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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 2005
REGISTRATION NO. 333-121187
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEW TAOHUAYUAN CULTURE TOURISM CO., LTD.
(Name of small business issuer in its charter)
NEVADA 7011 98-0440893
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) I.D. Number)
1# DONGFENG ROAD
XI'AN WEIYANG TOURISM DEVELOPMENT DISTRICT
XI'AN, CHINA
0086-29-86671555
(Address and telephone number of principal executive offices)
1# DONGFENG ROAD
XI'AN WEIYANG TOURISM DEVELOPMENT DISTRICT
XI'AN, CHINA
0086-29-86671555
(Address of principal place of business or intended principal place of business)
NATIONAL REGISTERED AGENTS, INC. OF NEVADA
1000 E. WILLIAM STREET, SUITE 204
CARSON CITY, NV 89701
(888) 682-4368
(Name, address and telephone number of agent for service)
COPIES TO:
William T. Hart
1624 Washington Street
Denver, CO 80203
(303) 839-0061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
<Page>
If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------
Common stock, $.001 par 17,027,328
value Shares $ 5.00 $ 85,136,640 $ 10,021
</Table>
This registration statement registers the resale of 17,027,328 shares of
common stock held by security holders of the Registrant. In addition to the
number of shares set forth above, the amount to be registered includes any
shares of common stock issued as a result of stock splits, stock dividends and
similar transactions in accordance with Rule 416.
The Proposed Maximum Offering Price Per Share and the Proposed Maximum
Aggregate Offering Price in the table above are estimated solely for the purpose
of calculating the registration fee pursuant to Rule 457. The per share offering
price was calculated based upon a price of $5.00 per share, which is the price
that the shares will be offered prior to the time that a market develops for the
Registrant's common stock.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until it shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with
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Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED SEPTEMBER _______, 2005
17,027,328 SHARES OF COMMON STOCK
INITIALLY OFFERED AT $5.00 PER SHARE
NEW TAOHUAYUAN CULTURE TOURISM CO., LTD.
This prospectus covers the resale of 17,027,328 shares of our common
stock held by our selling stockholders for whom information is provided under
"Selling Stockholders and Plan of Distribution" in this prospectus. The shares
will be offered by our selling stockholders initially at $5.00 per share and
thereafter, if the shares are listed for quotation on the American Stock
Exchange or other exchange at then prevailing market prices or privately
negotiated prices. The offering will terminate on the earlier of the date all of
the shares are sold or one year from the date hereof. We will not receive any
proceeds from the sale of shares offered by the selling stockholders. See
"Selling Stockholders and Plan of Distribution."
There is no market for our common stock and no assurance that a market
will develop in the future. We intend to apply to list our common stock on the
American Stock Exchange upon the effective date of this prospectus, but can give
no assurance whatsoever that our listing application will be approved.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is , 2005.
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TABLE OF CONTENTS
<Table>
ABOUT THIS PROSPECTUS
SUMMARY
SUMMARY FINANCIAL DATA
RISK FACTORS
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS
MANAGEMENT
PRINCIPAL SHAREHOLDERS
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
RELATED PARTY AND OTHER MATERIAL TRANSACTIONS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
</Table>
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ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus as
we have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell these securities
in any jurisdiction where such an offer or sale is not permitted.
SUMMARY
This summary highlights material information regarding our company and
the offering contained in this prospectus. However, you should read the entire
prospectus carefully, including the financial information and related notes,
before making an investment decision.
HISTORY
New Taohuayuan Culture Tourism Co., Ltd. was organized as a Nevada
corporation on November 3, 2004. On December 6, 2004 we issued 17,027,328 shares
of our common stock to acquire all outstanding shares of Shaanxi New Taohuayuan
Culture Tourism Co., Ltd., which we refer to as "Shaanxi," a PRC company
organized and registered in September 1997 in the city of Xi'an, province of
Shaanxi. We were the survivor of the merger and, unless otherwise indicated,
references to us throughout this prospectus includes the operations of Shaanxi.
The purpose of the merger was to redomicile us as a U.S. corporation.
Our principal executive offices are located at 1# Dongfeng Road, Xi'an
Weiyang Tourism Development District, Xi'an, China. Our telephone number is
0086-29-86671555.
BUSINESS
Since 1997 we have owned and operated a 146 room hotel and resort in
Xi'an, People's Republic of China. Since 1997 we have also managed a second 84
room hotel and resort in Xi'an. We have also managed a chain of four restaurants
in the PRC, seating over 2,500 customers, since 1997. We intend to develop an
848 acre commercial and residential development in Lantian, a city located
approximately 23 miles from Xi'an and a 150 room hotel and resort in Xi'an.
THE OFFERING
<Table>
Securities offered by 17,027,328 shares of common stock.
our selling
stockholders:
Securities 17,027,328 shares of common stock.
outstanding prior to
and after the
offering:
</Table>
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Use of proceeds: We will not receive any proceeds from the sale of the
common stock.
Through this prospectus, we are registering the resale of 17,027,328
shares of our common stock which are held by 934 selling shareholders, all of
whom exchanged their shares of Shaanxi for the 17,027,328 shares we issued to
them. The 934 shareholders include two of our executive officers, Chen Jingmin
and Cai Danmei and our sole principal stockholder, Shaanxi New Taohuayuan
Economy Trade Co., Ltd., which owns 2,204,025 shares, or 12.9%, of our
outstanding common stock.All selling shareholders are residents and citizens of
China
CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
Except as otherwise indicated and for purposes of this prospectus only:
- "we", "us" and "our" refer to:
Our company - New Taohuayuan Culture Tourism Co., Ltd., as well as
Shaanxi, a PRC company that was merged into us in December 2004,
- "China" or "PRC" refers to the People's Republic of China, excluding
Taiwan, Hong Kong and Macau; and
- all references to "RMB" or "Renminbi" are to the legal currency of
China and all references to "$", "U.S. dollars," "dollars" and "US$"
are to the legal currency of the United States.
- all financial information in this prospectus is in U.S. dollars.
RISK FACTORS
The shares of common stock offered by this prospectus involve a high
degree of risk and represent a highly speculative investment. You should not
purchase these shares if you cannot afford the loss of your entire investment.
In addition to the other information contained in this prospectus, you should
carefully consider the following risk factors in evaluating an investment in our
common stock. The value of our common stock could decline if any of the risks
discussed below should occur.
WE HAVE NEGATIVE WORKING CAPITAL WHICH COULD LIMIT OUR ABILITY TO GROW OUR
OPERATIONS.
At June 30, 2005 we had negative working capital of $(8,056,217). As of
August 31, 2005 we had cash on hand and on deposit of approximately $54,000. If
we are unable to obtain additional financing we may be required to reduce
expenditures on future development or otherwise reduce our operations.
LAND AND FRANCHISE AGREEMENTS MAY CONSTRAIN US FROM BEING ABLE TO SELL OUR
PROPERTY AT A TIME WHEN IT WOULD BE IN THE BEST INTEREST OF SHAREHOLDERS TO DO
SO.
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As is the case throughout the PRC, we do not own the land upon which our
properties are located. Rather, the land is subject to various land use permits
granted by the PRC government. Any sale of our property would require prior
consent of the government which may make it difficult or impossible to sell our
property at the time we want to do so.
OUR PROPERTIES FACE SIGNIFICANT COMPETITION WHICH COULD REDUCE OUR REVENUES.
We face significant competition from owners, operators and developers of
other hotel properties most of which all have recognized trade names,
international reservation systems, greater resources and longer operating
histories than we have, and accordingly, we are at a competitive disadvantage in
these areas Competition may limit our ability to attract and retain guests and
may reduce the room rates we are able to charge. These competing properties may
have vacancy rates higher than our properties, which may result in their owners
being willing to lower room rates below our room rates. These circumstances
could reduce our revenues.
OPERATING RISKS COMMON TO THE HOTEL INDUSTRY IN CHINA COULD REDUCE OUR REVENUES.
Risks associated with operating hotels include the following, any of
which could reduce our revenues:
- competition for guests and meetings from other hotels including
as a result of competition from internet wholesalers and
distributors;
- increases in operating costs, including wages, benefits,
insurance, property taxes and energy, due to inflation and other
factors, which may not be offset in the future by increased room
rates;
- dependence on demand from business and leisure travelers
including substantial weakness at this time in business travel,
which may fluctuate and be seasonal;
- increases in energy costs, airline fares, and other expenses
related to travel, which may deter traveling;
- adverse affects of weak general and local economic conditions;
and
- the PRC Government, which controls the rate we charge for rooms,
could arbitrarily change the rates and place us at a competitive
disadvantage with other hotels and resorts.
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OUR BANK ACCOUNTS ARE NOT INSURED OR PROTECTED AGAINST LOSS.
We maintain our cash with various banks and trust companies located in
China. Our cash accounts are not insured or otherwise protected. Should any bank
or trust company holding our cash deposits become insolvent, or if we are
otherwise unable to withdraw funds, we would lose the cash on deposit with that
particular bank or trust company.
WE HAVE LIMITED BUSINESS INSURANCE COVERAGE IN CHINA, ANY LOSS WHICH WE SUFFER
MAY NOT BE INSURED OR MAY BE INSURED TO ONLY A LIMITED EXTENT.
The insurance industry is China is still in an early state of
development and PRC insurance companies offer limited business insurance
products. In the event of damage or loss to our properties, our insurance may
not provide as much coverage as if we were insured by insurance companies in the
United States.
OUR REVENUES MAY BE HIGHER IF WE MANAGED PROPERTIES FOR UNAFFILIATED COMPANIES.
All of our management fee income is derived from agreements we have with
companies which are controlled by our President. These agreements should not be
considered as having been negotiated at arms length. Since these agreements are
with companies controlled by our President, in the event of a dispute with
either or both of these companies, we may not enforce our rights in as stringent
a fashion as if the agreements were with unrelated third parties.
WE DO NOT HAVE SUFFICIENT FUNDS TO PAY ALL TAXES WHICH WE MIGHT OWE.
As of June 30, 2005 we had accrued taxes and interest payable of
approximately $7,889,000. While we believe we may not owe this entire amount,
due to arrangements with the local government in the Shaanxi Province, we have
nevertheless accrued the entire amount we would owe, plus interest of 0.05% per
day, compounded daily, on the PRC Enterprise Income and Business Tax
($2,375,062) at June 30, 2005). In contrast, as of June 30, 2005 our current
assets were only $677,159. If we had to pay all accrued taxes and interest
within the next three months we would need to borrow sufficient funds from third
parties or cease operations.
WE ARE SUBJECT TO INTERNATIONAL ECONOMIC AND POLITICAL RISKS OVER WHICH WE HAVE
LITTLE OR NO CONTROL AND MAY BE UNABLE TO ALTER OUR BUSINESS PRACTICE IN TIME TO
AVOID THE POSSIBILITY OF REDUCED REVENUES.
All of our business is conducted in the PRC. Doing business outside the
United States, particularly in the PRC, subjects us to various risks, including
changing economic and political conditions, major work stoppages, exchange
controls, currency fluctuations, armed conflicts and unexpected changes in U.S.
and foreign laws relating to tariffs, trade restrictions, transportation
regulations, foreign investments and taxation. We have no control over most of
these risks and may be unable to anticipate changes in international economic
and political conditions and, therefore, unable to alter out business practice
in time to avoid the possibility of reduced revenues.
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IF RELATIONS BETWEEN THE UNITED STATES AND THE PRC WORSEN, INVESTORS MAY BE
UNWILLING TO HOLD OR BUY OUR STOCK AND IF OUR SECURITIES BECOME QUALIFIED FOR
QUOTATION ON AN EXCHANGE, OUR STOCK PRICE MAY DECREASE.
At various times during recent years, the U.S. and the PRC have had
significant disagreements over political and economic issues. Controversies may
arise in the future between these two countries. Any political or trade
controversies between the United States and the PRC, whether or not directly
related to our business, could reduce the price of our common stock if our stock
becomes qualified for quotation on the American Stock Exchange or the
over-the-counter Electronic Bulletin Board.
THE PRC GOVERNMENT COULD CHANGE ITS POLICIES TOWARD PRIVATE ENTERPRISE OR EVEN
NATIONALIZE OR EXPROPRIATE PRIVATE ENTERPRISES, WHICH COULD RESULT IN THE TOTAL
LOSS OF OUR AND YOUR INVESTMENT.
Our business is subject to significant political and economic
uncertainties and may be affected by political, economic and social developments
in the PRC. Over the past several years, the PRC government has pursued economic
reform policies including the encouragement of private economic activity and
greater economic decentralization. The PRC government may not continue to pursue
these policies or may significantly alter them to our detriment from time to
time with little, if any, prior notice.
Changes in policies, laws and regulations or in their interpretation or
the imposition of confiscatory taxation, restrictions on currency conversion,
restrictions or prohibitions on dividend payments to stockholders, devaluations
of currency or the nationalization or other expropriation of private enterprises
could have a material adverse effect on our business. Nationalization or
expropriation could even result in the total loss of our investment in the PRC
and in the total loss of your investment.
A LACK OF ADEQUATE REMEDIES AND IMPARTIALITY UNDER THE PRC LEGAL SYSTEM MAY MAKE
IT IMPOSSIBLE TO ENFORCE THE AGREEMENTS TO WHICH WE ARE A PARTY AND THUS REDUCE
OUR REVENUES.
We periodically enter into agreements governed by PRC law. Our revenues
could be reduced if these agreements are not respected. In the event of a
dispute, enforcement of these agreements in the PRC could be extremely
difficult. Unlike the United States, the PRC has a civil law system based on
written statutes in which judicial decisions have little precedential value. The
PRC government has enacted laws and regulations dealing with matters such as
corporate organization and governance, foreign investment, commerce, taxation
and trade. However, the government's experience in implementing, interpreting
and enforcing these recently enacted laws and regulations is limited, and our
ability to enforce commercial claims or to resolve commercial disputes is
uncertain. Furthermore, enforcement of the laws and regulations may be subject
to the exercise of considerable discretion by agencies of the PRC government,
and forces unrelated to the legal merits of a particular matter or dispute may
influence their determination. These uncertainties could limit the protections
that are available to us and reduce our revenues.
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FLUCTUATIONS IN EXCHANGE RATES COULD REDUCE OUR REVENUES.
Although we use the United States dollar for financial reporting
purposes, all of the transactions effected by our operating subsidiary are
denominated in the PRC's RMB. The exchange rate of the RMB may fluctuate wildly
against the U.S. dollar. We do not currently engage in hedging activities to
protect against foreign currency risks. Even if we chose to engage in such
hedging activates, we may not be able to do so effectively. Future movements in
the exchange rate of the RMB could reduce our revenues.
YOU MAY EXPERIENCE DIFFICULTIES IN ATTEMPTING TO ENFORCE LIABILITIES BASED UPON
U.S. FEDERAL SECURITIES LAWS AGAINST OUR NON-U.S. OPERATING SUBSIDIARY AND ITS
NON-U.S. RESIDENT DIRECTORS AND OFFICERS.
Our operating subsidiary and its assets are located in the PRC. Our
directors and executive officers are foreign citizens and do not reside in the
U.S. It may be difficult for courts in the U.S. to obtain jurisdiction over
these foreign assets or persons and as a result, it may be difficult or
impossible for you to enforce judgments rendered against us or our directors or
executive officers in U.S. courts. In addition, the courts in the countries in
which we and our subsidiary are organized or where we and our subsidiary's
assets are located may not permit lawsuits of the enforcement of judgments
arising out of the U.S. and state securities or similar laws.
THE INITIAL OFFERING PRICE OF $5.00 PER SHARE HAS BEEN ARBITRARILY SET BY OUR
BOARD OF DIRECTORS AND IS NOT AN INDICATION OF THE ACTUAL VALUE OF OUR BUSINESS.
The initial offering price of $5.00 per share is not based upon earnings
or operating history, does not necessarily reflect our actual value, and bears
no relation to our earnings, assets, book value, net worth or any other
recognized criteria of value. No independent investment banking firm has been
retained to assist us in determining the offering price for the shares.
Accordingly, the offering price should not be regarded as an indication of the
current value or future price of our stock.
SALES OF OUR COMMON STOCK COULD REDUCE THE PRICE OF OUR STOCK.
There are 17,027,328 shares of our common stock outstanding. Once this
registration statement is effective, substantially all of the shares of our
common stock registered hereby and held by our selling shareholders will be
freely tradable without restrictions under the Securities Act of 1933, except
for any shares held by our officers, directors and 5% or greater stockholders,
which will be restricted by the resale limitations of Rule 144 under the
Securities Act of 1933.
In addition to the shares available for resale under this registration
statement, as a result of the provisions of Rule 144, all restricted shares will
be available for sale in a public market, if developed, beginning December 2005,
The availability for sale of substantial amounts of common stock under this
prospectus or under Rule 144 could reduce prevailing prices for our common
stock.
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CERTAIN NEVADA CORPORATION LAW PROVISIONS COULD PREVENT A POTENTIAL TAKEOVER OF
US THAT COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK OR DEPRIVE YOU OF A
PREMIUM OVER THE PRICE.
We are incorporated in the State of Nevada. Certain provisions of Nevada
corporation law could adversely affect the price of our common stock. Because
Nevada law governing control-share acquisitions requires board approval of a
transaction involving a change in our control, it would be more difficult for
someone to acquire control of us. Neither our Articles nor our Bylaws contain
any similar provisions.
THERE IS NO CURRENT MARKET FOR OUR SECURITIES WHICH MAY MAKE IT DIFFICULT FOR
INVESTORS TO SELL OUR COMMON STOCK.
There is no public market for our common stock and there can be no
assurance that an active public market will develop in the future. We have
applied to list our common stock on the American Stock Exchange following the
effective date of this prospectus, but there can be no assurance that we will
obtain such listings or that a trading market will develop in our common stock,
or, if developed, will be sustained. Accordingly, our stockholders may not be
able to sell their shares should they desire to do so.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FUTURE, SO INVESTORS WILL NOT RECEIVE
INCOME FROM THEIR INVESTMENT IN OUR COMMON STOCK.
Although we have paid dividends in the past, we currently intend to
retain any future earnings for use in our business and do not expect to pay any
cash dividends on any shares of common stock for the foreseeable future.
Accordingly, investors will not receive income from their investment in our
common stock.
THERE IS A REDUCED PROBABILITY OF A CHANGE OF CONTROL OR ACQUISITION OF US DUE
TO THE POSSIBLE ISSUANCE OF PREFERRED STOCK. THIS REDUCED PROBABILITY COULD
DEPRIVE OUR INVESTORS OF THE OPPORTUNITY TO OTHERWISE SELL OUR STOCK IN AN
ACQUISITION OF US BY OTHERS.
Our Articles of Incorporation authorize our Board of Directors to issue
up to 10,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series or
designation of such series, without further vote or action by stockholders. As a
result of the existence of "blank check" preferred stock, potential acquirers of
our company may find it more difficult to, or be discouraged from, attempting to
effect an acquisition transaction with, or a change of control of, our company,
thereby possibly depriving holders of our securities of certain opportunities to
sell or otherwise dispose of such securities at above-market prices pursuant to
such transactions.
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THERE ARE LIMITATIONS ON OUR OFFICERS' AND DIRECTORS' LIABILITIES TO US WHICH
WILL MAKE IT MORE DIFFICULT FOR OUR STOCKHOLDERS TO SUE OUR OFFICERS AND
DIRECTORS.
Under our Articles of Incorporation, our directors are not liable for
monetary damages for breach of fiduciary duty, except in connection with:
- a breach of the director's duty of loyalty to us or our
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct, fraud or a knowing violation of law;
- a transaction from which our director received an improper
benefit; or
- an act or omission for which the liability of a director is
expressly provided under Nevada law.
In addition, our Articles of Incorporation provide that we must
indemnify our officers and directors to the fullest extent permitted by Nevada
law for all expenses incurred in the settlement of any actions against such
persons in connection with their having served as officers or directors.
REQUIRED DISCLOSURE CONCERNING TRADING OF PENNY STOCKS OR LOW-PRICED SECURITIES
WILL REDUCE THE LIQUIDITY OF OUR COMMON STOCK.
Our common stock does not currently trade on any over-the-counter market
or exchange. Although we have applied for listing on the American Stock
Exchange, there can be no assurance our application will be granted. If we are
unable to list on the American Stock Exchange, we will apply for listing on the
Electronic Bulletin Board. If the common stock is cleared for trading on the
Electronic Bulletin Board, it will be subject to rules that regulate
broker-dealer practices in connection with transactions in "penny stocks." The
Securities and Exchange Commission has adopted regulations that define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require the delivery by the
broker-dealer, prior to the transaction, of a disclosure schedule prepared by
the SEC relating to the penny stock market. In addition, the broker-dealer,
subject to certain exceptions, must make an individualized written suitability
determination for the purchase of a penny stock and receive the purchaser's
written consent prior to the transaction. The broker-dealer also must disclose
the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. These
requirements may severely limit the market liquidity of our common stock and the
ability of our stockholders to sell their shares should a market develop.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations about future events.
These forward-looking statements are
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subject to risks, uncertainties and assumptions about us which are discussed in
the Risk Factors section above as well as throughout this prospectus. In light
of these risks, uncertainties and assumptions, any forward-looking events
discussed in this prospectus might not occur.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our common
stock being offered by the selling stockholders.
SELECTED FINANCIAL DATA
The following financial data with respect to the years ended December
31, 2003 and 2004 has been derived from our audited consolidated financial
statements. The data with respect to the six-month periods ended June 30, 2004
and 2005 has been derived from our unaudited consolidated financial statements.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes included elsewhere in
this prospectus.
STATEMENT OF OPERATIONS DATA
<Table>
<Caption>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2004 2003 2005 2004
------------ ------------ ------------ ------------
Total Revenue $ 5,671,269 $ 4,399,777 $ 2,544,494 $ 2,586,492
Net income $ 612,521 $ 1,134,429 $ 409,283 $ 631,142
Net income
per share(1) $ 0.04 $ 0.07 $ 0.02 $ 0.03
</Table>
(1) Based upon our 17,027,328 shares of common stock issued in exchange for
Shaanxi's 100,000,000 shares of common stock in accordance with our
merger with Shaanxi. Although we were not incorporated in Nevada until
November 3, 2004, the merger has been treated as a reverse acquisition
for financial reporting purpose and the historical stockholders' equity
accounts have been retroactively restated to reflect the issuance of the
17,027,328 shares since the periods presented, i.e. as of January 1,
2003. See Note 1 to our financial statements for more information.
BALANCE SHEET DATA
<Table>
<Caption>
DECEMBER 31, JUNE 30,
--------------------------------------------------
2004 2003 2005
-------------- -------------- --------------
Working capital $ (7,182,302) $ (3,469,374) $ (8,056,217)
Total assets $ 21,797,538 $ 20,242,296 $ 23,271,174
Total liabilities $ 7,699,023 $ 5,274,695 $ 8,733,376
Stockholders' equity $ 14,128,515 $ 14,967,601 $ 14,537,798
</Table>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial statements
and the related notes included elsewhere in this prospectus. Our financial
statements have been prepared in accordance with U.S. GAAP. In addition, our
financial statements and the financial data included in this prospectus reflect
our reorganization and have been prepared as if our current corporate structure
had been in place throughout the relevant periods. The following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
OVERVIEW
We own and operate the Taohuayuan Inn hotel and resort located in the
city of Xi'an, province of Shaanxi, in the PRC. The Taohuayuan Inn has 23
courtyards with 146 rooms and 292 beds.
We manage the DongJin Taoyuan Villas, a hotel and resort property
approximately 10 miles from downtown Xi'an. DongJin Taoyuan Villas has 84 rooms
and 168 beds.
We also manage a chain of three traditional Chinese restaurants. Two of
the restaurants are in Xi'an, one is in Beijing, and one is in Harbin.
We receive fees for managing the DongJin Taoyuan Villas and the four
restaurants. The agreements relating to the management of these properties are
discussed in more detail in the "Business" section of this prospectus.
Room rates in the Shaanxi province are established by the Shaanxi Price
Bureau. Room rates are established for each hotel or resort in the Shaanxi
Province and are based upon a number of factors, including the quality of the
property and amenities offered. Room rates may be changed at any time by the
Shaanxi Price Bureau based upon economic conditions in China.
Our business is not seasonal in nature.
RESULTS OF OPERATION FOR THE SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO JUNE 30,
2004
Key performance indicators which we use to manage our business and to
assess future operating results are shown below:
12
<Page>
<Table>
<Caption>
CATEGORY DECREASE OR INCREASE PERCENTAGE
-------- -------------------- ----------
Operating Revenues Decrease $41,998 (2%)
Operating Expenses Decrease $1,039 (0%)
Non-Operating Expense Increase $184,827 53%
Income Tax Decrease $3,927 (1%)
Net Income Decrease $221,859 (35%)
</Table>
- - OPERATING REVENUES
<Table>
<Caption>
SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, INCREASE OR
CATEGORY 2005 US$ 2004 US$ DECREASE US$ PERCENTAGE
- -----------------------------------------------------------------------------------------------------
Catering Services 1,057,140 1,064,342 Decrease $7,202 (1%)
Hotel and Related Services 761,551 823,201 Decrease $61,650 (7%)
Management Fees 725,803 698,949 Increase $26,854 4%
--------- ---------
Total 2,544,494 2,586,492 Decrease $41,998 (2%)
========= =========
</Table>
The decrease in Hotel and Related Services Income was the primary factor
in the decline in operating revenues. Three heavy snows and cold weather
resulted in less leisure travel in 2005. Second, in 2005 all levels of
governments and state-owned companies reduced unnecessary conferences to improve
efficiency. As a result, our occupancy rate for the first quarter of 2005 was
52% compared to 78% during the first quarter of 2004.
- - OPERATING EXPENSES
<Table>
<Caption>
SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, INCREASE OR
CATEGORY 2005 US$ 2004 US$ DECREASE US$ PERCENTAGE
- -----------------------------------------------------------------------------------------------------
Depreciation 248,016 252,157 Decrease 4,141 (2%)
Raw material and
consumables used 409,801 424,007 Decrease 14,206 (3%)
Salaries, Wages and
Allowances 160,892 146,736 Increase 14,156 10%
General and Administrative
expenses 232,418 167,969 Increase 64,449 38%
Other taxes 146,324 207,621 Decrease 61,297 (30%)
--------- ---------
Total 1,197,451 1,198,490 Decrease 1,039 (0%)
========= =========
</Table>
The cost of our raw materials and consumables for the six-months ended
June 30, 2005 declined from that for the six-month period ended June 30, 2004
due to better inventory controls which we implemented in 2005.
13
<Page>
Salaries, Wages and Allowances increased due to hiring new management
personnel and increased wages of power station engineers.
General and Administrative expenses increased due to a substantial
increase in the price of fuel and electricity. A coal-mine in the Shaanxi
province closed for several months in 2005 leading to a significant drop in
supplies of coal and an increase in the price of fuel and electricity. Secondly,
the consumption of coal and the cost of fuel increased due to the cold winter in
2005. We also hosted more events during the 2005 spring festival resulting in
the increased use of electricity.
Other taxes decreased since we became a foreign owned enterprise in
December 2004 and were no longer required to pay urban construction, maintenance
and education taxes.
- - NON-OPERATING INCOME (EXPENSE)
<Table>
<Caption>
SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, INCREASE OR
CATEGORY 2005 US$ 2004 US$ DECREASE US$ PERCENTAGE
- -----------------------------------------------------------------------------------------------------
Interest income 208 636 Decrease 428 (67%)
Sundry income 9,546 56,390 Decrease 46,844 (83%)
Surcharge on taxes (542,321) (404,766) Increase 137,555 34%
--------- -----------
Total (532,567) (347,740) Increase 184,827 53%
========= ===========
</Table>
We have certain arrangements with the local government which provide
that our total taxes payable, including the PRC enterprise income and business
tax, is subject to a maximum of US$120,967 per year. Since this arrangement may
not be in compliance with national laws and regulations in the PRC we made
accruals for all taxes which may be due in accordance with PRC laws and
regulations, together with interest on the unpaid taxes at a rate of 0.05% per
day, compounded daily.
- - INCOME TAX
Income tax decreased due to the decrease in our revenues. Our effective
tax rates were 50% and 39% respectively for the six-month periods ended June 30,
2005 and 2004. The difference between the effective tax rate and the PRC
enterprise income tax rate is mainly due to the surcharge on taxes which we are
accruing and which is not deductible for PRC enterprise income tax purposes.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 COMPARED TO DECEMBER
31, 2003
Key performance indicators which we use to manage our business and to
assess future operating results are shown below:
14
<Page>
<Table>
<Caption>
CATEGORY DECREASE OR INCREASE PERCENTAGE
-------- -------------------- ----------
Operating Revenues Increase $1,271,492 29%
Operating Expenses Increase $1,234,755 54%
Non-Operating Expense Increase $613,794 377%
Income Tax Decrease $55,149 7%
Net Income Decrease $521,908 46%
</Table>
- - OPERATING REVENUES
<Table>
<Caption>
2004 2003 INCREASE
CATEGORY US$ US$ US$ PERCENTAGE
- -------- --- --- --- ----------
Catering Services Income 2,607,094 1,842,118 764,976 42%
Hotel and Related Service Income 1,658,536 1,491,938 166,598 12%
Management Fee Income 1,405,639 1,065,721 339,918 32%
--------- --------- ---------
Total 5,671,269 4,399,777 1,271,492 29%
========= ========= =========
</Table>
Our Catering Services Income and Hotel and Related Services Income
increased due to the recovery of the economy from the SARS epidemic and a
resulting increase in tourism in China, enhanced marketing and promotional
activities, improved service and new menu items. In addition, a construction
site opened close to our hotel in Xi'an in 2004 and workers frequented our
restaurant.
Management fee income increased due to the recovery of the economy from
the SARS epidemic and the change in the basis of calculating management fees,
which was revised from 10% of the operating revenue of the Dongjin Taoyuan
Villas and the Wenhao restaurants in 2003 to a fixed amount in 2004.
- - OPERATING EXPENSES
<Table>
<Caption>
INCREASE OR
CATEGORY 2004 2003 DECREASE PERCENTAGE
- -------- ---- ---- -------- ----------
Depreciation 498,624 503,661 (5,037) (1%)
Raw materials and consumables used 992,954 754,352 238,602 32%
Salaries, wages and allowances 285,910 308,019 (22,109) (8%)
General and administrative expenses 1,316,660 467,737 848,923 182%
Other taxes 427,325 252,949 174,376 69%
--------- --------- ---------
Total 3,521,473 2,286,718 1,234,755 54%
========= ========= =========
</Table>
Depreciation remained relatively constant since there were no major
additions during the year.
The cost of raw materials and consumables increased in line with the
increase in catering, hotel and related services income.
15
<Page>
Following improved efficiency in our operations, salaries, wages and
allowances decreased as we were able to reduce the number of our employees from
318 in 2003 to 293 in 2004.
General and administrative expenses increased due to higher financial
consulting, legal, and auditing expenses associated with filing our registration
statement with the Securities and Exchange Commission.
Other taxes increased as a result of an increase in revenues and a
special tax reduction during the SARS period which was only effective from May
to September of 2003.
- - NON-OPERATING INCOME (EXPENSE)
<Table>
<Caption>
INCREASE OR
CATEGORY 2004 2003 DECREASE US$ PERCENTAGE
- ---------------------------------------------------------------------------------------
US$ US$
Interest income 1,862 296,805 Decrease 294,943 94%
Sundry income 31,017 62,170 Decrease 31,153 50%
Surcharge on taxes (809,532) (521,834) Increase 287,698 55%
--------- ---------
Total (776,653) (162,859)
========= =========
</Table>
Interest income in 2003 ($296,745) was earned from Shaanxi New
Taohuayuan Economy Trade Co., Ltd., our largest stockholder. Shaanxi New
Taohuayuan owed us money for management fees ($115,816) and a loan from us
($855,998). Interest was charged on the outstanding balance due from Shaanxi New
Taohuayuan at an average rate of 7.9% for the year ended December 31, 2003. No
interest was charged for the year ended December 31, 2004 or the six months
ended June 30, 2005.
Sundry income decreased as less sales of scrap materials were made
during the year ended December 31, 2004.
The Surcharge on taxes represents interest, computed at the rate of
0.05% per day compounded daily, which we are accruing on taxes that we may have
to pay. The increase was due to the accumulation of additional unpaid taxes in
2004.
- - INCOME TAX
The effective tax rates were 55% and 42% for the year ended December 31,
2004 and 2003 respectively. The difference between the effective tax rate and
the PRC enterprise income tax rate mainly represented the accrued surcharge on
taxes which is not deductible in computing PRC enterprise income tax.
16
<Page>
LIQUIDITY AND CAPITAL RESOURCES
Our material sources (uses) of cash during the following periods were:
<Table>
<Caption>
Six Months
Year Ended Ended
December 31, 2004 June 30, 2005
----------------- -------------
Cash provided by operations $ 4,673,003 $ 1,439,775
Purchase of property, plant and equipment (194,026) (5,811)
Payment for land use rights (3,084,665) (1,451,607)
Other (8,505) --
Dividends (1,717,134) (23,163)
</Table>
As discussed in the "Business" section of this Prospectus, we intend to
develop an 848 acre commercial and residential development in Lantian, a city
located approximately 23 miles from Xi'an and a 150 room hotel and resort in
Xi'an. We have not started actual construction work on these projects.
Expenditures as of June 30, 2005 have primarily been for the acquisition of land
use rights for the projects.
We have a written arrangement with the local government which provides
that the total taxes payable by us, including the PRC enterprise income tax and
business tax, is subject to a maximum amount of US$120,967 per year. Although we
do not have a legal opinion in this regard, we believe this arrangement may not
be in strict compliance with national laws and regulations in the PRC.
Accordingly, we have accrued all taxes which may be due in accordance with
relevant national and local laws and regulations in the PRC, together with a
surcharge for interest that may be levied on the unpaid taxes at a rate of 0.05%
per day, compounded daily. If the PRC taxing authority demands payment of all
taxes and interest which they claim are due we believe that we will be able to
pay the amounts owed in installments with cash from our operations.
Based upon the foregoing, our future capital requirements are:
<Table>
<Caption>
Projected
Activity Time Frame Estimated Cost
-------- ---------- --------------
Pay remaining amount for land use rights
for Lantian project 12/05 $ 4,085,000
Construction and development costs - Lantian project 2007-2012 $ 44,000,000
Construction and development costs - New Hanian project 2006-2007 $ 4,840,000
Accrued taxes Unknown $ 7,889,000
</Table>
We have financed our operations to date through the sale of our common
stock and cash generated by our operations. As of June 30, 2005 expenditures for
the Lantian and New Hainan projects have been funded with cash from our
operations and proceeds from the sale of our common stock. We expect to finance
the remaining costs for the Lantian and New Hainan projects through cash from
our operations and loans. Loans would be collateralized by the
17
<Page>
property and issued in conjunction with the government. However, required
financing may not be available to us, in which case the development of the
projects may take additional time or we may be unable to develop the projects.
At present, we do not have any lines of credit or other bank financing
arrangements.
Material changes in our assets and liabilities during the two years
ended December 31, 2004 and the six months ended June 30, 2005 were:
- Due From Related Parties - This receivable represents amounts
primarily owed to us by Shaanxi New Taohuayuan Economy Trade Co.,
Ltd. for management fees ($115,816) and a loan ($855,998) we made
to Shaanxi New Taohuayuan and by Shaanxi Wen Hao Zaliang Shifu,
Ltd. for management fees. The receivable was $1,282,551 as of
December 31, 2003, but declined to $499,244 at June 30, 2005 due to
payments made by these two companies. See Note 4(b) to the
financial statements which are part of this Prospectus.
- Prepayments - Represents amounts we have paid since 2003 for the
right to use land for the Lantian project.
- Income Tax Payable, Other Tax Payable and Surcharge on Tax Payable
- Represents amounts we have accrued over the years in the event
our agreements with local PRC government agencies limiting our
liability for certain taxes are found to be invalid.
We do not know of any trends, events or uncertainties that have, or are
reasonably likely to have, a material impact on our short-term or long-term
liquidity other than our need to pay the taxes and surcharges which we have
accrued as liabilities on our June 30, 2005 balance sheet.
RESTRICTIONS ON CURRENCY EXCHANGE
Substantially all of our projected revenues and operating expenses are
denominated in Renminbi. The Renminbi is currently freely convertible under the
"current account", which includes dividends, trade and service-related foreign
exchange transactions, but not under the "capital account", which includes
foreign direct investment and loans.
We may purchase foreign exchange for settlement of "current account
transactions", including payment of dividends to our shareholders, without the
approval of the State Administration for Foreign Exchange. We may also retain
foreign exchange in our current account, subject to a ceiling approved by the
State Administration for Foreign Exchange, to satisfy foreign exchange
liabilities or to pay dividends. However, the Chinese government may change its
laws or regulations and limit or eliminate our ability to purchase and retain
foreign currencies in the future.
Since a significant amount of our future revenues will be denominated in
Renminbi, the existing and any future restrictions on currency exchange may
limit our ability to utilize revenues generated in Renminbi to fund any business
activities outside China or fund expenditures denominated in foreign currencies.
18
<Page>
RESERVES
In accordance with current Chinese laws, regulations and accounting
standards, we are required to set aside as a general reserve at least 10% of our
respective after-tax profits. Appropriations to the reserve account are not
required after these reserves have reached 50% of our registered capital. These
reserves are created to fund potential operating losses and are not
distributable as cash dividends. We are also required to set aside between 5% to
10% of our after-tax profits to the statutory public welfare reserve. In
addition and at the discretion of our directors, we may set aside a portion of
our after-tax profits for enterprise expansion funds, staff welfare and bonus
funds and a surplus reserve. These statutory reserves and funds can only be used
for specific purposes and may not be used for dividends.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare financial statements in conformity with U.S. GAAP, which
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities on
the date of the financial statements, and the reported amounts of revenue and
expenses during the financial reporting period. We continually evaluate these
estimates and assumptions based on the most recently available information, our
own historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Since the use of estimates is an
integral component of the financial reporting process, actual results could
differ from those estimates. Some of our accounting policies require higher
degrees of judgment than others in their application. We consider the policies
discussed below to be critical to an understanding of our financial statements
as their application assists management in making their business decisions
REVENUE RECOGNITION
We generally recognize service revenues when persuasive evidence of an
arrangement exists, services are rendered, the fee is fixed or determinable, and
collectibility is probable. Service revenues are recognized net of discounts.
FOREIGN CURRENCY TRANSLATION
We consider Renminbi as our functional currency as a substantial portion
of our business activities are based in Renminbi ("RMB"). However, we have
chosen the United States dollar as our reporting currency.
Transactions in currencies other than the functional currency during the
year are translated into the functional currency at the applicable rates of
exchange prevailing at the time of the transactions. Monetary assets and
liabilities denominated in currencies other than the functional currency are
translated into the functional currency at the applicable rates of exchange in
effect at the balance sheet date. Exchange gains and losses are recorded in the
statements of operations.
19
<Page>
For translation of financial statements into the reporting currency,
assets and liabilities are translated at the exchange rate at the balance sheet
date, equity accounts are translated at historical exchange rates, and revenues,
expenses, gains and losses are translated at the weighted average rates of
exchange prevailing during the period. Translation adjustments resulting from
this process are recorded in accumulated other comprehensive income (loss)
within stockholders' equity.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated at cost less accumulated
depreciation.
The cost of an asset consists of its purchase price and any directly
attributable costs of bringing the asset to its present working condition and
location for its intended use. Expenditures incurred after the assets have been
put into operation, such as repairs and maintenance, are normally recognized as
an expense in the period in which they are incurred. In situations where it can
be clearly demonstrated that expenditure has resulted in an increase in the
future economic benefits expected to be obtained from the use of the assets, the
expenditure is capitalized.
When assets are sold or retired, their costs and accumulated
depreciation are eliminated from the accounts and any gain or loss resulting
from their disposal is included in the statement of operations.
Depreciation is calculated to write off the cost of property, plant and
equipment over their estimated useful lives as set out below, from the date on
which they become fully operational and after taking into account their
estimated residual values, using the straight-line method.
BUSINESS
CURRENT OPERATIONS
TAOHUAYUAN INN
We own and operate the Taohuayuan Inn hotel and resort located in the
northern suburbs of the city of Xi'an, province of Shaanxi in the PRC. The hotel
is approximately 10 miles from downtown Xi'an and is readily accessible to
downtown Xi'an by freeway. The Taohuayuan Inn is a PRC rated five-star hotel
designed in the traditional Chinese village compound style in which six to eight
rooms and one suite are located around individual courtyards. There are a total
of 23 courtyards in the hotel representing 146 rooms and approximately 292 beds.
The population of Shaanxi province is approximately 36,000,000 people
and the population of the city of Xi'an is approximately 6,000,000 people. Xi'an
is the capital of Shaanxi province and is located approximately 800 miles
southwest of Beijing. Xi'an is a well-known tourist destination and is a center
of higher education in the PRC with 46 public universities and 35 special
purpose colleges located within Shaanxi province. Xi'an is also a well-known
historical city considered to be one of four major tourist destinations in the
PRC. Tourists are
20
<Page>
drawn to the city because 13 Chinese dynasties built their capital there and
tourist attractions include the tombs of 71 emperors and the well-known terra
cotta soldiers attraction.
The Inn is a full-service hotel with five-star amenities including
automated air conditioning and heating systems, television, telephone,
fully-equipped bathrooms, a gym and health club, swimming pool, fishing gardens,
beauty and hair salons, restaurants, steam baths, tea services, karaoke
services, mini bars and related guest services.
The hotel employs 300 persons organized into four departments. A
production department which includes food and beverage, housekeeping and
entertainment divisions, a sales department, an administration department which
includes hotel managers, a human resource division, security division, finance
division and a general hotel management department. The hotel employees are
unionized and we believe our relations with our employees are satisfactory.
The Taohuayuan Inn property consists of 163,611 square feet of buildings
located on approximately 10 acres of land. The buildings are owned by us but the
underlying real estate (as it is throughout the PRC) is owned by the government
and provided to us under land use rights through the year 2065. We paid a
one-time fee of $1,531,000 for the land use rights covering the real estate
underlying the Taohuayuan Inn. The land use rights permit us to operate a hotel
or resort on the property. There is no restriction on our ability to transfer
our land use rights.
The Taohuayuan Inn attracts both business and leisure travelers seeking
upscale amenities and quality designed and decorated rooms at competitive
prices, all under the design of a traditional Chinese inn. The average room
occupancy rate in 2004 was 79% and the average daily room rate for 2004 was
$35.60.
We price our room rates at approximately 20% below that of competitive
hotels in the Xi'an metropolitan area. Our room rates are less than those of our
primary competitors because we offer traditional Chinese-style accommodations
rather than the more expensive western accommodations which are offered by our
competitors.
We market the Taohuayuan Inn by emphasizing our traditional Chinese
design and through organizing and offering to our customers free entertainment
and music shows in the theme of traditional Chinese festivals and folk art.
Advertising includes magazine and other print media and communications with
travel agencies.
DONGJIN TAOYUAN VILLAS
In January 2004 we entered into a five year management agreement to
manage DongJin Taoyuan Villas, a hotel and resort property in the outskirts of
Xi'an approximately 10 miles from downtown. We have managed the property, under
similar management agreements, since 1997. . Vacations villas, also known as
vacation villages, would generally be considered in the U.S. as destination
resort and convention hotels. DongJin Taoyuan Villas, which is owned by Shaanxi
New Taohuayuan Economy Trade Co., Ltd., our largest stockholder, is a
self-contained hotel property covering 75 acres and providing most of the
recreational amenities required for a family staying on the property for a week
or longer. The hotel covers 15 acres and is comprised of 17
21
<Page>
buildings with 84 rooms and 168 beds. Room rates range from $43 to $120 per
night. The hotel provides the same facilities, services and amenities as the
Taohuayuan Inn and also offers traditional Chinese opera shows.
Under the terms of the management agreement with Shaanxi New Taohuayuan
Economy Trade Co., Ltd. we receive a fixed fee of $423,216 annually plus a bonus
of 15% of the excess of actual revenue over targeted revenue in exchange for
providing all services relating to the operation of the property. Targeted
revenue was $319,354 in 2003, $423,385 in 2004 and is $423,385 for the twelve
months ending December 31, 2005. We did not achieve targeted revenues in 2003 or
2004 and did not earn a bonus for managing this property. As of August 31, 2005,
revenue from this property was approximately $187,499. Refer to Note 4(c) to our
financial statements for information concerning the amount we have received for
managing this hotel and resort.
Our agreement for the management of this property does not contain any
termination provisions, other than those which are typically found in contracts
and which are based upon a breach of contract. The management agreement may be
renewed or amended with our consent and that of Shaanxi New Taohuayuan Economy
Trade Co., Ltd.
WENHAO RESTAURANT MANAGEMENT
In January 2004 we entered into a five year management agreement with
Shaanxi Wenhao Zaliang Shifu, Ltd., an affiliate, to manage a chain of three
traditional Chinese restaurants in the PRC. We have managed restaurants for this
company since 1997. Two of the restaurants are in Xi'an, and one is in Beijing,
and one is in Haerbin. The Wenhao restaurants serve a traditional Chinese
village cuisine with emphasis on fresh and healthful foods and ingredients such
as fresh fruits and vegetables and grains.
Under the terms of the management agreement, we receive a management fee
of $1,027,811 plus a bonus of 15% of the excess of actual revenue over targeted
revenue in exchange for providing all services relating to the operation of the
restaurants. We are fully responsible for the operation of the restaurants.
Targeted revenue was $866,851 in 2003, $1,028,222 in 2004 and is $1,028,222 for
the twelve months ending December 31, 2005. We did not achieve targeted revenues
in 2003 or 2004 and did not earn a bonus for managing this property. As of
August 31, 2005, revenue from this property was approximately $404,998. Refer to
Note 4(c) to our financial statements for information concerning the amount we
have received for managing these restaurants.
22
<Page>
Information regarding the managed restaurants is as follows:
<Table>
<Caption>
Gross Revenues
----------------------
Year Six Months
Name of Restaurant Seating Size Ended Ended
and Location Capacity (Square Feet) 12-31-04 6-30-05
- ------------------ -------- ------------- -------- ----------
US$ US$
---------------
Wenhao Restaurant, Xi'an 900 43,056 3,976,276 2,091,482
Wenhao Restaurant, Xi'an 1,000 45,208 4,264,121 2,167,517
Wenhao Restaurant, Beijing 350 11,840 1,698,382 841,678
</Table>
Our agreement for the management of this property does not contain any
termination provisions, other than those which are typically found in contracts
and which are based upon a breach of contract. The management agreement may be
renewed or amended with our consent and that of Shaanxi Wenhao Zaliang Shifu,
Ltd.
FUTURE DEVELOPMENTS AND STRATEGY
We purchased land use rights covering approximately 848 undeveloped
acres in the city of Lantian for a one-time cost of $15,819,000. Lantian is
located approximately 23 miles from Xi'an. The land use rights, which expire in
2045, permit us to use the land to build a mixed-use development that will
include condominium units, hotel rooms, single family residences, educational
facilities and commercial developments. As of June 30, 2005 project expenditures
were $11,734,000 for the land use rights and $1,331,000 for preliminary planning
and design. We anticipate that the remaining costs to develop the project,
excluding the remaining $4,085,000 payment for the land use rights, will be
approximately $44,000,000 over five years. We expect to begin construction on
the property in 2007. We will supervise the design, construction and development
of this project. We will operate the project once it is complete.
We have also obtained land use rights covering approximately 7.5
undeveloped acres in Xi'an for a one time cost of $1,228,000. The land use
rights, which expire in 2037, permit us to build a new 150 room, 270 bed, hotel
and resort on the property. The new development, named the New Hainan hotel and
resort, will be water oriented with the hotel surrounding a one-acre pool.
Smaller pools and beaches will compliment the main pool. As of June 30, 2005
project expenditures were $1,228,000 for the land use rights. We expect to
complete the New Hainan hotel and resort project in 2007 and commence operations
at the end of 2007. The remaining costs to develop the project are expected to
be approximately $4,840,000. We will supervise the design, construction and
development of this project. We will operate the project once it is complete.
As of June 30, 2005 expenditures for the Lantian and New Hainan projects
have been funded with cash from our operations and proceeds from the sale of our
common stock. We expect to finance the remaining costs for the Lantian and New
Hainan projects through cash from our operations and loans. Loans would be
collateralized by the property and issued in conjunction with the government. As
of August 31, 2005 we did not have any firm commitments
23
<Page>
from any third party with respect to financing either project. If required
financing is not be available the development of the projects may take
additional time or we may be unable to develop the projects.
COMPETITION
There are numerous upscale hotels in the Xi'an metropolitan area. We
believe our Taohuayuan Inn ranks as one of the top ten hotels in Xi'an.
Competition among hotels primarily involves the age and location of the hotel
and the quality of services provided, since amenities tend to be consistent
among all upscale properties. Our competitors all have recognized trade names,
international reservation systems, greater resources and longer operating
histories than we, and accordingly, we are at a competitive disadvantage in
these areas. However, we offer the only traditional upscale Chinese hotels,
offer similar amenities at slightly lower prices and believe that we can
continue to compete successfully in the hotel industry.
The DongJin Taoyuan Vacation Villas which we manage competes with three
other vacation village or convention-style hotels in the Shaanxi area. Each of
these properties is independently owned, not part of a franchise or reservation
system, and is located outside the market area of our hotel.
The three Wenhao restaurants compete with numerous mid-priced
restaurants in their respective markets. We believe the Wenhao restaurants
successfully compete due to their emphasis on menu items from China's Yellow
River Valley.
PRC LAWS AND REGULATIONS AFFECTING OUR BUSINESS
We are regulated in accordance with the PRC's Foreign Invested
Enterprise Law and Wholly Foreign-Owned Enterprise Law, or WFOE Law. Article 8
of the WFOE Law provides that an enterprise with foreign capital meets the
conditions for being considered a legal person under PRC law and shall acquire
the status of a PRC legal person, in accordance with the law.
Further, the WFOE Law provides in Article 4 that the investments of a
foreign investor in the PRC, the profits it earns and its other lawful rights
and interests are protected by PRC law. Article 5 of the WFOE Law also states
that the PRC cannot nationalize or requisition any enterprise with foreign
capital. Under special circumstances, when public interest requires, enterprises
with foreign capital may be requisitioned by legal procedures and appropriate
compensation must be made.
The first two provisions set forth above reflect the principle that the
PRC must protect the interests of the foreign investor. The third provision
reflects the power of all national governments, including the United States, to
nationalize private property under certain circumstances. Those Articles,
combined with the Foreign Invested Enterprise laws, provide that the PRC
government cannot have an intrusive role in the affairs of a Foreign Invested
Enterprise company. To the contrary, those laws place a continuing duty on the
government to ensure that the rights of foreign investors in Foreign Invested
Enterprise companies, as expressed in the approved provisions of Articles of
Association, are protected and preserved.
24
<Page>
THE PRC LEGAL SYSTEM
The practical effect of the PRC's legal system on our business
operations in the PRC can be viewed under two separate but intertwined
considerations.
First, as a matter of substantive law, the Foreign Invested Enterprise
laws provide significant protection from government interference. In addition,
these laws guarantee the full enjoyment of the benefits of contracts to Foreign
Invested Enterprise participants. These laws, however, do impose standards
concerning corporate formation and governance, which are not qualitatively
different from the corporation laws of U.S. states.
Similarly, the PRC's accounting laws mandate accounting practices, which
are not consistent with U.S. Generally Accepted Accounting Principles. The PRC
accounting laws require that an annual "statutory audit" be performed in
accordance with PRC's accounting standards and that the books of account of
Foreign Invested Enterprises are maintained in accordance with PRC accounting
laws. Article 14 of the PRC's Wholly Foreign-Owned Enterprise Law requires a
Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and
statements to designated financial and tax authorities, at the risk of business
license revocation. As a practical matter, a Foreign Invested Enterprise must
retain a local PRC accounting firm that has experience with both the PRC
standards and U.S. Generally Accepted Accounting Principles. This type of
accounting firm can serve the dual function of performing the annual PRC
statutory audit and preparing the Foreign Invested Enterprise's financial
statements in a form acceptable for an independent U.S. certified public
accountant to issue an audit report in accordance with U.S. Generally Accepted
Accounting Standards.
Second, while the enforcement of substantive rights may appear less
clear than U.S. procedures, the Foreign Invested Enterprises and Wholly
Foreign-Owned Enterprises are PRC registered companies which enjoy the same
status as other PRC registered companies in business-to-business dispute
resolution. Therefore, as a practical matter, although no assurances can be
given, the PRC's legal infrastructure, while different in operation from its
U.S. counterpart, should not present any significant impediment to the operation
of Foreign Invested Enterprises.
EARNINGS AND DISTRIBUTIONS OF THE FIE'S
The Wholly-Foreign Owned Enterprise laws provide for and guarantee the
distribution of profits to foreign investors in PRC Foreign Invested
Enterprises.
Article 19 of the PRC's Wholly Foreign Owned-Enterprise Law provides
that a foreign investor may remit abroad profits that are earned by a Foreign
Invested Enterprise, as well as other funds remaining after the enterprise is
liquidated.
25
<Page>
TAXES
All of our income is generated in the PRC and is subject to a corporate
income tax rate of 33% (30% state income tax and 3% local income tax).
Because PRC business is a controlled foreign corporation, for U.S.
federal income tax purposes, we may be required to include it in our gross
income for U.S. tax purposes:
- Those companies' "Subpart F" income, which includes certain passive
income and income from certain transactions with related persons,
whether or not this income is distributed to it; and
- Increases in those companies' earnings invested in certain U.S.
property.
Based on our current and expected income, assets and operations, it
believes that it will not have significant U.S. federal income tax consequences
under the controlled foreign corporation rules.
REQUIRED STATUTORY RESERVE FUNDS
In accordance with various regulations in the PRC, we as a Foreign
Invested Enterprise, can distribute our after tax profits only after making
transfers to certain statutory reserves.The order of distribution to investors
is:
- Enterprise or corporate income tax payments;
- Application to eliminate prior year losses;
- Transfers to three statutory funds per regulations; and
- Distribution to investors.
Although we do not intend to pay dividends, the requirements pertaining
to funding statutory reserves may limit our ability to pay dividends in the
future.
POLITICAL AND TRADE RELATIONS WITH THE UNITED STATES
Political and trade relations between the U.S. and the PRC government
within the past five years have been volatile and may continue to be in the
future. Major causes of this volatility include the U.S.'s considered revocation
of the PRC's Most Favored Nation trade status, illegal transshipments of
textiles from the PRC to the U.S., issues surrounding the sovereignty of Taiwan,
and the U.S.'s bombing of the PRC's embassy in Yugoslavia. While these factors
have had no direct connection to our operations, other on-going causes of
volatility, including the protection of intellectual property rights within the
PRC and sensitive technology transfer from the U.S. to the PRC have closer
potential connection to our operations. There can be no assurance that the
political and trade ramifications of these causes of volatility or the emergence
of new causes of volatility will not cause difficulties in our operations in the
PRC marketplace.
26
<Page>
ECONOMIC REFORM ISSUES
Although the majority of productive assets in the PRC are owned by the
PRC government, in the past several years the government has implemented
economic reform measures that emphasize decentralization and encourage private
economic activity. Because these economic reform measures may be inconsistent or
ineffectual, there are no assurances that:
- We will be able to capitalize on economic reforms;
- The PRC government will continue its pursuit of economic reform
policies;
- The economic policies, even if pursued, will be successful;
- Economic policies will not be significantly altered from time to
time; and
- Business operations in the PRC will not become subject to the risk
of nationalization.
Since 1978, the PRC government has reformed its economic systems.
Because many reforms are unprecedented or experimental, they are expected to be
refined and improved. Other political, economic and social factors, such as
political changes, changes in the rates of economic growth, unemployment or
inflation, or in the disparities in per capita wealth between regions within the
PRC, could lead to further readjustment of the reform measures. This refining
and readjustment process may negatively affect our operations.
Recently, there have been indications that rates of in the PRC inflation
have increased. In response, the PRC government recently has taken measures to
curb this excessively expansive economy. These measures have included
devaluations of the PRC currency, the Renminbi, restrictions on the availability
of domestic credit, reducing the purchasing capability of certain of its
customers and limited re-centralization of the approval process for purchases of
some foreign products. These austerity measures alone may not succeed in slowing
down the economy's excessive expansion or control inflation, and may result in
severe dislocations in the PRC economy. The PRC may adopt additional measures to
further combat inflation, including the establishment of freezes or restraints
on certain projects or markets.
There can be no assurance that the reforms to the PRC's economic system
will continue or that we will not be adversely affected by changes in the PRC's
political, economic, and social conditions and by changes in policies of the
government, such as changes in laws and regulations, measures which may be
introduced to control inflation, changes in the rate or method of taxation,
imposition of additional restrictions on currency conversion and remittance
abroad, and reduction in tariff protection and other import restrictions.
CURRENCY CONVERSION AND EXCHANGE
The currency in the PRC is designated as the Renminbi ("RMB"). Although
the RMB/U.S. dollar exchange rate has been relatively stable in the past five
years there can be no assurance that the exchange rate will not become volatile
or that the RMB will not be officially devalued against the U.S. dollar by
direction of the PRC government.
Exchange rate fluctuations may adversely affect our financial
performance because of our foreign currency denominated assets and liabilities,
and may reduce the value, translated or
27
<Page>
converted, as applicable into U.S. dollars, of our net fixed assets, our
earnings and our declared dividends. We do not engage in any hedging activities
in order to minimize the effect of exchange rate risks. As of August 31, 2005
the currency exchange rate was 8.11 RMB for each U.S. dollar.
GENERAL INFORMATION
We have a total of 325 employees including our executive officers. Our
employees are unionized and we believe that our relations with our employees are
good.
We believe our properties are adequately insured.
The cost of compliance with environmental laws in China has been, and is
not expected to be, material.
Our website is www.xintaohuayuan.com.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions held by our executive officers and
directors are set forth below.
<Table>
<Caption>
NAME AGE POSITION OFFICER/DIRECTOR SINCE
- ---- --- -------- ----------------------
Chen Jingmin 52 Chairman of the Board of Directors 1997
Cai Danmei 44 Chief Executive Officer, Chief Financial
Officer and a Director 1997
Liu Bo 28 Secretary and a Director 2004
Hu Yangxiong 43 Director 2002
Yang Erping 50 Director 2004
Zhao Jianwen 46 Director 2004
Wang Changzhu 49 Director 2004
</Table>
Our Audit Committee is composed of Messrs. Hu (Chairman), Yang and Zhao.
Our Compensation Committee is comprised of Messrs. Yang (Chairman), Zhao and
Wang. All of these directors are independent directors as defined in Commission
and American Stock Exchange rules.
Directors serve in such capacity until the next annual meeting of our
stockholders and until their successors have been elected and qualified. Our
officers serve at the discretion of our Board of Directors, until their death,
or until they resign or have been removed from office.
CHEN JINGMIN founded us in 1997 and has been our Chairman of the Board
since that date. From 1993 to 1997 he was the General Manager of Shaanxi Wenhao
Zaliang Shifu, Ltd. with which we currently have a management agreement.
28
<Page>
CAI DANMEI has been our Chief Executive Officer and Chief Financial
Officer since our inception in 1997. Since 1993 she has also been an executive
officer of Shaanxi Wenhao Zaliang Shifu, Ltd. with which we have a management
agreement.
LIU BO graduated from Shaanxi Finance and Economics College in 1999. Ms.
Liu Bo was the Corporate Secretary and a Director of Jinhua Group, Ltd. between
2000 and 2004. Since 2004 she has been our Corporate Secretary and a Director.
HU YANGXIONG was employed by Shaanxi Aviation Industry Bureau, a
government agency, as a Senior Accountant and previously as Vice President of
the accounting office from 1991 to 2002. He is a Certified Public Accountant and
since 2002 has acted as an accounting consultant.
YANG ERPING was Secretary to the Governor of Shaanxi Province from 1995
to 2000. From 2000 to 2003 he was the Chief Information Officer for the Shaanxi
Province Government and from 2003 to the present he has been a Vice Professor of
the Xi'an Finance Institute Management School.
ZHAO JIANWEN has been the Chief Secretary of the Shaanxi Folk Artist
Association since 1981.
WANG CHANGZHU has been the Senior Editor and a Director of Shaanxi
Television station since 1983.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NAME SECURITIES
AND OTHER RESTRICTED UNDERLYING ALL
PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S) SARs(#) PAYOUTS($) COMPENSATION($)
- -------------------------------------------------------------------------------------------------------------------
Chen 2004 0 0 0 0 0 0 0
Jingmin 2003 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
</Table>
29
<Page>
<Table>
Cai 2004 2,250
Danmei 2003 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
Liu Bo 2004 1,300
2003 0 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
</Table>
In May 2004 we entered into three-year employment agreements with Mr.
Chen, Ms. Cai and Ms. Liu which provide for annual salaries of $0, $4,500 and
$2,900, respectively. Each employment contract provides that we will pay for the
employee's medical and accident insurance and that the employee will have two
weeks of paid vacation per year. The employment agreements do not revert the
employees from competing with us during or after their employment with us.
PRINCIPAL SHAREHOLDERS
The following table shows, as of the date of this prospectus, the common
stock ownership of (i) each person known by us to be the beneficial owner of
five percent or more of our common stock, (ii) each director individually and
(iii) all officers and directors as a group. Each person has sole voting and
investment power with respect to the shares of common stock shown, and all
ownership is of record and beneficial. The address of each owner is in care of
us at 1# Dongfeng Road, Xi'an Weiyang Tourism Development District, Xi'an,
China.
<Table>
<Caption>
NUMBER PERCENT
NAME OF SHARES OF CLASS
---- --------- --------
Chen Jingmin 154,799(1) .9%
Cai Danmei 52,632 .3%
Liu Bo -- --%
Hu Yangxiong -- --%
Yang Erping -- --%
Zhao Jianwen -- --%
Wang Changzhu -- --%
Shaanxi New Taohuayuan Economy
Trade Co., Ltd. 2,204,025(1) 12.9%
All officers and directors
as a group (7 persons) 2,211,456 14.1%
</Table>
(1) Chen Jingmin controls Shaanxi New Taohuayuan Economy Trade Co., Ltd. and
may be considered the beneficial owner of the shares held by this
company.
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
The persons listed in the following table plan to offer the shares shown
opposite their respective names by means of this prospectus. The owners of the
common stock to be sold by means of this prospectus are referred to as the
"selling shareholders". The selling shareholders
30
<Page>
acquired their shares in exchange for all outstanding shares of Shaanxi New
Taohuayuan Culture Tourism Co., Ltd., a PRC corporation which was merged into us
in December 2004.
The selling shareholders include two of our executive officers, Chen
Jingmin and Cai Danmei and our sole principal stockholder, Shaanxi New
Taohuayuan Economy Trade Co., Ltd., a company controlled by Mr. Jingmin.
We will not receive any proceeds from the sale of the shares by the
selling shareholders. Although we will pay all costs of registering the shares
offered by the selling shareholders the selling shareholders will pay all sales
commissions and other costs of the sale of the shares offered by them.
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Shaanxi New Taohuayuan Economy Trade Co., Ltd. 2,204,025 2,204,025 -- --
Zhang Chen 658,204 658,204 -- --
Du Jinping 642,415 642,415 -- --
Chen Jian 619,195 619,195 -- --
Cai Tu 600,619 600,619 -- --
Shaanxi Kangze Economic and Trade Ltd. 541,796 541,796 -- --
Chen Yuanyuan 432,663 432,663 -- --
He Qingshe 431,115 431,115 -- --
Du Jingling 425,542 425,542 -- --
Du Zhichao 421,672 421,672 -- --
Du Duofeng 390,712 390,712 -- --
Wang Junzhi 380,031 380,031 -- --
Ma Jing 362,848 362,848 -- --
He Li 356,889 356,889 -- --
Liu Guoping 349,071 349,071 -- --
Chen Xiaohui 331,889 331,889 -- --
He Chengchu 317,957 317,957 -- --
Du Jinhuan 313,158 313,158 -- --
Shanaxi Wenhao Restaurant Ltd. 309,598 309,598 -- --
Chen Lingyan 303,406 303,406 -- --
Gao Yuzhu 300,774 300,774 -- --
Liu Lingjun 296,440 296,440 -- --
Dang Wenping 295,820 295,820 -- --
Wu Lianpei 282,663 282,663 -- --
Bai Wenjun 239,938 239,938 -- --
Chen Lingyun 235,294 235,294 -- --
Huang Huanxia 235,294 235,294 -- --
Wei Fengying 201,238 201,238 -- --
He Xianzhang 173,375 173,375 -- --
</Table>
31
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Zhang Xiuli 167,724 167,724 -- --
Chen Jingmin 154,799 154,799 -- --
Liu Ximin 137,616 137,616 -- --
Xie Huanni 88,390 88,390 -- --
Shaanxi Taohuayuan Real Estate
Development Ltd. 77,399 77,399 -- --
Shaanxi Traditional Decoration Ltd. 77,399 77,399 -- --
He Weizhang 75,851 75,851 -- --
Cai Danmei 52,632 52,632 -- --
Zhang Fuyun 46,440 46,440 -- --
Chen Guojing 123,839 123,839 -- --
Liu Xixia 46,440 46,440 -- --
Zhang Shuxun 30,960 30,960 -- --
Nian Jin 26,316 26,316 -- --
Xiong Yinglan 25,542 25,542 -- --
Xie Ani 24,613 24,613 -- --
Gao Yujuan 18,576 18,576 -- --
Zhai Shuanmei 18,111 18,111 -- --
Cai Qian 17,957 17,957 -- --
Yang Yan 15,480 15,480 -- --
Shi Guohua 15,480 15,480 -- --
Xia Liyang 15,480 15,480 -- --
Wang Shiliang 15,480 15,480 -- --
Wang Xiaowan 15,480 15,480 -- --
Min Chuanliu 15,480 15,480 -- --
Li Yong 14,706 14,706 -- --
Ma Minxuan 13,932 13,932 -- --
Wang Dan 13,158 13,158 -- --
Bai ZhiLan 11,455 11,455 -- --
Bai Ningzuo 11,455 11,455 -- --
Chen Liyong 10,836 10,836 -- --
Chen Hongxi 10,681 10,681 -- --
Yang Guangli 10,062 10,062 -- --
Li Zhimei 9,907 9,907 -- --
Hua Wen 9,288 9,288 -- --
Shang Xiaojun 9,288 9,288 -- --
Qiu Rongping 8,514 8,514 -- --
Cai Hang 8,514 8,514 -- --
Chen Donghong 7,740 7,740 -- --
Wang Huying 7,740 7,740 -- --
Yue Dawei 7,740 7,740 -- --
Liu Yuan 7,740 7,740 -- --
</Table>
32
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Cao Guixian 7,740 7,740 -- --
Shi Chunlan 7,740 7,740 -- --
Yang Xiaosi 7,740 7,740 -- --
Shen Jianguo 7,740 7,740 -- --
HuangJuan Huang Juan 7,740 7,740 -- --
Li Cuiying 7,740 7,740 -- --
Yu Jianghua 7,740 7,740 -- --
Yin Mingyan 7,740 7,740 -- --
Meng Chen 7,740 7,740 -- --
Yu Guiying 7,740 7,740 -- --
Sun Di 7,276 7,276 -- --
Wang Wenqing 7,121 7,121 -- --
Tian Xin 6,966 6,966 -- --
Wang Rong 6,966 6,966 -- --
Zhong Yali 6,192 6,192 -- --
Liu Xiaoyan 6,192 6,192 -- --
Li Jun 6,192 6,192 -- --
Cai Jianyu 6,192 6,192 -- --
Gao Wensheng 192 192 -- --
Xiao Xijing 6,192 6,192 -- --
Lu Lijun 6,192 6,192 -- --
Lin Jing 6,192 6,192 -- --
Feng Changxi 6,192 6,192 -- --
Zhu Chanshe 6,192 6,192 -- --
Lv Chengquan 6,192 6,192 -- --
Fu Luchang 6,192 6,192 -- --
Tian Shenmin 5,418 5,418 -- --
Du Shengde 5,418 5,418 -- --
Ma Chaoran 5,418 5,418 -- --
Hou Baoyuan 4,644 4,644 -- --
Feng Qi 4,644 4,644 -- --
Ye Deyuan 4,644 4,644 -- --
Hou Ying 4,644 4,644 -- --
Li Yaocheng 4,644 4,644 -- --
Guo Dong 4,644 4,644 -- --
Chen Xia 4,644 4,644 -- --
Wang Ping 4,644 4,644 -- --
Wang Huaiyou 4,644 4,644 -- --
Zhang Quqing 4,644 4,644 -- --
Li YunE 4,644 4,644 -- --
Zhao Weihai 4,644 4,644 -- --
Xu Bin 4,644 4,644 -- --
</Table>
33
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Yang Caiyu 4,644 4,644 -- --
Yang Qingsu 4,644 4,644 -- --
Ma Zhi 4,644 4,644 -- --
Luo Yao 4,644 4,644 -- --
Zhang Yuhua 4,644 4,644 -- --
Ma Ling 4,644 4,644 -- --
Liu Qiuju 4,334 4,334 -- --
Yu Baoguo 4,180 4,180 -- --
Gou Cairong 4,025 4,025 -- --
Tian Yu 3,870 3,870 -- --
Wei Peng 3,870 3,870 -- --
Xu Qunmou 3,870 3,870 -- --
Zhu Laifeng 3,870 3,870 -- --
Cai Jun 3,870 3,870 -- --
Chen Jian 3,870 3,870 -- --
Yun Dongmei 3,870 3,870 -- --
Li Dongsheng 3,870 3,870 -- --
Zhu Haiqing 3,870 3,870 -- --
He Fengqin 3,870 3,870 -- --
Bai Caihong 3,870 3,870 -- --
Qin Junniu 3,715 3,715 -- --
Ren Zhiping 3,715 3,715 -- --
Zhang Juling 3,715 3,715 -- --
Liu Xiudong 3,560 3,560 -- --
Chen Peng 3,406 3,406 -- --
Xu Hongjun 3,406 3,406 -- --
Yang LiNa 3,251 3,251 -- --
Zhou Chongxiao 3,251 3,251 -- --
Che Yahong 3,096 3,096 -- --
Zhang Baoan 3,096 3,096 -- --
Zhang Shuntang 3,096 3,096 -- --
Wang Hongyan 3,096 3,096 -- --
Ju Xinggui 3,096 3,096 -- --
Zhang Xixia 3,096 3,096 -- --
Wang Huiyun 3,096 3,096 -- --
Zhang Quanming 3,096 3,096 -- --
Tian Mingwang 3,096 3,096 -- --
Guo Xiping 3,096 3,096 -- --
Han Guolong 3,096 3,096 -- --
Zhang Jialan 3,096 3,096 -- --
Zhang Hong 3,096 3,096 -- --
Xi Yaopeng 3,096 3,096 -- --
</Table>
34
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Wang Shefeng 3,096 3,096 -- --
Tang Jing 3,096 3,096 -- --
Liu LanFang 3,096 3,096 -- --
Jiang Hong 3,096 3,096 -- --
Ma Jinxiang 3,096 3,096 -- --
Xu Caichan 3,096 3,096 -- --
Ren Ying 3,096 3,096 -- --
Wu Youyi 3,096 3,096 -- --
Li Xiangfeng 3,096 3,096 -- --
He Qunyang 3,096 3,096 -- --
Wang Weijun 3,096 3,096 -- --
Zhang HuiMin 3,096 3,096 -- --
Gao Binggang 3,096 3,096 -- --
Wang Erhu 3,096 3,096 -- --
Cao Cuiping 3,096 3,096 -- --
Wang Huaijin 3,096 3,096 -- --
Xu Wenhua 3,096 3,096 -- --
Lu Wengui 3,096 3,096 -- --
Kong Lingrong 3,096 3,096 -- --
He Jianxin 3,096 3,096 -- --
Zhai Yu 3,096 3,096 -- --
Zhai Wenxu 3,096 3,096 -- --
Zhang Li 3,096 3,096 -- --
Wang Feng 3,096 3,096 -- --
Zhang Hai 3,096 3,096 -- --
Xu Zhiling 3,096 3,096 -- --
Qiao Guolin 3,096 3,096 -- --
Liu Baohai 3,096 3,096 -- --
Wang Jumei 3,096 3,096 -- --
Chang Chuanping 3,096 3,096 -- --
Chen Yongsheng 3,096 3,096 -- --
Ren Yali 3,096 3,096 -- --
Zhang Hao 3,096 3,096 -- --
Wang Weiwen 3,096 3,096 -- --
Yang Min 3,096 3,096 -- --
Chen Zhengqing 3,096 3,096 -- --
Yin Mingjie 3,096 3,096 -- --
Liu Xiangwu 3,096 3,096 -- --
Wang Yanqiu 3,096 3,096 -- --
Wang ZhongAn 3,096 3,096 -- --
Tang Lin 3,096 3,096 -- --
He Ning 3,096 3,096 -- --
</Table>
35
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Gu Yi 3,096 3,096 -- --
Guo MingAn 3,096 3,096 -- --
Wang Koulao 3,096 3,096 -- --
Zhang Zhiying 3,096 3,096 -- --
Cun Xiaojin 3,096 3,096 -- --
Cheng Qunfang 3,096 3,096 -- --
Hu Yang 3,096 3,096 -- --
Shang Tieshan 3,096 3,096 -- --
Zheng Xiaoping 3,096 3,096 -- --
Zhu Airong 3,096 3,096 -- --
Meng Guizhi 3,096 3,096 -- --
Bai Yulin 3,096 3,096 -- --
Ding Shiyuan 3,096 3,096 -- --
Zhou Zhongmin 2,941 2,941 -- --
Hou Zhiping 2,941 2,941 -- --
Liu Jiancheng 2,786 2,786 -- --
Wu Kangliang 2,786 2,786 -- --
Zhang ChangAn 2,786 2,786 -- --
Li Gongshe 2,786 2,786 -- --
Duan Mengmin 2,632 2,632 -- --
Zhang Youqin 2,477 2,477 -- --
Liu Zhifeng 2,322 2,322 -- --
Li Pinlian 2,322 2,322 -- --
Han Dongmei 2,322 2,322 -- --
Li Peiling 2,322 2,322 -- --
Li Xingju 2,322 2,322 -- --
Ren Jianxin 2,322 2,322 -- --
Feng Guixian 2,322 2,322 -- --
Kong Gangqi 2,322 2,322 -- --
Yang Hongying 2,322 2,322 -- --
Xie Yu 2,322 2,322 -- --
Zhang Aiping 2,322 2,322 -- --
Liu Chunmei 2,322 2,322 -- --
Gao Cunfang 2,322 2,322 -- --
Li Meirong 2,322 2,322 -- --
Tian Yuan 2,322 2,322 -- --
Chen Jianwen 2,322 2,322 -- --
Chen Meihua 2,322 2,322 -- --
Zhai Jianmin 2,322 2,322 -- --
He Beizhan 2,322 2,322 -- --
Sun Jianrong 2,322 2,322 -- --
Ma Li 2,322 2,322 -- --
</Table>
36
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Wang Yali 2,322 2,322 -- --
Wang Yawen 2,322 2,322 -- --
Wang Puxuan 2,322 2,322 -- --
Zhang XiaoPing 2,322 2,322 -- --
Wang Zhonghua 2,322 2,322 -- --
Chen Zheng 2,322 2,322 -- --
Ma Moudi 2,322 2,322 -- --
Gu Jianping 2,322 2,322 -- --
Yang Sujuan 2,167 2,167 -- --
Fu Zongzhi 2,167 2,167 -- --
Zhang Jubin 2,167 2,167 -- --
Liang Lun 2,167 2,167 -- --
Ding Junli 2,012 2,012 -- --
Wang Ling 2,012 2,012 -- --
Zhang Xiling 2,012 2,012 -- --
Feng Jianhuai 2,012 2,012 -- --
Xing Peiling 1,858 1,858 -- --
Zheng Rong 1,858 1,858 -- --
Sun Shuliang 1,858 1,858 -- --
Zhai ZhongAn 1,858 1,858 -- --
Zhang Zongping 1,858 1,858 -- --
Ren Bin 1,858 1,858 -- --
Zhang Chi 1,703 1,703 -- --
Yang Jihu 1,703 1,703 -- --
Yang Shengke 1,703 1,703 -- --
He Ruifang 1,548 1,548 -- --
Zhong Huizhong 1,548 1,548 -- --
Feng Ting 1,548 1,548 -- --
Quan PingAn 1,548 1,548 -- --
Li Guirong 1,548 1,548 -- --
Wang Guixia 1,548 1,548 -- --
Hu Tao 1,548 1,548 -- --
Quan Ningli 1,548 1,548 -- --
Shi Gang 1,548 1,548 -- --
He Shukui 1,548 1,548 -- --
Yang Zongmin 1,548 1,548 -- --
Xue Xinsheng 1,548 1,548 -- --
Li Junhu 1,548 1,548 -- --
Zhang Fan 1,548 1,548 -- --
Liu Ming 1,548 1,548 -- --
Zhang Chujun 1,548 1,548 -- --
Fang Xiangyang 1,548 1,548 -- --
</Table>
37
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<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Hu Xinghua 1,548 1,548 -- --
He Mifang 1,548 1,548 -- --
Yan Ailian 1,548 1,548 -- --
Zhang Guilan 1,548 1,548 -- --
Gou Furong 1,548 1,548 -- --
Wang Xiaohong 1,548 1,548 -- --
Wang Xiaoqiang 1,548 1,548 -- --
Wang Xiaoru 1,548 1,548 -- --
Liu Shuzhen 1,548 1,548 -- --
Bai Jiefeng 1,548 1,548 -- --
Zhang Rui 1,548 1,548 -- --
Zhao XiuQuan 1,548 1,548 -- --
Bo Pingli 1,548 1,548 -- --
Yu YouZhuang 1,548 1,548 -- --
Li Xin 1,548 1,548 -- --
Wang GuoXiang 1,548 1,548 -- --
Xi GuiXiang 1,548 1,548 -- --
Li Jing 1,548 1,548 -- --
Tong Xiaoping 1,548 1,548 -- --
Zhao Junju 1,548 1,548 -- --
Chen Fuzhong 1,548 1,548 -- --
Zhu Suxian 1,548 1,548 -- --
Liu Dahong 1,548 1,548 -- --
Bo Yali 1,548 1,548 -- --
Li Aiju 1,548 1,548 -- --
Liu Yuanyuan 1,548 1,548 -- --
Ma Hujun 1,548 1,548 -- --
Zhang Tihe 1,548 1,548 -- --
Ma Yingming 1,548 1,548 -- --
Yan Hong 1,548 1,548 -- --
Wang Junjian 1,548 1,548 -- --
Cao Qiufen 1,548 1,548 -- --
Wang Hou 1,548 1,548 -- --
Yang Baoling 1,548 1,548 -- --
Zhong Juanli 1,548 1,548 -- --
Zhang Jie 1,548 1,548 -- --
Yang Yuzhen 1,548 1,548 -- --
Duan Guizhen 1,548 1,548 -- --
Lin Shengli 1,548 1,548 -- --
Yuan Xinmin 1,548 1,548 -- --
Du Xuan 1,548 1,548 -- --
Guo Zhijie 1,548 1,548 -- --
</Table>
38
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Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Wang Furong 1,548 1,548 -- --
Xing Guohuo 1,548 1,548 -- --
Jiang Heping 1,548 1,548 -- --
Xue Juxian 1,548 1,548 -- --
Zhang Shiping 1,548 1,548 -- --
Yang WenBao 1,548 1,548 -- --
Niu Xiaoping 1,548 1,548 -- --
Li Qiang 1,548 1,548 -- --
Zhou Xiaoli 1,548 1,548 -- --
Liu Yun 1,548 1,548 -- --
Zhao Yuping 1,548 1,548 -- --
Yu Xuefang 1,548 1,548 -- --
Xin Chongli 1,548 1,548 -- --
Xu Jufeng 1,548 1,548 -- --
Chen Ting 1,548 1,548 -- --
Xu Dong 1,548 1,548 -- --
Guan Shishen 1,548 1,548 -- --
He Yumei 1,548 1,548 -- --
Wang Huixia 1,548 1,548 -- --
He Anyang 1,548 1,548 -- --
HuYan Yifan 1,548 1,548 -- --
Yuan Yinghua 1,548 1,548 -- --
Wang Qiang 1,548 1,548 -- --
Wang Xuewa 1,548 1,548 -- --
Yan Chuping 1,548 1,548 -- --
Si Ke 1,548 1,548 -- --
Wang Wenyu 1,548 1,548 -- --
Liu Xianzheng 1,548 1,548 -- --
Liu Hu 1,548 1,548 -- --
Xu Xuanmin 1,548 1,548 -- --
Liu Wei 1,548 1,548 -- --
Gao Jianguo 1,548 1,548 -- --
Yang Fuqiang 1,548 1,548 -- --
Sun Hepeng 1,548 1,548 -- --
Li Zhongquan 1,548 1,548 -- --
Liu Kuanren 1,548 1,548 -- --
Li Yun 1,548 1,548 -- --
Han Zhou 1,548 1,548 -- --
Dong Bo 1,548 1,548 -- --
Ren Shengli 1,548 1,548 -- --
Shi Heping 1,548 1,548 -- --
Jiao Xianrong 1,548 1,548 -- --
</Table>
39
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<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Liu Yulan 1,548 1,548 -- --
Zhang Yuefeng 1,548 1,548 -- --
Wang Huaiyong 1,548 1,548 -- --
Yang Shufang 1,548 1,548 -- --
Yao Qian 1,548 1,548 -- --
Dai Junliang 1,548 1,548 -- --
Wang Zhengmin 1,548 1,548 -- --
Cui Zhihai 1,548 1,548 -- --
Cui Qiaoyun 1,548 1,548 -- --
Ren Linyao 1,548 1,548 -- --
Lu Qing 1,548 1,548 -- --
Wang Jixiang 1,548 1,548 -- --
Wang Xiaojie 1,548 1,548 -- --
Chen Fenrong 1,548 1,548 -- --
Li Na 1,548 1,548 -- --
Zhang Weifeng 1,548 1,548 -- --
Wang Ying 1,548 1,548 -- --
Zhang Jingbo 1,548 1,548 -- --
Yang Suhua 1,548 1,548 -- --
Li Hui 1,548 1,548 -- --
Chen Xincheng 1,548 1,548 -- --
Jiang Shaobo 1,548 1,548 -- --
Wu Mengzhu 1,548 1,548 -- --
Kong Fangqin 1,548 1,548 -- --
Xu Jianping 1,548 1,548 -- --
Chang Jiarong 1,548 1,548 -- --
Lu Lichong 1,548 1,548 -- --
Zhu Weifeng 1,548 1,548 -- --
Liu Shujian 1,548 1,548 -- --
Gao Hongmei 1,548 1,548 -- --
Wang Wuhong 1,548 1,548 -- --
Ji Huiying 1,548 1,548 -- --
Song Xia 1,548 1,548 -- --
Kou Jianli 1,548 1,548 -- --
Qiu Yujie 1,548 1,548 -- --
Yang Hui 1,548 1,548 -- --
Cao Youcai 1,548 1,548 -- --
Xue Wei 1,548 1,548 -- --
Liu Xian 1,548 1,548 -- --
Zhou Rongli 1,548 1,548 -- --
Shi Zhengshe 1,548 1,548 -- --
Dou Wenhong 1,548 1,548 -- --
</Table>
40
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<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Yang Xinmin 1,548 1,548 -- --
Li Yan 1,548 1,548 -- --
Wang Yongping 1,548 1,548 -- --
Li Chen 1,548 1,548 -- --
Xu Liquan 1,548 1,548 -- --
Wang Peilan 1,548 1,548 -- --
Wang Judi 1,548 1,548 -- --
Wang Anli 1,548 1,548 -- --
Wang Zuozhou 1,548 1,548 -- --
Wang Jun 1,548 1,548 -- --
Chang Chuannan 1,548 1,548 -- --
Zhao Shuling 1,548 1,548 -- --
Nie Yueli 1,548 1,548 -- --
Li Guoqi 1,548 1,548 -- --
Li Yuxia 1,548 1,548 -- --
Xue Qingjun 1,548 1,548 -- --
Liu Daping 1,548 1,548 -- --
Wang Xianmin 1,548 1,548 -- --
Zhang Zongrang 1,548 1,548 -- --
Kong Jinli 1,548 1,548 -- --
Li Ping 1,548 1,548 -- --
Pan Chan 1,548 1,548 -- --
Wang Xi'an 1,548 1,548 -- --
Zhou Zhonghe 1,548 1,548 -- --
Zhang Weimin 1,548 1,548 -- --
Wu Haiguang 1,548 1,548 -- --
Hu Haijun 1,548 1,548 -- --
Yan Huling 1,548 1,548 -- --
Liu Yuanji 1,548 1,548 -- --
Jiang Junling 1,548 1,548 -- --
Tu Fengping 1,548 1,548 -- --
Zhang Anzhao 1,548 1,548 -- --
Li Yumin 1,548 1,548 -- --
Cui Yubin 1,548 1,548 -- --
Qiang Liming 1,548 1,548 -- --
Zhang Chengcui 1,548 1,548 -- --
Yin Mingjian 1,548 1,548 -- --
Yang Guangling 1,548 1,548 -- --
Liu Chunying 1,548 1,548 -- --
Chen Yunbin 1,548 1,548 -- --
Chen Lingling 1,548 1,548 -- --
Chen Yong 1,548 1,548 -- --
</Table>
41
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<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Zhang Xilian 1,548 1,548 -- --
Liu Lili 1,548 1,548 -- --
Guo Xinjiang 1,548 1,548 -- --
Li Miao 1,548 1,548 -- --
Hu Xiaoli 1,548 1,548 -- --
Cui Xuan 1,548 1,548 -- --
Zhang Yi 1,548 1,548 -- --
Zhao Huimin 1,548 1,548 -- --
Li Na 1,548 1,548 -- --
Zhang Fan 1,548 1,548 -- --
Hu Xihua 1,548 1,548 -- --
Wang Qinfeng 1,548 1,548 -- --
Wang Qinyu 1,548 1,548 -- --
Li Meiqin 1,548 1,548 -- --
Qin Aiyun 1,548 1,548 -- --
Wang JingAn 1,548 1,548 -- --
Jing Buzheng 1,548 1,548 -- --
Wei Chunxiang 1,548 1,548 -- --
Wang Jianguo 1,548 1,548 -- --
Tang Mei 1,548 1,548 -- --
Ji Junxia 1,548 1,548 -- --
Zhou Lijun 1,548 1,548 -- --
Liu Yuzhen 1,548 1,548 -- --
Jia Bairong 1,548 1,548 -- --
Zhang Keyu 1,548 1,548 -- --
Hui Xuefang 1,548 1,548 -- --
Gao Anxi 1,548 1,548 -- --
Sun Guirong 1,548 1,548 -- --
Cai Hongqiao 1,548 1,548 -- --
Yin Xizheng 1,548 1,548 -- --
Wang Gaili 1,548 1,548 -- --
Liu Liguang 1,548 1,548 -- --
Wang Gang 1,548 1,548 -- --
Hu Jing 1,548 1,548 -- --
Li Zheng 1,548 1,548 -- --
Zhang Yaojun 1,548 1,548 -- --
Jia Yunyi 1,548 1,548 -- --
Ma Jiuyi 1,548 1,548 -- --
Li Hongxia 1,548 1,548 -- --
Cai Jinrang 1,548 1,548 -- --
Zhang Weijian 1,548 1,548 -- --
Zhang Shiyao 1,548 1,548 -- --
</Table>
42
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<Caption>
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be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Xue Feng 1,548 1,548 -- --
Zhang Lingzhang 1,548 1,548 -- --
Yang Wenjin 1,548 1,548 -- --
Yue Peijun 1,548 1,548 -- --
Wang Limin 1,548 1,548 -- --
Yang Yanni 1,548 1,548 -- --
Qin Yonghuai 1,548 1,548 -- --
Wang Huimin 1,548 1,548 -- --
Yang Junxing 1,548 1,548 -- --
Tao Qiaowen 1,548 1,548 -- --
Yang Junpeng 1,548 1,548 -- --
Bai Runlan 1,548 1,548 -- --
Wang Lahong 1,393 1,393 -- --
Wang Hongsheng 1,393 1,393 -- --
Sun Feng 1,393 1,393 -- --
Zhou Shunhua 1,393 1,393 -- --
Liu Yali 1,238 1,238 -- --
Shen Baihua 1,238 1,238 -- --
Song Heping 1,238 1,238 -- --
Gou Liming 1,238 1,238 -- --
Fan Yazheng 1,238 1,238 -- --
Shen Songquan 1,238 1,238 -- --
Cheng Zhuru 1,238 1,238 -- --
Jing Baoping 1,238 1,238 -- --
Shi Huixia 1,238 1,238 -- --
Zhang Junjun 1,238 1,238 -- --
Jiang Hong 1,238 1,238 -- --
Ren Jianwu 1,238 1,238 -- --
Wang Puxuan 1,238 1,238 -- --
Kou Guangqing 1,238 1,238 -- --
Gao Ruibin 1,238 1,238 -- --
Wang Xia 1,238 1,238 -- --
Liang Haibing 1,238 1,238 -- --
Li Jun 1,238 1,238 -- --
Zhang Keqiang 1,238 1,238 -- --
Wang Fengling 1,238 1,238 -- --
Wang guiping 1,084 1,084 -- --
Yin Yajun 1,084 1,084 -- --
Chen Youmin 1,084 1,084 -- --
Jin Debang 1,084 1,084 -- --
Wang Liqiang 1,084 1,084 -- --
Zhang Meixia 1,084 1,084 -- --
</Table>
43
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Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Ren Bu ying 929 929 -- --
Wang DongE 929 929 -- --
Guo Li 929 929 -- --
Bai Xiaofang 929 929 -- --
Dong Qiaoling 929 929 -- --
Li Weixiang 929 929 -- --
Kou Juanrong 929 929 -- --
Ye Chunjuan 929 929 -- --
Zhang Hongjie 929 929 -- --
Fan Risheng 929 929 -- --
Fang Yemin 929 929 -- --
Wang Yufeng 929 929 -- --
Wang Yanru 774 774 -- --
Zhao Kunping 774 774 -- --
Liu Xiaoxia 774 774 -- --
Lv Aiying 774 774 -- --
Zhang Juanmei 774 774 -- --
Wang Peng 774 774 -- --
Wang Xiaohong 774 774 -- --
Jiang Yi 774 774 -- --
Liu Ming 774 774 -- --
Li Jing 774 774 -- --
Zhang Long 774 774 -- --
Yang Yazhen 774 774 -- --
Han Ronghui 774 774 -- --
He Rong 774 774 -- --
Li Zhehua 774 774 -- --
Zhao Hui 774 774 -- --
Wei Huifang 774 774 -- --
Zhu Bimei 774 774 -- --
Fan Chunfang 774 774 -- --
Jia Xinnian 774 774 -- --
Ren Xiaojuan 774 774 -- --
Wang Chunli 774 774 -- --
Gou Daming 774 774 -- --
Wang Xiaru 774 774 -- --
Tang Dongmei 774 774 -- --
Tang Wenjuan 774 774 -- --
Chen CuiE 774 774 -- --
Lin Sijun 774 774 -- --
Cai Feihong 774 774 -- --
Zou Cuilan 774 774 -- --
</Table>
44
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<Table>
<Caption>
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be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Li Guiyan 774 774 -- --
Wang Jiansheng 774 774 -- --
Gao Pingjun 774 774 -- --
Wang Bo 774 774 -- --
Wang Mingli 774 774 -- --
Xu Qunping 774 774 -- --
Lin Suixi 774 774 -- --
Du Weihua 774 774 -- --
Zhang Zhuli 774 774 -- --
Li Fangqin 774 774 -- --
Zhu Yanping 774 774 -- --
Zhnag Xuan 774 774 -- --
Li Jianhui 774 774 -- --
Du Xiaohua 774 774 -- --
Wang Xiuxia 774 774 -- --
Fan Yunbo 774 774 -- --
Ren Xiaoling 774 774 -- --
Jin Manli 774 774 -- --
Lv Senmao 774 774 -- --
Fan Jun 774 774 -- --
Sun AnNa 774 774 -- --
Zhang Hua 774 774 -- --
Wang Yan 774 774 -- --
Zhang JunE 774 774 -- --
Ren Zhiming 774 774 -- --
Wang Bushan 774 774 -- --
Zhu Jianguang 774 774 -- --
Zhu Juhong 774 774 -- --
Zhang Mingyu 774 774 -- --
Wang XiPing 774 774 -- --
Wang Kangli 774 774 -- --
Li Chunrong 774 774 -- --
Yuan Youfeng 774 774 -- --
Li Rongguang 774 774 -- --
Wang Jianchang 774 774 -- --
Xu Shengcheng 774 774 -- --
Wang Shuqiang 774 774 -- --
Qu Ruixin 774 774 -- --
Zhang Feng 774 774 -- --
Jin Jiahua 774 774 -- --
Guo Xiaoxia 774 774 -- --
Yu Yaqing 774 774 -- --
</Table>
45
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Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Zhang yongjun 774 774 -- --
An Junli 774 774 -- --
Zhang Jun 774 774 -- --
Chen Lei 774 774 -- --
Chen Deyin 774 774 -- --
He Bin 774 774 -- --
Xu Genhai 774 774 -- --
Jin Pei 774 774 -- --
Chen Xinmin 774 774 -- --
Liu Yaping 774 774 -- --
Kang Qiufang 774 774 -- --
Deng Jingchuan 774 774 -- --
Gong Rongsheng 774 774 -- --
Gao Zhongxiang 774 774 -- --
Li Jing 774 774 -- --
Tian Xiaoyu 774 774 -- --
Liu Xiaoling 774 774 -- --
Li Chunxiu 774 774 -- --
Zhe Haimei 774 774 -- --
Zhang Caimei 774 774 -- --
Cao Lun 774 774 -- --
Ni Jianjun 774 774 -- --
Feng Xuemin 774 774 -- --
Bai Juanjuan 774 774 -- --
Chai Jingying 774 774 -- --
Guo Ruoli 774 774 -- --
Lu Nanhua 774 774 -- --
Wu Zhiyu 774 774 -- --
Yang Jianjing 774 774 -- --
Zhang Weixi 774 774 -- --
Xia Haijun 774 774 -- --
Liu Yunping 774 774 -- --
Li Xijing 774 774 -- --
Zhu Hongyan 774 774 -- --
Li Na 774 774 -- --
Yi Jiaji 774 774 -- --
Sun Butai 774 774 -- --
He Wenxia 774 774 -- --
Xu Qignqiu 774 774 -- --
He Xiufang 774 774 -- --
Zhang Zhijun 774 774 -- --
Wang Fang 774 774 -- --
</Table>
46
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Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Gao Shuzhen 774 774 -- --
Hu Xiaojuan 774 774 -- --
Wang JianE 774 774 -- --
Huang Cailing 774 774 -- --
Gao Yanchun 774 774 -- --
Yuan Shenli 774 774 -- --
Guo Bufen 774 774 -- --
Wang Xinli 774 774 -- --
Jia Xiping 774 774 -- --
Xue Jing 774 774 -- --
Gong Shuzhen 774 774 -- --
Zhang Jian 774 774 -- --
Wang Wangxue 774 774 -- --
Zhang Xiaoqin 774 774 -- --
Yu Binwu 774 774 -- --
Zang Xuehong 774 774 -- --
Li Jinyuan 774 774 -- --
Li Xiulan 774 774 -- --
Li Yali 774 774 -- --
Li Yunian 774 774 -- --
Wu Qizhou 774 774 -- --
Zhang Xiping 774 774 -- --
Liu Anke 774 774 -- --
Zhu Qiuping 774 774 -- --
Zhang Xiuqin 774 774 -- --
Wang Zhongyu 774 774 -- --
Wang Lining 774 774 -- --
Gao Xiuqin 774 774 -- --
Wang Jianwen 774 774 -- --
Pan Feng 774 774 -- --
Zhang Congjun 774 774 -- --
Zhao Yanling 774 774 -- --
Wang Jing 774 774 -- --
Zheng Junying 774 774 -- --
Yang Gang 774 774 -- --
Liu Zhiling 774 774 -- --
Chen Hong 774 774 -- --
Chen Li 774 774 -- --
Ru Congling 774 774 -- --
Xu Chunhua 774 774 -- --
Wu Chaoying 774 774 -- --
Zhao Juying 774 774 -- --
</Table>
47
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Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Wang Kai 774 774 -- --
Xu Zhihua 774 774 -- --
Wang Buming 774 774 -- --
Su Junying 774 774 -- --
Ma Junying 774 774 -- --
Zhang Mingqin 774 774 -- --
Qi Junling 774 774 -- --
Zhou Lijun 774 774 -- --
Feng Yanyu 774 774 -- --
Li Hua 774 774 -- --
Feng Tiejun 774 774 -- --
Hu Guimei 774 774 -- --
Guo Shuqin 774 774 -- --
Jia Tinghou 774 774 -- --
Kong Weibin 774 774 -- --
Chen Shuangxi 774 774 -- --
Yuan Ying 774 774 -- --
Lu Aifang 774 774 -- --
Cheng Yuxi 774 774 -- --
Liu Junzheng 774 774 -- --
Liu Tieshan 774 774 -- --
Tian HuaiBu 774 774 -- --
Meng Zhixin 774 774 -- --
Zhang Xifang 774 774 -- --
Wang Jie 774 774 -- --
Shang Ziyong 774 774 -- --
Lu Na 774 774 -- --
Lei Xinlin 774 774 -- --
Li Jingsheng 774 774 -- --
Zhang Yaowen 774 774 -- --
Gong Heping 774 774 -- --
Liu Shizhu 774 774 -- --
Wang Jiwen 774 774 -- --
Fu Liping 774 774 -- --
Meng Qun 774 774 -- --
Hou Ping 774 774 -- --
Jiang Lianxi 774 774 -- --
Su Min 774 774 -- --
Zhang Xiaojun 774 774 -- --
Bai Jie 774 774 -- --
Li Yunliang 774 774 -- --
Zhang Yuping 774 774 -- --
</Table>
48
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be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Li Caiyun 774 774 -- --
Liu Bo 774 774 -- --
Wamg Qinxue 774 774 -- --
Dong Baiquan 619 619 -- --
Wang Yuelan 619 619 -- --
Zhang Gonghui 619 619 -- --
Guo Jianyuan 619 619 -- --
Geng Wushi 619 619 -- --
Hua Ailing 619 619 -- --
Li Xiuzhen 619 619 -- --
Li Yu 619 619 -- --
Xu Cangguo 619 619 -- --
Xang Fuxue 619 619 -- --
Wang Xinfa 619 619 -- --
Ren Hairong 619 619 -- --
Yang Yueqiu 619 619 -- --
Lu Mingfang 619 619 -- --
Xu Jingling 619 619 -- --
Zhong Jianying 619 619 -- --
Liu Changhua 619 619 -- --
Liu Yitao 619 619 -- --
Hu Jincheng 619 619 -- --
Zhao Xiaoyan 619 619 -- --
Wang Yali 619 619 -- --
Wang Qingqiang 619 619 -- --
Zhang Qinxian 619 619 -- --
Li Jingyun 619 619 -- --
Dong Minsheng 619 619 -- --
Rui jian 619 619 -- --
Zhang Jinwu 619 619 -- --
Tong Yanling 619 619 -- --
Luo Fengxia 619 619 -- --
Lin Jiang 619 619 -- --
Guo Xiaomin 619 619 -- --
Fan Botao 619 619 -- --
Bi Guoian 619 619 -- --
Ye Butian 619 619 -- --
Yang Wenjun 619 619 -- --
Ma Junsheng 619 619 -- --
Zhou Ping 619 619 -- --
Wang Yuexiang 619 619 -- --
Ji Quan 619 619 -- --
</Table>
49
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be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Fan Yutao 619 619 -- --
Ji Lingli 619 619 -- --
Wang Weimin 619 619 -- --
Zheng Jixue 464 464 -- --
Liu Yu 464 464 -- --
Dang XiuE 464 464 -- --
Yang Xiaolin 464 464 -- --
Wu Yingfeng 464 464 -- --
Wang Aijun 464 464 -- --
Xu Xiangling 464 464 -- --
HanBingWei 464 464 -- --
Xu Douchun 464 464 -- --
Li jianping 464 464 -- --
Li Xianjun 464 464 -- --
Zhu Huilan 464 464 -- --
Liu Tao 464 464 -- --
Wang Jianshe 464 464 -- --
Wen Xiaoyu 464 464 -- --
Li Fangxia 464 464 -- --
Yin Li 464 464 -- --
Yao Baoan 464 464 -- --
Wang Yunxia 464 464 -- --
Wei Shuxia 464 464 -- --
Ma Jian 464 464 -- --
Li Liwa 464 464 -- --
Chen Xiaopeng 464 464 -- --
Zhu Ling 464 464 -- --
Du Guangfen 464 464 -- --
Zhou Yuhua 464 464 -- --
Chen Shaoxian 464 464 -- --
Li Fan 464 464 -- --
Zhao Yushu 464 464 -- --
Hu Yanzhen 464 464 -- --
Zhao Xiaoling 464 464 -- --
Zhang Shuyun 464 464 -- --
Liang Sunping 464 464 -- --
Chen Xuanmin 464 464 -- --
Wang Xiaoping 464 464 -- --
Li Yuchuan 464 464 -- --
Chen Xiaoqin 464 464 -- --
Hao Suyun 464 464 -- --
Wang Cuian 464 464 -- --
</Table>
50
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Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Wang Ruiju 464 464 -- --
Zhao Jianlong 464 464 -- --
He Yongyi 464 464 -- --
Ling Ling 464 464 -- --
Dang Yongming 464 464 -- --
Zhu Jiaying 464 464 -- --
Wang Xiaorong 464 464 -- --
Shi Guiqin 464 464 -- --
Wan Shuliang 464 464 -- --
Wang Xiaowei 464 464 -- --
Liu Juqin 464 464 -- --
Zhou Chunlian 464 464 -- --
Qi Cujian 464 464 -- --
Li Zhiren 464 464 -- --
Yang Yueli 464 464 -- --
Bai Yurong 464 464 -- --
Cao Ruisheng 310 310 -- --
Cao Weihong 310 310 -- --
Zhao Jianjun 310 310 -- --
Bai HongEn 310 310 -- --
Dong Hong 310 310 -- --
Lu Wuli 310 310 -- --
Tao Enli 310 310 -- --
Du Mou 310 310 -- --
Li Zhuhui 310 310 -- --
Shi Lingying 310 310 -- --
Jiang Linshu 310 310 -- --
TaoWenBo 310 310 -- --
Zhang Xiaoling 310 310 -- --
Tian Ming 310 310 -- --
Zhao Li 310 310 -- --
Yu Yagang 310 310 -- --
Zhang Xinli 310 310 -- --
Liu Mannuo 310 310 -- --
Han Suqing 310 310 -- --
Qi Suying 310 310 -- --
Wang Burong 310 310 -- --
Zhang Ronghua 310 310 -- --
Han Junfang 310 310 -- --
Zhang Guangzhi 310 310 -- --
Cheng Xipeng 310 310 -- --
Liu Xiaoqin 310 310 -- --
</Table>
51
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Yang Liming 310 310 -- --
Duan Xiaoyan 310 310 -- --
Xu Guangheng 310 310 -- --
Wang Jianxin 310 310 -- --
Li Yang 310 310 -- --
Jia Shujuan 310 310 -- --
Cheng Yue 310 310 -- --
Xu Kangli 310 310 -- --
Yang Guifeng 310 310 -- --
Lu Wentao 310 310 -- --
Liu XinAn 310 310 -- --
Chen Jie 310 310 -- --
Zheng XinAn 310 310 -- --
Liu Xiaoping 310 310 -- --
Zhang Liangmo 310 310 -- --
Zheng Xiaocheng 310 310 -- --
Zhang Jishun 310 310 -- --
Zhao Bin 310 310 -- --
Wang Junqiang 310 310 -- --
Li Yuanping 310 310 -- --
Li Xiaoyan 310 310 -- --
Zhang Zhengrong 310 310 -- --
Zhang Hengzhou 155 155 -- --
Liang Pu 155 155 -- --
Liu Jianxiu 155 155 -- --
Lv Hongwei 155 155 -- --
Hou Jianfeng 155 155 -- --
WangJianKang 155 155 -- --
Yang Yongcao 155 155 -- --
Wang Bin 155 155 -- --
Zhang Lei 155 155 -- --
Chen Ming 155 155 -- --
Zhou Yani 155 155 -- --
Chen Ling 155 155 -- --
Chen Zhihua 155 155 -- --
Wang Junfeng 155 155 -- --
Xia Minjun 155 155 -- --
Bai Yan 155 155 -- --
Zhang Xiaoli 155 155 -- --
Liu Weihu 155 155 -- --
Li Weiyang 155 155 -- --
Hou Xiuqin 155 155 -- --
</Table>
52
<Page>
<Table>
<Caption>
Shares to Shares ownership
be sold after this Offering
Shares in this ----------------------
Name Owned Offering Number %
- ---- ------ --------- ------ --------
Li Yanping 155 155 -- --
Yu Xiao 155 155 -- --
Wang Shuhua 155 155 -- --
Yan Jie 155 155 -- --
Yang Fujun 155 155 -- --
Tong Guimei 155 155 -- --
Zhang Chunhua 155 155 -- --
Guo LiAn 155 155 -- --
Meng Lingrong 155 155 -- --
Wang Feng 155 155 -- --
Lv Junqi 155 155 -- --
Lv Junqiang 155 155 -- --
Wei Hongjun 155 155 -- --
Mao Suolao 155 155 -- --
Li Ruijuan 155 155 -- --
Liu Xiaoyan 155 155 -- --
Cheng xuefang 155 155 -- --
Xue Junmei 155 155 -- --
Yang Zhiqiang 155 155 -- --
Wang Weiling 155 155 -- --
Yang Guodong 155 155 -- --
Chang Cheng Yu 757,097 757,097 -- --
Chung Chiu Hsueh 757,096 757,096 -- --
Chang Hsien Chung 33,250 33,250 -- --
</Table>
INFORMATION REGARDING THE SELLING STOCKHOLDERS
The shares of our common stock which the selling stockholders or their
pledgees, donees, transferees or other successors in interest may offer for
resale will be sold initially at a price of $5.00 per share and thereafter if
the shares are listed for trading on the American Stock Exchange or any other
stock exchange at then prevailing market prices or privately negotiated prices
in one or more of the following transactions:
- Block transactions;
- Transactions on the American Stock Exchange, Electronic Bulletin
Board or on such other market on which our common stock may from
time to time be trading;
- Privately negotiated transactions;
- Through the writing of options on the shares;
- Short sales; or
- Any combination of these transactions.
The sale price to the public in these transactions may be:
53
<Page>
- The market price prevailing at the time of sale;
- A price related to the prevailing market price;
- Negotiated prices; or
- Such other price as the selling stockholders determine from time
to time.
In the event that we permit or cause this prospectus to lapse, the
selling stockholders may only sell shares of our common stock pursuant to Rule
144 under the Securities Act of 1933. The selling stockholders will have the
sole and absolute discretion not to accept any purchase offer or make any sale
of these shares of our common stock if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders or their pledges, donees, transferees or other
successors in interest, may also sell these shares of our common stock directly
to market makers and/or broker-dealers acting as agents for their customers.
These broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of these shares of our common stock for whom such broker-dealers may act as
agents. As to a particular broker-dealer, this compensation might be in excess
of customary commissions. Market makers and block purchasers purchasing these
shares of our common stock may do so for their own account and at their own
risk. It is possible that a selling stockholder will attempt to sell shares of
our common stock in block transactions to market makers or other purchasers at a
price per share which may be below the prevailing market price of our common
stock. There can be no assurance that all or any of these shares of our common
stock offered hereby will be issued to, or sold by, the selling stockholders.
Upon effecting the sale of any of these shares of our common stock offered under
this prospectus, the selling stockholders and any brokers, dealers or agents,
hereby, may be deemed "underwriters" as that term is defined under the
Securities Act of 1933 or the Securities Exchange Act of 1934, or the rules and
regulations thereunder.
Alternatively, the selling stockholders may sell all or any part of the
shares of our common stock offered hereby through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into. If a selling
stockholder enters into an agreement or agreements with an underwriter, then the
relevant details will be set forth in a supplement or revision to this
prospectus.
The selling stockholders and any other persons participating in the sale
or distribution of these shares of our common stock will be subject to
applicable provisions of the Securities Exchange Act of 1934 and the rules and
regulations thereunder including, without limitation, Regulation M. These
provisions may restrict activities of, and limit the timing of purchases and
sales of any of these shares of our common stock by, the selling stockholders.
Furthermore, pursuant to Regulation M, a person engaged in a distribution of
securities is prohibited from bidding for, purchasing or attempting to induce
any person to bid for or purchase our securities for a period beginning five
business days prior to the date of this prospectus until such person is no
longer a selling stockholder. These regulations may affect the marketability of
these shares of our common stock.
54
<Page>
None of the selling shareholders are broker/dealers or are affiliated
with broker/dealers.
RELATED PARTY AND OTHER MATERIAL TRANSACTIONS
During 2002 we owed Shaanxi New Taohuayuan Economy Trade Co., Ltd., a
company controlled by our chairman Chen Jingman, $423,385 for money loaned to us
to obtain rights to additional power from the utilities which provide us power.
During 2002 Shaanxi New Taohuayuan Economy Trade Co., Ltd. forgave this debt
because to improve our capital structure.
As of December 31, 2002 Shaanxi Taohuayuan Real Estate Development
Limited owed us $1,209,673 for amounts we loaned to that company. Shaanxi
Taohuayuan Real Estate Development Limited, which is controlled by Chen Jingmin,
repaid this loan in 2003.
On December 6, 2004 we merged Shaanxi New Taohuayuan Culture Tourism
Co., Ltd., a PRC company organized in September 1997, into us. In connection
with this merger we issued 17,027,328 shares of our common stock to the
shareholders of Shaanxi New Taohuayuan Culture Tourism Co., Ltd. The purpose of
the merger was to redomicile us as a Nevada corporation. In correction with the
merger, the following members of our management and affiliates received shares
of our common stock:
- Chen Jingmin, 154,799 shares;
- Cai Danmei, 52,632 shares; and
- Shaanxi New Taohuayuan Economy Trade Co., Ltd., a company
controlled by Mr. Jingmin, 2,204,025 shares.
We currently receive management fees from Shaanxi New Taohuayuan Economy
Trade Co., Ltd., our largest stockholder, for managing its DongJin Taoyuan
Villas and from Shaanxi Wenhao Zaliang Shifu, Ltd., for managing its three
restaurants. Shaanxi New Taohuayuan Economy Trade Co., Ltd. and Shaanxi Wenhao
Zaliang Shifu, Ltd. are controlled by Chen Jingmin, our chairman. Details
regarding our management agreements, which were not negotiated at arms length,
with respect to these properties can be found in the "Business" section of this
prospectus.
55
<Page>
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 50,000,000 shares of our common stock, $.001
par value per share, and 10,000,000 shares of preferred stock, $.001 par value
per share. See "Business-PRC Laws and Regulations Affecting our Business" for
information concerning PRC laws and regulations which could impact the rights of
our shareholders or limit our ability to pay dividends.
COMMON STOCK
Currently, there are 17,027,328 shares of common stock outstanding held
by 934 stockholders. The holders of common stock are entitled to one vote per
share on all matters submitted to a vote of stockholders, including the election
of directors. There is no right to cumulate votes in the election of directors.
The holders of common stock are entitled to any dividends that may be declared
by the Board of Directors out of funds legally available therefor subject to the
prior rights of holders of preferred stock and any contractual restrictions we
have against the payment of dividends on common stock. In the event of our
liquidation or dissolution, holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive rights and have no right to
convert their common stock into any other securities.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of $.001 par value
preferred stock in one or more series with such designations, voting powers, if
any, preferences and relative, participating, optional or other special rights,
and such qualifications, limitations and restrictions, as are determined by
resolution of our Board of Directors. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of our
company without further action by stockholders and could adversely affect the
rights and powers, including voting rights, of the holders of common stock. In
certain circumstances, the issuance of preferred stock could depress the market
price of the common stock. There are no shares of Preferred Stock outstanding.
LIMITATION ON LIABILITY
Under our Articles of Incorporation, our directors are not liable for
monetary damages for breach of fiduciary duty, except in connection with:
- a breach of the director's duty of loyalty to us or our
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct, fraud or a knowing violation of law;
56
<Page>
- a transaction from which our director received an improper benefit;
or
- an act or omission for which the liability of a director is
expressly provided under Nevada law.
In addition, our Articles of Incorporation provide that we must
indemnify our officers and directors to the fullest extent permitted by Nevada
law for all expenses incurred in the settlement of any actions against such
persons in connection with their having served as officers or directors.
Insofar as the limitation of, or indemnification for, liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers, or persons controlling us pursuant to the foregoing, or otherwise, we
have been advised that, in the opinion of the Securities and Exchange
Commission, such limitation or indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
DIVIDENDS
We do not intend to pay dividends on our capital stock in the
foreseeable future.
TRANSFER AGENT
Corporate Stock Transfer, Inc., Denver, Colorado, is our transfer agent.
SHARES ELIGIBLE FOR FUTURE SALE
We have 17,027,328 shares of common stock outstanding, all of which are
being registered hereby and will be freely tradable shares upon the effective
date of this prospectus. Commencing in December 2005 all such shares will also
be eligible for sale under Rule 144.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who owns shares that were purchased from us, or any
affiliate, at least one year previously, including a person who may be deemed
our affiliate, is entitled to sell within any three month period, a number of
shares that does not exceed the greater of:
- 1% of the then outstanding shares of our common stock; or
- The average weekly trading volume of our common stock during the
four calendar weeks preceding the date on which notice of the sale
is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to manner of sale provisions,
notice requirements and the availability of current public information about us.
Any person who is not deemed to have been our affiliate at any time during the
90 days preceding a sale, and who owns shares within the definition of
"restricted securities" under Rule 144 under the Securities Act that were
purchased from us, or any affiliate, at least two years previously, is entitled
to sell such shares
57
<Page>
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
Future sales of restricted common stock under Rule 144 or otherwise or
of the shares which we are registering under this prospectus could negatively
impact the market price of our common stock. We are unable to estimate the
number of shares that may be sold in the future by our existing stockholders or
the effect, if any, that sales of shares by such stockholders will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock by existing stockholders could adversely
affect prevailing market prices.
EXPERTS
Our audited financial statements included in this prospectus as of and
for the years ended December 31, 2003 and 2004 have been included in reliance on
the reports of Moores Rowland Mazars, independent registered certified public
accountants, given on the authority of this firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a registration statement on Form SB-2 under the Securities Act of
1933 with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits to the registration statement. For further
information with respect to New Taohuayuan Culture Tourism Co., Ltd. and our
common stock offered hereby, reference is made to the registration statement and
the exhibits filed as part of the registration statement. Following the
effective date of the prospectus, we will be required to file periodic reports
with the Securities and Exchange Commission, including quarterly reports, annual
reports which include our audited financial statements and proxy statements. The
registration statement, including exhibits thereto, and all of our periodic
reports may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Securities and
Exchange Commission, 100 F Street N.E., Washington, D.C. 20549. You may obtain
additional information regarding the operation of the Public Reference Section
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission also maintains a web site which provides
online access to reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission at the address: http://www.sec.gov.
58
<Page>
FINANCIAL STATEMENTS
NEW TAOHUAYUAN CULTURE TOURISM COMPANY
LIMITED
SIX MONTHS ENDED JUNE 30, 2005 AND 2004 AND
YEARS ENDED DECEMBER 31, 2004 AND 2003
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
We have audited the accompanying consolidated balance sheets of New Taohuayuan
Culture Tourism Company Limited and its subsidiary (the "Company") as of
December 31, 2004 and 2003 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2004 and 2003 and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has a negative working capital that raises
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 financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
MOORES ROWLAND MAZARS
CHARTERED ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS
Hong Kong, May 19, 2005
Page 1 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
(UNAUDITED) (Audited)
SIX MONTHS ENDED Year ended
JUNE 30, December 31,
--------------------------- ---------------------------
2005 2004 2004 2003
NOTE US$ US$ US$ US$
OPERATING REVENUES
Catering services income 1,057,140 1,064,342 2,607,094 1,842,118
Hotel and related services income 761,551 823,201 1,658,536 1,491,938
MANAGEMENT FEE INCOME 4(c) 725,803 698,949 1,405,639 1,065,721
------------ ------------ ------------ ------------
2,544,494 2,586,492 5,671,269 4,399,777
------------ ------------ ------------ ------------
OPERATING EXPENSES
Depreciation 248,016 252,157 498,624 503,661
Raw materials and consumables used 409,801 424,007 992,954 754,352
Salaries, wages and allowances 160,892 146,736 285,910 308,019
General and administrative expenses 232,418 167,969 1,316,660 467,737
Other taxes 146,324 207,621 427,325 252,949
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,197,451 1,198,490 3,521,473 2,286,718
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,347,043 1,388,002 2,149,796 2,113,059
------------ ------------ ------------ ------------
NON-OPERATING INCOME (EXPENSE)
INTEREST INCOME 208 636 1,862 296,805
SUNDRY INCOME 9,546 56,390 31,017 62,170
Surcharge on taxes 8(b) (542,321) (404,766) (809,532) (521,834)
------------ ------------ ------------ ------------
(532,567) (347,740) (776,653) (162,859)
------------ ------------ ------------ ------------
Income before income tax 814,476 1,040,262 1,373,143 1,950,200
INCOME TAX 3 (405,193) (409,120) (760,622) (815,771)
------------ ------------ ------------ ------------
Net income 409,283 631,142 612,521 1,134,429
============ ============ ============ ============
Earnings per share
- - BASIC 0.02 0.03 0.04 0.07
- - DILUTED 0.02 0.03 0.04 0.07
============ ============ ============ ============
</Table>
THE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING
NOTES.
Page 2 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
(UNAUDITED) (Audited)
AS OF As of
JUNE 30, December 31,
------------ ---------------------------
2005 2004 2003
NOTE US$ US$ US$
ASSETS
CURRENT ASSETS
Bank balances and cash 52,488 93,294 407,611
Trade receivables 32,481 31,027 21,988
Prepayments and other debtors 44,681 12,416 39,115
Inventories 48,265 44,861 54,056
Due from related parties 4(b) 499,244 305,123 1,282,551
------------ ------------ ------------
TOTAL CURRENT ASSETS 677,159 486,721 1,805,321
Property, plant and equipment, net 5 8,962,998 9,205,203 9,560,454
Prepayments 6 13,064,463 11,612,856 8,528,191
Deferred tax assets 566,554 492,758 348,330
------------ ------------ ------------
TOTAL ASSETS 23,271,174 21,797,538 20,242,296
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables 208,105 174,251 156,456
Accrued charges and other creditors 571,530 616,955 54,683
Deposits 62,668 66,932 78,975
Income tax payable 4,109,025 3,630,035 2,724,985
Other taxes payable 1,404,657 1,322,617 945,368
SURCHARGE ON TAXES PAYABLE 8(b) 2,375,062 1,832,741 1,023,209
DIVIDEND PAYABLE 2,329 25,492 291,019
------------ ------------ ------------
Total current liabilities 8,733,376 7,669,023 5,274,695
------------ ------------ ------------
Commitments and contingencies 8
STOCKHOLDERS' EQUITY 7
Preferred stock, par value of US$0.001
10,000,000 shares of stock authorized,
none issued and outstanding
Common stock, par value of US$0.001
50,000,000 shares of stock authorized,
17,027,328 shares of stock issued and
outstanding 17,027 17,027 17,027
Additional paid-in capital 14,922,428 14,922,428 14,922,428
Statutory reserves 1,271,817 1,271,817 1,016,558
Accumulated losses (1,673,474) (2,082,757) (988,412)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 14,537,798 14,128,515 14,967,601
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 23,271,174 21,797,538 20,242,296
============ ============ ============
</Table>
THE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING
NOTES.
Page 3 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
SHARE CAPITAL
---------------------------
ADDITIONAL
NO. PAID-IN STATUTORY ACCUMULATED
SHARES AMOUNT CAPITAL RESERVES LOSSES TOTAL
US$ US$ US$ US$ US$
(Audited)
Balance as of January 1, 2003 17,027,328 17,027 14,922,428 760,375 (415,051) 15,284,779
Net income for the year - - - - 1,134,429 1,134,429
Dividend declared - - - - (1,451,607) (1,451,607)
Transfer to statutory reserves - - - 256,183 (256,183) -
------------ ------------ ------------ ------------ ------------ ------------
Balances as of December 31, 2003 17,027,328 17,027 14,922,428 1,016,558 (988,412) 14,967,601
Net income for the year - - - - 612,521 612,521
Dividend declared - - - - (1,451,607) (1,451,607)
Transfer to statutory reserves - - - 255,259 (255,259) -
------------ ------------ ------------ ------------ ------------ ------------
Balances as of December 31, 2004 17,027,328 17,027 14,922,428 1,271,817 (2,082,757) 14,128,515
============ ============ ============ ============ ============ ============
(Unaudited)
Balances as of January 1, 2005 17,027,328 17,027 14,922,428 1,271,817 (2,082,757) 14,128,515
Net income for the period - - - - 409,283 409,283
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AS OF JUNE 30, 2005 17,027,328 17,027 14,922,428 1,271,817 (1,673,474) 14,537,798
============ ============ ============ ============ ============ ============
</Table>
THE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING
NOTES.
Page 4 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
(UNAUDITED) (AUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
--------------------------- ---------------------------
2005 2004 2004 2003
US$ US$ US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 409,283 631,142 612,521 1,134,429
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 248,016 252,157 498,624 503,661
Loss on disposal of property, plant and
equipment - 40,358 42,148 -
Changes in working capital:
Trade receivables (1,454) (20,767) (9,039) 6,530
Prepayments and other debtors (32,265) (69,842) 26,699 (6,480)
Inventories (3,404) 8,801 9,195 4,688
Due from related parties (194,121) 835,080 977,428 3,908,848
Trade payables 33,854 125,069 17,795 (138,537)
Accrued charges and other creditors (45,425) 22,306 562,272 (149,515)
Deposits (4,264) 2,280 (12,043) 11,576
Income tax payable 478,990 485,151 905,050 841,198
Other taxes payable 82,040 165,333 377,249 260,896
Surcharge on taxes 542,321 404,766 809,532 521,834
Deferred tax assets (73,796) (76,030) (144,428) (25,427)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,439,775 2,805,804 4,673,003 6,873,701
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (5,811) (107,828) (194,026) (31,302)
Prepayments (1,451,607) (1,330,640) (3,084,665) (8,528,191)
Sale proceeds from disposal of property, plant
and equipment - 7,863 8,505 -
------------ ------------ ------------ ------------
Net cash used in investing activities (1,457,418) (1,430,605) (3,270,186) (8,559,493)
------------ ------------ ------------ ------------
Cash flows from financing activities:
DIVIDEND PAID (23,163) (1,716,679) (1,717,134) (1,366,840)
------------ ------------ ------------ ------------
Net decrease in cash and cash equivalents (40,806) (341,480) (314,317) (3,052,632)
Cash and cash equivalents at beginning of
period/year 93,294 407,611 407,611 3,460,243
------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period/year, represented by bank balances
and cash 52,488 66,131 93,294 407,611
============ ============ ============ ============
</Table>
THE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING
NOTES.
Page 5 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
New Taohuayuan Culture Tourism Company Limited ("New Tao" or the "Company")
was incorporated under the laws of the state of Nevada on November 3, 2004.
New Tao has had no operations since incorporation.
Shaanxi New Taohuayuan Culture Tourism Company Limited [CHINESE TEXT]
("Shaanxi THY") was incorporated in the People's Republic of China (the
"PRC") on August 3, 1997 with limited liability. It principally operates a
resort in Xian, the PRC, providing catering, hotel and related services.
Pursuant to an agreement and plan of migratory merger entered into between
New Tao and Shaanxi THY (on behalf of the original stockholders of Shaanxi
THY) on November 5, 2004, New Tao consummated an acquisition of Shaanxi THY
by issuing 17,027,328 shares of common stock of New Tao, par value of
US$0.001, to the original stockholders of Shaanxi THY in exchange for their
interests in Shaanxi THY (the "Transaction"). As a result, the controlling
stockholder of Shaanxi THY has actual or effective operating control of New
Tao and Shaanxi THY (collectively referred to as the "Company") after the
Transaction. The Transaction was approved by the Shaanxi Ministry of
Commerce on November 24, 2004. Since then, Shaanxi THY has become a wholly
owned subsidiary of New Tao and its status has changed to a wholly foreign
owned enterprise with the company name changed to NTHY [CHINESE TEXT] (New
Taohuayuan Culture Tourism Company Limited).
Since New Tao has had no operations or net assets, the Transaction was
considered to be a capital transaction in substance, rather than a business
combination and no goodwill was recognized. For financial reporting
purposes, the Transaction has been treated as a reverse acquisition whereby
Shaanxi THY is considered to be the accounting survivor and the operating
entity while New Tao is considered to be the legal survivor. On that basis,
the historical financial information presented in these financial
statements, although labeled as those of New Tao, represent those of
Shaanxi THY. The historical stockholders' equity accounts of the Company
have been retroactively restated to reflect the issuance of the 17,027,328
shares of common stock for the Transaction since the beginning of the
periods presented, i.e. as of January 1, 2003. The difference between the
par value of shares of New Tao issued for the Transaction and the par value
of shares of Shaanxi THY is recorded as additional paid-in capital.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America ("USGAAP").
Page 6 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREPARATION OF FINANCIAL STATEMENTS
The Company had negative working capital of US$8,056,217 and US$7,182,302
as of June 30, 2005 and December 31, 2004 respectively. This raised
substantial doubt about the Company's ability to continue as a going
concern. The negative working capital mainly arises from the provision for
income and other taxes and related surcharge as discussed in note 8(b) to
the financial statements. Management believes that the Company will be able
to negotiate a settlement in installments with the PRC tax authority if the
PRC tax authority demands payment. In addition, since the Company has
generated profits and positive operating cash flows, management is
confident that the Company will be able to settle other liabilities by
internally generated funds from operations. Therefore, the Company will
have sufficient funds to settle its liabilities when they become due. As a
result, the financial statements have been prepared in conformity with the
principles applicable to a going concern.
REVENUE RECOGNITION
The Company generally recognizes catering, hotel and related service
revenues when persuasive evidence of an arrangement exists, services are
rendered, the fee is fixed or determinable, and collectibility is probable.
Such service revenues are recognized net of discounts. Management fee
income is recognised when services are rendered in accordance with the
agreements (see note 4(c)(i)).
INCOME AND OTHER TAXES
Provision for income and other taxes has been made in accordance with the
tax rates and laws in effect in the PRC.
Deferred taxes are provided using the liability method for all significant
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net
operating loss carry forwards. The tax consequences of those differences
are classified as current or non-current based on the classification of the
related assets or liabilities in the financial statements.
FOREIGN CURRENCY TRANSLATION
The Company considers Renminbi its functional currency as a substantial
portion of the Company's business activities are based in Renminbi ("RMB").
However, the Company has chosen the United States dollar as its reporting
currency.
Transactions in currencies other than the functional currency during the
period are translated into the functional currency at the applicable rates
of exchange prevailing at the time of the transactions. Monetary assets and
liabilities denominated in currencies other than the functional currency
are translated into the functional currency at the applicable rates of
exchange in effect at the balance sheet date. Exchange gains and losses are
recorded in the statements of operations.
For translation of financial statements into the reporting currency, assets
and liabilities are translated at the exchange rate at the balance sheet
date, equity accounts are translated at historical exchange rates, and
revenues, expenses, gains and losses are translated at the weighted average
rates of exchange prevailing during the period. Translation adjustments
resulting from this process are recorded in accumulated other comprehensive
income (loss) within stockholders' equity.
There was no significant fluctuation in the exchange rate of United States
dollar to RMB and the exchange rate adopted was US$1 = RMB8.2667.
Comprehensive income and accumulated other comprehensive income are not
material to the financial statements.
Page 7 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income available to
common stockholders by the weighted average number of common stocks
outstanding for the periods.
The calculation of diluted earnings per share is based on net income
available to common shareholders and on the weighted average number of
common stocks outstanding adjusted to reflect potentially dilutive
securities. There were no potentially dilutive securities outstanding
during any of the periods and accordingly, basic and diluted earnings per
share are the same.
TRADE RECEIVABLES
Trade receivables are recorded at original invoice amount, less an
estimated allowance for uncollectible accounts. Trade credit is generally
granted on a short-term basis, thus trade receivables do not bear interest.
Trade receivables are periodically evaluated for collectibility based on
past credit history with customers and their current financial condition.
Changes in the estimated collectibility of trade receivables are recorded
in the results of operations for the period in which the estimate is
revised. Trade receivables deemed uncollectible are offset against the
allowance for uncollectible accounts. The Company generally does not
require collateral for trade receivables.
INVENTORIES
Inventories, mainly comprised of raw materials and consumables, are stated
at the lower of cost or market. Potential losses from obsolete and
slow-moving inventories are provided for when identified. Cost, which
comprises all costs of purchase and, where applicable, other costs that
have been incurred in bringing the inventories to their present location
and condition, is calculated using the first-in, first-out method.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with original
maturities of three months or less that are readily convertible to known
amounts of cash and are so near maturity that they represent insignificant
risk of changes in value because of changes in interest rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with USGAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Such
estimates include but are not limited to depreciation, taxes and
contingencies. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments", are determined at
discrete points in time based on relevant market information. These
estimates involve uncertainties and cannot be determined with precision.
The estimated fair values of the Company's financial instruments, which
include cash, trade receivables and trade payables, approximate their
carrying values in the financial statements due to the short-term
maturities of these assets and liabilities.
Page 8 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated at cost less accumulated
depreciation.
The cost of an asset consists of its purchase price and any directly
attributable costs of bringing the asset to its present working condition
and location for its intended use. Expenditures incurred after the assets
have been put into operation, such as repairs and maintenance, are normally
recognized as an expense in the period in which they are incurred. In
situations where it can be clearly demonstrated that an expenditure has
resulted in an increase in the future economic benefits expected to be
obtained from the use of the assets, the expenditure is capitalized.
When assets are sold or retired, their costs and accumulated depreciation
are eliminated from the accounts and any gain or loss resulting from their
disposal is included in the statement of operations.
Depreciation is calculated to write off the cost of property, plant and
equipment over their estimated useful lives as set out below, from the date
on which they become fully operational and after taking into account their
estimated residual values, using the straight-line method:
<Table>
Leasehold land over the unexpired term of leases
Buildings 40 years
Other building structures 15 years
Fixtures and fiittings 15 years
Electrical equipments 12 years
Motor vehicles 10 years
Other equipments 10 years
</Table>
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are evaluated for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable in accordance with SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". An asset is considered impaired if its
carrying amount exceeds the future net cash flows the asset is expected to
generate. If such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
asset exceeds its fair value. The recoverability of long-lived assets is
assessed by determining whether the unamortized balances can be recovered
through undiscounted future net cash flows of the related assets. The
amount of impairment, if any, is measured based on projected discounted
future net cash flows using a discount rate reflecting the Company's
average cost of capital.
RELATED PARTIES
Parties are considered to be related if one party has the ability, directly
or indirectly, to control the other party, or exercise significant
influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common
control or common significant influence.
Page 9 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
3. INCOME TAX
The Company is subject to the PRC enterprise income tax at the rate of 33%.
The income tax expense comprised:
<Table>
<Caption>
(UNAUDITED) (Audited)
SIX MONTHS ENDED Year ended
JUNE 30, December 31,
--------------------------- ---------------------------
2005 2004 2004 2003
US$ US$ US$ US$
Current tax expense 478,990 485,150 905,050 841,198
Deferred tax benefit (73,797) (76,030) (144,428) (25,427)
------------ ------------ ------------ ------------
405,193 409,120 760,622 815,771
============ ============ ============ ============
</Table>
A reconciliation of the PRC enterprise income tax rate to the effective
income tax rate is as follows:
<Table>
<Caption>
(UNAUDITED) (Audited)
SIX MONTHS ENDED Year ended
JUNE 30, December, 31
--------------------------- ---------------------------
2005 2004 2004 2003
% % % %
Statutory rate 33 33 33 33
Surcharge on taxes not deductible for PRC
enterprise income tax purposes 22 13 19 9
Others (3) (7) 3 -
------------ ------------ ------------ ------------
Effective tax rate 50 39 55 42
============ ============ ============ ============
</Table>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company's deferred tax assets represent deductible temporary differences
arising mainly from the impairment loss on property, plant and equipment
recognized in a prior year and the additional provision for other taxes.
Page 10 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
4. RELATED PARTY TRANSACTIONS
In addition to the transactions / information disclosed elsewhere in these
financial statements, the Company had the following transactions with
related parties.
(a) NAME AND RELATIONSHIP OF RELATED PARTIES
<Table>
<Caption>
NAME RELATIONSHIPS WITH THE COMPANY
---- ------------------------------
Chen Jingmin A director and stockholder of the Company
Shaanxi New Taohuayuan Economy Trade The principal stockholder of the Company in
Company Limited ("Trading Company") * which Chen Jingmin has control and a
beneficial interest
Shaanxi Wenhao Zaliang Shifu, Limited A stockholder and a fellow subsidiary of the
("Wenhao")* Company in which Chen Jingmin has control and a
beneficial interest
Shaanxi Kangze Economic and Trade A stockholder of the Company in which Chen
Limited ("Kangze") * Jingmin has control and a beneficial interest
</Table>
* The official names are in Chinese and the English names are a
straight translation for reference only.
(b) DUE FROM RELATED PARTIES
<Table>
<Caption>
UNAUDITED) (Audited)
AS OF As of
JUNE 30, December 31,
------------ ---------------------------
2005 2004 2003
NOTE US$ US$ US$
Due from Trading Company (i) 327,161 112,739 970,605
Due from Wenhao (ii) 172,083 192,384 310,688
Due from Kangze (ii) - - 1,258
------------ ------------ ------------
499,244 305,123 1,282,551
============ ============ ============
</Table>
(i) The amount due from Trading Company is unsecured and has no
fixed repayment terms. Interest was charged on the outstanding
balance due from Trading Company at the average rate of 7.9%
per annum for the year ended December 31, 2003. No interest
was charged for the six months ended June 30, 2005 and the
year ended December 31, 2004.
(ii) The amounts due from Wenhao and Kangze are unsecured,
interest-free and have no fixed repayment terms.
Page 11 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
4. RELATED PARTY TRANSACTIONS (CONTINUED)
(c) SUMMARY OF RELATED PARTY TRANSACTIONS
<Table>
<Caption>
(UNAUDITED) (Audited)
SIX MONTHS ENDED Year ended
JUNE 30, December 31,
--------------------------- ---------------------------
Note 2005 2004 2004 2003
US$ US$ US$ US$
Management fee income
earned from:
- Trading Company (i) 211,692 204,677 411,773 297,337
- Wenhao (i) 514,111 494,272 993,866 768,384
Interest income earned from
Trading Company (ii) - - - 296,745
Laundry income earned from: - - - -
- Trading company (iii) 10,887 10,887 7,863 -
- Wenhao (iii) 14,516 14,516 42,944 -
Rental and other services
income earned from Trading
Company (iv) 292,048 - 32,292 -
============ ============ ============ ============
</Table>
(i) Pursuant to the agreements entered into between the Company
and the related parties, the Company provides management
services including recruitment and training of staff, setting
internal control and management policies, providing the
cuisine menu and related services. The management fee is
calculated as 10% of the operating revenue of the related
parties and the agreements are renewable annually until
December 31, 2003.
The Company entered into new management agreements with Trading
Company and Wenhao on January 15, 2004 for a period of five years
commencing from January 15, 2004. The annual management fees from
Trading Company and Wenhao are fixed at US$423,385 and
US$1,028,222 respectively, plus a bonus calculated at 15% on the
excess of the actual revenue over targeted revenue. There was no
bonus management fee income earned by the Company for the six
months ended June 30, 2005 and the year ended December 31, 2004.
(ii) Interest was charged on the outstanding balance due from
Trading Company at the average rate of 7.9% per annum for the
year ended December 31, 2003. No interest was charged for the
six months ended June 30, 2005 and the year ended December 31,
2004.
(iii) Pursuant to the agreements entered into between the Company
and the related parties effective from January 1, 2004, the
Company provides laundry services to Trading Company and
Wenhao at annual fees of US$21,774 and US$29,032,
respectively.
Page 12 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(iv) The Company entered into a rental agreement with Trading
Company on January 15, 2004. The rental income was charged at
a 50% discount of the standard daily rate.
Page 13 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
5. PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
(UNAUDITED) (Audited)
AS OF As of
JUNE 30, December 31,
------------ ------------------------------
2005 2004 2003
US$ US$ US$
Leasehold land 2,759,049 2,759,049 2,759,049
Buildings 6,012,124 6,012,124 5,835,512
Other building structures 1,417,619 1,417,619 1,417,619
Electric equipments 373,054 373,054 373,054
Fixtures and fittings 1,277,886 1,277,886 1,277,886
Motor vehicles 258,873 258,873 400,959
Other equipments 803,160 797,349 788,511
-------------- -------------- --------------
Cost 12,901,765 12,895,954 12,852,590
Less: Accumulated depreciation (3,938,767) (3,690,751) (3,292,136)
-------------- -------------- --------------
Property, plant and equipment, net 8,962,998 9,205,203 9,560,454
============== ============== ==============
</Table>
The leasehold land is situated in the PRC and the leases are granted for:
<Table>
<Caption>
(UNAUDITED) (Audited)
AS OF As of
JUNE 30, December 31,
------------ ------------------------------
2005 2004 2003
US$ US$ US$
40 years until 2037 1,228,379 1,228,379 1,228,379
68 years until 2065 1,530,670 1,530,670 1,530,670
-------------- -------------- --------------
2,759,049 2,759,049 2,759,049
============== ============== ==============
</Table>
6. PREPAYMENTS
The balances as of June 30, 2005, December 31, 2004 and 2003 included
prepayments of US$11,733,824, US$10,282,217 and US$8,528,191 made to the
local government for acquisition of a piece of land in the PRC. Pursuant to
an agreement signed on May 26, 2002 (the "Agreement"), total estimated
consideration for the land is US$14,516,070. There is no specific due date
for payment of the balance of the consideration in the Agreement.
The Company proposes to use the land for property development. The
Agreement stipulates that the planning and preparation works should be
completed by the end of 2002 while the construction work should have
commenced by March 2003. During the year ended December 31, 2004 and up to
June 30, 2005, the Company paid design and planning fees of US$1,330,639.
Although the project has been delayed, management believes that the
Agreement still remains effective and there will be no penalty for the
delay pursuant to the Agreement.
Page 14 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
6. PREPAYMENTS (CONTINUED)
Although it is the present intention of the management to develop the land,
the Company shall have a right to dispose of the land through the local
government. The land was valued by international professional valuation
specialists on a depreciated replacement cost basis and its value as of
September 1, 2004 was approximately US$17.5 million.
7. STOCKHOLDERS' EQUITY
(a) SHARE CAPITAL
Details of the share capital of the Company are disclosed in note 1 to
the financial statements.
(b) ADDITIONAL PAID-IN CAPITAL
As discussed in note 1 to the financial statements, the difference
between the par value of shares of New Tao issued for the Transaction
and the par value of shares of Shaanxi THY of US$12,079,698 was
recorded as additional paid-in capital.
On incorporation of Shaanxi THY, the stockholders contributed net
assets of US$14,516,070 to subscribe for the share capital of
US$12,096,725. The excess of the value of the net assets contributed
over the registered capital of Shaanxi THY of US$2,419,345 was
recorded as additional paid-in capital.
(c) STATUTORY RESERVES
Statutory reserves include a statutory surplus reserve and a statutory
public welfare fund, which are maintained in accordance with the legal
requirements in the PRC.
Pursuant to the Articles of Association, the Company has to
appropriate 10% and 5% to 10% of the net income, based on the accounts
prepared in accordance with accounting principles generally accepted
in the PRC, to the statutory surplus reserve and statutory public
welfare fund, respectively.
The statutory surplus reserve can be utilized to offset prior years'
losses or for capitalization as paid-in capital, whereas the statutory
public welfare fund shall be utilized for collective staff welfare
benefits such as building of staff quarters or housing. No
distribution of the statutory reserves shall be made other than on
liquidation of the Company.
Page 15 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES
(a) CAPITAL COMMITMENT
As of June 30, 2005, December 31, 2004 and 2003, the Company had
capital expenditure commitments contracted but not provided for net of
deposits paid for the acquisition of land as mentioned in note 6 to
the financial statements amounting to US$2,782,246, US$4,233,853 and
US$5,987,879 respectively.
(b) CONTINGENCIES
Prior to the conversion into a wholly foreign owned enterprise as
mentioned in note 1 above, Shaanxi THY had certain arrangements with
the local government that the total taxes payable, including mainly
the PRC enterprise income tax and business tax, was subject to a
maximum amount of US$120,967 per annum and Shaanxi THY was not liable
to pay any tax above the maximum amount. However, this arrangement is
not in compliance with national laws and regulations in the PRC. For
this reason, the Company has made full tax provision in accordance
with relevant national and local laws and regulations in the PRC,
together with a default interest that may be levied on the Company at
a daily rate of 0.05% of the unpaid taxes. Other taxes include mainly
business tax, which have been provided at a certain percentage on the
revenues derived by the Company during the periods.
Despite the fact that the Company has made full provision of the taxes
and related default interest in the financial statements, the Company
may be subject to penalties ranging from 50% to 500% of the underpaid
tax amounts. The exact amount of penalty cannot be estimated with any
reasonable degree of certainty.
9. RETIREMENT BENEFITS AND OTHER EMPLOYMENT BENEFITS
AS STIPULATED BY THE RULES AND REGULATIONS IN THE PRC, THE COMPANY IS
REQUIRED TO CONTRIBUTE TO A STATE-SPONSORED SOCIAL INSURANCE PLAN FOR ALL
OF ITS EMPLOYEES WHO ARE RESIDENTS IN THE PRC AT RATES RANGING FROM 12% TO
17% OF THE BASIC SALARY OF ITS EMPLOYEES. THE COMPANY HAS NO FURTHER
OBLIGATIONS FOR THE ACTUAL PENSION PAYMENTS OR POST-RETIREMENT BENEFITS
BEYOND THE ANNUAL CONTRIBUTIONS. THE STATE-SPONSORED RETIREMENT PLAN IS
RESPONSIBLE FOR THE ENTIRE PENSION OBLIGATIONS PAYABLE TO ALL EMPLOYEES.
10. OPERATING RISK
(a) COUNTRY RISK
The Company may be exposed to risks as a result of its operations
being carried out in the PRC. These include risks associated with,
among others, the political, economic and legal environmental and
foreign currency exchange. The Company's results may be adversely
affected by changes in the political and social conditions in the PRC,
and by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other
things. The Company's management does not believe these risks to be
significant. There can be no assurance, however, those changes in
political and other conditions will not result in any adverse impact.
Page 16 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
10. OPERATING RISK
(b) BANK BALANCES AND CASH
The Company maintains its cash balances with various banks and trust
companies located in the PRC. Consistent with local practice, such
amounts are not insured or otherwise protected should the amounts
placed with the banks and trust companies be non-recoverable. There
has been no history of credit losses in these regards.
(c) CREDIT RISK
Credit risk represents the accounting loss that would be recognized at
the reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance
sheet) that arise from financial instruments exist for groups of
customers or counterparties when there are similar economic
characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other
conditions. Since a majority of the Company's business is on a cash
basis and credit is only granted to limited customers, it does not
consider itself be exposed to significant credit risk with regards to
collection of the receivables. There was no significant credit loss
during the six months ended June 30, 2005 and the years ended December
31, 2004 and 2003.
Page 17 of 17
<Page>
NEW TAOHUAYUAN CULTURE TOURISM CO., LTD.
17,027,328 SHARES OF COMMON STOCK
UNTIL ________________, ____ (90 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<Page>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII, Section 2, of our Articles of Incorporation provides for
indemnification of our officers, directors and controlling persons to the full
extent provided by Nevada law. Further, Article VII, Section 3, provides that no
director is personally liable to us or our stockholders for monetary damages for
any breach of fiduciary duty by such person as a director or officer except for
(i) a breach of the director's duty of loyalty to us or our stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct,
fraud or a knowing violation of law, (iii) a transaction from which the director
received an improper benefit or (iv) an act or omission for which the liability
of a director is expressly provided under Nevada law.
Under the Nevada corporate statutes, Nevada corporations are permitted to
indemnify their officers and directors for liability to stockholders, so long as
such indemnification does not include the items set forth in the previous
paragraph under (i) through (iv).
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<Table>
SEC Registration Fees $ 10,021
Blue Sky Filing Fees including Manual listings $ 10,000
Blue Sky Legal Fees $ 5,000
Printing Expenses $ 10,000
Legal Fees $ 75,000
Accounting Fees $ 95,000
Transfer Agent Fees $ 15,000
Miscellaneous Expenses $ 29,979
---------------
TOTAL $ 250,000(2)
===============
</Table>
(1) All expenses, except the SEC registration fee, are estimated.
(2) All expenses of the offering (excluding brokerage commissions) will be
borne by the Registrant and not the selling stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In the last three years, we have not issued any shares of our unregistered
securities, except for the issuance of 17,027,328 shares on December 6, 2004 to
the 934 selling stockholders which we issued pursuant to our merger with Shaanxi
New Taohuayuan Culture Tourism Co., Ltd. These shares were all issued to
non-U.S. persons who reside outside of the United States. The negotiations and
agreements relating to the issuance of these shares were made by the Company's
officers (who were all Chinese citizens) from China. The shares are restricted
from resale in the public markets for a period of one year from the date of
their issuance. Although these shares were not technically issued in accordance
with Regulation S, these shares were
<Page>
nevertheless exempt from the registration requirements of the Securities Act of
1933 by virtue of Release 4708, which was the predecessor to Regulation S.
ITEM 27. EXHIBIT INDEX.
<Table>
<Caption>
NUMBER EXHIBIT
- ------ --------------------------------------------------------------------------------------
3.1 Articles of Incorporation of the Registrant *
3.2 Bylaws of the Registrant *
5 Opinion of Counsel
10.1 Hotel Management Agreement with Shaanxi New Taohuayuan Economy Trade Co., Ltd. *
10.2 Restaurant Management Agreement with Shaanxi Wenhao Zaliang Shifu, Ltd. *
10.3 Migratory Merger Agreement with Shaanxi New Taohuayuan Culture Tourism Co., Ltd. *
10.4 Articles of Merger *
10.5 Employment Agreement with Cai Danmei
10.6 Employment Agreement with Mr. Chen *
10.7 Employment Agreement with Liu Bo
10.8 Land Use Agreement - Taohuayuan Inn
10.9 Land Use Agreement - Lantian project
10.10 Land Use Agreement - New Hainan Hotel and Resort
10.11 Tax Agreement -
14.1 Code of Ethics *
23.1 Consent of Attorneys
23.2 Consent of Accountants
99.1 Complete Stockholder List (as of the date hereof) *
99.2 Audit Committee Charter *
</Table>
<Page>
* Filed with initial registration statement.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to
the foregoing provisions, or otherwise, the small business issuer 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 small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director or controlling person in
connection with the securities being registered, the small business
issuer 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 of 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.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and
Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of
the Commission heretofore or hereafter duly adopted pursuant to authority
conferred in that section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at
the time such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof), which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
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(e) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing Form SB-2 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Xi'an, Shaanxi Province, China on September 17, 2005.
NEW TAOHUAYUAN CULTURE TOURISM CO.,
LTD.
By: /s/ Cai Danmei
-------------------------------
Cai Danmei
Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed below by the following persons.
<Table>
<Caption>
NAME POSITION DATE
- ----- --------- ----
/s/ Chen Jingmin Chairman of the Board September 17, 2005
- ----------------------------
Chen Jingmin
/s/ Cai Danmei Chief Executive Officer, September 17, 2005
- ---------------------------- Chief Financial Officer
Cai Danmei (Principal Accounting
Officer) and Director
/s/ Liu Bo Secretary and Director September 17, 2005
- ----------------------------
Liu Bo
/s/ Hu Yangxiong Director September 17, 2005
- ----------------------------
Hu Yangxiong
/s/ Yang Erping Director September 17, 2005
- ----------------------------
Yang Erping
/s/ Zhao Jianwen Director September 17, 2005
- ----------------------------
Zhao Jianwen
/s/ Wang Changzhu Director September 17, 2005
- ----------------------------
Wang Changzhu
</Table>