shares of common stock, $.001 par
value, each share of common stock having equal rights and preferences, including
voting privileges. As of September 30, 2000, 5,000,000 shares of the Company's
common stock were issued and outstanding. The Company is also authorized to
issue 10,000,000 shares of preferred stock, $.001 par value, each share of
preferred stock having those rights, powers, designations, privileges,
preferences, limitations and restrictions as determined by the Company's Board
of Directors and to the extent allowable under the applicable state and federal
law. As of September 30, 2000, none of the Company's authorized preferred shares
were issued and outstanding. The shares of $.001 par value common stock of the
Company constitute equity interests in the Company entitling each shareholder to
a pro rata share of cash distributions made to shareholders, including dividend
payments. The holders of the Company's common stock are entitled to one vote for
each share of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors of the Company or
any other matter, with the result that the holders of more than 50% of the
shares voted for the election of those directors can elect all of the Directors.
The holders of the Company's common stock are entitled to receive dividends
when, as and if declared by the Company's Board of Directors from funds legally
available therefor; provided, however, that cash dividends are at the sole
discretion of the Company's Board of Directors. In the event of liquidation,
dissolution or winding up of the Company, the holders of common stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities of the Company and after provision has been
made for each class of stock, if any, having preference in relation to the
Company's common stock.
15
<PAGE>
Holders of the shares of Company's common stock have no conversion, preemptive
or other subscription rights, and there are no redemption provisions applicable
to the Company's common stock. All of the outstanding shares of the Company's
common stock are duly authorized, validly issued, fully paid and non-assessable.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
As of September 30, 2000, there were no warrants outstanding.
The Company has not entered into any stock option agreements.
Penny Stock Regulation. The Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the Commission, which (i) contained a
description of the nature and level of risk in the market for penny stocks in
both public offerings and secondary trading; (ii) contained a description of the
broker's or dealer's duties to the customer and of the rights and remedies
available to the customer with respect to violation to such duties or other
requirements of Securities' laws; (iii) contained a brief, clear, narrative
description of a dealer market, including "bid" and "ask" prices for penny
stocks and significance of the spread between the "bid" and "ask" price; (iv)
contains a toll-free telephone number for inquiries on disciplinary actions; (v)
defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and (vi) contains such other information and is in such
form (including language, type, size and format), as the Commission shall
require by rule or regulation. The broker-dealer also must provide, prior to
effecting any transaction in penny stock, the customer (i) with bid and offer
quotations for the penny stock; (ii) the compensation of the broker-dealer and
its salesperson in the transaction; (iii) the number of shares to which such bid
and ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (iv) month account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those 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 acknowledgement of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If any of the Company's securities become subject to the penny stock rules,
holders of those securities may have difficulty selling those securities.
Item 2. Legal Proceedings.
We are not aware of any pending litigation nor does it have any reason to
believe that any such litigation exists
Item 3. Changes in and Disagreements with Accountants.
There have been no changes in or disagreements with our accountants since the
formation of the Company required to be disclosed pursuant to Item 304 of
Regulation S-B.
Item 4. Recent Sales of Unregistered Securities.
There have been no sales of unregistered securities within the last three (3)
years which would be required to be disclosed pursuant to Item 701 of Regulation
S-B except for the following:
On or about March 6, 1999, we completed an offering of our $.001 par value
common stock. Pursuant to that offering, we sold 5,000,000 shares of our $.001
par value common stock for $.002 per share. The shares were issued in reliance
upon the exemption from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended ("Act"), which exemption is specified by
the provisions of Section 3(b) of the Act and Rule 504 of Regulation D
16
<PAGE>
promulgated by the Securities and Exchange Commission pursuant to that Section
3(b). There were 34 purchasers of shares. Gross proceeds from that offering were
$10,000.00. The majority of those funds were used for administration expenses
and working capital.
Item 5. Indemnification of Directors and Officers.
Article IX of the Company's Articles of Incorporation provides that no officer
or director of the Company shall be personally liable for obligations of the
Company or for any duties or obligations arising out of any acts or conduct of
such an officer or director performed for on behalf of the Company except for
(i) acts or omissions that involve intentional misconduct, fraud or a knowing
violation of law or (ii) payment of dividends in violation of the Nevada Revised
Statutes Section 78.300. Article X of the Company's Articles of Incorporation
also provides that the Company shall indemnify each officer and director from
and against any and all claims, judgments and liabilities by reason of any
action taken or omitted to have been taken by him or her as a director or
officer, and also provides that the Company shall reimburse each officer and
director for all legal and other expenses reasonably incurred in connection with
such a claim or liability; provided, however, that such officers and directors
shall not be indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of such a person's own
negligence or willful misconduct.
The Company anticipates that it will enter into indemnification agreements with
each of its officers and directors pursuant to which the Company will agree to
indemnify each such officer and director for all expenses and liabilities,
including criminal monetary judgments, penalties and fines, incurred by such
officer and director in connection with any criminal or civil action brought or
threatened against such officer or director by reason of such officer or
director being or having been an officer or director of the Company. In order to
be entitled to indemnification by the Company, such officer or director must
have acted in good faith and in a manner such person believed to be in the best
interests of the Company and, with respect to criminal actions, such officer or
director must have had no reasonable cause to believe his or her conduct was
unlawful.
DISCLOSURE OF POSITION OF COMMISSION REGARDING INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES:
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF 1933 AND IS,
THEREFORE, UNENFORCEABLE.
PART F/S
Copies of the financial statements specified in Regulation 228.310 (Item 310)
are filed with this Amendment No. 2 to Registration Statement, Form 10-SB.
(a) Index to Financial Statements. Page
1 Independent Auditor's Report F-1
2 Audited Balance Sheet
as at December 31, 1998 and as at
December 31, 1999 F-2
3 Audited Statement of Operations F-3
4 Audited Statement of Cash Flows F-4
17
<PAGE>
5 Audited Statement of Stockholders'
Equity F-5
6 Notes to Audited Financial Statements F-6 through F-8
7 Unaudited Balace Sheet as at September 30, 2000 F-9
8 Unaudited Statement of Operations F-10
9 Unaudited Statement of Cash Flows F-11
10 Unaudited Statement of Stockholders' Equity F-12
11 Notes to the Unaudited Financial Statements F-13 through F-15
PART III
Item 1. Index to Exhibits
Copies of the following documents are filed with the Registration Statement on
Form 10-SB, as exhibits:
1 Corporate Charter of Asian
Alliance Ventures, Inc.
2 Articles of Incorporation of
Asian Alliance Ventures, Inc.
3 Bylaws of Asian Alliance Ventures, Inc.
4 Joint Venture Agreement Between Shandong
Hengtong Chemical Industrial Company Ltd.
and Asian Alliance Ventures, Inc.
5 Articles of Association of Shandong Hentong Development Chemical Company
Ltd.
18
<PAGE>
Grant Thornton LLP Grant Thornton [GRAPHIC]
Chartered Accountants
Management Consultants
Canadian Member Firm of
Grant Thornton International
Independent Auditors' Report on the Financial Statements
To the Shareholders of
Asian Alliance Ventures Inc.
We have audited the balance sheet of Asian Alliance Ventures Inc. (a Development
Stage Company) as at December 31, 1999 and the statements of operations, cash
flows and stockholders' equity for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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 audit provides a reasonable basis for our
opinion
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Asian Alliance Ventures Inc. as at December
31, 1999 and the results of its operations and cash flows for the year then
ended in accordance with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has no established source of revenue and is dependent on
its ability to raise substantial amounts of equity funds. This raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The financial statements as at December 31, 1998 and for the period from
inception to December 31, 1998 were audited by a certified public accountant who
expressed an opinion on those statements in his report dated November 15, 1999
which included an emphasis paragraph with respect to issues raising substantial
doubt about the Company's ability to continue as a going concern.
247 Lawrence Avenue Kelowna, Canada
Kelowna August 4, 2000
British Columbia
V1Y 6L2
Tel: (250) 762-4434
Fax: (250) 762-8896
F-1
<PAGE>
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Asian Alliance Ventures Inc.
(a Development Stage Company)
Balance Sheet
December 31 1999 1998
--------------------------------------------------------------------------------
Assets
Current
Cash $ 14,890 Nil
========= =========
--------------------------------------------------------------------------------
Liabilities
Current
Accounts payable $ 1,297 --
Accrued liabilities 3,000
Due to related parties( Note 3) 41,178 $ 250
Loan payable (Note 4) 220,000
--------- ---------
265,475 250
--------- ---------
Stockholders' Equity
Capital stock (Note 5) 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 (1998 - Nil)
Additional paid-in capital 5,000 --
Deficit accumulated during the development stage (260,585) (250)
--------- ---------
(250,585) (250)
--------- ---------
$ 14,890 Nil
========= =========
--------------------------------------------------------------------------------
See accompanying notes to the financial statements.
F-2
<PAGE>
--------------------------------------------------------------------------------
Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Operations
--------------------------------------------------------------------------------
For the For the For the
period from year period from
inception to ended inception to
December 31 December 31 December 31
1999 1999 1998
---- ---- ----
Bank charges and exchange $ 18,404 $ 18,404 --
Investor relations 232,113 232,113 --
Office 2,555 2,555 --
Licenses and permits 85 85 --
Professional fees 7,428 7,178 $ 250
----------- ----------- -----------
Total expenses 260,585 260,335 250
----------- ----------- -----------
Net loss $ (260,585) $ (260,335) $ (250)
=========== =========== ===========
Weighted average number
of shares outstanding 4,057,377
===========
Loss per share - basic and diluted $ (0.06)
===========
--------------------------------------------------------------------------------
See accompanying notes to the financial statements.
F-3
<PAGE>
--------------------------------------------------------------------------------
Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Cash Flows
--------------------------------------------------------------------------------
For the For the For the
period from year period from
inception to ended inception to
December 31 December 31 December 31
1999 1999 1998
Cash flows derived from
Operating Activities
Net loss $(260,585) $(260,335) $ (250)
Changes in non-cash operating
Working capital
Accounts payable 1,297 1,297 --
Accrued liabilities 3,000 3,000
--------- --------- ---------
(256,288) (256,038) (250)
--------- --------- ---------
Financing Activities
Advances from related parties 41,178 40,928 250
Issue of loan payable 220,000 220,000
Capital stock issued for cash 10,000 10,000 --
--------- --------- ---------
271,178 270,928 250
--------- --------- ---------
Cash, end of period $ 14,890 $ 14,890 Nil
========= ========= =========
--------------------------------------------------------------------------------
See accompanying notes to the financial statements.
F-4
<PAGE>
--------------------------------------------------------------------------------
Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Stockholders' Equity
From inception to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<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, 1998 $ (250) $ (250)
----------- -----------
Balance,
December 31, 1998 (250) (250)
Common stock
issued for cash 5,000,000 $ 5,000 $ 5,000 10,000
Net loss
for the year ended
December 31, 1999 (260,335) (260,335)
--------- ----------- ----------- ----------- -----------
Balance,
December 31, 1999 5,000,000 $ 5,000 $ 5,000 $ (260,585) $ (250,585)
========= =========== =========== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to the financial statements.
F-5
<PAGE>
--------------------------------------------------------------------------------
Asian Alliance Ventures Inc.
(a Development Stage Company)
Notes to the Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
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 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.
--------------------------------------------------------------------------------
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
F-6
<PAGE>
--------------------------------------------------------------------------------
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
December 31, 1999
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
3. Related party transactions
The Company had the following transactions, recorded at their exchange amount,
with related parties:
a) Incurred $220,000 (1998: Nil) for marketing services provided by companies
in which certain officers and/or shareholders have a controlling interest.
At December 31, 1999 the following balances with companies controlled by certain
officers and / or shareholders were outstanding:
Due to Access International Capital Corporation $41,178
The balance is expected to be repaid when funds become available from equity
financing, interest is payable at 9% per annum and has been waived until 2001.
--------------------------------------------------------------------------------
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 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
F-7
<PAGE>
--------------------------------------------------------------------------------
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
December 31, 1999
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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.
F-8
<PAGE>
Asian Alliance Ventures Inc.
(a Development Stage Company)
Balance Sheet - Unaudited
September 30 December 31
2000 1999
--------------------------------------------------------------------------------
Assets
Current
Cash $ 6,803 $ 14,890
--------- ---------
--------------------------------------------------------------------------------
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
Additional paid-in capital 5,000 5,000
Deficit accumulated during the development stage (340,768) (260,585)
--------- ---------
(330,768) (250,585)
--------- ---------
$ 6,803 $ 14,890
--------- ---------
--------------------------------------------------------------------------------
On behalf of the Board
__________________________ Director __________________________ Director
See accompanying notes to the financial statements.
F-9
<PAGE>
Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Operations - Unaudited
(See Notice to Reader)
--------------------------------------------------------------------------------
<TABLE>
<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) $ (14,374) $ (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)
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the financial statements.
F-10
<PAGE>
Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Cash Flows - Unaudited
(See Notice to Reader)
--------------------------------------------------------------------------------
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
------------ ------------ ------------
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
--------- --------- ---------
--------------------------------------------------------------------------------
See accompanying notes to the financial statements.
F-11
<PAGE>
Asian Alliance Ventures Inc.
(a Development Stage Company)
Statement of Stockholders' Equity - Unaudited
From inception to September 30, 2000
<TABLE>
<CAPTION>
Common Shares Additional
Paid-In
Shares Amount Capital Deficit Total
--------- ----------- ----------- ----------- -----------
Net loss for the period
from inception to
<S> <C> <C> <C> <C> <C>
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)
--------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
Asian Alliance Ventures Inc.
(a Development Stage Company)
Notes to the Financial Statements - Unaudited
September 30, 2000
--------------------------------------------------------------------------------
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.
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.
Basis of presentation
These unaudited interim financial statements have been prepared on the same
basis as the annual audited financial statements for the year ended December 31,
1999. In the opinion of management, these unaudited interim financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation for each of the periods presented. The results of
operations for interim periods are not necessarily indicative of results to be
achieved for full fiscal years.
<PAGE>
Asian Alliance Ventures Inc.
(a Development Stage Company)
Notes to the Financial Statements - Unaudited
September 30, 2000
--------------------------------------------------------------------------------
2. Summary of significant accounting policies (Continued)
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
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.
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.
--------------------------------------------------------------------------------
3. Related party transactions
The Company had the following transaction, recorded at its 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.
--------------------------------------------------------------------------------
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 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.
F-14
<PAGE>
Asian Alliance Ventures Inc.
(a Development Stage Company)
Notes to the Financial Statements - Unaudited
September 30, 2000
--------------------------------------------------------------------------------
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 $0.002 per
share totalling $10,000.
Stock options
The Company has not issued any stock options.
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.
F-15
<PAGE>
SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange
Act of 1934, the Company has duly caused this Amendment No. 2 to its
Registration Statement on Form 10-SB to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Vancouver, British
Columbia, Canada, on December 12, 2000.
Asian Alliance Ventures, Inc.,
a Nevada corporation
By: /s/ John Fraser
----------------------------
John Fraser
Its: President
19
