_________________________
FORM 10-SB A3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
_______________________
LARGO VISTA GROUP, LTD.
(Exact name of Registrant as specified in its Charter)
Nevada 76-0434-540
(State of Incorporation) (IRS Employer ID No.)
4570 Campus Drive, Newport Beach, California 92660
(Address of principal executive offices)
(949) 252-2180
(Registrant's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
$.001 par value Common Stock
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Item 1. DESCRIPTION OF BUSINESS
A. INTRODUCTION
1. Largo Vista Group, Ltd., a Nevada corporation ("Largo Vista,"), operates
through its wholly owned subsidiary, Everlasting International Ltd.
("Everlasting"), a Nevada corporation. Everlasting operates and owns a 66.67%
interest in a joint venture company in China, operated under the name
"Kunming Xinmao Petrochemical Industry Co. Ltd." ("Xinmao or the Company").
Xinmao is principally engaged in the business of purchasing and reselling
liquid petroleum gas ("LPG") in the retail and wholesale markets to both
residential and commercial consumers in Yunnan Province of South China.
Xinmao operates a storage depot and has office headquarters in the City of
Kunming. All of the Company's property and equipment is located in China.
Largo Vista was originally incorporated on January 16, 1987 in Nevada under
the name, "The George Group". On January 9, 1989, The George Group acquired
Waste Service Technologies, Inc. ("WST"), an Oregon corporation. On the same
day The George Group filed a name change in Nevada and changed its name to
WST. WST's plan of business was to become an environmental service company.
It listed its stock and began trading on OTC Bulletin Board.
On April 15, 1994, WST acquired Largo Vista, Inc., a California corporation,
and on the same day filed a name change in Nevada to change WST's name to
Largo Vista Group, Ltd. At the time of acquisition Largo Vista filed a
change of name with the OTC Bulletin Board and received a new CUSIP number
and symbol ("LGOV"). Largo Vista originally planned to develop housing in
China, but, after shipping two factory built homes to China, never fully
implemented the plans due to unanticipated financing, environmental and
regulatory complications.
On December 26, 1996, Largo Vista acquired 100% of Everlasting International
Ltd. ("Everlasting"), a Nevada Corporation, which owns a 66.67% interest in
Kunming Xinmao Petrochemical Industry Co., Ltd. ("Xinmao"), mentioned above.
Everlasting acquired this asset from Proton Technology Corporation Limited, a
Bahamas Corporation ("Proton"), in which Mr. Deng Shan, a director and
principal shareholder of Largo Vista, is the principal shareholder.
Since Largo Vista had no substantive operations as of the date it acquired
Everlasting, the transaction between Everlasting and Largo Vista represents a
re-capitalization/reverse merger that resulted in no change in the basis of
Everlasting's accounts. The book value of Xinmao's net assets did not differ
materially from their fair market value in November 1995, in that there were
no material transactions during that period, other than those occurring in
the normal course of business. Since there was no significant difference
between the book value and fair market value of the net assets acquired, no
goodwill has been recorded. Minority interest is not shown on the balance
sheet or statement of operations since the minority interest has no
obligation to make good on any losses Xinmao incurs.
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The historical chain-of-ownership of the asset is as follows: The Hong Kong
Company, formed under the laws of Hong Kong, was initially owned by one
individual, Chan Mau Tak. On November 8, 1995, Deng Shan, an individual,
purchased the Hong Kong Company from Chan Mau Tak. On December 20, 1996, the
Hong Kong Co. was acquired from Deng Shan by Proton with majority shareholder
being Deng Shan. On December 21, 1996, Proton transferred 100% of its
interest in the Hong Kong Company to Everlasting International Ltd., a Nevada
Corporation. On April 29,1997, Largo Vista shareholders consented to an
acquisition and plan of reorganization executed on December 26, 1996, wherein
Largo Vista purchased 100% of the stock of Everlasting from Proton Technology
in a stock exchange transaction.
2. Organization of the Company and Subsidiary
Xinmao, in operation and providing uninterrupted service to consumers since
1992, is in its third year of operation as a subsidiary of Largo Vista.
Xinmao is the only company that has private majority ownership, and a private
majority Board of Directors; and, is one of the largest LPG distribution
companies in the Yunnan Province in terms of end users.
On October 12, 1999, Largo Vista entered into a joint venture agreement with
the United Arab Petroleum Corporation ("UAPC"), named Largo Vista/UAPC
Partners, wherein Largo Vista shall hold 51% of the assets and liabilities,
and shall share 51% of the income and expenses of the JV; and, UAPC 49%. The
purpose of the JV is to combine the resources and talents of each party to
develop a market for the sale of petrochemical products to be supplied by
middle-east sources, and principally Dubai. The JV plans to sell petroleum
products to customers in China, Vietnam and other countries throughout the
Pacific Rim.
On December 12, 1999, Largo Vista/UAPC Partners entered into a joint venture
agreement with Mr. Ahmed Hasan Abdul Qahir Al Shaibani, Dubai, United Arab
Emirates (UAE), named Largo Vista Group, Ltd. (LLC of Dubai, UAE). Largo
Vista/UAPC Partners will hold 49% (Largo Vista 25% and UAPC 24%) of the
assets and liabilities, and shall share 49% of the income and expenses of the
JV; and, Al Shaibani 51%. The objective of the JV is to carry-on the trade
of crude oil and refined oil products. The JV will have headquarters in
Dubai, and plans to focus sales of petroleum products in China, Indochina and
other Pacific Rim customers.
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LVG
Largo Vista Group, Ltd.
Owns 100 % EIL
Owns 100 % LVI
Subsidiaries Joint Ventures
EIL LVI Joint Venture
Everlasting Largo Vista "Largo Vista/UAPC Partners"
International Inc.
Ltd. No Operations LVG owns 51%
Owns 66.67 % Presently UAPC owns 49%
Of "Xinmao"
To to
"Xinmao" Joint Venture
Kunming Xinmao Petrochemical "Largo Vista Group, Ltd."
Industru Co. Ltd., a (Limited Liability Company)
Chinese Joint Venture Dubai
JV Partners: Al Shaibani owns 51%
"Everlasting" - 66.67 %
Government Partner - 33.33 % LV/UAPC Partners = 49 %
Lvg owns 25 %
UAPC owns 24 %
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LARGO VISTA GROUP, LTD.
EVERLASTING INTERNATIONAL, LTD.
(100% Owned Subsidiary of Largo Vista holding a)
66.67% Interest in the
Joint Venture
KUNMING XINMAO PETROCHEMICAL INDUSTRY CO., LTD.
(in which a)
33.33% Interest
is held by KUNMING FUEL GENERAL CO.
(Chinese Government Joint Venture Partner)
B. BUSINESS
The Company operates in one industry segment, the purchasing and reselling of
LPG in Yunnan Province of South China.
1. Terms of Xinmao Joint Venture
The Kunming Xinmao Petrochemical Co., Ltd. ("Xinmao") is a Joint Venture
formed under the laws of the People's Republic of China. The Xinmao Joint
Venture commenced business in August of 1992, but has yet to achieve
profitable operations.
Term: Twenty years, commencing on August 28, 1992.
Parties: Party A is the Kunming Fuel General Co. ("Government Partner ") as
to a 33.33% interest with a "registered capital" investment of US $641,000.
Party B is Everlasting International, Ltd as to a 66.67% interest, with a
"registered capital" investment of US $1,283,400.
General Provisions: Government Partner has a general responsibility to
support Everlasting in its duties.
The Joint Venture is an independent entity with an independent accounting
system. An audit of the Joint Venture's financial records is conducted
annually by an auditor registered in China. Fiscal year of Joint Venture is
January 1 to December 31.
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Everlasting is, subject to the terms and conditions of an operating agreement
set forth below, responsible for the general management of Xinmao including:
Procurement of equipment and raw materials, equipment installation, testing
and technical training, hiring a management staff, production and technical
processes and other duties entrusted to it.
This Operating Agreement was made between the Government Partner and the Hong
Kong Company on August 28, 1992, for a term of ten years, ending on August
28, 2002. Everlasting, as purchasor of the Hong Kong Company, is responsible
to manage the day-to-day operations of Xinmao and assume sole responsibility
for its profits and losses.
Each party under Chinese law would normally participate in the profits and
losses of the Joint Venture according to its proportionate share of
contribution. However, this provision was changed by the Operating
Agreement, which provides that Xinmao is to pay the Government Partner 9
million Yuan (RMB) during the term of the Agreement as follows:
3.5 million Yuan (RMB) for the first 3 years;
1.5 million Yuan (RMB) per year for the 4th and 5th years;
500,000 Yuan (RMB) per year from the 6th through the 10th years
The Company negotiated this agreement to provide flexibility and encourage
future investment and expansion by precluding the payment of large a sum of
money to the Government Partner. To date, the Government Partner has been
paid 4.1mm RMB, and the balance due is 3.4mm RMB. No payment has been made
since January 24, 1998 due to several factors. Since the government partner
has recovered more than its initial capital contribution, it has not urged
Xinmao to make up past due payments due to the difficulties Xinmao has faced
during 1997 and 1998 including record high LPG prices and a chaotic and
unstable developing market. This liability has been accrued on the books of
Xinmao.
The Government Partner has indicated a willingness to sell to Largo Vista an
additional 28.33% which would result in Largo Vista owning 95% and the
Chinese partner owning 5% of the joint venture. Largo Vista had negotiated
in July and August of 1998, an agreement with the Chinese Partner in the
Xinmao Joint Venture, to acquire an additional 28.33% interest in the Joint
Venture for a cash purchase of 5mm RMB. Unfortunately, Largo Vista was
unable to raise sufficient funds to complete this acquisition at that time.
As a result, as of this date, Largo Vista continues to own 66.67% interest in
Xinmao. There is currently no binding contract or option in place to acquire
a further interest in Xinmao.
2. Government License Held
The Xinmao Company holds a unique license issued by Chinese Central
Government (National Industrial and Commercial Registration Administration of
China). This license is most valuable because it permits the Company to
operate across provincial borders; whereas, competitors of the Company are
restricted to the geographic area in which they are located. In addition,
the license permits the Company to process domestic crude oil and sell its by-
products; to process and sell LPG to retail domestic and industrial
customers; to manufacture cylinders, stoves, water heaters, and cigarette
lighters and their accessories; and to provide services in inspection and
maintenance of stoves and cylinders for safety and quality.
<PAGE>
Xinmao is a Sino-Foreign Joint Venture registered with the government as
having foreign ownership. This registration permits foreign investment to
legally flow into China, and allows funds to legally flow out of China
including loan repayments, interest payments and dividends. Xinmao is one of
the few known Sino-Foreign Joint Ventures licensed to sell petroleum products
in the retail market.
Xinmao also holds a general contractors license intended for construction of
pipeline projects. As a part of its overall strategy to expand its LPG
market in China, management intends to expand its business in the future
beyond its current core business of purchasing and reselling LPG, utilizing
its various licensing authorities.
3. The Product
As of December 30, 1998, according to information published by the Yunnan Gas
Association, in Yunnan Province there are approximately 1,000,000 households
using some form of gas utility (town gas, natural gas and LPG). About 65% or
650,000 households use LPG, and the number is increasing. Approximately
160,000 household users reside in Kunming; and, there are 30,000 pipeline
household users, 60% of which are within Kunming City, with the balance
residing in smaller cities within the Province. The metropolitan population
in Yunnan is 5.9 million with 3.2 million using gas (1 household equates to
3.2 people) as a utility - a city gasification rate of 54.2%. This rate
increased by 7% over 1997, but still lags the national average by 20%. LPG
use accounts for about 65% of this total.
LPG consumption in Yunnan was approximately 68,000 metric tons, a net
increase over 1997 of 13,000 metric tons.
As a form of energy it is considered a very efficient fuel because in a
liquid state it provides a significant supply of energy in a comparatively
small volume. LPG is recognized for its transportability and ease-of-use.
It is a clean and environmentally friendly source of energy that has a
variety of residential, commercial, industrial and transportation uses. It
can be used at home for cooking and heating, replacing wood, kerosene, coal
and other environmentally unfriendly sources of energy. In fact,
environmental concerns have caused the outlaw of the use of coal in most
larger cities in China. Although LPG has some drawbacks such as high
combustibility, it requires great care in handling, and is subject to fire
and safety regulations, LPG remains one of the only viable sources of energy
for cooking and heating in Southern China. Management believes the China LPG
market is ripe for growth and expansion.
Most Chinese consumers have used of wood and coal all of their life primarily
for cooking only; however, they are slowly beginning to realize the ease and
convenience of also using LPG for heating and heating water. Most consumers
obtain LPG in 15 kg. cylinders, very similar to those used for gas barbecues
in the U.S. As LPG delivery systems, such as pipelines, make use more
convenient and simple, LPG consumption per capita should increase
<PAGE>
significantly. In addition, management believes there will be future
opportunities in drying tobacco and operating factory machinery and vehicles.
4. Markets
The China LPG market is broken down into three segments for purposes of
analysis:
1.Distribution method from the major LPG companies,
2.Method of delivery to the consumer, and
3.Black Market dealers
The Primary market segment is according to distribution method - that is
either retail-direct or wholesale-indirect. Retail distribution is
accomplished by the ten major LPG companies that deal directly with the end
user. Xinmao qualifies as one of the ten major LPG companies by its
ownership of rail tank cars; it is one of only five companies having depot
storage facilities of 1,000M3; and it has distribution of LPG to retail and
wholesale, and residential and commercial users.
The second market segment is according to the delivery vehicle used by the
user, such as bottle or cylinder, pipeline, or tank truck.
The bottle users may be either retail, purchasing directly from a major LPG
company, or wholesale, purchasing indirectly from a distributor of a major
LPG company. Bottle customers purchase LPG in 15 kg. cylinders or bottles
that must, by law, be filled to a minimum of 13.5 kg which is considered
full. Bottle users include residential, and commercial customers.
Residential consumption is by far the largest, with commercial restaurants
and caterers following second. There has been little industrial use of LPG
to date.
Pipeline users are considered retail-direct users. LPG flows directly into a
household via pipes from a central storage tank that is replenished as
necessary by a major LPG company. Pipeline users are billed according to
usage based on a meter in their living unit.
Tank truck or bulk sales are made to wholesale distributors who operate small
bottle filling stations. These distributors represent lower profit margins
but volume makes-up some of the difference. Bulk sales are encouraged to
cultivate the small wholesale distributors because of the potential of
acquiring their customer base in the future.
A third market segment, although temporary, must be considered because of the
negative impact it has on the LPG market. This segment is comprised of the
many small independent distributors and individuals who operate illegally in
what is referred to as the "black market" - most operating without a license,
violating safety laws, and unfairly profiting by short-filling LPG bottles.
These abusers create problems of unfair competition for the Company. The
Kunming LPG Administration is aware of these abuses, but, unless a blatant
case is presented to it, it is ignoring the problems until the market
consolidates to a greater degree.
<PAGE>
LPG consumption has been increasing in the past decade, but LPG consumption
per capita is still low, partly due to the large population in China. At
present it is around only 6 kg nationwide which is small in comparison to
100kg in its Asian neighbors such as Japan and South Korea, for example. LPG
development in China also shows geographical variance. South China has led
the nation in terms of per capita consumption at nearly 35 kg. East China
follows with per capita consumption of about 10kg. North China is far less,
only half of that in East China. And still in many places inland, the LPG
consumption per capita is negligible. Since the Company operates in
Southwest China, management perceives a great opportunity to grow with the
projected expansion.
The majority of dollars invested in the China LPG market have been invested
in large "mega" depots by the major oil companies. Little to no focus has
been placed on the retail end-user market. Put simply, the LPG "storage"
infrastructure is in place, but it is overbuilt because the retail market has
not been cultivated at the same pace. Management's primary objective is the
development of this retail consumer base.
From the mega-depots on the east and southeast coast of China, LPG is shipped
to smaller inland storage depots via railroad tank car. LPG is then pumped
into large storage tanks until it is distributed in bottles, pipelines or
tank trucks to end users and distributors.
Inland infrastructure development has not kept pace with coastal development.
Inland depot storage capacity must be expanded to serve the customers in
waiting for LPG service. More efficient distribution methods are also
needed. The bottle exchange system is labor intensive - a factor that does
not significantly affect overhead yet, but will have greater future impact as
salaries increase.
Distribution of LPG via pipelines directly to end-users is very efficient,
but one drawback is the cost to install pipeline service to each household,
which is approximately $185 US. Some more affluent customers can afford to
pay the installation fee up front, but most of these have already purchased
pipeline service. Some new construction projects permit the cost of
installation to be incorporated into the cost of the home. However, most
customers can not afford the up-front fee, but are willing and able to pay
extra each month based on usage. Xinmao has seven pipeline projects either
completed or under construction.
5. Distribution of LPG
There are four basic levels of LPG distribution:
Major LPG companies
Major LPG Distributors
Medium LPG Distributors
Small Independent LPG Distributors
The Major LPG companies are characterized by the following: they purchase LPG
directly from refineries or major oil companies, they must be licensed, have
railroad tank cars and storage depots, and typically serve over 10,000 retail
customers. These companies depend on distribution networks to get LPG to the
consumers.
<PAGE>
Major distributors are licensed and generally serve more that 4,000 but less
than 10,000 customers directly, but do not typically have any railroad tank
cars, and have little or no storage capacity.
Medium Distributors are licensed and generally serve more than 1,500 but less
than 4,000 customers directly, have no storage capacity.
Small Independent Distributors are those who may or may not be licensed, and
have no relationship or loyalty to any major company or distributor, and
usually serve less than 1,500 customers.
Since all of these distributors serve a customer base, Xinmao is actively
recruiting them on an ongoing basis.
The majority of Xinmao's customer base is serviced with the help of agents
and entity users. Xinmao has eight agents that are independent dealers who
exclusively represent the Company in an outlying county area that is
difficult for the Company to access on a regular basis. The consumers
serviced by the agent pay retail prices. The Company pays the agent a fee
for his services and the agent carries his own overhead expenses.
As the LPG market was developing in the early 1990's, the Company was seeking
to develop a customer base in the most efficient and effective manner
possible; and, as a result, began to cultivate the "entity user". Entity
users were companies in other industries, already providing housing for their
employees, which desired to provide a convenience to their workers by
distributing LPG as an additional service. These entity users developed into
distribution outlets that benefited the Company by providing free receiving,
storage and LPG distribution service to consumers who paid retail prices. As
the market further developed, the entity user also began to be a distribution
outlet to other consumers in the local area that were not affiliated with the
entity company. Today, the Company is actively seeking to cultivate and
develop additional entity users to expand the consumer base. Today Xinmao
has 125 entity users.
In 1997, under the leadership of Largo Vista management, several innovations
were added to the distribution process. First, there was a time delay
between the sale of the LPG and receipt of the cash from the sale. The
Company responded with the "coupon program" whereby the consumer, first
purchased a special coupon from the bank and presented it as payment as he
exchanged an empty bottle of LPG for a full one. The bank then remitted to
the Company. The Bank of Agriculture, one of the largest in China with over
1,000 branches in the province, has successfully worked with the Company for
over two years in this program and the bank is pleased with exposure to a new
customer base.
Second, also in 1997, the Company implemented the first consumer insurance
program. This insurance, written by the largest insurance company in China,
guaranteed the consumer who either made a non-refundable prepayment for LPG
by purchasing a coupon that the LPG would be at a fixed price, immediately
available, and a guaranteed quality and quantity.
<PAGE>
These two innovations, the coupon program and the consumer insurance
protection program, were the first of their kind in China. In the future the
Company intends to implement a third innovation for the pipeline distribution
system which will be a prepaid "smart card", that will be inserted into a
meter in the consumer's home. This precludes cash flow and collection
problems. Distribution of the prepaid smart card will be similar to the
coupon program in concert with the Bank of Agriculture.
The bulk of Xinmao's retail customers are located in the Yunnan Province
central cities of Kunming, Lunan, Chengong, Yiliang, Jinnin, Annin, and
Eshan. As the population thins out in the suburbs, distribution networks
take-over and service most customers. The rural areas are exclusively
serviced by smaller distributors.
Finally, there are a number of other minor distributors who purchase from
Xinmao and other major companies, who have solicited their own customer base
over a period of time and have generated customer loyalty through
relationship.
6. Raw Materials
The Chinese market is unique compared to other Asian countries. Japan and
Korea seek security of supply through regular term contracts supported by
long-term relationships, but, in China, low price and bargaining is the
driving force for LPG purchases.
Xinmao has been able to consistently purchase LPG at low prices due to high
volume of orders. When purchasing LPG, Xinmao must weigh various factors
including quality of LPG, price, and transportation costs. It generally
purchases from domestic sources inside China where prices are very low, but
transportation costs are higher. On occasion Xinmao also purchases LPG from
foreign companies such as Mobil Oil Hong Kong and Caltex.
Since Xinmao is presently dependent upon both domestic and foreign sources to
supply its LPG and since domestic supply cannot be relied upon for all of its
needs, Largo Vista decided that the best interests of the Company would be
served by Largo Vista establishing a strategic relationship with a supplier
of petroleum products outside of the domestic China market both to provide a
greater guarantee of LPG in the future, and to expand its sale of petroleum
products both in and outside of China. Pursuant thereto, On October 12,
1999, Largo Vista entered into a joint venture agreement with the United Arab
Petroleum Corporation ("UAPC"), named Largo Vista/UAPC Partners, wherein LVG
shall hold 51% of the assets and liabilities, and shall share 51% of the
income and expenses of the JV; and, UAPC 49%. The purpose of the JV is to
combine the resources and talents of each party to develop a market for the
sale of petrochemical products to be supplied by middle-east sources, and
principally Dubai. The JV plans to sell petroleum products to customers in
China, Vietnam and other countries throughout the Pacific Rim.
<PAGE>
To date, Largo Vista/UAPC Partners has accomplished the following:
Contract: November 25, 1999, Largo Vista/UAPC Partners seller; Mekong
Petroleum Joint Venture Co., Ltd. (PETROMEKONG) buyer; 20,000 metric tons of
diesel oil during the months of December 1999 and January 2000; total
contract price approximately $3,300,000 USD.
Contract: December 18, 1999, Largo Vista/UAPC Partners seller; Mekong
Petroleum Joint Venture Co., Ltd. (PETROMEKONG) buyer; 2,600 metric tons of
gasoil 1% sulphur and 3,000 metric tons of unleaded mogas 92 during the month
of December 1999; contract price approximately $430,000 USD for gasoil, and
approximately $560,000 USD for mogas 92.
On December 12, 1999, Largo Vista/UAPC Partners entered into a joint venture
agreement with Mr. Ahmed Hasan Abdul Qahir Al Shaibani, Dubai, United Arab
Emirates (UAE), named Largo Vista Group, Ltd. (LLC of Dubai, UAE). Largo
Vista/UAPC Partners will hold 49% (Largo Vista 25% and UAPC 24%) of the
assets and liabilities, and shall share 49% of the income and expenses of the
JV; and, Al Shaibani 51%. The objective of the JV is to carry-on the trade
of crude oil and refined oil products. The JV will have headquarters in
Dubai, and plans to focus sales of petroleum products in China, Indochina and
other Pacific Rim customers.
Cost of goods can fluctuate widely and rapidly and can cause cash flow
problems. The Company is researching the feasibility of obtaining a much
larger storage facility that would permit it to purchase large quantities of
LPG when prices are favorable, and sell it when prices are higher.
7. Pricing and Competition
The LPG industry in Yunnan Province consists of ten major LPG companies that
have railroad tank cars, depot storage facilities, and sell LPG in both the
retail and wholesale markets. All ten companies depend on a network of
distributors to help reach and serve the needs of their customers.
Competition is based principally on price and service, with some based on
relationship and reputation. Nine of these companies are majority owned by
the government, and are wholly operated by management that is responsible to
a government majority Board of Directors. These companies are designated in
China as "government owned and operated". Xinmao is the only company that
has private majority ownership, a private majority on the Board of Directors
which controls the Company. Only five of the nine companies are in the same
category as Xinmao in terms of storage capacity of 1,000 cubic meters.
LPG retail market prices have been relatively unstable during the past two
years, characterized by over supply and cut-throat competition. This was
precipitated by environmental concerns that prompted the passing new
regulations by the Kunming City Government that outlaw the use of coal.
Other larger cities are following suit with similar clean air regulations,
leaving LPG as the major viable energy alternative for cooking, heating, and
hot water.
No companies were prepared to supply a sufficient amount of LPG to this new
consumer market, but all companies reacted to the huge new demand.
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The difference between Xinmao and the other nine government companies is that
the primary objective of Xinmao is to make a profit while profit is secondary
to the government companies primary objective is to ensure supply LPG. The
nine government companies, whose primary objective was to supply LPG to
consumers, are characterized by a lack of management and financial expertise,
and by large work staffs that operate very inefficiently. These entities
ordered an excess supply of LPG and had to cut prices to deplete the excess.
This began the spiraling downward price market in which Xinmao was forced to
compete. These pressures have eased, and Xinmao is negotiating with the
government agencies and some companies in an effort to bring stability back
to the market along with higher prices and profitable margins.
Black Market. In the residential wholesale market, many independent, "black
market" dealers sprung-up and have been operating without a license, and have
ignored safety regulations that require inspection and pressure testing of
each bottle every five years. Another flagrant violation of consumer
fairness is the practice of short-filling bottles. The "black market" dealer
fills the bottle with 10 kg. of LPG, and sells it representing it has 13.5
kg. of LPG. Short-filling has permitted the Company's competition to charge
lower prices and unfairly compete with Xinmao. This practice of cheating the
consumer has been prevalent over the past several years. Xinmao is now
challenging customers to be aware of what they are paying for by
implementation of a "weight comparison program". The program permits the
consumer to actually weigh the bottles to expose the "short-fill" problem.
As of April 15, 1999, the Kunming LPG Administration established "minimum
pricing" regulations which set a base price for both wholesale bulk sales,
and wholesale and retail bottle sales. This regulation will help stop the
uncontrolled cut-throat pricing competition that occurred over the past 24
months. It will be incumbent upon the nine participating major LPG companies
to form task forces to assist the LPG Administrator in enforcing these
regulations. The "short-fill" practice is now illegal under new "minimum
price" regulations, which require all wholesalers to sell a 13.5 kg. bottle
for no less than 36 RMB, and retail distributors for no less than 42 RMB.
Xinmao competes with others on both reputation and service. To differentiate
itself from its competition, Xinmao stresses a long-term relationship both
with the residential user, and with the distributor, to help them bring-in
and keep new customers. The Company wants its distributors and their
customers to be a part of the "Xinmao Family". The Company offers more than
claims about its service. Its reputation is excellent and is backed-up by a
record of uninterrupted service since 1992. Consumers and distributors know
that they can rely on Xinmao to deliver and that they will receive honest
weights and measures.
8. Insurance
Xinmao sells a solid image of reliability, service, safety, and seven years
of uninterrupted service to its customers - and backs it up with insurance.
The Company provides consumer insurance, written by the Peoples Insurance
Company of China (PICC) which is owned by the government. The insurance
guarantees that a customer who paid in advance that the LPG would be at a
fixed price, immediately available, and a guaranteed quality and quantity.
This innovation has given the customer new confidence, since in the past many
companies collected in advance, and then went out of business, leaving the
customer empty handed.
<PAGE>
9. Government Regulation
The LPG industry is regulated on a day-to-day basis by the Kunming LPG
Administration, which oversees all companies licensed to do business, and
enforces rules and regulations in the market place. The LPG Administration
faces many problems in this rapidly emerging, chaotic market, including the
existence of many unlicensed small distributors, violations of safety
regulations, and bottles of LPG short-filled by as much as 25%. In April
1999, the local LPG Administration met with Xinmao and eight of the other
largest licensed companies in the area, and together set minimum price
policies intended to provide positive margins over cost. The LPG
Administration has also begun to correct some of the more flagrant
violations. The philosophy of the Chinese LPG Administration is to first
ensure LPG is available to all people requiring it, then to enforce
regulations so long as they don't interfere with the first priority.
10. Patents, Trademarks & Licenses
The Company maintains no patents or trademarks.
11. Seasonal Factors
Northern China is subject to a wide range of seasonality ranging from snow in
the winter to hot, humid summers. However, moving south, the seasons and
temperatures do not fluctuate as much as in the north. The Xinmao Company
operates in Yunnan Province which, being at an elevation of approximately
5,500 feet, is known for its moderate and even climate year around - being
slightly cooler in the winter, requiring some heating, while the summer
weather is warm and pleasant. As a result, seasonal factors do not play a
significant role in the Company's business.
12. Inventory
Inventory, valued at cost, on the first-in, first-out basis, consists
primarily of liquid petroleum gas.
13. Firm Backlog
None.
14. Government Contracts
The Company has government approval for the exclusive development of pipeline
projects in the counties of Lunan, Fuming, Yiliang, Yuxi, and a part of
Kunming.
<PAGE>
15. Environmental Factors
Between 1996 and 1998, environmental concerns over clean air and streets,
have prompted a general movement within the Chinese Government from the
Central Government to the provinces and the major cities to phase-out the use
of coal as an energy source for cooking and heating. As coal is phased-out a
void is left which is being filled by liquid petroleum gas (LPG) because it
is a clean burning, efficient and transportable energy substitute. It is
expected that continued efforts will be made to replace other unclean burning
fuels with LPG, especially in automobiles and industrial applications, since
it is the only viable alternative fuel resource available to Southern China.
16. Financial Information Relating to Foreign & Domestic Sales
All of the Company's sales are foreign, through Xinmao, its China subsidiary.
The Company has had no significant foreign currency transaction gains or
losses in connection with its activities.
17. Employees
Largo Vista is fully staffed with 2 employees, and relies on five other
outside service providers for legal, accounting and other services as needed.
The Chinese subsidiary, Xinmao, is fully staffed with 84 employees, including
a full management staff, which is considered highly competent and well
qualified.
<PAGE>
Item 2. FINANCIAL INFORMATION
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following table contains selected financial data for the periods
presented for the Company. The data should be read in conjunction with the
more detailed audited statements for such years presented elsewhere herein.
<TABLE>
December 31, 1999 December 31, 1998
<S> <C> <C>
$ $
Revenues $1,616,961 $1,476,971
Cost of Sales $1,153,863 $1,353,537
Margin $ 463,098 $ 123,434
S,G&A $2,589,407 $ 760,491
Operating <Loss> <$2,126,309> <$ 637,057>
NET <LOSS> <$2,198,488> <$ 694,480>
</TABLE>
1. Revenues and expenses are generated from the Company' s Chinese
subsidiary, Kunming Xinmao Petrochemical Industrial Co., Ltd. ("Xinmao"). The
United States entities produce no revenues, and experience expenses in
conjunction with management oversight of the Chinese entity, legal,
accounting and other professional services.
Revenues for 1999 increased $139,990, (9.5%) over 1998. This increase
reflects the Company's curtailment of sales activity in high volume, low to
negative margin market segments, and focus on higher margin retail business.
Price pressures continue to negatively affect sales volume and profitability
in the retail residential market segment. The market is still developing and
reflects rapidly increasing consumer demand, low cost of goods and some over
supply of product placing downward pressure on prices, and one that requires
capital investment to improve delivery systems to consumers. The Company
anticipates increases in revenue from expanded marketing efforts, price
increases, expansion into other lines of business, and mergers and
acquisitions.
Cost of sales for 1999 decreased $199,674 (14.8%) from 1998. Improvements
are due to cost containment procedures, and the Company anticipates greater
improvements going forward by further implementing cost containment
procedures and obtaining LPG at lower prices.
Margins for 1999 of 28.6% increased from 8.4% in 1998. The increase reflects
focus of sales activity on more profitable market segments, implementation of
cost reduction efforts, and improved management techniques. The Company
anticipates improving the margin going forward by continuing to focus sales
efforts on more profitable market segments, and implementing additional
measures to reduce cost of goods.
Selling, general and administrative expenses for 1999 increased $1,828,916 or
240% over 1998. The Company issued a substantial amount of stock to its
officers for compensation, including salaries and bonuses.
<PAGE>
Net losses for 1999 increased $1,504,008 over 1998 primarily due to the
increase in SG&A expenses.
2. Liquidity and Capital Resources
Historically, the Company has been able to obtain funds as necessary to
pursue operations. However, neither Largo Vista nor Xinmao have written
letters of commitment from either commercial or private sources of credit.
The Company has continually experienced significant operating losses and
there is no internal source of liquidity. The primary source of external
liquidity has been loans from Chinese state-owned banks. However, since
Chinese banking authorities are tightening credit, it is uncertain whether
Xinmao will continue to receive such loans. Currently the Company has
sufficient liquid capital to operate for approximately 6 to 8 months. The
availability, source, amount and terms of any additional financing is
uncertain at this date, and by no means assured.
3. Trends, events or uncertainties that have or are reasonably likely to
have a material impact on the Company's liquidity.
The economic growth of China with its huge population, emerging middle class,
and growing consumer sector are trends that management anticipates will
increase the Company's revenues from Xinmao as well as other anticipated
projects. China's young, developing LPG market presents challenges of
improving sales strategies, seeking lowest-cost sources of goods,
implementing efficient management techniques, and developing the efficiency
and effectiveness of human resources.
World geopolitical uncertainties, such as the United States bombing of the
Chinese consulate in Belgrade, Yugoslavia resulted in a short period (4-5
days) of unrest and negative reactions toward Americans in China; however, no
long term difficulties have been experienced and management does not
anticipate any serious detriment to prospects for the Company's success in
China because of the nature of the service a utility company provides that is
in continual demand, and the fact that foreign ownership is not readily
ascertainable by consumers.
In addition, even though Chinese management is optimistic of its ability to
obtain credit from private sources, the trend in China is for the banks to
tighten loan eligibility for businesses such as Xinmao that are experiencing
cash flow difficulties.
Additionally, the Company is searching for joint venture partners in various
potential LPG projects in the Yunnan Province and in other provinces.
Investment by joint venture partners will be perceived as financial strength
by the local LPG Administration, and management anticipates stronger
enforcement of licensing and safety regulations, which should reduce unfair
competition currently experienced by the Company.
<PAGE>
Year 2000 Issue
Many computer Systems in use today may be unable to correctly process data or
may not operate at all after December 31, l999 because those systems
recognize the year within a date only by the last two digits. Some computer
programs may interpret the year "00" as 1900, instead of as 2000, causing
errors in calculations or the value "00" may be considered invalid by the
computer program, causing the system to fail.
In the U.S., the Company maintains its financial data on a PC system
utilizing generic accounting software, both of which have been guaranteed by
the manufacturer as Y2K compliant. In China, due to government regulations,
the Company maintains a manual record system. During first quarter 2000, in
China, management expects to begin maintaining financial and other
information on both a manual and PC system, totally shifting to a PC system
as government regulations permit. The Company has not experienced any
problems related to computer software dating issues and does not believe it
will either experience future, or that it has significant exposure in the
future, to Year 2000 problems, and neither does it expect that the Year 2000
issue will have a future material cost or impact on Company operations. The
Company's primary contingency plan depends upon the use of manual back-up
systems, and alternative supply sources such as major oil companies.
These contingency plans are intended to mitigate the impact of third party
Year 2000 noncompliance. Outside of manual backup, the Company does not plan
to implement further contingency plans. The Company has not inquired into
the readiness of any of its key third party suppliers; however, as of March
1, 2000, none of its key third party suppliers has reported any Y2K problems.
However, there can be no assurance that the systems of key suppliers and
other companies on which the Company relies will not have an adverse effect
on the Company including, (1) the inability to obtain products or services
used in business operations, (2) the inability to deliver goods or services
sold to customers.
Forward - Looking Statements
Investors are cautioned that certain statements contained in this document,
including but not limited to those under the caption Management's Discussion
and Analysis as well as some statements by the Company in periodic press
releases and some oral statements of Company officials during presentations
about the Company, are "forward-looking" statements. Forward-looking
statements include words such as "expects", "anticipates", "intends",
"plans", "believes", "estimates", or similar expressions. In addition, any
statements concerning future financial performance (including future
revenues, earnings or growth rates), ongoing business strategies or
prospects, and possible future company actions, which may be provided by
management are also forward-looking statements. Forward-looking statements
are based on current expectations and projections about future events and are
subject to risks, uncertainties, and assumptions about the Company, economic
and market factors and the industries in which the Company does business,
among other things. These statements are not guaranties of future performance
and the company has no specific intention to update these statements. Actual
events and results may differ materially and detrimentally from those
expressed or forecasted in forward-looking statements.
<PAGE>
Certain of the important factors that could cause actual results to differ
materially and negatively from the Company's expectations, among others,
include continued instability in pricing and unprofitable competition in
China, a slow down in the trend in sales of LPG during the remainder of the
year, an inability to obtain sufficient working capital, and new Government
regulations adverse to the Company's operations.
Item 3. PROPERTIES
A. Largo Vista
Currently Largo Vista has corporate offices in Newport Beach, California,
which include two office suites. The terms of this Lease provide for month
to month tenancy at $2,500 per month.
B. Xinmao
Xinmao provides its primary service from its depot, which is adjacent to a
railroad terminal. The depot has a capacity of storing 1,000 cubic meters
(approximately 500 metric tons) of LPG. Assuming the depot is operating at
full capacity and turns-over twice per month, the depot is sufficient to
supply 83,000 users assuming consumption of 12 kg. of LPG per household per
month. In addition, Xinmao, formed in 1998, a new joint venture in Yuxi, a
city near Kunming. The purpose of the joint venture is to give Xinmao the
option for additional LPG storage in the future as distribution expands. The
joint venture, being recently organized, is in the development stage, and as
of this date, has no assets or liabilities or operations. This joint venture
will have access to LPG storage facilities that management believes may be
capable of supplying LPG storage for up to 30,000 customers per month should
demand increase to these levels.
The depot also has ten service stations from which the 2, 15, and 50 kilogram
bottles are filled, and loaded onto trucks for distribution. For its retail-
direct customers, Xinmao transports the full bottles to an exchange shop
where either the customer comes in personally, or Xinmao will provide a
delivery man to take the bottle to the customer who pays a delivery fee.
In the case of a pipeline, 50 kg. bottles are used in cluster to service
residents in the housing complex. The advantage the pipeline customer has
over the bottle customer is convenience and service. There is no need to
spend valuable time exchanging bottles. The meter is read by the serviceman
each month who also collects the amount due. Xinmao is planning to use
"smart meters" in future pipeline developments that require the customer to
go to the Bank of Agriculture and purchase a prepaid card, similar to a
prepaid phone card commonly in use in the U.S. This will improve cash flow
and reduce "slow-pays" and "bad debts".
Xinmao leases a two story, 4,000 square foot facility in Kunming City, where
it operates a customer service and sales center, bottle exchange shop,
storage facility, and administrative offices, at an annual rental of $1000 US
per year, under a three year lease, with one year of the term remaining. It
also leases and operates a number of small bottle exchange stores throughout
key locations in the city.
<PAGE>
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding beneficial ownership as
of March 31, 2000, of the Company's Common Stock, by any person who is known
to the Company to be the beneficial owner of more than 5% of the Company's
voting securities and by each director and by officers and directors of the
Company as a group.
<TABLE>
Beneficial Percentage
Name and Address Ownership of Class
<S> <C> <C>
Daniel Mendez 21,742,462 10.21%
4570 Campus Drive
Newport Beach, CA 92660*
Albert Figueroa 6,023,654 2.83%
Deng Shan (1) 86,973,559 40.83%
All current directors and
officers as a group (3 persons) 114,739,675 53.86%
</TABLE>
- -(1) Mr. Deng Shan owns 1,095,896 (.51%) shares personally, and 85,877,663
(40.31%) shares through his majority owned corporation, Proton Technology
Corporation Limited.
*This address applies to all persons listed.
<PAGE>
Item 5. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the directors and executive
officers of the Company as of March 31, 2000, are as follows:
<TABLE>
Name Age Position Since
<S> <C> <C> <C>
Daniel J. Mendez 47 President and a Director 4/94
Albert N. Figueroa 33 Secretary/Treasurer, and 5/95
" " a Director
Deng Shan 49 Director 1/99
" " Chairman of the Board of Directors 4/99
</TABLE>
The Directors serve until the next annual meeting of shareholders, or until
their successors are elected.
Daniel J. Mendez, President, is responsible for investor relations,
coordination of information with market makers and brokers and potential
partners, coordination of all agreements, corporate financing, and liaison
with Chinese operations. Mr. Mendez joined the Company in October of 1991 as
a marketing coordinator. In April 1994 he became President and a Director.
Albert N. Figueroa, Secretary and Treasurer, is the gatekeeper of all
corporate documents and information, maintains the minute book and all
corporate records and agreements, keeps the books, liaisons with all outside
service providers, and generally coordinates the flow of information within
the company and with the Chinese operations. Mr. Figueroa was formerly
involved in the construction industry as an estimator.
Deng Shan, Chairman of the Board of Directors, is well versed in the business
practices of China. Early in his career Mr. Deng was a lecturer in Wuhan
Chemical Engineering School. Later he advanced to associate professor at
Huazhong University of Science and Technology. In 1989, Mr. Deng became the
Director, Science and Technology Commission, Nanshan District Government,
China. Since 1994, Mr. Deng has been appointed as Chief Executive
Officer/Chairman of the Board of four commercial companies. In 1996, Mr.
Deng acquired Kunming Xinmao Petrochemical Industrial Co., Ltd. Mr. Deng has
established strategic networks in both business and government arenas.
<PAGE>
Item 6. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued by the
Company during the last three years to its three executive officers.
<TABLE>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Other Secur
Name Annual Restricted ities All Other
And Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($ (SARs (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel 1997 220,000 0 0 0 0 0 0
Mendez 1998 220,000 0 0 0 0 0 0
President 1999 150,000 661,618 0 0 0 0 0
Albert 1997 100,000 0 0 0 0 0 0
Figueroa 1998 100,000 0 0 0 0 0 0
Secretary/1999 100,000 275,034 0 0 0 0 0
Treasurer
Deng Shan 1997 100,000 0 0 0 0 0 0
Chairman 1998 100,000 0 0 0 0 0 0
1999 100,000 261,827 0 0 0 0 0
</TABLE>
- -(1) The officers listed above were paid all their salary and bonus
compensation by the issuance of unregistered common stock valued at market,
generally determined by the low bid quotation. See Item 10.
- -(2) Daniel J. Mendez, President, serves under annual employment contract
renewed effective January 1, 2000 at annual compensation of $120,000 per year
payable $10,000 per month. It may be terminated upon 30 days written notice
of either party, and has a provision for change in ownership or control of 30
days severance at the monthly salary set forth above.
- -(3) Albert N. Figueroa, Secretary/Treasurer, serves under annual employment
contract renewed effective January 1, 2000 at annual compensation of $60,000
per year payable $5,000 per month. It may be terminated upon 30 days written
notice of either party, and has a provision for change in ownership or
control of 30 days severance at the monthly salary set forth above.
- -(4) Deng Shan, Consultant, serves under annual Agreement for Services
renewed effective January 1, 2000 at annual compensation of $100,000 per year
payable $8,333 per month. It may be terminated upon 30 days written notice
of either party, and has no protective provision for change in ownership or
control except for 30 days severance at the monthly compensation set forth
above.
- -(5) The above officers, comprising the Company's Board of Directors, receive
no additional compensation for serving as directors.
<PAGE>
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A loan of $30,000 is owed by the Company to Proton Technology, of which Mr.
Deng Shan the majority shareholder.
The common shares issued by the Company for compensation, services and
repayment of cash advances during 1999 and 1998 were issued primarily to the
Company's directors and shareholders.
Other than discussed above, the Company has no knowledge of any transaction
or series of transactions, or any currently proposed transaction, or series
of transactions, to which the Company was or is to be party, in which the
amount involved exceeds $60,000, involving management, any person owning 10%
or more of the common stock, or any member of the immediate family of any of
the foregoing persons.
<PAGE>
Item 8. LEGAL PROCEEDINGS
Various lawsuits, claims and proceedings of a nature considered normal to its
business are pending against the Company and its subsidiaries. The most
significant of these are described below.
Everlasting, Plaintiff vs. CHAN MAU TAK ("CMD"), Defendant
This lawsuit was brought by Everlasting against CMD for breach of the
purchase agreement wherein Everlasting acquired the assets of Xinmao from
CMD. The basis of the case is that CMD made fraudulent representations
concerning the assets of Xinmao at the time of purchase. The court ordered
an Interlocutory Judgment on October 14, 1998 in favor of Everlasting for 1
million HK$ (approximately US$127,000) plus damages incurred plus interest @
13.08% per annum. CMD has filed an appeal, based on failure of service of
process.
The Company anticipates that the ultimate resolution of this matter will
have no material adverse effect on the accompanying consolidated financial
statements
Claimant, Panzhihua vs. Xinmao
In January, 1998, Panzhihua filed a breach of contract action against
Xinmao and obtained a US$452,000 judgment in March, 1998. The Claimant
subsequently agreed to accept title to certain equipment of Xinmao with an
aggregate book value of U.S.$279,719, in full satisfaction of the judgment.
Of this amount, US$167,619 was accrued as of December 31, 1997; accordingly,
the balance of US$112,550 was charged to operations in fiscal 1998, and
included in SG&A expense.
<PAGE>
Item 9. MARKET PRICE AND DIVIDENDS ON REGISTRANT'S COMMON STOCK
EQUITY AND RELATED STOCKHOLDER MATTERS
From 1994 to January 20, 2000 the Company's common stock traded on the OTC BB
and since January 21, 2000, it trades on the OTC Market under the symbol
"LGOV".
The closing quotations on March 31, 2000 were $1.03125 bid and $1.0625 ask.
Set forth below is the high and low bid information for the Company's Common
Stock for each full quarterly period within the two most recent fiscal years.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and may not represent actual transactions.
<TABLE>
High Low
<S> <C> <C>
4th Quarter 1999 $3.875 $.085
3rd Quarter 1999 $0.14 $.08
2nd Quarter 1999 $0.11 $.09
1st Quarter 1999 $0.17 $.09
4th Quarter 1998 $0.29 $.08
3rd Quarter 1998 $0.34 $.15
2nd Quarter 1998 $0.74 $.13
1st Quarter 1998 $0.19 $.07
</TABLE>
At March 31, 2000, the Company had approximately 559 Shareholders of record.
The Company has not paid a dividend since its incorporation and does not
anticipate paying dividends in the near future.
<PAGE>
Item 10. RECENT SALES OF UNREGISTERED SECURITIES
The Company issued unregistered shares of its common stock from January 1,
1997 to December 31, 1999 as follows.
Fiscal 1997, a total of 2,995,194 shares of common stock valued at $273,312,
as follows.
Issued to officers as compensation:
<TABLE>
Number of Amount
1997 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Oct. 21 1,861,027 Daniel Mendez $157,258
Oct. 21 687,379 Albert Figueroa 58,054
2,548,406 $215,312
</TABLE>
Issued to shareholders for repayment of cash advances:
<TABLE>
Number of Amount
1997 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Oct. 21 391,788 John Prentice $51,000
Oct. 21 55,000 William Vauthrin 7,000
446,788 $58,000
</TABLE>
Fiscal 1998, a total of 3,939,058 shares of common stock valued at $322,911,
as follows.
Issued to officers as compensation:
<TABLE>
Number of Amount
1998 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Feb5/Oct26 2,593,489 Daniel Mendez $201,993
Feb5/Oct26 795,569 Albert Figueroa $65,918
3,389,058 $267,911
</TABLE>
Issued to service providers in settlement of claims:
<TABLE>
Number of Amount
1998 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Oct. 26 350,000 Danilo Cacciamatta $35,000
Oct. 26 200,000 Equitrade $20,000
550,000 $55,000
</TABLE>
<PAGE>
Fiscal 1999, a total of 28,519,534 shares of common stock valued at
$2,562,120, as follows.
Issued to officers as compensation:
<TABLE>
Number of Amount
1999 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Jun21/Sep16/Nov16 9,860,482 Daniel Mendez $ 892,367
Jun21/Sep16/Nov16 4,974,736 Albert Figueroa 451,062
Jun21/Sep16/Nov16 4,252,477 Deng Shan 385,665
Jun21/Sep16/Nov16 1,957,356 Proton Technology Corp. (1) 176,162
21,045,051 $1,905,256
</TABLE>
(1) A corporation controlled by Deng Shan
Issued to key service providers for past services:
<TABLE>
Number of Amount
1999 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Jun21/Sep16/Nov16 2,188,472 Bernard Kruer $ 198,660
Jun21/Sep16/Nov16 1,233,788 Gymar, Inc. 112,173
July 20 100,000 Craig Saunar 8,531
July 20/Nov16 110,000 Fred Smith 11,500
Nov. 16 20,000 Todd Ream 2,000
3,652,260 $ 332,864
</TABLE>
Issued for cash:
<TABLE>
Number of Amount
1999 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Sept.23 700,000 Seifer, D & C $ 35,000
</TABLE>
Issued to officers and shareholders for repayment of cash advances:
<TABLE>
Number of Amount
1999 Common Shares Name of Persons to of
Dates Issued Whom Issued Consideration
<S> <C> <C> <C>
Sept. 16 1,277,778 Daniel Mendez $ 115,000
Sept. 16 166,667 Albert Figueroa 15,000
Sept. 16 777,778 Deng Shan 70,000
Sept. 16 100,000 John Prentice 9,000
Nov. 16 800,000 Wan Lin 80,000
3,122,223 $289,000
</TABLE>
All stock issuances were conducted pursuant to section 4(2) under the 1933
Act without the involvement of underwriters. Stock issuances, other than for
cash, were valued at market, generally determined by the low bid quotation.
<PAGE>
Item 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Company has only one type of security, Common Stock with par value equal
to $0.001. Prior to September 27, 1999, there were 200,000,000 authorized
shares of Common Stock of which 186,013,021 shares were issued/outstanding.
However, on September 27, 1999, the Board of Directors passed a resolution to
increase the authorized shares to 400,000,000 with a par value of $0.001. On
October 4, 1999, shareholders representing a majority of outstanding shares
approved the resolution. A certificate of amendment was filed in the public
records of the State of Nevada on October 7, 1999. Management has no current
plans to use additional authorized common stock for the purpose of purchases
or acquisitions.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the holders of Capital Stock.
Holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference
of any preferred stock that might be issued in the future. Holders of Common
Stock have no preemptive or subscription rights, and there are no redemption
or conversion rights with respect to such shares. All outstanding shares of
Common Stock are fully paid and nonassessable.
<PAGE>
Item 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Law, (NRS 78.7502) under which the Company is
incorporated, gives a corporation the power to indemnify any of its
directors, officers, employees, or agents who are sued by reason of their
service in such capacity to the corporation provided that the director,
officer, employee, or agent acted in good faith and in a manner he believed
to be in or not opposed to the best interests of the corporation. With
respect to any criminal action, he must have had no reasonable cause to
believe his conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF
THE REGISTRANT PURSUANT TO THE FOREGOING PROVISIONS OR OTHERWISE, THE
REGISTRANT HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE ACT AND IS, THEREFORE, UNENFORCEABLE, IN THE EVENT THAT A
CLAIM FOR INDEMNIFICATION AGAINST SUCH LIABILITIES (OTHER THAN THE PAYMENT BY
THE REGISTRANT OF EXPENSES INCURRED OR PAID BY A DIRECTOR, OFFICER OR
CONTROLLING PERSON OF THE REGISTRANT IN THE SUCCESSFUL DEFENSE OF ANY ACTION,
SUIT OR PROCEEDING) IS ASSERTED BY SUCH DIRECTOR, OFFICER OR CONTROLLING
PERSON IN CONNECTION WITH THE SECURITIES BEING REGISTERED, THE REGISTRANT
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 ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION OF SUCH
ISSUE.
<PAGE>
Item 13. FINANCIAL STATEMENTS
Index to Financial Statements
Report of Independent Certified Public Accountant (U.S.$) p. 32
Consolidated Financial Statements (U.S.$) p. 33
Notes to Consolidated Financial Statements (U.S.$) p. 37
Report of Independent Certified Public Accountant (Renminbi) p. 45
Consolidated Financial Statements (Renminbi) p. 46
Notes to Consolidated Financial Statements (Renminbi) p. 50
<PAGE>
INDEPENDENT AUDITOR'S REPORT (US $)
To the Shareholders and Board of Directors
Largo Vista Group, Ltd.
I have audited the accompanying consolidated balance sheet of Largo Vista
Group, Ltd. as of December 31, 1999, and the related consolidated statements
of operations, changes in stockholders' equity <deficit> and cash flows for
each of the two years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of Company's
management. My responsibility is to express an opinion on these consolidated
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that I
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. I believe that my
audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Largo Vista Group, Ltd. as of December 31, 1999, and results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999, 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 significant
operating recurring losses from operations that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
/s/ Jaak (Jack) Olesk, CPA
Beverly Hills, California
February 29,2000
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Balance Sheet
December 31, 1999
ASSETS
<S> <C>
Current Assets
Cash $ 16,379
Inventories 163,782
Prepaid expenses and
advances to suppliers 80,562
Total current assets 260,723
Fixed assets
Property and equipment 1,099,280
<Less> accumulated depreciation <323,106>
Fixed assets, net 776,174
Other Assets
Other receivable 40,976
Deposits 32,094
Other 163,389
Total other assets 236,459
$ 1,273,356
------------
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY <DEFICIT>
<S> <C>
Current Liabilities
Accounts payable $ 707,960
Accrued expenses 356,779
Taxes Payable 120,803
Notes Payable 1,750,148
Advances and Other 1,511,330
Total current liabilities 4,447,020
Contingencies
Shareholders' Equity <Deficit>
Common Stock, $.001 par value;
400,000,000 shares authorized;
212,382,555 shares issued and
outstanding 212,383
Additional Paid-in Capital 10,671,845
Accumulated <deficit> <14,057,892>
Total shareholders' equity <deficit> <3,173,664>
$ 1,273,356
------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Statements of Operations
Year December 31,
1999 1998
<S> <C> <C>
Revenue $ 1,616,961 $1,476,971
Cost of sales 1,153,863 1,353,537
Gross profit 463,098 123,434
Selling, General and
administrative expenses 2,589,407 760,491
<Loss> From operations <2,126,309> <637,057>
Other income <expense>:
Interest <220,271> <198,652>
Other 148,092 141,229
<Loss> before
income taxes <2,198,488> < 694,480>
Income taxes - -
Net <LOSS> $<2,198,488> $< 694,480>
Basic and diluted
net <LOSS> per share $ <.011> $ <.004>
Basic and diluted
Weighted average shares $192,652,800 $181,565,237
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Statements of Changes in Stockholders' Equity <Deficit>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital <Deficit> Total
<S> <C> <C> <C> <C> <C>
Balance at
Dec. 31, 1997 179,923,963 $179,924 $ 7,819,273 $<11,164,924> $<3,165,727>
Common shares
issued for:
Compensation 3,389,058 3,389 264,522 - 267,911
Settlement of
claims 550,000 550 54,450 - 55,000
Net <loss> - - - < 694,480> < 694,480>
Balance at
Dec. 31, 1998 183,863,021 183,863 8,138,245 <11,859,404> <3,537,296>
Common shares
issued for:
Compensation 21,045,051 21,045 1,884,211 - 1,905,256
Services 3,652,260 3,653 329,211 - 332,864
Cash 700,000 700 34,300 - 35,000
Repayment of
cash advances 3,122,223 3,122 285,878 - 289,000
Net <loss> - - - <2,198,488> <2,198,488>
Balance at
Dec. 31, 1999 212,382,555 $212,383 $10,671,845 $<14,057,892> $<3,173,664>
----------- -------- ----------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Statements of Cash Flows
For the Year December 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net <loss> $<2,198,488> $< 694,480>
Adjustments to reconcile
Net loss to cash flows
from operating activities:
Depreciation 45,319 67,926
Equipment conveyed in satisfaction
Of judgment 112,550
Common stock issued for services 332,864
Common stock issued for compensation 1,905,256 267,911
Changes in assets and liabilities:
Inventories 62,603 491,902
Prepaid and other <18,076> 83,190
Other long-term assets 53,220 <209,200>
Accounts payable and accrued expenses <343,988> 126,681
Taxes payable and other 24,804 <36,445>
Net cash flows from operating activities: <136,486> 210,035
Cash flows from investing activities: - -
Cash flows from financing activities:
Issuance of common stock 35,000 -
Notes payable 105,002 5,426
Advances and other <665> <301,642>
Cash flows from financing activities: 139,337 <296,216>
Increase <decrease> in cash 2,851 <86,181>
Cash at beginning of year 13,528 99,709
Cash at end of year $ 16,379 $ 13,528
Supplemental cash flow information:
Interest paid $ 220,271 $ 198,652
Non-cash investing and
financing activities:
Common stock issued for claims $ - $ 55,000
Common stock issued for
Cash advances $ 289,000 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 - Summary of Significant Accounting Policies
Basis of Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Largo Vista
Group, Ltd. ("Largo Vista" or the "Company"), incorporated in Nevada on
January 16, 1987, and its wholly-owned subsidiaries, Largo Vista, Inc., with
no assets, liabilities or operations, incorporated in California on October
12, 1988, and Everlasting International, Ltd. ("Everlasting"), incorporated
in Nevada on January 25, 1995, and Kunming Xinmao Petrochemical Industrial
Co., Ltd. ("Xinmao"), a Chinese joint venture 66.67% owned by Everlasting.
The minority partner is a Chinese Government Entity that has contractually
agreed to place all power and day-to-day decisions in the hands of the
majority. All amounts are in U.S. dollars unless otherwise indicated. All
significant intercompany balances and transactions have been eliminated in
consolidation. Xinmao operates a liquified petroleum gas (LPG) distribution
business.
Cash and Cash Equivalents
Cash equivalents consist of funds invested in money market accounts and
in investments with a maturity of three months or less when purchased. During
the periods presented, and at December 31, 1999, the Company had no cash
equivalents.
Provision for Bad Debt
The financial statements are prepared using an allowance for bad debts
in conformity with generally accepted accounting principles. At December 31,
1999 the Company had no significant provision for bad debts.
Loss per Share
The computation of loss per share of common stock is based on the
weighted average number of shares outstanding during the periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 1 - Summary of Significant Accounting Policies (continued)
Valuation of shares for services
Shares issued for services were valued based upon estimated fair market
value of services. The policy for "valuation of shares" applies to
transactions with both employees and non-employees. The policy is one of
negotiation between the parties. In the case of non-employees, final value
is approved by a majority of the Board of Directors; and, in the case of
employees, final value is approved by a majority of the Board of Directors
with the interested director abstaining. During the periods presented,
United States management's compensation has been in the form of issuance of
shares by the company.
Inventory
Inventory, valued at lower of cost of market, on the first-in, first-out
basis consists primarily of liquid natural gas.
Property and equipment and depreciation
Property and equipment consists of a building, storage tanks, railroad
cars and miscellaneous equipment. All property and equipment is located in
China. Depreciation is primarily by the straight line method over estimated
useful lives, generally of approximately five to thirty years.
Impairment of Assets
Long-lived assets used in operations are accessed for impairment
whenever changes in facts and circumstances indicate a possible significant
deterioration in the future cash flows expected to be generated by an asset
group. If, upon review, the sum of the undiscounted pretax cash flows are
less than the carrying value of the asset group, the carrying value is
written down to estimated fair value. Individual assets are grouped for
impairment purposes at the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other groups of
assets.
The fair value of impaired assets is determined based on quoted market
prices in active markets, if available, or upon the present values of
expected future cash flows using discount rates commensurate with the risks
involved in the asset group. Long-lived assets committed by management for
disposal are accounted for at the lower of amortized cost or fair value, less
cost to sell.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 1 - Summary of Significant Accounting Policies (continued)
Other Assets
Other assets consist primarily of slower moving inventory items, which
have the appropriate fair market value, but to be conservative have been
classified as non-current.
Notes payable
Notes payable consists primarily of unsecured short-term loans,
primarily non-interest bearing demand notes. A loan of $30,000 is payable to
an entity controlled by the Company's major shareholder.
Advances and other
Advances and other consists primarily of advances to suppliers and
miscellaneous payables, primarily non-interest bearing.
Income Taxes
The Company records its income tax provision in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
Foreign Currency Translation
The financial statements and results of operations of the Company's Chinese
subsidiary are measured using local currency as the functional currency.
Assets and liabilities of the subsidiary are translated at the exchange rates
in effect at each year end. Statements of operations are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from differences in exchange rates from period to period, if
material, are included in the foreign currency translation adjustment account
in stockholders' equity.
The national currency of the People's Republic of China, the Renminbi (RMB),
is pegged to the U.S. Dollar. As of December 31, 1995, 1996, 1997, 1998, and
1999, the exchange rates have ranged from 8.28 to 8.33 RMBs to US$1.00,
making any translation adjustment immaterial during these years.
Revenue recognition
The Company recognizes revenue upon delivery or pick up of natural gas.
There is not a significant amount of credit transactions.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
Pursuant to SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, the Company is required to estimate the fair value of all
financial instruments included on its balance sheet at December 31, 1999.
The Company considers the carrying value of such amounts in the consolidated
financial statements to approximate their expected realization and interest
rates, which approximate current market rates. During the periods presented
and at December 31, 1999 the Company had no financial instruments.
Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that certain items of comprehensive income other than net earnings
or loss be reported in the financial statements. For the two years ended
December 31, 1999, the adoption of this pronouncement had no impact on the
Company's consolidated financial statements.
Segment Disclosure
In Fiscal 1999, the Company adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. This Statement
establishes standards for the way companies report information regarding
operating segments in annual financial statements. The adoption of SFAS No.
131 required no additional disclosure for the Company as the Company operated
in one principal business segment.
Reclassifications
Certain items in prior period financial statements have been
reclassified to conform with 1999 classifications.
Note 2 - Basis of presentation and considerations related to continued
existence (going concern)
The Company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred significant net losses for the two years ended December 31, 1999.
Additionally, its liabilities exceed its assets at December 31, 1999. These
factors raise substantial doubt as to the Company's ability to continue as a
going concern.
The Company's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no assurance
management will be successful in this endeavor.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 3 - Income taxes
As the Company has not generated taxable income since inception no
provision for income taxes has been provided. At December 31, 1999, the
Company did not have any significant tax net operating loss carryforwards
(tax benefits resulting from losses for tax purposes have been fully reserved
due to the uncertainty of a going concern). At December 31, 1999, the
Company did not have any significant deferred tax liabilities or deferred tax
assets.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 4 - Chinese Subsidiary
Following are the condensed balance sheet of Xinmao at December 31, 1999 and
its results of operations for the years ended December 31, 1999 and 1998.
The Company has translated into U.S. dollars its Chinese affiliate's
financial statements from its functional currency, the Chinese Renminbi
(RMB). For assets and liabilities, the exchange rate at December 31, 1999
of 1 U.S. dollar to 8.28 Chinese RMBs was used. For revenues and expenses, a
weighted average exchange rate of 1 U.S. dollar to 8.28 and 8.25 Chinese RMBs
for 1998 and 1999, respectively, was used. The application of these exchange
rates to the financial statements resulted in an immaterial translation
adjustment for 1998 and 1999. Xinmao, which operates in the People's
Republic of China, accounted for all consolidated revenues and gross profit
during the two years ended December 31, 1999. The Chinese minority partner
is not responsible for Xinmao's losses; accordingly, no portion of Xinmao's
losses is allocated to the minority interest.
<TABLE>
CONDENSED BALANCE SHEET
December 31, 1999
ASSETS
<S> <C>
Current Assets
Cash $ 15,234
Inventories 163,782
Prepaid expenses and
advances to suppliers 82,085
Total current assets 261,101
Property and equipment 776,174
Other Assets 234,936
$ 1,272,211
-----------
</TABLE>
<TABLE>
LIABILITIES AND <DEFICIT>
<S> <C>
Current Liabilities
Accounts payable $ 617,538
Accrued expenses 319,279
Taxes payable 68,355
Notes payable 1,750,148
Advances and other 1,471,987
Total current liabilities 4,227,307
<Deficit> <2,955,096>
$ 1,272,211
-----------
</TABLE>
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 4 - Chinese Subsidiary (continued)
<TABLE>
Condensed Statements of Operations
Year December 31,
1999 1998
<S> <C> <C>
Revenue $ 1,616,961 $ 1,476,971
Cost of sales 1,153,863 1,353,537
Gross profit 463,098 123,434
Selling, general and
administrative expenses 471,644 505,771
<Loss> from operations <8,546> <382,337>
Interest <expense> <220,271> <198,652>
Other income 148,092 141,229
NET <LOSS> $ <80,725> $ <439,760>
----------- -----------
</TABLE>
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 5 - Contingencies
Various lawsuits, claims and proceedings of a nature considered normal to its
business are pending against the Company and its subsidiaries. The most
significant of these are described below.
Everlasting, Plaintiff vs. CHAN MAU TAK ("CMD"), Defendant
This lawsuit was brought by Everlasting against CMD for breach of the
purchase agreement wherein Everlasting acquired the assets of Xinmao from
CMD. The basis of the case is that CMD made fraudulent representations
concerning the assets of Xinmao at the time of purchase. The court ordered
an Interlocutory Judgment on October 14, 1998 in favor of Everlasting for 1
million HK$ (approximately US$127,000) plus damages incurred plus interest @
13.08% per annum. CMD has filed an appeal, based on failure of service of
process.
The Company anticipates that the ultimate resolution of this matter will
have no material adverse effect on the accompanying consolidated financial
statements
Claimant, Panzhihua vs. Xinmao
In January, 1998, Panzhihua filed a breach of contract action against
Xinmao and obtained a US$452,000 judgment in March, 1998. The Claimant
subsequently agreed to accept title to certain equipment of Xinmao with an
aggregate book value of U.S.$279,719, in full satisfaction of the judgment.
Of this amount, US$167,619 was accrued as of December 31, 1997; accordingly,
the balance of US$112,550 was charged to operations in fiscal 1998, and
included in SG&A expense.
Note 6 - Related Party Transactions
The common shares issued by the Company for compensation, services, and
repayment of cash advances, during 1999 and 1998 were issued primarily to the
Company's officers and shareholders.
<PAGE>
INDEPENDENT AUDITOR'S REPORT (Chinese Renminbi)
To the Shareholders and Board of Directors
Largo Vista Group, Ltd.
I have audited the accompanying consolidated balance sheet of Largo Vista
Group, Ltd. as of December 31, 1999, and the related consolidated statements
of operations, changes in stockholders' equity <deficit> and cash flows for
each of the two years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of Company's
management. My responsibility is to express an opinion on these consolidated
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that I
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. I believe that my
audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Largo Vista Group, Ltd. as of December 31, 1999, and results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999, 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 significant
operating recurring losses from operations that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
/s/ Jaak (Jack) Olesk, CPA
Beverly Hills, California
February 29,2000
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Balance Sheet
December 31, 1999
United States Dollars and Chinese Renminbi
ASSETS
(US$) (Chinese
Renminbi)
<S> <C> <C>
Current Assets
Cash $ 15,234 135,618
Inventories 163,782 1,356,115
Prepaid expenses and
advances to suppliers 82,085 667,053
Total current assets 261,101 2,158,786
Fixed assets
Property and equipment 1,099,280 9,102,038
<Less> accumulated depreciation <323,106> < 2,675,318>
Fixed assets, net 776,174 6,426,720
Other Assets
Other receivable 40,976 339,281
Deposits 32,094 265,738
Other 163,389 1,352,861
Total other assets 236,459 1,957,880
$ 1,273,356 10,543,386
------------ -----------
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY <DEFICIT>
<S> <C> <C>
Current Liabilities
Accounts payable $ 707,960 5,861,909
Accrued expenses 356,779 2,954,130
Taxes Payable 120,803 1,000,249
Notes Payable 1,750,148 14,491,225
Advances and Other 1,511,330 12,513,812
Total current liabilities 4,447,020 36,821,325
------------ ------------
Contingencies
Common Stock, .$001 par value;
400,000,000 shares authorized;
212,382,555 shares issued and
outstanding 212,383 1,758,531
Additional Paid-in Capital 10,671,845 88,362,879
Accumulated <deficit> <14,057,892> <116,399,345>
Total shareholders' equity <deficit> <3,173,664> <26,277,939>
$ 1,273,356 10,543,386
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Statements of Operations
(Chinese Renminbi)
Year December 31,
1999 1998
<S> <C> <C>
Revenue 13,388,437 12,229,320
Cost of sales 9,553,986 11,207,286
Gross profit <loss> 3,834,451 1,022,034
Expenses:
Selling, general and
administrative expenses 21,440,290 6,296,865
<Loss> From operations <17,605,839> <5,274,831>
Other income <expense>:
Interest <1,823,844> <1,644,839>
Other 1,226,202 1,169,376
<Loss> before
income taxes <18,203,481> <5,750,294>
Income taxes - -
NET <LOSS> <18,203,481> < 5,750,294>
Basic and diluted
Net <LOSS> per share $ <.09> $ <.03>
Basic and diluted
Weighted average shares $192,652,800 $181,565,237
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Statements of Changes in Stockholders' Equity <Deficit>
Chinese Renminbi
(in thousands)
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital <Deficit> Total
<S> <C> <C> <C> <C> <C>
Balance at
Dec. 31, 1997 179,923,963 $179,924 $ 7,819,273 $<11,164,924> $<3,165,727>
Common shares
issued for:
Compensation 3,389,058 28 2,190 - 2,218
Settlement of
Claims 550,000 5 450 - 455
Net <loss> - - - < 5,750> < 5,750>
Balance at
Dec. 31, 1998 183,863,021 1,522 67,384 < 98,196> < 29,290>
Common shares
issued for:
Compensation 21,045,051 174 15,601 - 15,775
Services 3,652,260 30 2,726 - 2,756
Cash 700,000 6 284 - 290
Repayment of
cash advances 3,122,223 26 2,368 - 2,394
Net <loss> - - - <18,203> < 18,203>
Balance at
Dec. 31, 1999 212,382,555 $ 1,758 $ 88,363 $<116,399> $< 26,278>
----------- -------- ---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Largo Vista Group, Ltd.
Consolidated Statements of Cash Flows
(Chinese Renminbi)
For the Year December 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net <loss> $<18,203,481> $< 5,750,294>
Adjustments to reconcile
Net loss to cash flows
from operating activities:
Depreciation 375,241 562,427
Equipment conveyed in satisfaction
Of judgment 931,914
Common stock issued for services 2,756,114
Common stock issued for compensation 15,775,520 2,218,303
Changes in assets and liabilities:
Inventories 518,353 4,072,949
Prepaid and other <149,669> 688,813
Other long-term assets 440,662 <1,732,176>
Accounts payable and accrued expenses <2,848,221> 1,048,919
Taxes payable and other 205,377 <301,765>
Net cash flows from operating activities: <1,130,104> 1,739,090
Cash flows from investing activities: - -
Cash flows from financing activities:
Issuance of common stock 289,000 -
Notes payable 869,417 44,927
Advances and other <5,506> <2,497,596>
Cash flows from financing activities: 1,153,710 <2,452,668>
Increase <decrease> in cash 23,606 <713,579>
Cash at beginning of year 112,012 825,591
Cash at end of year 135,618 112,012
Supplemental cash flow information:
Interest paid 1,823,844 1,644,839
Non-cash investing and
financing activities:
Common stock issued for claims 455,000
Common stock issued for
Cash advances 2,392,920 -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 - Summary of Significant Accounting Policies
Basis of Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Largo Vista
Group, Ltd. ("Largo Vista" or the "Company"), incorporated in Nevada on
January 16, 1987, and its wholly-owned subsidiaries, Largo Vista, Inc., with
no assets, liabilities or operations, incorporated in California on October
12, 1988, and Everlasting International, Ltd. ("Everlasting"), incorporated
in Nevada on January 25, 1995, and Kunming Xinmao Petrochemical Industrial
Co., Ltd. ("Xinmao"), a Chinese joint venture 66.67% owned by Everlasting.
The minority partner is a Chinese Government Entity that has contractually
agreed to place all power and day-to-day decisions in the hands of the
majority. All amounts are in U.S. dollars unless otherwise indicated. All
significant intercompany balances and transactions have been eliminated in
consolidation. Xinmao operates a liquified petroleum gas (LPG) distribution
business.
Cash and Cash Equivalents
Cash equivalents consist of funds invested in money market accounts and
in investments with a maturity of three months or less when purchased. During
the periods presented, and at December 31, 1999, the Company had no cash
equivalents.
Provision for Bad Debt
The financial statements are prepared using an allowance for bad debts
in conformity with generally accepted accounting principles. At December 31,
1999 the Company had no significant provision for bad debts.
Loss per Share
The computation of loss per share of common stock is based on the
weighted average number of shares outstanding during the periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 1 - Summary of Significant Accounting Policies (continued)
Valuation of shares for services
Shares issued for services were valued based upon estimated fair market
value of services. The policy for "valuation of shares" applies to
transactions with both employees and non-employees. The policy is one of
negotiation between the parties. In the case of non-employees, final value
is approved by a majority of the Board of Directors; and, in the case of
employees, final value is approved by a majority of the Board of Directors
with the interested director abstaining. During the periods presented,
United States management's compensation has been in the form of issuance of
shares by the company.
Inventory
Inventory, valued at lower of cost of market, on the first-in, first-out
basis consists primarily of liquid natural gas.
Property and equipment and depreciation
Property and equipment consists of a building, storage tanks, railroad
cars and miscellaneous equipment. All property and equipment is located in
China. Depreciation is primarily by the straight line method over estimated
useful lives, generally of approximately five to thirty years.
Impairment of Assets
Long-lived assets used in operations are accessed for impairment
whenever changes in facts and circumstances indicate a possible significant
deterioration in the future cash flows expected to be generated by an asset
group. If, upon review, the sum of the undiscounted pretax cash flows are
less than the carrying value of the asset group, the carrying value is
written down to estimated fair value. Individual assets are grouped for
impairment purposes at the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other groups of
assets.
The fair value of impaired assets is determined based on quoted market
prices in active markets, if available, or upon the present values of
expected future cash flows using discount rates commensurate with the risks
involved in the asset group. Long-lived assets committed by management for
disposal are accounted for at the lower of amortized cost or fair value, less
cost to sell.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 1 - Summary of Significant Accounting Policies (continued)
Other Assets
Other assets consist primarily of slower moving inventory items, which
have the appropriate fair market value, but to be conservative have been
classified as non-current.
Notes payable
Notes payable consists primarily of unsecured short-term loans,
primarily non-interest bearing demand notes. A loan of $30,000 is payable to
an entity controlled by the Company's major shareholder.
Advances and other
Advances and other consists primarily of advances to suppliers and
miscellaneous payables, primarily non-interest bearing.
Income Taxes
The Company records its income tax provision in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
Foreign Currency Translation
The financial statements and results of operations of the Company's Chinese
subsidiary are measured using local currency as the functional currency.
Assets and liabilities of the subsidiary are translated at the exchange rates
in effect at each year end. Statements of operations are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from differences in exchange rates from period to period, if
material, are included in the foreign currency translation adjustment account
in stockholders' equity.
The national currency of the People's Republic of China, the Renminbi (RMB),
is pegged to the U.S. Dollar. As of December 31, 1995, 1996, 1997, 1998, and
1999, the exchange rates have ranged from 8.28 to 8.33 RMBs to US$1.00,
making any translation adjustment immaterial during these years.
Revenue recognition
The Company recognizes revenue upon delivery or pick up of natural gas.
There is not a significant amount of credit transactions.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
Pursuant to SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, the Company is required to estimate the fair value of all
financial instruments included on its balance sheet at December 31, 1999.
The Company considers the carrying value of such amounts in the consolidated
financial statements to approximate their expected realization and interest
rates, which approximate current market rates. During the periods presented
and at December 31, 1999 the Company had no financial instruments.
Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that certain items of comprehensive income other than net earnings
or loss be reported in the financial statements. For the two years ended
December 31, 1999, the adoption of this pronouncement had no impact on the
Company's consolidated financial statements.
Segment Disclosure
In Fiscal 1999, the Company adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. This Statement
establishes standards for the way companies report information regarding
operating segments in annual financial statements. The adoption of SFAS No.
131 required no additional disclosure for the Company as the Company operated
in one principal business segment.
Reclassifications
Certain items in prior period financial statements have been
reclassified to conform with 1999 classifications.
Note 2 - Basis of presentation and considerations related to continued
existence (going concern)
The Company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred significant net losses for the two years ended December 31, 1999.
Additionally, its liabilities exceed its assets at December 31, 1999. These
factors raise substantial doubt as to the Company's ability to continue as a
going concern.
The Company's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no assurance
management will be successful in this endeavor.
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 3 - Income taxes
As the Company has not generated taxable income since inception no
provision for income taxes has been provided. At December 31, 1999, the
Company did not have any significant tax net operating loss carryforwards
(tax benefits resulting from losses for tax purposes have been fully reserved
due to the uncertainty of a going concern). At December 31, 1999, the
Company did not have any significant deferred tax liabilities or deferred tax
assets.
<PAGE>
Largo Vista Group, Ltd.
December 31, 1999
(Chinese Renminbi)
Note 4 - Chinese Subsidiary
Following are the condensed balance sheet of Xinmao at December 31, 1999 and
its results of operations for the years ended December 31, 1999 and 1998.
The Company has translated into U.S. dollars its Chinese affiliate's
financial statements from its functional currency, the Chinese Renminbi
(RMB). For assets and liabilities, the exchange rate at December 31, 1999
of 1 U.S. dollar to 8.28 Chinese RMBs was used. For revenues and expenses, a
weighted average exchange rate of 1 U.S. dollar to 8.28 and 8.25 Chinese RMBs
for 1998 and 1999, respectively, was used. The application of these exchange
rates to the financial statements resulted in an immaterial translation
adjustment for 1998 and 1999. Xinmao, which operates in the People's
Republic of China, accounted for all consolidated revenues and gross profit
during the two years ended December 31, 1999, and substantially all
consolidated assets and liabilities at December 31, 1999. The Chinese
minority partner is not responsible for Xinmao's losses; accordingly, no
portion of Xinmao's losses is allocated to the minority interest.
<TABLE>
CONDENSED BALANCE SHEET
December 31, 1999
ASSETS
<S> <C>
Current Assets
Cash 126,138
Inventories 1,356,115
Prepaid expenses;
advances to suppliers; other 679,664
Total current assets 2,161,917
Fixed assets
Property and equipment 9,102,038
<Less> accumulated depreciation <2,675,318>
Total fixed assets 6,426,720
Other Assets
Other receivable 326,671
Deferred expense 265,738
Other 1,352,861
Total other assets 1,945,270
10,533,907
------------
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY <DEFICIT>
<S> <C>
Current Liabilities
Accounts payable 5,113,215
Accrued expenses 2,643,630
Taxes payable 565,979
Notes payable 14,491,225
Advances and other 12,188,052
Total current liabilities 35,002,101
Shareholders' Equity <Deficit> <24,468,194>
10,533,907
------------
</TABLE>
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
(Chinese Renminbi)
Note 4 - Chinese subsidiary (continued)
<TABLE>
Condensed Statements of Operations
Year Ended December 31,
1999 1998
<S> <C> <C>
Revenue 13,388,437 12,229,320
Cost of sales 9,553,986 11,207,286
Gross profit 3,834,451 1,022,034
Expenses
Writedown of receivables - 445,870
Selling, general and
administrative expenses 3,905,212 3,741,914
<Loss> from operations <70,761> <3,165,750>
Interest <expense> <1,823,844> <1,644,839>
Other income 1,226,202 1,169,376
NET <LOSS> <668,403> <3,641,213>
----------- -----------
</TABLE>
<PAGE>
Largo Vista Group, Ltd.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
(Chinese Renminbi)
Note 5 - Contingencies
Various lawsuits, claims and proceedings of a nature considered normal to its
business are pending against the Company and its subsidiaries. The most
significant of these are described below.
Everlasting, Plaintiff vs. CHAN MAU TAK ("CMD"), Defendant
This lawsuit was brought by Everlasting against CMD for breach of the
purchase agreement wherein Everlasting acquired the assets of Xinmao from
CMD. The basis of the case is that CMD made fraudulent representations
concerning the assets of Xinmao at the time of purchase. The court ordered
an Interlocutory Judgment on October 14, 1998 in favor of Everlasting for 1
million HK$ (approximately US$127,000) plus damages incurred plus interest @
13.08% per annum. CMD has filed an appeal, based on failure of service of
process.
The Company anticipates that the ultimate resolution of this matter will
have no material adverse affect on the accompanying consolidated financial
statements
Claimant, Panzhihua vs. Xinmao
In January, 1998, Panzhihua filed a breach of contract action against
Xinmao and obtained a US$452,000 judgment in March, 1998. The Claimant
subsequently agreed to accept title to certain equipment of Xinmao with an
aggregate book value of U.S.$279,719, in full satisfaction of the judgment.
Of this amount, US$167,619 was accrued as of December 31, 1997; accordingly,
the balance of US$112,550 was charged to operations in fiscal 1998, and
included in SG&A expense.
Note 6 - Related Party Transactions
The common shares issued by the Company for compensation, services, and
repayment of cash advances, during 1999 and 1998 were issued primarily to the
Company's officers and shareholders.
<PAGE>
Item 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company's consolidated financial statements included in this Registration
Statement have been audited by Jaak (Jack) Olesk, CPA, whose report, included
elsewhere herein, is modified to reflect substantial doubt about the
Company's ability to continue as a going concern. Jaak (Jack) Olesk, CPA,
has resigned as our Company's auditor on March 16, 2000. In his letter of
resignation, Mr. Olesk, who is both a CPA and an attorney, informed the
Company that he intends to pursue the practice of law exclusively. At no
time was there any disagreement between the Company and Jaak (Jack) Olesk,
CPA, on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
Item 15. EXHIBITS
3.(i) Articles of Incorporation of Largo Vista Group, Limited
(filed Form 10SB, 11/2/99)
3.(ii) Bylaws of Largo Vista Group, Limited (filed Form 10SB, 11/2/99)
3.(iii) Articles of Incorporation of Largo Vista Inc.
(filed Form 10SB, 11/2/99)
3.(iv) Bylaws of Largo Vista Inc. (filed Form 10SB, 11/2/99)
3.(v) Articles of Incorporation of Everlasting International
Limited (filed Form 10SB, 11/2/99)
3.(vi) Bylaws of Everlasting International Limited
(filed Form 10SB, 11/2/99)
3.(vii) Articles of Incorporation of Kunming Xinmao Petrochemical
Industry Co., Ltd. (filed Form 10SB, 11/2/99)
10 Material Contracts
.(a) Contract. Largo Vista Group, Ltd. and Sentio Corporation,
December 28, 1998, (filed Form 10SB, 11/2/99)
.(b) Contract. Hong Kong De Xiang Tuo Yi Industrial Company,
August 28, 1992 (filed Form 10SB, 11/2/99)
.(c) Plan and Agreement of Reorganization between Largo Vista Group,
Ltd., Proton Technology Corporation, Ltd. and Everlasting
International, December 21, 1996 (filed Form 10SB, 11/2/99)
.(d) Joint Venture Agreement of Kunming Xinmao Petrochemical Industry
Co., Ltd., August 8, 1992 (filed Form 10SB, 11/2/99)
.(e) Approval Certificate of Enterprise with Foreign Investment in the
Peoples Republic of China (filed Form 10SB, 11/2/99)
.(f) Business License of Enterprise in the Peoples Republic of China
(filed Form 10SB, 11/2/99)
.(g) Business Permit to Engage in LPG Business in Yunnan Province
(filed Form 10SB, 11/2/99)
.(h) Notice of Subsidiaries of the Agriculture Bank of China, Yunnan
Provincial Branch, Acting as Agents for Collection and Receipt
of Payment for Kunming Xinmao Petrochemical Industry Co., Ltd.
(filed Form 10SB, 11/2/99)
.(i) Agreement of Supply of Liquified Petroleum Gas, March 18, 1996
(filed Form 10SB, 11/2/99)
<PAGE>
.(j) Method of Insurance for LPG Credit, August 26, 1997
(filed Form 10SB, 11/2/99)
.(k) Memorandum of Understanding Kunming Xinmao Petrochemical Industry
Co., Ltd. and Wuhan Minyi Fuel Gas Petrochemical Company
Limited, March 14, 1999 (filed Form 10SB, 11/2/99)
.(l) Memorandum of Understanding Kunming Xinmao Petrochemical Industry
Co., Ltd. and Guilin Municipal Garden Fuel Gas Pipelines
Limited, March 29, 1999 (filed Form 10SB, 11/2/99)
.(m) Approval Certificate of Enterprisees with Foreign Investment in
the Peoples Republic of China, August 21, 1992
(filed Form 10SB, 11/2/99)
.(n) Contract. Enterprise Ownership Transfer Agreement "Ten Year
Leasing Contract", Seller Chen Mao Tak, Purchaser Everlasting
International, Ltd., third party Kunming Fuel General Company,
November 8, 1995 (filed Form 10SB-A1, 1/14/2000 as EX-10.D)
.(o) Joint Venture Agreement. , Largo Vista with the United Arab
Petroleum Corporation ("UAPC"), known as Largo Vista/UAPC
Partners (filed Form 10SB-A1, 1/14/2000 as EX-10.F)
.(p) Memorandum of Association Limited Liability Company. Largo Vista
Group, Ltd., LLC, Dubai, UAE, October 12, 1999, Largo Vista
Group, Ltd., UAPC, and Sheik Al Shabani, named Largo Vista
Group Limited, Limited Liability Company of the UAE (filed
Form 10SB-A1, 1/14/2000 as EX-10.G)
.(q) Contract: Mekong Petroleum Joint Venture Co., Ltd. (PETROMEKONG)
Buyer, and United Arab Petroleum Corporation Seller,
November 25, 1999 (filed Form 10SB-A1, 1/14/2000 as EX-10.H)
.(r) Contract: Mekong Petroleum Joint Venture Co., Ltd. (PETROMEKONG),
Buyer, and United Arab Petroleum Corporation Seller,
December 18, 1999 (filed Form 10SB-A1, 1/14/2000 as EX-10.H)
.(s) Employment Agreement Daniel J. Mendez 1999
(filed Form 10SB-A1 as Ex-3.iv, 1/14/2000)
.(t) Consultant Agreement Deng Shan 1999
(filed Form 10SB-A1, as Ex-3.v 1/14/2000)
.(u) Contract. "Enterprise Ownership Transfer Agreement",
November 8, 1995, new translation (filed Form 10SB-A2,
3/20/2000 as EX-10.E.1)
.(v) Contract. "Agreement on Payment", November 8, 1995
(filed Form 10SB-A2, 3/20/2000 as EX-10.E.2)
.(w) Contract. "Agreement on Supply of Liquified Petroleum Gas",
March 18, 1996 (filed Form 10SB-A2, 3/20/2000 as EX-10.E.3)
.(x) Employment Agreement Albert N. Figueroa 1999
(filed as Ex-3.vi 3/21/2000)
All of the exhibits listed above have been filed previously with the forms
and on the dates indicated.
There are no new exhibits for this filing.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
President /s/Daniel J. Mendez May 8, 2000
Daniel J. Mendez
Secretary/Treasurer /s/Albert N. Figueroa May 8, 2000
Albert N. Figueroa
Director /s/ Deng Shan May 8, 2000
Deng Shan
