SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended June 30, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 000-30802
CHINA VENTURES LIMITED
----------------------
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS N/A
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1000 BRICKELL AVENUE
SUITE 900
MIAMI, FLORIDA 33131
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(305) 702-5512
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Ordinary Shares, $0.001 par value; outstanding on June 30, 2002: 249,604
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statement of Changes in Stockholders' Deficiency 5
Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
Item 1. Financial Statements.
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 33 $ 17
-------- --------
Total current assets 33 17
-------- --------
Total assets $ 33 $ 17
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to related party $ 8,000 $ 8,000
-------- --------
Total current liabilities 8,000 8,000
Stockholders' equity (deficiency)
Common stock - $.001 par value, 50,000,000 shares
authorized, 252,550 issued and outstanding 252 252
Less treasury stock (5) (5)
Additional paid-in capital 42,093 36,333
Subscription receivable (250) (250)
Deficit accumulated during the development stage (50,057) (44,313)
-------- --------
Total stockholders' equity (deficiency) (7,967) (7,983)
-------- --------
Total liabilities and stockholders' equity $ 33 $ 17
======== ========
See accompanying notes to financial statements.
3
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
(UNAUDITED) (UNAUDITED)
--------- ---------
ADMINISTRATIVE EXPENSES
Accounting and legal fees $ 4,744 $ 2,500
Consulting fees - 2,000
Bank charges - 6
--------- ---------
NET LOSS $ (4,744) $ (4,506)
========= =========
BASIC & DILUTED NET LOSS PER
SHARE $ (0.02) $ (0.02)
SHARES USED IN THE CALCULATION
OF BASIC & DILUTED NET LOSS PER
SHARE 249,604 249,604
See accompanying notes to financial statements.
4
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
Deficit
Common Stock Additional Stock Accumulated
-------------------- Treasury Paid-In Subscription During the
Shares Amount Stock Capital Receivable Dev. Stage Total
--------------------------------------------------------------------------------------------
Inception (12/10/99 to 12/31/99
Issuance of Common Stock
($.001 per share) 250,050 $250 - $(250) - -
Sale of Common Stock
($6 per share) 2,500 2 $14,998 - - $15,000
Net Loss - - - - $(20,928) (20,928)
--------------------------------------------------------------------------------------------------
Balance 12/31/99 252,550 $252 $14,998 $(250) $(20,928) $(5,928)
Additional Capital Contribution 14,925 14,926
Treasury stock as of 5/1/00 $(5) (5)
Net Loss (16,881) (16,881)
--------------------------------------------------------------------------------------------------
Balance 12/31/00 252,550 $252 $(5) $29,923 $(250) $(37,809) $(7,889)
Additional Capital Contribution 6,410 6,410
Net loss (6,504) (6,504)
--------------------------------------------------------------------------------------------------
Balance 12/31/01 252,550 $252 $(5) $36,333 $(250) $(44,313) $(7,983)
Additional Capital Contribution
5,760 5,760
Net loss
(5,744) (5,744)
--------------------------------------------------------------------------------------------------
Balance 6/30/02 252,550 $252 $(5) $42,093 $(250) $(50,057) $(7,967)
======= ==== ==== ======= ====== ========= =======
5
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
(UNAUDITED) (UNAUDITED)
------- -------
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS $(4,744) $(4,506)
------- -------
Net cash provided (used) by operating
activities: (4,744) (4,506)
------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Additional capital contributed 4,760 -
------- -------
Net cash provided (used) by financing
activities: 4,760 -
------- -------
NET INCREASE (DECREASE) IN CASH 16 (4,506)
CASH, beginning of period 17 4,566
------- -------
CASH, end of period $ 33 $ 60
======= =======
See accompanying notes to financial statements.
6
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
China Ventures Limited (the Company) was incorporated in the Cayman Islands on
December 10, 1999 for the purpose of facilitating a Chinese private company to
become a reporting public company whose securities are qualified for trading in
the United States secondary market. The Company has the intention of attempting
to locate and negotiate with a target business entity, initially from the
People's Republic of China (PRC), to effect a merger or some other business
combination, in exchange for the opportunity to acquire ownership interest in a
publicly registered company without incurring the cost and time required to
conduct an initial public offering. If this initial attempt fails, the Company
is not expected to restrict its search to any specific business, industry or
geographical location.
As of June 30, 2002 the Company is in the development stage and has not started
operations - accordingly these financial statements are prepared in accordance
with SFAS 7, "Accounting and Reporting by Development Stage Enterprises" as
issued by the Financial Accounting Standards Board.
ACCOUNTING METHOD
The Company presents its financial statements under the accrual basis of
accounting, under which method revenues are recognized when earned rather than
when received, and expenses are recognized when incurred rather than when paid.
EARNINGS PER SHARE
Primary and fully diluted loss per share is computed based on weighted average
of common shares outstanding of 249,604 at June 30, 2002.
INCOME TAXES
The Company is incorporated in the Cayman Islands and is, therefore, not subject
to income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
7
CHINA VENTURES LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company has not entered into
derivatives contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption of the new standard
to have a material effect on its financial statements.
NOTE B - GOING CONCERN
As shown in the accompanying financial statements, the Company is in the
development stage, has yet to generate operating revenues and will require a
significant amount of capital to commence its planned principal operations. As
reflected in the accompanying financial statements, the Company has incurred
accumulated losses since inception of $50,057 and has raised an insignificant
amount of capital. As such, there is no assurance that the Company will be
successful in its efforts to raise the necessary capital to commence its planned
principal operations.
The Company has indicated that its principal operation is to engage in a merger
or acquisition with an unidentified company or companies and may issue "penny
stock" securities as defined in the Securities and Exchange Act of 1934. The
Company will require a significant amount of capital to commence its planned
principal operations. Accordingly, the Company's ability to continue as a going
concern is dependent upon its ability to secure an adequate amount of capital to
finance its planned principal operations.
The Company's plans include a merger and a subsequent public offering of its
common stock; however there is no assurance that they will be successful in
their efforts to raise capital or to obtain a business combination.
These conditions raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
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NOTE C - RELATED PARTY TRANSACTIONS
A stockholder of the Company acted as legal counsel during 1999. Legal fees and
incorporation costs for the year ended December 31, 1999 in the amount of
$11,678 were payable to a law firm in which this stockholder is a partner.
During the year ended December 31, 1999, the Company borrowed $8,000, due on
demand, from an entity related through common ownership. This amount is
uncollateralized and non-interest bearing.
NOTE D - RECENT SALES OF UNREGISTERED SECURITIES
In December 1999 China Ventures issued and sold 2,500 ordinary shares to 25
individuals for aggregate consideration of $15,000. China Ventures did not sell
these ordinary shares in reliance on any exception from the United States
federal securities laws as all purchasers were residents of the Republic of
China.
On December 16, 1999, in connection with the formulation of China Ventures, Mr.
Hong Yang received 123,750 ordinary shares, Mr. James Chow received 121,250
ordinary shares and Mr. Ricardo Bajandas received 5,050 ordinary shares. Each of
Mr. Yang, Mr. Chow, and Mr. Bajandas paid par value as consideration for the
shares issued in connection with the formulation of China Ventures. Mr. Yang and
Mr. Chow are residents of China. Mr. Bajandas is a resident of the United
States. Accordingly, no exception was required for the issuance of ordinary
shares to Mr. Yang or Mr. Chow. Mr. Bajandas purchased his ordinary shares of
China Ventures in reliance on Rule 4(2) promulgated under the Securities Act. In
May 2000, in connection with the termination of Mr. Bajandas' engagement with
China Ventures, Mr. Bajandas agreed to transfer his ordinary shares to China
Ventures.
NOTE E - TRANSACTIONS WITH STATE-OWNED ENTITIES
A significant portion of the Company's transactions might be undertaken,
directly or indirectly with State-owned enterprises in the PRC and on such
commercial terms as determined between the relevant PRC State-owned enterprises
and the Company.
NOTE F - FOREIGN CURRENCY EXCHANGE
A significant portion of the business of the Company's PRC Subsidiaries may be
undertaken in Renmin (RMB), the national currency of the PRC, which is not
freely convertible into the US$ or other foreign currencies.
9
NOTE G - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
If a merger, alliance or some other business combination is successful, the
Company's operating assets and primary source of income and cash flow are
expected to be its interests in its subsidiaries in the PRC. The value of the
Company's interests in these subsidiaries may be adversely affected by
significant political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies for many years, no
assurance can be given that the PRC government will continue to pursue such
policies or that such policies may not be significantly altered, especially in
the event of a change in leadership, social or political disruption or
unforeseen circumstances affecting the PRC's political, economic and social
conditions. There is also no guarantee that the PRC government's pursuit of
economic reforms will be consistent or effective.
NOTE H - UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements presented as of June 30, 2002 and for three
months ended June 30, 2002 contain all adjustments necessary, in management's
opinion, for a fair presentation of financial position and results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Registrant has not, as of the end of the three month period ended June 30,
2002, commenced active business operations. As of June 30, 2002 the Registrant
had assets in the amount of $33, liabilities in the amount of $8,000 and the
total Shareholders' Deficit was $7,967.
The Registrant has no reasonable basis for comparison with respect to its
quarterly financial results in that the Company has not yet commenced its
business operations.
The recurring professional fees and other costs of complying with filings with
the Securities and Exchange Commission, the Internal Revenue Service and others
is being funded through contributions to capital by the Company's principal
shareholder.
10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There is no litigation pending or threatened by or against China Ventures.
ITEM 2. CHANGES IN SECURITIES.
In December 1999, China Ventures issued and sold 2,500 ordinary shares to 25
individuals for aggregate consideration of $15,000. China Ventures did not sell
these ordinary shares in reliance on any exemption from the United States
federal securities laws as all purchasers were residents of the Republic of
China.
On December 16, 1999, in connection with the formation of China Ventures, Mr.
Hong Yang received 123,750 ordinary shares, Mr. James Chow received 121,250
ordinary shares and Mr. Ricardo Bajandas received 5,050 ordinary shares. Each of
Mr. Yang, Mr. Chow and Mr. Bajandas paid par value as consideration for the
shares issued in connection with the formation of China Ventures. Mr. Yang and
Mr. Chow are residents of China. Mr. Bajandas is a resident of the United
States. Accordingly, no exemption was required for the issuance of ordinary
shares to Mr. Yang or Mr. Chow. Mr. Bajandas purchased his ordinary shares of
China Ventures in reliance on Rule 4(2) promulgated under the Securities Act. In
May 2000, in connection with the termination of Mr. Bajandas' engagement with
China Ventures, Mr. Bajandas agreed to transfer his ordinary shares to China
Ventures.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
11
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
CHINA VENTURES LIMITED
Date: July 22, 2002 By: /s/ James N.L. Chow
------------------------------------------
James N.L. Chow
Secretary &
Principal Financial and Accounting Officer
12