SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
DUNHUANG TREASURES LIMITED
(Exact name of registrant as specified in its charter)
British Virgin Islands
None
(State or Other Jurisdiction
(IRS Employer
Identification No.)
of Incorporation or Organization)
4519 Admiralty Way, Suite A, Marina del Rey, California
90292
(Address of principal executive offices)
(Zip Code)
(310) 482-6940
(Issuer's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of each class
Name of Each Exchange on which
to be so registered
each class is to be registered
None
None
Securities to be registered pursuant to section 12(g) of the Act: Common Stock, no par value
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a small reporting company. See definition of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Small reporting company [ X ]
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Item 1.
Business
Background
Dunhuang Treasures Limited, a British Virgin Islands corporation (the “Company”) was incorporated on June 11, 2010. The Company has no operating history other than organizational matters, and was formed specifically to be a reporting "shell” company without any operating history and for the purpose of either merging with or acquiring an operating company with operating history and assets. The United States Securities and Exchange Commission (the “SEC”) defines those companies as "any development stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) of the Exchange Act, and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies." Under SEC Rule 12b-2 under the Exchange Act, we also qualify as a “shell company” because we have no or nominal assets (other than cash) and no or nominal operations. Many states have enacted statutes, rules and regulations limiting the sale of securities of "blank check" companies in their respective jurisdictions. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. We intend to comply with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements.
The primary activity of the Company will involve seeking merger or acquisition candidates with whom it can either merge or acquire. The Company has not selected any company for acquisition or merger and does not intend to limit potential acquisition candidates to any particular field or industry, but does retain the right to limit acquisition or merger candidates, if it so chooses, to a particular field or industry. The Company's plans are in the conceptual stage only.
The executive offices of the Company are located at 4519 Admiralty Way, Suite A, Marina del Rey, California 90292. Its telephone number is (310) 482-6940.
Plan of Operation - General
The Company was organized for the purpose of creating a corporate vehicle to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities. At this time, the Company has no plan, proposal, agreement, understanding or arrangement to acquire or merge with any specific business or company, and the Company has not identified any specific business or company for investigation and evaluation. No member of Management or promoter of the Company has had any material discussions with any business with respect to acquisition by the Company. Although the Company's Common Stock is currently not freely tradable, it can eventually become so under exemptions such as Rule 144 promulgated under the Securities Act of 1933. See “Description of Securities.” The Company will not restrict its search to any specific business, industry or geographical location, and the Company may participate in a business venture of virtually any kind or nature. However, the majority of reverse merger transactions are currently taking place with private entities based in the People's Republic of China, and management expects that most of the reverse merger opportunities presented to the Company will likely involve Chinese companies. See "Risk Factors" for disclosure regarding special risks associated with an acquisition of a Chinese entity.
The discussion of the proposed business under this caption and throughout this Registration Statement is purposefully general and is not meant to be restrictive of the Company's virtually unlimited discretion to search for and enter into potential business opportunities.
Contemporaneous with an acquisition or afterwards, the Company may obtain funds in one or more private placements to finance the operation and growth of any acquired business. Persons purchasing securities in these placements and other shareholders will likely not have the opportunity to participate in the decision relating to any acquisition as the acquisition agreement may already be made. Also the Company may raise funds in one or more private placements in advance of an acquisition, to enhance the Company's attractiveness as a merger partner and to enable it to pursue more complex or challenging acquisitions that require more funds on hand for diligence and other specific transaction requirements. Such pre acquisition financings are sometimes referred to as a “blind pool” financings because such investors would entrust their investment monies to the Company's management before they have a chance to analyze any ultimate use to which their money may be put. Consequently, the Company's potential success is heavily dependent on the Company's management, which will have virtually unlimited discretion in searching for and entering into a business opportunity. The officer and directors of the Company have limited experience in the proposed business of the Company. There can be no assurance that the Company will be able to raise any funds in private placements. In any private placement, management may purchase shares on the same terms as offered in the private placement. (See “Risk Factors” and “Management”).
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Management anticipates that it will only participate in one potential business venture. This lack of diversification should be considered a substantial risk in investing in the Company because it will not permit the Company to offset potential losses from one venture against gains from another (see “Risk Factors”).
The Company may seek a business opportunity with a firm which only recently commenced operations, or a developing company in need of additional funds for expansion into new products or markets, or seeking to develop a new product or service, or an established business which may be experiencing financial or operating difficulties and is in the need for additional capital which is perceived to be easier to raise by a public company. In some instances, a business opportunity may involve the acquisition or merger with a corporation which does not need substantial additional cash but which desires to establish a public trading market for its common stock. The Company may purchase assets and establish wholly owned subsidiaries in various business or purchase existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in which to participate will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries, and shortages of available capital, management believes that there are numerous firms seeking the benefits of a publicly traded corporation. Such perceived benefits of a publicly traded corporation may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for the principals of a business, creating a means for providing incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all shareholders, and other factors. Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
As is customary in the industry, the Company may pay a finder's fee for locating an acquisition prospect. If any such fee is paid, it will be approved by the Company's Board of Directors and will be in accordance with the industry standards. Such fees are customarily between 1% and 5% of the size of the transaction, based upon a sliding scale of the amount involved. Such fees are typically in the range of 5% on a $1,000,000 transaction ratably down to 1% in a $4,000,000 transaction. Management has adopted a policy that such a finder's fee or real estate brokerage fee could, in certain circumstances, be paid to any employee, officer, director or 5% shareholder of the Company, if such person plays a material role in bringing a transaction to the Company.
As part of any transaction, the acquired company may require that Management or other stockholders of the Company sell all or a portion of their shares to the acquired company, or to the principals of the acquired company. It is anticipated that the sales price of such shares will be lower than the current market price or anticipated market price of the Company's Common Stock. The Company's funds are not expected to be used for purposes of any stock purchase from insiders. The Company shareholders will not be provided the opportunity to approve or consent to such sale. The opportunity to sell all or a portion of their shares in connection with an acquisition may influence management's decision to enter into a specific transaction. However, management believes that since the anticipated sales price will be less than market value, that the potential of a stock sale by management will be a material factor on their decision to enter a specific transaction.
The above description of potential sales of management stock is not based upon any corporate bylaw, shareholder or board resolution, or contract or agreement. No other payments of cash or property are expected to be received by Management in connection with any acquisition.
The Company has not formulated any policy regarding the use of consultants or outside advisors, but does not anticipate that it will use the services of such persons.
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The Company has, and will continue to have following the completion of this offering, insufficient capital with which to provide the owners of business opportunities with any significant cash or other assets. However, management believes the Company will offer owners of business opportunities the opportunity to acquire a controlling ownership interest in a public company at substantially less cost than is required to conduct an initial public offering. The owners of the business opportunities will, however, incur significant post-merger or acquisition registration costs in the event they wish to register a portion of their shares for subsequent sale. The Company will also incur significant legal and accounting costs in connection with the acquisition of a business opportunity including the costs of preparing post-effective amendments, Forms 8-K, agreements and related reports and documents nevertheless, the officer and directors of the Company has not conducted market research and are not aware of statistical data which would support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity, as opposed to engaging in an initial public offering or registering their existing company on Form 10. A shell company (such as the Company) which already has registered its common stock on a Form 10, presents to many prospective business opportunities the perceived advantage of having passed one of the regulatory requirements (registration under Section 12 of the Securities Exchange Act) which is required for listing of the common stock on a national securities exchange or other US trading market. On its part, the Company will likely be required, as a condition of any acquisition transaction, to retire any existing liabilities it may have and indemnify the incoming business opportunity for any unknown liabilities.
The Company does not intend to make any loans to any prospective merger or acquisition candidates or to unaffiliated third parties.
Sources of Opportunities
The Company anticipates that business opportunities for possible acquisition will be referred by various sources, including its officer and directors, professional advisers, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals.
The Company will seek a potential business opportunity from all known sources, but will rely principally on personal contacts of its officer and directors as well as indirect associations between them and other business and professional people. It is not presently anticipated that the Company will engage professional firms specializing in business acquisitions or reorganizations.
The officer and directors of the Company are currently employed in other positions and will devote only a portion of their time (not more than one hour per week) to the business affairs of the Company, until such time as an acquisition has been determined to be highly favorable, at which time they expect to spend full time in investigating and closing any acquisition for a period of two weeks. In addition, in the face of competing demands for their time, the officer and director may grant priority to his full-time position rather than to the Company. The officer and director is also the sole officer and director of 7 other companies with identical structure and business purpose as the Company. As a result, this officer and director will probably only be able to devote time to an acquisition for one of the 8 companies at any one time. See "Management-Conflicts of Interest."
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Evaluation of Opportunities
The analysis of new business opportunities will be undertaken by or under the supervision of the officer and directors of the Company (see “Management”). Management intends to concentrate on identifying prospective business opportunities which may be brought to its attention through present associations with management. In analyzing prospective business opportunities, management will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operation, if any; prospects for the future; present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services or trades; name identification; and other relevant factors. The officer and directors of each Company will meet personally with management and key personnel of the firm sponsoring the business opportunity as part of their investigation. To the extent possible, the Company intends to utilize written reports and personal investigation to evaluate the above factors. The Company will not acquire or merge with any company for which audited financial statements cannot be obtained.
It may be anticipated that any opportunity in which the Company participates will present certain risks. Many of these risks cannot be adequately identified prior to selection of the specific opportunity, and the Company's shareholders must, therefore, depend on the ability of management to identify and evaluate such risk. In the case of some of the opportunities available to the Company, it may be anticipated that the promoters thereof have been unable to develop a going concern or that such business is in its development stage in that it has not generated significant revenues from its principal business activities prior to the Company's participation. There is a risk, even after the Company's participation in the activity and the related expenditure of the Company's funds, that the combined enterprises will still be unable to become a going concern or advance beyond the development stage. Many of the opportunities may involve new and untested products, processes, or market strategies which may not succeed. Such risks will be assumed by the Company and, therefore, its shareholders.
The Company will not restrict its search for any specific kind of business, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is currently impossible to predict the status of any business in which the Company may become engaged, in that such business may need additional capital, may merely desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer.
Acquisition of Opportunities
In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, franchise or licensing agreement with another corporation or entity. It may also purchase stock or assets of an existing business. On the consummation of a transaction, it is possible that the present management and shareholders of the Company will not be in control of the Company. In addition, a majority or all of the Company's officer(s) and director(s) may, as part of the terms of the acquisition transaction, resign and be replaced by new officers and directors without a vote of the Company's shareholders. The Memorandum and Articles of Association do not require shareholder approval for the acquisition of another company, and the Company does not expect that shareholder approval will be solicited. However, since the Company's sole shareholder is controlled by its management, and the Company does not expect to sell any additional shares prior to any acquisition, the issue of shareholder approval will not be a material factor in any acquisition.
Should we acquire a business opportunity doing business in the PRC, we may be required to structure such acquisition as a series of contractual relationships rather than an acquisition of direct control. See "Risk Factors - Risks Related to Doing Business in China (applicable if we acquire a PRC business)."
It is anticipated that any securities issued in any such reorganization would be issued in reliance on exemptions from registration under applicable Federal and state securities laws. In some circumstances, however, as a negotiated element of this transaction, the Company may agree to register such securities either at the time the transaction is consummated, under certain conditions, or at specified time thereafter. The issuance of substantial additional securities and their potential sale into any trading market which may develop in the Company's Common Stock may have a depressive effect on such market. While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to avoid the creation of a taxable event and thereby structure the acquisition in a so called “tax free” reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code of 1986, as amended (the “Code”). In order to obtain tax free treatment under the Code, it may be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company would retain less than 20% of the issued and outstanding shares of the surviving entity, which could result in significant dilution in the equity of such shareholders.
As part of the Company's investigation, the officer and director of the Company will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check reference of management and key personnel, and take other reasonable investigative measures, to the extent of the Company's limited financial resources and management expertise.
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The manner in which each Company participates in an opportunity will depend on the nature of the opportunity, the respective needs and desires of the Company and other parties, the management of the opportunity, and the relative negotiating strength of the Company and such other management.
With respect to any mergers or acquisitions, negotiations with target company management will be expected to focus on the percentage of the Company which target company shareholders would acquire in exchange for their shareholdings in the target company. Depending upon, among other things, the target company's assets and liabilities, the Company's shareholders will in all likelihood hold a lesser percentage ownership interest in the Company following any merger or acquisition. The percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect on the percentage of shares held by the Company's then shareholders, including purchasers in this offering. (See “Risk Factors).
The Company will not have sufficient funds (unless it is able to raise funds in a private placement) to undertake any significant development, marketing and manufacturing of any products which may be acquired. Accordingly, following the acquisition of any such product, the Company will, in all likelihood, be required to either seek debt or equity financing or obtain funding from third parties, in exchange for which the Company would probably be required to give up a substantial portion of its interest in any acquired product. There is no assurance that the Company will be able either to obtain additional financing or interest third parties in providing funding for the further development, marketing and manufacturing of any products acquired.
It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity the costs therefore incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in the loss of the Company of the related costs incurred.
Management believes that the Company may be able to benefit from the use of “leverage” in the acquisition of a business opportunity. Leveraging a transaction involves the acquisition of a business through incurring significant indebtedness for a large percentage of the purchase price for that business. Through a leveraged transaction, the Company would be required to use less of its available funds for acquiring the business opportunity and, therefore, could commit those funds to the operations of the business opportunity, to acquisition of other business opportunities or to other activities. The borrowing involved in a leveraged transaction will ordinarily be secured by the assets of the business opportunity to be acquired. If the business opportunity acquired is not able to generate sufficient revenues to make payments on the debt incurred by the Company to acquire that business opportunity, the lender would be able to exercise the remedies provided by law or by contract. These leveraging techniques, while reducing the amount of funds that the Company must commit to acquiring a business opportunity, may correspondingly increase the risk of loss to the Company. No assurance can be given as to the terms or the availability of financing for any acquisition by the Company. No assurance can be given as to the terms or the availability of financing for any acquisition by the Company. During periods when interest rates are relatively high, the benefits of leveraging are not as great as during periods of lower interest rates because the investment in the business opportunity held on a leveraged basis will only be profitable if it generates sufficient revenues to cover the related debt and other costs of the financing. Lenders from which the Company may obtain funds for purposes of a leveraged buy-out may impose restrictions on the future borrowing, distribution, and operating policies of the Company. It is not possible at this time to predict the restrictions, if any, which lenders may impose or the impact thereof on the Company.
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Competition
The Company is an insignificant participant among firms which engage in business combinations with, or financing of, development stage enterprises. There are many established management and financial consulting companies and venture capital firms which have significantly greater financial and personnel resources, technical expertise and experience than the Company. In view of the Company's limited financial resources and management availability, the Company will continue to be a significant competitive disadvantage vis-à-vis the Company's competitors. According to the SEC's EDGAR website, there are approximately 1700 companies with the SIC code for blank checks (6770). Many of these blank checks are inactive or have already entered into an acquisition transaction, and many other companies may have abandoned their prior line of business and are now de facto blank check shell companies. There is no clearinghouse or central database of blank check companies, so it is impossible for management to estimate the number of potential blank check companies with which the Company will compete for business opportunities.
Regulation and Taxation
The Investment Company Act of 1940 defines an “investment company” as an issuer which is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading of securities. While the Company does not intend to engage in such activities, the Company could become subject to regulation under the Investment Company Act of 1940 in the event the Company obtains or continues to hold a minority interest in a number of development stage enterprises. The Company could be expected to incur significant registration and compliance costs if required to register under the Investment Company Act of 1940. Accordingly, management will continue to review the Company's activities from time to time with a view toward reducing the likelihood the Company could be classified as an “investment company.”
The Company intends to structure a merger or acquisition in such manner as to minimize Federal and state tax consequences to the Company and to any target company.
Effect of Existing or Probable Governmental Regulations on Business
Upon effectiveness of this registration statement, we will be subject to the Sarbanes-Oxley Act of 2002. This Act creates a strong and independent accounting oversight board to oversee the conduct of auditors, of public companies and to strengthen auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, and compensation and oversight of the work of public companies’ auditors; prohibits certain insider trading during pension fund blackout periods; and establishes a federal crime of securities fraud, among other provisions.
Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to our stockholders at a special or annual meeting thereof or pursuant to a written consent will require us to provide our stockholders with the information outlined in Schedules 14A or 14C of Regulation 14A; preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our stockholders. Since we do not expect to solicit shareholder approval for any business combination, we do not expect to send any information or proxy statement to shareholders in connection therewith.
We will also be required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K.
If we are acquired by a “non-reporting issuer” under the Exchange Act, we will be required to file a Current Report on Form 8-K that will include all information about such “non-reporting issuer” as would have been required to be filed by that entity had it filed a Form 10 Registration Statement with the SEC.
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We will also be prohibited from utilizing Form S-8 for the registration of our securities until we have not been a shell company for at least 60 days. Under subparagraph (i) of Rule 144, no sales of “restricted securities” issued by us while we are a shell company can be publicly sold for at least one year from when we file the Form 10 information about any acquisition, reorganization or merger that results in us no longer being considered to be a shell company.
Finally, the SEC, state securities commissions and NASAA (North American Securities Administrators Association) have expressed an interest in adopting policies that will streamline the registration process and make it easier for smaller reporting companies to have access to the public capital markets. The present laws, rules and regulations designed to promote availability to the smaller reporting company of these capital markets and similar laws, rules and regulations that may be adopted in the future will substantially limit the demand for blank check or shell companies like us, and may make the use of these companies obsolete.
Reports to Security Holders
Upon effectiveness of this registration statement, we will be required to comply with the reporting requirements of the Exchange Act. We will be required to file annual, quarterly and other reports with the SEC. We will also be subject to the proxy solicitation requirements of the Exchange Act and, accordingly, will furnish an annual report with audited financial statements to our stockholders. Copies of this registration statement may be inspected, without charge, at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of this material also should be available through the Internet by using the SEC’s EDGAR Archive, which is located at http://www.sec.gov. As of the date of this filing, the Company does not have an Internet web site.
Employees
The Company's only employees at the present time are its officer and director, who will devote as much time as the Board of Directors determine is necessary to carry out the affairs of the Company. (See “Management”).
Item 1A. RISK FACTORS.
AN INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE IN NATURE AND INVOLVES A HIGH DEGREE OF RISK.
Risks Related to Our Business
We have extremely limited assets and no source of revenue.
We have virtually no assets and have had no revenues since inception. We will not receive revenues until we select an industry in which to commence business or complete an acquisition, reorganization or merger. We can provide no assurance that any selected or acquired business will produce any material revenues for us or our stockholders, or that any such business will operate on a profitable basis.
We will, in all likelihood, sustain operating expenses without corresponding revenues, at least until the consummation of a merger or other business combination with a private company. This may result in our incurring a net operating loss that will increase unless we consummate a business combination with a profitable business. We cannot assure you that we can identify a suitable business opportunity and consummate a business combination, or that any such business will be profitable at the time of its acquisition by the Company or ever.
We face a number of risks associated with potential acquisitions, including the possibility that we may incur substantial debt which could adversely affect our financial condition.
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We intend to use reasonable efforts to complete a merger or other business combination with an operating business. Such combination will be accompanied by risks commonly encountered in acquisitions, including, but not limited to, difficulties in integrating the operations, technologies, products and personnel of the acquired companies and insufficient revenues to offset increased expenses associated with acquisitions. Failure to manage and successfully integrate acquisitions we make could harm our business, our strategy and our operating results in a material way. Additionally, completing a business combination is likely to increase our expenses and it is possible that we may incur substantial debt in order to complete a business combination, which can adversely affect our financial condition. Incurring a substantial amount of debt may require us to use a significant portion of our cash flow to pay principal and interest on the debt, which will reduce the amount available to fund working capital, capital expenditures, and other general purposes. Our indebtedness may negatively impact our ability to operate our business and limit our ability to borrow additional funds by increasing our borrowing costs, and impact the terms, conditions, and restrictions contained in possible future debt agreements, including the addition of more restrictive covenants; impact our flexibility in planning for and reacting to changes in our business as covenants and restrictions contained in possible future debt arrangements may require that we meet certain financial tests and place restrictions on the incurrence of additional indebtedness and place us at a disadvantage compared to similar companies in our industry that have less debt.
Future success is highly dependent on the ability of management to locate and attract a suitable acquisition.
The nature of our operations is highly speculative, and there is a consequent risk of loss of an investment in the Company. The success of our plan of operation will depend to a great extent on the operations, financial condition and management of a yet to be identified business opportunity. While management intends to seek business combination(s) with entities having established operating histories, we cannot provide any assurance that we will be successful in locating candidates meeting that criterion. In the event we complete a business combination, the success of our operations may be dependent upon management of the successor firm or venture partner firm and numerous other factors beyond our control.
Management intends to devote only a limited amount of time to seeking a target company which may adversely impact our ability to identify a suitable acquisition candidate.
While seeking a business combination, management anticipates devoting limited time to our affairs. Our officer have not entered into written employment agreements with the Company and are not expected to do so in the foreseeable future. This limited commitment may adversely impact our ability to identify and consummate a successful business combination.
There can be no assurance that we will successfully consummate a business combination.
We can give no assurances that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination. Management has not identified any particular industry or specific business within an industry for evaluation. We cannot guarantee that we will be able to negotiate a business combination on favorable terms. At the date of this filing, we have no arrangement, agreement or understanding with respect to engaging in a merger with, joint venture with or acquisition of, a private or public entity. No assurances can be given that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination.
The terms for any future business combination that involve related parties or affiliates may not be on terms that are comparable to what could be obtained from unaffiliated third parties.
Our management and affiliates will play an integral role in establishing the terms for any future business combination. We do not have policies and procedures in place to govern transactions with related parties or affiliates, accordingly, these transactions may be negotiated between related parties without “arms length” bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons.
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Reporting requirements under the Exchange Act and compliance with the Sarbanes-Oxley Act of 2002, including establishing and maintaining acceptable internal controls over financial reporting, are costly.
The Company currently has no business that produces revenues; however, the rules and regulations pursuant to the Exchange Act require a public company to provide periodic reports which will require the Company to engage legal, accounting and auditing services. The engagement of such services can be costly and the Company is likely to incur losses which may adversely affect the Company’s ability to continue as a going concern. Additionally, the Sarbanes-Oxley Act of 2002 will require the Company to establish and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act of 2002 and the limited time that management will devote to the Company may make it difficult for the Company to establish and maintain adequate internal controls over financial reporting. In the event the Company fails to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our financial condition and result in loss of investor confidence and a decline in our share price.
The time and cost of preparing a private company to become a public reporting company may preclude us from entering into a merger or acquisition with the most attractive private companies.
Target companies that fail to comply with SEC reporting requirements may delay or preclude acquisition. Sections 13 and 15(d) of the Exchange Act require reporting companies to provide certain information about significant acquisitions, including certified financial statements for the company acquired, covering one, two, or three years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target entities to prepare these statements may significantly delay or essentially preclude consummation of an acquisition. Otherwise suitable acquisition prospects that do not have or are unable to obtain the required audited statements may be inappropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.
Any potential acquisition or merger with a foreign company may subject us to additional risks.
If we enter into a business combination with a foreign company, we will be subject to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations, regulatory problems, punitive tariffs, unstable local tax policies, trade embargos, risks related to import and export restrictions and taxes applicable to shipments of raw materials and finished goods across national borders, and cultural and language differences. Foreign economies may differ favorably or unfavorably from the United States economy in growth of gross national product, rate of inflation, market development, rate of savings, and capital investment, resource self-sufficiency and balance of payments positions, and in other respects.
Risks Related to Our Stockholders and Shares of Common Stock
The Board of Directors has the right to amend the Memorandum of Association without shareholder approval, and may make amendments which reduce protection of shareholders.
As permitted by BVI law and the Memorandum of Association, the Board of Directors has the right to amend the Memorandum and Articles of Association without shareholder approval. Therefore, the Board of Directors will have the sole power to change the name of the Company, its corporate purposes, to authorize additional shares of common stock or classes of stock with rights senior to the common stock, or to eliminate provisions which protect shareholders.
There is currently no trading market for our common stock, and liquidity of shares of our common stock is limited.
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Shares of our common stock are not registered under the securities laws of any state or other jurisdiction, and accordingly there is no public trading market for the common stock. Further, no public trading market is expected to develop in the foreseeable future unless and until we complete a business combination with an operating business or the Company files and obtains effectiveness of a registration statement under the Securities Act of 1933, as amended (the “Securities Act”). Therefore, outstanding shares of common stock cannot be offered, sold, pledged or otherwise transferred unless subsequently registered pursuant to, or exempt from registration under, the Securities Act and any other applicable federal or state securities laws or regulations. Stockholders may rely on the exemption from registration provided by Rule 144 of the Securities Act (“Rule 144”), subject to certain restrictions; namely, common stock may not be sold until one year after:
(i) the completion of a business combination with a private company in a reverse merger or reverse takeover transaction after which the Company would cease to be a “shell company” (as defined in Rule 12b-2 under the Exchange Act) and
(ii) the disclosure of certain information on a Current Report on Form 8-K within four business days thereafter, and only if the Company has been current in all of its periodic SEC filings for the 12 months preceding the contemplated sale of stock.
Compliance with the criteria for securing exemptions under federal securities laws and the securities laws of the various states is extremely complex, especially in respect of those exemptions affording flexibility and the elimination of trading restrictions in respect of securities received in exempt transactions and subsequently disposed of without registration under the Securities Act or state securities laws.
We have never paid dividends on our common stock.
We have never paid dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. We anticipate that any funds available for payment of dividends will be re-invested into the Company to further our business strategy.
We cannot assure you that following a business combination with an operating business, our common stock will be listed on NASDAQ or any other securities exchange.
Following a business combination, we may seek the listing of our common stock on NASDAQ, the New York Stock Exchange or the NYSE Amex Equities. However, we cannot assure you that following such a transaction, we will be able to meet the initial listing standards of either of those or any other stock exchange. After completing a business combination, until our common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the “pink sheets,” where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to an SEC rule that, if we failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital following a business combination.
It is likely that our common stock will be considered “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.
Our common stock may be deemed to be “penny stock” as that term is defined under the Exchange Act. Penny stocks generally are equity securities with a price of less than $5.00. Penny stock rules impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth (excluding principal residence) in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse.
The penny stock rules require a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. A broker/dealer must receive a written agreement to the transaction from the investor setting forth the identity and quantity of the penny stock to be purchased. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.
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We expect to issue more shares in a merger or acquisition, which will result in substantial dilution.
Our Memorandum of Association authorizes the Company to issue an aggregate of 1,000,000,000 shares of common stock and 100,000,000 shares of preferred stock. Any merger or acquisition effected by the Company may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, our common stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock or preferred stock are issued in connection with a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of common stock might be materially adversely affected.
Our Preferred Stock, if and when issued, could be convertible into up to one trillion shares of common stock
The Company's Memorandum of Association authorizes the issuance of 100,000,000 shares of preferred stock, no par value, of which no shares are issued and outstanding. Each share of the preferred stock shall be convertible into 10,000 shares of common stock and has the same voting, dividend and liquidation rights as common stock on an as converted basis. The Company currently has no plans to issue any preferred stock. As a result of the conversion rights of the preferred stock, if all the preferred stock is issued it will be equivalent to 1,000,000,000,000 (one trillion) common shares.
Shareholders holding only one-third of our common stock may take action at any adjourned meeting.
Our Articles of Association provide that no less than 50% of the shareholders entitled to vote constitute the quorum requisite for the conducting of business, but, if such a quorum is present and the meeting is adjourned, the requisite quorum for the continued meeting is only one-third. As a result, it is possible that shareholder actions could be approved by only 33.33% of the shareholders.
Risks Related to Doing Business in China (applicable if we acquire a PRC business)
Governmental control of currency conversion may affect the value of your investment.
The PRC government imposes controls on the convertibility of Renminbi (“RMB”) into foreign currencies and, in certain cases, the remittance of currency out of China. Shortages in the availability of foreign currency may restrict the ability of any PRC subsidiary we may acquire to remit sufficient foreign currency to pay cash or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our common stock.
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Recent PRC regulations relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could limit the ability of our PRC subsidiaries to distribute dividends or otherwise adversely affect the implementation of our acquisition strategy.
The PRC State Administration of Foreign Exchange (“SAFE”), issued a public notice in January 2005 concerning foreign exchange regulations on mergers and acquisitions in China. The public notice states that if an offshore company intends to acquire a PRC company, such acquisition will be subject to strict examination by the relevant foreign exchange authorities. The public notice also states that the approval of the relevant foreign exchange authorities is required for any sale or transfer by the PRC residents of a PRC company’s assets or equity interests to foreign entities, such as us, for equity interests or assets of the foreign entities.
In April 2005, SAFE issued another public notice clarifying the January notice. In accordance with the April notice, if an acquisition of a PRC company by an offshore company controlled by PRC residents had been confirmed by a Foreign Investment Enterprise Certificate prior to the issuance of the January notice, each of the PRC residents is required to submit a registration form to the local SAFE branch to register his or her respective ownership interests in the offshore company. The SAFE notices do not specify the timeframe during which such registration must be completed. The PRC resident must also amend such registration form if there is a material event affecting the offshore company, such as, among other things, a change to share capital, a transfer of stock, or if such company is involved in a merger and an acquisition or a spin-off transaction or uses its assets in China to guarantee offshore obligations. We will be required to notify our shareholders who are PRC residents to register with the local SAFE branch as required under the SAFE notices. However, we cannot provide any assurances that all of our shareholders who are PRC residents will comply with our request to make or obtain any applicable registrations or approvals required by these SAFE notices. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth therein may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends to us.
As it is uncertain how the SAFE notices will be interpreted or implemented, it is difficult to predict how these regulations will affect our business operations or future strategy. For example, we may be subject to more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC company, we cannot assure our shareholders or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the SAFE notices. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
Fluctuation in the value of the RMB may have a material adverse effect on your investment.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. Our revenues and costs will likely be denominated in RMB. An appreciation of RMB against the U.S. dollar would also result in foreign currency translation losses for financial reporting purposes when we translate our RMB denominated liabilities into U.S. Dollars, as the U.S. Dollar would likely be our reporting currency.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents, if applied to us, may subject the PRC resident shareholders of us or our parent company to personal liability and limit our ability to acquire. PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiary's ability to distribute profits to us or otherwise materially adversely affect us.
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In October 2005 SAFE issued a public notice, the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, or the SAFE notice, which requires PRC residents, including both legal persons and natural persons, to register with the competent local SAFE branch before establishing or controlling any company outside of China, referred to as an "offshore special purpose company," for the purpose of overseas equity financing involving onshore assets or equity interests held by them. In addition any PRC resident that is the shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with any increase or decrease of capital transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. Moreover, if the offshore special purpose company was established and owned the onshore assets or equity interests before the implementation date of the SAFE notice, a retroactive SAFE registration is required to have been completed before March 31, 2006. If any PRC shareholder of any offshore special purpose company fails to make the required SAFE registration and amendment, the PRC subsidiaries of that offshore special purpose company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the offshore special purpose company. Moreover, failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. After the SAFE notice, an implementation rule on the SAFE notice was issued on May 29, 2007 which provides for implementation guidance and supplements the procedures as provided in the SAFE notice.
Due to lack of official interpretation of SAFE notice and implementation rules, some of the terms and provisions in the SAFE remain unclear and implementation by central SAFE and local SAFE branches of the SAFE notice has been inconsistent since its adoption. It is likely that any of our PRC resident shareholders will be required to complete their respective SAFE registrations pursuant to the SAFE notice. Moreover, because of uncertainty over how the SAFE notice and its implementation rules will be interpreted and implemented, and how or whether SAFE notice and implementation rules will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example our prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with the SAFE notice by our or PRC resident beneficial holders. In addition, such PRC residents may not always complete the necessary registration procedures required by the SAFE notice. We also have little control over either our present or prospective direct or indirect shareholders or the outcome of such registration procedures. A failure by our or our parent company's PRC resident beneficial holders or future PRC resident shareholders to comply with the SAFE notice, if SAFE requires it, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our prospective subsidiary's ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
PRC regulations may require us to rely on contractual arrangements for our China operations, which may not be as effective in providing control over these entities as direct ownership.
If we cannot obtain SAFE approval in connection with a proposed acquisition of a PRC operating company, or if the operating company operates in certain restricted industries such as telecommunications or internet services, we may be prohibited from obtaining direct ownership of the PRC company. Instead, we would be required to enter into a series of contractual relationships between the operating PRC company and a new PRC subsidiary of which we have direct ownership, in order to obtain control over the operating PRC company. For accounting purposes, these PRC companies would be classified as "variable interest entities" ("VIEs"). We would be dependent on one or more VIEs in which we would have little or no equity ownership interest and must rely on contractual arrangements to control and operate these businesses. These contractual arrangements may not be as effective in providing control over these entities as direct ownership. For example, the VIEs could fail to take actions required for our business despite their contractual obligation to do so. If the VIEss fail to perform under their agreements with us, we may have to rely on legal remedies under Chinese law, which we cannot be sure would be available. In addition, we cannot be certain that the individual equity owners of the VIEs would always act in the best interests of the Company.
If we operate through a VIE structure in the PRC, it could result in additional taxes and in any event PRC law could result in our treatment as a PRC resident company on our worldwide operations.
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If we are required to structure the acquisition of a PRC enterprise as a series of contractual relationships, we may incur a business tax of up to 5% when our directly-owned subsidiaries receive the fees from the VIEs pursuant to such contracts.. Due to the uncertainties surrounding the interpretation of the tax transfer pricing rules relating to related party transactions in the PRC, it is possible that tax authorities in the PRC might in the future challenge the transfer prices that we used for the related party transactions among our entities in the PRC.
Beginning January 1, 2008, the new Enterprise Income Tax Law (the “EIT Law”) and the Implementing Rules of the EIT Law (the “Implementing Rules”) approved by the State Council became effective in China, which require, among other things, enterprises in China to submit their annual enterprise income tax returns together with a report on transactions with their affiliates to the relevant tax authorities. The EIT law and the Implementing Rules emphasize the arm’s length basis for transactions between related entities. If PRC tax authorities were to determine that any transfer pricing structure was not on an arm’s length basis and therefore constitute a favorable transfer pricing, they could request that our VIEs adjust their taxable income upward for PRC tax purposes. Such a pricing adjustment may not reduce the tax expenses of our subsidiaries but could adversely affect us by increasing our VIEs’ tax expenses, which could subject our VIEs to late payment fees and other penalties for underpayment of taxes, and/or could result in the loss of tax benefits available to our subsidiaries in China.
The EIT Law supplemented by the Implementing Rules supersedes the previous Income Tax Law (the “Previous IT Law”) and unifies the enterprise income tax rate for foreign-invested enterprises (“FIEs”) and domestic enterprises at 25%. High and new technology enterprises will continue to enjoy a preferential tax rate of 15%, but must meet the criteria defined under the EIT Law and related regulations. The EIT Law provides for a five-year transitional period for certain entities that enjoyed a favorable income tax rate of less than 25% and/or a preferential tax holiday under the Previous IT Law and was established before March 16, 2007, during which period the applicable enterprises income tax rate shall gradually increase to 25%. In addition, the EIT Law provides grandfather treatment for high and new technology enterprises that received special tax holidays under the Previous IT Law, which allows them to continue to enjoy their tax holidays until expiration provided that specific conditions are met. In December 2009, three of our subsidiaries in China were qualified as high and new technology enterprises under the EIT Law. In addition, certain VIEs in China enjoy a favorable income tax rate of less than 25%. According to the EIT Law and the Administration Measures for Recognition of High and new Technology Enterprises, which was jointly promulgated by the Ministry of Science & Technology, the Ministry of Finance, and the State Administration of Taxation on April 14, 2008, the high and new technology enterprise status of any PRC subsidiaries is subject to an annual review and may be overturned by the Municipal Science & Technology Commission in the future. The EIT Law is relatively new and implementation practices are still being defined. If tax benefits available to us as high and new technology enterprises in China are reduced or repealed, our net effective tax rate may increase to as high as 25%.
The EIT Law also provides that enterprises established under the laws of foreign countries or regions but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law merely defines the location of the “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.” We cannot predict whether our operations outside the PRC will be considered a resident enterprise for PRC tax purposes. However, due to limited guidance and implementation history of the EIT Law, if the Company is treated as a resident enterprise for PRC tax purposes, we would be subject to PRC tax on worldwide income at a uniform tax rate of 25%.
Item 2. Financial Information
Management’s Discussion and Analysis of Financial Condition and Results of Operation
We are currently a development stage company and have not recorded revenues from operations to date. We have not established an ongoing source of revenues sufficient to cover our operating costs. These conditions raise substantial doubt about our ability to continue as a going concern. We are currently devoting our efforts to obtain capital from management and significant stockholders to cover minimal expenses; however, there is no assurance that additional funding will be available. Our ability to continue as a going concern during the long term is dependent upon our ability to find a suitable company and acquire or enter into a merger with such company.
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All of our expenses of $2,055 through June 30, 2010 were for organization expenses, which we elected to expense as occurred. As of June 30, 2010, we had $3,945.34 in cash and no liabilities. We expect that such funds will be sufficient for our cash needs until June 30, 2011 at which time any further cash requirements are expected to be met by shareholder loans or from the private placement of securities to our shareholder or its affiliates. No shareholder or other person has committed to purchase any of our securities nor make any loans. The shareholder has verbally represented to management that it has sufficient cash resources to fund our annual expected cash requirements of $3,000 per year for the next 3 years. If the shareholder determines not to loan or furnish funds after June 30, 2011 our plan of operations would terminate.
The type of business opportunity with which we acquire or merge will affect our profitability for long term. We may consider a business which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital. In the alternative, a business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur through a public offering.
Our management has not had any preliminary contact or discussions with any representative of any other entity regarding a business combination with us. Any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth, including entities without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.
Our management anticipates that it will likely be able to effect only one business combination, due primarily to our limited financing and the dilution of interest for present and prospective stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target business in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us, because it will not permit us to offset potential losses from one venture against gains from another.
We anticipate that the selection of a business combination will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries and shortages of available capital, our management believes that there are numerous firms seeking even the limited additional capital which we will have and/or the perceived benefits of becoming a publicly traded corporation. Such perceived benefits of becoming a publicly traded corporation include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees, and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available business combinations may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Item 3.
Properties
The Company is provided a nominal amount of office space by its officer on an as needed basis. Due to the minimal time the Company was in existence prior to June 30, 2010, no rent expense was accrued, but management intends to accrue $100 per month for rent on the financial statements commencing in July 2010. The Company pays its own charges for long distance telephone calls and other miscellaneous secretarial, photocopying and similar expenses. We currently have no policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities.
Item 4.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information relating to the beneficial ownership of Company common stock by those persons beneficially holding more than 5% of the Company capital stock, by the Company's directors and executive officers, and by all of the Company's directors and executive officers as a group. The address of each person is care of the Company.
Percentage
Name of
Number of
of Outstanding
Stockholder
Shares Owned
Common Stock
Millennium Group, Inc.(1)
Director
400,000
100.0%
(1)
Millennium Group, Inc. is an entity controlled by Mr. Jonathan A. Mork, the brother of Jeremy R. Mork, our President and Sole Director.
Item 5.
Directors and Executive Officers
The members of the Board of Directors of the Company serve until the next annual meeting of stockholders, or until their successors have been elected. Directors may be removed without cause by shareholders holding 75% of the voting shares. The officer serve at the pleasure of the Board of Directors. Information as to the director and executive officer of the Company is as follows. The officer and director holds similar positions in seven other “blind pool-blank check” companies. See “Conflicts of Interest.”
Jeremy Mork, 41, Director and Officer. Jeremy Mork is our sole director and officer. Since 2000 Mr. Mork has served as a manager for Millennium Group, where he provides management services, company review, due diligence review and company advisory. Millennium Group focuses on assisting companies in strategic planning and mergers and acquisitions with special expertise with companies based in the Peoples Republic of China. Jeremy Mork is the brother of Jonathan Mork, the control person of Millennium Group, Inc, our sole shareholder. Prior to Millennium Group, Jeremy Mork worked as a trading market analyst/reporter at Redchip Review, a smallcap research and media company. Jeremy Mork's experience at Millennium Group has provided him with the experience believed necessary to evaluate potential business opportunities and to bring any proposed acquisition to completion. Mr. Mork attended college at St. Cloud State University in Minnesota.
Jeremy Mork is also the sole director and officer of seven companies which are identical in structure and business purpose to the Company: China Bright Star Limited, China Golden Star Limited, China Rising Star Limited, China Highlands Limited, Noble China Holdings Limited, Red Jade Holdings Limited, and Summer Highlands Limited. All of these companies have also filed Form 10s with the Securities and Exchange Commission and therefore on October 29, 2010 these companies, together with the Company, will have their common stock registered under the Securities Exchange Act of 1934. See "Conflicts of Interest" below.
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Conflicts of Interest
A conflicts of interest now exists and will continue to exist between the Company and its sole officer and director due to the fact that such officer and director has full time employment with Millennium Group to which he will devote his primary attention. Each officer and director may continue to do so notwithstanding the fact that management time should be devoted to the business of the Company.
In addition, the officer and director of the Company holds identical with seven other companies engaged in the same business as the Company: China Golden Star Limited, China Rising Star Limited, China Highlands Limited, Dunhuang Treasures Limited, Noble China Holdings Limited, Red Jade Holdings Limited, and Summer Highlands Limited. In the event a business opportunity is presented to the management, they will present the opportunity to the Company and to these companies in a random order of priority. None of these companies will pay any of management, its shareholders or any of their affiliates any compensation or expenses prior to entering into a definitive agreement.
The Company has not established policies or procedures for the resolution of current or potential conflicts of interests between the Company, its officer and director or affiliated entities. There can be no assurance that management will resolve all conflicts of interest in favor of the Company, and failure by management to conduct the Company's business in the Company's best interest may result in liability to the management. The officer and director are accountable to the Company as fiduciaries, which means that they are required to exercise good faith and integrity in handling the Company's affairs. Shareholders who believe that the Company has been harmed by failure of an officer or director to appropriately resolve any conflict of interest may, subject to applicable rules of civil procedure, be able to bring a class action or derivative suit to enforce their rights and the Company's rights.
The Company has no arrangement, understanding or intention to enter into any transaction for participating in any business opportunity with any officer, director, or principal shareholder or with any firm or business organization with which such persons are affiliated, whether by reason of stock ownership, position as an officer or director, or otherwise.
Item 6.
Executive Compensation
No compensation is paid or anticipated to be paid by the Company until an acquisition is made. After an acquisition is made, the management of the Company will resign and be replaced by the control persons of the business opportunity which is acquired, and such control persons will determine the amount of any compensation payable to management. Shareholders of the Company will not have the opportunity to vote on or approve such compensation. Millennium Group, Inc. will have the opportunity to sell, and intends to sell its 400,000 shares of Company common stock following such acquisition, in compliance with Rule 144, one year after the business opportunity acquired files the "Form 10 information" required by Rule 144(i). The sales price for such shares cannot be predicted at this time, but the total amount realized may be substantial.
Item 7.
Certain Relationships and Related Transactions
Not applicable.
Item 8.
Legal Proceedings
Not applicable.
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Item 9.Market Price of and Dividends on the Registrant's Common Equity and Related Stockholders Matters
(a)
Market Information
The Company's Common Stock is not currently trading and is not expected to trade in the foreseeable future.
(b)
Holders
As of September 30, 2010 there was one holder of Company common stock.
(c)
Dividends
The Company has not paid any dividends on its common stock. The Company currently intends to retain any earnings for use in its business, and therefore does not anticipate paying cash dividends in the foreseeable future.
Item 10.
Recent Sales of Unregistered Securities
On June 11, 2010 the Company issued 400,000 shares of common stock on incorporation to Millennium Group, Inc., a corporation controlled by the brother of the Company's officer and director, for cash of $6,000. This transaction is exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof covering transactions not involving any public offering or involving no “offer” or “sale.” No underwriter was involved
Item 11.
Description of Registrant's Securities to be Registered
Common Stock
The Company's Memorandum of Association authorizes the issuance of 1,000,000,000 shares of common stock, no par value per share, of which 400,000 shares were outstanding as of June 30, 2010. Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have no cumulative voting rights. Holders of shares of common stock are entitled to share ratably in dividends, if any, as may be declared, from time to time by the Board of Directors in its discretion, from funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive rights to purchase the Company's common stock. There are no conversion rights or redemption or sinking fund provisions with respect to the common stock. All of the outstanding shares of common stock are fully paid and non-assessable. The Company's Memorandum of Association authorizes the Board of Directors to effect a forward or reverse stock split, or make any other change thereto, without stockholder approval, provided that such amendment does not restrict the rights or powers of the stockholders to amend the Memorandum or the Articles, or to change the percentage of stockholders required to pass a resolution or to amend the Memorandum or the Articles.
Preferred Stock
The Company's Memorandum of Association authorizes the issuance of 100,000,000 shares of preferred stock, no par value, of which no shares are issued and outstanding. Each share of the preferred stock is convertible into 10,000 shares of common stock and has the same voting, dividend and liquidation rights as common stock on an as converted basis. The Company currently has no plans to issue any preferred stock.
Shares Eligible for Future Sale
Of the outstanding shares of the Company, all are subject to resale restrictions and, unless registered under the Securities Act of 1933 (the “Act”) or exempted under another provision of the Act, will be ineligible for sale in the public market. Sales may be made under Rule 144(i) after one year from the filing by the Company of "Form 10 information" following the acquisition of an operating company.
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In general, under Rule 144 as currently in effect a person (or persons whose shares are aggregated) who has beneficially owned shares privately acquired or indirectly from the Company or from an Affiliate, for at least six months, or who is an Affiliate, is entitled to sell within any three-month period a number of such shares that does not exceed the greater of 1% of the then outstanding shares of the Company's Common Stock or the average weekly trading volume in the Company's Common Stock during the four calendar weeks immediately preceding such sale. Sales under Rule 144 by Affiliates are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate at any time during the 90 days preceding a sale, and who has beneficially owned shares for at least one year, is entitled to sell all such shares under Rule 144 without regard to the volume limitations, current public information requirements, manner of sale provisions, or notice requirements. Because the Company is a "shell" company as defined under the Securities Act, shareholders cannot use Rule 144 for resales of their securities until the Company has completed an acquisition and only then after one year after the Company has filed "Form 10 information" with the Commission.
Sales of substantial amounts of the Common Stock of the Company in the public market could adversely affect prevailing market prices.
Memorandum of Association and Articles of Association
There are certain provisions of the Memorandum of Association and Articles of Association which are required disclosure if the Company were filing a registration statement on F-1 as a "foreign private issuer." These provisions are taken from the requirements of Item 10B of Form 20-F and are as follows.
(1)
Company's objects and purposes.
Section 5 of the Memorandum of Association provides as follows:
5.1
Subject to the Act and any other British Virgin Islands legislation, the Company has, irrespective of corporate benefit:
(a)
full capacity to carry on or undertake any business or activity, do any act or enter into any transaction; and
(b)
for the purposes of paragraph (a), full rights, powers and privileges.
0.2
For the purposes of section 9(4) of the Act, there are no limitations on the business that the Company may carry on.
(2)
Powers of Directors
Article 13 of the Registrant’s Articles of Association states:
13.1
A director of the Company shall forthwith after becoming aware of the fact that he is interested n a transaction entered into or to be entered into by the Company, disclose the interest to all other directors of the Company.
20
13.2
For the purposes of Sub-Regulation 13.1, a disclosure to all other directors to the effect that a director is a member, director or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry into the transaction or disclosure of the interest, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction. [The Company interprets this provision to require disclosure of the affiliation prior to the entry into any transaction]
0.3.
A director of the Company who is interested in a transaction entered into or to be entered into by the Company may:
(a)
vote on a matter relating to the transaction;
(b)
attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and
(c)
sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction,
and subject to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit.
(ii)
Directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body:
Article 8.13 of the Registrant’s Articles establishes the parameters for the payment of compensation to board members:
The directors may, by Resolution of Directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company. [The Company interprets this provision as requiring that the compensation be approved by a majority of a quorum of directors, which quorum may include interested directors]
(iii)
Borrowing powers exercisable by the directors and how such borrowing powers can be varied:
Article 9.6 of the Registrant’s Articles establishes the borrowing powers exercisable by the directors as follows:
The directors may by Resolution of Directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party.
(iv)
Retirement or non-retirement of directors under an age limit.
The Registrant’s Articles contain no requirement for the retirement or non-retirement of directors under an age limit.
(v)
Number of shares, if any, required for qualification.
Article 8.14 of the Registrant’s Articles provides that a director does not require a share qualification.
(3)
Rights, preferences and restrictions attaching to each class of shares:
21
The Registrant has authorized common shares and preferred shares, both par value, and is authorized to issue a maximum of 1,100,000,000 shares divided into two classes as follows:
(a)
1,000,000,000 common shares of no par value; and
(b)
100,000,000 preferred shares of no par value.
(i)
Dividend rights, including time limit after which dividend entitlement lapses.
Common shareholders are entitled to dividends as may be declared by the directors from time to time but no dividend shall be declared and paid out except if surplus and unless the directors determine that immediately after the payment of the dividend:
(a)
the Registrant will be able to satisfy its liabilities as they become due in the ordinary course of business; and
(b)
the realizable value of the assets of the Registrant will not be less than the sum of its total liabilities, other than deferred taxes, as shown in the books of account, and its capital. All dividends unclaimed for three years after having been declared may be forfeited by the directors for the benefit of the Registrant.
(ii)
Voting Rights; staggered re-election intervals; cumulative voting.
Each of the Registrant’s common shares entitles the holder to one vote at any annual or special meeting of shareholders. Directors stand for re-election annually. The Registrant’s shareholders do not have cumulative voting.
(iii)
Rights to share in surplus in event of liquidation.
In the event of the Registrant’s liquidation, dissolution or winding up or other distribution of the Registrant’s assets, the holders of common shares will be entitled to receive, on a pro rata basis, all of the assets remaining after the Registrant’s liabilities have been paid out.
(iv)
Other.
Holders of the Registrant’s common shares do not have rights to share in the profits of the Registrant. There are no redemption or sinking fund provisions with respect to the Registrant’s common shares. Common shareholders have no liability as to further capital calls by the Registrant. There are no provisions discriminating against any existing or prospective holder of the Registrant’s common shares as a result of such shareholder owning a substantial number of the Registrant’s common shares. Holders of the Registrant’s common shares do not have pre-emptive rights.
(4)
Actions necessary to change the rights of holders of the Registrant’s common stock:
In order to change the rights of holders of a class of the Registrant’s stock, a vote of at least 50% of the issued and outstanding shares of that class is required.
(5)
Conditions governing manner in which annual general meetings and extraordinary general meetings of shareholders are convoked, including conditions of admission:
The directors may convene meetings of the members of the Registrant at such times and in such manner and places as the directors consider necessary or desirable, and they shall convene such a meeting upon the written request of members holding more than 30% of the votes of the outstanding voting shares in the Registrant.
Seven days notice at the least specifying the place, the day and the hour of the meeting and general nature of the business to be conducted shall be given in the manner hereinafter mentioned to such persons whose names on the date the notice is given appear as members in the share register of the Registrant.
22
No business shall be transacted at any meeting unless a quorum of members is present at the time when the meeting proceeds to business. A quorum shall consist of the holder or holders present in person or by proxy of not less than one-half of the shares of each class or series of shares entitled to vote as a class or series thereon and the same proportion of the votes of the remaining shares entitled to vote thereon.
At any meeting of members whether on a show of hands or on a poll every holder of a voting share present in person or by proxy shall have one vote for every voting share of which he is the holder.
A resolution which has been notified to all members for the time being entitled to vote and which has been approved by a majority of the votes of those members in the form of one or more documents in writing shall forthwith, without the need for any notice, become effectual as a resolution of the members. Holders are also entitled to vote by consent action signed by the required percentage of members (but less than 100%) if notice of the action is forthwith sent to all non-consenting shareholders.
(6)
Limitations on rights to own securities of the Registrant:
There are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities of the Registrant which would be imposed by foreign law or by the charter or other constituent document of the Registrant.
(7)
Provisions of Company’s articles, charter or by-laws that have the effect of delaying, deferring or preventing a change in control of the Registrant and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Registrant:
There are no provisions in the Registrant’s articles, charter or bylaws that would have the effect of delaying, deferring or preventing a change of control of the Registrant and which would operate only with respect to a merger, acquisition or corporate restructuring of the Registrant.
(8)
Provisions, if any, governing the ownership threshold above which shareholder ownership must be disclosed:
There are no provisions in the Registrant’s bylaws which require the disclosure of shareholder ownership above a particular threshold.
Exchange Controls
There are no foreign exchange controls in BVI and funds can be moved easily. There is no restriction in this regard. However, the PRC government imposes controls on the convertibility of Renminbi (“RMB”) into foreign currencies and, in certain cases, the remittance of currency out of China. Shortages in the availability of foreign currency may restrict the ability of any PRC subsidiary we may acquire to remit sufficient foreign currency to pay cash or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our common stock.
23
Taxation
International Business Companies (IBCs) established in BVI are exempt from the payment of Income Tax and Stamp Duty in the BVI.
Non-residents of BVI are exempt from the income tax payable on dividends, interest, rents, royalties, compensations and other amounts which are paid to the person by the IBC.
There are no capital gains taxes, inheritance taxes and death duties.
Double Taxation Agreements between the United Kingdom and Japan and Switzerland extend to the British Virgin Islands but do not generally apply to IBCs.
If we acquire a business operating in the PRC, we could be deemed to be a PRC resident company and our worldwide operations would be taxable under a 25% uniform rate. See "Risk Factors - Risks Related to Doing Business in China (applicable if we acquire a PRC business).
Item 12. Indemnification of Directors and Officers
The Company has adopted provisions in its Memorandum of Association and Articles of Association that limit the liability of its directors and provide for indemnification of its directors and officers to the full extent permitted under the British Virgin Islands Business Companies Act, 2004. Under the Company's Articles of Association and Memorandum of Association, and as permitted under the British Virgin Islands Business Companies Act, 2004, the Company is required to indemnify a director for all expenses, including legal fees, and against judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who: is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director of the Company; or is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise. This indemnification only applies if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful.
In addition, directors are not liable to the Company or its stockholders for monetary damages arising from a breach of their fiduciary duty of care as directors. Such provisions do not, however, relieve liability for breach of a director's duty of loyalty to the Company or its stockholders, liability for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, liability for transactions in which the director derived as improper personal benefit or liability for the payment of a dividend in violation of British Virgin Islands law. Further, the provisions do not relieve a director's liability for violation of, or otherwise relieve the Company or its directors from the necessity of complying with, federal or state securities laws or affect the availability of equitable remedies such as injunctive relief or recision.
At present, there is no pending litigation or proceeding involving a director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding that may result in a claim for indemnification by any director or officer.
Item 13.
Financial Statements and Supplementary Data
24
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Dunhuang Treasures Limited
(A Development Stage Company)
We have audited the accompanying balance sheet of Dunhuang Treasures Limited, (the Company), as of June 30, 2010, and the related statements of operations, stockholders' equity (deficit), and cash flows for the period from the date of inception on June 11, 2010 to June 30, 2010 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 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 June 30, 2010, and the results of its operations and cash flows for the period from the date of inception on June 11, 2010 to June 30, 2010 then ended in conformity with U.S. generally accepted accounting principles.
We were not engaged to examine management's assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2010, and accordingly, we do not express an opinion thereon.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, the Company has suffered recurring losses and has experienced negative cash flows from operations, which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to those matters are also described in Note B to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sam Kan & Company
__________________________
Sam Kan & Company,
August 10, 2010
Alameda, California
-F-1
DUNHUANG TREASURES LIMITED
(A Development Stage Company)
Balance Sheet
June 30, 2010
ASSETS
Current Assets
$
3,945
Cash
3,945
Total Current Assets
$
3,945
Total Assets
$
3,945
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Total Liabilities (All Current)
$
--
Stockholders' (Deficit) Equity
Preferred Stock; no par value, 100,000,000 shares
authorized; 0 shares issued and outstanding as of
June 30, 2010
--
Common Stock; no par value, 1000,000,000 shares
authorized, 400,000 shares issued and outstanding
as of June 30, 2010
6,000
Deficit accumulated during the development stage
(2,055)
Total stockholders; (deficit) equity
3,945
Total liabilities and stockholders' (deficit) equity
$
3,945
See accompanying notes to financial statements
F-2
DUNHUANG TREASURES LIMITED
(A Development Stage Company)
Statement of Operations
For the Period
from Inception on
June 11, 2010 to
June 30, 2010
Revenue
$
--
Expenses
General and administrative
2,055
Total expenses
$
2,055
Net loss
$
(2,055)
Basic and diluted loss per common share
$
(0.01)
Weighted average shares outstanding
$
400,000
See accompanying notes to financial statements
F-3
DUNHUANG TREASURES LIMITED
(A Development Stage Company)
Statement of Changes in Stockholders' (Deficit) Equity
Common Stock
Accumulated
Shares
Amount
Deficit
Total
Balance, June 11, 2010 (Inception)
--
$
--
$
--
$
--
Common stock issued for cash
400,000
6,000
--
6,000
Net Loss, Period June 30, 2010
--
--
(2,055)
(2,055)
Balance, June 30, 2010
400,000
6,000
(2,055)
3,945
See accompanying notes to financial statements
F-4
DUNHUANG TREASURES LIMITED
(A Development Stage Company)
Balance Sheet
For the Period
from Inception on
June 11, 2010 to
June 30, 2010
Cash flows from operating activities
Net loss
$
(2,055)
Adjustments to reconcile net income to net
cash used by operating activities
--
Net cash used in operating activities
(2,055)
Cash flows from investing activities
--
Cash flows from financing activities
Proceeds from sale of stock
6,000
Net cash provided by financing activities
6,000
Net change in cash
3,945
Cash at beginning of period
--
Cash at end of year
$
3,945
Supplemental cash flow Information:
Cash paid for interest
$
--
Cash paid for income taxes
$
--
See accompanying notes to financial statements
F-5
DUNHUANG TREASURES LIMITED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE INCEPTION PERIOD OF JUNE 11, 2010
TO JUNE 30, 2010
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies of Dunhuang Treasures Limited (the Company), a company organized in the British Virgin Islands (A Development Stage Company) (the Company) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. The Company has not realized revenues from its planned principal business purpose and is considered to be in its development state in accordance with ASC 915, “Development Stage Entities”, formerly known as SFAS 7, “Accounting and Reporting by Development State Enterprises.”
Organization, Nature of Business and Trade Name
The Company was organized in the British Virgin Islands on June 11, 2010 under the same name. The Company is a development stage company. The Company intends to locate a potential merger candidate and complete a merger. The Company's fiscal year end is June 30.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with maturity of three months or less to be cash equivalents.
Revenue and Cost Recognition
The Company has been in the developmental stage since inception and has no operations to date. The Company currently does not have a means for generating revenue. Revenue and Cost Recognition procedures will be implemented based on the type of properties required and sale contract specifications.
F-6
Accounts Receivable
Accounts receivable are carried at the expected net realizable value. The allowance for doubtful accounts is based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations. Since he Company has been in the developmental stage since inception and has no operations to date, there was no accounts receivable at June 30, 2010.
Advertising
Advertising expenses are recorded as general and administrative expenses when they are incurred. There was no advertising expense for the inception period of June 11, 2010 to June 30, 2010.
Stockholders’ Equity: Common and Preferred stock
The authorized common stock of the Company consists of 1,000,000,000 shares with no par value and the authorized preferred stock of the Company consists of 100,000,000 shares with no par value. On June 11, 2010, the Company authorized the issuance of 400,000 shares of its no par value common stock at $0.015 per share in consideration of $6,000 in cash.
Net loss per common share
Net loss per share is calculated in accordance with SFAS No. 128, “Earnings Per Share,” which now resides with ASC 260, “Earnings Per Share.” The weighted-average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per share is computed using the weighted averaged number of shares and dilutive potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net loss per common share is based on the weighted average number of shares of common stock outstanding since inception. As of June 30, 2010, the Company had 400,000 common shares outstanding. As of June 30, 2010 and since inception, the Company had no dilutive potential common shares.
Basic Loss Per Share
The computations of basic loss per share of common stock are based on the weighted average number of shares outstanding at the date of the financial statements. There are no common stock equivalents outstanding.
F-7
|
| Loss |
| Shares |
| Per Share |
|
| (Numerator) |
| (Denominator) |
| Amount |
From Inception on June 11, 2010 to Period Ended June 30, 2010 | $ | (2,054.66) |
| 400,000 | $ | (0.01) |
Income Taxes
The Company recognizes the tax effects of transactions in the year in which such transactions enter into the determination of net income, regardless of when reported for tax purposes.
Provision for Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely that not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components from Inception on June 11, 2010 to June 30, 2010:
|
| 2010 |
Deferred tax assets NOL Carryover | $ | 699 |
Valuations Allowance |
| (699) |
Net Deferred Tax Asset | $ | -- |
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations for the periods ended June 30, 2010 due to the following:
At June 30, 2010, the Company had an operating loss carry forward of $2,055 that can be used as an offset against future taxable income. No tax benefit has been reported in the June 30, 2010 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in the ownership occurs, net operating loss carry forwards may be limited as to use in the future.
Use of Estimates
The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred.
Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
F-8
Fair Value of Financial Instruments
As of June 30, 2010, the fair value of cash, advances, and accounts payable, including amounts due to and from related parties, approximate carrying values because of the short-term maturity of these instruments.
Recently Issued Accounting Pronouncements
In February 2010, the FASB issued guidance to remove the requirement for an entity that files financial statements with the SEC to disclose a date through which subsequent events have been evaluated. The adoption of this guidance during our current fiscal quarter did not have any impact on our Consolidated Financial Statements.
On July 1, 2009, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ (“ASC”) became the sole source of authoritative Generally Accepted Accounting Principles (“GAAP”) literature recognized by the Financial Accounting Standards Board for financial statements issued for interim and annual periods ending after September 15, 2009. Rules and interpretive releases of the Security Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Except for applicable SEC rules and regulations and a limited number of grandfathered standards, all other sources of GAAP for nongovernmental entities were superseded by the issuance of ASC. ASC did not change GAAP, but rather combined the sources of GAAP and the framework for selecting among those sources into a single source. Accordingly, the adoption of ASC had no impact on the financial results of the Company.
In June 2009, the FASB issued FAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” which now resided with ASC 105, “Generally Accepted Accounting Principles.” ASC 105 will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.The Company does not expect the adoption of ASC 105 to have an impact on the Company’s results of operations, financial condition or cash flows.
In June 2009, the FASB issued FAS 167, “Amendments to FASB Interpretation No. 46(R),” which now resides with ASC 810, “Consolidation.” ASC 810 is intended to (1) address the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in ASC 860, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provided timely and useful information about an enterprise’s involvement in a variable interest entity. This statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of ASC 810 to have an impact on the Company’s results of operations, financial condition or cash flows.
F-9
In June 2009, the FASB issued FAS 140/166, “Accounting for Transfers of Financial Assets,” an amendment of FAS 140, which now resides with ASC 860, “Transfers and Servicing.” ASC 860 is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets: the effects of a transfer on its financial position, financial performance , and cash flows: and a transferor’s continuing involvement, if any, in transferred financial assets. This statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of ASC 860 to have an impact on the Company’s results of operations, financial condition or cash flows.
In May 2009, the FASB issued FAS 165, “Subsequent Events,” which now resides with ASC 855, “Subsequent Events.” This pronouncement establishes standards for accounting for and disclosing subsequent events (events which occur after the balance sheet date but before financial statements are issued or are available to be issued). ASC 855 requires and entity to disclose the date subsequent events were evaluated and whether that evaluation took place on the date financial statements were issued or were available to be issued. It is effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 855 did not have a material impact on the Company’s financial condition or results of operation.
Long-lived Assets-Technology
The Company’s technology is recorded at its cost. The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
As of June 30, 2010, the Company did not have any long-lived assets. The above accounting policies will be adopted upon the Company maintains any long-lived assets.
Concentration of Risk
Cash – The Company at times may maintain a cash balance in excess of insured limits. At June 30, 2010, the Company has no cash in excess of insured limits.
Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
| Estimated Useful Lives |
Office Equipment | 5-10 years |
Copier | 5-7 years |
Vehicles | 5-10 years |
F-10
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For audit purposes, depreciation is computed under the straight-line method.
The Company has been in the developmental stage since inception and has no operation to date. The Company currently does not have any property and equipment. The above accounting policies will be adopted upon the Company maintains property and equipment.
NOTE B – GOING CONCERN
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The Company had no revenues, incurred a net loss of $2,055 for the period June 11, 2010 (inception) to June 30, 2010. They had a working capital balance of $3,945 at June 30, 2010.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing stockholders.
The Company intends to find a potential merger candidate and complete a merger. When and if these activities provide sufficient revenues it would allow it to continue as a going concern. In the interim the Company is working toward raising operating capital through the private placement of its common stock or debt instruments.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations.
The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
F-11
DUNHUANG TREASURES LIMITED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE INCEPTION PERIOD OF JUNE 11, 2010
TO JUNE 30, 2010
NOTE C – INCOME TAXES
The Company accounts for income taxes using the liability method; under which deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Deferred taxes will be provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Due to the inherent uncertainty in forecasts and future events and operating results, the Company has provided for a valuation allowance in an amount equal to gross deferred tax assets resulting in no net deferred tax assets or liabilities for the periods audited.
NOTE D – COMMON STOCK
The Company is authorized by its Memorandum and Articles (equivalent to Article of Incorporation and Bylaws) to issue up to 1,000,000,000 Common Stock. It is also authorized to issue up to 100,000,000 shares of Preferred Stock which can, by the action of its Board of Directors, issue these shares with different series and characteristics. None of the Preferred Shares have been issued as of June 30, 2010.
On June 11, 2010, the Company sold 400,000 shares of its no par value common stock at $0.015 per share to Millennium Group, Inc for consideration of $6,000 in cash. Proceeds from the issuances of common stock were mainly applied to professional fees for the incorporation of the Company with any excess balance held by the Company’s attorney’s trust account. The price of the common stock issued to them was arbitrarily determined and bore no relationship to any objective criterion of value. At the time of issuance, the Company was recently formed or in the process of being formed and possessed no material assets.
NOTE E – RELATED PARTY TRANSACTIONS
The Company’s sole director and president, Jeremy Mork, is the brother of the owner of Millennium Group, Inc. which is the major shareholder of the Company.
NOTE F – WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional shares of common stock of the Company.
NOTE G – SUBSEQUENT EVENTS
Management has reviewed material subsequent events in accordance with FASB ASC 855 “Subsequent Events”. No additional disclosures required.
F-12
.Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements required by Article 8 of Regulation S-X are provided herein and include the following:
Report of Independent Registered Public Accounting Firm
Balance Sheet as of June 30, 2010
Statements of Operations for the period inception (June 11, 2010) to June 30, 2010
Statements of Cash Flows for the period inception (June 11, 2010) to June 30, 2010
Statement of Changes in Stockholders’ Equity for the period inception (June 11, 2010) to June 30, 2010
(b) Exhibits. The following exhibits of the Company are filed herewith.
3. Certificate of Incorporation and Bylaws
3.1. Memorandum of Association
3.2 Articles of Association
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this registration statement, amendment no. 1, to be signed on its behalf by the undersigned, thereunto duly authorized on October 5, 2010.
DUNHUANG TREASURES LIMITED
By:/s/ Jeremy R. Mork
Jeremy R. Mork, President
30
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM OF ASSOCIATION
OF
DUNHUANG TREASURES LIMITED
A COMPANY LIMITED BY SHARES
1.
DEFINITIONS AND INTERPRETATION
1.1
In this Memorandum of Association and the attached Articles of Association, if not inconsistent with the subject or context:
“ Act” means the BVI Business Companies Act, 2004 (No. 16 of 2004) and includes the regulations made under the Act;
“Articles” means the attached Articles of Association of the Company;
“Chairman of the Board” has the meaning specified in Regulation ;
“Common Shares” has the meaning specified in Clause 6.1 (a);
“Distribution” in relation to a distribution by the Company to a Shareholder means the direct or indirect transfer of an asset, other than Shares, to or for the benefit of the Shareholder, or the incurring of a debt to or for the benefit of a Shareholder, in relation to Shares held by a Shareholder, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition of Shares, a transfer of indebtedness or otherwise, and includes a dividend;
“Eligible Person” means individuals, corporations, trusts, the estates of deceased individuals, partnerships and unincorporated associations of persons;
“Memorandum” means this Memorandum of Association of the Company;
“Preferred Shares” has the meaning specified in Clause 6.1 (b);
“Registrar” means the Registrar of Corporate Affairs appointed under section 229 of the Act;
“Resolution of Directors” means either:
(a)
a resolution approved at a duly convened and constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a majority of the directors present at the meeting who voted except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority; or
(b)
a resolution consented to in writing by all directors or by all members of a committee of directors of the Company, as the case may be;
“Resolution of Shareholders” means either:
(a)
a resolution approved at a duly convened and constituted meeting of the Shareholders of the Company by the affirmative vote of a majority of in excess of 50% of the votes of the Shares entitled to vote thereon which were present at the meeting and were voted; or
(b)
a resolution consented to in writing by a majority of in excess of 50% of the votes of Shares entitled to vote thereon;
“Seal” means any seal which has been duly adopted as the common seal of the Company;
“Securities” means Shares and debt obligations of every kind of the Company, and including without limitation options, warrants and rights to acquire Shares or debt obligations;
“Share” means a share issued or to be issued by the Company;
“Shareholder” means an Eligible Person whose name is entered in the register of members of the Company as the holder of one or more Shares or fractional Shares;
“Treasury Share” means a Share that was previously issued but was repurchased, redeemed or otherwise acquired by the Company and not cancelled; and
“Written” or any term of like import includes information generated, sent, received or stored by electronic, electrical, digital, magnetic, optical, electromagnetic, biometric or photonic means, including electronic data interchange, electronic mail, telegram, telex or telecopy, and “in writing” shall be construed accordingly.
1.2
In the Memorandum and the Articles, unless the context otherwise requires a reference to:
(a)
a “Regulation” is a reference to a regulation of the Articles;
(b)
a “Clause” is a reference to a clause of the Memorandum;
(c)
voting by Shareholders is a reference to the casting of the votes attached to the Shares held by the Shareholder voting;
(d)
the Act, the Memorandum or the Articles is a reference to the Act or those documents as amended or, in the case of the Act any re-enactment thereof; and
(e)
the singular includes the plural and vice versa.
1.3
Any words or expressions defined in the Act unless the context otherwise requires bear the same meaning in the Memorandum and the Articles unless otherwise defined herein.
1.4
Headings are inserted for convenience only and shall be disregarded in interpreting the Memorandum and the Articles.
2.
NAME
The name of the Company is Dunhuamg Treasures Limited.
3.
STATUS
The Company is a company limited by shares.
4.
REGISTERED OFFICE AND REGISTERED AGENT
4.1
The first registered office of the Company is at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands, the office of the first registered agent.
4.2
The first registered agent of the Company is Harneys Corporate Services Limited of Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands.
4.3
The Company may by Resolution of Shareholders or by Resolution of Directors change the location of its registered office or change its registered agent.
4.4
Any change of registered office or registered agent will take effect on the registration by the Registrar of a notice of the change filed by the existing registered agent or a legal practitioner in the British Virgin Islands acting on behalf of the Company.
5.
CAPACITY AND POWERS
5.1
Subject to the Act and any other British Virgin Islands legislation, the Company has, irrespective of corporate benefit:
(a)
full capacity to carry on or undertake any business or activity, do any act or enter into any transaction; and
(b)
for the purposes of paragraph (a), full rights, powers and privileges.
5.2
For the purposes of section 9(4) of the Act, there are no limitations on the business that the Company may carry on.
6.
NUMBER AND CLASSES OF SHARES
6.1
The Company is authorised to issue a maximum of 1,100,000,000 Shares divided in two classes as follows:
(a)
1,000,000,000 common shares of no par value (the “Common Shares”); and
(b)
1000,000,000 preferred sharesa of no par value (the “Preferred Shares”).
6.2
The Company may issue fractional Shares and a fractional Share shall have the corresponding fractional rights, obligations and liabilities of a whole share of the same class or series of shares.
6.3
Shares may be issued in one or more series of Shares as the directors may by Resolution of Directors determine from time to time.
7.
RIGHTS OF SHARES
7.1
Each Common Share in the Company shall:
(a)
have one vote each at a meeting of the Shareholders or on any Resolution of Shareholders;
(b)
be subject to redemption, purchase or acquisition by the Company got fair value: and
(c)
have the same rights with regard to dividends and distributions upon liquidation of the Company.
7.2
Each Preferred Share in the Company shall:
(a)
be convertible into 10,000 Common Shares at any time ( the “Conversion Right”) at the option of the holder of the Preferred Share (the “Holder”) as follows:
(i)
the Conversion Right shall be exercised by the Holder upon delivery of a written notice to the company (the “Notice”) at any time;
(ii)
provided that the total number of Common Shares to be issued upon delivery of the Notice to the Company on conversion of the Preferred Shares shall not exceed the total number of Common Shares (both the issued and outstanding Common Shares) as of the date of the Notice; and
(iii)
the Company shall issue and allot such number of Common Shares as shall be calculated pursuant to (ii) above in the relation to the Notice and shall dispatch the relevant share certificate to the Holder within two (2) weeks of the receipt of the relevant Notice by the Company.
(a)
rank pari passu on an as converted basis in all respects with the Common Shares of the Company;
(b)
have the same right on an as converted basis with regard to dividends and distributions upon the liquidation of the Company;
(c)
have votes at a meeting of the Shareholders or on any Resolution of Shareholders on an as converted basis that is, votes equal to the number of Common Shares into which such Preferred Shares could be converted into, Pursuant to Clause 7.2 (a) above.
7.3
The Company may by Resolution of Directors redeem, purchase or otherwise acquire all or any of the Shares in the Company subject to Regulation 3 of the Articles.
8.
VARIATION OF RIGHTS
If at any time the Shares are divided into different classes, the rights attached to any class may only be varied, whether or not the Company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by the holders of not less than 50% of the issued Shares in that class.
9.
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
The rights conferred upon the holders of the Shares of any class shall not, unless otherwise expressly provided by the terms of issue of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking pari passu therewith.
10.
REGISTERED SHARES
.1
The Company shall issue registered Shares only.
.2
The Company is not authorised to issue bearer Shares, convert registered Shares to
bearer Shares or exchange registered Shares for bearer Shares.
1
TRANSFER OF SHARES
1.1
The Company shall, on receipt of an instrument of transfer complying with Sub-Regulation of the Articles, enter the name of the transferee of a Share in the register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall be specified in a Resolution of Directors.
1.2
The directors may not resolve to refuse or delay the transfer of a Share unless the Shareholder has failed to pay an amount due in respect of the Share.
2
AMENDMENT OF THE MEMORANDUM AND THE ARTICLES
2.1
Subject to Clause , the Company may amend the Memorandum or the Articles by Resolution of Shareholders or by Resolution of Directors, save that no amendment may be made by Resolution of Directors:
(a)
to restrict the rights or powers of the Shareholders to amend the Memorandum or the Articles;
(b)
to change the percentage of Shareholders required to pass a Resolution of Shareholders to amend the Memorandum or the Articles;
(c)
in circumstances where the Memorandum or the Articles cannot be amended by the Shareholders; or
(d)
to Clauses , , or this Clause .
2.2
Any amendment of the Memorandum or the Articles will take effect on the registration by the Registrar of a notice of amendment, or restated Memorandum and Articles, filed by the registered agent.
Signed for HARNEYS CORPORATE SERVICES LIMITED of Craigmuir Chambers, Road Town, Tortola, British Virgin Islands for the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands on May 28, 2008
Incorporator
…………………………………
Andrew Swapp
Authorized Signatory
HARNEYS CORPORATE SERVICES LIMITED
[This page has been intentionally left blank ]
HAND & HAND PC
24 Calle de La Luna
San Clemente, CA 92673
(949) 489-2400
Facsimile (949) 489-0034
October 12, 2010
Russell Mancuso
Branch Chief
Securities & Exchange Commission
450 Fifth Street
Washington, DC 20549
Re:
China Bright Star Limited
Registration Statement on Form 10-12G
Filed August 30, 2010
File No. 000-54098
Dear Mr. Mancuso:
We hereby file amendment number 1 and respond as follows to your comment letter by copying your comments, followed by a response in italics:
1.
Please reconcile your references throughout your registration statement to "officers and directors" with your disclosure under "Item 5 - Directors and Executive Officers," which indicates that you have only one director and officer.
Complied.
Item 1. Business, page 2
2.
Please provide us a citation to the definition for "clean public shell" that you have disclosed in the first paragraph under this section.
Complied by revising the disclosure. The Company intends to use the definition of "shell company" in Exchange Act Rule 12b-2.
Plan of Operation, page 2
3.
We refer to your disclosure in the penultimate paragraph on page 3. Please revise to disclose the basis for management's belief that you "will offer owners of business opportunities the opportunity to acquire a controlling ownership interest in a public company at substantially less cost than is required to conduct an initial public offering." Clarify why a private operating company would benefit by completing a business combination with you rather than by filing its own Exchange Act registration statement given the information that will be required in a Form 8-K at the time of the business combination.
Complied on page 4.
4.
Please balance your disclosure in the penultimate paragraph of this section to provide equally prominent explanation regarding the effect on the operating company potentially becoming liable for your liabilities, both known and unknown.
Complied on page 4.
Sources of Opportunities, page 4
5.
Please expand your disclosure here regarding your officer being "employed in other positions" to state clearly the number of other companies with which your officer is affiliated. If such companies have a business plan that is similar to yours, please revise your disclosure to clarify. Also disclose how your sole officer and director will allocate his time if there is a concurrent acquisition opportunity for any of those other companies.
Complied.
Evaluation of Opportunities, page 4
6.
With a view toward disclosure in an appropriate section of your document, please tell how you could structure a business combination that could be completed without shareholder approval, whether you intend to attempt to structure your business combination so it does not require shareholder approval, and whether the need for shareholder approval will be a factor in your evaluation of business opportunities.
Complied in the first paragraph under "Acquisition of Opportunities."
Acquisition of Opportunities, page 4
7.
With a view toward disclosure of potential acquisition structures and risks, please tell us whether, if applicable laws prevent you from acquiring an ownership interest in a target business, you might enter into a contractual arrangement with the owners that provides you will control the target.
Complied. See also additional risk factors on pages 13-15.
8.
Since this registration statement is not an offering of securities, please tell us why you refer to "this offering" in this section.
The language has been deleted.
Competition, page 6
9.
With a view toward disclosure, please tell us about the information you have regarding the number of shell companies seeking to acquire an operating business.
Complied.
Effect of Existing or Probable Governmental Regulations...page 6
10.
If you can structure your business combination so that a shareholder vote or consent is not required, please balance your disclosure in the second paragraph to explain whether shareholder would receive proxy or information statements in connection with such a transaction.
Complied.
Item 1A. Risk Factors, page 7
Any potential acquisition or merger with a foreign company may subject us...page 9
11.
Please clarify the nature of the "risks related to shipment of raw materials and finished goods across national borders."
Complied.
It is likely that our common stock will be considered "penny stock." page 10
12.
Please tell us the authority in which you rely for the reference to the exemptions for individual accredited investors that you mention in the first paragraph of this risk factor.
Securities Act Rule 501(a).
Risks Related to Doing Business in China...page 10
13.
If you could become an entity with operations in China without shareholder approval, please add risk factors to explain the risks to you and your shareholders that result from the potential that you may become a resident enterprise as defined under Chinese tax law. Please also expand your disclosure under "Taxation" on page 19 to explain these issues.
Complied. See new risk factor on page 14 and the addition of disclosure under the Taxation discussion.
Fluctuation in the value of the RMB...page 11
14.
We refer to the last sentence of this risk factor. With a view toward disclosure, please explain how "[a]n appreciation of RMB against the U.S. dollar would also result in foreign currency losses..." Please also revise your disclosure to address the impact of the currency translation on your financial statements as a whole rather than just the effect of "financial assets."
Complied by changing the word "assets" to "liabilities" and deleting the word "financial."
Management's Discussion and Analysis of Financial Condition...page 12
15.
Please revise to disclose the nature of the operating expenses that you incurred during the period from June 11, 2010 (inception) through June 30, 2010. Refer to Regulation S-K Item 303(a)(3).
Complied.
16.
Refer to your disclosure in the second paragraph that you expect cash requirements to be met by shareholder loans.
•
Please disclose the basis for this expectation.
•
Please file any related agreements as exhibits to your registration statement.
•
Reconcile the disclosure here with the disclosure on page 9 of your financial statements regarding private placements of securities.
Complied by additional disclosure. There are no agreements.
Off-Balance Sheet Arrangements, page 13
17.
We note your disclosure that you do not have off-balance arrangements of the type that you identify. With a view toward clarified disclosure, please tell us about any other off-balance arrangements.
Complied.
Item 3. Properties, page 13
18.
Please revise to clarify whether you pay rent to your officer and director for the office space.
Complied.
Item 4. Securities Ownership of Certain Beneficial Owners and Management, page 13
19.
With a view toward clarified disclosure, please tell us whether any person other than Jonathon Mork exercised, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, sole or shared voting or investment power with respect to your shares held in the name of Millennium Group, Inc.
No other person exercises control other than Jeremy Mork and, as disclosed in the footnote, Jonathan Mork.
20.
Please reconcile the spelling of the name of your shareholder as included in the table and in the footnote to the table.
Complied.
Item 5. Directors and Executive Officers, page 13
21.
Please revise to provide all information required by Regulation S-K Item 401(e), including disclosure of Jeremy Mork's positions with other companies that have a pending Exchange Act registration statement. Clarify whether Jeremy Mork has held positions with entities other than these and Millennium Group, Inc, in the last five years, and disclose the principal business of Millennium Group, Inc. Your revised disclosure also should discuss the specific experience, qualifications, attributes or skills that led to the conclusion that Jeremy Mork should serve as director, in light of your business and structure.
Complied. We advise the staff supplementally that all entity positions held by Jeremy Mork have been disclosed.
22.
Please provide the information required by Regulation S-K Item 401(g).
No promoter is involved for which any of the items in 401(f) are applicable.
Conflicts of Interest, page 13
23.
Please replace your disclosure regarding "certain conflicts" with disclosure that describes the specific conflicts.
Complied.
24.
Please name each company with reporting obligations under the Exchange Act with which you, your officer, your promoters, or your affiliates have been affiliated in the past five years. Disclose the relationship between (1) each such reporting company and (2) you, your officer, your promoters and your affiliates. Also, identify which of those companies was or is a shell company.
•
For each such company that was a shell company, please disclose:
•
the date that the company was incorporated,
•
the date that the company filed an Exchange Act registration statement,
•
the date that the shell company engaged in a business combination with an operating company and the nature of that business combination,
•
Whether approval of the shell company's shareholders was obtained to approve the business combination,
•
the nature of any affiliation between (1) the operating company and (2) you, your officer, your promoters and your affiliates,
•
the nature of any consideration that you, your officer your promoters, and your affiliates received in connection with or related to the business combination, and
•
whether and when affiliates of the shell company left their position with the company or sole their securities after the business combination.
Also, with a view toward disclosure, please tell us about the performance of the operating company since the date of the business combination.
•
For each such company that is a shell company, please disclose:
•
the date that the company was incorporated, and
•
the date that the company filed an Exchange Act registration statement.
Also, with a view toward disclosure, please tell us about any attempted business combinations involving each such shell company and the reasons that the business combination did not close.
The staff is advised supplementally that no officer, promotor or affiliate of the registrant was involved with any other publicly reporting company during the past 5 years.
25.
Describe how you determined the number of shell companies to form and the number of registration statements to file under the Exchange Act.
We advise the staff supplementally that in Chinese culture 8 is a lucky number because the word for "8" sounds like the word for "fortune" or "wealth." For example, it is well known that the opening ceremony for the Beijing Olympics commenced on 08/08/08 at 08:08:08.
26.
Please clarify what you mean by "a random order of priority." State exactly what your affiliates will do to determine which of its shell companies will engage in business combinations that they identify. Also, disclose how you will determine which of the shell companies will pay the expenses of your affiliates as they seek business combinations before a specific combination is assigned to a specific shell company. Add appropriate risk factors.
We have added disclosure as follows: None of these companies will pay any of management, its shareholders or any of their affiliates any compensation or expenses prior to entering into a definitive agreement. The Company does not understand the comment regarding "a random order of priority." The Company believes that "a random order of priority" need no further explanation. If a passenger has a pocketful of subway tokens, he or she does not care which one is used today. Since there is only one shareholder of each company, there is no reason for management to choose one company over another.
27.
With a view toward disclosure, please provide us your analysis of whether, under applicable law, the registration is considered a wholly owned subsidiary of a holding company for purposes of section 9.3 of exhibit 3.2.
The Millennium Group has its own discrete business and is not a holding company.
Item 6. Executive Compensation, page 14
28.
Refer to your disclosure that you do not intend to pay compensation "until an acquisition is made." With a view toward clarified disclosure, please tell us:
•
the amount and nature of compensation that you intend to pay when you make an acquisition,
•
the amount of compensation you or your officer, affiliates, or promoters were paid in connection with prior business combinations involving shell companies, and
•
how your officer, affiliates and promoters intend to profit from their involvement with this company.
Complied by revising the disclosure in this section. The second comment is inapplicable since such persons were not paid for business combinations with shell companies.
29.
Refer to your disclosure that current management may resign and be replaced in connection with an acquisition. With a view toward appropriate disclosure, including risk factors, please tell us whether this fact creates an incentive for your current affiliates to sell their shares after the business combination, particularly given the absence of other compensation arrangements.
The disclosure added in response to the previous comment makes clear that Millennium Group will be required to wait one year after the super 8-K is filed before it can resell. Millennium Group's incentive to sell shares has nothing to do with whether or not Mr. Jeremy Mork resigns or when he resigns. Millennium intends to sell its shares when it legally can under Rule 144(i).
Item 7. Certain Relationships and Related Transactions, page 14
30.
Please revise to include the disclosure required by Regulation S-K Item 407(a).
407(a) is applicable "in a proxy or information statement relating to the election of directors" or a Form 10 when " the registrant has applied for listing with a national securities exchange or in an inter-dealer quotation system which has requirements that a majority of the board of directors be independent." Neither of these requirements is applicable here.
31.
Please reconcile your disclosure here with (1) your reference to related-person transactions on page 29 under the caption "Fair Value of Financial Instruments" in your financial statements, (2) Note E to your financial statements, and (3) your sale of securities to related persons.
There are no related party payables or receivables. S-K 404 has a dollar threshold of $120,000. This is greater than the $6,000 paid by Millennium Group for its shares. Also, prior to purchasing the shares, Millennium Group was not an affiliate of the issuer.
Item 11. Description of Securities, page 15
32.
Please add separate risk factors to your document to:
•
explain the risk to investors of the power of the board to change your Memorandum of Association without shareholder approval as mentioned in the last sentence of the first paragraph of your disclosure in this section,
•
explain the risk created by preferred stock being convertible into 10,000 shares of common with as-converted voting rights, and
•
disclose the effect of the 1/3 quorum in section 7.13 of exhibit 3.2.
Complied by adding additional risk factors.
33.
Please disclose the 75% vote requirement in section 8.5 of exhibit 3.2.
Complied by adding disclosure in Item 5.
Shares Eligible for Future Sale, page 15
34.
Please tell us the authority for your statement regarding a three-year holding period in the second paragraph.
The disclosure has been revised.
Memorandum of Association and Articles of Association, page 16
35.
Please clarify whether your disclosure in paragraph 13.2 means that disclosure of the interest need not be made until after the date of entry into the transaction.
Complied.
36.
Given your lead-in language to your disclosure addressing Article 8.13 regarding independence, please revise your disclosure to clarify whether a "Resolution of Directors" requires a majority of a quorum and whether that quorum must be independent.
Complied.
37.
With a view toward disclosure in an appropriate section of your document, please tell us:
•
the circumstances in which a director could be given more than one vote as indicated in section 1.1 of your Memorandum of Association under "Resolution of Directors,
•
whether section 8 of your Memorandum of Association means that you can divide your common stock into different classes with different rights, and
•
the circumstances in which your Memorandum or Articles or applicable law permit you to redeem shares without the consent of shareholders as mentioned in section 3.1 of exhibit 3.2.
We see no provisions in the Memorandum or Articles of Association under which a director could be granted more than one vote, nor under which shares could be redeemed without the consent of the shareholder. Article 8 does not provide the Company to divide an existing class into two or more classes, but only provides that if there are two or more classes, each has to vote separately as a class on any variation of its rights.
Provisions of the Company's articles, charter or bylaws that have the effect... page 18
38.
Please provide us your analysis supporting your conclusions that the following would not have the effect of delaying, deferring or preventing a change in control:
•
the number of authorized common shares,
•
the authorized preferred shares,
•
the ability of the board to amend your charter, and
•
the ability of the board to name new directors per sections 8.3 and 8.7 of exhibit 3.2 without shareholder approval.
The item (7) referred to, which is taken from the Commission's own Form 20-F, requests that the Company list the provisions "which would operate only with respect to a merger, acquisition or corporate restructuring." None of the enumerated provisions above are applicable only in connection with mergers, acquisitions or corporate restructurings.
Exchange Controls, page 18
39.
Please add disclosure in this section that addresses foreign exchange controls in China, given your disclosure under "Governmental control of currency conversion may affect..." on page 10.
Complied.
Taxation, page 19
40.
Please explain what you mean by "IBC."
Complied.
Item 12. Indemnification of Directors and Officers, page 19
41.
Please state the effect of Article 14 of your Articles of Association.
Complied.
Item 13. Financial Statements and Supplementary Data, page 19
42.
Please update your financial statements when required by Rule 8-08 of Regulation S-X.
Complied.
Note A - Summary of Significant Accounting Policies, page 26
Organization, Name of Business and Trade Name, page 26
43.
Please revise to clarify whether June 30 is your fiscal year end.
Complied.
Signatures
44.
Please include the text on the Signatures page required by Form 10.
Complied.
45.
We note the August 19, 2010 date on your August 30, 2010 filing. Please file currently dated signatures.
Complied.
Exhibit 3.1
46.
Please file a complete exhibit. Currently:
•
the left side of some of your document is omitted, and
•
cross references to other clauses, like in section 2.1, are missing.
Complied.
Exhibit 3.2
47.
Please tell us the purpose of Article 1.2. Include in your response (1) a description of all circumstances in which shareholders would be required to indemnify the registrant and its affiliates and (2) whether the Article is intended to attempt to eliminate liability under the United States federal securities laws or require shareholders to indemnify others for such liabilities.
The purpose of Article 1.2 is so that if a shareholder receives a share certificate and then uses that share certificate to defraud another person, and the Company is thereby damaged, the shareholder would be required to make the Company whole. This could happen if a shareholder took money from a third party in a transaction, promising to deliver his shares, and then failed to deliver the shares, and then the third party sued the Company; alternatively, if the shareholder misrepresented something about the Company in the sale of his shares, and the third party sued the Company. This has nothing to do with the indemnification language set forth in S-K Item 510. It is not intended to indemnify the officers and directors for their own securities act liability, but to require the shareholder to be responsible for its own misdeeds. This Article 1.2 does not impose any requirement to indemnify any other shareholder qua shareholder and is not intended to eliminate the Company's liability under the Federal securities laws.
Very truly yours,
Jehu Hand
JH:kp