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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 2000
(FILE NO. _________)
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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China Ventures Limited
(Name of Small Business Issuer in its Charter)
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<S> <C>
Cayman Islands N/A
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(State or Other Jurisdiction of (I.R.S. Employer
Identification No.)
Incorporation or Organization)
80 SW 8TH STREET, MIAMI, FLORIDA 33130 N/A
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(305) 810-2898
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Issuer's Telephone Number
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on
to be So Registered Which Each Class is to be Registered
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</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
Ordinary Shares
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(Title of Class)
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INFORMATION REQUIRED IN
REGISTRATION STATEMENT
ITEM 1. BUSINESS.
GENERAL
China Ventures Limited was incorporated in the Cayman Islands in
December 1999. China Ventures is not an operating company and does not have
significant assets or conduct significant business. The registered office of
China Ventures is located at One Capital Place, Fourth Floor, P.O. Box 847,
Grand Cayman, Cayman Islands, British West Indies. China Ventures currently uses
office space located at 80 SW 8th Street, Miami, Florida, as its principal
executive office. The telephone number at its principal executive office is
(305) 810 2898. China Ventures currently has no employees.
The proposed business activities of China Ventures are that of a "blank
check" company. A "blank check" company is a development stage company that has
no specific business plan or purpose or has indicated that its business plan is
to engage in a merger or acquisition with an unidentified company or companies
and may issue "penny stock" securities as defined in the Exchange Act. The SEC
and many states have enacted statutes, rules and regulations limiting sales of
securities by "blank check" companies.
China Ventures was formed to provide a method for an as-yet
unidentified private company in the Republic of China to become a reporting
"public" company whose securities are qualified for trading in the United States
secondary market. There are certain perceived benefits to being a reporting
company with a class of publicly-traded securities qualified for trading in the
United States secondary market. These benefits are commonly thought to include
the following:
- the ability to register securities and use registered
securities to acquire assets or businesses; increased
visibility;
- the facilitation of borrowing from financial institutions;
- improved trading efficiency;
- shareholder liquidity;
- greater ease in subsequently raising capital;
- compensation of key employees through stock options;
- enhanced corporate image; and
- a presence in the United States capital markets.
There are also many disadvantages to becoming a reporting company with
a class of publicly-traded securities qualified for trading in the United States
secondary market, particularly with respect to becoming a "public" company by
merging with or being acquired by a blank check company. These disadvantages are
commonly thought to include the following:
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- companies that merge with or acquired by a blank check "shell"
company incur immediately the expenses of being a public
company without the benefit of receiving proceeds in a public
offering;
- companies that go public through public offerings tend to
attract financial analyst followers and increased visibility,
while companies that go public without a public offering
frequently receive little or no visibility;
- financial institutions make loans based upon a company's
financial statements and prospects, not its status as a
company with publicly-traded securities;
- a company's success in raising capital depends upon its
performance, not with merging with or being acquired by a
shell company;
- it may be expensive for a private company to go public by
merging with or being acquired by a shell company; and
- companies which go public by merging with or being acquired by
a shell company may find it difficult to raise money in the
future due to the negative public perception of these types of
public companies.
A business entity, if any, which may be interested in a business
combination with China Ventures may include the following:
- a company for whom a primary purpose of becoming public is the
use of its securities for the acquisition of assets or
businesses;
- a company which is unable to find an underwriter of its
securities or is unable to find an underwriter of securities
on terms acceptable to it;
- a company which wishes to become public with less dilution of
its common stock than may occur upon an underwriting;
- a company which believes that it will be able obtain
investment capital on more favorable terms after it has become
public; and
- a foreign company which may wish an initial entry into the
United States securities market;
PLAN OF OPERATION
China Ventures intends to merge with or acquire a business entity in
exchange for China Ventures' securities. No assurances can be given that China
Ventures will be successful in locating an appropriate Chinese entity or
successfully negotiating a transaction with such entity. China Ventures
currently has no business operations and there can be no assurances given as to
the nature of the target entity, as to whether China Ventures will be able to
enter into a business combination or as to the terms of the business
combination. In certain instances, a target entity may wish to become a
subsidiary of China Ventures or may wish to contribute assets to China Ventures
rather than merge. A business combination with a target entity may involve the
transfer to the target entity or its owners of the majority of the issued and
outstanding common stock of China Ventures, and the substitution by the target
business of its own management and board of directors.
Management believes that it will be required to raise additional funds
to sustain China Ventures during 2000. We cannot assure you that China Ventures
will be able to raise sufficient funds, either through the incurrence of debt or
the offering of equity securities. If China Ventures is unable to raise
sufficient
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capital to sustain its business, it will be forced to go out of business.
Management's ability to execute its business plan, as set forth below, is fully
dependent on its ability to raise the necessary funds.
China Ventures has no full time employees. Its officers and directors
have agreed to allocate a portion of their time to the activities of China
Ventures, without compensation. They anticipate that the business plan of China
Ventures can be implemented by each of them devoting a modest number of hours to
the business affairs of China Ventures. Consequently, conflicts of interest may
arise with respect to the limited time commitment by them. China Ventures'
officers and directors may in the future become involved with other companies
which have a business purpose similar to that of China Ventures. A conflict may
arise in the event that another company, or a company to be formed, with which
management is affiliated seeks a target business. The Memorandum and Articles of
Association of China Ventures provides that China Ventures may indemnify
officers and/or directors of China Ventures for liabilities, which can include
liabilities arising under the securities laws. Therefore, assets of China
Ventures could be used or attached to satisfy any liabilities subject to such
indemnification.
GENERAL BUSINESS PLAN
China Ventures' purpose is to seek, investigate and, if the
investigation warrants, merge with or otherwise acquire a business entity from
the People's Republic of China. If this attempt fails, China Ventures will not
restrict its search to any specific business, industry, or geographical location
and China Ventures may participate in a business venture of virtually any kind
or nature.
China Ventures may seek a business opportunity with an entity which has
recently commenced operations, or which wishes to utilize the public marketplace
in order to raise additional capital in order to expand into new products or
markets, to develop a new product or service, or for other corporate purposes.
China Ventures may acquire assets and establish wholly-owned subsidiaries in
various businesses or acquire existing businesses as subsidiaries.
China Ventures anticipates that the selection of a business opportunity
in which to participate will be complex and extremely risky. Due to general
economic conditions, rapid technological advances being made in some industries
and shortages of available capital, management believes that there are numerous
firms seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, and providing liquidity for
shareholders and other factors. The officers and directors of China Ventures,
however, have not conducted market research and are not aware of statistical
data to support the perceived benefits of a merger or acquisition transaction
for the owners of a target business.
The analysis of new business opportunities will be undertaken by, or
under the supervision of, the officers and directors of China Ventures, who are
not professional business analysts. In analyzing prospective business
opportunities, management will consider such matters as the
- available technical, financial and managerial resources;
- working capital and other financial requirements;
- history of operations, if any;
- prospects for the future;
- nature of present and expected competition;
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- the quality and experience of management services which may be
available;
- the potential for further research, development, or
exploration;
- specific risk factors not now foreseeable but which then may
be anticipated to impact the proposed activities of China
Ventures;
- the potential for growth or expansion;
- the potential for profit;
- the perceived public recognition or acceptance of products,
services, or trades; and
- name identification.
To the extent possible, China Ventures intends to utilize written
reports and personal investigation to evaluate factors. The Exchange Act
requires that any merger or acquisition candidate comply with certain reporting
requirements, which include providing financial statements audited in accordance
with generally accepted accounting principles to be included in the reports to
be filed by China Ventures under the Exchange Act. China Ventures will likely be
required to file an information statement under the Exchange Act prior to
consummating any transaction. Preparation of such information, including for
example, translation of applicable documents from Chinese to English, will
likely be costly and time-consuming. China Ventures will not acquire or merge
with any company for which audited financial statements cannot be obtained.
The officers and directors of China Ventures may not be experienced in
matters relating to the business of a target entity, but will primarily rely
upon their own efforts in accomplishing the business purposes of China Ventures.
It is anticipated that outside consultants or advisors may be used by China
Ventures to assist in the search for qualified target entities. If China
Ventures does retain an outside consultant or advisor, any cash fee earned by
the consultant will need to be paid by the prospective merger/acquisition
candidate, as China Ventures has limited cash assets with which to pay such
obligation. China Ventures may pay all or some of the consultant's or advisor's
fee with previously authorized but unissued shares.
ACQUISITION OPPORTUNITIES
We anticipate that any securities issued in a reorganization would be
issued in reliance upon an exemption from registration under applicable federal
and state securities laws, to the extent required. In some circumstances,
however, as a negotiated element of its transaction, China Ventures may agree to
register all or a part of such securities immediately after the transaction is
consummated or at specified times thereafter. If this registration occurs, of
which there can be no assurance, it may be undertaken by the surviving entity
after China Ventures has entered into an agreement for a business combination or
has consummated a business combination and China Ventures is no longer
considered a blank check company. The issuance of substantial additional
securities and their potential sale into any trading market which may develop in
China Ventures' securities may have a depressive effect on the market value of
China Ventures' securities if a market develops.
With respect to any merger or acquisition, negotiations with management
of the target entity are expected to focus on the percentage of China Ventures
which target entity shareholders would acquire in exchange for all of their
ownership in the target entity. Depending upon, among other things, the target
entity's assets and liabilities, China Ventures' shareholders prior to the
transaction will in all likelihood hold a minority percentage ownership interest
in China Ventures following any merger or acquisition. The percentage ownership
will be subject to significant reduction in the event China Ventures acquires a
target
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entity with substantial assets. Therefore, any merger or acquisition effected by
China Ventures can be expected to have a significant dilutive effect on the
percentage of shares held by China Ventures' shareholders at such time.
China Ventures will participate in a business opportunity only after
the negotiation and execution of appropriate agreements. Although the terms of
such agreements cannot be predicted, generally these agreements will require
certain representations and warranties of the parties, will specify certain
events of default, will detail the terms of closing and the conditions which
must be satisfied by the parties prior to and after such closing, will outline
the manner of bearing costs, including costs associated with China Ventures'
attorneys and accountants, and will include other important terms.
China Ventures will not acquire or merge with any entity which cannot
provide audited financial statements. China Ventures will be subject to all of
the reporting requirements included in the Exchange Act. Included in these
requirements is the duty of China Ventures to file audited financial statements
as part of its Current Report on Form 8-K to be filed with the SEC upon
consummation of a merger or acquisition, as well as a requirement to file
audited financial statements in its annual report on Form10-K. If these audited
financial statements are not available at closing, or within time parameters
necessary to insure China Ventures' compliance with the requirements of the
Exchange Act, or if the audited financial statements provided do not conform to
the representations made by the target entity, the closing documents may provide
that the proposed transaction can voided at the discretion of the present
management of China Ventures.
China Ventures' officers and directors have agreed that they may
advance to China Ventures additional funds which China Ventures may need for
operating capital and for costs in connection with searching for or completing
an acquisition or merger. The officers and directors are under no obligation to
make any advances to China Ventures. In the event that officers or directors of
China Ventures do make advances, China Ventures does not intend to borrow funds
for the purpose of repaying advances made by officers or directors or to make
any payments to China Ventures' promoters, management or their affiliates.
COMPETITION
China Ventures will remain an insignificant participant among the firms
which engage in the acquisition of business opportunities. There are many
established venture capital and financial concerns which have significantly
greater financial and personnel resources and technical expertise than China
Ventures. In view of China Ventures's extremely limited financial resources and
limited management resources, China Ventures will continue to be at a
significant competitive disadvantage compared to China Ventures' competitors.
CONFLICTS OF INTEREST
Management may agree to pay finder's fees, as appropriate and allowed,
to unaffiliated persons who may bring a target business to China Ventures where
that referral results in a business combination. The amount of any finder's fee
will be subject to negotiation, and cannot be estimated at this time.
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Management has adopted certain policies involving possible conflicts of
interest, including prohibiting any of the following transactions involving
management or promoters or their affiliates or associates:
(i) Any lending by China Ventures to such persons; or
(ii) The issuance of any additional securities to such persons
prior to a business combination.
These policies have been adopted by the Board of Directors of China
Ventures, and any changes in these provisions would require the approval of the
Board of Directors. Management does not intend to propose any such action and
does not anticipate that any such action will occur.
There are no binding guidelines or procedures for resolving potential
conflicts of interest. Additionally, China Ventures' Articles of Association
provide for the indemnification of the officers and directors for actions taken
by these officers and directors on behalf of China Ventures, other than for
actions or inactions which amount to willful neglect on the part of the officer
or director.
DISPUTES
In the event that a shareholder of China Ventures becomes involved in a
dispute with China Ventures or its officers or directors, it may be difficult
for this shareholder to resolve this dispute. As a Cayman Islands corporation,
with a registered office in the Cayman Islands, a shareholder would likely be
required to bring any suit or cause of action in the Cayman Islands. This may be
difficult and costly for the China Ventures shareholders.
China Ventures is voluntarily filing this Registration Statement with
the Securities and Exchange Commission and is under no obligation to do so under
the Exchange Act.
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RISK FACTORS
China Ventures's business is subject to numerous risk factors,
including the following:
WE HAVE NO OPERATING HISTORY AND MINIMAL ASSETS AND, AS A RESULT, OUR
PROSPECTS ARE DIFFICULT TO EVALUATE.
We have had no operating history nor any revenues or earnings from
operations. China Ventures has no significant assets or financial resources. We
will incur operating expenses without corresponding revenues, at least until the
consummation of a business combination. As a result we may incur a net operating
loss which will increase continuously until we can consummate a business
combination with a target entity. If we are unable to fund our business, we will
be forced to go out of business.
OUR PROPOSED OPERATIONS ARE SPECULATIVE AND OUR BUSINESS MAY FAIL.
The success of China Ventures' proposed plan of operation will depend
to a great extent on the operations, financial condition and management of the
target entity. While management intends to seek business combinations with
entities having established operating histories, management will be spending a
minimal amount of time dedicated to finding an appropriate target candidate. As
a result, there can be no assurance that we will be successful in locating
candidates meeting our criteria. In the event we complete a business
combination, the success of our operations will be dependent upon management of
the target entity and numerous other factors beyond our control. It is possible
that our resources will be depleted prior to consummating a business
combination.
TRANSACTIONS INVOLVING "PENNY STOCKS" SUCH AS CHINA VENTURES ARE HIGHLY
REGULATED.
The Exchange Act defines "penny stock" as any equity security that has
a market price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require: (i)
that a broker or dealer approve a person's account for transactions in penny
stocks and (ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person's account for
transactions in penny stocks, the broker or dealer must (i) obtain financial
information and investment experience and objectives of the person; and (ii)
make a reasonable determination that the transactions in penny stocks are
suitable for that person and that person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the SEC relating to the
penny stock market, which, in highlight form, (i) sets forth the basis on which
the broker or dealer made the suitability determination and (ii) certify that
the broker or dealer received a signed, written agreement from the investor
prior to the transaction. Disclosure is also required to be made about the risks
of investing in penny stocks in both public offerings and in secondary trading,
and about commissions payable to both the broker or dealer and the registered
representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock transactions.
Finally, monthly statements have to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stocks.
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THERE IS A SCARCITY OF AND TREMENDOUS COMPETITION FOR TARGET CANDIDATES
AND COMBINATIONS.
China Ventures is and will continue to be an insignificant participant
in the business of seeking mergers with and acquisitions of business entities. A
large number of established and well-financed entities, including venture
capital firms, are active in mergers and acquisitions of companies which may be
merger or acquisition target candidates for China Ventures. Nearly all such
entities have significantly greater financial resources, technical expertise and
managerial capabilities than China Ventures and, consequently, China Ventures
will be at a competitive disadvantage in identifying possible target entities
and successfully completing a business combination. In addition, China Ventures
will also compete with numerous other small public companies in seeking merger
or acquisition candidates.
THE COSTS OF COMPLYING WITH OUR REPORTING OBLIGATIONS UNDER THE
EXCHANGE ACT MAY BE PROHIBITIVE.
The Exchange Act requires companies subject thereto to provide certain
information about their operations including certified financial statements. The
time and additional costs that may be incurred by China Ventures to prepare
financial statements may cause China Ventures to cease operations even after a
business combination has been consummated. If China Ventures uses all of its
funds and is unable to consummate a business combination or raise additional
funds, it will be forced to go out of business.
OUR MANAGEMENT TEAM HAS MINIMAL EXPERIENCE IN ANALYZING AND ACQUIRING
COMPANIES AND EXPECTS TO DEVOTE A MINIMAL AMOUNT OF TIME AND EFFORT TO
FINDING AN ACQUISITION CANDIDATE.
Management has limited experience in the business of analyzing private
companies and in the securities industry. In addition, while seeking a business
combination, management anticipates devoting only a portion of its time to the
business of China Ventures. The combined limited experience and limited time
commitment of management may result in China Ventures' failure to enter into a
successful business combination.
We intend to enter into a business combination with a Chinese entity,
which will expose us to risks not associated with domestic entities.
This may expose us to many risks, including:
- economic downturns;
- currency exchange rate fluctuations;
- changes in governmental policy;
- international incidents;
- military outbreaks;
- government instability,
- nationalization of foreign assets; and
- government protectionism.
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WE ARE NOT CURRENTLY A PARTY TO AND CANNOT GUARANTEE THAT WE WILL
BECOME A PARTY TO ANY ARRANGEMENT WHICH WOULD RESULT IN A BUSINESS
COMBINATION.
Although we have commenced preliminary discussions with business
entities from the Republic of China, we currently have no arrangement or
agreement with respect to engaging in a merger with or acquisition of any
business entity. We have not established a specific length of operating history
or a specified level of earnings, assets, net worth or other criteria which we
will require a target business opportunity to have achieved, or without which we
would not consider a business combination with such business entity.
WE MAY BE ABLE TO PURSUE ONLY ONE BUSINESS OPPORTUNITY WHICH WOULD
RESTRICT OUR ABILITY TO DIVERSIFY INTO OTHER AREAS.
Our proposed operations, even if successful, will in all likelihood
result in us engaging in a business combination with only one business
opportunity. Consequently, our activities will be limited to those engaged in by
the business with which we merge or acquire. Our inability to diversify our
activities into a number of areas may subject us to economic fluctuations within
a particular business or industry and therefore increase the risks associated
with our operations.
CHINA VENTURES HAS, AND WILL CONTINUE TO HAVE, NO CAPITAL WITH WHICH TO
PROVIDE THE OWNERS OF TARGET ENTITIES.
Although China Ventures has no capital to provide to target entities,
management believes that China Ventures will be able to offer owners of target
entities the opportunity to acquire ownership interest in a publicly registered
company without incurring the cost and time required to conduct an initial
public offering. This, however, is no guarantee that the owners of a target
entity will enter into a business combination with China Ventures.
WE DEPEND ON KEY INDIVIDUALS AND THEY WOULD BE DIFFICULT TO REPLACE.
While seeking a business combination, management anticipates devoting
minimal hours to our business. Our officers and directors have not entered into
written employment agreements with us and are not expected to do so in the
foreseeable future. We have not obtained key man life insurance on our officers
and directors. Notwithstanding the combined limited experience and limited time
commitment of management, loss of the services of these individuals would
adversely affect development of our business and our likelihood of continuing
operations.
OUR MANAGEMENT MAY PARTICIPATE IN OTHER ACTIVITIES WHICH MAY DIRECTLY
OR INDIRECTLY CONFLICT WITH THE ACTIVITIES IN WHICH WE ARE
PARTICIPATING.
Our officers and directors participate in other ventures which may
compete directly or indirectly with us. Additional conflicts of interest and
non-arms length transactions may also arise in the future. Management has
adopted a policy that requires full disclosure of any potentially conflicting
relationships.
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THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT MAY DELAY OR PRECLUDE
THE ACQUISITION OF SOME TARGET ENTITIES.
The Exchange Act requires companies whose securities are registered
under the Exchange Act to provide information about significant acquisitions
including audited financial statements for the acquired entity covering one or
two fiscal years, depending on the relative size of the acquisition. It is
likely that we will be required to prepare and file an information statement
with the SEC prior to the consummation of any transaction. Filing the
information statement will require us to prepare the financial statements for
any potential acquired company in conformity with generally accepted accounting
principles and to provide appropriate financial disclosure to China Ventures
shareholders. The cost and effort of such an undertaking may make a potential
acquisition less attractive to us.
The time and additional costs that may be incurred by some target
entities to prepare such audited financial statements may significantly delay or
essentially preclude our consummation of an otherwise desirable acquisition.
Acquisition prospects that do not have and are unable to obtain the required
audited financial statements will not be appropriate for acquisition.
A BUSINESS COMBINATION MAY RESULT IN A CHANGE IN CONTROL AND A CHANGE
IN OUR MANAGEMENT.
A business combination involving the issuance of our common stock will,
in all likelihood, result in shareholders of a target entity obtaining a
controlling interest in us. Any such business combination may require our
officers and directors to sell or transfer all or a portion of our common stock
held by them, and to resign as members of the Board of Directors and as
officers. The resulting change in control could result in removal of our present
officers and directors and a corresponding reduction in or elimination of their
participation in our future affairs.
THERE IS NO ASSURANCE THAT A TRADING MARKET WILL EVER DEVELOP IN OUR
SECURITIES.
We currently have no shares which have been registered for public sale
or are eligible to be sold in any public market. We may enter into a business
combination with a business entity that desires to establish a public trading
market for its shares if we have shares that are trading publicly. A target
entity may attempt to avoid what it deems to be adverse consequences of
undertaking its own public offering by seeking a business combination with China
Ventures. Such consequences may include, but are not limited to, time delays of
the registration process, significant expenses to be incurred in such an
offering, loss of voting control to public shareholders or the inability to
obtain an underwriter or to obtain an underwriter on terms satisfactory to the
target entity.
THERE IS NO GUARANTEE THAT A BUSINESS COMBINATION WOULD RESULT IN
TAX-FREE TREATMENT.
Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination we may undertake. Currently, such
transactions may be structured so as to result in tax-free treatment to both
companies, pursuant to various federal and state tax provisions. We intend to
structure any business combination so as to minimize the federal and state tax
consequences to us and the target entity; however, we cannot assure you that any
business combination will meet the statutory requirements of a tax-free
reorganization or that the parties will obtain the intended tax-free treatment
upon a transfer of stock or assets. A non-qualifying reorganization could result
in the imposition of both federal and state taxes which may have an adverse
effect on both parties to the transaction.
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ITEM 2. FINANCIAL INFORMATION.
OVERVIEW.
China Ventures was formed in December 1999. To date, China Ventures has
financed its operations through the sale of equity securities. In December 1999,
China Ventures raised $15,000 through a private placement of equity securities.
Such funds have been used to fund the operations of China Ventures to date,
including the payment of costs and expenses related to the formation of China
Ventures, the private placement described above and the filing of this Form 10.
As of March 31, 2000, these costs and expenses totaled approximately $21,000.
Following the effectiveness of this Form 10, management estimates that its
quarterly expenses will be approximately $50,000. Accordingly, management will
be required to raise additional funds in the short-term to fund its operating
costs and intends to raise such funds through the sale of equity securities.
PLAN OF OPERATION.
China Ventures intends to merge with or acquire a business entity in
exchange for China Ventures' securities. Initially, China Ventures will attempt
to merge with or acquire a business entity from the People's Republic of China.
If this attempt is not successful, China Ventures anticipates seeking out a
target business through solicitation. This solicitation may include newspaper or
magazine advertisements, mailings and other distributions to law firms,
accounting firms, investment bankers, financial advisors and similar persons,
the use of one or more World Wide Web sites and similar methods. No estimate can
be made as to the number of persons who will be contacted or solicited.
ITEM 3. DESCRIPTION OF PROPERTY.
China Ventures owns no real property and at this time has no agreements
to acquire any property. China Ventures currently uses office space at 80 SW 8th
Street, Miami, FL 33131 to conduct its operations. This office space is provided
at no cost by an entity owned by the executive officers of China Ventures. China
Ventures intends to use this office space for its operations until it identifies
and completes a transaction with an operating company, at which time China
Ventures expects to use the acquired company's office as its executive office.
China Ventures has no written agreement for the use of this office space and may
not be able to use this office space until it completes an acquisition of an
operating company. Alternatively, it may be required to pay rent for the use of
the office space.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The number of ordinary shares of China Ventures' owned by China
Ventures' directors and officers and by each person who owns legally and
beneficially more than five percent of China Ventures' issued and outstanding
ordinary shares on May 31, 2000, the address of each such person and the
percentage of the ordinary shares represented by such shares is set forth in the
following table. Unless otherwise indicated all ownership is both legal and
beneficial.
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<TABLE>
<CAPTION>
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Name and Address Amount and Nature Percent of Class
of Beneficial of Beneficial
Owner Owner
----------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Yang 123,750 49.00%
11\F Huitong Building Finance
and Trade District
Haikou City
Hainan Province
Peoples Republic
of China P.C. 570125
James N. L. Chow 121,250 48.01%
52 Hoi Pong Road, Central
Lei Yue Mun, Kowloon, HK
All Executive Officers and
Directors as a Group 245,000 97.01%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The names, ages and terms of office of directors and executive officers
of China Ventures are set forth in the following table:
<TABLE>
<CAPTION>
NAME AGE POSITIONS DIRECTOR SINCE
----------- -------- ----------------- --------------------------
<S> <C> <C> <C>
Hong Yang 41 Director; President December 1999
James N. L. Chow 42 Director; Secretary December 1999
</TABLE>
Hong Yang Mr. Yang, a citizen of the Peoples Republic of
China, has served as President of Hainan Zhiye
General Company since 1992, a conglomerate based in
China and focused on real estate, hotels,
restaurants, tourism, trading and ocean
transportation.
James N.L. Chow Mr. Chow, a citizen of Hong Kong, has been President
of Inter-Global Investments, Inc. since March 1997.
During that time, he has provided investment banking
consulting services for various companies in the
United States. Prior thereto, from August 1996 to
March 1997, he was Regional Financial Controller for
Miramar Hotel & Investment Co., Ltd. in Hong Kong.
From September 1993 to August 1996, Mr. Chow was
Financial Controller for Miramar Hotel Management
Group in The People's Republic of China.
Each director is elected by holders of a majority of the ordinary
shares to serve for a term of one year and until his successor is elected and
qualified, which is generally at the annual meeting of shareholders. Officers
serve at the will of the board, subject to possible future employment agreements
which would establish term, salary, benefits and other conditions of employment.
No employment agreements are currently contemplated.
13
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
None of the officers receives any compensation for the services
rendered to China Ventures.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Ricardo Bajandas, a partner in the law firm De La Pena, Villanueva &
Bajandas, LLP, is a shareholder of China Ventures and acted as legal counsel
from December 1999 until April 2000 in connection with the formation of China
Ventures and related matters. Through April 2000, China Ventures had incurred
approximately $19,700 in legal fees and expenses to Mr. Bajandas in connection
with preparation and filing of this Form 10.
ITEM 8. LEGAL PROCEEDINGS.
There is no litigation pending or threatened by or against China
Ventures.
ITEM 9. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is currently no market for China Ventures' ordinary shares.
The National Association of Securities Dealers, Inc., which administers
the NASDAQ Stock Market, has established certain criteria for initial and
continued eligibility for listing on the NASDAQ Stock Market. In order to
qualify for listing on the NASDAQ SmallCap Market, a company must have at least
(i) net tangible assets of $4,000,000 or market capitalization of $50,000,000 or
net income for two of the last three years of $750,000; (ii) public float of
1,000,000 shares with a market value of $5,000,000; (iii) a bid price of $4.00;
(iv) three market makers; (v) 300 shareholders and (vi) an operating history of
one year or, if less than one year, $50,000,000 in market capitalization. For
continued listing on the NASDAQ SmallCap Market, a company must have at least
(i) net tangible assets of $2,000,000 or market capitalization of $35,000,000 or
net income for two of the last three years of $500,000; (ii) a public float of
500,000 shares with a market value of $1,000,000; (iii) a bid price of $1.00;
(iv) two market makers; and (v) 300 shareholders.
There can be no assurances that, upon a successful merger or
acquisition, China Ventures will qualify its securities for listing on the
NASDAQ SmallCap Market or a national or regional exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of China Ventures to qualify its securities or to meet the relevant
maintenance criteria after such qualification may result in the discontinuance
of the inclusion of China Ventures's securities.
In such events, trading, if any, in China Ventures's securities may
then continue in the over-the-counter market. In such case, a shareholder may
find it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, China Ventures's securities.
Holders. There were 28 holders of ordinary shares of China Ventures' as
of May 31, 2000 with a total of 252,550 shares of common stock issued and
outstanding.
Dividends. Dividends on the ordinary shares can be paid lawfully only
out of current and retained earnings and surplus of China Ventures, when, as and
if declared by the board of directors. China Ventures has not declared or paid
any dividends on the ordinary shares since inception and there is no assurance
dividends will be paid in the foreseeable future. The payment of dividends in
the future rests within the discretion of its board of directors and will
depend, among other things, upon China Ventures's earnings, its
14
<PAGE>
capital requirements and its financial condition, as well as other factors which
the board of directors deems relevant.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1999, China Ventures issued and sold 2,500 ordinary shares
to 25 individuals for aggregate consideration of $15,000. China Ventures did not
sell these ordinary shares in reliance on any exemption from the United States
federal securities laws as all purchasers were residents of the Republic of
China.
On December 16, 1999, in connection with the formation of China
Ventures, Mr. Hong Yang received 123,750 ordinary shares, Mr. James Chow
received 121,250 ordinary shares and Mr. Ricardo Bajandas received 5,050
ordinary shares. Each of Mr. Yang, Mr. Chow and Mr. Bajandas paid par value as
consideration for the shares issued in connection with the formation of China
Ventures. Mr. Yang and Mr. Chow are residents of China. Mr. Bajandas is a
resident of the United States. Accordingly, no exemption was required for the
issuance of ordinary shares to Mr. Yang or Mr. Chow. Mr. Bajandas purchased his
ordinary shares of China Ventures in reliance on Rule 4(2) promulgated under the
Securities Act. In May 2000, in connection with the termination of Mr. Bajandas'
engagement with China Ventures, Mr. Bajandas agreed to transfer his ordinary
shares to China Ventures.
ITEM 11. DESCRIPTION OF SECURITIES.
The authorized capital stock of China Ventures consists of 50,000,000
ordinary shares, par value $.001 per share. The following statements relating to
the capital stock are summaries and do not purport to be complete. Reference is
made to the more detailed provisions of, and such statements are qualified in
their entirety by reference to, the Memorandum and Articles of Association, a
copy of which is filed as an exhibit to this registration statement.
Ordinary Shares
Holders of shares are entitled to one vote for each ordinary share on
all matters to be voted on by the shareholders. Holders of shares do not have
cumulative voting rights. Holders of ordinary shares are entitled to share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion from funds legally available therefor. In the
event of a liquidation, dissolution or winding up of China Ventures, the holders
of ordinary shares are entitled to share pro rata all assets remaining after
payment in full of all liabilities.
Holders of ordinary shares have no preemptive rights to purchase China
Ventures's shares. There are no conversion or redemption rights or sinking fund
provisions with respect to the ordinary shares.
Dividends
China Ventures does not expect to pay dividends. Dividends, if any,
will be contingent upon China Ventures' revenues and earnings, if any, capital
requirements and financial conditions. The payment of dividends, if any, will be
within the discretion of China Ventures' Board of Directors. China Ventures
presently intends to retain all earnings, if any, for use in its business
operations and accordingly, the Board of Directors does not anticipate declaring
any dividends in the foreseeable future.
15
<PAGE>
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Directors and Officers for the time being of China Ventures and any
trustee for the time being acting in relation to any of the affairs of China
Ventures and their heirs, executors, administrators and personal representatives
respectively shall be indemnified out of the assets of China Ventures from and
against all actions, proceedings, costs, charges, losses, damages and expenses
which they or any of them shall or may incur or sustain by reason of any act
done or omitted in or about the execution of their duty in their respective
offices or trusts, except such (if any) as they shall incur or sustain by or
through their own wilful neglect or default respectively and no such Director,
Officer or trustee shall be answerable for the acts, receipts, neglects or
defaults of any other Director, Officer or trustee or for joining in any receipt
for the sake of conformity or for the solvency or honesty of any banker or other
persons with whom any monies or effects belonging to China Ventures may be
lodged or deposited for safe custody or for any insufficiency of any security
upon which any monies of China Ventures may be invested or for any other loss or
damage due to any such cause as aforesaid or which may happen in or about the
execution of his office or trust unless the same shall happen through the wilful
neglect or default of such Director, Officer or trustee.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 15.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On February 10, 2000, Angel A. Suarez (the "Former Auditor"), the
principal accountant previously engaged to audit China Ventures' financial
statements, resigned as certified public accountant for China Ventures. The
principal accountant's report on China Ventures' financial statements did not
contain an adverse opinion, disclaimer of opinion, qualification or modification
as to uncertainty, audit scope or accounting principles. From China Ventures'
formation in December 1999 and the subsequent period through February 10, 2000,
there were no disagreements with the Former Auditor on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope of
procedures, which disagreement, if not resolved to the satisfaction of the
Former Auditor, would have caused it to make reference to the subject matter of
the disagreement in connection with its report.
On May 19, 2000, the board of directors of China Ventures approved the
engagement of Lopez Levi & Associates, LLC as the principal accountant to audit
China Ventures' financial statements. Since China Ventures' formation in
December 1999 and the subsequent period through May 19, 2000, prior to such
appointment, China Ventures has not consulted the newly engaged accountant
regarding either the application of accounting principles to a specified
transaction or the type of audit opinion that might be rendered on China
Ventures' financial statements, nor on any matter that was either the subject of
a disagreement or a reportable event.
The Former Auditor reviewed the disclosure provided in this Item 14 of
Form 10 prior to its filing with the Securities and Exchange Commission.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements
Independent Auditor's Report dated June 9, 2000
Balance Sheets dated as of December 31, 1999 and March 31,
2000 (unaudited)
16
<PAGE>
Statements of Operations from December 10 (inception date) to
December 31, 1999, for the three months ended March 31, 2000
(unaudited) and for the period December 10, 1999 (inception
date through March 31, 2000 (unaudited))
Statements of Changes in Accumulated Deficit from December 10
(inception date) to December 31, 1999 and from December 10,
1999 (inception date) through March 31, 2000 (unaudited)
Statement of Cash Flows from December 10 (inception date) to
December 31, 1999, for the three months ended March 31, 2000
(unaudited) and for the period December 10, 1999 (inception
date) through March 31, 2000 (unaudited)
Notes to Financial Statements
EXHIBITS
3.1 Memorandum and Articles of Association of China
Ventures Limited
4.1 Specimen Stock Certificate of China Ventures Limited
16.1 Letter re: Change in Certifying Accountant
27 Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10 to be signed on its behalf by the
undersigned thereunto duly authorized.
CHINA VENTURES LIMITED
<TABLE>
<S> <C>
Date: June 27, 2000 BY: /s/ James N. L. Chow
-------------------------------------------
James N.L. Chow, Secretary
</TABLE>
18
<PAGE>
CHINA VENTURES LIMITED FINANCIAL STATEMENTS
<TABLE>
PAGE
----
<S> <C>
Independent Auditor's Report dated June 9, 2000 F-2
Balance Sheets dated as of December 31, 1999 and F-3
March 31, 2000 (unaudited)
Statements of Operations from December 10 (inception date) F-4
to December 31, 1999, for the three months ended March 31, 2000
(unaudited) and for the period December 10, 1999
(inception date through March 31, 2000 (unaudited))
Statements of Changes in Accumulated Deficit from F-5
December 10 (inception date) to December 31, 1999,
and from December 10, 1999 (inception date) through
March 31, 2000 (unaudited)
Statement of Cash Flows from December 10 (inception date) F-6
to December 31, 1999, for the three months ended March 31, 2000
(unaudited) and for the period December 10, 1999 (inception
date) through March 31, 2000 (unaudited)
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
China Ventures Limited
George Town
Grand Cayman Island, BWI
We have audited the accompanying balance sheets of China Ventures Limited (A
Development Stage Company) as of December 31, 1999, and the related statements
of operations, changes in accumulated deficit, and cash flows for the period
December 10, 1999 (date of incorporation) to December 31, 1999. 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 generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of China Ventures Limited (A
Development Stage Company) as of December 31, 1999, and the results of its
operations and its cash flows for the period December 10, 1999 (inception date)
to December 31, 1999, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes A and B to the
financial statements, the Company is in the development stage, has yet to
generate operating revenues and will require a significant amount of capital to
commence its planned principal operations. As reflected in the accompanying
financial statements, the Company has incurred accumulated losses since
inception of $20,948 and has raised an insignificant amount of capital. As such,
there is no assurance that the Company will be successful in its efforts to
raise the necessary capital to commence its planned principal operations. These
conditions raise 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.
Lopez Levi & Associates, LLC
Miami, Fl
June 9, 2000
F-2
<PAGE>
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 2000
1999 (UNAUDITED)
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 13,750 $ 2,052
------------- -------------
TOTAL CURRENT ASSETS $ 13,750 $ 2,052
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued expenses $ 11,678 $ -
Due to related party 8,000 8,000
------------- -------------
TOTAL CURRENT LIABILITIES 19,678 8,000
ACCUMULATED DEFICIT
Common stock, par value $.001 per share; 50,000,000 shares
authorized and 252,550 shares issued and outstanding 253 253
Additional paid in capital 14,997 14,997
Subscription receivable (250) (250)
Deficit accumulated during the development stage (20,928) (20,948)
------------- -------------
(5,928) (5,948)
------------- -------------
$ 13,750 $ 2,052
============= =============
</TABLE>
F-3
<PAGE>
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
DECEMBER 10, DECEMBER 10,
1999 FOR THE THREE 1999
(INCEPTION DATE) MONTHS ENDED (INCEPTION DATE)
ENDED MARCH 31, THROUGH
DECEMBER 31, 2000 MARCH 31, 2000
1999 (UNAUDITED) (UNAUDITED)
------------------- ------------------- --------------------
<S> <C> <C> <C>
ADMINISTRATIVE EXPENSES
Accounting and legal fees $ 20,928 $ - $ 20,928
Bank charges - 20 20
------------------- ------------------- --------------------
NET LOSS $ (20,928) $ (20) $ (20,948)
=================== =================== ====================
BASIC AND DILUTED NET LOSS PER SHARE $(0.08) $0.00 $(0.08)
=================== =================== ====================
SHARES USED IN THE CALCULATION OF
BASIC AND DILUTED NET LOSS PER
SHARE 252,550 252,550 252,550
=================== =================== ====================
</TABLE>
F-4
<PAGE>
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL STOCK DURING THE TOTAL
COMMON PAID-IN SUBSCRIPTION DEVELOPMENT ACCUMULATED
STOCK CAPITAL RECEIVABLE STAGE DEFICIT
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
on December 10, 1999
(inception date) -
250,050 shares at $.001
per share $ 250 $ -- $ (250) $ -- $ --
Sale of common stock on
December 10, 1999
(inception date) - 2,500
shares at $6 3 14,997 -- -- 15,000
Net Loss -- -- -- (20,928) (20,928)
--------------- -------------- ---------------- --------------- ---------------
BALANCE AT
DECEMBER 31, 1999 $ 253 $ 14,997 $ (250) $ (20,928) $ (5,928)
Net Loss (Unaudited) (20) (20)
--------------- --------------- ---------------- --------------- ---------------
BALANCE AT
MARCH 31, 2000
(Unaudited) $ 253 $ 14,997 $ (250) $ (20,948) $ (5,948)
============== =============== ================ =============== ===============
</TABLE>
F-5
<PAGE>
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
DECEMBER 10, DECEMBER 10,
1999 FOR THE THREE 1999
(INCEPTION DATE) MONTHS ENDED (INCEPTION DATE)
THROUGH MARCH 31, THROUGH
DECEMBER 31, 2000 MARCH 31, 2000
1999 (UNAUDITED) (UNAUDITED)
-------------------- ------------------ -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (20,928) $ (20) $ (20,948)
Adjustments to reconcile net income to
Net cash provided by (used in) operating activities:
(Decrease)/Increase in accrued expenses 11,678 (11,678) -
-------------------- ------------------ -------------------
Net cash provided (used) by operating
activities: (9,250) (11,698) (20,948)
-------------------- ------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing from related party 8,000 - 8,000
Proceeds from issuing common stock 15,000 - 15,000
-------------------- ------------------ -------------------
Net cash provided by financing activities: 23,000 - 23,000
-------------------- ------------------ -------------------
NET INCREASE (DECREASE) IN CASH 13,750 (11,698) 2,052
CASH, beginning of period 0 13,750 0
-------------------- ------------------ -------------------
CASH, end of period $ 13,750 $ 2,052 $ 2,052
==================== ================= ===================
</TABLE>
F-6
<PAGE>
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
China Ventures Limited (the Company) was incorporated in the Cayman Islands on
December 10, 1999 for the purpose of facilitating a Chinese private company to
become a reporting public company whose securities are qualified for trading in
the United States secondary market. The Company has the intention of attempting
to locate and negotiate with a target business entity, initially from the
People's Republic of China (PRC), to effect a merger or some other business
combination, in exchange for the opportunity to acquire ownership interest in a
publicly registered company without incurring the cost and time required to
conduct an initial public offering. If this initial attempt fails, the Company
is not expected to restrict its search to any specific business, industry or
geographical location.
As of March 31, 2000, the Company is in the development stage and has not
started operations; accordingly these financial statements are prepared in
accordance with SFAS 7, "Accounting and Reporting by Development Stage
Enterprises" as issued by the Financial Accounting Standards Board."
ACCOUNTING METHOD
The Company presents its financial statements under the accrual basis of
accounting, under which method revenues are recognized when earned rather than
when received, and expenses are recognized when incurred rather than when paid.
EARNINGS PER SHARE
Primary and fully diluted loss per share is computed based on weighted average
common shares outstanding of 252,550 at December 31, 1999.
INCOME TAXES
The Company is incorporated in the Cayman Islands and is, therefore, not subject
to income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-7
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company has not entered into
derivatives contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption of the new standard
to have a material effect on its financial statements.
NOTE B - GOING CONCERN
As shown in the accompanying financial statements, the Company is in the
development stage, has yet to generate operating revenues and will require a
significant amount of capital to commence its planned principal operations. As
reflected in the accompanying financial statements, the Company has incurred
accumulated losses since inception of $20,948 and has raised an insignificant
amount of capital. As such, there is no assurance that the Company will be
successful in its efforts to raise the necessary capital to commence its planned
principal operations.
The Company has indicated that its principal operation is to engage in a merger
or acquisition with an unidentified company or companies and may issue "penny
stock" securities as defined in the Securities and Exchange Act of 1934. The
Company will require a significant amount of capital to commence its planned
principal operations. Accordingly, the Company's ability to continue as a going
concern is dependent upon its ability to secure an adequate amount of capital to
finance its planned principal operations.
The Company's plans include a merger and a subsequent public offering of its
common stock; however there is no assurance that they will be successful in
their efforts to raise capital or to obtain a business combination.
These conditions raise 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 these uncertainties.
NOTE C - RELATED PARTY TRANSACTIONS
A stockholder of the Company acted as legal counsel during 1999. Legal fees and
incorporation costs for the year ended December 31, 1999 in the amount of
$11,678 were payable to a law firm in which this stockholder is a partner.
F-8
<PAGE>
During the year ended December 31, 1999, the Company borrowed $8,000, due on
demand, from an entity related through common ownership. This amount is
uncollateralized and non-interest bearing.
NOTE D - SUBSEQUENT EVENTS
The Company is in the process of filing "Form 10, General Form for Registration
of Securities Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934" to register its Common Stock (under Section 12(b) of the Act). Under
the Securities Exchange Act of 1934 as amended, the Company is under no
obligation to file this form.
NOTE E - TRANSACTIONS WITH STATE-OWNED ENTITIES
A significant portion of the Company's transactions might be undertaken,
directly or indirectly with State-owned enterprises in the PRC and on such
commercial terms as determined between the relevant PRC State-owned enterprises
and the Company.
NOTE F - FOREIGN CURRENCY EXCHANGE
A significant portion of the business of the Company's PRC Subsidiaries may be
undertaken in Renmin (RMB), the national currency of the PRC, which is not
freely convertible into the US$ or other foreign currencies.
NOTE G - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
If a merger, alliance or some other business combination is successful, the
Company's operating assets and primary source of income and cash flow are
expected to be its interests in its subsidiaries in the PRC. The value of the
Company's interests in these subsidiaries may be adversely affected by
significant political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies for many years, no
assurance can be given that the PRC government will continue to pursue such
policies or that such policies may not be significantly altered, especially in
the event of a change in leadership, social or political disruption or
unforeseen circumstances affecting the PRC's political, economic and social
conditions. There is also no guarantee that the PRC government's pursuit of
economic reforms will be consistent or effective.
NOTE H - UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements presented as of March 31, 2000 and for three
months ended March 31, 2000 contain all adjustments necessary, in management's
opinion, for a fair presentation of financial position and results of
operations.
F-9
