As filed with the Securities And Exchange Commission on October 19, 2000
Registration Number 333-39208
U.S. Securities And Exchange Commission
Washington, D.C. 20549
AMENDMENT No. 2 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
COL CHINA ONLINE INTERNATIONAL INC.
-----------------------------------
(Name of small business issuer in its charter)
Delaware 514191 52-2224845
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3177 South Parker Road, Aurora, CO 80014
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(Address and telephone number of principal executive offices)
3177 South Parker Road, Aurora, CO 80014
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(Address of principal place of business or intended
principal place of business)
Mark K. Shaner, 3177 South Parker Road, Aurora, CO 80014, (303) 695-8530
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(Name, address and telephone number of agent for service)
With a copy to:
Alan L. Talesnick, Esq.
Francis B. Barron, Esq.
Patton Boggs LLP
1660 Lincoln Street
Suite 1900
Denver, Colorado 80264
(303) 830-1776
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per Aggregate offering Amount of
registered registered unit(1) Price registration fee
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<S> <C> <C> <C> <C>
Common stock 3,250,000 $.05 $162,500 $43 (2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Previously paid.
COL International hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until COL International
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the SEC, acting pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. The
securities may not be transferred or sold until the registration statement filed
with the Securities And Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS DATED OCTOBER 19, 2000
SUBJECT TO COMPLETION
PROSPECTUS
COL CHINA ONLINE INTERNATIONAL INC.
Shares of Common Stock
$.05 per share
This prospectus relates to the offer of a minimum of 1,500,000 and a
maximum of 2,000,000 shares of our common stock. The common stock offered by
this prospectus also consists of 1,250,000 shares presently issued and
outstanding to be sold by the selling stockholders. These shares were issued to
the selling stockholders in private transactions.
This is our initial public offering and currently there is no public market
for the common stock. We will apply the offering proceeds from sale of the
minimum offering of 1,500,000 shares and maximum offering of 2,000,000 towards
expenses of the offering. We will not receive any proceeds from sale of the
1,250,000 shares by the selling stockholders.
Price Underwriting Proceeds Proceeds
To Discount And To To Selling
Public Commission COL International Stockholders
------ ---------- ----------------- ------------
Per share $ .05 $ 0 $ .05 $ .05
Total minimum $137,500.00 $ 0 $ 75,000.00 $62,500.00
Total maximum $162,500.00 $ 0 $100,000.00 $62,500.00
Each individual subscription consists of 5,000 shares of common stock at a
price of $.05 per share. We are offering the shares subject to the subscription
and payment of not less than 1,500,000 shares until 90 days after the date of
this prospectus. We may extend the offering period until 150 days after the date
of this prospectus, in our discretion. Sales are intended to be made by our
directors, executive officers, and stockholders. All funds collected from
subscribers will be placed in an escrow account at Computershare Investor
Services Inc., Lakewood, Colorado, which will serve as our escrow agent.
Potential investors desiring to purchase shares of common stock should make
their checks payable to "COL International Escrow". If the minimum offering is
not subscribed for within the offering period, all funds will be promptly
refunded to subscribers without interest or deduction.
Neither we nor the selling stockholders have entered into any underwriting
arrangements regarding the shares.
The common stock is not quoted on the OTC Bulletin Board or listed on any
exchange.
Investing in the common stock involves certain risks. See the "Risk
Factors" section beginning on page 5.
Neither the Securities And Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _____________, 2000
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...........................................................3
RISK FACTORS.................................................................5
USE OF PROCEEDS.............................................................15
DIVIDEND POLICY.............................................................15
EXCHANGE RATES..............................................................15
COL INTERNATIONAL...........................................................16
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.......................31
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................34
MANAGEMENT..................................................................39
EXECUTIVE COMPENSATION......................................................41
BENEFICIAL OWNERS OF SECURITIES.............................................42
TRANSACTIONS BETWEEN COL INTERNATIONAL AND RELATED PARTIES..................44
DESCRIPTION OF SECURITIES...................................................46
NO TRADING MARKET FOR THE COMMON STOCK......................................47
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION...............................47
SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION.............................................49
LEGAL MATTERS...............................................................50
EXPERTS.....................................................................50
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS AND
CAUTIONARY STATEMENTS..................................................50
FINANCIAL INFORMATION......................................................F-1
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information contained in this prospectus.
In addition to this summary, you should read this entire prospectus carefully,
including the "Risk Factors" section, the financial statements and the notes to
the financial statements. All information in this prospectus should be
considered before investing in our common stock.
COL International COL China Online International Inc. is a Delaware
corporation that was formed for the purpose of
acquiring and conducting the business of Migration
Developments Limited, a British Virgin Islands
company.
Migration owns 90 percent of Shenzhen Rayes
Electronic Network System Co., Ltd., a Sino-foreign
joint venture with operations in China. The joint
venture has commenced providing physical network
engineering, consulting services to ISPs, e-commerce
business, and related software development for
business networks in China. The remaining ten
percent of the joint venture is owned by Shenzhen
Rayes Group Co., Ltd., a privately owned limited
liability company incorporated in China.
We currently have no operations or material assets.
After completing the offering of common stock
described in this prospectus, we intend to complete
the acquisition of Migration so that Migration will
be our wholly owned subsidiary.
After completion of the acquisition, we plan to
continue and expand the internet related business in
China that has been commenced by Migration. We will
focus on serving the market for small and medium
sized enterprises with network engineering, web
hosting, business-to-business e-commerce, online
distance learning and internet service provider
consulting.
Anticipated Developments As soon as practicable after completing this
offering and the acquisition, we intend to raise
working capital by selling additional shares to a
limited number of sophisticated investors from the
United States, Canada and Asia in a public offering
or private placement transaction. We are currently
evaluating what avenue to take in the best interests
of COL International.
3
<PAGE>
Our primary purpose for undertaking this Offering at
this time for such a limited amount of funds is to
result in COL International's stock being publicly
traded. We believe that this will make an investment
in COL International more desirable to investors as
we attempt to attract additional capital.
Use of Proceeds We currently anticipate that we will apply all of
the $75,000 that we receive from the minimum
offering and $100,000 that we receive from the
maximum offering to costs of the offering.
The Offering This offering consists of a minimum of 1,500,000 and
a maximum of up to 2,000,000 shares of common stock
issuable by us at a price of $.05 per share. This
offering also consists of up to 1,250,000 shares of
common stock presently issued and outstanding, to be
sold by the selling stockholders, which were issued
to the selling stockholders in private transactions.
Each individual subscription consists of 5,000
shares of common stock at a price of $.05 per share.
If we sell 1,500,000 shares, we will receive a total
of $75,000, and if we sell all 2,000,000 shares of
common stock, we will receive a total of $100,000.
We will not receive any proceeds from the sale of
the shares being sold by the selling stockholders.
Except for the $75,000 or $100,000 described above,
we will not receive proceeds from the sale of any
other shares in this offering.
Company Offices Our offices are located at 3177 South Parker Road,
Aurora, Colorado, 80014, telephone number (303)
695-8530.
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RISK FACTORS
Prospective investors should carefully consider, together with the other
information herein, the following risk factors that affect our business.
Risks Concerning COL International
----------------------------------
Our limited financial resources raise substantial doubt regarding our
ability to continue our operations.
We have no assets or operations and have limited financial resources
available. We will not have any assets or operations unless and until we
successfully raise funds or we acquire Migration, and there can be no assurance
that either event will occur. We cannot assure that we will achieve or sustain
profitability or positive cash flows from our contemplated operating activities.
COL International's and Migration's independent auditors have included an
explanatory paragraph in their audit opinions indicating substantial doubt
concerning COL International's and Migration's abilities to continue operations
as a going concern.
We may not be able to raise additional capital necessary to operate our
business.
In order to implement our business plan fully, we will need additional
funding significantly in excess of the amount anticipated from this public
offering. However, we cannot predict that any funds will be invested in COL
International. Similarly, we have no source of revenue to provide funding and we
cannot assure that the contemplated acquisition will be completed. We cannot
predict that we will be able to obtain any capital or any source of revenue.
If the acquisition is not consummated, we will not continue in the internet
business.
COL International was formed for the purpose of acquiring, and conducting,
the engineering and the internet related business of Migration. If we are unable
to acquire Migration through the exchange of shares of COL International for all
the outstanding shares of Migration, or another form of arrangement by which COL
International becomes involved in the business of Migration, we will not
continue in the internet business.
We face strong competition.
If the acquisition is completed, we will compete with larger companies that
operate in the internet industry. The internet industry is relatively new and
subject to continuing definition. Therefore, our competitors may be
significantly better positioned to compete in this market. Many of our potential
new competitors have longer operating histories, larger customer bases and
databases, greater name recognition, and have significantly greater financial,
technical, and marketing resources than we do.
In addition, the China internet market is characterized by an increasing
number of entrants because the start-up costs are low. The presence of these
competitors may have a significant impact on our ability to operate our proposed
business profitably.
5
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Rapid technology changes may place us at a competitive disadvantage.
The internet related business in which we intend to operate is
characterized by rapid and significant technological advancements and
introductions of new products and services using new technologies. As new
technologies develop, we may be placed at a competitive disadvantage, and
competitive pressures may force us to implement those new technologies at a
substantial cost. If other companies implement new technologies before us, those
companies may be able to provide enhanced capabilities and superior quality
compared with what we are able to provide. We are at a special disadvantage
vis-a-vis other companies that have been in the industry longer and/or were able
to obtain substantial fundings to further develop new technologies. We cannot
ascertain that we will be able to respond to these competitive pressures and
implement new technologies on a timely basis or at an acceptable cost. One or
more of the technologies that we may implement in the future may become
obsolete. If this occurs, our business, financial condition and results of
operations could be materially adversely affected. If we are unable to utilize
the most advanced commercially available technology, our business, financial
condition and results of operations could be materially and adversely affected.
Our computer network is vulnerable to hacking, viruses and other
disruptions causing delays or cessations in our services.
Inappropriate use of our internet services could jeopardize the security of
confidential information stored in our computer system. Inappropriate use of the
internet includes attempting to gain unauthorized access to information or
systems--commonly known as "cracking" or "hacking". Although we intend to
implement security measures to protect our facilities, such measures could be
circumvented. Alleviating problems caused by computer viruses or other
inappropriate uses or security breaches may require interruptions, delays or
cessation in our services. We do not carry "errors and omissions" or other
insurance covering losses or liabilities caused by computer viruses or security
breaches.
Failure by third-party suppliers to provide software and hardware
components will affect our ability to operate our portals.
We will depend on third-party suppliers of software and hardware
components. We will rely on components that are sourced from only a few
suppliers including computer servers and routers manufactured. The failure of
our suppliers to adjust to meet increasing demand may prevent them from
supplying us with components and products as and when we require them.
We will rely on computer systems that are susceptible to failure and may
disrupt our operations.
Any system failure or inadequacy that causes interruptions in the
availability of our services, or increases the response time of our services, as
a result of increased traffic or otherwise, could reduce user satisfaction,
future traffic and our attractiveness to advertisers and consumers. In addition,
as the number of web pages and the amount of traffic increases, there can be no
assurance that we will be able to scale our systems proportionately. We also are
dependent upon web browsers, ISPs, and other website operators in China, all of
which have experienced significant system failures and electrical outages in the
past, and our users have experienced difficulties due to system failures
unrelated to our systems and services.
6
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We will have limited backup systems and redundancy and we may experience
system failures and electrical outages from time to time. This may disrupt our
operations. We do not presently have a disaster recovery plan in the event of
damage from fire, floods, typhoons, earthquakes, power loss, telecommunications
failures, break-ins and similar events. If any of these occurs, we may
experience a complete system shut-down. To improve performance and to prevent
disruption of our services, we may have to make substantial investments to
deploy additional servers or one or more copies of our websites to mirror our
online resources. Although we carry property insurance with low coverage limits,
our coverage may not be adequate to compensate us for all losses that may occur.
To the extent we do not address the capacity restraints and redundancy described
above, such constraints could have a material adverse effect on our business,
results of operations and financial condition.
Privacy concerns may prevent us from selling demographically targeted
advertising in the future, thus limiting our business plans.
To the extent we collect data derived from user activity on our advertising
network and from other sources, we cannot be certain that any trade secret,
copyright or other protection will be available for such data or that others
will not claim rights to such data. In addition, the contracts we have with web
publishers require that we keep information regarding those web publishers
confidential.
Ad serving technology enables the use of "cookies", in addition to other
mechanisms, to deliver targeted advertising, to help compile demographic
information, and to limit the frequency with which an advertisement is shown to
the user. Cookies are bits of information keyed to a specific server, file
pathway, or directory location that are stored on a user's hard drive and passed
to a website's server through the user's browser software. Cookies are placed on
the user's hard drive without the user's knowledge or consent, but can be
removed by the user at any time. Due to privacy concerns, some internet
commentators, advocates and governmental bodies have suggested that the use of
cookies be limited or eliminated. Any limitation on our ability to use cookies
could impair our future targeting capabilities and adversely affect our
business.
We may be held liable for information retrieved from our portal network and
therefore bear high costs.
Because our services can be used to download and distribute information to
others, there is a risk that claims may be made against us for defamation,
negligence, copyright or trademark infringement or other claims based on the
nature and content of such material, such as violation of censorship laws in
China. Although we carry general liability insurance, our insurance may not
cover potential claims of this type, or may not be adequate to indemnify us for
all liability that may be imposed. Any imposition of liability that is not
covered by our insurance or is in excess of our insurance coverage could have a
material adverse effect on our business, results of operations and financial
condition.
7
<PAGE>
We may be unable to identify, acquire or commercialize additional
technologies which would limit our ability to expand our operations.
From time to time, if our resources allow, we intend to explore the
acquisition and subsequent development and commercialization of additional
technologies in the internet field. We cannot predict whether we will be able to
identify any additional technologies and, even if suitable technologies are
identified, we cannot predict whether we will have sufficient funds to
commercialize any such technologies or whether any such technologies will
ultimately be viable.
Our operations will be highly dependent on our future majority stockholder.
Upon the acquisition of Migration and completion of this offering, our
existence will be largely dependent upon the support of Honview International
Limited until such time, if any, that we achieve positive cash flows from
operations or additional funds are raised in private or public offerings.
Honview will own 45.7 percent of our outstanding shares of common stock after
the acquisition and completion of the minimum offering.
Management will have controlling ownership of COL International upon the
acquisition of Migration and completion of this offering which could create
conflicts of interest.
Upon the consummation of the acquisition of Migration and completion of the
minimum offering, Chan Kam Che, our future Chairman of the board, and Paul Wong
and Zhang Qi Yu, two of our future directors, will be considered beneficial
owners of 45.7 percent, 45.7 percent and 34.7 percent, respectively, of our
outstanding shares of common stock. Controlling ownership of our business by our
future directors could create conflicts of interest. Although management's
duties are directed to the best interests of COL International, we cannot
guarantee that conflicts of interests will not arise.
We will depend on some key employees.
Upon the consummation of the acquisition, our success will depend on the
active participation of Brian Power, our future Chief Executive Officer, Chan
Kam Che, our future Chairman, and Paul Wong, our future director. The loss of
the services of any of these individuals could have a material adverse effect on
us. We currently do not carry, and do not intend to carry in the future, "key
man" insurance for any of our employees.
Risks Of Doing Business In China
--------------------------------
If this offering and the acquisition are completed, our business operations
will take place primarily in China. Because Chinese laws, regulations and
policies are continually changing, our Chinese operations will face several
risks summarized below.
Limitations on Chinese economic market reforms may discourage foreign
investment in Chinese businesses.
The value of investments in Chinese businesses could be adversely affected
by political, economic and social uncertainties in China. The economic reforms
in China in recent years are regarded by China's central government as a way to
introduce economic market forces into China. Given the overriding desire of the
central government leadership to maintain stability in China amid rapid social
and economic changes in the country, the economic market reforms of recent years
could be slowed, or even reversed.
8
<PAGE>
Any change in policy by the Chinese government could adversely affect
investments in Chinese businesses. Changes in policy could result in imposition
of restrictions on currency conversion, imports or the source of suppliers, as
well as new laws affecting joint ventures and foreign-owned enterprises doing
business in China. Although China has been pursuing economic reforms for the
past two decades, events such as a change in leadership or social disruptions
that may occur upon the proposed privatization of certain state-owned industries
could significantly affect the government's ability to continue with its reform.
We face economic risks in doing business in China.
As a developing nation, China's economy is more volatile than that of
developed Western industrial economies. It differs significantly from that of
the U.S. or a Western European Country in such respects as structure, level of
development, capital reinvestment, resource allocation and self-sufficiency.
Only in recent years has the Chinese economy moved from what had been a
command economy through the 1970s to one that during the 1990s encouraged
substantial private economic activity. In 1993, the Constitution of China was
amended to reinforce such economic reforms.
The trends of the 1990s indicate that future policies of the Chinese
government will emphasize greater utilization of market forces. For example, in
1999 the Government announced plans to amend the Chinese Constitution to
recognize private property, although private business will officially remain
subordinated to the state-owned companies which are the mainstay of the Chinese
economy.
However, there can be no assurance that, under some circumstances, the
government's pursuit of economic reforms will not be restrained or curtailed.
Actions by the central government of China could have a significant adverse
effect on economic conditions in the country as a whole and on the economic
prospects for our Chinese operations.
Regulation of the information industry in China may adversely affect our
business.
China has enacted regulations governing internet access and the
distribution of news and other information. The Propaganda Department of the
Communist Party has been given the responsibility to censor news published in
China to ensure, supervise and control political correctness. The Ministry of
Information Industry has published implementing regulations that subject online
information providers to potential liability for content included on their
portals and the actions of subscribers and others using their systems, including
liability for violation of Chinese laws prohibiting the distribution of content
deemed to be socially destabilizing. Because many Chinese laws, regulations and
legal requirements with regard to the internet are relatively new and untested,
their interpretation and enforcement of what is deemed to be socially
destabilizing by Chinese authorities may involve significant uncertainty.
Moreover, the Chinese legal system is a civil law system in which decided legal
cases have little precedential value. As a result, in many situations it is
difficult to determine the type of content that may result in liability. We
cannot predict the effect of further developments in the Chinese legal system,
particularly with regard to the internet, including the promulgation of new
laws, changes to existing laws or the interpretation or enforcement thereof, or
the preemption of local regulations by national laws.
9
<PAGE>
Periodically, the Ministry of Public Security has stopped the distribution
of information over the internet which it believes to be socially destabilizing.
The Ministry of Public Security has the authority to cause any local ISP to
block any website(s) maintained outside of China at its sole discretion.
Websites that are blocked in China include many major news-related websites such
as www.cnn.com, www.latimes.com, www.nytimes.com and www.appledaily.com.hk. The
Chinese government has also expressed its intention to closely control possible
new areas of business presented by the internet, such as internet telephony. If
the Chinese government were to take any action to limit or eliminate the
distribution of information through our portal network or to limit or regulate
any current or future applications available to users on our portal network,
such action could have a material adverse effect on our business, financial
condition and results of operations.
The Ministry of Information Industry also regulates access to the internet
by imposing strict licensing requirements and requiring ISPs in China to use the
international inbound and outbound internet backbones. The government has
granted Rayes Group a license to operate an ISP nationwide which expires on
October 30, 2003 and which is subject to renewal if all governmental filing
requirements are met. We cannot provide assurance that future changes in Chinese
government policies affecting the provision of information services, including
the provision of online services and internet access, will not impose additional
regulatory requirements on us or our service providers, intensify competition in
the Chinese information industry or otherwise have a material adverse effect on
our business, financial condition and results of operations. For more
information regarding term and scope of license, see "COL International--Terms
And Scopes Of Licenses" below.
The Chinese legal and judicial system may negatively impact foreign
investors.
In 1982, the National People's Congress amended the Constitution of China
to authorize foreign investment and guarantee the "lawful rights and interests"
of foreign investors in China. However, China's system of laws is not yet
comprehensive.
The legal and judicial systems in China are still rudimentary, and
enforcement of existing laws is inconsistent. Many judges in China lack the
depth of legal training and experience that would be expected of a judge in a
more developed country. Because the Chinese judiciary is relatively
inexperienced in enforcing the laws that do exist, anticipation of judicial
decision-making is more uncertain than would be expected in a more developed
country.
It may be impossible to obtain swift and equitable enforcement of laws that
do exist, or to obtain enforcement of the judgment of one court by a court of
another jurisdiction. China's legal system is based on written statutes; a
decision by one judge does not set a legal precedent that is required to be
followed by judges in other cases. In addition, the interpretation of Chinese
laws may be varied to reflect domestic political changes.
The promulgation of new laws, changes to existing laws and the pre-emption
of local regulations by national laws may adversely affect foreign investors.
However, the trend of legislation over the last 20 years has significantly
enhanced the protection of foreign investment and allowed for more control by
foreign parties of their investments in Chinese enterprises. There can be no
assurance that a change in leadership, social or political disruption, or
unforeseen circumstances affecting China's political, economic or social life,
will not affect the Chinese government's ability to continue to support and
pursue these reforms. Such a shift could have a material adverse effect on our
business and prospects.
10
<PAGE>
China's recent entry into the WTO is not yet fully integrated; China
maintains strict restrictions on foreign investment in internet services.
In late 1999, China and the United States reached a bilateral agreement on
China's admission to the World Trade Organization, which regulates trading among
its members. It is expected that China will become a member by 2001. Preliminary
agreements have been approved by the European Union and the U.S. In addition,
China is in the process of completing bilateral negotiations with several other
key members of the WTO. China's decision to become a member of the WTO is an
indication of further changes in favor of foreign investment and trade. However,
these changes are likely to be phased in over a period of several years. At the
present time, China has not yet agreed to all aspects of WTO membership.
China has made commitments to the WTO in all major service categories,
including internet services, agreeing to accede to the Basic Telecommunications
And Financial Services Agreement. Under this agreement, China has agreed to
implement competitive regulatory principles, including cost-based pricing,
interconnection rights, and independent regulatory authority, as well as
allowing foreign suppliers to use any technology they choose to provide. Under
its WTO agreement concerning internet services, China currently allows no
foreign investment in internet services, but will allow up to 50 percent foreign
ownership in domestic services within two years. Although China's current
commitments will allow further foreign investment and growth of our business in
Shanghai and Wuhan, we cannot predict that China will comply with these
commitments.
The Chinese internet industry is a developing market and has not been
proven as an effective commercial medium.
The market for internet services in China has begun to develop only
recently. Since the internet is an unproven medium for advertising and other
commercial services, our future operating results from online advertising and
web solutions services will depend substantially upon the increased use of the
internet for information, publication, distribution and commerce and the
emergence of the internet as an effective advertising medium in China. Many of
our customers will have limited experience with the internet as an advertising
medium or as a sales and distribution channel, will not have devoted a
significant portion of their advertising expenditures or other available funds
to web-based advertising or websites development, and may not find the internet
to be effective for promoting their products and services relative to
traditional print and broadcast media.
Critical issues concerning the commercial use of the internet in China,
such as security, reliability, cost, ease of deployment, administration and
quality of service may affect the extent of utilization of the internet to solve
business needs. For example, the cost of access may prevent many potential users
in China from using the internet. Moreover, the use of credit cards in sales
transactions is not a common practice in parts of China. Until the use of credit
cards, or another alternative viable means of electronic payment becomes more
prevalent, the development of e-commerce through our portal network will be
seriously impeded. In addition, even when credit cards or another means of
electronic payment becomes prevalent throughout China, consumers will have to be
confident that adequate security measures protect electronic sale transactions
conducted over the internet and prevent fraud.
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Currently, there are a limited number of websites on the internet that
provide content for Chinese browsers in their own languages. We can provide no
assurances that content provided through the internet will increase and become
an attractive source of information for the Chinese market that will generate
advertising on our advertising affiliates or on our portal network.
Our entry into the Chinese internet market depends on the establishment of
an adequate telecommunications infrastructure in China by the Chinese
government.
The telecommunications infrastructure in China is not fully developed. In
addition, access to the internet is accomplished primarily by means of the
government's backbone of separate national interconnecting networks that connect
with the international gateway to the internet, which is owned and operated by
the Chinese government and is the only channel through which the domestic
Chinese internet network can connect to the international internet network.
Although private sector ISPs exist in China, almost all access to the internet
is accomplished through ChinaNet, China's primary commercial network, which is
owned and operated by the Chinese government. Indeed, the Rayes Group has the
right to provide access to the internet through ChinaNet. As a result, we are
required to depend on the Chinese government to establish and maintain a
reliable internet infrastructure to reach a broad base of internet users in
China. We will have no means of getting access to alternative networks and
services, on a timely basis or at all, in the event of any disruption or
failure. We cannot predict that the internet infrastructure in China will
support the demands associated with continued growth. If the necessary
infrastructure standards or protocols or complementary products, services or
facilities are not developed by the Chinese government, our business could be
materially and adversely affected.
Risks Relating To Our Proposed Operations
-----------------------------------------
The joint venture may be liquidated which may negatively impact our
operations.
The joint venture was established for an initial term of ten years and may
be extended by the mutual consent of the parties to the joint venture agreement,
subject to the approval of the relevant Chinese authorities. In the event the
term of the joint venture is not extended, it will be dissolved and liquidated
subject to the provisions of the applicable law and the joint venture agreement.
In addition, the joint venture may be liquidated prior to the expiration of its
designated term of ten years upon the occurrence of certain other events. These
events include a force majeure, as a result of which performance of the
obligations of the parties under the joint venture agreement has become
impossible, or due to losses suffered in successive years. If the joint venture
is unable to continue operation and the members of the board of directors of the
joint venture unanimously agree, it may be liquidated ahead of the expiration
date of its initial term.
The joint venture has not yet achieved operating profitability.
The joint venture is attempting to achieve operating profitability. Its
ability to sustain long-term profitability has not yet been tested. The joint
venture also faces the risk of increased competition from other large internet
service and content providers.
Any adverse changes to China's internet industry and future changes to
government relations regarding the internet industry and market in China could
restrict our growth or profitability.
12
<PAGE>
The joint venture may lose revenues if the Cooperation Agreements are not
renewed.
The joint venture and Rayes Group agreed that the joint venture participate
in the development of value added services related to internet and for
consulting business of ISP in Shanghai and Wuhan. The joint venture will receive
a 50 percent consulting fee for its services under the Cooperation Agreement
Regarding Internet Connection. The joint venture will also receive 100 percent
revenues from customers under the Cooperation Agreement Regarding Internet
Content for the services given by the joint venture. If the parties do not
mutually agree to renew the Cooperation Agreements upon their expiration on July
1, 2004, the joint venture will lose a significant source of revenues, although
it will not affect parts of the business such as network engineering, web
hosting and websites not developed through the joint venture. This includes
Shanghai Shangyi Science and Trade Information Consulting Co., Ltd., owner of
Construction Net, which is held by Migration rather than the joint venture.
The joint venture may be expropriated by the Chinese government.
When public interest requires, the Chinese government may legally
requisition part or all of enterprises in which foreign funds have been invested
and pay appropriate compensation in return. The joint venture, which by
definition was formed partially with foreign capital funds, may be subject to
expropriation by the Chinese government.
A change in currency exchange and devaluation could substantially affect
the joint venture's operations.
The Chinese government imposes controls on foreign exchange and China's
currency, the Renminbi, is not yet freely convertible into foreign currency. We
believe that it may be another decade before the Chinese government permits the
Renminbi to be freely convertible.
In 1993, the People's Bank of China promulgated the Circular Concerning
Extension of the Reform of the Foreign Exchange Control to launch measures for
the adoption of a controlled floating exchange rate system based on market
supply and demand. It also established an integrated and standardized inter-bank
exchange market in order to enable the Renminbi to become freely convertible on
a gradual basis. If certain prescribed conditions are met, an approved foreign
invested enterprise may purchase foreign currencies from banks at the rate
published by the Bank of China.
If the acquisition is consummated, we will conduct substantially all of our
operations in China through the joint venture whose financial performance and
condition will be measured in terms of Renminbi. Any devaluation of the Renminbi
against the U.S. dollar would consequently have an adverse effect on our
financial performance and asset value, when measured in U.S. dollars.
If the acquisition is consummated, our services will initially be provided,
through the joint venture, in Renminbi denominated transactions. We will not be
able to hedge Renminbi against the U.S. dollar exchange rate exposure in China
because neither the Bank of China nor other financial institutions authorized to
engage in foreign exchange transactions offer forward exchange contracts.
Risks Related To This Prospectus And The Common Stock
Our information concerning China is based on various sources of information
which may not be entirely reliable.
Although the information contained in this prospectus regarding China has
been obtained from a variety of government and private sources, independent
verification of some of this material is not available and there can be no
assurance that the sources from which it is taken or on which it is based are
wholly reliable. Official statistics in relation to China may be produced on a
basis different from that used in Western countries. Accordingly, no assurance
can be given as to the completeness or reliability of available information.We
cannot guarantee that our attempt to form industry alliances will be successful.
13
<PAGE>
We will attempt to limit financial exposure by forming industry alliances
in situations in which our access to inexpensive labor and the Chinese market
can be complemented with the financial resources and operating expertise of
established companies. If we are not able to form these alliances, our ability
to fully implement our business plans could be limited. This would have a
material, negative effect on our business, financial condition and results of
operations.
No cash dividends paid with respect to our shares.
We have not paid cash dividends on our shares and, at the present time, do
not anticipate paying any cash dividends in the foreseeable future. If our
contemplated future operations are profitable, of which there can be no
assurance, any income received would be applied to our business rather than to
the payment of dividends. Any decision of whether to pay cash dividends on our
shares will depend upon our earnings, if any, at the time, as well as our
financial requirements and other factors. It is unlikely that we will pay cash
dividends in the near future.
We may have dilution problems resulting from subsequent financings.
We have no book value for our shares. In addition, we anticipate we will
need to raise capital through one or more future private placements and/or
public offerings. As a result of these financings, ownership interests in COL
International may be greatly diluted.
There is no trading market or other liquidity for our shares.
There currently is not a market for our shares, and there is no assurance
that a trading market will develop subsequent to this offering. Because of this
current and possible future lack of a market, investors in this offering may be
unable to sell their shares when they wish to do so. There is no assurance that
any investor will be able to use our shares as collateral for a loan or other
matter.
Even if a trading market develops, stock prices may be volatile.
It is currently anticipated that, even if a market does develop, the price
of the common stock will be low and also may be volatile. Many brokerage firms
may not effect transactions and may not deal with low priced securities as it
may not be economical for them to do so. This could have an adverse effect on
developing and sustaining a market for our securities. In addition, there is no
assurance that an investor will be able to use our securities as collateral.
If a market does develop, trading in the common stock, if any, will occur
in the over-the-counter market and we will attempt to have the common stock
qualify for listing on the Nasdaq Stock market. There is no assurance that our
common stock can be made to meet the criteria necessary to qualify for listing
on the Nasdaq. Even if it does meet that criteria, there is no assurance that
our stock would be accepted for listing on Nasdaq.
Even if a market develops, our common stock may be subject to penny stock
regulation.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks". Generally, penny stocks are
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). Even if a market for the common stock develops, if our shares are
traded for less than $5 per share, the shares will be subject to the SEC's penny
stock rules unless (1) our net tangible assets exceed $5,000,000 during the
first three years of continuous operations or $2,000,000 after our first three
years of continuous operations; or (2) we have had average revenue of at least
$6,000,000 for the last three years. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prescribed by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. 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
agreement to the transaction. These requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. Even if a market our shares develops, our
shares may be subject to the penny stock rules and holders of the shares may
find it difficult to sell them.
14
<PAGE>
USE OF PROCEEDS
We currently anticipate that we will apply all of the $100,000 that we
receive from the maximum offering and all of the $75,000 that we receive from
the minimum offering to costs of the offering.
DIVIDEND POLICY
We have not declared or paid any cash dividends with respect to our
shares since our formation and do not presently anticipate paying any cash
dividends on our shares in the foreseeable future.
EXCHANGE RATES
Migration's consolidated financial statements are presented in Renminbi,
the lawful currency of China. In this prospectus, references to "U.S. dollars",
"US$" or "$" are to U.S. currency and references to "Renminbi", "RMB" or "Rmb"
are to China's currency. Solely for the convenience of the reader, this
prospectus contains translations of certain Renminbi amounts into U.S. dollars
at specified rates. These translations should not be construed as
representations that the Renminbi amounts actually represent such U.S. dollar
amounts or could be converted into U.S. dollars at the rate indicated. The Rmb
is not a freely convertible security. See "Risk Factors--A change in currency
exchange and devaluation could substantially affect the joint venture's
operations". Unless otherwise stated, conversion of amounts from Renminbi into
United States dollars for the convenience of the reader has been made at the
exchange rate quoted by the Bank of China on June 30, 2000 of US$1.00 = Rmb
8.278.
The following table sets forth certain information concerning exchange
rates between Renminbi and U.S. dollars for the periods indicated:
Noon Buying Rate (1)
-------------------------------------------------
Calendar Year Period End Average (2) High Low
------------- ---------- ----------- ---- ---
(Rmb per US$)
-------------------------------------------------
1995 8.3374 8.3852 8.5000 8.2916
1996 8.3284 8.3387 8.5000 8.3267
1997 8.3099 8.3193 8.3260 8.3099
1998 8.2789 8.2969 8.3100 8.2778
1999 8.2795 8.2785 8.2800 8.2770
2000 (through October 13) 8.2784 8.2787 8.2799 8.268
----------
(1) The noon buying rate in New York for cable transfers payable in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of
New York.
(2) Determined by averaging the rates on the last business day of each month
during the relevant period.
15
<PAGE>
COL INTERNATIONAL
-----------------
Overview Of COL International
-----------------------------
COL International was formed for the purpose of conducting the engineering
services and the internet related business of Migration by acquiring Migration
through the exchange of shares of COL International for all the outstanding
shares of Migration. As a result of the acquisition, Migration will become a
wholly owned subsidiary of COL International. If the acquisition, or another
form of arrangement by which COL International becomes involved in the business
of Migration, is not consummated, COL International will not continue in the
internet business.
In June 2000, we completed a private placement of our common stock in
reliance on exemptions provided by the Securities Act. We sold 1,250,000 shares
of common stock at $.05 per share, and we received approximately $53,000 in net
proceeds. These funds will be used to pay costs associated with this offering.
Also in June 2000, we entered into an agreement with the stockholders of
Migration. The agreement provides for us to acquire all the outstanding shares
of common stock of Migration in exchange for 40.2 million restricted shares of
our common stock. The agreement also provides that the acquisition will not
occur unless and until we have completed the public offering described in this
prospectus. See "Proposed Acquisition And Corporate Structure" below.
Proposed Acquisition And Corporate Structure
--------------------------------------------
Except for the private offering described above and organizational,
structuring and other administrative costs incurred to date, we currently do not
have any assets or operations. We have entered into an agreement with Migration,
pursuant to which we will deliver 40,200,000 shares of our restricted common
stock to the stockholders of Migration in exchange for all the issued and
outstanding shares of common stock of Migration. As a result of the acquisition,
we will own all the issued and outstanding securities of Migration, and
Migration will become our wholly owned subsidiary. Upon completion of the public
offering described in this prospectus, we will attempt to close the acquisition.
After consummation of the acquisition, our operations are planned to
consist primarily of internet related services, including business-to-business
e-commerce, online distance learning, network engineering services, website
hosting and internet service provider consulting.
Immediately after completion of the acquisition, most of our operations
will be conducted through Shenzhen Rayes Electronic Network System Co., Ltd., a
Sino-foreign joint venture, and our interest in the joint venture will be as
follows: we will own 100 percent of the outstanding equity interests of
Migration, and Migration will continue to own 90 percent of the equity interests
in the joint venture.
Shenzhen Rayes Group Co., Ltd., a privately owned limited liability company
incorporated in China, owns the other ten percent of the equity interests in the
joint venture. In addition, Migration also owns 70 percent of the outstanding
equity interests of Shanghai Shangyi Science and Trade Information Consulting
Co., Ltd, which owns Construction Net, a Chinese website for trading
construction materials.
The following chart shows the corporate structure of COL International upon
consummation of the acquisition.
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Corporate Structure of COL China Online International Inc.
-----------------------------------
COL China Online International Inc.
Delaware
-----------------------------------
|
100%
|
------------------------------ ------------------------------
Shenzhen Rayes Group Co., Ltd. Migration Developments Limited
China British Virgin Islands
------------------------------ ------------------------------
| | |
10% 90% | -----------------------------------------------------
| | | Shanghai Dongyi Scientific Technology Engineering Co.
------------------------------------------------------------------ | China
Shenzhen Rayes Electronic Network System Co., Ltd. | -----------------------------------------------------
Sino-Foreign Joint Venture registered in China 70% |
------------------------------------------------------------------ | |
| | | 30%
------------------- ---------------- | |
Shanghai COL Branch Wuhan COL Branch | |
------------------- ---------------- | |
| -------------------------------------------------------------------
| Shanghai Shangyi Science and Trade Information Consulting Co., Ltd.
| Business-to-Business e-commerce
| -------------------------------------------------------------------
|
-----------------------
Education Net
Online Learning Systems
-----------------------
</TABLE>
Business Of The Joint Venture
The joint venture offers internet and related engineering services in two
sectors: small and medium sized enterprises, or SMEs, and online distance
learning. The joint venture is an internet infrastructure provider to the
growing number of SMEs in China, most of which are just beginning to use the
internet. It offers network engineering services, website hosting, and
connections to an internet service provider service, and it intends to offer
business-to-business e-commerce. Migration holds a 70 percent equity interest in
a leading business-to-business site for selling construction materials, other
vertical portals are under development. The joint venture has developed one of
the leading online education sites in China at a time when online education is
just beginning to take hold. It is the only education website in China where the
Education Commission is an official partner.
The joint venture and Rayes Group agreed under a Cooperation Agreement
Regarding China Online's Internet Connection Services Commercial Business that
the joint venture will provide technical and marketing services in Shanghai and
Wuhan for an ISP in exchange for a 50 percent share of the profits. The joint
venture also has a right of first refusal to purchase the ISP business in
Shanghai and Wuhan should the Rayes Group desire to sell it and the Chinese
government policy on foreign investment in the internet industry change in a
manner that would allow the joint venture to own it. At this time, however,
foreign entities cannot own ISP operations in China.
17
<PAGE>
In addition, the joint venture and Rayes Group agreed under the Cooperation
Agreement Regarding China Online's Internet Content Service Commercial Business
that Rayes Group supports the efforts of the joint venture to develop
value-added internet services. These value-added services include websites that
offer contents such as e-commerce or online education. The Internet Connection
Agreement and the Internet Content Agreement expire on July 1, 2004 and are
renewable upon mutual agreement of the parties.
The joint venture has a web hosting business and designs proprietary
websites, including sites that are e-commerce enabled. The joint venture is
currently continuing to expand its bandwidth in Shanghai.
The joint venture is also designing and building business-to-business
e-commerce products. The first product, Construction Net, has already been
launched. It is the first business-to-business website in China for promoting
and selling building materials. It will carry e-commerce transaction software,
which is slated to be installed in late 2000 or early 2001.
The joint venture has entered into an agreement with Rayes Group under
which Rayes Group provides services to the joint venture for a monthly
management fee of Rmb 15,000 (or US$1,812) until October 30, 2004. Rayes Group
previously provided office space under this arrangement, but the joint venture
is no longer utilizing those facilities. The parties also agreed that the joint
venture will bear telecommunication costs, including the initial
telecommunications capital costs, related to the ISP operations provided that
Rayes Group will pay all capital costs related to expansion of the
telecommunications facilities related to the ISP operations.
Following are the five main areas of the joint venture's business:
1. Network Engineering
The joint venture's primary source of revenue to date has been the
installation of network systems (i.e., local area networks) and the development
and installation of the related software. The joint venture has an engineering
and software team for providing network application services to major
enterprises and government organizations.
The joint venture has the background to rapidly expand this business. The
joint venture's Chinese partner, the Rayes Group, is particularly well grounded
in network engineering and has designed and developed a number of major network
engineering projects across China, including control systems for airports and
hospitals. For example, it is currently installing major control and security
systems at the Daya Bay Nuclear Power station in the Guangdong province.
The joint venture is able to develop and install complex application
systems for major corporate and government users. The technical department,
which consists of information technology professionals, can design specialized
software for large users such as banks or government departments, or design
personnel and financial administration systems for enterprises. The joint
venture also can design, install and maintain major wiring systems in offices in
order to create the network structures. For example, the joint venture developed
and installed a complex software system for the Wuhan Tax Bureau in July 1999.
This involved writing customized software for an internal management system,
setting up a remote access system for various outlying offices and building both
intranet and internet systems. It has built a network to connect the 40 separate
offices that are part of the Wuhan Science Institute. In February 2000, the
joint venture also designed and installed the network system for the new
headquarters of the Wuhan Education Commission.
18
<PAGE>
The joint venture started with an engineering team working from Wuhan and
has established a team in Shanghai for the same type work in order to rapidly
expand this business. The Shanghai team started working on its first
network-engineering contract in August 2000.
The joint venture is entering this network engineering business at a time
when China is expecting an increase in related information technology business.
China's level of information technology, or "information capacity", is one of
the lowest in the world, and only 8.6 percent of the US level, according to a
report released in April 2000 by China's State Statistical Bureau.
In response, China has mapped ambitious plans to rapidly upgrade and expand
its networks. In Shanghai, the city government plans that by 2002, every major
building in the city center will be linked with fiber-optic cable. By the same
year, about one-half of all residential communities will be connected with their
own local-area networks. Shanghai also aims to raise the number of internet
users four-fold to 30 percent of the population, or four million people, by
2002, according to a five-year plan released by the Shanghai government in
August 2000.
2. Web Hosting
The joint venture is currently expanding its bandwidth in Shanghai to gear
up for an expansion of its web hosting business, which will focus on serving the
small and medium enterprises market.
The joint venture moved into new offices in Shanghai in mid-2000 that will
be connected to fiber optic cable in late 2000 as broadband connections are
being developed in commercial areas of Shanghai. The joint venture has built a
web hosting department that offers secure server storage with technical staff on
duty 24 hours a day, seven days a week. The joint venture hosting service offers
both "virtual hosting," where many companies share a single web server in the
joint venture's office, as well as "dedicated hosting", in which a single client
will use one server. In addition, the joint venture is a "server farm" as some
major enterprises, including the Shanghai Fire Protection Bureau and the
University of Finance and Economy in Shanghai, house their servers at the joint
venture office for custody and ongoing technical support. The Shanghai and Wuhan
offices also offer domain name registrations and have web page design staff for
building individual web pages.
Because of recent decreases in the prices at which the joint venture can
obtain high bandwidth for offering web hosting services, COL International
believes the joint venture will be able to offer web hosting services at more
competitive prices.
At the same time, local governments, such as Shanghai, are actively
promoting a rapid expansion of bandwidth across their cities. The Chinese
government has started active programs to encourage business to set up websites
and try to conduct business over the internet, especially in the face of the
country's pending entry into the World Trade Organization.
The joint venture is developing the web hosting business amid a rapid
increase in the number of websites in China. The number of Chinese domain names,
ending in "cn" jumped to nearly 100,000 by July 2000 compared to 29,000 in July
1999, according to the China Internet Network Information Center in Beijing. At
the same time, Chinese institutions had acquired about 480,000 international
domain names during the second quarter of 2000, double the rate of the first
quarter, reported the China Data Network Service, a domain name service
provider.
19
<PAGE>
Yet the total number of companies that have set up websites remains
relatively low. According to a China Data Network Service report in August 2000,
only 5.08 percent of commercial businesses in China have acquired
internationally registered internet domain names. That number is relatively low
by international standards, giving a lot of scope for growth among those
companies seeking an online presence.
Enterprises use the joint venture's web hosting service because they
usually lack the professional talent to manage applications and platforms on
their own. Most of these companies do not have the budget and the bandwidth to
deliver a system on their own that can expand a simple web operation to a
complex business application such as an e-commerce transaction site. The joint
venture's plan is to function like an in-house information technology
department, allowing companies that do not have their own technical staff to
outsource their networking and web hosting requirements to the joint venture.
While computer and internet penetration in China is well behind that of western
countries, the joint venture expects the web hosting business will rapidly
evolve into management of more complex applications, including the hosting of
business software as an application service provider by 2001.
In August 2000, the joint venture began installation of new software that
will allow it to create web pages that are e-commerce enabled for conditions in
China. The new software has a unique set of payment systems as its credit system
lags more developed countries. The system is expected to be installed by late
2000. One feature of the site will be to allow companies to set up small, simple
e-commerce enabled sites for free on the joint venture's new small business home
page, www.col-chinaonline.com, currently under development. We expect that the
free service will serve mainly to introduce companies to e-commerce, and many
will eventually need larger and more complex sites, turning to the joint venture
for virtual hosting or dedicated hosting services.
The joint venture's development of e-commerce for web hosting comes as 70
percent of China's export companies are exploring or will explore in the near
future e-commerce in trade with foreign countries, according to a survey
conducted by the Beijing Internet Development Center. The Center found that only
4.5 percent of the export companies surveyed claimed that they were already
developing e-commerce on a large scale while 31 percent had taken the first
steps. Another 29 percent are getting ready to take the first steps, 12 percent
are considering it and only 24 percent have yet to think about it.
3. Business-To-Business E-Commerce
The joint venture is currently developing a number of business-to-business
trading platforms that will cover certain major industrial sectors in China. The
first trading site for business, Construction Net, has already been launched for
trading construction materials. The website is www.col173.com. On July 17, 2000,
Shanghai Shangyi Science and Trade Information Consulting Co., Ltd. purchased
all the equity interests of Shanghai Tongji Construction Materials Technology
Sales and Services Co., Ltd., including Construction Net, at an aggregate price
of Rmb 1,457,140 (or approximately US$176,026). Migration owns 70 percent of the
outstanding equity interests of Shanghai Shangyi. Construction Net is the first
construction industry portal in China for trading building materials.
The site already contains the largest database of building materials
pricing data in China, with 80,000 individual prices listed. In June 2000,
Construction Net began to offer individual items for sale on the site, as well
as building materials such as flooring or paint for sale to individual
wholesalers. This business model is evolving to add e-commerce in late 2000 or
early 2001 to receive transactions and revenues. Shanghai Shangyi will also act
to facilitate broker transactions.
20
<PAGE>
In addition, Construction Net is being expanded into a more comprehensive
portal that will encompass project planning for major construction projects and
will reach out to related industries such as architecture. The joint venture is
currently discussing the concept with a US software company that has offered to
provide project planning software in simplified Chinese. As China both imports
and exports large amounts of building materials, we expect the site to evolve
from a Chinese-only site into a bilingual site that allows trading in both
Chinese and English by the fall of 2000.
The Chinese building materials industry is well suited for e-commerce
because it is highly fragmented. Most building materials are sold in hundreds of
thousands of small shops that typically offer a limited selection of goods in
small quantities, while specializing in only a few items. In just three major
cities, Beijing, Tianjin and Shanghai, there are more than 17,000 building
materials retail shops. The distribution network is also highly fragmented and
closed to foreign companies, which are barred by Chinese commercial laws from
directly holding wholesale distribution companies.
Individual wholesalers and retailers are often clustered in larger building
materials trading centers, which have sprung up on the outskirts of every large
city in recent years. The centers are typically formed by one or more huge
exhibition halls that contain several floors of retail storefronts and display
centers. They form the Chinese equivalent of a US superstore such as Home Depot.
But while a US superstore has one management structure and uniform pricing,
China's trading centers hold an average of 500 individual wholesalers and
retailers. Each has a storefront display that typically occupies 100 square
meters and can display hardwood flooring, door fittings, kitchen cabinets or
paint. The turnover of individual building materials centers is substantial. For
example, the trading center in Shi Jia Zhong, in Hebei province, recorded a
turnover equivalent to US$843 million in 1999.
With so many players, building materials prices around China are highly
disparate. The same item can sell in two cities in different parts of China for
a 20 percent price differential, prompting many buyers to shop around China
looking for less expensive prices. China's medium and large-size building
materials companies reported turnover equivalent to $24 billion in 1999, making
the savings of even a small percentage significant in dollar terms.
Construction Net is designed to facilitate buying and selling in such a
disparate system. In the first stage of development, Construction Net has
created a huge database in China of building materials prices. It currently has
80,000 prices on a wide range of building products, ranging from hardwood
flooring to paint. It can be configured to compare the current price on an
individual product in a number of cities around China.
The information is made available through agreements reached between
Construction Net and the administrative offices of 30 individual building
materials centers in 26 cities across China.
Under the agreements, the centers will:
o provide space for an office for Construction Net in that building
materials center;
o assist in collecting pricing and availability of building materials
from merchants located there; and
o encourage individual wholesalers and retailers to open individual
websites.
The building materials centers have an office staffed by employees of
Construction Net or the local building materials centers. The employees collect
pricing data from 6,000 wholesalers and retailers and then forward it to
Construction Net's head office in Shanghai, where the website is updated daily.
Construction Net expects to broaden its cooperation with the individual building
materials centers. This will include the marketing of advertising and web
hosting services to individual wholesalers and retailers located at the markets.
The centers provide Construction Net with access and contacts for thousands of
wholesalers and retailers across China.
21
<PAGE>
The Construction Net website is being developed in the following stages
during the remainder of 2000:
a. Promote trading through the website. In July 2000, Construction Net
started to cooperate with individual Chinese suppliers to offer
products for sale on the website. Construction Net has already
received orders and acted as a trading intermediary between buyer and
seller. Revenues received to date from this activity have not been
significant. However, we expect this volume of business to increase
substantially.
b. Create an online international trading platform. In August 2000, the
site became bilingual, with Chinese and English sections. The English
language section attracts traders from Europe, North America and
across Asia, who have been approaching Construction Net's Shanghai
office to try to buy construction materials from China. The site will
also provide opportunities for foreign building materials companies,
which want to use the site to advertise and sell their own materials
and historically had difficulty marketing and distributing their
products across China, due to the complex distribution system and the
huge number of retailers. It will also help Chinese building materials
companies that want to advertise and promote their products in English
for export to foreign buyers.
c. Support the website through sales at local trading centers. As
building materials trading requires samples and logistics, the joint
venture intends to develop sales centers in individual building
materials markets around China. The sales outlets will be used for
displaying materials shown on the website and developing local
marketing and sales. The centers will be developed in partnership with
individual building materials centers, which will provide space and
logistics, and the Construction Net staff will provide the materials
and marketing staff. The partners will share trading profits on a
50-50 basis. We expect that having a physical presence in several
Chinese cities will facilitate trading by dealing with the logistics
issues such as delivery of samples.
d. The local trading centers will help deal with the logistics of
delivery and samples. This is because the largest obstacle to the
development of e-commerce in China is not online payment but rather
delivery of the goods, according to industry observers such as Chen
Wei, vice president of China Merchants Bank. Ms. Chen informed the
Homeway Financial News that China's current transportation networks
are inefficient, the railway transportation system is overloaded,
expressway construction has been sluggish, and postal system is too
slow in its delivery and payment systems.
e. Add e-commerce transaction software to the site. Work started during
September 2000, and is expected to be finished by year-end. While the
development of payment systems for e-commerce in China lags that of
more developed countries, the joint venture is working with China
Merchants Bank, which has developed an online payment system for
business. The online system will allow use of Chinese payment systems
such as cash on delivery or deposit cards.
f. Act as an application service provider for construction companies and
related groups such as architects, building decorators or landscapers.
Construction Net is currently negotiating with a foreign company to
add project management software to its website to help companies
manage construction projects. It expects to add logistics and
financing capabilities to the website, some of it wireless application
protocol enabled so it can be accessed from construction sites by the
increasing number of telephones in China with wireless application
protocol.
22
<PAGE>
4. Online Education And Training
The joint venture has created Education Net, one of the largest online
educational websites in China. Education Net is running in Wuhan, where students
at the city's secondary schools are able to follow their courses online. It is
expected that by June 2002, the number of schools connected will reach 400, one
of the largest number of schools in China - and one of the largest in Asia -
connected to a single educational website.
Education Net is an internet-based learning tool that allows students at
participating institutions to follow specific courses in which they are
enrolled. By extending the lessons of the classroom to students' home computers,
students will be able to use the internet to help with their homework and
prepare for examinations.
Education Net (www.whedu.com.cn) has been initially introduced in the city
of Wuhan in August 2000. In a project unique for China, Education Net is being
developed in conjunction with the Education Commission, marking the first time
the Education Commission has given its blessing to an online learning project
and assisted with its development. The other partner in the project is China
Telecom, the state-owned telephone company. This is the only online educational
network in China in which China Telecom is a partner. While there are several
other online learning sites in China, all have been developed either by
individual secondary schools or by private companies wanting to offer online
learning or software systems.
The joint venture is currently building on the development experience in
Wuhan to branch out into other forms of online education, including the
following:
o The joint venture is currently negotiating with a leading computer
maker to bundle its servers with Education Net software, the joint
venture's management and data entry system, as well as its web hosting
capabilities. The bundled package will then be offered to individual
school districts around China. The joint venture is striving to become
an applications service provider and web host for educational
institutions around the country.
o The joint venture has already received offers from other educational
bodies, including several major universities, that also would like to
use Education Net to offer online teaching materials to bolster
classroom work. For example, a leading university in China for Master
of Business Administration degrees has asked the joint venture to make
a proposal on offering distance-learning MBA educational materials.
o The joint venture is in preliminary talks with a British university to
help it set up an online training site in China, which would help
students prepare for eventual study overseas. If an agreement were
concluded, some of the courses would be offered in China, with the
joint venture setting up the online learning structure and environment
in conjunction with the university. The joint venture would look for
other overseas institutions.
With the Education Commission's active backing, local schools in the city
are being connected to the internet and Education Net's local home page. A total
of 100 middle and secondary schools in Wuhan are expected to be connected by the
end of the academic year, rising to 400 one year later. The system is intended
to be expanded into the remainder of Hubei province, which includes Wuhan. The
province has 100 million inhabitants and its capital is Wuhan. As of the date of
this offering, the joint venture has not received any revenues with respect to
Education Net, but expects to obtain revenues starting in November 2000, after a
free trial period for students expires.
23
<PAGE>
While schools are linked to the site, students are also able to connect to
the site through their computers at home, using a password. Using a cable
connection requires a small cable modem for the home computer, and the joint
venture has arranged for ample production of the modems for home use. The
advantage of cable is that it provides a relatively fast connection speed. The
second reason is that it is able to offer an "always on" connection for the flat
fee. Normally, internet service providers in China charge an hourly fee for
connection.
The joint venture will use its development experience with Wuhan Cable TV
to look at other products that can be developed between the joint venture and
cable television operators. The joint venture is focusing on making further
tie-ups with other cable operators, both in the areas of education and other
services for business.
In Wuhan, the content of the website includes relevant, local teaching
materials provided by leading local school teachers, tying it into the courses
they are studying in the classroom. For example, a secondary school student
taking geography could access the internet and see the guidance notes for that
particular geography class. In addition, he or she will have access to sample
geography examinations provided by local teachers.
The Education Net page also includes bulletin boards for discussions
between teachers and students, background information for students and parents,
and updated news for students. Work on the site is underway to broaden the
communications links between and among teachers, students and parents.
While parts of the site are free of charge for any student, access to the
lesson materials and sample examinations require the student to register and pay
a monthly fee. The connection fee ranges from the equivalent of US$6 per month
to US$7.20 per month.
Education Net is structured and operated in Wuhan through several
agreements. These agreements include:
a. Agreements for the supply of information. During January 2000, the
joint venture's Wuhan branch signed three-year agreements with several
leading secondary schools in the city, which were guaranteed by the
Wuhan Education Commission. The purpose of these agreements is to
ensure that relevant teaching and testing materials are provided on a
timely and regular basis. They specify required subject materials and
the amount of materials. The Education Commission guarantees to
monitor the schools and guarantees the quality of the material. In
turn, the joint venture is to make an initial payment equivalent to
US$2,400 to each of these individual schools and will provide each of
them with three personal computers.
b. Agreements for access to the internet. In October 1999, the joint
venture reached an agreement with Wuhan Cable TV, the cable television
operator, to jointly offer the education service. A similar agreement
was reached with Wuhan Telecom, an arm of state-owned China Telecom,
in mid-2000. The joint venture has profit sharing agreements with each
of Wuhan Cable TV and Wuhan Telecom. Students who opt to connect to
the internet through a dial-up telephone connection pay the equivalent
of US$7.20 per month for the basic connection. Those revenues will be
split in a 50-30-20 ratio among the joint venture, the Education
Commission and Wuhan Telecom, respectively. Students who access the
internet through the cable TV system will pay the equivalent of US$6
per month, with the revenues split 50-50 between the joint venture and
Wuhan Cable TV. As discussed above, as of the date of this prospectus,
the joint venture has not received any revenues in connection with
Education Net.
24
<PAGE>
The joint venture has seen a positive response to its Education Net because
of the strong competition for places in Chinese universities from the three
million students that graduate from secondary school each year. Parents place
great importance on their children's studies. It is common for parents in urban
centers such as Shanghai, Wuhan, Beijing or Guangzhou to spend the equivalent of
US$50 to US$100 per month per child outside the classroom for additional English
lessons or tutorials in specific subjects such as mathematics to help them gain
a coveted place in university.
Urban parents are increasing their spending on their child's education by
20 percent annually, the fastest growing area of urban consumer spending, the
Wen Wei Po Daily newspaper reported in October 2000. The newspaper found average
annual education spending for each elementary and middle school student in China
was Rmb 2,000. It put total spending for education in China at Rmb 450 billion
per year.
The drive for academic success is a key reason a rapidly increasing number
of Chinese families are buying personal computers. According to a statistical
report prepared by the China Internet Network Information Center in August 2000,
approximately 40 percent of PCs sold in China are used by schools and colleges
with another ten percent bought for use in the home, mainly by parents wanting
to boost educational opportunities for their child. Approximately 9.7 percent of
urban dwellings in southern inland China, which includes Wuhan, have at least
one person using the internet, according to a study released in July 2000 by the
China Mainland Marketing Research Co.
As described above in this section, the joint venture will receive 50
percent of the revenues from internet access fees through telephone modems and
50 percent of the revenues for internet access fees through cable modems.
5. An Internet Service Provider Consultant
A. Small Business Home Page
The original business of the Rayes Group was that of an internet service
provider. While Rayes Group holds the internet license, the joint venture is
able to participate in the development of the ISP in Shanghai and Wuhan through
the Internet Connection Agreement reached between the two parties. This
agreement stipulates that the joint venture will provide technical and marketing
services in Shanghai and Wuhan for the ISP business of the Rayes Group. In turn,
Rayes Group and the joint venture share the revenues on a 50-50 basis. Neither
the joint venture nor us owns the ISP directly, since foreign companies are
prohibited by Chinese law from directly owning domestic ISP companies.
Under China's agreement with the US ahead of its entry to the WTO, the
government of China has said that the ownership of value-added telecom services
such as ISP ownership will be relaxed to allow partial foreign ownership of ISP
companies. There is no assurance that this will occur in a manner that will be
advantageous to the joint venture or to us. Under the Internet Connection
Agreement, the joint venture has a right of first refusal to purchase the ISP
business in Shanghai and Wuhan should the Rayes Group desire to sell it and the
Chinese government policy on foreign investment in the internet industry change
in a manner that would allow it.
The joint venture, in its consulting role, is creating appealing home pages
and portals for both Shanghai and Wuhan in order to attract more hits. The joint
venture is continuing to revamp and upgrade the content of its home pages.
ISP customers in Shanghai will connect through the computer network servers
located in the Shanghai office that are used by both the Rayes Group and the
joint venture. Shanghai customers can subscribe to the internet services and pay
the monthly subscription fees through the customer service department.
Subscribers can join through traditional methods of phone or fax applications.
Others become subscribers after a trial of a free limited-time internet
connection that is offered to people who buy modems from Legend Computer. The
role of the joint venture in the ISP organization is to provide technical and
consumer assistance to people who want dial-up connections.
25
<PAGE>
The joint venture is working to launch a new home page
(www.col-chinaonline.com) in early October 2000. The site is designed to cater
to small and medium sized enterprises, especially export-oriented enterprises.
It also is designed to cross-sell to corporate buyers our other products, i.e.,
network engineering, web hosting and online corporate training. This will tie
together the COL International brand image as an integrated internet company
focused solely on business customers, especially small business and private
companies.
China experienced a surge in the development of its private sector in 1999.
According to a China Overseas News Agency report, by November of 1999, China had
31.75 million registered private businesses owned by individuals. In Shanghai,
the number of private businesses jumped 16 percent in a year to 109,947, up 16
percent from 1998. During the first half of this year, the number of private
enterprises in Beijing jumped 28 percent over the same period a year earlier to
91,000. The State Development Planning Commission announced in year 2000 that
the government would actively encourage private enterprise.
Private Chinese companies are searching for business information on the
internet. A survey released in August 2000 by the China Internet Network
Information Center found that approximately 24 percent of internet users in
China were looking for business and trade information.
The core of the small business website is a free informational section
called "running your business". This includes vital information to help business
owners plan and run their enterprises. For instance, there is a large database
of articles, interviews and expert opinions covering all major areas of planning
and running a small and medium sized business, including detailed information on
areas such as marketing and accounting.
The "running your business" component is free. But integrated with it are
two related areas that allow us to earn money from e-commerce, sponsors or
advertisers. Revenues are anticipated to be generated from the following:
a. Business Services. It includes an extensive list of services and
business tools linked to the pages in the "running your business"
section. For example, linked to the section on business finance will
be a place for sponsored pages, which can be provided by a bank. This
section will also be a place to recruit employees, incorporate a
business and find accounting services. All pages in business services
are designed to have sponsors or advertisers.
b. Marketplace. It includes three e-commerce products. One is a
marketplace section where businesses can shop online for office
supplies, hardware, software, business books and airplane tickets. A
second is an online procurement section where enterprises can call for
bids for products they need, for example, a factory that is looking
for a certain machine. The third is a showcase where companies can set
up simple e-commerce sites for free. Companies that start out with a
small, free homepage will be encouraged to move up to a larger site
later.
The website will also promote communication with the business community,
providing online forums and bulletin boards that allow owners and entrepreneurs
will be able to share experiences, question the experts and learn from each
other.
B. Internet Games Centers
The Chinese government stipulates that games centers must apply to connect
to the internet through the ISP that is designated for their district. The Rayes
Group has been granted the exclusive rights to offer an ISP connection to the
games centers of Nanshi District, a suburb in southern Shanghai with a
population of approximately 550,000 inhabitants.
26
<PAGE>
Approximately 30 internet games outlets in Nanshi have their internet
connection through the Rayes Group. Each game center pays the equivalent of
US$125 per month, which is a primary source of revenue with respect to the ISP
service of the joint venture. Under the Internet Connection Agreement, the
income is split on a 50-50 basis between Rayes Group and the joint venture in
return for consulting services by the joint venture.
Negotiations are presently underway to grant the rights to a second
district of Shanghai to the Rayes Group. If the negotiations are successful, the
joint venture would provide the same consulting services to Rayes Group as with
the game centers of Nanshi District in return for 50 percent of the revenues.
Governance And Operations Of The Joint Venture
----------------------------------------------
As a Sino-foreign joint venture, the joint venture is an equity joint
venture governed by the Chinese joint venture laws. The parties to the joint
venture participate in the profits and losses of the joint venture in proportion
to their contributions to capital. The operations of the joint venture are
subject to the contract between the joint venture partners, the joint venture's
Articles Of Association, and an extensive body of law governing such matters as
formation, registration, capital contribution, capital distributions,
accounting, taxation, foreign exchange, labor and liquidation.
The joint venture is governed by a board of directors consisting of five
directors. Migration is entitled to appoint four directors, including the Vice
Chairman of the joint venture board, and Rayes Group is entitled to appoint the
Chairman of the joint venture board.
The day-to-day operations and the execution of the decisions of the joint
venture board is the responsibility of the General Manager and the joint
venture's executives. Pursuant to applicable Chinese laws and the contract
between the parties of the joint venture, certain major actions require
unanimous approval by all of the directors of the joint venture called to decide
on such actions. These actions include amendments to the Sino-foreign joint
venture Contract and to the joint venture's Articles Of Association; increases
in, or assignments of, the registered capital of the joint venture; a merger of
the joint venture with another entity; or the termination and dissolution of the
enterprise. All other actions by the joint venture board require approval by
two-thirds of the directors, including the appointment of officers, strategic
planning and budgeting, employee compensation and welfare, and distribution of
after-tax profits.
Term And Scope Of Licenses
--------------------------
On October 30, 1998, Rayes Group was granted a license to operate an ISP in
80 cities, including Shanghai and Wuhan, by the Ministry of Information Industry
and the Telecom Department of China. The business license is valid for five
years and may be renewed thereafter upon approval of that Ministry (or its
designated approval authority). The business license defines the Rayes Group
business scope as "computer, information networks and internet business".
On September 15, 1999 the State Administration of Industry and Commerce
granted the joint venture a certificate of approval to establish its enterprise
and a business license with a business scope for "computer software, hardware
and network systems, and the development of telecommunications hardware". The
term of the business license is for ten years since September 11, 1996, the date
in which the joint venture, under the name Neihi Electronic Systems Co. Ltd.,
was granted another business license, now expired.
27
<PAGE>
Research & Development
----------------------
Migration has spent Rmb 154,564 (or approximately US$18,671) on research
and development during fiscal 1999 and Rmb 299,153 (or approximately US$36,138)
for fiscal 2000.
Employees
---------
The joint venture is subject to the Sino-foreign Equity Joint Venture
Enterprise Labour Management Regulations. In compliance with those regulations,
the joint venture's management may hire and discharge employees and make other
determinations with respect to wages, welfare, insurance and discipline of
employees. The joint venture will, as required by law, establish special funds
for enterprise development, employee welfare and incentives, as well as a
general reserve. In addition, the joint venture is required to provide its
employees with facilities sufficient to enable the employees to carry out trade
union activities.
The joint venture currently has 60 employees, all of whom are employed full
time.
Taxation
--------
A Sino-foreign joint venture with a minimum term of ten years that is
engaged in internet services is exempt from state income tax for the first two
years after becoming profitable. For three years thereafter, it is eligible for
a 50 percent reduction in applicable state income tax. The joint venture has not
yet become profitable, and there is no assurance that in the future it will be
eligible for income tax exemption.
Distribution Of Profits
-----------------------
After provision for social welfare funds for employees and provision for
taxation, the profits, if any, of the joint venture will be available for
distribution to the parties in proportion to their respective capital
contributions. Any such distributions must be authorized by the joint venture
board.
Assignment Of Interest
----------------------
Any assignment of an interest in the joint venture must be approved by the
Chinese government. The Chinese joint venture laws also provide for preemptive
rights and the consent of the other joint venture party for any proposed
assignments by one party to a third party.
28
<PAGE>
Liquidation
-----------
Under the Chinese joint venture laws, the joint venture may be liquidated
in certain limited circumstances, including expiration of the ten-year term or
any term of extension, the inability to continue operations due to severe
losses, force majeure, or the failure of a party to honor its obligations under
the joint venture agreement or the Articles Of Association in such a manner as
to impair the operations of the joint venture. The Chinese joint venture laws
provide that, upon liquidation, the net asset value (based on the prevailing
market value of the assets) of a joint venture shall be distributed to the
parties in proportion to their respective registered capital in the joint
venture.
Resolution Of Disputes
----------------------
In the event of a dispute between the parties, attempts will be made to
resolve the dispute through friendly consultation or mediation. In the absence
of a friendly resolution, the parties have agreed that the matter will first be
referred to the Shenzhen Committee of the International Economic and Trade
Arbitration Commission, whose decisions are final and enforceable in Chinese
courts. The losing party will be liable for the arbitration fees.
Expropriation
-------------
The Chinese joint venture laws provide that China will not nationalize or
requisition enterprises in which foreign funds have been invested. However,
under special circumstances, when public interest requires, enterprises with
foreign capital may be legally requisitioned and appropriate compensation will
be made.
Description Of Property
-----------------------
We are currently located in the offices of our President, Mark K. Shaner at
3177 South Parker Road, Aurora, Colorado 80014, U.S.A. Since April 2000, we have
paid Mr. Shaner a total of $1,000 per month for his services and do not pay him
additional amounts for use of the office space.
The joint venture owns a 5,300 square foot office building in Wuhan. The
property was purchased in February 2000 for a total purchase price of
approximately $245,000, including $54,000 paid to date, $10,000 to be paid in
October 2000, and the remaining $181,000 is expected to be financed with a
Chinese bank which will be repaid in five years at an annual interest rate of
5.31 percent. The joint venture also purchased 1,590 square foot staff quarters
in Wuhan for a total purchase price of approximately $63,000, including $27,000
paid to date and the remaining $36,000 to be paid in five years at an annual
interest rate of 5.5412 percent. The financing, however, has not yet been
finalized.
The joint venture also has an eight-year lease that expires on April 24,
2008 on an approximately 7,000 square foot office in Shanghai at a cost of
approximately $2,300 per month for the first three years, approximately $2,600
for the following three years, and approximately $2,900 per month for the
remainder of the lease. The lease is renewable upon mutual consent of the
parties on the expiration date. Upon consummation of the acquisition of
Migration, our headquarters for our Chinese operations will be located at the
Shanghai property.
All properties are in good condition.
29
<PAGE>
Legal Proceedings
-----------------
On July 27, 2000, ChinaOnline Inc., a provider of business news and
information regarding China in the United States, sent us a letter claiming that
our use of the CHINAONLINE mark constitutes an infringement and dilution of the
trademark rights of ChinaOnline Inc. in its CHINAONLINE trademark, which they
claimed had been registered in the United States. ChinaOnline Inc. demanded that
we cease and desist all use of the CHINAONLINE mark, including as a company
name. On August 21, 2000, ChinaOnline Inc. sent a second letter stating that it
will take appropriate action in the event that we fail to cease and desist all
use of the CHINAONLINE mark. We have responded to these claims by stating that,
under relevant legal principles, the use of our name "COL China Online Inc."
does not infringe on, dilute or otherwise injure any trademark rights of the
claimant.
Except as described above, we know of no litigation pending, threatened, or
contemplated, or unsatisfied judgments against COL International, or any
proceedings of which the joint venture is a party. We know of no legal actions
pending or threatened, or judgment entered against any of our officers or
directors in their capacities as such.
Available Information
---------------------
We have filed a registration statement with respect to the securities
offered by this prospectus with the SEC. This prospectus, filed as part of that
registration statement, does not contain all the information set forth in or
annexed as exhibits to the registration statement, certain portions of which
have been omitted in accordance with the rules and regulations of the SEC. For
further information with respect to our Company and this offering, reference is
made to the registration statement, including exhibits filed with the
registration statement, which may be read and copied at the Public Reference
Room maintained by the SEC at the following addresses:
o 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
o 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
o 7 World Trade Center, New York, New York 10048
Copies of these materials also can be obtained at prescribed rates by
writing to the SEC, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information concerning the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
materials filed electronically by us with the SEC are available at the SEC's
internet website at http://www.sec.gov.
30
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Introduction
------------
COL International and Migration entered into an exchange agreement, whereas
Migration stockholders will acquire approximately 80 percent of the common stock
of the combined entity. Therefore, for financial statement purposes, Migration
is considered the acquiring company, and the transaction has been treated as a
purchase by Migration of COL International. For legal purposes, however, COL
International will remain the surviving entity. The net assets of COL
International acquired in the exchange are recorded at their historical recorded
value, which approximates their fair market value.
The accompanying unaudited pro forma combining, condensed balance sheet
combines the balance sheets of COL International and Migration as of June 30,
2000, and the net financial effect from COL International's securities offering
discussed within this prospectus.
The accompanying unaudited pro forma combining, condensed statement of
operations combines the operations of COL International for the period from its
inception (February 29, 2000) to June 30, 2000, with the operations of Migration
for the eleven months ended June 30, 2000, as if the merger had been completed
as of the beginning of Migration's fiscal year.
Migration's principal operations are in the People's Republic of China. Its
historical financial statements are presented in Renminbi, its functional
currency. For pro forma presentation purposes, these amounts have been presented
in US dollars based on the exchange rate at June 30, 2000 (8.278 RMB to one US
dollar).
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the merger been consummated at the
beginning of the periods indicated.
The unaudited pro forma combining, condensed financial statements should be
read in conjunction with the historical financial statements and notes thereto,
included elsewhere in this document.
31
<PAGE>
<TABLE>
<CAPTION>
COMBINING, CONDENSED BALANCE SHEET
(UNAUDITED)
(US Dollars)
COL Pro Forma Adjustments
International Migration ---------------------------------------------------
June 30, June 30, (A) (B) (C) Pro Forma
2000 2000 Offering Exchange Elimination Combined
----------- ----------- ----------- -------- ----------- -----------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Cash $ 12,350 $ 79,850 $ -- $ -- -- $ 92,200
Receivables -- 21,351 -- -- -- 21,351
Receivable - Migration 18,420 -- -- -- (18,420) --
Other current assets -- 21,837 -- -- -- 21,837
Due from minority stockholder -- 10,060 -- -- -- 10,060
----------- ----------- ----------- ------- ----------- -----------
Total current assets 30,770 133,098 -- -- (18,420) 145,448
PROPERTY AND EQUIPMENT, net -- 1,578,808 -- -- -- 1,578,808
INTANGIBLE ASSETS 67,945 966,417 (67,945) -- -- 966,417
OTHER ASSETS -- 123,218 -- -- -- 123,218
----------- ----------- ----------- ------- ----------- -----------
TOTAL ASSETS $ 98,715 $ 2,801,541 $ (67,945) $ -- $ (18,420) $ 2,813,891
=========== =========== =========== ======= =========== ===========
CURRENT LIABILITIES:
Accounts payable 118,961 157,258 (67,945) -- -- 291,274
83,000
Payable - COL International -- 18,420 -- -- (18,420) --
Mortgage payable - current -- 6,307 -- -- -- 6,307
Loan payable -- 181,203 -- -- -- 181,203
Other -- 18,042 -- -- -- 18,042
----------- ----------- ----------- ------- ----------- -----------
Total current liabilities 118,961 381,230 15,055 -- (18,420) 496,826
----------- ----------- ----------- ------- ----------- -----------
DUE TO PARENT COMPANY -- 3,758,357 -- -- -- 3,758,357
MORTGAGE PAYABLE - LONG-TERM -- 28,121 -- -- 28,121
STOCKHOLDERS' EQUITY (20,246) (1,366,167) (83,000) -- -- (1,469,413)
----------- ----------- ----------- ------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 98,715 $ 2,801,541 $ (67,945) $ -- $ (18,420) $ 2,813,891
=========== =========== =========== ======= =========== ===========
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
COMBINING, CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(US Dollars)
COL Migration
International Eleven
Period Months Pro Forma Adjustments
Ended Ended -----------------------------------------------------------
June 30, June 30, (A) (B) (C) Pro Forma
2000 2000 Offering Exchange Elimination Combined
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL REVENUES $ -- $ 188,298 $ -- $ -- $ -- $ 188,298
COST OF GOODS SOLD -- 108,983 -- -- -- 108,983
------------ ------------ ------------ ------------ ------------ ------------
GROSS MARGIN -- 79,315 -- -- -- 79,315
OPERATING EXPENSES 185,336 1,243,785 83,000 -- -- 1,512,121
------------ ------------ ------------ ------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST (185,336) (1,164,470) (83,000) -- -- (1,432,806)
Minority interest -- 90,146 -- -- -- 90,146
------------ ------------ ------------ ------------ ------------ ------------
NET LOSS $ (185,336) $ (1,074,324) $ (83,000) $ (1,342,660)
============ ============ ============ ============
NET LOSS PER SHARE, $ (.02) $ N/A $ (.03)
============ ============ ============
Basic and Diluted
OUTSTANDING SHARES 8,300,000 N/A 1,500,000 40,200,000 -- 50,000,000
============ ============ ============ ============ ============ ============
</TABLE>
Notes To Pro Forma Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------
1. To record the issuances of 1,500,000 shares of common stock, (assuming the
minimum) to be issued in a public offering at $.05 per share or $75,000.
Assuming the maximum is sold, an additional 500,000 shares or $25,000 could
be raised in the offering. As the expected costs associated with the public
offering of $158,000 exceeds the proceeds to be received, the balance of
$83,000 (i.e. $158,000 of cost less $75,000 of proceeds) has been expensed
and included in accounts payable. Deferred offering costs of $67,945, which
are recorded as an intangible and as accounts payable at June 30, 2000 are
considered to be paid from proceeds of the public offering and offset
against the proceeds in equity.
2. To reflect the acquisition of COL International in a purchase transaction
with Migration, accounted for as a reverse merger. No goodwill is being
recorded on this acquisition as COL International has limited operations
and was formed for the sole purpose of merging with Migration and raising
limited funding prior to the acquisition.
3. To record the elimination of amounts due to/from COL International and
Migration.
33
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion and comparison of the financial condition and
results of operations of COL International as of June 30, 2000 and the period
then ended as well as of Migration as of June 30, 2000 and for the periods ended
June 30, 2000 and July 31, 1999. These discussions should be read in conjunction
with our financial statements, the notes to the financial statements, and the
other financial data included elsewhere in this prospectus.
COL CHINA ONLINE INTERNATIONAL INC.
-----------------------------------
Introduction
------------
COL International is a development stage company incorporated on February
22, 2000. Its sole purpose is to provide an investment vehicle into which
Migration can be acquired through an exchange of shares. To date, COL
International has raised limited capital from its founders and in a private
offering of securities. COL International has also coordinated this public
offering and the exchange of shares with Migration. COL International has
recognized no revenues, nor is it expected to in the future, until it acquires
Migration. COL International's expenses have been related primarily to
professional fees incurred in connection with the planned exchange of shares
between the companies. After this proposed public offering and exchange of
shares, Migration will own approximately 80 percent of COL International.
The ability of COL International to continue operations as a going concern
is dependent upon the successful completion of the exchange with Migration and
the continued support from COL International's principal stockholder and/or
Migration's majority stockholder until the acquisition occurs. The proceeds from
this public offering will not be adequate to cover the costs of the offering.
After the acquisition, the continuation of the combined entity will be dependent
upon the continued support of Migration's majority stockholder, until such time
as, when or if, the combined entity achieves positive cash flows from operations
or additional funds are raised in future private and public offerings.
Liquidity And Capital Resources
-------------------------------
COL International has negative working capital as of June 30, 2000 of
approximately ($88,000). In May and June 2000, COL International sold 1,250,000
shares of common stock at $.05 per share and raised approximately $53,000, net
of related offering costs. Proceeds from this public offering are between
$75,000 and $100,000, dependent upon whether either the minimum or maximum,
respectively, is raised in this offering. In either event, this amount is not
expected to cover the related costs of $158,000 of this public offering.
(Approximately $50,000 of offering costs were paid by additional advances by
Migration's majority stockholder to COL International after June 30, 2000.) As
Migration is expected to continue to operate on a negative cash flow basis for
at least the near term, the combined entity, even after this public offering,
will continue to be dependent upon Migration's majority stockholder for
continued financial support. COL International intends to raise additional funds
through public or private offerings in the future; however, there is no
assurance COL International will be successful in these endeavors.
34
<PAGE>
Cash used in operations was $47,397, which was comprised principally of the
net loss of $185,336 offset by accounts payable incurred in operating activities
of $51,016 and expenses paid directly by the principal stockholder of $89,343.
COL International had no cash flows from investing activities. Cash flows from
financing activities was $57,747. This was comprised of cash contributions by
the founding stockholders (excluding the above mentioned cash paid by the
principal stockholder prior to incorporation for professional fees incurred on
behalf of COL International of approximately $89,000) and net proceeds received
in a private offering of common stock.
Migration's majority stockholder has made advances to COL International
after year-end of $95,000, which were first applied to repay Migration's
receivable of $18,420 as of June 30, 2000. The net amount of approximately
$77,000 is without interest or collateral and repayable only out of 20 percent
of future pre-tax net profits or convertible into common stock of COL
International at the greater of $1.20 or 90 percent of the market price of COL
International's common stock. For advances made after the effective date of this
registration statement, such advances may be convertible at $1.20 per share or
110 percent of the weighted average trading price of COL International common
stock.
Statement Of Operations For The Period Ended June 30, 2000
----------------------------------------------------------
The financial statements reflect only the operations of COL International
from its inception on February 22, 2000 to June 30, 2000 including certain
costs, which were incurred and paid to third parties prior to incorporation of
COL International by COL International's primary stockholder. COL
International's total expenses and related net loss relate primarily to
professional fees paid to attorneys and accountants in connection with this
offering and the proposed acquisition of Migration and totaled approximately
$140,000. After the exchange a substantial portion of these costs are not
expected to be recurring as they related to due diligence costs associated with
the exchange with Migration. However, having foreign operations with public
reporting obligations in the United States does subject COL International to
certain additional costs not normally associated with a US public company with
only US operations. These costs are substantial and include, among other costs,
travel and coordination with foreign professionals. Therefore, COL International
is unable to accurately estimate the amount of costs which will not be
recurring.
COL International also recorded a non-cash charge of $16,000 based on the
estimated fair value of common stock issued to certain founders at inception for
cash at par value ($.001 per share). This value was based upon the total
consideration paid per share of $.016 by the major stockholder, including his
capital contribution of $89,000. These shares to founders were committed in
1999; however, as the Company was only incorporated in late February, their
actual issuance did not occur until that time.
COL International has no full time employees or commitments. It is
currently paying $1,000 per month under a cancelable agreement with a
director/officer.
MIGRATION DEVELOPMENTS LIMITED
------------------------------
Introduction
------------
Migration is a British Virgin Island incorporated entity. After the
acquisition, it will become a wholly owned subsidiary of COL International. For
financial reporting purposes, however, the exchange of shares between COL
International and Migration will be considered a reverse acquisition and
Migration will be considered the acquiring entity. Therefore, the continuing
financial statements of the reporting company will reflect the operations of
Migration from its inception and operations of COL International from the date
of the exchange.
35
<PAGE>
Migration's operations are in the People's Republic of China and as such,
its functional currency is the Renminbi. All amounts presented below, therefore,
are in Rmb. For illustration purposes, the US translated amount based on the
exchange rate at June 30, 2000 of 8.278 Rmb to the US dollar and are presented
parenthetically for the most recent periods presented.
Operating in the PRC presents Migration with certain risks not normally
associated with an entity whose operations are solely in the United States. A
discussion of these risks is included under the "Risk Factors" section, above.
Even though Migration was incorporated in 1998, it effectively commenced
operations in the spring of 1999. Therefore, the financial information for the
year ended July 31, 1999 includes only approximately four months of operations.
Migration's operations are through a 90 percent-owned interest in the joint
venture.
Migration's revenues to date have been generated from only a few customers.
It has also incurred other costs associated with developing various lines of
business generally related to services provided through the internet in the PRC,
which to date have not generated significant revenues. Therefore, Migration has
generated operating losses since its inception. It has also made significant
capital investments in obtaining certain operating rights and equipment. These
losses and capital costs have been funded by the majority stockholder of
Migration principally in the form of non-interest bearing advances. These
advances are to be repaid only from 20 percent of any future pre-tax profits or
are convertible into common stock of COL International at the greater of $1.20
per share or 90 percent of the weighted average trading price for the 20 days
preceding the date of notice of conversion of COL International common stock.
Continuation of Migration as a going concern will ultimately be dependent upon
attaining positive cash flow from operations. Until this occurs, Migration will
remain dependent upon continued financial support from its majority stockholder
or other sources of capital, if they become available.
Liquidity And Capital Resources
-------------------------------
As of June 30, 2000, Migration had a negative working capital of Rmb
2,054,078 (or approximately US$248,000). This improved significantly from a
negative working capital of Rmb 9,752,605 at July 31, 1999, after payment to the
Rayes Group of Rmb10,000,000 in August 1999 for certain intangible operating
rights, which was recorded as a short-term liability as of July 31, 1999. This
amount along with other funding for capital expenditures and operating losses
was advanced to Migration by the majority stockholder. As previously mentioned
the majority stockholder has agreed not to call its advances, but accept
repayment only from 20 percent of future pre-tax profits or convert the amount
into common stock of COL International. As of June 30, 2000, advances from the
majority stockholder totaled Rmb 31,111,674 (or approximately US$3,758,000).
Migration's management believes the majority stockholder will continue to
provide financial support to Migration. Migration's ability to continue
operations is currently dependent upon continued financial support from its
majority stockholder. Also included in current liabilities at June 30, 2000 is
Rmb 1,500,000 (or approximately US$181,000), incurred in connection with the
purchase of office space in Wuhan PRC. Migration is negotiating to finance this
purchase on a long-term basis by a Chinese bank, but as the financing has not
yet closed, it is reflected as a current liability, even though the related
asset is classified as a long-term asset.
36
<PAGE>
Cash was used in operating activities for the period ended July 31, 1999 of
Rmb 1,916,310 as compared with Rmb 2,165,665 (or approximately US$262,000) for
the eleven months ended June 30, 2000. The cash used in operations was to fund
operating losses of Rmb 2,829,774 and Rmb 8,893,253 (or approximately
US$1,074,000), generally offset by non-cash expenses related to amortization and
depreciation of Rmb 1,340,000 and Rmb 5,770,301 (or approximately US$697,000)
for the periods ended July 31, 1999 and June 30, 2000, respectively. Other
changes in operating assets resulted in increases in cash generated in
operations during the period ended June 30, 2000 and included a decrease in
receivables of Rmb 1,230,265 (or approximately US$149,000) and an increase in
payables of Rmb 349,708 (or approximately US$42,000).
Cash flows in investing activities were generally made directly by the
majority stockholder and included the purchase of Rmb 4,557,685 of equipment in
the year ended July 31, 1999. The joint venture also purchased Rmb 1,243,752 of
equipment (or approximately US$150,000) and property of Rmb 2,548,699; and made
an advance (Rmb 1,020,000) towards the purchase of 70 percent of a company
developing a website. The total purchase price for the 70 percent interest in
this entity, which is held directly by Migration, is Rmb 1,020,000 (or
approximately US$123,000), and the transaction closed in July 2000 after
receiving regulatory approval. This entity is a development stage company and
has not recognized any significant revenues from its website development.
Cash flows from financing activities have generally come from advances by
the majority stockholder of Migration of Rmb 873,643 in the period ended July
31, 1999 and Rmb 15,977,658 (or approximately US$1,930,000) during the eleven
months ended June 30, 2000 and contribution of Rmb 1,000,000 by Rayes Group in
the joint venture during the period ended July 21, 1999, mortgage loan of Rmb
285,000 for a staff quarter in Wuhan and loan of Rmb 1,500,000 payable to seller
of the Wuhan office acquired during the eleven months ended June 30, 2000,
offset by the repayment of the liability to the Rayes Group of Rmb 10,171,912
(approximately US$1,228,000), principally related to the purchase of license
rights from them. The balance of the purchase consideration of Rmb 1,500,000
payable to the seller of the Wuhan office is expected to be financed by a
long-term mortgage at terms to be finalized in the near term. Such delays in
financing are considered in the normal course of business in the PRC.
The net change in cash and cash balances during the periods has been
relatively insignificant as the majority stockholder of Migration has been
funding the operations on an as needed basis.
Statement Of Operations For The Period Ended July 31, 1999 And The Eleven Months
Ended June 30, 2000
--------------------------------------------------------------------------------
Migration has no comparable periods as actual operations began in the
spring of 1999. Therefore the year ended July 31, 1999 generally includes
operations for only four months, which for discussion purposes is being compared
to the eleven months ended June 30, 2000.
Revenues for the eleven months ended June 30, 2000 include network
installation of local area networks of Rmb 1,204,804 (or approximately
US$145,000) and marketing and technical fees received from Rayes Group of Rmb
353,923 (or approximately US$43,000) compared to installation revenues of Rmb
1,355,814 and marketing fees of Rmb 243,754 for the year ended July 1999.
Migration has entered into only a limited number of contracts, and revenue is
recognized as project phases are completed and accepted by the customer.
However, because there have been only a limited number of contracts, Migration's
gross margin on installation revenue, which can vary between contracts based on
negotiated price and materials installed (where lower margins are received), is
not consistent between periods. For the period ended July 31, 1999, Migration
37
<PAGE>
had a gross margin of approximately 75 percent based on costs of Rmb 341,085,
whereas for the eleven months ended June 30, 2000, Migration experienced a gross
margin of 66 percent, based on related costs of Rmb 402,325 (or approximately
US$49,000). The difference can be attributed to Migration obtaining a large
customer during the period ended July 31, 1999, whereby the contract was more
labor intensive and Migration was able to generate a higher margin.
Marketing fees relate to the joint venture share of 50 percent of the
revenues generated from ISP services owned by Rayes Group and computer hosting
of websites for customers. Migration has not yet generated significant revenues
from these lines of business, but is devoting substantial resources to
developing this business. To date, most ISP services are paid by a limited
number of individual dial-up customers and internet games centers in Shanghai,
as well as a limited number of companies whose websites are hosted by Migration.
Migration also intends to design websites for companies in the future, however,
insignificant revenue has been generated from this activity to date. To the
extent that Migration designs and hosts a customer's websites, the related
revenue from the design will generally be deferred and recognized over the
hosting term of the contract or expected life of the customer, if longer.
In connection with these services, Migration has an agreement with Rayes
Group to reimburse Rayes Group for their actual transmission (i.e., telephone
line) costs, provided that Rayes Group will pay all incremental costs related to
expansion of the telecommunications facilities related to the ISP operations.
These amounts totaled Rmb 276,643 and Rmb 499,834 (or approximately US$60,000).
Rayes Group has no long-term commitments in connection with its
telecommunication costs.
During the period ended July 31, 1999 and the eleven months ended June 30,
2000, Migration incurred Rmb 154,564 and Rmb 299,153 (or approximately
US$36,000) of research and development costs. These costs represent software
development costs associated with Migration's development of its Education Net
website. These costs are expected to be continuing as Migration continues to
develop content and enter information into its website. The website is currently
functioning and can be accessed, but no revenues have been generated to date as
the joint venture is offering these services at no charge to create awareness
and interest in its website. Migration intends to begin charging user fees in
the late fall of 2000.
General and administrative costs include salaries, rent, travel and other
overhead costs. For the period ended July 31, 1999 and the eleven months ended
June 30, 2000, general and administrative costs totaled Rmb 2,409,948 and Rmb
4,226,600 (or approximately US$510,000), respectively. These costs are
increasing as Migration continues to expand its business services and the
extended effective period covered (i.e., four months compared to eleven months),
even though the related revenues have not yet been generated from such
activities. These increased costs are somewhat offset by certain initial costs
incurred by the joint venture, principally professional fees generally related
to its initial year of operations of Rmb 416,520, while no similar expense was
incurred in the eleven months ended June 30, 2000.
Amortization and depreciation expense for the period ended July 31, 1999
and June 30, 2000 was Rmb 1,340,754 and Rmb 5,770,301 (or approximately
US$697,000), respectively. For the period ended July 31, 1999, this represented
one month of amortization based on the date the joint venture contracts were
negotiated with Rayes Group to provide ISP and other internet services to third
parties. These costs are being amortized over five years. Depreciation expense
generally commenced in March 1999 and the related costs are also being
depreciated on a straight-line basis generally over five to seven years. For the
eleven months ended June 30, 2000, the full eleven months of expense was
recorded.
38
<PAGE>
Based on Rayes Group's ten percent interest in the joint venture, Rmb
253,767 and Rmb 746,233 (or approximately US$90,000) of losses are offset
against Rayes Group's initial contribution of Rmb 1,000,000 to the joint venture
which has been fully absorbed by the losses of the joint venture during the
period ended June 30, 2000.
Migration has not recognized any future tax benefits resulting from its
operating losses due to the uncertainty of future realization.
The above has resulted in net losses of Rmb 2,829,774 and Rmb 8,839,253 (or
approximately US$1,068,000), for the periods ended July 31, 1999 and June 30,
2000, respectively. Migration expects to continue to incur losses until its
services are more fully developed and accepted in the PRC.
MANAGEMENT
Current Director And Officer
----------------------------
Mark K. Shaner is our sole director and also our President, Chief Financial
Officer, and Secretary. There are no other directors or officers. Mr. Shaner has
been elected to hold office until the next annual meeting of stockholders and
thereafter until his successor is elected and has qualified. He will resign as a
director and officer of COL International upon consummation of the acquisition.
Mark K. Shaner, age 49, has been our President, Chief Financial Officer,
Secretary and sole director since COL International's inception on February 22,
2000. Mr. Shaner is an attorney whose main area of practice is transactional
law. He obtained his law degree at the University of Denver and was admitted to
the Colorado Bar in 1976. He has been involved in the private practice of law
since 1976.
Directors And Officers After The Acquisition
--------------------------------------------
Our directors and executive officers after the acquisition are listed
below, including their respective names, ages and positions with COL
International.
Name Age Position with COL International
---- --- -------------------------------
Chan Kam Che 50 Chairman of the board
Brian Power 50 Director, Chief Executive Officer
and Secretary
Paul Wong 50 Director
Zhang Qi Yu 42 Director
Chan Kam Che, has been the General Manager and a director of Hogan
Industries Limited since 1989, which has operations in China, Vietnam, the U.S.
and Mexico and nearly 5,000 staff members. In these capacities, Mr. Chan has
been working in project management and marketing for Hogan Industries. After
majoring in accounting at what is now Hong Kong Baptist University in Hong Kong,
he spent 18 years working in several major certified public accounting firms in
Hong Kong before moving into marketing and management.
39
<PAGE>
Brian Power, will become the Chief Executive Officer of COL International
upon completion of the acquisition. Mr. Power has been the Chief Executive
Officer of Migration since January 2000 after leaving Asiamoney magazine in Hong
Kong, part of Euromoney pcl, where he headed the internet development group from
1997 through 1999. From 1992 and until joining Asiamoney, Mr. Power founded and
managed companies in China. He created and was Managing Director of China
Securities Research Centre Ltd., which had offices in three Chinese cities. Its
daily publications, produced in both Chinese and English, were the first-ever
daily publications covering China's securities markets. Mr. Power later sold the
company to Reuters. A former journalist, Mr. Power won national awards in Canada
for investigative journalism.
Paul Wong, is the founder, Chief Executive Officer, and Chairman of the
board of directors of Hogan Industries Limited since 1982. Mr. Wong's factories
are suppliers of goods to leading U.S. and European brand names as well as major
airlines worldwide. His responsibilities include new product concepts regarding
investments in high tech companies in Asia.
Zhang Qi Yu, became Chief Executive Officer of the Rayes Group in April
1997. Mr. Zhang was one of the founders and directors of the Rayes Group since
1995. In these capacities, he has been responsible for the ISP and ICP
development and operations of the Rayes Group in more than ten Chinese cities.
Mr. Zhang also became the Chief Executive Officer and a director of Migration in
July 1998. Mr. Zhang is a member of the Computer Engineering Application
Association in China and has obtained advanced degrees after studying Computer
Telecommunications at Xian Electronic Technology University.
Following are biographies of the directors and certain key employees of the
joint venture:
Directors And Other Key Employees Of The Joint Venture
------------------------------------------------------
Chan Kam Che, has been the Deputy Chairman of the board of the joint
venture since 1999. Refer to his business experience above under the caption,
"Directors And Officers After The Acquisition", above.
Chang Xiang Yang, 51, has been the General Manager of the joint venture's
Wuhan Office since 1999. Prior to this position, Mr. Yang was General Manager of
Rayes Group from 1993. Mr. Yang has published several books and periodicals on
computer communications. He was a Director of Research at Harbin University
after graduating with advanced degrees in computer science in 1968. He has
extensive administrative experience.
Qiao Liang, 28, has been a director and Deputy Chief Financial Officer of
the joint venture since 1999. Mr. Qiao is a graduate of the Shanghai Finance
University, where he studied investment finance management. He worked as an
accountant during the early 1990s before joining the Rayes Group in 1996, where
he ran the investment management department.
Paul Wong, has been a director of the joint venture since 1999. Refer to
his business experience above under the caption, "Directors And Officers After
The Acquisition", above.
Wong Chi Keung, 62, has been a director of the joint venture since 1999 and
the Chief Financial Officer of the joint venture since 1999. Mr. Wong also has
been a director and Chief Financial Officer of Migration since July 1998. Mr.
Wong, has 40 years of experience as a financial controller and an auditor both
in Australia and Hong Kong. He started in the audit department of Lowe, Bingham
& Mathews (now PricewaterhouseCoopers LLP) in 1960 after having graduated in
Hong Kong in accounting. He worked in China from its initial opening in the
mid-1960s until 1984. He was later Financial Controller for the YMCA in
Australia. Wong Chi Keung is the brother of Paul Wong.
40
<PAGE>
Zhang Qi Yu, has been the Chairman of the board of the joint venture since
1999. Refer to his business experience above under the caption, "Directors And
Officers After The Acquisition", above.
EXECUTIVE COMPENSATION
Compensation Of Current Director
--------------------------------
Our only director does not receive any compensation for serving on our
board. However, he is reimbursed for expenses incurred in attending meetings and
for other expenses incurred on behalf of COL International. It is anticipated
that after the acquisition the directors who are not also employees will receive
compensation for serving on the board.
Summary Compensation Table After The Acquisition
------------------------------------------------
The following table sets forth in summary form the compensation to be
received after the acquisition by Brian Power, our future Chief Executive
Officer, and Zhang Qi Yu, Chairman of the board of the joint venture. None of
our employees, other than Mr. Power, and no employees of the joint venture will
receive total salary and bonus exceeding $100,000 after the acquisition.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Restricted All other
Name and Principal Fiscal Salary Bonus Annual Stock Options Payouts Compensation
Position Year ($) (1) ($) (2) Compensation Awards ($) (#) ($) (3) ($)(4)
-------- ---- ------- ------- ------------ ---------- --- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian Power 2000 $150,000 -0- -0- -0- -0- -0- -0-
Chief Executive Officer
COL International
Zhang Qi Yu 2000 $ 18,000 -0- -0- -0- -0- -0- -0-
Chairman
Joint Venture
----------
</TABLE>
(1) The dollar value of base salary (cash and non-cash) estimated to be
received.
(2) The dollar value of bonus (cash and non-cash) to be received during the
year indicated.
(3) COL International does not have in effect any plan that is intended to
serve as incentive for performance to occur over a period longer than one
fiscal year except for our Stock Option Plan.
(4) All other compensation received that COL International could not properly
report in any other column of the Summary Compensation Table including
annual contributions or other allocations to vested and unvested defined
contribution plans, and the dollar value of any insurance premiums paid by,
or on behalf of, COL International with respect to term life insurance for
the benefit of the named executive officer, and, the full dollar value of
the remainder of the premiums paid by, or on behalf of, COL International.
41
<PAGE>
Employment Contracts And Termination Of Employment And Change-In-Control
Arrangements
------------------------------------------------------------------------
We have agreed to pay Mr. Shaner a monthly salary of $1,000 and
reimbursement of expenses that he has incurred in relation to our operations. We
can terminate this arrangement upon 30 days notice at any time.
Except for the agreement with Mr. Shaner, we do not have and currently are
not planning to have any written employment contracts with respect to any of our
directors, officers or other employees. We have no compensatory plan or
arrangement that results or will result from the resignation, retirement, or any
other termination of an executive officer's employment or from a
change-in-control of COL International or a change in an executive officer's
responsibilities following a change-in-control.
Employee Retirement Plans, Long-Term Incentive Plans, and Pension Plans
-----------------------------------------------------------------------
Other than our stock option plan that is described below under "2000 Stock
Option Plan", we have no employee retirement plan, pension plan, or long-term
incentive plan to serve as incentive for performance to occur over a period
longer than one fiscal year.
2000 Stock Option Plan
----------------------
Pursuant to our 2000 Stock Option Plan, we may grant options to purchase an
aggregate of 4,000,000 shares of common stock to key employees and other persons
who have or are contributing to our success. The options granted pursuant to the
2000 Plan may be either incentive options qualifying for beneficial tax
treatment for the recipient, or non-qualified options. The terms of the 2000
Plan concerning incentive options and non-qualified options are substantially
the same except that only our employees or employees of our subsidiaries are
eligible for incentive options and employees and other individuals who have
contributed or are contributing to our success are eligible for non-qualified
options. With respect to options granted to persons other than outside
directors, the 2000 Plan also is administered by an option committee that
determines the terms of the options subject to the requirements of the 2000
Plan.
All options granted under the 2000 Plan will become fully exercisable on
the date that the options are granted or other dates that the Option Committee
determines and will continue for a period up to a maximum of ten years. Options
granted pursuant to the 2000 Plan are not transferable during the optionee's
lifetime. Subject to the other terms of the 2000 Plan, the option committee has
discretion to provide vesting requirements and specific expiration provisions
with respect to the incentive options and non-qualified options granted. As of
the date of this prospectus, no options have been granted pursuant to the 2000
Plan.
BENEFICIAL OWNERS OF SECURITIES
Beneficial Ownership Before And After Public Offering
-----------------------------------------------------
As of October 13, 2000, there were 8,300,000 shares of common stock
outstanding. After this public offering and after we complete the proposed
acquisition, there will be 50,000,000 shares of common stock outstanding
(assuming completion of the minimum offering) and 50,500,000 shares of common
stock outstanding (assuming completion the maximum offering). The following
table sets forth certain information as of October 13, 2000, and after the
42
<PAGE>
completion of this public offering (assuming completion of the minimum and
maximum offerings, respectively) and the acquisition with respect to the
beneficial ownership of the common stock by each director, by all executive
officers and directors as a group, and by each other person known by us to be
the beneficial owner of more than five percent of the common stock:
<TABLE>
<CAPTION>
No. of Shares Beneficially Owned (1) Percentage of Shares Outstanding
-------------------------------------- -----------------------------------
After After After After
Minimum Maximum Minimum Maximum
Offering Offering Offering Offering
Name and Address of Prior to and and Prior to and and
Beneficial Owner Offering Acquisition Acquisition Offering Acquisition Acquisition
---------------- -------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Anthony Ng 6,000,000 6,000,000 6,000,000 72.3% 12.0% 11.9%
310 Davenport Road, Suite 202
Toronto, Ontario M5R 1K6 Canada
Paul Wong (2) -- 22,849,680 22,849,680 -- 45.7% 45.2%
Suite 1408 Lippo Sun Plaza
28 Canton Road
Kowloon, Hong Kong
Chan Kam Che (3) -- 22,849,680 22,849,680 -- 45.7% 45.2%
Suite 1408 Lippo Sun Plaza
28 Canton Road
Kowloon, Hong Kong
Zhang Qi Yu (4) -- 17,350,320 17,350,320 -- 34.7% 34.6%
Suite 1408 Lippo Sun Plaza
28 Canton Road
Kowloon, Hong Kong
-- 17,350,320 17,350,320 -- 34.7% 34.6%
First Strike Securities Limited (5)
Suite 1408 Lippo Sun Plaza
28 Canton Road
Kowloon, Hong Kong
-- 22,849,680 22,849,680 -- 45.7% 45.2%
Honview International Limited (6)
Suite 1408 Lippo Sun Plaza
28 Canton Road
Kowloon, Hong Kong
All Executive Officers and 300,000 40,200,000 40,200,000 3.61% (80.4%) 79.6%
Directors as a group
(one person prior to Offering; three
persons after Offering) (2) (3) (4) (7)
Alan L. Talesnick 675,000 675,000 675,000 8.1% 1.4% 1.3%
5030 Bow Mar Drive
Littleton, Colorado 80123
Mark K. Shaner (7) 300,000 300,000 300,000 3.61% * *
3177 South Parker Road
Aurora, Colorado 80014
----------
</TABLE>
* Less than one percent.
43
<PAGE>
(1) "Beneficial ownership" is defined in the regulations promulgated by the SEC
as having or sharing, directly or indirectly (A) voting power, which
includes the power to vote or to direct the voting, or (B) investment
power, which includes the power to dispose or to direct the disposition, of
shares of the common stock of an issuer. Unless otherwise indicated, the
beneficial owner has sole voting and investment power.
(2) Paul Wong may be considered a beneficial owner of the 22,849,680 shares of
which Honview International Limited will become the record owner upon
consummation of the acquisition. Mr. Wong is a beneficial owner of 39.21
percent of the outstanding equity interests in Honview. The shares to be
issued to Honview are included three times in the table. They are listed as
being held beneficially by each of Paul Wong, Chan Kam Che and Honview
International Limited. Upon consummation of the acquisition, Mr. Wong will
become a director of COL International. See also footnotes 3 and 6, below.
(3) Chan Kam Che may be considered a beneficial owner of the 22,849,680 shares
of which Honview International Limited will become the record owner upon
consummation of the acquisition. Mr. Chan is a director of Honview
International Limited and he also is the beneficial owner of 15.20 percent
of the outstanding equity interests of Honview. The shares to be issued to
Honview are included three times in the table. They are listed as being
held beneficially by each of Chan Kam Che, Honview International Limited
and Paul Wong. Upon consummation of the acquisition, Mr. Chan will become
the Chairman of our board of directors. See also footnotes 2 and 6.
(4) Zhang Qi Yu may be considered a beneficial owner of the 17,350,320 shares
of which First Strike Securities Limited will become the record owner upon
consummation of the acquisition. Mr. Zhang is the beneficial owner of 20
percent of the outstanding equity interests of First Strike. The shares to
be issued to First Strike are included twice in the table. They are listed
as being held beneficially by both Zhang Qi Yu and First Strike. Upon
consummation of the acquisition, Mr. Zhang will become a director of COL
International. See also footnote 5, below.
(5) If the acquisition is completed, First Strike Securities Limited will own
17,350,320 shares of our common stock. These shares are included twice in
the table. They are listed as being held beneficially by both First Strike
Securities Limited and Zhang Qi Yu. See also footnote 4, above.
(6) If the acquisition is completed, Honview International Limited will own
22,849,680 shares of our common stock. These shares are included three
times in the table. They are listed as being held beneficially by each of
Honview International Limited, Paul Wong and Chan Kam Che. See also
footnotes 2 and 3, above.
(7) Upon consummation of the acquisition, Mr. Shaner will no longer be a
director or executive officer of COL International. The number of shares to
be held by all directors and executive of COL International after the
offering does not include the 300,000 shares of our common stock presently
held by Mr. Shaner.
TRANSACTIONS BETWEEN COL INTERNATIONAL AND RELATED PARTIES
Upon consummation of the acquisition, Honview International Limited will
own 22,849,680 shares of our common stock, and First Strike Securities Limited
will own 17,350,320 shares of our common stock. Paul Wong is a director of
Honview and he also is a beneficial owner of 39.21 percent of the outstanding
equity interests in Honview. Upon consummation of the acquisition, Mr. Wong will
become a director of COL International.
Chan Kam Che is a director of Honview and he also is the beneficial owner
of 15.20 percent of the outstanding equity interests of Honview. Upon
consummation of the acquisition, Mr. Chan will become the Chairman of our board
of directors.
44
<PAGE>
Zhang Qi Yu is a director of First Strike and he also is the beneficial
owner of 20 percent of the outstanding equity interests of First Strike. Upon
consummation of the acquisition, Mr. Zhang will become a director of COL
International.
During the periods ended July 31, 1998 and July 31, 1999, Honview paid Rmb
10 million (or US$ 1,208,021) and Rmb 4.6 million (or US$ 555,690),
respectively, on behalf of Migration for the joint venture to purchase certain
equipment. Also during the period ended July 31, 1998, Honview paid Rmb 9
million (or US$ 1,087,219) on behalf of Migration for the joint venture's
capital contribution required to purchase intangibles from Rayes Group. Honview
loaned Migration these amounts and other advances summing up to approximately
US$ 3 million in the beginning of 2000 without interest or collateral. At that
time, Honview agreed not to call its advances earlier than March 1, 2001. On
October 10, 2000, the parties agreed to revise the terms to provide for the loan
to be repayable only out of 20 percent of Migration's pre-tax profits, if any,
for each fiscal year of Migration that begins on or after July 1, 2001 with no
other right of Honview for repayment. If Migration becomes a wholly owned
subsidiary of COL International, then the pre-tax profits and fiscal year
described in the preceding sentence shall be those of COL International, with
the pre-tax profits of COL International to be determined on a fully
consolidated basis in accordance with U.S. generally accepted accounting
principles.
Pursuant to the Loan Agreement, Honview agreed to lend Migration its cash
needs, from time to time, at any time until January 1, 2004 up to an aggregate
principal amount of US$8 million. If Migration becomes a wholly owned subsidiary
of COL International, then any amounts loaned to Honview prior to the effective
date of this registration statement may be paid at the option of Migration, by
converting, at any time after October 10, 2001, part or all the unpaid principal
amount of the loan into shares of COL International's common stock, at a price
equal to the greater of $1.20 per share or 90 percent of the average weighted
trading price of the common stock for the 20 trading days preceding the date of
notice of exercise of conversion. Any amounts loaned to Honview after the
effective date of this registration statement may be paid, at the option of
Migration, by converting, at any time after October 10, 2001, part or all the
unpaid principal amount of the loan into shares of COL International's common
stock, at a price equal to the greater of $1.20 per share or 110 percent of
weighted average trading price of common stock for the 20 trading days preceding
the date of the loan.
In February 2000, we sold an aggregate of 7,500,000 shares of our common
stock at a purchase price of $.001 per share in connection with the formation of
COL International. Six million of these shares were sold to Anthony Ng, a
promoter of COL International. Mr. Ng also had paid cash expenses to
professional service firms in the amount of approximately $89,000 on behalf of
COL International prior to its incorporation. These amounts were recorded in the
financial statements as "capital contribution by major stockholder". Mr. Ng is
not affiliated with any other company with which COL International has direct or
indirect relationships.
Except as discussed above, since COL International's inception on February
22, 2000, there were no transactions between COL International and its
directors, executive officers or known holders of more than five percent of the
common stock, or transactions by COL International in which any of the foregoing
persons had a direct or indirect material interest, in which the amount involved
exceeded $60,000.
45
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital consists of 100,000,000 shares of $.001 par value
common stock and 5,000,000 shares of $.001 par value preferred stock. As of
September 15, 2000 there were 8,300,000 shares of common stock issued and
outstanding, and these outstanding shares were held by 28 stockholders. No
shares of preferred stock are issued and outstanding.
Common Stock
------------
Each share of the common stock is entitled to share equally with each other
shares of common stock in dividends from sources legally available therefore,
when, as, and if declared by our board of directors and, upon liquidation or
dissolution of COL International, whether voluntary or involuntary, to share
equally in the assets of COL International that are available for distribution
to the holders of the common stock. Each holder of common stock is entitled to
one vote per share for all purposes, except that in the election of directors,
each holder shall have the right to vote such number of shares for as many
persons as there are directors to be elected. Cumulative voting shall not be
allowed in the election of directors or for any other purpose, and the holders
of common stock have no preemptive rights, redemption rights or rights of
conversion with respect to the common stock. All outstanding shares of common
stock and all shares underlying the warrants when issued will be fully paid and
nonassessable by COL International. The board of directors is authorized to
issue additional shares of common stock within the limits authorized by our
Certificate Of Incorporation and without stockholder action.
All shares of common stock have equal voting rights, and voting rights are
not cumulative. The holders of more than 50 percent of the shares of common
stock could, therefore, if they chose to do so and unless subject to a voting
agreement to the contrary, elect all of our directors.
We have not paid any cash dividends since our inception.
Preferred Stock
---------------
Our board has the right to fix the rights, privileges and preferences of
any class of preferred stock to be issued in the future out of authorized and
unissued shares of preferred stock and can issue such shares after adopting and
filing a Certificate Of Designations with the Secretary Of State of Delaware.
Any class of preferred stock that may be authorized in the future may have
rights, privileges, and preferences senior to the common stock. We currently do
not have any plans to authorize any class of preferred stock.
Delaware Anti-Takeover Law
--------------------------
We are subject to Section 203 of the Delaware General Corporation Law,
which prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (1) prior to the date of the business combination, the
transaction is approved by our board of directors, (2) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85 percent of the
outstanding voting stock, or (3) on or after such date the business combination
46
<PAGE>
is approved by the board and by the affirmative vote of at least 66 2/3 percent
of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes a merger, asset sale and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15 percent or more of the corporation's voting
stock.
Transfer Agent And Registrar
----------------------------
Our transfer agent and registrar is Computershare Investor Services Inc.,
located at 12039 W. Alameda Parkway, Suite Z-2, Lakewood, Colorado 80228.
NO TRADING MARKET FOR THE COMMON STOCK
There is no established public trading market for any of COL
International's securities, and there is no assurance that a trading market will
develop as a result of this offering. See "Risk Factors -There is no trading
market or other liquidity for the common stock".
To the extent that a trading market in the common stock develops, of which
there is no assurance, it currently is anticipated that the common stock will be
quoted on the Electronic Bulletin Board. It should be assumed that even if the
common stock is eventually quoted on the Electronic Bulletin Board, of which
there is no assurance, there will be an extremely limited trading market - and
very little liquidity - for the common stock.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
This prospectus relates to the issuance of a minimum of 1,500,000 and a
maximum of up to 2,000,000 shares of common stock issuable by us at a price of
$.05 per share. This offering also consists of 1,250,000 shares of common stock
to be sold by selling stockholders. If we sell 1,500,000 shares, we will receive
a total of $75,000, and if we sell all 2,000,000 shares, we will receive a total
of $100,000. If the buyers of those shares decide to resell or transfer any of
their shares, we will not receive any proceeds from those resales or transfers.
We are offering the shares subject to the subscription and payment for not
less than 1,500,000 shares until 90 days after the date of this prospectus. We
may extend the offering period until 150 days after the date of this prospectus,
in our discretion. Sales are intended to be made by our directors, executive
officers, and stockholders. All funds collected from subscribers will be placed
in an escrow account at Computershare Investor Services Inc., Lakewood,
Colorado, which will serve as escrow agent. Potential investors desiring to
purchase shares of common stock should do the following:
o Complete and sign the subscription agreement included at the end of
this prospectus;
o Make check payable to "COL International Escrow"; and
o Send the completed subscription agreement and check to us at the
following address:
COL China Online International Inc.
3177 South Parker Road
Aurora, CO 80014
47
<PAGE>
Until the minimum offering amount of $75,000 is received, we will forward
the checks or funds to the escrow agent on or before the next business day after
we receive them and the completed subscriptions. If the minimum offering is not
subscribed before the end of the offering period, all funds will be promptly
refunded by the escrow agent to subscribers without interest or deduction. If
the minimum offering amount is received on or before the end of the offering
period, the escrow agent will send us the funds held in escrow for the accepted
subscriptions and we will deliver stock certificates to the subscribers. In the
case of bank wire, funds should be payable pursuant to the following wire
instructions: First American State Bank, ABA No. 102006326, Account No. 112797,
COL China Online International Inc.
We have not entered into any underwriting arrangement or other agreements
with brokers to transfer any or all of the shares offered under this prospectus.
After we sell the shares, the buyers may transfer or sell their shares
directly to private persons or in open market transactions, and may offer their
shares to or through registered broker-dealers who may be paid standard
commissions or discounts or other compensation. Buyers also may pledge their
shares as collateral for loans. This prospectus may be used by the lender who
receives the pledge of those shares to sell the shares if a loan is not repaid.
Each selling stockholder may transfer that stockholder's shares at those
prices that the stockholder is able to obtain in the market or as otherwise
negotiated. In addition, each selling stockholder may transfer that
stockholder's shares in exchange for consideration other than cash, or for no
consideration, as determined by that selling stockholder in the stockholder's
sole discretion. This prospectus also may be used by the selling stockholders to
transfer shares of the common stock to affiliates of the selling stockholders.
Additionally, agents, brokers or dealers or other lenders may acquire shares or
interests in shares as a pledgee and may, from time to time, effect
distributions of the shares or interests in that capacity. We will receive no
proceeds from the sale of common stock by the selling stockholders.
It is anticipated that the selling stockholders will offer the shares in
direct sales to private persons and in open market transactions. The selling
stockholders may offer the shares to or through registered broker-dealers who
will be paid standard commissions or discounts by the selling stockholders. The
selling stockholders have informed us that they do not have any arrangements or
agreements with any underwriters or broker/dealers to sell the shares, and
intend to contact various broker/dealers to identify prospective purchasers.
Additionally, agents, brokers or dealers may acquire shares or interests in
shares as a pledgee and may, from time to time, effect distributions of the
shares or interests in such capacity.
The following table sets forth the name of the selling stockholders, the
number of shares of common stock owned by each of the selling stockholders
before this offering, the number of shares of common stock to be sold by each of
the selling stockholders, and the number and percentage of shares of common
stock owned after this offering. None of the selling stockholders has held any
position or office, or had any marital relationship with any of our officers or
directors in the past three years.
48
<PAGE>
<TABLE>
<CAPTION>
Number Of Shares Number of Shares Percentage Of
Of Common Stock Number Of Owned After Shares Owned
Name Owned Before Offering Shares To Be Sold (1) Offering After Offering
---- --------------------- --------------------- -------- --------------
<S> <C> <C> <C> <C>
Ileana Aguinis 50,000 50,000 0 0
Peter V. Barron 50,000 50,000 0 0
Lau Ying Tai Ben 50,000 50,000 0 0
Wu Hong Cho 50,000 50,000 0 0
Rony W. Chung 50,000 50,000 0 0
Kathy B. Friedland 50,000 50,000 0 0
Wu Chi Hung 50,000 50,000 0 0
Phillip T. Huss 50,000 50,000 0 0
Kwan Wing Kei 50,000 50,000 0 0
Bradley Shu Chiu Lam 50,000 50,000 0 0
Chong Chor Lau 50,000 50,000 0 0
Wu Shun-On Lewis 50,000 50,000 0 0
Kwok Yuen Lok 50,000 50,000 0 0
New Millenium Internet/
New Technology Fund Ltd. 50,000 50,000 0 0
Frank S.C. Pa 50,000 50,000 0 0
William T. Richey 50,000 50,000 0 0
Harvey Schuchman 50,000 50,000 0 0
Winnie C.Y. So 50,000 50,000 0 0
Anthony L.Y. Siu 50,000 50,000 0 0
Evan L. Wasoff 50,000 50,000 0 0
Suifang Xie 50,000 50,000 0 0
Lau Muk Yan 50,000 50,000 0 0
Lau Chiu Yin 50,000 50,000 0 0
Yim Pui Yu 50,000 50,000 0 0
Xinghuan Zhao 50,000 50,000 0 0
Total 1,250,000 1,250,000 0 0
</TABLE>
----------
(1) The number of shares of common stock to be sold assumes that the selling
stockholders sell all the shares of common stock being registered.
SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION
Pursuant to Delaware law, our board of directors has the power to indemnify
officers and directors, present and former, for expenses incurred by them in
connection with any proceeding they are involved in by reason of their being or
having been an officer or director. The person being indemnified must have acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of COL International. Our bylaws grant this
indemnification to our officers and directors.
To the extent that indemnification for liability arising under the
Securities Act may be permitted to directors, officers or persons controlling
COL International pursuant to the foregoing provisions, or otherwise, COL
International has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
49
<PAGE>
LEGAL MATTERS
Patton Boggs LLP, Denver, Colorado, acted as our counsel in connection with
this offering, including the validity of the issuance of the securities offered
hereby. Attorneys employed by Patton Boggs LLP own approximately 850,000 shares
of COL International's common stock.
EXPERTS
Our audited financial statements appearing in this prospectus have been
examined by Hein + Associates LLP independent certified public accountants, as
set forth in their report appearing in the "Financial Information" section. The
financial statements are included upon the authority of that firm as experts in
accounting and auditing and in reliance upon their report.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS AND
CAUTIONARY STATEMENTS
All statements other than statements of historical facts included in or
incorporated into this prospectus regarding our financial position, business
strategy, plans and objectives of management for future operations and capital
expenditures are forward-looking statements. Although we believe the
expectations reflected in those forward-looking statements are reasonable, we
can give no assurance that those expectations will prove to have been correct.
Additional statements concerning important factors that could cause actual
results to differ materially from our expectations ("Cautionary Statements") are
disclosed in this prospectus. All written and oral forward-looking statements
attributable to us or persons acting on our behalf subsequent to the date of
this prospectus are expressly qualified in their entirety by the Cautionary
Statements.
50
<PAGE>
FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
Page
COL CHINA ONLINE INTERNATIONAL INC.
Independent Auditor's Report .............................................. F-2
Balance Sheet - June 30, 2000 ............................................. F-3
Statements of Operations - For the Period from February 22, 2000
(Inception) to June 30, 2000 ............................................ F-4
Statement of Stockholders' Equity - For the Period from
February 22, 2000 (Inception) through June 30, 2000 ..................... F-5
Statements of Cash Flows - For the Period from February 22, 2000
(Inception) through June 30, 2000 ....................................... F-6
Notes to Financial Statements ............................................. F-7
MIGRATION DEVELOPMENTS LIMITED
Independent Auditor's Report .............................................. F-10
Consolidated Balance Sheet - June 30, 2000 ................................ F-11
Consolidated Statements of Operations - For the Year Ended
July 31, 1999 and For the Eleven Months Ended June 30, 2000 ............. F-12
Consolidated Statement of Stockholder's Deficiency - For the
Period from July 1, 1998 through June 30, 2000 .......................... F-13
Consolidated Statements of Cash Flows - For the Year Ended
July 31, 1999 and For the Eleven Months Ended June 30, 2000 ............. F-14
Notes to Consolidated Financial Statements ................................ F-15
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Directors
COL China Online International Inc.
Denver, Colorado
We have audited the accompanying balance sheet of COL China Online International
Inc. (a development stage company) as of June 30, 2000, and the related
statements of operations, stockholders' equity and cash flows for the period
from February 22, 2000 (inception) to June 30, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our 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 COL China Online International
Inc. as of June 30, 2000 and the results of its operations and its cash flows
for the period from February 22, 2000 (inception) to June 30, 2000, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has no current operations,
incurred losses from operations, and has negative working capital at June 30,
2000. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ HEIN + ASSOCIATES LLP
-------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
September 12, 2000
F-2
<PAGE>
COL CHINA ONLINE INTERNATIONAL INC.
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 2000
ASSETS
------
CURRENT ASSETS:
Cash $ 12,350
Receivable, Migration 18,420
---------
30,770
DEFERRED OFFERING COSTS 67,945
---------
TOTAL ASSETS $ 98,715
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 118,961
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares authorized,
none outstanding --
Common stock, $.001 par value; 100,000,000 shares authorized;
8,300,000 shares issued and outstanding 8,300
Additional paid-in capital 156,790
Deficit accumulated during the development stage (185,336)
---------
Total stockholders' equity (20,246)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,715
=========
See accompanying notes to these financial statements.
F-3
<PAGE>
COL CHINA ONLINE INTERNATIONAL INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 22, 2000 (INCEPTION) TO JUNE 30, 2000
NET REVENUES $ --
GENERAL AND ADMINISTRATIVE EXPENSES 185,336
-----------
NET LOSS $ 185,336
===========
NET LOSS PER COMMON SHARE $ (.02)
===========
SHARES OUTSTANDING 8,300,000
===========
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
COL CHINA ONLINE INTERNATIONAL INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 22, 2000 (INCEPTION) THROUGH JUNE 30, 2000
DEFICIT
ACCUMULATED
COMMON STOCK Additional During The
--------------------- Paid-in Development
Shares Amount Capital Stage Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES, February 22, 2000 (Inception) -- $ -- $ -- $ -- $ --
Sales of common stock in March 2000
(including one director/officer) at
$.001 per share, cash and services
valued at $16,000 7,050,000 7,050 16,000 -- 23,050
Capital contribution by major stockholder -- -- 89,343 -- 89,343
Sale of common stock in private placement
in May and June 2000 at $.05 per share,
net of $9,803 in offering costs 1,250,000 1,250 51,447 -- 52,697
Net loss -- -- -- (185,336) (185,336)
--------- --------- --------- --------- ---------
BALANCES, June 30, 2000 8,300,000 $ 8,300 $ 156,790 $(185,336) $ (20,246)
========= ========= ========= ========= =========
See accompanying notes to these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL CHINA ONLINE INTERNATIONAL INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 22, 2000 (INCEPTION) TO JUNE 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $(185,336)
Common stock issued for services 16,000
Expenses paid by principal stockholder 89,343
Adjustments to reconcile net loss to net cash from operating activities:
Changes in operating assets and liabilities:
Increase in accounts payable 51,016
Increase in receivable, Migration (18,420)
---------
Net cash used in operating activities (47,397)
CASH FLOWS FROM INVESTING ACTIVITY --
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of offering costs 59,747
---------
NET INCREASE IN CASH 12,350
CASH, Inception --
---------
CASH, June 30, 2000 $ 12,350
=========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital contribution of expenses incurred by principal stockholder $ 89,343
=========
Accounts payable for offering costs $ 67,945
=========
Common stock issued for services $ 16,000
=========
See accompanying notes to these financial statements.
F-6
</TABLE>
<PAGE>
COL CHINA ONLINE INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------------
Nature of Operations - COL China Online International Inc. (COL
International or the "Company") was incorporated as a Delaware corporation
on February 22, 2000, for the purpose of acquiring Migration Developments
Limited ("Migration") (see Note 3) and raising equity capital. COL
International is considered to be in the development stage, due to its
limited operations and lack of revenues to date. Operations since inception
include organization matters, raising equity and acquisition negotiations
with Migration.
Deferred Offering Costs - Costs incurred in connection with COL
International's proposed public offering are being deferred. Such amounts
will be offset against the proceeds of the offering, if the offering is
successful or expensed in operations, if the offering is unsuccessful or to
the extent such costs exceed the expected capital to be raised.
Income Taxes - Income taxes are accounted for under the liability method of
SFAS No. 109, whereby current and deferred tax assets and liabilities are
determined based on tax rates and laws enacted as of the balance sheet
date. Deferred tax expense or benefit represents the change in the deferred
tax asset/liability balance.
Net Loss Per Common Share - Net loss per common share is computed based
upon the number of shares outstanding as of the end of the period, as such
shares were issued prior to a contemplated public offering.
Use of Estimates - The preparation of COL International's financial
statements in conformity with generally accepted accounting principles
requires COL International's management to make estimates and assumptions
that affect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LIQUIDITY AND CONTINUING OPERATIONS:
------------------------------------
COL International is in the development stage and has not incurred revenues
since inception. Furthermore, COL International was incorporated for the
primary purpose of acquiring Migration. Migration has operations in the
Peoples Republic of China (PRC) and has incurred operating losses since its
inception. Migration's operations have been funded by its major
stockholder. As of June 30, 2000, COL International has limited funds and
is totally dependent upon its primary stockholder or Migration's major
stockholder for continued funding.
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and liquidation of liabilities in
the ordinary course of business. Continuation of COL International as a
going concern is dependent upon the continued funding by COL
International's primary stockholder or Migration's major stockholder, the
F-7
<PAGE>
COL CHINA ONLINE INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
successful merger with Migration or another operating company and,
ultimately achieving profitable operations. The financial statements do not
include any adjustments should COL International be unable to continue
operations as a going concern.
3. POTENTIAL MERGER WITH MIGRATION DEVELOPMENTS LIMITED
----------------------------------------------------
COL International has entered into an agreement to acquire Migration
through issuance of 40,200,000 shares of common stock. The acquisition is
contingent upon COL International's successful completion of its public
offering. As COL International has no substantive operations, all costs
associated with the merger are being expensed in operations. If the
acquisition is successfully completed, COL International will remain the
legal surviving entity and Migration will become a subsidiary. For
financial reporting purposes, however, Migration will be considered the
surviving financial reporting entity as its stockholders will have majority
ownership and control both management and the Board of Directors of the
combined company. Therefore, after the acquisition, financial statements
will reflect the operations of Migration as if Migration had acquired COL
International. No goodwill will be recorded in the acquisition.
4. STOCKHOLDERS' EQUITY:
---------------------
COL International issued shares to its four founding stockholders at par
value for cash. This was based upon commitments made prior to the actual
incorporation of COL International. In addition, its major stockholder
incurred various costs associated with the proposed acquisition of
Migration prior to the incorporation of COL International. The costs
include legal and accounting fees paid to third parties. These amounts have
been reflected as a capital contribution and as an expense of COL
International. For financial reporting purposes all common shares were
valued based upon the equivalent price per share paid by the major
stockholder, including his capital contribution. Therefore, $16,000 was
recorded as an additional expense in connection with the share issued to
the other founding stockholders.
During May and June 2000, COL International sold 1,250,000 shares of common
stock for $62,500 ($.05 per share) in a private offering to unaffiliated
persons. In this offering, COL International incurred $9,803 of costs,
which have been offset against this offering.
COL International has an incentive stock option plan (Plan) under which
4,000,000 shares of common stock are reserved for potential issue. As of
June 30, 2000, no options are outstanding under the Plan. Generally options
to be issued under the Plan will be exercisable at the market price on date
of grant.
COL International has authorized 5,000,000 shares of preferred stock, which
may be issued in such series and preferences as determined by the Board of
Directors.
F-8
<PAGE>
COL CHINA ONLINE INTERNATIONAL INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES:
-------------
COL International has selected June 30 as its fiscal year-end. Through June
2000, COL International has incurred no tax losses.
COL International's tax expense or benefit does not correlate to the
expected rate of approximately 37% because a substantial portion of COL
International losses to date will be considered syndication costs and/or
were incurred prior to incorporation of COL International and, therefore,
not deductible for tax purposes.
6. PROPOSED PUBLIC OFFERING:
-------------------------
COL International has prepared a filing statement with the Securities and
Exchange Commission for the sale of a minimum of 1,500,000 and a maximum of
2,000,000 shares of common stock at $.05 per share. In connection with this
offering, COL International will register the 1,250,000 shares previously
issued in the private placement. This offering is expected to be
self-underwritten by COL International.
7. SUBSEQUENT EVENT:
-----------------
Subsequent to year-end, Migration's major stockholder has advanced COL
International approximately $77,000, net of repayment of amounts due from
Migration. These amounts are repayable only from 20% of future profits, if
any, of the combined entity after the acquisition of Migration. Such
advances are without interest or collateral, but may be convertible into
common stock of the combined company COL International at the greater of
$1.20 per share or 90% of the weighted average trading price of COL
International's common stock. Migration has approximately $3,758,000 of
loans outstanding which are also convertible, assuming the acquisition is
completed, into COL International common stock under the same terms. For
advances after the effective date of COL International's public offering
such additional advances will be convertible at $1.20 per share or 110% of
the weighted average trading price of COL International's common stock.
F-9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Migration Developments Limited
Hong Kong
We have audited the accompanying consolidated balance sheet of Migration
Developments Limited and subsidiary as of June 30, 2000, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the year ended July 31, 1999 and the eleven months ended June 30, 2000.
These consolidated financial state ments are the responsibility of COL
International's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. United States standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Migration Developments Limited as of June 30, 2000, and the results of their
operations and their cash flows for the year ended July 31, 1999 and the eleven
months ended June 30, 2000, in conformity with accounting principles generally
accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred losses from
operations and has negative working capital at June 30, 2000. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ HEIN + ASSOCIATES LLP
-------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
October 12, 2000
F-10
<PAGE>
<TABLE>
<CAPTION>
MIGRATION DEVELOPMENTS LIMITED
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
--------------------------
(Rmb) (US$)
(Illustrative Only)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash 661,002 $ 79,850
Trade receivables, with no allowance for doubtful accounts 176,740 21,351
Prepaid expense and other 180,771 21,837
Due from minority stockholder 83,273 10,060
----------- -----------
Total current assets 1,101,786 133,098
PROPERTY, OFFICE SPACE AND EQUIPMENT, net of accumulated
depreciation of Rmb5,077,837 (US$613,414) 13,069,371 1,578,808
OTHER ASSETS:
Advance on Construction net 1,020,000 123,218
Intangibles, net of accumulated amortization of Rmb2,000,004
(US$241,605) 7,999,996 966,417
----------- -----------
Total other assets 9,019,996 1,089,635
----------- -----------
TOTAL ASSETS 23,191,153 $ 2,801,541
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES:
Current portion of mortgage loan payable 52,208 $ 6,307
Accounts payable and accrued expenses 1,301,808 157,258
Taxes payable 149,348 18,042
Payable - COL 152,500 18,420
Due to director -- --
Loan payable 1,500,000 181,203
Due to minority stockholder -- --
----------- -----------
Total current liabilities 3,155,864 381,230
NOTES PAYABLE:
Majority stockholder 31,111,674 3,758,357
Mortgage loan payable - long-term portion 232,792 28,121
----------- -----------
31,344,466 3,786,478
MINORITY INTEREST IN JOINT VENTURE -- --
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIENCY:
Common stock, $1.00 (US$) par value, 50,000 shares authorized,
issued and outstanding 413,850 50,000
Accumulated deficit (11,723,027) (1,416,167)
----------- -----------
Total stockholders' deficiency (11,309,177) (1,366,167)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY 23,191,153 $ 2,801,541
=========== ===========
See accompanying notes to these consolidated financial statements.
F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIGRATION DEVELOPMENTS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE
YEAR ENDED
JULY 31, FOR THE ELEVEN MONTHS ENDED
1999 JUNE 30, 2000
----------- --------------------------
(Rmb) (Rmb) (US$)
(Illustrative Only)
NET REVENUES:
<S> <C> <C> <C>
Computer network installations 1,355,814 1,204,804 $ 145,543
Marketing fees, minority stockholder 83,630 353,923 42,755
----------- ----------- -----------
Total revenues 1,439,444 1,558,727 188,298
COST OF SALES:
Computer network installations 341,085 402,325 48,602
Communication costs 276,634 499,834 60,381
----------- ----------- -----------
617,719 902,159 108,983
----------- ----------- -----------
Gross Margin 821,725 656,568 79,315
OPERATING EXPENSES:
Research and development 154,564 299,153 36,139
General and administrative 2,409,948 4,226,600 510,581
Amortization and depreciation 1,340,754 5,770,301 697,065
----------- ----------- -----------
Total operating expenses 3,905,266 10,296,054 1,243,785
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (3,083,541) (9,639,486) (1,164,470)
Minority interest 253,767 746,233 90,146
----------- ----------- -----------
NET LOSS (2,829,774) (8,893,253) $(1,074,324)
=========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIGRATION DEVELOPMENTS LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
FOR THE PERIOD FROM JULY 1, 1998 THROUGH JUNE 30, 2000
(Rmb)
------------------------------------------------------
COMMON STOCK
------------------------- Accumulated
Shares Amount Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES, July 1, 1998 50,000 413,850 -- 413,850
Net loss -- -- (2,829,774) (2,829,774)
----------- ----------- ----------- -----------
BALANCES, July 31, 1999 50,000 413,850 (2,829,774) (2,415,924)
Net loss -- -- (8,893,253) (8,893,253)
----------- ----------- ----------- -----------
BALANCES, June 30, 2000 50,000 413,850 (11,723,027) (11,309,177)
=========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIGRATION DEVELOPMENTS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
YEAR ENDED FOR THE ELEVEN
JULY 31, MONTHS ENDED
1999 JUNE 30, 2000
----------- --------------------------
(Rmb) (Rmb) (US$)
(Illustrative Only)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss (2,829,774) (8,893,253) $(1,074,324)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on disposal of fixed assets -- 169,713 20,502
Minority interest (253,767) (746,233) (90,146)
Depreciation and amortization 1,340,754 5,770,301 697,065
Exchange loss 116,539 -- --
Change in operating assets and liabilities:
Decrease (increase) in:
Trade receivables (1,407,005) 1,230,265 148,618
Other assets (102,847) (46,316) (5,595)
Increase (decrease) in:
Accounts payable 1,070,592 349,708 42,245
Due to a director 63,000 (63,000) (7,611)
Taxes payable 86,198 63,150 7,629
----------- ----------- -----------
Net cash used in operating activities (1,916,310) (2,165,665) (261,617)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment -- (3,792,451) (458,137)
Other deposits -- (1,020,000) (123,218)
----------- ----------- -----------
Net cash used in investing activities -- (4,812,451) (581,355)
----------- ----------- -----------
Net cash used before financing activities (1,916,310) (6,978,116) (842,972)
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage loan -- 285,000 34,428
Loan payable -- 1,500,000 181,203
Advances from majority stockholder 873,643 15,977,658 1,930,136
Minority stockholder in JV contribution and advance 1,088,639 (10,171,912) (1,228,788)
----------- ----------- -----------
Net cash provided by financing activities 1,962,282 7,590,746 916,979
----------- ----------- -----------
NET INCREASE IN CASH 45,972 612,630 74,007
----------- ----------- -----------
CASH, beginning of year/period 2,400 48,372 5,843
----------- ----------- -----------
CASH, end of year/period 48,372 661,002 $ 79,850
=========== =========== ===========
NON-CASH TRANSACTION:
Purchase of equipment paid by majority stockholder 4,557,684 -- $ --
=========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-14
</TABLE>
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------
Nature of Operations - The consolidated financial statements include the
accounts of Migration Developments Limited (MDL) and its joint venture,
Shenzhen Raye Electronic Systems Co. Ltd. (Joint Venture). Collectively,
these entities are referred to as "Migration." MDL is a British Virgin
Island (BVI) corporation incorporated on May 18, 1998. The Joint Venture is
a sino-foreign equity joint venture in the People's Republic of China
(PRC). Almost all of the operations of Migration are through the Joint
Venture, which did not commence substantive operations until the Spring of
1999.
Through June 30, 2000, Migration has been providing marketing and technical
services for an Internet Service Provider (ISP) and value added services
generally related to the installation of computer network systems (i.e.,
Local Area Networks or "LANs") in the PRC.
Migration is also developing proprietary websites and subsequent to
year-end has acquired a website (see Note 4) in which it intends to market
services and products of other companies and receive subscriber and/or
transactional fees for its services. Migration intends to design websites
and to provide hosting services to other companies.
Principles of Consolidation - The consolidated financial statements include
the accounts of MDL and its 90% ownership in the Joint Venture. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Accounting - The amounts included in the financial statements are
presented in Renminbi (Rmb) which is Migration's functional currency,
unless otherwise indicated as US dollars, because Migration's operations
are primarily located in the PRC. For illustrative purposes, the balance
sheet as of June 30, 2000 and statement of operations for the eleven months
then ended have been translated into US dollars at 8.278 Rmb to the dollar,
which was the exchange rate at June 30, 2000.
Change of Year-End - In 2000, Migration changed its year-end for financial
reporting purposes from July 31 to June 30. For regulatory purposes in the
PRC, Migration is required to have a December 31 year-end. The June 30
year-end will simplify Migration's financial and regulatory reporting and
conform to the year-end of COL China Online International Inc. (see Note
4).
Concentration of Credit Risk - Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk (whether
on or off balance sheet) that arise from financial instruments exist for
groups of customers or counterparties when they have similar economic
characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other
conditions. Migration's accounts receivable include a limited number of
customers. Financial instruments that subject the Company to credit risk
consist principally of accounts receivable. The Company generally does not
require collateral from its customers. At June 30, 2000, accounts
receivable of completed contracts totaled Rmb176,740 (US$21,351) and the
Company has not provided an allowance for doubtful accounts. The Company
F-15
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
performs periodic credit evaluations on its customers' financial condition
and believes that an allowance for doubtful accounts is not needed.
As Migration's primary operations are in the PRC, Migration is exposed to
certain foreign company risks not normally associated with entities
operating solely in the United States. These risks include, among others,
the political, economic and legal environments, and foreign currency
exchange. Migration's results may be adversely affected by changes in the
political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of
taxation, among other things. Migration's management does not believe these
risks to be significant. There can be no assurance, however, that changes
in political, social, and other conditions will not result in any adverse
impact.
Currently, most of Migration's operations are focused in Shanghai and
Wuhan, PRC.
Cash Equivalents - For purposes of the statement of cash flows, Migration
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
Property, Office Space and Equipment - Property, Office Space and Equipment
are recorded at cost. Depreciation is computed using the straight-line
method over the estimated useful life of the assets, generally 20 years for
property and five years for office space and equipment. Repairs and
maintenance are charged to expense as incurred. Material expenditures,
which increase the life of an asset, are capitalized and depreciated over
the estimated remaining useful life of the asset. The cost of equipment
sold, or otherwise disposed of, and the related accumulated depreciation or
amortization are removed from the accounts, and any gains or losses are
reflected in current operations. Depreciation expense charged to operations
was Rmb1,174,087 and Rmb3,936,964 (US$475,594) for the year ended July 31,
1999 and eleven months ended June 30, 2000, respectively.
Software Development - Migration is engaged in the development of software
in the design and development of its current websites. In accordance with
EITF 00-2, Migration expenses all preliminary stage costs associated with
its website development as research and development expense, intends to
capitalize application development costs (excluding training and data
conversion) and will expense all operating costs after preliminary and
development stages are complete. Migration's primary software activity
through June 30, 2000 has been creating Website content and entering
database information into its websites, which have been expensed. Due to
the economic uncertainty of recovering application development costs, as
this is an emerging business and technology in the PRC, and as application
development costs incurred to date have not been significant, these costs
have also been expensed as incurred.
F-16
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes - Migration accounts for income taxes under the liability
method of Statement of Financial Accounting Standard (SFAS) No. 109,
whereby current and deferred tax assets and liabilities are determined
based on tax rates and laws enacted as of the balance sheet date. Deferred
tax expense or benefit represents the change in the deferred tax
asset/liability balance.
Revenue Recognition - Migration recognizes revenue at the time the service
or product is performed and collection is reasonably assured, which
generally approximates the time it is accepted by the customer. For website
development and hosting, Migration follows EITF 00-3, whereby revenues will
be recognized over the life of contract or the expected life of the
customer relationship, whichever is longer.
Revenues from contracts are recognized on the percentage-of-completion
method for individual contracts, commencing when progress reaches a point
where experience is sufficient to estimate final results with reasonable
accuracy. Revenues are recognized in the ratio that labor costs incurred
bear to total estimated labor costs. Changes in job performance, estimated
profitability, and final contract settlements may result in revisions to
costs and income, and are recognized in the period in which the revisions
are determined.
Contract costs include all direct materials, subcontracts, labor costs and
those indirect costs related to contract performance. General and
administrative costs are charged to expense as incurred.
At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss on both short and long-term contracts is accrued.
Intangibles - Intangibles represent the amount paid for the rights to
market certain Internet provider services and the rights to use the name
COL China Online. This amount is being amortized, using the straight-line
method, over its estimated useful life of five years. Amortization expense
was Rmb166,667 and Rmb1,833,337 (US$221,471) for the year ended July 31,
1999 and the eleven months ended June 30, 2000, respectively.
Impairment of Long-Lived Assets - Migration has adopted SFAS No. 121,
Accounting for Impairment of Long-Lived Assets. In the event that facts and
circumstances indicate that the carrying value of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value
is required. The Joint Venture has not yet experienced significant revenues
from its planned Internet related services. If future cash flows do not
support the intangible costs associated with acquiring these rights, the
Company could be required to impair such costs under this accounting
standard.
Foreign Currency Transaction - Foreign currency transactions during the
period are translated into Renminbi at approximately the market exchange
rates ruling at the transaction dates. Monetary assets and liabilities
denominated in foreign currencies are translated into Renminbi at
approximately the market exchange rates ruling at the balance sheet date.
Differences arising from foreign currency translation are included in the
net profit or loss for the period.
F-17
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates - The preparation of Migration's consolidated financial
statements in conformity with generally accepted accounting principles
requires Migration's management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates. Migration makes
significant estimates as to the amortization period used for its
intangibles. Due to the uncertainties inherent in the life of intangibles
for emerging technologies in the PRC, and increased competition and
technological changes in the Internet industry, it is reasonably possible
that the estimated life of intangibles could materially change in the
forthcoming year. In addition, the percentage of completion on projects in
progress at any time which is the basis for the calculation of revenue
earned for these projects. The Company's estimates to complete are
determined by management for all projects in process and could change as
future information becomes available. It is also reasonably possible that
there will be changes to total revenues and expenses on projects in process
at any time through change orders that will affect the ultimate
profitability of these projects. As of June 30, 2000, all projects were
completed, therefore, such estimates are not believed by management to have
a significant impact to future periods.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair values of
Migration's financial instruments, which includes cash trade receivables
and accounts payable, approximates their carrying value in the financial
statements. The fair value of advances from Migration's major stockholder,
which are without interest, cannot be estimated due to the relationship
between the entities.
Reclassifications - Certain reclassifications have been made to the
financial statements for the year ended July 31, 1999 to conform to the
presentation in the financial information for the eleven months ended June
30, 2000. Such reclassifications had no effect on net loss.
2. CONTINUED OPERATIONS:
---------------------
The accompanying consolidated financial statements have been prepared
assuming Migration will continue operating as a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. Migration has incurred a deficit on working
capital of Rmb554,078 (US$66,934) as of June 30, 2000.
Migration's ability to continue as a going concern is dependent upon
several factors, including, but not limited to, continued financial support
by the major stockholder, Migration's raising additional capital,
increasing revenue, and achieving and maintaining profitable operations.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
F-18
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Migration is aggressively working to increase revenues and develop its
e-commerce related services, which it believes will ultimately lead to
profitable operations and enable Migration to continue operations.
Furthermore, Migration believes its major stockholder will continue to
provide funding during the forthcoming year.
3. EQUITY JOINT VENTURE:
---------------------
In July 1998, the MDL purchased a 90% interest in a sino-foreign equity
joint venture (Joint Venture) established in the PRC by contributing Rmb
9,000,000 to the Joint Venture. The joint venture will terminate in
December 31, 2007 unless all directors of the Joint Venture consent to an
extension and application is approved by relevant PRC authorities. The
minority interest stockholder (Rayes Group) in the Joint Venture also
contributed Rmb1,000,000 to the Joint Venture.
Joint Venture entered into various agreements with its minority stockholder
whereby the Joint Venture provides marketing and value added services in
the operation of the minority stockholder's Internet business in Shanghai
and Wuhan, PRC through July 2004, subject to renewal at terms to be agreed
between the minority stockholder and MDL. MDL has the right of first
refusal to purchase the minority stockholder's ownership interest in the
ISP in Shanghai and Wuhan. Currently, however, foreign entities cannot own
ISP operations in the PRC.
One agreement stipulates that the Joint Venture will provide marketing and
technical services to the minority stockholder ISP operations in Shanghai
and Wuhan, PRC, and will share the related ISP revenues with the minority
stockholder on a 50/50 basis. Joint Venture paid its minority stockholder
Rmb3,000,000 for these rights.
The second agreement grants Migration access to the "China Online" brand
name and network to allow the Joint Venture to provide enhanced and value
added services related to Internet. Under this agreement, the Joint Venture
is not required to share revenues from these services with the minority
stockholder. The Joint Venture paid the minority stockholder Rmb7,000,000
for these rights.
In addition, the Joint Venture entered into agreements with its minority
stockholder, whereby the minority stockholder provides services to the
Joint Venture at a monthly management charge of Rmb15,000 (US$1,812)
through the term of the Joint Venture. Under another agreement, the Joint
Venture bears telecommunication costs relating to ISP operations up to a
stipulated capacity and the minority interest stockholder pays for the
costs of transmission capacity in excess of this amount. Amounts received
from/paid to the minority stockholder are as follows:
For the Year For the
Year Ended Eleven Months Ended
July 31, 1999 June 30, 2000
------------- ----------------------
(Rmb) (Rmb) (US$)
(Illustrative Only)
Received from:
Marketing and value added
service fee income 83,630 353,923 $ 42,755
======== ======== ========
Paid to:
Management fee expense 180,000 165,000 $ 19,932
Telecommunication expense 276,634 499,834 60,381
-------- -------- --------
456,634 664,834 $ 80,313
======== ======== ========
F-19
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ACQUISITIONS:
-------------
Migration has entered into an agreement to be acquired by COL China Online
International Inc. (COL International). COL International is an entity
incorporated in Delaware, USA, with no substantive assets or operations.
After the acquisition and a planned public offering by COL International,
Migration stockholders will own approximately 90% of the combined entity
and Migration's management will manage the combined entity. Therefore, for
financial reporting purposes, Migration will be considered the acquiring
entity. Therefore, the continuing financial statements will be those of
Migration's from its inception with COL International being included from
the date of acquisition. Legally, however, COL International will be the
new parent company of Migration. All costs associated with the transactions
are being expensed in operations.
Migration entered into an agreement with certain independent third parties
to acquire, at an aggregate consideration of Rmb1,020,000 (US$123,218), 70%
equity interests of Shanghai Shangyi Science and Trade Information
Consulting Co. Ltd. (Shangyi), a company incorporated in the PRC. Shangyi
and its predesessor entity have developed a website (Construction net) to
facilitate the sale of construction materials in the PRC. This acquisition
was completed on July 31, 2000 upon receiving certain regulatory approvals.
As of June 30, 2000, purchase deposit of Rmb1,020,000 (US$123,218) has been
advanced to Shangyi, which is included in other assets. Shangyi's and its
predecessor entity's revenues and operations prior to its acquisition by
Migration were insignificant.
5. TRADE RECEIVABLE:
-----------------
The following information summarizes trade receivables at June 30, 2000:
(Rmb) (US$)
------- -------
(Illustrative Only)
Contract receivables:
Completed contracts 176,740 $21,351
======= =======
The amount of revenue recognized is the portion of the total contract price
that the cost of labor expended to date bears to the anticipated final
total cost of labor, based on current labor estimates of cost to complete.
It is not related to the progress billings to customers. Contract cost
includes all labor and benefits, materials unique to or installed in the
project, subcontract costs, and allocations of indirect construction cost.
F-20
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY, OFFICE SPACE AND EQUIPMENT:
-------------------------------------
Office space and equipment consists of the following:
June 30, 2000
----------------------------
(Rmb) (US$)
(Illustrative Only)
Properties 2,548,699 $ 307,888
Vehicles 308,000 37,207
Computer equipment 7,032,893 849,588
Computer software 6,243,600 754,241
Office furniture 257,046 31,052
Other equipment 1,756,970 212,245
------------ ------------
18,147,208 2,192,221
Less accumulated depreciation
and amortization (5,077,837) (613,413)
------------ ------------
13,069,371 $ 1,578,808
============ ============
All computer software was purchased from third parties.
7. MORTGAGE LOAN PAYABLE:
----------------------
During fiscal 2000, the Joint Venture purchased a staff quarter in Wuhan,
PRC for Rmb522,444 (US$63,112). In connection with this purchase, the Joint
Venture entered into a mortgage agreement for Rmb300,000 (US$36,200), which
has an outstanding balance of $285,000 as of June 30, 2000. The Joint
Venture is required to make a monthly payment for 5 years with interest at
an annual rate of 5.5%. This debt is guaranteed by the general manger of
the Wuhan branch. Annual principal repayment obligation under this
obligation is as follows:
June 30, 2000
--------------------
(Rmb) (US$)
(Illustrative Only)
2001 52,208 $ 6,307
2002 57,506 6,946
2003 60,831 7,349
2004 64,156 7,750
2005 50,299 6,076
--------- ---------
285,000 $ 34,428
========= =========
F-21
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Joint Venture also purchased its offices in Wuhan, PRC for Rmb2,026,255
(US$244,766) and has a related obligation for Rmb1,500,000 (US$181,200).
The Joint Venture is currently negotiating a five-year mortgage with a
Chinese bank to finance this purchase. As the mortgage has not been
finalized, this obligation is being reflected as short-term.
8. PAYABLE TO/(RECEIVABLE) FROM RELATED PARTIES:
---------------------------------------------
<TABLE>
<CAPTION>
July 31,
1999 June 30, 2000
---------- -------------------------
(Rmb) (Rmb) (US$)
(Illustrative Only)
<S> <C> <C> <C>
COL International -- 152,500 $ 18,420
Minority stockholder of Joint Venture 10,088,639 (83,273) (10,060)
Majority stockholder of Migration 15,134,016 31,111,674 3,758,357
</TABLE>
All payables with related parties are without interest or collateral. The
majority stockholder has entered into an agreement, whereby its advances
will be repayable only from 20% of future net profits, if any. This advance
is also convertible into common stock of COL International (see Note 4).
9. COMMITMENTS AND CONTINGENCIES:
------------------------------
Operating Leases - As of June 30, 2000, Migration has the following
non-cancellable leases commitments for the year ending June 30:
June 30, 2000
-----------------------
(Rmb) (US$)
(Illustrative Only)
2001 387,488 $ 46,809
2002 235,788 28,484
2003 239,778 28,966
2004 259,368 31,332
2005 259,368 31,332
Thereafter 786,740 95,040
---------- ----------
2,168,530 $ 261,963
========== ==========
F-22
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rent expense charged to operations was Rmb209,990 and Rmb567,445
(US$68,549) for the year ended July 31, 1999 and the eleven months ended
June 30, 2000, respectively.
Management Fees - As discussed in Note 3, Migration has an arrangement for
annual commitment of Rmb180,000 (US$21,744) to its minority stockholder.
10. CAPITAL STOCK:
--------------
Migration has issued 50,000 shares for payment of Rmb413,850 (US$50,000).
11. TAXES:
------
Migration and its subsidiary are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they
operate.
The Joint Venture established in the PRC is subject to the PRC income taxes
at a rate of 15%. However, the joint venture is entitled to full exemption
from income tax for two years starting from the first profit making year
and 50% tax reduction in the subsequent three years. No provision for PRC
income tax has been provided for in the financial statements as the joint
venture in the PRC was operating at a loss for the periods presented.
MDL operates in Hong Kong where the statutory tax rate is 16% on assessable
income claimed in Hong Kong. MDL does not expect to incur any BVI income
taxes pursuant to tax treaties with Hong Kong.
As of June 30, 2000, Migration has a net operating loss (NOL) carryforward
for tax reporting purposes in the PRC of approximately Rmb7,400,000 (1999:
Rmb750,000). The Joint Venture's ability to utilize this loss will expire
in 2004.
Deferred income taxes are provided for differences between the tax and book
basis of assets and liabilities as a result of temporary differences in the
recognition of revenues or expenses for tax and financial reporting
purposes, which relates primarily to certain items not currently deductible
for tax purposes until paid.
F-23
<PAGE>
MIGRATION DEVELOPMENTS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets at June 30, 2000, resulting from these differences,
consist of the following:
Hong Kong PRC
---------- ------------------------
(Rmb) (Rmb) (US$)
(Illustrative
Only)
Net operating loss carryforward -- 1,115,803 $ 134,791
Other -- 99,044 11,964
---------- ---------- ----------
Total -- 1,214,847 146,755
Less valuation allowance -- (1,214,847) (146,755)
---------- ---------- ----------
Net deferred tax asset -- -- $ --
========== ========== ==========
The valuation allowances on Migration's ability to utilize its net
operating loss has also reduced Migration expected tax benefit from 15% to
0%.
In addition, the Joint Venture is subject to sales taxes in the PRC and is
required to pay 5% of revenues generated from marketing and value added
services, computer software, and network development. Sales taxes are
netted against revenues.
12. MAJOR CUSTOMERS:
----------------
The following customers totaled more than 10% of sales:
July 31, June 30,
Customer 1999 2000
-------- ---- ----
A 0% 39%
B 43% 25%
C (minority stockholder in Joint Venture) 6% 23%
D 15% 13%
E 36% 0%
F-24
<PAGE>
----------------------------
Dealer Prospectus Delivery Obligation
Until (insert date), all dealers
that effect transactions in these
securities, whether or not
participating in this offering, may
be required to deliver a
prospectus. This is in addition to COL CHINA ONLINE INTERNATIONAL INC.
the dealers' obligation to deliver Shares of Common Stock
a prospectus when acting as $.05 per share
underwriters and with respect to
their unsold allotments or
subscriptions.
----------------------------
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY................. 3
RISK FACTORS....................... 5
USE OF PROCEEDS.................... 15 _______________________
DIVIDEND POLICY.................... 15
EXCHANGE RATES..................... 15 PROSPECTUS
COL INTERNATIONAL.................. 16 _______________________
PRO FORMA CONDENSED FINANCIAL
STATEMENTS....................... 31
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........... 34
MANAGEMENT........................ 39
EXECUTIVE COMPENSATION............ 41
BENEFICIAL OWNERS OF SECURITIES... 42
TRANSACTIONS BETWEEN COL
INTERNATIONAL AND RELATED
PARTIES........................ 44
DESCRIPTION OF SECURITIES........ 46
NO TRADING MARKET FOR THE
COMMON STOCK................... 47
SELLING STOCKHOLDERS AND
PLAN OF DISTRIBUTION........... 47 _________, 2000
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
CERTAIN INDEMNIFICATION........ 49
LEGAL MATTERS.................... 50
EXPERTS.......................... 50
DISCLOSURE REGARDING FORWARD-
LOOKING STATEMENTS AND
CAUTIONARY STATEMENTS......... 50
FINANCIAL INFORMATION............ F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers.
---------------------------------------------------
The Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner that the person reasonably believed to be in or not
opposed to the best interests of the corporation.
In addition to the general indemnification section, Delaware law provides
further protection for directors under Section 102(b)(7) of the General
Corporation Law of Delaware. This section was enacted in June 1986 and allows a
Delaware corporation to include in its Certificate Of Incorporation a provision
that eliminates and limits certain personal liability of a director for monetary
damages for certain breaches of the director's fiduciary duty of care, provided
that any such provision does not (in the words of the statute) do any of the
following:
"eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of this Title
[dealing with willful or negligent violation of the statutory provision
concerning dividends, stock purchases and redemptions], or (iv) for any
transaction from which the director derived an improper personal benefit.
No such provision shall eliminate or limit the liability of a director for
any act or omission occurring prior to the date when such provision becomes
effective. . ."
The board of directors is empowered to make other indemnification as
authorized by the Certificate Of Incorporation, bylaws or corporate resolution
so long as the indemnification is consistent with the Delaware General
Corporation Law. Under COL International's bylaws, COL International is required
to indemnify its directors, officers, and other representatives of COL
International for costs incurred by each of them in connection with any action,
suit, or proceeding brought by reason of their position as a director, officer,
or representative.
Item 25. Other Expenses Of Issuance And Distribution.
-----------------------------------------------------
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by COL International in connection
with the registration of the securities being offered.
Registration and filing fee (1)........................ $ 43
Printing (2)........................................... $ 25,000
Accounting fees (2).................................... $ 30,000
Legal fees (2)......................................... $ 83,000
Miscellaneous (2)...................................... $ 20,000
Total (2)..................................... $158,043
----------
(1) Previously paid
(2) Estimated
II-1
<PAGE>
Item 26. Recent Sales Of Unregistered Securities.
-------------------------------------------------
Since its inception in February 2000, COL International sold 7,050,000
shares of common stock to four persons, at a price of $.001 per share, for a
total offering price of $7,050. These sales were completed in reliance on
exemptions from registration under Section 4(2) of the Securities Act.
COL International completed a private offering in June 2000 and sold
1,250,000 shares of common stock to 25 persons, at a price of $.05 per share,
for a total offering price of $62,500. These sales were completed in reliance on
exemptions from registrations under Section 3(b) of the Securities Act and Rule
504 of Regulation D promulgated under the Securities Act.
Item 27. Exhibits.
------------------
The following is a complete list of Exhibits filed as part of this
registration statement, which Exhibits are incorporated herein.
Number Description
------ -----------
2.1 Stock Exchange Agreement between and among Migration Developments
Limited, COL International and the stockholders of Migration
Developments Limited dated June 8, 2000 (1)
3.1 Certificate Of Incorporation filed with the Delaware Secretary Of
State effective as of February 22, 2000 (1)
3.2 Certificate Of Amendment To The Certificate Of Incorporation filed
with the Delaware Secretary Of State effective as of April 3, 2000
(1)
3.3 Bylaws (1)
3.4 Sino-Foreign Joint Venture Contract (1) (2)
3.5 Articles Of Association of the Sino-Foreign Joint Venture (1) (2)
4.1 Specimen Common Stock Certificate (1)
5.1 Opinion of Patton Boggs LLP concerning legality of the securities
being registered (1)
10.1 Joint Venture Business License (1) (2)
10.2 Cooperation Agreement Regarding China Online's Internet Connection
Service Commercial Business dated July 15, 1998 between Neihi
Electronic Systems Co., Ltd. (now known as the Joint Venture) and
Rayes Group (1) (2)
10.3 Cooperation Agreement Regarding China Online's Internet Content
Service Commercial Business dated July 15, 1998 between Neihi
Electronic Systems Co., Ltd. (now known as the Joint Venture) and
Rayes Group (1) (2)
10.4 Cooperation Agreement for Dissemination of Educational Resources
dated January 7, 2000 between the Joint Venture and Wuhan City No.2
Secondary School to establish Education Net (1) (2)
II-2
<PAGE>
10.5 Cooperation Agreement for Transmission of Education Materials dated
March 10, 2000 between the Joint Venture and Wuhan Cable TV to
provide Education Net infrastructure (1) (2)
10.6 Purchase Agreement dated October 22, 1999 among the Joint Venture,
Shanghai Construction Materials Technology Sales Service Co., Ltd.
and other parties specified thereby (1) (2)
10.7 2000 Stock Option Plan (1)
10.8 Form of Subscription Agreement (1) (3)
10.9 Form of Escrow Agreement between COL International and Computershare
Investor Services Inc., formerly known as American Securities
Transfer and Trust, Inc. (1)
10.10 Form of Migration's Convertible Promissory Note
10.11 Migration's Loan Agreement dated October 10, 2000
10.12 Sino-Foreign Joint Venture Agreement dated July 7, 2000 between
Migration and Shanghai Dongyi Scientific Technology Engineering Co.
(2)
10.13 Share Purchase Agreement dated July 17, 2000 between Shanghai
Shangyi Science and Trade Information Consulting Co., Ltd. and
Shanghai Tongji Construction Materials Sales and Services Co., Ltd.
(2)
10.14 Lease Agreement for Rental of Office Premises dated April 25, 2000
(2)
23.1 Consent of Patton Boggs LLP (included in Opinion in Exhibit 5.1) (1)
23.2 Opinion Letter of Allens Arthur Robinson (1)
23.3 Consent of Hein + Associates LLP
----------
(1) Previously filed.
(2) Translated into English from Chinese.
(3) Revised.
II-3
<PAGE>
Item 28. Undertakings.
----------------------
1. COL International hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to the registration statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) to reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement (or the most recent post-effective amendment
thereof); and
(3) to include any additional or changed material information on the
plan of distribution.
(b) That for determining liability under the Securities Act, each
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof;
(c) To file a post-effective amendment to remove from registration any of
the securities being registered which remain unsold at the end of the offering.
2. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of COL
International pursuant to the foregoing provisions, or otherwise, COL
International has been advised that in the option of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by COL International of
expenses incurred or paid by a director, officer or a controlling person of COL
International in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or a controlling person in connection with
the securities being registered, COL International will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the City of Denver, State of
Colorado, on October 18, 2000.
COL CHINA ONLINE INTERNATIONAL INC.
By: /s/ Mark K. Shaner
------------------------------------------------
Mark K. Shaner, President (Principal Executive
Officer), Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer), Secretary and Sole Director
<PAGE>
EXHIBIT INDEX
The following is a complete list of Exhibits filed as part of this
registration statement, which Exhibits are incorporated herein.
Number Description
------ -----------
2.1 Stock Exchange Agreement between and among Migration Developments
Limited, COL International and the stockholders of Migration
Developments Limited dated June 8, 2000 (1)
3.1 Certificate Of Incorporation filed with the Delaware Secretary Of
State effective as of February 22, 2000 (1)
3.2 Certificate Of Amendment To The Certificate Of Incorporation filed
with the Delaware Secretary Of State effective as of April 3, 2000
(1)
3.3 Bylaws (1)
3.4 Sino-Foreign Joint Venture Contract (1) (2)
3.5 Articles Of Association of the Sino-Foreign Joint Venture (1) (2)
4.1 Specimen Common Stock Certificate (1)
5.1 Opinion of Patton Boggs LLP concerning legality of the securities
being registered (1)
10.1 Joint Venture Business License (1) (2)
10.2 Cooperation Agreement Regarding China Online's Internet Connection
Service Commercial Business dated July 15, 1998 between Neihi
Electronic Systems Co., Ltd. (now known as the Joint Venture) and
Rayes Group (1) (2)
10.3 Cooperation Agreement Regarding China Online's Internet Content
Service Commercial Business dated July 15, 1998 between Neihi
Electronic Systems Co., Ltd. (now known as the Joint Venture) and
Rayes Group (1) (2)
10.4 Cooperation Agreement for Dissemination of Educational Resources
dated January 7, 2000 between the Joint Venture and Wuhan City No.2
Secondary School to establish Education Net (1) (2)
10.5 Cooperation Agreement for Transmission of Education Materials dated
March 10, 2000 between the Joint Venture and Wuhan Cable TV to
provide Education Net infrastructure (1) (2)
<PAGE>
10.6 Purchase Agreement dated October 22, 1999 among the Joint Venture,
Shanghai Construction Materials Technology Sales Service Co., Ltd.
and other parties specified thereby (1) (2)
10.7 2000 Stock Option Plan (1)
10.8 Form of Subscription Agreement (1) (3)
10.9 Form of Escrow Agreement between COL International and Computershare
Investor Services Inc., formerly known as American Securities
Transfer and Trust, Inc. (1)
10.10 Form of Migration's Convertible Promissory Note
10.11 Migration's Loan Agreement dated October 10, 2000
10.12 Sino-Foreign Joint Venture Agreement dated July 7, 2000 between
Migration and Shanghai Dongyi Scientific Technology Engineering Co.
(2)
10.13 Share Purchase Agreement dated July 17, 2000 between Shanghai
Shangyi Science and Trade Information Consulting Co., Ltd. and
Shanghai Tongji Construction Materials Sales and Services Co., Ltd.
(2)
10.14 Lease Agreement for Rental of Office Premises dated April 25, 2000
(2)
23.1 Consent of Patton Boggs LLP (included in Opinion in Exhibit 5.1) (1)
23.2 Opinion Letter of Allens Arthur Robinson (1)
23.3 Consent of Hein + Associates LLP
----------
(1) Previously filed.
(2) Translated into English from Chinese.
(3) Revised.
